We have audited the accompanying consolidated
balance sheets of Bridgford Foods Corporation and its subsidiaries (the “Company”) as of October 29, 2021 and October 30,
2020, the related consolidated statements of operations, comprehensive income, shareholders’ equity and cash flows for each of
the years then ended, and the related notes (collectively referred to as the “consolidated financial statements”). In our
opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of
October 29, 2021 and October 30, 2020, and the results of its operations and its cash flows for each of the years then ended, in conformity
with accounting principles generally accepted in the United States of America.
These consolidated financial statements are the
responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial
statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (“PCAOB”)
and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the
standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have,
nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to
obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness
of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess
the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures
that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the
consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made
by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide
a reasonable basis for our opinion.
The critical audit matter communicated below is
a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated
to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and
(2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter
in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit
matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.
As described in Note 1 to the consolidated financial
statements, contracts with customers often include some form of variable consideration in the form of discounts, trade allowances, consumer
incentives, coupons, volume-based incentives, cooperative advertising, product returns and other such programs. Promotional allowances
are treated as a reduction in revenue when the related revenue is recognized, and are recorded at the net estimated to be received, with
updates to estimates and related accruals of promotional allowances occurring each period based on historical experience and changes
in circumstances.
We identified the estimation of reserves for promotional
allowances by management as a critical audit matter because the inputs and assumptions utilized by management in estimating these reserves,
including consistency of historical data and contract pricing, require significant judgment and create a high degree of estimation uncertainty.
Consequently, auditing these assumptions requires subjective auditor judgment.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(in
thousands except share and per share amounts, time periods, ratios and percentages)
NOTE
1 - The Company and Summary of Significant Accounting Policies:
Bridgford
Foods Corporation was organized in 1952. We originally began operations in 1932 as a retail meat market in San Diego, California and
evolved into a meat wholesaler for hotels and restaurants, a distributor of frozen food products, a processor and packer of meat, and
a manufacturer and distributor of frozen food products for sale on a retail and wholesale basis. We, including our subsidiaries, are
primarily engaged in the manufacturing, marketing, and distribution of an extensive line of frozen, refrigerated, and snack food products
throughout the United States.
The
consolidated financial statements include the accounts of the Company and its subsidiaries, all of which are wholly owned. All inter-company
transactions and balances have been eliminated.
Liquidity
For the fifty-two weeks ended October 29, 2021,
we used $5,992 in operating cash flows. As of that date, we had approximately $44,638 of net working capital and $3,000 available under
our revolving line of credit. On December 1, 2021, we expanded the revolving line of credit to $25,000 until June 15, 2022, upon which
the credit limit will return to $15,000. Commodity price volatility or increases could adversely impact our business, financial condition
including liquidity, and results of operations. Despite higher commodity costs, we may not be able to increase our product prices in
a timely manner or sufficiently to offset increased commodity costs due to consumer price sensitivity, pricing in relation to competitors
and the reluctance of retailers to accept the price increase. Higher product prices could potentially lower demand for our product and
decrease volume. As of October 29, 2021, we have $1,065 of current debt on equipment loans. We entered into a bridge loan
on August 30, 2021, for up to $25,000 which we plan to use to pay off the existing equipment loans as they come out of the lock out period
and may be prepaid. As of October 29, 2021, we paid off $10,328 in equipment loans utilizing proceeds from the new bridge loan.
Combined with the cash expected to be generated
from the Company’s operations, proceeds from the pending sale of a parcel of land and buildings located at 170 N. Green Street,
in Chicago, Illinois related to the contracted gross purchase price of $60,000, income tax refunds of $6,156, receivable on life insurance
of $2,205 partially offset by payment on deferral of social security taxes, we anticipate that we will maintain sufficient liquidity
to operate our business for a reasonable period of time. We will continue
to monitor the impact of COVID-19 on our liquidity and, if necessary, take action to preserve liquidity and ensure that our business
can operate during these uncertain times.
Management believes there
are various options available to generate additional liquidity to repay debt or fund operations such as the mortgaging real estate, should
that be necessary. Our ability to increase liquidity will depend upon, among other things, our business plans, performance of operating
divisions, economic conditions of capital markets, or circumstances related to the COVID-19 global pandemic. If we are unable to increase
liquidity through mortgaging real estate, or generate positive cash flow necessary to fund operations, we may not be able to compete
successfully, which could negatively impact our business, operations, and financial condition. Based on the current facts and circumstances,
the additional financial flexibility provided by the expanded line of credit and bridge loan facilities, the Company believes it is probable
it can effectively manage liquidity in order to maintain compliance with the financial covenants going forward. The Company has concluded
that it is probable that the Company will have sufficient liquidity to meet its obligations within one year after the issuance date of
the Consolidated Financial Statements.
Use
of estimates and assumptions
The
preparation of financial statements in conformity with generally accepted accounting principles 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, as well as the reported revenues and expenses during the respective reporting periods. Actual results
could differ from those estimates. Amounts estimated related to liabilities for pension benefits, self-insured workers’ compensation
and employee healthcare benefits are subject to inherent uncertainties and these estimated liabilities may ultimately settle at amounts
which may vary from current estimates. Other areas with underlying estimates include realization of deferred tax assets, cash surrender
or contract value of life insurance policies, promotional allowances and the allowance for doubtful accounts and inventory reserves.
Management believes its current estimates are reasonable and based on the best information available at the time.
We
test long-lived assets for recoverability whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.
If an impairment is indicated, we measure the fair value of assets to determine if and when adjustments are recorded.
Subsequent
events
Management
has evaluated events subsequent to October 29, 2021 through the date the accompanying consolidated financial statements were filed with
the Securities and Exchange Commission for transactions and other events that may require adjustment of and/or disclosure in such financial
statements.
The
Company maintains a line of credit with Wells Fargo Bank, N.A. that extends through March 1, 2022 (extended to March 1, 2023, per expanded
line of credit signed December 1, 2021). As of October 29, 2021, under the terms of this line of credit, we may borrow up to $15,000
at an interest rate equal to the bank’s prime rate or LIBOR plus 2.0%. The line of credit has an unused commitment fee of 0.25%
of the available loan amount. We borrowed $2,000 under this line of credit on December 2, 2020, $2,000 on April 27, 2021, $2,000 on July
1, 2021, $3,000 on July 19, 2021 and $3,000 on October 15, 2021, for a combined total of $12,000. The line of credit is presented under
non-current liabilities in the Consolidated Balance Sheets.
On
December 1, 2021, Wells Fargo Bank, N.A. expanded our line of credit to $25,000
through June
15, 2022 and upon which the credit limit will
return to $15,000
for the balance of the term. Under the terms
of this expanded line of credit, we may borrow up to $25,000
at an interest rate equal to the bank’s
prime rate or SOFR plus 2.0%.
Under the amended line of credit, the benchmark interest rate of LIBOR has been transitioned to SOFR which could impact the cost of credit
and alter the value of debt and loans. We borrowed an additional $2,000
on November 1, 2021, $2,000
on December 16, 2021 and $2,000 on January
24, 2022.
We
entered into a bridge loan on August 30, 2021, for up to $25,000 which we plan to use to pay off the existing equipment loans as they
come out of lock out. As of October 29, 2021, we paid off $10,328 in equipment loans utilizing proceeds from the new bridge loan. On
January 12, 2022, we paid off $2,778 in equipment loans (equipment loans 3.70%) utilizing proceeds from the new bridge loan.
Based
on management’s review, no other material subsequent events were identified that require adjustment to the financial statements
or additional disclosure.
Accounts
Receivable
Accounts
receivables are recorded at net realizable value. The value is presented net of allowance for doubtful accounts and promotional incentives.
Our accounts receivable consists mainly of trade receivables from customer sales. We evaluate the collectability of our accounts receivable
based on several factors. The provision for doubtful accounts receivable is based on historical trends and current collectability risk.
Our provision for doubtful accounts was $127 and $16 as of October 29, 2021, and October 30, 2020, respectively.
Concentrations
of credit risk
Our
credit risk is diversified across a broad range of customers and geographic regions. Losses due to credit risk have recently been immaterial.
The carrying amount of cash equivalents, accounts and other receivables, accounts payable and accrued liabilities approximate fair market
value due to the short maturity of these instruments. We maintain cash balances at financial institutions, which may at times exceed
the amounts insured by the Federal Deposit Insurance Corporation. Management does not believe there is significant credit risk associated
with these financial institutions.
Sales
to Wal-Mart® comprised 35.7% of revenues in fiscal year 2021 and 5.5% of total accounts receivable was due from Wal-Mart® as
of October 29, 2021. Sales to Wal-Mart® comprised 36.9% of revenues in fiscal year 2020 and 19.8% of total accounts receivable was
due from Wal-Mart® as of October 30, 2020. Sales to Dollar General® comprised 14.5% of revenues in fiscal year 2021 and 35.9%
of total accounts receivable was due from Dollar General® as of October 29, 2021. Sales to Dollar General® comprised 13.6% of
revenues in fiscal year 2020 and 31.1% of total accounts receivable was due from Dollar General® as of October 30, 2020.
COVID-19
pandemic
We
have considered the impact of federal, state, and local government actions related to the global novel coronavirus pandemic (“COVID-19”
or “pandemic”) on our consolidated financial statements. The business disruptions associated with the pandemic had a significant
negative impact on our consolidated financial statements for the fifty-two-week period ended October 29, 2021. We expect these events
to have future business impact, the extent of which is uncertain and largely subject to whether the severity worsens. These impacts could
include but may not be limited to risks and uncertainty related to shifts in demand between sales channels, market volatility, constraints
in our supply chain, our ability to operate production facilities and worker availability. These unknowns may subject the Company to
future risks related to long-lived asset impairments, increased reserves for uncollectible accounts, price and availability of ingredients
and raw materials used in our products and adjustments to reflect the market value of our inventory.
Business
segments
The
Company and subsidiaries operate in two business segments - the processing and distribution of frozen foods products, and the processing
and distribution of snack food products. See Note 7 for further information.
Fiscal
year
We
maintain our accounting records on a 52-53-week fiscal basis ending on the Friday closest to October 31. As part of the regular accounting
cycle, fiscal years 2021 and 2020 included 52 weeks.
Revenues
The
Company recognizes 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, pickup or delivery to a customer based on terms
of the sale. Contracts with customers are typically short-term in nature with completion of a single performance obligation. Product
is sold to foodservice, retail, institutional and other distribution channels. Products are delivered to customers primarily through
our own long-haul fleet, common carrier or through a Company owned direct store delivery system. These delivery costs, $5,299 and $4,537
for fiscal years 2021 and 2020, respectively, are included in selling, general and administrative expenses in the accompanying consolidated
financial statements. Shipping and handling that occurs after the customer has obtained control of the product is recorded as a fulfillment
cost rather than an additional assured service. Costs paid to third party brokers to obtain contracts are recognized as part of selling
expenses. Other sundry items in context of the contract are also recognized as selling expense. Any taxes collected on behalf of the
government are excluded from net revenue.
We
record revenue at the transaction price which is measured as the amount of consideration we anticipate to receive in exchange for providing
product to our customers. Revenue is recognized as the net amount estimated to be received after deducting estimated or known amounts
including variable consideration for discounts, trade allowances, consumer incentives, coupons, volume-based incentives, cooperative
advertising, product returns and other such programs. Promotional allowances, including customer incentive and trade promotion activities,
are recorded as a reduction to sales based on amounts estimated being due to customers, based primarily on historical utilization and
redemption rates. Estimates are reviewed regularly until incentives or product returns are realized and the result of any such adjustments
are known. Promotional allowances deducted from sales for fiscal years 2021 and 2020 were $12,787 and $11,418, respectively.
Advertising
expenses
Advertising
and other promotional expenses are recorded as selling, general and administrative expenses. Advertising expenses for fiscal years 2021
and 2020 were $2,340 and $2,246, respectively.
Cash
and cash equivalents
We
consider all investments with original maturities of three months or less to be cash equivalents. Cash equivalents include money
market funds and treasury bills. Cash equivalents totaled $4,302 as
of October 30, 2020. All cash and cash equivalents balances as of October 29, 2021, were held at Wells Fargo Bank N.A. As of
October 29, 2021, the Company had a book overdraft of $469.
The book overdraft is recorded as a liability in accounts payable on the Consolidated Balance Sheet.
Restricted
cash
Proceeds
from deposits in escrow of $375 as of October 29, 2021, relate to the pending sale of a parcel of land including an approximate 156,000
square foot four-story industrial food processing building located at 170 N. Green Street in Chicago, Illinois.
Fair
value measurements
We
classify levels of inputs to measure the fair value of financial assets as follows:
|
●
|
Level
1 inputs: Level 1 inputs are quoted market prices in active markets for identical assets or liabilities that are accessible at the
measurement date.
|
|
|
|
|
●
|
Level
2 inputs: Level 2 inputs are from other than quoted market prices included in Level 1 that are observable for the asset or liability,
either directly or indirectly.
|
|
|
|
|
●
|
Level
3 inputs: Level 3 inputs are unobservable and should be used to measure fair value to the extent that observable inputs are not available.
|
The
hierarchy noted above requires us to minimize the use of unobservable inputs and to use observable market data, if available, when determining
fair value.
The
Company does not have any assets or liabilities measured at fair value on a recurring or non-recurring basis for the fiscal years ended
October 29, 2021, and October 30, 2020 except for pension plan investments.
Inventories
Inventories
are valued at the lower of cost (which approximates actual cost on a first-in, first-out basis) or net realizable value. Inventories
include the cost of raw materials, labor, and manufacturing overhead. We regularly review inventory quantities on hand and write down
any excess or obsolete inventories to 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 must be sold
at reduced prices and could result in additional reserve provisions. A net realizable value reserve of $2,353
was recorded during the 2021 fiscal year
after determining that the market value on some meat products was less than the costs associated with completion and sale of the product.
Property,
plant, and equipment
Property,
plant, and equipment are carried at cost less accumulated depreciation. Major renewals and improvements are charged to the asset accounts
while the cost of maintenance and repairs is charged to expense as incurred. When assets are sold or otherwise disposed of, the cost
and accumulated depreciation are removed from the respective accounts and the resulting gain or loss is credited or charged to income.
Depreciation is computed on a straight-line basis over 10 to 20 years for buildings and improvements, 5 to 10 years for machinery and
equipment, and 3 to 5 years for transportation equipment. We built a processing plant from the ground up and as such have attributed
long useful lives accordingly to these types of assets employed at the new facility in Chicago. The Company incurred interest costs of
$1,214 for fiscal year 2021, all of which was recorded as interest expense in relation to the construction of the new facility in Chicago.
Leases
Leases
are recognized in accordance with Accounting Standards Update (“ASU”) 2016-02 Leases (“ASC 842”) which
requires a lessee to recognize assets and liabilities with lease terms of more than 12 months. We lease or rent property for such operations
as storing inventory and equipment. We analyze our agreements to evaluate whether or not a lease exists by determining what assets exist
for which we control usage for a period of time in exchange for consideration. In the event a lease exists, we classify it as a finance
or operating lease and record a right-of-use (“ROU”) asset and the corresponding lease liability at the inception of the
lease. In the case of month-to-month lease or rental agreements with terms of 12 months or less, we made an accounting policy election
to not recognize lease assets and liabilities and record them on a straight-line basis over the lease term. The storage units rented
on a month-to-month basis for use by our Snack Food Product segment direct store delivery route system are not costly to relocate and
contain no significant leasehold improvements or degree of integration over leased assets. Orders can be fulfilled by another route storage
unit interchangeably. No specialized assets exist in the rental storage units. Market price is paid for storage units. No guarantee of
debt is made.
Finance
lease assets are recorded within property, plant and equipment, net of accumulated depreciation and amortization. The Company’s
leases of long-haul trucks used in its Frozen Food Products segment qualify as finance leases. Finance lease liabilities are recorded
under other liabilities the consolidated balance sheets reflecting both the current and long-term obligation. The classification as a
finance or operating lease determines whether the recognition, measurement and presentation of expenses and cash flows are considered
operating or financing.
Life
insurance policies
We
record the cash surrender value 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. The cash surrender value is included in other non-current assets in the
accompanying Consolidated Balance Sheets. Expected proceeds from life insurance recorded under prepaid expenses and other current assets
(refer to Note 2 – Composition of Certain Financial Statement Captions).
Income
taxes
Deferred
taxes are provided for items whose financial and tax bases differ. A valuation allowance is provided against deferred tax assets when
it is expected that it is more likely than not that the related asset will not be fully realized. The determination as to whether or
not a deferred tax asset can be fully realized is subject to a significant degree of judgment, based at least partially upon a projection
of future taxable income, which takes into consideration past and future trends in profitability, customer demand, supply costs, and
multiple other factors, which are inherently difficult to predict.
We
provide tax accruals for federal, state, and local exposures relating to audit results, tax planning initiatives and compliance responsibilities.
The development of these accruals requires judgments about tax issues, potential outcomes, and timing. (See Note 4 for further information).
Although the outcome of these tax audits is uncertain, in management’s opinion adequate provisions for income taxes have been made
for potential liabilities emanating from these reviews. If actual outcomes differ materially from these estimates, they could have a
material impact on our results of operations.
Stock-based
compensation
We
measure and recognize compensation expense for all share-based payments to employees, including grants of employee stock options, in
the financial statements based on the fair value at the date of the grant. We have not issued, awarded, granted, or entered into any
stock-based payment agreements since April 29, 1999, and no such expense was recognized in fiscal years 2021 and 2020.
Comprehensive
income or loss
Comprehensive
income or loss consists of net income and additional minimum pension liability adjustments.
Recently
issued accounting pronouncements and regulations
In
February 2016, the FASB issued ASU 2016-02, “Leases”, which requires a lessee to recognize assets and liabilities with lease
terms of more than 12 months. Both capital and operating leases are to be recognized on the balance sheet. The guidance is effective
for annual reporting periods beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15,
2019 which is our first quarter of fiscal 2020. We have analyzed all lease transactions during fiscal year 2020 and 2021 to date. The
Company elected not to reassess expired contracts or adjust comparative periods. The Company determined that no change to current accounting
treatment is warranted for most transactions due to the underlying nature of our leases. In the case of month-to-month lease or rental
agreements with terms of 12 months or less, the Company made an accounting policy election to not recognize lease assets and liabilities.
The Company performed a detailed analysis and determined that the only significant indication of a long-term lease was its lease with
Hogshed Ventures, LLC. The accounting treatment of this lease for warehouse storage included establishing a right-of-use asset and corresponding
liability was recorded for the Company’s lease with Hogshed Ventures, LLC for property located at 40th Street in Chicago during
the fourth quarter of fiscal 2020. The application of this pronouncement resulted in additional disclosures detailing our lease arrangements.
The Company adopted this guidance during the first quarter of fiscal 2020 and it did not have a material impact on our consolidated financial
statements.
NOTE
2 - Composition of Certain Financial Statement Captions:
Schedule of Composition of Certain Financial Statement
|
|
|
2021
|
|
|
2020
|
|
|
Inventories, net:
|
|
|
|
|
|
|
|
|
|
Meat, ingredients, and supplies
|
|
$
|
7,278
|
|
|
$
|
6,439
|
|
|
Work in process
|
|
|
2,911
|
|
|
|
1,860
|
|
|
Finished goods
|
|
|
26,582
|
|
|
|
20,997
|
|
|
Inventories, net
|
|
$
|
36,771
|
|
|
$
|
29,296
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid expenses and other current assets
|
|
|
|
|
|
|
|
|
|
Receivable on life insurance
|
|
$
|
2,205
|
|
|
$
|
-
|
|
|
Prepaid insurance
|
|
|
97
|
|
|
|
100
|
|
|
Prepaid other
|
|
|
269
|
|
|
|
592
|
|
|
Prepaid expense current
|
|
$
|
2,571
|
|
|
$
|
692
|
|
|
Property, plant and equipment, net:
|
|
|
|
|
|
|
|
|
|
Land
|
|
$
|
3,908
|
|
|
$
|
3,908
|
|
|
Buildings and improvements
|
|
|
26,134
|
|
|
|
27,518
|
|
|
Machinery and equipment
|
|
|
96,352
|
|
|
|
88,785
|
|
|
Asset impairment
|
|
|
(46
|
)
|
|
|
-
|
|
|
Capital leased trucks
|
|
|
513
|
|
|
|
513
|
|
|
Transportation equipment
|
|
|
9,368
|
|
|
|
8,846
|
|
|
Right of use assets
|
|
|
615
|
|
|
|
1,090
|
|
|
Construction in process
|
|
|
569
|
|
|
|
1,358
|
|
|
Property, plant and equipment,
gross
|
|
|
137,413
|
|
|
|
132,018
|
|
|
Accumulated depreciation and amortization
|
|
|
(64,527
|
)
|
|
|
(58,686
|
)
|
|
Property, plant and equipment,
net
|
|
$
|
72,886
|
|
|
$
|
73,332
|
|
|
|
|
|
|
|
|
|
|
|
|
Other non-current assets:
|
|
|
|
|
|
|
|
|
|
Cash surrender value benefits
|
|
$
|
13,641
|
|
|
$
|
13,195
|
|
|
Other
|
|
|
6
|
|
|
|
6
|
|
|
Other non-current assets
|
|
$
|
13,647
|
|
|
$
|
13,201
|
|
|
Accrued payroll, advertising, and other expenses:
|
|
|
|
|
|
|
|
|
|
Payroll, vacation, payroll taxes and employee benefits
|
|
$
|
4,877
|
|
|
$
|
4,287
|
|
|
Accrued advertising and broker commissions
|
|
|
1,258
|
|
|
|
863
|
|
|
Property taxes
|
|
|
576
|
|
|
|
566
|
|
|
Other
|
|
|
179
|
|
|
|
265
|
|
|
Accrued payroll, advertising,
and other expenses
|
|
$
|
6,890
|
|
|
$
|
5,981
|
|
|
|
|
|
|
|
|
|
|
|
|
Other current portion of non-current liabilities (Notes 3 and 6):
|
|
|
|
|
|
|
|
|
|
Executive retirement plans
|
|
$
|
133
|
|
|
$
|
163
|
|
|
Incentive compensation
|
|
|
2,027
|
|
|
|
3,074
|
|
|
Capital lease obligation
|
|
|
158
|
|
|
|
144
|
|
|
Escrow and customer deposits
|
|
|
1,676
|
|
|
|
1,360
|
|
|
Right-of-use leases
|
|
|
367
|
|
|
|
372
|
|
|
Deferred payroll taxes current
|
|
|
756
|
|
|
|
-
|
|
|
Postretirement healthcare benefits
|
|
|
61
|
|
|
|
83
|
|
|
Other current portion of
non-current liabilities
|
|
$
|
5,178
|
|
|
$
|
5,196
|
|
|
|
|
|
|
|
|
|
|
|
|
Other non-current liabilities (Note 3):
|
|
|
|
|
|
|
|
|
|
Defined benefit retirement plan
|
|
$
|
7,587
|
|
|
$
|
18,678
|
|
|
Executive retirement plans
|
|
|
6,259
|
|
|
|
6,380
|
|
|
Incentive compensation
|
|
|
1,124
|
|
|
|
2,996
|
|
|
Capital lease obligation
|
|
|
212
|
|
|
|
289
|
|
|
Right-of-use leases
|
|
|
248
|
|
|
|
719
|
|
|
Deferred payroll taxes non-current
|
|
|
756
|
|
|
|
1,103
|
|
|
Postretirement healthcare benefits
|
|
|
603
|
|
|
|
639
|
|
|
Other non-current liabilities
|
|
$
|
16,789
|
|
|
$
|
30,804
|
|
NOTE
3 - Retirement and Other Benefit Plans:
Noncontributory-Trusteed
Defined Benefit Retirement Plans for Sales, Administrative, Supervisory and Certain Other Employees
We
have noncontributory-trusteed defined benefit retirement plans for sales, administrative, supervisory, and certain other employees. In
the third quarter of fiscal year 2006, we froze future benefit accruals under these plans for employees classified within the administrative,
sales or supervisory job classifications or within any non-bargaining class. The benefits under these plans are primarily based on years
of service and compensation levels. The funding policy of the plans requires contributions which are at least equal to the minimum required
contributions needed to avoid a funding deficiency. The measurement date for the plans is our fiscal year end.
Net
pension cost consisted of the following:
Schedule of Net Pension Cost
|
|
|
October 29, 2021
|
|
|
October 30, 2020
|
|
|
|
|
(52 Weeks)
|
|
|
(52 Weeks)
|
|
|
Service cost
|
|
$
|
134
|
|
|
$
|
127
|
|
|
Interest cost
|
|
|
1,742
|
|
|
|
2,025
|
|
|
Expected return on plan assets
|
|
|
(3,697
|
)
|
|
|
(3,688
|
)
|
|
Amortization of unrecognized loss
|
|
|
2,722
|
|
|
|
2,163
|
|
|
Net pension cost
|
|
$
|
901
|
|
|
$
|
627
|
|
Net
pension costs and benefit obligations are determined using assumptions as of the beginning of each fiscal year.
Weighted
average assumptions for each fiscal year are as follows:
Schedule of Assumptions Used
|
|
|
2021
|
|
|
2020
|
|
|
Discount rate
|
|
|
2.58
|
%
|
|
|
2.45
|
%
|
|
Rate of increase in salary levels
|
|
|
N/A
|
|
|
|
N/A
|
|
|
Expected return on plan assets
|
|
|
7.00
|
%
|
|
|
7.00
|
%
|
The
benefit obligation, plan assets, and funded status of these plans as of the fiscal years ended are as follows:
Schedule of Changes in Projected Benefit Obligations
|
|
|
October 29, 2021
|
|
|
October 30, 2020
|
|
|
|
|
(52 Weeks)
|
|
|
(52 Weeks)
|
|
|
Change in plan assets:
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets - beginning of year
|
|
$
|
54,116
|
|
|
$
|
53,892
|
|
|
Employer contributions
|
|
|
-
|
|
|
|
-
|
|
|
Actual return on plan assets
|
|
|
11,285
|
|
|
|
2,189
|
|
|
Benefits paid
|
|
|
(2,106
|
)
|
|
|
(1,965
|
)
|
|
Fair value of plan assets - end of year
|
|
$
|
63,295
|
|
|
$
|
54,116
|
|
|
Change in benefit obligations:
|
|
|
|
|
|
|
|
|
|
Benefit obligations - beginning of year
|
|
$
|
72,794
|
|
|
$
|
68,022
|
|
|
Service cost
|
|
|
134
|
|
|
|
127
|
|
|
Interest cost
|
|
|
1,742
|
|
|
|
2,025
|
|
|
Actuarial loss (gain)
|
|
|
(1,681
|
)
|
|
|
4,585
|
|
|
Benefits paid
|
|
|
(2,107
|
)
|
|
|
(1,965
|
)
|
|
Benefit obligations - end of year
|
|
|
70,882
|
|
|
|
72,794
|
|
|
Funded status of the plans
|
|
|
(7,587
|
)
|
|
|
(19,965
|
)
|
|
Unrecognized prior service costs
|
|
|
-
|
|
|
|
-
|
|
|
Unrecognized net actuarial loss
|
|
|
15,381
|
|
|
|
27,373
|
|
|
Net amount recognized
|
|
$
|
7,794
|
|
|
$
|
7,408
|
|
We
perform an internal rate of return analysis when making the discount rate selection. The discount rates were based on FTSE Pension Liability
Index (formerly Citibank) as of October 29, 2021, and October 30, 2020, respectively.
Plan
assets are primarily invested in marketable equity securities, corporate and government debt securities and are administered by an investment
management company. The plans’ long-term return on assets is based on the weighted average of the plans’ investment allocation
as of the measurement date and the published historical returns for those types of asset categories, taking into consideration inflation
rate forecasts. No expected employer contribution to the plans in fiscal year 2022 is planned.
For
fiscal year 2021, our actuary updated mortality tables from the Pri-2012 Total Dataset Mortality Table with MP-2020 Scaling to Pri-2012
Total Dataset Mortality Table with MP-2021 Scaling. The expected rate of return on plan assets remained the same at 7.00% effective for
fiscal years 2021 and 2020, respectively.
The
actual and target allocation for plan assets are as follows:
Schedule of Allocation of Plan Assets
|
Asset Class
|
|
2021
|
|
|
Target
Asset
Allocation
|
|
|
2020
|
|
|
Target
Asset
Allocation
|
|
|
Large Cap Equities
|
|
|
23.2
|
%
|
|
|
23.0
|
%
|
|
|
21.5
|
%
|
|
|
22.0
|
%
|
|
Mid Cap Equities
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
Small Cap Equities
|
|
|
9.1
|
%
|
|
|
9.0
|
%
|
|
|
13.5
|
%
|
|
|
12.0
|
%
|
|
International (equities only)
|
|
|
24.3
|
%
|
|
|
25.0
|
%
|
|
|
25.7
|
%
|
|
|
26.0
|
%
|
|
Fixed Income
|
|
|
37.4
|
%
|
|
|
37.0
|
%
|
|
|
37.5
|
%
|
|
|
39.0
|
%
|
|
Cash and other
|
|
|
6.0
|
%
|
|
|
6.0
|
%
|
|
|
1.8
|
%
|
|
|
1.0
|
%
|
|
Total
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
The
fair value of our pension plan assets as of October 29, 2021 and the level under which fair values were determined, using the hierarchy
described in Note 1, is as follows:
Schedule of Fair Value of Pension Plan Assets
|
|
|
2021
|
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total plan assets
|
|
$
|
63,295
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
63,295
|
|
Expected
payments for pension benefits are as follows:
Schedule of Expected Payments for Pension Benefits
|
Fiscal Years
|
|
Pension Benefits
|
|
|
2022
|
|
$
|
2,800
|
|
|
2023
|
|
$
|
2,968
|
|
|
2024
|
|
$
|
3,135
|
|
|
2025
|
|
$
|
3,318
|
|
|
2026
|
|
$
|
3,431
|
|
|
2027-2031
|
|
$
|
17,898
|
|
Executive
Retirement Plans
Non-Qualified
Deferred Compensation
Effective
January 1, 1991, we adopted a deferred compensation savings plan for certain key employees. Under this arrangement, selected employees
contribute a portion of their annual compensation to the plan. We contribute an amount to each participant’s account by computing
an investment return equal to Moody’s Average Seasoned Bond Rate plus 2%. Employees receive vested amounts upon death, termination,
or attainment of retirement age. No benefit expense was recorded under this plan for fiscal years 2021 and 2020.
Supplemental
Executive Retirement Plan
Retirement
benefits otherwise available to certain key executives under the Primary Benefit Plan have been limited by the effects of the Tax Equity
and Fiscal Responsibility Act of 1982 (“TEFRA”) and the Tax Reform Act of 1986 (“TRA”). To offset the loss of
retirement benefits associated with TEFRA and TRA, the Company has adopted a non-qualified “makeup” benefit plan (the “Supplemental
Executive Retirement Plan”). Benefits will be provided under the Supplemental Executive Retirement Plan in an amount equal to 60%
of each participant’s final average earnings minus any pension benefits and primary insurance amounts available to them under Social
Security. However, in all cases the benefits are capped at $120,000 per year for Allan L. Bridgford. Benefits provided under this plan
for William L. Bridgford and Raymond F. Lancy are calculated at 50% of final average earnings, capped at $200,000 per year, without offsets
for other pension or Social Security benefits.
Benefits
payable related to these plans and included in the accompanying consolidated financial statements were $6,392 and $6,544 as of October
29, 2021, and October 30, 2020, respectively. In connection with these arrangements, we are the beneficiary of life insurance policies
on the lives of certain key employees and retirees. The aggregate cash surrender value of these policies, included in non-current assets,
was $13,641 and $13,195 as of October 29, 2021, and October 30, 2020, respectively.
Expected
payments for executive postretirement benefits are as follows:
Schedule of Expected Payments for Pension Benefits
|
Fiscal
Years
|
|
Executive
Postretirement Benefits
|
|
|
2022
|
|
$
|
533
|
|
|
2023
|
|
$
|
533
|
|
|
2024
|
|
$
|
533
|
|
|
2025
|
|
$
|
533
|
|
|
2026
|
|
$
|
533
|
|
|
2027-2031
|
|
$
|
2,631
|
|
Incentive
Compensation Plan for Certain Key Executives
We
provide an incentive compensation plan for certain key executives, which is based upon our pretax income. The payment of these amounts
is generally deferred over three or five-year periods. The total amount payable related to this arrangement was $3,151 and $6,070 as
of October 29, 2021, and October 30, 2020, respectively. Future payments are approximately $2,027, $908, $118, $67, and $31 for fiscal
years 2022 through 2026, respectively.
Postretirement
Healthcare Benefits for Selected Executive Employees
We
provide postretirement health care benefits for selected executive employees. Net periodic postretirement healthcare (benefit) cost is
determined using assumptions as of the beginning of each fiscal year, except for the total actual benefit payments and the discount rate
used to develop the net periodic postretirement benefit expense, which is determined at the end of the fiscal year.
Net
periodic postretirement healthcare cost (benefit) consisted of the following:
Schedule Net Periodic Post-retirement Healthcare (benefit) Cost
|
|
|
October 29, 2021
|
|
|
October 30, 2020
|
|
|
|
|
(52 Weeks)
|
|
|
(52 Weeks)
|
|
|
Service cost
|
|
$
|
-
|
|
|
$
|
3
|
|
|
Interest cost
|
|
|
13
|
|
|
|
16
|
|
|
Amortization of prior service cost
|
|
|
-
|
|
|
|
-
|
|
|
Amortization of actuarial gain
|
|
|
(1
|
)
|
|
|
-
|
|
|
Net periodic postretirement healthcare cost (benefit)
|
|
$
|
12
|
|
|
$
|
19
|
|
Weighted
average assumptions for the fiscal years ended October 29, 2021, and October 30, 2020, are as follows:
Schedule of Health Care Cost Trend Rates
|
|
|
2021
|
|
|
2020
|
|
|
Discount rate
|
|
|
2.57
|
%
|
|
|
2.43
|
%
|
|
Medical trend rate next year
|
|
|
8.00
|
%
|
|
|
8.00
|
%
|
|
Ultimate trend rate
|
|
|
5.00
|
%
|
|
|
5.00
|
%
|
|
Year ultimate trend rate is achieved
|
|
|
2026
|
|
|
|
2026
|
|
The
table below shows the estimated effect of a 1% increase in healthcare cost trend rate on the following:
Schedule of Effect of One-Percentage-Point Change in Assumed Health Care Cost Trend Rates
|
|
|
|
2021
|
|
|
|
2020
|
|
|
Interest cost plus service cost
|
|
$
|
2
|
|
|
$
|
2
|
|
|
Accumulated postretirement healthcare obligation
|
|
$
|
67
|
|
|
$
|
59
|
|
The
table below shows the estimated effect of a 1% decrease in healthcare cost trend rate on the following:
Schedule of Effect of One-Percentage-Point Change in Assumed Health Care Cost Trend Rates
|
|
|
2021
|
|
|
2020
|
|
|
Interest cost plus service cost
|
|
$
|
(1
|
)
|
|
$
|
(2
|
)
|
|
Accumulated postretirement healthcare obligation
|
|
$
|
(56
|
)
|
|
$
|
(50
|
)
|
The
healthcare obligation and funded status of this plan as of the fiscal years ended are as follows:
Schedule of Net Funded Status
|
|
|
2021
|
|
|
2020
|
|
|
Change in accumulated postretirement healthcare obligation:
|
|
|
|
|
|
|
|
|
|
Healthcare obligation - beginning of year
|
|
$
|
588
|
|
|
$
|
586
|
|
|
Service cost
|
|
|
-
|
|
|
|
3
|
|
|
Interest cost
|
|
|
13
|
|
|
|
16
|
|
|
Actuarial gain
|
|
|
(54
|
)
|
|
|
(8
|
)
|
|
Benefits paid
|
|
|
(17
|
)
|
|
|
(9
|
)
|
|
Healthcare obligation – end of year
|
|
$
|
530
|
|
|
$
|
588
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded status of the plans
|
|
|
530
|
|
|
|
588
|
|
|
Unrecognized prior service costs
|
|
|
-
|
|
|
|
-
|
|
|
Unrecognized net actuarial gain
|
|
|
(119
|
)
|
|
|
(66
|
)
|
|
Unrecognized amounts recorded in other comprehensive income
|
|
|
119
|
|
|
|
66
|
|
|
Postretirement healthcare liability
|
|
$
|
530
|
|
|
$
|
588
|
|
Expected
payments for the postretirement benefits are as follows:
Schedule of Expected Payments for Pension Benefits
|
Fiscal
Years
|
|
Postretirement
Healthcare
Benefits
|
|
|
2022
|
|
$
|
43
|
|
|
2023
|
|
$
|
23
|
|
|
2024
|
|
$
|
23
|
|
|
2025
|
|
$
|
24
|
|
|
2026-2030
|
|
$
|
118
|
|
401(K)
Plan for Sales, Administrative, Supervisory and Certain Other Employees
During
the fiscal year ended November 3, 2006, we implemented a qualified 401(K) retirement plan (the “401K Plan”) for our sales,
administrative, supervisory, and certain other employees. During fiscal years 2021 and 2020, we made total employer contributions to
the 401K Plan in the amounts of $801 and $754, respectively.
NOTE
4 - Income Taxes:
The
benefit on income taxes includes the following:
Schedule of Provision (Benefit) for Taxes on Income
|
|
|
October 29, 2021
|
|
|
October 30, 2020
|
|
|
|
|
(52 Weeks)
|
|
|
(52 Weeks)
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
160
|
|
|
$
|
(9,517
|
)
|
|
State
|
|
|
107
|
|
|
|
135
|
|
|
Federal and State
Tax Expense Benefit
|
|
|
267
|
|
|
|
(9,382
|
)
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(2,102
|
)
|
|
|
7,097
|
|
|
State
|
|
|
56
|
|
|
|
92
|
|
|
Deferred Federal
and State Tax Expense Benefit
|
|
|
(2,046
|
)
|
|
|
7,189
|
|
|
Provision (benefit)
for income taxes
|
|
$
|
(1,779
|
)
|
|
$
|
(2,193
|
)
|
The
total tax benefit differs from the expected amount computed by applying the statutory federal income tax rate to income before income
taxes as follows:
Schedule of Tax Provision Differs from Statutory Federal Income Tax Rate
|
|
|
October 29, 2021
|
|
|
October 30, 2020
|
|
|
|
|
(52 Weeks)
|
|
|
(52 Weeks)
|
|
|
(Benefit) provision for federal income taxes at the applicable statutory
rate
|
|
$
|
(1,529
|
)
|
|
$
|
1,052
|
|
|
Increase in provision resulting from state income taxes, net of federal income tax benefit
|
|
|
143
|
|
|
|
179
|
|
|
Change in federal rate – NOL carryback
|
|
|
-
|
|
|
|
(2,868
|
)
|
|
Research and development tax credit
|
|
|
-
|
|
|
|
(358
|
)
|
|
Non-taxable life insurance gain
|
|
|
(556
|
)
|
|
|
(190
|
)
|
|
Other, net
|
|
|
163
|
|
|
|
(8
|
)
|
|
Benefit
for income taxes
|
|
$
|
(1,779
|
)
|
|
$
|
(2,193
|
)
|
Deferred
income taxes result from differences in the basis of assets and liabilities for tax and accounting purposes.
Schedule of Deferred Income Taxes Results from Differences in Bases of Assets and Liabilities
|
|
|
2021
|
|
|
2020
|
|
|
Receivables allowance
|
|
$
|
33
|
|
|
$
|
4
|
|
|
Returns allowance
|
|
|
94
|
|
|
|
70
|
|
|
Inventory packaging reserve
|
|
|
808
|
|
|
|
33
|
|
|
Inventory overhead capitalization
|
|
|
570
|
|
|
|
427
|
|
|
Employee benefits
|
|
|
708
|
|
|
|
525
|
|
|
Deferred payroll tax
|
|
|
397
|
|
|
|
290
|
|
|
Other
|
|
|
221
|
|
|
|
120
|
|
|
State taxes
|
|
|
(34
|
)
|
|
|
(182
|
)
|
|
Incentive compensation
|
|
|
819
|
|
|
|
1,387
|
|
|
Pension and health care benefits
|
|
|
3,794
|
|
|
|
6,752
|
|
|
Depreciation
|
|
|
(13,776
|
)
|
|
|
(12,944
|
)
|
|
Net operating loss carry-forward and credits
|
|
|
3,029
|
|
|
|
1,273
|
|
|
Valuation allowance established against state NOL
|
|
|
(63
|
)
|
|
|
(77
|
)
|
|
Deferred income tax assets, net
|
|
$
|
(3,400
|
)
|
|
$
|
(2,322
|
)
|
Management
is required to evaluate whether a valuation allowance should be established against its deferred tax assets based on the consideration
of all available evidence using a “more likely than not” standard. Realization of deferred tax assets is dependent upon taxable
income in prior carryback years, estimates of future taxable income, tax planning strategies, and reversals of existing taxable temporary
differences.
As
of October 29, 2021, the Company did not have any valuation allowance against its federal net deferred tax assets. Management reevaluated
the need for a valuation allowance at the end of 2021 and determined that some of its California net operating loss (“NOL”)
may not be utilized. Therefore, a valuation allowance of $63 has been retained for such portion of the California NOL.
As
of October 29, 2021, the Company had NOL carryforwards of approximately $10,336
for federal and $8,109
for state purposes. The federal loss will
be carried forward indefinitely until it can be utilized against future taxable income. The
state loss carryforwards will expire at various dates from 2021 through 2040.
In
July 2006, the FASB issued guidance to clarify the accounting for uncertainty in income taxes recognized in an enterprise’s financial
statements. This interpretation prescribed a recognition threshold and measurement attribute for the financial statement recognition
and measurement of a tax position taken or expected to be taken in a tax return. The guidance also discussed derecognition, classification,
interest and penalties, accounting in interim periods, disclosure, and transition. The cumulative effect, if any, of applying this guidance
is to be reported as an adjustment to the opening balance of retained earnings in the year of adoption. The provisions of this guidance
have been incorporated into ASC 740-10.
As
of October 29, 2021, we have provided a liability of $173 to unrecognized tax benefits related to various federal and state income tax
matters. $76 of this liability will reduce our effective income tax rate if the asset is recognized in future reporting periods. We have
not identified any new unrecognized tax benefits.
As
of October 30, 2020, we have provided a liability of $169 to unrecognized tax benefits related to various federal and state income tax
matters. None of this liability will reduce our effective income tax rate if the asset is recognized in future reporting periods. We
have not identified any new unrecognized tax benefits.
A
reconciliation of the beginning and ending amounts of unrecognized tax benefits is as follows:
Schedule of Reconciliation of Unrecognized Tax Benefits
|
|
|
October 29, 2021
|
|
|
October 30, 2020
|
|
|
|
|
(52 Weeks)
|
|
|
(52 Weeks)
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of year
|
|
$
|
169
|
|
|
$
|
90
|
|
|
Additions based on tax positions related to the current year
|
|
|
-
|
|
|
|
-
|
|
|
Additions for tax positions of prior years
|
|
|
4
|
|
|
|
79
|
|
|
Reductions for tax positions of prior years
|
|
|
-
|
|
|
|
-
|
|
|
Settlements
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
$
|
173
|
|
|
$
|
169
|
|
We
recognize any future accrued interest and penalties related to unrecognized tax benefits in income tax expense. As of October 29, 2021,
we had approximately $25 in accrued interest and penalties which is included as a component of the $173 unrecognized tax benefit noted
above.
Our
federal income tax returns are open to audit under the statute of limitations for the years ended October 31, 2018 through 2020.
We
are subject to income tax in California and various other state taxing jurisdictions. Our state income tax returns are open to audit
under the statute of limitations for the years ended October 31, 2017 through 2020.
We
do not anticipate a significant change to the total amount of unrecognized tax benefits within the next 12 months.
On
March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was enacted in response to
the COVID-19 pandemic. The CARES Act, among other things, permits NOL carryovers and carrybacks to offset 100% of taxable income for
taxable years beginning before January 1, 2021. In addition,
the CARES Act allows NOLs incurred in taxable years beginning after December 31, 2017 and before January 1, 2021 to be carried back to
each of the five preceding taxable years to generate a refund of previously paid income taxes. The Company has filed a federal income
tax return for tax year 2018 (FY19) and, has carried back a taxable loss of $9,919
to tax years 2014 (FY15) and 2015 (FY16). Furthermore,
the Company also carried back $21,687
of net operating loss from FY20 against any remaining
taxable income of tax year 2015 (FY16) and taxable income of tax years 2016 (FY 17) and 2017 (FY 18). The carryback of net operating
losses will also release $358
of research & development credits, which
will become available for utilization in future years.
On
December 22, 2017, President Trump signed into law the Tax Cuts and Jobs Act (the “Tax Act”). Among other significant changes,
the Tax Act reduced the corporate federal income tax rate from 35% to 21%. The carryback of NOLs from tax years 2018 and 2019 under the
CARES Act to pre-Tax Act years has generated an income tax benefit of $3,091 due to the difference in income tax rates. The release
of research and development credits has generated an income tax benefit of $358. These income tax benefits have been recorded in the
income tax provision for fiscal year 2020.
The
effective tax rate was 24.4% and -42.7% for fiscal years 2021 and 2020, respectively. The effective tax rate for fiscal year 2020 was
impacted by the rate differential on NOL carryback available under the CARES Act discussed in the paragraphs above. In addition, the
effective tax rates for fiscal years 2021 and 2020 were impacted by such items as non-deductible meals and entertainment, non-taxable
gains and losses on life insurance policies and state income taxes.
NOTE
5 - Line of Credit and Borrowing Agreements:
The
following table reflects major components of our line of credit and borrowing agreements as of October 29, 2021 and October 30, 2020.
Schedule
of Line of Credit and Borrowing agreements
|
|
|
October
29, 2021
|
|
|
October
30, 2020
|
|
|
|
|
|
|
|
|
|
|
Revolving credit facility
|
|
$
|
12,000
|
|
|
$
|
-
|
|
|
Equipment notes:
|
|
|
|
|
|
|
|
|
|
4.13% note due 12/24/25, out of lockout 12/26/20
|
|
|
-
|
|
|
|
5,823
|
|
|
3.98% note due 04/21/26, out of lockout 04/23/21
|
|
|
-
|
|
|
|
6,145
|
|
|
3.70% note due 12/21/26, out of lockout 12/23/21
|
|
|
2,901
|
|
|
|
3,393
|
|
|
3.29% note due 03/05/27, out of lockout 03/06/22
|
|
|
5,951
|
|
|
|
6,940
|
|
|
3.68% note due 04/16/27, out of lockout 04/17/22
|
|
|
5,888
|
|
|
|
6,821
|
|
|
SOFR plus 2.00% bridge loan due 03/01/23
|
|
|
10,329
|
|
|
|
-
|
|
|
Total debt
|
|
|
37,069
|
|
|
|
29,122
|
|
|
Less current debt
|
|
|
(1,065
|
)
|
|
|
(4,430
|
)
|
|
Total long-term debt
|
|
$
|
36,004
|
|
|
$
|
24,692
|
|
Revolving
Credit Facility
We
maintain a line of credit with Wells Fargo Bank, N.A. that extends through March 1, 2022 (extended to March 1, 2023, per expanded line
of credit signed December 1, 2021). As of October 29, 2021, under the terms of this line of credit, we may borrow up to $15,000 at an
interest rate equal to the bank’s prime rate or LIBOR plus 2.0%. The line of credit has an unused commitment fee of 0.25% of the
available loan amount. We borrowed $2,000 under this line of credit on December 2, 2020, $2,000 on April 27, 2021, $2,000 on July 1,
2021, $3,000 on July 19, 2021 and $3,000 on October 15, 2021, for a combined total of $12,000. The line of credit is presented under
non-current liabilities in the Consolidated Balance Sheets. On December 1, 2021, Wells Fargo Bank, N.A. expanded our line of
credit to $25,000 through June 15, 2022 upon which the credit limit will return to $15,000 for the balance of the term. Under the terms
of this expanded line of credit, we may borrow up to $25,000 at an interest rate equal to the bank’s prime rate or secured overnight
financing rate (“SOFR”) plus 2.0%. Under the amended line of credit, the benchmark interest rate of LIBOR has been transitioned
to SOFR which could impact the cost of credit and alter the value of debt and loans. We borrowed an additional $2,000 on November 1,
2021, and $2,000 on December 16, 2021. Refer to Note 1 – Subsequent Events of the Notes to Consolidated Financial Statements included
in this Report for further information.
Equipment
Notes Payable
On
December 26, 2018, we entered into a master collateral loan and security agreement with Wells Fargo Bank, N.A. (the “Original Wells
Fargo Loan Agreement”) for up to $15,000 in equipment financing which was amended and expanded as detailed above. We subsequently
entered into additional master collateral loan and security agreements with Wells Fargo Bank, N.A. on each of December 19, 2019, March
5, 2020, and April 17, 2020 (the Original Wells Fargo Loan Agreement and the subsequent agreements collectively referred to as the “Wells
Fargo Loan Agreements”). Pursuant to the Wells Fargo Loan Agreements, we owe the amounts as stated in the table above.
Bridge
Loan
On
August 30, 2021, we entered into a loan commitment note for a bridge loan of up to $25,000
which we plan to use to pay off the existing
equipment loans as they come out of the lock out period and may be prepaid (dates detailed in the table above). The outstanding principal
balances of the bridge loan shall be due and payable in full on the earlier of the following dates (1) August
31, 2023 or (2) one Federal Reserve business day
after the closing of the transactions contemplated under that certain Purchase and Sale Agreement dated March 16, 2020, as amended, between
Bridgford Foods Processing Corporation and CRG Acquisition, LLC (the “March 2020 Purchase and Sale Agreement”. As of October
29, 2021, we prepaid $10,328
in equipment loans (equipment loans 4.13%
and 3.98%
above) utilizing proceeds from the new bridge
loan. The Company evaluated the exchange under ASC 470 and determined that the exchange should be treated as a debt modification prospectively.
The Company accounted for this transaction as a debt modification and did not incur any gain or loss relating to the modification. The
debt modification did not meet the greater than ten percent test and was deemed not substantial. On January 12, 2022, we paid off $2,778
in equipment loans (equipment loan 3.70%
above) utilizing proceeds from the new bridge
loan. Refer to Note 1 - Subsequent Events for further information.
Loan
Covenants
The
Wells Fargo Loan Agreements contain 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 .85 to 1.0 at each fiscal quarter end
|
|
|
●
|
Fixed
Charge Coverage Ratio not less than 1.25 to 1.0 as of each fiscal quarter end, determined on a trailing 4-quarter basis and
|
|
|
●
|
Capital
Expenditures less than $5,000.
|
The
Company was in violation of the capital expenditure and fixed charge coverage ratio covenant which were subsequently waived
(per letter dated January 25, 2022). The Company was in compliance with all other covenants under the Wells Fargo Loan Agreements
as of October 29, 2021
Aggregate
contractual maturities of debt in future fiscal years are as follows as of October 29, 2021.
Schedule
of Aggregate Contractual Maturities of Debt in Future Fiscal Years
|
|
|
|
|
|
|
Fiscal
Years
|
|
Debt
Payable
|
|
|
2022
|
|
$
|
1,065
|
|
|
2023
|
|
$
|
23,761
|
|
|
2024
|
|
$
|
2,588
|
|
|
2025
|
|
$
|
2,681
|
|
|
2026-2027
|
|
$
|
6,974
|
|
NOTE
6- Contingencies and Commitments:
The
Company leases warehouse and/or office facilities throughout the United States through month-to-month rental agreements. In the case
of month-to-month lease or rental agreements with terms of 12 months or less, the Company made an accounting policy election to not recognize
lease assets and liabilities and record them on a straight-line basis over the lease term. For further information regarding our lease
accounting policy, please refer to Note 1 – Leases.
The
Company leases three long-haul trucks received during fiscal year 2019. The six-year leases for these trucks expire in 2025. Amortization
of equipment under capital lease was $70 in 2021. The Company leased one long-haul truck for $40 received during fiscal year 2021, and
that lease term is two years.
The
Company performed a detailed analysis and determined that the only indication of a long-term lease in addition to transportation lease
for long-haul trucks was Hogshed Ventures, LLC. A right-of-use asset and corresponding liability for warehouse storage space was
recorded for $615
for Hogshed Ventures, LLC for 40th Street in
Chicago, Illinois, as of October 29, 2021. We
lease this space under a non-cancelable operating lease. This lease does not have significant rent escalation holidays, concessions,
leasehold improvement incentives or other build-out clauses. Further this lease does not contain contingent rent provisions.
This lease terminates on June
30, 2023. This lease includes both lease (e.g.,
fixed rent) and non-lease components (e.g., real estate taxes, insurance, common-area and other maintenance costs). The non-lease components
are deemed to be executory costs and are included in the minimum lease payments used to determine the present value of the operating
lease obligation and related right-of-use asset.
This
lease does not provide an implicit rate and we estimated our incremental interest rate to be approximately 1.6%. We used our estimated
incremental borrowing rate and other information available at the lease commencement date in determining the present value of the lease
payments.
The
following is a schedule by years of future minimum lease payments for transportation leases and right-of-use assets:
Schedule of Future Minimum Lease Payments
|
|
|
|
|
|
|
Fiscal Year
|
|
Financing
Obligations
|
|
|
2022
|
|
$
|
500
|
|
|
2023
|
|
|
381
|
|
|
2024
|
|
|
101
|
|
|
2025
|
|
|
70
|
|
|
2026
|
|
|
-
|
|
|
Later Years
|
|
|
-
|
|
|
Total minimum lease payments(a)
|
|
$
|
1,052
|
|
|
Less: Amount representing executory costs
|
|
|
(59
|
)
|
|
Less: Amount representing interest(b)
|
|
|
(8
|
)
|
|
Present value of future minimum lease payments(c)
|
|
$
|
985
|
|
|
(a)
|
Minimum payments exclude contingent rentals based on actual mileage and adjustments of rental payments based on the Consumer Price Index.
|
|
(b)
|
Amount necessary to reduce net minimum
lease payments to present value calculated at the Company’s incremental borrowing rate at the inception of the leases.
|
|
(c)
|
Reflected in Note 2, as current and
noncurrent obligations under capital leases of $158
and $212, respectively,
and right-of-use assets of $367 and
$248, respectively.
|
NOTE
7 - Segment Information:
We
have two reportable operating segments, Frozen Food Products (the processing and distribution of frozen 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 expenses include
corporate accounting, information systems, human resource, and marketing management at the corporate level. These activities are allocated
to each operating segment based on revenues and/or actual usage.
The
following segment information is for the fiscal years ended October 29, 2021 (52 weeks) and October 30, 2020 (52 weeks):
Schedule of Segment Reporting Information, by Segment
|
Segment Information
|
|
2021
|
|
Frozen Food
Products
|
|
|
Snack Food
Products
|
|
|
Other
|
|
|
Totals
|
|
|
Net sales
|
|
$
|
41,510
|
|
|
$
|
198,920
|
|
|
$
|
-
|
|
|
$
|
240,430
|
|
|
Cost of products sold
|
|
|
29,547
|
|
|
|
159,499
|
|
|
|
-
|
|
|
|
189,046
|
|
|
Gross margin
|
|
|
11,963
|
|
|
|
39,421
|
|
|
|
-
|
|
|
|
51,384
|
|
|
SG&A
|
|
|
11,950
|
|
|
|
48,177
|
|
|
|
-
|
|
|
|
60,127
|
|
|
(Gain) on sale of property, plant, and equipment
|
|
|
(146
|
)
|
|
|
(358
|
)
|
|
|
-
|
|
|
|
(504
|
)
|
|
Operating income (loss)
|
|
$
|
159
|
|
|
$
|
(8,398
|
)
|
|
$
|
-
|
|
|
$
|
(8,239
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
12,760
|
|
|
$
|
121,499
|
|
|
$
|
22,531
|
|
|
$
|
156,790
|
|
|
Additions to PP&E
|
|
$
|
321
|
|
|
$
|
5,918
|
|
|
$
|
-
|
|
|
$
|
6,239
|
|
|
Segment Information
|
|
2020
|
|
Frozen Food
Products
|
|
|
Snack Food
Products
|
|
|
Other
|
|
|
Totals
|
|
|
Net sales
|
|
$
|
41,241
|
|
|
$
|
156,729
|
|
|
$
|
-
|
|
|
$
|
197,970
|
|
|
Cost of products sold
|
|
|
27,687
|
|
|
|
110,766
|
|
|
|
-
|
|
|
|
138,452
|
|
|
Gross margin
|
|
|
13,554
|
|
|
|
45,963
|
|
|
|
-
|
|
|
|
59,518
|
|
|
SG&A
|
|
|
12,790
|
|
|
|
42,376
|
|
|
|
-
|
|
|
|
55,166
|
|
|
(Gain) loss on sale of property, plant, and equipment
|
|
|
-
|
|
|
|
(58
|
)
|
|
|
-
|
|
|
|
(58
|
)
|
|
Operating income (loss)
|
|
$
|
764
|
|
|
$
|
3,645
|
|
|
$
|
-
|
|
|
$
|
4,410
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
11,490
|
|
|
$
|
115,657
|
|
|
$
|
28,136
|
|
|
$
|
155,283
|
|
|
Additions to PP&E
|
|
$
|
284
|
|
|
$
|
24,198
|
|
|
$
|
-
|
|
|
$
|
24,482
|
|
The
following information further disaggregates our sales to customers by major distribution channel and customer type for the fiscal years
ended October 29, 2021, and October 30, 2020, respectively.
Schedule of Disaggregates Our Sales to Customers
|
2021
Distribution Channel
|
|
Retail (a)
|
|
|
Foodservice (b)
|
|
|
Totals
|
|
|
Direct store delivery
|
|
$
|
143,239
|
|
|
$
|
-
|
|
|
$
|
143,239
|
|
|
Direct customer warehouse
|
|
|
55,681
|
|
|
|
-
|
|
|
|
55,681
|
|
|
Total Snack Food Products
|
|
|
198,920
|
|
|
|
-
|
|
|
|
198,920
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributors
|
|
|
8,805
|
|
|
|
32,705
|
|
|
|
41,510
|
|
|
Total Frozen Food Products
|
|
|
8,805
|
|
|
|
32,705
|
|
|
|
41,510
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Net Sales
|
|
$
|
207,725
|
|
|
$
|
32,705
|
|
|
$
|
240,430
|
|
|
(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.
|
|
2020
Distribution Channel
|
|
Retail (a)
|
|
|
Foodservice (b)
|
|
|
Totals
|
|
|
Direct store delivery
|
|
$
|
117,386
|
|
|
$
|
-
|
|
|
$
|
117,386
|
|
|
Direct customer warehouse
|
|
|
39,343
|
|
|
|
-
|
|
|
|
39,343
|
|
|
Total Snack Food Products
|
|
|
156,729
|
|
|
|
-
|
|
|
|
156,729
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributors
|
|
|
9,639
|
|
|
|
31,602
|
|
|
|
41,241
|
|
|
Total Frozen Food Products
|
|
|
9,639
|
|
|
|
31,602
|
|
|
|
41,241
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Net Sales
|
|
$
|
166,368
|
|
|
$
|
31,602
|
|
|
$
|
197,970
|
|
|
(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
8 - Unaudited Interim Financial Information:
Not
applicable for a smaller reporting company.