Item
1. a.
BRIDGFORD
FOODS CORPORATION
CONDENSED
CONSOLIDATED BALANCE SHEETS
(in
thousands, except share and per share amounts)
|
|
April 19, 2019
|
|
|
November 2, 2018
|
|
|
|
(unaudited)
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
2,798
|
|
|
$
|
8,179
|
|
Accounts receivable, less allowance for doubtful accounts of $51 and $33, respectively, and promotional allowances of $2,848 and $2,122, respectively
|
|
|
21,433
|
|
|
|
20,293
|
|
Inventories, net
|
|
|
24,592
|
|
|
|
23,413
|
|
Prepaid expenses and other current assets
|
|
|
1,333
|
|
|
|
1,331
|
|
Total current assets
|
|
|
50,156
|
|
|
|
53,216
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net of accumulated depreciation and amortization of $68,282
and $66,337, respectively
|
|
|
44,811
|
|
|
|
32,638
|
|
Other non-current assets
|
|
|
12,058
|
|
|
|
11,630
|
|
Deferred income taxes (Note 5)
|
|
|
4,010
|
|
|
|
4,010
|
|
Total assets
|
|
$
|
111,035
|
|
|
$
|
101,494
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
5,468
|
|
|
$
|
7,655
|
|
Accrued payroll, advertising and other expenses
|
|
|
4,626
|
|
|
|
4,577
|
|
Income taxes payable
|
|
|
1,023
|
|
|
|
155
|
|
Current notes payable - equipment
|
|
|
712
|
|
|
|
-
|
|
Line of credit
|
|
|
2,000
|
|
|
|
-
|
|
Current portion of non-current liabilities
|
|
|
5,399
|
|
|
|
5,980
|
|
Total current liabilities
|
|
|
19,228
|
|
|
|
18,367
|
|
|
|
|
|
|
|
|
|
|
Long-term notes payable - equipment
|
|
|
6,556
|
|
|
|
-
|
|
Non-current liabilities
|
|
|
15,475
|
|
|
|
17,447
|
|
Total liabilities
|
|
|
41,259
|
|
|
|
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 – 9,076,832 and 9,076,832 shares, respectively
|
|
|
9,134
|
|
|
|
9,134
|
|
Capital in excess of par value
|
|
|
8,298
|
|
|
|
8,298
|
|
Retained earnings
|
|
|
70,044
|
|
|
|
65,948
|
|
Accumulated other comprehensive loss
|
|
|
(17,700
|
)
|
|
|
(17,700
|
)
|
Total shareholders’ equity
|
|
|
69,776
|
|
|
|
65,680
|
|
Total liabilities and shareholders’ equity
|
|
$
|
111,035
|
|
|
$
|
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
|
|
|
24 weeks ended
|
|
|
|
April 19, 2019
|
|
|
April 20, 2018
|
|
|
April 19, 2019
|
|
|
April 20, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
41,443
|
|
|
$
|
37,900
|
|
|
$
|
86,484
|
|
|
$
|
79,092
|
|
Cost of products sold
|
|
|
27,042
|
|
|
|
25,840
|
|
|
|
56,429
|
|
|
|
53,073
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
14,401
|
|
|
|
12,060
|
|
|
|
30,055
|
|
|
|
26,019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
|
11,608
|
|
|
|
11,613
|
|
|
|
24,695
|
|
|
|
23,484
|
|
Gain on sale of property, plant and equipment
|
|
|
-
|
|
|
|
(5,995
|
)
|
|
|
-
|
|
|
|
(6,002
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before taxes
|
|
|
2,793
|
|
|
|
6,442
|
|
|
|
5,360
|
|
|
|
8,537
|
|
Provision for income taxes
|
|
|
573
|
|
|
|
1,808
|
|
|
|
1,264
|
|
|
|
5,530
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
2,220
|
|
|
$
|
4,634
|
|
|
$
|
4,096
|
|
|
$
|
3,007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
0.24
|
|
|
$
|
0.52
|
|
|
$
|
0.45
|
|
|
$
|
0.35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used to compute basic earnings per share
|
|
|
9,076,832
|
|
|
|
9,076,832
|
|
|
|
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
24
weeks ended April 20, 2018 and April 19, 2019
(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 income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,007
|
|
|
|
-
|
|
|
|
3,007
|
|
Reclassification upon early adoption of ASU 2018-02
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,529
|
|
|
|
(2,529
|
)
|
|
|
-
|
|
Balance, April 20, 2018
|
|
|
9,076
|
|
|
$
|
9,134
|
|
|
$
|
8,298
|
|
|
$
|
62,438
|
|
|
$
|
(20,825
|
)
|
|
$
|
59,045
|
|
|
|
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
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,096
|
|
|
|
-
|
|
|
|
4,096
|
|
Balance, April 19, 2019
|
|
|
9,076
|
|
|
$
|
9,134
|
|
|
$
|
8,298
|
|
|
$
|
70,044
|
|
|
$
|
(17,700
|
)
|
|
$
|
69,776
|
|
12
weeks ended April 20, 2018 and April 19, 2019
(unaudited)
(in
thousands)
|
|
Shares
|
|
|
Amount
|
|
|
Capital
in
excess
of
par
value
|
|
|
Retained
earnings
|
|
|
Accumulated
other
comprehensive
loss
|
|
|
Total
shareholders’
equity
|
|
Balance, January 26, 2018
|
|
|
9,076
|
|
|
$
|
9,134
|
|
|
$
|
8,298
|
|
|
$
|
57,804
|
|
|
$
|
(20,825
|
)
|
|
$
|
54,411
|
|
Net income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,634
|
|
|
|
-
|
|
|
|
4,634
|
|
Balance, April 20, 2018
|
|
|
9,076
|
|
|
$
|
9,134
|
|
|
$
|
8,298
|
|
|
$
|
62,438
|
|
|
$
|
(20,825
|
)
|
|
$
|
59,045
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
in
excess
of
par
value
|
|
|
Retained
earnings
|
|
|
Accumulated
other
comprehensive
loss
|
|
|
Total
shareholders’
equity
|
|
Balance, January 25, 2019
|
|
|
9,076
|
|
|
$
|
9,134
|
|
|
$
|
8,298
|
|
|
$
|
67,824
|
|
|
$
|
(17,700
|
)
|
|
$
|
67,556
|
|
Net income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,220
|
|
|
|
-
|
|
|
|
2,220
|
|
Balance, April 19, 2019
|
|
|
9,076
|
|
|
$
|
9,134
|
|
|
$
|
8,298
|
|
|
$
|
70,044
|
|
|
$
|
(17,700
|
)
|
|
$
|
69,776
|
|
See
accompanying notes to condensed consolidated financial statements.
Item
1. d.
BRIDGFORD
FOODS CORPORATION
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in
thousands)
|
|
24 weeks ended
|
|
|
|
April 19, 2019
|
|
|
April 20, 2018
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
4,096
|
|
|
$
|
3,007
|
|
|
|
|
|
|
|
|
|
|
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
1,945
|
|
|
|
1,835
|
|
Provision for losses on accounts receivable
|
|
|
49
|
|
|
|
152
|
|
(Reduction in) provision for promotional allowances
|
|
|
(316
|
)
|
|
|
140
|
|
Gain on sale of property, plant and equipment
|
|
|
-
|
|
|
|
(6,002
|
)
|
Deferred income taxes, net
|
|
|
-
|
|
|
|
3,200
|
|
|
|
|
|
|
|
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(873
|
)
|
|
|
2,705
|
|
Inventories
|
|
|
(1,179
|
)
|
|
|
(1,403
|
)
|
Prepaid expenses and other current assets
|
|
|
(2
|
)
|
|
|
727
|
|
Other non-current assets
|
|
|
(428
|
)
|
|
|
(366
|
)
|
Accounts payable
|
|
|
(2,187
|
)
|
|
|
(1,270
|
)
|
Accrued payroll, advertising and other expenses
|
|
|
(532
|
)
|
|
|
(289
|
)
|
Income taxes payable
|
|
|
868
|
|
|
|
986
|
|
Non-current liabilities
|
|
|
(1,972
|
)
|
|
|
(2,815
|
)
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by operating
activities
|
|
|
(531
|
)
|
|
|
607
|
|
|
|
|
|
|
|
|
|
|
Cash (used in) provided by investing activities:
|
|
|
|
|
|
|
|
|
Proceeds from sale of property, plant and equipment
|
|
|
-
|
|
|
|
6,002
|
|
Additions to property, plant and equipment
|
|
|
(14,118
|
)
|
|
|
(4,811
|
)
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by
investing activities
|
|
|
(14,118
|
)
|
|
|
1,191
|
|
|
|
|
|
|
|
|
|
|
Cash provided by (used in) financing activities:
|
|
|
|
|
|
|
|
|
Payment of capital lease obligations
|
|
|
-
|
|
|
|
(70
|
)
|
Proceeds from bank borrowings
|
|
|
9,500
|
|
|
|
-
|
|
Repayments of bank borrowings
|
|
|
(232
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
9,268
|
|
|
|
(70
|
)
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents
|
|
|
(5,381
|
)
|
|
|
1,728
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of period
|
|
|
8,179
|
|
|
|
12,109
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
2,798
|
|
|
$
|
13,837
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for income taxes
|
|
$
|
551
|
|
|
$
|
1,350
|
|
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 and twenty-four weeks ended April 19, 2019 and April 20, 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 April 19, 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 twenty-four weeks ended April 19, 2019 and April 20, 2018, respectively.
Customer
Concentration > 20% of AR or 10% of Sales *
|
|
Wal-Mart
|
|
|
Dollar General
|
|
|
|
Sales
|
|
|
AR
|
|
|
Sales
|
|
|
AR
|
|
April 19, 2019
|
|
|
36.1
|
%
|
|
|
36.9
|
%
|
|
|
9.8
|
%
|
|
|
21.0
|
%
|
April 20, 2018
|
|
|
36.3
|
%
|
|
|
34.1
|
%
|
|
|
-
|
%
|
|
|
-
|
%
|
*
= No other customer accounted for more than 20% of consolidated accounts receivable or 10% of consolidated sales for the twenty-four
weeks ended April 19, 2019 or the twenty-four weeks ended April 20, 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 April 19, 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.
The
Company borrowed $2,000 under its line of credit with Wells Fargo Bank, N.A. on April 15, 2019, which was repaid
on April 25, 2019 with the proceeds from a second borrowing of $7,500 under the master collateral loan and security agreement
with Wells Fargo Bank, N.A that provides for up to $15,000 in equipment financing. The proceeds under the first borrowing
of $7,500 were received on December 28, 2018. A total of $15,000 was borrowed for equipment financing under this agreement. Refer
to Note 6 “Equipment Note Payable and Financial Arrangements” for more information on the equipment financing.
Basic
earnings per share
Basic
earnings 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 April 19, 2019 or April 20, 2018.
Note
2 – Inventories:
Inventories
are comprised of the following at the respective period ends:
|
|
(unaudited)
|
|
|
|
|
|
|
April 19, 2019
|
|
|
November 2, 2018
|
|
Meat, ingredients and supplies
|
|
$
|
7,685
|
|
|
$
|
6,455
|
|
Work in progress
|
|
|
1,615
|
|
|
|
1,415
|
|
Finished goods
|
|
|
15,292
|
|
|
|
15,543
|
|
|
|
$
|
24,592
|
|
|
$
|
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
continue to 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 twenty-four weeks ended April 19, 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 with 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 potential 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 April 19, 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 April 19, 2019 and April 20, 2018.
Segment Information
|
Twelve weeks Ended
April 19, 2019
|
|
Frozen Food Products
|
|
|
Snack Food Products
|
|
|
Other
|
|
|
Totals
|
|
Sales
|
|
$
|
11,546
|
|
|
$
|
29,897
|
|
|
$
|
-
|
|
|
$
|
41,443
|
|
Cost of products sold
|
|
|
7,350
|
|
|
|
19,692
|
|
|
|
-
|
|
|
|
27,042
|
|
Gross margin
|
|
|
4,196
|
|
|
|
10,205
|
|
|
|
-
|
|
|
|
14,401
|
|
SG&A
|
|
|
3,102
|
|
|
|
8,506
|
|
|
|
-
|
|
|
|
11,608
|
|
Gain on sale of property, plant and equipment
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Income before taxes
|
|
|
1,094
|
|
|
|
1,699
|
|
|
|
-
|
|
|
|
2,793
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
11,533
|
|
|
$
|
78,981
|
|
|
$
|
20,521
|
|
|
$
|
111,035
|
|
Additions to PP&E
|
|
$
|
174
|
|
|
$
|
6,753
|
|
|
$
|
-
|
|
|
$
|
6,927
|
|
Twelve weeks Ended
April 20, 2018
|
|
Frozen Food Products
|
|
|
Snack Food Products
|
|
|
Other
|
|
|
Totals
|
|
Sales
|
|
$
|
11,010
|
|
|
$
|
26,890
|
|
|
$
|
-
|
|
|
$
|
37,900
|
|
Cost of products sold
|
|
|
6,978
|
|
|
|
18,862
|
|
|
|
-
|
|
|
|
25,840
|
|
Gross margin
|
|
|
4,032
|
|
|
|
8,028
|
|
|
|
-
|
|
|
|
12,060
|
|
SG&A
|
|
|
3,367
|
|
|
|
8,246
|
|
|
|
-
|
|
|
|
11,613
|
|
Gain on sale of property, plant and equipment
|
|
|
-
|
|
|
|
(18
|
)
|
|
|
(5,977
|
)
|
|
|
(5,995
|
)
|
Income before taxes
|
|
|
665
|
|
|
|
(200
|
)
|
|
|
5,977
|
|
|
|
6,442
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
10,828
|
|
|
$
|
51,777
|
|
|
$
|
34,488
|
|
|
$
|
97,093
|
|
Additions to PP&E
|
|
$
|
176
|
|
|
$
|
1,015
|
|
|
$
|
-
|
|
|
$
|
1,191
|
|
The
following segment information is presented for the twenty-four weeks ended April 19, 2019 and April 20, 2018.
Twenty-four weeks Ended
April 19, 2019
|
|
Frozen Food Products
|
|
|
Snack Food Products
|
|
|
Other
|
|
|
Totals
|
|
Sales
|
|
$
|
23,418
|
|
|
$
|
63,066
|
|
|
$
|
-
|
|
|
$
|
86,484
|
|
Cost of products sold
|
|
|
15,314
|
|
|
|
41,115
|
|
|
|
-
|
|
|
|
56,429
|
|
Gross margin
|
|
|
8,104
|
|
|
|
21,951
|
|
|
|
-
|
|
|
|
30,055
|
|
SG&A
|
|
|
6,900
|
|
|
|
17,795
|
|
|
|
-
|
|
|
|
24,695
|
|
Gain on sale of property, plant and equipment
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Income before taxes
|
|
|
1,204
|
|
|
|
4,156
|
|
|
|
-
|
|
|
|
5,360
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
11,533
|
|
|
$
|
78,981
|
|
|
$
|
20,521
|
|
|
$
|
111,035
|
|
Additions to PP&E
|
|
$
|
277
|
|
|
$
|
13,841
|
|
|
$
|
-
|
|
|
$
|
14,118
|
|
Twenty-four weeks Ended
April 20, 2018
|
|
Frozen Food Products
|
|
|
Snack Food Products
|
|
|
Other
|
|
|
Totals
|
|
Sales
|
|
$
|
21,601
|
|
|
$
|
57,491
|
|
|
$
|
-
|
|
|
$
|
79,092
|
|
Cost of products sold
|
|
|
14,139
|
|
|
|
38,934
|
|
|
|
-
|
|
|
|
53,073
|
|
Gross margin
|
|
|
7,462
|
|
|
|
18,557
|
|
|
|
-
|
|
|
|
26,019
|
|
SG&A
|
|
|
6,757
|
|
|
|
16,727
|
|
|
|
-
|
|
|
|
23,484
|
|
Gain on sale of property, plant and equipment
|
|
|
(6
|
)
|
|
|
(19
|
)
|
|
|
(5,977
|
)
|
|
|
(6,002
|
)
|
Income before taxes
|
|
|
711
|
|
|
|
1,849
|
|
|
|
5,977
|
|
|
|
8,537
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
10,828
|
|
|
$
|
51,777
|
|
|
$
|
34,488
|
|
|
$
|
97,093
|
|
Additions to PP&E
|
|
$
|
301
|
|
|
$
|
4,510
|
|
|
$
|
-
|
|
|
$
|
4,811
|
|
The
following information further disaggregates our sales to customers by major distribution channel and customer type for the
twelve and twenty-four weeks ended April 19, 2019.
Twelve
weeks Ended
April
19, 2019
Distribution
Channel
|
|
Retail (a)
|
|
|
Foodservice (b)
|
|
|
Totals
|
|
Direct store delivery
|
|
$
|
22,656
|
|
|
$
|
-
|
|
|
$
|
22,656
|
|
Direct customer warehouse
|
|
|
7,241
|
|
|
|
-
|
|
|
|
7,241
|
|
Total Snack Food Products
|
|
|
29,897
|
|
|
|
-
|
|
|
|
29,897
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributors
|
|
|
1,373
|
|
|
|
10,173
|
|
|
|
11,546
|
|
Total Frozen Food Products
|
|
|
1,373
|
|
|
|
10,173
|
|
|
|
11,546
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$
|
31,270
|
|
|
$
|
10,173
|
|
|
$
|
41,443
|
|
Twenty-four
weeks Ended
April 19, 2019
Distribution Channel
|
|
Retail (a)
|
|
|
Foodservice (b)
|
|
|
Totals
|
|
Direct store delivery
|
|
$
|
46,224
|
|
|
$
|
-
|
|
|
$
|
46,224
|
|
Direct customer warehouse
|
|
|
16,842
|
|
|
|
-
|
|
|
|
16,842
|
|
Total Snack Food Products
|
|
|
63,066
|
|
|
|
-
|
|
|
|
63,066
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributors
|
|
|
3,639
|
|
|
|
19,779
|
|
|
|
23,418
|
|
Total Frozen Food Products
|
|
|
3,639
|
|
|
|
19,779
|
|
|
|
23,418
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$
|
66,705
|
|
|
$
|
19,779
|
|
|
$
|
86,484
|
|
(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 twenty-four weeks ended April 19, 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 23.6% and 64.8% for the second 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 second quarter of fiscal year 2018, and a blended 23.07% statutory federal income tax rate for fiscal 2018. The effective
tax rate for the second 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 second 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 April 19, 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 April 19, 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)
|
|
|
|
April 19, 2019
|
|
|
April 20, 2018
|
|
Secured equipment notes payable to Wells Fargo Bank, N.A. collateralized by equipment for the new Chicago processing facility.
|
|
$
|
7,268
|
|
|
$
|
-
|
|
Less current portion of notes payable
|
|
|
(712
|
)
|
|
|
-
|
|
Total long-term notes payable
|
|
$
|
6,556
|
|
|
$
|
-
|
|
Refer
to “Subsequent events” in Note 1 above for further detail on borrowings under the master collateral loan and
security agreement with Wells Fargo Bank, N.A.
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 of 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 April 30, 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 April 19, 2019 and April 20, 2018, respectively.
Customer
Concentration > 20% of AR or 10% of Sales *
|
|
Wal-Mart
|
|
|
Dollar General
|
|
|
|
Sales
|
|
|
AR
|
|
|
Sales
|
|
|
AR
|
|
April 19, 2019
|
|
|
36.1
|
%
|
|
|
36.9
|
%
|
|
|
9.8
|
%
|
|
|
21.0
|
%
|
April 20, 2018
|
|
|
36.3
|
%
|
|
|
34.1
|
%
|
|
|
-
|
%
|
|
|
-
|
%
|
*
= No other customer accounted for more than 20% of consolidated accounts receivable or 10% of consolidated sales for the twenty-four
weeks ended April 19, 2019 or the twenty-four weeks ended April 20, 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 the 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 the 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 the 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 our 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 April 19, 2019 and April 20, 2018
Net
Sales-Consolidated
Net
sales increased by $3,543 (9.3%) to $41,443 in the second 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
|
|
|
4.2
|
|
|
|
1,721
|
|
Unit sales volume in pounds
|
|
|
6.1
|
|
|
|
2,494
|
|
Returns activity
|
|
|
0.9
|
|
|
|
286
|
|
Promotional activity
|
|
|
-1.9
|
|
|
|
(958
|
)
|
Increase in net sales
|
|
|
9.3
|
|
|
|
3,543
|
|
Net
Sales-Frozen Food Products Segment
Net
sales in the Frozen Food Products segment increased by $536 (4.9%) to $11,546 in the second 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
|
|
|
4.7
|
|
|
|
568
|
|
Unit sales volume in pounds
|
|
|
3.4
|
|
|
|
415
|
|
Returns activity
|
|
|
-0.3
|
|
|
|
(35
|
)
|
Promotional activity
|
|
|
-2.9
|
|
|
|
(412
|
)
|
Increase in net sales
|
|
|
4.9
|
|
|
|
536
|
|
The
increase in net sales for the twelve-week period ended April 19, 2019 primarily relates to higher unit sales volume and higher
selling price per pound. The increase in net sales was primarily driven by an increase in selling prices implemented in the second
quarter of fiscal year 2019 coupled with 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, decreased 1% by volume while
retail sales volume decreased 9%. Promotional activity increased due to higher bid price reductions, rebates and menu allowances
as a percent of sales.
Net
Sales-Snack Food Products Segment
Net
sales in the Snack Food Products segment increased by $3,007 (11.2%) to $29,897 in the second 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
|
|
|
4.0
|
|
|
|
1,152
|
|
Unit sales volume in pounds
|
|
|
7.3
|
|
|
|
2,077
|
|
Returns activity
|
|
|
1.5
|
|
|
|
322
|
|
Promotional activity
|
|
|
-1.6
|
|
|
|
(544
|
)
|
Increase in net sales
|
|
|
11.2
|
|
|
|
3,007
|
|
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 due to the
timing of programs with significant customers. Returns activity was lower 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 $1,202 (4.7%) to $27,042 in the second twelve-week period of the 2019 fiscal year compared to the
same twelve-week period in fiscal year 2018. The gross margin increased from 31.8% to 34.7% during the 2019 period.
Change in Cost of Products Sold by Segment
|
|
$
|
|
|
%
|
|
|
Commodity $
Decrease
|
|
Frozen Food Products Segment
|
|
|
372
|
|
|
|
1.4
|
|
|
|
(15
|
)
|
Snack Food Products Segment
|
|
|
830
|
|
|
|
3.3
|
|
|
|
(827
|
)
|
Total
|
|
|
1,202
|
|
|
|
4.7
|
|
|
|
(842
|
)
|
Cost
of Products Sold-Frozen Food Products Segment
Cost
of products sold in the Frozen Food Products segment increased by $372 (5.3%) to $7,350 in the second twelve-week period of the
2019 fiscal year compared to the same twelve-week period in fiscal year 2018. Increased volume and changes in product mix were
the primary contributing factors to this increase. The cost of purchased flour decreased approximately $15 in the second 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 $830 (4.4%) to $19,692 in the second 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 $15 in the second 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 decreased by $5 (0.0%) to $11,608 in the second 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
|
|
|
|
April 19, 2019
|
|
|
April 20, 2018
|
|
|
Increase (Decrease)
|
|
Wages and bonus
|
|
$
|
5,552
|
|
|
$
|
4,272
|
|
|
$
|
1,280
|
|
Cash surrender value
|
|
|
(439
|
)
|
|
|
162
|
|
|
|
(601
|
)
|
Repairs and maintenance “SQF” expense
|
|
|
12
|
|
|
|
411
|
|
|
|
(399
|
)
|
Pension expense
|
|
|
(92
|
)
|
|
|
285
|
|
|
|
(377
|
)
|
Other SG&A
|
|
|
6,575
|
|
|
|
6,483
|
|
|
|
92
|
|
Total - SG&A
|
|
$
|
11,608
|
|
|
$
|
11,613
|
|
|
$
|
(5
|
)
|
Higher
profit-sharing accruals resulted in higher wages and bonus expense in the second twelve weeks of the 2019 fiscal year compared
to the same period in the prior year. The cash surrender value of life insurance policies increased substantially due to stock
market gains compared to the same twelve-week period in fiscal year 2018. Repairs and maintenance expense decreased as the Company
geared up its Chicago facility in the same twelve-week period in fiscal year 2018 to comply with Food Safety Certification requirements
created and managed by the SQF Institute The decrease in pension costs was due to higher pension discount rates being used to
compute the future liability estimate. 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 higher insurance expense and higher workers’ compensation cost.
Selling,
General and Administrative Expenses-Frozen Food Products Segment
SG&A
expenses in the Frozen Food Products segment decreased by $265 (7.9%) to $3,102 in the second twelve-week period of fiscal year
2019 compared to the same twelve-week period in the prior fiscal year. The overall decrease in SG&A expenses was due to allocated
cash surrender value gains while most expenses remained consistent with the prior year period.
Selling,
General and Administrative Expenses-Snack Food Products Segment
SG&A
expenses in the Snack Food Products segment increased by $260 (3.2%) to $8,506 in the second 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 sales commissions partially offset by a pension expense
decrease.
Income
Taxes-Consolidated
Income
tax for the twelve weeks ended April 19, 2019 and April 20, 2018, respectively, was as follows:
|
|
April 19, 2019
|
|
|
April 20, 2018
|
|
Provision for income taxes
|
|
$
|
573
|
|
|
$
|
1,808
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate
|
|
|
20.5
|
%
|
|
|
28.1
|
%
|
We
recorded a tax provision of $573 for the twelve-week period ended April 19, 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 26.4% also due to non-taxable gains and losses on life insurance policies.
Net
Income Consolidated
The
net income of $2,220 in the twelve-week period ended April 19, 2019 includes a non-taxable gain on life insurance policies in
the amount of $439. The net income of $4,634 in the twelve-week period ended April 20, 2018 included a non-recurring gain on the
sale of real property for $5,977 (before taxes) and a non-taxable loss on life insurance policies in the amount of $162.
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.
Results
of Operations for the Twenty-Four Weeks Ended April 19, 2019 and April 20, 2018
Net
Sales-Consolidated
Net
sales increased by $7,392 (9.3%) to $86,484 in the twenty-four-week period ended April 19, 2019 compared to the same twenty-four-week
period in fiscal year 2018. The changes in net sales were comprised as follows:
Impact on Net Sales-Consolidated
|
|
%
|
|
|
$
|
|
Selling price per pound
|
|
|
2.7
|
|
|
|
2,316
|
|
Unit sales volume in pounds
|
|
|
7.6
|
|
|
|
6,387
|
|
Returns activity
|
|
|
0.0
|
|
|
|
(165
|
)
|
Promotional activity
|
|
|
-1.0
|
|
|
|
(1,146
|
)
|
Increase in net sales
|
|
|
9.3
|
|
|
|
7,392
|
|
Net
Sales-Frozen Food Products Segment
Net
sales in the Frozen Food Products segment increased by $1,817 (8.4%) to $23,418 in the twenty-four-week period ended April
19, 2019 compared to the same twenty-four-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
|
|
|
3.7
|
|
|
|
888
|
|
Unit sales volume in pounds
|
|
|
5.9
|
|
|
|
1,435
|
|
Returns activity
|
|
|
-0.2
|
|
|
|
(52
|
)
|
Promotional activity
|
|
|
-1.0
|
|
|
|
(454
|
)
|
Increase in net sales
|
|
|
8.4
|
|
|
|
1,817
|
|
The
increase in net sales for the twenty-four-week period ended April 19, 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 1% by volume while retail sales volume decreased 10%. Changes in returns were insignificant compared to the
same twelve-week period in the prior fiscal year. Promotional activity increased due to higher bid price reductions, rebates and
menu allowances as a percentage of sales.
Net
Sales-Snack Food Products Segment
Net
sales in the Snack Food Products segment increased by $5,575 (9.7%) to $63,066 in the twenty-four-week period ended April 19,
2019 compared to the same twenty-four-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
|
|
|
2.4
|
|
|
|
1,428
|
|
Unit sales volume in pounds
|
|
|
8.2
|
|
|
|
4,952
|
|
Returns activity
|
|
|
0.0
|
|
|
|
(113
|
)
|
Promotional activity
|
|
|
-0.9
|
|
|
|
(692
|
)
|
Increase in net sales
|
|
|
9.7
|
|
|
|
5,575
|
|
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 twenty-four-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 remained unchanged compared to the same twenty-four-week
period in the 2018 fiscal year.
Cost
of Products Sold and Gross Margin-Consolidated
Cost
of products sold increased by $3,356 (6.3%) to $56,429 in the twenty-four-week period ended April 19, 2019 year compared
to the same twenty-four-week period in fiscal year 2018. The gross margin increased from 32.9% to 34.8% during the 2019
period.
Change in Cost of Products Sold by Segment
|
|
$
|
|
|
%
|
|
|
Commodity $
Decrease
|
|
Frozen Food Products Segment
|
|
|
1,175
|
|
|
|
2.2
|
|
|
|
(36
|
)
|
Snack Food Products Segment
|
|
|
2,181
|
|
|
|
4.1
|
|
|
|
(1,570
|
)
|
Total
|
|
|
3,356
|
|
|
|
6.3
|
|
|
|
(1,606
|
)
|
Cost
of Products Sold-Frozen Food Products Segment
Cost
of products sold in the Frozen Food Products segment increased by $1,175 (8.3%) to $15,314 in the twenty-four-week period
ended April 19, 2019 compared to the same twenty-four-week period in fiscal year 2018. Increased volume and changes
in product mix were the primary contributing factors to this increase. The cost of purchased flour decreased approximately $36
in the twenty-four-week period of fiscal year 2019 compared to the same twenty-four-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 $2,181 (5.6%) to $41,115 in the twenty-four-week period
ended April 19, 2019 compared to the same twenty-four-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 $1,570 in the twenty-four-week period ended April 19, 2019 compared to the same period
in fiscal year 2018.
Selling,
General and Administrative Expenses-Consolidated
Selling,
general and administrative expenses increased by $1,211 (5.2%) to $24,695 in the twenty-four-week period ended April 19, 2019
compared to the same twenty-four-week period in the prior fiscal year. The table below summarizes the significant expense
increases (decreases) included in this category:
|
|
24 Weeks Ended
|
|
|
Expense
|
|
|
|
April 19, 2019
|
|
|
April 20, 2018
|
|
|
Increase (Decrease)
|
|
Wages and bonus
|
|
$
|
11,354
|
|
|
$
|
9,331
|
|
|
$
|
2,023
|
|
Pension expense
|
|
|
139
|
|
|
|
568
|
|
|
|
(429
|
)
|
Repairs and maintenance “SQF” expense
|
|
|
19
|
|
|
|
447
|
|
|
|
(428
|
)
|
Product advertising
|
|
|
3,188
|
|
|
|
2,958
|
|
|
|
230
|
|
Other SG&A
|
|
|
9,995
|
|
|
|
10,180
|
|
|
|
(185
|
)
|
Total - SG&A
|
|
$
|
24,695
|
|
|
$
|
23,484
|
|
|
$
|
1,211
|
|
Higher
profit-sharing accruals resulted in higher wages and bonus expense in the twenty-four weeks ended April 19, 2019 compared
to the same period in the prior year. The decrease in pension costs was due to higher pension discount rates being used to compute
the future liability estimate. Repairs and maintenance expense decreased as the Company geared up its Chicago facility in the
same twenty-four-week period in fiscal year 2018 to comply with Food Safety Certification requirements created and managed
by the SQF Institute. Costs for product advertising increased mainly as a result of higher payments under brand licensing agreements
in the Snack Food Products segment during the twenty-four weeks ended April 19, 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 legal fees and lower bad debt expenses.
Selling,
General and Administrative Expenses-Frozen Food Products Segment
SG&A
expenses in the Frozen Food Products segment increased by $143 (2.1%) to $6,900 in the twenty-four-week period ended April
19, 2019 compared to the same twenty-four-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 $1,068 (6.4%) to $17,795 in the twenty-four-week period ended April
19, 2019 compared to the same twenty-four-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 sales commissions partially offset by
pension expense.
Income
Taxes-Consolidated
Income
tax for the twenty-four-weeks ended April 19, 2019 and April 20, 2018, respectively, was as follows:
|
|
April 19, 2019
|
|
|
April 20, 2018
|
|
Provision for income taxes
|
|
$
|
1,264
|
|
|
$
|
5,530
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate
|
|
|
23.6
|
%
|
|
|
64.8
|
%
|
We
recorded a tax provision of $1,264 for the twenty-four-week period ended April 19, 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 26.4% also due to non-taxable gains and losses on life insurance policies.
Net
Income Consolidated
The
net income of $4,096 in the twenty-four-weeks period ended April 19, 2019 includes a non-taxable gain on life insurance policies
in the amount of $428. The net income of $3,007 in the twenty-four-week period ended April 20, 2018 includes a non-recurring gain
on the sale of real property for $5,977 (before taxes) and a non-taxable gain on life insurance policies in the amount
of $366. 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.
We
recorded a tax provision of $5,530 for the twenty-four-week period ended April 20, 2018, related to federal and state taxes, based
on the Company’s expected annual effective tax rate. The effective tax rate for the second quarter of 2018 reflects impacts
of the Tax Cuts and Jobs Act signed into law on December 22, 2017. These impacts include a $3,200 expense related to the
remeasurement of deferred taxes, as well as a blended 23.07% statutory federal income tax rate for fiscal 2018 compared to the
35% statutory federal income tax rate effective for the prior year. The rate also reflects impact of $1,640 million of expense
related to tax on the gain on sale of a land parcel in Chicago, Illinois discussed in Note 5 - Income Taxes above. Additionally,
the effective income tax rate also differed from the applicable mixed statutory rate of approximately 27.55% due to non- taxable
gains and losses on life insurance policies and domestic production activities deductions under Internal Revenue Code Section 199.
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. We borrowed a second $7,500 subsequent to the end of the
second quarter of fiscal year 2019. 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 twenty-four weeks ended:
|
|
April 19, 2019
|
|
|
April 20, 2018
|
|
Net income
|
|
$
|
4,096
|
|
|
$
|
3,007
|
|
|
|
|
|
|
|
|
|
|
Adjustments to reconcile net income to net cash (used in) provided by operating
activities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
1,945
|
|
|
|
1,835
|
|
Provision for losses on accounts receivable
|
|
|
49
|
|
|
|
152
|
|
(Reduction in) provision for promotional allowances
|
|
|
(316
|
)
|
|
|
140
|
|
Gain on sale of property, plant and equipment
|
|
|
-
|
|
|
|
(6,002
|
)
|
Deferred income taxes, net
|
|
|
-
|
|
|
|
3,200
|
|
Changes in operating working capital
|
|
|
(6,305
|
)
|
|
|
(1,725
|
)
|
Net cash (used in) provided by operating activities
|
|
$
|
(531
|
)
|
|
$
|
607
|
|
For
the twenty-four weeks ended April 19, 2019, net cash provided by operating activities was $1,469, $862 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 $4,096 partially offset by an increase in inventory of $1,179 and a decrease in accounts payable of
$2,187 as well as payments for estimated income taxes of $551. During the twenty-four-week period ended April 19, 2019, we
contributed $300 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
borrowed $2,000 under this line of credit on April 15, 2019, which was repaid on April 25, 2019.
Our
cash conversion cycle (defined as days of inventory and trade receivables less days of trade payables outstanding) was equal to
68 days for the twenty-four-week period ended April 19, 2019. The cash conversion cycle was 55 days for the twenty-four-week
period ended April 20, 2018.
For
the twenty-four weeks ended April 20, 2018, net cash provided by operating activities was $607 primarily due to a net income
of $3,007 and collection of accounts receivable of $2,705 partially offset by estimated income tax payments
of $1,350. During the twenty-four-week period ended April 20, 2018 we funded $601 towards our defined benefit pension plan.
Cash
(used in) provided by investing activities for the twenty-four weeks ended:
|
|
April 19, 2019
|
|
|
April 20, 2018
|
|
Proceeds from sale of property, plant and equipment
|
|
$
|
-
|
|
|
$
|
6,002
|
|
Additions to property, plant and equipment
|
|
|
(14,118
|
)
|
|
|
(4,811
|
)
|
Net cash (used in) provided by investing activities
|
|
$
|
(14,118
|
)
|
|
$
|
1,191
|
|
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 twenty-four weeks ended:
|
|
April 19, 2019
|
|
|
April 20, 2018
|
|
Changes in projects in process
|
|
$
|
13,228
|
|
|
$
|
2,839
|
|
Building improvements
|
|
|
-
|
|
|
|
539
|
|
Direct store delivery and sales vehicles
|
|
|
534
|
|
|
|
624
|
|
Packaging lines
|
|
|
62
|
|
|
|
67
|
|
Computer software and hardware
|
|
|
-
|
|
|
|
-
|
|
Processing equipment
|
|
|
294
|
|
|
|
622
|
|
Forklifts
|
|
|
-
|
|
|
|
120
|
|
Additions to property, plant and equipment
|
|
$
|
14,118
|
|
|
$
|
4,811
|
|
Cash
provided by (used in) financing activities for the twenty-four weeks ended:
|
|
April 19, 2019
|
|
|
April 20, 2018
|
|
Payment of capital lease obligations
|
|
|
-
|
|
|
|
(70
|
)
|
Proceeds from bank borrowings
|
|
|
9,500
|
|
|
|
-
|
|
Payments of bank borrowings
|
|
|
(232
|
)
|
|
|
-
|
|
Net cash provided by (used in) financing activities
|
|
$
|
9,268
|
|
|
$
|
(70
|
)
|
Our
stock repurchase program was approved by our 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 our Board of Directors, to purchase up
to an aggregate of 2,000,000 shares of our common stock on the open market. As of April 19, 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 $5,000. The Company was in violation of the capital
expenditure covenant which was subsequently waived (per letter dated May 24, 2019).
The Company borrowed
$2,000 under this line of credit on April 15, 2019, which was repaid of April 25, 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 April 19, 2019.
Refer
to “Subsequent events” section above for further detail on borrowings after April 19, 2019 under the master
collateral loan and security agreement with Wells Fargo Bank, N.A.
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 (e), Notes to the Condensed Consolidated Financial Statements, Note 14: Segment Information.
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” 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.