As filed with the Securities and Exchange Commission on November 1, 2006

 

**** ****

****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 Securities Exchange Act of 1934**                                                                                                                                            |       |       |
| ** **     | ** ** | ** **                                                                                                                                                                                                                               | ** ** | ** ** |
| ** **     | ** ** | **For the  quarterly period ended September 30, 2006**                                                                                                                                                                                   | ** ** | ** ** |
| ** **     | ** ** | ** **                                                                                                                                                                                                                               | ** ** | ** ** |
| ** **     | ** ** | **or**                                                                                                                                                                                                                                   | ** ** | ** ** |
| ** **     | ** ** | ** **                                                                                                                                                                                                                               | ** ** | ** ** |
| **o**          |       | **Transition  Report Pursuant to Section 13 or 15(d)  of the Securities Exchange Act of 1934**                                                                                                                                           |       |       |
| ** **     | ** ** | ** **                                                                                                                                                                                                                               | ** ** | ** ** |
| ** **     | ** ** | **For the  transition period from                  to                .** | ** ** | ** ** |

 

**Commission file number 001-32316**

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

(Exact name of Registrant as specified in its charter)

| **Delaware**                                                     |   | **13-3918742**                        |
|------------------------------------------------------------------|--------|---------------------------------------|
| (State or other  jurisdiction of  incorporation or organization) |   | (I.R.S. Employer  Identification No.) |
|                                                             |   |                                  |
| **4  Gatehall Drive, Suite 110, Parsippany, New Jersey**         |   | **07054**                             |
| (Address of  principal executive offices)                        |   | (Zip Code)                            |

 

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

Indicate by check mark whether the registrant: (1) hasfiled all reports required to be filed by Section 13 or 15(d) of the SecuritiesExchange Act of 1934 during the preceding 12 months (or for such shorter periodthat the registrant was required to file such reports) and (2) has been subjectto such filing requirements for the past 90 days. Yes x No o

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

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

 

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

As of November 1, 2006, the registrant had 20,000,000shares of Class A common stock, par value $0.01 per share, and 7,556,443 sharesof Class B common stock, par value $0.01 per share, outstanding.

 

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**B&G Foods, Inc. andSubsidiariesIndex**
|                                                                                                      |   | 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 |   | 14           |
|                                                                                                 |   |         |   |
| Item 3.  Quantitative and Qualitative Disclosures About Market Risk                                  |   | 33           |
|                                                                                                 |   |         |   |
| Item 4. Controls and  Procedures                                                                     |   | 34           |
|                                                                                                 |   |         |   |
| PART II OTHER INFORMATION                                                                            |   | 35           |
|                                                                                                 |   |         |
| Item 1. Legal Proceedings                                                                            |   | 35           |
|                                                                                                 |   |         |   |
| Item 1A. Risk Factors                                                                                |   | 35           |
|                                                                                                 |   |         |   |
| Item 2. Unregistered  Sales of Equity Securities and Use of Proceeds                                 |   | 35           |
|                                                                                                 |   |         |   |
| Item 3. Defaults  Upon Senior Securities                                                             |   | 35           |
|                                                                                                 |   |         |   |
| Item 4. Submission  of Matters to a Vote of Security Holders                                         |   | 35           |
|                                                                                                 |   |         |   |
| Item 5. Other Information                                                                            |   | 35           |
|                                                                                                 |   |         |   |
| Item 6. Exhibits                                                                                     |   | 35           |
|                                                                                                 |   |         |   |
| SIGNATURE                                                                                            |   | 36           |

 

i

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**PART IFINANCIAL INFORMATION**

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

**B&G Foods,Inc. and SubsidiariesConsolidated Balance Sheets(Dollars in thousands, except per share data)(Unaudited)**
| ** **                                                                                                                 | ** ** | **September 30, 2006** | ** ** | **December 31, 2005** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| **Assets**                                                                                                                 |       |                             |       |                            |       |
| Current assets:                                                                                                            |       |                             |       |                            |       |
| Cash and cash  equivalents                                                                                                 |       | $                                | 20,901     |                            | $          | 25,429 |   |
| Trade accounts  receivable, net                                                                                            |       | 29,627                           |       | 31,869                          |       |
| Inventories                                                                                                                |       | 93,903                           |       | 85,530                          |       |
| Prepaid expenses                                                                                                           |       | 3,298                            |       | 3,249                           |       |
| Assets held for  sale                                                                                                      |       | —                           |       | 750                             |       |
| Deferred income  taxes                                                                                                     |       | 3,381                            |       | 3,381                           |       |
| Income tax receivable                                                                                                      |       | —                           |       | 618                             |       |
| Total current  assets                                                                                                      |       | 151,110                          |       | 150,826                         |       |
|                                                                                                                       |       |                             |       |                            |       |
| Property, plant and  equipment, net of accumulated depreciation of $45,822 and $40,457                                     |       | 40,709                           |       | 40,190                          |       |
| Goodwill                                                                                                                   |       | 198,076                          |       | 189,028                         |       |
| Trademarks                                                                                                                 |       | 200,220                          |       | 194,264                         |       |
| Customer relationship  intangibles, net                                                                                    |       | 14,558                           |       | —                          |       |
| Net deferred financing  costs and other assets                                                                             |       | 18,168                           |       | 19,867                          |       |
| Total assets                                                                                                               |       | $                                | 622,841    |                            | $          | 594,175 |   |
|                                                                                                                       |       |                             |       |                            |       |
| **Liabilities  and Stockholders’ Equity**                                                                             | ** ** | ** **                       | ** ** | ** **                      | ** ** |
|                                                                                                                       |       |                             |       |                            |       |
| Current liabilities:                                                                                                       |       |                             |       |                            |       |
| Trade accounts  payable                                                                                                    |       | $                                | 23,748     |                            | $          | 26,337 |   |
| Accrued expenses                                                                                                           |       | 21,779                           |       | 16,413                          |       |
| Dividends  payable                                                                                                         |       | 4,240                            |       | 4,240                           |       |
| Total current  liabilities                                                                                                 |       | 49,767                           |       | 46,990                          |       |
|                                                                                                                       |       |                             |       |                            |       |
| Long-term debt                                                                                                             |       | 430,800                          |       | 405,800                         |       |
| Other liabilities                                                                                                          |       | 190                              |       | 245                             |       |
| Deferred income taxes                                                                                                      |       | 62,776                           |       | 57,866                          |       |
| Total  liabilities                                                                                                         |       | 543,533                          |       | 510,901                         |       |
|                                                                                                                       |       |                             |       |                            |       |
| Stockholders’ equity:                                                                                                 |       |                             |       |                            |       |
| Preferred stock,  $0.01 par value per share. Authorized 1,000,000 shares; no shares issued or  outstanding                 |       | —                           |       | —                          |       |
| Class A common  stock, $0.01 par value per share. Authorized 100,000,000 shares; issued and  outstanding 20,000,000 shares |       | 200                              |       | 200                             |       |
| Class B common  stock, $0.01 par value per share. Authorized 25,000,000 shares; issued and  outstanding 7,556,443 shares   |       | 76                               |       | 76                              |       |
| Additional  paid-in capital                                                                                                |       | 123,392                          |       | 136,112                         |       |
| Accumulated  other comprehensive loss                                                                                      |       | (7                               | )          | (57                             | )          |
| Accumulated  deficit                                                                                                       |       | (44,353                          | )          | (53,057                         | )          |
| Total  stockholders’ equity                                                                                           |       | 79,308                           |       | 83,274                          |       |
| Total liabilities and  stockholders’ equity                                                                           |       | $                                | 622,841    |                            | $          | 594,175 |   |

 

See Notes to ConsolidatedFinancial Statements.

1

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

 
| ** **                                                              | ** ** | **Thirteen Weeks Ended** | ** ** | **Thirty-nine Weeks Ended** | ** ** |
|-------------------------------------------------------------------------|------------|------------------------------------|------------|---------------------------------------|------------|
| ** **                                                              | ** ** | **September 30,  2006**       | ** ** | **October 1,  2005**             | ** ** | **September 30,  2006** | ** ** | **October 1,  2005** | ** ** |
|                                                                    |       |                               |       |                                  |       |   |   |   |   |
| Net sales                                                               |       | $                                  | 101,854    |                                  | $          | 92,316 |   | $ | 300,099 |   | $ | 276,543 |   |
| Cost of goods  sold                                                     |       | 72,501                             |       | 64,472                                |       | 214,477 |   | 194,997 |   |
| Cost of goods  sold—restructuring charge                           |       | —                             |       | 300                                   |       | — |   | 3,544 |   |
| Gross profit                                                            |       | 29,353                             |       | 27,544                                |       | 85,622 |   | 78,002 |   |
|                                                                    |       |                               |       |                                  |       |   |   |   |   |
| Operating  expenses:                                                    |       |                               |       |                                  |       |   |   |   |   |
| Sales, marketing  and distribution expenses                             |       | 11,462                             |       | 10,364                                |       | 33,531 |   | 31,224 |   |
| General and  administrative expenses                                    |       | 1,593                              |       | 1,697                                 |       | 5,056 |   | 5,024 |   |
| Gain on sale of  property, plant and equipment                          |       | (525                               | )          | —                                |       | (525 | ) | — |   |
| Amortization  expense—customer relationships                       |       | 188                                |       | —                                |       | 542 |   | — |   |
| Operating income                                                        |       | 16,635                             |       | 15,483                                |       | 47,018 |   | 41,754 |   |
|                                                                    |       |                               |       |                                  |       |   |   |   |   |
| Other expenses:                                                         |       |                               |       |                                  |       |   |   |   |   |
| Interest expense, net                                                   |       | 11,009                             |       | 10,458                                |       | 32,796 |   | 31,320 |   |
| Income before  income tax expense                                       |       | 5,626                              |       | 5,025                                 |       | 14,222 |   | 10,434 |   |
| Income tax  expense                                                     |       | 2,183                              |       | 1,965                                 |       | 5,518 |   | 4,080 |   |
| Net income                                                              |       | $                                  | 3,443      |                                  | $          | 3,060 |   | $ | 8,704 |   | $ | 6,354 |   |
|                                                                    |       |                               |       |                                  |       |   |   |   |   |
| Earnings per  share calculations:                                       |       |                               |       |                                  |       |   |   |   |   |
| Net income available to common stockholders per  share of common stock: |       |                               |       |                                  |       |   |   |   |   |
| Basic and diluted distributed earnings:                                 |       |                               |       |                                  |       |   |   |   |   |
| Class A common stock                                                    |       | $                                  | 0.21       |                                  | $          | 0.21 |   | $ | 0.64 |   | $ | 0.64 |   |
| Earnings (loss) per share:                                              |       |                               |       |                                  |       |   |   |   |   |
| Basic and diluted Class A common stock                                  |       | $                                  | 0.18       |                                  | $          | 0.17 |   | $ | 0.49 |   | $ | 0.41 |   |
| Basic and  diluted Class B common stock                                 |       | $                                  | (0.03      | )                                     | $          | (0.04 | ) | $ | (0.15 | ) | $ | (0.23 | ) |

 

See Notes to ConsolidatedFinancial Statements.

2

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**B&G Foods,Inc. and SubsidiariesConsolidated Statements of Cash Flows(Dollars in thousands)(Unaudited)**
| ** **                                                                         | ** ** | **Thirty-nine Weeks Ended** | ** ** |
|------------------------------------------------------------------------------------|------------|---------------------------------------|------------|
| ** **                                                                         | ** ** | **September 30, 2006**      | ** ** | **October 1, 2005** | ** ** |
| ** **                                                                         |       |                                  |       | ** ** | ** ** |
| **Cash  flows from operating activities:**                                         |       |                                  |       |   |   |
| Net income                                                                         |       | $                                     | 8,704      |   | $ | 6,354 |   |
| Adjustments to reconcile net income to net cash  provided by operating activities: |       |                                  |       |   |   |
| Depreciation and amortization                                                      |       | 5,863                                 |       | 5,129 |   |
| Amortization of deferred debt issuance costs                                       |       | 2,122                                 |       | 2,094 |   |
| Deferred income taxes                                                              |       | 4,910                                 |       | 4,647 |   |
| Gain on sale of property, plant and equipment                                      |       | (525                                  | )          | — |   |
| Restructuring charge—property, plant, equipment and  inventory impairment     |       | —                                |       | 2,951 |   |
| Changes in assets and liabilities, excluding effects  of business combinations:    |       |                                  |       |   |   |
| Trade accounts receivable                                                          |       | 2,242                                 |       | (157 | ) |
| Inventories                                                                        |       | (8,400                                | )          | (13,370 | ) |
| Prepaid expenses                                                                   |       | (49                                   | )          | (180 | ) |
| Income tax receivable                                                              |       | 618                                   |       | (742 | ) |
| Other assets                                                                       |       | (4                                    | )          | — |   |
| Trade accounts payable                                                             |       | (2,589                                | )          | 702 |   |
| Accrued expenses                                                                   |       | 5,339                                 |       | 4,152 |   |
| Other liabilities                                                                  |       | (55                                   | )          | (54 | ) |
| Net cash provided by operating activities                                          |       | 18,176                                |       | 11,526 |   |
|                                                                               |       |                                  |       |   |   |
| **Cash  flows from investing activities:**                                         |       |                                  |       |   |   |
| Capital expenditures                                                               |       | (5,788                                | )          | (4,992 | ) |
| Payments for acquisition of businesses                                             |       | (30,102                               | )          | — |   |
| Net proceeds from sale of property                                                 |       | 1,275                                 |       | — |   |
| Net cash used in investing activities                                              |       | (34,615                               | )          | (4,992 | ) |
|                                                                               |       |                                  |       |   |   |
| **Cash  flows from financing activities:**                                         |       |                                  |       |   |   |
| Proceeds from issuance of long-term debt                                           |       | 25,000                                |       | — |   |
| Dividends paid                                                                     |       | (12,720                               | )          | (12,208 | ) |
| Payment of debt issuance costs                                                     |       | (419                                  | )          | — |   |
| Net cash provided by (used in) financing activities                                |       | 11,861                                |       | (12,208 | ) |
|                                                                               |       |                                  |       |   |   |
| Effect of  exchange rate fluctuations on cash and cash equivalents                 |       | 50                                    |       | 7 |   |
| Net decrease in cash and cash equivalents                                          |       | (4,528                                | )          | (5,667 | ) |
|                                                                               |       |                                  |       |   |   |
| Cash and cash  equivalents at beginning of period                                  |       | 25,429                                |       | 28,525 |   |
| Cash and cash  equivalents at end of period                                        |       | $                                     | 20,901     |   | $ | 22,858 |   |
| ** **                                                                         |       |                                  |       |   |   |
| **Supplemental  disclosures of cash flow information:**                            |       |                                  |       |   |   |
| Cash interest payments                                                             |       | $                                     | 25,439     |   | $ | 24,674 |   |
| Cash income tax payments                                                           |       | $                                     | 500        |   | $ | 138 |   |
| Cash income tax refunds                                                            |       | $                                     | (800       | ) | $ | — |   |
| Non-cash  transactions:                                                            |       |                                  |       |   |   |
| Dividends  declared and unpaid                                                     |       | $                                     | 4,240      |   | $ | 4,240 |   |

 

See Notes to Consolidated Financial Statements.

3

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

 

**(1)****           Nature of Operationsand Recent Acquisitions**

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

On December 1, 2005, we acquired the *Ortega* food service dispensing pouch and dipping cupbusiness for approximately $2,513 in cash, including transaction costs, fromNestlé USA, Inc.  On January 10, 2006, weacquired the *Grandma’s*molasses business forapproximately $30,102 in cash, including transaction costs, from Mott’s LLP, aCadbury Schweppes Americas Beverages company. In connection with this transaction, we entered into an amendment to oursenior secured credit facility to provide for, among other things, a new$25,000 term loan and a reduction in the revolving credit facility commitmentsfrom $30,000 to $25,000.  The proceeds ofthe term loan together with cash on hand were used to fund the *Grandma’s*molasses acquisition and pay related transactioncosts.

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

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

Acquisition of the *Ortega* food service dispensing pouch and dipping cupbusiness

 

| Inventory                                                                                                           |   | $     | 873    |   |
|---------------------------------------------------------------------------------------------------------------------|--------|-------|--------|--------|
| Indefinite-life  intangible assets—trademarks (after allocation of approximately $1,100 of  negative goodwill) |   | 1,640 |   |
| Total                                                                                                               |   | $     | 2,513  |   |

 

Acquisition of the *Grandma’s*molasses business

 

| Equipment                                                 |   | $      | 25     |   |
|-----------------------------------------------------------|--------|--------|--------|--------|
| Goodwill                                                  |   | 9,877  |   |
| Indefinite-life intangible assets—trademarks         |   | 5,100  |   |
| Amortizable intangible assets—customer relationships |   | 15,100 |   |
| Total                                                     |   | $      | 30,102 |   |

4

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

** **

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

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

The acquisitions of the *Ortega*food service dispensing pouch and dipping cup business and the *Grandma’s* molasses business did not meetany of the significance tests pursuant to Rule 11-01(b)(1) of RegulationS-X.  As such, no pro forma financialinformation has been presented.

**(2)**           Summary ofSignificant Accounting Policies

***Fiscal Year***

Our financial statements are presented on aconsolidated basis.  Typically, ourfiscal quarters and fiscal year consist of 13 and 52 weeks, respectively,ending on the Saturday closest to December 31st inthe case of our fiscal year and fourth fiscal quarter, and on the Saturdayclosest to the end of the corresponding calendar quarter in the case of ourfiscal quarters.  As a result, a 53rdweek is added to our fiscal year every five or six years.  In a 53-week fiscal year our fourth fiscalquarter contains 14 weeks.  The fiscalyears ending December 30, 2006 (fiscal 2006) and December 31, 2005 (fiscal2005) each contain 52 weeks.  Eachquarter of fiscal 2006 and fiscal 2005 contains 13 weeks.

***Basis ofPresentation***

Theaccompanying consolidated interim financial statements for the thirteen andthirty-nine week periods ended September 30, 2006 and October 1, 2005 have beenprepared by our company in accordance with accounting principles generallyaccepted in the United States of America without audit, pursuant to the rulesand regulations of the Securities and Exchange Commission (SEC), and includethe accounts of B&G Foods, Inc. and its subsidiaries.  Certain information and footnote disclosuresnormally included in annual financial statements prepared in accordance withgenerally accepted accounting principles have been omitted pursuant to suchrules and regulations.  However, ourmanagement believes, to the best of their knowledge, that the disclosuresherein are adequate to make the information presented not misleading.  All intercompany balances andtransactions have been eliminated.  Theaccompanying unaudited consolidated interim financial statements contain alladjustments (consisting only of normal and recurring adjustments) that are, inthe opinion of management, necessary to present fairly our consolidatedfinancial position as of September 30, 2006, the results of our operations forthe thirteen and thirty-nine week periods ended September 30, 2006 and October1, 2005 and cash flows for the thirty-nine week periods ended September 30,2006 and October 1, 2005.  Our results ofoperations for the thirteen and thirty-nine week periods ended September 30,2006 are not necessarily indicative of the results to be expected for the fullyear.  The accompanying unauditedconsolidated interim financial statements should be read in conjunction withthe audited consolidated financial statements and notes for the fiscal yearended December 31, 2005 included in our Annual Report on Form 10-K for thefiscal year ended December 31, 2005 filed with the SEC on March 7, 2006.

***Use of Estimates***

Thepreparation of financial statements in accordance with U.S. generally acceptedaccounting principles requires our management to make a number of estimates andassumptions relating to the reporting of assets and liabilities and thedisclosure of contingent assets and liabilities at the date of the consolidatedfinancial statements and the reported amounts of revenues and expenses duringthe reporting period.  Some of the moresignificant estimates and assumptions made by management involve trade andconsumer promotion expenses; allowances for excess, obsolete and unsaleableinventories; the recoverability of goodwill, trademarks, customer relationshipintangibles, property, plant and equipment and deferred tax assets; and the

 

5

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

 

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

accountingfor our enhanced income securities (EISs), including their treatment in computingour income tax expense.  Actual resultscould differ from those estimates and assumptions.

***Adoption of New Accounting Standards***

In November 2004, the Financial Accounting StandardsBoard (FASB) issued SFAS No. 151, *“Inventory Costs—AnAmendment of ARB No. 43, Chapter 4”* (SFAS No. 151). SFAS No. 151amends the guidance in ARB No. 43, Chapter 4, “Inventory Pricing,” to clarifythe accounting for abnormal amounts of idle facility expense, freight, handlingcosts, and wasted material (spoilage). Among other provisions, the new rulerequires that items such as idle facility expense, excessive spoilage, doublefreight, and rehandling costs be recognized as current-period chargesregardless of whether they meet the criterion of “so abnormal” as stated in ARBNo. 43.  Additionally, SFAS No. 151requires that the allocation of fixed production overheads to the costs ofconversion be based on the normal capacity of the production facilities. SFASNo. 151 was adopted by us beginning on January 1, 2006. The adoption of SFASNo. 151 has not had an impact on our consolidated results of operations andfinancial position.

In July 2006, the FASB issued FASB Interpretation No.48, “*Accounting for Uncertainty in Income Taxes*”(FIN 48), which clarifies the accounting for uncertainty in tax positions.  FIN 48 requires that we recognize in ourconsolidated financial statements, the impact of a tax position, if thatposition is more likely than not of being sustained on audit, based on thetechnical merits of the position.  Wecurrently recognize the impact of a tax position if it is probable of beingsustained.  The provisions of FIN 48 areeffective as of the beginning of our 2007 fiscal year, with the cumulativeeffect of the change in accounting principle recorded as an adjustment toopening retained earnings.  At this time,we have not completed our review and assessment of the impact of the adoptionof FIN 48.

In September 2006, the FASB issued SFAS No. 157, “*Fair Value Measurements*” (SFAS No. 157), which defines fairvalue, establishes a framework for measuring fair value and expands disclosuresabout fair value measurements.  Theprovisions of SFAS No. 157 are effective as of the beginning of our 2008 fiscalyear.  We are currently evaluating theimpact of adopting SFAS No. 157 on our financial statements.

In September 2006, the FASB issued SFAS No. 158, “*Employer’s Accounting for Defined Benefit Pension and OtherPostretirement Plans*” an amendment of FASB Statements No. 87, 88,106, and 132R (SFAS No. 158).  SFAS No. 158requires an employer to recognize in its statement of financial position anasset for a defined benefit plan’s over-funded status or a liability for a plan’sunder-funded status and recognize changes in the funded status of a definedbenefit plan in the year in which the changes occur.  These changes will be reported in ourcomprehensive income and as a separate component of stockholders’ equity.  SFAS No. 158 is effective for us as ofDecember 30, 2006.  We estimate theimpact of adopting SFAS No. 158 to be approximately $5,000, reflected as anincrease in accrued expenses and a decrease to stockholders’ equity on ourconsolidated balance sheet, with no impact to our statements of operations orcash flows.

In September 2006, the SEC issued Staff AccountingBulletin No. 108, “Considering the Effects of Prior Year Misstatements whenQuantifying Misstatements in Current Year Financial Statements” (SAB No. 108),which provides interpretive guidance on the consideration of the effects ofprior year misstatements in quantifying current year misstatements for thepurpose of a materiality assessment.  SABNo. 108 is effective as of the end of our 2006 fiscal year, allowing a one-timetransitional cumulative effect adjustment to beginning retained earnings as ofJanuary 1, 2006 for errors that were not previously deemed material, but arematerial under the guidance in SAB No. 108. While we are currently evaluating the impact of adopting SAB No. 108, wedo not believe that the application of SAB No. 108 will have a material effecton our results of operations or financial position.

6

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

** **

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

Inventoriesconsist of the following, as of the dates indicated:

|                              | ** ** | **September 30, 2006** | ** ** | **December 31, 2005** | ** ** |
|------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| Raw materials  and packaging |       | $                                | 20,122     |                            | $          | 14,544 |   |
| Work in process              |       | 3,211                            |       | 2,342                           |       |
| Finished goods               |       | 70,570                           |       | 68,644                          |       |
|                         |       |                             |       |                            |       |
| Total                        |       | $                                | 93,903     |                            | $          | 85,530 |   |

 

**(4)****           Asset Held for Sale**

On July 1, 2005, we closed our New Iberia, Louisiana,manufacturing facility as part of our ongoing efforts to improve our productioncapacity utilization, productivity and operating efficiencies, and lower ouroverall costs.  During the thirteen weeksended December 31, 2005, we began negotiations for the sale of the land andbuilding and classified the land and building, with a carrying value of $750,as assets held for sale at such time and ceased depreciation.  The sale of our New Iberia facility closed onJuly 9, 2006.  We received net proceedsof $1,275 and recorded a gain on the sale of $525.

**(5)****           Goodwill, Trademarksand Customer Relationship Intangibles**

Thefollowing table reconciles the changes in the carrying amount of goodwill forthe period from December 31, 2005 to September 30, 2006:

| Balance at December 31, 2005                                                                               |   | $     | 189,028 |   |
|------------------------------------------------------------------------------------------------------------|--------|-------|---------|--------|
| *Grandma’s*acquisition                                                                                |   | 9,877 |    |
| Purchase price  allocation adjustment*—Ortega*food  service dispensing pouch and dipping cup business |   | (829  | )       |
| Balance at September  30, 2006                                                                             |   | $     | 198,076 |   |

 

Thefollowing table reconciles the changes in the carrying amount of trademarks forthe period from December 31, 2005 to September 30, 2006:

| Balance at December 31, 2005                                                                                |   | $     | 194,264 |   |
|-------------------------------------------------------------------------------------------------------------|--------|-------|---------|--------|
| *Grandma’s*  acquisition                                                                               |   | 5,100 |    |
| Purchase price  allocation adjustment—*Ortega* food  service dispensing pouch and dipping cup business |   | 856   |    |
| Balance at September  30, 2006                                                                              |   | $     | 200,220 |   |

 

7

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

 

**(5)           Goodwill,Trademarks and Customer Relationship Intangibles (Continued)**

 

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

|                                           | ** ** | **September 30, 2006** | ** ** | **December 31, 2005** | ** ** |
|-------------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| Customer  relationship intangibles, gross |       | $                                | 15,100     |                            | $          | — |   |
| Less:  accumulated amortization           |       | (542                             | )          | —                          |       |
| Total                                     |       | $                                | 14,558     |                            | $          | — |   |

 

Amortizationexpense associated with customer relationship intangibles totaled $188 and $542for the thirteen and thirty-nine weeks ended September 30, 2006 and is recordedin operating expenses.

**(6)****           Long-term Debt**

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

|                                           | ** ** | **September 30, 2006** | ** ** | **December 31, 2005** | ** ** |
|-------------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| Revolving credit  facility                |       | $                                | —     |                            | $          | — |   |
| Term loan                                 |       | 25,000                           |       | —                          |       |
| Total senior secured credit facility      |       | 25,000                           |       | —                          |       |
|                                      |       |                             |       |                            |       |
| 12.0% Senior  Subordinated Notes due 2016 |       | 165,800                          |       | 165,800                         |       |
| 8.0% Senior  Notes due 2011               |       | 240,000                          |       | 240,000                         |       |
| Total long-term debt                      |       | $                                | 430,800    |                            | $          | 405,800 |   |

 

As of September 30, 2006,the aggregate maturities of long-term debt are as follows:

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

 

*Senior Secured Credit Facility*.  Concurrent with our initial public offeringand concurrent offerings, we entered into a $30,000 senior secured revolvingcredit facility on October 14, 2004.  Inorder to finance our acquisition of the *Grandma’s*molassesbrand, we amended the credit facility in January 2006 to provide for, amongother things, a new $25,000 term loan and a reduction in the revolving creditfacility commitments from $30,000 to $25,000. As amended, all outstanding indebtedness under the credit facilitymatures on January 10, 2011.  Interestunder the revolving credit facility, including any outstanding letters ofcredit, is determined based on several alternative rates as stipulated in therevolving credit facility, including the base lending rate per annum plus anapplicable margin, or LIBOR plus an applicable margin.  We pay a commitment fee of 0.50% per annum onthe unused portion of the revolving credit facility.  Interest under the term loan is variable andis determined based on alternative rates as stipulated in the credit facility,including the base lending rate per annum plus an applicable margin of 1.75%,and LIBOR plus an applicable margin of 2.75%. As of September 30, 2006, the interest rate for the term loan was 8.36%(based upon a six-month

8

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

 

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

 

LIBOR contract that expires on January 17, 2007).  Our obligations under the credit facility arefully and unconditionally guaranteed on a senior basis by all of our existingand future domestic subsidiaries.  Thecredit facility is secured by substantially all of our and our subsidiaries’assets except our and our subsidiaries’ real property.  The credit facility provides for mandatoryprepayment based on asset dispositions and certain issuances of securities, asdefined.  The credit facility containscovenants that restrict, among other things, our ability to incur additionalindebtedness, pay dividends and create certain liens.  The credit facility also contains certainfinancial maintenance covenants, which, among other things, specify maximumcapital expenditure limits, a minimum interest coverage ratio and a maximumsenior and total leverage ratio, each ratio as defined.  Proceeds of the revolving credit facility arerestricted to funding our working capital requirements, capital expendituresand acquisitions of companies in the same line of business as our company,subject to specified criteria.  Therevolving credit facility was undrawn on the date of consummation of ourinitial public offering and concurrent offerings and remained undrawn throughSeptember 30, 2006.  The availableborrowing capacity under our revolving credit facility, net of outstandingletters of credit of $2,916, was $22,084 at September 30, 2006.  The maximum letter of credit capacity underthe revolving credit facility is $10,000, with a fronting fee of 3.0% per annumfor all outstanding letters of credit.

 

*Subsidiary Guarantees*.  We have no assets or operations independentof our direct and indirect subsidiaries. All of our domestic subsidiaries jointly and severally, and fully andunconditionally, guarantee our senior subordinated notes and our senior notes,and management has determined that our only subsidiary that is not a guarantorof our senior subordinated notes and senior notes is a “minor” subsidiary asthat term is used in Rule 3-10 of Regulation S-X promulgated by the Securitiesand Exchange Commission.  There are no significantrestrictions on our ability and the ability of our subsidiaries to obtain fundsfrom our respective subsidiaries by dividend or loan.  Consequently, separate financial statementshave not been presented for our subsidiaries because management has determinedthat they would not be material to investors.

*Deferred Financing Costs*.  In connection with the issuance of our 12.0%senior subordinated notes due 2016 and our 8.0% senior notes due 2011, wecapitalized approximately $23,542 of financing costs, which will be amortizedover their respective terms.  Inconnection with the issuance of our term loan in January 2006, we capitalizedapproximately $419 of additional financing costs, which will be amortized overthe term of the loan.  As of September30, 2006, we had net deferred financing costs of $18,022.

At September 30, 2006 and December 31, 2005 accruedinterest of $13,352 and $8,117, respectively, is included in accrued expensesin the accompanying consolidated balance sheets.

**(7)****           Fair Value of FinancialInstruments**

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

We have outstanding$240,000 principal amount of 8.0% senior notes due 2011.  The fair value of the senior notes atSeptember 30, 2006 and December 31, 2005, based on quoted market prices, was$246,600 and $246,000, respectively.

We also have outstanding$165,800 principal amount of 12.0% senior subordinated notes due 2016.  Of such outstanding principal amount,$143,000 principal amount is represented by 20.0 million EISs.  Each EIS represents one share of our Class Acommon stock and $7.15 principal amount of our senior subordinated notes.  As of September 30, 2006 and December 31,2005, the fair value of the EISs, based on the per EIS

9

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

 

**(7)           FairValue of Financial Instruments (Continued)**

 

closing price on the American Stock Exchange on September 29, 2006 andDecember 31, 2005, was $379,000 and $290,400, respectively.  It is not practicable to estimate the fairvalue of the $143,000 principal amount of senior subordinated notes representedby the EISs.  Of the $165,800 aggregateprincipal amount of senior subordinated notes outstanding, $22,800 principalamount is not represented by EISs and trades separately.  The fair value of the separate seniorsubordinated notes at September 30, 2006 and December 31, 2005, based on quotedmarket prices, was $25,511.

 

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

**(8)****           Comprehensive IncomeRecognition**

Comprehensive income includes the effect of exchangerate fluctuations on cash and cash equivalents relating to our Canadiansubsidiary.  Comprehensive income was$3,430 and $8,754 for the thirteen and thirty-nine weeks ended September 30,2006.  Comprehensive income was $3,112and $6,361 for the thirteen and thirty-nine weeks ended October 1, 2005.

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

Net periodic costs for the thirteen and thirty-nineweek periods ended September 30, 2006 and October 1, 2005 include the followingcomponents: 
| ** **                                           | ** ** | **Thirteen Weeks Ended** | ** ** | **Thirty-nine Weeks Ended** | ** ** |
|------------------------------------------------------|------------|------------------------------------|------------|---------------------------------------|------------|
| ** **                                           | ** ** | **September 30,  2006**       | ** ** | **October 1,  2005**             | ** ** | **September 30,  2006** | ** ** | **October 1,  2005** | ** ** |
| Service  cost—benefits earned during the period |       | $                                  | 367        |                                  | $          | 390 |   | $ | 1,152 |   | $ | 1,144 |   |
| Interest cost on  projected benefit obligation       |       | 303                                |       | 287                                   |       | 909 |   | 840 |   |
| Expected return  on plan assets                      |       | (286                               | )          | (244                                  | )          | (869 | ) | (768 | ) |
| Amortization of  unrecognized prior service cost     |       | 16                                 |       | 1                                     |       | 18 |   | 3 |   |
| Net amortization  and deferral                       |       | 41                                 |       | 61                                    |       | 146 |   | 157 |   |
| Net pension cost                                     |       | $                                  | 441        |                                  | $          | 495 |   | $ | 1,356 |   | $ | 1,376 |   |

 

As of September 30, 2006, we have contributed $1,058to our defined benefit pension plans during fiscal 2006.  We previously disclosed in our consolidatedfinancial statements for the fiscal year ended December 31, 2005 that weexpected to contribute $1,514 to our defined benefit pension plans in fiscal2006.  As of September 30, 2006, weanticipate electing to make additional payments of approximately $1,100 for atotal contribution of $2,614 for the plan year ended December 30, 2006 to fundour defined benefit pension plan obligations.

**(10)****         Related-PartyTransactions**

We are party to a transaction services agreementpursuant to which Bruckmann, Rosser, Sherrill & Co., Inc. (BRS & Co.),the manager of Bruckmann, Rosser, Sherrill & Co., L.P. (BRS), will be paida transaction fee for management, financial and other corporate advisoryservices rendered by BRS & Co. in connection with acquisitions,divestitures, financings and other transactions by our company, which fee willnot exceed 1.0% of the total transaction value. BRS was our majority owner prior to our initial public offering inOctober 2004 and remains a majority owner of our Class B common stock.  Stephen C. Sherrill, the chairman of ourboard of directors, is a managing director of BRS & Co.  In connection with our initial public

10

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

 

 

**(10)         Related-Party Transactions (Continued)**

offering, the transaction services agreement wasamended to provide that transaction fees will be payable as described aboveunless a majority of our disinterested directors determines otherwise.  BRS & Co. did not receive any transactionfees in connection with the initial public offering and the concurrentofferings, the Ortega food service dispensing pouch and dipping cup acquisitionor the *Grandma’s*molasses acquisition.

We lease a manufacturing and warehouse facility from aformer chairman of our board of directors under an operating lease, whichexpires in April 2009.  Total rentexpense associated with this lease was $577 for the thirty-nine weeks endedSeptember 30, 2006 and October 1, 2005.

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

**(11)         Commitments and Contingencies**

We are subject to environmental laws and regulationsin the normal course of business.  We didnot make any material expenditures during the thirty-nine week periods endedSeptember 30, 2006 and October 1, 2005 in order to comply with environmentallaws or regulations.  Based on ourexperience to date, management believes that the future cost of compliance withexisting environmental laws and regulations (and liability for knownenvironmental conditions) will not have a material adverse effect on ourconsolidated financial 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 lawsor regulations or to respond to such environmental claims.

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

We have employment agreements with our executiveofficers.  The agreements generallycontinue until terminated by the executive or by us, and provide for severancepayments under certain circumstances.  Asof September 30, 2006, if all of our executives were to be terminated by uswithout cause (as defined) or as a result of the employees’ disability, ourseverance liability would be approximately $2,036.

**(12)         Restructuring Charge**

On July 1, 2005, we closed our New Iberia, Louisiana,manufacturing facility as part of our ongoing efforts to improve our productioncapacity utilization, productivity and operating efficiencies and lower ouroverall costs.  In the fiscal year endedDecember 31, 2005, we recorded a charge of $3,839 (of which $300 and $3,544 wasrecorded in the thirteen and thirty-nine week periods ended October 1, 2005,respectively).  The

11

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

 

 

**(12)         Restructuring Charge (Continued)**

charge for the fiscal year ended December 31, 2005included a cash charge for employee compensation and other costs of $769 (ofwhich $162 and $593 was recorded in the thirteen and thirty-nine week periodsended October 1, 2005, respectively) and a non-cash charge for the impairmentof property, plant, equipment and inventory of $3,070 (of which $138 and $2,951was recorded in the thirteen and thirty-nine week periods ended October 1,2005).  As of December 31, 2005, theentire cash portion of the restructuring charge had been paid.

**(13)         Earnings per Share**

We have two classes of common stock, designated asClass A common stock and Class B common stock, and we present basic and dilutedearnings per share using the two-class method. The two-class method is an earnings allocation formula that determinesearnings per share for each class of common stock according to dividendsdeclared and participation rights in undistributed earnings or losses.

Net income available to our common stockholders isallocated between our two classes of common stock based upon the two-classmethod.  Basic and diluted earnings pershare for our Class A and Class B common stock is calculated by dividing allocatednet income available to common stockholders by the weighted average number ofshares of Class A and Class B common stock outstanding.
| ** **                                                                          | ** ** | **Thirteen  Weeks Ended** | ** ** | **Thirty-nine  Weeks Ended** | ** ** |
|-------------------------------------------------------------------------------------|------------|--------------------------------|------------|-----------------------------------|------------|
| ** **                                                                          | ** ** | **September 30,  2006**   | ** ** | **October 1,  2005**         | ** ** | **September 30,  2006** | ** ** | **October 1,  2005** | ** ** |
|                                                                                |       |                           |       |                              |       |   |   |   |   |
| Net income                                                                          |       | $                              | 3,443      |                              | $          | 3,060 |   | $ | 8,704 |   | $ | 6,354 |   |
| Less: Class A  common stock dividends declared                                      |       | 4,240                          |       | 4,240                             |       | 12,720 |   | 12,720 |   |
| Undistributed  (loss) earnings available to Class A and Class B common stockholders |       | $                              | (797       | )                                 | $          | (1,180 | ) | $ | (4,016 | ) | $ | (6,366 | ) |
|                                                                                |       |                           |       |                              |       |   |   |   |   |
| Weighted average  common shares outstanding:                                        |       |                           |       |                              |       |   |   |   |   |
| Basic and  diluted Class A common shares outstanding                                |       | 20,000,000                     |       | 20,000,000                        |       | 20,000,000 |   | 20,000,000 |   |
| Basic and  diluted Class B common shares outstanding                                |       | 7,556,443                      |       | 7,556,443                         |       | 7,556,443 |   | 7,556,443 |   |
|                                                                                |       |                           |       |                              |       |   |   |   |   |
| Basic and  diluted allocation of undistributed (loss) earnings:                     |       |                           |       |                              |       |   |   |   |   |
| Class A common  stock                                                               |       | $                              | (578       | )                                 | $          | (856 | ) | $ | (2,915 | ) | $ | (4,620 | ) |
| Class B common  stock                                                               |       | (219                           | )          | (324                              | )          | (1,101 | ) | (1,746 | ) |
| Total                                                                               |       | $                              | (797       | )                                 | $          | (1,180 | ) | $ | (4,016 | ) | $ | (6,366 | ) |
|                                                                                |       |                           |       |                              |       |   |   |   |   |
| Basic and  diluted earnings per share:                                              |       |                           |       |                              |       |   |   |   |   |
| Undistributed  (loss) earnings:                                                     |       |                           |       |                              |       |   |   |   |   |
| Class A common  stock                                                               |       | $                              | (0.03      | )                                 | $          | (0.04 | ) | $ | (0.15 | ) | $ | (0.23 | ) |
| Class B common  stock                                                               |       | $                              | (0.03      | )                                 | $          | (0.04 | ) | $ | (0.15 | ) | $ | (0.23 | ) |
| Distributed  earnings:                                                              |       |                           |       |                              |       |   |   |   |   |
| Class A common  stock                                                               |       | $                              | 0.21       |                              | $          | 0.21 |   | $ | 0.64 |   | $ | 0.64 |   |
| Earnings (loss)  per share:                                                         | * *   | * *                       | * *   | * *                          | * *   | * * | * * | * * | * * |
| Class A common  stock                                                               |       | $                              | 0.18       |                              | $          | 0.17 |   | $ | 0.49 |   | $ | 0.41 |   |
| Class B common stock                                                                |       | $                              | (0.03      | )                                 | $          | (0.04 | ) | $ | (0.15 | ) | $ | (0.23 | ) |

 

12

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

 

 

**(13)         Earnings per Share (Continued)**

No dividends weredeclared on our Class B common stock during the thirteen and thirty-nine weeksended September 30, 2006 or October 1, 2005; therefore, for purposes of theearnings per share calculation, all distributed earnings are included in ClassA common stock earnings per share.

**(14)         Business and Credit Concentrations**

Our exposure to credit loss in the event ofnon-payment of accounts receivable by customers is estimated in the amount ofthe allowance for doubtful accounts.  Weperform ongoing credit evaluations of our customers’ financial conditions.  As of September 30, 2006, we do not believewe have any significant concentration of credit risk with respect to our tradeaccounts receivable.  Our top tencustomers accounted for approximately 43.5%****and41.7% of consolidated net sales for the thirty-nine weeks ended September 30,2006 and October 1, 2005, respectively. Other than Wal-Mart, which accounted for 10.5% of our consolidated netsales for the thirty-nine weeks ended September 30, 2006, no single customer accountedfor 10.0% or more of our consolidated net sales for the thirty-nine weeks endedSeptember 30, 2006 or October 1, 2005.

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

The following Management’s Discussion and Analysis ofFinancial Condition and Results of Operations contains forward-lookingstatements that involve risks and uncertainties.  Our actual results could differ materiallyfrom those anticipated in these forward-looking statements as a result ofcertain factors, including those set forth under the heading “Forward-LookingStatements” below and elsewhere in this report. The following discussion should be read in conjunction with theunaudited consolidated interim financial statements and related notes for thethirteen and thirty-nine weeks ended September 30, 2006 included elsewhere inthis report and the audited consolidated financial statements and related notesfor the fiscal year ended December 31, 2005 (fiscal 2005) included in ourAnnual Report on Form 10-K filed with the Securities and Exchange Commission(SEC) on March 7, 2006 (2005 Annual Report on Form 10-K).

**General**

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

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

Since 1996, we havesuccessfully acquired and integrated 17 separate brands into ouroperations.  We believe that successfulfuture acquisitions, if any, will enhance our portfolio of existing businesses,further leveraging our existing infrastructure.

We completed the acquisitionof The *Ortega* Brand of Business from NestléPrepared Foods Company on August 21, 2003, which we refer to in this report as “*Ortega*” or the “initial *Ortega*acquisition.”  We subsequently completedthe acquisition of the *Ortega* foodservice dispensing pouch and dipping cup cheese sauce businesses from NestléUSA, Inc. on December 1, 2005, which we refer to in this report as the “*Ortega* food service dispensing pouch and dipping cupacquisition.”  We completed theacquisition of the *Grandma’s*molasses business from Motts LLP, a Cadbury Schweppes Americas BeveragesCompany, on January 10, 2006.  Both *Ortega* acquisitions and the *Grandma’s* molasses acquisition have beenaccounted for using the purchase method of accounting and, accordingly, theassets acquired, liabilities assumed and results of operations of the acquiredbusinesses are included in our consolidated financial statements from therespective dates of acquisition.  The *Ortega* food service dispensing pouch and dipping cup and the*Grandma’s* molasses acquisitionsand the application of the purchase method of accounting for these acquisitionsaffect comparability between periods presented in this report.

We are subject to a number of challenges that mayadversely affect our businesses.  Thesechallenges, which are discussed below and under the heading “Forward-LookingStatements,” include:

*Fluctuations in Commodity Prices and Production andDistribution Costs*.  Wepurchase raw materials, including agricultural products, meat, poultry, otherraw materials and packaging materials from growers, commodity processors, otherfood companies and packaging manufacturers. Raw materials are subject to fluctuations in price attributable to anumber of factors.  Fluctuations incommodity prices can lead to retail price volatility and intensive pricecompetition, and can influence consumer and trade buying patterns.  In the thirteen weeks ended September 30,2006, our commodity prices for maple syrup and corn sweetners were higher thanthose incurred during the thirteen weeks ended October 1, 2005.  In addition, the cost of

14

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labor, manufacturing, energy, fuel, packagingmaterials and other costs related to the production and distribution of ourfood products have risen in recent years, and we believe that certain of thesecosts may continue to rise in the foreseeable future.  We manage these risks by entering intoshort-term supply contracts and advance commodities purchase agreements fromtime to time, and if necessary, by raising prices.  We cannot assure you that any sales priceincreases by us will offset the increased cost of raw material commodities.

*Consolidation in the Retail Trade and ConsequentInventory 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.  

*Changing Customer Preferences*.  Consumers in the market categories in whichwe compete frequently change their taste preferences, dietary habits andproduct packaging preferences. 

*Consumer Concern Regarding Food Safety, Quality andHealth*.  The foodindustry is subject to consumer concerns regarding the safety and quality ofcertain food products, including the health implications of geneticallymodified organisms, obesity and trans fatty acids.  

*Changing Valuations of the Canadian Dollar inRelation to the U.S. Dollar*. We purchase the majority of our maple syrup requirements frommanufacturers located in Quebec, Canada. Over the past year the U.S. dollar has weakened against the Canadiandollar, which has in turn increased our costs relating to the production of ourmaple syrup products.

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

**Critical Accounting Policies;**Use of Estimates

The preparation of financial statements in accordancewith U.S. generally accepted accounting principles requires our management tomake a number of estimates and assumptions relating to the reporting of assetsand liabilities and the disclosure of contingent assets and liabilities at thedate of the consolidated financial statements and the reported amounts ofrevenues and expenses during the reporting period.  Some of the more significant estimates andassumptions made by management involve trade and consumer promotion expenses,allowances for excess, obsolete and unsaleable inventories, the recoverabilityof goodwill, trademarks, customer relationship intangibles, property, plant andequipment, and deferred tax assets, and the accounting for our EISs, includingtheir treatment in computing our income tax expense and the accounting forearnings per share.  Actual results coulddiffer from these estimates and assumptions.

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

***Trade and Consumer PromotionExpenses***

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

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***Inventories***

Inventories are stated at the lower of cost ormarket.  Cost is determined using thefirst-in, first-out and average cost methods. Inventories have been reduced by an allowance for excess, obsolete andunsaleable inventories.  The allowance isan estimate based on our management’s review of inventories on hand compared toestimated future usage and sales.

***Long-Lived Assets***

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

***Goodwill andTrademarks***

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

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

We completed our annual impairment tests for the yearended December 31, 2005 with no adjustments to the carrying values of goodwilland indefinite life intangibles.  We didnot note any events or circumstances during the thirteen week period endedSeptember 30, 2006 that would indicate that goodwill or indefinite lifeintangibles might be impaired.

***Accounting Treatment for EISs.***

Our EISs include Class A common stock and seniorsubordinated notes.  Upon completion ofour initial public offering (including the exercise of the over-allotmentoption), we allocated the proceeds from the issuance of the EISs, based uponrelative fair value at the issuance date, to the Class A common stock and thesenior subordinated notes.  We haveassumed that the price paid in the EIS offering was equivalent to the combinedfair value of the Class A common stock and the senior subordinated notes, andthe price paid in the offering for the senior subordinated notes soldseparately (not in the form of EISs) was equivalent to their initial statedprincipal amount.  We have concludedthere are no embedded derivative features related to the EIS that requirebifurcation under Financial Accounting Standards Board (FASB) Statement No.133,

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

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

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

***Income Tax Expense Estimates andPolicies***

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

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

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

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

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

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

A factor in the ongoing determination that noliability should be recorded in our consolidated financial statements withrespect to the deductibility for income tax purposes of the interest on thesenior subordinated notes is the veracity, at the time of the initial publicoffering, of the representations delivered by the purchasers of seniorsubordinated notes sold separately (not in the form of EISs).  In addition, other factors indicating the existence,at the time of the initial public offering, of any plan or pre-arrangement mayalso be relevant to this ongoing determination. It is possible that we will at some point in the future, as a result ofIRS interpretations or other changes in circumstances, conclude that we shouldestablish a reserve for tax liabilities associated with a disallowance of allor part of the interest deductions on the senior subordinated notes, althoughour present view is that no such reserve is necessary or appropriate.  If we decide to maintain such a reserve, ourincome tax provision, and related income tax payable, would be materiallyimpacted.  As a result, our ability topay dividends on the shares of our common stock could be materially impairedand the market price and/or liquidity for the EISs or our common stock could beadversely affected.

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***Earnings Per Share***

We have two classes of common stock, designated asClass A common stock and Class B common stock, and we present basic and dilutedearnings per share using the two-class method. The two-class method is an earnings allocation formula that determinesearnings per share for each class of common stock according to dividendsdeclared and participation rights in undistributed earnings.

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

**Results of Operations**

The following table sets forth the percentages of netsales represented by selected items for the thirteen and thirty-nine weekperiods ended September 30, 2006 and October 1, 2005 reflected in ourconsolidated statements of operations. The comparisons of financial results are not necessarily indicative offuture results.
| ** **                                          | ** ** | **Thirteen Weeks Ended** | ** ** | **Thirty-nine Weeks Ended** | ** ** |
|-----------------------------------------------------|------------|------------------------------------|------------|---------------------------------------|------------|
| ** **                                          | ** ** | **September 30,  2006**       | ** ** | **October 1,  2005**             | ** ** | **September 30,  2006** | ** ** | **October 1,  2005** | ** ** |
| **Statement  of Operations:**                       |       |                               |       |                                  |       |   |   |   |   |
| Net sales                                           |       | 100.0                              | %          | 100.0                                 | %          | 100.0 | % | 100.0 | % |
| Cost of goods  sold                                 |       | 71.2                               | %          | 69.8                                  | %          | 71.5 | % | 70.5 | % |
| Cost of goods  sold—restructuring charge       |       | 0.0                                | %          | 0.3                                   | %          | 0.0 | % | 1.3 | % |
| Gross profit                                        |       | 28.8                               | %          | 29.8                                  | %          | 28.5 | % | 28.2 | % |
|                                                |       |                               |       |                                  |       |   |   |   |   |
| Sales, marketing  and distribution expenses         |       | 11.3                               | %          | 11.2                                  | %          | 11.2 | % | 11.3 | % |
| General and  administrative expenses                |       | 1.6                                | %          | 1.8                                   | %          | 1.7 | % | 1.8 | % |
| Gain on sale of  property, plant and equipment      |       | (0.5                               | )%         | 0.0                                   | %          | 0.0 | % | 0.0 | % |
| Amortization  expense — customer relationships |       | 0.2                                | %          | 0.0                                   | %          | 0.2 | % | 0.0 | % |
| Operating income                                    |       | 16.3                               | %          | 16.8                                  | %          | 15.7 | % | 15.1 | % |
|                                                |       |                               |       |                                  |       |   |   |   |   |
| Interest  expense, net                              |       | 10.8                               | %          | 11.3                                  | %          | 10.9 | % | 11.3 | % |
| Income before income tax expense                    |       | 5.5                                | %          | 5.4                                   | %          | 4.7 | % | 3.8 | % |
|                                                |       |                               |       |                                  |       |   |   |   |   |
| Income tax  expense                                 |       | 2.1                                | %          | 2.1                                   | %          | 1.8 | % | 1.5 | % |
| Net income                                          |       | 3.4                                | %          | 3.3                                   | %          | 2.9 | % | 2.3 | % |

 

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

*Net Sales.*  Our net sales represents gross sales ofproducts shipped to customers plus amounts charged customers for shipping and handling,less cash discounts, coupon redemptions, slotting fees and trade promotionalspending.

*Gross Profit.*  Our gross profit is equal to our net salesless cost of goods sold.  The primarycomponents of our cost of goods sold are cost of internally manufacturedproducts, purchases of finished goods from co-packers plus freight costs to ourdistribution centers and to our customers.

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*Sales, Marketing and DistributionExpenses.*  Our sales,marketing and distribution expenses include costs for marketing personnel,consumer advertising programs, internal sales forces, brokerage costs andwarehouse facilities.

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

*Gain on Sale of Property, Plant andEquipment. *Gain onsale of property, plant and equipment includes any gain or loss on the sale ofproperty, plant and equipment.

*Amortization Expenses—CustomerRelationships.* Amortization expense—customer relationships includes the amortizationexpense associated with customer relationship intangibles and are amortized overtheir useful lives of 20 years.

*Net Interest Expense.*  Net interest expense includes interestrelating to our outstanding indebtedness and amortization of deferred debtissuance costs, net of interest income.

***Thirteen-weekperiod ended September 30, 2006 compared to thirteen-week period ended October1, 2005.***

*Net Sales. *Net sales increased $9.5million or 10.3% to $101.8 million for the thirteen-week period ended September30, 2006 from $92.3 million for the thirteen-week period ended October 1, 2005. The *Ortega* foodservice dispensing pouch and dipping cup acquisition accounted for $3.2 millionof the net sales increase, the *Grandma’s*molasses acquisition accounted for $2.5 million of the net sales increase and atemporary co-packing arrangement that is expected to remain in place forapproximately three additional months accounted for $1.1 million of the netsales increase.  The remaining $2.7million increase in net sales was related to increases in sales price and unitvolume.  Net sales of our lines of*Maple Grove Farms, B&M, Ortega*(exclusiveof food service dispensing pouch and dipping cup net sales),*Las Palmas*, and *Ac’cent*products increased**in the amounts of $1.7 million, $0.8million, $0.6 million, $0.5 million and $0.4 million or 12.3%, 19.0%, 3.1%,9.4% and 12.4%, respectively.  Theseincreases were offset by a reduction of net sales in *Emeril’s*and*Polaner* products of $1.0 millionand $0.7 million or 18.0% and 7.4%, respectively.  All other brands increased, in the aggregate,by $0.4 million or 1.2%.

*Gross Profit. *Gross profit increased $1.8million or 6.6% to $29.3 million for the thirteen-week period ended September30, 2006 from $27.5 million for the thirteen-week period ended October 1,2005.  On July 1, 2005, we closed our NewIberia, Louisiana, manufacturing facility as part of our ongoing efforts toimprove our production capacity utilization, productivity and operatingefficiencies, and lower our overall costs. We recorded as cost of goods sold a restructuring charge associated withthe plant closing, which included a cash charge for employee compensation andother costs of $0.8 million and a non-cash charge for the impairment ofproperty, plant, equipment and inventory of $3.0 million.  In the thirteen-weeks ended October 1, 2005,we expensed $0.3 million of this $3.8 million charge.  No restructuring charges were recorded orexpensed during the thirteen weeks ended September 30, 2006.

Pro forma gross profit, which excludes therestructuring charge described above, increased $1.5 million or 5.4% to $29.3million for the thirteen-week period ended September 30, 2006 from $27.8million for the thirteen-week period ended October 1, 2005.  Pro forma gross profit expressed as apercentage of net sales decreased 1.4% to 28.8% in the thirteen-week periodended September 30, 2006 from 30.2% in the thirteen-week period ended October1, 2005.  The decrease in pro forma grossprofit expressed as a percentage of net sales was primarily due to higher costsfor packaging materials, transportation, maple syrup and corn sweeteners duringthe thirteen-week period ended September 30, 2006, which were partially offsetby sales price increases and a shift in the sales mix to higher margin products.

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*Sales, Marketing and DistributionExpenses. *Sales,marketing and distribution expenses increased $1.1 million or 10.6% to $11.5million for the thirteen-week period ended September 30, 2006 from $10.4million for the thirteen-week period ended October 1, 2005.  These expenses as a percentage of net salesincreased to 11.3% for the thirteen-week period ended September 30, 2006 from11.2% for the thirteen-week period ended October 1, 2005.  The increase is primarily due to an increaseof $0.8 million in consumer marketing and $0.3 million in brokerage andsalesmen commissions relating to the increased sales volume.

*General and AdministrativeExpenses. *General andadministrative expenses decreased $0.1 million or 6.1% to $1.6 million for thethirteen-week period ended September 30, 2006 from $1.7 million in thethirteen-week period ended October 1, 2005.  The decrease was primarily due to a reductionin professional fees, partially offset by an increase in accrued incentivecompensation.

*Gain on Sale of Property, Plant andEquipment. *Gain on sale of property, plant andequipment for the thirteen-week period ended September 30, 2006 relates to the gain on the sale ofour New Iberia facility of $0.5 million. There were no gains or losses on the sale of property, plant andequipment for the thirteen-week period ended October 1, 2005.

*Amortization Expense—CustomerRelationships.* Amortization expense—customer relationships, all of which relates to theamortization of customer relationship intangibles acquired in the *Grandma’s* molasses acquisition, was $0.2 million forthe thirteen-week period ended September 30, 2006.  We had no amortization expense of customerrelationship intangibles in the thirteen-week period ended October 1, 2005.

*Operating Income. *As a result of theforegoing, operating income increased $1.1 million or 7.4% to $16.6 million forthe thirteen-week period ended September 30, 2006 from $15.5 million for thethirteen-week period ended October 1, 2005. Operating income expressed as a percentage of net sales decreased to16.3% in the thirteen-week period ended September 30, 2006 from 16.8% in thethirteen-week period ended October 1, 2005. Operating income for the thirteen-week period ended October 1, 2005 wasnegatively impacted by $0.3 million as a result of the restructuring chargedescribed above.  Operating income forthe thirteen-week period ended September 30, 2006 was positively impacted by$0.5 million as a result of the gain on sale of our New Iberia facility.

*Interest Expense. *Net interest expenseincreased $0.5 million or 5.3% to $11.0 million for the thirteen-week periodended September 30, 2006 from $10.5 million in the thirteen-week period endedOctober 1, 2005.  The average debtoutstanding increased approximately $25.0 million in the thirteen-week periodended September 30, 2006 as compared to the thirteen-week period ended October1, 2005 as a result of the term loan used to finance the *Grandma’s*molasses acquisition.  See “—Liquidityand Capital Resources—Debt” below.

*Income Tax Expense. *Income tax expenseincreased $0.2 million to $2.2 million for the thirteen-week period endedSeptember 30, 2006 from $2.0 million for the thirteen-week periods endedOctober 1, 2005.  Our effective tax ratewas 38.8% for the thirteen-week period ended September 30, 2006 and 39.1% forthe thirteen-week period ended October 1, 2005.

***Thirty-nineWeek period ended September 30, 2006 compared to Thirty-nine Week period endedOctober 1, 2005.***

*Net Sales. *Net sales increased $23.6million or 8.5% to $300.1 million for the thirty-nine week period endedSeptember 30, 2006 from $276.5 million for the thirty-nine week period endedOctober 1, 2005.  The *Ortega* food service dispensing pouch and dipping cupacquisition accounted for $9.4 million of the net sales increase, the *Grandma’s* molasses acquisition accounted for $4.8 million ofthe net sales increase and a temporary co-packing arrangement that is expectedto remain in place for approximately three additional months accounted for $3.2million of the net sales increase.  Theremaining $6.2 million increase in net sales was related to increases in salesprice and unit volume.  Net sales of ourlines of*Ortega*(exclusive offood

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service dispensing pouch and dipping cup net sales), *Maple Grove Farms, B&M, Las Palmas*, *Underwood*and *Vermont Maid*productsincreased**in the amounts of $4.6million, $2.1 million, $1.3 million, $1.0 million, $0.7 million and $0.3million, or 7.9%, 5.3%, 7.2%, 6.2%, 4.1% and 17.4%, respectively.  These increases were offset by a reduction ofnet sales in *Emeril’s, Polaner*and *B&G*pickle and pepper**products of $3.0 million, $0.7 and $0.7 million or16.3%, 2.4%, and 2.0%, respectively.  Allother brands increased, in the aggregate, by $0.6 million or 1.3%.

*Gross Profit. *Gross profit increased $7.6million or 9.8% to $85.6 million for the thirty-nine week period endedSeptember 30, 2006 from $78.0 million for the thirty-nine week period endedOctober 1, 2005.  On July 1, 2005, weclosed our New Iberia, Louisiana, manufacturing facility as part of our ongoingefforts to improve our production capacity utilization, productivity andoperating efficiencies, and lower our overall costs.  We recorded as cost of goods sold arestructuring charge associated with the plant closing, which included a cashcharge for employee compensation and other costs of $0.8 million and a non-cashcharge for the impairment of property, plant, equipment and inventory of $3.0million.  In the thirty-nine weeks endedOctober 1, 2005, we expensed $3.5 million of this $3.8 million charge.  No restructuring charges were recorded orexpensed during the thirty-nine weeks ended September 30, 2006.

Pro forma gross profit, which excludes therestructuring charge described above, increased $4.1 million or 5.0% to $85.6million for the thirty-nine week period ended September 30, 2006 from $81.5million for the thirty-nine week period ended October 1, 2005.  Pro forma gross profit expressed as apercentage of net sales decreased 1.0% to 28.5% in the thirty-nine week periodended September 30, 2006 from 29.5% in the thirty-nine week period endedOctober 1, 2005.  The decrease in proforma gross profit expressed as a percentage of net sales was primarily due tohigher costs for packaging materials, transportation, maple syrup and corn sweetenersduring the thirty-nine week period ended September 30, 2006, which werepartially offset by sales price increases.

*Sales, Marketing and DistributionExpenses. *Sales,marketing and distribution expenses increased $2.3 million or 7.4% to $33.5 millionfor the thirty-nine week period ended September 30, 2006 from $31.2 million forthe thirty-nine week period ended October 1, 2005.  These expenses as a percentage of net salesdecreased to 11.2% for the thirty-nine week period ended September 30, 2006from 11.3% for the thirty-nine week period ended October 1, 2005.  The increase is primarily due to an increasein consumer marketing of $1.3 million and brokerage and salesmen commissions of$1.1 million relating to the increased sales volume.  All other expenses decreased $0.1 million.

*General and AdministrativeExpenses. *General andadministrative expenses increased $0.1 million or 0.6% to $5.1 million for thethirty-nine week period ended September 30, 2006 from $5.0 million in thethirty-nine week period ended October 1, 2005. The increase was primarily due to an increase in accrued incentivecompensation, partially offset by a reduction in professional fees.

*Gain on Sale of Property, Plant andEquipment. *Gain on sale of property, plant and equipmentfor the thirty-nine week period ended September 30, 2006 related to the gain on the sale ofour New Iberia facility of $0.5 million. There were no gains or losses on the sale of property, plant andequipment for the thirty-nine week period ended October 1, 2005.

*Amortization Expense—CustomerRelationships.* Amortization expense—customer relationships, all of which relates to theamortization of customer relationship intangibles acquired in the *Grandma’s* molasses acquisition, was $0.5 million for thethirty-nine week period ended September 30, 2006.  We had no amortization expense of customerrelationship intangibles in the thirty-nine week period ended October 1, 2005.

*Operating Income. *As a result of theforegoing, operating income increased $5.3 million or 12.6% to $47.0 millionfor the thirty-nine week period ended September 30, 2006 from $41.7 million forthe thirty-nine week period ended October 1, 2005.  Operating income expressed as a percentage ofnet sales increased to

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15.7% in the thirty-nine week period ended September30, 2006 from 15.1% in the thirty-nine week period ended October 1, 2005.  Operating income for the thirty-nine weekperiod ended October 1, 2005 was negatively impacted by $3.5 million as aresult of the restructuring charge described above.  Operating income for the thirty-nine weekperiod ended September 30, 2006 was positively impacted by $0.5 million as aresult of the gain on sale of our New Iberia facility.

*Interest Expense. *Net interest expenseincreased $1.5 million or 4.7% to $32.8 million for the thirty-nine week periodended September 30, 2006 from $31.3 million in the thirty-nine week periodended October 1, 2005.  The average debtoutstanding increased approximately $25.0 million in the thirty-nine weekperiod ended September 30, 2006 as compared to the thirty-nine week periodended October 1, 2005 as a result of the term loan used to finance the *Grandma’s* molasses acquisition.  See “—Liquidity and Capital Resources—Debt”below.

*Income Tax Expense. *Income tax expenseincreased $1.4 million or 35.3% to $5.5 million for the thirty-nine week periodended September 30, 2006 from $4.1 million for the thirty-nine week periodended October 1, 2005.  Our effective taxrate was 38.8% for the thirty-nine week period ended September 30, 2006 and39.1% for the thirty-nine week period ended October 1, 2005.

**Liquidity and Capital Resources**

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

*Cash Flows*.  Cash provided by operating activitiesincreased $6.7 million to $18.2 million for the thirty-nine week period endedSeptember 30, 2006 from $11.5 million in the thirty-nine week period endedOctober 1, 2005.  The increase was due toan increase in net income of $2.4 million, and changes relating to a reductionin the change in inventory and an increase in accrued expenses, offset by areduction in accounts payable.  Workingcapital at September 30, 2006 was $101.3 million, a decrease of $2.5 millionfrom working capital at December 31, 2005 of $103.8 million.

Net cash used in investing activities for thethirty-nine week period ended September 30, 2006 was $34.6 million as comparedto $5.0 million for the thirty-nine week period ended October 1, 2005.  Capital expenditures during the thirty-nineweek period ended September 30, 2006 were $5.8 million and included purchasesof manufacturing and computer equipment. This compares to $5.0 million in similar capital expenditures for thethirty-nine week period ended October 1, 2005. Investment activities for the thirty-nine week period ended September30, 2006 included $30.1 million for the *Grandma’s*molasses acquisition.  Net proceeds fromthe sale of property was $1.3 million for the thirty-nine week period endedSeptember 30, 2006.

Net cash provided by financing activities for thethirty-nine week period ended September 30, 2006 was $11.9 million as comparedto net cash used in financing activities of $12.2 million for the thirty-nineweek period ended October 1, 2005.  Netcash provided by financing activities for the thirty-nine week period endedSeptember 30, 2006 consists of $25.0 million in a new term loan, offset by$12.7 million in dividends paid on our Class A common stock, and $0.4 millionin debt issuance costs.  The net cashused in financing activities for the thirty-nine week period ended October 1,2005 consists of $12.2 million in dividends paid on our Class A common stock.

Based on a number of factors, including our trademarkand goodwill amortization for tax purposes from our prior acquisitions, and theincome tax effects of our initial public offering, the concurrent offerings andrelated transactions, including our call premium on our outstanding seniorsubordinated notes, other write-offs of existing deferred financing costs andthe compensation expense associated with our repurchase of certain managementstock options, we realized a significant reduction in cash taxes in 2005 ascompared to our

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tax expense for financial statement purposes, andfurther, we will realize a benefit to our cash taxes payable from amortizationof our trademarks and goodwill for the taxable years 2006 through 2020.

***Non-GAAP Financial Measures***

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

A reconciliation of EBITDA and adjusted EBITDA withthe most directly comparable GAAP measure is included below for the thirteenand thirty-nine weeks ended September 30, 2006 and October 1, 2005 along withthe components of EBITDA and adjusted EBITDA.

*Reconciliationof EBITDA and Adjusted EBITDA to Net Cash Provided by Operating Activities(dollars in thousands)*.
| ** **                                                                 | ** ** | **Thirteen Weeks Ended** | ** ** | **Thirty-nine Weeks Ended** | ** ** |
|----------------------------------------------------------------------------|------------|------------------------------------|------------|---------------------------------------|------------|
| ** **                                                                 | ** ** | **September 30,  2006**       | ** ** | **October 1,  2005**             | ** ** | **September 30,  2006** | ** ** | **October 1,  2005** | ** ** |
| Net income                                                                 |       | $                                  | 3,443      |                                  | $          | 3,060 |   | $ | 8,704 |   | $ | 6,354 |   |
| Income tax expense                                                         |       | 2,183                              |       | 1,965                                 |       | 5,518 |   | 4,080 |   |
| Interest  expense, net                                                     |       | 11,009                             |       | 10,458                                |       | 32,796 |   | 31,320 |   |
| Depreciation and  amortization                                             |       | 1,959                              |       | 1,769                                 |       | 5,863 |   | 5,129 |   |
| EBITDA (1)                                                                 |       | 18,594                             |       | 17,252                                |       | 52,881 |   | 46,883 |   |
| Adjustments to  EBITDA – restructuring (1)(2)                         |       | —                             |       | 300                                   |       | — |   | 3,544 |   |
| Adjusted EBITDA (1)                                                        |       | 18,594                             |       | 17,552                                |       | 52,881 |   | 50,427 |   |
| Income tax  expense                                                        |       | (2,183                             | )          | (1,965                                | )          | (5,518 | ) | (4,080 | ) |
| Interest  expense, net                                                     |       | (11,009                            | )          | (10,458                               | )          | (32,796 | ) | (31,320 | ) |
| Deferred income  taxes                                                     |       | 2,116                              |       | 2,363                                 |       | 4,910 |   | 4,647 |   |
| Restructuring  charge—cash portion                                    |       | —                             |       | (162                                  | )          | — |   | (593 | ) |
| Amortization of  deferred financing costs                                  |       | 710                                |       | 698                                   |       | 2,122 |   | 2,094 |   |
| Gain on sale of  property, plant and equipment                             |       | (525                               | )          | —                                |       | (525 | ) | — |   |
| Changes in  assets and liabilities, net of effects of business combination |       | (3,571                             | )          | (1,758                                | )          | (2,898 | ) | (9,649 | ) |
| Net cash  provided by operating activities                                 |       | $                                  | 4,132      |                                  | $          | 6,270 |   | $ | 18,176 |   | $ | 11,526 |   |

 

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(1)            We define EBITDA asnet income before net interest expense, income taxes, depreciation andamortization.  We define adjusted EBITDAas EBITDA as adjusted for restructuring charges incurred in fiscal 2005.  We believe that the most directly comparableGAAP financial measure to EBITDA and adjusted EBITDA is net cash provided byoperating activities.  We present EBITDAand adjusted EBITDA because we believe they are useful indicators of ourhistorical debt capacity and ability to service debt.  We also present this discussion of EBITDA andadjusted EBITDA because covenants in our credit facility and the indenturesgoverning the senior notes and the senior subordinated notes contain ratiosbased on these measures.

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EBITDA andadjusted EBITDA are not substitutes for operating income or net income, asdetermined in accordance with generally accepted accounting principles.  EBITDA and adjusted EBITDA are not completenet cash flow measures because EBITDA and adjusted EBITDA are measures ofliquidity that do not include reductions for cash payments for an entity’sobligation to service its debt, fund its working capital, capital expendituresand acquisitions, if any, and pay its income taxes and dividends, if any, andin the case of adjusted EBITDA, the cost to restructure our operations.  Rather, EBITDA and adjusted EBITDA are twopotential indicators of an entity’s ability to fund these cashrequirements.  EBITDA and adjusted EBITDAalso are not complete measures of an entity’s profitability because they do notinclude costs and expenses for depreciation and amortization, interest andrelated expenses and income taxes and in the case of adjusted EBITDA, the costof restructuring charges.  EBITDA andadjusted EBITDA, as we define them, may differ from similarly named measuresused by other entities.

(2)            On July 1, 2005, weclosed our New Iberia, Louisiana, manufacturing facility as part of our ongoingefforts to improve our production capacity utilization, productivity, andoperating efficiencies and lower our overall costs.  In fiscal 2005, we recorded a charge of $3.8million, of which $0.3 million and $3.5 million was recorded during thethirteen and thirty-nine weeks ended October 1, 2005.  The charge associated with the plant closingincluded a cash charge for employee compensation and other costs of $0.8million and a non-cash charge for the impairment of property, plant, equipmentand inventory of $3.0 million.

***Dividend Policy***

Prior to the completion of our initial publicoffering, our board of directors adopted a dividend policy that reflects abasic judgment that our stockholders would be better served if we distributedour cash available to pay dividends to them instead of retaining it in ourbusiness.  Under this policy, cashgenerated by our company in excess of operating needs, interest and principalpayments on indebtedness, capital expenditures sufficient to maintain ourproperties and other assets and $6.0 million of dividend restricted cash (thatcan be used for the payment of dividends on Class A common stock or for anyother purpose other than the payment of dividends on the Class B common stock)would in general be distributed as regular quarterly cash dividends (up to theintended dividend rate as determined by our board of directors) to the holdersof our Class A common stock and as regular annual cash dividends (up to thedividend rate permitted under our debt agreements and our organizational documents)to the holders of our Class B common stock and not be retained by us.

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

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

For the thirty-nine weeks ended September 30, 2006, wehad cash flows provided by operating activities of $18.2 million.  If our cash flows from operating activitiesfor future periods were to fall below our minimum expectations (or if ourassumptions as to capital expenditures or interest expense were too low or our

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assumptions as to the sufficiency of our revolvingcredit facility to finance our working capital needs were to prove incorrect),we would need either to reduce or eliminate dividends or, to the extentpermitted under the indenture governing our senior notes, the indenturegoverning our senior subordinated notes and the terms of our credit facility,fund a portion of our dividends with borrowings or from other sources.  If we were to use working capital orpermanent borrowings to fund dividends, we would have less cash and/orborrowing capacity available for future dividends and other purposes, whichcould negatively impact our financial position, our results of operations, ourliquidity and our ability to maintain or expand our business.

The table below illustrates for the fiscal year endedDecember 31, 2005 and the latest twelve months ended September 30, 2006,respectively, the amount of cash that we had available for distribution to ourstockholders.
| **Cash Available to Pay Dividends**                           | ** ** | **Fiscal Year   Ended  December 31,  2005** | ** ** | **Less:  Thirty-nine  Weeks Ended  October 1,  2005** | ** ** | **Plus:  Thirty-nine  Weeks Ended  September 30,  2006** | ** ** | **Latest Twelve  Months  Ended  September 30,  2006 **(a) | ** ** |
|-----------------------------------------------------------------------------------|------------|------------------------------------------------------------|------------|-----------------------------------------------------------------|------------|--------------------------------------------------------------------|------------|--------------------------------------------------------------------------|------------|
| ** **                                                                        | ** ** | **(unaudited)**                                            | ** ** | **(unaudited)**                                                 | ** ** | **(unaudited)**                                                    | ** ** | **(unaudited)**                                                          | ** ** |
| ** **                                                                        | ** ** | **(Dollars in thousands)**                       | ** ** |
| Net cash  provided by operating activities                                        |       | $                                                          | 22,523     |                                                            | $          | 11,526                                                             |       | $                                                                        | 18,176     |   | $ | 29,173 |   |
| Interest  expense, net                                                            |       | 41,767                                                     |       | 31,320                                                          |       | 32,796                                                             |       | 43,243                                                                   |       |
| Income taxes                                                                      |       | 5,235                                                      |       | 4,080                                                           |       | 5,518                                                              |       | 6,673                                                                    |       |
| Amortization of  deferred debt issuance costs                                     |       | (2,791                                                     | )          | (2,094                                                          | )          | (2,122                                                             | )          | (2,819                                                                   | )          |
| Gain on sale of  property, plant and equipment                                    |       | —                                                     |       | —                                                          |       | 525                                                                |       | 525                                                                      |       |
| Deferred income  taxes                                                            |       | (4,795                                                     | )          | (4,647                                                          | )          | (4,910                                                             | )          | (5,058                                                                   | )          |
| Restructuring  charge—property, plant, equipment and inventory impairment(b) |       | (3,070                                                     | )          | (2,951                                                          | )          | —                                                             |       | (119                                                                     | )          |
| Changes in  assets and liabilities                                                |       | 3,050                                                      |       | 9,649                                                           |       | 2,898                                                              |       | (3,701                                                                   | )          |
| EBITDA                                                                            |       | 61,919                                                     |       | 46,883                                                          |       | 52,881                                                             |       | 67,917                                                                   |       |
| Restructuring  charge (b)                                                         |       | 3,839                                                      |       | 3,544                                                           |       | —                                                             |       | 295                                                                      |       |
| Adjusted EBITDA                                                                   |       | 65,758                                                     |       | 50,427                                                          |       | 52,881                                                             |       | 68,212                                                                   |       |
| Reduction for  cash income tax expense (c)                                        |       | —                                                     |       | —                                                          |       | —                                                             |       | —                                                                   |       |
| Cash interest  expense (d)                                                        |       | (38,976                                                    | )          | (29,226                                                         | )          | (30,674                                                            | )          | (40,424                                                                  | )          |
| Capital  expenditures                                                             |       | (6,659                                                     | )          | (4,992                                                          | )          | (5,788                                                             | )          | (7,455                                                                   | )          |
| Restructuring  charge—cash portion (b)                                       |       | (769                                                       | )          | (593                                                            | )          | —                                                             |       | (176                                                                     | )          |
| Cash available  to pay dividends on Class A common stock                |       | 19,354                                                     |       | 15,616                                                          |       | 16,419                                                             |       | 20,157                                                                   |       |
|                                                                              |       |                                                       |       |                                                            |       |                                                               |       |                                                                     |       |
| Less:                                                                             |       |                                                       |       |                                                            |       |                                                               |       |                                                                     |       |
| Dividends paid on Class A common stock                                            |       | 16,448                                                     |       | 12,208                                                          |       | 12,720                                                             |       | 16,960                                                                   |       |
| Dividend restricted cash (e)                                                      |       | 6,000                                                      |       |                                                            |       |                                                               |       | 6,000                                                                    |       |
| Cash available  (deficit) to pay dividends on Class B common stock                |       | $                                                          | (3,094     | )                                                               |       |                                                               |       |                                                                     | $          | (2,803 | ) |
|                                                                                   |            |                                                            |            |                                                                 |            |                                                                    |            |                                                                          |            |  |  |  |  |

 

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(a)            Our unauditedconsolidated statements of operations and cash flow data for the latest twelvemonths ended September 30, 2006 was derived from our audited consolidatedstatements of operations and cash flow data for the fiscal year ended December31, 2005 and (i) subtracting from it our unaudited consolidated statements ofoperations and cash flow data for the thirty-nine weeks ended October 1, 2005and (ii) adding to it our unaudited consolidated statements of operations andcash flow data for the thirty-nine weeks ended September 30, 2006.

(b)           On July 1, 2005, weclosed our New Iberia, Louisiana manufacturing facility as part of our ongoingefforts to improve our production capacity utilization, productivity, andoperating efficiencies and lower our overall costs.  In fiscal 2005, we recorded a charge of $3.8million, of which $3.5 million was recorded during the thirty-nine weeks endedOctober 1, 2005.  The charge associatedwith the plant closing included a cash charge for employee compensation andother costs of $0.8 million and a non-cash charge for the impairment ofproperty, plant, equipment and inventory of $3.0 million.

(c)            In fiscal 2005 we hada net cash tax refund of $5.9 million. For the latest twelve months ended September 30, 2006 we had a net cashtax refund of $6.4 million.

(d)           Cash interest expenseis net interest expense less amortization of deferred debt issuance costs.

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

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

***Acquisitions***

Our liquidity and capital resources have beensignificantly impacted by acquisitions and may be impacted in the foreseeablefuture by additional acquisitions.  Wehave historically financed acquisitions with borrowings and cash flows fromoperating activities.  Our interestexpense has increased as a result of additional indebtedness we have incurredas a result of our acquisition of *Ortega* inAugust 2003 and the *Grandma’s*molassesbusiness in January 2006, and will increase with any additional indebtedness wemay incur to finance potential future acquisitions, if any.  To the extent future acquisitions, if any,are financed by additional indebtedness, the resulting increase in debt andinterest expense could have a negative impact on liquidity.

***Environmental and Health andSafety Costs***

We have not made any material expenditures during thethirty-nine week period ended September 30, 2006 in order to comply withenvironmental laws or regulations.  Basedon our experience to date, we believe that the future cost of compliance withexisting environmental laws and regulations (and liability for knownenvironmental conditions) will not have a material adverse effect on ourconsolidated financial condition, results of operations or liquidity.  However, we cannot predict what environmentalor health and safety legislation or regulations will be enacted in the futureor how existing or future laws or regulations will be enforced, administered orinterpreted, nor can we predict the amount of future expenditures that may berequired in order to comply with such environmental or health and safety lawsor regulations or to respond to such environmental claims.

***Debt***

*Senior Secured Credit Facility*.  Concurrent with our initial public offeringand concurrent offerings, we entered into a $30.0 million senior securedrevolving credit facility on October 14, 2004. In order to finance our acquisition of the *Grandma’s*molassesbrand, we amended the credit facility in January 2006 to provide for, amongother things, a new $25.0 million term loan and a reduction in the revolvingcredit facility commitments from $30.0 million to $25.0 million.  As amended, all outstanding indebtednessunder the credit facility matures on January 10, 2011.  Interest under the revolving credit facility,including any outstanding letters of credit, is determined based on severalalternative rates as stipulated in the revolving credit facility, including thebase lending rate per annum plus an applicable margin, or LIBOR plus anapplicable margin.  We pay a commitmentfee of 0.50% per annum on the unused portion of the revolving credit facility.  Interest under the term loan is determinedbased on alternative rates as stipulated in the credit facility, including thebase lending rate per annum plus an applicable margin of 1.75%, and LIBOR plusan applicable margin of 2.75%.  As ofSeptember 30, 2006, the interest rate for the term loan was 8.36% (based upon asix-month LIBOR contract that expires on January 17, 2007).  Our obligations under the credit facility arefully and unconditionally guaranteed on a senior basis by all of our existingand future domestic subsidiaries.  The creditfacility is secured by substantially all of our and our subsidiaries’ assetsexcept our and our subsidiaries’ real property. The credit facility provides for mandatory prepayment based on assetdispositions and certain issuances of securities, as defined.  The credit facility contains covenants thatrestrict, among other things, our ability to incur additional indebtedness, paydividends and create certain liens.  Thecredit facility also contains certain financial maintenance covenants, which,among other things, specify maximum capital expenditure limits, a minimuminterest coverage ratio and a maximum senior and total leverage ratio, eachratio as defined.  Proceeds of therevolving credit facility are restricted to funding our working capital requirements,capital

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expenditures and acquisitions of companies in the sameline of business as our company, subject to specified criteria.  The revolving credit facility was undrawn onthe date of consummation of our initial public offering and concurrent offeringsand remained undrawn through September 30, 2006.  The available borrowing capacity under ourrevolving credit facility, net of outstanding letters of credit of $2.9million, was $22.1 million at September 30, 2006.  The maximum letter of credit capacity underthe revolving credit facility is $10.0 million, with a fronting fee of 3% perannum for all outstanding letters of credit.

*12.0% Senior Subordinated Notes due 2016*.  In connection with our initial publicoffering, we issued on October 14, 2004, $124.3 million aggregate principalamount of 12.0% senior subordinated notes due 2016 in the form of EISs and anadditional $22.8 million aggregate principal amount of 12.0% seniorsubordinated notes due 2016 (not in the form of EISs).  In connection with the exercise of theunderwriters’ over-allotment option, on October 22, 2004 we issued anadditional $18.7 million aggregate principal amount of 12.0% seniorsubordinated notes in the form of EISs. Each EIS represents one share of our Class A common stock and $7.15principal amount of our 12.0% senior subordinated notes.  As of September 30, 2006, $165.8 millionaggregate principal amount of senior subordinated notes were outstanding.

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

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

We may not redeem the notes prior to October 30,2009.  However, we may, from time totime, seek to retire the senior subordinated notes through cash repurchases ofEISs or separate senior subordinated notes and/or exchanges of EISs or separatesenior subordinated notes for equity securities, in open market purchases,privately negotiated transactions or otherwise. Such repurchases or exchanges, if any, will depend on prevailing marketconditions, our liquidity requirements, contractual restrictions and otherfactors.  We expect that any repurchaseof EISs or senior subordinated notes would be funded with our existing cashbalances and cash from operations. The amounts involved may be material.

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

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

The senior subordinated notes are jointly andseverally and fully and unconditionally guaranteed by all of our existingdomestic subsidiaries and certain future domestic subsidiaries on an unsecuredand subordinated basis on the terms set forth in the indenture governing thesenior subordinated notes.  The senior subordinatednote guarantees are subordinated in right of payment to all existing and futuresenior indebtedness of the guarantors, including the indebtedness under ourcredit facility and the senior notes.

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Our present foreign subsidiary, Les ProduitsAlimentaires Jacques et Fils Inc., is not a guarantor, and any future foreignor partially owned domestic subsidiaries will not be guarantors, of our seniorsubordinated notes.

The indenture governing the senior subordinated notescontains covenants with respect to us and restricts the incurrence of additionalindebtedness and the issuance of capital stock; the payment of dividends ordistributions on, and redemption of, capital stock; a number of otherrestricted 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.

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

*8.0% Senior Notes due 2011*.  Concurrently with our initial public offeringand offering of separate senior subordinated notes, we issued $240.0 millionaggregate principal amount of 8.0% senior notes due 2011.  Interest on the senior notes is payable onApril 1 and October 1 of each year.  Ourobligations under the senior notes are fully and unconditionally guaranteed ona senior basis by all of our existing and 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 our non-guarantorsubsidiaries; are pari passu in right of payment to all of our and theguarantors’ existing and future unsecured senior debt; and are senior in rightof payment to all of our and the guarantors’ future subordinated debt,including the senior subordinated notes. Our present foreign subsidiary, Les Produits Alimentaires Jacques etFils Inc., is not a guarantor, and any future foreign or partially owneddomestic subsidiaries will not be guarantors, of our senior notes.

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

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***Future Capital Needs***

We are highly leveraged.  On September 30, 2006, our total long-termdebt and stockholders’ equity was $430.8 million and $79.3 million,respectively.

Our ability to generate sufficient cash to fund ouroperations depends generally on our results of operations and the availabilityof financing.  Our management believesthat our cash on hand, cash flow from operating activities and availableborrowing capacity under our revolving credit facility, will be sufficient forthe foreseeable future to fund operations, meet debt service requirements, fundcapital expenditures, make future acquisitions within our line of business, ifany, and pay our anticipated dividends on our Class A common stock.  We expect to make capital expenditures ofapproximately $7.0 million for fiscal 2006.

***Seasonality***

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

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

***Inflation***

During fiscal 2005 and the thirty-nine weeks endedSeptember 30, 2006, we were faced with increasing prices in certaincommodities, and in packaging materials, and we expect this trend maycontinue.  We manage this risk byentering into short-term supply contracts and advance commodities purchaseagreements from time to time, and if necessary, by raising prices.  Our cost increases in fiscal 2005 and thefirst thirty-nine weeks of fiscal 2006 were partially attributable to the spikein oil and natural gas prices, which have had a substantial impact on our rawmaterial, packaging and transportation costs. During 2005, our transportation costs also increased as a result of ashortage in truck carrier availability following Hurricanes Katrina andRita.  We believe that through salesprice increases and our cost saving efforts we have to some degree been able tooffset the impact of recent raw material, packaging and transportation costincreases.  There can be no assurance,however, that any future sales price increases or cost saving efforts by uswill offset the increased cost of raw material, packaging and transportationcosts, or that we will be able to raise prices or reduce costs at all.

**Recent AccountingPronouncements**

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

In July 2006, the FASB issued FASB Interpretation No.48, “*Accounting for Uncertainty in Income Taxes*”(FIN 48), which clarifies the accounting for uncertainty in tax positions. FIN48 requires that we

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recognize in our consolidated financial statements,the impact of a tax position, if that position is more likely than not of beingsustained on audit, based on the technical merits of the position.  We currently recognize the impact of a taxposition if it is probable of being sustained. The provisions of FIN 48 are effective as of the beginning of our 2007fiscal year, with the cumulative effect of the change in accounting principlerecorded as an adjustment to opening retained earnings.  At this time, we have not completed ourreview and assessment of the impact of the adoption of FIN 48.

In September 2006, the FASB issued SFAS No. 157, “*Fair Value Measurements*” (SFAS No. 157), which defines fairvalue, establishes a framework for measuring fair value and expands disclosuresabout fair value measurements.  Theprovisions of SFAS No. 157 are effective as of the beginning of our 2008 fiscalyear.  We are currently evaluating theimpact of adopting SFAS No. 157 on our financial statements.

In September 2006, the FASB issued SFAS No. 158, “*Employer’s Accounting for Defined Benefit Pension and OtherPostretirement Plans*” an amendment of FASB Statements No. 87, 88,106, and 132R (SFAS No. 158).  SFAS No.158 requires an employer to recognize in its statement of financial position anasset for a defined benefit plan’s over-funded status or a liability for a plan’sunder-funded status and recognize changes in the funded status of a definedbenefit plan in the year in which the changes occur.  These changes will be reported in ourcomprehensive income and as a separate component of stockholders’ equity.  SFAS No. 158 is effective for us as of December30, 2006.  We estimate the impact ofadopting SFAS No. 158 to be approximately $5.0 million, reflected as anincrease in accrued expenses and a decrease to stockholders’ equity on ourconsolidated balance sheet, with no impact to our statements of operations orcash flows.

In September 2006, the SEC issued Staff AccountingBulletin No. 108, “Considering the Effects of Prior Year Misstatements whenQuantifying Misstatements in Current Year Financial Statements” (SAB No. 108),which provides interpretive guidance on the consideration of the effects ofprior year misstatements in quantifying current year misstatements for thepurpose of a materiality assessment.  SABNo. 108 is effective as of the end of our 2006 fiscal year, allowing a one-timetransitional cumulative effect adjustment to beginning retained earnings as ofJanuary 1, 2006 for errors that were not previously deemed material, but arematerial under the guidance in SAB No. 108. While we are currently evaluating the impact of adopting SAB No. 108, wedo not believe that the application of SAB No. 108 will have a material effecton our results of operations or financial position.

**Off-balance SheetArrangements**

As of September 30, 2006, we did not have anyoff-balance sheet arrangements as defined in Item 303(a)(4)(ii) of RegulationS-K.

**Commitments andContractual Obligations**

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

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

 

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

(2)             Representsexpected contributions under our defined benefit pension plans in 2006 (seebelow).  The expected contributionsbeyond 2006 are not currently determinable.

During the thirty-nine week period ended September 30,2006, there were no material changes outside the ordinary course of business inthe specified contractual obligations set forth in the table above, except thatin January 2006, we issued additional long-term debt of $25.0 million in theform of a new term loan under our amended senior secured credit facility dueJanuary 10, 2011, which is not reflected in the table.  See “Debt—Senior Secured Credit Facility”above.  In addition, we anticipateelecting to make additional payments of approximately $1.1 million for a totalcontribution of $2.6 million for the plan year ended December 30, 2006 to fundour defined benefit pension plan obligations.

***Forward-Looking Statements***

This report includes forward-looking statements,including without limitation the statements under “Management’s Discussion andAnalysis of Financial Condition and Results of Operations.”  The words “believes,” “anticipates,” “plans,”“expects,” “intends,” “estimates,” “projects” and similar expressions areintended to identify forward-looking statements.  These forward looking statements involveknown and unknown risks, uncertainties and other factors that may cause our actualresults, performance and achievements, or industry results, to be materiallydifferent from any future results, performance, or achievements expressed orimplied by any forward-looking statements. We believe important factors that could cause actual results to differmaterially from our expectations include the following:

·                  our substantial leverage;

·                  intense competition, changesin consumer preferences, demand for our products, the effects of changingprices for our raw materials and local economic and market conditions;

·                  our continuedability to promote brand equity successfully, to anticipate and respond to newconsumer trends, to develop new products and markets, to broaden brandportfolios in order to compete effectively with lower priced products and inmarkets that are consolidating at the retail and manufacturing levels, toimprove productivity and to maintain access to credit markets;

·                  the risksassociated with the expansion of our business;

·                  our possibleinability to integrate any businesses we acquire;

·                  our borrowingcosts and credit ratings, which may be influenced by the credit ratings of ourcompetitors;

·                  factors thataffect the food industry generally, including:

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—           recalls if productsbecome adulterated or misbranded, liability if product consumption causesinjury, ingredient disclosure and labeling laws and regulations and thepossibility that consumers could lose confidence in the safety and quality ofcertain food products, as well as recent publicity concerning the healthimplications of obesity and trans fatty acids;

—           the effects of foreigncurrency movements between the Canadian dollar and U.S. dollar; and

—           fluctuations in thelevel of our customers’ inventories and credit and other business risks relatedto our customers operating in a challenging economic and competitiveenvironment; and

·                  the risk thatour senior subordinated notes may be treated as equity for U.S. federal incometax purposes; and

·                  other factorsdiscussed elsewhere in this report and in our public filings with the SEC,including under Item 1A, “Risk Factors” in our 2005 Annual Report on Form 10-K.

Developments in any of these areas could cause our resultsto differ materially from results that have been or may be projected by or onour behalf.

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

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

**Item 3.    Quantitative and Qualitative DisclosuresAbout Market Risk**

In the normal course of operations, we are exposed tomarket risks arising from adverse changes in interest rates.  Market risk is defined for these purposes asthe potential change in the fair value of a financial asset or liabilityresulting from an adverse movement in interest rates.  As of September 30, 2006, our revolvingcredit facility was undrawn.  As aresult, our only variable rate borrowings as of September 30, 2006, are underour term loan.  Interest under the termloan is determined based on alternative rates as stipulated in the creditfacility, including the base lending rate per annum plus an applicable marginof 1.75%, and LIBOR plus an applicable margin of 2.75%.  Interest under our revolving credit facilityis determined based on several alternative rates as stipulated in the revolvingcredit facility, including the base lending rate per annum plus an applicablemargin, or LIBOR plus an applicable margin. As of September 30, 2006, the interest rate for the term loan was 8.36%(based upon a six-month LIBOR contract expiring on January 17, 2007).  A 100 basis point increase in interest rates,applied to our variable rate borrowings at September 30, 2006, would result inan annual increase in interest expense and a corresponding reduction in cashflow of $0.3 million.

We also have outstanding $240.0 million principalamount of 8.0% senior notes due October 1, 2011, with interest payablesemiannually on April 1 and October 1 of each year.  The fair value of the senior notes atSeptember 30, 2006 and December 31, 2005, based on quoted market prices, was$246.6 million and $246.0 million, respectively.

We also have outstanding $165.8 million principalamount of 12.0% senior subordinated notes due October 30, 2016, with interestpayable quarterly on January 30, April 30, July 30 and October 30 of eachyear.  Of such outstanding principalamount, $143.0 million principal amount is represented by 20.0 million EISs.  Each EIS represents one share of our Class Acommon stock and $7.15 principal amount of our senior subordinated notes.  As of September 30, 2006 and December 31,2005, the fair value of the EISs, based on the per EIS closing price on theAMEX on June 30, 2006 and December 31, 2005 was $379.0 million and $290.4

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million, respectively. It is not practicable to estimate the fair value of the $143.0 principalamount of senior subordinated notes represented by the EISs.  Of the $165.8 million aggregate principalamount of senior subordinated notes outstanding, $22.8 million principal amountis not represented by EISs and trades separately.  The fair value of the separate seniorsubordinated notes at September 30, 2006 and December 31, 2005, based on quotedmarket prices, was $25.5 million.

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

**Item 4.    Controls and Procedures**

*Evaluation of Disclosure Controlsand Procedures. *Asrequired by Rule 13a-15(b) under the Securities Exchange Act of 1934, asamended, our management, including our chief executive officer and our chieffinancial officer, conducted an evaluation of the effectiveness of the designand operation of our disclosure controls and procedures as of the end of theperiod covered by this report.  Asdefined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, disclosurecontrols and procedures are controls and other procedures that we use that aredesigned to ensure that information required to be disclosed by us in thereports we file or submit under the Exchange Act is recorded, processed,summarized and reported, within the time periods specified in the SEC’s rulesand forms.  Disclosure controls and proceduresinclude, without limitation, controls and procedures designed to ensure thatinformation required to be disclosed by us in the reports we file or submitunder the Exchange Act is accumulated and communicated to our management,including our chief executive officer and our chief financial officer, asappropriate, to allow timely decisions regarding required disclosure.

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

*Changes in Internal Control OverFinancial Reporting*. As required by Rule 13a-15(d) under the Exchange Act, our management,including our chief executive officer and our chief financial officer, alsoconducted an evaluation of our internal control over financial reporting todetermine whether any change occurred during the quarter covered by this reportthat has materially affected, or is reasonably likely to materially affect, ourinternal control over financial reporting. Based on that evaluation, our chief executive officer and our chieffinancial officer concluded that there has been no change during the periodcovered by this report that has materially affected, or is reasonably likely tomaterially affect, our internal control over financial reporting.

*Inherent Limitations on Effectiveness of Controls.*  Our company’s management, including the chiefexecutive officer and chief financial officer, does not expect that ourdisclosure controls or our internal control over financial reporting willprevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provideonly reasonable, not absolute, assurance that the control system’s objectiveswill be met.  The design of a controlsystem must reflect the fact that there are resource constraints, and thebenefits of controls must be considered relative to their costs.  Further, because of the inherent limitationsin all control systems, no evaluation of controls can provide absoluteassurance that misstatements due to error or fraud will not occur or that allcontrol issues and instances of fraud, if any, within our company have beendetected.  These inherent limitationsinclude the realities that judgments in decision-making can be faulty and thatbreakdowns can occur because of simple error or mistake.  Controls can also be circumvented by theindividual acts of some persons, by collusion of two or more people, or bymanagement override of the controls.  Thedesign of any system of controls is based in part on certain assumptions aboutthe likelihood of future events, and there can be no assurance that any designwill succeed in achieving its stated goals under all potential futureconditions.  Projections of anyevaluation of controls effectiveness to future periods are subject to risks.  Over time, controls may become inadequatebecause of changes in conditions or deterioration in the degree of compliancewith policies or procedures.

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**PART IIOTHER INFORMATION**

**Item1.**                Legal Proceedings

                                                     Weare involved in various claims and legal actions arising in the ordinary courseof business, including proceedings involving product liability claims, worker’scompensation and other employee claims, and tort and other general liabilityclaims, for which we carry insurance, as well as trademark, copyright, patentinfringement and related claims and legal actions.  In the opinion of our management, theultimate disposition of these matters will not have a material adverse effecton our consolidated financial position, results of operations or liquidity.

**Item 1A.**       Risk Factors

                                                     Wedo not believe there have been any material changes in our risk factors aspreviously disclosed in our Annual Report on Form 10-K for the year endedDecember 31, 2005 filed with the Securities and Exchange Commission on March 7,2006.

**Item2.**                Unregistered Sales of Equity Securities and Useof Proceeds

                                                     Notapplicable.

**Item3.**                Defaults Upon Senior Securities

                                                     Notapplicable.

**Item4.**                Submission of Matters to a Vote of SecurityHolders

                                                     Notapplicable.

**Item5.**                Other Information

                                                     Notapplicable.

**Item6.**                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. |
| 32.2         |       | Certification pursuant to 18 U.S.C. Section 1350, as  adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, of the  Chief Financial Officer. |

 

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**SIGNATURE**

Pursuant to the requirements of the SecuritiesExchange Act of 1934, the registrant has duly caused this report to be signedon its behalf by the undersigned thereunto duly authorized.
| Dated: November 1, 2006 | B&G FOODS, INC. |
|-------------------------|---------------------|
|                    |                |   |
|                    |                |   |
|                    | By:                 | /s/ Robert C. Cantwell |   |
|                    |                | Robert C. Cantwell  Executive Vice President and Chief Financial  Officer (Principal Financial and Accounting  Officer and Authorized Officer) |

 

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INDEX TO EXHIBITS
| **EXHIBIT  NO.** |   | **DESCRIPTION**                                                                                                                                           |
|------------------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------|
|             |   |                                                                                                                                                      |
| 31.1             |   | Certification pursuant to Rule 13a-14(a) or Rule  15d-14(a) of the Securities Exchange Act of 1934 of the Chief Executive  Officer.                       |
| 31.2             |   | Certification pursuant to Rule 13a-14(a) or Rule  15d-14(a) of the Securities Exchange Act of 1934 of the Chief Financial  Officer.                       |
| 32.1             |   | Certification pursuant to 18 U.S.C. Section 1350, as  adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, of the  Chief Executive Officer. |
| 32.2             |   | Certification pursuant to 18 U.S.C. Section 1350, as  adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, of the  Chief Financial Officer. |

 

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