**As filed with the Securities andExchange Commission on April 30, 2008**

** **

 

****UNITED STATES****

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

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

 

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

 
| **(Mark one)**

**x** | **Quarterly  Report Pursuant to Section 13 or 15(d)**

**of  the Securities Exchange Act of 1934** |   |
|-----------------------|---------------------------------------------------------------------------------------------------------|--------|

 

**For the quarterly period ended March 29, 2008**

** **

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

 

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

 

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

 

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

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

 

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

 

As of March 29, 2008, the registrant had 36,778,988 shares of Class Acommon stock, par value $0.01 per share, issued and outstanding, 16,680,877 ofwhich were held in the form of Enhanced Income Securities (EISs) and 20,098,111of which were held separate from EISs. Each EIS represents one share of Class A common stock and $7.15principal amount of 12% senior subordinated notes due 2016.  As of March 29, 2008, the registrant hadno shares of Class B common stock, par value $0.01 per share, issued oroutstanding.

 

 

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B&G Foods, Inc. and SubsidiariesIndex

 
| ** **                        | **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 | 15 |
|                              | Item 3.               | Quantitative  and Qualitative Disclosures About Market Risk | 30 |
|                              | Item 4.               | Controls and  Procedures | 31 |
| PART II  OTHER INFORMATION   | 32                    |
|                              | Item 1.               | Legal Proceedings | 32 |
|                              | Item 1A. Risk Factors | 32 |
|                              | Item 2.               | Unregistered  Sales of Equity Securities and Use of Proceeds | 32 |
|                              | Item 3.               | Defaults  Upon Senior Securities | 32 |
|                              | Item 4.               | Submission  of Matters to a Vote of Security Holders | 32 |
|                              | Item 5.               | Other Information | 32 |
|                              | Item 6.               | Exhibits | 33 |
| SIGNATURE                         | 34                    |

** **

**i**

----

** **

**PART IFINANCIAL INFORMATION**

** **

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

** **

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

**Consolidated Balance Sheets**

**(Dollars in thousands, except per share data)**

**(Unaudited)**

** **
| ** **                                                                                                                     | ** ** | **March 29, 2008** | ** ** | **December 29, 2007** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------|------------|---------------------------------|------------|
| **Assets**                                                                                                                     |       |                         |       |                            |       |
| Current assets:                                                                                                                |       |                         |       |                            |       |
| Cash and cash equivalents                                                                                                      |       | $                            | 33,326     |                            | $          | 36,606 |   |
| Trade accounts receivable, net                                                                                                 |       | 35,161                       |       | 42,362                          |       |
| Inventories                                                                                                                    |       | 95,137                       |       | 93,181                          |       |
| Prepaid expenses                                                                                                               |       | 2,551                        |       | 3,556                           |       |
| Income tax receivable                                                                                                          |       | 56                           |       | 569                             |       |
| Deferred income taxes                                                                                                          |       | 648                          |       | 648                             |       |
| Total current assets                                                                                                           |       | 166,879                      |       | 176,922                         |       |
|                                                                                                                           |       |                         |       |                            |       |
| Property, plant and equipment, net of accumulated depreciation of  $57,714 and $55,679                                         |       | 53,983                       |       | 49,658                          |       |
| Goodwill                                                                                                                       |       | 253,353                      |       | 253,353                         |       |
| Trademarks                                                                                                                     |       | 227,220                      |       | 227,220                         |       |
| Customer relationship intangibles, net                                                                                         |       | 121,155                      |       | 122,768                         |       |
| Net deferred debt issuance costs and other assets                                                                              |       | 16,621                       |       | 17,669                          |       |
| Total assets                                                                                                                   |       | $                            | 839,211    |                            | $          | 847,590 |   |
|                                                                                                                           |       |                         |       |                            |       |
| **Liabilities and Stockholders’  Equity**                                                                                 |       |                         |       |                            |       |
|                                                                                                                           |       |                         |       |                            |       |
| Current liabilities:                                                                                                           |       |                         |       |                            |       |
| Trade accounts payable                                                                                                         |       | $                            | 25,706     |                            | $          | 32,126 |   |
| Accrued expenses                                                                                                               |       | 20,741                       |       | 21,894                          |       |
| Dividends payable                                                                                                              |       | 7,797                        |       | 7,797                           |       |
| Total current liabilities                                                                                                      |       | 54,244                       |       | 61,817                          |       |
|                                                                                                                           |       |                         |       |                            |       |
| Long-term debt                                                                                                                 |       | 535,800                      |       | 535,800                         |       |
| Other liabilities                                                                                                              |       | 12,312                       |       | 6,376                           |       |
| Deferred income taxes                                                                                                          |       | 69,057                       |       | 68,962                          |       |
| Total liabilities                                                                                                              |       | 671,413                      |       | 672,955                         |       |
|                                                                                                                           |       |                         |       |                            |       |
| 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; 36,778,988 shares issued and outstanding |       | 368                          |       | 368                             |       |
| Class B common stock, $0.01 par value per share. Authorized  25,000,000 shares; no shares issued or outstanding           |       | —                       |       | —                          |       |
| Additional paid-in capital                                                                                                     |       | 194,400                      |       | 202,197                         |       |
| Accumulated other comprehensive loss                                                                                           |       | (7,167                       | )          | (3,718                          | )          |
| Accumulated deficit                                                                                                            |       | (19,803                      | )          | (24,212                         | )          |
| Total stockholders’ equity                                                                                                |       | 167,798                      |       | 174,635                         |       |
| Total liabilities and stockholders’ equity                                                                                |       | $                            | 839,211    |                            | $          | 847,590 |   |

 

See Notes to ConsolidatedFinancial Statements.

 

1

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

**Consolidated Statements of Operations**

**(Dollars in thousands, except per share data)**

**(Unaudited)**

** **
| ** **                                        | ** ** | **Thirteen Weeks Ended** | ** ** |
|---------------------------------------------------|------------|------------------------------------|------------|
| ** **                                        | ** ** | **March 29, 2008**       | ** ** | **March 31, 2007** | ** ** |
|                                              |       |                               |       |   |   |
| Net sales                                         |       | $                                  | 116,342    |   | $ | 103,745 |   |
| Cost of goods sold                                |       | 81,412                             |       | 71,062 |   |
| Gross profit                                      |       | 34,930                             |       | 32,683 |   |
|                                              |       |                               |       |   |   |
| Operating expenses:                               |       |                               |       |   |   |
| Sales, marketing and distribution expenses        |       | 12,289                             |       | 11,504 |   |
| General and administrative expenses               |       | 1,358                              |       | 1,830 |   |
| Amortization expense—customer relationships  |       | 1,613                              |       | 663 |   |
| Operating income                                  |       | 19,670                             |       | 18,686 |   |
|                                              |       |                               |       |   |   |
| Other expenses:                                   |       |                               |       |   |   |
| Interest expense, net                             |       | 12,571                             |       | 12,125 |   |
| Income before income tax expense                  |       | 7,099                              |       | 6,561 |   |
| Income tax expense                                |       | 2,690                              |       | 2,487 |   |
| Net income                                        |       | $                                  | 4,409      |   | $ | 4,074 |   |
|                                              |       |                               |       |   |   |
| Earnings per share calculations:                  |       |                               |       |   |   |
| Basic and diluted distributed earnings per share: |       |                               |       |   |   |
| Class A common stock                         |       | $                                  | 0.21       |   | $ | 0.21 |   |
| Basic and diluted earnings (loss) per share:      |       |                               |       |   |   |
| Class A common stock                         |       | $                                  | 0.12       |   | $ | 0.20 |   |
| Class B common stock                         |       | $                                  | —     |   | $ | (0.01 | ) |

 

See Notes to ConsolidatedFinancial Statements.

 

2

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

**ConsolidatedStatements of Cash Flows**

**(Dollars in thousands)**

**(Unaudited)**

 
| ** **                                                                         | ** ** | **Thirteen Weeks Ended** | ** ** |
|------------------------------------------------------------------------------------|------------|------------------------------------|------------|
| ** **                                                                         | ** ** | **March 29, 2008**       | ** ** | **March 31, 2007** | ** ** |
| ** **                                                                         | ** ** | ** **                         | ** ** | ** ** | ** ** |
| **Cash flows from operating activities:**                                          |       |                               |       |   |   |
| Net income                                                                         |       | $                                  | 4,409      |   | $ | 4,074 |   |
| Adjustments to reconcile net income to net cash provided by operating  activities: |       |                               |       |   |   |
| Depreciation and amortization                                                      |       | 3,689                              |       | 2,458 |   |
| Amortization of deferred debt issuance costs                                       |       | 792                                |       | 773 |   |
| Deferred income taxes                                                              |       | 2,177                              |       | 2,076 |   |
| Changes in assets and liabilities, net of effects of business  acquired:           |       |                               |       |   |   |
| Trade accounts receivable                                                          |       | 7,201                              |       | (4,335 | ) |
| Inventories                                                                        |       | (1,956                             | )          | (7,848 | ) |
| Prepaid expenses                                                                   |       | 1,005                              |       | 593 |   |
| Income tax receivable                                                              |       | 513                                |       | (75 | ) |
| Other assets                                                                       |       | 256                                |       | (3 | ) |
| Trade accounts payable                                                             |       | (6,420                             | )          | 418 |   |
| Accrued expenses                                                                   |       | (1,134                             | )          | 5,804 |   |
| Other liabilities                                                                  |       | 442                                |       | 882 |   |
| Net cash provided by operating activities                                          |       | 10,974                             |       | 4,817 |   |
|                                                                               |       |                               |       |   |   |
| **Cash flows from investing activities:**                                          |       |                               |       |   |   |
| Capital expenditures                                                               |       | (6,420                             | )          | (2,283 | ) |
| Payments for acquisition of businesses                                             |       | —                             |       | (200,887 | ) |
| Net cash used in investing activities                                              |       | (6,420                             | )          | (203,170 | ) |
|                                                                               |       |                               |       |   |   |
| **Cash flows from financing activities:**                                          |       |                               |       |   |   |
| Proceeds from issuance of long-term debt                                           |       | —                             |       | 205,000 |   |
| Dividends paid                                                                     |       | (7,797                             | )          | (4,240 | ) |
| Payment of debt issuance costs                                                     |       | —                             |       | (3,991 | ) |
| Net cash (used in) provided by financing activities                                |       | (7,797                             | )          | 196,769 |   |
|                                                                               |       |                               |       |   |   |
| Effect of exchange rate fluctuations on cash and cash equivalents                  |       | (37                                | )          | 4 |   |
| Net decrease in cash and cash equivalents                                          |       | (3,280                             | )          | (1,580 | ) |
|                                                                               |       |                               |       |   |   |
| Cash and cash equivalents at beginning of period                                   |       | 36,606                             |       | 29,626 |   |
| Cash and cash equivalents at end of period                                         |       | $                                  | 33,326     |   | $ | 28,046 |   |
|                                                                               |       |                               |       |   |   |
| **Supplemental disclosures of cash flow  information:**                            |       |                               |       |   |   |
| Cash interest payments                                                             |       | $                                  | 7,012      |   | $ | 5,414 |   |
| Cash income tax payments                                                           |       | $                                  | 10         |   | $ | 47 |   |
| Cash income tax refunds                                                            |       | $                                  | (40        | ) | $ | (92 | ) |
| Non-cash transactions:                                                             |       |                               |       |   |   |
| Dividends declared and not yet paid                                                |       | $                                  | 7,797      |   | $ | 4,240 |   |

 

SeeNotes to Consolidated FinancialStatements. 

 

3

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

**Notes toConsolidated Financial Statements**

**(Unaudited)**

** **

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

** **

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

 

***RecentAcquisitions***

 

Effective February 25,2007, we completed the acquisition of the *Cream of Wheat*and*Cream of Rice*business from Kraft FoodsGlobal, Inc.  The final purchaseprice, including transaction costs, was $200.5 million.  We refer to the *Cream ofWheat*and *Cream of Rice*acquisitionas the “*Cream of Wheat*acquisition” and the *Cream of Wheat*and *Cream of Rice*businessescollectively as the “*Cream of Wheat*business.”

 

The acquisition describedabove was accounted for using the purchase method of accounting and,accordingly, the assets acquired and results of operations are included in ourconsolidated financial statements from the date of the acquisition.  The excess of the purchase price over thefair value of identifiable net assets acquired represents goodwill.  Trademarks are deemed to have an indefiniteuseful life and are not amortized. Customer relationship intangibles are amortized over 20 years.  Goodwill, customer relationship intangiblesand trademarks amortization are deductible for income tax purposes.

 

***Class ACommon Stock Offering***

 

On May 29, 2007, wecompleted a public offering of 15,985,000 shares of our Class A commonstock as a separately traded security, which includes 2,085,000 shares issuedpursuant to the fully exercised underwriters’ option to purchase additionalshares, at $13.00 per share.  The sharesof our separately traded Class A common stock trade on the New York StockExchange under the trading symbol “BGS” and trade separately from our EnhancedIncome Securities (EISs), which trade on the New York Stock Exchange under thetrading symbol “BGF.”  Each EISrepresents one share of our Class A common stock and $7.15 principalamount of our senior subordinated notes.

 

The proceeds of the Class Acommon stock offering were $193.2 million, after deducting underwritingdiscounts and commissions and other expenses. In connection with the offering, we repurchased 6,762,455 outstandingshares of our Class B common stock for $82.4 million, and the remaining 793,988shares of our outstanding Class B common stock were exchanged for an equalnumber of shares of Class A common stock. See note 9, “Related-Party Transactions.”  We also prepaid $100.0 million of our termloan borrowings under our senior secured credit facility.  The remaining funds were allocated forgeneral corporate purposes.

 

The holders of our EISsmay separate each EIS into one share of Class A common stock and $7.15principal amount of senior subordinated notes at any time.  Upon the occurrence of certain events(including redemption of the senior subordinated notes or upon maturity of thesenior subordinated notes), EISs will automatically separate.  Conversely, subject to limitations, a holderof separate shares of Class A common stock and senior subordinated notescan combine such securities to form EISs. Separation and combination of

 

4

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** **

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

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

**(Unaudited)**

 

**(1)****                                 Natureof Operations (Continued)**

** **

EISs willautomatically result in increases and decreases, respectively, in the number ofshares of Class A common stock not held in the form of EISs.  As of March 29, 2008, we had 36,778,988shares of Class A common stock issued and outstanding, 16,680,877 of whichwere held in the form of EISs and 20,098,111 of which were held separate fromEISs.  As of March 31, 2007, we had20,000,000 shares of Class A common stock issued and outstanding, all ofwhich were held in the form of EISs.

 

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

 

***FiscalYear***

 

Our financial statementsare presented on a consolidated basis. Typically, our fiscal quarters and fiscal year consist of 13 and 52weeks, respectively, ending on the Saturday closest to December 31 in thecase of our fiscal year and fourth fiscal quarter, and on the Saturday closestto the end of the corresponding calendar quarter in the case of our fiscalquarters.  As a result, a 53rd week isadded to our fiscal year every five or six years.  In a 53-week fiscal year our fourth fiscalquarter contains 14 weeks.  Our fiscalyear ending January 3, 2009 (fiscal 2008) contains 53 weeks and our fiscalyear ended December 29, 2007 (fiscal 2007) contains 52 weeks.  Each quarter of fiscal 2008 and 2007 contains13 weeks, except the fourth quarter of 2008 which will contain 14 weeks.

 

***Basis of Presentation***

 

The accompanying consolidated interim financial statements forthe thirteen week periods ended March 29, 2008 (first quarter of 2008) andMarch 31, 2007 (first quarter of 2007) have been prepared by our companyin accordance with accounting principles generally accepted in the UnitedStates of America without audit, pursuant to the rules and regulations ofthe Securities and Exchange Commission (SEC), and include the accountsof B&G Foods, Inc. and its subsidiaries.  Certain information and footnote disclosuresnormally included in annual financial statements prepared in accordance withgenerally accepted accounting principles have been omitted pursuant to such rules andregulations.  However, our managementbelieves, to the best of their knowledge, that the disclosures herein are adequateto 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 March 29, 2008, the results of our operations andcash flows for the first quarter of 2008 and 2007.  Our results of operations for the firstquarter of 2008 are not necessarily indicative of the results to be expectedfor the full year.  The accompanyingunaudited consolidated interim financial statements should be read inconjunction with the audited consolidated financial statements and notes forfiscal 2007 included in our Annual Report on Form 10-K for fiscal 2007filed with the SEC on March 6, 2008.

 

5

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

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

**(Unaudited)**

 

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

** **

***Use of******Estimates***

 

The preparation of financial statements inaccordance with U.S. generally accepted accounting principles requires ourmanagement to make a number of estimates and assumptions relating to thereporting of assets and liabilities and the disclosure of contingent assets andliabilities at the date of the consolidated financial statements and thereported amounts of revenues and expenses during the reporting period.  Some of the more significant estimates andassumptions made by management involve trade and consumer promotion expenses;allowances for excess, obsolete and unsaleable inventories; pension benefits;purchase accounting allocations; the recoverability of goodwill, trademarks,customer relationship intangibles, property, plant and equipment and deferredtax assets; the accounting for our enhanced income securities (EISs) and theaccounting for earnings per share. Actual results could differ from these estimates and assumptions.

 

***Recently Issued Accounting Standards***

 

In September 2006,the FASB issued SFAS No. 157, “*Fair Value Measurements*”(SFAS No. 157), which defines fair value, establishes a frameworkfor measuring fair value and expands disclosures about fair valuemeasurements.  The provisions of SFAS No. 157are effective as of the beginning of our 2008 fiscal year, with the exceptionof certain provisions deferred until the beginning of our 2009 fiscalyear.  In February 2008, the FASBissued FASB Staff Position SFAS No. 157-2, “*Effective Date of FASB Statement No. 157*”, whichdelayed the effective date of SFAS No. 157 for all non-financial assetsand liabilities, except those that are recognized or disclosed at fair value inthe financial statements on a recurring basis, until January 1, 2009.  The impact of the adoption of SFAS No. 157for financial assets and liabilities was not material to our consolidatedinterim financial statements.  Theexpanded disclosures about fair value measurements for financial assets andliabilities are presented in note 6.  Wehave not yet determined the impact that the adoption of SFAS No. 157 willhave on our non-financial assets and liabilities which are not recognized on arecurring basis; however we do not anticipate it to materially impact ourconsolidated financial statements.

 

In December 2007,the FASB issued SFAS No. 141 (revised 2007), “*Business Combinations*”(SFAS No. 141R), and SFAS No. 160, “*Noncontrolling Interests inConsolidated Financial Statements*” (SFAS No. 160).  SFAS No. 141R requires an acquirer tomeasure the identifiable assets acquired, the liabilities assumed and anynoncontrolling interest in the acquiree at their fair values on the acquisitiondate, with goodwill being the excess value over the net identifiable assetsacquired.  SFAS No. 160 clarifiesthat a noncontrolling interest in a subsidiary is an ownership interest in theconsolidated entity that should be reported as equity in the consolidatedfinancial statements.  SFAS No. 141Rand SFAS No. 160 are effective as of the beginning of our 2009 fiscalyear.  We are currently evaluating thepotential impact, if any, of the adoption of SFAS No. 141R and SFAS No. 160will have on our consolidated financial statements.

 

In March 2008, theFASB issued SFAS No. 161, “*Disclosures aboutDerivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133*.”  This statement changes the disclosurerequirements for derivative instruments and hedging activities.  SFAS No. 161 requires enhanceddisclosures about (a) how and why an entity uses derivative instruments, (b) howderivative instruments and related hedged items are accounted for under SFAS No. 133and its related interpretations, and (c) how derivative instruments andrelated hedged items affect an entity’s financial position, financialperformance, and cash flows.  SFAS No. 161is effective as of the beginning of our 2009 fiscal year. We are currentlyevaluating the potential impact, if any, of the adoption of SFAS No. 161will have on our consolidated financial statements.

 

 

6

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

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

**(Unaudited)**

 

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

** **

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

 
| ** **                  | ** ** | **March 29, 2008** | ** ** | **December 29, 2007** | ** ** |
|-----------------------------|------------|------------------------------|------------|---------------------------------|------------|
| Raw materials and packaging |       | $                            | 16,865     |                            | $          | 19,573 |   |
| Work in process             |       | 2,265                        |       | 2,641                           |       |
| Finished goods              |       | 76,007                       |       | 70,967                          |       |
|                        |       |                         |       |                            |       |
| Total                       |       | $                            | 95,137     |                            | $          | 93,181 |   |

 

**(4)****                                 Goodwill,Trademarks and Customer Relationship Intangibles**

** **

There has been no change in the carrying amount ofgoodwill for the period from December 29, 2007 to March 29, 2008.

 

There has been no change in the carrying amount oftrademarks for the period from December 29, 2007 to March 29, 2008.

 

Customer *relationship* intangibles arepresented at cost, net of accumulated amortization, and are amortized on astraight-line basis over their estimated useful lives of 20 years.

 
| ** **                        | ** ** | **Customer  Relationship  Intangibles** | ** ** | **Less:  Accumulated  Amortization** | ** ** | **Total** | ** ** |
|-----------------------------------|------------|-----------------------------------------|------------|--------------------------------------|------------|-----------|------------|
| ** **                        | ** ** | **(dollars in thousands)**    | ** ** |
| Balance at December 29, 2007 |       | $                                       | 129,000    |                                 | $          | (6,232    | )          | $ | 122,768 |   |
| Amortization expense              |       | —                                  |       | (1,613                               | )          | (1,613    | )          |
| Balance at March 29, 2008    |       | $                                       | 129,000    |                                 | $          | (7,845    | )          | $ | 121,155 |   |

 

Amortization expense associated with customerrelationship intangibles for the first quarter of 2008 and 2007 was $1.6million and $0.7 million, respectively, and is recorded in operatingexpenses.  We expect to recognize an additional$4.9 million of amortization expense associated with our current customerrelationship intangibles during the remainder of fiscal 2008, and thereafter$6.5 million per year for each of the next four succeeding fiscal years.

 

**(5)****                                 Long-termDebt**

** **

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

 
| ** **                                                | ** ** | **March 29, 2008** | ** ** | **December 29, 2007** | ** ** |
|-----------------------------------------------------------|------------|------------------------------|------------|---------------------------------|------------|
| Revolving credit facility                                 |       | $                            | —     |                            | $          | — |   |
| Term loan                                                 |       | 130,000                      |       | 130,000                         |       |
| Total senior secured credit facility                      |       | 130,000                      |       | 130,000                         |       |
|                                                      |       |                         |       |                            |       |
| 12.0% Senior Subordinated Notes due October 30, 2016 |       | 165,800                      |       | 165,800                         |       |
| 8.0% Senior Notes due October 1, 2011                |       | 240,000                      |       | 240,000                         |       |
| Total long-term debt                                      |       | $                            | 535,800    |                            | $          | 535,800 |   |

 

7

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

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

**(Unaudited)**

 

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

** **

As of March 29,2008, the aggregate maturities of long-term debt are as follows (dollars inthousands):

 
| Years ending December: | ** ** | ** ** | ** ** |
|------------------------|------------|------------|------------|
| 2008                   |       | $          | —     |   |
| 2009                   |       | —     |       |
| 2010                   |       | —     |       |
| 2011                   |       | 240,000    |       |
| 2012                   |       | —     |       |
| Thereafter             |       | 295,800    |       |
| Total                  |       | $          | 535,800    |   |

 

*Senior Secured Credit Facility*.  In October 2004, we entered into a $30.0million senior secured revolving credit facility.  In order to finance the *Grandma’s* molasses acquisition, we amendedthe credit facility in January 2006 to provide for, among other things, anew $25.0 million term loan and a reduction in the revolving credit facilitycommitments from $30.0 million to $25.0 million.  In order to finance the *Cream ofWheat* acquisition, our credit facility was amended and restated in February 2007to provide for, among other things, an additional $205.0 million of term loanborrowings.  On May 29, 2007, weprepaid $100.0 million of term loan borrowings. Our $25.0 million revolving credit facility matures on January 10,2011 and the remaining $130.0 million of term loan borrowings matures on February 26,2013.

 

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

 

Effective as of February 26, 2007, we entered into a six-yearinterest rate swap agreement in order to effectively fix at 7.0925% theinterest rate payable for $130.0 million of term loan borrowings.  The swap is designated as a cash flow hedgeunder the guidelines of SFAS No. 133. The swap is in place through the life of the term loan, ending on February 26,2013.  Changes in fair value of the swapare recorded in accumulated other comprehensive income (loss), net of tax onour consolidated balance sheet.

 

Our obligations under the credit facility are jointly and severally andfully and unconditionally guaranteed on a senior basis by all of our existingand certain future domestic subsidiaries. The credit facility is secured by substantially all of our and oursubsidiaries’ 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.  As of March 29, 2008, we were incompliance with all of the covenants in the credit facility.  Proceeds of the revolving credit facility arerestricted to funding our working capital requirements, capital expendituresand acquisitions of companies in the same line of business as our company,subject to specified criteria.  Therevolving credit facility was undrawn on the date of its commencement in October 2004and remained undrawn through March 29, 2008.  The available borrowing capacity under ourrevolving credit facility, net of

 

8

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

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

**(Unaudited)**

 

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

** **

outstanding letters of credit of $2.4 million, was $22.6 million at March 29,2008.  The maximum letter of creditcapacity under the revolving credit facility is $10.0 million, with a frontingfee of 3.0% per annum for all outstanding letters of credit.

 

*Subsidiary Guarantees*.  We have no assets or operations independentof our direct and indirect subsidiaries. All of our present domestic subsidiaries jointly and severally and fullyand unconditionally guarantee our senior subordinated notes and our seniornotes, and management has determined that our subsidiaries that are notguarantors of our senior subordinated notes and senior notes are, individuallyand in the aggregate, “minor subsidiaries” as that term is used in Rule 3-10of Regulation S-X promulgated by the SEC. There are no significant restrictions on our ability and the ability ofour subsidiaries to obtain funds from our respective subsidiaries by dividendor loan.  Consequently, separatefinancial statements have not been presented for our subsidiaries becausemanagement has determined that they would not be material to investors.

 

*Deferred Debt Issuance Costs*.  In connection with the issuance of our seniorsubordinated notes and our senior notes in October, 2004, we capitalizedapproximately $23.1 million of financing costs, which will be amortized overtheir respective terms.  In connectionwith the issuance of our term loan in January 2006, we capitalizedapproximately $0.4 million of additional financing costs, which will beamortized over the term of the loan.  Inconnection with the issuance of additional term loan borrowings of $205.0million in February 2007 we capitalized approximately $4.0 million ofadditional debt issuance costs.  Duringthe second quarter of 2007 we wrote-off and expensed $1.8 million of deferreddebt issuance costs in connection with our May 2007 prepayment of $100.0million of term loan borrowings.  As of March 29,2008 and December 29, 2007 we had net deferred debt issuance costs of$15.6 million and $16.4 million, respectively.

 

At March 29, 2008and December 29, 2007 accrued interest of $13.7 million and $8.9 million,respectively, is included in accrued expenses in the accompanying consolidatedbalance sheets.

** **

**(6)****                                 FinancialInstruments**

** **

We adopted SFAS No. 157on December 30, 2007, the first day of our 2008 fiscal year.  SFAS No. 157 defines fair value as theprice that would be received to sell an asset or paid to transfer a liabilityin an orderly transaction between market participants at the measurement date(an exit price). The standard outlines a valuation framework and creates a fairvalue hierarchy in order to increase the consistency and comparability of fairvalue measurements and the related disclosures. Under generally acceptedaccounting principles, certain assets and liabilities must be measured at fairvalue, and SFAS No. 157 details the disclosures that are required foritems measured at fair value.

 

Financial assets and liabilities are measured using inputsfrom the three levels of the SFAS No. 157 fair value hierarchy. The threelevels are as follows:

 

Level 1—Inputs are unadjusted quoted prices in activemarkets for identical assets or liabilities.

 

Level 2—Inputs include quoted prices for similar assets andliabilities in active markets, quoted prices for identical or similar assets orliabilities in markets that are not active, inputs other than quoted pricesthat are observable for the asset or liability (i.e., interest rates, yieldcurves, etc.), and inputs that are derived principally from or corroborated byobservable market data by correlation or other means (market corroboratedinputs).

 

Level 3—Unobservable inputs that reflect our assumptionsabout the assumptions that market participants would use in pricing the assetor liability.

 

9

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

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

**(Unaudited)**

 

**(6)****                                 FinancialInstruments (Continued)**

** **

In accordance with the fair value hierarchy describedabove, the following table shows the fair value of our interest rate swap as ofMarch 29, 2008, which is included in “Other long-term liabilities” in ourconsolidated balance sheet (dollars in thousands):

 
| ** **                | ** ** | ** **                   | ** ** | **Fair Value Measurements as of March 29, 2008** | ** ** |
|---------------------------|------------|------------------------------|------------|-------------------------------------------------------------------------------------|------------|
| ** **                | ** ** | **March 29, 2008** | ** ** | **Level 1**                                                                    | ** ** | **Level 2** | ** ** | **Level 3** | ** ** |
| Interest rate derivatives |       | $                            | 11,403     |                                                                                | $          | — |   | $ | 11,403 |   | $ | — |   |
|                           |            |                              |            |                                                                                     |            |  |  |  |  |  |  |  |  |

 

We use our interest rateswap to manage variable interest rate exposure on our $130.0 million of termloan borrowings.  Our objective forholding this derivative is to decrease the volatility of future cash flowsassociated with interest payments on our variable rate debt.

 

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

 

Thecarrying values and fair values of our senior notes and senior subordinatednotes as of March 29, 2008 and December 29, 2007 are as follows(dollars in thousands):

 
| ** **                                                  | ** ** | **March 29, 2008** | ** ** | **December 29, 2007** | ** ** |
|-------------------------------------------------------------|------------|------------------------------|------------|---------------------------------|------------|
| ** **                                                  | ** ** | **Carrying Value**      | ** ** | **Fair Value(1)(2)**       | ** ** | **Carrying Value** | ** ** | **Fair Value(1)(3)** | ** ** |
| 8% Senior Notes due October 1, 2011                    |       | $                            | 240,000    |                            | $          | 232,800 |   | $ | 240,000 |   | $ | 235,800 |   |
| 12% Senior Subordinated Notes due October 30, 2016(2): |       |                         |       |                            |       |   |   |   |   |
| — represented by EISs                                  |       | 119,268                      |       | 129,444                         |       | 119,067 |   | 126,561 |   |
| — held separately                                      |       | 46,532                       |       | 50,501                          |       | 46,733 |   | 49,674 |   |
|                                                             |            |                              |            |                                 |            |  |  |  |  |  |  |  |  |

 

----

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

 

(2)          Solely for purposes of this presentation, we have assumed that the fairvalue of each senior subordinated note at March 29, 2008 was $7.76, basedupon the $11.23 per share closing price of our separately traded Class Acommon stock and the $18.99 per EIS closing price of our EISs on the New YorkStock Exchange on March 28, 2008 (the last business day of the firstquarter of 2008).  Each EIS representsone share of Class A common stock and $7.15 principal amount of our seniorsubordinated notes.

 

(3)          Solely for purposes of this presentation, we have assumed that the fairvalue of each senior subordinated note at December 29, 2007 was $7.60,based upon the $10.07 per share closing price of our separately traded Class Acommon stock and the $17.67 per EIS closing price of our EISs on the New YorkStock Exchange on December 28, 2007 (the last business day of fiscal 2007).

 

The carrying value of ourterm loan borrowings approximates fair value because interest rates under theterm loan borrowings are variable, based on prevailing market rates.  Our term loan borrowings are subject to theinterest rate swap discussed above.

** **

**(7)****                                 ComprehensiveIncome Recognition**

** **

Comprehensiveincome includes net income, foreign currency translation adjustments relatingto assets and liabilities located in our foreign subsidiaries, amortization ofunrecognized prior service cost and pension deferrals, net of tax and mark tomarket adjustments of our cash flow hedge, net of tax.  The components of comprehensive income are asfollows (dollars in thousands):

 

10

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

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

**(Unaudited)**

 

**(7)****                                 ComprehensiveIncome Recognition (Continued)**

 
| ** **                                                                         | ** ** | **Thirteen Weeks Ended** | ** ** |
|------------------------------------------------------------------------------------|------------|------------------------------------|------------|
| ** **                                                                         | ** ** | **March 29,  2008**           | ** ** | **March 31,  2007** | ** ** |
|                                                                               |       |                               |       |   |   |
| Net income                                                                         |       | $                                  | 4,409      |   | $ | 4,074 |   |
| Other comprehensive income:                                                        |       |                               |       |   |   |
| Foreign currency translation adjustments                                           |       | (37                                | )          | 4 |   |
| Amortization of unrecognized prior service cost and pension  deferrals, net of tax |       | 5                                  |       | 11 |   |
| Mark to market adjustment of cash flow hedge transaction, net of tax               |       | (3,417                             | )          | (697 | ) |
| Comprehensive income                                                               |       | $                                  | 960        |   | $ | 3,392 |   |

** **

**(8)****                                 Pension Benefits**

** **

Net periodic costs for the first quarter of 2008 and2007 include the following components (dollars in thousands):

 
| ** **                                          | ** ** | **Thirteen Weeks Ended** | ** ** |
|-----------------------------------------------------|------------|------------------------------------|------------|
| ** **                                          | ** ** | **March 29, 2008**       | ** ** | **March 31, 2007** | ** ** |
|                                                |       |                               |       |   |   |
| Service cost—benefits earned during the period |       | $                                  | 330        |   | $ | 385 |   |
| Interest cost on projected benefit obligation       |       | 360                                |       | 336 |   |
| Expected return on plan assets                      |       | (453                               | )          | (372 | ) |
| Amortization of unrecognized prior service cost     |       | (3                                 | )          | 6 |   |
| Amortization of loss                                |       | 11                                 |       | 11 |   |
| Net pension cost                                    |       | $                                  | 245        |   | $ | 366 |   |

 

During the first quarter of 2008, we did not make anycontributions to our defined benefit pension plans.  We anticipate electing to make payments ofapproximately $1.0 million during the remainder of fiscal 2008 to fund ourdefined benefit pension plan obligations.

 

**(9)****                                 Related-PartyTransactions**

** **

*Roseland Lease.*  We lease a manufacturing and warehousefacility from a former chairman of our board of directors under an operatinglease, which expires in April 2009. Total rent expense associated with this lease was $0.2 million for thefirst quarters of 2008 and 2007.

 

*Repurchase and Exchange of Class B CommonStock*.  We used aportion of the proceeds of the Class A common stock offering to repurchase6,762,455 shares of our Class B common stock, which were held by, amongothers, Bruckmann, Rosser, Sherrill & Co., L.P. (BRS), Stephen C.Sherrill, the chairman of our board of directors, and certain of our currentand former executive officers, at a per share repurchase price equal to theoffering price of our Class A common stock, or $13.00 per share, lessdiscounts and commissions.  BRS was ourmajority owner prior to our EIS offering in October 2004 and remained amajority owner of our Class B common stock prior to our Class Acommon stock offering in May 2007.  Mr. Sherrillis a managing director of Bruckmann, Rosser, Sherrill & Co., Inc.,the manager of BRS.  We also exchangedthe remaining 793,988 shares of our Class B common stock, which were heldby certain of our current and former executive officers, for an equal numbersof shares of our Class A common stock in order to eliminate all of ouroutstanding Class

 

11

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

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

**(Unaudited)**

 

**(9)****                                 Related-PartyTransactions (Continued)**

** **

B common stock. Our board of directors established a special committee comprised solelyof our independent directors to recommend to our board of directors therepurchase price and exchange ratio for our Class B common stock, tonegotiate with the holders of the Class B common stock, and to recommendto our board of directors if the transaction was in our best interests and fairto the holders of our Class A common stock.  The special committee retained a financialadvisor to provide information, advice and analysis to assist the specialcommittee in its review of the proposed transaction.  The special committee also engaged its ownlegal counsel to advise the special committee on its duties andresponsibilities.  The financial advisordelivered to the special committee an opinion that the proposed considerationto be paid by us to the holders of the Class B common stock was fair to usand the holders of the Class A common stock from a financial point ofview.  After considering all of theinformation it had gathered, the special committee recommended to our board ofdirectors that from a valuation standpoint, the purchase price for the Class Bcommon stock to be repurchased should be the offering price of the Class Acommon stock in the offering, net of underwriting discounts and commissions,and that each share of our Class B common stock to be exchanged should beexchanged for one share of our Class A common stock.  The special committee also recommended to ourboard of directors that based on the repurchase price and Class A and Class Bexchange ratio and other material terms of the transaction, the transaction wasadvisable and in our best interests and fair to the holders of our Class Acommon stock.

** **

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

** **

We are subject to environmental laws and regulationsin the normal course of business.  Basedon our experience to date, management believes that the future cost ofcompliance with existing environmental laws and regulations (and liability forknown environmental 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 from time to time involved in various claimsand legal actions arising in the ordinary course of business, includingproceedings involving product liability claims, worker’s compensation and otheremployee claims, and tort and other general liability claims, as well astrademark, copyright, patent infringement and related claims and legalactions.  In the opinion of ourmanagement, the ultimate disposition of any currently pending claims or actionswill not have a material adverse effect on our consolidated financial position,results of operations or liquidity.

 

We have employmentagreements with our executive officers. The agreements generally continue until terminated by the executive orby us, and provide for severance payments under certain circumstances,including termination by us without cause (as defined) or as a result of theemployees’ disability, or termination by us or a deemed termination upon a changeof control (as defined).  Severancebenefits include payments for salary continuation, continuation of health careand insurance benefits, present value of additional pension credits,accelerated vesting under compensation plans and, in the case of a change ofcontrol, potential excise tax liability and gross-up payments.

** **

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

** **

We currently have one class of common stock issued andoutstanding, designated as Class A common stock.  Prior to May 29, 2007, we had twoclasses of common stock issued and outstanding, designated as Class Acommon stock and Class B common stock.  For periods in which we had shares of both Class A and

 

12

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

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

**(Unaudited)**

 

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

** **

Class B common stock issued and outstanding, wepresent earnings per share using the two-class method.  The two-class method is an earningsallocation formula that determines earnings per share for each class of commonstock according to dividends declared and participation rights in undistributedearnings or losses.  Net income isallocated between the two classes of common stock based upon the two-classmethod.  Basic and diluted earnings pershare for the Class A common stock and Class B common stock iscalculated by dividing allocated net income by the weighted average number ofshares of Class A common stock and Class B common stock outstanding.

 
| ** **                                                    | ** ** | **Thirteen  Weeks Ended**       | ** ** |
|---------------------------------------------------------------|------------|--------------------------------------|------------|
| ** **                                                    | ** ** | **March 29,  2008**             | ** ** | **March 31,  2007** | ** ** |
| ** **                                                    | ** ** | **(dollars in thousands)** | ** ** |
| Net income                                                    |       | $                                    | 4,409      |   | $ | 4,074 |   |
| Less: Class A common stock dividends declared            |       | 7,797                                |       | 4,240 |   |
| Undistributed loss                                            |       | $                                    | (3,388     | ) | $ | (166 | ) |
|                                                          |       |                                 |       |   |   |
| Basic and diluted weighted average common shares outstanding: |       |                                 |       |   |   |
| Class A common stock                                     |       | 36,778,988                           |       | 20,000,000 |   |
| Class B common stock                                     |       | —                               |       | 7,556,443 |   |
|                                                          |       |                                 |       |   |   |
| Basic and diluted allocation of undistributed loss:           |       |                                 |       |   |   |
| Class A common stock                                     |       | $                                    | (3,388     | ) | $ | (120 | ) |
| Class B common stock                                     |       | —                               |       | (46 | ) |
| Total                                                         |       | $                                    | (3,388     | ) | $ | (166 | ) |
|                                                          |       |                                 |       |   |   |
| Basic and diluted earnings per share:                         |       |                                 |       |   |   |
| Undistributed (loss) earnings per share:                      |       |                                 |       |   |   |
| Class A common stock                                     |       | $                                    | (0.09      | ) | $ | (0.01 | ) |
| Class B common stock                                     |       | $                                    | —     |   | $ | (0.01 | ) |
| Distributed earnings:                                         |       |                                 |       |   |   |
| Class A common stock                                     |       | $                                    | 0.21       |   | $ | 0.21 |   |
| *Earnings (loss) per share**:*                                |       |                                 |       |   |   |
| Class A common stock                                     |       | $                                    | 0.12       |   | $ | 0.20 |   |
| Class B common stock                                     |       | $                                    | —     |   | $ | (0.01 | ) |

 

Since May 29, 2007, we no longer have any sharesof Class B common stock issued or outstanding.  In addition, no dividends on our Class Bcommon stock were ever declared prior to such date.  Therefore, for purposes of the earnings pershare calculation, all distributed earnings are included in Class A commonstock earnings per share.  Dilutedearnings per share for each of the periods presented is equal to basic earningsper share as no dilutive securities were outstanding during either period.

** **

**(12)****                          Business and CreditConcentrations and Geographic Information**

** **

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 March 29, 2008, we do not believewe have any significant concentration of credit risk with respect to our tradeaccounts receivable.  Our top tencustomers accounted for approximately 46.7%****and45.2% of consolidated net sales for the first quarter of 2008 and the firstquarter of

 

13

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

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

**(Unaudited)**

 

**(12)****                          Businessand Credit Concentrations and Geographic Information (Continued)**

** **

2007, respectively. Other than Wal-Mart, which accounted for 12.9% and 12.2% of ourconsolidated net sales for the first quarter of 2008 and the first quarter of2007, respectively, no single customer accounted for more than 10.0% of ourconsolidated net sales for the first quarter of 2008 or the first quarter of 2007.

 

During the first quarter of 2008 and the first quarterof 2007, respectively, our sales to foreign countries represented approximately1.0% of net sales and less than 1.0% of net sales, respectively.  Our foreign sales are primarily to customersin Canada.****

** **

**(13)****                          Income Taxes**

** **

As of March 29, 2008 and December 29, 2007,we have approximately $0.1 million of total unrecognized tax benefits, whichincludes interest and penalties, that if recognized would have a favorableimpact on our tax expense.  We continueto classify interest and penalties related to income tax uncertainties asincome tax expense.

 

14

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** **

**Item2.**   Management’s Discussion and Analysis ofFinancial Condition and Results of Operations

** **

Thefollowing Management’s Discussion and Analysis of Financial Condition andResults of Operations contains forward-looking statements that involve risksand uncertainties.  Our actual resultscould differ materially from those anticipated in these forward-lookingstatements as a result of certain factors, including those set forth under theheading “Forward-Looking Statements” below and elsewhere in this report.  The following discussion should be read inconjunction with the unaudited consolidated interim financial statements andrelated notes for the thirteen weeks ended March 29, 2008 (first quarterof 2008) included elsewhere in this report and the audited consolidatedfinancial statements and related notes for the fiscal year ended December 29,2007 (fiscal 2007) included in our Annual Report on Form 10-K filed withthe Securities and Exchange Commission (SEC) on March 6, 2008 (which werefer to as our 2007 Annual Report on Form 10-K).

 

**General**

** **

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

 

Ourgoal is to continue to increase sales, profitability and cash flows byenhancing our existing portfolio of branded shelf-stable products and bycapitalizing on our competitive strengths. We intend to implement our growth strategy through the following initiatives:expanding our brand portfolio with acquisitions of complementary brandedbusinesses, continuing to develop innovative new products and delivering themto market quickly, leveraging our unique multiple channel sales anddistribution system and continuing to focus on higher growth customers anddistribution channels.

 

Since 1996, we have successfully acquired andintegrated 18 separate brands into our operations.  We completed the acquisition of the *Cream of Wheat*and *Cream of Rice*brandsfrom Kraft Foods Global, Inc. effective February 25, 2007, which werefer to in this report as the “*Cream of Wheat*acquisition.”  The *Cream of Wheat*acquisitionhas been accounted for using the purchase method of accounting and,accordingly, the assets acquired and results of operations of the acquiredbusiness is included in our consolidated financial statements from the date ofacquisition.  The *Cream ofWheat*acquisition and the application of the purchase method ofaccounting for the acquisition affects comparability between periods.

 

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

 

*Fluctuationsin Commodity Prices and Production and Distribution Costs*. We purchase raw materials, including agricultural products, meat,poultry, other raw materials, ingredients and packaging materials from growers,commodity processors, other food companies and packaging manufacturers.  Raw materials, ingredients and packaging materialsare subject to fluctuations in price attributable to a number of factors.  Fluctuations in commodity prices can lead toretail price volatility and intensive price competition, and can influenceconsumer and trade buying patterns.  Inthe first quarter of 2008, our commodity prices for wheat, maple syrup, beansand corn sweeteners were higher than those incurred during the first quarter of2007.

 

Maplesyrup production in Canada, which represents the vast majority of globalproduction, is expected to be well below industry projections and global demandin 2008 due to poor crop yields.  As aresult, we expect to see significant further increases in the price we pay formaple syrup in 2008 and likely will face a shortfall in supply as compared toour needs, which would negatively impact our sales of maple syrup products.

 

15

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Inaddition, the cost of labor, manufacturing, energy, fuel, packaging materialsand other costs related to the production and distribution of our food productshave risen significantly in recent years and at an increasing rate in recentmonths.  We expect that many of thesecosts will continue to rise for the foreseeable future.  We manage these risks by entering intoshort-term supply contracts and advance commodities purchase agreements fromtime to time, implementing cost saving measures and, if necessary, by raisingsales prices.  We cannot assure you thatany cost saving measures or sales price increases by us will offset increasesto our raw material, ingredient, packaging and distribution costs.  To the extent we are unable to offset thesecost increases, our operating results will be significantly negatively impactedduring the remainder of fiscal 2008.

 

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

 

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

 

*ConsumerConcern Regarding Food Safety, Quality and Health*. The food industry is subject to consumer concerns regarding the safetyand quality of certain food products, including the health implications ofgenetically modified organisms and obesity.

 

*AWeakening of the U.S. Dollar in Relation to the Canadian Dollar*. We purchase the majority of our maple syrup requirements from supplierslocated in Québec, Canada.  Over the pastseveral years the U.S. dollar has weakened against the Canadian dollar, whichhas in turn significantly increased our costs relating to the production of ourmaple syrup products.

 

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

 

**Critical Accounting Policies; Use of Estimates**

** **

Thepreparation of financial statements in accordance with U.S. generally acceptedaccounting principles requires our management to make a number of estimates andassumptions relating to the reporting of assets and liabilities and thedisclosure of contingent assets and liabilities at the date of the consolidatedfinancial statements and the reported amounts of revenues and expenses duringthe reporting period.  Some of the moresignificant estimates and assumptions made by management involve trade andconsumer promotion expenses; allowances for excess, obsolete and unsaleableinventories; pension benefits; purchase accounting allocations; therecoverability of goodwill, trademarks, customer relationship intangibles,property, plant and equipment, and deferred tax assets; the accounting for ourEISs; and the accounting for earnings per share.  Actual results could differ from theseestimates and assumptions.

 

Oursignificant accounting policies are described more fully in note 2 to ourconsolidated financial statements included in our 2007 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***

 

Weoffer various sales incentive programs to customers and consumers, such asprice discounts, in-store display incentives, slotting fees and coupons.  The recognition of expense for these programsinvolves the use of judgment related to performance and redemption estimates.  Estimates are made based on historical 

 

16

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experience and other factors.  Actual expenses may differ if the level ofredemption rates and performance vary from our estimates.

 

***Inventories***

 

Inventories arestated at the lower of cost or market. Cost is determined using the first-in, first-out and average costmethods.  Inventories have been reducedby an allowance for excess, obsolete and unsaleable inventories.  The allowance is an estimate based on ourmanagement’s review of inventories on hand compared to estimated future usageand sales.

 

***Long-Lived Assets***

 

Long-livedassets, such as property, plant and equipment, and intangibles with estimateduseful lives are depreciated or amortized over their respective estimateduseful lives to their estimated residual values, and reviewed for impairmentwhenever events or changes in circumstances indicate that the carrying amountof an asset may not be recoverable.  Recoverabilityof assets to be held and used is measured by a comparison of the carryingamount of an asset to estimated undiscounted future cash flows expected to begenerated by the asset.  If the carryingamount of an asset exceeds its estimated future cash flows, an impairmentcharge is recognized by the amount by which the carrying amount of the assetexceeds the fair value of the asset. Recoverability of assets held for sale is measured by a comparison ofthe carrying amount of an asset or asset group to their fair value lessestimated cost to sell.  Estimatingfuture cash flows and calculating fair value of assets requires significantestimates and assumptions by management.

 

***Goodwill and Trademarks***

 

Goodwill andintangible assets with indefinite useful lives (trademarks) are tested for impairmentat least annually and whenever events or circumstances occur indicating thatgoodwill or indefinite life intangibles might be impaired.

 

Weperform the annual impairment tests as of the last day of each fiscalyear.  The annual goodwill impairmenttest involves a two-step process.  Thefirst step of the impairment test involves comparing the fair value of ourcompany with our company’s carrying value, including goodwill.  If the carrying value of our company exceedsour fair value, we perform the second step of the impairment test to determinethe amount of the impairment loss.  Thesecond step of the goodwill impairment test involves comparing the implied fairvalue of goodwill with the carrying value of that goodwill and recognizing aloss for the difference.  Calculating ourfair value requires significant 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.

 

Wecompleted our annual impairment tests for fiscal 2007 with no adjustments tothe carrying values of goodwill and indefinite life intangibles.  We did not note any events or circumstancesduring the first quarter of 2008 that would indicate that goodwill orindefinite life intangibles might be impaired.

 

***Accounting Treatment for EISs***

 

Our EISs include Class A common stockand senior subordinated notes.  Uponcompletion of our 2004 EIS offering (including the exercise of theover-allotment option), we allocated the proceeds from the issuance of theEISs, based upon relative fair value at the issuance date, to the Class Acommon stock and the senior subordinated notes. We have assumed that the price paid in the EIS offering was equivalentto the combined fair value of the Class A common stock and the seniorsubordinated notes, and the price paid in the offering for the seniorsubordinated notes sold separately (not in the form of EISs) was equivalent totheir 

 

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initial stated principal amount.  We have concluded there are no embeddedderivative features related to the EIS that require bifurcation under FASBStatement No. 133, “*Accounting for DerivativeInstruments and Hedging Activities,”*as amended (SFAS No. 133).  We have determined the fair value of the Class Acommon stock and the senior subordinated notes with reference to a number offactors, including the sale of the senior subordinated notes sold separatelyfrom the EISs that have the same terms as the senior subordinated notes includedin the EISs.  Therefore, we haveallocated the entire proceeds of the EIS offering to the Class A commonstock and the senior subordinated notes, and the allocation of the EIS proceedsto the senior subordinated notes did not result in a premium or discount.

 

We have concluded that the call option andthe change in control put option in the senior subordinated notes do notwarrant separate accounting under SFAS No. 133 because they are clearlyand closely related to the economic characteristics of the host debtinstrument.  Therefore, we have allocatedthe entire proceeds of the offering to the Class A common stock and thesenior subordinated notes.  Uponsubsequent issuances, if any, of senior subordinated notes, we will evaluatewhether the call option and the change in control put option in the seniorsubordinated notes 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.  Any discounton the senior subordinated notes resulting from the allocation of proceeds toan embedded derivative will be amortized to interest expense over the remaininglife of the senior subordinated notes.

 

The Class A common stock portion of eachEIS is included in stockholders’ equity, net of the related portion of the EIStransaction costs allocated to Class A common stock.  Dividends paid on our Class A commonstock portion of each EIS are recorded as a decrease to additional paid-incapital when declared by us.  The seniorsubordinated note portion of each EIS is included in long-term debt, and therelated portion of the EIS transaction costs allocated to the seniorsubordinated notes was capitalized as deferred debt issuance costs and is beingamortized to interest expense using the effective interest method.  Interest on the senior subordinated notes ischarged to interest expense as accrued by us and deducted for income taxpurposes.

 

***Income Tax Expense Estimates and Policies***

 

Aspart of the income tax provision process of preparing our consolidatedfinancial statements, we are required to estimate our income taxes.  This process involves estimating our currenttax expenses together with assessing temporary differences resulting fromdiffering treatment of items for tax and accounting purposes.  These differences result in deferred taxassets and liabilities.  We then assessthe likelihood that our deferred tax assets will be recovered from futuretaxable income and to the extent we believe the recovery is not likely, weestablish 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.

 

Thereare various factors that may cause these tax assumptions to change in the nearterm, and we may have to record a valuation allowance against our deferred taxassets.  We cannot predict whether futureU.S. federal and state income tax laws and regulations might be passed thatcould have a material effect on our results of operations.  We assess the impact of significant changesto the U.S. federal and state income tax laws and regulations on a regularbasis and update the assumptions and estimates used to prepare our consolidatedfinancial statements when new regulations and legislation are enacted.  We recognize the benefit of an uncertain taxposition that we have taken or expect to take on the income tax returns we fileif it is “more likely than not” that such tax position will be sustained basedon its technical merits.

 

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*** ***

***Earnings Per Share***

*** ***

We currently haveone class of common stock issued and outstanding, designated as Class Acommon stock.  Prior to May 29,2007, we had two classes of common stock issued and outstanding, designated as Class Acommon stock and Class B common stock. For periods in which we had shares of both Class A and Class Bcommon stock issued and outstanding, we present earnings per share using thetwo-class method.  The two-class methodis an earnings allocation formula that determines earnings per share for eachclass of common stock according to dividends declared and participation rightsin undistributed earnings or losses.

 

Forperiods in which we had shares of both Class A and Class B commonstock issued and outstanding, net income is allocated between the two classesof common stock based upon the two-class method.  Basic and diluted earnings per share for the Class Acommon stock and Class B common stock is calculated by dividing allocatednet income by the weighted average number of shares of Class A commonstock and Class B common stock outstanding.

 

***Pension Expense***

*** ***

We have defined benefit pension planscovering substantially all of our employees.  Our funding policy is to contribute annuallythe amount recommended by our actuaries. The funded status of our pension plans is dependent upon many factors,including returns on invested assets and the level of certain market interestrates.  We review pension assumptionsregularly and we may from time to time make voluntary contributions to ourpension plans, which exceed the amounts required by statute.  During the first quarter of 2008 and 2007, wemade no contributions to our defined benefit pension plans.  We anticipate electing to make payments ofapproximately $1.0 million during the remainder of fiscal 2008 to fund ourdefined benefit pension plan obligations. Changes in interest rates and the market value of the securities held bythe plans could materially change, positively or negatively, the underfundedstatus of the plans and affect the level of pension expense and requiredcontributions during the remainder of fiscal 2008 and beyond.

 

Our discount rate assumption increased from5.90% at December 30, 2006 to 6.50% at December 29, 2007 for ourpension plans.  This increase in thediscount rate, coupled with the amortization of deferred gains and losses willresult in a decrease in fiscal 2008 pre-tax pension expense of approximately$0.5 million.  While we do not currentlyanticipate a change in our fiscal 2008 assumptions, as a sensitivity measure, a0.25% decline or increase in our discount rate would increase or decrease ourpension expense by approximately $0.1 million. Similarly, a 0.25% decrease or increase in the expected return onpension plan assets would increase or decrease our pension expense byapproximately $0.1 million.

 

In August 2006, the Pension ProtectionAct of 2006 was signed into law.  Themajor provisions of the statute became effective on January 1, 2008.  Among other things, the statute is designedto ensure timely and adequate funding of qualified pension plans by shorteningthe time period within which employers must fully fund pension benefits.  Due to the fully funded status of our definedbenefit pension plans as of December 29, 2007, the Pension Protection Actof 2006 is not currently expected to have a significant impact on our futurepension funding requirements.

 

***Acquisition Accounting***

*** ***

We account for acquired businesses using thepurchase method of accounting, which requires that the assets acquired andliabilities assumed be recorded at the date of acquisition at their respectivefair values.  Our consolidated financialstatements and results of operations reflect an acquired business after thecompletion of the acquisition.  The costto acquire a business, including transaction costs, is allocated to theunderlying net assets of the acquired business in proportion to their respectivefair values.  Any excess of the purchaseprice over the estimated fair values of the net assets acquired is recorded asgoodwill.

 

The judgments made in determining theestimated fair value assigned to each class of assets acquired and liabilitiesassumed, as well as asset lives, can materially impact our results ofoperations.  Accordingly, for significantitems, we typically obtain assistance from third party valuation specialists.

 

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Determining the useful life of an intangibleasset also requires judgment as different types of intangible assets will havedifferent useful lives and certain assets may even be considered to haveindefinite useful lives.

 

All of these judgments and estimates canmaterially impact our results of operations.

 

**Results of Operations**

** **

Thefollowing table sets forth the percentages of net sales represented by selecteditems for the first quarter of 2008 and 2007 reflected in our consolidatedstatements of operations.  Thecomparisons of financial results are not necessarily indicative of futureresults:

 
| ** **                                       | ** ** | **Thirteen Weeks Ended** | ** ** |
|--------------------------------------------------|------------|------------------------------------|------------|
| ** **                                       | ** ** | **March 29,  2008**           | ** ** | **March 31,  2007** | ** ** |
| **Statement of Operations:**                     |       |                               |       |   |   |
| Net sales                                        |       | 100.0                              | %          | 100.0 | % |
| Cost of goods sold                               |       | 70.0                               | %          | 68.5 | % |
| Gross profit                                     |       | 30.0                               | %          | 31.5 | % |
|                                             |       |                               |       |   |   |
| Sales, marketing and distribution expenses       |       | 10.6                               | %          | 11.1 | % |
| General and administrative expenses              |       | 1.1                                | %          | 1.8 | % |
| Amortization expense—customer relationships |       | 1.4                                | %          | 0.6 | % |
| Operating income                                 |       | 16.9                               | %          | 18.0 | % |
|                                             |       |                               |       |   |   |
| Interest expense, net                            |       | 10.8                               | %          | 11.7 | % |
| Income before income tax expense                 |       | 6.1                                | %          | 6.3 | % |
|                                             |       |                               |       |   |   |
| Income tax expense                               |       | 2.3                                | %          | 2.4 | % |
| Net income                                       |       | 3.8                                | %          | 3.9 | % |

 

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

 

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

 

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

 

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

 

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

 

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

 

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*Net Interest Expense.*  Net interestexpense includes interest relating to our outstanding indebtedness andamortization of deferred debt issuance costs, net of interest income.

 

***Non-GAAP Financial Measures***

 

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

 

EBITDAis a measure used by management to measure operating performance.  EBITDA is defined as net income before netinterest expense, income taxes, depreciation, and amortization. Managementbelieves that it is useful to eliminate net interest expense, income taxes,depreciation and amortization because it allows management to focus on what itdeems to be a more reliable indicator of ongoing operating performance and ourability to generate cash flow from operations. We use EBITDA in our businessoperations, among other things, to evaluate our operating performance, developbudgets and measure our performance against those budgets, determine employeebonuses and evaluate our cash flows in terms of cash needs. We also presentEBITDA because we believe it is a useful indicator of our historical debtcapacity and ability to service debt and because covenants in our creditfacility, our senior notes indenture and our senior subordinated notesindenture contain ratios based on this measure. As a result, internal management reports used during monthly operatingreviews feature the EBITDA metric. However, management uses this metric inconjunction with traditional GAAP operating performance and liquidity measuresas part of its overall assessment of company performance and liquidity andtherefore does not place undue reliance on this measure as its only measure ofoperating performance and liquidity.

 

EBITDAis not a recognized term under GAAP and does not purport to be an alternativeto operating income or net income as an indicator of operating performance orany other GAAP measure. EBITDA is not a complete net cash flow measure becauseEBITDA is a measure of liquidity that does not include reductions for cashpayments for an entity’s obligation to service its debt, fund its workingcapital, capital expenditures and acquisitions, if any, and pay its incometaxes and dividends. Rather, EBITDA is a potential indicator of an entity’sability to fund these cash requirements. EBITDA is not a complete measure of anentity’s profitability because it does not include costs and expenses fordepreciation and amortization, interest and related expenses and income taxes.Because not all companies use identical calculations, this presentation ofEBITDA may not be comparable to other similarly titled measures of othercompanies. However, EBITDA can still be useful in evaluating our performanceagainst our peer companies because management believes this measure providesusers with valuable insight into key components of GAAP amounts.

 

Areconciliation of EBITDA to net income and to net cash provided by operatingactivities for the first quarter of 2008 and 2007 along with the components ofEBITDA follows:

 

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| ** **                                                                 | ** ** | **Thirteen Weeks Ended**   | ** ** |
|----------------------------------------------------------------------------|------------|--------------------------------------|------------|
| ** **                                                                 | ** ** | **March 29,  2008**             | ** ** | **March 31,  2007** | ** ** |
| ** **                                                                 | ** ** | **(dollars in thousands)** | ** ** |
| Net income                                                                 |       | $                                    | 4,409      |   | $ | 4,074 |   |
| Income tax expense                                                         |       | 2,690                                |       | 2,487 |   |
| Interest expense, net                                                      |       | 12,571                               |       | 12,125 |   |
| Depreciation and amortization                                              |       | 3,689                                |       | 2,458 |   |
| EBITDA                                                                     |       | 23,359                               |       | 21,144 |   |
| Income tax expense                                                         |       | (2,690                               | )          | (2,487 | ) |
| Interest expense, net                                                      |       | (12,571                              | )          | (12,125 | ) |
| Deferred income taxes                                                      |       | 2,177                                |       | 2,076 |   |
| Amortization of deferred financing costs                                   |       | 792                                  |       | 773 |   |
| Changes in assets and liabilities, net of effects of business  combination |       | (93                                  | )          | (4,564 | ) |
| Net cash provided by operating activities                                  |       | $                                    | 10,974     |   | $ | 4,817 |   |

 

***First quarter of 2008 compared to the first quarter of 2007***

** **

*Net Sales. *Net sales increased $12.6 million or12.1% to $116.3 million for the first quarter of 2008 from $103.7 million forthe first quarter of 2007.  *Cream of Wheat*, which was acquired by us effective February 25,2007, accounted for $11.7 million of the net sales increase offset by adecrease in net sales of $0.8 million relating to the termination of atemporary co-packing arrangement.  Theremaining $1.7 million increase in our net sales related to increases in unitvolume.  Net sales of our lines of*Ortega, Las Palmas, Maple Grove Farms, Polaner*and *Sa-són*products increased**inthe amounts of $1.0 million, $0.6 million, $0.5 million, $0.5 million and $0.4million or 3.9%, 11.0%, 3.4%, 4.9% and 50.6%, respectively.  These increases were offset by a reduction innet sales of *Underwood, Emeril’s*, *B&M*and *Regina*products of $0.6 million, $0.5 million, $0.4million and $0.3 million or 12.2%, 11.5%, 8.1% and 12.4%, respectively.  In the aggregate, net sales for all otherbrands increased $0.5 million, or 1.3%.  *Cream of Wheat* net sales for January and February ofthe first quarter of 2008, were $9.0 million. We did not own the *Cream of Wheat*businessduring January and February of the first quarter of 2007.  Net sales of our *Cream ofWheat*products increased $2.7 million or 41.1% during March 2008as compared to March 2007, primarily as a result of increases in unitvolume through new distribution.

 

*Gross Profit. *Gross profit increased $2.2 million or6.9% to $34.9 million for the first quarter of 2008 from $32.7 million for thefirst quarter of 2007.  Gross profitexpressed as a percentage of net sales decreased 1.5% to 30.0% in the firstquarter of 2008 from 31.5% in the first quarter of 2007.  This decrease in gross profit expressed aspercentage of net sales was primarily attributable to increased spending ontrade promotions and slotting and increased costs for packaging, wheat, maplesyrup, transportation and corn sweeteners, partially offset by the positiveimpact of the *Cream of Wheat*acquisition.

 

*Sales, Marketing and Distribution Expenses. *Sales, marketing and distribution expenses increased$0.8 million or 6.8% to $12.3 million for the first quarter of 2008 from $11.5million for the first quarter of 2007. This increase is primarily due to an increase in consumer marketing of$0.8 million.  Expressed as a percentageof net sales, our sales, marketing and distribution expenses decreased to 10.6%for the first quarter of 2008 from 11.1% for the first quarter of 2007.

 

*General and Administrative Expenses. *General and administrative expenses decreased $0.4million or 25.8% to $1.4 million for the first quarter of 2008 from $1.8million in the first quarter of 2007. The decrease in general and administrative expenses primarily resultedfrom a decreased accrual for incentive compensation of $0.2 million,professional fees of $0.1 million and other expenses of $0.1 million.

 

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* *

*Amortization Expense*—*CustomerRelationships. *Amortization expense—customer relationships increased $0.9million to $1.6 million for the first quarter of 2008 from $0.7 million for thefirst quarter of 2007.  This increase isattributable to the *Cream of Wheat*acquisition,which was completed during the first quarter of 2007.

 

*Operating Income. *As a result of the foregoing, operatingincome increased $1.0 million or 5.3% to $19.7 million for the first quarter of2008 from $18.7 million for the first quarter of 2007.  Operating income expressed as a percentage ofnet sales decreased to 16.9% in the first quarter of 2008 from 18.0% in thefirst quarter of 2007.

 

*Net Interest Expense. *Netinterest expense increased $0.5 million or 3.4% to $12.6 million for the firstquarter of 2008 from $12.1 million in the first quarter of 2007.  Our average debt outstanding during the firstquarter of 2008 was approximately $36.7 million higher than during the firstquarter of 2007 as a result of $205.0 million of additional term loanborrowings made in February 2007 in connection with the *Cream of Wheat*acquisition partially offset by term loanprepayments of $100.0 million made in May 2007 with a portion of theproceeds from our Class A common stock offering.  See “—Liquidity and Capital Resources—Debt”below.

 

*Income Tax Expense. *Income tax expense increased $0.2 millionto $2.7 million for the first quarter of 2008 from $2.5 million for the firstquarter of 2007.  Our effective tax ratewas 37.9% for the first quarter of 2008 and 2007.

 

**Liquidityand Capital Resources**

 

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

 

*Cash Flows*.  Cash providedby operating activities increased $6.2 million to $11.0 million for the firstquarter of 2008 from $4.8 million for the first quarter of 2007.  The increase was due to changes relating to adecrease in accounts receivable (primarily as a result of an increase inaccounts receivable at the end of the first quarter of 2007 from the *Cream of Wheat* acquisition) and inventoryoffset by a decrease in accounts payable and accrued expenses.  Working capital at March 29, 2008 was$112.6 million, a decrease of $2.5 million from working capital at December 29,2007 of $115.1 million.

 

Netcash used in investing activities for the first quarter of 2008 was $6.4million as compared to $203.2 million for the first quarter of 2007.  Investment expenditures for the first quarterof 2007 included $200.9 million for the *Cream of Wheat*acquisition.  Capital expenditures during the first quarterof 2008 increased $4.1 million to $6.4 million from $2.3 million during thefirst quarter of 2007 and included expenditures of $5.1 million relating to theexpansion of our Stoughton, Wisconsin facility and the pending transfer of aportion of the *Cream of Wheat*production to thatfacility.

 

Netcash used in financing activities for the first quarter of 2008 was $7.8million as compared to $196.8 million for the first quarter of 2007.  Net cash used in financing activities for thefirst quarter of 2008 consists of $7.8 million for the payment of dividends toholders of our Class A common stock. Net cash provided by financing activities for the first quarter of 2007consisted of $205.0 million in additional term loan borrowings ($100 million ofwhich we subsequently prepaid during the second quarter of 2007), offset by$4.2 million in dividends paid on our Class A common stock and $4.0million in debt issuance costs.

 

Based on a number of factors, including ourtrademark, goodwill and customer relationship intangibles amortization for taxpurposes from our prior acquisitions, we realized a significant reduction incash taxes in fiscal 2007 and 2006 as compared to our tax expense for financialreporting purposes.  While we 

 

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expect our cash taxes tocontinue to increase in fiscal 2008 as compared to the prior two years, webelieve that we will realize a benefit to our cash taxes payable fromamortization of our trademarks, goodwill and customer relationship intangiblesfor the taxable years 2008 through 2022.

 

***DividendPolicy***

 

Our dividendpolicy reflects a basic judgment that our stockholders would be better servedif we distributed a substantial portion of our cash available to pay dividendsto them instead of retaining it in our business.  Under this policy, a substantial portion ofthe cash generated by our company in excess of operating needs, interest andprincipal payments on indebtedness, capital expenditures sufficient to maintainour properties and other assets is in general distributed as regular quarterlycash dividends (up to the intended dividend rate as determined by our board ofdirectors) to the holders of our common stock and not retained by us.  The current intended dividend rate for our Class Acommon stock is $0.848 per share per annum.

 

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

 

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

 

Forthe first quarter of 2008 and 2007, we had cash flows provided by operatingactivities of $11.0 million and $4.8 million, and distributed $7.8 million and$4.2 million, respectively, as dividends. If our cash flows from operatingactivities for future periods were to fall below our minimum expectations (orif our assumptions as to capital expenditures or interest expense were too lowor our assumptions as to the sufficiency of our revolving credit facility tofinance our working capital needs were to prove incorrect), we would needeither to reduce or eliminate dividends or, to the extent permitted under oursenior notes indenture, our senior subordinated notes indenture and the termsof our credit facility, fund a portion of our dividends with borrowings or fromother sources.  If we were to use workingcapital or permanent borrowings to fund dividends, we would have less cashand/or borrowing capacity available for future dividends and other purposes,which could negatively impact our financial position, our results ofoperations, our liquidity and our ability to maintain or expand our business.

 

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***Acquisitions***

 

Our liquidity andcapital resources have been significantly impacted by acquisitions and may beimpacted in the foreseeable future by additional acquisitions.  We have historically financed acquisitionswith borrowings and cash flows from operating activities.  Our interest expense has increasedsignificantly as a result of additional indebtedness we have incurred as aresult of the *Cream of Wheat* acquisition in February 2007,and will increase with any additional indebtedness we may incur to financefuture acquisitions, if any.  To theextent future acquisitions, if any, are financed by additional indebtedness,the resulting increase in debt and interest expense could have a negativeimpact on liquidity.

 

***Environmentaland Health and Safety Costs***

 

We have not madeany material expenditures during the first quarter of 2008 in order to complywith environmental laws or regulations. Based on our experience to date, we believe that the future cost ofcompliance with existing environmental laws and regulations (and liability forknown environmental 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*.  In October 2004,we entered into a $30.0 million senior secured revolving credit facility.  In order to finance the *Grandma’s*molassesacquisition, we amended the credit facility in January 2006 to providefor, among other things, a new $25.0 million term loan and a reduction in therevolving credit facility commitments from $30.0 million to $25.0 million.  In order to finance the *Cream ofWheat*acquisition, our credit facility was amended and restated in February 2007to provide for, among other things, an additional $205.0 million of term loanborrowings.  On May 29, 2007, weprepaid $100.0 million of term loan borrowings. Our $25.0 million revolving credit facility matures on January 10,2011 and the remaining $130.0 million of term loan borrowings matures on February 26,2013.

 

Interest under the revolving credit facility,including any outstanding letters of credit, is determined based on alternativerates that we may choose in accordance with the revolving credit facility,including the base lending rate per annum plus an applicable margin, and LIBORplus an applicable margin.  We pay acommitment fee of 0.50% per annum on the unused portion of the revolving creditfacility.  Interest under the term loanfacility is determined based on alternative rates that we may choose inaccordance with the credit facility, including the base lending rate per annumplus an applicable margin of 1.00%, and LIBOR plus an applicable margin of2.00%.

 

Effective as of February 26, 2007, weentered into a six year interest rate swap agreement in order to effectivelyfix at 7.0925% the interest rate payable for $130.0 million of term loanborrowings.  The interest rate for the remaining$100.0 million of term loan borrowings, which we subsequently prepaid, was7.36% as of the prepayment date (based upon a three-month LIBOR rate in effectat that time that expired on May 25, 2007).  The swap is designated as a cash flow hedgeunder the guidelines of SFAS No. 133. The swap is in place through the life of the term loan, ending on February 26,2013.  Changes in fair value of the swapare recorded in other comprehensive income, net of tax in our consolidatedstatements of operations.

 

Our obligations under the credit facility arejointly and severally and fully and unconditionally guaranteed on a seniorbasis by all of our existing and certain future domestic subsidiaries.  The credit facility is secured bysubstantially all of our and our subsidiaries’ assets except our and oursubsidiaries’ real property.  The creditfacility provides for mandatory prepayment based on asset dispositions andcertain issuances of securities, as defined. The credit facility contains covenants that restrict, among otherthings, our ability to 

 

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incur additionalindebtedness, pay dividends and create certain liens.  The credit facility also contains certainfinancial maintenance covenants, which, among other things, specify maximumcapital expenditure limits, a minimum interest coverage ratio and a maximumsenior and total leverage ratio, each ratio as defined.  As of March 29, 2008, we were incompliance with all of the covenants in the credit facility.  Proceeds of the revolving credit facility arerestricted to funding our working capital requirements, capital expendituresand acquisitions of companies in the same line of business as our company,subject to specified criteria.  Therevolving credit facility was undrawn on the date of commencement in October 2004and remained undrawn through March 29, 2008.  The available borrowing capacity under ourrevolving credit facility, net of outstanding letters of credit of $2.4million, was $22.6 million at March 29, 2008.  The maximum letter of credit capacity underthe revolving credit facility is $10.0 million, with a fronting fee of 3.0% perannum for all outstanding letters of credit.

 

*12.0%Senior Subordinated Notes due 2016*.  In October 2004,we issued $165.8 million aggregate principal amount of 12.0% seniorsubordinated notes due 2016, $143.0 million of which are in the form of EISsand $22.8 million separate from EISs.  Asof March 29, 2008, $119.3 million aggregate principal amount of seniorsubordinated notes was held in the form of EISs and $46.5 million aggregateprincipal amount of senior subordinated notes was held separate from EISs.

 

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

 

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

 

We may not redeem the senior subordinatednotes prior to October 30, 2009. On and after October 30, 2009, wemay redeem for cash all or part of the senior subordinated notes at aredemption price of 106.0% beginning October 30, 2009 and thereafter atprices declining annually to 100% on or after October 30, 2012.  If we redeem any senior subordinated notes,the senior subordinated notes and Class A common stock represented by eachEIS 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 seniorsubordinated notes rank pari passu in right of payment with any of our othersubordinated indebtedness.

 

Our obligations under the senior subordinatednotes are jointly and severally and fully and unconditionally guaranteed by allof our existing domestic subsidiaries and certain future domestic subsidiarieson an unsecured and subordinated basis on the terms set forth in our seniorsubordinated notes indenture.  The seniorsubordinated note guarantees are subordinated in right of payment to allexisting and future senior indebtedness of the guarantors, including theindebtedness under our credit facility and the senior notes.  Our present foreign subsidiaries are notguarantors, and any future foreign or partially owned domestic subsidiaries willnot be guarantors, of our senior subordinated notes.

 

Our senior subordinated notes indenturecontains covenants with respect to us and the guarantors and restricts theincurrence of additional indebtedness and the issuance of capital stock; thepayment of dividends or distributions on, and redemption of, capital stock; anumber of other restricted payments, including certain investments; specifiedcreation of liens, sale-leaseback transactions and sales of assets; fundamentalchanges, 

 

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including consolidation,mergers and transfers of all or substantially all of our assets; and specifiedtransactions with affiliates.  Each ofthe covenants is subject to a number of important exceptions and qualifications.  As of March 29, 2008, we were incompliance with all of the covenants in the senior subordinated notesindenture.

 

*8.0% Senior Notes due 2011*.  In October 2004,we issued $240.0 million aggregate principal amount of 8.0% senior notes due2011.  Interest on the senior notes ispayable on April 1 and October 1 of each year.  The senior notes will mature on October 1,2011, unless earlier retired or redeemed as described below.

 

We may not redeem the senior notes prior to October 1,2008.  On and after October 1, 2008,we may redeem some or all of the senior notes at a redemption price of 104.0%beginning October 1, 2008 and thereafter at prices declining annually to100.0% on or after October 1, 2010. If we or any of the guarantors sell certain assets or experiencespecific kinds of changes in control, we must offer to purchase the seniornotes at the prices as described in our senior notes indenture plus accrued andunpaid interest to the date of redemption.

 

Our obligations under the senior notes are jointlyand severally and fully and unconditionally guaranteed on a senior basis by allof our existing and certain future domestic subsidiaries.  The senior notes and the subsidiaryguarantees are our and the guarantors’ general unsecured obligations and areeffectively junior in right of payment to all of our and the guarantors’secured indebtedness and to the indebtedness and other liabilities of ournon-guarantor subsidiaries; are pari passu in right of payment to all of ourand the guarantors’ existing and future unsecured senior debt; and are seniorin right of payment to all of our and the guarantors’ future subordinated debt,including the senior subordinated notes. Our present foreign subsidiaries are not guarantors, and any futureforeign or partially owned domestic subsidiaries will not be guarantors, of oursenior notes.

 

Our senior notes indenture contains covenantswith respect to us and the guarantors and restricts the incurrence ofadditional indebtedness and the issuance of capital stock; the payment ofdividends or distributions on, and redemption of, capital stock; a number ofother restricted payments, including certain investments; specified creation ofliens, sale-leaseback transactions and sales of assets; fundamental changes,including consolidation, mergers and transfers of all or substantially all ofour assets; and specified transactions with affiliates.  Each of the covenants is subject to a numberof important exceptions and qualifications. As of March 29, 2008, we were in compliance with all of thecovenants in the senior notes indenture.

 

***Future CapitalNeeds***

 

We are highly leveraged.  On March 29, 2008, our total long-termdebt and stockholders’ equity was $535.8 million and $167.8 million,respectively.

 

Our ability to generate sufficient cash to fund ouroperations depends generally on our results of operations and the availabilityof financing.  Our management believesthat our cash on hand, cash flow from operating activities and availableborrowing capacity under our revolving credit facility will be sufficient forthe foreseeable future to fund operations, meet debt service requirements, fundcapital expenditures, and pay our anticipated dividends on our Class Acommon stock.  We expect to make capital expenditures ofapproximately $11.0 million in the aggregate during fiscal 2008.

 

***Seasonality***

 

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

 

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

 

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

 

During fiscal 2007 and the first quarter of2008, we were faced with increasing prices in certain commodities and packagingmaterials and we expect this trend to continue. We manage this risk by entering into short-term supply contracts andadvance commodities purchase agreements from time to time, and if necessary, byraising prices.  Our cost increases infiscal 2007 and the first quarter of 2008 were partially attributable to thespike in oil and natural gas prices, which have had a substantial impact on ourraw material, packaging and transportation costs.  We believe that through sales price increasesand our cost saving efforts we have to some degree been able to offset theimpact 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 September 2006, the FASB issued SFAS No. 157,“*Fair Value Measurements*” (SFAS No. 157),which defines fair value, establishes a framework for measuring fair value andexpands disclosures about fair value measurements.  The provisions of SFAS No. 157 areeffective as of the beginning of our 2008 fiscal year, with the exception ofcertain provisions deferred until the beginning of our 2009 fiscal year.  In February 2008, the FASB issued FASBStaff Position SFAS No. 157-2, “*EffectiveDate of FASB Statement No. 157*”, which delayed the effectivedate of SFAS No. 157 for all non-financial assets and liabilities, exceptthose that are recognized or disclosed at fair value in the financialstatements on a recurring basis, until January 1, 2009.  The impact of the adoption of SFAS No. 157for financial assets and liabilities was not material to our consolidatedinterim financial statements.  We havenot yet determined the impact that the adoption of SFAS No. 157 will haveon our non-financial assets and liabilities which are not recognized on arecurring basis;howeverwe do not anticipate it to materially impact our consolidated financialstatements.

 

In December 2007, the FASB issued SFAS No. 141(revised 2007), “*Business Combinations*” (SFAS No. 141R),and SFAS No. 160, “*Noncontrolling Interests in Consolidated FinancialStatements*” (SFAS No. 160).  SFAS No. 141R requires an acquirer tomeasure the identifiable assets acquired, the liabilities assumed and any noncontrollinginterest in the acquiree at their fair values on the acquisition date, withgoodwill being the excess value over the net identifiable assets acquired.  SFAS No. 160 clarifies that anoncontrolling interest in a subsidiary is an ownership interest in theconsolidated entity that should be reported as equity in the consolidatedfinancial statements.  SFAS No. 141Rand SFAS No. 160 are effective as of the beginning of our 2009 fiscalyear.  We are currently evaluating thepotential impact, if any, of the adoption of SFAS No. 141R and SFAS No. 160will have on our consolidated financial statements.

 

In March 2008, the FASB issued SFAS No. 161,“*Disclosures about Derivative Instruments andHedging Activities, an amendment of FASB Statement No. 133*.”  This statement changes the disclosurerequirements for derivative instruments and hedging activities.  SFAS No. 161 requires enhanceddisclosures about (a) how and why an entity uses derivative instruments, (b) howderivative instruments and related hedged items are accounted for under SFAS No. 133and its related interpretations, and (c) how derivative instruments andrelated hedged items affect an entity’s financial position, financialperformance, and cash flows.  SFAS No. 161is effective as of the beginning of our 2009 fiscal year. We are currentlyevaluating the potential impact, if any, of the adoption of SFAS No. 161will have on our consolidated financial statements.

 

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** **

**Off-balance Sheet Arrangements**

 

As of March 29,2008, we did not have any off-balance sheet arrangements as defined in Item303(a)(4)(ii) of RegulationS-K.

 

**Commitments and ContractualObligations**

** **

Our contractual obligations and commitmentsprincipally include obligations associated with our outstanding indebtedness,future minimum operating lease obligations and future pension obligations.  During the first quarter of 2008, there wereno material changes outside the ordinary course of business in the specifiedcontractual obligations set forth in our 2007 Annual Report on Form 10-K,except that we entered into a new lease in Tennessee (in connection with thetransfer of our warehousing operations in Tennessee from one leased location toanother leased location) that will require us to make rental payments ofapproximately $4.0 million in the aggregate over the course of the lease, whichexpires in 2013.  In addition, ourexpected contributions to our defined benefit pension plans for fiscal 2008have increased from $0.1 million to $1.0 because, although not obligated to doso, we anticipate electing to make $1.0 million of contributions during theremainder of fiscal 2008.  During thefirst quarter of 2008, we made no contributions to our defined benefit pensionplans.

 

***Forward-LookingStatements***

** **

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

 

·                  our substantial leverage;

 

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

 

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

 

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

 

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

 

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

 

·                  the risks associated with the expansion ofour business;

 

·                  our possible inability to integrate anybusinesses we acquire;

 

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

 

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

 

·                  other factors that affect the food industrygenerally, including:

 

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

 

·                  competitors’ pricing practices andpromotional spending levels;

 

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

 

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

 

·                  other factors discussed elsewhere in thisreport and in our other public filings with the SEC, including under Item 1A, “RiskFactors” in our 2007 Annual Report on Form 10-K.

 

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

 

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

 

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

 

**Item 3.**         Quantitative and Qualitative Disclosures AboutMarket Risk

** **

In thenormal course of operations, we are exposed to market risks arising fromadverse changes in interest rates. Market risk is defined for these purposes as the potential change in thefair value of a financial asset or liability resulting from an adverse movementin interest rates.

 

Interest under our $25.0 million revolvingcredit facility, including any outstanding letters of credit, is determinedbased on alternative rates that we may choose in accordance with the revolvingcredit facility, including the base lending rate per annum plus an applicablemargin, and LIBOR plus an applicable margin. Interest under our term loan facility is determined based on alternativerates that we may choose in accordance with the credit facility, including thebase lending rate per annum plus an applicable margin of 1.00%, and LIBOR plusan applicable margin of 2.00%.  Therevolving credit facility was undrawn at March 29, 2008.  We have outstanding $130.0 million of termloan borrowings at March 29, 2008 and December 29, 2007.  The interest rate payable for our term loanborrowings is effectively fixed at 7.0925% based upon a six year interest rateswap agreement that we entered into on February 26, 2007.

 

The carrying value of ourterm loan borrowings approximates fair value because interest rates under theterm loan borrowings are variable, based on prevailing market rates.  Our term loan borrowings are subject to theinterest rate swap discussed above and in note 6 to our consolidated financialstatements included herein.

 

The carrying values and fairvalues of our senior notes and senior subordinated notes as of March 29,2008 and December 29, 2007 are as follows (dollars in thousands):

 

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| ** **                                                  | ** ** | **March 29, 2008** | ** ** | **December 29, 2007** | ** ** |
|-------------------------------------------------------------|------------|------------------------------|------------|---------------------------------|------------|
| ** **                                                  | ** ** | **Carrying Value**      | ** ** | **Fair Value(1)(2)**       | ** ** | **Carrying Value** | ** ** | **Fair Value(1)(3)** | ** ** |
| 8% Senior Notes due October 1, 2011                    |       | $                            | 240,000    |                            | $          | 232,800 |   | $ | 240,000 |   | $ | 235,800 |   |
| 12% Senior Subordinated Notes due October 30, 2016(2): |       |                         |       |                            |       |   |   |   |   |
| — represented by EISs                                  |       | 119,268                      |       | 129,444                         |       | 119,067 |   | 126,561 |   |
| — held separately                                      |       | 46,532                       |       | 50,501                          |       | 46,733 |   | 49,674 |   |
|                                                             |            |                              |            |                                 |            |  |  |  |  |  |  |  |  |

 

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

 

(2)          Solely for purposes of this presentation, we have assumed that the fairvalue of each senior subordinated note at March 29, 2008 was $7.76, basedupon the $11.23 per share closing price of our separately traded Class Acommon stock and the $18.99 per EIS closing price of our EISs on the New YorkStock Exchange on March 28, 2008 (the last business day of the firstquarter of 2008).  Each EIS representsone share of Class A common stock and $7.15 principal amount of our seniorsubordinated notes.

 

(3)          Solely for purposes of this presentation, we have assumed that the fairvalue of each senior subordinated note at December 29, 2007 was $7.60,based upon the $10.07 per share closing price of our separately traded Class Acommon stock and the $17.67 per EIS closing price of our EISs on the New YorkStock Exchange on December 28, 2007 (the last business day of fiscal2007).

 

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

 

**Item 4.**         Controls and Procedures

** **

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

 

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

 

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

 

*InherentLimitations on Effectiveness of Controls.*  Our company’smanagement, including the chief executive officer and chief financial officer,does not expect that our disclosure controls or our internal control overfinancial reporting will prevent or detect all errors and all fraud.  A control system, no matter how well designedand operated, can provide only reasonable, not absolute, assurance that thecontrol system’s objectives will be met. The design of a control system must reflect the fact that there areresource constraints, 

 

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and the benefits of controls must be consideredrelative to their costs.  Further,because of the inherent limitations in all control systems, no evaluation ofcontrols can provide absolute assurance that misstatements due to error orfraud will not occur or that all control issues and instances of fraud, if any,within our company have been detected. These inherent limitations include the realities that judgments indecision-making can be faulty and that breakdowns can occur because of simpleerror or mistake.  Controls can also becircumvented by the individual acts of some persons, by collusion of two ormore people, or by management override of the controls.  The design of any system of controls is basedin part on certain assumptions about the likelihood of future events, and therecan be no assurance that any design will succeed in achieving its stated goalsunder all potential future conditions. Projections of any evaluation of controls effectiveness to futureperiods are subject to risks.  Over time,controls may become inadequate because of changes in conditions ordeterioration in the degree of compliance with policies or procedures.

 

**PART IIOTHER INFORMATION**

** **

**Item 1.**   Legal Proceedings

** **

We arefrom time to time involved in various claims and legal actions arising in theordinary course of business, including proceedings involving product liabilityclaims, worker’s compensation and other employee claims, and tort and othergeneral liability claims, as well as trademark, copyright, patent infringementand related claims and legal actions.  Inthe opinion of our management, the ultimate disposition of any currentlypending claims or actions will not have a material adverse effect on our consolidatedfinancial position, results of operations or liquidity.

 

**Item 1A.**    Risk Factors

** **

We do not believethere have been any material changes in our risk factors as previouslydisclosed in our 2007 Annual Report on Form 10-K.

 

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

** **

Notapplicable.

 

**Item 3.**   Defaults Upon Senior Securities

** **

Notapplicable.

 

**Item 4.**   Submission of Matters to a Vote of SecurityHolders

** **

Not applicable.

 

**Item 5.**   Other Information

** **

Notapplicable.

 

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** **

**Item 6.    Exhibits**

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

 

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**SIGNATURE**

 

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

 
| Dated:  April 30, 2008 | 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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