Part
I. Financial Information
Item
1. a.
BRIDGFORD
FOODS CORPORATION
CONDENSED
CONSOLIDATED BALANCE SHEETS
(in
thousands, except per share amounts)
|
|
January
25, 2019
|
|
|
November
2, 2018
|
|
|
|
(unaudited)
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
9,201
|
|
|
$
|
8,179
|
|
Accounts receivable,
less allowance for doubtful accounts of $52 and $33, respectively, and promotional allowances of $2,554 and $2,122, respectively
|
|
|
21,324
|
|
|
|
20,293
|
|
Inventories, net
|
|
|
21,764
|
|
|
|
23,413
|
|
Prepaid
expenses and other current assets
|
|
|
895
|
|
|
|
1,331
|
|
Total current assets
|
|
|
53,184
|
|
|
|
53,216
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net of
accumulated depreciation and amortization of $67,296 and $66,337, respectively
|
|
|
38,869
|
|
|
|
32,638
|
|
Other non-current assets
|
|
|
11,620
|
|
|
|
11,630
|
|
Deferred income
taxes (Note 5)
|
|
|
4,010
|
|
|
|
4,010
|
|
Total assets
|
|
$
|
107,683
|
|
|
$
|
101,494
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS’
EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
7,176
|
|
|
$
|
7,655
|
|
Accrued payroll,
advertising and other expenses
|
|
|
4,319
|
|
|
|
4,577
|
|
Income taxes payable
|
|
|
878
|
|
|
|
155
|
|
Current notes
payable - equipment
|
|
|
944
|
|
|
|
-
|
|
Current
portion of non-current liabilities
|
|
|
5,091
|
|
|
|
5,980
|
|
Total current liabilities
|
|
|
18,408
|
|
|
|
18,367
|
|
|
|
|
|
|
|
|
|
|
Long-term notes
payable - equipment
|
|
|
6,556
|
|
|
|
-
|
|
Non-current liabilities
|
|
|
21,719
|
|
|
|
17,447
|
|
Total liabilities
|
|
|
40,127
|
|
|
|
35,814
|
|
|
|
|
|
|
|
|
|
|
Contingencies and commitments (Note
3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders’ equity:
|
|
|
|
|
|
|
|
|
Preferred stock,
without par value; authorized – 1,000,000 shares; issued and outstanding – none
|
|
|
-
|
|
|
|
-
|
|
Common stock, $1.00
par value; authorized – 20,000,000 shares; issued and outstanding – 9,078,832 and 9,078,832
shares, respectively
|
|
|
9,134
|
|
|
|
9,134
|
|
Capital in excess of par value
|
|
|
8,298
|
|
|
|
8,298
|
|
Retained earnings
|
|
|
67,824
|
|
|
|
65,948
|
|
Accumulated
other comprehensive loss
|
|
|
(17,700
|
)
|
|
|
(17,700
|
)
|
Total shareholders’
equity
|
|
|
67,556
|
|
|
|
65,680
|
|
Total liabilities
and shareholders’ equity
|
|
$
|
107,683
|
|
|
$
|
101,494
|
|
See
accompanying notes to condensed consolidated financial statements.
Item
1. b.
BRIDGFORD
FOODS CORPORATION
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(in
thousands, except share and per share amounts)
|
|
12
weeks ended
|
|
|
|
January
25, 2019
|
|
|
January
26, 2018
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
45,041
|
|
|
$
|
41,192
|
|
Cost of products
sold
|
|
|
29,387
|
|
|
|
27,233
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
15,654
|
|
|
|
13,959
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative
expenses
|
|
|
13,087
|
|
|
|
11,871
|
|
Gain on sale
of property, plant & equipment
|
|
|
-
|
|
|
|
(7
|
)
|
|
|
|
|
|
|
|
|
|
Income before taxes
|
|
|
2,567
|
|
|
|
2,095
|
|
Provision for
income taxes
|
|
|
691
|
|
|
|
3,722
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
1,876
|
|
|
$
|
(1,627
|
)
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per
share
|
|
$
|
0.21
|
|
|
$
|
(0.18
|
)
|
|
|
|
|
|
|
|
|
|
Shares used to
compute basic earnings (loss) per share
|
|
|
9,076,832
|
|
|
|
9,076,832
|
|
See
accompanying notes to condensed consolidated financial statements.
Item
1. c.
BRIDGFORD
FOODS CORPORATION
CONDENSED
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
12
weeks ended
January 25, 2019
(unaudited)
(in
thousands)
|
|
Shares
|
|
|
Amount
|
|
|
Capital
in
excess
of
par
value
|
|
|
Retained
earnings
|
|
|
Accumulated
other
comprehensive
loss
|
|
|
Total
shareholders’
equity
|
|
Balance, November 2, 2018
|
|
|
9,076
|
|
|
$
|
9,134
|
|
|
$
|
8,298
|
|
|
$
|
65,948
|
|
|
$
|
(17,700
|
)
|
|
$
|
65,680
|
|
Net income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,876
|
|
|
|
-
|
|
|
|
1,876
|
|
Changes
in pension liability and benefit plans
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Balance, January 25, 2019
|
|
|
9,076
|
|
|
$
|
9,134
|
|
|
$
|
8,298
|
|
|
$
|
67,824
|
|
|
$
|
(17,700
|
)
|
|
$
|
67,556
|
|
See
accompanying notes to condensed consolidated financial statements.
BRIDGFORD
FOODS CORPORATION
CONDENSED
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
12
weeks ended January 26, 2018
(unaudited)
(in
thousands)
|
|
Shares
|
|
|
Amount
|
|
|
Capital
in
excess
of
par
value
|
|
|
Retained
earnings
|
|
|
Accumulated
other
comprehensive
loss
|
|
|
Total
shareholders’
equity
|
|
Balance, November 3, 2017
|
|
|
9,076
|
|
|
$
|
9,134
|
|
|
$
|
8,298
|
|
|
$
|
56,902
|
|
|
$
|
(18,296
|
)
|
|
$
|
56,038
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,627
|
)
|
|
|
-
|
|
|
|
(1,627
|
)
|
Reclassification
upon early adoption of ASU 2018-02
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,529
|
|
|
|
(2,529
|
)
|
|
|
-
|
|
Balance, January 26, 2018
|
|
|
9,076
|
|
|
$
|
9,134
|
|
|
$
|
8,298
|
|
|
$
|
57,804
|
|
|
$
|
(20,825
|
)
|
|
$
|
54,411
|
|
See
accompanying notes to condensed consolidated financial statements.
Item
1. d.
BRIDGFORD
FOODS CORPORATION
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in
thousands)
|
|
12
weeks ended
|
|
|
|
January
25, 2019
|
|
|
January
26, 2018
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
1,876
|
|
|
$
|
(1,627
|
)
|
|
|
|
|
|
|
|
|
|
Adjustments to reconcile net income
(loss) to net cash provided by (used in) operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
959
|
|
|
|
878
|
|
Provision for losses on accounts
receivable
|
|
|
23
|
|
|
|
35
|
|
(Reduction in) p
rovision
for promotional allowances
|
|
|
(432
|
)
|
|
|
23
|
|
Gain on sale of property, plant and
equipment
|
|
|
-
|
|
|
|
(7
|
)
|
Deferred income taxes, net
|
|
|
-
|
|
|
|
3,200
|
|
|
|
|
|
|
|
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(622
|
)
|
|
|
1,345
|
|
Inventories
|
|
|
1,649
|
|
|
|
(754
|
)
|
Prepaid expenses and other current
assets
|
|
|
436
|
|
|
|
(9
|
)
|
Other non-current assets
|
|
|
10
|
|
|
|
(528
|
)
|
Accounts payable
|
|
|
(479
|
)
|
|
|
(242
|
)
|
Accrued payroll, advertising and
other expenses
|
|
|
(1,146
|
)
|
|
|
(560
|
)
|
Income taxes payable
|
|
|
723
|
|
|
|
-
|
|
Non-current
liabilities
|
|
|
(2,284
|
)
|
|
|
(2,994
|
)
|
|
|
|
|
|
|
|
|
|
Net
cash provided by (used in) operating activities
|
|
|
713
|
|
|
|
(1,240
|
)
|
|
|
|
|
|
|
|
|
|
Cash used in investing activities:
|
|
|
|
|
|
|
|
|
Proceeds from sale of property, plant
and equipment
|
|
|
-
|
|
|
|
7
|
|
Additions
to property, plant and equipment
|
|
|
(7,191
|
)
|
|
|
(3,620
|
)
|
|
|
|
|
|
|
|
|
|
Net
cash used in investing activities
|
|
|
(7,191
|
)
|
|
|
(3,613
|
)
|
|
|
|
|
|
|
|
|
|
Cash provided by (used in)
financing activities:
|
|
|
|
|
|
|
|
|
Payment of capital lease obligations
|
|
|
-
|
|
|
|
(35
|
)
|
Proceeds from
bank borrowings
|
|
|
7,500
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided by (used in) financing activities
|
|
|
7,500
|
|
|
|
(35
|
)
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in
cash and cash equivalents
|
|
|
1,022
|
|
|
|
(4,888
|
)
|
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents at beginning of period
|
|
|
8,179
|
|
|
|
12,109
|
|
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents at end of period
|
|
$
|
9,201
|
|
|
$
|
7,221
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow
information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid
for income taxes
|
|
$
|
3
|
|
|
$
|
1,198
|
|
See
accompanying notes to condensed consolidated financial statements.
Item
1. e.
BRIDGFORD
FOODS CORPORATION
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(in
thousands, except percentages, time periods, share and per share amounts)
Note
1 – Summary of Significant Accounting Policies:
The
unaudited condensed consolidated financial statements of Bridgford Foods Corporation (the “Company”, “we”,
“our”, “us”) for the twelve weeks ended January 25, 2019 and January 26, 2018 have been prepared in conformity
with the accounting principles described in the Company’s Annual Report on Form 10-K for the fiscal year ended November
2, 2018 (the “Annual Report”) and include all adjustments considered necessary by management for a fair presentation
of the interim periods. This Report should be read in conjunction with the Annual Report. Due to seasonality and other factors,
interim results are not necessarily indicative of the results for the full year. Recent accounting pronouncements and their effect
on the Company are discussed in Management’s Discussion and Analysis of Financial Condition and Results of Operations in
this Report.
The
November 2, 2018 balance sheet amounts within these interim condensed consolidated financial statements were derived from the
audited fiscal year 2018 financial statements.
The
preparation of condensed consolidated financial statements in conformity with accounting principles generally accepted in the
United States of America (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements
and the reported revenues and expenses during the reporting periods. Some of the estimates needed to be made by management include
the allowance for doubtful accounts, promotional and returns allowances, inventory reserves, the estimated useful lives of property,
plant and equipment, and the valuation allowance for the Company’s deferred tax assets. Actual results could materially
differ from these estimates. Amounts estimated related to liabilities for self-insured workers’ compensation, employee healthcare
and pension benefits are especially subject to inherent uncertainties and these estimated liabilities may ultimately settle at
amounts which vary from our current estimates. Market conditions and the volatility in stock markets may cause significant changes
in the measurement of our pension fund liabilities and the performance of our life insurance policies in future periods.
Certain
items in fiscal year 2018 have been reclassified to conform to the fiscal year 2019 presentation.
Financial
instruments that subject the Company to credit risk consist primarily of cash and cash equivalents, accounts receivable, accounts
payable and accrued payroll, advertising and other expenses. The carrying amount of these instruments approximate fair market
value due to their short-term maturity. As of January 25, 2019, the Company had accounts in excess of the Federal Deposit Insurance
Corporation insurance coverage limit. The Company has not experienced any losses in these accounts and believes it is not exposed
to any significant credit risk with regard to its cash and cash equivalents. The Company grants payment terms to a significant
number of customers that are diversified over a wide geographic area. The Company monitors the payment histories of its customers
and maintains an allowance for doubtful accounts which is reviewed for adequacy on a quarterly basis. The Company does not require
collateral from its customers.
The
table below shows customers that accounted for more than 20% of consolidated accounts receivable (“AR”) or 10% of
consolidated sales for the twelve weeks ended January 25, 2019 and January 26, 2018, respectively.
Customer
Concentration > 20% of AR or 10% of Sales *
|
|
Wal-Mart
|
|
|
Dollar
General
|
|
|
|
Sales
|
|
|
AR
|
|
|
Sales
|
|
|
AR
|
|
January 25, 2019
|
|
|
35.6
|
%
|
|
|
33.4
|
%
|
|
|
9.7
|
%
|
|
|
23.6
|
%
|
January 26, 2018
|
|
|
36.0
|
%
|
|
|
32.7
|
%
|
|
|
8.7
|
%
|
|
|
22.4
|
%
|
*
= No other customer accounted for more than 20% of consolidated accounts receivable or 10% of consolidated sales for the twelve-weeks
ended January 25, 2019 or the twelve-weeks ended January 26, 2018.
Revenue
recognition
Revenues
are recognized in accordance with Accounting Standards Codification (“ASC”) 606 – Contracts with Customers
upon passage of title to the customer, typically upon product pick-up, shipment or delivery to customers. Products are delivered
to customers primarily through our own long-haul fleet or through a Company owned direct store delivery system.
We
recognize revenue mainly through retail and foodservice distribution channels. Our revenues primarily result from contracts with
customers and are generally short term in nature with the delivery of product as the single performance obligation. We recognize
revenue for the sale of the product at the point in time when our performance obligation has been satisfied and control of the
product has transferred to our customer, which generally occurs upon shipment or delivery to a customer based on terms of the
sale. We elected to account for shipping and handling activities that occur after the customer has obtained control of the product
as a fulfillment cost rather than an additional promised service. Our contracts are generally less than one year, and therefore
we recognize costs paid to third party brokers to obtain contracts as expenses. Additionally, items that are not material in the
context of the contract are recognized as expense.
Revenue
is measured by the transaction price, which is defined as the amount of consideration we expect to receive in exchange for providing
goods to customers. The transaction price is adjusted for estimates of known or expected variable consideration, which includes
consumer incentives, trade promotions, and allowances, such as coupons, discounts, rebates, volume-based incentives, cooperative
advertising, and other programs. Variable consideration related to these programs is recorded as a reduction to revenue based
on amounts we expect to pay. We base these estimates on current performance, historical utilization, and projected redemption
rates of each program. We review and update these estimates regularly until the incentives or product returns are realized and
the impact of any adjustments are recognized in the period the adjustments are identified. In many cases, key sales terms such
as pricing and quantities ordered are established on a regular basis such that most customer arrangements and related incentives
have a duration of less than one year. Amounts billed and due from customers are short term in nature and are classified as receivables
since payments are unconditional and only the passage of time is required before payments are due. Additionally, we do not grant
payment financing terms greater than one year.
Subsequent
events
Management
has evaluated events subsequent to January 25, 2019 through the date that the accompanying condensed consolidated financial statements
were filed with the Securities and Exchange Commission for transactions and other events which may require adjustments of and/or
disclosure in such financial statements.
Basic
earnings (loss) per share
Basic
earnings (loss) per share are calculated based on the weighted average number of shares outstanding for all periods presented.
No stock options, warrants, or convertible securities were outstanding as of January 25, 2019 or January 26, 2018.
Note
2 – Inventories:
Inventories
are comprised of the following at the respective period ends:
|
|
(unaudited)
|
|
|
|
|
|
|
January
25, 2019
|
|
|
November
2, 2018
|
|
Meat, ingredients and
supplies
|
|
$
|
7,405
|
|
|
$
|
6,455
|
|
Work in progress
|
|
|
1,362
|
|
|
|
1,415
|
|
Finished goods
|
|
|
12,997
|
|
|
|
15,543
|
|
|
|
$
|
21,764
|
|
|
$
|
23,413
|
|
Inventories
are valued at the lower of cost (which approximates actual cost on a first-in, first-out basis) or net realizable value. Costs
related to warehousing, transportation and distribution to customers are considered when computing market value. Inventories include
the cost of ingredients, labor and manufacturing overhead. We regularly review inventory quantities on hand and write down any
excess or obsolete inventories to estimated net realizable value. An inventory reserve is created when potentially slow-moving
or obsolete inventories are identified in order to reflect the appropriate inventory value. Changes in economic conditions, production
requirements, and lower than expected customer demand could result in additional obsolete or slow-moving inventory that cannot
be sold or may need to be sold at reduced prices and could result in additional reserve provisions.
Note
3 – Contingencies and Commitments:
We
currently rent OTR (over-the-road) tractors on a month-to-month basis. We plan to invest in new capital lease arrangements later
in fiscal year 2019.
The
Company also leases warehouse and/or office facilities throughout the United States through month-to-month rental agreements.
No material changes have been made to these agreements during the twelve weeks ended January 25, 2019.
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 is not expected to have a material adverse effect on the Company’s consolidated
financial position or results of operations.
Most
flour purchases are made at market price without contracts. However, the Company may purchase bulk flour at current market prices
under short-term (30 - 120 days) fixed price contracts during the normal course of business. Under these arrangements, the Company
is obligated to purchase specific quantities at fixed prices, within the specified contract period. These contracts provide for
automatic price increases if agreed quantities are not purchased within the specified contract period. The contracts are not material.
These contracts are typically settled within a month’s time and no significant contracts remain open at the close of the
quarterly or annual reporting period. No significant contracts remained unfulfilled at January 25, 2019. The Company does not
participate in the commodity futures market or hedging to limit commodity exposure.
Note
4 – Segment Information:
The
Company has two reportable operating segments: Frozen Food Products (the processing and distribution of frozen food products)
and Snack Food Products (the processing and distribution of meat and other convenience foods).
We
evaluate each segment’s performance based on revenues and operating income. Selling, general and administrative (“SG&A”)
expenses include corporate accounting, information systems, human resource management and marketing, which are managed at the
corporate level. These activities are allocated to each operating segment based on revenues and/or actual usage. Assets managed
at the corporate level have been included as “other” in the accompanying segment information.
The
following segment information is presented for the twelve weeks ended January 25, 2019 and January 26, 2018.
Segment
Information
|
Twelve
weeks Ended
January
25, 2019
|
|
Frozen
Food Products
|
|
|
Snack
Food Products
|
|
|
Other
|
|
|
Totals
|
|
Sales
|
|
$
|
11,872
|
|
|
$
|
33,169
|
|
|
$
|
-
|
|
|
$
|
45,041
|
|
Cost of products
sold
|
|
|
7,964
|
|
|
|
21,423
|
|
|
|
-
|
|
|
|
29,387
|
|
Gross margin
|
|
|
3,908
|
|
|
|
11,746
|
|
|
|
-
|
|
|
|
15,654
|
|
SG&A
|
|
|
3,798
|
|
|
|
9,289
|
|
|
|
|
|
|
|
13,087
|
|
Gain on sale
of property, plant and equipment
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Income
before taxes
|
|
|
110
|
|
|
|
2,457
|
|
|
|
-
|
|
|
|
2,567
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
10,505
|
|
|
$
|
71,177
|
|
|
$
|
26,001
|
|
|
$
|
107,683
|
|
Additions
to PP&E
|
|
$
|
103
|
|
|
$
|
7,088
|
|
|
$
|
-
|
|
|
$
|
7,191
|
|
Twelve
weeks Ended
January
26, 2018
|
|
Frozen
Food Products
|
|
|
Snack
Food Products
|
|
|
Other
|
|
|
Totals
|
|
Sales
|
|
$
|
10,591
|
|
|
$
|
30,601
|
|
|
$
|
-
|
|
|
$
|
41,192
|
|
Cost of products
sold
|
|
|
7,161
|
|
|
|
20,072
|
|
|
|
-
|
|
|
|
27,233
|
|
Gross margin
|
|
|
3,430
|
|
|
|
10,529
|
|
|
|
-
|
|
|
|
13,959
|
|
SG&A
|
|
|
3,385
|
|
|
|
8,486
|
|
|
|
-
|
|
|
|
11,871
|
|
Gain on sale
of property, plant and equipment
|
|
|
(1
|
)
|
|
|
(6
|
)
|
|
|
-
|
|
|
|
(7
|
)
|
Income
before taxes
|
|
|
46
|
|
|
|
2,049
|
|
|
|
-
|
|
|
|
2,095
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
11,239
|
|
|
$
|
51,887
|
|
|
$
|
28,961
|
|
|
$
|
92,087
|
|
Additions to
PP&E
|
|
$
|
125
|
|
|
$
|
3,495
|
|
|
$
|
|
|
|
$
|
3,620
|
|
The following information further disaggregates
our sales to customers by major distribution channel and customer type.
Twelve
weeks Ended
January
25, 2019
Distribution
Channel
|
|
Retail
(a)
|
|
|
Foodservice
(b)
|
|
|
Totals
|
|
Direct store delivery
|
|
$
|
23,568
|
|
|
$
|
-
|
|
|
$
|
23,568
|
|
Direct customer warehouse
|
|
|
9,601
|
|
|
|
-
|
|
|
|
9,601
|
|
Total Snack Food Products
|
|
|
33,169
|
|
|
|
-
|
|
|
|
33,169
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributors
|
|
|
2,266
|
|
|
|
9,606
|
|
|
|
11,872
|
|
Total Frozen Food Products
|
|
|
2,266
|
|
|
|
9,606
|
|
|
|
11,872
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$
|
35,435
|
|
|
$
|
9,606
|
|
|
$
|
45,041
|
|
(a) Includes sales to food retailers, such
as grocery retailers, warehouse club stores, and internet-based retailers.
(b) Includes sales to foodservice distributors,
restaurant operators, hotel chains and noncommercial foodservice establishments such as schools, convenience stores, healthcare
facilities and the military.
Note
5 – Income Taxes:
On
December 22, 2017, President Trump signed into law the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act includes
significant changes to the U.S. tax code that will affect our fiscal year ending November 1, 2019, and future periods, including,
but not limited to, (1) reducing the corporate federal income tax rate from 35% to 21%, (2) bonus depreciation that will allow
for full expensing of qualified property in the year placed in service, and (3) the repeal of the domestic production activity
deduction beginning with our fiscal year 2020.
Under
U.S. GAAP, specifically ASC Topic 740,
Income Taxes,
the tax effects of changes in tax laws must be recognized in the period
in which the law is enacted, or December 22, 2017, for the Tax Act. ASC Topic 740 also requires deferred tax assets and liabilities
to be measured at the enacted tax rate expected to apply when temporary differences are to be realized or settled. Thus, at the
date of enactment, the Company’s deferred taxes were re-measured based upon the new tax rates. The change in deferred taxes
is recorded as an adjustment to our deferred tax provision, for the twelve weeks ended January 26, 2018.
The
Tax Act reduced the corporate tax rate from 35% to 21%, effective January 1, 2018. This results in a blended corporate tax rate
of 23.07% in fiscal year 2018 and 21% in fiscal year 2019 and thereafter. We analyzed our deferred tax balances to estimate
which of those balances are expected to reverse in fiscal 2018 or thereafter, and we re-measured the deferred taxes at 23.07%
or 21% accordingly. The change in deferred taxes was recorded as an adjustment to our income tax provision which resulted in a
charge totaling $3,059 in fiscal year 2018.
The
effective tax rate was 26.91% and 177.68% for the first quarter of fiscal 2019 and 2018, respectively. The remeasurement
of deferred income taxes at newly enacted tax rates resulted in a $3,200 income tax expense or a 37.5% impact on the effective
tax rate for the first quarter of fiscal year 2018, and a blended 23.07% statutory federal income tax rate for fiscal 2018.
The effective tax rate for the first quarter of fiscal 2018 also reflects the impact of $1,640 of income tax expense or
19.2% related to tax on the gain on sale of a land parcel in Chicago, Illinois. Additionally, the effective tax rates for the
first quarter of fiscal years 2019 and 2018 were impacted by such items as the domestic production deduction, non-taxable gains
and losses on life insurance policies and state income taxes.
As
of January 25, 2019, the Company did not have any outstanding federal or state, other than California, net operating loss carryforwards.
Our
federal income tax returns are open to audit under the statute of limitations for the fiscal years ended on or about October 31,
2015 through 2017. We are subject to income tax in California and various other state taxing jurisdictions. Our California state
income tax returns are open to audit under the statute of limitations for the fiscal years ended on or about October 31, 2014
through 2017.
Note
6 – Equipment Note Payable and Financial Arrangements
On
December 26, 2018, we entered into a master collateral loan and security agreement with Wells Fargo Bank, N.A for up to $15,000
in equipment financing. Pursuant to the loan agreement, we borrowed $7,500 to purchase specific equipment for our new Chicago
processing facility at a fixed rate of 4.13% per annum. The loan term is seven years and is secured by the purchased equipment.
The funds were received on December 28, 2018. The master collateral loan and security agreement with Wells Fargo Bank, N.A. contains
various affirmative and negative covenants that limit the use of funds and define other provisions of the loan. The Company was
in compliance with all covenants under the master collateral loan and security agreement as of January 25, 2019.
The
secured equipment notes payable is due with monthly principal and interest payments of $103 commencing on January 31, 2019 for
84 monthly installments including interest of 4.13% per annum.
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
|
January
25, 2019
|
|
|
January
26, 2018
|
|
Secured
equipment notes payable to Wells Fargo Bank, N.A. collateralized by equipment for the new Chicago processing facility.
|
|
$
|
7,500
|
|
|
$
|
-
|
|
Less
current portion of notes payable
|
|
|
(944
|
)
|
|
|
-
|
|
Total
long-term notes payable
|
|
$
|
6,556
|
|
|
$
|
-
|
|
Item
2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
(dollars
in thousands)
NOTE
REGARDING FORWARD-LOOKING STATEMENTS
Certain
statements under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and
elsewhere in this Report constitute “forward-looking statements” within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E the Securities Exchange Act of 1934 (the “Exchange Act”). Such forward-looking
statements involve known and unknown risks, uncertainties, and other factors which may cause the actual results, performance or
achievements of Bridgford Foods Corporation to be materially different from any future results, performance or achievements expressed
or implied by such forward-looking statements. Such factors include, among others, the following: general economic and business
conditions; the impact of competitive products and pricing; success of operating initiatives; development and operating costs;
advertising and promotional efforts; adverse publicity; acceptance of new product offerings; consumer trial and frequency; changes
in business strategy or development plans; availability, terms and deployment of capital; availability of qualified personnel;
commodity, labor, and employee benefit costs; changes in, or failure to comply with, government regulations; weather conditions;
construction schedules; and other factors referenced in this Report. Assumptions relating to budgeting, marketing, and other management
decisions are subjective in many respects and thus susceptible to interpretations and periodic revisions based on actual experience
and business developments, the impact of which may cause us to alter our marketing, capital expenditure or other budgets, which
may in turn affect our business, financial position, results of operations and cash flows. The reader is therefore cautioned not
to place undue reliance on forward-looking statements contained herein and to consider other risks detailed more fully in our
Annual Report on Form 10-K, for the fiscal year ended November 2, 2018 (the “Annual Report”). We undertake no obligation
to publicly release the result of any revisions to these forward-looking statements which may be made to reflect events or circumstances
after the date hereof, or to reflect the occurrence of unanticipated events.
Critical
Accounting Policies and Management Estimates
The
preparation of condensed consolidated financial statements in conformity with generally accepted accounting principles in the
United States of America requires management to make certain estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported revenues
and expenses during the respective reporting periods. Some of the estimates needed to be made by management include the allowance
for doubtful accounts, promotional and returns allowances, inventory reserves, the estimated useful lives of property and equipment,
and the valuation allowance for the Company’s deferred tax assets. Actual results could materially differ from these estimates.
We determine the amounts to record based on historical experience and various other assumptions that we view as reasonable under
the circumstances and consider all relevant available information. The results of this analysis form the basis for our conclusion
as to the value of assets and liabilities that are not readily available from other independent sources. Amounts estimated related
to liabilities for self-insured workers’ compensation, employee healthcare and pension benefits are especially subject to
inherent uncertainties and these estimated liabilities may ultimately settle at amounts which vary from our current estimates.
Current
accounting principles require that our pension benefit obligation be measured using an internal rate of return (“IRR”)
analysis to be included in the discount rate selection process. The IRR calculation for the Retirement Plan for Employees of Bridgford
Foods Corporation is measured annually and based on the Citigroup Pension Discount Rate. The Citigroup Pension Discount Rate as
of January 31, 2019 was 4.07% as compared to 4.30% as of November 2, 2018. The discount rate applied can significantly affect
the value of the projected benefit obligation as well as the net periodic benefit cost.
Our
credit risk is diversified across a broad range of customers and geographic regions. Losses due to credit risk have recently been
immaterial. The provision for doubtful accounts receivable is based on historical trends and current collection risk. We have
significant receivables with a few large, well known customers which, although historically secure, could be subject to material
risk should these customers’ operations suddenly deteriorate. We monitor these customers closely to minimize the risk of
loss.
The
table below shows customers that accounted for more than 20% of consolidated accounts receivable (“AR”) or 10% of
consolidated sales for the twelve weeks ended January 25, 2019 and January 26, 2018, respectively.
Customer
Concentration > 20% of AR or 10% of Sales *
|
|
Wal-Mart
|
|
|
Dollar
General
|
|
|
|
Sales
|
|
|
AR
|
|
|
Sales
|
|
|
AR
|
|
January 25, 2019
|
|
|
35.6
|
%
|
|
|
33.4
|
%
|
|
|
9.7
|
%
|
|
|
23.6
|
%
|
January 26, 2018
|
|
|
36.0
|
%
|
|
|
32.7
|
%
|
|
|
8.7
|
%
|
|
|
22.4
|
%
|
*
= No other customer accounted for more than 20% of consolidated accounts receivable or 10% of consolidated sales for the twelve-weeks
ended January 25, 2019 or the twelve-weeks ended January 26, 2018.
Sales
are recognized upon passage of title to the customer, typically upon product pick-up, shipment or delivery to customers. Products
are delivered to customers primarily through our own long-haul fleet or through our own direct store delivery system.
We
record the cash surrender or contract value for life insurance policies as an adjustment of premiums paid in determining the expense
or income to be recognized under the contract for the period.
We
provide tax reserves for federal, state, local and international exposures relating to audit results, tax planning initiatives
and compliance responsibilities. The development of these reserves requires judgments about tax issues, potential outcomes and
timing, and is a subjective estimate. Although the outcome of these tax audits is uncertain, in management’s opinion adequate
provisions for income taxes have been made for potential liabilities, if any, resulting from these reviews. Actual outcomes may
differ materially from these estimates.
We
assess the recoverability of our long-lived assets on a quarterly basis or whenever adverse events or changes in circumstances
or business climate indicate that expected undiscounted future cash flows related to such long-lived assets may not be sufficient
to support the net book value of such assets. If undiscounted cash flows are not sufficient to support the recorded assets, we
recognize an impairment to reduce the carrying value of the applicable long-lived assets to their estimated fair value.
We
participate in “multiemployer” pension plans administered by labor unions on behalf of their employees. We pay monthly
contributions to union trust funds, a portion of which is used to fund pension benefit obligations to plan participants. The contribution
amount may change depending upon the ability of participating companies to fund these pension liabilities as well as the actual
and expected returns on pension plan assets. Should we withdraw from the union and cease participation in a union plan, federal
law could impose a penalty for additional contributions to the plan. The penalty would be recorded as an expense in the consolidated
statement of operations. The ultimate amount of the withdrawal liability is dependent upon several factors including the funded
status of the plan and contributions made by other participating companies.
In
March 2010, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act (collectively,
the “PPACA”), was signed into law. Requirements of the law include the removal of the lifetime limits on active and
retiree medical coverage, expanding dependent coverage to age 26 and elimination of pre-existing conditions that may impact other
postretirement benefits costs. In addition, the PPACA includes potential excise tax on the value of benefits that exceed a pre-defined
limit which may require changes in benefit plan levels in order to minimize this additional cost. Finally, the PPACA includes
provisions that require employers to offer health benefits to all full-time employees (defined as 30 hours per week). The health
coverage must meet minimum standards for the actuarial value of the benefits offered and employee affordability. Both the administration
and congress have made recent attempts to replace PPACA with an alternative system. However, we do not anticipate significant
changes in the rules that compel an employer such as Bridgford Foods to offer affordable coverage to all of its employees. The
recent tax law changes removed the individual mandate provision that is included in PPACA and requires all individuals to have
health insurance or pay a penalty. Despite this change, the recent tax changes did not adjust or remove the employer mandate.
We cannot anticipate further changes at this point in time. We believe that current plans meet the existing requirements. We will
continue to assess the accounting implications of the PPACA and its impact on our financial position and results of operations
as more legislative and interpretive guidance becomes available. The potential future effects and cost of complying with the provisions
of the PPACA are not determinable at this time
Overview
of Reporting Segments
We
operate in two business segments – the processing and distribution of frozen food products (the Frozen Food Products segment),
and the processing and distribution of snack food products (the Snack Food Products segment). For information regarding the separate
financial performance of the business segments refer to Note 4 of the Notes to the Condensed Consolidated Financial Statements
included in this Report. We manufacture and distribute an extensive line of food products, including biscuits, bread dough items,
roll dough items, dry sausage products and beef jerky.
Frozen
Food Products Segment
Our
Frozen Food Products segment primarily manufactures and distributes biscuits, bread dough items, roll dough items and shelf stable
sandwiches. All items within this segment are considered similar products and have been aggregated at this level. Our frozen food
business covers the United States. Products produced by the Frozen Food Products segment are generally supplied to food service
and retail distributors who take title to the product upon shipment receipt through company leased long-haul vehicles. In addition
to regional sales managers, we maintain a network of independent food service and retail brokers covering most of the United States.
Brokers are compensated on a commission basis. We believe that our broker relationships, in close cooperation with our regional
sales managers, are a valuable asset providing significant new product and customer opportunities. Regional sales managers perform
several significant functions for us, including identifying and developing new business opportunities and providing customer service
and support to our distributors and end purchasers through the effective use of our broker network.
Snack
Food Products Segment
Our
Snack Food Products segment primarily distributes products manufactured by us. All items within this segment are considered similar
products and have been aggregated at this level. The dry sausage division includes products such as jerky, meat snacks, sausage
and pepperoni products. Our Snack Food Products segment sells approximately 120 different items through a direct store delivery
network serving approximately 17,000 supermarkets, mass merchandise and convenience retail stores located in 48 states. These
customers are comprised of large retail chains and smaller “independent” operators.
Products
produced or distributed by the Snack Food Products segment are supplied to customers through either direct-store-delivery or direct
delivery to customer warehouses. Product delivered using the company-owned fleet direct to the store is considered a direct-store-delivery.
In this case, we provide the service of setting up and maintaining the display and stocking our products. Products delivered to
customer warehouses are distributed to the retail store and stocked by the customer where it is then resold to the end consumer.
Results
of Operations for the Twelve-Weeks Ended January 25, 2019 and January 26, 2018
Net
Sales-Consolidated
Net
sales increased by $3,849 (9.3%) to $45,041 in the first twelve-week period of the 2019 fiscal year compared to the same twelve-week
period in fiscal year 2018. The changes in net sales were comprised as follows:
Impact
on Net Sales-Consolidated
|
|
%
|
|
|
$
|
|
Selling price per pound
|
|
|
1.6
|
|
|
|
702
|
|
Unit sales volume in pounds
|
|
|
8.6
|
|
|
|
3,787
|
|
Returns activity
|
|
|
-0.9
|
|
|
|
(452
|
)
|
Promotional activity
|
|
|
-
|
|
|
|
(188
|
)
|
Increase
in net sales
|
|
|
9.3
|
|
|
|
3,849
|
|
Net
Sales-Frozen Food Products Segment
Net
sales in the Frozen Food Products segment increased by $1,281 (12.1%) to $11,872 in the first twelve-week period of the 2019 fiscal
year compared to the same twelve-week period in fiscal year 2018. The changes in net sales were comprised as follows:
Impact
on Net Sales-Frozen Food Products
|
|
%
|
|
|
$
|
|
Selling price per pound
|
|
|
3.4
|
|
|
|
409
|
|
Unit sales volume in pounds
|
|
|
7.7
|
|
|
|
930
|
|
Returns activity
|
|
|
-0.1
|
|
|
|
(16
|
)
|
Promotional activity
|
|
|
1.1
|
|
|
|
(42
|
)
|
Increase
in net sales
|
|
|
12.1
|
|
|
|
1,281
|
|
The
increase in net sales for the twelve-week period ended January 25, 2019 primarily relates to higher unit sales volume and
higher selling price per pound. The increase in net sales was primarily driven by a significant increase in volume for our shelf-stable
sandwich business to institutional and retail customers. Other institutional Frozen Food Product sales, including sheet dough
and rolls, increased 4% by volume while retail sales volume decreased 14%. Changes in returns were insignificant compared to the
same twelve-week period in the prior fiscal year. Promotional activity decreased due to lower bid price reductions as a percent
of sales.
Net
Sales-Snack Food Products Segment
Net
sales in the Snack Food Products segment increased by $2,568 (8.4%) to $33,169 in the first twelve-week period of the 2019 fiscal
year compared to the same twelve-week period in fiscal year 2018. The changes in net sales were comprised as follows:
Impact
on Net Sales-Snack Food Products
|
|
%
|
|
|
$
|
|
Selling price per pound
|
|
|
0.9
|
|
|
|
293
|
|
Unit sales volume in pounds
|
|
|
9.0
|
|
|
|
2,857
|
|
Returns activity
|
|
|
-1.2
|
|
|
|
(435
|
)
|
Promotional activity
|
|
|
-0.3
|
|
|
|
(147
|
)
|
Increase
in net sales
|
|
|
8.4
|
|
|
|
2,568
|
|
Net
sales of Snack Food Products increased significantly due to our new product offerings including smokehouse sausage sticks introduced
during the second quarter of fiscal year 2018. The increase in net sales occurred mainly in our direct sales delivery distribution
channel while warehouse shipments decreased. The weighted average selling price per pound increased compared to the same twelve-week
period in the prior fiscal year due to higher per pound selling prices for new items. Promotional offers increased slightly due
to the timing of programs with significant customers. Returns activity was higher compared to the same twelve-week period in the
2018 fiscal year.
Cost
of Products Sold and Gross Margin-Consolidated
Cost
of products sold increased by $2,154 (7.9%) to $29,387 in the first twelve-week period of the 2019 fiscal year compared to the
same twelve-week period in fiscal year 2018. The gross margin increased from 33.9% to 34.8%.
Change
in Cost of Products Sold by Segment
|
|
$
|
|
|
%
|
|
|
Commodity
$
Decrease
|
|
Frozen Food Products Segment
|
|
|
803
|
|
|
|
2.9
|
|
|
|
21
|
|
Snack Food Products
Segment
|
|
|
1,351
|
|
|
|
5.0
|
|
|
|
743
|
|
Total
|
|
|
2,154
|
|
|
|
7.9
|
|
|
|
764
|
|
Cost
of Products Sold-Frozen Food Products Segment
Cost
of products sold in the Frozen Food Products segment increased by $803 (11.2%) to $7,964 in the first twelve-week period of the
2019 fiscal year compared to the same twelve-week period in fiscal year 2018. Changes in product mix and higher repairs and maintenance
on processing equipment were the primary contributing factors to this increase. The cost of purchased flour decreased approximately
$21 in the first twelve-week period of fiscal year 2019 compared to the same twelve-week period in fiscal year 2018.
Cost
of Products Sold-Snack Food Products Segment
Cost
of products sold in the Snack Food Products segment increased by $1,351 (6.7%) to $21,423 in the first twelve-week period of the
2019 fiscal year compared to the same twelve-week period in fiscal year 2018 due to a substantial increase in sales volume. Meat
commodity costs started to drop during the 2019 period partially offsetting the increase in cost of products sold. Higher hourly
wages including increased production labor impacted the cost of products sold. The cost of significant meat commodities decreased
approximately $743 in the first twelve-week period of fiscal year 2019 compared to the same period in fiscal year 2018.
Selling,
General and Administrative Expenses-Consolidated
Selling,
general and administrative expenses increased by $1,216 (10.2%) to $13,087 in the first twelve-week period of fiscal year 2019
compared to the same twelve-week period in the prior fiscal year. The table below summarizes the significant expense increases
(decreases) included in this category:
|
|
12
Weeks Ended
|
|
|
Expense
|
|
|
|
January
25, 2019
|
|
|
January
26, 2018
|
|
|
Increase
(Decrease)
|
|
Wages and bonus
|
|
$
|
5,802
|
|
|
$
|
5,058
|
|
|
$
|
744
|
|
Cash surrender value
|
|
|
10
|
|
|
|
(528
|
)
|
|
|
538
|
|
Product advertising
|
|
|
2,035
|
|
|
|
1,881
|
|
|
|
154
|
|
Other SG&A
|
|
|
5,240
|
|
|
|
5,460
|
|
|
|
(220
|
)
|
Total
- SG&A
|
|
$
|
13,087
|
|
|
$
|
11,871
|
|
|
$
|
1,216
|
|
Higher
profit sharing accruals resulted in higher wages and bonus expense in the first twelve weeks of the 2019 fiscal year compared
to the same period in the prior year. The cash surrender value of life insurance policies decreased substantially due to stock
market losses compared to the same twelve-week period in fiscal year 2018. Costs for product advertising increased mainly as a
result of higher payments under brand licensing agreements in the Snack Food Products segment during the first twelve weeks
of fiscal year 2019. None of the changes individually or as a group of expenses in “Other SG&A” were significant
enough to merit separate disclosure. The major components comprising the increase of “Other SG&A” expenses were
lower outside consulting fees and vehicle repair costs.
Selling,
General and Administrative Expenses-Frozen Food Products Segment
SG&A
expenses in the Frozen Food Products segment increased by $413 (12.2%) to $3,798 in the first twelve-week period of fiscal year
2019 compared to the same twelve-week period in the prior fiscal year. The overall increase in SG&A expenses was due to higher
unit sales volume, higher profit sharing accruals and higher product advertising.
Selling,
General and Administrative Expenses-Snack Food Products Segment
SG&A
expenses in the Snack Food Products segment increased by $803 (9.5%) to $9,289 in the first twelve-week period of fiscal year
2019 compared to the same twelve-week period in the prior fiscal year. Most of the increase was due to higher unit sales volume
and higher expenses related to wages and bonus including an increase in labor commissions partially offset by lower workers’
compensation costs.
Income
Taxes-Consolidated
Income
tax for the twelve-week ended January 25, 2019 and January 26, 2018, respectively, was as follows:
|
|
January
25, 2019
|
|
|
January
26, 2018
|
|
Provision
for income taxes
|
|
$
|
691
|
|
|
$
|
3,722
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate
|
|
|
26.91
|
%
|
|
|
177.68
|
%
|
We
recorded a tax provision of $691 for the twelve-week period ended January 25, 2019, related to federal and state taxes, based
on the Company’s expected annual effective tax rate. The effective income tax rate differed from the applicable mixed statutory
rate of approximately 26.42% also due to non-taxable gains and losses on life insurance policies.
Net
Income (Loss)-Consolidated
The
net income of $1,876 in the twelve-week period ended January 25, 2019 includes a non-taxable loss on life insurance
policies in the amount of $10. The net loss of $1,627 in the twelve-week period ended January 26, 2018 includes a non-taxable
gain on life insurance policies in the amount of $528. Gains and losses on life insurance policies are dependent upon the performance
of the underlying equities that support policy values and future results may vary considerably.
Liquidity
and Capital Resources
The
principal source of our operating cash flow is cash receipts from the sale of our products, net of costs to manufacture, store,
market and deliver such products. We have remained free of interest-bearing debt (excluding capital leases and equipment financing)
for twenty-nine of the last thirty years (with fiscal year 2014 being the only exception) and we normally fund our operations
from cash balances and cash flow generated from operations. We borrowed $7,500 during the first quarter of fiscal year
2019 to purchase specific equipment for our new Chicago processing facility. Historically, we expect positive operating cash flows
in the first quarter of our fiscal year from the liquidation of inventory and accounts receivable balances related to holiday
season sales. Anticipated commodity price trends may affect future cash balances. Certain commodities may be purchased in advance
of our immediate needs to lower the ultimate cost of processing.
Cash
flows from operating activities for the twelve weeks ended:
|
|
January
25, 2019
|
|
|
January
26, 2018
|
|
Net income (loss)
|
|
$
|
1,876
|
|
|
$
|
(1,627
|
)
|
|
|
|
|
|
|
|
|
|
Adjustments to reconcile net income
(loss) to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
959
|
|
|
|
878
|
|
Provision for losses on accounts receivable
|
|
|
23
|
|
|
|
35
|
|
(Reduction in) p
rovision
for promotional allowances
|
|
|
(432
|
)
|
|
|
23
|
|
Gain on sale of property, plant and
equipment
|
|
|
-
|
|
|
|
(7
|
)
|
Deferred income taxes, net
|
|
|
-
|
|
|
|
3,200
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Changes in operating
working capital
|
|
|
(
1,713
|
)
|
|
|
(3,742
|
)
|
Net cash provided
by (used in) operating activities
|
|
$
|
713
|
|
|
$
|
(1,240
|
)
|
For
the twelve weeks ended January 25, 2019, net cash provided by operating activities was $713, $1,953 more cash provided than during
the same period in fiscal year 2018. The net increase in cash provided by operating activities primarily related to higher net
income of $1,876 and liquidation of inventory of $1,649 partially offset by a decrease in non-current liabilities of $2,284 and
payments for estimated income taxes of $3. During the twelve-week period ended January 25, 2019, we did not contribute
funds towards our defined benefit pension plan. Plan funding strategies may be adjusted depending upon economic conditions, investment
options, tax deductibility, or recent legislative changes in funding requirements. The Company did not borrow against its line
of credit with Wells Fargo Bank N.A. during the twelve weeks ended January 25, 2019.
Our
cash conversion cycle (defined as days of inventory and trade receivables less days of trade payables outstanding) was equal to
57 days for the twelve-week period ended January 25, 2019. The cash conversion cycle was 67 days last for the twelve-week period
ended January 26, 2018.
For
the twelve weeks ended January 26, 2018, net cash used in operating activities was $1,240 primarily due to a net loss of $1,627,
an increase in non-current liabilities of $2,994 and estimated income tax payments of $1,198. During the twelve-week period ended
January 26, 2018 we funded $300 towards our defined benefit pension plan.
Cash
provided by (used in) investing activities for the twelve weeks ended:
|
|
January
25, 2019
|
|
|
January
26, 2018
|
|
Proceeds from sale of property,
plant and equipment
|
|
$
|
-
|
|
|
$
|
7
|
|
Additions to
property, plant and equipment
|
|
|
(7,191
|
)
|
|
|
(3,620
|
)
|
Net cash used
in investing activities
|
|
$
|
(7,191
|
)
|
|
$
|
(3,613
|
)
|
In
general, we capitalize the cost of additions and improvements and expense the cost for repairs and maintenance. The Company may
also capitalize costs related to improvements that extend the life, increase the capacity, or improve the efficiency of existing
machinery and equipment. Specifically, capitalization of upgrades of facilities to maintain operating efficiency include acquisitions
of machinery and equipment used on packaging lines and refrigeration equipment used to process food products.
The
table below highlights additions to property, plant and equipment for the twelve weeks ended:
|
|
January
25, 2019
|
|
|
January
26, 2018
|
|
Changes in projects in process
|
|
$
|
7,004
|
|
|
$
|
2,660
|
|
Building improvements
|
|
|
-
|
|
|
|
178
|
|
Direct store delivery and sales vehicles
|
|
|
159
|
|
|
|
363
|
|
Packaging lines
|
|
|
28
|
|
|
|
3
|
|
Processing equipment
|
|
|
-
|
|
|
|
385
|
|
Forklifts
|
|
|
-
|
|
|
|
31
|
|
Additions to
property, plant and equipment
|
|
$
|
7,191
|
|
|
$
|
3,620
|
|
Cash
provided by (used in) financing activities for the twelve weeks ended:
|
|
January
25, 2019
|
|
|
January
26, 2018
|
|
Payment of capital lease
obligations
|
|
|
-
|
|
|
|
(35
|
)
|
Proceeds from
bank borrowings
|
|
|
7,500
|
|
|
|
-
|
|
Net cash provided
by (used in) financing activities
|
|
$
|
7,500
|
|
|
$
|
(35
|
)
|
Our
stock repurchase program was approved by the Board of Directors in November 1999 and was expanded in June 2005. Under the stock
repurchase program, we are authorized, at the discretion of management and the Board of Directors, to purchase up to an aggregate
of 2,000,000 shares of our common stock on the open market. As of January 25, 2019, 120,113 shares were authorized for repurchase
under the program.
We
maintain a line of credit with Wells Fargo Bank, N.A. that expires on March 1, 2020. Under the terms of this line of credit, we
may borrow up to $7,500 at an interest rate equal to the bank’s prime rate or LIBOR plus 1.5%. The borrowing agreement contains
various covenants, the more significant of which require us to maintain a minimum tangible net worth, a minimum quick ratio, a
minimum net income after tax and total capital expenditures less than $7,500. The Company was in compliance with all covenants
as of January 25, 2019. There have been no borrowings under this line of credit during fiscal year 2019.
On
December 26, 2018, we entered into a master collateral loan and security agreement with Wells Fargo Bank, N.A for up to $15,000
in equipment financing. Pursuant to the loan agreement, we borrowed $7,500 to purchase specific equipment for our new Chicago
processing facility at a fixed rate of 4.13% per annum. The loan term is seven years and is secured by the purchased equipment.
The funds were received on December 28, 2018. The master collateral loan and security agreement with Wells Fargo Bank, N.A. contains
various affirmative and negative covenants that limit the use of funds and define other provisions of the loan. The main financial
covenants are listed below:
|
●
|
Total
Liabilities divided by Tangible Net Worth not greater than 2.5 to 1.0 at each fiscal quarter,
|
|
|
|
|
●
|
Quick
Ratio not less than 1.0 to 1.0 at each fiscal quarter end, and
|
|
|
|
|
●
|
Net
income after taxes not less than one dollar on a quarterly basis, determined as of each fiscal quarter end.
|
The
Company was in compliance with all covenants under the master collateral loan and security agreement as of January 25, 2019.
The
impact of inflation on the Company’s financial position and results of operations has not been significant. Management is
of the opinion that the Company’s financial position and its capital resources are sufficient to provide for its operating
needs and capital expenditures for the remainder of fiscal year 2019.
Recent
Accounting Pronouncements
In
May 2014, the FASB issued guidance that changes the criteria for recognizing revenue. The guidance provides for a single five-step
model to be applied to all revenue contracts with customers. The standard also requires additional financial statement disclosures
that will enable users to understand the nature, amount, timing and uncertainty of revenue and cash flows relating to customer
contracts, including disaggregated revenue disclosures. Companies have an option to use either a retrospective approach or cumulative
effect adjustment approach to implement the standard. This guidance is effective for annual reporting periods and interim periods
within those annual reporting periods beginning after December 15, 2017, our fiscal 2019. We adopted this guidance in the first
quarter of fiscal year 2019 using the modified retrospective transition method. Prior periods were not adjusted and, based on
our implementation assessment, no cumulative-effect adjustment was made to the opening balance of retained earnings. The adoption
of this standard did not have a material impact on our consolidated financial statements. For further description of our revenue
recognition policy refer to the Revenue Recognition section above and for disaggregated revenue information refer to Part I, Item
1, Notes to the Consolidated Condensed Financial Statements, Note 16: Segment Reporting.
In
July 2015, the FASB issued ASU 2015-11 “Simplifying the Measurement of Inventory”. The guidance is part of the “Simplification
Initiative” to identify and re-evaluate areas where the generally accepted accounting principles may be complex and cumbersome
to apply. The guidance will require that inventory be stated at the lower of cost and net realizable value as opposed to the lower
of cost or market. Net realizable value is the estimated selling price for the inventory less completion, disposal and transportation
costs. The guidance is effective for fiscal years beginning after December 15, 2016. Adoption of this guidance did not have a
material impact on the Company’s results of operations or financial position.
In
January 2016, the FASB issued ASU 2016-01, “Recognition and Measurement of Financial Assets and Financial Liabilities”
that requires most equity investments to be measured at fair value and subsequent changes in fair value to be recognized in net
income. The guidance covers presentation and disclosure requirements of financial liabilities and the classification and measurement
of financial instruments. The guidance is effective for annual reporting periods and interim periods within those annual reporting
periods beginning after December 15, 2017. Adoption of this guidance did not have a material impact on the Company’s results
of operations or financial position.
In
February 2016, the FASB issued ASU 2016-02, “Leases”, which will require a lessee to recognize assets and liabilities
with lease terms of more than 12 months. Both capital and operating leases will need to be recognized on the balance sheet. The
guidance is effective for annual reporting periods beginning after December 15, 2019 and interim periods within fiscal years beginning
after December 15, 2020. The Company is currently evaluating this statement and its impact on its results of operations or financial
position.
In
March 2016, the FASB issued ASU 2016-09 “Compensation-Stock Compensation” guidance which simplifies various aspects
of the accounting for employee share-based payment transactions, including the accounting for income tax consequences, forfeitures,
and statutory tax withholding requirements, as well as classification of related amounts within the statement of cash flows. The
guidance is effective for annual and interim reporting periods beginning after December 15, 2016 with early adoption permitted.
Adoption of this guidance did not have a material impact on results of Company operations or financial position.
In
June 2016, the FASB issued ASU 2016-13 “Financial Instruments – Credit Losses”, which requires a financial asset
to be presented at the net carrying value which is the amount expected to be collected net of expected credit losses. The guidance
is effective for annual and interim reporting periods beginning after December 15, 2019 with early adoption permitted. The Company
is currently evaluating this statement and its impact on its results of operations or financial position.
In
October 2016, the FASB issued ASU 2016-16, “Income Taxes – Classification of Certain Cash Receipts and Cash Payments”.
The guidance involves eight specific cash flow issues and aims to unify accounting for these transactions. The guidance is effective
for annual reporting periods beginning after December 15, 2017 with early adoption permitted. Adoption of this guidance did not
have a material impact on the Company’s results of operations or financial position.
In
March 2017, the FASB issued ASU 2017-07, “Compensation – Retirement Benefits”. The guidance separates service
cost from other pension cost components changing the presentation of net periodic benefit cost related to company sponsored defined
benefit or other postretirement benefits. The guidance is effective for annual and interim reporting periods beginning after December
15, 2017 with early adoption permitted. Adoption of this guidance did not have a material impact on the Company’s results
of operations or financial position.
In
February 2018, the FASB issued ASU 2018-02, “Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification
of Certain Tax Effects from Accumulated Other Comprehensive Income”. The guidance allows reclassification from accumulated
other comprehensive income to retained earnings for stranded tax effects resulting from the application of the U.S. Tax Cuts and
Jobs Act. The guidance is effective for annual and interim reporting periods beginning after December 15, 2018 with early adoption
permitted. The Company elected to early adopt this guidance during the quarter ended January 26, 2018. Adoption of this guidance
had a material impact on Retained Earnings and Other Comprehensive Income (see Item 1.c. of this Report).
Off-Balance
Sheet Arrangements
We
are not engaged in any “off-balance sheet arrangements” within the meaning of Item 303(a)(4)(ii) of Regulation S-K.
Item
3. Quantitative and Qualitative Disclosures about Market Risk
Not
applicable to a smaller reporting company.
Item
4. Controls and Procedures
Our
management, with the participation and under the supervision of our principal executive officer and principal financial officer,
has evaluated the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e) and 15d-15(e))
as of the end of the period covered by this Report. Based on this evaluation the principal executive officer and principal financial
officer have concluded that our disclosure controls and procedures are effective as of the end of the period covered by this Report
in their design and operation to provide reasonable assurance that information required to be disclosed by us in the reports that
we file or submit under the Exchange Act is accumulated and communicated to management and recorded, processed, summarized and
reported within the time periods specified by the Securities and Exchange Commission’s rules and forms and were accumulated
and communicated to our management, including our principal executive officer and principal financial officer, as appropriate
to allow timely decisions regarding required disclosures.
Our
management, including our principal executive officer and principal financial officer, does not expect that our disclosure controls
and internal controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide
only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system
must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs.
Because of inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control
issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities
that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally,
controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override
of the control.
The
design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there
can be no assurance that any design will succeed in achieving our stated goals under all potential future conditions; over time,
a control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures
may deteriorate. Because of inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur
and not be detected.
We
maintain and evaluate a system of internal accounting controls, and a program of internal auditing designed to provide reasonable
assurance that our assets are protected and that transactions are performed in accordance with proper authorization and are properly
recorded. This system of internal accounting controls is continually reviewed and modified in response to evolving business conditions
and operations and to recommendations made by the independent registered public accounting firm. On May 14, 2013, the Committee
of Sponsoring Organizations of the Treadway Commission (COSO) published Internal Control-Integrated Framework (2013) (the “2013
Framework”) and related illustrative documents as an update to Internal Control-Integrated Framework (1992) (the “1992
Framework”). The Company has adopted the 2013 Framework this fiscal year and has determined that the 17 principles are present
and functioning during our assessment of the effectiveness of internal controls. We have established a code of conduct. Our management
believes that the accounting and internal control systems provide reasonable assurance that assets are safeguarded, and financial
information is reliable.
The
Audit Committee of the Board of Directors meets regularly with our financial management and counsel, and with the independent
registered public accounting firm engaged by us. Internal accounting controls and the quality of financial reporting are discussed
during these meetings. The Audit Committee has discussed with the independent registered public accounting firm matters required
to be discussed by the auditing standards adopted or established by the Public Company Accounting Oversight Board. In addition,
the Audit Committee and the independent registered public accounting firm have discussed the independent registered public accounting
firm’s independence from the Company and its management, including the matters in the written disclosures required by Public
Company Accounting Oversight Board Rule 3526 “Communicating with Audit Committees Concerning Independence”.
There
have been no changes in our internal controls over financial reporting that occurred during the fiscal quarter ended January 25,
2019 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.