BRIDGFORD FOODS CORPORATION CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements included within in this Report, and the information and
documents incorporated by reference with this Report, constitute
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933, as amended (the "Securities Act"), and Section 21E of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). These
forward-looking statements are intended to qualify for the safe harbor from
liability established by the Private Securities Litigation Reform Act of 1995.
All statements other than statements of historical fact included in this Report
or incorporated by reference into this Report are forward-looking statements.
These statements include, among other things, any predictions of earnings,
revenues, expenses or other financial items; plans or expectations with respect
to our business strategy; statements concerning industry trends; statements
regarding anticipated demand for our products, or the products of our
competitors; statements relating to manufacturing forecasts; statements relating
to forecasts of our liquidity position or available cash resources; statements
regarding the anticipated impact of the global novel coronavirus ("COVID-19")
pandemic; statements regarding operational challenges, including as a result of
global supply chain disruptions and labor shortages; statements regarding
inflationary pressures and the resulting impact on our results of operations;
statements regarding new regulations related to federal income tax and the
impact on our financial statements and cash flow; statements regarding the
impact of the adoption of recent accounting pronouncements on our business; and
statements relating to the assumptions underlying any of the foregoing.
Throughout this Report, we have attempted to identify forward-looking statements
by using words such as "may," "believe," "will," "could," "project,"
"anticipate," "expect," "estimate," "should," "continue," "potential," "plan,"
"forecasts," "goal," "seek," "intend," other forms of these words or similar
words or expressions or the negative thereof (although not all forward-looking
statements contain these words).
Such forward-looking statements involve known and unknown risks, uncertainties,
and other factors which may cause our actual results, performance, or
achievements 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 the COVID-19 pandemic on our production facilities,
supply chain, consumer demand, and cost of products sold, the impact of
competitive products and pricing; macroeconomic conditions, including global
financial pressures, inflation, market volatility, and recessionary concerns;
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 as well as in our other
filings with the Securities and Exchange Commission (the "SEC"). In addition,
actual results may differ as a result of additional risks and uncertainties of
which we are currently unaware or which we do not currently view as material to
our business. We have based our forward-looking statements on our current
expectations and projections about trends affecting our business and industry
and other future events. Although we do not make forward-looking statements
unless we believe we have a reasonable basis for doing so, we cannot guarantee
their accuracy. 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 October 28, 2022 (the "Annual Report") as
well as our other filings with the SEC with the understanding that our future
results may be materially different from what we currently expect. The
forward-looking statements we make speak only as of the date on which they are
made. We expressly disclaim any intent or obligation to update any
forward-looking statements after the date hereof to conform such statements to
actual results or to changes in our opinions or expectations. If we do update or
correct any forward-looking statements, readers should not conclude that we will
make additional updates or corrections.
COVID-19
We are continuing to monitor and respond to the evolving nature of state and local government actions related to the COVID-19 pandemic and its impact on each of our production plant locations and our customer base. We coordinate with our local managers for the primary purpose of maintaining the health and safety of our team members, ensuring our ability to operate our processing facilities, and maintaining the liquidity of our business. We continue to experience minor challenges related to the pandemic. These challenges may continue to increase our operating costs and negatively impact our sales volumes. The health and safety of our team members is our top priority. To protect our team members, as needed, we have implemented safety measures recommended by theCenters for Disease Control and Prevention and theOccupational Safety and Health Administration in our facilities and have implemented social distancing, temperature checks of team members, increased efforts to deep clean and sanitize facilities, the use of protective face coverings in certain environments, and making protective face coverings and other protective equipment available to team members. The long-term impacts of COVID-19 are unknown and dependent upon future developments including the duration and spread of the pandemic, COVID-19 variants and resurgences as well as actions taken by federal, state and local government officials. 14 of 25
Critical Accounting Policies and Management Estimates
The preparation of our Condensed Consolidated Financial Statements in conformity with generally accepted accounting principles inthe 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 ofBridgford Foods Corporation is measured annually and based on the Citigroup Pension Discount Rate. The Citigroup Pension Discount Rate as ofJanuary 31, 2023 , was 4.69% as compared to 5.51% as ofOctober 28, 2022 . 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 couple of 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.
Customer Concentration > 20% of AR or >10% of Sales
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 20, 2023 , and January 21, 2022 , respectively.
Walmart (1) Dollar General
Sales AR Sales AR
January 20, 2023 30.8 % 35.2 % 13.0 % 24.0 %
January 21, 2022 32.1 % 5.4 % 15.8 % 40.6 %
(1) Walmart AR represented a higher percentage of consolidated AR as of January
20, 2023, due to terminating the accelerated payments on outstanding accounts
receivable on
Revenues are recognized in accordance with ASC 606 - Revenue from 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 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.
15 of 25 We are subject to the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act (collectively, the "PPACA"). 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. The PPACA law also includes a potential excise tax on the value of benefits that exceed a pre-defined limit. Fortunately, this potential tax has been indefinitely deferred and we do not see significant financial exposure. 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. We believe that the current administration seems more likely to enhance the scope and coverage associated with PPACA than to repeal or significantly change this law. The recent legislative packages related to pandemic relief included some minor provisions that will impact health benefits in the future. These changes most prominently focus on the impact of surprise balance bills from out-of-network providers. Our heath care plans as they exist in 2023 are complaint with all applicable regulations that exist currently. As we look to the future, we anticipate that future legislative action will impact the plans offered to active and retired participants. As we have done in the past, our executive team will continue to assess the accounting implications of the PPACA and potential future legislation to determine the impact on our financial position and results of operations. The potential future effects and cost of complying with the legislative changes is not determinable currently.
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 - Segment Information 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 coversthe 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. We leverage relationships with regional sales managers, and we maintain a network of independent food service and retail brokers covering most ofthe 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 170 different items through a direct store delivery network and customer-owned distribution centers serving approximately 19,000 supermarkets, mass merchandise and convenience retail stores located in 49 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. 16 of 25
Results of Operations for the Twelve Weeks Ended
Net Sales-Consolidated Net sales decreased by$2,464 (3.8%) to$61,622 in the first twelve-week period of the 2023 fiscal year compared to the same twelve-week period in fiscal year 2022. The changes in net sales were comprised as follows: Impact on Net Sales-Consolidated % $ Selling price per pound 3.0 2,019 Unit sales volume in pounds -5.0 (3,360 ) Returns activity -1.4 (840 ) Promotional activity -0.4 (283 ) Decrease in net sales -3.8 (2,464 )
Net Sales-Frozen Food Products Segment
Net sales in the Frozen Food Products segment increased by$2,033 (16.4%) to$14,399 in the first twelve-week period of the 2023 fiscal year compared to the same twelve-week period in fiscal year 2022. The changes in net sales were comprised as follows: Impact on Net Sales-Frozen Food Products % $ Selling price per pound 7.4 1,035 Unit sales volume in pounds 9.9 1,379 Returns activity -0.1 (13 ) Promotional activity -0.8 (368 ) Increase in net sales 16.4 2,033 The increase in net sales for the twelve-week period endedJanuary 20, 2023 , primarily relates to higher unit sales volume in pounds and to a lesser extent higher selling prices per pound implemented duringJuly 2021 andMay 2022 . Other institutional Frozen Food Products dollar sales, including sheet dough and rolls, increased 20% and retail dollar sales volume increased by 10%. Returns activity increased compared to the same twelve-week period in the 2022 fiscal year. Promotional activity was higher as a percentage of sales.
Net Sales-Snack Food Products Segment
Net sales in the Snack Food Products segment decreased by
Impact on Net Sales-Snack Food Products % $ Selling price per pound 1.8 985 Unit sales volume in pounds -8.8 (4,740 ) Returns activity -1.7 (828 ) Promotional activity 0.0 86 Decrease in net sales -8.7 (4,497 ) Net sales of Snack Food Products decreased due to lower unit sales volume in pounds through our direct store delivery distribution channel and was partially offset by higher selling prices per pound during the first quarter of fiscal year 2023. We believe demand decreased primarily due to inflationary pressures on consumer spending habits. The weighted average selling price per pound increased compared to the same twelve-week period in the prior fiscal year due to changes in product mix. Returns activity was higher compared to the same twelve-week period in the 2022 fiscal year. Promotional offers remained the same as a percentage of sales.
Cost of Products Sold and Gross Margin-Consolidated
Cost of products sold decreased by
Commodity $
Increase
Change in Cost of Products Sold by Segment $ %
(Decrease) Frozen Food Products Segment 1,893 4.0 139 Snack Food Products Segment (5,030 ) -10.6 (4,307 ) Total (3,137 ) -6.6 (4,168 ) 17 of 25
Cost of Products Sold-Frozen Food Products Segment
Cost of products sold in the Frozen Food Products segment increased by$1,893 (21.4%) to$10,744 in the first twelve-week period of the 2023 fiscal year compared to the same twelve-week period in fiscal year 2022. The cost of purchased flour increased approximately$139 in the first twelve-week period of fiscal year 2023 compared to the same twelve-week period in fiscal year 2022. Increased unit sales volume in pounds and gross overhead including hourly wages and benefits has increased as a result of continued upward pressures on wages as a result of inflation. In our Frozen Food Products segment, the volume increases in foodservice were not enough to mitigate an increase in overhead per case of product.
Cost of Products Sold-Snack Food Products Segment
Cost of products sold in the Snack Food Products segment decreased by$5,030 (12.9%) to$33,812 in the first twelve-week period of the 2023 fiscal year compared to the same twelve-week period in fiscal year 2022 due to lower cost for production materials and lower sales volume in our direct store delivery distribution channel. The cost of significant meat commodities decreased approximately$4,306 in the first twelve-week period of fiscal year 2023 compared to the same period in fiscal year 2022. We increased our net realizable value reserve of$5 during the twelve weeks endedJanuary 20, 2023 , to recognize inventory sold through on products already reserved in inventory as of year-endOctober 28, 2022 . We maintain a net realizable reserve of$137 on products as ofJanuary 20, 2023 , after determining that the market value on some meat products could not cover the costs associated with completion and sale of the product.
Selling, General and Administrative Expenses-Consolidated
Selling, general and administrative expenses ("SG&A") increased by $1,063 (7.2%)
to $15,794 in the first twelve-week period of fiscal year 2023 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 20, 2023 January 21, 2022 Increase (Decrease)
Provision for bad debt $ 307 $ (81 ) $ 388
Outside storage 353 121 232
Wages and bonus 6,782 6,598 184
Pension expense 36 190 (154 )
Other SG&A 8,316 7,903 413
Total - SG&A $ 15,794 $ 14,731 $ 1,063
The increase in the provision for bad debt expense was mainly the result of estimated losses on older balances. Outside storage increased primarily as a result of the need for additional warehouse capacity to store product. Higher sales commissions resulted in higher wages and bonus expenses in the first twelve weeks of the 2023 fiscal year compared to the same period in the prior year. The decrease in pension expense was a result of an increase in pension plan assets caused by performance of the underlying markets that support them as well as higher pension discount rates resulting in lower liabilities. 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 product advertising, workers' compensation cost, healthcare expense and insurance expense.
Selling, General and Administrative Expenses-Frozen Food Products Segment
SG&A expenses in the Frozen Food Products segment increased by$558 (18.1%) to$3,644 in the first twelve-week period of fiscal year 2023 compared to the same twelve-week period in the prior fiscal year. The overall increase in SG&A expenses was due to higher wages and bonuses, provision for bad debt and product advertising.
Selling, General and Administrative Expenses-Snack Food Products Segment
SG&A expenses in the Snack Food Products segment increased by$505 (4.3%) to$12,150 in the first twelve-week period of fiscal year 2023 compared to the same twelve-week period in the prior fiscal year. Most of the increase was due to higher wages and bonuses, provision for bad debt, workers' compensation and product advertising, partially offset by decreased fees paid under brand licensing agreements.
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