ITEM 1. BUSINESS
We manufacture, sell and distribute a diverse portfolio of high quality, shelf-stable foods, many of which have leading retail market shares in our relevant
markets. In general, we position our retail products to appeal to the consumer desiring a high quality and reasonably priced branded product. In our relevant retail markets, 11 of our branded products
hold number one or two retail market share nationally or regionally or are unique products. We complement our retail product sales with a growing institutional and food service business. Our fiscal
year is the 52 or 53 week reporting period ending on the Saturday closest to December 31. Our fiscal 2003 ended on January 3, 2004. Over the past five years, we have achieved consistent
growth in net sales and EBITDA. In fiscal 2003, our net sales and EBITDA were $328.4 million and $61.9 million, having increased at compound annual growth rates since fiscal 2001 of 8.3%
and 6.9%, respectively. Our results over the past five years were achieved through a combination of internal growth plus the addition of eight brands through acquisitions and one brand through a
long-term license agreement, our most recent of which was the acquisition of the Ortega line of branded Mexican food products in August 2003. During the three months ended January 3,
2004, which includes the results of the Ortega line of products after the completion of the integration of the acquired assets into our existing business, our net sales, EBITDA and EBITDA margin were
$101.2 million, $19.2 million and 19.0%, respectively, compared to net sales, EBITDA and EBITDA margin of $78.7 million, $13.4 million and 17.0% respectively, for the
comparable period in the prior year. We use the terms "EBITDA" and "EBITDA margin" which are not indicators of performance or other measures determined in accordance with Generally Accepted Accounting
Principles in the United States (GAAP) and are fully discussed under Item 7"Management's Discussion and Analysis of Financial Condition and Results of Operations."
were acquired by Bruckmann, Rosser, Sherrill & Co., L.P. (BRS) in December 1996 from Specialty Foods Corporation, which is not our affiliate. We are wholly owned by B&G
Foods Holdings Corp. (B&G Holdings), which in turn is owned by BRS and its affiliates, and members of the Company's management and Board of Directors. See Item 11"Security Ownership of
Certain Beneficial Owners and Management and Related Stockholder Matters." We maintain our corporate headquarters at Four Gatehall Drive, Suite 110, Parsippany, New Jersey 07054.
June 17, 1997, we acquired certain assets relating to the
wine vinegars and cooking wines,
liquid smoke hickory flavoring,
syrup brands, including trademarks, inventory and certain equipment used to bottle the
wine vinegars and cooking
wines, from Nabisco, Inc., which is not our affiliate.
August 15, 1997, through a subsidiary, we acquired from E. Mcllhenny's Son Corporation all of the outstanding capital stock of JEM Brands, Inc., the holding company of
Trappey's Fine Foods, Inc.
July 17, 1998, through a subsidiary, we acquired all of the outstanding capital stock of Maple Grove Farms of Vermont, Inc. and related entities from certain individual
investors. The Maple Grove acquisition included the
Maple Grove Farms of Vermont
Up Country Naturals
labels of pure maple syrup.
February 5, 1999, we acquired certain assets of the
and related brands from International Home Foods, Inc. (IHF)
and M. Polaner, Inc. Prior to the consummation of the Polaner acquisition, we had been the exclusive manufacturer, or "co-packer," of the
products for IHF, and had distributed the
products regionally under
co-packing and distribution contracts that were terminated upon consummation of the Polaner acquisition.
March 15, 1999, through a subsidiary, we acquired the assets of The Heritage Portfolio of Brands from The Pillsbury Company, Indivined B.V. and IC Acquisition Corp. The
Heritage Portfolio of Brands includes
Mexican sauces and food products and
Joan of Arc
dry bean products businesses.
June 8, 2000, we entered into an agreement with Emeril's Food of Love Productions, LLC (EFLP) pursuant to which we and EFLP agreed to create a signature line of dry grocery
products which are marketed under the label
January 17, 2001, we completed the sale of our wholly owned subsidiary, Burns & Ricker, Inc., to Nonni's Food Company, Inc. pursuant to a stock purchase
agreement of the same date under which we sold all of the issued and outstanding capital stock of Burns & Ricker to Nonni's.
August 21, 2003, we acquired certain assets of The Ortega Brand of Business (Ortega) from Nestlé Prepared Foods Company. The
product line includes salsas, peppers, taco sauces, taco
kits, Mexican spices and taco shells.
The consolidated balance sheets at January 3, 2004 and December 28, 2002 and the consolidated statements of operations, stockholder's equity and
cash flows for the years ended January 3, 2004, December 28, 2002 and December 29, 2001 and related notes thereto set forth our revenues from external customers, profit (or loss)
and total assets. See Item 8"Financial Statements and Supplementary Data."
Products and Markets
The following is a brief description of our brands and product lines:
brand has been in existence since 1897 and its products span the shelf-stable Mexican food segment including taco shells,
seasonings, dinner kits, taco sauce, peppers, refried beans, salsa and related food products.
products are distributed nationally.
leading market share nationally in taco sauce.
Maple Grove Farms of Vermont
brand is the number two brand of pure maple syrup in the United States. Other products under the
Maple Grove Farms of Vermont
label include a line of gourmet salad dressings, marinades, fruit syrups, confections and pancake mixes.
Maple Grove Farms of Vermont
products are distributed nationwide.
Bloch & Guggenheimer
brand originated in 1889, and its pickle, pepper/pimentos and relish products are the leading brand in
New York metropolitan area. This line consists of shelf-stable pickles, relishes, peppers, olives and other related specialty items.
brand was introduced in 1880 and is comprised of a broad array of fruit-based spreads as well as jarred or bottled wet spices
such as chopped garlic and basil.
Polaner All Fruit
is the leading national brand of fruit-juice sweetened fruit spread. The spreads are available in
more than a dozen flavors. Recently, we introduced
Reduced Sugar and
No Sugar Fruit
brand was introduced in September of 2000 under a licensing agreement with celebrity chef Emeril Lagasse. We offer a line of
seasonings, salad dressings, marinades, pepper sauces,
sauces and pasta sauces under the
brand name. In addition, we recently introduced mustards and sauces under the
brand name. Sales of
products for fiscal year 2003 were $25.4 million.
brand was introduced in 1927 and is the original brand of brick-oven baked beans. The
line includes a variety of baked beans and brown
brand currently has the leading
market share in the New England region.
" (logo) is among the oldest registered trademarks
for a prepackaged food product in the United States. We market meat spreads of several types, including deviled ham, chicken and roast beef as well as liver pate and sardines under the
name. We believe that no competitors offer a directly comparable product to our meat spreads.
brand originated in 1922 and primarily includes authentic Mexican enchilada sauce and various pepper products. The
brand is the
number two brand of enchilada sauce in the United States.
brand was introduced in 1947 as an all-natural flavor enhancer for meat preparation and is generally used on beef,
poultry, fish and vegetables. We believe that
is positioned as a unique flavor enhancer.
brand includes two major categories of products under the brand, high quality peppers and hot sauces.
brand includes vinegars and cooking wines. Vinegars and cooking wines are most commonly used in the preparation of salad
dressings as well as in a variety of recipe applications, including sauces,
marinades and soups.
brand wine vinegar is the number two selling wine vinegar in supermarkets nationwide.
Joan of Arc
brand includes a full range of canned beans including kidney, chili and other beans under the
Joan of Arc
products are sold nationally with significant sales in the Midwest region.
brand was introduced in 1895 and is an all-natural seasoning that reproduces the flavor and aroma of pit smoking
in meats, chicken and fish.
is the number two brand in the United States and is offered in two flavors: Hickory and Mesquite.
brand was introduced in 1947 as a flavor enhancer used primarily for Puerto Rican and Hispanic food
preparation. The product is generally used on beef, poultry, fish and vegetables. The brand is the number three flavor enhancer in Puerto Rico as of 2002, the latest year for which we have data
available. The brand's flavor enhancer is offered in four flavors: Original, Coriander and Achiote, Garlic and Onion, and Tomato.
brand currently offers mild and full-flavored molasses products and a black strap molasses product. Mild
molasses is designed for table use and full-flavored molasses is typically used in baking, barbeque sauces and as a breakfast syrup. The
brand currently holds the number two market share in the United States.
brand has been in existence since 1919 and we offer maple-flavored syrup under the brand name.
syrup is available in regular,
lite and butter lite varieties.
distributed in New England.
sell and distribute our products through a multiple-channel sales and distribution system including the following:
and shipments to supermarket warehouses;
and shipments to distributors and food service accounts;
and shipments to mass merchants, warehouse clubs and other non-food outlets;
and shipments to specialty food distributors;
sales and shipments on a regional basis to individual grocery stores in the greater New York Metropolitan area; and
and shipments through export, catalogs and the Internet.
believe our presence in these channels allows us to distribute additional product volume cost-effectively. We sell our brands primarily through broker sales networks to supermarket
chains, food service outlets, mass merchants, warehouse clubs, non-food outlets and specialty food distributors. Our broker sales network handles the sale of our products at the customer
level. Our sales managers supervise our broker activities as well as support our relationship with buyers from our key accounts. We distribute our products in the greater New York metropolitan area
primarily through our direct-store-organization sales and distribution system, which we refer to as our DSO system. Our DSO system supports an organization of sales personnel who directly service over
2,000 individual grocery stores.
Processed Food Industry
The processed food industry is one of the United States' largest industries. Due to its maturity, it is characterized by relatively stable sales growth, based on
modest price and population increases. Over the last several years, the industry has experienced consolidation as competitors have shed non-core business lines and made strategic
acquisitions to complement category positions, maximize economies of scale in raw material sourcing, production and distribution. A series of large mergers over the last twenty years has led to the
formation of a few, very large companies with a presence in a variety of branded product categories.
are demanding higher margins, while at the same time reducing inventory levels and increasing their emphasis on private label products in certain categories. The importance of
sustaining strong relationships with retailers has become a critical success factor for food companies and is driving many initiatives such as category management and efficient customer response.
These two initiatives focus on retailers' need to minimize inventory investment and maximize dollar sales for allocated store shelf space. Food companies with category leadership positions,
value-added distribution and strong retail relationships have increasingly benefited from these initiatives as a way to maintain shelf space and maximize distribution efficiencies. In addition, the
specialty foods, mass merchandiser, food service and private label markets and channels provide additional opportunities of growth for food companies.
Sales, Marketing, and Distribution
Our sales organization is aligned by distribution channels and consists of 87 employees, 22 regional sales managers
and key account managers. Regional sales managers sell our products nationwide through national and regional food brokers, with separate organizations focusing on specialty, food service, grocery
chain accounts and special markets. Our sales managers coordinate our
sales efforts and make key account calls with buyers or distributors and supervise retail coverage of the products at the store level through brokers.
sales strategy is centered around the individual brands. We set quotas for our sales force and allocate promotional spending for each of the brands. Regional sales managers
coordinate promotions with customers. Additionally, our marketing department works in conjunction with the sales department to coordinate special account activities and marketing support, such as
couponing and public relations.
the past several years, we established a national sales force that is capable of supporting our current business as well as potential new acquisitions. We have primarily developed
our national sales force internally, and did not integrate sales and marketing personnel from acquired companies in connection with most of our brand acquisitions. In the case of the Maple Grove Farms
of Vermont acquisition, management retained the brand's sales force to serve the specialty channel related to that brand and for future specialty-oriented brands that we might develop, license or
acquire in the future. This same sales force subsequently launched the
brand. The current national sales force is very experienced and was able
to integrate Ortega within 30 days following the close of the acquisition.
DSO sales force consists of seven managers and 32 sales representatives that work with individual stores in the New York metropolitan area. These sales representatives visit the
2,000 stores within the DSO area on a weekly or bi-weekly basis.
Our marketing organization is aligned by brand and is responsible for the strategic planning for each of our
brands. We focus on deploying promotional dollars where the spending will have the greatest impact. Marketing and trade spending support, on a national basis, typically consists of advertising trade
promotions, coupons and cross-promotions with supporting products. Marketing support for the products distributed through the DSO system consists primarily of trade promotions aimed at gaining display
activity to produce impulse sales. Consumer promotion and coupons supplement this activity. Our trade spending has remained stable as a percent of sales throughout fiscal 2002 and fiscal 2003,
countering industry trends. Our rigorous in-house system tracks spending through the planning and execution phases and is used as a check on customer invoicing and deductions, as well.
This system has allowed us to address rapidly any unauthorized deductions, improving the chance of recovering funds.
We distribute our products through a multiple-channel system that we have developed as we have grown our
business. The system operates primarily from three major distribution centers, which ship approximately 72% of orders on a full truckload basis via common carriers. We believe our distribution system
has sufficient capacity to accommodate incremental product volume in a cost-effective manner, as demonstrated recently in the Ortega acquisition.
Our top ten customers accounted for approximately 37% of our fiscal 2003 pro forma net sales, as if our acqusition of Ortega had occured as of December 29,
2002, and no single customer accounted for more than 6.1% of our fiscal 2003 pro forma net sales.
Sales of a number of our products tend to be seasonal. In the aggregate, however, our sales are not heavily weighted to any particular quarter due to the
diversity of our product and brand portfolio.
purchase most of the produce used to make our shelf-stable pickles, relishes, peppers and other related specialty items during the months of July through October, and we purchase all
of our maple syrup requirements during the months of April through July. Consequently, our liquidity needs are greatest during these periods.
We face competition in each of our product lines. Numerous brands and products compete for shelf space and sales, with competition based primarily on product
quality, convenience, price, trade promotion, consumer promotion, brand recognition and loyalty, customer service, advertising and other activities and the ability to identify and satisfy emerging
consumer preferences. We compete with numerous companies of varying sizes, including divisions or subsidiaries of larger companies. Many of these competitors have multiple product lines, substantially
greater financial and other resources available to them and may have lower fixed costs and/or be substantially less leveraged than we. Our ability to grow our business could be impacted by the
relative effectiveness of, and competitive response to, our product initiatives, product innovation, advertising and promotional activities. In addition, from time to time, we experience margin
pressure in certain markets as a result of competitors' pricing practices.
most significant competitors for our pickles and peppers products are
branded products. In addition, J.M. Smucker is
the main competitor for our fruit spread products marketed under the
Maple Grove Farms of Vermont
pure maple syrup competes directly
brand in the pure maple syrup category. Our
syrup products also
have a number of competitors in the general pancake syrup market, including
Joan of Arc
products compete with
products compete with the
Old El Paso®
addition, our products compete not only against other brands in their respective product categories, but also against products in similar or related product categories. For example,
our shelf-stable pickles compete not only with other brands of shelf-stable pickles, but also with products found in the refrigerated sections of grocery stores, and all our brands compete against
private label store brands to varying degrees.
We do not believe that our operating results have been materially affected by inflation during the preceding three years. There can be no assurance, however, that
our operating results will not be affected by inflation in the future.
We purchase agricultural products and other raw materials from a variety of suppliers, including growers, commodity processors and other food companies. Our
principal raw materials include peppers, cucumbers, other vegetables, fruits, maple syrup, meat and poultry. We purchase our agricultural raw materials in bulk or pursuant to short-term
supply contracts. We purchase most of our agricultural products between July 1 and October 31. We also use packaging materials, particularly glass jars and cans.
profitability of our business relies in part on the prices of raw materials, which can fluctuate due to a number of factors, including changes in crop size, national, state and local
government-sponsored agricultural programs, export demand, natural disasters, weather conditions during the growing and harvesting seasons, general growing conditions and the effect of insects, plant
diseases and fungi. Although we enter into advance commodities purchase agreements from time to time, we are still exposed to potential increases in raw material costs. Moreover, due to the
competitive environment in which we operate, we may be unable to increase the prices of our products to offset any increase in the cost of raw materials. As a result, any such increase could have a
material adverse effect on our profitability, financial condition, results of operations or liquidity.
Trademarks and Licensing Agreements
We own 122 trademarks that are registered in the United States and 241 trademarks that are registered in foreign countries. In addition, we have nine trademark
applications pending in the United
and foreign countries. Examples of our trademarks and registered trademarks include
Bloch & Guggenheimer
Cozy Cottage, Joan of Arc
Las Palmas, Maple Grove Farms of
. We consider our
trademarks to be of special significance in our business. We
are not aware of any circumstances that would negatively impact our trademarks. Our senior secured credit facility is secured by substantially all of our assets, including our rights to our
June 2000 we entered into a license agreement with Emeril's Food of Love Productions, L.L.C. (EFLP). This license agreement grants us an exclusive license to use the
intellectual property owned by EFLP relating to Mr. Lagasse, including the name "Emeril Lagasse" and pictures, photographs and other personality material, in connection with the manufacturing,
marketing and distribution of dry seasoning, liquid seasoning, condiments, sauces, dressings and certain other products through retail channels in the United States, the Caribbean and Canada. We also
have the right of first negotiation with respect to other shelf-stable grocery products. Under the license agreement, EFLP owns all of the recipes that it provides to us and all of our Emeril's brand
products and related marketing materials are subject to the prior approval of EFLP, which approval may not be unreasonably withheld. In addition, we are prohibited from entering into similar
arrangements with other chefs or celebrities in connection with any of the products covered by our agreement with EFLP.
license agreement has been extended through June 2005 and is subject to extension and renewal at our option for an indefinite period if we meet specified annual net sales
results. Among other things, we are obligated to introduce and market new products in each year of the license agreement and to pay EFLP royalties based on annual net sales of our Emeril's brand
products. The license agreement may be terminated by EFLP if we are in breach or default of any of our material obligations thereunder. We have also agreed to indemnify EFLP with respect to claims
under the license agreement, including claims relating to any alleged unauthorized use of any mark, personality or recipe by us in connection with the products in the
line of products.
Employees and Labor Relations
As of January 3, 2004, our workforce consisted of 774 employees. Of that total, 529 employees were engaged in manufacturing, 97 were engaged in marketing
and sales, 115 were engaged in distribution and 33 were engaged in administration. Approximately 289 of our 774 employees, as of January 3, 2004,
were covered by collective bargaining agreements. In general, we consider our employee and union relations to be good.
Our operations are subject to extensive regulation by the United States Food and Drug Administration, the United States Department of Agriculture and other
federal, state and local authorities regarding the processing, packaging, storage, distribution and labeling of our products. Our processing facilities and products are subject to periodic inspection
by federal, state and local authorities. We believe that we are currently in substantial compliance with all material governmental laws and regulations and maintain all material permits and licenses
relating to our operations. Nevertheless, there can be no assurance that we are in full compliance with all such laws and regulations or that we will be able to comply with any future laws and
regulations in a cost-effective manner. Failure by us to comply with applicable laws and regulations could subject us to civil remedies, including fines, injunctions, recalls or seizures,
as well as potential criminal sanctions, all of which could have a material adverse effect on our business, consolidated financial condition, results of operations or liquidity.
are also subject to the Food, Drug and Cosmetic Act and the regulations promulgated thereunder by the FDA. This comprehensive regulatory program governs, among other things, the
manufacturing, composition and ingredients, labeling, packaging and safety of food. For example, the FDA regulates manufacturing practices for foods through its current "good manufacturing practices"
and specifies the recipes for certain foods. In addition, the Nutrition Labeling and Education Act of 1990 prescribes the format and content of certain information required to appear on
the labels of food products. We are subject to regulation by certain other governmental agencies, including the U.S. Department of Agriculture. Our management believes that our facilities and
practices are sufficient to maintain compliance with applicable governmental regulations, although there can be no assurances in this regard.
are also subject to the U.S. Bio-Terrorism Act of 2002 which imposes on us new import and export regulations. Under the Act, among other things, we are required to provide specific
information about the food products we ship into the U.S. and to register our manufacturing facilities with the FDA.
Except as described below, we have not made any material expenditures during the last three fiscal years in order to comply with environmental laws or
regulations. Based on our experience to date, we believe that the future cost of compliance with existing environmental laws and regulations (and liability for known environmental conditions) will not
have a material adverse effect on our business, consolidated financial condition, results of operations or liquidity, except as noted below. However, we cannot predict what environmental or health and
safety legislation or regulations will be enacted in the future or how existing or future laws or regulations will be enforced, administered or interpreted, nor can we predict the amount of future
expenditures that may be required in order to comply with such environmental or health and safety laws or regulations or to respond to such environmental claims.
January 17, 2001, we became aware that fuel oil from our underground storage tank at our Roseland, New Jersey facility had been released into the ground and into a brook
adjacent to such property. Since January 17, 2001, together with our environmental services firms, we have worked to clean-up the oil in cooperation with the New Jersey Department
of Environmental Protection (NJDEP). After completion of the work we submitted our findings to the NJDEP along with recommendations for no further action. The NJDEP responded that additional
investigation was required before it could agree to the no further action recommendations. The additional work has been conducted and we are awaiting the NJDEP's response. While the NJDEP could assert
that more work is required, the cost of such work is not expected to have a material adverse effect on our business, consolidated financial condition, results of operations or liquidity.
recorded a charge of $1.1 million in the first quarter of fiscal 2001 to cover the expected cost of the clean-up, which approximates the actual amount spent as of
December 29, 2001. In the third quarter of fiscal 2001, we received an insurance reimbursement of $0.2 million and accrued an additional $0.1 million for certain remaining
miscellaneous expenses. Our management believes that substantially all estimated expenses relating to this matter have been incurred and paid as of January 3, 2004.
January 2002, we were named as a third-party defendant in an action regarding environmental liability under the Comprehensive Environmental Response, Compensation and Liability
Act, or Superfund, for alleged disposal of waste by White Cap Preserves, an alleged predecessor of our company, at the Combe Fill South Landfill in New Jersey, a Superfund site. In
February 2003, we paid $0.1 million in settlement of all asserted claims arising from this matter and in March 2003, a bar order was entered by the United States District Court
for the District of New Jersey protecting us, subject to a limited re-opener clause, from any claims for contribution, natural resources damages and certain other claims related to the
action until such time that the litigation is dismissed. The $0.1 million and a portion of the legal fees were reimbursed by the purchaser of White Cap Preserves pursuant to an indemnity
wherein they acquired that liability.
are involved in various other claims and legal actions arising in the ordinary course of business. In the opinion of our management, the ultimate disposition of these other matters
will not have a
adverse effect on our business, consolidated financial position, results of operations or liquidity.
are subject to environmental regulations in the normal course of business. Our management believes that the cost of compliance with such regulations will not have a material adverse
effect on our business, consolidated financial position, results of operations or liquidity.