Independent Auditors' Report
The Board of Directors and Stockholder
B&G Foods, Inc.:
We have audited the accompanying balance sheets of B&G Foods, Inc. and
subsidiaries (Successor Consolidated) as of January 3, 1998 and December 28,
1996, and the related statements of operations, and cash flows for the year
ended January 3, 1998, and the statements of operations, and cash flows for the
Predecessor Combined (as described in note 1) for the years ended December 28,
1996 and December 30, 1995. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As further described in note 1, the Predecessor was acquired on December 27,
1996 in a business combination accounted for as a purchase. As a result, the
Successor Consolidated financial statements are presented on a different basis
of accounting than the Predecessor Combined financial statements and, therefore,
are not comparable.
In our opinion, the Successor Consolidated financial statements referred to
above present fairly, in all material respects, the financial position of B&G
Foods, Inc. and subsidiaries as of January 3, 1998 and December 28, 1996, and
the results of their operations and their cash flows for the year ended January
3, 1998 in conformity with generally accepted accounting principles. Further, in
our opinion, the Predecessor Combined financial statements referred to above
present fairly, in all material respects, the results of operations and cash
flows of the Predecessor Combined for the years ended December 28, 1996 and
December 30, 1995 in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Short Hills, New Jersey
February 20, 1998
B&G FOODS, INC. AND SUBSIDIARIES
Balance Sheets
January 3, 1998 and December 28, 1996
(Dollars in thousands, except share data)
Jan.3, Dec.28,
1998 1996
(Successor (Successor
Assets Consolidated) Consolidated)
------------- -------------
Current assets:
Cash and cash equivalents $ 691 291
Trade accounts receivable, less allowance for doubtful
accounts of $687 in 1997 13,074 8,373
Inventories 31,467 23,609
Prepaid expenses and other current assets 1,792 494
Deferred income taxes 2,819 2,260
------------ -----------
Total current assets 49,843 35,027
Property, plant and equipment, net 23,619 15,584
Intangible assets, net 100,831 50,650
Other assets 5,742 2,151
------------ -----------
Total assets $ 180,035 103,412
============ ===========
Liabilities and Stockholder's Equity
Current liabilities:
Current installments of long-term debt 293 1,976
Trade accounts payable 15,752 14,334
Accrued expenses 11,990 7,716
Due to related parties 197 4,009
------------ -----------
Total current liabilities 28,232 28,035
Long-term debt, including amounts payable to related
parties of $844 and $13,650 in 1997 and 1996,
respectively 121,083 51,537
Other liabilities 59 730
Deferred income taxes 12,033 10,610
------------ -----------
Total liabilities 161,407 90,912
------------ -----------
Stockholder's equity:
Common stock, $.01 par value per share. Authorized
1,000 shares; issued and outstanding 1 share in
1997 and 1996 - -
Additional paid-in capital 20,000 13,000
Receivable from stock issuance - (500)
Accumulated deficit (1,372) -
Total stockholder's equity 18,628 12,500
Commitments and contingencies (notes 6, 12 and 13)
Total liabilities and stockholder's equity $ 180,035 103,412
============ ===========
See accompanying notes to financial statements.
B&G FOODS, INC. AND SUBSIDIARIES
Statements of Operations
Years ended January 3, 1998, December 28, 1996
and December 30, 1995
(Dollars in thousands)
Year Year Year
ended ended ended
Jan.3, Dec.28, Dec.30,
1998 1996 1995
(Successor (Predecessor (Predecessor
Consolidated) Combined) Combined)
------------- --------- ---------
Net sales $ 151,615 129,307 112,245
Cost of goods sold 98,950 91,187 79,293
------------- ------------ -----------
Gross profit 52,665 38,120 32,952
Sales, marketing and distribution expenses 36,884 28,414 23,863
General and administrative expenses 4,688 2,941 2,598
Management fees - related parties 250 1,249 1,097
------------- ------------ -----------
Operating income 10,843 5,516 5,394
Other expense:
Interest expense - related parties 811 4,452 3,624
Interest expense 8,767 197 156
------------- ------------ -----------
Income before income tax expense
and extraordinary item 1,265 867 1,614
Income tax expense 833 591 896
------------- ------------ -----------
Income before extraordinary item 432 276 718
Extraordinary item, net of income tax benefit of
$1,138 (1,804) - -
------------- ------------ ----------
Net (loss) income $ (1,372) 276 718
============= ============ ===========
See accompanying notes to financial statements.
2
B&G FOODS, INC. AND SUBSIDIARIES
Statements of Cash Flows
Years ended January 3, 1998, December 28, 1996
and December 30, 1995
(Dollars in thousands)
Year Year Year
ended ended ended
Jan.3, Dec.28, Dec.30,
1998 1996 1995
(Successor (Predecessor (Predecessor
Consolidated) Combined) Combined)
------------- --------- ---------
Cash flows from operating activities:
Net (loss) income $ (1,372) 276 718
Adjustments to reconcile net (loss) income to net
cash provided by operating activities:
Depreciation and amortization 5,420 4,105 3,511
Amortization of deferred debt issuance costs 630 - -
Deferred income tax (benefit) expense (310) 386 395
Extraordinary item 2,942 - -
Provision for doubtful accounts 687 - -
Changes in assets and liabilities, net
of effects from businesses acquired:
Trade accounts receivable (4,510) (190) (23)
Inventories (2,612) (1,305) (3,198)
Prepaid expenses and other current assets (1,286) (595) 194
Other assets (46) (11) 3
Trade accounts payable 953 (1,214) 4,742
Accrued expenses 3,142 (1,496) (2,123)
Due to related parties 197 2,316 5,221
Other liabilities (477) 12 301
------------- ----------- -----------
Net cash provided by operating activities 3,358 2,284 9,741
------------- ----------- -----------
Cash flows from investing activities:
Acquisition of New York Style - - (6,300)
Paid for Successor Acquisitions (63,019) - -
Paid for Acquired Companies (4,009) - -
Capital expenditures (4,022) (2,573) (2,571)
Proceeds from sales of property, plant and equipment 162 - -
------------- ----------- ----------
Net cash used in investing activities (70,888) (2,573) (8,871)
------------- ----------- -----------
Cash flows from financing activities:
Payments of long-term debt (68,453) (318) (284)
Proceeds from issuance of long-term debt 143,000 - -
Proceeds from issuance of common stock 500 - -
Payments of debt issuance costs (7,117) - -
------------- ----------- ----------
Net cash provided by (used in)
financing activities 67,930 (318) (284)
------------- ----------- -----------
Increase (decrease) in cash and cash
equivalents 400 (607) 586
Cash and cash equivalents at beginning of period 291 898 312
------------- ----------- -----------
Cash and cash equivalents at end of period $ 691 291 898
============= =========== ===========
3
B&G FOODS, INC. AND SUBSIDIARIES
Statements of Cash Flows, Continued
(Dollars in thousands)
Year Year Year
ended ended ended
Jan.3, Dec.28, Dec.30,
1998 1996 1995
(Successor (Predecessor (Predecessor
Consolidated) Combined) Combined)
------------- --------- ---------
Supplemental disclosure of cash flow information - cash paid for:
Interest $ 4,261 197 155
============= =========== ===========
Income taxes $ 209 203 108
============= =========== ===========
B&G Foods, Inc. cash transactions as of
December 27, 1996:
Cash paid for Acquired Companies (note 1) $ 63,240
Cash paid for deferred debt issuance costs 1,328
-----------
Total investing activities $ 64,568
===========
Cash proceeds from debt ($52,068) and equity ($12,500)
financing activities (note 1) $ 64,568
===========
See accompanying notes to financial statements.
4
B&G FOODS, INC. AND SUBSIDIARIES
Notes to Financial Statements
January 3, 1998 and December 28, 1996
(Dollars in thousands)
(1) Business Acquisitions and Nature of Operations
Organization, Acquisition and Financing
B&G Foods, Inc. (formerly known as B Companies Acquisition Corp.) was
incorporated on November 13, 1996 to acquire (the Acquisition) BGH
Holdings, Inc., the holding company of Bloch & Guggenheimer, Inc. and
related companies, and BRH Holdings, Inc., the holding company of Burns
& Ricker, Inc. (collectively, the Acquired Companies or the
Predecessor), subsidiaries of Specialty Foods Corporation (SFC). B&G
Foods, Inc. and the Acquired Companies upon the Acquisition are
hereinafter referred to as the Successor or the Company. The
Acquisition was structured as a stock purchase with an aggregate
purchase price of approximately $70,000, including transaction costs,
and was consummated on December 27, 1996. As part of the Acquisition,
SFC guaranteed the Company's trade receivables at December 27, 1996. On
December 27, 1996, the Company issued one share of common stock to, and
became a wholly-owned subsidiary of, B Companies Holdings Corp., which
in turn is majority owned by Bruckmann, Rosser, Sherrill and Co., L.P.
(BRS), a private equity investment firm, and minority owned by
management and certain other investors.
In addition to initial equity of $12,500, the financing of the
Acquisition was provided through a $50,000 Senior Secured Credit
Facility which consisted of a Revolving Credit Facility of $23,500 and
Term Loan Facilities A and B of $14,500 and $12,000, respectively.
Additionally, the Company issued $13,000 of 12% Senior Subordinated
Notes due 2004 to BRS and other certain investors (the BRS Note).
Nature of Operations
The Company is a manufacturer, marketer and distributor of branded
pickles, peppers, bagel chips, hot sauces and other specialty food
products to retailers and food service establishments. The Company
distributes these products to retailers in the greater New York
metropolitan area through a direct-store-door sales and distribution
system and elsewhere in the United States through a nationwide network
of independent brokers and distributors.
Acquisition Accounting
The Acquisition has been accounted for using the purchase method.
Accordingly, the excess of the purchase price over the fair value of
identifiable net assets acquired,
5
B&G FOODS, INC. AND SUBSIDIARIES
Notes to Financial Statements, Continued
(Dollars in thousands)
(1), Continued
representing goodwill, is included in intangible assets. The
consideration (including acquisition costs of $1,329) and allocation of
the purchase price are summarized below:
Purchase Price Consideration:
Term Loan Facilities A and B $ 26,500
Revolving Credit Facility 11,240
Proceeds from Common Stock Issuance 12,500
12% Senior Subordinated Notes due to
related parties 13,000
Cash paid subsequent to December 27, 1996 5,337
Long-term liabilities assumed 1,445
-----------
$ 70,022
Allocation of Purchase Price:
Property, plant and equipment 15,584
Intangible assets - trademarks 29,804
Intangible assets - goodwill 20,846
Other assets, principally net current assets 12,858
Deferred income tax liabilities (9,070)
$ 70,022
Restructuring
As part of the Acquisition, management authorized and committed to a
plan to undertake certain restructuring moves, principally involving
the consolidation of several warehouse and production facilities
resulting in restructuring accruals of $1,536 as part of the allocation
of the purchase price. The restructuring consisted primarily of
approximately $952 of estimated lease and other tenancy costs through
1998, $228 in severance and termination benefits for approximately 100
employees, and the remaining portion relating to charges resulting from
changes in the production process as part of the consolidation, which
was completed in June 1997. The Company does not expect to incur
material incremental costs. As of January 3, 1998, the restructuring
reserve balance was reduced to $656 as a result of cash expenditures
relating primarily to tenancy costs and severance payments.
6
B&G FOODS, INC. AND SUBSIDIARIES
Notes to Financial Statements, Continued
(Dollars in thousands)
(1), Continued
Successor Acquisitions and Accounting
On June 17, 1997, the Company acquired certain assets from Nabisco,
Inc. (Nabisco) for a purchase price of approximately $50,557, including
transaction costs. Financing for this acquisition and certain related
transaction fees and expenses was provided by $35,000 of new borrowings
on an amended and restated Senior Secured Credit Facility, and $17,000
of the proceeds from the issuance of $23,000 of 12% Senior Subordinated
Notes due December 16, 1997 (the Interim Notes), with $6,000 used to
repay a portion of the BRS Note.
On August 15, 1997, the Company acquired all of the outstanding capital
stock of JEM Brands, Inc. (JEM), a manufacturer of peppers and branded
hot sauces, for approximately $12,462, including transaction costs.
Financing for this acquisition and certain related transaction fees and
expenses was provided by the proceeds from the issuance of $120,000
Senior Subordinated Notes on August 11, 1997.
The above acquisitions (collectively, the Successor Acquisitions) have
been accounted for using the purchase method and, accordingly, the
assets acquired, liabilities assumed, and results of operations are
included in the Successor Consolidated financial statements from the
date of the acquisitions. The excess of the purchase price over the
fair value of identifiable net assets acquired, representing goodwill,
is included in intangible assets.
The costs of the Successor Acquisitions have been allocated to tangible
and intangible assets as follows:
Property, plant and equipment $ 7,111
Intangible assets - trademarks 24,500
Intangible assets - goodwill 28,045
Other assets, principally net current assets 4,621
Deferred income tax liabilities, net (1,258)
-----------
$ 63,019
Predecessor Acquisition and Accounting
On September 11, 1995, the Predecessor completed the acquisition of
substantially all of the assets and certain liabilities of New York
Style Bagel Chips (NYS) for total consideration of approximately
$6,300. The transaction was financed through additional borrowings from
SFC. The Predecessor's acquisition has been accounted for using the
purchase method and, accordingly, the assets acquired, liabilities
assumed, and results of operations are included in the Predecessor
Combined financial statements from the date of acquisition. The
purchase price was allocated to the underlying assets and liabilities
based on their fair values, with the excess recorded as goodwill.
7
B&G FOODS, INC. AND SUBSIDIARIES
Notes to Financial Statements, Continued
(Dollars in thousands)
(1), Continued
Pro Forma Summary of Operations
The following unaudited pro forma summary of operations for the fiscal
years ended January 3, 1998 and December 28, 1996 presents the results
of operations of the Company as if the Acquisition and Successor
Acquisitions had occurred as of the beginning of each of the respective
fiscal years. In addition to including the results of operations of the
Acquired Companies and the Successor Acquisitions, the pro forma
information gives effect primarily to interest on additional borrowings
and changes in depreciation and amortization of intangible assets.
Year Year
ended ended
Jan.3, Dec.28,
1998 1996
---- ----
Net sales $ 172,119 175,708
Income before extraordinary
item 654 1,836
=========== =========
The pro forma information presented above does not purport to be
indicative of the results that actually would have been attained if the
Acquisition, the Successor Acquisitions, and related financing
transactions had occurred at the beginning of the years presented and
is not intended to be a projection of future results.
(2) Summary of Significant Accounting Policies
(a) Fiscal Year and Basis of Presentation
The Company utilizes, as did the Predecessor, a 52-53 week fiscal
year ending on the last Saturday in December. Fiscal year 1997
contains 53 weeks. Fiscal years 1996 and 1995 contain 52 weeks.
8
B&G FOODS, INC. AND SUBSIDIARIES
Notes to Financial Statements, Continued
(Dollars in thousands)
(2), Continued
The Successor's financial statements are presented on a
consolidated basis. The Predecessor's financial statements are
presented on a combined basis because all of the Acquired
Companies were under common control. All significant intercompany
balances and transactions have been eliminated.
B&G Foods, Inc. had no operations prior to the Acquisition and
neither B&G Foods, Inc. nor the Acquired Companies had any
operations on Saturday, December 28, 1996. As a result, the
statements of operations and cash flows for the fiscal years
ended December 28, 1996 and December 30, 1995 present the
combined results of operations of the Acquired Companies
(Predecessor Combined). The financial statements subsequent to
the Acquisition are presented on a different cost basis and use a
different accounting policy (see note 2(f)) than the financial
statements prior to the Acquisition and, therefore, are not
comparable. Further, related party transactions (see note 11)
affect the comparability of the financial statements.
(b) Cash and Cash Equivalents
For purposes of the statements of cash flows, all highly liquid
debt instruments with original maturities of three months or less
are considered to be cash and cash equivalents.
(c) Inventories
Inventories are stated at the lower of cost or market. Cost is
determined using the first-in, first-out and average cost
methods.
(d) Property, Plant and Equipment
Property, plant, and equipment are stated at cost. Plant and
equipment under capital leases are stated at the present value of
minimum lease payments. Depreciation on plant and equipment is
calculated using the straight-line method over the estimated
useful lives of the assets, generally 12 to 20 years for
buildings and improvements, 5 to 10 years for machinery and
equipment, and 3 to 5 years for office furniture and vehicles.
Plant and equipment held under capital leases and leasehold
improvements are amortized on a straight-line basis over the
shorter of the lease term or estimated useful life of the asset.
Expenditures for maintenance, repairs and minor replacements are
charged to current operations. Expenditures for major
replacements and betterments are capitalized.
(e) Intangible Assets
Intangible assets consist of goodwill and trademarks. Goodwill is
amortized on a straight-line basis over 40 years. Trademarks are
amortized on a straight-line basis over 20 to 40 years. The
Company assesses the recoverability of the intangible assets by
determining whether the amortization of the intangible assets
over their remaining lives can be recovered through undiscounted
future operating cash flows. The amount of
9
B&G FOODS, INC. AND SUBSIDIARIES
Notes to Financial Statements, Continued
(Dollars in thousands)
(2), Continued
impairment, if any, is measured based on projected discounted
future operating cash flows using a discount rate reflecting the
Company's average cost of funds. The assessment of the
recoverability of intangible assets will be impacted if estimated
future operating cash flows are not achieved.
(f) Package Design Costs
Package design costs relate to the development of product
packaging and labels. Prior to the Acquisition, the Predecessor
capitalized package design costs and amortized such costs over a
four-year period. Since the Acquisition, the Successor has
expensed package design costs as incurred. Package design costs
expensed in fiscal year 1997 totalled $211. Amortization of
package design costs in fiscal years 1996 and 1995 was $77 and
$25, respectively.
(g) Deferred Debt Issuance Costs
Deferred debt issuance costs are amortized using the
straight-line method over the term of the related debt agreements
and are classified as other non-current assets. Amortization of
deferred debt issuance costs for fiscal year 1997 was $630 (none
in 1996 and 1995).
As a result of the debt repayments and amendments described in
note 7, during fiscal year 1997, the Company recorded an
extraordinary charge of $1,804, net of income tax benefit of
$1,138, to write off deferred debt issuance costs relating to its
Senior Secured Credit Agreement and the Interim Notes.
(h) Advertising Costs
Advertising costs are expensed as incurred. Advertising costs
amounted to approximately $121, $285 and $151 during the fiscal
years 1997, 1996 and 1995, respectively.
(i) Income Taxes
From August 17, 1993 to the date of the Acquisition, the
Predecessor was included in the consolidated federal income tax
return of SFC. SFC was responsible for the filing of income tax
returns and payment of income taxes. No formal tax sharing
agreement existed between SFC and the Predecessor, and no federal
income taxes were allocated to the Predecessor. State income
taxes were allocated to the Predecessor based on the actual state
income tax liability. Income tax expense reported in the
accompanying statements of operations for fiscal 1996 and 1995
has been computed as if the Predecessor filed a separate federal
tax return.
10
B&G FOODS, INC. AND SUBSIDIARIES
Notes to Financial Statements, Continued
(Dollars in thousands)
(2), Continued
Effective December 28, 1996, the Company is included in the
consolidated federal income tax return of B Companies Holdings
Corp. Income tax expense reported in the accompanying statement
of operations for the year ended January 3, 1998 has been
computed as if the Company filed a separate federal tax return.
Deferred tax assets and liabilities of the Company are recognized
for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases and
operating loss and tax credit carryforwards. Deferred tax assets
and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates
is recognized in income in the period that includes the enactment
date.
(j) Pension Plans
The Company has defined benefit pension plans covering
substantially all of its employees. The Company's funding policy
is to contribute annually the amount recommended by its
actuaries. Such plans are the same as the plans of the
Predecessor.
(k) Fair Value of Financial Instruments
Cash and cash equivalents, accounts receivable, accounts payable
and accrued expenses are reflected in the financial statements at
carrying value, which approximates fair value due to the
short-term nature of these instruments. The carrying value of the
Company's borrowings approximates the fair value based on the
current rates available to the Company for similar instruments.
(l) Use of Estimates
The preparation of financial statements in accordance with
generally accepted accounting principles requires management to
make estimates and assumptions relating to the reporting of
assets and liabilities and the disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
(m) Impairment of Long-Lived Assets and Long-Lived Assets to
` Be Disposed Of
The provisions of Statement of Financial Accounting Standards No.
121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of," were adopted on December
31, 1995. This statement requires that long-lived assets and
11
B&G FOODS, INC. AND SUBSIDIARIES
Notes to Financial Statements, Continued
(Dollars in thousands)
(2), Continued
certain identifiable intangibles be reviewed for impairment
whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash
flows expected to be generated by the asset. If such assets are
considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets
exceeds the fair value of the assets. Assets to be disposed of
are reported at the lower of the carrying amount or fair value
less costs to sell. Adoption of this statement did not have a
material impact on the Company's financial position, results of
operations, or liquidity.
(n) Reclassifications
Certain amounts in the December 28, 1996 financial statements
have been reclassified to conform with the January 3, 1998
financial statement presentation.
(o) Statements of Cash Flows - Noncash Financing and
Investing Activities
Capital lease obligations of $122 and $759 were incurred during
fiscal years 1997 and 1995, respectively (none in 1996), when the
Company entered into leases for new machinery and equipment. As
described in note 7, on June 17, 1997, $7,000 of the BRS Note was
contributed to capital. Notes payable were issued in payment of
rent owed to a related party in the amounts of $194, $206, and
$191 during the fiscal years 1997, 1996 and 1995, respectively.
In connection with the Acquisition, the Company assumed long-term
liabilities (capital leases and unsecured notes payable to a
related party) of $1,445.
(3) Inventories
Inventories consist of the following:
Jan.3, Dec.28,
1998 1996
---- ----
Raw materials and packaging $ 6,146 4,495
Work in progress 1,924 1,948
Finished goods 23,397 17,166
----------- ---------
$ 31,467 23,609
=========== =========
(4) Property, Plant and Equipment
Property, plant and equipment, net consists of the following:
Jan.3, Dec.28,
1998 1996
---- ----
Land $ 2,307 582
Buildings and improvements 6,783 4,496
Leasehold improvements 622 34
Machinery and equipment 14,963 9,224
Office furniture and vehicles 925 508
Leased property under capital leases 908 740
Construction in progress 169 -
----------- --------
26,677 15,584
Less accumulated depreciation and
amortization 3,058 -
$ 23,619 15,584
=========== ========
As a result of the Acquisition, the cost of property, plant and
equipment at December 28, 1996 represents estimated fair value with no
accumulated depreciation.
Plant and equipment includes amounts under capital leases as follows:
Jan.3, Dec.28,
1998 1996
---- ----
Machinery and equipment $ 122 122
Office furniture and vehicles 786 618
908 740
Less accumulated amortization 239 -
$ 669 740
=========== =========
Amortization of assets held under capital leases is included with
depreciation expense.
13
B&G FOODS, INC. AND SUBSIDIARIES
Notes to Financial Statements, Continued
(Dollars in thousands)
(5) Intangible Assets
Intangible assets consist of the following:
Jan.3, Dec.28,
1998 1996
Goodwill $ 48,889 20,846
Trademarks 54,304 29,804
----------- ---------
103,193 50,650
Less accumulated amortization 2,362 -
$ 100,831 50,650
=========== =========
(6) Leases
The Company has several noncancelable operating leases, primarily for
warehouses, transportation equipment and machinery. These leases
generally require the Company to pay all executory costs such as
maintenance, taxes and insurance.
Future minimum lease payments under noncancelable operating leases
(with initial or remaining lease terms in excess of one year) for the
periods set forth below are as follows:
Years ended December:
1998 $ 1,920
1999 897
2000 715
2001 628
2002 568
Thereafter 2,736
-----------
$ 7,464
14
B&G FOODS, INC. AND SUBSIDIARIES
Notes to Financial Statements, Continued
(Dollars in thousands)
(6), Continued
Future minimum capital lease payments as of January 3, 1998 are as
follows:
Years ended December 31:
1998 $ 351
1999 214
2000 27
Total minimum lease payments 592
Less amount representing interest (at 9% to 13%) 60
Present value of net minimum capital
lease payments 532
Less current installments of obligations under
capital leases 293
Obligations under capital leases, excluding
current installments (included in long-
term debt) $ 239
=========
Total rental expense was $1,543, $1,735 and $1,500 for the fiscal years
1997, 1996 and 1995, respectively.
The Company leases a manufacturing facility from the Chairman of the
Board of the Company under an operating lease expiring in April 1999.
Total rent expense associated with this lease for the fiscal years
1997, 1996 and 1995 was $463, $492 and $477, respectively.
15
B&G FOODS, INC. AND SUBSIDIARIES
Notes to Financial Statements, Continued
(Dollars in thousands)
(7) Long-term Debt
Long-term debt consists of the following:
Jan.3, Dec.28,
1998 1996
---- ----
Revolving credit facility $ - 12,568
Term Loan A, payable in quarterly installments
beginning June 30, 1997 through December 31,
2001 - 14,500
Term Loan B, payable in quarterly installments
beginning June 30, 1997 through December 31,
2003 - 12,000
9.625% Senior Subordinated Notes due August 1,
2007 120,000 -
12% Senior Subordinated Notes payable to related
parties due December 31, 2004 - 13,000
Obligations under capital leases with interest at 9%
to 13% collateralized by certain machinery,
equipment and vehicles 532 795
Unsecured notes payable to related party with various
interest rates ranging from 6.20% to 6.68%, due
April 1999 844 650
Total long-term debt 121,376 53,513
Less current installments 293 1,976
----------- ----------
Long-term debt, excluding current
installments $ 121,083 51,537
=========== ==========
In connection with the Acquisition, B&G Foods, Inc. entered into a
$50,000 Credit Agreement (the Credit Facility) which consists of a
$23,500 revolving credit facility, Term Loan A of $14,500 and Term Loan
B of $12,000. Interest was determined based on several available rates
as stipulated in the Credit Facility, and borrowings on the revolver
were limited to specified percentages of eligible accounts receivable
and inventories, as defined. In connection with the Company's
acquisition of certain assets from Nabisco on June 17, 1997, the Credit
Facility was amended and restated to increase the Company's revolving
credit facility by $1,500 and increase Term Loans A and B by $33,500 in
the aggregate, with new repayment terms beginning September 1997 on the
term loans. Additionally, on June 17, 1997, $6,000 of the BRS Note was
repaid (plus accrued interest) and
16
B&G FOODS, INC. AND SUBSIDIARIES
Notes to Financial Statements, Continued
(Dollars in thousands)
(7), Continued
$7,000 of the BRS Note was contributed to capital. In connection with
the issuance of the 9.625% $120,000 Senior Subordinated Notes on August
11, 1997, the term loans were repaid in full, and the Credit Facility
was further amended and restated to provide for, among other things, a
maximum $50,000 revolving credit facility due August 31, 2002.
Borrowings under the revolver are not limited by percentages of
underlying assets. There was no outstanding balance at January 3, 1998
under the Credit Facility.
Interest on the Credit Facility is determined based on several
alternative rates as stipulated in the Credit Facility, including the
base lending rate per annum plus 1.0% or LIBOR plus 2.50%. The Credit
Facility is secured by substantially all of the Company's assets. The
Credit Facility also provides for mandatory prepayment requirements
based on asset dispositions and issuance of securities, as defined. The
Credit Facility contains covenants that will restrict, among other
things, the ability of the Company to incur additional indebtedness,
pay dividends and create certain liens. The Credit Facility also
contains certain financial covenants which, among other things, specify
maximum capital expenditure limits, a minimum fixed charge coverage
ratio, a minimum total interest coverage ratio and a maximum
indebtedness to EBIDAT ratio, each ratio as defined. Proceeds of the
Credit Facility are restricted to funding the Company's working capital
requirements, capital expenditures and acquisitions of companies in the
same line of business as the Company, subject to certain criteria. The
Credit Facility limits acquisitions to $20,000 per year as well as
$20,000 per acquisition.
The Credit Facility requires an annual commitment fee of an amount
equal to 0.50% of the average daily unused portion of the Credit
Facility. The Credit Facility also provides a maximum commitment for
letters of credit of $3,000 and requires an annual commitment fee of
2.50% of the aggregate unused portion. At January 3, 1998, letters of
credit of approximately $661 have been issued under the Credit
Facility.
On February 7, 1997, the Company entered into a two-year $13,000
interest rate cap agreement in order to reduce the exposure of changes
in interest rates on the Credit Facility. The interest rate cap
agreement consists of a cap rate of 11.25%. The cost of the interest
rate cap agreement was $16, which is recorded in deferred financing
fees (other assets) in the accompanying consolidated balance sheet at
January 3, 1998 and is being amortized over the life of the Credit
Facility. The fair value of the agreement at January 3, 1998 is not
materially different than the carrying amount.
On August 11, 1997, the Company issued $120,000 of 9.625% Senior
Subordinated Notes (the Notes) due August 1, 2007 with interest payable
semiannually on February 1 and August 1 of each year, commencing
February 1, 1998. The proceeds of the Notes were used to repay the
outstanding balances together with accrued and unpaid interest with
respect to the Credit Facility and the Interim Notes, to finance the
acquisition of JEM, to pay certain related fees and expenses and for
general corporate purposes. The indenture for the Notes contain certain
covenants that,
17
B&G FOODS, INC. AND SUBSIDIARIES
Notes to Financial Statements, Continued
(Dollars in thousands)
(7), Continued
among other things, limit the ability of the Company to incur
additional debt, issue preferred stock, pay dividends or make certain
other restricted payments, enter into transactions with affiliates,
make certain asset dispositions, merge or consolidate with, or transfer
substantially all of its assets to, another person, as defined,
encumber assets under certain circumstances, restrict dividends and
other payments from subsidiaries, engage in sale and leaseback
transactions, issue capital stock, as defined, or engage in certain
business activities.
The Notes are redeemable at the option of the Company, in whole or in
part, at any time on or after August 1, 2002 at 104.813% of their
principal amount plus accrued and unpaid interest and Liquidated
Damages, as defined, if any, beginning August 1, 2002, and thereafter
at prices declining annually to 100% on or after August 1, 2005. In
addition, at any time prior to August 1, 2000, the Company may, in its
discretion, redeem up to 35% of the original aggregate principal amount
of the Notes at a redemption price equal to 109.625% of the principal
amount thereof, plus accrued and unpaid interest and Liquidated
Damages, as defined, if any, to the date of redemption, with the net
proceeds of one or more Public Equity Offering, as defined; provided
that at least 65% of the original aggregate principal amount of the
Notes remains outstanding immediately after each redemption. Upon the
occurrence of a Change in Control, as defined, the Company will have
the option, at any time on or prior to August 1, 2002, to redeem the
Notes, in whole but not in part, at a redemption price equal to 100% of
the principal amount plus the Applicable Premium, as defined, plus
accrued and unpaid interest and Liquidated Damages, as defined, if any,
to the date of redemption and if the Company does not so redeem the
Notes or if such Change in Control, as defined, occurs after August 1,
2002, the Company will be required to make an offer to repurchase the
Notes at a price equal to 101% of the principal amount, together with
accrued and unpaid interest and Liquidated Damages, as defined, if any,
to the date of repurchase. The Notes are not subject to any sinking
fund requirements.
The Company has no assets or operations independent of its
subsidiaries. All of the Company's subsidiaries (the Guarantors) are
wholly-owned, and all of the Company's subsidiaries jointly and
severally, and fully and unconditionally, guarantee the Notes (the
Subsidiary Guarantees). Consequently, separate financial statements
have not been presented for the guarantor subsidiaries because
management has determined that they would not be material to investors.
The Subsidiary Guarantee of each Guarantor is subordinate to the prior
payment in full of all Senior Debt, as defined. As of January 3, 1998,
the Company and its subsidiaries had Senior Debt and additional
liabilities (including trade payables, accrued expenses, amounts due to
related parties, deferred income taxes and other liabilities)
aggregating approximately $41.4 million.
As part of the registration rights agreement dated August 11, 1997
entered into with the initial purchasers of the Notes, the Company
agreed to offer to exchange an aggregate principal amount of up to
$120,000 of its 9.625% Senior Subordinated Notes due 2007 (the New
Notes) for a like principal amount of its Notes outstanding (the
Exchange Offer).
18
B&G FOODS, INC. AND SUBSIDIARIES
Notes to Financial Statements, Continued
(Dollars in thousands)
(7), Continued
The terms of the New Notes are identical in all material respects to
those of the Notes (including principal amount, interest rate, maturity
and guarantees), except for certain transfer restrictions and
registration rights relating to the Notes. The Exchange Offer was
completed on February 6, 1998.
As described in note 6, the Company leases a manufacturing facility
from the Chairman of the Board of the Company. The Company pays $43 per
month in rent in cash and, pursuant to a Memorandum of Agreement, an
additional amount in the form of unsecured notes payable, which are
issued in an annual aggregate principal amount of $188. The Company's
liability under the issued unsecured notes as of January 3, 1998 and
December 28, 1996 was $844 and $650, respectively. The notes are due in
April 1999, the date of the lease expiration. The Company estimates
that the remaining obligation of the notes to be issued is $295 and
$507 as of January 3, 1998 and December 28, 1996, respectively. Such
amounts are included in accrued expenses and other liabilities.
At January 3, 1998 and December 28, 1996, accrued interest of $4,779
and $13, respectively, is included in accrued expenses in the
accompanying balance sheets.
The aggregate maturities of long-term debt are as follows:
Years ended December:
1998 $ 293
1999 1,057
2000 26
2001 -
2002 -
Thereafter 120,000
------------
$ 121,376
(8) Income Tax (Benefit) Expense
Income tax (benefit) expense has been classified in the accompanying
statements of operations as follows:
Year Year Year
ended ended ended
Jan.3, Dec.28, Dec.30,
1998 1996 1995
---- ---- ----
Income before extraordinary item $ 833 591 896
Extraordinary item (1,138) - -
---------- ------- ------
$ (305) 591 896
========= ======= =======
19
B&G FOODS, INC. AND SUBSIDIARIES
Notes to Financial Statements, Continued
(Dollars in thousands)
(8), Continued
Income tax (benefit) expense consists of the following:
Year Year Year
ended ended ended
Jan.3, Dec.28, Dec.30,
1998 1996 1995
---- ---- ----
Current:
Federal $ - 95 317
State 5 110 184
---------- ------- -------
5 205 501
---------- ------- -------
Deferred:
Federal (295) 271 383
State (15) 115 12
---------- ------- -------
(310) 386 395
---------- ------- -------
$ (305) 591 896
========== ======= =======
Income tax (benefit) expense differs from the expected income tax
(benefit) expense (computed by applying the U.S. federal income tax
rate of 34% to pretax income) as a result of the following:
Year Year Year
ended ended ended
Jan.3, Dec.28, Dec.30,
1998 1996 1995
---- ---- ----
Computed expected tax (benefit) expense $ (570) 295 549
Expected state income taxes, net of federal
income tax benefit (7) 149 129
Nondeductible expenses, principally amortiza-
tion of goodwill 172 274 162
Change in valuation allowance for deferred
income taxes allocated to income tax
expense 5 (389) -
Other 95 262 56
---------- ------- -------
$ (305) 591 896
========== ======= =======
20
B&G FOODS, INC. AND SUBSIDIARIES
Notes to Financial Statements, Continued
(Dollars in thousands)
(8), Continued
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are
presented below:
Jan.3, Dec.28,
1998 1996
---- ----
Deferred tax assets:
Accounts receivable, principally due to allowance $ 275 -
Inventories, principally due to additional costs
capitalized for tax purposes 590 400
Accruals and other liabilities not currently
deductible 2,302 2,026
Net operating loss carryforwards 3,574 2,482
Deferred financing costs 1,178 -
---------- --------
Total gross deferred tax assets 7,919 4,908
Less valuation allowance 773 824
---------- ---------
Net deferred tax assets 7,146 4,084
---------- ---------
Deferred tax liabilities:
Plant and equipment (2,173) (436)
Intangible assets (14,187) (11,998)
---------- ---------
Total gross deferred tax liabilities (16,360) (12,434)
---------- ---------
Net deferred tax liability $ (9,214) (8,350)
========== =========
In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion or all
of the deferred tax assets will not be realized. The ultimate
realization of deferred tax assets is dependent upon the generation of
future taxable income during the periods in which those temporary
differences become deductible. Management considers the scheduled
reversal of deferred tax liabilities, projected future taxable income,
and tax planning strategies in making this assessment. Based upon the
level of historical taxable income and projections for future taxable
income over the periods in which the deferred tax assets are
deductible, management believes it is more likely than not the Company
will realize the benefits of these deductible differences, net of the
existing valuation allowances at January 3, 1998. The amount of the
deferred tax asset considered realizable, however, could be reduced in
the near term if estimates of future taxable income during the
carryforward period are reduced. The valuation
21
B&G FOODS, INC. AND SUBSIDIARIES
Notes to Financial Statements, Continued
(Dollars in thousands)
(8), Continued
allowance at January 3, 1998 and December 28, 1996 of $773 and $824,
respectively, represents the allowance for state net operating loss
carryforwards of $12.9 million and $13.6 million, respectively, which
are available to offset future state taxable income, if any, through
2003. The Company established a valuation allowance for the deferred
tax assets associated with state net operating loss carryforwards at
January 3, 1998 and December 28, 1996 because management believes that
based upon historical and projected state taxable income, it is not
more likely than not that the deferred tax asset related to such net
operating loss carryforwards will be realized. Any future utilization
of these state net operating loss carryforwards will result in an
adjustment to goodwill to the extent it reduces the valuation
allowance. The change in the valuation allowance in fiscal 1997 was
primarily due to the utilization of state net operating loss
carryforwards.
At January 3, 1998, the Company has net operating loss carryforwards
for federal income tax purposes of $8,240 which are available to offset
future federal taxable income, if any, through 2009. As a result of the
Acquisition and Successor Acquisitions, the annual utilization of the
net operating loss carryforwards is limited under certain provisions of
the Internal Revenue Code.
(9) Pension Benefits
The Company has defined benefit pension plans covering substantially
all of its employees, which plans were previously provided by the
Predecessor. The benefits are based on years of service and the
employee's compensation, as defined. The Company makes annual
contributions to the plans equal to the maximum amount that can be
deducted for income tax purposes. The following table sets forth the
plans' funded status and amounts recognized in the Successor
Consolidated balance sheets.
Jan.3, Dec.28,
1998 1996
---- ----
Actuarial present value of benefit obligations -
vested benefit obligation $ (4,989) (4,434)
========== =========
Accumulated benefit obligation $ (5,068) (4,508)
========== =========
Projected benefit obligation (6,824) (6,047)
Plan assets at fair value 4,927 4,190
---------- ---------
Excess of projected benefit obligation
over plan assets (1,897) (1,857)
Unrecognized net gain (198) -
Accrued pension cost $ (2,095) (1,857)
========== =========
22
B&G FOODS, INC. AND SUBSIDIARIES
Notes to Financial Statements, Continued
(Dollars in thousands)
(9), Continued
Plan assets are invested primarily in government securities and mutual
funds.
Net pension cost includes the following components:
Year Year Year
ended ended ended
Jan.3, Dec.28, Dec.30,
1998 1996 1995
---- ---- ----
Service cost - benefits earned during the
period $ 464 412 335
Interest cost on projected benefit obligation 436 387 332
Actual return on plan assets (673) (168) (499)
Net amortization and deferral 322 (107) 232
-------- ------- -------
Net pension cost $ 549 524 400
======== ======= =======
Assumptions used in accounting for the pension plans as of January 3,
1998 and December 28, 1996 were:
Discount rates 7.25 to 7.50%
Rate of increase in compensation levels 5.00%
Expected long-term rate of return on assets 7.75 to 8.50%
=============
The Company sponsors several defined contribution plans covering
substantially all of its employees, which plans were previously
sponsored by the Predecessor. Employees may contribute to these plans
and these contributions are matched at varying amounts by the Company.
Company contributions for the matching component of these plans
amounted to $225, $229 and $216 for the fiscal years ended January 3,
1998, December 28, 1996 and December 30, 1995, respectively.
23
B&G FOODS, INC. AND SUBSIDIARIES
Notes to Financial Statements, Continued
(Dollars in thousands)
(10) Changes in Stockholder's Equity
The changes in stockholder's equity for the fiscal years ended January
3, 1998, December 28, 1996 and December 30, 1995 are as follows:
Receiv-
Addi- able
Common stock tional from Accumu-
-------------------- paid-in stock lated
Shares Amount capital issuance deficit Total
------ ------ ------- -------- ------- -----
Balance at December 31, 1994 8,900 $ 15,131 13,331 - 799 29,261
Net income - - - - 718 718
-------- -------- -------- -------- ------- -------
Balance at December 30, 1995 8,900 15,131 13,331 - 1,517 29,979
Net income - - - - 276 276
-------- -------- -------- -------- ------- -------
Balance at December 27, 1996,
immediately prior to
acquisition 8,900 15,131 13,331 - 1,793 30,255
Adjustment associated with
acquisition* - - 369 - - 369
Eliminate predecessor equity
upon acquisition (8,900) (15,131) (13,700) - (1,793) (30,624)
Successor shares issued upon
acquisition 1 - 13,000 (500) - 12,500
-------- -------- -------- -------- ------- -------
Balance at December 28, 1996 1 - 13,000 (500) - 12,500
Net loss - - - - (1,372) (1,372)
Capital contribution (note 7) - - 7,000 - - 7,000
Payment of receivable from
stock issuance - - - 500 - 500
-------- -------- -------- -------- ------- -------
Balance at January 3, 1998 1 $ - 20,000 - (1,372) 18,628
======== ======== ======== ======== ======= =======
*In accordance with the acquisition agreement between Specialty Foods Corp. and the Company, the net of
all intercompany accounts was settled by way of a capital contribution to the Company immediately prior
to the Acquisition.
24
B&G FOODS, INC. AND SUBSIDIARIES
Notes to Financial Statements, Continued
(Dollars in thousands)
(11) Related-party Transactions
In conjunction with the Acquisition, the Company entered into a
Management Agreement with BRS, in which BRS is paid an annual fee of
$250 for certain management, business and organizational strategy, and
merchant and investment banking services. Charges for such services
amounted to approximately $250 during the fiscal year ended January 3,
1998. The Management Agreement will expire either on December 27, 2006
or the date that BRS owns less than 20% of the outstanding common
stock, if sooner.
The Company entered into a Transaction Services Agreement pursuant to
which BRS will be paid a transaction fee for management, financial and
other corporate advisory services rendered by BRS in connection with
acquisitions by the Company, which fee will not exceed 1.0% of the
total transaction value. In connection with the Successor Acquisitions,
the Company paid transaction fees aggregating $620, which was included
in the allocation of the respective purchase prices.
Due to Related Parties
Due to related parties includes final amounts payable to SFC for the
Acquisition at December 28, 1996 (paid in 1997) and management fees to
BRS and accrued interest payable under the unsecured notes payable to
related party at January 3, 1998.
Related party interest expense on the unsecured notes payable to
related party and the BRS Note was $811, $38 and $31 for the fiscal
years ended January 3, 1998, December 28, 1996 and December 30, 1995,
respectively.
In connection with the Company's acquisition of certain assets from
Nabisco on June 17, 1997, the Company entered into a co-packing
agreement with Nabisco under which Nabisco will continue to bottle
products bottled by Nabisco until March 1998, and assumed certain
co-packing contracts. In addition, the Company entered into a
Transition Services Agreement (as defined) with Nabisco, under which
Nabisco provided field sales force, administrative warehousing and
delivery, and other administrative support on a national basis for the
brands acquired from June 17, 1997 through September 1, 1997. Amounts
paid by the Company for the co-packing agreement and the Transition
Services Agreement (as defined) in 1997 amounted to $879 and $884,
respectively.
Prior to the Acquisition, SFC provided certain financing and cash
management services for the Company and allocated certain costs for
services provided. Such charges terminated upon the completion of the
Acquisition and have been replaced with the Company's own costs.
Allocations to the Company by SFC were based on the Company's share of
costs paid by SFC on its behalf for consolidated programs. Such
allocations may not be reflective of the costs which would have been
incurred if the Company operated on a stand-alone basis or which will
be incurred in the future.
25
B&G FOODS, INC. AND SUBSIDIARIES
Notes to Financial Statements, Continued
(Dollars in thousands)
(11), Continued
Management believes that the basis for allocation was reasonable.
Management does not believe it is practicable to estimate the amount of
expenses which would have been incurred during fiscal years 1996 and
1995 had the Company operated as a separate entity during these
periods. The following is a summary of the amounts charged or allocated
to the Company:
Trade Accounts Receivable
During the period the Company was a subsidiary of SFC (from August
1993 through December 27, 1996), the Company sold its trade
accounts receivable as it arose from sales to a financing
subsidiary of SFC. Discounting expense, net of servicing income,
related to this arrangement was recorded as interest expense and
totaled approximately $807 and $657 in fiscal years 1996 and 1995,
respectively.
Management Fee
On January 1, 1995, the Company entered into an Administrative
Services and Management Agreement with SFC, in which SFC is paid
an annual fee equal to one percent of gross revenues, as defined,
for certain accounting, legal, tax and management advisory
services. Charges for such services amounted to $1,249 and $1,097
in fiscal years 1996 and 1995, respectively.
Borrowings
The weighted average interest rate on borrowings from SFC for
fiscal years 1996 and 1995 was 9.94% and 10.75%, respectively. The
related interest expense recognized by the Company on such
borrowings was $3,607 and $2,936 in fiscal years 1996 and 1995,
respectively.
(12) Commitments and Contingencies
The Company is involved in various claims and legal actions arising in
the ordinary course of business. In the opinion of management, the
ultimate disposition of these matters will not have a material adverse
effect on the Company's consolidated financial position, results of
operations or liquidity.
On January 3, 1998, the Company had purchase commitments with various
suppliers to purchase certain raw materials in the aggregate amount of
approximately $2,100. Management believes that all such commitments
will be fulfilled within one year.
The Company is subject to environmental regulations in the normal
course of business. Management believes that the cost of compliance
with such regulations will not have a material adverse effect on the
Company's business, financial condition or results of operations.
26
B&G FOODS, INC. AND SUBSIDIARIES
Notes to Financial Statements, Continued
(Dollars in thousands)
(13) Business and Credit Concentrations
The Company's exposure to credit loss in the event of non-payment of
accounts receivable by customers is represented in the amount of those
receivables. The Company performs ongoing credit evaluations of its
customers' financial condition and generally requires no collateral
from those customers. As of January 3, 1998, other than accounts
receivable from International Home Foods, Inc. (IHF), the Company does
not believe it has any significant concentration of credit risk with
respect to its trade accounts receivable.
The Company produces fruit spreads under an Amended and Restated Jams
Manufacturing Agreement dated March 3, 1997 and wet spices under a
Sales and Distribution Agreement dated March 19, 1993 with IHF which
expire in March 1999 and March 1998, respectively. Additionally, the
Company distributes certain IHF products under a Spice Supply Agreement
dated March 19, 1993, which expires on March 31, 1998. Sales under
these contracts during the fiscal years 1997, 1996 and 1995 were
$42,659, $50,778 and $47,368, respectively. Receivables due from IHF
included in trade accounts receivable at January 3, 1998 and December
28, 1996 were $1,820 and $1,190, respectively.
By letter dated February 18, 1998, the Company received notice from IHF
that (a) IHF would not renew the Amended and Restated Jams
Manufacturing Agreement dated March 3, 1997 after its expiration on
March 31, 1999, and (b) IHF was terminating, effective March 31, 1999,
the Sales and Distribution Agreement dated March 19, 1993. Although the
Company has received no notice from IHF with respect to the Spice
Supply Agreement, dated as of March 19, 1993, the Company anticipates
that IHF will not renew such Spice Supply Agreement after its
expiration on March 31, 1998.
27