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B&G Foods, Inc. - Quarter Report: 2017 September (Form 10-Q)

As filed with the Securities and Exchange Commission on November 3, 2017

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

 

FORM 10-Q

(Mark one)

 

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

 

For the quarterly period ended September 30, 2017

 

or

 

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

 

For the transition period from                    to                   .

 

Commission file number 001-32316

 

B&G FOODS, INC.

(Exact name of Registrant as specified in its charter)

 

 

 

 

Delaware

 

13-3918742

(State or other jurisdiction of

 

(I.R.S. Employer Identification No.)

incorporation or organization)

 

 

 

 

 

4 Gatehall Drive, Parsippany, New Jersey

 

07054

(Address of principal executive offices)

 

(Zip Code)

 

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

 

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

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes ☒ No ☐

 

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

 

 

 

Large accelerated filer ☒

Accelerated filer ☐

Non-accelerated filer ☐

Smaller reporting company ☐

 

 

(Do not check if a smaller reporting company)

 

Emerging growth company ☐

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes ☐ No ☒

 

As of October 31, 2017, the registrant had 66,496,333 shares of common stock, par value $0.01 per share, issued and outstanding.

 

 

 

 


 

Table of Contents

B&G Foods, Inc. and Subsidiaries

Index

 

 

 

 

 

 

 

 

Page No.

 

 

 

 

PART I FINANCIAL INFORMATION 

2

 

 

 

 

 

Item 1. Financial Statements (Unaudited)

2

 

Consolidated Balance Sheets

2

 

Consolidated Statements of Operations

3

 

Consolidated Statements of Comprehensive Income

4

 

Consolidated Statements of Cash Flows

5

 

Notes to Consolidated Financial Statements

6

 

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

30

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

45

 

Item 4. Controls and Procedures

47

 

 

 

 

PART II OTHER INFORMATION

48

 

 

 

 

Item 1. Legal Proceedings

48

 

Item 1A. Risk Factors

48

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

48

 

Item 3. Defaults Upon Senior Securities

48

 

Item 4. Mine Safety Disclosures

48

 

Item 5. Other Information

48

 

Item 6. Exhibits

48

 

 

 

SIGNATURE 

49

 

 

 

 

-  i  -


 

Table of Contents

PART I

FINANCIAL INFORMATION

Item 1.  Financial Statements (Unaudited)

B&G Foods, Inc. and Subsidiaries

Consolidated Balance Sheets

(In thousands, except share and per share data)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

    

September 30, 2017

    

December 31, 2016

 

Assets

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

22,615

 

$

28,833

 

Trade accounts receivable, net

 

 

171,343

 

 

119,265

 

Inventories

 

 

487,390

 

 

356,590

 

Prepaid expenses and other current assets

 

 

33,601

 

 

26,399

 

Income tax receivable

 

 

9,567

 

 

10,787

 

Total current assets

 

 

724,516

 

 

541,874

 

 

 

 

 

 

 

 

 

Property, plant and equipment, net of accumulated depreciation of $192,867 and $169,474

 

 

266,381

 

 

245,344

 

Goodwill

 

 

615,770

 

 

614,278

 

Other intangibles, net

 

 

1,615,528

 

 

1,629,482

 

Other assets

 

 

6,292

 

 

4,625

 

Deferred income taxes

 

 

984

 

 

7,902

 

Total assets

 

$

3,229,471

 

$

3,043,505

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Trade accounts payable

 

$

137,205

 

$

98,033

 

Accrued expenses

 

 

55,474

 

 

62,393

 

Current portion of long-term debt

 

 

 —

 

 

10,515

 

Income tax payable

 

 

112

 

 

3,875

 

Dividends payable

 

 

30,921

 

 

30,879

 

Total current liabilities

 

 

223,712

 

 

205,695

 

 

 

 

 

 

 

 

 

Long-term debt

 

 

1,852,932

 

 

1,715,268

 

Other liabilities

 

 

17,779

 

 

21,405

 

Deferred income taxes

 

 

343,659

 

 

315,480

 

Total liabilities

 

 

2,438,082

 

 

2,257,848

 

Commitments and contingencies (Note 10)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

Preferred stock, $0.01 par value per share. Authorized 1,000,000 shares; no shares issued or outstanding

 

 

 —

 

 

 —

 

Common stock, $0.01 par value per share. Authorized 125,000,000 shares; 66,496,333 and 66,406,314 shares issued and outstanding as of September 30, 2017 and December 31, 2016

 

 

665

 

 

664

 

Additional paid-in capital

 

 

297,303

 

 

387,699

 

Accumulated other comprehensive loss

 

 

(10,792)

 

 

(19,364)

 

Retained earnings

 

 

504,213

 

 

416,658

 

Total stockholders’ equity

 

 

791,389

 

 

785,657

 

Total liabilities and stockholders’ equity

 

$

3,229,471

 

$

3,043,505

 

 

See Notes to Consolidated Financial Statements.

-  2  -


 

Table of Contents

B&G Foods, Inc. and Subsidiaries

Consolidated Statements of Operations

(In thousands, except per share data)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Thirteen Weeks Ended

 

Thirty-nine Weeks Ended

 

 

    

September 30,

    

October 1,

    

September 30,

    

October 1,

    

 

    

2017

    

2016

    

2017

    

2016

 

Net sales

 

$

408,364

 

$

318,247

 

$

1,194,372

 

$

977,601

 

Cost of goods sold

 

 

285,109

 

 

202,821

 

 

833,316

 

 

636,545

 

Gross profit

 

 

123,255

 

 

115,426

 

 

361,056

 

 

341,056

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative expenses

 

 

43,019

 

 

42,465

 

 

146,244

 

 

115,989

 

Amortization expense

 

 

4,265

 

 

3,269

 

 

13,002

 

 

10,039

 

Impairment of intangible assets

 

 

 —

 

 

 —

 

 

 —

 

 

5,405

 

Operating income

 

 

75,971

 

 

69,692

 

 

201,810

 

 

209,623

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

 

23,374

 

 

17,974

 

 

65,019

 

 

55,535

 

Loss on extinguishment of debt

 

 

 —

 

 

 —

 

 

1,163

 

 

2,836

 

Other expense (income)

 

 

95

 

 

127

 

 

(2,865)

 

 

(2,173)

 

Income before income tax expense

 

 

52,502

 

 

51,591

 

 

138,493

 

 

153,425

 

Income tax expense

 

 

19,772

 

 

19,181

 

 

50,938

 

 

57,568

 

Net income

 

$

32,730

 

$

32,410

 

$

87,555

 

$

95,857

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

66,496

 

 

64,758

 

 

66,484

 

 

62,135

 

Diluted

 

 

66,644

 

 

65,038

 

 

66,713

 

 

62,338

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.49

 

$

0.50

 

$

1.32

 

$

1.54

 

Diluted

 

$

0.49

 

$

0.50

 

$

1.31

 

$

1.54

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash dividends declared per share

 

$

0.465

 

$

0.420

 

$

1.395

 

$

1.260

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See Notes to Consolidated Financial Statements.

-  3  -


 

Table of Contents

B&G Foods, Inc. and Subsidiaries

Consolidated Statements of Comprehensive Income

(In thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Thirteen Weeks Ended

 

Thirty-nine Weeks Ended

 

 

    

September 30,

    

October 1,

    

September 30,

    

October 1,

    

 

    

2017

    

2016

    

2017

    

2016

 

Net income

 

$

32,730

 

$

32,410

 

$

87,555

 

$

95,857

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

713

 

 

(3,381)

 

 

8,350

 

 

(3,691)

 

Amortization of unrecognized prior service cost and pension deferrals, net of tax

 

 

120

 

 

66

 

 

222

 

 

244

 

Other comprehensive income (loss)

 

 

833

 

 

(3,315)

 

 

8,572

 

 

(3,447)

 

Comprehensive income

 

$

33,563

 

$

29,095

 

$

96,127

 

$

92,410

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See Notes to Consolidated Financial Statements.

 

 

 

-  4  -


 

Table of Contents

B&G Foods, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

Thirty-nine Weeks Ended

 

 

    

September 30,

    

October 1,

    

 

    

2017

    

2016

 

Cash flows from operating activities:

 

 

 

 

 

 

 

Net income

 

$

87,555

 

$

95,857

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

 

Depreciation and amortization

 

 

36,284

 

 

26,813

 

Amortization of deferred debt financing costs and bond discount

 

 

4,263

 

 

4,101

 

Deferred income taxes

 

 

35,079

 

 

45,555

 

Impairment of intangible assets

 

 

 —

 

 

5,405

 

Loss on sale of assets

 

 

1,608

 

 

 —

 

Write-off of property, plant, and equipment

 

 

107

 

 

 —

 

Loss on disposal of inventory

 

 

 —

 

 

791

 

Loss on extinguishment of debt

 

 

1,163

 

 

2,836

 

Share-based compensation expense

 

 

4,284

 

 

4,457

 

Excess tax benefits from share-based compensation

 

 

 —

 

 

(343)

 

Changes in assets and liabilities, net of effects of businesses acquired:

 

 

 

 

 

 

 

Trade accounts receivable

 

 

(52,044)

 

 

(20,551)

 

Inventories

 

 

(127,052)

 

 

(29,922)

 

Prepaid expenses and other current assets

 

 

(6,407)

 

 

(3,297)

 

Income tax receivable/payable

 

 

(3,025)

 

 

(3,286)

 

Other assets

 

 

(1,309)

 

 

(1,180)

 

Trade accounts payable

 

 

38,787

 

 

47,646

 

Accrued expenses

 

 

(8,130)

 

 

17,389

 

Other liabilities

 

 

(3,626)

 

 

507

 

Net cash provided by operating activities

 

 

7,537

 

 

192,778

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

Capital expenditures

 

 

(42,728)

 

 

(24,807)

 

Proceeds from sale of assets

 

 

2,229

 

 

 —

 

Payments for acquisition of businesses, net of cash acquired

 

 

(117)

 

 

 —

 

Net cash used in investing activities

 

 

(40,616)

 

 

(24,807)

 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

Repayments of long-term debt

 

 

(233,640)

 

 

(150,000)

 

Proceeds from issuance of long-term debt

 

 

500,000

 

 

 —

 

Repayments of borrowings under revolving credit facility

 

 

(221,000)

 

 

(50,000)

 

Borrowings under revolving credit facility

 

 

85,000

 

 

10,000

 

Proceeds from issuance of common stock, net

 

 

36

 

 

331,879

 

Dividends paid

 

 

(92,710)

 

 

(72,916)

 

Excess tax benefits from share-based compensation

 

 

 —

 

 

343

 

Payments of tax withholding on behalf of employees for net share settlement of share-based compensation

 

 

(1,962)

 

 

(1,410)

 

Debt financing costs

 

 

(8,637)

 

 

 —

 

Net cash provided by financing activities

 

 

27,087

 

 

67,896

 

 

 

 

 

 

 

 

 

Effect of exchange rate fluctuations on cash and cash equivalents

 

 

(226)

 

 

(533)

 

Net (decrease) increase in cash and cash equivalents

 

 

(6,218)

 

 

235,334

 

 

 

 

 

 

 

 

 

Cash and cash equivalents at beginning of period

 

 

28,833

 

 

5,246

 

Cash and cash equivalents at end of period

 

$

22,615

 

$

240,580

 

 

 

 

 

 

 

 

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

 

 

Cash interest payments

 

$

41,824

 

$

44,387

 

Cash income tax payments

 

$

15,084

 

$

15,406

 

Non-cash transactions:

 

 

 

 

 

 

 

Dividends declared and not yet paid

 

$

30,921

 

$

27,891

 

Accruals related to purchases of property, plant and equipment

 

$

 —

 

$

1,604

 

 

 

 

 

 

 

See Notes to Consolidated Financial Statements.

 

 

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Table of Contents

B&G Foods, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

 

(1)Nature of Operations

B&G Foods, Inc. is a holding company whose principal assets are the shares of capital stock of its subsidiaries.  Unless the context requires otherwise, references in this report to “B&G Foods,” “our company,” “we,” “us” and “our” refer to B&G Foods, Inc. and its subsidiaries.  Our financial statements are presented on a consolidated basis.

We operate in a single industry segment and manufacture, sell and distribute a diverse portfolio of high-quality shelf-stable and frozen foods across the United States, Canada and Puerto Rico.  Our products include frozen and canned vegetables, hot cereals, fruit spreads, canned meats and beans, bagel chips, spices, seasonings, hot sauces, wine vinegar, maple syrup, molasses, salad dressings, pizza crusts, Mexican-style sauces, dry soups, taco shells and kits, salsas, pickles, peppers, tomato-based products, puffed corn and rice snacks, nut clusters and other specialty products.  Our products are marketed under many recognized brands, including Ac’cent,  B&G,  B&M,  Baker’s Joy,  Bear Creek Country Kitchens,  Brer Rabbit,  Canoleo,  Cary’s,  Cream of Rice,  Cream of Wheat,  Devonsheer,  Don Pepino,  Durkee,  Emeril’s,  Grandma’s Molasses,  Green Giant,  JJ Flats,  Joan of Arc,  Las Palmas,  Le Sueur,  MacDonald’s,  Mama Mary’s,  Maple Grove Farms of Vermont,  Molly McButter,  Mrs. Dash,  New York Flatbreads,  New York Style,  Old London,  Original Tings,  Ortega,  Pirate’s Booty,  Polaner,  Red Devil,  Regina,  Sa-són,  Sclafani,  Smart Puffs,  Spice Islands, Spring Tree,  Sugar Twin,  Tone’s,  Trappey’s,  TrueNorth,  Underwood,  Vermont Maid,  Victoria,  Weber, and Wright’s.  See Note 16, “Subsequent Event.” We also sell and distribute Static Guard, a household product brand. We compete in the retail grocery, foodservice, specialty, private label, club and mass merchandiser channels of distribution.  We sell and distribute our products directly and via a network of independent brokers and distributors to supermarket chains, foodservice outlets, mass merchants, warehouse clubs, non-food outlets and specialty distributors.

 

(2)Summary of Significant Accounting Policies

Fiscal Year

Typically, our fiscal quarters and fiscal year consist of 13 and 52 weeks, respectively, ending on the Saturday closest to 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 in the case of our fiscal quarters.  As a result, a 53rd week is added to our fiscal year every five or six years.  In a 53-week fiscal year our fourth fiscal quarter contains 14 weeks.  Our fiscal year ending December 30, 2017 (fiscal 2017) and our fiscal year ended December 31, 2016 (fiscal 2016) each contain 52 weeks.  Each quarter of fiscal 2017 and 2016 contains 13 weeks.

Basis of Presentation

The accompanying unaudited consolidated interim financial statements for the thirteen and thirty-nine week periods ended September 30, 2017  (third quarter and first three quarters of 2017) and October 1, 2016  (third quarter and first three quarters of 2016) have been prepared by our company in accordance with accounting principles generally accepted in the United States of America pursuant to the rules and regulations of the Securities and Exchange Commission (SEC), and include the accounts of B&G Foods, Inc. and its subsidiaries.  Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles have been omitted pursuant to such rules and regulations.  However, our management believes, to the best of their knowledge, that the disclosures herein are adequate to make the information presented not misleading.  All intercompany balances and transactions have been eliminated.  The accompanying unaudited consolidated interim financial statements contain all adjustments that are, in the opinion of management, necessary to present fairly our consolidated financial position as of September 30, 2017, and the results of our operations, comprehensive income and cash flows for the third quarter and first three quarters of 2017 and 2016.  Our results of operations for the third quarter and first three quarters of 2017 are not necessarily indicative of the results to be expected for the full year.  We have evaluated subsequent events for disclosure through the date of issuance of the accompanying unaudited consolidated interim financial statements. The accompanying unaudited consolidated interim financial statements should be read in conjunction with the audited consolidated financial statements and notes included in our Annual Report on Form 10-K for fiscal 2016 filed with the SEC on March 1, 2017.  Certain prior year amounts have been reclassified to conform to the current year presentation.

-  6  -


 

Table of Contents

B&G Foods, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

 

(2)Summary of Significant Accounting Policies (Continued)

Use of Estimates

The preparation of financial statements in accordance with accounting principles generally accepted in the United States requires our management to make a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.  Some of the more significant estimates and assumptions made by management involve trade and consumer promotion expenses; allowances for excess, obsolete and unsaleable inventories; pension benefits; acquisition accounting fair value allocations; the recoverability of goodwill, other intangible assets, property, plant and equipment and deferred tax assets; and the determination of the useful life of customer relationship and amortizable trademark intangibles.  Actual results could differ significantly from these estimates and assumptions.

Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors that management believes to be reasonable under the circumstances, including the current economic environment.  We adjust such estimates and assumptions when facts and circumstances dictate.  Volatility in the credit and equity markets can increase the uncertainty inherent in such estimates and assumptions.

Newly Adopted Accounting Standards

In March 2016, the Financial Accounting Standards Board (FASB) issued a new accounting standards update (ASU) that changes the accounting for certain aspects of share-based payments to employees. The new guidance requires that excess tax benefits (which represent the excess of actual tax benefits received at the date of vesting or settlement over the benefits recognized over the vesting period or upon issuance of share-based payments) and tax deficiencies (which represent the amount by which actual tax benefits received at the date of vesting or settlement is lower than the benefits recognized over the vesting period or upon issuance of share-based payments) be recorded in the income statement as a reduction of income taxes when the awards vest or are settled. The new guidance also requires excess tax benefits to be classified as an operating activity in the statement of cash flows rather than as a financing activity. We adopted the provisions of this ASU at the beginning of fiscal 2017 and applied the required changes in accounting principle on a prospective basis. As a result of this adoption, we recognized discrete tax benefits of $0.8 million in the income taxes line item of our consolidated statement of operations for the first three quarters of 2017 related to excess tax benefits upon vesting or settlement in that period. We elected to adopt the cash flow presentation of the excess tax benefits prospectively, commencing with our statement of cash flows for the first quarter of 2017, where these benefits are classified along with other income tax cash flows as an operating activity. We excluded the excess tax benefits from the assumed proceeds available to repurchase shares in the computation of our diluted earnings per share for the first three quarters of 2017.

In November 2015, the FASB issued a new ASU that requires deferred tax assets and liabilities to be classified as noncurrent on the balance sheet. The ASU is effective beginning with the first quarter of fiscal 2017. We adopted the provisions of this ASU at the beginning of fiscal 2017 and applied the required changes in accounting principle on a retrospective basis. Accordingly, in our consolidated balance sheet as of December 31, 2016, $7.9 million of deferred tax assets were reclassified from current assets to noncurrent assets. The update impacted presentation and disclosure only, and therefore, the adoption of this ASU did not have any impact on our results of operations or liquidity.

In July 2015, the FASB issued a new ASU that simplifies the subsequent measurement of inventories by replacing the current lower of cost or market test with a lower of cost and net realizable value test. We adopted the provisions of this ASU at the beginning of fiscal 2017. The adoption of this ASU did not have any impact on our consolidated financial position, results of operations or liquidity.

-  7  -


 

Table of Contents

B&G Foods, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

 

(2)Summary of Significant Accounting Policies (Continued)

Recently Issued Accounting Standards

In March 2017, the FASB issued a new ASU that improves the presentation of net periodic pension cost and net periodic postretirement benefit cost.  The new guidance revises how employers that sponsor defined benefit pension and other postretirement plans present the net periodic benefit cost in their income statement and requires that the service cost component of net periodic benefit cost be presented in the same income statement line items as other employee compensation costs from services rendered during the period. The update is effective beginning with the first quarter of fiscal 2019.  We have not yet determined the impact from adoption of the ASU on our financial statements.

In January 2017, the FASB issued a new ASU which clarifies the definition of a business. The new guidance changes the definition of a business to assist entities in evaluating when a set of transferred assets and activities constitutes a business. The update is effective beginning with the first quarter of 2018.  We have not yet determined the impact from adoption of the ASU on our financial statements.

In January 2017, the FASB issued a new ASU that simplifies the subsequent measurement of goodwill, including the elimination of the second step from the goodwill impairment test. The update is effective for annual or any interim impairment tests in fiscal 2020 or later. The adoption of this ASU will not have any impact on our consolidated financial position, results of operations or liquidity.

In February 2016, the FASB issued a new ASU that requires lessees to recognize lease assets and lease liabilities on the balance sheet for those leases classified as operating leases under current guidance. The update is effective beginning with the first quarter of fiscal 2019. We have not yet determined the impact from adoption of the ASU on our financial statements.

In May 2014, the FASB issued guidance on revenue recognition, with final guidance issued in 2016.  The guidance provides for a five-step model to determine the revenue to be recognized from the transfer of goods or services to customers. The guidance also requires improved disclosures to help users of the financial statements better understand the nature, amount, timing and uncertainty of revenue and cash flows relating to customer contracts. It also provides clarification for principal versus agent considerations, identifying performance obligations and the accounting of intellectual property licenses. In addition, the FASB introduced practical expedients related to disclosures of remaining performance obligations, as well as other amendments to guidance on collectability, non-cash consideration and the presentation of sales and other similar taxes.  The two permitted transition methods under the guidance are the full retrospective approach or a cumulative effect adjustment to the opening retained earnings in the year of adoption (cumulative effect approach).  We have not yet made a determination as to which transition method we will be using.  We plan to adopt the new guidance when it becomes effective on December 31, 2017, the first day of our fiscal 2018.

We have established a project plan and completed an initial review of our revenue contracts to assess the impact of the guidance on our revenue contracts by reviewing our current accounting policies and practices to identify potential differences that would result from applying the new requirements to our revenue contracts.  We are also in the process of evaluating the impact, if any, on changes to our controls to support recognition and disclosures under the new guidance.  Based on the foregoing, we do not expect the adoption of the new standard to have a material effect on our consolidated financial statements.

 

(3)Acquisitions

On December 2, 2016, we acquired Victoria Fine Foods, LLC, and a related entity, from Huron Capital Partners and certain other sellers for a purchase price of $72.0 million in cash.  We refer to this acquisition as the “Victoria acquisition.”

On November 21, 2016, we completed the acquisition of the spices & seasonings business of ACH Food Companies, Inc. for a purchase price of $366.9 million.  We refer to this acquisition as the “spices & seasonings acquisition.” In connection with the acquisition,  as of September 30, 2017, we had receivables related to a transition services agreement with ACH Food Companies of $1.0 million included in prepaid expenses and other current assets in the accompanying consolidated balance sheets. As of December 31, 2016, we had payables related to the transition services agreement of $12.6 million included in accrued expenses in the accompanying consolidated balance sheets.

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Table of Contents

B&G Foods, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

 

(3)Acquisitions (Continued)

We have accounted for each of these acquisitions using the acquisition method of accounting and, accordingly, have included the assets acquired, liabilities assumed and results of operations in our consolidated financial statements from the respective date of acquisition.  The excess of the purchase price over the fair value of identifiable net assets acquired represents goodwill. Unamortizable trademarks are deemed to have an indefinite useful life and are not amortized. Customer relationship intangibles and amortizable trademarks acquired are amortized over 10 to 20 years. Goodwill and other intangible assets, except in the case of the Victoria acquisition, are deductible for income tax purposes.  Inventory has been recorded at estimated selling price less costs of disposal and a reasonable selling profit and the property, plant and equipment and other intangible assets (including trademarks, customer relationships and other intangibles) acquired have been recorded at fair value as determined by our management with the assistance of a third-party valuation specialist.  See Note 5, “Goodwill and Other Intangible Assets.”

The following table sets forth the preliminary allocation of the Victoria acquisition purchase price to the estimated fair value of the net assets acquired at the date of acquisition. The preliminary purchase price allocation may be adjusted as a result of the finalization of our purchase price allocation procedures related to the assets acquired and liabilities assumed. We anticipate completing the purchase price allocation during the fourth quarter of fiscal 2017.

 

 

 

 

Victoria Acquisition (dollars in thousands):

 

 

 

 

 

 

 

Purchase Price:

 

 

 

Cash paid

 

$

71,972

Total

 

$

71,972

 

 

 

 

Preliminary Allocation:

 

 

 

Trademarks—unamortizable intangible assets

 

 

45,500

Goodwill

 

 

12,745

Property, plant and equipment

 

 

9,298

Inventory

 

 

5,729

Customer relationship intangibles—amortizable intangible assets

 

 

6,400

Long-term deferred income tax liabilities, net

 

 

(5,653)

Other working capital

 

 

(2,047)

Total

 

$

71,972

 

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Table of Contents

B&G Foods, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

 

(3)Acquisitions (Continued)

The following table sets forth the preliminary allocation of the spices & seasonings acquisition purchase price to the estimated fair value of the net assets acquired at the date of acquisition. The preliminary purchase price allocation may be adjusted as a result of the finalization of our purchase price allocation procedures related to the assets acquired and liabilities assumed. We anticipate completing the purchase price allocation during the fourth quarter of fiscal 2017.

 

 

 

 

 

Spices & Seasonings Acquisition (dollars in thousands):

 

 

 

 

 

 

 

 

 

Purchase Price:

 

 

 

 

Cash paid

 

$

366,932

 

Total

 

$

366,932

 

 

 

 

 

 

Preliminary Allocation:

 

 

 

 

Goodwill

 

 

120,108

 

Customer relationship intangibles—amortizable intangible assets

 

 

89,250

 

Trademarks—unamortizable intangible assets

 

 

65,200

 

Property, plant and equipment

 

 

62,193

 

Inventory

 

 

49,571

 

Other liabilities

 

 

(17,502)

(1)

Other working capital

 

 

(1,888)

 

Total

 

$

366,932

 

________________________________________

(1)

In connection with the spices & seasonings acquisition, we agreed to establish a defined benefit plan for certain employees transferred to B&G Foods and certain former employees of the acquired spices & seasonings business.  We also agreed to assume certain liabilities relating to the underfunded status of the former plan that such employees participated in prior to the acquisition.  At September 30, 2017 and December 31, 2016, we recognized $13.7 million and $17.5 million, respectively, in “other liabilities” in the accompanying consolidated balance sheet to reflect our obligations with respect to the underfunded status of the defined benefit plan assets and liabilities transferred to us.

On August 19, 2017, we entered into an agreement to acquire Back to Nature Foods Company, LLC and related entities from Brynwood Partners VI L.P., Mondelēz International and certain other sellers for approximately $162.5 million in cash, subject to customary closing and post-closing working capital adjustments.  We completed the acquisition on October 2, 2017.  We funded the acquisition and related fees and expenses with additional revolving loans under our existing credit facility See Note 16, “Subsequent Event.”  We refer to this acquisition as the “Back to Nature acquisition.”

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Table of Contents

B&G Foods, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

 

(3)Acquisitions (Continued)

Unaudited Pro Forma Summary of Operations

The following pro forma summary of operations for the third quarter and first three quarters of 2016 presents our operations as if the spices & seasonings acquisition had occurred as of the beginning of fiscal 2016.  In addition to including the results of operations of this acquisition, the pro forma information gives effect to the interest on additional borrowings and the amortization of customer relationship intangibles. On an actual basis, the spices & seasonings business contributed $70.4 million and $200.9 million, respectively, of consolidated net sales for the third quarter and first three quarters of 2017.

 

 

 

 

 

 

 

 

 

Thirteen Weeks Ended

 

 

Thirty-nine Weeks Ended

 

    

October 1, 2016

 

 

October 1, 2016

 

 

(dollars in thousands, except per share data)

Net sales

 

$

377,689

 

$

1,155,926

Net income

 

$

36,540

 

$

112,128

Basic earnings per share

 

$

0.63

 

$

1.75

Diluted earnings per share

 

$

0.63

 

$

1.74

The pro forma information presented above does not purport to be indicative of the results that actually would have been attained had the spices & seasonings acquisition occurred as of the beginning of fiscal 2016, and is not intended to be a projection of future results.

The Victoria acquisition was not material to our consolidated results of operations or financial position and, therefore, pro forma financial information is not presented.

 

(4)Inventories

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

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

 

 

 

 

 

 

 

 

 

    

September 30, 2017

    

December 31, 2016

 

Raw materials and packaging

 

$

73,508

 

$

60,532

 

Work-in-process

 

 

124,676

 

 

98,664

 

Finished goods

 

 

289,206

 

 

197,394

 

Total

 

$

487,390

 

$

356,590

 

 

 

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Table of Contents

B&G Foods, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

 

(5)Goodwill and Other Intangible Assets

The carrying amounts of goodwill and other intangible assets, as of the dates indicated, consist of the following (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2017

 

December 31, 2016

 

 

    

Gross Carrying

    

Accumulated

    

Net Carrying

    

Gross Carrying

    

Accumulated

    

Net Carrying

 

 

    

Amount

    

Amortization

    

Amount

    

Amount

    

Amortization

    

Amount

 

Amortizable Intangible Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trademarks

 

$

6,800

 

$

2,002

 

$

4,798

 

$

6,800

 

$

1,662

 

$

5,138

 

Customer relationships

 

 

330,290

 

 

93,361

 

 

236,929

 

 

330,290

 

 

80,847

 

 

249,443

 

Seed technology(1)

 

 

 —

 

 

 —

 

 

 —

 

 

2,000

 

 

900

 

 

1,100

 

 

 

$

337,090

 

$

95,363

 

$

241,727

 

$

339,090

 

$

83,409

 

$

255,681

 

Unamortizable Intangible Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Goodwill

 

$

615,770

 

 

 

 

 

 

 

$

614,278

 

 

 

 

 

 

 

Trademarks

 

$

1,373,801

 

 

 

 

 

 

 

$

1,373,801

 

 

 

 

 

 

 

________________________________________

(1)

During the first quarter of 2017, we sold to a third-party co-packer our Le Sueur, Minnesota research center, including the seed technology assets and property, plant and equipment, that we acquired in 2015 as part of the Green Giant acquisition, resulting in a $1.6 million loss on sale of assets.

Amortization expense associated with amortizable intangible assets for the third quarter and first three quarters of 2017 was $4.3 million and $13.0 million, respectively, and is recorded in operating expenses. Amortization expense associated with amortizable intangible assets for the third quarter and first three quarters of 2016 was $3.3 million and $10.0 million, respectively. We expect to recognize an additional $4.3 million of amortization expense associated with our amortizable intangible assets during the remainder of fiscal 2017, and thereafter $17.1 million of amortization expense in each of the fiscal years 2018 through 2021.  See Note 3, “Acquisitions.”

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Table of Contents

B&G Foods, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

 

(6)Long-Term Debt

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

 

 

 

 

 

 

 

 

 

    

September 30, 2017

    

December 31, 2016

 

Revolving credit loans

 

$

40,000

 

$

176,000

 

Tranche A term loans due 2019

 

 

 —

 

 

233,640

 

Tranche B term loans due 2022

 

 

640,110

 

 

640,110

 

4.625% senior notes due 2021

 

 

700,000

 

 

700,000

 

5.25% senior notes due 2025

 

 

500,000

 

 

 —

 

Unamortized deferred financing costs

 

 

(24,790)

 

 

(20,986)

 

Unamortized discount

 

 

(2,388)

 

 

(2,981)

 

Total long-term debt, net of unamortized deferred financing costs and discount

 

 

1,852,932

 

 

1,725,783

 

Current portion of long-term debt

 

 

 —

 

 

(10,515)

 

Long-term debt, net of unamortized deferred financing costs and discount, and excluding current portion

 

$

1,852,932

 

$

1,715,268

 

As of September 30, 2017, the aggregate contractual maturities of long-term debt are as follows (in thousands):

 

 

 

 

 

Years ending December:

 

 

 

 

2017

    

$

 —

 

2018

 

 

 —

 

2019

 

 

40,000

 

2020

 

 

 —

 

2021

 

 

700,000

 

Thereafter

 

 

1,140,110

 

Total

 

$

1,880,110

 

Senior Secured Credit Agreement.  On March 30, 2017, we refinanced our senior secured credit facility. The refinancing reduced by 0.75% the spread over LIBOR or the applicable base rate on $640.1 million of tranche B term loans.

On April 3, 2017, we repaid all of the outstanding borrowings and amounts due under our revolving credit facility and tranche A term loans using a portion of the net proceeds of our registered public offering of $500.0 million aggregate principal amount of 5.25% senior notes due 2025.

At September 30, 2017, $640.1 million of tranche B term loans and $40.0 million of revolving loans were outstanding under our credit agreement.

At September 30, 2017, the available borrowing capacity under our revolving credit facility, net of outstanding letters of credit of $2.0 million, was $458.0 million. See Note 16, “Subsequent Event.” Proceeds of the revolving credit facility may be used for general corporate purposes, including acquisitions of targets in the same or a similar line of business as our company, subject to specified criteria.  We are required to pay a commitment fee of 0.50% per annum on the unused portion of the revolving credit facility.  The maximum letter of credit capacity under the revolving credit facility is $50.0 million, with a fronting fee of 0.25% per annum for all outstanding letters of credit and a letter of credit fee equal to the applicable margin for revolving loans that are Eurodollar (LIBOR) loans. The revolving credit facility matures on June 5, 2019.

The entire $640.1 million principal amount of tranche B term loans outstanding are due and payable at maturity on November 2, 2022.

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Table of Contents

B&G Foods, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

 

(6)Long-Term Debt (Continued)

We may prepay the term loans or permanently reduce the revolving credit facility commitment under the credit agreement at any time without premium or penalty (other than customary “breakage” costs with respect to the early termination of LIBOR loans).  Subject to certain exceptions, the credit agreement provides for mandatory prepayment upon certain asset dispositions or casualty events and issuances of indebtedness.

Interest under the revolving credit facility, including any outstanding letters of credit, is determined based on alternative rates that we may choose in accordance with the credit agreement, including a base rate per annum plus an applicable margin ranging from 0.50% to 1.00%, and LIBOR plus an applicable margin ranging from 1.50% to 2.00%, in each case depending on our consolidated leverage ratio. At September 30, 2017, the revolving credit facility interest rate was approximately 3.24%.

Interest under the tranche B term loan facility is determined based on alternative rates that we may choose in accordance with the credit agreement, including a base rate per annum plus an applicable margin of 1.25%, and LIBOR plus an applicable margin of 2.25%. At September 30, 2017, the tranche B term loan interest rate was approximately 3.49%.

Our obligations under the credit agreement are jointly and severally and fully and unconditionally guaranteed on a senior basis by all of our existing and certain future domestic subsidiaries. The credit agreement is secured by substantially all of our and our domestic subsidiaries’ assets except our and our domestic subsidiaries’ real property. The credit agreement contains customary restrictive covenants, subject to certain permitted amounts and exceptions, including covenants limiting our ability to incur additional indebtedness, pay dividends and make other restricted payments, repurchase shares of our outstanding stock and create certain liens.

The credit agreement also contains certain financial maintenance covenants, which, among other things, specify a maximum consolidated leverage ratio and a minimum interest coverage ratio, each ratio as defined in the credit agreement. Our consolidated leverage ratio (defined as the ratio of our consolidated net debt, as of the last day of any period of four consecutive fiscal quarters to our adjusted EBITDA for such period), may not exceed 6.50 to 1.00.  We are also required to maintain a consolidated interest coverage ratio of at least 1.75 to 1.00 as of the last day of any period of four consecutive fiscal quarters.  As of September 30, 2017, we were in compliance with all of the covenants, including the financial covenants, in the credit agreement.

The credit agreement also provides for an incremental term loan and revolving loan facility, pursuant to which we may request that the lenders under the credit agreement, and potentially other lenders, provide unlimited additional amounts of term loans or revolving loans or both on terms substantially consistent with those provided under the credit agreement.  Among other things, the utilization of the incremental facility is conditioned on our ability to meet a maximum senior secured leverage ratio of 4.00 to 1.00, and a sufficient number of lenders or new lenders agreeing to participate in the facility.

4.625% Senior Notes due 2021.   On June 4, 2013, we issued $700.0 million aggregate principal amount of 4.625% senior notes due 2021 at a price to the public of 100% of their face value.

Interest on the 4.625% senior notes is payable on June 1 and December 1 of each year.  The 4.625% senior notes will mature on June 1, 2021, unless earlier retired or redeemed.  We may redeem some or all of the 4.625% senior notes at a redemption price of 103.469% beginning June 1, 2016 and thereafter at prices declining annually to 100% on or after June 1, 2019, in each case plus accrued and unpaid interest to the date of redemption.  In addition, if we undergo a change of control or upon certain asset sales, we may be required to offer to repurchase the 4.625% senior notes at the repurchase price set forth in the indenture plus accrued and unpaid interest to the date of repurchase.

We may also, from time to time, seek to retire the 4.625% senior notes through cash repurchases of the 4.625% senior notes and/or exchanges of the 4.625% senior notes for equity securities, in open market purchases, privately negotiated transactions or otherwise.  Such repurchases or exchanges, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors.  The amounts involved may be material.

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Table of Contents

B&G Foods, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

 

(6)Long-Term Debt (Continued)

Our obligations under the 4.625% senior notes are jointly and severally and fully and unconditionally guaranteed on a senior basis by all of our existing and certain future domestic subsidiaries.  The 4.625% senior notes and the subsidiary guarantees are our and the guarantors’ general unsecured obligations and are effectively junior in right of payment to all of our and the guarantors’ secured indebtedness and to all existing and future indebtedness and other liabilities of our non-guarantor subsidiaries; are pari passu in right of payment to all of our and the guarantors’ existing and future unsecured senior debt; and are senior in right of payment to all of our and the guarantors’ future subordinated debt.  Our foreign subsidiaries are not guarantors, and any future foreign or partially owned domestic subsidiaries will not be guarantors, of the 4.625% senior notes.

The indenture governing the 4.625% senior notes contains covenants with respect to us and the guarantors and restricts the incurrence of additional indebtedness and the issuance of capital stock; the payment of dividends or distributions on, and redemption of, capital stock; a number of other restricted payments, including certain investments; creation of specified liens, certain sale-leaseback transactions and sales of certain specified assets; fundamental changes, including consolidation, mergers and transfers of all or substantially all of our assets; and specified transactions with affiliates.  Each of the covenants is subject to a number of important exceptions and qualifications.  As of September 30, 2017, we were in compliance with all of the covenants in the indenture governing the 4.625% senior notes.

5.25% Senior Notes due 2025.  On April 3, 2017, we issued $500.0 million aggregate principal amount of 5.25% senior notes due 2025 at a price to the public of 100% of their face value.  We used the net proceeds of the offering to repay all of the outstanding borrowings and amounts due under our revolving credit facility and tranche A term loans, and to pay related fees and expenses. We intend to use the remaining net proceeds for general corporate purposes, which could include, among other things, repayment of other long term debt or possible acquisitions.

Interest on the 5.25% senior notes is payable on April 1 and October 1 of each year, commencing October 1, 2017.  The 5.25% senior notes will mature on April 1, 2025, unless earlier retired or redeemed.  On or after April 1, 2020, we may redeem some or all of the 5.25% senior notes at a redemption price of 103.9375% beginning April 1, 2020 and thereafter at prices declining annually to 100% on or after April 1, 2023, in each case plus accrued and unpaid interest to the date of redemption.  In addition, if we undergo a change of control or upon certain asset sales, we may be required to offer to repurchase the 5.25% senior notes at the repurchase price set forth in the indenture plus accrued and unpaid interest to the date of repurchase.

We may also, from time to time, seek to retire the 5.25% senior notes through cash repurchases of the 5.25% senior notes and/or exchanges of the 5.25% senior notes for equity securities, in open market purchases, privately negotiated transactions or otherwise.  Such repurchases or exchanges, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors.  The amounts involved may be material.

Our obligations under the 5.25% senior notes are jointly and severally and fully and unconditionally guaranteed on a senior basis by all of our existing and certain future domestic subsidiaries.  The 5.25% senior notes and the subsidiary guarantees are our and the guarantors’ general unsecured obligations and are effectively junior in right of payment to all of our and the guarantors’ secured indebtedness and to all existing and future indebtedness and other liabilities of our non-guarantor subsidiaries; are pari passu in right of payment to all of our and the guarantors’ existing and future unsecured senior debt; and are senior in right of payment to all of our and the guarantors’ future subordinated debt.  Our foreign subsidiaries are not guarantors, and any future foreign or partially owned domestic subsidiaries will not be guarantors, of the 5.25% senior notes.

The indenture governing the 5.25% senior notes contains covenants with respect to us and the guarantors and restricts the incurrence of additional indebtedness and the issuance of capital stock; the payment of dividends or distributions on, and redemption of, capital stock; a number of other restricted payments, including certain investments; creation of specified liens, certain sale-leaseback transactions and sales of certain specified assets; fundamental changes, including consolidation, mergers and transfers of all or substantially all of our assets; and specified transactions with affiliates.  Each of the covenants is subject to a number of important exceptions and qualifications.

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Table of Contents

B&G Foods, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

 

(6)Long-Term Debt (Continued)

 

Subsidiary Guarantees.  We have no assets or operations independent of our direct and indirect subsidiaries.  All of our present domestic subsidiaries jointly and severally and fully and unconditionally guarantee our long-term debt.  There are no significant restrictions on our ability and the ability of our subsidiaries to obtain funds from our respective subsidiaries by dividend or loan.  See Note 15, “Guarantor and Non-Guarantor Financial Information.”

Accrued Interest.  At September 30, 2017 and December 31, 2016, accrued interest of $23.9 million and $5.0 million, respectively, is included in accrued expenses in the accompanying unaudited consolidated balance sheets.

Deferred Debt Financing Costs.  During the first three quarters of 2017, we capitalized $7.4 million of debt financing costs relating to our issuance of the 5.25% senior notes and $1.2 million of debt financing costs relating to the refinancing of our tranche B term loans.

Loss on Extinguishment of Debt.  During the second quarter of 2017, the repayment of all outstanding borrowings under the tranche A term loans resulted in a loss on extinguishment of debt, which includes the write-off of deferred debt financing costs of $0.9 million and the write-off of unamortized discount of $0.2 million.  During the first quarter of 2017, we incurred a loss on extinguishment of debt in connection with the refinancing of our tranche B term loans, which includes the write-off of deferred debt financing costs and the write-off of unamortized discount of less than $0.1 million. During the first quarter of 2016, we incurred a loss on extinguishment of debt in connection with the repayment of $40.1 million aggregate principal amount of our tranche A term loans and $109.9 million aggregate principal amount of our tranche B term loans. The loss on extinguishment includes the write-off of deferred debt financing costs of $2.2 million and the write-off of unamortized discount of $0.6 million.

 

(7)Fair Value Measurements

The authoritative accounting literature relating to fair value measurements defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price). The accounting literature outlines a valuation framework and creates a fair value hierarchy in order to increase the consistency and comparability of fair value measurements and the related disclosures. Under generally accepted accounting principles, certain assets and liabilities must be measured at fair value, and the accounting literature details the disclosures that are required for items measured at fair value.

Financial assets and liabilities are measured using inputs from the three levels of the fair value hierarchy under the accounting literature.  The three levels are as follows:

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

Level 2—Observable inputs other than Level 1 quoted prices, such as quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value driver is observable for the asset or liability, either directly or indirectly.

Level 3—Unobservable inputs that reflect our assumptions about the assumptions that market participants would use in pricing the asset or liability.

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

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Table of Contents

B&G Foods, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

 

(7)Fair Value Measurements (Continued)

The carrying values and fair values of our revolving credit loans, term loans and senior notes as of September 30, 2017 and December 31, 2016 are as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2017

 

 

December 31, 2016

 

 

    

Carrying Value

      

Fair Value

      

Carrying Value

      

Fair Value

 

Revolving credit loans

 

 

40,000

 

 

40,000

(1)  

 

176,000

 

 

176,000

(1)  

Tranche A term loans due 2019

 

 

 —

 

 

 —

 

 

233,378

(2)  

 

232,795

(1)  

Tranche B term loans due 2022

 

 

637,722

(3)  

 

641,707

(1)

 

637,391

(3)  

 

645,358

(1)

4.625% senior notes due 2021

 

 

700,000

 

 

713,125

(4)  

 

700,000

 

 

714,000

(4)  

5.25% senior notes due 2025

 

 

500,000

 

 

509,375

(4)  

 

 —

 

 

 —

 


(1)

Fair values are estimated based on Level 2 inputs, which were quoted prices for identical or similar instruments in markets that are not active.

(2)

The carrying values of the tranche A term loans are net of discount.  On April 3, 2017, we repaid all of the outstanding borrowings and amounts due under our tranche A term loans.  At December 31, 2016, the face amounts of the tranche A term loans were $233.6 million.

(3)

The carrying values of the tranche B term loans are net of discount.  At September 30, 2017 and December 31, 2016, the face amounts of the tranche B term loans were $640.1 million.

(4)

Fair values are estimated based on quoted market prices.

There was no Level 3 activity during the third quarter or first three quarters of 2017 or 2016.

 

(8)Accumulated Other Comprehensive Loss

The reclassifications from accumulated other comprehensive loss (AOCL) for the third quarter and first three quarters of 2017 and 2016 are as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amounts Reclassified from AOCL

 

 

 

 

 

 

 

 

 

 

 

Thirteen Weeks Ended

 

Thirty-nine Weeks Ended

 

Affected Line Item in

 

 

    

September 30,

    

October 1,

    

September 30,

    

October 1,

 

the Statement Where

 

Details about AOCL Components

    

2017

    

2016

    

2017

    

2016

    

Net Income is Presented

 

Defined benefit pension plan items

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortization of unrecognized prior service cost

 

$

 9

 

$

11

 

$

27

 

$

33

 

See (1) below

 

Amortization of unrecognized loss

 

 

185

 

 

95

 

 

331

 

 

359

 

See (1) below

 

 

 

 

194

 

 

106

 

 

358

 

 

392

 

Total before tax

 

 

 

 

(74)

 

 

(40)

 

 

(136)

 

 

(148)

 

Income tax expense

 

Total reclassification

 

$

120

 

$

66

 

$

222

 

$

244

 

Net of tax

 


(1)

These items are included in the computation of net periodic pension cost.  See Note 9, “Pension Benefits” for additional information.

-  17  -


 

Table of Contents

B&G Foods, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

 

(8)Accumulated Other Comprehensive Loss (Continued)

Changes in AOCL for the first three quarters of 2017 are as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign Currency

 

 

 

 

 

 

Defined Benefit

 

Translation

 

 

 

 

 

    

Pension Plan Items

    

Adjustments

    

Total

 

Beginning balance

 

$

(7,200)

 

$

(12,164)

 

$

(19,364)

 

Other comprehensive income before reclassifications

 

 

 —

 

 

8,350

 

 

8,350

 

Amounts reclassified from AOCL

 

 

222

 

 

 —

 

 

222

 

Net current period other comprehensive income

 

 

222

 

 

8,350

 

 

8,572

 

Ending balance

 

$

(6,978)

 

$

(3,814)

 

$

(10,792)

 

 

(9)Pension Benefits

Company Sponsored Defined Benefit Pension Plans.  Net periodic pension cost for company sponsored defined benefit pension plans for the third quarter and first three quarters of 2017 and 2016 includes the following components (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Thirteen Weeks Ended

 

Thirty-nine Weeks Ended

 

 

 

September 30,

 

October 1,

 

September 30,

 

October 1,

 

 

    

2017

    

2016

    

2017

    

2016

    

Service cost—benefits earned during the period

 

$

1,798

 

$

790

 

$

4,538

 

$

2,535

 

Interest cost on projected benefit obligation

 

 

1,284

 

 

666

 

 

3,714

 

 

2,050

 

Expected return on plan assets

 

 

(1,771)

 

 

(1,121)

 

 

(5,271)

 

 

(3,312)

 

Amortization of unrecognized prior service cost

 

 

 9

 

 

11

 

 

27

 

 

33

 

Amortization of unrecognized loss

 

 

185

 

 

95

 

 

331

 

 

359

 

Net periodic pension cost

 

$

1,505

 

$

441

 

$

3,339

 

$

1,665

 

During the first three quarters of 2017, we made $8.5 million of defined benefit pension plan contributions. We do not plan to make additional contributions during the remainder of fiscal 2017.

Multi-Employer Defined Benefit Pension PlanWe also contribute to the Bakery and Confectionery Union and Industry International Pension Fund (EIN 52-6118572, Plan No. 001), a multi-employer defined benefit pension plan, sponsored by the Bakery, Confectionery, Tobacco Workers and Grain Millers International Union (BCTGM).  The plan provides multiple plan benefits with corresponding contribution rates that are collectively bargained between participating employers and their affiliated BCTGM local unions.

We were notified that for the plan year beginning January 1, 2012, the plan was in critical status and classified in the Red Zone.  As of the date of the accompanying unaudited consolidated interim financial statements, the plan remains in critical status.  The law requires that all contributing employers pay to the plan a surcharge to help correct the plan’s financial situation.  The amount of the surcharge is equal to a percentage of the amount an employer is otherwise required to contribute to the plan under the applicable collective bargaining agreement.  During the second quarter of 2015, we agreed to a collective bargaining agreement that, among other things, implements a rehabilitation plan.  As a result, our contributions to the plan are expected to increase by at least 5.0% per year.

B&G Foods made contributions to the plan of $0.7 million in the first three quarters of 2017 and expects to pay surcharges of less than $0.1 million in fiscal 2017 assuming consistent hours are worked.  B&G Foods contributed $0.8 million in fiscal 2016 and paid less than $0.1 million in surcharges. These contributions represented less than five percent of total contributions made to the plan.

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Table of Contents

B&G Foods, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

 

(10)Commitments and Contingencies

Operating Leases.  As of September 30, 2017, future minimum lease payments under non-cancelable operating leases in effect at quarter-end (with initial or remaining lease terms in excess of one year) for the periods set forth below were as follows (in thousands):

 

 

 

 

Fiscal year ending:

    

 

 

2017

 

$

2,643

2018

 

 

9,645

2019

 

 

8,632

2020

 

 

8,163

2021

 

 

6,106

Thereafter

 

 

8,060

Total

 

$

43,249

Legal Proceedings.  We are from time to time involved in various claims and legal actions arising in the ordinary course of business, including proceedings involving product liability claims, product labeling claims, worker’s compensation and other employee claims, and tort and other general liability claims, as well as trademark, copyright, patent infringement and related claims and legal actions. While we cannot predict with certainty the results of these claims and legal actions in which we are currently or in the future may be involved, we do not expect that the ultimate disposition of any currently pending claims or actions will have a material adverse effect on our consolidated financial position, results of operations or liquidity.

Environmental.  We are subject to environmental laws and regulations in the normal course of business. We did not make any material expenditures during the first three quarters of 2017 or 2016 in order to comply with environmental laws and regulations. Based on our experience to date, management believes that the future cost of compliance with existing environmental laws and regulations (and liability for any known environmental conditions) will not have a material adverse effect on our consolidated financial position, results of operations or liquidity. However, we cannot predict what environmental or health and safety legislation or regulations will be enacted in the future or how existing or future laws or regulations will be enforced, administered or interpreted, nor can we predict the amount of future expenditures that may be required in order to comply with such environmental or health and safety laws or regulations or to respond to such environmental claims.

Collective Bargaining Agreements.  As of September 30, 2017, approximately 1,550 of our 2,548 employees, or 60.8%, were covered by collective bargaining agreements.  None of our collective bargaining agreements is scheduled to expire within one year.

Severance and Change of Control Agreements.  We have employment agreements with each of our executive officers except for our interim chief financial officer. The agreements generally continue until terminated by the executive or by us, and provide for severance payments under certain circumstances, including termination by us without cause (as defined in the agreements) or as a result of the employee’s death or disability, or termination by us or a deemed termination upon a change of control (as defined in the agreements). Severance benefits generally include payments for salary continuation, continuation of health care and insurance benefits, present value of additional pension credits and, in the case of a change of control, accelerated vesting under compensation plans and, in certain cases, potential gross up payments for excise tax liability.

-  19  -


 

Table of Contents

B&G Foods, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

 

(11)Earnings per Share

Basic earnings per share is calculated by dividing net income by the weighted average number of shares of common stock outstanding.  Diluted earnings per share is calculated by dividing net income by the weighted average number of shares of common stock outstanding plus all additional shares of common stock that would have been outstanding if potentially dilutive shares of common stock had been issued upon the exercise of stock options or in connection with performance shares that may be earned under long-term incentive awards as of the grant date, in the case of the stock options, and as of the beginning of the period, in the case of the performance shares, using the treasury stock method.  For the third quarter of 2017 there were 349,015 and for the third quarter of 2016 there were 22,692 shares of common stock issuable upon the exercise of stock options excluded from the calculation of diluted weighted average shares outstanding because the effect would have been anti-dilutive on diluted earnings per share.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Thirteen Weeks Ended

 

Thirty-nine Weeks Ended

 

 

    

September 30,

    

October 1,

    

September 30,

    

October 1,

    

 

    

2017

    

2016

    

2017

    

2016

 

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

66,496,333

 

 

64,757,962

 

 

66,484,105

 

 

62,134,846

 

Net effect of potentially dilutive share-based compensation awards

 

 

147,310

 

 

280,084

 

 

228,979

 

 

202,912

 

Diluted

 

 

66,643,643

 

 

65,038,046

 

 

66,713,084

 

 

62,337,758

 

 

(12)Business and Credit Concentrations and Geographic Information

Our exposure to credit loss in the event of non-payment of accounts receivable by customers is estimated in the amount of the allowance for doubtful accounts.  We perform ongoing credit evaluations of the financial condition of our customers.  Our top ten customers accounted for approximately 53.8% and 55.3% of consolidated net sales for the first three quarters of 2017 and 2016, respectively.  Our top ten customers accounted for approximately 47.9% and 53.4% of our consolidated trade accounts receivables as of September 30, 2017 and December 31, 2016, respectively. Other than Wal-Mart, which accounted for 24.7% and 24.3% of our consolidated net sales for the first three quarters of 2017 and 2016, respectively, no single customer accounted for more than 10.0% of our consolidated net sales for the first three quarters of 2017 or 2016. Other than Wal-Mart, which accounted for 23.6% and 21.2% of our consolidated trade accounts receivables as of September 30, 2017 and December 31, 2016, respectively, no single customer accounted for more than 10.0% of our consolidated trade accounts receivables.  As of September 30, 2017, we do not believe we have any significant concentration of credit risk with respect to our consolidated trade accounts receivable with any single customer whose failure or nonperformance would materially affect our results other than as described above with respect to Wal-Mart.

During the first three quarters of 2017 and 2016, our sales to customers in foreign countries represented approximately 6.4% and 8.4%, respectively, of net sales.  Our foreign sales are primarily to customers in Canada.

 

(13)Share-Based Payments

Our company makes annual grants of stock options and performance share long-term incentive awards (LTIAs) to our executive officers and certain other members of senior management.  The performance share LTIAs entitle the participants to earn shares of common stock upon the attainment of certain performance goals.  In addition, our non-employee directors receive annual equity grants as part of their non-employee director compensation and may elect to receive a portion of their annual cash retainer in stock options.

-  20  -


 

Table of Contents

B&G Foods, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

 

(13)Share-Based Payments (Continued)

The following table details our stock option activity for the first three quarters of fiscal 2017 (dollars in thousands, except per share data):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

 

 

 

 

 

Weighted

 

Weighted Average

 

 

 

 

 

 

 

Average

 

Contractual Life

 

Aggregate

 

 

    

Options

    

Exercise Price

    

Remaining (Years)

    

Intrinsic Value

 

Outstanding at beginning of fiscal 2017

 

714,580

 

$

31.65

 

 

 

 

 

 

Granted

 

159,385

 

$

41.31

 

 

 

 

 

 

Exercised

 

(1,300)

 

$

27.77

 

 

 

 

 

 

Forfeited

 

(35,758)

 

$

28.31

 

 

 

 

 

 

Outstanding at end of third quarter of 2017

 

836,907

 

$

33.42

 

7.87

 

$

4,227

 

Exercisable at end of third quarter of 2017

 

24,396

 

$

42.62

 

8.61

 

$

12

 

The fair value of the options was estimated on the date of grant using the Black-Scholes option-pricing model utilizing certain assumptions.  Expected volatility was based on both historical and implied volatilities of our common stock over the estimated expected term of the award. The expected term of the options granted represents the period of time that options were expected to be outstanding and is based on the “simplified method” in accordance with accounting guidance. We utilized the simplified method to determine the expected term of the options as we do not have sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term. The risk-free interest rate for the expected term of the option is based on the U.S. Treasury implied yield at the date of grant.

 

 

 

 

 

 

 

 

 

    

2017

    

2016

 

Weighted average grant date fair value

    

$

7.29

    

$

5.26

 

Expected volatility

 

 

27.5% - 29.2%

 

 

27.7%

 

Expected term

 

 

5.5 - 6.5 years

 

 

5.5 - 6.5 years

 

Risk-free interest rate

 

 

1.8% - 2.4%

 

 

1.5% - 1.7%

 

Dividend yield

 

 

4.5% - 5.22%

 

 

3.9% - 4.9%

 

The following table sets forth the compensation expense recognized for share-based payments (performance share LTIAs, stock options, non-employee director stock grants and other share based payments) during the third quarter and first three quarters of 2017 and 2016 and where that expense is reflected in our consolidated statements of operations (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Thirteen Weeks Ended

 

Thirty-nine Weeks Ended

 

 

 

September 30,

 

October 1,

 

September 30,

 

October 1,

 

Consolidated Statements of Operations Location

    

2017

    

2016

    

2017

    

2016

 

Compensation expense included in cost of goods sold

 

$

217

 

$

273

 

$

689

 

$

785

 

Compensation expense included in selling, general and administrative expenses

 

 

865

 

 

1,068

 

 

3,595

 

 

3,672

 

Total compensation expense for share-based payments

 

$

1,082

 

$

1,341

 

$

4,284

 

$

4,457

 

As of September 30, 2017, there was $2.2 million of unrecognized compensation expense related to performance share LTIAs, which is expected to be recognized over the next 2.25 years and $1.4 million of unrecognized compensation expense related to stock options, which is expected to be recognized over the next 2.5 years.

-  21  -


 

Table of Contents

B&G Foods, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

 

(13)Share-Based Payments (Continued)

The following table details the activity in our non-vested performance share LTIAs for the first three quarters of 2017:

 

 

 

 

 

 

 

 

    

 

    

Weighted Average

 

 

 

Number of

 

Grant Date Fair Value

 

 

    

Performance Shares (1)

      

(per share)(2)

 

Beginning of fiscal 2017

 

436,554

 

$

26.81

 

Granted

 

132,000

 

$

36.15

 

Vested

 

(110,528)

 

$

27.50

 

Forfeited

 

(19,456)

 

$

28.08

 

End of third quarter of 2017

 

438,570

 

$

29.38

 


(1)

Solely for purposes of this table, the number of performance shares is based on the participants earning the maximum number of performance shares (i.e., 200% of the target number of performance shares).

(2)

The fair value of the awards was determined based upon the closing price of our common stock on the applicable measurement dates (i.e., the deemed grant dates for accounting purposes) reduced by the present value of expected dividends using the risk-free interest-rate as the award holders are not entitled to dividends or dividend equivalents during the vesting period.

The following table details the number of shares of common stock issued by our company during the first three quarters of 2017 and 2016 upon the vesting of performance share LTIAs, the exercise of stock options and other share based payments (dollars in thousands):

 

 

 

 

 

 

 

 

Thirty-nine Weeks Ended

 

 

September 30,

    

October 1,

 

 

2017

    

2016

 

Number of performance shares vested

 

110,528

 

 

101,094

 

Shares withheld to fund statutory minimum tax withholding

 

42,368

 

 

37,596

 

Shares of common stock issued for performance share LTIAs

 

68,160

 

 

63,498

 

Shares of common stock issued upon the exercise of stock options

 

1,300

 

 

 —

 

Shares of common stock issued to non-employee directors for annual equity grants

 

20,559

 

 

16,072

 

Total shares of common stock issued

 

90,019

 

 

79,570

 

Excess tax (deficiency) benefit

$

820

(1)

$

343

 


(1)

As a result of the adoption of ASU 2016-09, we recognized discrete tax benefits of $0.8 million in the income taxes line item of our consolidated statement of operations for the first three quarters of 2017 related to excess tax benefits upon vesting or settlement in that period. See Note 2, “Summary of Significant Accounting Policies—Newly Adopted Accounting Standards.”

 

-  22  -


 

Table of Contents

B&G Foods, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

 

(14)Net Sales by Brand

The following table sets forth net sales by brand (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Thirteen Weeks Ended

 

Thirty-nine Weeks Ended

 

 

September 30,

 

October 1,

 

September 30,

 

October 1,

 

 

2017

 

2016

 

2017

 

2016

Brand:(1)

 

 

 

 

 

 

 

 

 

 

 

 

Green Giant

 

$

121,118

 

$

113,780

 

$

351,771

 

$

351,157

Ortega

 

 

33,461

 

 

35,090

 

 

105,429

 

 

106,709

Tone's(2)

 

 

30,484

 

 

 —

 

 

79,127

 

 

 —

Pirate Brands

 

 

27,159

 

 

22,447

 

 

70,099

 

 

66,941

Maple Grove Farms of Vermont

 

 

15,776

 

 

16,667

 

 

50,887

 

 

53,990

Mrs. Dash

 

 

14,791

 

 

14,655

 

 

46,532

 

 

47,247

Cream of Wheat

 

 

14,732

 

 

14,126

 

 

43,789

 

 

43,608

Victoria(3)

 

 

9,708

 

 

 —

 

 

30,073

 

 

 —

Weber(2)

 

 

7,342

 

 

 —

 

 

29,888

 

 

 —

Bear Creek Country Kitchens

 

 

12,907

 

 

13,633

 

 

29,584

 

 

32,611

Las Palmas

 

 

8,843

 

 

8,913

 

 

26,292

 

 

27,017

Polaner

 

 

8,663

 

 

7,506

 

 

26,219

 

 

25,058

New York Style

 

 

9,293

 

 

8,313

 

 

25,843

 

 

24,792

Mama Mary's

 

 

8,207

 

 

9,355

 

 

25,374

 

 

28,733

All other brands(4)

 

 

85,880

 

 

53,762

 

 

253,465

 

 

169,738

Total

 

$

408,364

 

$

318,247

 

$

1,194,372

 

$

977,601


(1)

Table includes net sales for each of our brands whose first three quarters of 2017 or fiscal 2016 net sales were equal to or exceeded 2% of our total first three quarters of 2017 or fiscal 2016 net sales and for “all other brands” in the aggregate. Net sales for each brand includes branded net sales and, if applicable, any private label and foodservice net sales attributable to the brand.

(2)

We acquired the Tone’s and Weber brands on November 21, 2016 as part of the spices & seasonings acquisition.

(3)

We completed the Victoria acquisition on December 2, 2016.

(4)

Net sales for “all other brands” for the third quarter and first three quarters of 2017 has been impacted by the acquisition of the Spice Islands, Durkee and certain other brands acquired as part of the spices & seasonings acquisition, which was completed on November 21, 2016.

 

(15)Guarantor and Non-Guarantor Financial Information

As further discussed in Note 6, “Long-Term Debt,” our obligations under the 4.625% senior notes and the 5.25% senior notes are jointly and severally and fully and unconditionally guaranteed on a senior basis by all of our existing and certain future domestic subsidiaries, which we refer to in this note as the guarantor subsidiaries.  Our foreign subsidiaries, which we refer to in this note as the non-guarantor subsidiaries, do not guarantee the 4.625% senior notes or the 5.25% senior notes.

The following condensed consolidating financial information presents the condensed consolidating balance sheet as of September 30, 2017 and December 31, 2016, the related condensed consolidating statement of operations for the thirteen weeks and thirty-nine weeks ended September 30, 2017, and the related condensed consolidating statement of cash flows for the thirty-nine weeks ended September 30, 2017 for:

1.B&G Foods, Inc. (the Parent),

2.the guarantor subsidiaries,

3.the non-guarantor subsidiaries, and

4.the Parent and all of its subsidiaries on a consolidated basis.

-  23  -


 

Table of Contents

B&G Foods, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

 

(15)Guarantor and Non-Guarantor Financial Information (Continued)

The information includes elimination entries necessary to consolidate the Parent with the guarantor subsidiaries and non-guarantor subsidiaries.  The guarantor subsidiaries and non-guarantor subsidiaries are presented on a combined basis.  The principal elimination entries eliminate investments in subsidiaries and intercompany balances and transactions.  Separate financial information for each of the guarantor subsidiaries and non-guarantor subsidiaries are not presented because management believes such financial statements would not be meaningful to investors.

Condensed Consolidating Balance Sheet

As of September 30, 2017

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

 

    

Guarantor

    

Non-Guarantor

    

 

 

    

 

 

 

 

 

Parent

 

Subsidiaries

 

Subsidiaries

 

Eliminations

 

Consolidated

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

 —

 

$

19,133

 

$

3,482

 

$

 —

 

$

22,615

 

Trade accounts receivable, net

 

 

 —

 

 

158,101

 

 

13,242

 

 

 —

 

 

171,343

 

Inventories, net

 

 

 —

 

 

422,291

 

 

65,099

 

 

 —

 

 

487,390

 

Prepaid expenses and other current assets

 

 

 —

 

 

29,168

 

 

4,433

 

 

 —

 

 

33,601

 

Income tax receivable

 

 

 —

 

 

8,698

 

 

869

 

 

 —

 

 

9,567

 

Total current assets

 

 

 —

 

 

637,391

 

 

87,125

 

 

 —

 

 

724,516

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Property, plant and equipment, net

 

 

 —

 

 

221,173

 

 

45,208

 

 

 —

 

 

266,381

 

Goodwill

 

 

 —

 

 

615,770

 

 

 —

 

 

 —

 

 

615,770

 

Other intangibles, net

 

 

 —

 

 

1,615,528

 

 

 —

 

 

 —

 

 

1,615,528

 

Other assets

 

 

 —

 

 

6,278

 

 

14

 

 

 —

 

 

6,292

 

Deferred income taxes

 

 

 —

 

 

 —

 

 

984

 

 

 —

 

 

984

 

Investments in subsidiaries

 

 

2,700,032

 

 

89,846

 

 

 —

 

 

(2,789,878)

 

 

 —

 

Total assets

 

$

2,700,032

 

$

3,185,986

 

$

133,331

 

$

(2,789,878)

 

$

3,229,471

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders' Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trade accounts payable

 

$

 —

 

$

104,376

 

$

32,829

 

$

 —

 

$

137,205

 

Accrued expenses

 

 

 —

 

 

52,539

 

 

2,935

 

 

 —

 

 

55,474

 

Income tax payable

 

 

 —

 

 

 —

 

 

112

 

 

 —

 

 

112

 

Dividends payable

 

 

30,921

 

 

 —

 

 

 —

 

 

 —

 

 

30,921

 

Intercompany payables

 

 

 —

 

 

(7,609)

 

 

7,609

 

 

 —

 

 

 —

 

Total current liabilities

 

 

30,921

 

 

149,306

 

 

43,485

 

 

 —

 

 

223,712

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Long-term debt

 

 

1,877,722

 

 

(24,790)

 

 

 —

 

 

 —

 

 

1,852,932

 

Other liabilities

 

 

 —

 

 

17,779

 

 

 —

 

 

 —

 

 

17,779

 

Deferred income taxes

 

 

 —

 

 

343,659

 

 

 —

 

 

 —

 

 

343,659

 

Total liabilities

 

 

1,908,643

 

 

485,954

 

 

43,485

 

 

 —

 

 

2,438,082

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders' Equity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Preferred stock

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

Common stock

 

 

665

 

 

 —

 

 

 —

 

 

 —

 

 

665

 

Additional paid-in capital

 

 

297,303

 

 

2,208,836

 

 

68,253

 

 

(2,277,089)

 

 

297,303

 

Accumulated other comprehensive loss

 

 

(10,792)

 

 

(10,792)

 

 

(3,814)

 

 

14,606

 

 

(10,792)

 

Retained earnings

 

 

504,213

 

 

501,988

 

 

25,407

 

 

(527,395)

 

 

504,213

 

Total stockholders’ equity

 

 

791,389

 

 

2,700,032

 

 

89,846

 

 

(2,789,878)

 

 

791,389

 

Total liabilities and stockholders’ equity

 

$

2,700,032

 

$

3,185,986

 

$

133,331

 

$

(2,789,878)

 

$

3,229,471

 

 

-  24  -


 

Table of Contents

B&G Foods, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

 

(15)Guarantor and Non-Guarantor Financial Information (Continued)

Condensed Consolidating Balance Sheet

As of December 31, 2016

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

 

    

Guarantor

    

Non-Guarantor

    

 

 

    

 

 

 

 

Parent

 

Subsidiaries

 

Subsidiaries

 

Eliminations

 

Consolidated

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

 —

 

$

25,119

 

$

3,714

 

$

 —

 

$

28,833

Trade accounts receivable, net

 

 

 —

 

 

111,350

 

 

7,915

 

 

 —

 

 

119,265

Inventories, net

 

 

 —

 

 

309,584

 

 

47,006

 

 

 —

 

 

356,590

Prepaid expenses and other current assets

 

 

 —

 

 

20,296

 

 

6,103

 

 

 —

 

 

26,399

Income tax receivable

 

 

 —

 

 

10,780

 

 

 7

 

 

 —

 

 

10,787

Intercompany receivables

 

 

 —

 

 

 —

 

 

12,183

 

 

(12,183)

 

 

 —

Total current assets

 

 

 —

 

 

477,129

 

 

76,928

 

 

(12,183)

 

 

541,874

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Property, plant and equipment, net

 

 

 —

 

 

211,843

 

 

33,501

 

 

 —

 

 

245,344

Goodwill

 

 

 —

 

 

614,278

 

 

 —

 

 

 —

 

 

614,278

Other intangibles, net

 

 

 —

 

 

1,629,482

 

 

 —

 

 

 —

 

 

1,629,482

Other assets

 

 

 —

 

 

4,612

 

 

13

 

 

 —

 

 

4,625

Deferred income taxes

 

 

 —

 

 

7,036

 

 

866

 

 

 —

 

 

7,902

Investments in subsidiaries

 

 

2,563,305

 

 

96,187

 

 

 —

 

 

(2,659,492)

 

 

 —

Total assets

 

$

2,563,305

 

$

3,040,567

 

$

111,308

 

$

(2,671,675)

 

$

3,043,505

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders' Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trade accounts payable

 

$

 —

 

$

88,668

 

$

9,365

 

$

 —

 

$

98,033

Accrued expenses

 

 

 —

 

 

60,957

 

 

1,436

 

 

 —

 

 

62,393

Current portion of long-term debt

 

 

10,515

 

 

 —

 

 

 —

 

 

 —

 

 

10,515

Income tax payable

 

 

 —

 

 

 —

 

 

3,875

 

 

 —

 

 

3,875

Dividends payable

 

 

30,879

 

 

 —

 

 

 —

 

 

 —

 

 

30,879

Intercompany payables

 

 

 —

 

 

11,738

 

 

445

 

 

(12,183)

 

 

 —

Total current liabilities

 

 

41,394

 

 

161,363

 

 

15,121

 

 

(12,183)

 

 

205,695

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Long-term debt

 

 

1,736,254

 

 

(20,986)

 

 

 —

 

 

 —

 

 

1,715,268

Other liabilities

 

 

 —

 

 

21,405

 

 

 —

 

 

 —

 

 

21,405

Deferred income taxes

 

 

 —

 

 

315,480

 

 

 —

 

 

 —

 

 

315,480

Total liabilities

 

 

1,777,648

 

 

477,262

 

 

15,121

 

 

(12,183)

 

 

2,257,848

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders' Equity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock

 

 

664

 

 

 —

 

 

 —

 

 

 —

 

 

664

Additional paid-in capital

 

 

387,699

 

 

2,168,236

 

 

86,833

 

 

(2,255,069)

 

 

387,699

Accumulated other comprehensive loss

 

 

(19,364)

 

 

(19,364)

 

 

(12,164)

 

 

31,528

 

 

(19,364)

Retained earnings

 

 

416,658

 

 

414,433

 

 

21,518

 

 

(435,951)

 

 

416,658

Total stockholders’ equity

 

 

785,657

 

 

2,563,305

 

 

96,187

 

 

(2,659,492)

 

 

785,657

Total liabilities and stockholders’ equity

 

$

2,563,305

 

$

3,040,567

 

$

111,308

 

$

(2,671,675)

 

$

3,043,505

 

-  25  -


 

Table of Contents

B&G Foods, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

 

(15)Guarantor and Non-Guarantor Financial Information (Continued)

Condensed Consolidating Statement of Operations and Comprehensive Income

Thirteen Weeks Ended September 30, 2017

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

    

Guarantor

    

Non-Guarantor

    

 

 

    

 

 

 

 

 

Parent

 

Subsidiaries

 

Subsidiaries

 

Eliminations

 

Consolidated

 

Net sales

 

$

 —

 

$

374,514

 

$

45,697

 

$

(11,847)

 

$

408,364

 

Cost of goods sold

 

 

 —

 

 

260,077

 

 

36,879

 

 

(11,847)

 

 

285,109

 

Gross profit

 

 

 —

 

 

114,437

 

 

8,818

 

 

 —

 

 

123,255

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative expenses

 

 

 —

 

 

39,877

 

 

3,142

 

 

 —

 

 

43,019

 

Amortization expense

 

 

 —

 

 

4,265

 

 

 —

 

 

 —

 

 

4,265

 

Operating income

 

 

 —

 

 

70,295

 

 

5,676

 

 

 —

 

 

75,971

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

 

 —

 

 

23,374

 

 

 —

 

 

 —

 

 

23,374

 

Other income

 

 

 —

 

 

95

 

 

 —

 

 

 —

 

 

95

 

Income before income tax expense

 

 

 —

 

 

46,826

 

 

5,676

 

 

 —

 

 

52,502

 

Income tax expense

 

 

 —

 

 

18,415

 

 

1,357

 

 

 —

 

 

19,772

 

Equity in earnings of subsidiaries

 

 

32,730

 

 

4,319

 

 

 —

 

 

(37,049)

 

 

 —

 

Net income

 

$

32,730

 

$

32,730

 

$

4,319

 

$

(37,049)

 

$

32,730

 

Comprehensive income

 

$

33,563

 

$

32,609

 

$

5,031

 

$

(37,640)

 

$

33,563

 

 

 

 

 

Condensed Consolidating Statement of Operations and Comprehensive Income

Thirty-Nine Weeks Ended September 30, 2017

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

    

Guarantor

    

Non-Guarantor

    

 

 

    

 

 

 

 

Parent

 

Subsidiaries

 

Subsidiaries

 

Eliminations

 

Consolidated

Net sales

 

$

 —

 

$

1,121,897

 

$

124,895

 

$

(52,420)

 

$

1,194,372

Cost of goods sold

 

 

 —

 

 

776,312

 

 

109,424

 

 

(52,420)

 

 

833,316

Gross profit

 

 

 —

 

 

345,585

 

 

15,471

 

 

 —

 

 

361,056

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative expenses

 

 

 —

 

 

136,921

 

 

9,323

 

 

 —

 

 

146,244

Amortization expense

 

 

 —

 

 

13,002

 

 

 —

 

 

 —

 

 

13,002

Operating income

 

 

 —

 

 

195,662

 

 

6,148

 

 

 —

 

 

201,810

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

 

 —

 

 

65,019

 

 

 —

 

 

 —

 

 

65,019

Loss on extinguishment of debt

 

 

 —

 

 

1,163

 

 

 —

 

 

 —

 

 

1,163

Other income

 

 

 —

 

 

(2,865)

 

 

 —

 

 

 —

 

 

(2,865)

Income before income tax expense

 

 

 —

 

 

132,345

 

 

6,148

 

 

 —

 

 

138,493

Income tax expense

 

 

 —

 

 

48,679

 

 

2,259

 

 

 —

 

 

50,938

Equity in earnings of subsidiaries

 

 

87,555

 

 

3,889

 

 

 —

 

 

(91,444)

 

 

 —

Net income

 

$

87,555

 

$

87,555

 

$

3,889

 

$

(91,444)

 

$

87,555

Comprehensive income

 

$

96,127

 

$

87,333

 

$

12,239

 

$

(99,572)

 

$

96,127

 

-  26  -


 

Table of Contents

B&G Foods, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

 

(15)Guarantor and Non-Guarantor Financial Information (Continued)

Condensed Consolidating Statement of Operations and Comprehensive Income

Thirteen Weeks Ended October 1, 2016

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

    

Guarantor

    

Non-Guarantor

    

 

 

    

 

 

 

 

 

Parent

 

Subsidiaries

 

Subsidiaries

 

Eliminations

 

Consolidated

 

Net sales

 

$

 —

 

$

294,871

 

$

30,573

 

$

(7,197)

 

$

318,247

 

Cost of goods sold

 

 

 —

 

 

188,720

 

 

21,298

 

 

(7,197)

 

 

202,821

 

Gross profit

 

 

 —

 

 

106,151

 

 

9,275

 

 

 —

 

 

115,426

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative expenses

 

 

 —

 

 

39,619

 

 

2,846

 

 

 —

 

 

42,465

 

Amortization expense

 

 

 —

 

 

3,269

 

 

 —

 

 

 —

 

 

3,269

 

Operating income

 

 

 —

 

 

63,263

 

 

6,429

 

 

 —

 

 

69,692

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

 

 —

 

 

17,974

 

 

 —

 

 

 —

 

 

17,974

 

Other income

 

 

 —

 

 

127

 

 

 —

 

 

 —

 

 

127

 

Income before income tax expense

 

 

 —

 

 

45,162

 

 

6,429

 

 

 —

 

 

51,591

 

Income tax expense

 

 

 —

 

 

17,351

 

 

1,830

 

 

 —

 

 

19,181

 

Equity in earnings of subsidiaries

 

 

32,410

 

 

4,599

 

 

 —

 

 

(37,009)

 

 

 —

 

Net income

 

$

32,410

 

$

32,410

 

$

4,599

 

$

(37,009)

 

$

32,410

 

Comprehensive income (loss)

 

$

29,095

 

$

32,344

 

$

1,218

 

$

(33,562)

 

$

29,095

 

 

Condensed Consolidating Statement of Operations and Comprehensive Income

Thirty-Nine Weeks Ended October 1, 2016

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

    

Guarantor

    

Non-Guarantor

    

 

 

    

 

 

 

 

Parent

 

Subsidiaries

 

Subsidiaries

 

Eliminations

 

Consolidated

Net sales

 

$

 —

 

$

912,945

 

$

86,294

 

$

(21,638)

 

$

977,601

Cost of goods sold

 

 

 —

 

 

593,688

 

 

64,495

 

 

(21,638)

 

 

636,545

Gross profit

 

 

 —

 

 

319,257

 

 

21,799

 

 

 —

 

 

341,056

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative expenses

 

 

 —

 

 

111,538

 

 

4,451

 

 

 —

 

 

115,989

Amortization expense

 

 

 —

 

 

10,039

 

 

 —

 

 

 —

 

 

10,039

Impairment of intangible assets

 

 

 —

 

 

5,405

 

 

 —

 

 

 —

 

 

5,405

Operating income

 

 

 —

 

 

192,275

 

 

17,348

 

 

 —

 

 

209,623

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

 

 —

 

 

55,535

 

 

 —

 

 

 —

 

 

55,535

Loss on extinguishment of debt

 

 

 —

 

 

2,836

 

 

 —

 

 

 —

 

 

2,836

Other income

 

 

 —

 

 

(2,173)

 

 

 —

 

 

 —

 

 

(2,173)

Income before income tax expense

 

 

 —

 

 

136,077

 

 

17,348

 

 

 —

 

 

153,425

Income tax expense

 

 

 —

 

 

52,745

 

 

4,823

 

 

 —

 

 

57,568

Equity in earnings of subsidiaries

 

 

95,857

 

 

12,525

 

 

 —

 

 

(108,382)

 

 

 —

Net income

 

$

95,857

 

$

95,857

 

$

12,525

 

$

(108,382)

 

$

95,857

Comprehensive income (loss)

 

$

92,410

 

$

95,613

 

$

8,834

 

$

(104,447)

 

$

92,410

 

-  27  -


 

Table of Contents

B&G Foods, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

 

(15)Guarantor and Non-Guarantor Financial Information (Continued)

Condensed Consolidating Statement of Cash Flows

Thirty-Nine Weeks Ended September 30, 2017

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

    

Guarantor

    

Non-Guarantor

    

 

 

    

 

 

 

 

 

Parent

 

Subsidiaries

 

Subsidiaries

 

Eliminations

 

Consolidated

 

Net cash provided by operating activities

 

$

 —

 

$

(2,069)

 

$

9,606

 

$

 —

 

$

7,537

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital expenditures

 

 

 —

 

 

(32,348)

 

 

(10,380)

 

 

 —

 

 

(42,728)

 

Proceeds from sale of assets

 

 

 —

 

 

2,229

 

 

 —

 

 

 —

 

 

2,229

 

Payments for acquisition of businesses, net of cash acquired

 

 

 —

 

 

(117)

 

 

 —

 

 

 —

 

 

(117)

 

Net cash used in investing activities

 

 

 —

 

 

(30,236)

 

 

(10,380)

 

 

 —

 

 

(40,616)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Repayments of long-term debt

 

 

(233,640)

 

 

 —

 

 

 —

 

 

 —

 

 

(233,640)

 

Proceeds from issuance of long-term debt

 

 

500,000

 

 

 —

 

 

 —

 

 

 —

 

 

500,000

 

Repayments of borrowings under revolving credit facility

 

 

(221,000)

 

 

 —

 

 

 —

 

 

 —

 

 

(221,000)

 

Borrowings under revolving credit facility

 

 

85,000

 

 

 —

 

 

 —

 

 

 —

 

 

85,000

 

Proceeds from issuance of common stock, net

 

 

36

 

 

 —

 

 

 —

 

 

 —

 

 

36

 

Dividends paid

 

 

(92,710)

 

 

 —

 

 

 —

 

 

 —

 

 

(92,710)

 

Payments of tax withholding on behalf of employees for net share settlement of share-based compensation

 

 

 —

 

 

(1,962)

 

 

 —

 

 

 —

 

 

(1,962)

 

Debt financing costs

 

 

 —

 

 

(8,637)

 

 

 —

 

 

 —

 

 

(8,637)

 

Intercompany transactions

 

 

(37,686)

 

 

36,918

 

 

768

 

 

 —

 

 

 —

 

Net cash provided by financing activities

 

 

 —

 

 

26,319

 

 

768

 

 

 —

 

 

27,087

 

Effect of exchange rate fluctuations on cash and cash equivalents

 

 

 —

 

 

 —

 

 

(226)

 

 

 —

 

 

(226)

 

Net increase (decrease) in cash and cash equivalents

 

 

 —

 

 

(5,986)

 

 

(232)

 

 

 —

 

 

(6,218)

 

Cash and cash equivalents at beginning of period

 

 

 —

 

 

25,119

 

 

3,714

 

 

 —

 

 

28,833

 

Cash and cash equivalents at end of period

 

$

 —

 

$

19,133

 

$

3,482

 

$

 —

 

$

22,615

 

 

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B&G Foods, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

 

(15)Guarantor and Non-Guarantor Financial Information (Continued)

Condensed Consolidating Statement of Cash Flows

Thirty-Nine Weeks Ended October 1, 2016

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

    

Guarantor

    

Non-Guarantor

    

 

 

    

 

 

 

 

 

Parent

 

Subsidiaries

 

Subsidiaries

 

Eliminations

 

Consolidated

 

Net cash provided by operating activities

 

$

 —

 

$

165,362

 

$

27,416

 

$

 —

 

$

192,778

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital expenditures

 

 

 —

 

 

(20,557)

 

 

(4,250)

 

 

 —

 

 

(24,807)

 

Net cash used in investing activities

 

 

 —

 

 

(20,557)

 

 

(4,250)

 

 

 —

 

 

(24,807)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Repayments of long-term debt

 

 

(150,000)

 

 

 —

 

 

 —

 

 

 —

 

 

(150,000)

 

Repayments of borrowings under revolving credit facility

 

 

(50,000)

 

 

 —

 

 

 —

 

 

 —

 

 

(50,000)

 

Borrowings under revolving credit facility

 

 

10,000

 

 

 —

 

 

 —

 

 

 —

 

 

10,000

 

Proceeds from issuance of common stock, net

 

 

331,879

 

 

 —

 

 

 —

 

 

 —

 

 

331,879

 

Dividends paid

 

 

(72,916)

 

 

 —

 

 

 —

 

 

 —

 

 

(72,916)

 

Excess tax benefits from share-based compensation

 

 

 —

 

 

343

 

 

 —

 

 

 —

 

 

343

 

Payments of tax withholding on behalf of employees for net share settlement of share-based compensation

 

 

 —

 

 

(1,410)

 

 

 —

 

 

 —

 

 

(1,410)

 

Intercompany transactions

 

 

(68,963)

 

 

85,655

 

 

(16,692)

 

 

 —

 

 

 —

 

Net cash provided by (used in) financing activities

 

 

 —

 

 

84,588

 

 

(16,692)

 

 

 —

 

 

67,896

 

Effect of exchange rate fluctuations on cash and cash equivalents

 

 

 —

 

 

 —

 

 

(533)

 

 

 —

 

 

(533)

 

Net increase in cash and cash equivalents

 

 

 —

 

 

229,393

 

 

5,941

 

 

 —

 

 

235,334

 

Cash and cash equivalents at beginning of period

 

 

 —

 

 

1,964

 

 

3,282

 

 

 —

 

 

5,246

 

Cash and cash equivalents at end of period

 

$

 —

 

$

231,357

 

$

9,223

 

$

 —

 

$

240,580

 

 

(16)Subsequent Event

Back to Nature Acquisition.  On October 2, 2017, we completed our acquisition of Back to Nature Foods Company, LLC and related entities from Brynwood Partners VI L.P., Mondelēz International and certain other sellers for approximately $162.5 million in cash, subject to customary closing and post-closing working capital adjustments.  We funded the acquisition and related fees and expenses with additional revolving loans under our existing credit facility. The primary assets of the business purchased include intellectual property, business and customer information, equipment, accounts receivable and inventory.  Due to the relatively short time from the date of acquisition to the completion of the accompanying unaudited interim consolidated financial statements, the initial accounting for the acquisition, including our preliminary evaluation of the fair value for certain significant assets and liabilities, including goodwill and intangibles, is not complete. The Back to Nature acquisition is not material to our consolidated results of operations or financial position. We will provide the preliminary purchase price allocation with our Annual Report on Form 10-K for fiscal 2017. 

 

 

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

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements that involve risks and uncertainties.  Our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth under the heading “Forward-Looking Statements” below and elsewhere in this report.  The following discussion should be read in conjunction with the unaudited consolidated interim financial statements and related notes for the thirteen and thirty-nine weeks ended September 30, 2017 (third quarter and first three quarters of 2017) included elsewhere in this report and the audited consolidated financial statements and related notes for the fiscal year ended December 31, 2016 (fiscal 2016) included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission (SEC) on March 1, 2017 (which we refer to as our 2016 Annual Report on Form 10-K).

General

We manufacture, sell and distribute a diverse portfolio of branded, high quality, shelf-stable and frozen foods and household products, many of which have leading regional or national market shares. In general, we position our branded products to appeal to the consumer desiring a high quality and reasonably priced product. We complement our branded product retail sales with institutional and foodservice sales and private label sales.

Our company has been built upon a successful track record of acquisition-driven growth. Our goal is to continue to increase sales, profitability and cash flows through strategic acquisitions, new product development and organic growth. We intend to implement our growth strategy through the following initiatives: expanding our brand portfolio with disciplined acquisitions of complementary branded businesses, continuing to develop new products and delivering them to market quickly, leveraging our multiple channel sales and distribution system and continuing to focus on higher growth customers and distribution channels.

Since 1996, we have successfully acquired and integrated more than 45 brands into our company. Most recently, on October 2, 2017, we acquired Back to Nature Foods Company, LLC and related entities from Brynwood Partners VI L.P., Mondelēz International and certain other sellers. On December 2, 2016, we acquired Victoria Fine Foods, LLC, and a related entity, from Huron Capital Partners and certain other sellers. On November 21, 2016, we completed the acquisition of the spices & seasonings business of ACH Food Companies, Inc. We refer to these acquisitions in this report as the “Victoria acquisition” and the “spices & seasonings acquisition,” respectively.  Each of these recent acquisitions has been accounted for using the acquisition method of accounting and, accordingly, the assets acquired, liabilities assumed and results of operations of the acquired businesses are included in our consolidated financial statements from the respective dates of acquisition. These acquisitions and the application of the acquisition method of accounting affect comparability between periods.

We are subject to a number of challenges that may adversely affect our businesses. These challenges, which are discussed below and under the heading “Forward‑Looking Statements,” include:

Fluctuations in Commodity Prices and Production and Distribution Costs.  We purchase raw materials, including agricultural products, meat, poultry, ingredients and packaging materials from growers, commodity processors, other food companies and packaging suppliers located in U.S. and foreign locations. Raw materials and other input costs, such as fuel and transportation, are subject to fluctuations in price attributable to a number of factors. Fluctuations in commodity prices can lead to retail price volatility and intensive price competition, and can influence consumer and trade buying patterns. The cost of raw materials, fuel, labor, distribution and other costs related to our operations can increase from time to time significantly and unexpectedly.

We attempt to manage cost inflation risks by locking in prices through short‑term supply contracts and advance commodities purchase agreements and by implementing cost saving measures. We also attempt to offset rising input costs by raising sales prices to our customers. However, increases in the prices we charge our customers may lag behind rising input costs. Competitive pressures also may limit our ability to quickly raise prices in response to rising costs.

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We have seen and expect to continue to see moderate net cost increases for raw materials in the marketplace during 2017 and are currently locked into our supply and prices for a majority of our most significant commodities (excluding, among others, maple syrup) through the remainder of fiscal 2017 at a cost increase of less than 1% of cost of goods sold. During fiscal 2016, we had a minimal cost decrease for a majority of our most significant commodities (excluding, among others, maple syrup). To the extent we are unable to avoid or offset any present or future cost increases by locking in our costs, implementing cost saving measures or increasing prices to our customers, our operating results could be materially adversely affected. In addition, if input costs begin to decline, customers may look for price reductions in situations where we have locked into purchases at higher costs.

Consolidation in the Retail Trade and Consequent Inventory Reductions.  As the retail grocery trade continues to consolidate and our retail customers grow larger and become more sophisticated, our retail customers may demand lower pricing and increased promotional programs. These customers are also reducing their inventories and increasing their emphasis on private label products.

Changing Consumer Preferences.  Consumers in the market categories in which we compete frequently change their taste preferences, dietary habits and product packaging preferences.

Consumer Concern Regarding Food Safety, Quality and Health.  The food industry is subject to consumer concerns regarding the safety and quality of certain food products. If consumers in our principal markets lose confidence in the safety and quality of our food products, even as a result of a product liability claim or a product recall by a food industry competitor, our business could be adversely affected.

Fluctuations in Currency Exchange Rates.  Our foreign sales are primarily to customers in Canada. Our sales to Canada are generally denominated in Canadian dollars and our sales for export to other countries are generally denominated in U.S. dollars. During the first three quarters of 2017 and 2016, our net sales to customers in foreign countries represented approximately 6.4% and 8.4%, respectively, of our total net sales. We also purchase a significant majority of our maple syrup requirements from suppliers located in Québec, Canada. Any weakening of the U.S. dollar against the Canadian dollar could significantly increase our costs relating to the production of our maple syrup products to the extent we have not purchased Canadian dollars in advance of any such weakening of the U.S. dollar or otherwise entered into a currency hedging arrangement in advance of any such weakening of the U.S. dollar. These increased costs would not be fully offset by the positive impact the change in the relative strength of the Canadian dollar versus the U.S. dollar would have on our net sales in Canada. Our purchases of raw materials from other foreign suppliers are generally denominated in U.S. dollars. We also operate a manufacturing facility in Irapuato, Mexico for the manufacture of Green Giant frozen products and are as a result exposed to fluctuations in the Mexican peso. Our results of operations could be adversely impacted by changes in foreign currency exchange rates. Costs and expenses in Mexico are recognized in local foreign currency, and therefore we are exposed to potential gains or losses from the translation of those amounts into U.S. dollars for consolidation into our financial statements.

To confront these challenges, we continue to take steps to build the value of our brands, to improve our existing portfolio of products with new product and marketing initiatives, to reduce costs through improved productivity, to address consumer concerns about food safety, quality and health and to favorably manage currency fluctuations.

Critical Accounting Policies; Use of Estimates

The preparation of financial statements in accordance with accounting principles generally accepted in the United States requires our management to make a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.  Some of the more significant estimates and assumptions made by management involve trade and consumer promotion expenses; allowances for excess, obsolete and unsaleable inventories; pension benefits; acquisition accounting fair value allocations; the recoverability of goodwill, other intangible assets, property, plant and equipment, and deferred tax assets; the determination of the useful life of customer relationship and amortizable trademark intangibles; and the accounting for share-based compensation expense.  Actual results could differ significantly from these estimates and assumptions.

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In our 2016 Annual Report on Form 10-K, we identified the critical accounting policies which affect our more significant estimates and assumptions used in preparing our consolidated financial statements. There have been no material changes to these policies from those disclosed in our 2016 Annual Report on Form 10-K.

Results of Operations

The following table sets forth the percentages of net sales represented by selected items for the third quarter and first three quarters of each of 2017 and 2016 reflected in our consolidated statements of operations.  The comparisons of financial results are not necessarily indicative of future results:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Thirteen Weeks Ended

 

Thirty-nine Weeks Ended

 

 

 

September 30,

 

October 1,

 

September 30,

 

October 1,

 

 

    

2017

    

2016

    

2017

    

2016

 

Statement of Operations Data:

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

100.0

%  

 

100.0

%  

 

100.0

%  

 

100.0

%  

 

Cost of goods sold

 

69.8

%  

 

63.7

%  

 

69.8

%  

 

65.1

%  

 

Gross profit

 

30.2

%  

 

36.3

%  

 

30.2

%  

 

34.9

%  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative expenses

 

10.5

%  

 

13.4

%  

 

12.2

%  

 

11.9

%  

 

Amortization expense

 

1.0

%  

 

1.0

%  

 

1.1

%  

 

1.0

%  

 

Impairment of intangible assets

 

 —

%  

 

 —

%  

 

 —

%  

 

0.6

%  

 

Operating income

 

18.7

%  

 

21.9

%  

 

16.9

%  

 

21.4

%  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

5.8

%  

 

5.7

%  

 

5.4

%  

 

5.6

%  

 

Loss on extinguishment of debt

 

 —

%  

 

 —

%  

 

0.1

%

 

0.3

%  

 

Other expense (income)

 

 —

%  

 

 —

%  

 

(0.2)

%

 

(0.2)

%  

 

Income before income tax expense

 

12.9

%  

 

16.2

%  

 

11.6

%  

 

15.7

%  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income tax expense

 

4.8

%  

 

6.0

%  

 

4.3

%  

 

5.9

%  

 

Net income

 

8.1

%  

 

10.2

%  

 

7.3

%  

 

9.8

%  

 

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

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

Gross Profit.  Our gross profit is equal to our net sales less cost of goods sold. The primary components of our cost of goods sold are cost of internally manufactured products, purchases of finished goods from co‑packers, a portion of our warehousing expenses plus freight costs to our distribution centers and to our customers.

Selling, General and Administrative Expenses.  Our selling, general and administrative expenses include costs related to selling our products, as well as all other general and administrative expenses. Some of these costs include administrative, marketing and internal sales force employee compensation and benefits costs, consumer advertising programs, brokerage costs, a portion of our warehousing expenses, information technology and communication costs, office rent, utilities, supplies, professional services, acquisition‑related expenses and other general corporate expenses.

Amortization Expense.  Amortization expense includes the amortization expense associated with customer relationships, amortizable trademarks and other intangibles.

Impairment of Intangible Assets.  Impairment of intangible assets represents a reduction of the carrying value of amortizable intangible assets to fair value when the carrying value of the assets is no longer recoverable.

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Net Interest Expense.  Net interest expense includes interest relating to our outstanding indebtedness, amortization of bond discount and amortization of deferred debt financing costs (net of interest income).

Loss on Extinguishment of Debt.  Loss on extinguishment of debt includes costs relating to the retirement of indebtedness, including repurchase premium, if any, and write‑off of deferred debt financing costs and unamortized discount, if any.

Other Expense (Income).  Other expense (income) includes expense or income resulting from the remeasurement of monetary assets denominated in a foreign currency into U.S. dollars for financial reporting purposes.

Non-GAAP Financial Measures

Certain disclosures in this report include non-GAAP financial measures. A non-GAAP financial measure is defined as a numerical measure of our financial performance that excludes or includes amounts so as to be different from the most directly comparable measure calculated and presented in accordance with accounting principles generally accepted in the United States (GAAP) in our consolidated balance sheets and related consolidated statements of operations, comprehensive income and cash flows.

Base Business Net Sales.  Base business net sales is a non-GAAP financial measure used by management to measure operating performance.  We define base business net sales as our net sales excluding (1) the impact of acquisitions until the net sales from such acquisitions are included in both comparable periods and (2) net sales of discontinued brands.  The portion of current period net sales attributable to recent acquisitions for which there is no corresponding period in the comparable period of the prior year is excluded. For each acquisition, the excluded period starts at the beginning of the most recent fiscal period being compared and ends on the first anniversary of the acquisition date.  For discontinued brands, the entire amount of net sales is excluded from each fiscal period being compared.  Management has included this financial measure because it provides useful and comparable trend information regarding the results of our business without the effect of the timing of acquisitions and the effect of discontinued brands.

A reconciliation of base business net sales to reported net sales for the third quarter and first three quarters of 2017 and 2016 follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Thirteen Weeks Ended

 

Thirty-nine Weeks Ended

 

 

 

September 30,

 

October 1,

 

September 30,

 

October 1,

 

 

    

2017

    

2016

    

2017

    

2016

 

Reported net sales

 

$

408,364

 

$

318,247

 

$

1,194,372

 

$

977,601

 

Net sales from acquisitions(1)

 

 

(80,082)

 

 

 —

 

 

(231,000)

 

 

 —

 

Net sales of Rickland Orchards(2)

 

 

 —

 

 

 —

 

 

 —

 

 

(528)

 

Base business net sales

 

$

328,282

 

$

318,247

 

$

963,372

 

$

977,073

 


(1)

Reflects net sales for the spices & seasonings business and Victoria for the third quarter and first three quarters of 2017 for which there is no comparable period of net sales in 2016. The spices & seasonings business was acquired on November 21, 2016, and Victoria was acquired on December 2, 2016.

(2)

Rickland Orchards was discontinued during the second quarter of 2016.

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EBITDA and Adjusted EBITDA.  EBITDA and adjusted EBITDA are non‑GAAP financial measures used by management to measure operating performance. We define EBITDA as net income before net interest expense, income taxes, depreciation and amortization and loss on extinguishment of debt. We define adjusted EBITDA as EBITDA adjusted for cash and non-cash acquisition-related expenses, gains and losses (which may include third party fees and expenses, integration, restructuring and consolidation expenses, amortization of acquired inventory fair value step-up, intangible asset impairment charges and related asset write offs, and gains and losses on sale of assets), and distribution restructuring expenses. Management believes that it is useful to eliminate net interest expense, income taxes, depreciation and amortization, loss on extinguishment of debt, acquisition-related expenses, gains and losses, non-cash intangible asset impairment charges and related asset write offs and distribution restructuring expenses because it allows management to focus on what it deems to be a more reliable indicator of ongoing operating performance and our ability to generate cash flow from operations. We use EBITDA and adjusted EBITDA in our business operations to, among other things, evaluate our operating performance, develop budgets and measure our performance against those budgets, determine employee bonuses and evaluate our cash flows in terms of cash needs. We also present EBITDA and adjusted EBITDA because we believe they are useful indicators of our historical debt capacity and ability to service debt and because covenants in our credit agreement and our senior notes indentures contain ratios based on these measures. As a result, internal management reports used during monthly operating reviews feature the EBITDA and adjusted EBITDA metrics. However, management uses these metrics in conjunction with traditional GAAP operating performance and liquidity measures as part of its overall assessment of company performance and liquidity and therefore does not place undue reliance on these measures as its only measures of operating performance and liquidity.

EBITDA and adjusted EBITDA are not recognized terms under GAAP and do not purport to be alternatives to operating income, net income (loss) or any other GAAP measure as an indicator of operating performance. EBITDA and adjusted EBITDA are not complete net cash flow measures because EBITDA and adjusted EBITDA are measures of liquidity that do not include reductions for cash payments for an entity’s obligation to service its debt, fund its working capital, capital expenditures and acquisitions and pay its income taxes and dividends. Rather, EBITDA and adjusted EBITDA are two potential indicators of an entity’s ability to fund these cash requirements. EBITDA and adjusted EBITDA are not complete measures of an entity’s profitability because they do not include costs and expenses for depreciation and amortization, interest and related expenses, loss on extinguishment of debt, acquisition-related expenses, gains and losses, income taxes, intangible asset impairment charges and related asset write offs, and distribution restructuring expenses. Because not all companies use identical calculations, this presentation of EBITDA and adjusted EBITDA may not be comparable to other similarly titled measures of other companies. However, EBITDA and adjusted EBITDA can still be useful in evaluating our performance against our peer companies because management believes these measures provide users with valuable insight into key components of GAAP amounts.

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A reconciliation of EBITDA and adjusted EBITDA to net income and to net cash provided by operating activities for the third quarter and first three quarters of each of 2017 and 2016 along with the components of EBITDA and adjusted EBITDA follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Thirteen Weeks Ended

 

Thirty-nine Weeks Ended

 

 

 

September 30,

 

October 1,

 

September 30,

 

October 1,

 

 

    

2017

    

2016

    

2017

    

2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

32,730

 

$

32,410

 

$

87,555

 

$

95,857

 

Income tax expense

 

 

19,772

 

 

19,181

 

 

50,938

 

 

57,568

 

Interest expense, net

 

 

23,374

 

 

17,974

 

 

65,019

 

 

55,535

 

Depreciation and amortization

 

 

11,737

 

 

8,655

 

 

36,284

 

 

26,813

 

Loss on extinguishment of debt

 

 

 —

 

 

 —

 

 

1,163

 

 

2,836

 

EBITDA

 

 

87,613

 

 

78,220

 

 

240,959

 

 

238,609

 

Acquisition-related expenses

 

 

6,448

 

 

6,544

 

 

20,141

 

 

10,475

 

Amortization of acquisition-related inventory step-up

 

 

 —

 

 

 —

 

 

1,550

 

 

3,074

 

Impairment of intangible assets

 

 

 —

 

 

 —

 

 

 —

 

 

5,405

 

Loss on disposal of inventory

 

 

 —

 

 

 —

 

 

 —

 

 

791

 

Loss on sale of assets

 

 

 —

 

 

 —

 

 

1,608

 

 

 —

 

Distribution restructuring expenses

 

 

 —

 

 

325

 

 

 —

 

 

1,273

 

Adjusted EBITDA

 

 

94,061

 

 

85,089

 

 

264,258

 

 

259,627

 

Income tax expense

 

 

(19,772)

 

 

(19,181)

 

 

(50,938)

 

 

(57,568)

 

Interest expense, net

 

 

(23,374)

 

 

(17,974)

 

 

(65,019)

 

 

(55,535)

 

Acquisition-related expenses

 

 

(6,448)

 

 

(6,544)

 

 

(20,141)

 

 

(10,475)

 

Distribution restructuring expenses

 

 

 —

 

 

(325)

 

 

 —

 

 

(1,273)

 

Write-off of property, plant and equipment

 

 

 2

 

 

 —

 

 

107

 

 

 —

 

Deferred income taxes

 

 

15,087

 

 

9,888

 

 

35,079

 

 

45,555

 

Amortization of deferred financing costs and bond discount

 

 

1,468

 

 

1,319

 

 

4,263

 

 

4,101

 

Amortization of acquisition-related inventory step-up

 

 

 —

 

 

 —

 

 

(1,550)

 

 

(3,074)

 

Share-based compensation expense

 

 

1,082

 

 

1,341

 

 

4,284

 

 

4,457

 

Excess tax benefits from share-based compensation

 

 

 —

 

 

 —

 

 

 —

 

 

(343)

 

Changes in assets and liabilities, net of effects of business combinations

 

 

(74,393)

 

 

(61,508)

 

 

(162,806)

 

 

7,306

 

Net cash (used in) provided by operating activities

 

$

(12,287)

 

$

(7,895)

 

$

7,537

 

$

192,778

 

 

Adjusted Net Income and Adjusted Diluted Earnings Per Share.  Adusted net income and adusted diluted earnings per share are non-GAAP financial measures used by management to measure operating performance.  We define adjusted net income and adjusted diluted earnings per share as net income and diluted earnings per share adjusted for certain items that affect comparability.  These non-GAAP financial measures reflect adjustments to net income and diluted earnings per share to eliminate the items identified in the reconciliation below.  This information is provided in order to allow investors to make meaningful comparisons of our operating performance between periods and to view the our business from the same perspective as the our management.  Because we cannot predict the timing and amount of these items, management does not consider these items when evaluating our company’s performance or when making decisions regarding allocation of resources.

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A reconciliation of adjusted net income and adjusted diluted earnings per share to net income for the third quarter and first three quarters of each of 2017 and 2016 along with the components of adjusted net income and adjusted diluted earnings per share follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Thirteen Weeks Ended

 

Thirty-nine Weeks Ended

 

 

September 30,

 

October 1,

 

September 30,

 

October 1,

 

    

2017

    

2016

    

2017

    

2016

Reported net income

 

$

32,730

 

$

32,410

 

$

87,555

 

$

95,857

Non-recurring adjustment to deferred taxes(1)

 

 

 —

 

 

 —

 

 

 —

 

 

564

Loss on extinguishment of debt, net of tax(2)

 

 

 —

 

 

 —

 

 

727

 

 

1,784

Acquisition-related expenses, net of tax

 

 

4,028

 

 

4,116

 

 

12,582

 

 

6,588

Distribution restructuring expenses, net of tax(3)

 

 

 —

 

 

204

 

 

 —

 

 

801

Acquisition-related inventory step-up, net of tax(4)

 

 

 —

 

 

 —

 

 

968

 

 

1,934

Impairment of intangible assets, net of tax(5)

 

 

 —

 

 

 —

 

 

 —

 

 

3,400

Loss on disposal of inventory, net of tax(5)

 

 

 —

 

 

 —

 

 

 —

 

 

498

Loss on sale of assets, net of tax(6)

 

 

 —

 

 

 —

 

 

1,005

 

 

 —

Adjusted net income

 

$

36,758

 

$

36,730

 

$

102,837

 

$

111,426

Adjusted diluted earnings per share

 

$

0.55

 

$

0.56

 

$

1.54

 

$

1.79


(1)

Non-recurring adjustment to deferred taxes for the first three quarters of 2016 relates to a true-up of deferred taxes resulting from our decision during the second quarter of 2016 to discontinue the Rickland Orchards brand and the related impairment of intangible assets.

 

(2)

Loss on extinguishment of debt for the first three quarters of 2017 includes the write-off of deferred debt financing costs and unamortized discount of $0.9 million and $0.2 million, respectively, relating to the repayment of all outstanding borrowings under the tranche A term loans and less than $0.1 million relating to the refinancing of our tranche B term loans.  Loss on extinguishment of debt for the first three quarters of 2016 includes the write-off of deferred debt financing costs and unamortized discount of $2.2 million and $0.6 million, respectively, relating to the repayment of $40.1 million aggregate principal amounts of our tranche A term loans and $109.9 million aggregate principal amount of our tranche B term loans.

 

(3)

Distribution restructuring expenses for the third quarter and first three quarters of 2016 includes expenses relating to our transitioning of the operations of our three primary shelf-stable distribution centers and a new fourth primary shelf-stable distribution center in the United States to a third party logistics provider.

 

(4)

Acquisition-related inventory step-up for the first three quarters of 2017 relates to the purchase accounting adjustments made to the finished goods inventory acquired in the spices & seasonings acquisition.  Acquisition-related inventory step-up for the first three quarters of 2016 relates to the purchase accounting adjustments made to the finished goods inventory acquired in the Green Giant acquisition.

 

(5)

During the first three quarters of 2016, we discontinued the Rickland Orchards brand because there was not sufficient demand to warrant continued production.  Accordingly, we wrote off the related intangible assets and recorded non-cash impairment charges to amortizable trademarks and customer relationship intangibles of $4.5 million and $0.9 million, respectively, which are recorded in “Impairment of intangible assets” in our consolidated statement of operations for the first three quarters of 2016.  We also recorded a charge to cost of goods sold of approximately $0.8 million in connection with the write-off of raw materials and finished goods inventory used for the Rickland Orchards brand.

 

(6)

During the first three quarters of 2017, we sold to a third-party co-packer our Le Sueur, Minnesota research center, including the seed technology assets, property, plant and equipment.  We acquired the research center and related assets on November 2, 2015, as part of the Green Giant acquisition.  The sale resulted in a $1.6 million loss on sale of assets.

 

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Third quarter of 2017 compared to the third quarter of 2016

Net Sales.  Net sales increased $90.2 million, or 28.3%, to $408.4 million for the third quarter of 2017 from $318.2 million for the third quarter of 2016. Net sales of the spices & seasonings business, acquired on November 21, 2016, and net sales of Victoria, acquired on December 2, 2016, contributed $70.4 million and $9.7 million, respectively, to the overall net sales increase.

Base business net sales for the third quarter of 2017 increased $10.1 million, or 3.2%, to $328.3 million from $318.2 million for the third quarter of 2016. The $10.1 million increase was attributable to an increase in unit volume of $13.0 million, or 4.1%, offset by a decrease in net pricing of $2.9 million, or 0.9%.

Net sales increased across half of our brands, led by Green Giant which increased by $7.3 million for the third quarter.  Green Giant frozen products increased by $11.6 million, driven by the brand’s new innovation products.  The increase was offset by a decrease in net sales of Green Giant shelf-stable and other products of $4.3 million, primarily attributable to forecasted distribution losses with certain customers. Net sales of Pirate Brands increased $4.7 million, benefitting from a strong back-to-school season, new distribution gains and the shift in timing of certain promotional spending from the second quarter of last year to the third quarter of this year.  Other brands that contributed to the net sales growth for the quarter include Polaner,  Underwood,  New York Style and Cream of Wheat.

See Note 14, “Net Sales by Brand,” to our unaudited consolidated interim financial statements in Part I, Item 1 of this report, for detailed information regarding total net sales by brand for the third quarter of 2017 and the third quarter of 2016 for each of our brands that exceed approximately 2% of our fiscal 2017 or fiscal 2016 net sales and for all other brands in the aggregate.

The following chart sets forth the most significant base business net sales increases and decreases by brand for the third quarter of 2017:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Base Business

 

 

 

 

Net Sales Increase (Decrease)

 

 

 

    

Dollars

    

Percentage

 

 

 

 

(in millions)

 

 

 

 

Brand:

 

 

 

 

 

 

 

Green Giant

 

$

7.3

 

6.4

%

 

Pirate Brands

 

 

4.7

 

21.0

%

 

Polaner

 

 

1.2

 

15.4

%

 

Underwood

 

 

1.0

 

20.6

%

 

New York Style

 

 

1.0

 

11.8

%

 

Cream of Wheat

 

 

0.6

 

4.3

%

 

 

 

 

 

 

 

 

 

Ortega

 

 

(1.6)

 

(4.6)

%

 

Mama Mary's

 

 

(1.1)

 

(12.3)

%

 

Maple Grove Farms of Vermont

 

 

(0.9)

 

(5.3)

%

 

Bear Creek Country Kitchens

 

 

(0.7)

 

(5.3)

%

 

 

 

 

 

 

 

 

 

All other brands

 

 

(1.4)

 

(2.0)

%

 

Base business net sales decrease

 

$

10.1

 

3.2

%

 

Gross Profit.  Gross profit increased $7.9 million, or 6.8%, to $123.3 million for the third quarter of 2017 from $115.4 million for the third quarter of 2016.  Gross profit expressed as a percentage of net sales was 30.2% in the third quarter of 2017 compared to 36.3% in the third quarter of 2016.  Excluding spices & seasonings and Victoria, approximately 2.9 percentage points of the decrease in gross profit percentage was due to an increase in warehousing and distribution costs, 1.0 percentage point of the decrease was due to an increase in coupon and slotting expenses and 0.9 percentage points of the decrease was due to a decrease in pricing.  The remaining 1.3 percentage points of the decrease was due to an increase in all other costs, including the impact of product mix.

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Selling, General and Administrative Expenses.  Selling, general and administrative expenses increased $0.5 million, or 1.3%, to $43.0 million for the third quarter of 2017 from $42.5 million for the third quarter of 2016.  The increase was composed of increases in warehousing expenses of $1.4 million and selling expenses of $1.4 million (which includes a $2.1 million increase in brokerage expenses offset by a $0.6 million decrease in salesperson compensation), offset by decreases in marketing expenses of $0.9 million and all other expenses of $1.4 million.  Expressed as a percentage of net sales, selling, general and administrative expenses improved by 2.9 percentage points to 10.5% for the third quarter of 2017 compared to 13.4% for the third quarter of 2016.

Amortization Expense.  Amortization expense increased $1.0 million to $4.3 million for the third quarter of 2017 from $3.3 million for the third quarter of 2016 due to the spices & seasonings and Victoria acquisitions completed in fiscal 2016.

Operating Income.  As a result of the foregoing, operating income increased $6.3 million, or 9.0%, to $76.0 million for the third quarter of 2017 from $69.7 million for the third quarter of 2016.  Operating income expressed as a percentage of net sales decreased to 18.7% in the third quarter of 2017 from 21.9% in the third quarter of 2016.

Net Interest Expense.  Net interest expense increased $5.4 million, or 30.0%, to $23.4 million for the third quarter of 2017 from $18.0 million in the third quarter of 2016.  The increase was primarily attributable to additional borrowings made in the fourth quarter of 2016 to fund the spices & seasonings acquisition and the Victoria acquisition and in the second quarter of 2017 in connection with our credit agreement refinancing and senior notes offering.  See “—Liquidity and Capital Resources—Debt” below.

Other Expense.  Other expense for the third quarter of 2017 and 2016 includes remeasurement of monetary assets denominated in a foreign currency into U.S. dollars of $0.1 million and $0.1 million, respectively.

Income Tax Expense.  Income tax expense increased $0.6 million to $19.8 million for the third quarter of 2017 from $19.2 million for the third quarter of 2016. Our effective tax rate was 37.7% for the third quarter of 2017 and 37.2% for the third quarter of 2016.

First three quarters of 2017 compared to the first three quarters of 2016

Net Sales.  Net sales increased $216.8 million, or 22.2%, to $1,194.4 million for the first three quarters of 2017 from $977.6 million for the first three quarters of 2016. Net sales of the spices & seasonings business, acquired on November 21, 2016, and net sales of Victoria, acquired on December 2, 2016, contributed $200.9 million and $30.1 million, respectively, to the overall net sales increase.

Base business net sales for the first three quarters of 2017 decreased $13.7 million, or 1.4%, to $963.4 million from $977.1 million for the first three quarters of 2016. The $13.7 million decrease was attributable to decreases in unit volume of $8.6 million, or 0.9%, and net pricing of $5.1 million, or 0.5%.

Our base business net sales decline for the first three quarters of 2017 was largely attributable to our maple syrup products, Mama Mary’s and Bear Creek Country Kitchens. Net sales of our maple syrup products decreased $5.2 million, or 7.0%, primarily due to our decision during the first quarter of 2017 to discontinue certain private label sales.  Net sales of Mama Mary’s decreased $3.4 million, or 11.7%, generally in line with a category decline of approximately 8.4%.  Net sales of Bear Creek Country Kitchens, which faced aggressive competition and a category decline of approximately 4.0% during the first three quarters of 2017, decreased $3.0 million, or 9.3%. For the first three quarters of 2017, net sales of Pirate Brands, Underwood, Polaner, New York Style and Green Giant increased by $3.2 million, $1.3 million, $1.2 million, $1.1 million and $0.6 million, or 4.7%, 9.1%, 4.6%, 4.2% and 0.2%, respectively.

See Note 14, “Net Sales by Brand,” to our unaudited consolidated interim financial statements in Part I, Item 1 of this report, for detailed information regarding total net sales by brand for the first three quarters of 2017 and the first three quarters of 2016 for each of our brands that exceed approximately 2% of our fiscal 2017 or fiscal 2016 net sales and for all other brands in the aggregate.

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The following chart sets forth the most significant base business net sales increases and decreases by brand for the first three quarters of 2017:

 

 

 

 

 

 

 

 

 

 

Base Business

 

 

 

 

Net Sales Increase (Decrease)

 

 

 

    

Dollars

    

Percentage

 

 

 

 

(in millions)

 

 

 

 

Brand:

 

 

 

 

 

 

 

Pirate Brands

 

$

3.2

 

4.7

%

 

Underwood

 

 

1.3

 

9.1

%

 

Polaner

 

 

1.2

 

4.6

%

 

New York Style

 

 

1.1

 

4.2

%

 

Green Giant

 

 

0.6

 

0.2

%

 

 

 

 

 

 

 

 

 

Mama Mary's

 

 

(3.4)

 

(11.7)

%

 

Maple Grove Farms of Vermont

 

 

(3.1)

 

(5.7)

%

 

Bear Creek Country Kitchens

 

 

(3.0)

 

(9.3)

%

 

SpringTree

 

 

(1.7)

 

(12.2)

%

 

B&M

 

 

(1.5)

 

(10.0)

%

 

TrueNorth

 

 

(1.3)

 

(15.7)

%

 

Bloch & Guggenheimer

 

 

(1.3)

 

(6.7)

%

 

Ortega

 

 

(1.3)

 

(1.2)

%

 

Emeril's

 

 

(1.2)

 

(11.2)

%

 

 

 

 

 

 

 

 

 

All other brands

 

 

(3.3)

 

(1.6)

%

 

Base business net sales decrease

 

$

(13.7)

 

(1.4)

%

 

Gross Profit.  Gross profit increased $20.0 million, or 5.9%, to $361.1 million for the first three quarters of 2017 from $341.1 million for the first three quarters of 2016.  Gross profit expressed as a percentage of net sales was 30.2% in the first three quarters of 2017 compared to 34.9% in the first three quarters of 2016.  Excluding spices & seasonings and Victoria, approximately 2.9 percentage points of the decrease in gross profit percentage was due to an increase in warehousing and distribution costs, 0.7 percentage points of the decrease was due to an increase in coupon and slotting expenses and 0.5 percentage points of the decrease was due to a decrease in pricing.  The remaining 0.6 percentage points of the decrease was due to an increase of all other costs, including the impact of product mix.

Selling, General and Administrative Expenses.  Selling, general and administrative expenses increased $30.2 million, or 26.1%, to $146.2 million for the first three quarters of 2017 from $116.0 million for the first three quarters of 2016.  The increase was composed of increases in marketing expenses of $10.4 million, acquisition-related expenses of $9.7 million, warehousing expenses of $9.3 million, selling expenses of $3.5 million (which includes a $3.6 million increase in brokerage expenses and a $0.7 million decrease in salesperson compensation) and a loss on sale of assets of $1.6 million, partially offset by a decrease in distribution restructuring expenses of $1.3 million and all other expenses of $3.0 million.  Expressed as a percentage of net sales, selling, general and administrative expenses increased 0.3 percentage points to 12.2% for the first three quarters of 2017 from 11.9% for the first three quarters of 2016.

Amortization Expense.  Amortization expense increased $3.0 million to $13.0 million for the first three quarters of 2017 from $10.0 million for the first three quarters of 2016 due to the spices & seasonings and Victoria acquisitions completed in fiscal 2016.

Impairment of Intangible Assets.  Impairment of intangible assets of $5.4 million for the first three quarters of 2016 includes a $4.5 million loss for the impairment of amortizable trademarks and a $0.9 million loss for the impairment of customer relationship intangibles, both relating to Rickland Orchards, as we discontinued the Rickland Orchards brand during the second quarter of 2016 because there was not sufficient demand to warrant continued production.

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Operating Income.  As a result of the foregoing, operating income decreased $7.8 million, or 3.7%, to $201.8 million for the first three quarters of 2017 from $209.6 million for the first three quarters of 2016.  Operating income expressed as a percentage of net sales decreased to 16.9% in the first three quarters of 2017 from 21.4% in the first three quarters of 2016.

Net Interest Expense.  Net interest expense increased $9.5 million, or 17.1%, to $65.0 million for the first three quarters of 2017 from $55.5 million in the first three quarters of 2016.  The increase was primarily attributable to additional borrowings made in the fourth quarter of 2016 to fund the spices & seasonings acquisition and the Victoria acquisition and in the second quarter of 2017 in connection with our credit agreement refinancing and senior notes offering.  See “—Liquidity and Capital Resources—Debt” below.

Loss on Extinguishment of Debt.  Loss on extinguishment of debt for the first three quarters of 2017 includes the write-off of deferred debt financing costs and unamortized discount of $0.9 million and $0.2 million, respectively, relating to the repayment of all outstanding borrowings under the tranche A term loans.  During the first quarter of 2017, we incurred a loss on extinguishment of debt relating to the refinancing of our tranche B term loans of less than $0.1 million.  Loss on extinguishment of debt for the first three quarters of 2016 includes the write-off of deferred debt financing costs and unamortized discount of $2.2 million and $0.6 million, respectively, relating to the repayment of $40.1 million aggregate principal amount of our tranche A term loans and $109.9 million aggregate principal amount of our tranche B term loans.  See “—Debt” below.

Other Income.  Other income for the first three quarters of 2017 and 2016 includes remeasurement of monetary assets denominated in a foreign currency into U.S. dollars of $2.9 million and $2.2 million, respectively.

Income Tax Expense.  Income tax expense decreased $6.7 million to $50.9 million for the first three quarters of 2017 from $57.6 million for the first three quarters of 2016. Our effective tax rate was 36.8% for the first three quarters of 2017 and 37.5% for the first three quarters of 2016.

Liquidity and Capital Resources

Our primary liquidity requirements include debt service, capital expenditures and working capital needs.  See also, “Dividend Policy” and “Commitments and Contractual Obligations” below.  We fund our liquidity requirements, as well as our dividend payments and financing for acquisitions, primarily through cash generated from operations and external sources of financing, including our revolving credit facility.

Cash Flows

Net cash provided by operating activities decreased $185.3 million to $7.5 million for the first three quarters of 2017 from $192.8 million for the first three quarters of 2016. The decrease in net cash provided by operating activities primarily reflects unfavorable working capital (comprised of changes in inventories, accounts receivable and accrued expenses) comparisons to the first three quarters of 2016. This decrease is mainly due to an increase in inventory and the timing of payments received from post-acquisition transition services agreements.

Net cash used in investing activities for the first three quarters of 2017 increased $15.8 million to $40.6 million from $24.8 million for the first three quarters of 2016. The increase was attributable to an increase in capital spending, partially offset by the proceeds from the sale of assets. Capital expenditures in the first three quarters of 2017 and 2016 included expenditures for building improvements, purchases of manufacturing and computer equipment and capitalized interest. During the first three quarters of 2017, we sold to a third-party co-packer our Le Sueur, Minnesota research center, including the seed technology assets, property, plant and equipment, which we acquired as part of the Green Giant acquisition, resulting in a $1.6 million loss on sale of assets.

Net cash provided by financing activities for the first three quarters of 2017 decreased $40.8 million to $27.1 million from net cash used in financing activities of $67.9 million for the first three quarters of 2016. Net cash provided by financing activities for the first three quarters of 2017 consisted of $500.0 million of proceeds from the issuance of our 5.25% senior notes and $85.0 million of revolving credit facility borrowings, partially offset by $233.6 million

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repayment of our tranche A term loan, $221.0 million of repayments of revolving credit facility borrowings, $92.7 million of dividend payments, $8.6 million of debt financing costs and $2.0 million of payments of tax withholding on behalf of employees for net share settlement of share based compensation. Net cash provided by financing activities for the first three quarters of 2016 consisted of $331.9 million of proceeds from the issuance of common stock, $10.0 million of revolving credit facility borrowings, and $0.3 million excess tax benefits of share-based compensation, partially offset by $150.0 million of term loan repayment, $50.0 million of repayments of revolving credit facility borrowings, $72.9 million of dividend payments and $1.4 million of payments of tax withholding on behalf of employees for net share settlement of share based compensation.

Based on a number of factors, including amortization for tax purposes of our trademarks, goodwill and other intangible assets acquired in prior acquisitions, we realized a significant reduction in cash taxes in fiscal 2016 as compared to our tax expense for financial reporting purposes.  During the second quarter of 2016, we discontinued the Rickland Orchards brand, which resulted in a one-time cash taxes benefit of $17.3 million for fiscal 2016.

We believe that we will realize a benefit to our cash taxes payable from amortization of our trademarks, goodwill and other intangible assets for the taxable years 2017 through 2031. If there is a change in U.S. federal tax policy that reduces any of these available deductions or results in an increase in our corporate tax rate, our cash taxes payable may increase further, which could significantly reduce our future liquidity and impact our ability to make interest and dividend payments.

Dividend Policy

Our dividend policy reflects a basic judgment that our stockholders are better served when we distribute a substantial portion of our cash available to pay dividends to them instead of retaining it in our business.  Under this policy, a substantial portion of the cash generated by our company in excess of operating needs, interest and principal payments on indebtedness, capital expenditures sufficient to maintain our properties and other assets is distributed as regular quarterly cash dividends to the holders of our common stock and not retained by us.  We have paid dividends every quarter since our initial public offering in October 2004.

For the first three quarters of 2017 and 2016, we had cash flows provided by operating activities of $7.5 million and $192.8 million, respectively, and distributed as dividends of $92.7 million and $72.9 million, respectively. Based upon our current dividend rate of $1.86 per share per annum, we expect our aggregate dividend payments in fiscal 2017 to be approximately $123.6 million.

Our dividend policy is based upon our current assessment of our business and the environment in which we operate, and that assessment could change based on competitive or other developments (which could, for example, increase our need for capital expenditures or working capital), new acquisition opportunities or other factors.  Our board of directors is free to depart from or change our dividend policy at any time and could do so, for example, if it was to determine that we have insufficient cash to take advantage of growth opportunities.

Acquisitions

Our liquidity and capital resources have been significantly impacted by acquisitions and may be impacted in the foreseeable future by additional acquisitions.  As discussed elsewhere in this report, as part of our growth strategy we plan to expand our brand portfolio with disciplined acquisitions of complementary brands.  We have historically financed acquisitions by incurring additional indebtedness, issuing equity and/or using cash flows from operating activities.  Our interest expense has over time increased as a result of additional indebtedness we have incurred in connection with acquisitions and will increase with any additional indebtedness we may incur to finance future acquisitions.  Although we may subsequently issue equity and use the proceeds to repay all or a portion of the additional indebtedness incurred to finance an acquisition and reduce our interest expense, the additional shares of common stock would increase the amount of cash flows from operating activities necessary to fund dividend payments.

We financed the Back to Nature acquisition, completed in October 2017, with additional revolving loans under our senior secured revolving credit facility.  We financed the spices & seasonings acquisition, completed in November

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2016, with cash on hand, including the net proceeds of our August 2016 public offering of common stock, and additional revolving loans under our senior secured credit facility.  We financed the Victoria acquisition, completed in December 2016, with cash on hand and additional revolving loans under our senior secured credit facility.  The impact of future acquisitions, whether financed with additional indebtedness or otherwise, may have a material impact on our liquidity and capital resources.

Debt

Senior Secured Credit Agreement.  On March 30, 2017, we refinanced our senior secured credit facility. The refinancing reduced by 0.75% the spread over LIBOR or the applicable base rate on $640.1 million of tranche B term loans.  On April 3, 2017, we repaid all of the outstanding borrowings and amounts due under our revolving credit facility and tranche A term loans using the net proceeds of our registered public offering of $500.0 million aggregate principal amount of 5.25% senior notes due 2025.  At September 30, 2017,  $640.1 million of tranche B term loans and $40.0 million of revolving loans were outstanding under our credit agreement. The credit agreement is secured by substantially all of our and our domestic subsidiaries’ assets except our and our domestic subsidiaries’ real property. At September 30, 2017, the available borrowing capacity under our revolving credit facility, net of outstanding letters of credit of $2.0 million, was $458.0 million. See Note 16, “Subsequent Event,” to our unaudited consolidated interim financial statements in Part 1, Item 1 of this report. Proceeds of the revolving credit facility may be used for general corporate purposes, including acquisitions of targets in the same or a similar line of business as our company, subject to specified criteria. The revolving credit facility matures on June 5, 2019.

The entire $640.1 million principal amount of tranche B term loans outstanding are due and payable at maturity on November 2, 2022.

Interest under the revolving credit facility, including any outstanding letters of credit, is determined based on alternative rates that we may choose in accordance with the credit agreement, including a base rate per annum plus an applicable margin ranging from 0.50% to 1.00%, and LIBOR plus an applicable margin ranging from 1.50% to 2.00%, in each case depending on our consolidated leverage ratio.  At September 30, 2017, the revolving credit facility interest rate was approximately 3.24%.

Interest under the tranche B term loan facility is determined based on alternative rates that we may choose in accordance with the credit agreement, including a base rate per annum plus an applicable margin of 1.25%, and LIBOR plus an applicable margin of 2.25%. At September 30, 2017, the tranche B term loan interest rate was approximately 3.49%.

For further information regarding our senior secured credit agreement, including a description of optional and mandatory prepayment terms, and financial and restrictive covenants, see Note 6, “Long-Term Debt,” to our unaudited consolidated interim financial statements in Part I, Item 1 of this report.

4.625% Senior Notes due 2021.  On June 4, 2013, we issued $700.0 million aggregate principal amount of 4.625% senior notes due 2021 at a price to the public of 100% of their face value.  Interest on the 4.625% senior notes is payable on June 1 and December 1 of each year.  The 4.625% senior notes will mature on June 1, 2021, unless earlier retired or redeemed as permitted or required by the terms of the indenture governing the 4.625% senior notes as described in Note 6, “Long-Term Debt,” to our unaudited consolidated interim financial statements.  We may also, from time to time, seek to retire the 4.625% senior notes through cash repurchases of the 4.625% senior notes or exchanges of the 4.625% senior notes for equity securities or both, in open market purchases, privately negotiated transactions or otherwise.  Such repurchases or exchanges, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors.  The amounts involved may be material.  See Note 6, “Long-Term Debt,” to our unaudited consolidated interim financial statements for a more detailed description of the 4.625% senior notes.

5.25% Senior Notes due 2025.  On April 3, 2017, we issued $500.0 million aggregate principal amount of 5.25% senior notes due 2025 at a price to the public of 100% of their face value. We used the net proceeds of the offering to repay all of the outstanding borrowings and amounts due under our revolving credit facility and tranche A

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term loans, and to pay related fees and expenses, and for general corporate purposes, which could include, among other things, repayment of other long term debt or possible acquisitions.  Interest on the 5.25% senior notes is payable on April 1 and October 1 of each year, commencing October 1, 2017.  The 5.25% senior notes will mature on April 1, 2025, unless earlier retired or redeemed as permitted or required by the terms of the indenture governing the 5.25% senior notes as described in Note 6, “Debt,” to our unaudited consolidated interim financial statements.  We may also, from time to time, seek to retire the 5.25% senior notes through cash repurchases of the 5.25% senior notes or exchanges of the 5.25% senior notes for equity securities or both, in open market purchases, privately negotiated transactions or otherwise.  Such repurchases or exchanges, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors.  The amounts involved may be material.  See Note 6 “Debt,” to our unaudited consolidated interim financial statements for a more detailed description of the 5.25% senior notes.

Future Capital Needs

On September 30, 2017, our total long-term debt of $1,852.9 million, net of our cash and cash equivalents of $22.6 million, was $1,830.3 million.  See Note 16, “Subsequent Event,” to our unaudited consolidated interim financial statements in Part 1, Item 1 of this report.    Stockholders’ equity as of that date was $791.4 million.

Our ability to generate sufficient cash to fund our operations depends generally on our results of operations and the availability of financing.  Our management believes that our cash and cash equivalents on hand, cash flow from operating activities and available borrowing capacity under our revolving credit facility will be sufficient for the foreseeable future to fund operations, meet debt service requirements, fund capital expenditures, make future acquisitions, if any, and pay our anticipated quarterly dividends on our common stock.

We expect to make capital expenditures of approximately $60.0 million in the aggregate during fiscal 2017, $42.7 million of which were made during the first three quarters.  Our projected capital expenditures for fiscal 2017 include anticipated capital expenditures of approximately $9.8 million to move equipment used in the production of certain Green Giant products from General Mills’ Belvidere, Illinois manufacturing facility to an existing B&G Foods manufacturing facility and one or more co-packers, approximately $11.0 million for the purchase of equipment for innovation products for Green Giant and approximately $12.2 million in connection with the implementation of a new enterprise resource planning (ERP) system.

Seasonality

Sales of a number of our products tend to be seasonal and may be influenced by holidays, changes in seasons or certain other annual events. In general our sales are higher during the first and fourth quarters.

We purchase most of the produce used to make our frozen and shelf-stable vegetables, shelf-stable pickles, relishes, peppers, tomatoes and other related specialty items during the months of June through October, and we generally purchase the majority of our maple syrup requirements during the months of April through August. Consequently, our liquidity needs are greatest during these periods.

Inflation

We are currently locked into pricing and supply for substantially all of our major commodities, other than maple syrup, through the remainder of fiscal 2017 at a cost increase of less than 1% of cost of goods sold and will continue to manage inflation risk by entering into short term supply contracts and advance commodities purchase agreements from time to time, and, if necessary, by raising prices. During fiscal 2016, we had a minimal cost decrease for a majority of our most significant commodities (excluding, among others, maple syrup). To the extent we are unable to avoid or offset any present or future cost increases by locking in our costs, implementing cost saving measures or increasing prices to our customers, our operating results could be materially and adversely affected. In addition, if input costs begin to decline, customers may look for price reductions in situations where we have locked into purchases at higher costs.

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Contingencies

See Note 10, “Commitments and Contingencies,” to our unaudited consolidated interim financial statements in Part I, Item 1 of this report.

Recent Accounting Pronouncements

See Note 2, “Summary of Significant Accounting Policies — Newly Adopted Accounting Standards and “—Recently Issued Accounting Standards,” to our unaudited consolidated interim financial statements in Part I, Item 1 of this report.

Off-balance Sheet Arrangements

As of September 30, 2017, we did not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K.

Commitments and Contractual Obligations

Our contractual obligations and commitments principally include obligations associated with our outstanding indebtedness, future minimum operating lease obligations and future pension obligations.  During the first three quarters of 2017, except for the refinancing of our tranche B term loans and the issuance of our 5.25% senior notes, see “—Debt” above, there were no material changes outside the ordinary course of business in the specified contractual obligations set forth in the Commitments and Contractual Obligations table in our 2016 Annual Report on Form 10-K.

Forward-Looking Statements

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

·

our substantial leverage;

·

the effects of rising costs for our raw materials, packaging and ingredients;

·

crude oil prices and their impact on distribution, packaging and energy costs;

·

our ability to successfully implement sales price increases and cost saving measures to offset any cost increases;

·

intense competition, changes in consumer preferences, demand for our products and local economic and market conditions;

·

our continued ability to promote brand equity successfully, to anticipate and respond to new consumer trends, to develop new products and markets, to broaden brand portfolios in order to compete effectively with lower priced products and in markets that are consolidating at the retail and manufacturing levels and to improve productivity;

·

the risks associated with the expansion of our business;

·

our possible inability to identify new acquisitions or to integrate recent or future acquisitions or our failure to realize anticipated revenue enhancements, cost savings or other synergies;

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·

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

·

unanticipated expenses, including, without limitation, litigation or legal settlement expenses;

·

the effects of currency movements of the Canadian dollar and the Mexican peso as compared to the U.S. dollar;

·

future impairments of our goodwill and intangible assets;

·

our ability to successfully implement a new enterprise resource planning (ERP) system;

·

our ability to protect information systems against, or effectively respond to, a cybersecurity incident or other disruption;

·

our sustainability initiatives and changes to environmental laws and regulations;

·

other factors that affect the food industry generally, including:

·

recalls if products become adulterated or misbranded, liability if product consumption causes injury, ingredient disclosure and labeling laws and regulations and the possibility that consumers could lose confidence in the safety and quality of certain food products;

·

competitors’ pricing practices and promotional spending levels;

·

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

·

the risks associated with third-party suppliers and co-packers, including the risk that any failure by one or more of our third-party suppliers or co-packers to comply with food safety or other laws and regulations may disrupt our supply of raw materials or certain finished goods products or injure our reputation; and

 

·

other factors discussed elsewhere in this report and in our other public filings with the SEC, including under Item 1A, “Risk Factors,” in our 2016 Annual Report on Form 10-K.

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

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

We caution that the foregoing list of important factors is not exclusive.  There may be other factors that may cause our actual results to differ materially from the forward-looking statements, including factors disclosed elsewhere in this section of this report.  You should evaluate all forward-looking statements made in this report in the context of these risks and uncertainties.  We urge investors not to unduly rely on forward-looking statements contained in this report.

Item 3.Quantitative and Qualitative Disclosures About Market Risk

Our principal market risks are exposure to changes in commodity prices, interest rates on borrowings and foreign currency exchange rates and market fluctuation risks related to our defined benefit pension plans.

Commodity Prices and Inflation.  The information under the heading “Inflation” in Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” is incorporated herein by reference.

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Interest Rate Risk.  In the normal course of operations, we are exposed to market risks relating to our long-term debt arising from adverse changes in interest rates.  Market risk is defined for these purposes as the potential change in the fair value of a financial asset or liability resulting from an adverse movement in interest rates.

Changes in interest rates impact our fixed and variable rate debt differently.  For fixed rate debt, a change in interest rates will only impact the fair value of the debt, whereas for variable rate debt, a change in the interest rates will impact interest expense and cash flows.  At September 30, 2017, we had $1,200.0 million of fixed rate debt and $680.1 million of variable rate debt.

Based upon our principal amount of long-term debt outstanding at September 30, 2017, a hypothetical 1.0% increase or decrease in interest rates would have affected our annual interest expense by approximately $6.8 million.

The carrying values and fair values of our revolving credit loans, term loans, 4.625% senior notes and 5.25% senior notes as of September 30, 2017 and December 31, 2016 are as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2017

 

 

December 31, 2016

 

 

    

Carrying Value

      

Fair Value

      

Carrying Value

      

Fair Value

 

Revolving credit loans

 

 

40,000

 

 

40,000

(1)  

 

176,000

 

 

176,000

(1)  

Tranche A term loans due 2019

 

 

 —

 

 

 —

 

 

233,378

(2)  

 

232,795

(1)  

Tranche B term loans due 2022

 

 

637,722

(3)  

 

641,707

(1)

 

637,391

(3)  

 

645,358

(1)

4.625% senior notes due 2021

 

 

700,000

 

 

713,125

(4)  

 

700,000

 

 

714,000

(4)  

5.25% senior notes due 2025

 

 

500,000

 

 

509,375

(4)  

 

 —

 

 

 —

 


(1)

Fair values are estimated based on Level 2 inputs, which were quoted prices for identical or similar instruments in markets that are not active.

(2)

The carrying values of the tranche A term loans are net of discount.  On April 3, 2017, we repaid all of the outstanding borrowings and amounts due under our tranche A term loans.  At December 31, 2016, the face amounts of the tranche A term loans were $233.6 million.

(3)

The carrying values of the tranche B term loans are net of discount.  At September 30, 2017 and December 31, 2016, the face amounts of the tranche B term loans were $640.1 million.

(4)

Fair values are estimated based on quoted market prices.

Cash and cash equivalents, trade accounts receivable, income tax receivable/payable, trade accounts payable, accrued expenses and dividends payable are reflected on our consolidated balance sheets at carrying value, which approximates fair value due to the short-term nature of these instruments.

For more information, see Note 6, “Long-Term Debt,” to our unaudited consolidated interim financial statements in Part I, Item 1 of this report.

Foreign Currency Risk.  Our foreign sales are primarily to customers in Canada.  Our sales to Canada are generally denominated in Canadian dollars and our sales for export to other countries are generally denominated in U.S. dollars.  During the first three quarters of 2017, our net sales to customers in foreign countries represented approximately 6.4% of our total net sales.  During the first three quarters of 2016, our net sales to customers in foreign countries represented approximately 8.4% of our total net sales.  We also purchase certain raw materials from foreign suppliers.  For example, we purchase a significant majority of our maple syrup requirements from suppliers in Québec, Canada.  These purchases are made in Canadian dollars.  A weakening of the U.S. dollar in relation to the Canadian dollar would significantly increase our future costs relating to the production of our maple syrup products to the extent we have not purchased Canadian dollars or otherwise entered into a currency hedging arrangement in advance of any such weakening of the U.S. dollar.  Our purchases of raw materials from other foreign suppliers are generally denominated in U.S. dollars, but certain purchases of raw materials in Mexico are denominated in Mexican pesos.

As a result, certain revenues and expenses have been, and are expected to be, subject to the effect of foreign currency fluctuations, and these fluctuations may have an adverse impact on operating results.

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Market Fluctuation Risks Relating to our Defined Benefit Pension Plans.  See Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies; Use of Estimates” and Note 9, “Pension Benefits,” to our unaudited consolidated interim financial statements in Part I, Item 1 of this report for a discussion of the exposure of our defined benefit pension plan assets to risks related to market fluctuations.

Item 4.Controls and Procedures

Evaluation of Disclosure Controls and Procedures.  As required by Rule 13a-15(b) under the Securities Exchange Act of 1934, as amended, our management, including our chief executive officer and our chief financial officer, conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report.  As defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, disclosure controls and procedures are controls and other procedures that we use that are designed to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms.  Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our chief executive officer and our chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.

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

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

We transitioned our recently acquired spices & seasonings business to a new enterprise resource planning (ERP) system during the third quarter of 2017. We plan to continue implementing the ERP system throughout the remainder of our businesses over the course of approximately the next two years. In connection with these implementations and resulting business process changes, we continue to review and enhance the design and documentation of our internal control over financial reporting processes to maintain effective controls over our financial reporting.

Inherent Limitations on Effectiveness of Controls.  Our company’s management, including the chief executive officer and chief financial officer, does not expect that our disclosure controls or our internal control over financial reporting will prevent or detect all errors and all fraud.  A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met.  The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs.  Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud 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 in decision-making can be faulty and that breakdowns can occur because of simple error or mistake.  Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls.  The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.  Projections of any evaluation of controls effectiveness to future periods are subject to risks.  Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.

 

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PART II

OTHER INFORMATION

Item 1.Legal Proceedings

The information set forth under the heading “Legal Proceedings” in Note 10 to our unaudited consolidated financial statements in Part I, Item 1 of this quarterly report on Form 10-Q is incorporated herein by reference.

Item 1A. Risk Factors

We do not believe there have been any material changes in our risk factors as previously disclosed in our 2016 Annual Report on Form 10-K.

Item 2.Unregistered Sales of Equity Securities and Use of Proceeds

Not applicable.

Item 3.Defaults Upon Senior Securities

Not applicable.

Item 4.Mine Safety Disclosures

Not applicable.

Item 5.Other Information

Not applicable.

Item 6.Exhibits

 

 

 

 

EXHIBIT
NO.

   

DESCRIPTION

10.1

 

Employment Agreement, dated as of August 1, 2017, between Bruce C. Wacha and B&G Foods, Inc.

 

 

 

12.1

 

Computation of Ratio of Earnings to Fixed Charges.

 

 

 

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.

 

 

 

101.1

 

The following unaudited financial information from B&G Foods’ Quarterly Report on Form 10-Q for the quarter ended September 30, 2017, formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations, (iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statements of Cash Flows, (v) Notes to Consolidated Financial Statements, and (vi) document and entity information.

 

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

 

Dated: November 3, 2017

B&G FOODS, INC.

 

 

 

 

 

By:

/s/ Amy J. Chiovari

 

 

Amy J. Chiovari

Corporate Controller and Interim Chief Financial Officer (Principal Financial and Accounting Officer and Authorized Officer)

 

 

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