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As filed with the Securities and Exchange Commission on August 6, 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 June 29, 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 July 30, 2019, the registrant had 65,375,514 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

6

Notes to Consolidated Financial Statements

7

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

31

Item 3. Quantitative and Qualitative Disclosures About Market Risk

47

Item 4. Controls and Procedures

48

PART II OTHER INFORMATION

49

Item 1. Legal Proceedings

49

Item 1A. Risk Factors

49

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

49

Item 3. Defaults Upon Senior Securities

49

Item 4. Mine Safety Disclosures

49

Item 5. Other Information

49

Item 6. Exhibits

49

SIGNATURE

50

- 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 complete the implementation and operate 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)

June 29,

    

December 29,

2019

    

2018

Assets

Current assets:

Cash and cash equivalents

$

19,911

$

11,648

Trade accounts receivable, net

 

136,493

 

151,707

Inventories

 

404,754

 

401,355

Prepaid expenses and other current assets

 

26,223

 

19,988

Income tax receivable

 

10,056

 

1,398

Total current assets

 

597,437

 

586,096

Property, plant and equipment, net of accumulated depreciation of $249,862 and $230,200 as of June 29, 2019 and December 29, 2018, respectively

 

305,322

 

282,553

Operating lease right-of-use assets

42,059

Goodwill

 

597,827

 

584,435

Other intangibles, net

 

1,622,477

 

1,595,569

Other assets

 

1,083

 

1,206

Deferred income taxes

 

5,562

 

4,940

Total assets

$

3,171,767

$

3,054,799

Liabilities and Stockholders’ Equity

Current liabilities:

Trade accounts payable

$

113,536

$

140,000

Accrued expenses

 

43,240

 

55,660

Operating lease liabilities, current portion

9,915

Income tax payable

410

31,624

Dividends payable

 

31,053

 

31,178

Total current liabilities

 

198,154

 

258,462

Long-term debt

 

1,802,626

 

1,635,881

Deferred income taxes

 

243,754

 

235,902

Long-term operating lease liabilities, net of current portion

35,421

Other liabilities

 

23,452

 

24,505

Total liabilities

 

2,303,407

 

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; 65,375,514 and 65,638,701 shares issued and outstanding as of June 29, 2019 and December 29, 2018, respectively

 

654

 

656

Additional paid-in capital

 

46,284

 

116,339

Accumulated other comprehensive loss

 

(20,176)

 

(23,502)

Retained earnings

 

841,598

 

806,556

Total stockholders’ equity

 

868,360

 

900,049

Total liabilities and stockholders’ equity

$

3,171,767

$

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

Twenty-six Weeks Ended

June 29,

    

June 30,

    

June 29,

    

June 30,

2019

    

2018

    

2019

    

2018

Net sales

$

371,197

$

388,378

$

783,931

$

820,107

Cost of goods sold

 

279,330

 

307,205

 

603,985

 

635,578

Gross profit

 

91,867

 

81,173

 

179,946

 

184,529

Operating expenses:

Selling, general and administrative expenses

 

39,856

 

37,272

 

78,153

 

79,840

Amortization expense

 

4,601

 

4,609

 

9,092

 

9,218

Operating income

 

47,410

 

39,292

 

92,701

 

95,471

Other income and expenses:

Interest expense, net

 

23,179

 

27,607

 

46,253

 

55,913

Loss on extinguishment of debt

 

546

 

 

3,324

Other (income) expense

(525)

388

(783)

(1,666)

Income before income tax expense

 

24,756

 

10,751

 

47,231

 

37,900

Income tax expense

 

6,505

 

2,775

 

12,189

 

9,377

Net income

$

18,251

$

7,976

$

35,042

$

28,523

Weighted average shares outstanding:

Basic

65,341

66,307

65,464

66,412

Diluted

65,391

66,354

65,504

66,535

Earnings per share:

Basic

$

0.28

$

0.12

$

0.54

$

0.43

Diluted

$

0.28

$

0.12

$

0.53

$

0.43

Cash dividends declared per share

$

0.475

$

0.475

$

0.950

$

0.940

See Notes to Consolidated Financial Statements.

- 2 -

B&G Foods, Inc. and Subsidiaries

Consolidated Statements of Comprehensive Income

(In thousands)

(Unaudited)

Thirteen Weeks Ended

Twenty-six Weeks Ended

    

June 29,

    

June 30,

    

June 29,

    

June 30,

    

2019

    

2018

    

2019

    

2018

Net income

$

18,251

$

7,976

$

35,042

$

28,523

Other comprehensive income:

Foreign currency translation adjustments

 

1,543

 

(5,659)

 

3,001

 

(2,527)

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

 

163

 

138

 

325

 

249

Other comprehensive income (loss)

 

1,706

 

(5,521)

 

3,326

 

(2,278)

Comprehensive income

$

19,957

$

2,455

$

38,368

$

26,245

See Notes to Consolidated Financial Statements.

- 3 -

B&G Foods, Inc. and Subsidiaries

Consolidated Statements of Changes in Stockholders’ Equity

As of June 29, 2019

(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

Foreign currency translation

 

1,543

 

1,543

Change in pension benefit (net of $52 of income taxes)

 

163

 

163

Net income

 

18,251

 

18,251

Share-based compensation

 

77,907

1

2,336

 

2,337

Dividends declared on common stock, $0.475 per share

 

(31,053)

 

(31,053)

Balance at June 29, 2019

 

65,375,514

$

654

$

46,284

$

(20,176)

$

841,598

$

868,360

- 4 -

B&G Foods, Inc. and Subsidiaries

Consolidated Statements of Changes in Stockholders’ Equity

As of June 30, 2018

(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 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 $36 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)

Repurchase of common stock

Dividends declared on common stock, $0.475 per share

 

(30,966)

 

(30,966)

Balance at March 31, 2018

66,593,120

$

666

$

234,827

$

(17,513)

$

654,668

$

872,648

Foreign currency translation

 

(5,659)

 

(5,659)

Change in pension benefit (net of $46 of income taxes)

 

138

 

138

Net income

 

7,976

 

7,976

Share-based compensation

 

1,759

 

1,759

Issuance of common stock for share-based compensation

 

33,920

 

Repurchase of common stock

(694,749)

(7)

(18,523)

(18,530)

Dividends declared on common stock, $0.475 per share

 

(31,318)

 

(31,318)

Balance at June 30, 2018

 

65,932,291

$

659

$

186,745

$

(23,034)

$

662,644

$

827,014

See Notes to Consolidated Financial Statements.

- 5 -

B&G Foods, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

Twenty-six Weeks Ended

    

June 29,

    

June 30,

    

2019

    

2018

Cash flows from operating activities:

Net income

$

35,042

$

28,523

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

Depreciation and amortization

 

28,420

 

26,407

Amortization of operating lease right-of-use assets

5,377

Amortization of deferred debt financing costs and bond discount/premium

 

1,745

 

2,976

Deferred income taxes

 

7,240

 

7,511

Write-off of property, plant, and equipment

13

29

Loss on extinguishment of debt

3,324

Share-based compensation expense

 

1,964

 

2,597

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

Trade accounts receivable

 

21,246

 

2,397

Inventories

 

10,251

 

51,744

Prepaid expenses and other current assets

 

(5,035)

 

(4,320)

Income tax receivable/payable

 

(39,759)

 

51

Other assets

 

122

 

161

Trade accounts payable

 

(32,335)

 

(6,374)

Accrued expenses

 

(16,749)

 

(11,647)

Other liabilities

 

(696)

 

1,425

Net cash provided by operating activities

 

16,846

 

104,804

Cash flows from investing activities:

Capital expenditures

 

(18,148)

 

(17,208)

Payments for acquisition of businesses, net of cash acquired

 

(82,430)

 

Net cash used in investing activities

 

(100,578)

 

(17,208)

Cash flows from financing activities:

Repayments of long-term debt

 

 

(150,000)

Repayments of borrowings under revolving credit facility

 

(95,000)

 

Borrowings under revolving credit facility

 

260,000

 

Dividends paid

 

(62,194)

 

(61,888)

Payments for repurchase of common stock, net

(10,000)

(18,529)

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

 

(905)

 

(1,832)

Net cash provided by (used in) financing activities

 

91,901

 

(232,249)

Effect of exchange rate fluctuations on cash and cash equivalents

 

94

 

987

Net decrease in cash and cash equivalents

 

8,263

 

(143,666)

Cash and cash equivalents at beginning of period

 

11,648

 

206,506

Cash and cash equivalents at end of period

$

19,911

$

62,840

Supplemental disclosures of cash flow information:

Cash interest payments

$

45,302

$

53,025

Cash income tax payments

$

44,710

$

1,628

Non-cash investing and financing transactions:

Dividends declared and not yet paid

$

31,053

$

31,318

Accruals related to purchases of property, plant and equipment

$

2,142

$

206

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

$

533

$

See Notes to Consolidated Financial Statements.

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Table of Contents

B&G Foods, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

(1)

Nature of Operations

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

We operate in a single industry segment and manufacture, sell and distribute a diverse portfolio of high-quality shelf-stable and frozen foods across the United States, Canada and Puerto Rico. Our products include frozen and canned vegetables, 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, baking powder, baking soda, corn starch, 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, Clabber Girl, Cream of Rice, Cream of Wheat, Davis, 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, Rumford, 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 and twenty-six week periods ended June 29, 2019 (second quarter and first two quarters of 2019) and June 30, 2018 (second quarter and first two quarters 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 June 29, 2019, and the results of our operations, comprehensive income and cash flows for the second quarter and first two quarters of 2019 and 2018. Our results of operations for the second quarter and first two quarters 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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Table of Contents

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.

- 8 -

Table of Contents

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

Clabber Girl

On May 15, 2019, we acquired Clabber Girl Corporation, a leader in baking products, including baking powder, baking soda and corn starch, from Hulman & Company for approximately $84.6 million in cash, subject to customary closing and post-closing working capital adjustments. In addition to Clabber Girl, the number one retail baking powder brand, Clabber Girl Corporation’s product offerings include the Rumford, Davis, Hearth Club and Royal brands of retail baking powder, baking soda and corn starch, and the Royal brand of foodservice dessert mixes. We refer to this acquisition as the “Clabber Girl acquisition.”

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Table of Contents

B&G Foods, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

The following table sets forth the preliminary allocation of the Clabber Girl 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 second quarter of fiscal 2020.

Clabber Girl Acquisition (in thousands):

Preliminary Allocation:

May 15, 2019

Cash and cash equivalents

$

2,202

Trade accounts receivable, net

5,627

Inventories

11,305

Prepaid expenses and other current assets

154

Income tax receivable

7

Property, plant and equipment, net

20,697

Operating lease right-of-use assets

6,488

Trademarks — indefinite-lived intangible assets

18,500

Customer relationship intangibles — finite-lived intangible assets

17,500

Trade accounts payable

(3,007)

Accrued expenses

(1,315)

Operating lease liabilities, current portion

(863)

Long-term operating lease liabilities, net of current portion

(6,055)

Goodwill

13,392

Total purchase price (paid in cash)

$

84,632

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

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

Inventories

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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Table of Contents

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:

Inventories

(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):

    

June 29, 2019

    

December 29, 2018

Raw materials and packaging

$

78,460

$

61,905

Work-in-process

33,833

95,282

Finished goods

 

292,461

 

244,168

Inventories

$

404,754

$

401,355

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Table of Contents

B&G Foods, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

(5)

Goodwill and Other Intangible Assets

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

June 29, 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

$

3,916

$

15,684

$

19,600

$

3,369

$

16,231

Customer relationships

 

353,090

 

120,497

 

232,593

 

335,590

 

111,952

 

223,638

Total finite-lived intangible assets

$

372,690

$

124,413

$

248,277

$

355,190

$

115,321

$

239,869

Indefinite-Lived Intangible Assets

Goodwill

$

597,827

$

584,435

Trademarks

$

1,374,200

$

1,355,700

As a result of the Clabber Girl acquisition, goodwill, indefinite-lived trademarks and finite-lived customer relationships in our consolidated balance sheet increased by $13.4 million, $18.5 million and $17.5 million, respectively, as of the date of acquisition on May 15, 2019. See Note 3, “Acquisitions and Divestitures.”

Amortization expense associated with finite-lived intangible assets for the second quarter and first two quarters of 2019 was $4.6 million and $9.1 million, respectively, and is recorded in operating expenses. Amortization expense associated with finite-lived intangible assets for the second quarter and first two quarters of 2018 was $4.6 million and $9.2 million, respectively. We expect to recognize an additional $9.4 million of amortization expense associated with our finite-lived intangible assets during the remainder of fiscal 2019, and thereafter $18.8 million of amortization expense in each of the fiscal years 2020, 2021 and 2022, respectively, and $18.7 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):

    

June 29, 2019

    

December 29, 2018

Revolving credit loans

 

$

215,000

 

$

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

(15,475)

 

(17,490)

Unamortized premium

 

3,101

 

3,371

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

$

1,802,626

$

1,635,881

As of June 29, 2019, the aggregate contractual maturities of long-term debt are as follows (in thousands):

Fiscal year ending:

2019

$

2020

 

2021

 

700,000

2022

 

215,000

2023

 

Thereafter

 

900,000

Total

$

1,815,000

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.

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Table of Contents

B&G Foods, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Unaudited)

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.

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 $0.5 million and $3.3 million in the second quarter and first two quarters of 2018, respectively.

At June 29, 2019, the available borrowing capacity under our revolving credit facility, net of outstanding letters of credit of $1.6 million, was $483.4 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 June 29, 2019, there was $215.0 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 June 29, 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 June 29, 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 June 29, 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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Table of Contents

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.