Table of Contents

 

**As filed with the Securities andExchange Commission on July 28, 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 June 28, 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 of

incorporation or organization)                           | ** ** | **13-3918742**

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

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

(Zip Code)                                |

 

Registrant’s telephone number, including 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 whether the registrant is alarge accelerated filer, an accelerated filer, a non-accelerated filer or asmaller reporting company.  See thedefinitions of “large accelerated filer,” “accelerated filer,” and “smallerreporting company” in Rule 12b-2 of 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 June 28, 2008, the registrant had 36,796,988 shares of Class Acommon stock, par value $0.01 per share, issued and outstanding, 16,764,277 ofwhich were held in the form of Enhanced Income Securities (EISs) and 20,032,711of 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 June 28, 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 | 17 |
|                               |                                                                                        |   |
| Item 3.                            | Quantitative  and Qualitative Disclosures About Market Risk                                 | 34 |
|                               |                                                                                        |   |
| Item 4.                            | Controls  and Procedures                                                                    | 35 |
|                               |                                                                                        |   |
| PART II  OTHER INFORMATION    | 36                                                                                          |
|                               |                                                                                        |   |
| Item 1.                            | Legal  Proceedings                                                                          | 36 |
|                               |                                                                                        |   |
| Item  1A.                          | Risk Factors                                                                                | 36 |
|                               |                                                                                        |   |
| Item 2.                            | Unregistered  Sales of Equity Securities and Use of Proceeds                                | 36 |
|                               |                                                                                        |   |
| Item 3.                            | Defaults  Upon Senior Securities                                                            | 36 |
|                               |                                                                                        |   |
| Item 4.                            | Submission  of Matters to a Vote of Security Holders                                        | 36 |
|                               |                                                                                        |   |
| Item 5.                            | Other  Information                                                                          | 37 |
|                               |                                                                                        |   |
| Item  6.                           | Exhibits                                                                                    | 37 |
|                               |                                                                                        |
| SIGNATURE                          | 38                                                                                          |
|                                    |                                                                                             |  |  |

 

i

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**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)**

** **
| ** **                                                                                                                                                                                         | ** ** | **June 28, 2008** | ** ** | **December 29, 2007** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------|------------|---------------------------------|------------|
|                                                                                                                                                                                               |       |                        |       |                            |       |
| **Assets**                                                                                                                                                                                         |       |                        |       |                            |       |
| Current assets:                                                                                                                                                                                    |       |                        |       |                            |       |
| Cash and cash equivalents                                                                                                                                                                          |       | $                           | 24,086     |                            | $          | 36,606 |   |
| Trade accounts receivable, net                                                                                                                                                                     |       | 37,569                      |       | 42,362                          |       |
| Inventories                                                                                                                                                                                        |       | 99,283                      |       | 93,181                          |       |
| Prepaid expenses                                                                                                                                                                                   |       | 2,894                       |       | 3,556                           |       |
| Income tax receivable                                                                                                                                                                              |       | 301                         |       | 569                             |       |
| Deferred income taxes                                                                                                                                                                              |       | 648                         |       | 648                             |       |
| Total current assets                                                                                                                                                                               |       | 164,781                     |       | 176,922                         |       |
|                                                                                                                                                                                               |       |                        |       |                            |       |
| Property, plant and equipment, net of accumulated depreciation of  $59,954 and $55,679                                                                                                             |       | 54,369                      |       | 49,658                          |       |
| Goodwill                                                                                                                                                                                           |       | 253,353                     |       | 253,353                         |       |
| Trademarks                                                                                                                                                                                         |       | 227,220                     |       | 227,220                         |       |
| Customer relationship intangibles, net                                                                                                                                                             |       | 119,543                     |       | 122,768                         |       |
| Net deferred debt issuance costs and other assets                                                                                                                                                  |       | 15,670                      |       | 17,669                          |       |
| Total assets                                                                                                                                                                                       |       | $                           | 834,936    |                            | $          | 847,590 |   |
|                                                                                                                                                                                               |       |                        |       |                            |       |
| **Liabilities and Stockholders’  Equity**                                                                                                                                                     |       |                        |       |                            |       |
|                                                                                                                                                                                               |       |                        |       |                            |       |
| Current liabilities:                                                                                                                                                                               |       |                        |       |                            |       |
| Trade accounts payable                                                                                                                                                                             |       | $                           | 27,817     |                            | $          | 32,126 |   |
| Accrued expenses                                                                                                                                                                                   |       | 16,363                      |       | 21,894                          |       |
| Dividends payable                                                                                                                                                                                  |       | 7,801                       |       | 7,797                           |       |
| Total current liabilities                                                                                                                                                                          |       | 51,981                      |       | 61,817                          |       |
|                                                                                                                                                                                               |       |                        |       |                            |       |
| Long-term debt                                                                                                                                                                                     |       | 535,800                     |       | 535,800                         |       |
| Other liabilities                                                                                                                                                                                  |       | 6,274                       |       | 6,376                           |       |
| Deferred income taxes                                                                                                                                                                              |       | 73,205                      |       | 68,962                          |       |
| Total liabilities                                                                                                                                                                                  |       | 667,260                     |       | 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; 36,796,988 and 36,778,988 shares issued and outstanding  as of June 28, 2008 and December 29, 2007 |       | 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                                                                                                                                                                         |       | 186,957                     |       | 202,197                         |       |
| Accumulated other comprehensive loss                                                                                                                                                               |       | (3,376                      | )          | (3,718                          | )          |
| Accumulated deficit                                                                                                                                                                                |       | (16,273                     | )          | (24,212                         | )          |
| Total stockholders’ equity                                                                                                                                                                    |       | 167,676                     |       | 174,635                         |       |
| Total liabilities and stockholders’ equity                                                                                                                                                    |       | $                           | 834,936    |                            | $          | 847,590 |   |

 

See Notes to ConsolidatedFinancial Statements.

 

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Tableof Contents

 

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

**Consolidated Statements of Operations**

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

**(Unaudited)**

** **
| ** **                                        | ** ** | **Thirteen Weeks Ended** | ** ** | **Twenty-six Weeks Ended** | ** ** |
|---------------------------------------------------|------------|------------------------------------|------------|--------------------------------------|------------|
| ** **                                        | ** ** | **June 28,2008**              | ** ** | **June 30, 2007**          | ** ** | **June 28, 2008** | ** ** | **June 30, 2007** | ** ** |
|                                              |       |                               |       |                                 |       |   |   |   |   |
| Net sales                                         |       | $                                  | 119,184    |                                 | $          | 118,204 |   | $ | 235,526 |   | $ | 221,949 |   |
| Cost of goods sold                                |       | 85,626                             |       | 80,881                               |       | 167,038 |   | 151,943 |   |
| Gross profit                                      |       | 33,558                             |       | 37,323                               |       | 68,488 |   | 70,006 |   |
|                                              |       |                               |       |                                 |       |   |   |   |   |
| Operating expenses:                               |       |                               |       |                                 |       |   |   |   |   |
| Sales, marketing and distribution expenses        |       | 11,461                             |       | 12,566                               |       | 23,750 |   | 24,070 |   |
| General and administrative expenses               |       | 1,882                              |       | 1,598                                |       | 3,240 |   | 3,428 |   |
| Amortization expense—customer relationships  |       | 1,612                              |       | 1,613                                |       | 3,225 |   | 2,276 |   |
| Operating income                                  |       | 18,603                             |       | 21,546                               |       | 38,273 |   | 40,232 |   |
|                                              |       |                               |       |                                 |       |   |   |   |   |
| Other expenses:                                   |       |                               |       |                                 |       |   |   |   |   |
| Interest expense, net                             |       | 12,908                             |       | 15,529                               |       | 25,479 |   | 27,654 |   |
| Income before income tax expense                  |       | 5,695                              |       | 6,017                                |       | 12,794 |   | 12,578 |   |
| Income tax expense                                |       | 2,165                              |       | 2,280                                |       | 4,855 |   | 4,767 |   |
| Net income                                        |       | $                                  | 3,530      |                                 | $          | 3,737 |   | 7,939 |   | 7,811 |   |
|                                              |       |                               |       |                                 |       |   |   |   |   |
| Earnings per share calculations:                  |       |                               |       |                                 |       |   |   |   |   |
| Basic and diluted distributed earnings per share: |       |                               |       |                                 |       |   |   |   |   |
| Class A common stock                         |       | $                                  | 0.21       |                                 | $          | 0.30 |   | $ | 0.42 |   | $ | 0.52 |   |
| Basic and diluted earnings (loss) per share:      |       |                               |       |                                 |       |   |   |   |   |
| Class A common stock                         |       | $                                  | 0.10       |                                 | $          | 0.17 |   | $ | 0.22 |   | $ | 0.38 |   |
| Class B common stock                         |       | $                                  | —     |                                 | $          | (0.13 | ) | $ | — |   | $ | (0.14 | ) |

 

See Notes to ConsolidatedFinancial Statements.

 

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

**ConsolidatedStatements of Cash Flows**

**(Dollars in thousands)**

**(Unaudited)**

 
| ** **                                                                         | ** ** | **Twenty-six Weeks Ended** | ** ** |
|------------------------------------------------------------------------------------|------------|--------------------------------------|------------|
| ** **                                                                         | ** ** | **June 28, 2008**          | ** ** | **June 30, 2007** | ** ** |
| ** **                                                                         | ** ** | ** **                           | ** ** | ** ** | ** ** |
| **Cash flows from operating activities:**                                          |       |                                 |       |   |   |
| Net income                                                                         |       | $                                    | 7,939      |   | $ | 7,811 |   |
| Adjustments to reconcile net income to net cash provided by operating  activities: |       |                                 |       |   |   |
| Depreciation and amortization                                                      |       | 7,533                                |       | 5,863 |   |
| Amortization of deferred debt issuance costs                                       |       | 1,584                                |       | 1,605 |   |
| Deferred income taxes                                                              |       | 4,045                                |       | 3,842 |   |
| Write off of deferred debt issuance costs                                          |       | —                               |       | 1,769 |   |
| Stock-based compensation expense                                                   |       | 358                                  |       | — |   |
| Changes in assets and liabilities, net of effects of business  acquired:           |       |                                 |       |   |   |
| Trade accounts receivable                                                          |       | 4,793                                |       | (1,228 | ) |
| Inventories                                                                        |       | (6,102                               | )          | (10,497 | ) |
| Prepaid expenses                                                                   |       | 662                                  |       | 484 |   |
| Income tax receivable                                                              |       | 268                                  |       | (61 | ) |
| Other assets                                                                       |       | 415                                  |       | (8 | ) |
| Trade accounts payable                                                             |       | (4,309                               | )          | 2,308 |   |
| Accrued expenses                                                                   |       | (5,516                               | )          | 117 |   |
| Other liabilities                                                                  |       | 423                                  |       | (175 | ) |
| Net cash provided by operating activities                                          |       | 12,093                               |       | 11,830 |   |
|                                                                               |       |                                 |       |   |   |
| **Cash flows from investing activities:**                                          |       |                                 |       |   |   |
| Capital expenditures                                                               |       | (9,034                               | )          | (6,496 | ) |
| Payments for acquisition of businesses                                             |       | —                               |       | (200,936 | ) |
| Net cash used in investing activities                                              |       | (9,034                               | )          | (207,432 | ) |
|                                                                               |       |                                 |       |   |   |
| **Cash flows from financing activities:**                                          |       |                                 |       |   |   |
| Payments of long-term debt                                                         |       | —                               |       | (100,000 | ) |
| Proceeds from issuance of long-term debt                                           |       | —                               |       | 205,000 |   |
| Payments for repurchase of Class B common stock                               |       | —                               |       | (82,417 | ) |
| Proceeds from issuance of Class A common stock, net                           |       | —                               |       | 193,226 |   |
| Dividends paid                                                                     |       | (15,594                              | )          | (8,480 | ) |
| Payment of debt issuance costs                                                     |       | —                               |       | (4,001 | ) |
| Net cash (used in) provided by financing activities                                |       | (15,594                              | )          | 203,328 |   |
|                                                                               |       |                                 |       |   |   |
| Effect of exchange rate fluctuations on cash and cash equivalents                  |       | 15                                   |       | 74 |   |
| Net (decrease) increase in cash and cash equivalents                               |       | (12,520                              | )          | 7,800 |   |
|                                                                               |       |                                 |       |   |   |
| Cash and cash equivalents at beginning of period                                   |       | 36,606                               |       | 29,626 |   |
| Cash and cash equivalents at end of period                                         |       | $                                    | 24,086     |   | $ | 37,426 |   |
|                                                                               |       |                                 |       |   |   |
| **Supplemental disclosures of cash flow  information:**                            |       |                                 |       |   |   |
| Cash interest payments                                                             |       | $                                    | 23,928     |   | $ | 23,859 |   |
| Cash income tax payments                                                           |       | $                                    | 606        |   | $ | 547 |   |
| Cash income tax refunds                                                            |       | $                                    | (60        | ) | $ | (91 | ) |
| Non-cash transactions:                                                             |       |                                 |       |   |   |
| Dividends declared and not yet paid                                                |       | $                                    | 7,801      |   | $ | 7,797 |   |

 

See Notes to ConsolidatedFinancial Statements.

 

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

**Notes toConsolidated Financial Statements**

**(Unaudited)**

 

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

** **

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

 

***Recent Acquisition***

 

EffectiveFebruary 25, 2007, we completed the acquisition of the *Cream of Wheat*and *Cream of Rice*businessfrom Kraft Foods Global, Inc.  Thefinal purchase price, 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.”

 

Theacquisition 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 A Common Stock Offering***

 

On May 29,2007, we completed a public offering of 15,985,000 shares of our Class Acommon stock as a separately traded security, which includes 2,085,000 sharesissued pursuant to the fully exercised underwriters’ option to purchaseadditional shares, at $13.00 per share. The shares of our separately traded Class A common stock trade onthe New York Stock Exchange under the trading symbol “BGS” and trade separatelyfrom our Enhanced Income Securities (EISs), which trade on the New York StockExchange under the trading symbol “BGF.” Each EIS represents one share of our Class A common stock and $7.15principal amount of our senior subordinated notes.

 

Theproceeds of the Class A common stock offering were $193.2 million, afterdeducting underwriting discounts and commissions and other expenses.  In connection with the offering, werepurchased 6,762,455 outstanding shares of our Class B common stock for$82.4 million, and the remaining 793,988 shares of our outstanding Class Bcommon stock were exchanged for an equal number of shares of Class Acommon stock.  See note 9, “Related-PartyTransactions.”  We also prepaid $100.0million of our term loan borrowings under our senior secured creditfacility.  The remaining funds wereallocated for general corporate purposes.

 

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

 

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

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

**(Unaudited)**

** **

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

 

EISs will automatically result in increases anddecreases, respectively, in the number of shares of Class A common stocknot held in the form of EISs.  As of June 28,2008, we had 36,796,988 shares of Class A common stock issued andoutstanding, 16,764,277 of which were held in the form of EISs and 20,032,711of which were held separate from EISs. As of June 30, 2007, we had 36,778,988 shares of Class Acommon stock issued and outstanding, 18,895,867 of which were held in the formof EISs and 17,883,121 of which were held separate from EISs.

 

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

** **

***Fiscal Year***

 

Ourfinancial statements are presented on a consolidated basis.  Typically, our fiscal quarters and fiscalyear consist of 13 and 52 weeks, respectively, ending on the Saturday closestto December 31 in the case of our fiscal year and fourth fiscal quarter,and on the Saturday closest to the end of the corresponding calendar quarter inthe case of our fiscal quarters.  As aresult, a 53rd week is added to our fiscal year every five or six years.  In a 53-week fiscal year our fourth fiscalquarter contains 14 weeks.  Our 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 accompanyingconsolidated interim financial statements for the thirteen and twenty-six weekperiods ended June 28, 2008 (second quarter of 2008 and first two quartersof 2008) and June 30, 2007 (second quarter of 2007 and first two quartersof 2007) have been prepared by our company in accordance with accountingprinciples generally accepted in the United States of America without audit,pursuant to the rules and regulations of the Securities and ExchangeCommission (SEC), and includethe accounts of B&G Foods, Inc. and its subsidiaries.  Certain information and footnote disclosuresnormally included in annual financial statements prepared in accordance withgenerally accepted accounting principles have been omitted pursuant to such rules andregulations.  However, our managementbelieves, to the best of their knowledge, that the disclosures herein areadequate to make the information presented not misleading.  All intercompany balances andtransactions have been eliminated.  Theaccompanying unaudited consolidated interim financial statements contain alladjustments (consisting only of normal and recurring adjustments) that are, inthe opinion of management, necessary to present fairly our consolidatedfinancial position as of June 28, 2008, the results of our operations forthe second quarter and first two quarters of 2008 and 2007, and cash flows forthe first two quarters of 2008 and 2007. Our results of operations for the second quarter and first two quartersof 2008 are not necessarily indicative of the results to be expected for thefull year.  The accompanying unauditedconsolidated interim financial statements should be read in conjunction withthe audited consolidated financial statements and notes for fiscal 2007included in our Annual Report on Form 10-K for fiscal 2007 filed with theSEC on March 6, 2008.

 

***Use of Estimates***

 

The preparation offinancial statements in accordance with U.S. generally accepted accountingprinciples requires our management to make a number of estimates andassumptions relating to the reporting of assets and liabilities and thedisclosure of contingent assets and liabilities at the date of the consolidatedfinancial statements and the reported amounts of revenues and expenses duringthe reporting period.  Some of the moresignificant estimates and assumptions made by management involve trade and consumerpromotion expenses; allowances for excess, obsolete and unsaleable inventories;pension benefits; purchase accounting

 

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

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

**(Unaudited)**

 

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

 

allocations;the recoverability of goodwill, trademarks, customer relationship intangibles,property, plant and equipment and deferred tax assets; the accounting for our enhanced income securities(EISs); the accounting for earnings per share and the accounting forstock-based compensation expense.  Actualresults 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 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.  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;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 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. 160on 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. 161on our consolidated financial statements.

 

In April 2008, the FASBissued FASB Staff Position No. FAS 142-3, “*Determinationof the Useful Life of Intangible Assets”* (FSP No. FAS142-3).  FSP No. FAS 142-3 requirescompanies estimating the useful life of a recognized intangible asset toconsider their historical experience in renewing or extending similararrangements or, in the absence of historical experience, to considerassumptions that market participants would use about renewal or extension asadjusted for entity-specific factors. FSP No. FAS 142-3 is effective as of the beginning of our 2009fiscal year.  We are currently evaluatingthe potential impact, if any, of the adoption of FSP No. FAS 142-3 on ourconsolidated financial statements.

 

6

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Table of Contents

 

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

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

**(Unaudited)**

 

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

** **

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

 
| ** **                  | ** ** | **June 28, 2008** | ** ** | **December 29, 2007** | ** ** |
|-----------------------------|------------|-----------------------------|------------|---------------------------------|------------|
| Raw materials and packaging |       | $                           | 28,304     |                            | $          | 19,573 |   |
| Work in process             |       | 1,759                       |       | 2,641                           |       |
| Finished goods              |       | 69,220                      |       | 70,967                          |       |
|                        |       |                        |       |                            |       |
| Total                       |       | $                           | 99,283     |                            | $          | 93,181 |   |

 

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

** **

There has been no changein the carrying amount of goodwill for the period from December 29, 2007to June 28, 2008.

 

There has been no changein the carrying amount of trademarks for the period from December 29, 2007to June 28, 2008.

 

Customer relationshipintangibles are presented at cost, net of accumulated amortization, and areamortized on a straight-line basis over their estimated useful lives of 20years.

 
| ** **                        | ** ** | **Customer  Relationship  Intangibles** | ** ** | **Less:  Accumulated  Amortization** | ** ** | **Total** | ** ** |
|-----------------------------------|------------|-----------------------------------------|------------|--------------------------------------|------------|-----------|------------|
|                              |       | **(dollars  in thousands)**             |       |
| Balance at December 29, 2007 |       | $                                       | 129,000    |                                 | $          | (6,232    | )          | $ | 122,768 |   |
| Amortization expense              |       | —                                  |       | (3,225                               | )          | (3,225    | )          |
| Balance at June 28, 2008     |       | $                                       | 129,000    |                                 | $          | (9,457    | )          | $ | 119,543 |   |

 

Amortization expense associated with customerrelationship intangibles for the second quarter and first two quarters of 2008was $1.6 million and $3.2 million, respectively, and $1.6 million and $2.3million, respectively, for the second quarter and first two quarters of 2007,and is recorded in operating expenses. We expect to recognize an additional $3.3 million of amortizationexpense associated with our current customer relationship intangibles duringthe remainder of fiscal 2008, and thereafter $6.5 million per year for each ofthe next four succeeding fiscal years.

 

7

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Table of Contents

 

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

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

**(Unaudited)**

 

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

** **

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

 
| ** **                                                | ** ** | **June 28, 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 |   |

 

As of June 28, 2008, the aggregatematurities of long-term debt are as follows (dollars in thousands):

 
| 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 $30.0 million 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 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 swap is designated as acash flow hedge under the guidelines of SFAS No. 133.  The swap is in place through the life of theterm loan, ending on February 26, 2013. Changes in fair value of the swap are recorded in accumulated othercomprehensive income (loss), net of tax on our consolidated balance sheet.

 

8

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Tableof Contents

 

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

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

**(Unaudited)**

 

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

 

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 our subsidiaries’real property.  The credit facilityprovides for mandatory prepayment based on asset dispositions and certainissuances of securities, as defined.  Thecredit facility contains covenants that restrict, among other things, ourability to incur additional indebtedness, pay dividends and create certainliens.  The credit facility also containscertain financial maintenance covenants, which, among other things, specifymaximum capital expenditure limits, a minimum interest coverage ratio and a maximumsenior and total leverage ratio, each ratio as defined.  As of June 28, 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 June 28, 2008.  The available borrowing capacity under ourrevolving credit facility, net of outstanding letters of credit of $2.5million, was $22.5 million at June 28, 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.

 

*SubsidiaryGuarantees*.  We have no assets or operations independentof our direct and indirect subsidiaries. All of our present domestic subsidiaries jointly and severally and fullyand unconditionally guarantee our 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.

 

*DeferredDebt 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 capitalized approximately$0.4 million of additional financing costs, which will be amortized over theterm of the loan.  In connection with theissuance of additional term loan borrowings of $205.0 million in February 2007we capitalized approximately $4.0 million of additional debt issuancecosts.  During the second quarter of 2007we wrote-off and expensed $1.8 million of deferred debt issuance costs inconnection with our May 2007 prepayment of $100.0 million of term loanborrowings.  As of June 28, 2008 andDecember 29, 2007 we had net deferred debt issuance costs of $14.8 millionand $16.4 million, respectively.

 

At June 28,2008 and December 29, 2007 accrued interest of $8.9 million is included inaccrued expenses in the accompanying consolidated balance sheets.

 

**(6)****                                ****Financial Instruments**

** **

Weadopted SFAS No. 157 on December 30, 2007, the first day of our 2008fiscal year.  SFAS No. 157 definesfair value as the price that would be received to sell an asset or paid totransfer a liability in an orderly transaction between market participants atthe measurement date (an exit price). The standard outlines a valuationframework and creates a fair value hierarchy in order to increase theconsistency and comparability of fair value measurements and the relateddisclosures. Under generally accepted accounting principles, certain assets andliabilities must be measured at fair value, and SFAS No. 157 details thedisclosures that are required for items measured at fair value.

 

9

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Tableof Contents

 

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

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

**(Unaudited)**

 

**(6)****                                ****Financial Instruments(Continued)**

 

Financial assets and liabilitiesare measured using inputs from the three levels of the SFAS No. 157 fairvalue hierarchy. The three levels are as follows:

 

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

 

Level 2—Inputs include quotedprices for similar assets and liabilities in active markets, quoted prices foridentical or similar assets or liabilities in markets that are not active,inputs other than quoted prices that are observable for the asset or liability(i.e., interest rates, yield curves, etc.), and inputs that are derivedprincipally from or corroborated by observable market data by correlation orother means (market corroborated inputs).

 

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

 

 In accordance with the fair value hierarchydescribed above, the following table shows the fair value of our interest rateswap as of June 28, 2008, which is included in “Other long-termliabilities” in our consolidated balance sheet (dollars in thousands):

 
| ** **                | ** ** | ** **                  | ** ** | **Fair Value Measurements as of June 28, 2008** | ** ** |
|---------------------------|------------|-----------------------------|------------|------------------------------------------------------------------------------------|------------|
| ** **                | ** ** | **June 28, 2008** | ** ** | **Level 1**                                                                   | ** ** | **Level 2** | ** ** | **Level 3** | ** ** |
| Interest rate derivatives |       | $                           | 5,392      |                                                                               | $          | — |   | $ | 5,392 |   | $ | — |   |
|                           |            |                             |            |                                                                                    |            |  |  |  |  |  |  |  |  |

 

We useour interest rate swap to manage variable interest rate exposure on our $130.0million of term loan borrowings.  Ourobjective for holding this derivative is to decrease the volatility of futurecash flows associated with interest payments on our variable rate debt.

 

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

 

The carrying values and fair values of oursenior notes and senior subordinated notes as of June 28, 2008 and December 29,2007 are as follows (dollars in thousands):

 
| ** **                                                  | ** ** | **June 28, 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    |                            | $          | 238,800 |   | $ | 240,000 |   | $ | 235,800 |   |
| 12% Senior Subordinated Notes due October 30, 2016(2): |       |                        |       |                            |       |   |   |   |   |
| — represented by EISs                                  |       | 119,865                     |       | 127,576                         |       | 119,067 |   | 126,561 |   |
| — held separately                                      |       | 45,935                      |       | 48,891                          |       | 46,733 |   | 49,674 |   |
|                                                             |            |                             |            |                                 |            |  |  |  |  |  |  |  |  |

 

----

(1)          Fair values are estimated based on quotedmarket prices, except as otherwise noted in footnotes (2) and (3) below.

 

(2)          Solely for purposes of this presentation, wehave assumed that the fair value of each senior subordinated note at June 28,2008 was $7.61, based upon the $9.10 per share closing price of our separatelytraded Class A common stock and the $16.71 per EIS closing price of ourEISs on the New York Stock Exchange on June 27, 2008 (the last businessday of the second quarter of 2008).  EachEIS represents one share of Class A common stock and $7.15 principalamount of our senior subordinated notes.

 

(3)          Solely for purposes of this presentation, wehave assumed that the fair value of each senior subordinated note at December 29,2007 was $7.60, based upon the $10.07 per share closing price of our separatelytraded Class A common stock and the

 

10

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Tableof Contents

 

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

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

**(Unaudited)**

 

**(6)****                                ****Financial Instruments (Continued)**

 

$17.67 per EIS closing price of our EISs onthe New York Stock Exchange on December 28, 2007 (the last business day offiscal 2007).

 

Thecarrying value of our term loan borrowings approximates fair value becauseinterest rates under the term loan borrowings are variable, based on prevailingmarket rates.  Our term loan borrowingsare subject to the interest rate swap discussed above.

 

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

** **

Comprehensive incomeincludes net income, foreign currency translation adjustments relating toassets 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):

 
| ** **                                                                         | ** ** | **Thirteen Weeks Ended** | ** ** | **Twenty-six Weeks Ended** | ** ** |
|------------------------------------------------------------------------------------|------------|------------------------------------|------------|--------------------------------------|------------|
| ** **                                                                         | ** ** | **June 28, 2008**        | ** ** | **June 30, 2007**          | ** ** | **June 28, 2008** | ** ** | **June 30, 2007** | ** ** |
|                                                                               |       |                               |       |                                 |       |   |   |   |   |
| Net income                                                                         |       | $                                  | 3,530      |                                 | $          | 3,737 |   | $ | 7,939 |   | $ | 7,811 |   |
| Other comprehensive income:                                                        |       |                               |       |                                 |       |   |   |   |   |
| Foreign currency translation adjustments                                           |       | 52                                 |       | 70                                   |       | 15 |   | 74 |   |
| Amortization of unrecognized prior service cost and pension  deferrals, net of tax |       | 5                                  |       | 5                                    |       | 10 |   | 16 |   |
| Mark to market adjustment of cash flow hedge transaction, net of tax               |       | 3,734                              |       | 1,948                                |       | 317 |   | 1,251 |   |
| Comprehensive income                                                               |       | $                                  | 7,321      |                                 | $          | 5,760 |   | $ | 8,281 |   | $ | 9,152 |   |

 

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

** **

Netperiodic costs for the second quarter and first two quarters of 2008 and 2007include the following components (dollars in thousands):

 
| ** **                                          | ** ** | **Thirteen Weeks Ended** | ** ** | **Twenty-six Weeks Ended** | ** ** |
|-----------------------------------------------------|------------|------------------------------------|------------|--------------------------------------|------------|
| ** **                                          | ** ** | **June 28, 2008**        | ** ** | **June 30, 2007**          | ** ** | **June 28, 2008** | ** ** | **June 30, 2007** | ** ** |
|                                                |       |                               |       |                                 |       |   |   |   |   |
| Service cost—benefits earned during the period |       | $                                  | 330        |                                 | $          | 343 |   | $ | 660 |   | $ | 728 |   |
| Interest cost on projected benefit obligation       |       | 360                                |       | 324                                  |       | 720 |   | 660 |   |
| Expected return on plan assets                      |       | (453                               | )          | (370                                 | )          | (906 | ) | (742 | ) |
| Amortization of unrecognized prior service cost     |       | (3                                 | )          | (2                                   | )          | (6 | ) | 4 |   |
| Amortization of loss                                |       | 11                                 |       | 11                                   |       | 22 |   | 22 |   |
| Net pension cost                                    |       | $                                  | 245        |                                 | $          | 306 |   | $ | 490 |   | $ | 672 |   |

 

During the second quarterand first two quarters of 2008, we did not make any contributions to ourdefined benefit pension plans.  We havesubsequently made a $0.5 million contribution during the third quarter of 2008and we do not anticipate making any further contributions during the remainderof fiscal 2008 to fund our defined benefit pension plan obligations.

 

11

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Table of Contents

 

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

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

**(Unaudited)**

 

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

** **

*RoselandLease.*  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 $0.4 million for thefirst two quarters of 2008 and 2007.

 

*Repurchaseand Exchange of Class B Common Stock*.  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 the offeringprice of our Class A common stock, or $13.00 per share, less discounts andcommissions.  BRS was our majority ownerprior to our EIS offering in October 2004 and remained a majority owner ofour Class B common stock prior to our Class A common stock offeringin May 2007.  Mr. Sherrill is amanaging director of Bruckmann, Rosser, Sherrill & Co., Inc., themanager of BRS.  We also exchanged theremaining 793,988 shares of our Class B common stock, which were held bycertain of our current and former executive officers, for an equal numbers ofshares of our Class A common stock in order to eliminate all of ouroutstanding Class 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)****                         ****Commitments andContingencies**

** **

We aresubject to environmental laws and regulations in the normal course ofbusiness.  Based on our experience todate, management believes that the future cost of compliance with existingenvironmental laws and regulations (and liability for any known environmentalconditions) will not have a material adverse effect on our consolidatedfinancial position, results of operations or liquidity.  However, we cannot predict what environmentalor health and safety legislation or regulations will be enacted in the futureor how existing or future laws or regulations will be enforced, administered orinterpreted, nor can we predict the amount of future expenditures that may berequired in order to comply with such environmental or health and safety lawsor regulations or to respond to such environmental claims.

 

Duringan environmental compliance audit of our Hurlock, Maryland facility conductedby a third-party consultant, we became aware of reporting violations of theEmergency Planning and Community Right to Know Act (EPCRA) and otherenvironmental regulations.  Wevoluntarily self-disclosed these potential violations to the EnvironmentalProtection Agency (EPA) pursuant to the EPA’s self-disclosure policy.  At the current time, we cannot reasonablyestimate the penalty, if any, that may be imposed, but are working closely withthe EPA to resolve this matter.  If apenalty is imposed, we do not expect that it will have a material adverseaffect on our consolidated financial position, results of operations orliquidity.

 

12

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Tableof Contents

 

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

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

**(Unaudited)**

 

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

 

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 ourconsolidated financial position, results of operations or liquidity.

 

We have employment agreements with ourexecutive officers.  The agreementsgenerally continue until terminated by the executive or by us, and provide forseverance payments under certain circumstances, including termination by uswithout cause (as defined) or as a result of the employees’ disability, ortermination by us or a deemed termination upon a change of control (asdefined).  Severance benefits includepayments for salary continuation, continuation of health care and insurancebenefits, present value of additional pension credits, accelerated vestingunder compensation plans and, in the case of a change of control, potentialexcise tax liability and gross-up payments.

 

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

** **

Wecurrently have one 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.  Netincome is allocated between the two classes of common stock based upon thetwo-class method.  Basic and dilutedearnings per share for the Class A common stock and Class B commonstock is calculated by dividing allocated net income by the weighted averagenumber of shares of Class A common stock and Class B common stockoutstanding.

 

13

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Tableof Contents

 

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

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

**(Unaudited)**

 

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

 
| ** **                                                    | ** ** | **Thirteen  Weeks Ended** | ** ** | **Twenty-six  Weeks Ended** | ** ** |
|---------------------------------------------------------------|------------|--------------------------------|------------|----------------------------------|------------|
| ** **                                                    | ** ** | **June 28, 2008**    | ** ** | **June 30, 2007**      | ** ** | **June 28, 2008** | ** ** | **June 30, 2007** | ** ** |
|                                                          |       | **(dollars  in thousands)**    |       |
| Net income                                                    |       | $                              | 3,530      |                             | $          | 3,737 |   | $ | 7,939 |   | $ | 7,811 |   |
| Less: Class A common stock dividends declared            |       | 7,801                          |       | 7,797                            |       | 15,598 |   | 12,037 |   |
| Undistributed loss                                            |       | $                              | (4,271     | )                                | $          | (4,060 | ) | $ | (7,659 | ) | $ | (4,226 | ) |
|                                                          |       |                           |       |                             |       |   |   |   |   |
| Basic and diluted weighted average common shares outstanding: |       |                           |       |                             |       |   |   |   |   |
| Class A common stock                                     |       | 36,784,329                     |       | 26,084,688                       |       | 36,781,659 |   | 23,042,344 |   |
| Class B common stock                                     |       | —                         |       | 4,816,194                        |       | — |   | 6,186,319 |   |
|                                                          |       |                           |       |                             |       |   |   |   |   |
| Basic and diluted allocation of undistributed loss:           |       |                           |       |                             |       |   |   |   |   |
| Class A common stock                                     |       | $                              | (4,271     | )                                | $          | (3,427 | ) | $ | (7,659 | ) | $ | (3,332 | ) |
| Class B common stock                                     |       | —                         |       | (633                             | )          | — |   | (894 | ) |
| Total                                                         |       | $                              | (4,271     | )                                | $          | (4,060 | ) | $ | (7,659 | ) | $ | (4,226 | ) |
|                                                          |       |                           |       |                             |       |   |   |   |   |
| Basic and diluted earnings per share:                         |       |                           |       |                             |       |   |   |   |   |
| Undistributed (loss) earnings per share:                      |       |                           |       |                             |       |   |   |   |   |
| Class A common stock                                     |       | $                              | (0.11      | )                                | $          | (0.13 | ) | $ | (0.20 | ) | $ | (0.14 | ) |
| Class B common stock                                     |       | $                              | —     |                             | $          | (0.13 | ) | $ | — |   | $ | (0.14 | ) |
| Distributed earnings:                                         |       |                           |       |                             |       |   |   |   |   |
| Class A common stock                                     |       | $                              | 0.21       |                             | $          | 0.30 |   | $ | 0.42 |   | $ | 0.52 |   |
| Earnings (loss) per share:                                    |       |                           |       |                             |       |   |   |   |   |
| Class A common stock                                     |       | $                              | 0.10       |                             | $          | 0.17 |   | $ | 0.22 |   | $ | 0.38 |   |
| Class B common stock                                     |       | $                              | —     |                             | $          | (0.13 | ) | $ | — |   | $ | (0.14 | ) |

 

Since May 29,2007, we no longer have any shares of Class B common stock issued oroutstanding.  In addition, no dividendson our Class B common 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**

** **

Ourexposure to credit loss in the event of non-payment of accounts receivable bycustomers is estimated in the amount of the allowance for doubtfulaccounts.  We perform ongoing creditevaluations of our customers’ financial conditions.  As of June 28, 2008, we do not believewe have any significant concentration of credit risk with respect to our tradeaccounts receivable.  Our top tencustomers accounted for approximately 46.1%****and 44.6% of consolidated net salesfor the first two quarters of 2008 and 2007, respectively.  Other than Wal-Mart, which accounted for13.3% and 11.8% of our consolidated net sales for the first two quarters of2008 and 2007, respectively, no single customer accounted for more than 10.0%of our consolidated net sales for the first two quarters of 2008 or 2007.

 

During the second quarter of2008 and 2007 and the first two quarters of 2008 and 2007, respectively, oursales to foreign countries represented less than 1.0% of net sales,respectively.  Our foreign sales areprimarily to customers in Canada.

 

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

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

**(Unaudited)**

 

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

 

As of June 28,2008 and December 29, 2007, we have approximately $0.2 million of totalunrecognized tax benefits, which includes interest and penalties, that ifrecognized would have a favorable impact on our tax expense.  We continue to classify interest andpenalties related to income tax uncertainties as income tax expense.

 

**(14)****                          Insurance Recovery**

 

Duringthe fourth quarter of fiscal 2006, we learned of an alleged theft ofapproximately $0.8 million over several years at our Roseland, New Jerseymanufacturing facility resulting from overpayments allegedly authorized by aformer supervisor to direct-store-delivery independent contractor truckdrivers.  While the cumulative amount ofthe alleged theft may have been substantial, the related losses were reportedin each respective period and discovery of this alleged theft did not result inchanges to any previously reported results. During the second quarter of 2007, we received insurance proceeds forthe entire amount of the loss, which is recorded as an offset to general andadministrative expenses.

 

**(15)****                          Stock-Based CompensationExpense**

** **

Uponthe recommendation of our compensation committee, our board of directors on March 10,2008 adopted the B&G Foods, Inc. 2008 Omnibus Incentive CompensationPlan, which we refer to as the 2008 Omnibus Plan, subject to stockholderapproval.  Our stockholders approved the2008 Omnibus Plan at our annual meeting on May 6, 2008.

 

The2008 Omnibus Plan authorizes the grant of performance share awards, restrictedstock, options, stock appreciation rights, deferred stock, stock units andcash-based awards to employees, non-employee directors and consultants.  Subject to adjustment as provided in theplan, the total number of shares of Class A common stock available forawards under the plan is 2,000,000.

 

*PerformanceShare Awards. *On March 10,2008, the compensation committee granted the following performance sharelong-term incentive awards (LTIAs) under the 2008 Omnibus Plan.  These awards were granted subject tostockholder approval of the 2008 Omnibus Plan, which was received on May 6,2008.

 

Eachof our named executive officers and certain other members of senior managementwere awarded performance share LTIAs that entitle the participant to earnshares of Class A common stock upon the attainment of certain performancegoals over the applicable performance period. The 2008 LTIAs have a one year performance period, fiscal 2008.  The 2008 to 2009 LTIAs have a two-yearcumulative performance period, fiscal 2008 and fiscal 2009.  The 2008 to 2010 LTIAs have a three-yearcumulative performance period, fiscal 2008 through fiscal 2010.

 

The2008 LTIAs, 2008 to 2009 LTIAs and the 2008 to 2010 LTIAs, each have athreshold, target and maximum payout. The awards will be settled based upon our performance over the one, twoand three year cumulative performance periods, as applicable, with respect to “excesscash” (as defined in the award agreements), the applicable performancemetric.  If our performance fails to meetthe performance threshold, then the awards will not vest and no shares will beissued pursuant to the awards.  If ourperformance meets or exceeds the performance threshold, then a varying amountof shares from the threshold amount (0% of the target amount) up to the maximumamount (300% of the target amount) may be earned.  Shares of Class A common stock inrespect of the 2008 LTIAs, 2008 to 2009 LTIAs and 2008 to 2010 LTIAs will beissued in March 2009, March 2010 and March 2011, respectively,in each case subject to the performance goals for the applicable performanceperiod being certified in writing by our compensation committee as having beenachieved.

 

Therecognition of compensation expense for the performance share LTIAs isinitially based on the probable outcome of the performance condition based onthe fair value of the award on the date of grant and

 

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

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

**(Unaudited)**

 

**(15)****                         ****Stock-based Compensation Expense(Continued)**

 

the anticipated number of shares to be awarded on astraight-line basis over the applicable performance period.  Our company’s performance against the definedperformance goal will be re-evaluated on a quarterly basis throughout theapplicable performance period and the recognition of compensation expense willbe adjusted for subsequent changes in the estimated or actual outcome.  The cumulative effect on current and priorperiods of a change in the estimated number of performance share awards isrecognized as an adjustment to earnings in the period of the revision.

 

Duringthe second quarter of 2008, we recognized $0.2 million of compensation expenserelated to the performance share LTIAs, which is reflected in general andadministrative expenses in our consolidated statements of operations.  As of June 28, 2008, there was $1.9million of unrecognized compensation expense related to performance shareLTIAs, which is expected to be recognized over a weighted average period of2.67 years.

 

Thefollowing table details the activity in our performance share LTIAs for thefirst two quarters of 2008 as follows:

 
| ** **                | ** ** | **Number of  Performance Shares (1)** | ** ** | **Weighted Average  Grant Date Fair  Value (per share)(2)** | ** ** |
|---------------------------|------------|------------------------------------------------------|------------|--------------------------------------------------------------------------------------|------------|
|                      |       |                                                 |       |                                                                                 |       |
| Beginning of year         |       | —                                               |       | —                                                                               |       |
| Granted                   |       | 466,746                                              |       | $                                                                                    | 7.66       |   |
| Vested                    |       | —                                               |       | —                                                                               |       |
| Released                  |       | —                                               |       | —                                                                               |       |
| Forfeited                 |       | —                                               |       | —                                                                               |       |
| End of first two quarters |       | 466,746                                              |       | $                                                                                    | 7.66       |   |

 

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(1)          The number of unvested performance shares is based on the participantsearning their target number of performance shares at 100%.

 

(2)          The fair value of the awards was determined based upon the closing priceof our Class A common stock on the applicable measurement dates (i.e., thedeemed grant dates for accounting purposes) reduced by the present value ofexpected dividends using the risk-free interest-rate as the award holders arenot entitled to dividends or dividend equivalents during the vesting period.

 

*Non-EmployeeDirector Stock Grants*. Commencing in fiscal 2008, each of our non-employee directors receivesan annual equity grant of $35,000 of Class A Common Stock as part of hisor her non-employee director compensation. These shares fully vest when issued. On June 2, 2008, 18,000 shares of Class A common stock wereissued to all non-employee directors based upon the closing price of our Class Acommon stock on May 30, 2008 (the business day immediately prior to thedate of grant) of $9.72 per share.  Totalcompensation expense of $0.2 million is reflected in general and administrativeexpenses in our consolidated statements of operations.

 

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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 and twenty-six weeks ended June 28, 2008(second quarter of 2008 and first two quarters of 2008) included elsewhere inthis report and the audited consolidated financial statements and related notesfor the fiscal year ended December 29, 2007 (fiscal 2007) included in ourAnnual Report on Form 10-K filed with the Securities and ExchangeCommission (SEC) on March 6, 2008 (which we refer to as our 2007 AnnualReport 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 followinginitiatives: expanding our brand portfolio with acquisitions of complementarybranded businesses, continuing to develop innovative new products anddelivering them to market quickly, leveraging our unique multiple channel salesand distribution 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 affect 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, includingagricultural products, meat, poultry, other raw materials, ingredients andpackaging materials from growers, commodity processors, other food companiesand packaging manufacturers.  Rawmaterials, ingredients and packaging materials are subject to fluctuations inprice attributable to a number of factors. Fluctuations in commodity prices can lead to retail price volatility andintensive price competition, and can influence consumer and trade buying patterns.  In the second quarter and first two quartersof 2008, our commodity prices for wheat, maple syrup, beans and corn sweetenerswere higher than those incurred during the thirteen and twenty-six weeks ended June 30,2007 (second quarter of 2007 and first two quarters of 2007).

 

Maplesyrup production in Canada, which represents the vast majority of globalproduction, was significantly below industry projections due to poor cropyields and global demand in 2008.  As aresult, the price we pay for maple syrup has increased significantly and wewill likely face a shortfall in supply as compared to our needs, which willnegatively impact our sales volume of maple syrup products.

 

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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 toconsolidate and our retail customers grow larger and become more sophisticated,our retail customers may demand lower pricing and increased promotionalprograms.  These customers are alsoreducing their inventories and increasing their emphasis on private labelproducts.

 

*ChangingCustomer Preferences*. Consumers in the market categories in which we compete frequently changetheir taste preferences, dietary habits and product packaging preferences.

 

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

 

*AWeakening of the U.S. Dollar in Relation to the Canadian Dollar*.  We purchase the majority of our maple syruprequirements from suppliers located in Québec, Canada.  Over the past several years the U.S. dollarhas weakened against the Canadian dollar, which has in turn significantlyincreased our costs relating to the production of our maple 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; the accounting for earnings per share and the accounting for stock-basedcompensation expense.  Actualresults could differ from these estimates 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 

 

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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. Recoverability of assets to be held and used is measured by a comparisonof the carrying amount of an asset to estimated undiscounted future cash flowsexpected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cashflows, an impairment charge is recognized by the amount by which the carryingamount of the asset exceeds the fair value of the asset.  Recoverability of assets held for sale ismeasured by a comparison of the carrying amount of an asset or asset group totheir fair value less estimated cost to sell. Estimating future cash flows and calculating fair value of assetsrequires significant estimates and assumptions by management.

 

***Goodwill and Trademarks***

 

Goodwill andintangible assets with indefinite useful lives (trademarks) are tested forimpairment at least annually and whenever events or circumstances occurindicating that goodwill 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 two quarters 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 principalamount.  We have concluded there are noembedded derivative features related to the EIS that require bifurcation underFASB Statement 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 notesincluded in 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 of senior subordinated notes, if any, 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.  Anydiscount on the senior subordinated notes resulting from the allocation ofproceeds to an embedded derivative will be amortized to interest expense overthe remaining life of the senior subordinated notes.

 

The Class A common stock portion of 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 expense 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 annually the amount recommended byour actuaries.  The funded status of ourpension plans is dependent upon many factors, including returns on investedassets and the level of certain market interest rates.  We review pension assumptions regularly andwe may from time to time make voluntary contributions to our pension plans,which exceed the amounts required by statute. During the second quarter of 2008 we did not make any contribution toour defined benefit pension plans as compared to $1.3 million of contributionsduring the second quarter of 2007. During the third quarter of 2008, we have subsequently madecontributions of $0.5 million to fund our defined benefit pension planobligations and we do not anticipate making any further contributions duringthe remainder of fiscal 2008.  Changes ininterest rates and the market value of the securities held by the plans couldmaterially change, positively or negatively, the funded status of the plans andaffect the level of pension expense and required contributions during theremainder 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 on pensionplan assets would increase or decrease our pension expense by approximately$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 acquiredbusinesses using the purchase method of accounting, which requires that theassets acquired and liabilities assumed be recorded at the date of acquisitionat their respective fair values.  Ourconsolidated financial statements and results of operations reflect an acquiredbusiness after the completion of the acquisition.  The cost to acquire a business, includingtransaction costs, is allocated to the underlying net assets of the acquiredbusiness in proportion to their respective fair values.  Any excess of the purchase price over theestimated fair values of the net assets acquired is recorded as goodwill.

 

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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.

 

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 second quarter of 2008 and 2007 and the first two quarters of2008 and 2007 reflected in our consolidated statements of operations.  The comparisons of financial results are notnecessarily indicative of future results:

 
| ** **                                       | ** ** | **Thirteen Weeks Ended** | ** ** | **Twenty-six Weeks Ended** | ** ** |
|--------------------------------------------------|------------|------------------------------------|------------|--------------------------------------|------------|
| ** **                                       | ** ** | **June 28, 2008**        | ** ** | **June 30, 2007**          | ** ** | **June 28, 2008** | ** ** | **June 30, 2007** | ** ** |
| **Statement of Operations:**                     |       |                               |       |                                 |       |   |   |   |   |
| Net sales                                        |       | 100.0                              | %          | 100.0                                | %          | 100.0 | % | 100.0 | % |
| Cost of goods sold                               |       | 71.8                               | %          | 68.4                                 | %          | 70.9 | % | 68.5 | % |
| Gross profit                                     |       | 28.2                               | %          | 31.6                                 | %          | 29.1 | % | 31.5 | % |
|                                             |       |                               |       |                                 |       |   |   |   |   |
| Sales, marketing and distribution expenses       |       | 9.6                                | %          | 10.6                                 | %          | 10.1 | % | 10.8 | % |
| General and administrative expenses              |       | 1.6                                | %          | 1.4                                  | %          | 1.4 | % | 1.5 | % |
| Amortization expense—customer relationships |       | 1.4                                | %          | 1.4                                  | %          | 1.4 | % | 1.0 | % |
| Operating income                                 |       | 15.6                               | %          | 18.2                                 | %          | 16.2 | % | 18.1 | % |
|                                             |       |                               |       |                                 |       |   |   |   |   |
| Interest expense, net                            |       | 10.8                               | %          | 13.1                                 | %          | 10.8 | % | 12.5 | % |
| Income before income tax expense                 |       | 4.8                                | %          | 5.1                                  | %          | 5.4 | % | 5.7 | % |
|                                             |       |                               |       |                                 |       |   |   |   |   |
| Income tax expense                               |       | 1.8                                | %          | 1.9                                  | %          | 2.1 | % | 2.1 | % |
| Net income                                       |       | 3.0                                | %          | 3.2                                  | %          | 3.4 | % | 3.5 | % |

 

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

 

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

 

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

 

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

 

*General and Administrative Expenses.*  Our general and administrative expensesinclude administrative employee compensation and benefit costs, as well asinformation technology infrastructure and communication costs, office rent andsupplies, professional services and other general corporate expenses.  For the second quarter and first two quartersof 2007, general and administrative expenses is net of insurance proceedsrelating to a previously reported employee theft.

 

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*Amortization Expense—Customer Relationships.*Amortization expense—customer relationships includes the amortization expenseassociated with customer relationship intangibles, which are amortized overtheir useful lives of 20 years.

 

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

 

***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 present EBITDAbecause we believe it is a useful indicator of our historical debt capacity andability to service debt and because covenants in our credit facility, oursenior notes indenture and our senior subordinated notes indenture containratios based on this measure.  As aresult, internal management reports used during monthly operating reviewsfeature the EBITDA metric. However, management uses this metric in conjunctionwith traditional GAAP operating performance and liquidity measures as part ofits overall assessment of company performance and liquidity and therefore doesnot place undue reliance on this measure as its only measure of operatingperformance and liquidity.

 

EBITDAis not a recognized term under GAAP and does not purport to be an alternativeto operating income or net income as an indicator of operating performance orany other GAAP measure. EBITDA is not a complete net cash flow measure becauseEBITDA is a measure of liquidity that does not include reductions for cashpayments for an entity’s obligation to service its debt, fund its 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 second quarter and first two quarters of 2008 and 2007 alongwith the components of EBITDA follows:

 

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| ** **                                                                 | ** ** | **Thirteen Weeks Ended** | ** ** | **Twenty-six Weeks Ended** | ** ** |
|----------------------------------------------------------------------------|------------|------------------------------------|------------|--------------------------------------|------------|
| ** **                                                                 | ** ** | **June 28, 2008**        | ** ** | **June 30, 2007**          | ** ** | **June 28, 2008** | ** ** | **June 30, 2007** | ** ** |
| ** **                                                                 | ** ** | **(Dollars in thousands)**         | ** ** |
| Net income                                                                 |       | $                                  | 3,530      |                                 | $          | 3,737 |   | $ | 7,939 |   | $ | 7,811 |   |
| Income tax expense                                                         |       | 2,165                              |       | 2,280                                |       | 4,855 |   | 4,767 |   |
| Interest expense, net                                                      |       | 12,908                             |       | 15,529                               |       | 25,479 |   | 27,654 |   |
| Depreciation and amortization                                              |       | 3,844                              |       | 3,405                                |       | 7,533 |   | 5,863 |   |
| EBITDA                                                                     |       | 22,447                             |       | 24,951                               |       | 45,806 |   | 46,095 |   |
| Income tax expense                                                         |       | (2,165                             | )          | (2,280                               | )          | (4,855 | ) | (4,767 | ) |
| Interest expense, net                                                      |       | (12,908                            | )          | (15,529                              | )          | (25,479 | ) | (27,654 | ) |
| Deferred income taxes                                                      |       | 1,868                              |       | 1,766                                |       | 4,045 |   | 3,842 |   |
| Amortization of deferred financing costs                                   |       | 792                                |       | 832                                  |       | 1,584 |   | 1,605 |   |
| Write off of deferred debt issuance costs                                  |       | —                             |       | 1,769                                |       | — |   | 1,769 |   |
| Stock-based compensation expense                                           |       | 358                                |       | —                               |       | 358 |   | — |   |
| Changes in assets and liabilities, net of  effects of business combination |       | (9,273                             | )          | (4,496                               | )          | (9,366 | ) | (9,060 | ) |
| Net cash provided by operating activities                                  |       | $                                  | 1,119      |                                 | $          | 7,013 |   | $ | 12,093 |   | $ | 11,830 |   |

 

***Second quarter of 2008 compared to the second quarter of2007.***

** **

*Net Sales. *Netsales increased $1.0 million or 0.8% to $119.2 million for the second quarterof 2008 from $118.2 million for the second quarter of 2007.  The increase in our net sales related toincreases in unit volume.  Net sales ofour lines of*Maple Grove Farms, Ortega,B&M*and *Las Palmas*products increased**in the amounts of $2.3 million, $1.5million, $1.1 million and $0.5 million or 15.0%, 6.1%, 12.7% and 9.3%,respectively.  These increases wereoffset by a reduction in net sales of *Cream of Wheat, Sa-són, Polaner, B&G, Underwood*and *Emeril*products of $1.8 million, $0.6 million, $0.6 million, $0.5million, $0.3 million and $0.3 million or 14.5%, 36.5%, 5.7%, 4.5%, 5.4% and5.2%, respectively.  In the aggregate,net sales for all other brands decreased $0.3 million, or 2.5%.

 

*Gross Profit. *Grossprofit decreased $3.7 million or 10.1% to $33.6 million for the second quarterof 2008 from $37.3 million for the second quarter of 2007.  Gross profit expressed as a percentage of netsales decreased 3.4% to 28.2% in the second quarter of 2008 from 31.6% in thesecond quarter of 2007.  This decrease ingross profit expressed as a percentage of net sales was primarily attributableto increased spending on trade promotions and increased costs for wheat, maplesyrup, corn, packaging, transportation and sweeteners.

 

*Sales, Marketing and Distribution Expenses. *Sales, marketing anddistribution expenses decreased $1.1 million or 8.8% to $11.5 million for thesecond quarter of 2008 from $12.6 million for the second quarter of 2007.  This decrease is primarily due to a decreasein consumer marketing of $0.7 million and a decrease in selling expense of $0.6million offset by an increase in warehousing expense of $0.2 million.  Expressed as a percentage of net sales, oursales, marketing and distribution expenses decreased to 9.6% for the secondquarter of 2008 from 10.6% for the second quarter of 2007.

 

*General and Administrative Expenses. *General and administrativeexpenses increased $0.3 million or 17.8% to $1.9 million for the second quarterof 2008 from $1.6 million in the second quarter of 2007.  Excluding the impact of the $0.8 millioninsurance reimbursement received in the second quarter of 2007, general andadministrative expenses decreased by $0.5 million in the second quarter of 2008as compared to the second quarter of 2007. This decrease was primarily the result of a decrease in professionalfees of $0.3 million and compensation expense of $0.3 million partially offsetby an increase in other expenses of $0.1 million.

 

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*Amortization Expense*—*Customer Relationships. *Amortization expense—customerrelationships remained consistent at $1.6 million for the second quarter of2008 and for the second quarter of 2007.

 

*Operating Income. *Asa result of the foregoing, operating income decreased $2.9 million or 13.7% to$18.6 million for the second quarter of 2008 from $21.5 million for the secondquarter of 2007.  Operating incomeexpressed as a percentage of net sales decreased to 15.6% in the second quarterof 2008 from 18.2% in the second quarter of 2007.

 

*Net Interest Expense. *Net interest expense decreased $2.6 million or 16.9%to $12.9 million for the second quarter of 2008 from $15.5 million in thesecond quarter of 2007.  Interest expensefor the second quarter of 2007 included a write off of deferred financing costsof $1.8 million relating to our prepayment of $100.0 million of term loanborrowing with a portion of the proceeds of our public offering of Class Acommon stock in May 2007.  Ouraverage debt outstanding during the second quarter of 2008 was approximately$66.7 million lower than during the second quarter of 2007.  See “—Liquidity and Capital Resources—Debt”below.

 

*Income Tax Expense. *Incometax expense decreased $0.1 million to $2.2 million for the second quarter of2008 from $2.3 million for the second quarter of 2007.  Our effective tax rate was 37.9% for thesecond quarter of 2008 and 2007.

 

***First two quarters of 2008 compared to first two quarters of2007.***

** **

*Net Sales. *Netsales increased $13.6 million or 6.1% to $235.5 million for the first twoquarters of 2008 from $221.9 million for the first two quarters of 2007.  Excluding the impact of the *Cream of Wheat*acquisition and the termination of atemporary co-packing arrangement, net sales increased $4.5 million or 2.0%relating to increases in sales price and unit volume.  The *Cream of Wheat*acquisition, which was completed in late February 2007, accounted for $9.9million of the net sales increase, offset by a decrease in net sales of $0.8million relating to the termination of the temporary co-packingarrangement.   Net sales of our lines of***Maple Grove Farms, Ortega,Las Palmas, B&M, Joan of Arc*and*Grandma’s*products increased**in the amounts of $2.8 million, $2.4million, $1.2 million, $0.8 million, $0.3 million and $0.3 million or 9.1%,5.0%, 10.1%, 5.7%, 8.8% and 9.0%, respectively. These increases were offset by a reduction in net sales of *Underwood, Emeril’s, Regina*and  *B&G*productsof $0.9 million, $0.8 million, $0.5 million and $0.5 million or 8.7%, 8.2%,9.3% and 2.4%, respectively.  In theaggregate, net sales for all other brands decreased $0.6 million, or 1.5%.

 

*Gross Profit. *Grossprofit decreased $1.5 million or 2.2% to $68.5 million for the first twoquarters of 2008 from $70.0 million for the first two quarters of 2007.  Gross profit expressed as a percentage of netsales decreased 2.4% to 29.1% in the first two quarters of 2008 from 31.5% inthe first two quarters of 2007.  Thedecrease in gross profit expressed as percentage of net sales was primarilyattributable to increased spending on trade promotions and increased costs forwheat, maple syrup, corn, packaging, transportation and sweeteners.

 

*Sales, Marketing and Distribution Expenses. *Sales, marketing anddistribution expenses decreased $0.3 million or 1.3% to $23.8 million for thefirst two quarters of 2008 from $24.1 million for the first two quarters of2007.  The decrease is primarily due to adecrease in brokerage and salesmen commissions of $0.3 million as well asgeneral selling expenses of $0.3 million, offset by an increase in warehousingof $0.3 million.  Expressed as apercentage of net sales, our sales, marketing and distribution expensesdecreased to 10.1% for the first two quarters of 2008 from 10.8% for the firsttwo quarters of 2007.

 

*General and Administrative Expenses. *General and administrativeexpenses decreased $0.2 million or 5.5% to $3.2 million for the first twoquarters of 2008 from $3.4 million in the first two quarters of 2007.  Excluding the impact of the $0.8 millioninsurance reimbursement received in the second quarter of 2007, 

 

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general and administrative expenses decreased by $1.0million in the first two quarters of 2008 as compared to the first two quartersof 2007.  This decrease was primarily theresult of a decrease in professional fees of $0.4 million, compensation expenseof $0.4 million and other expenses of $0.2 million.

 

*Amortization Expense—Customer Relationships.*  Amortization expense—customer relationshipsincreased $0.9 million to $3.2 million for the first two quarters of 2008 from$2.3 million for the first two quarters of 2007. This increase is attributable to the *Creamof Wheat*acquisition, which was completed during the first quarterof 2007.

 

*Operating Income. *Asa result of the foregoing, operating income decreased $1.9 million or 4.9% to$38.3 million for the first two quarters of 2008 from $40.2 million for thefirst two quarters of 2007.  Operatingincome expressed as a percentage of net sales decreased to 16.2% in the firsttwo quarters of 2008 from 18.1% in the first two quarters of 2007.

 

*Net Interest Expense. *Net interest expense decreased $2.2 million or 7.9% to$25.5 million for the first two quarters of 2008 from $27.7 million in thefirst two quarters of 2007.  Interestexpense for the first two quarters of 2007 included a write-off of deferredfinancing costs of $1.8 million relating to our prepayment of $100.0 million ofterm loan borrowings with a portion of the proceeds of our public offering of Class Acommon stock in May 2007.  Ouraverage debt outstanding was approximately $15.0 million lower for the firsttwo quarters of 2008 as compared to the first two quarters of 2007.  See “—Liquidity and Capital Resources—Debt”below.

 

*Income Tax Expense. *Incometax expense remained constant at $4.8 million for the first two quarters of2008 and the first two quarters of 2007. Our effective tax rate was 37.9% for the first two quarters of 2008 and2007.

 

**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 provided by operating activitiesincreased $0.3 million to $12.1 million for the first two quarters of 2008 from$11.8 million for the first two quarters 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 second quarter of 2007 from the *Cream of Wheat* acquisition) and inventoryoffset by a decrease in accounts payable and accrued expenses.  Working capital at June 28, 2008 was$112.8 million, a decrease of $2.3 million from working capital at December 29,2007 of $115.1 million.

 

Netcash used in investing activities for the first two quarters of 2008 was $9.0million as compared to $207.4 million for the first two quarters of 2007.  Investment expenditures for the first twoquarters of 2007 included $200.9 million for the *Cream ofWheat*acquisition.  Capitalexpenditures during the first two quarters of 2008 increased $2.5 million to$9.0 million from $6.5 million during the first two quarters of 2007 andincluded expenditures of $7.3 million relating to the expansion of ourStoughton, Wisconsin facility and the transfer of a portion of the *Cream of Wheat*production to that facility.

 

Netcash used in financing activities for the first two quarters of 2008 was $15.6million as compared to net cash provided by financing activities of $203.3million for the first two quarters of 2007. Net cash used in financing activities for the first two quarters of 2008was entirely for the payment of dividends to holders of our Class A commonstock.  Net cash provided by financingactivities for the first two quarters of 2007 consisted of $205.0 million inadditional term loan borrowings ($100.0 million of which we subsequentlyprepaid during the second quarter of 2007), $193.2 million from the issuance ofClass A common stock, net of 

 

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underwriting discounts and commissions and otherexpenses, offset by $82.4 million for the repurchase of Class B commonstock, $8.5 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 expect ourcash taxes to continue to increase in fiscal 2008 as compared to the prior twoyears, we believe 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 of directors may, inits sole discretion, amend or repeal this dividend policy.  Our board of directors may decrease the levelof dividends below the intended dividend rate or discontinue entirely thepayment of dividends.  Future dividendswith respect to shares of our common stock depend on, among other things, ourresults of operations, cash requirements, financial condition, contractualrestrictions, business opportunities, acquisition opportunities, provisions ofapplicable law and other factors that our board of directors may deemrelevant.  Our board of directors is freeto depart from or change our dividend policy at any time and could do so, forexample, if it was to determine that we have insufficient cash to takeadvantage of growth opportunities.  Inaddition, over time, our EBITDA and capital expenditure, working capital andother cash needs will be subject to uncertainties, which could impact the levelof dividends, if any, we pay in the future. Our senior subordinated notes indenture, the terms of our revolvingcredit facility and our senior notes indenture contain significant restrictionson our ability to make dividend payments. In addition, certain provisions of the Delaware General Corporation Lawmay limit our ability to pay dividends.

 

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

 

Forthe first two quarters of 2008 and 2007, we had cash flows provided byoperating activities of $12.1 million and $11.8 million, and distributed $15.6million and $8.5 million, respectively, as dividends. If our cash flows fromoperating activities for future periods were to fall below our minimumexpectations (or if our assumptions as to capital expenditures or interestexpense were too low or our assumptions as to the sufficiency of our revolvingcredit facility to finance our working capital needs were to prove incorrect),we would need either to reduce or eliminate dividends or, to the extentpermitted under our senior notes indenture, our senior subordinated notesindenture and the terms of our credit facility, fund a portion of our dividendswith borrowings or from other sources. If we were to use working capital or permanent borrowings to funddividends, we would have less cash and/or borrowing capacity available forfuture dividends and other purposes, which could negatively impact ourfinancial position, our results of operations, our liquidity and our ability tomaintain or expand our business.

 

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***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 will increase with anyadditional indebtedness we may incur to finance future acquisitions, ifany.  To the extent future acquisitions,if any, are financed by additional indebtedness, the resulting increase in debtand interest expense could have a negative impact on liquidity.

 

***Environmentaland Health and Safety Costs***

 

We have not madeany material expenditures during the first two quarters of 2008 in order tocomply with 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.

 

Duringan environmental compliance audit of our Hurlock, Maryland facility conductedby a third-party consultant, we became aware of reporting violations of theEmergency Planning and Community Right to Know Act (EPCRA) and otherenvironmental regulations.  Wevoluntarily self-disclosed these potential violations to the EnvironmentalProtection Agency (EPA) pursuant to the EPA’s self-disclosure policy.  At the current time, we cannot reasonablyestimate the penalty, if any, that may be imposed, but are working closely withthe EPA to resolve this matter.  If apenalty is imposed, we do not expect that it will have a material adverseaffect on our consolidated financial position, results of operations orliquidity.

 

***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 theremaining $100.0 million of term loan borrowings, which we subsequentlyprepaid, was 7.36% as of the prepayment date (based upon a three-month LIBORrate in effect at 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 

 

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place through the life ofthe term loan, ending on February 26, 2013.  Changes in fair value of the swap arerecorded 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 incur additional indebtedness, pay dividends and createcertain liens.  The credit facility alsocontains certain financial maintenance covenants, which, among other things, specifymaximum capital expenditure limits, a minimum interest coverage ratio and amaximum senior and total leverage ratio, each ratio as defined.  As of June 28, 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 June 28, 2008.  The available borrowing capacity under ourrevolving credit facility, net of outstanding letters of credit of $2.5million, was $22.5 million at June 28, 2008.  The maximum letter of credit capacity under therevolving 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 $165.8million aggregate principal amount of 12.0% senior subordinated notes due 2016,$143.0 million of which are in the form of EISs and $22.8 million separate fromEISs.  As of June 28, 2008, $119.9million aggregate principal amount of senior subordinated notes was held in theform of EISs and $45.9 million aggregate principal amount of seniorsubordinated notes was held separate from EISs.

 

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

 

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

 

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 

 

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indebtedness of theguarantors, including the indebtedness under our credit facility and the seniornotes.  Our present foreign subsidiariesare not guarantors, and any future foreign or partially owned domesticsubsidiaries will not 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, including consolidation, mergers and transfers of all or substantiallyall of our assets; and specified transactions with affiliates.  Each of the covenants is subject to a numberof important exceptions and qualifications. As of June 28, 2008, we were in compliance with all of thecovenants in the senior subordinated notes indenture.

 

*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 arejointly and severally and fully and unconditionally guaranteed on a seniorbasis by all of our existing and certain future domestic subsidiaries.  The senior notes and the subsidiary guaranteesare our and the guarantors’ general unsecured obligations and are effectivelyjunior in right of payment to all of our and the guarantors’ securedindebtedness and to the indebtedness and other liabilities of our non-guarantorsubsidiaries; are pari passu in right of payment to all of our and theguarantors’ existing and future unsecured senior debt; and are senior in rightof payment to all of our and the guarantors’ future subordinated debt,including the senior subordinated notes. Our present foreign 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 June 28, 2008, we were in compliance with all of thecovenants in the senior notes indenture.

 

***Future CapitalNeeds***

 

We are highly leveraged.  On June 28, 2008, our total long-termdebt and stockholders’ equity was $535.8 million and $167.7 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 available borrowingcapacity under our revolving credit facility will be sufficient for theforeseeable future to fund operations, meet debt service requirements, fundcapital expenditures, and pay 

 

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our anticipated dividends onour Class A common stock.  Weexpect to make capital expenditures of approximately $11.0 million in theaggregate 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 generallybelow those of the following three quarters.

 

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

 

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

 

During fiscal 2007 and the first two quartersof 2008, we were faced with increasing prices in certain commodities andpackaging materials and we expect this trend to continue.  We manage this risk by entering intoshort-term supply contracts and advance commodities purchase agreements fromtime to time, and if necessary, by raising prices.  Our cost increases in fiscal 2007 and thefirst two quarters of 2008 were partially attributable to the spike in oil andnatural gas prices, which have had a substantial impact on our raw material,packaging and transportation costs.  Webelieve that through sales price increases and our cost saving efforts we haveto some degree been able to offset the impact of recent raw material, packagingand transportation cost increases.  Therecan be no assurance, however, that any future sales price increases or costsaving efforts by us will offset the increased cost of raw material, packagingand transportation costs, or that we will be able to raise prices or reducecosts 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 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. 160on 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 disclosure 

 

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requirements for derivativeinstruments and hedging activities.  SFASNo. 161 requires enhanced disclosures about (a) how and why an entityuses derivative instruments, (b) how derivative instruments and relatedhedged items are accounted for under SFAS No. 133 and its relatedinterpretations, and (c) how derivative instruments and related hedgeditems affect an entity’s financial position, financial performance, and cashflows.  SFAS No. 161 is effective asof the beginning of our 2009 fiscal year. We are currently evaluating thepotential impact, if any, of the adoption of SFAS No. 161 on ourconsolidated financial statements.

 

In April 2008, the FASB issued FASBStaff Position No. FAS 142-3, “*Determination of theUseful Life of Intangible Assets”* (FSP No. FAS 142-3).  FSP No. FAS 142-3 requires companiesestimating the useful life of a recognized intangible asset to consider theirhistorical experience in renewing or extending similar arrangements or, in theabsence of historical experience, to consider assumptions that marketparticipants would use about renewal or extension as adjusted forentity-specific factors.  FSP No. FAS142-3 is effective as of the beginning of our 2009 fiscal year.  We are currently evaluating the potentialimpact, if any, of the adoption of FSP No. FAS 142-3 on our consolidatedfinancial statements.

 

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**Off-balance Sheet Arrangements**

 

As of June 28,2008, we did not have any off-balance sheet arrangements as defined in Item303(a)(4)(ii) of Regulation S-K.

 

**Commitments and ContractualObligations**

** **

Our contractual obligations and commitmentsprincipally include obligations associated with our outstanding indebtedness,future minimum operating lease obligations and future pension obligations.  During the first two quarters of 2008, therewere no material changes outside the ordinary course of business in thespecified contractual 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 the transferof our warehousing operations in Tennessee from one leased location to anotherleased location) that will require us to make rental payments of approximately$4.0 million in the aggregate over the course of the lease, which expires in2013.  In addition, our expectedcontributions to our defined benefit pension plans for fiscal 2008 haveincreased from $0.1 million to $0.5 because, although not obligated to do so,we made $0.5 million of contributions to our defined benefit pension plansduring the third quarter of 2008.  We donot anticipate making any further contributions to our defined benefit pensionplans during the remainder of fiscal 2008.

 

***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 the following:

 

·                  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;

 

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·                  other factors that affect the food industrygenerally, including:

 

·                  recalls ifproducts become adulterated or misbranded, liability if product consumptioncauses injury, ingredient disclosure and labeling laws and regulations and the possibilitythat consumers could lose confidence in the safety and quality of certain foodproducts, as well as recent publicity concerning the health implications ofobesity and trans fatty acids;

 

·                  competitors’pricing practices and promotional spending levels;

 

·                  the risksassociated with third-party suppliers and co-packers, including the risk thatany failure by one or more of our third-party suppliers or co-packers to complywith food safety or other regulations may disrupt our supply of raw materialsor certain finished goods products; and

 

·                  fluctuations inthe level of our customers’ inventories and credit and other business risksrelated to our customers operating in a challenging economic and competitiveenvironment; 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 statements containedin this report.

 

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

 

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

** **

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

 

Interest under our $25.0million revolving credit facility, including any outstanding letters of credit,is determined based on alternative rates that we may choose in accordance withthe revolving credit facility, including the base lending rate per annum plusan applicable margin, and LIBOR plus an applicable margin.  Interest under our term loan facility isdetermined based on alternative rates that we may choose in accordance with thecredit facility, including the base lending rate per annum plus an applicablemargin of 1.00%, and LIBOR plus an applicable margin of 2.00%.  The revolving credit facility was undrawn at June 28,2008.  We have outstanding $130.0 millionof term loan borrowings at June 28, 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 June 28,2008 and December 29, 2007 are as follows (dollars in thousands):

 

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| ** **                                                   | ** ** | **June 28, 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    |                            | $          | 238,800 |   | $ | 240,000 |   | $ | 235,800 |   |
| 12% Senior Subordinated Notes due  October 30, 2016(2): |       |                        |       |                            |       |   |   |   |   |
| — represented by EISs                                   |       | 119,865                     |       | 127,576                         |       | 119,067 |   | 126,561 |   |
| — held separately                                       |       | 45,935                      |       | 48,891                          |       | 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 June 28, 2008 was $7.61 basedupon the $9.10 per share closing price of our separately traded Class Acommon stock and the $16.71 per EIS closing price of our EISs on the New YorkStock Exchange on June 27, 2008 (the last business day of the first twoquarters 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.    Controlsand Procedures**

** **

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

 

*InherentLimitations on Effectiveness of Controls.*  Our company’s management, including the chiefexecutive officer and chief financial officer, does not expect that ourdisclosure controls or our internal control over financial reporting will preventor detect all errors and all fraud.  Acontrol system, no matter how well designed and operated, can provide onlyreasonable, not absolute, assurance that the control system’s objectives willbe met.  The design of a control systemmust reflect the fact that there are resource 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.   LegalProceedings**

** **

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

 

**Item 1A. Risk Factors**

** **

We donot believe there have been any material changes in our risk factors aspreviously disclosed in our 2007 Annual Report on Form 10-K.

 

**Item 2.**  Unregistered Sales ofEquity Securities and Use of Proceeds

** **

Notapplicable.

 

**Item 3.**  Defaults Upon SeniorSecurities

** **

Notapplicable.

 

**Item 4.   Submission of Mattersto a Vote of Security Holders**

** **

Ourannual meeting of stockholders was held on May 6, 2008.  At the annual meeting, our stockholdersconsidered and voted upon the election of seven directors to serve until thenext annual meeting of stockholders and until their successors have beenelected and qualified.  All seven of thenominees for the board of directors were elected by the following vote:

 
| **Class A Director Nominee** | ** ** | **For**    | ** ** | **Withheld** | ** ** |
|---------------------------------------------|------------|------------|------------|--------------|------------|
|                                        |       |       |       |         |       |
| Robert C. Cantwell                          |       | 33,127,788 |       | 1,105,280    |       |
|                                        |       |       |       |         |       |
| James R. Chambers                           |       | 34,199,810 |       | 33,258       |       |
|                                        |       |       |       |         |       |
| Cynthia T. Jamison                          |       | 33,902,925 |       | 330,143      |       |
|                                        |       |       |       |         |       |
| Dennis Mullen                               |       | 33,925,062 |       | 308,006      |       |
|                                        |       |       |       |         |       |
| Alfred Poe                                  |       | 33,100,167 |       | 1,132,901    |       |
|                                        |       |       |       |         |       |
| Steven C. Sherrill                          |       | 33,128,612 |       | 1,104,456    |       |
|                                        |       |       |       |         |       |
| David L. Wenner                             |       | 33,118,944 |       | 1,114,124    |       |

 

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Ourstockholders ratified the appointment of KPMG LLP as our independent registeredpublic accounting firm for the fiscal year ending January 3, 2009, by thefollowing vote:

 
| **For**    | ** ** | **Against** | ** ** | **Abstain** | ** ** |
|------------|------------|-------------|------------|-------------|------------|
| 34,240,767 |       | 208,197     |       | 106,161     |       |

** **

Ourstockholders approved the B&G Foods, Inc. 2008 Omnibus IncentiveCompensation Plan by the following vote:

 
| **For**    | ** ** | **Against** | ** ** | **Abstain** | ** ** |
|------------|------------|-------------|------------|-------------|------------|
| 22,980,703 |       | 3,130,458   |       | 376,930     |       |

 

**Item 5.  Other Information**

** **

Notapplicable.

 

**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:  July 28, 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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