10-Q 1 bgs-20160402x10q.htm 10-Q bgs_Current folio_10Q

As filed with the Securities and Exchange Commission on May 5, 2016

 

 

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 April 2, 2016

 

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 or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting 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)

 

 

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 May 5, 2016, the registrant had 62,640,242 shares of common stock, par value $0.01 per share, issued and outstanding.

 

 

 

 


 

B&G Foods, Inc. and Subsidiaries

Index

 

 

 

 

 

 

 

 

Page No.

 

 

 

 

PART I FINANCIAL INFORMATION 

1

 

 

 

 

 

Item 1. Financial Statements (Unaudited)

1

 

Consolidated Balance Sheets

1

 

Consolidated Statements of Operations

2

 

Consolidated Statements of Comprehensive Income

3

 

Consolidated Statements of Cash Flows

4

 

Notes to Consolidated Financial Statements

5

 

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

24

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

35

 

Item 4. Controls and Procedures

36

 

 

 

 

PART II OTHER INFORMATION

37

 

 

 

 

Item 1. Legal Proceedings

37

 

Item 1A. Risk Factors

37

 

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

37

 

Item 3. Defaults Upon Senior Securities

37

 

Item 4. Mine Safety Disclosures

37

 

Item 5. Other Information

37

 

Item 6. Exhibits

37

 

 

 

SIGNATURE 

38

 

 

 

 

-  i  -


 

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)

 

 

 

 

 

 

 

 

 

    

April 2, 2016

    

January 2, 2016

 

Assets

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

65,180

 

$

5,246

 

Trade accounts receivable, net

 

 

72,584

 

 

69,712

 

Inventories

 

 

260,517

 

 

312,880

 

Prepaid expenses and other current assets

 

 

58,488

 

 

67,517

 

Income tax receivable

 

 

 —

 

 

2,514

 

Deferred income taxes

 

 

5,224

 

 

5,292

 

Total current assets

 

 

461,993

 

 

463,161

 

 

 

 

 

 

 

 

 

Property, plant and equipment, net of accumulated depreciation of $152,067 and $146,337

 

 

162,629

 

 

163,642

 

Goodwill

 

 

473,145

 

 

473,145

 

Other intangibles, net

 

 

1,438,932

 

 

1,442,340

 

Other assets

 

 

1,895

 

 

1,332

 

Total assets

 

$

2,538,594

 

$

2,543,620

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Trade accounts payable

 

$

41,772

 

$

49,593

 

Accrued expenses

 

 

39,133

 

 

31,233

 

Current portion of long-term debt

 

 

 —

 

 

33,750

 

Income tax payable

 

 

4,412

 

 

 —

 

Dividends payable

 

 

26,309

 

 

20,292

 

Total current liabilities

 

 

111,626

 

 

134,868

 

 

 

 

 

 

 

 

 

Long-term debt

 

 

1,545,825

 

 

1,697,771

 

Other liabilities

 

 

2,346

 

 

3,212

 

Deferred income taxes

 

 

259,927

 

 

250,084

 

Total liabilities

 

 

1,919,724

 

 

2,085,935

 

Commitments and contingencies (Note 11)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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; 62,640,242 and 57,976,744 shares issued and outstanding as of April 2, 2016 and January 2, 2016

 

 

626

 

 

580

 

Additional paid-in capital

 

 

288,269

 

 

162,568

 

Accumulated other comprehensive loss

 

 

(10,454)

 

 

(12,696)

 

Retained earnings

 

 

340,429

 

 

307,233

 

Total stockholders’ equity

 

 

618,870

 

 

457,685

 

Total liabilities and stockholders’ equity

 

$

2,538,594

 

$

2,543,620

 

 

See Notes to Consolidated Financial Statements.

 

 

-  1  -


 

B&G Foods, Inc. and Subsidiaries

Consolidated Statements of Operations

(In thousands, except per share data)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

Thirteen Weeks Ended

 

 

    

April 2,

    

April 4,

    

 

    

2016

    

2015

 

Net sales

 

$

352,978

 

$

217,122

 

Cost of goods sold

 

 

237,063

 

 

149,725

 

Gross profit

 

 

115,915

 

 

67,397

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

Selling, general and administrative expenses

 

 

39,638

 

 

22,848

 

Amortization expense

 

 

3,408

 

 

2,673

 

Operating income

 

 

72,869

 

 

41,876

 

 

 

 

 

 

 

 

 

Other income and expenses:

 

 

 

 

 

 

 

Interest expense, net

 

 

19,135

 

 

11,539

 

Loss on extinguishment of debt

 

 

2,836

 

 

 —

 

Other income

 

 

(1,929)

 

 

 —

 

Income before income tax expense

 

 

52,827

 

 

30,337

 

Income tax expense

 

 

19,631

 

 

10,770

 

Net income

 

$

33,196

 

$

19,567

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding:

 

 

 

 

 

 

 

Basic

 

 

599,001

 

 

53,759

 

Diluted

 

 

59,103

 

 

53,800

 

 

 

 

 

 

 

 

 

Basic and diluted earnings per share

 

$

0.56

 

$

0.36

 

 

 

 

 

 

 

 

 

Cash dividends declared per share

 

$

0.42

 

$

0.34

 

 

 

See Notes to Consolidated Financial Statements.

-  2  -


 

B&G Foods, Inc. and Subsidiaries

Consolidated Statements of Comprehensive Income

(In thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

Thirteen Weeks Ended

 

 

    

April 2,

    

April 4,

    

 

    

2016

    

2015

 

Net income

 

$

33,196

 

$

19,567

 

 

 

 

 

 

 

 

 

Other comprehensive income:

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

2,153

 

 

(104)

 

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

 

 

89

 

 

119

 

Other comprehensive income

 

 

2,242

 

 

15

 

Comprehensive income

 

$

35,438

 

$

19,582

 

 

 

See Notes to Consolidated Financial Statements.

 

 

 

-  3  -


 

B&G Foods, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

Thirteen Weeks Ended

 

 

    

April 2,

    

April 4,

    

 

    

2016

    

2015

 

Cash flows from operating activities:

 

 

 

 

 

 

 

Net income

 

$

33,196

 

$

19,567

 

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

 

 

 

 

 

 

 

Depreciation and amortization

 

 

9,004

 

 

6,544

 

Amortization of deferred debt financing costs and bond discount

 

 

1,468

 

 

879

 

Deferred income taxes

 

 

9,854

 

 

4,619

 

Loss on extinguishment of debt

 

 

2,836

 

 

 —

 

Share-based compensation expense

 

 

1,098

 

 

1,183

 

Excess tax benefits from share-based compensation

 

 

(343)

 

 

(518)

 

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

 

 

 

 

 

 

 

Trade accounts receivable

 

 

(2,606)

 

 

139

 

Inventories

 

 

53,807

 

 

(535)

 

Prepaid expenses and other current assets

 

 

9,410

 

 

2,001

 

Income tax receivable/payable

 

 

7,486

 

 

9,815

 

Other assets

 

 

(420)

 

 

(3)

 

Trade accounts payable

 

 

(7,740)

 

 

(11,774)

 

Accrued expenses

 

 

7,665

 

 

7,842

 

Other liabilities

 

 

(866)

 

 

(1,078)

 

Net cash provided by operating activities

 

 

123,849

 

 

38,681

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

Capital expenditures

 

 

(5,120)

 

 

(3,206)

 

Net cash used in investing activities

 

 

(5,120)

 

 

(3,206)

 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

Repayments of long-term debt

 

 

(150,000)

 

 

(3,750)

 

Repayments of borrowings under revolving credit facility

 

 

(50,000)

 

 

 —

 

Borrowings under revolving credit facility

 

 

10,000

 

 

10,000

 

Proceeds from issuance of common stock, net

 

 

152,025

 

 

 —

 

Dividends paid

 

 

(20,292)

 

 

(18,246)

 

Excess tax benefits from share-based compensation

 

 

343

 

 

518

 

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

 

 

(1,410)

 

 

(1,750)

 

Net cash used in financing activities

 

 

(59,334)

 

 

(13,228)

 

 

 

 

 

 

 

 

 

Effect of exchange rate fluctuations on cash and cash equivalents

 

 

539

 

 

(67)

 

Net increase in cash and cash equivalents

 

 

59,934

 

 

22,180

 

 

 

 

 

 

 

 

 

Cash and cash equivalents at beginning of period

 

 

5,246

 

 

1,490

 

Cash and cash equivalents at end of period

 

$

65,180

 

$

23,670

 

 

 

 

 

 

 

 

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

 

 

Cash interest payments

 

$

10,260

 

$

2,561

 

Cash income tax payments (refunds)

 

$

2,559

 

$

(3,648)

 

Non-cash transactions:

 

 

 

 

 

 

 

Dividends declared and not yet paid

 

$

26,309

 

$

18,278

 

Accruals related to purchases of property, plant and equipment

 

$

1,376

 

$

 —

 

 

See Notes to Consolidated Financial Statements.

 

 

-  4  -


 

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,  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,  Rickland Orchards,  Sa-són,  Sclafani,  Smart Puffs,  Spring Tree,  Sugar Twin,  Trappey’s,  TrueNorth,  Underwood,  Vermont Maid and Wright’s.  We also sell and distribute Static Guard, a household product brand. We compete in the retail grocery, food service, 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, food service 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 31, 2016 (fiscal 2016) and our fiscal year ended January 2, 2016 (fiscal 2015) each contain 52 weeks.  Each quarter of fiscal 2016 and 2015 contains 13 weeks.

Basis of Presentation 

The accompanying unaudited consolidated interim financial statements for the thirteen week periods ended April 2, 2016 (first quarter of 2016) and April 4, 2015 (first quarter of 2015) 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 (consisting only of normal and recurring adjustments) that are, in the opinion of management, necessary to present fairly our consolidated financial position as of April 2, 2016, and the results of our operations, comprehensive income and cash flows for the first quarter of each of 2016 and 2015.  Our results of operations for the first quarter of 2016 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

-  5  -


 

Table of Contents

B&G Foods, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

 

(2)Summary of Significant Accounting Policies (Continued)

included in our Annual Report on Form 10-K for fiscal 2015 filed with the SEC on March 2, 2016.  Certain prior year amounts have been reclassified to conform to the current year presentation.

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 April 2015, the Financial Accounting Standards Board (FASB) issued a new accounting standards update (ASU) that requires debt issuance costs related to a recognized debt liability to be presented on the balance sheet as a direct deduction from the debt liability, similar to the presentation of debt discounts.  The update is effective for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. We adopted the provisions of this ASU at the beginning of fiscal 2016 and applied the required changes in accounting principle on a restrospective basis. Accordingly, in our consolidated balance sheet as of January 2, 2016, $28.1 million of unamortized deferring financing costs were reclassified from other assets to long-term debt. The update impacted presentation and disclosure only, and therefore, the adoption of this ASU did not have any impact on our consolidated financial position, results of operations or liquidity.

Recently Issued Accounting Standards 

In March 2016, the FASB issued a new ASU that provides for the simplification of several aspects of the accounting for share-based payment awards, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The update is effective for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. We are currently evaluating the impact of this new standard.

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 for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. We are currently evaluating the impact of this new standard. 

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 update is effective for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. The update impacts balance sheet presentation and disclosure only, and

-  6  -


 

Table of Contents

B&G Foods, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

 

(2)Summary of Significant Accounting Policies (Continued)

therefore, the adoption of this ASU will not have any impact on our consolidated financial position, results of operations or liquidity.

 

(3)Acquisitions

On November 2, 2015, we completed the acquisition of the Green Giant and Le Sueur brands from General Mills, Inc. for a purchase price of $765 million in cash plus an inventory adjustment at closing of $57.8 million. We refer to this acquisition as the “Green Giant acquisition.”  In connection with the acquisition, as of April 2, 2016 and January 2, 2016, we had receivables related to an ongoing transition services agreement with General Mills, of $46.2 million and $52.6 million, respectively, included in prepaid expenses and other current assets in the accompanying consolidated balance sheets.

On July 10, 2015, we acquired Spartan Foods of America, Inc., and related entities, including the Mama Mary’s brand, from Linsalata Capital Partners and certain other sellers for a purchase price of $51.0 million in cash. We refer to this acquisition as the “Mama Mary’s acquisition.”

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. Seed technology assets acquired in the Green Giant acquisition are amortized over a period of 5 years. Goodwill and other intangible assets, except in the case of the Mama Mary’s 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 Green Giant 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 the liabilities assumed.  We anticipate completing the purchase price allocation before or during the fourth quarter of fiscal 2016.

 

 

 

 

 

Green Giant Acquisition (dollars in thousands):

    

 

 

 

 

 

 

 

 

Purchase Price:

 

 

 

 

Cash paid

 

$

822,786

 

Total

 

$

822,786

 

 

 

 

 

 

Preliminary Allocation:

 

 

 

 

Trademarks—unamortizable intangible assets

 

 

422,000

 

Inventory

 

 

239,693

 

Goodwill

 

 

84,221

 

Customer relationship intangibles—amortizable intangible assets

 

 

38,000

 

Property, Plant and Equipment

 

 

44,244

 

Seed technology intangibles—amortizable intangible assets

 

 

2,000

 

Other working capital

 

 

(7,372)

 

Total

 

$

822,786

 

-  7  -


 

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 Mama Mary’s 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 the liabilities assumed.  We anticipate completing the purchase price allocation during the second quarter of 2016.

 

 

 

 

 

Mama Mary’s Acquisition (dollars in thousands):

    

 

 

 

 

 

 

 

 

Purchase Price:

 

 

 

 

Cash paid

    

$

51,025

 

Total

 

$

51,025

 

 

 

 

 

 

Preliminary Allocation:

 

 

 

 

Trademarks—unamortizable intangible assets

 

 

38,900

 

Goodwill

 

 

18,335

 

Customer relationship intangibles—amortizable intangible assets

 

 

4,800

 

Property, Plant and Equipment

 

 

1,900

 

Short-term deferred income tax assets

 

 

2,961

 

Other working capital

 

 

(619)

 

Long-term deferred income tax liabilities, net

 

 

(15,252)

 

Total

 

$

51,025

 

 

Unaudited Pro Forma Summary of Operations

The following pro forma summary of operations for the first quarter of 2015 presents our operations as if the Green Giant acquisition had occurred as of the beginning of fiscal 2015.  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 and seed technology intangibles.

 

 

 

 

 

 

 

Thirteen

 

 

 

Weeks Ended

 

 

    

April 4, 2015

 

 

 

(dollars in thousands,

 

 

 

except per share data)

 

Net sales

 

$

358,509

 

Net income

 

 

25,134

 

Basic and diluted earnings per share

 

$

0.47

 

The pro forma information presented above does not purport to be indicative of the results that actually would have been attained had the Green Giant acquisition occurred as of the beginning of fiscal 2015, and is not intended to be a projection of future results.

The Mama Mary’s 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.

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Table of Contents

B&G Foods, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

 

(4)Inventories (Continued)

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

 

 

 

 

 

 

 

 

 

    

April 2, 2016

    

January 2, 2016

 

Raw materials and packaging

 

$

33,063

 

$

32,143

 

Work-in-process

 

 

90,465

 

 

123,817

 

Finished goods

 

 

136,989

 

 

156,920

 

Total

 

$

260,517

 

$

312,880

 

 

(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):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of April 2, 2016

 

As of January 2, 2016

 

 

    

Gross Carrying

    

Accumulated

    

Net Carrying

    

Gross Carrying

    

Accumulated

    

Net Carrying

 

 

    

Amount

    

Amortization

    

Amount

    

Amount

    

Amortization

    

Amount

 

Amortizable Intangible Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trademarks

 

$

12,056

 

$

2,039

 

$

10,017

 

$

12,056

 

$

1,806

 

$

10,250

 

Customer relationships

 

 

235,713

 

 

71,566

 

 

164,147

 

 

235,713

 

 

68,591

 

 

167,122

 

Seed technology

 

 

2,000

 

 

333

 

 

1,667

 

 

2,000

 

 

133

 

 

1,867

 

 

 

$

249,769

 

$

73,938

 

$

175,831

 

$

249,769

 

$

70,530

 

$

179,239

 

Unamortizable Intangible Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Goodwill

 

$

473,145

 

 

 

 

 

 

 

$

473,145

 

 

 

 

 

 

 

Trademarks

 

$

1,263,101

 

 

 

 

 

 

 

$

1,263,101

 

 

 

 

 

 

 

 

Amortization expense associated with amortizable intangible assets for the first quarter of 2016 and first quarter of 2015 was  $3.4 million and $2.7 million, respectively, and is recorded in operating expenses. We expect to recognize an additional $10.2 million of amortization expense associated with our amortizable intangible assets during the remainder of fiscal 2016, and thereafter $13.4 million, $13.1 million, $13.0 million and $12.9 million of amortization expense in fiscal years 2017, 2018, 2019 and 2020, respectively.

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):

 

 

 

 

 

 

 

 

 

    

April 2, 2016

    

January 2, 2016

 

Revolving credit facility

 

$

 —

 

$

40,000

 

Tranche A term loans due 2019

 

 

233,640

 

 

273,750

 

Tranche B term loans due 2022

 

 

640,110

 

 

750,000

 

4.625% senior notes due 2021

 

 

700,000

 

 

700,000

 

Unamortized deferred financing costs

 

 

(24,538)

 

 

(28,095)

 

Unamortized discount

 

 

(3,387)

 

 

(4,134)

 

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

 

 

1,545,825

 

 

1,731,521

 

Current portion of long-term debt

 

 

 —

 

 

(33,750)

 

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

 

$

1,545,825

 

$

1,697,771

 

 

As of April 2, 2016, the aggregate contractual maturities of long-term debt are as follows (in thousands):

 

 

 

 

 

Years ending December:

 

 

 

 

2016

    

$

 —

 

2017

 

 

10,515

 

2018

 

 

76,875

 

2019

 

 

146,250

 

2020

 

 

 —

 

Thereafter

 

 

1,340,110

 

Total

 

$

1,573,750

 

 

Senior Secured Credit Agreement.  During the first quarter of 2016, we made an optional prepayment 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 using the proceeds of a common stock offering.  See Note 8, “Stockholders’ Equity.”

At April 2, 2016, $233.6 million of tranche A term loans and $640.1 million of tranche B term loans were outstanding under our credit agreement.  There were no revolving loans outstanding under the credit agreement at April 2, 2016.

At April 2, 2016, the available borrowing capacity under our revolving credit facility, net of outstanding letters of credit of $2.0 million, was $498.0 million. 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 tranche A term loans are subject to principal amortization. $10.5 million is due and payable in fiscal 2017 and $76.9 million is due and payable in fiscal 2018.  The balance of all borrowings under the tranche A term loan facility, or $146.2 million, is due and payable at maturity 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, and under the tranche A 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 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 April 2, 2016, the tranche A term loan interest rate was approximately 2.43%.  There were no outstanding borrowings under the revolving credit facility at April 2, 2016.

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 2.00%, and LIBOR plus an applicable margin of 3.00%. At April 2, 2016, the tranche B term loan interest rate was approximately 3.75%.

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 6.75 to 1.00 for the first quarter of 2016 through the fourth quarter of 2016; and 6.50 to 1.00 for the first quarter of 2017 and thereafter.  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 April 2, 2016, 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.  On or after June 1, 2016, 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.  We may redeem up to 35% of the aggregate principal amount of the 4.625% senior notes prior to June 1, 2016 with the net proceeds from certain equity offerings at a redemption price of 104.625% plus accrued and unpaid interest to the date of redemption.  We may also redeem some or all of the 4.625% senior notes at any time prior to June 1, 2016 at a redemption price equal to the make-whole amount set forth in the indenture governing the 4.625% senior notes.  In addition, if we undergo a change of control or upon certain asset sales, we may be required to offer to

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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)

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.

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 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 April 2, 2016, we were in compliance with all of the covenants in the indenture governing the 4.625% senior notes.

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 16, “Guarantor and Non-Guarantor Financial Information.”

Accrued Interest.  At April 2, 2016 and January 2, 2016, accrued interest of $13.1 million and $5.7 million, respectively, is included in accrued expenses in the accompanying unaudited consolidated balance sheets.

Loss on Extinguishment of Debt.  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.

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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)

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.

The carrying values and fair values of our revolving credit loans, term loans and senior notes as of April 2, 2016 and January 2, 2016 are as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

April 2, 2016

 

 

January 2, 2016

 

 

    

Carrying Value

      

Fair Value

      

Carrying Value

      

Fair Value

 

Revolving Credit Loans

 

 

 —

 

 

 —

 

 

40,000

 

 

40,000

(1)  

Tranche A Term Loans due 2019

 

 

233,279

(2)  

 

232,113

(1)  

 

273,285

(2)  

 

272,381

(1)  

Tranche B Term Loans due 2022

 

 

637,084

(3)  

 

637,880

(1)

 

746,331

(3)  

 

749,063

(1)  

4.625% Senior Notes due 2021

 

 

700,000

 

 

700,000

(4)  

 

700,000

 

 

691,250

(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.  At April 2, 2016 and January 2, 2016, the face amounts of the tranche A term loans were $233.6 million and $273.8 million, respectively.

(3)

The carrying values of the tranche B term loans are net of discount.  At April 2, 2016 and January 2, 2016, the face amounts of the tranche B term loans were $640.1 million and $750.0 million, respectively.

(4)

Fair values are estimated based on quoted market prices.

There was no Level 3 activity during the first quarter of 2016 or 2015.

 

 

 

(8)Stockholders’ Equity

Common Stock Offering.  On March 15, 2016, we completed an underwritten public offering of 4,600,000 shares of our common stock at a price to the public of $33.55 per share. The proceeds of the offering were $152.0 million, after deducting underwriting discounts and commissions and other offering expenses. The offering was made by means of a prospectus and related prospectus supplement included as part of an effective shelf registration statement previously filed with the SEC. We used the net proceeds of the offering to repay a portion of our long-term debt. See Note 6, “Long-Term Debt.”

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Table of Contents

B&G Foods, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

 

(9)Accumulated Other Comprehensive Loss

The reclassification from accumulated other comprehensive loss (AOCL) as of April 2, 2016 and April 4, 2015 are as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Thirteen Weeks Ended

 

Affected Line Item in the

 

 

    

April 2,

    

April 4,

 

Statement Where Net Income

    

Details about AOCL Components

    

2016

    

2015

    

is Presented

 

Defined benefit pension plan items

 

 

 

 

 

 

 

 

 

Amortization of prior service cost

 

$

11

 

$

11

 

See (1) below

 

Amortization of unrecognized loss

 

 

132

 

 

176

 

See (1) below

 

 

 

 

143

 

 

187

 

Total before tax

 

 

 

 

(54)

 

 

(68)

 

Income tax expense

 

Total reclassification

 

$

89

 

$

119

 

Net of tax

 


(1)

These items are included in the computation of net periodic pension cost.  See Note 10, “Pension Benefits” for additional information.

Changes in accumulated other comprehensive loss as of April 2, 2016 is as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign Currency

 

 

 

 

 

 

Defined Benefit

 

Translation

 

 

 

 

 

    

Pension Plan Items

    

Adjustments

    

Total

 

Beginning balance

 

$

(8,712)

 

$

(3,984)

 

$

(12,696)

 

Other comprehensive income before reclassifications

 

 

 —

 

 

2,153

 

 

2,153

 

Amounts reclassified from AOCL

 

 

89

 

 

 —

 

 

89

 

Net current period other comprehensive income

 

 

89

 

 

2,153

 

 

2,242

 

Ending balance

 

$

(8,623)

 

$

(1,831)

 

$

(10,454)

 

 

 

(10)Pension Benefits

Company Sponsored Defined Benefit Pension Plans.  Net periodic pension costs for company sponsored defined benefit pension plans for the first quarter of 2016 and 2015 include the following components (in thousands):

 

 

 

 

 

 

 

 

 

 

Thirteen Weeks Ended

 

 

 

April 2,

 

April 4,

 

 

    

2016

    

2015

    

Service cost—benefits earned during the period

 

$

873

 

$

1,001

 

Interest cost on projected benefit obligation

 

 

692

 

 

640

 

Expected return on plan assets

 

 

(1,096)

 

 

(1,042)

 

Amortization of unrecognized prior service cost

 

 

11

 

 

11

 

Amortization of unrecognized loss

 

 

132

 

 

176

 

Net periodic pension cost

 

$

612

 

$

786

 

 

During the first quarter of 2016, we made $1.8 million of defined benefit pension plan contributions. We plan to make approximately $1.7 million of additional contributions during the remainder of fiscal 2016.

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.

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Table of Contents

B&G Foods, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

 

(10)Pension Benefits (Continued)

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% per year.

B&G Foods made contributions to the plan of $0.2 million in the first quarter of 2016 and expects to pay surcharges of less than $0.1 million in fiscal 2016 assuming consistent hours are worked.  B&G Foods contributed $0.8 million in fiscal 2015 and paid less than $0.1 million in surcharges. These contributions represented less than five percent of total contributions made to the plan.

(11)Commitments and Contingencies

Operating LeasesAs of April 2, 2016, future minimum lease payments under non-cancelable operating leases in effect at quarter-end (with initial lease terms in excess of one year) for the periods set forth below were as follows (in thousands):

 

 

 

 

 

Fiscal year ending:

    

 

 

 

2016

 

$

6,169

 

2017

 

 

5,580

 

2018

 

 

5,384

 

2019

 

 

5,276

 

2020

 

 

4,285

 

Thereafter

 

 

3,687

 

Total

 

$

30,381

 

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.

B&G Foods has been named as a defendant in a putative class action lawsuit filed by The Weston Firm on behalf of Troy Walker in August 2015 in the United States District Court for the Northern District of California.  The lawsuit alleges that our company has violated California’s Consumer Legal Remedies Act and Unfair Competition Law, with respect to the advertising, marketing and labeling of certain Ortega taco shells.  Specifically, the plaintiff alleges, among other things, that the products are deceptively marketed because the products are labeled “0g trans fat” on the front of the package and contain partially hydrogenated oil.  The complaint seeks monetary damages, injunctive relief and attorneys’ fees.  We have been vigorously defending this lawsuit and believe that the plaintiff’s claims are without merit and that the products are and have at all times been properly labeled in compliance with applicable law.  We also believe the claims are moot because, among other things, we began transitioning away from partially hydrogenated oil in these products before first being contacted by The Weston Firm and we no longer use partially hydrogenated oil in these products.  On February 8, 2016, the court ruled on our motion to dismiss, dismissing all of the plaintiff’s labeling claims and agreeing with our position that any claim for removal of partially hydrogenated oil would be moot after B&G Foods has done so.  Under the court’s ruling, the plaintiff’s only surviving claims relate to his alleged use of these

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Table of Contents

B&G Foods, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

 

(11)Commitments and Contingencies (Continued)

products.  These claims have been stayed, however, pending further guidance from the FDA, which has already stated that companies may continue to use partially hydrogenated oil through at least 2018.  The plaintiff has filed an appeal to the Ninth Circuit.  Based upon information currently available, we do not believe the ultimate resolution of this matter will have a material adverse effect on B&G Foods’ 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 quarter of 2016 or 2015 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 April 2, 2016, approximately 1,192 of our 1,981 employees, or 60%, were covered by collective bargaining agreements. During the first quarter of 2016, we reached an agreement in principal with the Drivers, Salesmen, Warehousemen, Milk Processors, Cannery, Dairy Employees and Helpers Union, Local No. 695, to extend for an additional five-year period ending March 27, 2021, a collective bargaining agreement that covers approximately 181 employees at our Stoughton, Wisconsin manufacturing facility.  The new agreement has been ratified by the union employees at the facility. None of our collective bargaining agreements are scheduled to expire within one year.

Severance and Change of Control Agreements.  We have employment agreements with each of our seven executive officers. 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.

Ortega and Las Palmas Recall.  On November 14, 2014, we announced a voluntary recall for certain Ortega and Las Palmas products after learning that one or more of the spice ingredients purchased from a third party supplier contained peanuts and almonds, allergens that are not declared on the products’ ingredient statements.  A significant majority of the costs of this recall were incurred in the fourth quarter of 2014.  The cost impact of this recall during the first quarter of 2015 was $1.5 million, of which $0.8 million was recorded as a decrease in net sales related to customer refunds; $0.5 million was recorded as an increase in cost of goods sold primarily related to costs associated with product retrieval, destruction charges and customer fees; and $0.2 million was recorded as an increase in selling, general, and administrative expenses related to administrative costs.  The charges we recorded are based upon costs incurred to date. There was no material cost impact of this recall during the first quarter of 2016, and we do not expect future expenses, if any, to be material.

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Table of Contents

B&G Foods, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

 

(12)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 first quarter of 2016 there were 38,729 and for the first quarter of 2015 there were 429,892 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

 

 

    

April 2,

    

April 4,

    

 

    

2016

    

2015

 

Weighted average shares outstanding:

 

 

 

 

 

 

 

Basic

 

 

59,000,682

 

 

53,758,649

 

Net effect of potentially dilutive share-based compensation awards

 

 

102,667

 

 

40,860

 

Diluted

 

 

59,103,349

 

 

53,799,509

 

 

 

(13)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 56.8% and 52.6% of consolidated net sales for the first quarter of 2016 and 2015, respectively.  Our top ten customers accounted for approximately 47.9% and 53.5% of our consolidated trade accounts receivables as of April 2, 2016 and January 2, 2016, respectively. Other than Wal-Mart, which accounted for 25.2% and 20.1% of our consolidated net sales for the first quarter of 2016 and 2015, respectively, no single customer accounted for more than 10.0% of our consolidated net sales for the first quarter of 2016 or 2015. Other than Wal-Mart, which accounted for 17.4% and 19.3% of our consolidated trade accounts receivables as of April 2, 2016 and January 2, 2016, respectively, no single customer accounted for more than 10.0% of our consolidated trade accounts receivables.  As of April 2, 2016, 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 quarter of 2016 and 2015, our sales to customers in foreign countries represented approximately 9.0% and 3.3%, respectively, of net sales.  Our foreign sales are primarily to customers in Canada.

(14)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.

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Table of Contents

B&G Foods, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

 

(14)Share-Based Payments (Continued)

The following table details our stock option activity for the first quarter of fiscal 2016:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

 

 

 

 

 

Weighted

 

Weighted Average

 

Aggregate

 

 

 

 

 

Average

 

Contractual Life

 

Intrinsic 

 

 

    

Options

    

Exercise Price

    

Remaining (Years)

    

Value

 

Outstanding at beginning of fiscal 2016

 

501,698

 

$

30.20

 

 

 

 

 

 

Granted

 

195,799

 

$

34.00

 

 

 

 

 

 

Exercised

 

 —

 

 

 —

 

 

 

 

 

 

Forfeited

 

 —

 

 

 —

 

 

 

 

 

 

Outstanding at end of first quarter of 2016

 

697,497

 

$

31.27

 

9.1

 

$

2,511.7

 

Exercisable at end of first quarter of 2016

 

 —

 

 

 —

 

 —

 

 

 —

 

 

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 was based on the U.S. Treasury yield curve in effect at the time of the grant, which corresponds to the expected term of the options.

 

 

 

 

 

 

 

 

 

    

2016

    

2015

 

 

 

 

 

 

 

 

 

Weighted average grant date fair value

    

$

5.03

    

$

6.00

 

Expected volatility

 

 

27.7%

 

 

36.0%

 

Expected term

 

 

6.5 years

 

 

6.5 years

 

Risk-free interest rate

 

 

1.7%

 

 

1.6% - 1.9%

 

Dividend yield

 

 

4.9%

 

 

4.7% - 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 first quarter of 2016 and 2015 and where that expense is reflected in our consolidated statements of operations (in thousands):

 

 

 

 

 

 

 

 

 

 

Thirteen Weeks Ended

 

 

 

April 2,

 

April 4,

 

Consolidated Statements of Operations Location

    

2016

    

2015

 

Compensation expense included in cost of goods sold

 

$

231

 

$

260

 

Compensation expense included in selling, general and administrative expenses

 

 

867

 

 

923

 

Total compensation expense for share-based payments

 

$

1,098

 

$

1,183

 

As of April 2, 2016, there was $5.1 million of unrecognized compensation expense related to performance share LTIAs, which is expected to be recognized over the next 2.75 years and $2.6 million of unrecognized compensation expense related to stock options, which is expected to be recognized over the next three years.

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Table of Contents

B&G Foods, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

 

(14)Share-Based Payments (Continued)

The following table details the activity in our non-vested performance share LTIAs for the first quarter of 2016:

 

 

 

 

 

 

 

 

    

 

    

Weighted Average

 

 

 

Number of

 

Grant Date Fair

 

 

    

Performance Shares (1)

      

Value (per share)(2)

 

Beginning of fiscal 2016

 

368,274

 

$

26.16

 

Granted

 

173,646

 

$

29.04

 

Vested

 

(101,094)

 

$

28.24

 

Forfeited

 

 —

 

$

 —

 

End of first quarter of 2016

 

440,826

 

$

26.82

 

 


(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 quarter of 2016 and 2015 upon the vesting of performance share long-term incentive awards and other share based compensation (dollars in thousands):

 

 

 

 

 

 

 

 

 

 

Thirteen Weeks Ended

 

 

    

April 2,

    

April 4,

 

 

    

2016

    

2015

 

Number of performance shares vested

 

 

101,094

 

 

153,195

 

Shares withheld to fund statutory minimum tax withholding

 

 

37,596

 

 

58,243

 

Total shares of common stock issued

 

 

63,498

 

 

94,952

 

Excess tax benefit recorded to additional paid in capital

 

$

343

 

$

518

 

 

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Table of Contents

B&G Foods, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

 

(15)Net Sales by Brand

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

 

 

 

 

 

 

 

 

 

Thirteen Weeks Ended

 

 

April 2,

 

April 4,

 

 

2016

 

2015

Brand:(1)

 

 

 

 

 

 

Green Giant(2)

 

$

130,160

 

$

 —

Ortega

 

 

36,466

 

 

39,960

Pirate Brands

 

 

24,081

 

 

23,036

Maple Grove Farms of Vermont

 

 

18,716

 

 

19,824

Cream of Wheat

 

 

17,095

 

 

16,985

Mrs. Dash

 

 

16,728

 

 

17,027

Bear Creek Country Kitchens

 

 

13,592

 

 

13,986

Mama Mary’s(3)