0001558370-19-004279.txt : 20190507 0001558370-19-004279.hdr.sgml : 20190507 20190507163155 ACCESSION NUMBER: 0001558370-19-004279 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 97 CONFORMED PERIOD OF REPORT: 20190330 FILED AS OF DATE: 20190507 DATE AS OF CHANGE: 20190507 FILER: COMPANY DATA: COMPANY CONFORMED NAME: B&G Foods, Inc. CENTRAL INDEX KEY: 0001278027 STANDARD INDUSTRIAL CLASSIFICATION: FOOD & KINDRED PRODUCTS [2000] IRS NUMBER: 133918742 STATE OF INCORPORATION: DE FISCAL YEAR END: 1228 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-32316 FILM NUMBER: 19803584 BUSINESS ADDRESS: STREET 1: FOUR GATEHALL DRIVE STREET 2: SUITE 110 CITY: PARSIPPANY STATE: NJ ZIP: 07054 BUSINESS PHONE: 9734016500 MAIL ADDRESS: STREET 1: FOUR GATEHALL DRIVE STREET 2: SUITE 110 CITY: PARSIPPANY STATE: NJ ZIP: 07054 FORMER COMPANY: FORMER CONFORMED NAME: B&G FOODS HOLDINGS CORP DATE OF NAME CHANGE: 20040129 10-Q 1 bgs-20190330x10q.htm QUARTERLY REPORT ON FORM 10-Q bgs_Current_folio_10Q

As filed with the Securities and Exchange Commission on May 7, 2019

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

(Mark one)

 

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

 

For the quarterly period ended March 30, 2019

 

or

 

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

 

For the transition period from                    to                   .

 

Commission file number 001-32316

 

B&G FOODS, INC.

(Exact name of Registrant as specified in its charter)

 

 

 

 

Delaware

 

13-3918742

(State or other jurisdiction of

 

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

incorporation or organization)

 

 

 

 

 

Four Gatehall Drive, Parsippany, New Jersey

 

07054

(Address of principal executive offices)

 

(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

Trading Symbol

Name of each exchange on which registered

Common Stock, par value $0.01 per share

BGS

New York Stock Exchange

 

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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

 

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

 

 

 

Large accelerated filer ☒

Accelerated filer ☐

Non-accelerated filer ☐

Smaller reporting company ☐

 

 

 

 

Emerging growth company ☐

 

 

 

 

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

 

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

 

As of April 30, 2019, the registrant had 65,329,666 shares of common stock, par value $0.01 per share, issued and outstanding.

 

 

 

 

 

 


 

B&G Foods, Inc. and Subsidiaries

Index

 

r

 

 

 

 

 

 

Page No.

 

 

 

 

PART I FINANCIAL INFORMATION 

1

 

 

 

 

 

Item 1. Financial Statements (Unaudited)

1

 

Consolidated Balance Sheets

1

 

Consolidated Statements of Operations

2

 

Consolidated Statements of Comprehensive Income

3

 

Consolidated Statements of Changes in Stockholders’ Equity

4

 

Consolidated Statements of Cash Flows

5

 

Notes to Consolidated Financial Statements

6

 

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

27

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

40

 

Item 4. Controls and Procedures

42

 

 

 

 

PART II OTHER INFORMATION 

43

 

 

 

 

Item 1. Legal Proceedings

43

 

Item 1A. Risk Factors

43

 

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

43

 

Item 3. Defaults Upon Senior Securities

43

 

Item 4. Mine Safety Disclosures

43

 

Item 5. Other Information

44

 

Item 6. Exhibits

44

 

 

 

SIGNATURE 

45

 

 

-  i  -


 

Forward-Looking Statements

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

·

our substantial leverage;

·

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

·

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

·

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

·

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

·

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

·

the risks associated with the expansion of our business;

·

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

·

tax reform and legislation, including the effects of the U.S. Tax Cuts and Jobs Act;

·

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

·

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

·

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

·

the effects of international trade disputes, tariffs, quotas, and other import or export restrictions on our international procurement, sales and operations;

·

future impairments of our goodwill and intangible assets;

·

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

·

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

·

our sustainability initiatives and changes to environmental laws and regulations;

·

other factors that affect the food industry generally, including:

·

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

·

competitors’ pricing practices and promotional spending levels;

·

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

-  ii  -


 

·

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

·

other factors discussed elsewhere in this report and in our other public filings with the SEC, including under Part I, Item 1A, “Risk Factors,” in our 2018 Annual Report on Form 10-K.

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

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

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

 

 

 

-  iii  -


 

PART I

FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

B&G Foods, Inc. and Subsidiaries

Consolidated Balance Sheets

(In thousands, except share and per share data)

(Unaudited)

 

 

 

 

 

 

 

 

March 30,

    

December 29,

 

2019

    

2018

Assets

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

$

11,284

 

$

11,648

Trade accounts receivable, net

 

162,774

 

 

151,707

Inventories

 

375,393

 

 

401,355

Prepaid expenses and other current assets

 

21,130

 

 

19,988

Income tax receivable

 

1,521

 

 

1,398

Total current assets

 

572,102

 

 

586,096

 

 

 

 

 

 

Property, plant and equipment, net of accumulated depreciation of $239,743 and $230,200 as of March 30, 2019 and December 29, 2018, respectively

 

282,546

 

 

282,553

Operating lease right-of-use assets

 

37,536

 

 

 —

Goodwill

 

584,435

 

 

584,435

Other intangibles, net

 

1,591,078

 

 

1,595,569

Other assets

 

1,136

 

 

1,206

Deferred income taxes

 

5,350

 

 

4,940

Total assets

$

3,074,183

 

$

3,054,799

 

 

 

 

 

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Trade accounts payable

$

126,208

 

$

140,000

Accrued expenses

 

66,914

 

 

55,660

Operating lease liabilities, current portion

 

9,124

 

 

 —

Income tax payable

 

33,276

 

 

31,624

Dividends payable

 

31,016

 

 

31,178

Total current liabilities

 

266,538

 

 

258,462

 

 

 

 

 

 

Long-term debt

 

1,636,754

 

 

1,635,881

Deferred income taxes

 

239,881

 

 

235,902

Long-term operating lease liabilities, net of current portion

 

31,304

 

 

 —

Other liabilities

 

22,587

 

 

24,505

Total liabilities

 

2,197,064

 

 

2,154,750

Commitments and contingencies (Note 12)

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

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

 

 —

 

 

 —

Common stock, $0.01 par value per share. Authorized 125,000,000 shares; 65,297,607 and 65,638,701 shares issued and outstanding as of March 30, 2019 and December 29, 2018, respectively

 

653

 

 

656

Additional paid-in capital

 

75,001

 

 

116,339

Accumulated other comprehensive loss

 

(21,882)

 

 

(23,502)

Retained earnings

 

823,347

 

 

806,556

Total stockholders’ equity

 

877,119

 

 

900,049

Total liabilities and stockholders’ equity

$

3,074,183

 

$

3,054,799

See Notes to Consolidated Financial Statements.

-  1  -


 

B&G Foods, Inc. and Subsidiaries

Consolidated Statements of Operations

(In thousands, except per share data)

(Unaudited)

 

 

 

 

 

 

 

 

Thirteen Weeks Ended

 

March 30,

    

March 31,

 

2019

    

2018

Net sales

$

412,734

 

$

431,729

Cost of goods sold

 

324,655

 

 

328,373

Gross profit

 

88,079

 

 

103,356

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

Selling, general and administrative expenses

 

38,297

 

 

42,568

Amortization expense

 

4,491

 

 

4,609

Operating income

 

45,291

 

 

56,179

 

 

 

 

 

 

Other income and expenses:

 

 

 

 

 

Interest expense, net

 

23,074

 

 

28,306

Loss on extinguishment of debt

 

 —

 

 

2,778

Other income

 

(258)

 

 

(2,054)

Income before income tax expense

 

22,475

 

 

27,149

Income tax expense

 

5,684

 

 

6,602

Net income

$

16,791

 

$

20,547

 

 

 

 

 

 

Weighted average shares outstanding:

 

 

 

 

 

Basic

 

65,587

 

 

66,518

Diluted

 

65,617

 

 

66,715

 

 

 

 

 

 

Earnings per share:

 

 

 

 

 

Basic

$

0.26

 

$

0.31

Diluted

$

0.26

 

$

0.31

 

 

 

 

 

 

Cash dividends declared per share

$

0.475

 

$

0.465

 

 

 

See Notes to Consolidated Financial Statements.

-  2  -


 

B&G Foods, Inc. and Subsidiaries

Consolidated Statements of Comprehensive Income

(In thousands)

(Unaudited)

 

 

 

 

 

 

 

 

Thirteen Weeks Ended

 

March 30,

    

March 31,

 

2019

    

2018

Net income

$

16,791

 

$

20,547

 

 

 

 

 

 

Other comprehensive income:

 

 

 

 

 

Foreign currency translation adjustments

 

1,458

 

 

3,132

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

 

162

 

 

111

Other comprehensive income

 

1,620

 

 

3,243

Comprehensive income

$

18,411

 

$

23,790

 

 

 

 

See Notes to Consolidated Financial Statements.

-  3  -


 

B&G Foods, Inc. and Subsidiaries

Consolidated Statements of Changes in Stockholders’ Equity

(In thousands, except share and per share data)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

Other

 

 

 

 

Total

 

 

Common Stock

 

Paid-in

 

Comprehensive

 

Retained

 

Stockholders’

 

    

Shares

    

Amount

    

Capital

    

Loss

    

Earnings

    

Equity

Balance at December 29, 2018

 

65,638,701

 

$

656

 

$

116,339

 

$

(23,502)

 

$

806,556

 

$

900,049

Foreign currency translation

 

 —

 

 

 —

 

 

 —

 

 

1,458

 

 

 —

 

 

1,458

Change in pension benefit (net of $53 of income taxes)

 

 —

 

 

 —

 

 

 —

 

 

162

 

 

 —

 

 

162

Net income

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

16,791

 

 

16,791

Share-based compensation

 

 —

 

 

 —

 

 

580

 

 

 —

 

 

 —

 

 

580

Issuance of common stock for share-based compensation

 

65,928

 

 

 1

 

 

(906)

 

 

 —

 

 

 —

 

 

(905)

Repurchase of common stock

 

(407,022)

 

 

(4)

 

 

(9,996)

 

 

 —

 

 

 —

 

 

(10,000)

Dividends declared on common stock, $0.475 per share

 

 —

 

 

 —

 

 

(31,016)

 

 

 —

 

 

 —

 

 

(31,016)

Balance at March 30, 2019

 

65,297,607

 

$

653

 

$

75,001

 

$

(21,882)

 

$

823,347

 

$

877,119

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

Other

 

 

 

 

Total

 

 

Common Stock

 

Paid-in

 

Comprehensive

 

Retained

 

Stockholders’

 

    

Shares

    

Amount

    

Capital

    

Loss

    

Earnings

    

Equity

Balance at December 30, 2017

 

66,499,044

 

$

665

 

$

266,789

 

$

(20,756)

 

$

634,121

 

$

880,819

Foreign currency translation

 

 —

 

 

 —

 

 

 —

 

 

3,132

 

 

 —

 

 

3,132

Change in pension benefit (net of $37 of income taxes)

 

 —

 

 

 —

 

 

 —

 

 

111

 

 

 —

 

 

111

Net income

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

20,547

 

 

20,547

Share-based compensation

 

 —

 

 

 —

 

 

838

 

 

 —

 

 

 —

 

 

838

Issuance of common stock for share-based compensation

 

94,076

 

 

 1

 

 

(1,834)

 

 

 —

 

 

 —

 

 

(1,833)

Dividends declared on common stock, $0.465 per share

 

 —

 

 

 —

 

 

(30,966)

 

 

 —

 

 

 —

 

 

(30,966)

Balance at March 31, 2018

 

66,593,120

 

$

666

 

$

234,827

 

$

(17,513)

 

$

654,668

 

$

872,648

 

 

 

See Notes to Consolidated Financial Statements.

-  4  -


 

B&G Foods, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

Thirteen Weeks Ended

 

    

March 30,

    

March 31,

 

    

2019

    

2018

Cash flows from operating activities:

 

 

 

 

 

 

Net income

 

$

16,791

 

$

20,547

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

 

 

 

 

 

 

Depreciation and amortization

 

 

13,863

 

 

13,064

Amortization of operating lease right-of-use assets

 

 

2,638

 

 

 —

Amortization of deferred debt financing costs and bond discount/premium

 

 

873

 

 

1,545

Deferred income taxes

 

 

3,575

 

 

4,821

Write-off of property, plant, and equipment

 

 

 1

 

 

21

Loss on extinguishment of debt

 

 

 —

 

 

2,778

Share-based compensation expense

 

 

580

 

 

838

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

 

 

 

 

 

 

Trade accounts receivable

 

 

(10,807)

 

 

(20,877)

Inventories

 

 

27,320

 

 

46,134

Prepaid expenses and other current assets

 

 

(1,085)

 

 

2,572

Income tax receivable/payable

 

 

1,553

 

 

910

Other assets

 

 

70

 

 

109

Trade accounts payable

 

 

(14,444)

 

 

(11,405)

Accrued expenses

 

 

11,119

 

 

12,578

Other liabilities

 

 

(1,703)

 

 

109

Net cash provided by operating activities

 

 

50,344

 

 

73,744

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

Capital expenditures

 

 

(8,648)

 

 

(4,972)

Net cash used in investing activities

 

 

(8,648)

 

 

(4,972)

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

Repayments of long-term debt

 

 

 —

 

 

(125,000)

Repayments of borrowings under revolving credit facility

 

 

(40,000)

 

 

 —

Borrowings under revolving credit facility

 

 

40,000

 

 

 —

Dividends paid

 

 

(31,178)

 

 

(30,922)

Payments for repurchase of common stock, net

 

 

(10,000)

 

 

 —

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

 

 

(905)

 

 

(1,832)

Net cash used in financing activities

 

 

(42,083)

 

 

(157,754)

 

 

 

 

 

 

 

Effect of exchange rate fluctuations on cash and cash equivalents

 

 

23

 

 

620

Net decrease in cash and cash equivalents

 

 

(364)

 

 

(88,362)

 

 

 

 

 

 

 

Cash and cash equivalents at beginning of period

 

 

11,648

 

 

206,506

Cash and cash equivalents at end of period

 

$

11,284

 

$

118,144

 

 

 

 

 

 

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

 

Cash interest payments

 

$

2,590

 

$

6,804

Cash income tax payments

 

$

564

 

$

701

Non-cash investing and financing transactions:

 

 

 

 

 

 

Dividends declared and not yet paid

 

$

31,016

 

$

30,966

Accruals related to purchases of property, plant and equipment

 

$

139

 

$

330

Right-of-use assets obtained in exchange for new operating lease liabilities

 

$

155

 

$

 —

 

 

 

See Notes to Consolidated Financial Statements.

 

 

 

-  5  -


 

Table of Contents

B&G Foods, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

 

(1)Nature of Operations

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

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

(2)Summary of Significant Accounting Policies

Fiscal Year

Typically, our fiscal quarters and fiscal year consist of 13 and 52 weeks, respectively, ending on the Saturday closest to December 31 in the case of our fiscal year and fourth fiscal quarter, and on the Saturday closest to the end of the corresponding calendar quarter in the case of our fiscal quarters. As a result, a 53rd week is added to our fiscal year every five or six years. In a 53-week fiscal year our fourth fiscal quarter contains 14 weeks. Our fiscal year ending December 28, 2019 (fiscal 2019) and our fiscal year ended December 29, 2018 (fiscal 2018) each contain 52 weeks. Each quarter of fiscal 2019 and 2018 contains 13 weeks.

Basis of Presentation

The accompanying unaudited consolidated interim financial statements for the thirteen week periods ended March 30, 2019 (first quarter of 2019) and March 31, 2018 (first quarter of 2018) have been prepared by our company in accordance with generally accepted accounting principles in the United States (GAAP) pursuant to the rules and regulations of the Securities and Exchange Commission (SEC), and include the accounts of B&G Foods, Inc. and its subsidiaries. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with GAAP have been omitted pursuant to such rules and regulations. However, our management believes, to the best of their knowledge, that the disclosures herein are adequate to make the information presented not misleading. All intercompany balances and transactions have been eliminated. The accompanying unaudited consolidated interim financial statements contain all adjustments that are, in the opinion of management, necessary to present fairly our consolidated financial position as of March 30, 2019, and the results of our operations, comprehensive income and cash flows for the first quarter of 2019 and 2018. Our results of operations for the first quarter of 2019 are not necessarily indicative of the results to be expected for the full year. We have evaluated subsequent events for disclosure through the date of issuance of the accompanying unaudited consolidated interim financial statements. The accompanying unaudited consolidated interim financial statements should be read in conjunction with the audited consolidated financial statements and notes included in our Annual Report on Form 10-K for fiscal 2018 filed with the SEC on February 26, 2019.

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B&G Foods, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

 

Use of Estimates

The preparation of financial statements in accordance with GAAP 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 revenue recognition as it relates to trade and consumer promotion expenses; allowances for excess, obsolete and unsaleable inventories; pension benefits; acquisition accounting fair value allocations; the recoverability of goodwill, other intangible assets, property, plant and equipment and deferred tax assets; and the determination of the useful life of customer relationship and finite-lived trademark intangibles. Actual results could differ significantly from these estimates and assumptions.

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

Newly Adopted Accounting Standards

In February 2018, the Financial Accounting Standards Board (FASB) issued a new Accounting Standards Update (ASU) related to the Tax Cuts and Jobs Act, which we refer to as the “U.S. Tax Act.” The ASU allows for a company to elect to make a one-time reclassification from accumulated other comprehensive loss to retained earnings for stranded tax effects resulting from the change in corporate tax rate as a result of the U.S. Tax Act. The reclassification is the difference between the amount previously recorded in accumulated other comprehensive loss at the historical U.S. federal tax rate that remains in accumulated other comprehensive loss at the time the U.S. Tax Act was effective and the amount that would have been recorded using the newly enacted rate. Additionally, the ASU requires a company to disclose whether or not it elects to make the reclassification. This guidance became effective during the first quarter of 2019. We elected to not make the optional one-time reclassification.

In February 2016, the FASB issued a new ASU that requires lessees to recognize lease assets and lease liabilities on the balance sheet for those leases classified as operating leases under current guidance and to disclose key information about leasing arrangements. The new standard establishes a right-of-use (ROU) model that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than 12 months. Leases will be classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the statement of operations.

We adopted the new standard prospectively when it became effective in the first quarter of 2019 and applied the new standard to all leases existing at the date of initial application. The new standard provides a number of optional practical expedients in transition. We elected the ‘package of practical expedients’, which permits us not to reassess under the new standard our prior conclusions about lease identification, lease classification and initial direct costs. We did not elect the use-of-hindsight or the practical expedient pertaining to land easements; the latter not being applicable to us. We elected all of the new standard’s available transition practical expedients that were applicable to us.

The new standard also provides practical expedients for an entity’s ongoing accounting. We also elected the short-term lease recognition exemption for all leases that qualify. This means, for those leases with a lease term of twelve months or less, we did not recognize ROU assets or lease liabilities. We also elected the practical expedient to not separate lease and non-lease components for all of our leases.

This standard did not have a material effect on our financial statements. Upon adoption, the most significant effects related to (1) the recognition of new ROU assets and lease liabilities on our balance sheet for our operating leases, which was $39.6 million and $42.6 million, respectively, as of the beginning of the period; and (2) providing additional new disclosures about our leasing activities.

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B&G Foods, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

 

Recently Issued Accounting Standards

In August 2018, the FASB issued a new ASU which clarifies that implementation costs incurred by customers in cloud computing arrangements are deferred if they would be capitalized by customers in software licensing arrangements under the internal-use software guidance. The update is effective for fiscal years beginning after December 15, 2019. Early adoption is permitted, including adoption in any interim period. We currently do not expect the adoption of this ASU to have a material impact to our consolidated financial statements.

In August 2018, the FASB issued a new ASU that aims to improve the overall usefulness of disclosures to financial statement users and reduce unnecessary costs to companies by changing disclosure requirements for employers that sponsor defined benefit pension or other post-retirement plans. The update is effective for fiscal years beginning after December 15, 2020. We expect to update our defined benefit pension plan disclosures when the new standard becomes effective. We do not expect the adoption of this ASU to have an impact to our consolidated financial statements as this ASU only modifies disclosure requirements.

In August 2018, the FASB issued a new ASU that aims to improve the overall usefulness of disclosures to financial statement users and reduce unnecessary costs to companies by changing disclosure requirements for fair value measurement. The update is effective for fiscal years beginning after December 15, 2019. We expect to update our fair value measurement disclosures when the new standard becomes effective. We do not expect the adoption of this ASU to have an impact to our consolidated financial statements as this ASU only modifies disclosure requirements.

In January 2017, the FASB issued an amendment to the standards of goodwill impairment testing. The new guidance simplifies the test for goodwill impairment, by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. Additionally, an entity should consider income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable. The update is effective for fiscal years beginning after December 15, 2019. We expect to adopt the standards when they become effective.

(3)Acquisitions and Divestitures

McCann’s Acquisition

On July 16, 2018, we acquired the McCann’s brand of premium Irish oatmeal from TreeHouse Foods, Inc. for approximately $30.8 million in cash. We refer to this acquisition as the “McCann’s acquisition.”

The following table sets forth the preliminary allocation of the McCann’s acquisition purchase price to the estimated fair value of the net assets acquired at the date of acquisition. The preliminary purchase price allocation may be adjusted as a result of the finalization of our purchase price allocation procedures related to the assets acquired and liabilities assumed. We anticipate completing the purchase price allocation during the third quarter of fiscal 2019.

McCann’s Acquisition (in thousands):

 

 

 

 

 

Preliminary Allocation:

 

July 16, 2018

Property, plant and equipment

 

$

12

Inventory

 

 

973

Trademarks — indefinite-lived intangible assets

 

 

24,800

Customer relationship intangibles — finite-lived intangible assets

 

 

2,000

Accrued expenses

 

 

(292)

Goodwill

 

 

3,294

Total purchase price (paid in cash)

 

$

30,787

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

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B&G Foods, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

 

Pirate Brands Divestiture

On October 17, 2018, we completed the sale of Pirate Brands to The Hershey Company for a purchase price of $420.0 million in cash. Pirate Brands includes the Pirate’s Booty,  Smart Puffs and Original Tings brands. We refer to this divestiture as the “Pirate Brands sale.” Net deferred tax liabilities associated with the Pirate Brands sale were $107.3 million. We recognized a pre-tax gain on the Pirate Brands sale of $176.4 million, as calculated below (in thousands):

 

 

 

 

October 17, 2018

Cash received

$

420,002

Assets sold:

 

 

Inventory

 

(6,688)

Property, plant and equipment

 

(404)

Customer relationships — finite-lived intangible assets

 

(8,408)

Trademarks — indefinite-lived intangible assets

 

(152,800)

Goodwill

 

(70,952)

Other

 

(77)

Total assets sold

 

(239,328)

Expenses

 

(4,288)

Gain on sale of assets

$

176,386

In December 2018, the compensation committee of our board of directors approved a special bonus pool of $6.0 million that was paid during the first quarter of 2019 to our executive officers and certain members of senior management to recognize their significant contributions to the successful operation of Pirate Brands during our company’s five years of ownership of Pirate Brands and to the successful completion of the Pirate Brands sale at a sale price more than double what our company paid for Pirate Brands in 2013.

(4)Inventories

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

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

 

 

 

 

 

 

 

 

    

March 30, 2019

    

December 29, 2018

Raw materials and packaging

 

$

64,279

 

$

61,905

Work-in-process

 

 

56,843

 

 

95,282

Finished goods

 

 

254,271

 

 

244,168

Inventories

 

$

375,393

 

$

401,355

 

 

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B&G Foods, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

 

(5)Goodwill and Other Intangible Assets

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 30, 2019

 

December 29, 2018

 

    

Gross Carrying

    

Accumulated

    

Net Carrying

    

Gross Carrying

    

Accumulated

    

Net Carrying

 

    

Amount

    

Amortization

    

Amount

    

Amount

    

Amortization

    

Amount

Finite-Lived Intangible Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trademarks

 

$

19,600

 

$

3,642

 

$

15,958

 

$

19,600

 

$

3,369

 

$

16,231

Customer relationships

 

 

335,590

 

 

116,170

 

 

219,420

 

 

335,590

 

 

111,952

 

 

223,638

Total finite-lived intangible assets

 

$

355,190

 

$

119,812

 

$

235,378

 

$

355,190

 

$

115,321

 

$

239,869

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Indefinite-Lived Intangible Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Goodwill

 

$

584,435

 

 

 

 

 

 

 

$

584,435

 

 

 

 

 

 

Trademarks

 

$

1,355,700

 

 

 

 

 

 

 

$

1,355,700

 

 

 

 

 

 

Amortization expense associated with finite-lived intangible assets for the first quarter of 2019 was $4.5 million, and is recorded in operating expenses. Amortization expense associated with finite-lived intangible assets for the first quarter of 2018 was $4.6 million. We expect to recognize an additional $13.5 million of amortization expense associated with our finite-lived intangible assets during the remainder of fiscal 2019, and thereafter $18.0 million of amortization expense in each of the fiscal years 2020, 2021 and 2022, respectively, and $17.8 million in each of fiscal 2023 and 2024. See Note 3, “Acquisitions and Divestitures.”

(6)Long-Term Debt

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

 

 

 

 

 

 

 

 

    

March 30, 2019

    

December 29, 2018

Revolving credit loans

 

$

50,000

 

$

50,000

4.625% senior notes due 2021

 

 

700,000

 

 

700,000

5.25% senior notes due 2025

 

 

900,000

 

 

900,000

Unamortized deferred financing costs

 

 

(16,482)

 

 

(17,490)

Unamortized premium

 

 

3,236

 

 

3,371

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

 

$

1,636,754

 

$

1,635,881

As of March 30, 2019, the aggregate contractual maturities of long-term debt are as follows (in thousands):

 

 

 

Fiscal year ending:

 

 

2019

$

 —

2020

 

 —

2021

 

700,000

2022

 

50,000

2023

 

 —

Thereafter

 

900,000

Total

$

1,650,000

Senior Secured Credit Agreement. In fiscal 2017, we refinanced our senior secured credit facility twice by amending and restating our senior secured credit agreement, first on March 30, 2017, and again on November 20, 2017.

The first refinancing, on March 30, 2017, reduced by 0.75% the spread over LIBOR or the applicable base rate on the then-outstanding $640.1 million of tranche B term loans.

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

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B&G Foods, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

 

On November 20, 2017, we again refinanced our senior secured credit facility. This second refinancing increased the principal amount of the tranche B term loans by $10.0 million to $650.1 million, reduced by 25 basis points the spread over LIBOR or the applicable base rate on the tranche B term loans and any revolving loans, increased the aggregate commitments under our revolving credit facility from $500.0 million to $700.0 million, and extended the maturity date applicable to our revolving credit facility from June 2019 to November 2022.

We made optional prepayments of aggregate principal amount of our tranche B term loans of $125.0 million in the first quarter of 2018 and $25.0 million in the second quarter of 2018. On October 18, 2018, we made a mandatory prepayment of $352.2 million principal amount of tranche B term loans with the net proceeds of the Pirate Brands sale. On October 19, 2018, we made an optional prepayment of the remaining $147.9 million principal amount of tranche B term loans outstanding under our credit agreement from cash on hand and the proceeds of additional revolving loans under our credit agreement. As a result of the optional and mandatory prepayments of the tranche B term loans, we recognized a loss on extinguishment of debt of $13.1 million in fiscal 2018, including $2.8 million in the first quarter of 2018.

At March 30, 2019, the available borrowing capacity under our revolving credit facility, net of outstanding letters of credit of $2.2 million, was $647.8 million. Proceeds of the revolving credit facility may be used for general corporate purposes, including acquisitions of targets in the same or a similar line of business as our company, subject to specified criteria. At March 30, 2019, there was $50.0 million outstanding under our revolving credit facility

We are required to pay a commitment fee of 0.50% per annum on the unused portion of the revolving credit facility. The maximum letter of credit capacity under the revolving credit facility is $50.0 million, with a fronting fee of 0.25% per annum for all outstanding letters of credit and a letter of credit fee equal to the applicable margin for revolving loans that are Eurodollar (LIBOR) loans. The revolving credit facility matures on November 21, 2022.

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

Interest under the revolving credit facility, including any outstanding letters of credit, is determined based on alternative rates that we may choose in accordance with the credit agreement, including a base rate per annum plus an applicable margin ranging from 0.25% to 0.75%, and LIBOR plus an applicable margin ranging from 1.25% to 1.75%, in each case depending on our consolidated leverage ratio.

Interest under the tranche B term loan facility was determined based on alternative rates that we could choose in accordance with the credit agreement, including a base rate per annum plus an applicable margin of 1.00%, and LIBOR plus an applicable margin of 2.00%. As of March 30, 2019, there were no tranche B term loans outstanding under our credit facility.

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

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B&G Foods, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

 

The credit agreement also contains certain financial maintenance covenants, which, among other things, specify a maximum consolidated leverage ratio and a minimum interest coverage ratio, each ratio as defined in the credit agreement. Our consolidated leverage ratio (defined as the ratio of our consolidated net debt, as of the last day of any period of four consecutive fiscal quarters to our adjusted EBITDA for such period), may not exceed 7.00 to 1.00. We are also required to maintain a consolidated interest coverage ratio of at least 1.75 to 1.00 as of the last day of any period of four consecutive fiscal quarters. As of March 30, 2019, we were in compliance with all of the covenants, including the financial covenants, in the credit agreement.

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

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

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

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

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

The indenture governing the 4.625% senior notes contains covenants with respect to us and the guarantors and restricts the incurrence of additional indebtedness and the issuance of capital stock; the payment of dividends or distributions on, and redemption of, capital stock; a number of other restricted payments, including certain investments; creation of specified liens, certain sale-leaseback transactions and sales of certain specified assets; fundamental changes, including consolidation, mergers and transfers of all or substantially all of our assets; and specified transactions with affiliates. Each of the covenants is subject to a number of important exceptions and qualifications. As of March 30, 2019, we were in compliance with all of the covenants in the indenture governing the 4.625% senior notes.

5.25% Senior Notes due 2025. On April 3, 2017, we issued $500.0 million aggregate principal amount of 5.25% senior notes due 2025 at a price to the public of 100% of their face value. On November 20, 2017, we issued an additional $400.0 million aggregate principal amount of 5.25% senior notes due 2025 at a price to the public 101% of their face value plus accrued interest from October 1, 2017, which equates to a yield to worst of 5.03%. The notes issued in November were issued as additional notes under the same indenture as our 5.25% senior notes due 2025 that were issued in April, and, as such, form a single series and trade interchangeably with the previously issued 5.25% senior notes.

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B&G Foods, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

 

We used the net proceeds of the April 2017 offering to repay all of the outstanding borrowings and amounts due under our revolving credit facility and tranche A term loans, and to pay related fees and expenses. We used the net proceeds of the November 2017 offering to repay all of the then outstanding borrowings and amounts due under our revolving credit facility and to pay related fees and expenses. We have used a portion of, and intend to use the remaining portion of, the net proceeds of the April 2017 and November 2017 offerings for general corporate purposes, which have included and could include, among other things, repayment of other long term debt or possible acquisitions.

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

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

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

The indenture governing the 5.25% senior notes contains covenants with respect to us and the guarantors and restricts the incurrence of additional indebtedness and the issuance of capital stock; the payment of dividends or distributions on, and redemption of, capital stock; a number of other restricted payments, including certain investments; creation of specified liens, certain sale-leaseback transactions and sales of certain specified assets; fundamental changes, including consolidation, mergers and transfers of all or substantially all of our assets; and specified transactions with affiliates. Each of the covenants is subject to a number of important exceptions and qualifications. As of March 30, 2019, we were in compliance with all of the covenants in the indenture governing the 5.25% senior notes.

 

Subsidiary Guarantees. We have no assets or operations independent of our direct and indirect subsidiaries. All of our present domestic subsidiaries jointly and severally and fully and unconditionally guarantee our long-term debt. There are no significant restrictions on our ability and the ability of our subsidiaries to obtain funds from our respective subsidiaries by dividend or loan. See Note 18, “Guarantor and Non-Guarantor Financial Information.”

Accrued Interest. At March 30, 2019 and December 29, 2018, accrued interest of $35.0 million and $15.6 million, respectively, is included in accrued expenses in the accompanying unaudited consolidated balance sheets.

Loss on Extinguishment of Debt. We did not have a loss on extinguishment of debt during the first quarter of 2019. During the first quarter of 2018, we incurred a loss on extinguishment of debt in connection with the prepayment of our tranche B term loans, which includes the write-off of deferred debt financing costs of $2.4 million and the write-off of unamortized discount of $0.4 million.

 

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Table of Contents

B&G Foods, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

 

(7)Fair Value Measurements

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

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

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

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

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

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

The carrying values and fair values of our revolving credit loans, term loans, 4.625% senior notes and 5.25% senior notes as of March 30, 2019 and December 29, 2018 are as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 30, 2019

 

 

December 29, 2018

 

 

    

Carrying Value

      

Fair Value

      

Carrying Value

      

Fair Value

 

Revolving credit loans

 

$

50,000

 

$

50,000

(1)  

$

50,000

 

$

50,000

(1)

4.625% senior notes due 2021

 

 

700,000

 

 

699,125

(2)  

 

700,000

 

 

684,250

(2)

5.25% senior notes due 2025

 

$

903,236

(3)  

$

867,107

(2)  

$

903,371

(3)  

$

837,877

(2)


(1)

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

(2)

Fair values are estimated based on quoted market prices.

(3)

The carrying values of the 5.25% senior notes due 2025 include a premium. At March 30, 2019 and December 29, 2018 the face amount of the 5.25% senior notes due 2025 was $900.0 million.

There was no Level 3 activity during the first quarter of 2019 or 2018.

 

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Table of Contents

B&G Foods, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

 

(8)Accumulated Other Comprehensive Loss

The reclassifications from accumulated other comprehensive loss (AOCL) for the first quarter of 2019 and 2018 are as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Thirteen Weeks Ended

 

Affected Line Item in

 

March 30,

    

March 31,

 

the Statement Where

Details about AOCL Components

2019

    

2018

    

Net Income is Presented

Defined benefit pension plan items

 

 

 

 

 

 

 

Amortization of unrecognized loss

$

215

 

$

148

 

See (1) below

Accumulated other comprehensive loss before tax

 

215

 

 

148

 

Total before tax

Tax expense

 

(53)

 

 

(37)

 

Income tax expense

Total reclassification

$

162

 

$

111

 

Net of tax


(1)

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

 

Changes in AOCL for the first quarter of 2019 are as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign Currency

 

 

 

 

 

Defined Benefit

 

Translation

 

 

 

 

    

Pension Plan Items

    

Adjustments

    

Total

Balance at December 29, 2018

 

$

(12,224)

 

$

(11,278)

 

$

(23,502)

Other comprehensive income before reclassifications

 

 

 —

 

 

1,458

 

 

1,458

Amounts reclassified from AOCL

 

 

162

 

 

 —

 

 

162

Net current period other comprehensive income

 

 

162

 

 

1,458

 

 

1,620

Balance at March 30, 2019

 

$

(12,062)

 

$

(9,820)

 

$

(21,882)

 

 

As a result of accounting guidance issued by the FASB in February 2018, we had the option to elect to make a one-time reclassification from accumulated other comprehensive loss to retained earnings for stranded tax effects resulting from the change in corporate tax rate as a result of the U.S. Tax Act. This guidance became effective during the first quarter of 2019. We elected to not make the optional one-time reclassification.

 

 

(9)Stock Repurchase Program

On March 13, 2018, our board of directors authorized a stock repurchase program for the repurchase of up to $50.0 million of our company’s common stock through March 15, 2019.

Under that authorization, we repurchased and retired 1,397,148 shares of common stock at an average price per share (excluding fees and commissions) of $26.41, or $36.9 million in the aggregate, including 407,022 shares of common stock at an average price per share (excluding fees and commissions) of $24.55, or $10.0 million in the aggregate, during the first quarter of 2019. We did not repurchase any shares of common stock during the first quarter of 2018.

On March 12, 2019, our board of directors authorized an extension of our stock repurchase program from March 15, 2019 to March 15, 2020. In extending the repurchase program, our board of directors also reset the repurchase authority to up to $50.0 million. Therefore, as of March 30, 2019, we had $50.0 million available for future repurchases of common stock under the stock repurchase program.

Under the authorization, we may purchase shares of common stock from time to time in the open market or in privately negotiated transactions in compliance with the applicable rules and regulations of the SEC.

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Table of Contents

B&G Foods, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

 

The timing and amount of future stock repurchases, if any, under the program will be at the discretion of management, and will depend on a variety of factors, including price, available cash, general business and market conditions and other investment opportunities. Therefore, we cannot assure you as to the number or aggregate dollar amount of additional shares, if any, that will be repurchased under the program. We may discontinue the program at any time. Any shares repurchased pursuant to the program will be retired.

 

(10)Pension Benefits

Company Sponsored Defined Benefit Pension Plans. Net periodic pension cost for company sponsored defined benefit pension plans for the first quarter of 2019 and 2018 includes the following components (in thousands):

 

 

 

 

 

 

 

Thirteen Weeks Ended

 

March 30,

 

March 31,

 

2019

    

2018

Service cost—benefits earned during the period

$

1,937

 

$

1,985

Interest cost on projected benefit obligation

 

1,442

 

 

1,262

Expected return on plan assets

 

(1,914)

 

 

(2,001)

Amortization of unrecognized prior service cost

 

 —

 

 

 —

Amortization of unrecognized loss

 

215

 

 

148

Net periodic pension cost

$

1,680

 

$

1,394

During the first quarter of 2019, we did not make any defined benefit plan contributions. During the first quarter of 2018, we made $1.1 million of defined benefit pension plan contributions.

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

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

B&G Foods made contributions to the plan of $0.2 million in the first quarter of 2019 and expects to pay surcharges of less than $0.1 million in fiscal 2019 assuming consistent hours are worked. B&G Foods contributed $0.2 million in fiscal 2018 and paid less than $0.1 million in surcharges. These contributions represented less than five percent of total contributions made to the plan.

 

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Table of Contents

B&G Foods, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

 

 

(11)Leases

Operating Leases. We adopted Accounting Standards Codification (ASC) Topic 842 at the beginning of the first quarter of 2019 and recognized an operating right-of-use (ROU) asset of $39.6 million and operating lease liabilities of $42.6 million at inception. Operating leases are included in the accompanying unaudited consolidated balance sheets in the following line items:

 

 

 

 

March 30,

 

2019

Right-of-use assets:

 

 

Operating lease right-of-use assets

$

37,536

 

 

 

Operating lease liabilities:

 

 

Operating lease liabilities, current portion

$

9,124

Long-term operating lease liabilities, net of current portion

 

31,304

Total operating lease liabilities

$

40,428

 

We determine whether an arrangement is a lease at inception. We have operating leases for certain of our manufacturing facilities, distribution centers, warehouse and storage facilities, machinery and equipment, and office equipment. Our leases have remaining lease terms of one year to seven years, some of which include options to extend the lease term for up to five years, and some of which include options to terminate the lease within one year. We consider these options in determining the lease term used to establish our right-of use assets and lease liabilities.

Supplemental information related to leases:

 

 

 

 

Thirteen Weeks Ended

 

March 30,

 

2019

Operating cash flow information:

 

 

Cash paid for amounts included in the measurement of operating lease liabilities

$

2,702

 

 

 

The components of lease costs were as follows:

 

 

Cost of goods sold

$

668

Selling, general and administrative expenses

 

1,970

Total lease costs

$

2,638

 

Total rent expense for the first quarter of 2019 was $3.2 million, including the operating lease costs of $2.6 million stated above. Total rent expense for the first quarter of 2018 was $3.3 million.

Because our operating leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. We have lease agreements that contain both lease and non-lease components. With the exception of our real estate leases, we account for our leases as a single lease component. See Note 2, “Summary of Significant Accounting Policies — Newly Adopted Accounting Standards,” for further details.

The following table shows the lease term and discount rate for our ROU assets:

 

 

 

 

March 30,

 

2019

Weighted average remaining lease term (years)

 

5.2

Weighted average discount rate

 

4.05%

 

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Table of Contents

B&G Foods, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

 

As of March 30, 2019, the maturities of operating lease liabilities were as follows (in thousands):

 

 

 

 

 

Fiscal year ending:

    

 

 

2019

 

$

8,044

2020

 

 

9,759

2021

 

 

9,029

2022

 

 

4,771

2023

 

 

4,791

Thereafter

 

 

8,444

Total undiscounted future minimum lease payments

 

 

44,838

Less: Imputed interest

 

 

(4,410)

Total present value of future operating lease liabilities

 

$

40,428

 

 

As previously disclosed in our 2018 Annual Report on Form 10-K and under the previous lease standard (Topic 840), as of December 29, 2018, future minimum lease payments under non-cancelable operating leases in effect at year-end (with initial or remaining lease terms in excess of one year) for the periods set forth below were as follows (in thousands):

 

 

 

 

Fiscal year ending:

    

 

 

2019

 

$

12,298

2020

 

 

10,953

2021

 

 

8,991

2022

 

 

4,733

2023

 

 

4,784

Thereafter

 

 

8,445

Total undiscounted future minimum lease payments

 

$

50,204

 

 

 

 

(12)Commitments and Contingencies

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

Environmental. We are subject to environmental laws and regulations in the normal course of business. We did not make any material expenditures during the first quarter of 2019 or 2018 in order to comply with environmental laws and regulations. Based on our experience to date, management believes that the future cost of compliance with existing environmental laws and regulations (and liability for any known environmental conditions) will not have a material adverse effect on our consolidated financial position, results of operations or liquidity. However, we cannot predict what environmental or health and safety legislation or regulations will be enacted in the future or how existing or future laws or regulations will be enforced, administered or interpreted, nor can we predict the amount of future expenditures that may be required in order to comply with such environmental or health and safety laws or regulations or to respond to such environmental claims.

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Table of Contents

B&G Foods, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

 

Collective Bargaining Agreements. As of March 30, 2019, approximately 1,675 of our 2,679 employees, or 62.5%, were covered by collective bargaining agreements. Two of our collective bargaining agreements expire in the next twelve months.  The collective bargaining agreement covering our Brooklyn facility, which covers approximately 60 employees, is scheduled to expire on December 31, 2019. In addition, the collective bargaining agreement covering our Roseland facility, which covers approximately 50 employees, is scheduled to expire on March 31, 2020. 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 Brooklyn or Roseland facilities 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.

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

(13)Earnings per Share

Basic earnings per share is calculated by dividing net income by the weighted average number of shares of common stock outstanding. Diluted earnings per share is calculated by dividing net income by the weighted average number of shares of common stock outstanding plus all additional shares of common stock that would have been outstanding if potentially dilutive shares of common stock had been issued upon the exercise of stock options or in connection with performance shares that may be earned under long-term incentive awards as of the grant date, in the case of the stock options, and as of the beginning of the period, in the case of the performance shares, using the treasury stock method. For the first quarter of 2019 and 2018, there were 1,167,297 and 727,311, respectively, shares of common stock issuable upon the exercise of stock options excluded from the calculation of diluted weighted average shares outstanding because the effect would have been anti-dilutive on diluted earnings per share.

 

 

 

 

 

Thirteen Weeks Ended

 

March 30,

    

March 31,

 

2019

    

2018

Weighted average shares outstanding:

 

 

 

Basic