10-K 1 bgs-20161231x10k.htm 10-K bgs_Current_Folio_10K

As filed with the Securities and Exchange Commission on March 1, 2017

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10‑K

 

 

(Mark one)

 

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

For the fiscal year ended December 31, 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
(State or other jurisdiction of
incorporation or organization)

13‑3918742
(I.R.S. Employer
Identification No.)

Four Gatehall Drive, Parsippany, New Jersey
(Address of principal executive offices)

07054
(Zip Code)

 

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

Securities registered pursuant to Section 12(b) of the Act:

 

 

Title of each class

Name of exchange on which registered

Common Stock, par value $0.01 per share

New York Stock Exchange

 

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well‑known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒  No ☐

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐  No ☒

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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S‑K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10‑K or any amendment to this Form 10‑K. ☒

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.  (Check one):

 

 

 

 

Large accelerated filer ☒

Accelerated filer ☐

Non‑accelerated filer ☐
(Do not check if a smaller
reporting company)

Smaller reporting company ☐

 

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

The aggregate market value of the registrant’s outstanding shares of common stock held by non-affiliates of the registrant (assuming for these purposes, but without conceding, that all executive officers and directors are affiliates of the registrant) as of July 1, 2016, the last business day of the registrant's most recently completed second fiscal quarter, was $2,900,718,177 (based on the $47.32 per share closing price of the registrant's common stock on that date as reported on the New York Stock Exchange).

As of March 1, 2017, the registrant had 66,474,474 shares of common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Selected designated portions of the registrant’s definitive proxy statement to be filed on or before May 1, 2017 in connection with the registrant’s 2017 annual meeting of stockholders are incorporated by reference into Part III of this annual report.

 

 

 


 

 

B&G FOODS, INC.

ANNUAL REPORT ON FORM 10‑K

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2016

TABLE OF CONTENTS

 

 

 

 

 

 

 

    

    

    

Page No.

 

 

PART I

 

 

Item 1. 

 

Business

 

Item 1A. 

 

Risk Factors

 

Item 1B. 

 

Unresolved Staff Comments.

 

21 

Item 2. 

 

Properties

 

22 

Item 3. 

 

Legal Proceedings

 

22 

Item 4. 

 

Mine Safety Disclosures

 

22 

 

 

PART II

 

 

Item 5. 

 

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

 

23 

Item 6. 

 

Selected Financial Data

 

27 

Item 7. 

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

32 

Item 7A. 

 

Quantitative and Qualitative Disclosures About Market Risk

 

50 

Item 8. 

 

Financial Statements and Supplementary Data

 

52 

Item 9. 

 

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

 

98 

Item 9A. 

 

Controls and Procedures

 

98 

Item 9B. 

 

Other Information

 

99 

 

 

PART III

 

 

Item 10. 

 

Directors, Executive Officers and Corporate Governance

 

100 

Item 11. 

 

Executive Compensation

 

100 

Item 12. 

 

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

 

100 

Item 13. 

 

Certain Relationships and Related Transactions, and Director Independence

 

101 

Item 14. 

 

Principal Accountant Fees and Services

 

101 

 

 

PART IV

 

 

Item 15. 

 

Exhibits, Financial Statement Schedules

 

102 

Item 16. 

 

Form 10-K Summary

 

104 

Signatures 

 

 

 

105 

 

 

 

 


 

PART I

Item 1.  Business.

Overview

The terms “B&G Foods,” “our,” “we” and “us,” as used in this report, refer to B&G Foods, Inc. and its wholly owned subsidiaries, except where it is clear that the term refers only to the parent company. Throughout this report, we refer to our fiscal years ended December 29, 2012, December 28, 2013, January 3, 2015, January 2, 2016, and December 31, 2016 as “fiscal 2012,” “fiscal 2013,” “fiscal 2014,” “fiscal 2015” and “fiscal 2016” respectively. Our fiscal year is the 52 or 53 week reporting period ending on the Saturday closest to December 31. Fiscal 2014 contained 53 weeks and fiscal 2016, 2015, 2013 and 2012 each contained 52 weeks.

B&G Foods manufactures, sells and distributes a diverse portfolio of branded, high quality, shelf‑stable and frozen food and household products across the United States, Canada and Puerto Rico. Many of our branded products have leading regional or national market shares. In general, we position our 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.

B&G Foods, including our subsidiaries and predecessors, has been in business for over 125 years. We were incorporated in Delaware on November 25, 1996 under the name B Companies Holdings Corp. On August 11, 1997, we changed our name to B&G Foods Holdings Corp. On October 14, 2004, B&G Foods, Inc., then our wholly owned subsidiary, was merged with and into us and we were renamed B&G Foods, Inc.

Our company has been built upon a successful track record of both organic and acquisition‑related growth. Our goal is to continue to increase sales, profitability and cash flows through organic growth, disciplined acquisitions of complementary branded businesses and new product development. Since 1996, we have successfully acquired and integrated more than 45 brands into our company.

The table below includes some of the acquisitions we have completed in recent years:

 

 

 

 

Date

    

Significant Event

 

October 2012

 

Acquisition of the New York Style,  Devonsheer,  JJ Flats and Old London brands from Chipita America, Inc., referred to as the “New York Style acquisition” in the remainder of this document.

 

May 2013

 

Acquisition of the TrueNorth brand from DeMet’s Candy Company, referred to as the “TrueNorth acquisition” in the remainder of this document.

 

July 2013

 

Acquisition of Pirate Brands, LLC, including the Pirate’s Booty,  Smart Puffs and Original Tings brands from affiliates of VMG Partners and Driven Capital Management, and certain other entities and individuals, referred to as the “Pirate Brands acquisition” in the remainder of this document.

 

October 2013

 

Acquisition of Rickland Orchards LLC, including the Rickland Orchards brand, from Natural Instincts LLC, referred to as the “Rickland Orchards acquisition” in the remainder of this document.

 

April 2014

 

Acquisition of Specialty Brands of America, Inc. and related entities, including the Bear Creek Country Kitchens,  Spring Tree,  Cary’s,  MacDonald’s,  New York Flatbreads and Canoleo brands, from affiliates of American Capital, Ltd., referred to as the “Specialty Brands acquisition” in the remainder of this document.

 

July 2015

 

Acquisition of Spartan Foods of America, Inc., and related entities, including the Mama Mary’s brand, from Linsalata Capital Partners and certain other sellers, referred to as the “Mama Mary’s acquisition” in the remainder of this document.

 

November 2015

 

Acquisition of the Green Giant and Le Sueur brands from General Mills, Inc., referred to as the “Green Giant acquisition” in the remainder of this document.

 

November 2016

 

Acquisition of the spices & seasonings business of ACH Food Companies, Inc., including the Spice Islands,  Tone’sDurkee and Weber brands, referred to as the “spices & seasonings acquisition” in the remainder of this document.

 

December 2016

 

Acquisition of Victoria Fine Foods, LLC, and a related entity, from Huron Capital Partners and certain other sellers, referred to as the “Victoria acquisition” in the remainder of this document.

 

 

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Products and Markets

The following is a brief description of some of our brands and product lines:

The Green Giant and Le Sueur brands trace their roots to Le Sueur, Minnesota in 1903, and the Minnesota Valley Canning Company. For more than 100 years, fresh and great‑tasting Green Giant and Le Sueur vegetables have been grown and picked at the peak of perfection in the Valley of the Jolly Green Giant. In the remainder of this document, we generally refer to the Green Giant and Le Sueur brands collectively as the “Green Giant brand.”

The Ortega brand has been in existence since 1897; its products span the shelf‑stable Mexican food segment including taco shells, tortillas, seasonings, dinner kits, taco sauces, peppers, refried beans, salsas and related food products.

Pirate Brands, which includes Pirate’s Booty,  Smart Puffs and Original Tings, originated in 1987 and offers baked, trans fat free and gluten free snacks.

The Tone’s brand, established in 1873, started as a family business and was responsible for many of the early advancements in the spice industry.  The Tone’s brand sells predominantly in the club channel while also servicing traditional grocery.

The Maple Grove Farms of Vermont brand, which originated in 1915, is one of the leading brands of pure maple syrup sold in the United States. Other products under the Maple Grove Farms of Vermont label include a line of gourmet salad dressings, sugar free syrups, marinades, fruit syrups, confections, pancake mixes and organic products.

The Cream of Wheat brand was introduced in 1893 and is among the leading brands and one of the most trusted and widely recognized brands of hot cereals sold in the United States. Cream of Wheat is available in Original, Whole Grain and Maple Brown Sugar stove top, and also in instant packets of Original and other flavors. We also offer Cream of Rice, a gluten‑free, rice‑based hot cereal.

The Mrs. Dash brand, which was introduced in 1983 as the original brand in salt‑free seasonings, is available in more than a dozen blends. In 2005, the leading brand in salt‑free seasonings introduced 6 salt‑free marinades. Mrs. Dash’s brand essence, “Salt‑Free, Flavor‑Full,” resonates with consumers and underscores the brand’s commitment to provide healthy products that fulfill consumers’ expectations for taste.

The Bear Creek Country Kitchens brand is the leading brand of hearty dry soups in the United States. Bear Creek Country Kitchens also offers a line of savory pasta dishes and hearty rice dishes.

Victoria Fine Foods is a Brooklyn-based business founded in 1929.  The Victoria brand offers a variety of premium pasta and specialty sauces, savory condiments and tasty gourmet spreads.  Using traditional cooking methods, Victoria sauces are slow kettle-cooked in small batches to ensure rich flavor and a homemade taste. Committed to its values of quality, honesty, authenticity and community, Victoria believes that Ingredients Come First.

The Las Palmas brand originated in 1922 and primarily includes authentic Mexican enchilada sauce, chili sauce and various pepper products.

The Mama Mary’s brand was introduced in 1986 and is a leading brand of shelf‑stable pizza crusts. Mama Mary’s also offers pizza sauces and premium gourmet pepperoni slices.

The Polaner brand was introduced in 1880 and is comprised of a broad array of fruit‑based spreads as well as jarred wet spices such as chopped garlic and oregano. Polaner All Fruit is a leading national brand of fruit‑juice sweetened fruit spread. The spreads are available in more than a dozen flavors. Polaner Sugar Free preserves are the second leading brand of sugar free preserves nationally.

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The Weber brand of seasonings and other flavor enhancers was introduced in 2006 under a licensing agreement with Weber-Stephen Products LLC, maker of the popular Weber grills.  Under the Weber brand, we offer a wide range of grilling seasoning blends, rubs, marinades, sprays and sauces.

The Spice Islands brand, established in San Francisco in 1941, is a leading premium spices and extracts brand offering a diverse line of high quality products including spices, seasonings, dried herbs, extracts, flavorings and sauce blends.  The brand recently expanded into organic products.

The New York Style brand was created in 1985 and includes Original Bagel Crisps, Pita Chips and Panetini Italian Toast.

The Bloch & Guggenheimer (B&G) brand originated in 1889, and its pickle, pepper and relish products are a leading brand in the New York metropolitan area. This line consists of shelf‑stable pickles, peppers, relishes, olives and other related specialty items.

The Underwood brand’s “Underwood Devil” logo, which was registered in 1870, is believed to be the oldest registered trademark still in use for a prepackaged food product in the United States. Underwood meat spreads, which were introduced in the late 1860s, include deviled ham, white‑meat chicken, roast beef, corned beef and liverwurst.

The Ac’cent brand was introduced in 1947 as a flavor enhancer for meat preparation and is generally used on beef, poultry, fish and vegetables. We believe that Ac’cent is positioned as a unique flavor enhancer that provides food with the “umami” flavor sensation.

The Spring Tree brand originated in 1976 in Brattleboro, Vermont, and consists of pure maple syrup and sugar free syrup.

The B&M brand was introduced in 1927 and is the original brand of brick‑oven baked beans and remains one of the very few authentic baked beans. The B&M line includes a variety of baked beans and brown bread. The B&M brand currently has a leading market share in the New England region.

The Emeril’s brand was introduced in 2000 under a licensing agreement with celebrity chef Emeril Lagasse. We offer a line of pasta sauces, seasonings, cooking stocks, mustards and cooking sprays under the Emeril’s brand name.

The Grandma’s brand of molasses, which was introduced in 1890, is the leading brand of premium‑quality molasses sold in the United States. Grandma’s molasses products are offered in two distinct styles: Grandma’s Original Molasses and Grandma’s Robust Molasses.

The Trappey’s brand, which was introduced in 1898, has a Louisiana heritage. Trappey’s products fall into two major categories—high quality peppers and hot sauces, including Trappey’s Red Devil.

The TrueNorth brand was introduced in 2008. TrueNorth nut cluster snacks combine freshly roasted nuts, a dash of sea salt and just a hint of sweetness. TrueNorth varieties include almond pecan crunch, chocolate nut crunch and cashew crunch.

The Don Pepino and Sclafani brands originated in 1955 and 1900, respectively, and primarily include pizza and spaghetti sauces, whole and crushed tomatoes and tomato puree.

The Joan of Arc brand, which originated in 1895, includes a full range of canned beans including kidney, chili and other varieties.

The Old London brand was created in 1932 and offers a wide variety of flavors available in melba toasts, melba rounds and other snacks. Old London also markets specialty snacks under the Devonsheer and JJ Flats brand names.

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The Cary’s brand originated in 1904 and is the oldest brand of pure maple syrup in the United States. Cary’s also offers sugar free syrup.

The Static Guard brand, the number one brand name in static elimination sprays, created the anti‑static spray category when it was launched in 1978 to fulfill a previously unmet consumer need. The brand’s ability to consistently deliver on its promise to “instantly eliminate static cling” has resulted in a loyal consumer following.

The Regina brand, which has been in existence since 1949, includes vinegars and cooking wines. Regina products are most commonly used in the preparation of salad dressings as well as in a variety of recipe applications, including sauces, marinades and soups.

The Baker’s Joy brand was introduced in 1982 and is the original brand of no‑stick baking spray with flour. Baker’s Joy’s product proposition has been to “generate a perfect release from the pan every time,” making baking easier, faster and more successful for everyday bakers.

The Sugar Twin brand was developed in 1968 and is a calorie free sugar substitute.

The Wright’s brand was introduced in 1895 and is a seasoning that reproduces the flavor and aroma of pit smoking in meats, chicken and fish. Wright’s is offered in three flavors: Hickory, Mesquite and Applewood.

The Durkee brand was established in 1850 and, like our Tone’s brand, started as a family business and was an early leader in the spice industry.

The Sa‑són brand was introduced in 1947 as a flavor enhancer used primarily for Puerto Rican and Hispanic food preparation. The product is generally used on beef, poultry, fish and vegetables. The brand’s flavor enhancer is offered in four flavors: Original, Coriander and Achiote, Garlic and Onion, and Tomato. We also offer reduced sodium versions of Sa‑són.

The Brer Rabbit brand has been in existence since 1907 and currently offers mild and full‑flavored molasses as well as blackstrap molasses. Mild molasses is designed for table use and full‑flavored molasses is typically used in baking, barbeque sauces and as a breakfast syrup.

The New York Flatbreads brand is a line of thin, crispy, flavorful crispbread that is available in several toppings.

The Vermont Maid brand has been in existence since 1919 and offers maple‑flavored syrups. Vermont Maid syrup is available in regular, sugar‑free and sugar‑free butter varieties.

The Molly McButter brand created the butter‑flavored sprinkles category in 1987. Molly McButter is available in butter and cheese flavors.

The Canoleo brand offers an all‑purpose margarine used for spreading, cooking and baking.

Food Industry

The food industry is one of the United States’ largest industries. Historically, it has been characterized by relatively stable sales growth, based largely on price and population increases, however, in recent years, many traditional center of store grocery brands in the industry have often experienced flat to modestly declining sales. Over the past decade or so, the retail side of the food industry has seen a continuing shift of sales to alternate food outlets such as supercenters, warehouse clubs, organic and “natural” food stores, dollar stores, drug stores and e-tailers. Among other things, this shift has caused consolidation of traditional grocery chains into larger entities, often spanning the country under varying banner names. Consolidation has increased the importance of having a number one or two brand within a category, be that position national or regional. At the same time, this shift has also introduced many alternatives to traditional grocery chains.  A broad sales and distribution infrastructure has also become critical for food companies, allowing them to reach all outlets selling food to consumers and expanding their growth opportunities.

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As large food companies with a presence in a variety of branded product categories seek tighter focus within their businesses, they have shed brands or an entire presence in non‑core categories. They have also sold smaller brands to increase focus on the larger brands within their portfolios.

Sales, Marketing and Distribution.

Overview.  We sell, market and distribute our products through a multiple‑channel sales, marketing and distribution system to all major U.S. food channels, including sales and shipments to supermarkets, mass merchants, warehouse clubs, wholesalers, foodservice distributors and direct accounts, specialty food distributors, military commissaries and non‑food outlets such as drug, dollar store chains and e-tailers. Certain of our brands, including Green Giant,  Cream of Wheat,  Ac’cent,  Crock Pot seasoning mixes, Underwood,  Polaner,  Static Guard,  Mrs. Dash,  New York Style,  Sugar Twin and Victoria are also distributed to similar food channels in Canada. We sell, market and distribute our household brand, Static Guard, through the same sales, marketing and distribution system to many of the same customers who buy our food products as well as to other household product retailers and distributors.

We sell our products primarily through broker sales networks to supermarket chains, foodservice outlets, mass merchants, warehouse clubs, non‑food outlets and specialty distributors. The broker sales network handles the sale of our products at the retail level.

Sales.  Our sales organization is aligned by distribution channels and consists of regional sales managers, key account managers and sales persons. Regional sales managers sell our products nationwide through national and regional brokers, with separate organizations focusing on foodservice, grocery chain accounts and special markets. Our sales managers coordinate our broker sales efforts, make key account calls with buyers or distributors and supervise broker retail coverage of the products at the store level.

Our sales strategy is centered on individual brands. We allocate promotional spending for each of our brands and our regional sales managers coordinate promotions with customers. Additionally, our marketing department works in conjunction with the sales department to coordinate special account activities and marketing support, such as couponing, public relations and media advertising.

We have a national sales force that is capable of supporting our current brands and quickly integrating and supporting any newly acquired brands.

Marketing.  Our marketing organization is aligned by brand and is responsible for the strategic planning for each of our brands. We focus on deploying promotional dollars where we believe the spending will have the greatest impact on sales. Marketing and trade spending support, on a national basis, typically consists of advertising trade promotions, coupons and cross‑promotions with supporting products. Radio, internet, social media and limited television advertising supplement this activity.

Distribution.  We distribute our products through a multiple‑channel system that covers every class of customer nationwide. Due to the different demands of distribution for frozen and shelf-stable products, we maintain separate distribution systems.

Our shelf-stable distribution network consists of four primary locations, which are leased by us and are operated for us by a third party logistics provider.  In Canada, Mexico and from time to time in the United States we also use public warehouse and distribution facilities for our shelf-stable products.

Our frozen distribution network consists of six primary locations, which are owned and operated by third party logistics providers.

Warehousing and distribution for our recently acquired spices & seasonings business is currently being managed for us by ACH Food Companies pursuant to a transition services agreement that expires on September 3, 2017. Following the completion of the transition period, we will assume responsibility for warehousing and distribution of the spices & seasonings products.

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We believe that our distribution systems for shelf‑stable and frozen products have sufficient capacity to accommodate incremental product volume.  See Item 2, “Properties” for a listing of our owned and leased distribution centers and warehouses.

Customers

Our top ten customers accounted for approximately 56.0% of our net sales and 53.4% of our end of the year receivables for fiscal 2016. Other than Wal‑Mart, which accounted for 24.1% of our fiscal 2016 net sales, no single customer accounted for 10.0% or more of our fiscal 2016 net sales. Other than Wal‑Mart, which accounted for 21.2% of our receivables as of the end of fiscal 2016, no single customer accounted for more than 10.0% of our receivables as of the end of fiscal 2016. During fiscal 2016, 2015 and 2014, our net sales to foreign countries represented approximately 7.1%, 5.2% and 3.6%, respectively, of our total net sales. Our foreign sales are primarily to customers in Canada. The increase in net sales to foreign countries in fiscal 2015 and 2016 was primarily attributable to the Green Giant acquisition completed on November 2, 2015.

Seasonality

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

We purchase most of the produce used to make our frozen and shelf‑stable canned vegetables, 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.

Competition

We face competition in each of our product lines. Numerous brands and products compete for shelf space and sales, with competition based primarily on product quality, convenience, price, trade promotion, consumer promotion, brand recognition and loyalty, customer service, advertising and other activities and the ability to identify and satisfy emerging consumer preferences. We compete with numerous companies of varying sizes, including divisions or subsidiaries of larger companies. Many of these competitors have multiple product lines, substantially greater financial and other resources and may have lower fixed costs and/or be substantially less leveraged than we are. Our ability to grow our business could be impacted by the relative effectiveness of, and competitive response to, our product initiatives, product innovation, advertising and promotional activities. In addition, from time to time, we experience margin pressure in certain markets as a result of competitors’ pricing practices.

Our products compete not only against other brands in their respective product categories, but also against products in similar or related product categories. For example, our shelf‑stable pickles compete not only with other brands of shelf‑stable pickles, but also with pickle products found in the refrigerated sections of grocery stores, and all our brands compete against private label products to varying degrees.

Raw Materials

We purchase raw materials, including agricultural products, meat, poultry, flour, other raw materials, ingredients and packaging materials from growers, commodity processors, other food companies and packaging suppliers located in U.S. and foreign locations. The principal raw materials for our products include corn, peas, broccoli, beans, pepper, garlic and other spices, maple syrup, wheat, corn, nuts, cheese, fruits, beans, tomatoes, peppers, meat, sugar, concentrates, molasses and corn sweeteners. Vegetables for the Green Giant brand are primarily purchased under dedicated acreage supply contracts from a number of growers prior to each growing season with the remaining demand being sourced directly from third parties. We purchase certain other agricultural raw materials in bulk or pursuant to short‑term supply contracts. Most of our agricultural products are purchased between April 1 and October 31. We generally source pepper, garlic and other spices and herbs from locations other than the United States.  We purchase the majority of our maple syrup from Canada. We also use packaging materials, particularly glass jars, cans, cardboard and plastic containers. The profitability of our business relies in substantial part on the prices we and our co‑packers pay for these raw materials and packaging materials, which can fluctuate due to a number of factors, including changes in crop

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size, national, state and local government sponsored agricultural programs, export demand, currency exchange rates, natural disasters, weather conditions during the growing and harvesting seasons, water supply, general growing conditions, the effect of insects, plant diseases and fungi, and glass, metal and plastic prices.

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 labor, manufacturing, energy, fuel, packaging materials and other costs related to the production and distribution of our food products can from time to time increase significantly and unexpectedly. We attempt to manage these risks by entering into short‑term supply contracts and advance commodities purchase agreements, implementing cost saving measures and raising sales prices. During the past three years, our cost saving measures and sales price increases have substantially offset increases to our raw material, ingredient and packaging costs. To the extent we are unable to offset present and future cost increases, our operating results will be negatively impacted.

Production

Manufacturing.  We operate ten manufacturing facilities for our products. See Item 2, “Properties” for a listing of our manufacturing facilities.

Co-Packing Arrangements.  In addition to our own manufacturing facilities, we source a significant portion of our products under “co‑packing” arrangements, a common industry practice in which manufacturing is outsourced to other companies. We regularly evaluate our co‑packing arrangements to ensure the most cost‑effective manufacturing of our products and to utilize company‑owned manufacturing facilities most effectively. Third parties located in U.S. and foreign locations produce our Baker’s Joy,  Bear Creek Country Kitchens,  Canoleo,  Cream of Rice,  Crock Pot,  Green Giant,  JJ Flats,  Joan of Arc,  Le Sueur,  MacDonald’s,  New York Flatbreads, Pirate Brands, Regina,  Spring Tree,  Static Guard,  Sugar Twin and TrueNorth products and certain B&G,  Cary’s,  Cream of Wheat,  Emeril’s,  Las Palmas and Ortega products under co‑packing agreements or purchase orders. Each of our co‑packers produces products for other companies as well. We believe that there are alternative sources of co‑packing production readily available for the majority of our products, although we may experience short‑term disturbances in our operations if we are required to change our co‑packing arrangements unexpectedly.

Approximately 60% of our Green Giant products are co‑packed for us by third‑party manufacturers located in the United States, Canada, Europe and Peru. We manufacture approximately 25% of the Green Giant products in Irapuato, Mexico at a facility we acquired from General Mills as part of the Green Giant acquisition. The remaining Green Giant products are manufactured for us by General Mills at a General Mills facility located in Belvidere, Illinois pursuant to a two‑year transition co‑packing agreement that expires on November 2, 2017. During this transition period, we are shifting this production to an existing B&G Foods manufacturing facility and one or more co‑packers.

Trademarks and Licensing Agreements

Trademarks.  We consider our trademarks, in the aggregate, to be material to our business. We protect our trademarks by registration in the United States, Canada and in other countries where we sell our products. We also oppose any infringement in key markets. Trademark protection continues in some countries for as long as the mark is used and in other countries for as long as it is registered. Registrations generally are for renewable, fixed terms. Examples of our trademarks and registered trademarks include Ac’cent, B&G, B&G Sandwich Toppers, B&M, Baker’s Joy, Bear Creek Country Kitchens, Brer Rabbit, Canoleo, Cary’s, Cream of Rice, Cream of Wheat, Devonsheer, Don Pepino, DurkeeEmeril’s, Grandma’s, 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, Regina, Sa‑són, Sclafani, Smart Puffs, Spice Islands, Spring Tree, Static Guard, Sugar Twin, Tone’s,  Trappey’s, TrueNorth, Underwood, Vermont Maid,  Victoria,  Weber and Wright’s.

Inbound License Agreements.  From time to time we enter into in‑bound licensing agreements. For example, we sell our Emeril’s brand products pursuant to a license agreement with Sequential Brands Group, Cream of Wheat Cinnabon®, a co‑branded product, pursuant to a licensing agreement with Cinnabon, Inc., Crock Pot® Seasoning Mixes

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pursuant to a licensing agreement with Sunbeam Products, Inc. dba Jarden Consumer Solutions, Weber seasonings and other flavor enhancers pursuant to a licensing agreement with Weber-Stephen Products LLC and French’s® seasoning mixes pursuant to a licensing agreement with French’s Food Company LLC. In addition, from time to time, our Pirate Brands products, Cream of Wheat products and products of certain other of our brands license from third parties, a variety of trademarks, including various Disney, Marvel and Nickelodeon characters.

Outbound License Agreements.  We also enter from time to time enter into outbound license agreements for our trademarks and other intellectual property. For example, the Green Giant trademark is licensed to third parties for use in connection with their sale of fresh produce in the United States and Europe. We also license the Green Giant name and related intellectual property to General Mills for use with its sale of frozen and shelf stable products in Europe, Asia and in various other locations outside of the United States and Canada.

Employees and Labor Relations

As of December 31, 2016, our workforce consisted of 2,590 employees. Of that total, 2,346 employees were engaged in manufacturing, 133 were engaged in marketing and sales, 63 were engaged in warehouse and distribution and 48 were engaged in administration. Approximately 60% of our employees, located at five facilities in the United States and one facility in Mexico, are covered by collective bargaining agreements. The agreements covering employees at the five facilities in the United States, which vary in term depending on the location, expire on April 29, 2017 (Portland, Maine; Bakery, Confectionery, Tobacco Workers and Grain Millers International Union, AFL‑CIO, Local No. 334), December 31, 2019 (Brooklyn, NY; United Food and Commercial Workers, Local No. 342), March 31, 2020 (Roseland, New Jersey; International Brotherhood of Teamsters, Chauffeurs, Warehousemen & Helpers of America, Local No. 863), April 5, 2020 (Ankeny, Iowa; International Brotherhood of Teamsters, Local No. 238) and March 27, 2021 (Stoughton, Wisconsin; Drivers, Salesmen, Warehousemen, Milk Processors, Cannery, Dairy Employees and Helpers Union, Local No. 695). There are two unions representing employees at our facility in Mexico, (1) the Industrial Union of Stevedore Workers, Cargo Transport Operators and Similar from the Mexican Republic and (2) the Union of Agriculture Workers at the Service of the Region, and our collective bargaining agreements with these two unions do not expire, however, certain terms of the agreements must be reviewed periodically. The collective bargaining agreement covering our Portland facility, which covers approximately 80 employees, is the only collective bargaining agreement expiring in the next twelve months. While we believe that our relations with our union employees are in general good, we cannot assure you that we will be able to negotiate a new collective bargaining agreement for our Portland facility on terms satisfactory to us, or at all, and without production interruptions, including labor stoppages. At this time, however, management does not expect that the outcome of these negotiations will have a material adverse impact on our business, financial condition or results of operations.

Government Regulation

As a manufacturer and marketer of food and household products, our operations are subject to extensive regulation by the United States Food and Drug Administration (FDA), the United States Department of Agriculture (USDA), the Federal Trade Commission (FTC), the Consumer Product Safety Commission (CPSC), the United States Department of Labor, the Environmental Protection Agency and various other federal, state, local and foreign authorities (including government authorities in Canada and Mexico) regarding the manufacturing, processing, packaging, storage, labeling, sale and distribution of our products and the health and safety of our employees. Our manufacturing facilities and products are subject to periodic inspection by federal, state, local and foreign authorities. In addition, our meat processing operation in Portland, Maine is subject to daily inspection by the USDA.

We are subject to the Food, Drug and Cosmetic Act and the Food Safety Modernization Act and the regulations promulgated thereunder by the FDA. This comprehensive regulatory program governs, among other things, the manufacturing, composition and ingredients, labeling, packaging and safety of food. We are also subject to the U.S. Bio‑Terrorism Act of 2002 which imposes on us import and export regulations. Under the Bio‑Terrorism Act we are required, among other things, to provide specific information about the food products we ship into the United States and to register our manufacturing, warehouse and distribution facilities with the FDA.

We believe that we are currently in substantial compliance with all material governmental laws and regulations and maintain all material permits and licenses relating to our operations. Nevertheless, there can be no assurance that we

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are in full compliance with all such laws and regulations or that we will be able to comply with any future laws and regulations in a cost‑effective manner. Failure by us to comply with applicable laws and regulations could subject us to civil remedies, including fines, injunctions, recalls or seizures, as well as potential criminal sanctions, all of which could have a material adverse effect on our business, consolidated financial condition, results of operations or liquidity.

Environmental Matters

Environmental Sustainability.  As part of our commitment to being a good corporate citizen, we consider environmental sustainability to be an important strategic focus area. For instance, our manufacturing operations have a variety of initiatives in place to reduce energy usage, conserve water, improve wastewater management, reduce packaging and where possible use recycled and recyclable packaging. We continue to evaluate and modify our manufacturing and other processes on an ongoing basis to further reduce our impact on the environment, conserve water and reduce waste.

Environmental Laws and Regulations.  We are also subject to environmental laws and regulations in the normal course of business. We have not made any material expenditures during the last three fiscal years in order to comply with environmental laws or regulations. Based on our experience to date, we believe that the future cost of compliance with existing environmental laws and regulations (and liability for known environmental conditions) will not have a material adverse effect on our business, consolidated financial condition, results of operations or liquidity. However, we cannot predict what environmental laws 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 laws or regulations or to respond to such environmental claims.

Available Information

Under the Securities Exchange Act of 1934, as amended, we are required to file with or furnish to the SEC annual, quarterly and current reports, proxy and information statements and other information. You may read and copy any document we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, D.C. 20549. Please call the SEC at 1.800.SEC.0330 for further information about the public reference room. The SEC maintains an internet site at http://www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. We file electronically with the SEC.

We make available, free of charge, through the investor relations section of our web site, our reports on Forms 10‑K, 10‑Q and 8‑K, and amendments to those reports, filed with or furnished to the SEC as soon as reasonably practicable after they are filed or furnished to the SEC. The address for the investor relations section of our web site is http://ir.bgfoods.com.

The full text of the charters for each of the audit, compensation and nominating and governance committees of our board of directors as well as our Code of Business Conduct and Ethics is available at the investor relations section of our web site, http://ir.bgfoods.com. Our Code of Business Conduct and Ethics applies to all of our employees, officers and directors, including our chief executive officer and our chief financial officer and principal accounting officer. We intend to disclose any amendment to, or waiver from, a provision of the Code of Business Conduct and Ethics that applies to our chief executive officer or chief financial officer and principal accounting officer in the investor relations section of our web site.

The information contained on our web site is not part of, and is not incorporated in, this or any other report we file with or furnish to the SEC.

Item 1A.  Risk Factors.

Any investment in our company will be subject to risks inherent to our business. Before making an investment decision, investors should carefully consider the risks described below together with all of the other information included in this report. The risks and uncertainties described below are not the only ones facing our company. Additional risks and uncertainties that we are not aware of or focused on or that we currently deem immaterial may also impair our business operations. This report is qualified in its entirety by these risk factors.

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Any of the following risks could materially and adversely affect our business, consolidated financial condition, results of operations or liquidity. In that case, holders of our securities may lose all or part of their investment.

Risks Specific to Our Company

The packaged food industry is highly competitive.

The packaged food industry is highly competitive. Numerous brands and products, including private label products, compete for shelf space and sales, with competition based primarily on product quality, convenience, price, trade promotion, brand recognition and loyalty, customer service, effective consumer advertising and promotional activities and the ability to identify and satisfy emerging consumer preferences. We compete with a significant number of companies of varying sizes, including divisions or subsidiaries of larger companies. Many of these competitors have multiple product lines, substantially greater financial and other resources available to them and may have lower fixed costs and/or are substantially less leveraged than our company. If we are unable to continue to compete successfully with these companies or if competitive pressures or other factors cause our products to lose market share or result in significant price erosion, our business, consolidated financial condition, results of operations or liquidity could be materially and adversely affected.

We may be unable to maintain our profitability in the face of a consolidating retail environment.

Our largest customer, Wal‑Mart, accounted for 24.1% of our fiscal 2016 net sales, and our ten largest customers together accounted for approximately 56.0% of our fiscal 2016 net sales. 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. Further, these customers are reducing their inventories and increasing their emphasis on products that hold either the number one or number two market position and private label products. If we fail to use our sales and marketing expertise to maintain our category leadership positions to respond to these trends, or if we lower our prices or increase promotional support of our products and are unable to increase the volume of our products sold, our profitability and financial condition may be adversely affected.

We are vulnerable to decreases in the supply and increases in the price of raw materials and labor, manufacturing, distribution and other costs, and we may not be able to offset increasing costs by increasing prices to our customers.

We purchase agricultural products, including vegetables and spices and seasonings, meat, poultry, other raw materials, ingredients and packaging materials from growers, commodity processors, other food companies and packaging manufacturers. Raw materials, ingredients and packaging materials are subject to increases in price attributable to a number of factors, including changes in crop size, federal and state agricultural programs, export demand, currency exchange rates, energy and fuel costs, water supply, weather conditions during the growing and harvesting seasons, insects, plant diseases and fungi, and glass, metal and plastic prices. 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 labor, manufacturing, energy, fuel, packaging materials and other costs related to the production and distribution of our products can from time to time increase significantly and unexpectedly. We attempt to manage these risks by entering into short‑term supply contracts and advance commodities purchase agreements from time to time, by implementing cost saving measures and by raising sales prices. During the past three years, our cost saving measures and sales price increases substantially offset increases to our raw material, ingredient and packaging costs. To the extent we are unable to offset present and future cost increases, our operating results will be negatively impacted.

We may be unable to offset any reduction in net sales in our mature food product categories through an increase in trade spending for these categories or an increase in net sales in other categories.

Most of our food product categories are mature and certain categories have experienced declining consumption rates from time to time. If consumption rates and sales in our mature food product categories decline, our revenue and operating income may be adversely affected, and we may not be able to offset this decrease in business with increased trade spending or an increase in sales or profitability of other products and product categories.

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We may have difficulties integrating acquisitions or identifying new acquisitions.

A major part of our strategy is to grow through acquisition. We completed the spices & seasonings acquisition and the Victoria acquisition in November 2016 and December 2016, respectively, and we expect to pursue additional acquisitions of food product lines and businesses. However, we may be unable to identify and consummate additional acquisitions or may be unable to successfully integrate and manage the product lines or businesses that we have recently acquired or may acquire in the future. In addition, we may be unable to achieve a substantial portion of any anticipated cost savings from acquisitions or other anticipated benefits in the timeframe we anticipate, or at all. Moreover, any acquired product lines or businesses may require a greater than anticipated amount of trade, promotional and capital spending. Acquisitions involve numerous risks, including difficulties in the assimilation of the operations, technologies, services and products of the acquired companies, personnel turnover and the diversion of management’s attention from other business concerns. Any inability by us to integrate and manage any product lines or businesses that we have recently acquired or may acquire in the future in a timely and efficient manner, any inability to achieve a substantial portion of any anticipated cost savings or other anticipated benefits from these acquisitions in the time frame we anticipate or any unanticipated required increases in trade, promotional or capital spending could adversely affect our business, consolidated financial condition, results of operations or liquidity. Moreover, future acquisitions by us could result in our incurring substantial additional indebtedness, being exposed to contingent liabilities or incurring the impairment of goodwill and other intangible assets, all of which could adversely affect our financial condition, results of operations and liquidity.

We may be faced with a disruption in sales of certain of our Green Giant products if we are unable to timely complete a capital project to move production of those products from a General Mills manufacturing facility to one of our manufacturing facilities or a co‑packer.

Approximately 10% of our Green Giant products are manufactured for us by General Mills utilizing equipment we acquired as part of the Green Giant acquisition and currently located in a General Mills facility in Belvidere, Illinois, pursuant to a two‑year transition co‑packing agreement that expires on November 2, 2017. During fiscal 2016, we initiated a capital project to relocate the acquired Belvidere manufacturing equipment to an existing B&G Foods manufacturing facility and one or more co‑packers. We anticipate that the project will be completed in fiscal 2017; however, if there are any unanticipated delays in the completion of the capital project and our existing inventories of those Green Giant products at the end of the transition period are insufficient to meet customer demand, we may face a material disruption in sales that could have a material adverse effect on our financial condition, results of operations and liquidity.

We have substantial indebtedness, which could restrict our ability to pay dividends and impact our financing options and liquidity position.

At December 31, 2016, we had total long‑term indebtedness of $1,749.8 million (before debt discount), including $1,049.8 million principal amount of senior secured indebtedness and $700.0 million principal amount of senior unsecured indebtedness. Our ability to pay dividends is subject to contractual restrictions contained in the instruments governing our indebtedness. Although our credit agreement and the indenture governing our senior notes (which we refer to as the senior notes indenture) contain covenants that restrict our ability to incur debt, as long as we meet these covenants we will be able to incur additional indebtedness. The degree to which we are leveraged on a consolidated basis could have important consequences to the holders of our securities, including:

·

our ability in the future to obtain additional financing for working capital, capital expenditures or acquisitions may be limited;

·

we may not be able to refinance our indebtedness on terms acceptable to us or at all;

·

a significant portion of our cash flow is likely to be dedicated to the payment of interest on our indebtedness, thereby reducing funds available for future operations, capital expenditures, acquisitions and/or dividends on our common stock; and

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·

we may be more vulnerable to economic downturns and be limited in our ability to withstand competitive pressures.

We are subject to restrictive debt covenants and other requirements related to our debt that limit our business flexibility by imposing operating and financial restrictions on our operations.

The agreements governing our indebtedness impose significant operating and financial restrictions on us. These restrictions prohibit or limit, among other things:

·

the incurrence of additional indebtedness and the issuance of certain preferred stock or redeemable capital stock;

·

the payment of dividends on, and purchase or redemption of, capital stock;

·

a number of restricted payments, including investments;

·

specified sales of assets;

·

specified transactions with affiliates;

·

the creation of certain types of liens;

·

consolidations, mergers and transfers of all or substantially all of our assets; and

·

entry into certain sale and leaseback transactions.

Our credit agreement requires us to maintain specified financial ratios and satisfy financial condition tests, including, without limitation, a maximum leverage ratio and a minimum interest coverage ratio.

Our ability to comply with the ratios or tests may be affected by events beyond our control, including prevailing economic, financial and industry conditions. A breach of any of these covenants, or failure to meet or maintain ratios or tests could result in a default under our credit agreement and/or our senior notes indenture. Certain events of default under our credit agreement and our senior notes indenture would prohibit us from paying dividends on our common stock. In addition, upon the occurrence of an event of default under our credit agreement or our senior notes indenture, the lenders could elect to declare all amounts outstanding under the credit agreement and the senior notes, together with accrued interest, to be immediately due and payable. If we were unable to repay those amounts, the credit agreement lenders could proceed against the security granted to them to secure that indebtedness. If the lenders accelerate the payment of the indebtedness, our assets may not be sufficient to repay in full this indebtedness and our other indebtedness.

To service our indebtedness, we require a significant amount of cash. Our ability to generate cash depends on many factors beyond our control.

Our ability to make interest payments on and to refinance our indebtedness, and to fund planned capital expenditures and potential acquisitions depends on our ability to generate cash flow from operations in the future. This ability, to a certain extent, is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control.

A significant portion of our cash flow from operations is dedicated to servicing our debt requirements. In addition, in accordance with our current dividend policy we intend to continue distributing a significant portion of any remaining cash flow to our stockholders as dividends.

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Our ability to continue to expand our business is, to a certain extent, dependent upon our ability to borrow funds under our credit agreement and to obtain other third‑party financing, including through the issuance and sale of additional debt or equity securities.

Financial market conditions may impede our access to, or increase the cost of, financing for acquisitions.

Any future financial market disruptions or tightening of the credit markets, may make it more difficult for us to obtain financing for acquisitions or increase the cost of obtaining financing. In addition, our borrowing costs can be affected by short and long‑term debt ratings assigned by independent rating agencies that are based, in significant part, on our performance as measured by credit metrics such as interest coverage and leverage ratios. A decrease in these ratings could increase our cost of borrowing or make it more difficult for us to obtain financing.

Future disruptions in the credit markets or other factors, could impair our ability to refinance our debt upon terms acceptable to us or at all.

Our $500.0 million revolving credit facility and our $233.6 million of tranche A term loan borrowings mature on June 5, 2019, our $640.1million of tranche B term loan borrowings mature on November 2, 2022 and our $700.0 million of senior notes mature on June 1, 2021. Our ability to raise debt or equity capital in the public or private markets in order to effect a refinancing of our debt at or prior to maturity could be impaired by various factors, including factors beyond our control. For example, in recent years U.S. credit markets experienced significant dislocations and liquidity disruptions that caused the spreads on prospective debt financings to widen considerably. These circumstances materially impacted liquidity in the debt markets, making financing terms for borrowers less attractive, and in certain cases resulted in the unavailability of certain types of debt financing. Any future uncertainty in the credit markets could negatively impact our ability to access additional debt financing or to refinance existing indebtedness on favorable terms, or at all. In addition, any future uncertainty in other financial markets in the U.S. could make it more difficult or costly for us to raise capital through the issuance of common stock or other equity securities. Any of these risks could impair our ability to fund our operations or limit our ability to expand our business or increase our interest expense, which could have a material adverse effect on our financial results.

If we are unable to refinance our indebtedness at or prior to maturity on commercially reasonable terms or at all, we would be forced to seek other alternatives, including:

·

sales of assets;

·

sales of equity; and

·

negotiations with our lenders or noteholders to restructure the applicable debt.

If we are forced to pursue any of the above options, our business and/or the value of an investment in our securities could be adversely affected.

We rely on co‑packers for a significant portion of our manufacturing needs, and the inability to enter into additional or future co‑packing agreements may result in our failure to meet customer demand.

We rely upon co‑packers for a significant portion of our manufacturing needs. The success of our business depends, in part, on maintaining a strong sourcing and manufacturing platform. We believe that there are a limited number of competent, high‑quality co‑packers in the industry, and if we were required to obtain additional or alternative co‑packing agreements or arrangements in the future, we can provide no assurance that we would be able to do so on satisfactory terms or in a timely manner. Our inability to enter into satisfactory co‑packing agreements could limit our ability to implement our business plan or meet customer demand.

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We rely on the performance of major retailers, wholesalers, specialty distributors and mass merchants for the success of our business, and should they perform poorly or give higher priority to other brands or products, our business could be adversely affected.

We sell our products principally to retail outlets and wholesale distributors including, traditional supermarkets, mass merchants, warehouse clubs, wholesalers, foodservice distributors and direct accounts, specialty food distributors, military commissaries and non‑food outlets such as drug store chains, dollar stores and e-tailers. The replacement by or poor performance of our major wholesalers, retailers or chains or our inability to collect accounts receivable from our customers could materially and adversely affect our results of operations and financial condition. In addition, our customers offer branded and private label products that compete directly with our products for retail shelf space and consumer purchases. Accordingly, there is a risk that our customers may give higher priority to their own products or to the products of our competitors. In the future, our customers may not continue to purchase our products or provide our products with adequate levels of promotional support.  It is also possible that our customers may replace our branded products with private label products.

We may be unable to anticipate changes in consumer preferences and consumer demographics, which may result in decreased demand for our products.

Our success depends in part on our ability to anticipate and offer products that appeal to the changing tastes, dietary habits and product packaging preferences of consumers in the market categories in which we compete. If we are not able to anticipate, identify or develop and market products that respond to these changes in consumer preferences, whether resulting from changing consumer demographics or otherwise, demand for our products may decline and our operating results may be adversely affected. In addition, we may incur significant costs related to developing and marketing new products or expanding our existing product lines in reaction to what we perceive to be increased consumer preference or demand. Such development or marketing may not result in the volume of sales or profitability anticipated.

Severe weather conditions and natural disasters can affect crop supplies and reduce our operating results.

Severe weather conditions and natural disasters, such as floods, droughts, frosts, earthquakes or pestilence, may affect the supply of the raw materials that we use for our products. Our maple syrup products, for instance, are particularly susceptible to severe freezing conditions in Québec, Canada and Vermont during the season in which maple syrup is produced. Our Green Giant frozen vegetable manufacturing facility in Irapuato, Mexico is located in a region affected by water scarcity and restrictions on usage. Competing manufacturers can be affected differently by weather conditions and natural disasters depending on the location of their supplies. If our supplies of raw materials are reduced, we may not be able to find supplemental supply sources on favorable terms or at all, which could adversely affect our business and operating results.

Climate change, water scarcity or legal, regulatory, or market measures to address climate change or water scarcity, could negatively affect our business and operations.

In the event that climate change has a negative effect on agricultural productivity, we may be subject to decreased availability or less favorable pricing for certain commodities that are necessary for our products. We may also be subjected to decreased availability or less favorable pricing for water as a result of such change, which could impact our manufacturing and distribution operations. For example, our Green Giant frozen vegetable manufacturing facility in Irapuato, Mexico is already affected by water scarcity in that region of Mexico. Any further restrictions on, or loss of, water rights due to water scarcity, water rights violations or otherwise for our Irapuato manufacturing facility could have a material adverse effect on our business and operating results.

The increasing concern over climate change also may result in more regional, federal, foreign and/or global legal and regulatory requirements to reduce or mitigate the effects of greenhouse gases. In the event that such regulation is enacted and is more aggressive than the sustainability measures that we are currently undertaking to monitor our emissions and improve our energy and resource efficiency, we may experience significant increases in our manufacturing and distribution costs. In particular, increasing regulation of fuel emissions could substantially increase the supply chain and distribution costs associated with our products. As a result, climate change or increased concern over climate change could negatively affect our business and operations.

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Most of our products are sourced from single manufacturing sites, which means disruptions in our or our co‑packers operations for any number of reasons could have a material adverse effect on our business.

Our products are manufactured at many different manufacturing facilities, including our ten manufacturing facilities and manufacturing facilities operated by our co‑packers. However, in most cases, individual products are produced only at a single location. If any of these manufacturing locations experiences a disruption for any reason, including a work stoppage, power failure, fire, or weather related condition or natural disaster, etc., this could result in a significant reduction or elimination of the availability of some of our products. If we were not able to obtain alternate production capability in a timely manner or on satisfactory terms, this could have a material adverse effect on our business, consolidated financial condition, results of operations or liquidity.

Our operations are subject to numerous laws and governmental regulations, exposing us to potential claims and compliance costs that could adversely affect our business.

Our operations are subject to extensive regulation by the FDA, the USDA, the FTC, the CPSC, the United States Department of Labor, the Environmental Protection Agency and various other federal, state, local and foreign authorities. We are also subject to U.S. laws affecting operations outside of the United States, including anti‑bribery laws such as the Foreign Corrupt Practices Act (FCPA). Any changes in these laws and regulations, or any changes in how existing or future laws or regulations will be enforced, administered or interpreted could increase the cost of developing, manufacturing and distributing our products or otherwise increase the cost of conducting our business, or expose us to additional risk of liabilities and claims, which could have a material adverse effect on our business, consolidated financial condition, results of operations or liquidity. In addition, failure by us to comply with applicable laws and regulations, including future laws and regulations, could subject us to civil remedies, including fines, injunctions, recalls or seizures, as well as potential criminal sanctions, which could have a material adverse effect on our business, consolidated financial condition, results of operations or liquidity. See Item 1, “Business—Government Regulation” and “—Environmental Matters.”

Failure by third‑party co‑packers or suppliers of raw materials to comply with food safety, environmental or other regulations may disrupt our supply of certain products and adversely affect our business.

We rely on co‑packers to produce certain of our products and on other suppliers to supply raw materials. Such co‑packers and other suppliers, whether in the United States or outside the United States, are subject to a number of regulations, including food safety and environmental regulations. Failure by any of our co‑packers or other suppliers to comply with regulations, or allegations of compliance failure, may disrupt their operations. Disruption of the operations of a co‑packer or other suppliers could disrupt our supply of product or raw materials, which could have an adverse effect on our business, consolidated financial condition, results of operations or liquidity. Additionally, actions we may take to mitigate the impact of any such disruption or potential disruption, including increasing inventory in anticipation of a potential production or supply interruption, may adversely affect our business, consolidated financial condition, results of operations or liquidity.

A recall of our products could have a material adverse effect on our business. In addition, we may be subject to significant liability should the consumption of any of our products cause injury, illness or death.

The sale of food products for human consumption involves the risk of injury to consumers. Such injuries may result from mislabeling, tampering by unauthorized third parties or product contamination or spoilage, including the presence of foreign objects, substances, chemicals, other agents or residues introduced during the growing, manufacturing, storage, handling or transportation phases of production. Under certain circumstances, we may be required to recall products, leading to a material adverse effect on our business, consolidated financial condition, results of operations or liquidity. Even if a situation does not necessitate a recall, product liability claims might be asserted against us. We have from time to time been involved in product liability lawsuits, none of which have been material to our business. While we are subject to governmental inspection and regulations and believe our facilities comply in all material respects with all applicable laws and regulations, if the consumption of any of our products causes, or is alleged to have caused, a health‑related illness in the future we may become subject to claims or lawsuits relating to such matters. Even if a product liability claim is unsuccessful or is not fully pursued, the negative publicity surrounding any assertion that our products caused injury, illness or death could adversely affect our reputation with existing and potential customers and our corporate and brand image. Moreover, claims or liabilities of this sort might not be covered

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by our insurance or by any rights of indemnity or contribution that we may have against others. We maintain product liability insurance and product contamination insurance in amounts we believe to be adequate. However, we cannot assure you that we will not incur claims or liabilities for which we are not insured or that exceed the amount of our insurance coverage. A product liability judgment against us or a product recall or the damage to our reputation resulting therefrom could have a material adverse effect on our business, consolidated financial condition, results of operations or liquidity.

Pending and future litigation may lead us to incur significant costs.

We are, or may become, party to various lawsuits and claims arising in the normal course of business, which may include lawsuits or claims relating to contracts, intellectual property, product recalls, product liability, the marketing and labeling of products, employment matters, environmental matters or other aspects of our business. Even when not merited, the defense of these lawsuits may divert our management’s attention, and we may incur significant expenses in defending these lawsuits. In addition, we may be required to pay damage awards or settlements or become subject to injunctions or other equitable remedies, which could have a material adverse effect on our business, consolidated financial condition, results of operations or liquidity. The outcome of litigation is often difficult to predict, and the outcome of pending or future litigation may have a material adverse effect on our business, consolidated financial condition, results of operations or liquidity.

Consumer concern regarding the safety and quality of food products or health concerns could adversely affect sales of certain of our products.

If consumers in our principal markets lose confidence in the safety and quality of our food products even without a product liability claim or a product recall, our business could be adversely affected. Consumers have been increasingly focused on food safety and health and wellness with respect to the food products they buy. We have been and will continue to be impacted by publicity concerning the health implications of food products generally, which could negatively influence consumer perception and acceptance of our products and marketing programs. Developments in any of these areas could cause our results to differ materially from results that have been or may be projected.

A weakening of the U.S. dollar in relation to the Canadian dollar would significantly increase our future costs relating to the production of maple syrup products.

We purchase a significant majority of our maple syrup requirements from suppliers in Québec, Canada. 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. These increased costs may 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 operations in foreign countries are subject to political, economic and foreign currency risk.

Our relationships with foreign suppliers and co‑packers as well as our manufacturing location in Irapuato, Mexico also subject us to the risks of doing business outside the United States. The countries from which we source our raw materials and certain of our finished goods may be subject to political and economic instability, and may periodically enact new or revise existing laws, taxes, duties, quotas, tariffs, currency controls or other restrictions to which we are subject, including restrictions on the transfer of funds to and from foreign countries or the nationalization of operations. Our products are subject to import duties and other restrictions, and the U.S. government may periodically impose new or revise existing duties, quotas, tariffs or other restrictions to which we are subject, including restrictions on the transfer of funds to and from foreign countries.

In particular, if the United States takes action to withdraw from or materially modify the North American Free Trade Agreement (NAFTA) or certain other international trade agreements, or establish a “border tax,” our business, financial condition and results of operations could be materially and adversely affected.

In addition, changes in respective wage rates among the countries from which we and our competitors source product could substantially impact our competitive position. Changes in exchange rates, import/export duties or relative

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international wage rates applicable to us or our competitors could adversely impact our business, financial condition and results of operations. These changes may impact us in a different manner than our competitors.

Our financial performance on a U.S. dollar denominated basis is subject to fluctuations in currency exchange rates. These fluctuations could cause material variations in our results of operations. Our principal exposures are to the Canadian dollar and the Mexican peso. For example, our foreign sales are primarily to customers in Canada. Net sales in Canada accounted for 7.1% of our total net sales in 2016.  Although our sales for export to other countries are generally denominated in U.S. dollars, our sales to Canada are generally denominated in Canadian dollars. As a result, our net sales to Canada are subject to the effect of foreign currency fluctuations, and these fluctuations could have an adverse impact on operating results. From time to time, we may enter into agreements that are intended to reduce the effects of our exposure to currency fluctuations, but these agreements may not be effective in significantly reducing our exposure.

Litigation regarding our trademarks and any other proprietary rights and intellectual property infringement claims may have a significant negative impact on our business.

We maintain an extensive trademark portfolio that we consider to be of significant importance to our business. If the actions we take to establish and protect our trademarks and other proprietary rights are not adequate to prevent imitation of our products by others or to prevent others from seeking to block sales of our products as an alleged violation of their trademarks and proprietary rights, it may be necessary for us to initiate or enter into litigation in the future to enforce our trademark rights or to defend ourselves against claimed infringement of the rights of others. Any legal proceedings could result in an adverse determination that could have a material adverse effect on our business, consolidated financial condition, results of operations or liquidity.

We face risks associated with our defined benefit pension plans and multiemployer pension plan obligations.

We maintain four defined benefit pension plans that cover approximately one third of our employees. A deterioration in the value of plan assets resulting from poor market performance, a general financial downturn or otherwise could cause an increase in the amount of contributions we are required to make to these plans. For example, our defined benefit pension plans may from time to time move from an overfunded to underfunded status driven by decreases in plan asset values that may result from changes in long‑term interests rates and disruptions in U.S. or global financial markets. Additionally, historically low interest rates coupled with poor market performance would have the effect of decreasing the funded status of these plans which would result in greater required contributions. For a more detailed description of these plans, see Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies; Use of Estimates—Pension Expense” and Note 12, “Pension Benefits,” to our consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10‑K.

We also participate in a multiemployer pension plan maintained by the labor union representing certain of our employees at our Portland, Maine facility. We make periodic contributions to this plan pursuant to the terms of a collective bargaining agreement. In the event that we withdraw from participation in this plan or substantially reduce our participation in this plan (such as due to a workforce reduction), applicable law could require us to make withdrawal liability payments to the plan, and we would have to reflect that liability on our balance sheet. The amount of our withdrawal liability would depend on the extent of this plan’s funding of vested benefits at the time of our withdrawal. Furthermore, our withdrawal liability could increase as the number of employers participating in this plan decreases.

For a more detailed description of this multiemployer plan, see Note 12, “Pension Benefits,” to our consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10‑K.

An obligation to make additional, unanticipated contributions to our defined benefit plans or the multiemployer plan described above could reduce the cash available for working capital and other corporate uses, and may have a material adverse effect on our business, consolidated financial position, results of operations and liquidity.

Our financial well‑being could be jeopardized by unforeseen changes in our employees’ collective bargaining agreements, shifts in union policy or labor disruptions in the food industry.

As of December 31, 2016, approximately 60% of our 2,590 employees were covered by collective bargaining agreements. A prolonged work stoppage or strike at any of our facilities with union employees or a significant work

-  17  -


 

disruption from other labor disputes in the food or related industries could have a material adverse effect on our business, consolidated financial condition, results of operations or liquidity. We are currently in negotiations for a new collective bargaining agreement to replace the existing collective bargaining agreement for our Portland, Maine manufacturing facility, which covers approximately 80 employees, that is scheduled to expire on April 29, 2017. However, we cannot assure you that we will be able to negotiate a new collective bargaining agreement for our Portland facility on terms satisfactory to us, or at all, and without production interruptions, including labor stoppages. If prior to the expiration of the collective bargaining agreement for the Portland facility or prior to the expiration of any of our other existing collective bargaining agreements we are unable to reach new agreements without union action or any such new agreements are not on terms satisfactory to us, our business, consolidated financial condition, results of operations or liquidity could be materially and adversely affected.

We are increasingly dependent on information technology; Disruptions, failures or security breaches of our information technology infrastructure could have a material adverse effect on our operations.

Information technology is critically important to our business operations. We rely on information technology networks and systems, including the Internet, to process, transmit and store electronic and financial information, to manage a variety of business processes and activities, including manufacturing, financial, logistics, sales, marketing and administrative functions. We depend on our information technology infrastructure to communicate internally and externally with employees, customers, suppliers and others. We also use information technology networks and systems to comply with regulatory, legal and tax requirements. These information technology systems, many of which are managed by third parties or used in connection with shared service centers, may be susceptible to damage, disruptions or shutdowns due to failures during the process of upgrading or replacing software, databases or components thereof, power outages, hardware failures, computer viruses, attacks by computer hackers or other cybersecurity risks, telecommunication failures, user errors, natural disasters, terrorist attacks or other catastrophic events. If any of our significant information technology systems suffer severe damage, disruption or shutdown, and our disaster recovery and business continuity plans do not effectively resolve the issues in a timely manner, our product sales, financial condition and results of operations may be materially and adversely affected, and we could experience delays in reporting our financial results.

In addition, if we are unable to prevent physical and electronic break‑ins, cyber‑attacks and other information security breaches, we may suffer financial and reputational damage, be subject to litigation or incur remediation costs or penalties because of the unauthorized disclosure of confidential information belonging to us or to our partners, customers, suppliers or employees. The mishandling or inappropriate disclosure of non‑public sensitive or protected information could lead to the loss of intellectual property, negatively impact planned corporate transactions or damage our reputation and brand image. Misuse, leakage or falsification of legally protected information could also result in a violation of data privacy laws and regulations and have a negative impact on our reputation, business, financial condition and results of operations.

We may experience difficulties fully implementing our new enterprise resource planning system.

We are implementing a new enterprise resource planning (ERP) system. The implementation of the new ERP system has required, and will continue to require, the investment of significant financial and human resources. We  may not be able to complete successfully the full implementation of the ERP systems without experiencing difficulties. Any disruptions, delays or deficiencies in the design and implementation of the new ERP system could adversely affect our ability to produce products, process orders, ship products, provide services and customer support, send invoices and track payments, fulfill contractual obligations, effectively integrate the spices & seasonings business into our infrastructure prior to the expiration of the transition services agreement,  or otherwise operate our business.  It is also possible that the migration to a new ERP system could adversely affect our internal controls over financial reporting.

If we are unable to retain our key management personnel, our growth and future success may be impaired and our results of operations could suffer as a result.

Our success depends to a significant degree upon the continued contributions of senior management, certain of whom would be difficult to replace. As a result, departure by members of our senior management could have a material adverse effect on our business and results of operations. In addition, we do not maintain key‑man life insurance on any of our executive officers.

-  18  -


 

We are a holding company and we rely on dividends, interest and other payments, advances and transfers of funds from our subsidiaries to meet our obligations.

We are a holding company, with all of our assets held by our direct and indirect subsidiaries, and we rely on dividends and other payments or distributions from our subsidiaries to meet our debt service obligations and to enable us to pay dividends. The ability of our subsidiaries to pay dividends or make other payments or distributions to us depends on their respective operating results and may be restricted by, among other things, the laws of their jurisdiction of organization (which may limit the amount of funds available for the payment of dividends), agreements of those subsidiaries, our credit agreement, our senior notes indenture and the covenants of any future outstanding indebtedness we or our subsidiaries incur.

Future changes that increase cash taxes payable by us could significantly decrease our future cash flow available to make interest and dividend payments with respect to our securities.

We are able to amortize goodwill and certain intangible assets within the meaning of Section 197 of the Internal Revenue Code of 1986. We expect to be able to amortize for tax purposes approximately $1,288.0  million between 2017 and 2031. The expected annual deductions are approximately $118.8 million for fiscal 2017, approximately $116.1 million for fiscal 2018, approximately $111.8 million for fiscal 2019, approximately $110.2 million for fiscal 2020, approximately $107.3 million for fiscal 2021, approximately $96.3 million for fiscal 2022, approximately $94.1 million per year for fiscal 2023 through 2024, approximately $93.9 million for fiscal 2025, approximately $90.2 million for fiscal 2026, approximately $70.6 million for fiscal 2027, approximately $62.8 million for fiscal 2028, approximately $55.6 million for fiscal 2029, approximately $49.5 million for fiscal 2030, and approximately $16.7 million for fiscal 2031. If there is a change in U.S. federal tax policy that reduces any of these available deductions, eliminates or reduces the interest deduction we receive on our substantial indebtedness, or otherwise results in an increase in our corporate tax rate, our cash taxes payable would increase, which could significantly reduce our future cash and impact our ability to make interest and dividend payments.

A change in the assumptions used to value our goodwill or our unamortizable intangible assets could negatively affect our consolidated results of operations and net worth.

Our total assets include substantial goodwill and unamortizable intangible assets (trademarks). These assets are tested for impairment at least annually and whenever events or circumstances occur indicating that goodwill or unamortizable intangibles might be impaired. The annual goodwill impairment test involves a two‑step process. The first step of the impairment test involves comparing our company’s market capitalization with our company’s carrying value, including goodwill. If the carrying value of our company exceeds our market capitalization, we perform the second step of the impairment test to determine the amount of the impairment loss. The second step of the goodwill impairment test involves comparing the implied fair value of goodwill with the carrying value and recognizing a loss for the difference. We test our unamortizable intangibles by comparing the fair value with the carrying value and recognize a loss for the difference. We estimate the fair value of our unamortizable intangibles based on discounted cash flows that reflect certain third party market value indicators. Estimating our fair value for these purposes requires significant estimates and assumptions by management. We completed our annual impairment tests for fiscal 2016, 2015 and 2014 with no adjustments to the carrying values of goodwill and unamortizable intangibles. However, an interim impairment analysis relating to one of our brands performed during fiscal 2014, resulted in our company recording non‑cash impairment charges to amortizable trademarks and customer relationship intangibles for the brand of $26.9 million and $7.3 million, respectively, during fiscal 2014, which is recorded in “Impairment of intangible assets” on the accompanying consolidated statement of operations for fiscal 2014.  During the second quarter of 2016, we discontinued that 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” on the accompanying consolidated statement of operations for fiscal 2016.  If operating results for any of our other brands, including newly acquired brands, deteriorate, at rates in excess of our current projections, we may be required to record additional non‑cash impairment charges to certain intangible assets. In addition, any significant decline in our market capitalization, even if due to macroeconomic factors, could put pressure on the carrying value of our goodwill. A determination that all or a portion of our goodwill or unamortizable intangible assets are impaired, although a non‑cash charge to operations, could have a material adverse effect on our business, consolidated financial condition and results of operations.

-  19  -


 

Any future financial market disruptions or tightening of the credit markets could expose us to additional credit risks from customers and supply risks from suppliers and co‑packers.

Any future financial market disruptions or tightening of the credit markets could result in some of our customers experiencing a significant decline in profits and/or reduced liquidity. A significant adverse change in the financial and/or credit position of a customer could require us to assume greater credit risk relating to that customer and could limit our ability to collect receivables. A significant adverse change in the financial and/or credit position of a supplier or co‑packer could result in an interruption of supply. This could have a material adverse effect on our business, consolidated financial condition, results of operations and liquidity.

Risks Relating to our Securities

Holders of our common stock may not receive the level of dividends provided for in our dividend policy or any dividends at all.

Dividend payments are not mandatory or guaranteed and holders of our common stock do not have any legal right to receive, or require us to pay, dividends. Our board of directors may, in its sole discretion, decrease the level of dividends provided for in our dividend policy or entirely discontinue the payment of dividends. Future dividends with respect to shares of our capital stock, if any, depend on, among other things, our results of operations, cash requirements, financial condition, contractual restrictions (including restrictions in our credit agreement and senior notes indenture), business opportunities, provisions of applicable law (including certain provisions of the Delaware General Corporation Law) and other factors that our board of directors may deem relevant.

If our cash flows from operating activities were to fall below our minimum expectations (or if our assumptions as to capital expenditures or interest expense were too low or our assumptions as to the sufficiency of our revolving credit facility to finance our working capital needs were to prove incorrect), we may need either to reduce or eliminate dividends or, to the extent permitted under our credit agreement and senior notes indenture, fund a portion of our dividends with borrowings or from other sources. If we were to use working capital or permanent borrowings to fund dividends, we would have less cash and/or borrowing capacity available for future dividends and other purposes, which could negatively impact our financial condition, results of operations, liquidity and ability to maintain or expand our business.

Our dividend policy may negatively impact our ability to finance capital expenditures, operations or acquisition opportunities.

Under our dividend policy, a substantial portion of our cash generated by our business in excess of operating needs, interest and principal payments on indebtedness, and capital expenditures sufficient to maintain our properties and assets is in general distributed as regular quarterly cash dividends to the holders of our common stock. As a result, we may not retain a sufficient amount of cash to finance growth opportunities or unanticipated capital expenditure needs or to fund our operations in the event of a significant business downturn. We may have to forego growth opportunities or capital expenditures that would otherwise be necessary or desirable if we do not find alternative sources of financing. If we do not have sufficient cash for these purposes, our financial condition and our business will suffer.

Our certificate of incorporation authorizes us to issue without stockholder approval preferred stock that may be senior to our common stock in certain respects.

Our certificate of incorporation authorizes the issuance of preferred stock without stockholder approval and, in the case of preferred stock, upon such terms as the board of directors may determine. The rights of the holders of shares of our common stock will be subject to, and may be adversely affected by, the rights of holders of any class or series of preferred stock that may be issued in the future, including any preferential rights that we may grant to the holders of preferred stock. The terms of any preferred stock we issue may place restrictions on the payment of dividends to the holders of our common stock. If we issue preferred stock that is senior to our common stock in right of dividend payment, and our cash flows from operating activities or surplus are insufficient to support dividend payments to the holders of preferred stock, on the one hand, and to the holders common stock, on the other hand, we may be forced to reduce or eliminate dividends to the holders of our common stock.

-  20  -


 

Future sales or the possibility of future sales of a substantial number of shares of our common stock or other securities convertible or exchangeable into common stock may depress the price of our common stock.

We may issue shares of our common stock or other securities convertible or exchangeable into common stock from time to time in future financings or as consideration for future acquisitions and investments. In the event any such future financing, acquisition or investment is significant, the number of shares of our common stock or other securities convertible or exchangeable into common stock that we may issue may in turn be significant. In addition, we may grant registration rights covering shares of our common stock or other securities convertible or exchangeable into common stock, as applicable, issued in connection with any such future financing, acquisitions and investments.

Future sales or the availability for sale of a substantial number of shares of our common stock or other securities convertible or exchangeable into common stock, whether issued and sold pursuant to our currently effective shelf registration statement or otherwise, would dilute our earnings per share and the voting power of each share of common stock outstanding prior to such sale or distribution, could adversely affect the prevailing market price of our securities and could impair our ability to raise capital through future sales of our securities.

Our certificate of incorporation and bylaws and several other factors could limit another party’s ability to acquire us and deprive our investors of the opportunity to obtain a takeover premium for their securities.

Our certificate of incorporation and bylaws contain certain provisions that may make it difficult for another company to acquire us and for holders of our securities to receive any related takeover premium for their securities. For example, our certificate of incorporation authorizes the issuance of preferred stock without stockholder approval and upon such terms as the board of directors may determine. The rights of the holders of shares of our common stock will be subject to, and may be adversely affected by, the rights of holders of any class or series of preferred stock that may be issued in the future.

Item 1B.  Unresolved Staff Comments.

None.

-  21  -


 

Item 2.  Properties.

Our corporate headquarters are located at Four Gatehall Drive, Parsippany, NJ 07054. Our manufacturing facilities are generally located near major customer markets and raw materials. Of our ten manufacturing facilities, eight are owned and two are leased. Management believes that our manufacturing facilities have sufficient capacity to accommodate our planned growth. Listed below are our manufacturing facilities and the principal warehouses, distribution centers and offices that we own or lease.

 

 

 

 

 

 

Facility Location

    

Owned/Leased

    

Description

 

Irapuato, Mexico

 

Owned

 

Manufacturing/Warehouse

 

Hurlock, Maryland

 

Owned

 

Manufacturing/Warehouse

 

Ankeny, Iowa

 

Owned

 

Manufacturing/Warehouse

 

Portland, Maine

 

Owned

 

Manufacturing/Warehouse

 

Stoughton, Wisconsin

 

Owned

 

Manufacturing/Warehouse

 

St. Johnsbury, Vermont

 

Owned

 

Manufacturing/Warehouse

 

Williamstown, New Jersey

 

Owned

 

Manufacturing/Warehouse

 

Yadkinville, North Carolina

 

Owned

 

Manufacturing/Warehouse

 

St. Evariste, Québec

 

Owned

 

Storage Facility

 

Parsippany, New Jersey

 

Leased

 

Corporate Headquarters

 

Roseland, New Jersey

 

Leased

 

Manufacturing/Warehouse

 

Brooklyn, New York

 

Leased

 

Manufacturing/Warehouse

 

Lebanon, Tennessee

 

Leased

 

Distribution Center

 

Houston, Texas

 

Leased

 

Distribution Center

 

Easton, Pennsylvania

 

Leased

 

Distribution Center

 

Joliet, Illinois

 

Leased

 

Distribution Center

 

Le Sueur, Minnesota

 

Owned

 

Research Center

 

Mississauga, Ontario

 

Leased

 

Canadian Headquarters

 

Bentonville, Arkansas

 

Leased

 

Sales Office

 

 

 

Item 3.  Legal Proceedings.

The information set forth under the heading “Legal Proceedings” in Note 13 of Notes to Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10‑K is incorporated herein by reference.

Item 4.  Mine Safety Disclosures.

Not applicable.

-  22  -


 

PART II

Item 5.  Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Market Information

Shares of our common stock are traded on the New York Stock Exchange under the symbol “BGS” and have been so traded since May 23, 2007. The following table sets forth the high and low sales prices of shares of our common stock for each of the quarterly periods indicated.

 

 

 

 

 

 

 

 

 

    

High

    

Low

 

Fiscal 2016

 

 

 

 

 

 

 

Fourth Quarter

 

$

49.15

 

$

39.10

 

Third Quarter

 

$

52.84

 

$

44.55

 

Second Quarter

 

$

48.44

 

$

31.81

 

First Quarter

 

$

40.50

 

$

33.18

 

Fiscal 2015

 

 

 

 

 

 

 

Fourth Quarter

 

$

38.25

 

$

34.00

 

Third Quarter

 

$

37.78

 

$

28.12

 

Second Quarter

 

$

32.67

 

$

28.37

 

First Quarter

 

$

31.68

 

$

27.41

 

 

Holders

According to the records of our transfer agent, we had 53 holders of record of our common stock as of February 24, 2017, including Cede & Co. as nominee for The Depository Trust Company (DTC). Cede & Co. as nominee for DTC holds shares of our common stock on behalf of participants in the DTC system, which in turn hold the shares of common stock on behalf of beneficial owners.

-  23  -


 

Performance Graph

Set forth below is a line graph comparing the change in the cumulative total shareholder return on our company’s common stock with the cumulative total return of the Russell 2000 Index and the S&P Packaged Foods & Meats Index for the period from December 31, 2011 to December 31, 2016, assuming the investment of $100 on December 31, 2011 and the reinvestment of dividends. The common stock price performance shown on the graph only reflects the change in our company’s common stock price relative to the noted indices and is not necessarily indicative of future price performance.

Comparison of 5 Year Cumulative Total Return

Among B&G Foods, Inc. Common Stock, the Russell 2000 Index

and the S&P Packaged Foods & Meats Index

Picture 2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

12/31/2011*

    

12/29/2012

    

12/28/2013

    

1/3/2015

    

1/2/2016

    

12/31/2016

 

B&G Foods, Inc. (NYSE: BGS)

 

$

100.00

 

119.43

 

152.35

 

139.42

 

171.62

 

223.45

 

Russell 2000 Index

 

$

100.00

 

116.35

 

161.52

 

169.43

 

161.95

 

196.45

 

S&P Packaged Foods & Meats Index

 

$

100.00

 

110.39

 

144.44

 

161.07

 

189.07

 

206.34

 


*$100 invested on December 31, 2011 in B&G Foods’ common stock or index, including reinvestment of dividends. Indexes calculated on month‑end basis.

Dividend Policy

General

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 fiscal 2016 and fiscal 2015, we had cash flows from operating activities of $289.7 million and $128.5 million, respectively, and distributed $100.8 million and $76.5 as dividends, respectively. At our current dividend rate of $1.86 per share per annum, we expect our aggregate dividend payments in 2017 to be approximately $123.6 million.

-  24  -


 

The following table sets forth the dividends per share we have declared in each of the quarterly periods of 2016 and 2015:

 

 

 

 

 

 

 

 

 

    

Fiscal 2016

    

Fiscal 2015

 

Fourth Quarter

 

$

0.465

 

$

0.350

 

Third Quarter

 

$

0.420

 

$

0.350

 

Second Quarter

 

$

0.420

 

$

0.340

 

First Quarter

 

$

0.420

 

$

0.340

 

 

Under U.S. federal income tax law, distributions to holders of our common stock are taxable to the extent they are paid out of current or accumulated earnings and profits. Generally, the portion of the distribution treated as a return of capital should reduce the tax basis in the shares of common stock up to a holder’s adjusted basis in the common stock, with any excess treated as capital gains. Qualifying dividend income and the return of capital, if any, will be allocated on a pro‑forma basis to all distributions for each fiscal year. Based on U.S. federal income tax laws, B&G Foods has determined that for fiscal 2016 and fiscal 2015, 34.6% and 37.7%, respectively, of distributions paid on common stock will be treated as a return of capital and 65.4% and 62.3%, respectively, will be treated as a taxable dividend paid from earnings and profits.

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.

Restrictions on Dividend Payments

Our ability to pay future dividends, if any, with respect to shares of our capital stock will depend on, among other things, our results of operations, cash requirements, financial condition, contractual restrictions, provisions of applicable law and other factors that our board of directors may deem relevant. Under Delaware law, our board of directors may declare dividends only to the extent of our “surplus” (which is defined as total assets at fair market value minus total liabilities, minus statutory capital), or if there is no surplus, out of our net profits for the then current and/or immediately preceding fiscal years. Our board of directors will periodically and from time to time assess the appropriateness of the then current dividend policy before actually declaring any dividends.

In general, our senior notes indenture restricts our ability to declare and pay dividends on our common stock as follows:

·

we may use up to 100% of our excess cash (as defined below) for the period (taken as one accounting period) from and including March 31, 2013 to the end of our most recent fiscal quarter for which internal financial statements are available at the time of such payments, plus certain incremental funds described in the indenture for the payment of dividends so long as the fixed charge coverage ratio for the four most recent fiscal quarters for which internal financial statements are available is not less than 1.6 to 1.0; and

·

we may not pay any dividends on any dividend payment date if a default or event of default under our indenture has occurred or is continuing.

Excess cash is defined in our senior notes indenture and under the terms of our credit agreement. Excess cash is calculated as “consolidated cash flow,” as defined in the indenture and under the terms of our credit agreement (which, in each case, allows for certain adjustments and which is equivalent to the term adjusted EBITDA), minus the sum of cash tax expense, cash interest expense, certain capital expenditures, excess tax benefit from issuance of LTIA shares, certain repayment of indebtedness and the cash portion of restructuring charges.

-  25  -


 

In addition, the terms of our credit agreement also restrict our ability to declare and pay dividends on our common stock. In accordance with the terms of our credit agreement, we are not permitted to declare or pay dividends unless we are permitted to do so under our senior notes indenture. In addition, our credit agreement does not permit us to pay dividends unless we maintain:

·

a “consolidated interest coverage ratio” (defined as the ratio of our adjusted EBITDA for any period of four consecutive fiscal quarters to our consolidated interest expense for such period payable in cash) of not less than 1.75 to 1.0; and

·

a “consolidated leverage ratio” (defined as the ratio of our consolidated total debt, as of the last day of any period of four consecutive fiscal quarters to our adjusted EBITDA for such period) of not more than 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.

Recent Sales of Unregistered Securities

We did not issue any unregistered securities in fiscal 2016.

Issuer Purchases of Equity Securities

We did not repurchase any shares of our common stock during the fourth quarter of fiscal 2016.

-  26  -


 

Item 6.  Selected Financial Data.

The following selected historical consolidated financial data should be read in conjunction with Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our audited consolidated financial statements and related notes to those statements included in this report. The selected historical consolidated financial data as of and for the fiscal years ended December 31, 2016 (fiscal 2016), January 2, 2016 (fiscal 2015), January 3, 2015 (fiscal 2014), December 28, 2013 (fiscal 2013) and December 29, 2012 (fiscal 2012) have been derived from our audited consolidated financial statements.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fiscal 2016

 

Fiscal 2015

 

Fiscal 2014

 

Fiscal 2013

 

Fiscal 2012

 

 

 

(In thousands, except per share data and ratios)

 

Consolidated Statement of Operations Data(1):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales(2)

 

$

1,391,257

 

$

966,358

 

$

848,017

 

$

724,973

 

$

633,812

 

Cost of goods sold(3)

    

 

943,295

    

 

676,794

    

 

600,246

    

 

482,050

    

 

410,469

 

Gross profit

 

 

447,962

 

 

289,564

 

 

247,771

 

 

242,923

 

 

223,343

 

Selling, general and administrative expenses(4)

 

 

174,759

 

 

105,939

 

 

93,033

 

 

79,043

 

 

66,212

 

Amortization expense(5)

 

 

13,803

 

 

11,255

 

 

12,692

 

 

9,884

 

 

8,126

 

Impairment of intangible assets(6)

 

 

5,405

 

 

 —

 

 

34,154

 

 

 —

 

 

 —

 

Gain on change in fair value of contingent consideration(7)

 

 

 —

 

 

 —

 

 

(8,206)

 

 

 —

 

 

 —

 

Operating income

 

 

253,995

 

 

172,370

 

 

116,098

 

 

153,996

 

 

149,005

 

Interest expense, net

 

 

74,456

 

 

51,131

 

 

46,573

 

 

41,813

 

 

47,660

 

Loss on extinguishment of debt(8)

 

 

2,836

 

 

 —

 

 

5,748

 

 

31,291

 

 

10,431

 

Other income(9)

 

 

(363)

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

Income before income tax expense

 

 

177,066

 

 

121,239

 

 

63,777

 

 

80,892

 

 

90,914

 

Income tax expense

 

 

67,641

 

 

52,149

 

 

22,821

 

 

28,549

 

 

31,654

 

Net income

 

$

109,425

 

$

69,090

 

$

40,956

 

$

52,343

 

$

59,260

 

Earnings per share data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average basic common shares outstanding

 

 

63,203

 

 

56,585

 

 

53,658

 

 

52,998

 

 

49,239

 

Weighted average diluted common shares outstanding

 

 

63,420

 

 

56,656

 

 

53,747

 

 

53,182

 

 

49,557

 

Cash dividends declared per common share

 

$

1.73

 

$

1.38

 

$

1.36

 

$

1.23

 

$

1.1

 

Basic earnings per common share

 

$

1.73

 

$

1.22

 

$

0.76

 

$

0.99

 

$

1.2

 

Diluted earnings per common share

 

$

1.73

 

$

1.22

 

$

0.76

 

$

0.98

 

$

1.2

 

Other Financial Data(1):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net cash provided by operating activities

 

$

289,661

 

$

128,479

 

$

99,126

 

$

114,910

 

$

100,528

 

Capital expenditures

 

 

(42,418)

 

 

(18,574)

 

 

(19,025)

 

 

(14,649)

 

 

(10,637)

 

Cash payments for acquisition of businesses

 

 

(438,787)

 

 

(873,811)

 

 

(154,277)

 

 

(247,281)

 

 

(62,667)

 

Net cash provided by (used in) financing activities

 

 

216,005

 

 

767,444

 

 

71,619

 

 

131,828

 

 

(24,744)

 

EBITDA(10)

 

$

291,624

 

$

201,023

 

$

143,532

 

$

178,073

 

$

167,858

 

Ratio of earnings to fixed charges(11)

 

 

3.3x

 

 

3.3x

 

 

2.3x

 

 

2.8x

 

 

2.8x

 

Senior debt / EBITDA(12)

 

 

6.0x

 

 

8.8x

 

 

7.2x

 

 

4.9x

 

 

3.8x

 

Total debt / EBITDA

 

 

6.0x

 

 

8.8x

 

 

7.1x

 

 

4.9x

 

 

3.8x

 

EBITDA / cash interest expense(13)

 

 

4.2x

 

 

4.3x

 

 

3.4x

 

 

4.8x

 

 

3.9x

 

Consolidated Balance Sheet Data (at end of period)(1):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

28,833

 

$

5,246

 

$

1,490

 

$

4,107

 

$

19,219

 

Total assets

 

 

3,043,505

 

 

2,571,715

 

 

1,649,353

 

 

1,484,343

 

 

1,191,968

 

Total debt

 

 

1,746,769

 

 

1,759,616

 

 

1,025,857

 

 

870,885

 

 

637,689

 

Total stockholders’ equity

 

$

785,657

 

$

457,685

 

$

337,995

 

$

378,363

 

$

361,175

 


(1)

We completed the Victoria acquisition from Huron Capital Partners and certain other sellers on December 2, 2016. We completed the spices & seasonings acquisition from ACH Food Companies, Inc. on November 21, 2016. We completed the Green Giant acquisition from General Mills, Inc., on November 2, 2015. We completed the Mama Mary’s acquisition from Linsalata Capital Partners and certain other sellers on July 10, 2015. We completed the Specialty Brands acquisition from affiliates of American Capital, Ltd., and certain individual sellers, on April 23, 2014. We completed the Rickland Orchards acquisition from Natural Instincts LLC on October 7, 2013. We completed the Pirate Brands acquisition from affiliates of VMG Partners and Driven Capital Management, and certain other entities and individuals, on July 8, 2013. We completed the TrueNorth acquisition from DeMet’s Candy Company on May 6, 2013. We completed the New York Style acquisition from Chipita America on October 31, 2012. Each of these acquisitions has been accounted for using the acquisition method of accounting

-  27  -


 

and, accordingly, the assets acquired, liabilities assumed and results of operations of the acquired business is included in our consolidated financial statements from the date of acquisition.

(2)

Fiscal 2016, 2015, 2013 and 2012 each contained 52 weeks and fiscal 2014 contained 53 weeks. Net sales for fiscal 2015 and fiscal 2014 were negatively impacted by $1.2 million and $4.1 million, respectively, of customer refunds, net of insurance recoveries, related to our November 2014 voluntary recall of certain Ortega and Las Palmas products.

(3)

Cost of goods sold for fiscal 2016 includes $5.4 million of amortization of acquisition-related inventory fair value step-up (for certain spices & seasonings business inventory acquired and sold during the period and certain Green Giant inventory sold during the period) and a $0.8 million loss on disposal of inventory related to the impairment of Rickland Orchards.  Fiscal 2015 includes $6.1 million of amortization of acquisition‑related inventory fair value step‑up (for certain Green Giant inventory acquired and sold during the period) and $0.5 million of charges, net of insurance recoveries, related to the Ortega and Las Palmas recall. Fiscal 2014 includes $8.2 million of inventory write‑off and other cost of goods sold charges, net of insurance recoveries, related to the Ortega and Las Palmas recall and a $4.5 million loss on disposal of inventory related to the impairment of Rickland Orchards.

(4)

Selling, general and administrative expenses for fiscal 2016 include $17.5 million of acquisition‑related expenses for the Victoria, spices & seasonings, Green Giant and Mama Mary’s acquisitions and $1.3 million of distribution restructuring expenses.  Selling, general and administrative expenses for fiscal 2015 include $6.1 million of acquisition‑related expenses for the Green Giant and Mama Mary’s acquisitions, $2.7 million of distribution restructuring expenses and $0.2 million of administrative expenses, net of insurance recoveries, related to the Ortega and Las Palmas recall. Selling, general and administrative expenses for fiscal 2014 include $7.3 million of acquisition‑related expenses for the Specialty Brands, Rickland Orchards and Pirate Brands acquisitions and $0.5 million of administrative expenses, net of insurance recoveries, related to the Ortega and Las Palmas recall. Selling, general and administrative expenses for fiscal 2013 include $5.9 million of acquisition‑related expenses for the Rickland Orchards,  TrueNorth and Pirate Brands acquisitions partially offset by a gain of $1.5 million relating to a legal settlement. Selling, general and administrative expenses for fiscal 2012 include $1.2 million of acquisition‑related expenses for the New York Style acquisition.

(5)

Amortization expense includes the amortization of customer relationships, amortizable trademarks and other intangible assets acquired in the Victoria, spices & seasonings, Green Giant,  Mama Mary’s, Specialty Brands, Rickland Orchards, Pirate Brands, TrueNorth,  New York Style and prior acquisitions.

(6)

Impairment of intangible assets for fiscal 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.  Impairment of intangible assets for fiscal 2014 includes a $26.8 million loss for the impairment of amortizable trademarks and a $7.4 million loss for the impairment of customer relationship intangibles, both relating to Rickland Orchards.

(7)

In addition to the base purchase price consideration paid at closing, the acquisition agreement for Rickland Orchards requires that we pay additional purchase price earn‑out consideration contingent upon the achievement of revenue growth targets for fiscal 2014, 2015 and 2016. At the time of acquisition, we established the fair value of the contingent consideration using revenue growth targets meant to achieve operating results in excess of base purchase price acquisition model assumptions. As required, at June 28, 2014 we remeasured the fair value of the contingent consideration using actual operating results through June 28, 2014 and revised forecasted operating results for the remainder of fiscal 2014, 2015 and 2016, and reduced the probability of achievement and the fair value of the contingent consideration to zero. This resulted in a non‑cash gain of $8.2 million that is included in gain on change in fair value of contingent consideration in fiscal 2014.

(8)

Fiscal 2016 loss on extinguishment of debt includes the write-off of deferred debt financing costs of $2.2 million and the write-off of unamortized discount of $0.6 million 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. Fiscal 2014 loss on extinguishment of debt includes the write‑off of deferred debt financing costs of $5.4 million and the write‑off of unamortized discount of $0.3 million in connection with the termination of

-  28  -


 

our prior credit agreement and the repayment of all outstanding obligations thereunder. Fiscal 2013 loss on extinguishment of debt includes costs relating to our repurchase of $248.5 million aggregate principal amount of 7.625% senior notes and our repayment of $222.2 million aggregate principal amount of tranche B term loans, including the repurchase premium and other expenses of $20.2 million, the write‑off of deferred debt financing costs of $8.3 million and the write‑off of unamortized discount of $2.8 million. Fiscal 2012 loss on extinguishment of debt includes costs relating to our partial redemption of $101.5 million aggregate principal amount of 7.625% senior notes, including the repurchase premium and other expenses of $7.7 million, the write‑off of deferred debt financing costs of $1.5 million and the write‑off of unamortized discount of $0.5 million. Loss on extinguishment during fiscal 2012 also includes costs related to the amendment and restatement of our credit agreement, including the write‑off of deferred debt financing costs of $0.4 million, unamortized discount of $0.1 million and other expenses of $0.2 million.

(9)

Other income for fiscal 2016 includes remeasurement of monetary assets denominated in a foreign currency into U.S. dollars of $0.4 million.

(10)

EBITDA and adjusted EBITDA are non‑GAAP financial measures used by management to measure operating performance. 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 GAAP in our consolidated balance sheets and related consolidated statements of operations, comprehensive income, changes in stockholders’ equity and cash flows. We define EBITDA as net income before net interest expense, income taxes, depreciation and amortization and loss on extinguishment of debt (see (8) above). 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 and amortization of acquired inventory fair value step‑up); intangible asset impairment charges and related asset write‑offs; gains or losses related to changes in the fair value of contingent liabilities from earn‑outs; loss on product recalls, including customer refunds, selling, general and administrative expenses and the impact on cost of sales; 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, gains or losses related to changes in the fair value of contingent liabilities from earn‑outs, loss on product recalls 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 indenture 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 an alternative to operating income or net income 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 and income taxes, intangible asset impairment charges and related asset write‑offs, gains or losses related to changes in the fair value of contingent liabilities from earn‑outs , loss on product recalls 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

-  29  -


 

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.

A reconciliation of EBITDA and adjusted EBITDA to net income and to net cash provided by operating activities for fiscal 2016, 2015, 2014, 2013 and 2012 along with the components of EBITDA and adjusted EBITDA follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Fiscal 2016

    

Fiscal 2015

    

Fiscal 2014

    

Fiscal 2013

    

Fiscal 2012

 

 

 

(In thousands)

 

Net income

 

$

109,425

 

$

69,090

 

$

40,956

 

$

52,343

 

$

59,260

 

Income tax expense

 

 

67,641

 

 

52,149

 

 

22,821

 

 

28,549

 

 

31,654

 

Interest expense, net

 

 

74,456

 

 

51,131

 

 

46,573

 

 

41,813

 

 

47,660

 

Depreciation and amortization

 

 

37,266

 

 

28,653

 

 

27,434

 

 

24,077

 

 

18,853

 

Loss on extinguishment of debt(A)

 

 

2,836

 

 

 —

 

 

5,748

 

 

31,291

 

 

10,431

 

EBITDA

 

 

291,624

 

 

201,023

 

 

143,532

 

 

178,073

 

 

167,858

 

Acquisition-related expenses

 

 

17,523

 

 

6,118

 

 

7,315

 

 

5,932

 

 

1,159

 

Amortization of acquisition-related inventory step-up(B)

 

 

5,424

 

 

6,127

 

 

 —

 

 

 —

 

 

 —

 

Impairment of intangible assets(C)

 

 

5,405

 

 

 —

 

 

34,154

 

 

 —

 

 

 —

 

Loss on disposal of inventory(D)

 

 

791

 

 

 —

 

 

4,535

 

 

 —

 

 

 —

 

Loss on product recall, net of insurance recoveries(E)

 

 

 —

 

 

1,868

 

 

12,798

 

 

 —

 

 

 —

 

Distribution restructuring expenses(F)

 

 

1,273

 

 

2,665

 

 

 —

 

 

 —

 

 

 —

 

Gain on change in fair value of contingent consideration(G)

 

 

 —

 

 

 —

 

 

(8,206)

 

 

 —

 

 

 —

 

Adjusted EBITDA

 

 

322,040

 

 

217,801

 

 

194,128

 

 

184,005

 

 

169,017

 

Income tax expense

 

 

(67,641)

 

 

(52,149)

 

 

(22,821)

 

 

(28,549)

 

 

(31,654)

 

Interest expense, net

 

 

(74,456)

 

 

(51,131)

 

 

(46,573)

 

 

(41,813)

 

 

(47,660)

 

Acquisition-related expenses

 

 

(17,523)

 

 

(6,118)

 

 

(7,315)

 

 

(5,932)

 

 

(1,159)

 

Loss on product recall, net of insurance recoveries

 

 

 —

 

 

(1,868)

 

 

(12,798)

 

 

 —

 

 

 —

 

Distribution restructuring expenses

 

 

(1,273)

 

 

(2,665)

 

 

 —

 

 

 —

 

 

 —

 

Write-off of property, plant and equipment(H)

 

 

337

 

 

(107)

 

 

 —

 

 

 —

 

 

 —

 

Deferred income taxes

 

 

56,190

 

 

29,152

 

 

13,855

 

 

20,800

 

 

15,295

 

Amortization of deferred financing costs and bond discount

 

 

5,426

 

 

3,900

 

 

3,790

 

 

4,400

 

 

5,028

 

Amortization of acquisition-related inventory step-up

 

 

(5,424)

 

 

(6,127)

 

 

 —

 

 

 —

 

 

 —

 

Share-based compensation expense

 

 

5,798

 

 

5,817

 

 

2,235

 

 

3,935

 

 

3,777

 

Excess tax benefits from share-based compensation

 

 

(343)

 

 

(539)

 

 

(2,356)

 

 

(4,192)

 

 

(8,031)

 

Acquisition-related contingent consideration expense, including interest accretion

 

 

 —

 

 

 —

 

 

432

 

 

208

 

 

 —

 

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

 

 

66,530

 

 

(7,487)

 

 

(23,451)

 

 

(17,952)

 

 

(4,085)

 

Net cash provided by operating activities

 

$

289,661

 

$

128,479

 

$

99,126

 

$

114,910

 

$

100,528

 


(A)

See footnote (8) above.

(B)

See footnote (3) above.

(C)

See footnote (6) above.

(D)

Represents a loss on disposal of inventory related to the impairment of Rickland Orchards. See footnote (6) above.

-  30  -


 

(E)

See Note 13, “Commitments and Contingencies—Ortega and Las Palmas Recall,” to our consolidated financial statements in Part II, Item 8 of this report, for detailed information.

(F)

Distribution restructuring expenses for fiscal 2016 and fiscal 2015 includes expenses relating to our transitioning of the operations of our three primary distribution centers and a new fourth primary shelf-stable distribution center in the United States to a third party logistics provider.

(G)

See footnote (7) above.

(H)

See footnote (F) above.

(11)

We have calculated the ratio of earnings to fixed charges by dividing earnings by fixed charges. For the purpose of this computation, earnings consist of income before income taxes plus fixed charges. Fixed charges consist of the sum of interest on indebtedness, amortized expenses related to indebtedness and an interest component of lease rental expense.

(12)

As of the end of each fiscal year presented, senior debt is defined as the face amount of all of our outstanding debt.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Fiscal 2016

    

Fiscal 2015

    

Fiscal 2014

    

Fiscal 2013

    

Fiscal 2012

 

 

 

(In thousands, except ratios)

 

Current and former senior secured credit agreement:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revolving credit facility

 

$

176,000

 

$

40,000

 

$

34,000

 

$

40,000

 

$

25,000

 

Tranche A term loan due 2016

 

 

 —

 

 

 —

 

 

 —

 

 

131,250

 

 

144,375

 

Tranche A term loan due 2019

 

 

233,640

 

 

273,750

 

 

292,500

 

 

 —

 

 

 —

 

Tranche B term loan due 2018

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

223,313

 

Tranche B term loan due 2022

 

 

640,110

 

 

750,000

 

 

 —

 

 

 —

 

 

 —

 

7.625% senior notes due 2018

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

248,500

 

4.625% senior notes due 2021

 

 

700,000

 

 

700,000

 

 

700,000

 

 

700,000

 

 

 —

 

Senior debt

 

$

1,749,750

 

$

1,763,750

 

$

1,026,500

 

$

871,250

 

$

641,188

 

EBITDA

 

$

291,624

 

$

201,023

 

$

143,532

 

$

178,073

 

$

167,858

 

Senior debt / EBITDA

 

 

6.0x

 

 

8.8x

 

 

7.2x

 

 

4.9x

 

 

3.8x

 

Adjusted EBITDA

 

$

322,040

 

$

217,801

 

$

194,128

 

$

184,005

 

$

169,017

 

Senior debt /adjusted EBITDA

 

 

5.4x

 

 

8.1x

 

 

5.3x

 

 

4.7x

 

 

3.8x

 

 

(13)

Cash interest expense, calculated below, is equal to net interest expense less amortization of deferred financing and bond discount.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Fiscal 2016

    

Fiscal 2015

    

Fiscal 2014

    

Fiscal 2013

    

Fiscal 2012

 

 

 

(In thousands, except ratios)

 

Interest expense, net

 

$

74,456

 

$

51,131

 

$

46,573

 

$

41,813

 

$

47,660

 

Amortization of deferred financing and bond discount

 

 

(5,426)

 

 

(3,900)

 

 

(3,790)

 

 

(4,400)

 

 

(5,028)

 

Cash interest expense

 

$

69,030

 

$

47,231

 

$

42,783

 

$

37,413

 

$

42,632

 

EBITDA

 

$

291,624

 

$

201,203

 

$

143,532

 

$

178,073

 

$

167,858

 

EBITDA / cash interest expense

 

 

4.2x

 

 

4.3x

 

 

3.4x

 

 

4.8x

 

 

3.9x

 

Adjusted EBITDA

 

$

322,040

 

$

217,801

 

$

194,128

 

$

184,005

 

$

169,017

 

Adjusted EBITDA / cash interest expense

 

 

4.7x

 

 

4.6x

 

 

4.5x

 

 

4.9x

 

 

4.0x

 

 

 

-  31  -


 

Item 7.    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 Item 1A, “Risk Factors” and under the heading “Forward-Looking Statements” below and elsewhere in this report.  The following discussion should be read in conjunction with the consolidated financial statements and related notes included elsewhere in this report.

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 both organic and acquisition‑driven growth. Our goal is to continue to increase sales, profitability and cash flows through organic growth, strategic acquisitions and new product development. 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 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. On November 2, 2015, we completed the acquisition of the Green Giant and Le Sueur brands from General Mills, Inc. 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. And on April 23, 2014, we completed the acquisition of Specialty Brands of America, Inc., including the Bear Creek Country Kitchens,  Spring Tree,  Cary’s,  MacDonald’s,  New York Flatbreads and Canoleo brands, from affiliates of American Capital, Ltd. and certain individuals. We refer to these acquisitions in this report as the “Victoria acquisition,” “spices & seasonings acquisition,” “Green Giant acquisition” and “Mama Mary’s 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 above under Item 1A, “Risk Factors” and below 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 expect 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 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 fiscal 2016, 2015 and 2014, our net sales to customers in foreign countries represented approximately 7.1%, 5.2% and 3.6%, 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; the fair value of contingent consideration liabilities; and the accounting for share‑based compensation expense. Actual results could differ significantly from these estimates and assumptions.

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Our significant accounting policies are described more fully in note 2 to our consolidated financial statements included elsewhere in this report. We believe the following critical accounting policies involve the most significant judgments and estimates used in the preparation of our consolidated financial statements.

Trade and Consumer Promotion Expenses

We offer various sales incentive programs to customers and consumers, such as price discounts, in‑store display incentives, slotting fees and coupons. The recognition of expense for these programs involves the use of judgment related to performance and redemption estimates. Estimates are made based on historical experience and other factors. Actual expenses may differ if the level of redemption rates and performance vary from our estimates.

Inventories

Inventories are stated at the lower of cost or market. 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 our management’s review of inventories on hand compared to estimated future usage and sales.

Long‑Lived Assets

Long‑lived assets, such as property, plant and equipment, and intangibles with estimated useful lives are depreciated or amortized over their respective estimated useful lives to their estimated residual values, and reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted net future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated undiscounted net future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset. Recoverability of assets held for sale is measured by a comparison of the carrying amount of an asset or asset group to their fair value less estimated costs to sell. Estimating future cash flows and calculating the fair value of assets requires significant estimates and assumptions by management.

Goodwill and Other Intangible Assets

Our total assets include substantial goodwill and unamortizable intangible assets (trademarks). These assets are tested for impairment at least annually and whenever events or circumstances occur indicating that goodwill or unamortizable intangibles might be impaired. We perform the annual impairment tests as of the last day of each fiscal year. The annual goodwill impairment test involves a two‑step process. The first step of the impairment test involves comparing our company’s market capitalization with our company’s carrying value, including goodwill. If the carrying value of our company exceeds our market capitalization, we perform the second step of the impairment test to determine the amount of the impairment loss. The second step of the goodwill impairment test involves comparing the implied fair value of goodwill with the carrying value and recognizing a loss for the difference.

We test our unamortizable intangibles by comparing the fair value with the carrying value and recognize a loss for the difference. We estimate the fair value of our unamortizable intangibles based on discounted cash flows that reflect certain third party market value indicators.

Calculating our fair value for these purposes requires significant estimates and assumptions by management. We completed our annual impairment tests for fiscal 2016, 2015 and 2014 with no adjustments to the carrying values of goodwill and unamortizable intangibles. However, materially different assumptions regarding the future performance of our businesses could result in significant impairment losses. In addition, any significant decline in our market capitalization, even if due to macroeconomic factors, could put pressure on the carrying value of our goodwill. A determination that all or a portion of our goodwill or unamortizable intangible assets are impaired, although a non‑cash charge to operations, could have a material adverse effect on our business, consolidated financial condition and results of operations.

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Income Tax Expense Estimates and Policies

As part of the income tax provision process of preparing our consolidated financial statements, we are required to estimate our income taxes. This process involves estimating our current tax expenses together with assessing temporary differences resulting from differing treatment of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities. We then assess the likelihood that our deferred tax assets will be recovered from future taxable income and to the extent we believe the recovery is not likely, we establish a valuation allowance. Further, to the extent that we establish a valuation allowance or increase this allowance in a financial accounting period, we include such charge in our tax provision, or reduce our tax benefits in our consolidated statements of operations. We use our judgment to determine our provision or benefit for income taxes, deferred tax assets and liabilities and any valuation allowance recorded against our deferred tax assets.

There are various factors that may cause these tax assumptions to change in the near term, and we may have to record a valuation allowance against our deferred tax assets. We cannot predict whether future U.S. federal and state income tax laws and regulations might be passed that could have a material effect on our results of operations. We assess the impact of significant changes to the U.S. federal and state income tax laws and regulations on a regular basis and update the assumptions and estimates used to prepare our consolidated financial statements when new regulations and legislation are enacted. We recognize the benefit of an uncertain tax position that we have taken or expect to take on the income tax returns we file if it is more likely than not that such tax position will be sustained based upon its technical merits.

Pension Expense

We have defined benefit pension plans covering approximately one third of our employees. Our funding policy is to contribute annually not less than the amount recommended by our actuaries. The funded status of our pension plans is dependent upon many factors, including returns on invested assets and the level of certain market interest rates. We review pension assumptions regularly and we may from time to time make voluntary contributions to our pension plans, which exceed the amounts required by statute. During fiscal 2016 and 2015, we made total pension contributions to our pension plans of $3.5 million per fiscal year. Changes in interest rates and the market value of the securities held by the plans could materially change, positively or negatively, the funded status of the plans and affect the level of pension expense and required contributions in fiscal 2016 and beyond.

Our discount rate assumption for our three defined benefit plans changed from 4.225% at January 2, 2016 to 4.039% at December 31, 2016. While we do not currently anticipate a change in our fiscal 2017 assumptions, as a sensitivity measure, a 0.25% decline or increase in our discount rate would increase or decrease our pension expense by approximately $0.3 million. Similarly, a 0.25% decrease or increase in the expected return on pension plan assets would increase or decrease our pension expense by approximately $0.2 million. We expect to make $3.5 million of defined benefit pension plan contributions during fiscal 2017.

Acquisition Accounting

Our consolidated financial statements and results of operations include an acquired business’s operations after the completion of the acquisition. We account for acquired businesses using the acquisition method of accounting, which requires that the assets acquired and liabilities assumed be recorded at the date of acquisition at their respective fair values. Any excess of the purchase price over the estimated fair values of the net assets acquired is recorded as goodwill. Transaction costs are expensed as incurred.

The judgments made in determining the estimated fair value assigned to each class of assets acquired and liabilities assumed, as well as asset lives, can materially impact our results of operations. Accordingly, for significant items, we typically obtain assistance from third party valuation specialists. Determining the useful life of an intangible asset also requires judgment as different types of intangible assets will have different useful lives and certain assets may even be considered to have indefinite useful lives. All of these judgments and estimates can materially impact our results of operations.

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Share‑based Compensation Expense

We provide compensation benefits in the form of stock options, performance share long‑term incentive awards (LTIAs) and common stock to employees and non‑employee directors. The cost of share based compensation is recorded at fair value at the date of grant and expensed in our consolidated statement of income over the requisite service period, if any.

Performance share LTIAs granted to our executive officers and certain other members of senior management entitle each participant to earn shares of common stock upon the attainment of certain performance goals over the applicable performance period. The recognition of compensation expense for the performance share LTIAs is initially based on the probable outcome of the performance condition based on the fair value of the award on the date of grant and the anticipated number of shares to be awarded on a straight‑line basis over the applicable performance period. The fair value of the awards on the date of grant is 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. Our company’s performance against the defined performance goals are re‑evaluated on a quarterly basis throughout the applicable performance period and the recognition of compensation expense is adjusted for subsequent changes in the estimated or actual outcome. The cumulative effect of a change in the estimated number of shares of common stock to be issued in respect of performance share awards is recognized as an adjustment to earnings in the period of the revision.

The fair value of stock option awards is estimated on the date of grant using the Black‑Scholes option pricing model and is recognized in expense over the vesting period of the options using the straight‑line method. The Black‑Scholes option pricing model requires various assumptions, including the expected volatility of our stock, the expected term of the option, the risk‑free interest rate and the expected dividend yield. Expected volatility is based on both historical and implied volatilities of our common stock over the estimated expected term of the award. The risk‑free rate for the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of grant. All stock option grants have an exercise price equal to the fair market value of our common stock on the date of grant, have a 10‑year term and cliff vest three years from the date of grant.

We recognize compensation expense for only that portion of share based awards that are expected to vest. We utilize historical employee termination behavior to determine our estimated forfeiture rates. If the actual forfeitures differ from those estimated by management, adjustments to compensation expense will be made in future periods.

Product 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 fiscal 2015 was $1.9 million, of which $1.2 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. We do not expect any future expenses related to this recall to be material.

The cost impact of this recall during fiscal 2014 (not including lost sales during the period of time production and distribution of the affected products were suspended), net of insurance recoveries of $5.0 million (received in fiscal 2015), was $12.8 million, of which $4.1 million was recorded as a decrease in net sales related to customer refunds; $8.2 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 $0.5 million was recorded as an increase in selling, general, and administrative expenses related to administrative costs.

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Results of Operations

The following table sets forth the percentages of net sales represented by selected items reflected in our consolidated statements of operations.  The comparisons of financial results are not necessarily indicative of future results: