BRIDGFORD FOODS CORP
10-Ks and 10-Qs
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UNITED STATES
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SECURITIES AND EXCHANGE COMMISSION
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Washington, D.C. 20549
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FORM 10-Q
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(Mark one)
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[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
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THE SECURITIES AND EXCHANGE ACT OF 1934
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For the quarterly period ended July 8, 2011
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OR
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[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
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THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from __________ to ___________.
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Commission file number 0-2396
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(Exact name of Registrant as specified in its charter)
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California
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95-1778176
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(State or other jurisdiction of
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(I.R.S. Employer
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incorporation or organization)
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identification number)
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1308 N. Patt Street, Anaheim, CA 92801
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(Address of principal executive offices-Zip code)
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714-526-5533
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(Registrant's telephone number, including area code)
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
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Yes [ X ] No [ ]
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Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
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Yes [ X ] No [ ]
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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
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Large accelerated filer [ ]
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Accelerated filer [ ]
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Non-accelerated filer [ ] (Do not check if smaller reporting company)
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Smaller reporting company [ X ]
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
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Yes [ ] No [ X ]
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As of August 18, 2011 the registrant had 9,207,061 shares of common stock outstanding.
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1 of 29
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BRIDGFORD FOODS CORPORATION
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FORM 10-Q QUARTERLY REPORT
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INDEX
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References to "Bridgford Foods" or the "Company" contained in this Quarterly Report on Form 10-Q refer to Bridgford Foods Corporation.
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Part I. Financial Information
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Item 1. Financial Statements
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Page
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a. Condensed Consolidated Balance Sheets at July 8, 2011 (unaudited) and October 29, 2010
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3
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|||||||||||
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b. Condensed Consolidated Statements of Operations for the twelve and thirty-six weeks ended July 8, 2011 and July 9, 2010 (unaudited)
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4
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|||||||||||
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c. Condensed Consolidated Statements of Cash Flows for the thirty-six weeks ended July 8, 2011 and July 9, 2010 (unaudited)
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5
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|||||||||||
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d. Notes to Condensed Consolidated Financial Statements (unaudited)
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6
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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
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11
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Item 3. Quantitative and Qualitative Disclosures about Market Risk
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22
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Item 4. Controls and Procedures
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22
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Part II. Other Information
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Item 1A. Risk Factors
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23
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
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23
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Item 6. Exhibits
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24
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Signatures
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25
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Items 1, 3 and 5 of Part II have been omitted because they are not applicable with respect to the current reporting period.
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2 of 29
BRIDGFORD FOODS CORPORATION
(in thousands, except per share amounts)
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ASSETS
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July 8, 2011
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October 29, 2010
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(Unaudited)
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Current assets:
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Cash and cash equivalents
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$
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8,657
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$
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15,686
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||||
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Accounts receivable, less allowance for doubtful accounts of $68
and $80, respectively, and promotional allowances of $2,141 and $1,932, respectively
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9,006
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7,609
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||||||
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Inventories, less inventory reserves of $322 and $166, respectively (Note 2)
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18,033
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16,307
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Prepaid expenses and other current assets
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2,464
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1,885
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Total current assets
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38,160
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41,487
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||||||
| Property, plant and equipment, less accumulated depreciation of $56,743 and $56,007, respectively |
8,158
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7,892
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||||||
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Other non-current assets
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11,813
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11,144
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Total assets
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$
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58,131
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$
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60,523
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LIABILITIES AND SHAREHOLDERS' EQUITY
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Current liabilities:
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Accounts payable
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$
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3,207
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$
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3,364
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Accrued payroll, advertising and other expenses
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8,562
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8,287
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Total current liabilities
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11,769
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11,651
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Non-current liabilities
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11,424
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12,672
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Total liabilities
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23,193
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24,323
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Commitments and contingencies (Note 3)
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Shareholders' equity:
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Preferred stock, without par value; authorized
- 1,000 shares; issued and outstanding - none
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Common stock, $1.00 par value; authorized
- 20,000 shares; issued and outstanding – 9,237 and 9,328 shares, respectively
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9,294
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9,385
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Capital in excess of par value
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9,612
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10,396
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Retained earnings
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24,084
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24,471
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Accumulated other comprehensive loss
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(8,052
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)
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(8,052
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)
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Total shareholders' equity
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34,938
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36,200
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Total liabilities and shareholders' equity
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$
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58,131
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$
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60,523
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See accompanying notes to condensed consolidated financial statements.
3 of 29
BRIDGFORD FOODS CORPORATION
(unaudited)
(in thousands, except per share amounts)
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12 weeks ended
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36 weeks ended
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July 8, 2011
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July 9, 2010
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July 8, 2011
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July 9, 2010
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Net sales
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$
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26,611
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$
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26,933
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$
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80,598
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$
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83,012
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Cost of products sold
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18,412
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17,089
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54,132
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49,229
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Gross margin
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8,199
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9,844
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26,466
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33,783
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Selling, general and administrative expenses
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8,782
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9,806
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26,424
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29,730
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(Loss) income before taxes
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(583
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)
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38
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42
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4,053
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Income tax (benefit) provision
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(106
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799
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(503
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)
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1,499
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Net (loss) income
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$
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(477
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)
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$
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(761
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)
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$
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545
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$
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2,554
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Net (loss) income per share – Basic and diluted
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$
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(.05
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)
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$
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(.08
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)
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$
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.06
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$
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.27
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Weighted average common shares – Basic and diluted
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9,289
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9,330
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9,310
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9,336
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Cash dividends paid per share
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$
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--
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$
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--
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$
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.10
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$
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.10
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See accompanying notes to condensed consolidated financial statements.
4 of 29
BRIDGFORD FOODS CORPORATION
(Unaudited)
(in thousands)
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36 weeks ended
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July 8, 2011
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July 9, 2010
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Cash flows from operating activities:
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Net income
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$
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545
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$
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2,554
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Income or charges not affecting cash and cash equivalents:
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Depreciation
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1,286
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1,508
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Losses (recoveries) on accounts receivable
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75
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(100
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)
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Gain on sale of property, plant and equipment
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(42
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)
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(25
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)
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Effect on cash and cash equivalents from changes in operating assets and liabilities:
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Accounts receivable
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(1,472
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)
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(565
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)
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Inventories
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(1,726
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)
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1,289
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Prepaid expenses and other current assets
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(579
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)
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529
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Other non-current assets
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(669
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)
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(202
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)
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Accounts payable
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(157
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)
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(489
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)
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Accrued payroll, advertising and other expenses
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275
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(712
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)
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Non-current liabilities
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(1,248
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)
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433
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Net cash (used in) provided by operating activities
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(3,712)
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4,220
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Cash used in investing activities:
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Proceeds from sale of property, plant and equipment
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42
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25
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Additions to property, plant and equipment
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(1,552
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)
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(853
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)
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Net cash used in investing activities
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(1,510
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)
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(828
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)
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Cash used in financing activities:
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Shares repurchased
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(875
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)
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(253
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)
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Cash dividends paid
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(932
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)
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(933
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)
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Net cash used in financing activities
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(1,807
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)
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(1,186
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)
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||||
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Net (decrease) increase in cash and cash equivalents
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(7,029
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)
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2,206
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|||||
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Cash and cash equivalents at beginning of period
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15,686
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13,911
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||||||
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Cash and cash equivalents at end of period
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$
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8,657
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$
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16,117
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||||
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Cash paid for income taxes
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$
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129
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$
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1,250
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||||
See accompanying notes to condensed consolidated financial statements.
5 of 29
BRIDGFORD FOODS CORPORATION
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
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(in thousands, except percentages, share and per share amounts)
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The unaudited consolidated condensed financial statements of Bridgford Foods Corporation (the "Company", "we", "our", "us") for the twelve and thirty-six weeks ended July 8, 2011 and July 9, 2010 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 October 29, 2010 (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 Form 10-Q.
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The October 29, 2010 balance sheet within these interim condensed consolidated financial statements was derived from the audited fiscal 2010 financial statements.
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The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America 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. Actual results may vary from these estimates. 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. 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.
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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. At July 8, 2011, 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 on cash and cash equivalents. The Company issues credit 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.
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For the thirty-six weeks ended July 8, 2011 and July 9, 2010, Dollar General® accounted for 9.1% and 10.4%, respectively of consolidated revenues and 23.6% and 32.6%, respectively, of consolidated accounts receivable. For the thirty-six weeks ended July 9, 2010, Wal-Mart® accounted for 14.4% of consolidated revenues and 9.4% of consolidated accounts receivable. No other customer accounted for more than 20% of consolidated accounts receivable or 10% of consolidated revenues for the thirty-six weeks ended July 8, 2011 or the thirty-six weeks ended July 9, 2010.
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On November 10, 2010, Bridgford Foods Corporation issued a press release announcing that its Board of Directors had approved a one-time cash dividend of $0.10 per share of common stock which was distributed on December 20, 2010 to shareholders of record on November 23, 2010.
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Management has evaluated events subsequent to July 8, 2011 through the date that the accompanying condensed consolidated financial statements were filed with the Securities and Exchange Commission for transactions and other events which may require adjustments of and/or disclosure in such financial statements.
Future periods relating to current market conditions and volatility in stock markets may cause changes in the measurement of our pension fund liabilities and performance of our life insurance policies and those changes may be significant.
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6 of 29
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(unaudited)
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July 8, 2011
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October 29, 2010
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Meat, ingredients
and supplies
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$
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6,819
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$
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3,155
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||||
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Work in progress
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1,160
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1,192
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||||||
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Finished goods
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10,054
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11,960
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||||||
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$
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18,033
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$
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16,307
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|||||
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Inventories are valued at the lower of cost (which approximates actual cost on a first-in, first-out basis) or market. 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.
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The Company leases certain transportation equipment under operating leases. The terms of the transportation leases provide for renewal options and contingent rental payments based upon mileage and adjustments of rental payments based on the Consumer Price Index. The Company also leases warehouse and/or office facilities throughout the United States and Canada through month-to-month rental agreements. No material changes have been made to these agreements during the first thirty-six weeks of fiscal 2011.
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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.
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The Company purchases bulk flour under short-term fixed price contracts during the normal course of business. Under these arrangements, the Company is obligated to purchase specific quantities at fixed prices, within the specified contract period. These contracts provide for automatic price increases if agreed quantities are not purchased within the specified contract period. No significant contracts remained unfulfilled at July 8, 2011.
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7 of 29
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The Company has two reportable operating segments, Frozen Food Products (the processing and distribution of frozen products) and Refrigerated and Snack Food Products (the processing and distribution of refrigerated meat and other convenience foods).
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We evaluate each segment's performance based on revenues and operating income. Selling, general and administrative 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.
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The following segment information is presented for the twelve and thirty-six weeks ended July 8, 2011 and July 9, 2010.
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Twelve Weeks Ended
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Frozen Food
|
Refrigerated and
Snack Food
|
||||||||||||||||||
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July 8, 2011
|
Products
|
Products
|
Other
|
Elimination
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Totals
|
|||||||||||||||
|
Sales to external customers
|
$
|
10,993
|
$
|
15,618
|
$
|
-
|
$
|
-
|
$
|
26,611
|
||||||||||
|
Intersegment sales
|
-
|
254
|
-
|
254
|
-
|
|||||||||||||||
|
Net sales
|
10,993
|
15,872
|
-
|
254
|
26,611
|
|||||||||||||||
|
Cost of products sold
|
7,041
|
11,625
|
-
|
254
|
18,412
|
|||||||||||||||
|
Gross margin
|
3,952
|
4,247
|
-
|
-
|
8,199
|
|||||||||||||||
|
Selling, general and administrative expenses
|
3,790
|
4,980
|
12
|
-
|
8,782
|
|||||||||||||||
|
Income (loss) before taxes
|
162
|
(733
|
)
|
(12
|
)
|
-
|
(583
|
)
|
||||||||||||
|
Total assets
|
$
|
10,424
|
$
|
25,476
|
$
|
22,231
|
$
|
-
|
$
|
58,131
|
||||||||||
|
Additions to property, plant and equipment
|
$
|
472
|
$
|
423
|
$
|
-
|
$
|
-
|
$
|
895
|
||||||||||
|
Twelve Weeks Ended
|
Frozen Food
|
Refrigerated and
Snack Food
|
||||||||||||||||||
|
July 9, 2010
|
Products
|
Products
|
Other
|
Elimination
|
Totals
|
|||||||||||||||
|
Sales to external customers
|
$
|
11,001
|
$
|
15,932
|
$
|
-
|
$
|
-
|
$
|
26,933
|
||||||||||
|
Intersegment sales
|
-
|
322
|
-
|
322
|
-
|
|||||||||||||||
|
Net sales
|
11,001
|
16,254
|
-
|
322
|
26,933
|
|||||||||||||||
|
Cost of products sold
|
6,657
|
10,754
|
-
|
322
|
17,089
|
|||||||||||||||
|
Gross margin
|
4,344
|
5,500
|
-
|
-
|
9,844
|
|||||||||||||||
|
Selling, general and administrative expenses
|
4,072
|
5,719
|
15
|
-
|
9,806
|
|||||||||||||||
|
Income (loss) before taxes
|
272
|
(219
|
)
|
(15
|
)
|
-
|
38
|
|||||||||||||
|
Total assets
|
$
|
10,627
|
$
|
22,201
|
$
|
26,671
|
$
|
-
|
$
|
59,499
|
||||||||||
|
Additions to property, plant and equipment
|
$
|
78
|
$
|
123
|
$
|
-
|
$
|
-
|
$
|
201
|
||||||||||
8 of 29
|
Thirty-Six Weeks Ended
|
Frozen Food
|
Refrigerated and
Snack Food
|
||||||||||||||||||
|
July 8, 2011
|
Products
|
Products
|
Other
|
Elimination
|
Totals
|
|||||||||||||||
|
Sales to external customers
|
$
|
37,378
|
$
|
43,220
|
$
|
-
|
$
|
-
|
$
|
80,598
|
||||||||||
|
Intersegment sales
|
-
|
767
|
-
|
767
|
-
|
|||||||||||||||
|
Net sales
|
37,378
|
43,987
|
-
|
767
|
80,598
|
|||||||||||||||
|
Cost of products sold
|
23,130
|
31,769
|
-
|
767
|
54,132
|
|||||||||||||||
|
Gross margin
|
14,248
|
12,218
|
-
|
-
|
26,466
|
|||||||||||||||
|
Selling, general and administrative expenses
|
11,517
|
14,911
|
(4
|
)
|
-
|
26,424
|
||||||||||||||
|
Income (loss) before taxes
|
2,731
|
(2,693
|
)
|
4
|
-
|
42
|
||||||||||||||
|
Total assets
|
$
|
10,424
|
$
|
25,476
|
$
|
22,231
|
$
|
-
|
$
|
58,131
|
||||||||||
|
Additions to property, plant and equipment
|
$
|
612
|
$
|
782
|
$
|
158
|
$
|
-
|
$
|
1,552
|
||||||||||
|
Thirty-Six Weeks Ended
|
Frozen Food
|
Refrigerated and
Snack Food
|
||||||||||||||||||
|
July 9, 2010
|
Products
|
Products
|
Other
|
Elimination
|
Totals
|
|||||||||||||||
|
Sales to external customers
|
$
|
36,613
|
$
|
46,399
|
$
|
-
|
$
|
-
|
$
|
83,012
|
||||||||||
|
Intersegment sales
|
-
|
859
|
-
|
859
|
-
|
|||||||||||||||
|
Net sales
|
36,613
|
47,258
|
-
|
859
|
83,012
|
|||||||||||||||
|
Cost of products sold
|
21,816
|
28,272
|
-
|
859
|
49,229
|
|||||||||||||||
|
Gross margin
|
14,797
|
18,986
|
-
|
-
|
33,783
|
|||||||||||||||
|
Selling, general and administrative expenses
|
11,827
|
17,811
|
92
|
-
|
29,730
|
|||||||||||||||
|
Income (loss) before taxes
|
2,970
|
1,175
|
(92
|
)
|
-
|
4,053
|
||||||||||||||
|
Total assets
|
$
|
10,627
|
$
|
22,201
|
$
|
26,671
|
$
|
-
|
$
|
59,499
|
||||||||||
|
Additions to property, plant and equipment
|
$
|
320
|
$
|
518
|
$
|
15
|
$
|
-
|
$
|
853
|
||||||||||
|
|
The Company expects its effective tax rate for the 2011 fiscal year to be different from the federal statutory rate due to the state tax minimum liability, a net operating loss carryback and retroactive tax law changes as follows:
|
Effective tax rate and benefit
|
$
|
|||
|
Estimated state tax minimum payments
|
238
|
|||
|
Estimated refund from NOL carryback
|
(416
|
)
|
||
|
Retroactive tax law changes reducing tax liability
|
(207
|
)
|
||
|
Other
|
(118
|
)
|
||
|
Total effective tax rate and tax benefit
|
(503
|
)
|
||
We recorded a benefit for income taxes in the amount of $503 for the thirty-six week period ended July 8, 2011, related to federal and state taxes, based on the Company’s expected annual effective tax rate. On December 17, 2010, during the Company’s first quarter of fiscal 2011, the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 was signed into law and extended bonus depreciation on purchases of qualified business property through December 2011. Management elected to take bonus depreciation for fiscal year 2010 which reduced its estimated tax liability. Management estimates incurring a taxable loss for fiscal year 2011, which is partly due to electing bonus depreciation for fiscal year 2011, which can be carried back to allow the recovery of excess income taxes paid during fiscal 2010.
9 of 29
|
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. Management reevaluated the need for a full valuation allowance at July 8, 2011 based on both positive and negative evidence. The weight of negative factors and level of economic uncertainty in our current business continued to support the conclusion that the realization of its deferred tax assets does not meet the more likely than not standard. As a result of this evaluation, a full valuation allowance remained against the net deferred tax assets as of July 8, 2011. Management will continue to periodically reevaluate the valuation allowance and, to the extent that conditions change, some or all of such valuation allowance could be reversed in future periods. The Company has established objective criteria that must be met before a release of the valuation allowance will occur.
|
|
Our federal income tax returns are open to audit under the statute of limitations for the fiscal years ended October 31, 2008 through October 29, 2010.
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 fiscal years ended November 3, 2006 through October 29, 2010.
|
10 of 29
(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 the Securities Act of 1933 and 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 Quarterly Report on Form 10-Q. 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 29, 2010. 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 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. Actual results may vary from these estimates. Some of the estimates needed to be made by management include the allowance for doubtful accounts, promotional and returns allowances, inventory reserves and 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. 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.
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 amounts receivable 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. For the thirty-six weeks ended July 8, 2011 and July 9, 2010, Dollar General® accounted for 9.1% and 10.4%, respectively, of consolidated revenues and 23.6% and 32.6%, respectively, of consolidated accounts receivable. For the thirty-six weeks ended July 9, 2010, Wal-Mart® accounted for 14.4% of consolidated revenues and 9.4% of consolidated accounts receivable. No other customer accounted for more than 20% of consolidated accounts receivable or 10% consolidated revenues for the thirty-six weeks ended July 8, 2011 or the thirty-six weeks ended July 9, 2010.
11 of 29
Revenues 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. The Company also uses independent distributors to deliver products in remote geographic areas of the country. Revenues are recognized upon shipment to the distributor, net of return
allowances. Historically, returns from distributors have been minimal. The distributor pays for these products in full, typically within 15 days, and such payment is not contingent upon payment from the large chain stores. As a convenience to certain large chain stores, we bill such customers on behalf of the distributors and such distributors bear the risk of loss from collection. No additional revenue is recognized in conjunction with the billing services as these services are considered perfunctory to the overall transaction.
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.
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. During the fourth quarter of fiscal 2008, management recorded a full valuation allowance with respect to its deferred tax assets. 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, none of which are predictable. The Company policy outlines measurable objective criteria that must be met before a release of the valuation allowance will occur. Due to the degree of judgment involved, actual taxable income could differ materially from management’s estimates, or the timing of taxable income could be such that the net operating losses could expire prior to their utilization. Management could determine in the future that the assets are realizable, materially increasing net income in one or many periods. Following recognition, management could again change its determination in the future, materially decreasing income.
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.
In March 2010, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability Reconciliation Act (collectively, the “PPACA”), was signed into law. The PPACA contains provisions which may impact the Company’s accounting of other postemployment benefit (“OPEB”) obligations in future periods. Regulatory guidance for implementation of some of the provisions of the PPACA has not yet been established. Requirements of the law include the removal of the lifetime limits on retiree medical coverage, expanding dependent coverage to age 26 and elimination of pre-existing conditions that may impact OPEB costs. 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 products (the Frozen Food Products Segment), and the processing and distribution of refrigerated and snack food products, (the Refrigerated and 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 Quarterly Report on Form 10-Q. We manufacture and distribute products consisting of an extensive line of food products, including biscuits, bread dough items, roll dough items, dry sausage products, beef jerky and a variety of sandwiches and sliced luncheon meats. We purchase products for resale including a variety of cheeses, salads, party dips, Mexican foods, nuts and other delicatessen type food products.
12 of 29
Frozen Food Products Segment
In our Frozen Food Products Segment, we manufacture and distribute an extensive line of food products, including biscuits, bread dough items, roll dough items and sandwiches. All items within this Segment are considered similar products and have been aggregated at this level. Our Frozen Food Products Segment serves both food service and retail customers. Approximately 150 unique frozen food products are sold through wholesalers, cooperatives and distributors to approximately 21,000 retail outlets and 22,000 restaurants and institutions.
Refrigerated and Snack Food Products Segment
In our Refrigerated and Snack Food Products Segment, we distribute both products manufactured by us and products manufactured or processed by third parties. 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. The deli division includes products such as ham, sandwiches, cheese, Mexican food, pastries and other delicatessen type food products. Our Refrigerated and Snack Food Products Segment sells approximately 220 different items through a direct store delivery network serving approximately 28,000 supermarkets, mass merchandise and convenience retail stores located in 49 states and Canada. These customers are comprised of large retail chains and smaller “independent” operators. Independent distributors serve approximately 2,300 customers of all types in areas impractical to serve by our Company-owned vehicles and personnel.
Results of Operations for the Twelve Weeks ended July 8, 2011 and Twelve Weeks ended July 9, 2010
Net Sales-Consolidated
Net sales decreased by $322 (1.2%) to $26,611 in the third twelve weeks of the 2011 fiscal year compared to the same twelve-week period last year. The changes in net sales were comprised as follows:
|
Impact on Net Sales-Consolidated
|
%
|
$
|
||||||
|
Selling price per pound
|
8.5
|
2,527
|
||||||
|
Unit sales volume in pounds
|
-8.8
|
(2,618
|
)
|
|||||
|
Returns activity
|
-1.0
|
(285
|
)
|
|||||
|
Promotional activity
|
0.1
|
54
|
||||||
|
Decrease in net sales
|
-1.2
|
(322
|
)
|
|||||
Net sales in the Frozen Food Products Segment, excluding inter-segment sales, decreased by $8 (0.1%) to $10,993 in the third twelve weeks of the 2011 fiscal year compared to the same twelve-week period last year. The changes in net sales were comprised as follows:
|
Impact on Net Sales-Frozen Food Products
|
%
|
$
|
||||||
|
Selling price per pound
|
6.7
|
816
|
||||||
|
Unit sales volume in pounds
|
-7.0
|
(847
|
)
|
|||||
|
Returns activity
|
-0.2
|
(20
|
)
|
|||||
|
Promotional activity
|
0.4
|
43
|
||||||
|
Decrease in net sales
|
-0.1
|
(8
|
)
|
|||||
The increase in selling price per pound in fiscal 2011 primarily relates to price increases implemented in the second quarter of the fiscal year. In addition, favorable changes in product mix increased average selling prices and promotional activity was slightly lower. These favorable trends were more than offset by lower unit sales volume and higher returns activity compared to the same twelve week period in fiscal year 2010.
13 of 29
Net Sales-Refrigerated and Snack Food Products Segment
Net sales in the Refrigerated and Snack Food Products Segment, excluding inter-segment sales, decreased by $314 (2.0%) to $15,618 in the third twelve weeks of the 2011 fiscal year compared to the same twelve-week period last year.
The changes in net sales were comprised as follows:
|
Impact on Net Sales-Refrigerated and Snack Food Products
|
%
|
$
|
||||||
|
9.8
|
1,712
|
|||||||
|
Unit sales volume in pounds
|
-10.1
|
(1,772
|
)
|
|||||
|
Returns activity
|
-1.8
|
(265
|
)
|
|||||
|
Promotional activity
|
0.1
|
11
|
||||||
|
Decrease in net sales
|
-2.0
|
(314
|
)
|
|||||
The increase in selling price per pound in fiscal 2011 primarily relates to price increases implemented in the second quarter of the fiscal year. The unit sales volume decrease relates primarily to a lower number of customers served and declining same customer sales compared to the same quarter in the prior year.
Cost of Products Sold and Gross Margin-Consolidated
Cost of products sold increased by $1,323 (7.7%) to $18,412 in the third twelve weeks of the 2011 fiscal year compared to the same twelve-week period in fiscal 2010. The gross margin decreased from 36.5% to 30.8% due primarily to significantly higher commodity costs described in the segment analysis below and lower unit sales volumes.
Cost of Products Sold-Frozen Food Products Segment
Cost of products sold in the Frozen Food Products Segment increased by $384 (5.8%) to $7,041 in the third twelve weeks of the 2011 fiscal year compared to the same twelve-week period in fiscal year 2010. Higher flour commodity costs were the primary contributing factor to this increase. The cost of purchased flour increased approximately $351 in the third twelve weeks of fiscal 2011 compared to the prior year period. Consistent with the increase in flour costs, the gross margin percentage decreased from 39.5% to 36.0% in the third twelve weeks of fiscal year 2011 compared to the same twelve week period in the prior fiscal year.
Cost of Products Sold-Refrigerated and Snack Food Products Segment
Cost of products sold in the Refrigerated and Snack Food Products Segment increased by $871 (8.1%) to $11,625 in the third twelve weeks of the 2011 fiscal year compared to the same twelve-week period in fiscal year 2010. The cost of significant meat commodities increased approximately $579 in the third twelve weeks of fiscal 2011 compared to the same period in the prior year. The gross margin earned in this segment decreased from 34.5% to 27.2% in the third twelve weeks of fiscal year 2011 due primarily to higher commodity costs and to a lesser extent as a result of sales mix changes.
14 of 29
Selling, General and Administrative Expenses-Consolidated
Selling, general and administrative (“SG&A”) expenses decreased by $1,024 (10.4%) to $8,782 in the third twelve weeks of fiscal year 2011 compared to the same twelve-week period in the prior fiscal year. The decrease in this category for the twelve-week period ended July 8, 2011 did not directly correspond to the sales decrease. The table below summarizes the significant expense increases and decreases included in this category:
|
12 Weeks Ended
|
Expense/Gain
|
|||||||||||
|
July 8, 2011
|
July 9, 2010
|
Increase (Decrease)
|
||||||||||
|
Wages and bonus
|
$
|
3,159
|
$
|
3,492
|
$
|
(333
|
)
|
|||||
|
Cash surrender value (gain) loss
|
(98
|
)
|
214
|
(312
|
)
|
|||||||
|
Benefits-healthcare
|
544
|
852
|
(308
|
)
|
||||||||
|
Insurance and depreciation
|
127
|
315
|
(188
|
)
|
||||||||
|
Fuel
|
685
|
604
|
81
|
|||||||||
|
Other SG&A
|
4,365
|
4,329
|
36
|
|||||||||
|
Total
|
$
|
8,782
|
$
|
9,806
|
$
|
(1,024
|
)
|
|||||
Lower profits and profit sharing accruals resulted in decreased wages and bonus in third twelve weeks of the 2011 fiscal year compared to the same period in the prior year. The cash surrender value on life insurance policies increased due to the change in the underlying equities that support them as compared to the same twelve week period in fiscal 2010. The Company’s healthcare benefit expense decreased due to favorable claim trends in the current year when compared to the same twelve week period in fiscal 2010. The decrease in insurance and depreciation expense was due to lower capital expenditures in recent years and certain significant assets becoming fully depreciated in prior periods. The increase in fuel expense was driven by an increase in fuel commodity costs compared to the prior year period. Trends were favorable in insurance claims for the twelve week period ended July 8, 2011.
Selling, General and Administrative Expenses-Frozen Food Products Segment
SG&A expenses in the Frozen Food Products Segment decreased by $282 (6.9%) to $3,790 in the third twelve weeks of fiscal year 2011 compared to the same twelve week period in the prior fiscal year. The decrease in this category partially relates to the overall decrease in unit sales volume. Favorable claim trends related to healthcare reduced SG&A costs as a percentage of sales in the fiscal 2011 period. Lower wages and bonus also lowered SG&A costs as a percentage of sales in the third twelve weeks of fiscal year 2011.
Selling, General and Administrative Expenses-Refrigerated and Snack Food Products Segment
SG&A in the Refrigerated and Snack Food Products Segment decreased by $739 (12.9%) to $4,980 in the third twelve weeks of fiscal year 2011 compared to the same twelve-week period in the prior fiscal year. The decrease in SG&A costs is primarily related to lower unit sales volume compared to the same twelve week period in the prior year. The segment recently completed an extensive restructuring and downsizing of its direct door delivery system lowering the cost of distribution of its products as a percentage of sales revenue. Direct distribution costs related to sales commissions and base wages, fuel, vehicle repairs, depreciation and healthcare were significantly reduced in the third twelve weeks of fiscal year 2011 as a result of this reorganization.
15 of 29
Income Taxes-Consolidated
Income tax (benefit) expense for the twelve weeks ended July 8, 2011 and July 9, 2010 was as follows:
|
July 8, 2011
|
July 9, 2010
|
|||||||
|
Income tax (benefit) provision
|
$
|
(106
|
)
|
$
|
799
|
|||
|
Effective tax rate
|
18.2
|
%
|
2,102.6
|
%
|
||||
The Company expects its effective tax rate for the 2011 fiscal year to be different from the federal statutory rate due to the state tax minimum liability, a net operating loss carryback and retroactive tax law changes as described below. We recorded a benefit for income taxes in the amount of $106 for the twelve week period ended July 8, 2011 related to federal and state taxes based on the Company’s expected annual effective tax rate.
Included in the benefit is a reduction in the fiscal 2010 liability. During the first quarter of fiscal 2011, the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 was enacted into law, which allowed the Company to retroactively take additional bonus depreciation on qualified fixed asset purchases in the fourth quarter of fiscal 2010. During preparation of the 2010 tax returns, management elected to take the additional bonus depreciation, which resulted in reduction of the estimated fiscal 2010 income tax liability.
In addition, management expects fixed asset additions made in fiscal 2011 would also provide additional bonus depreciation that would result in a taxable loss for fiscal 2011. Management expects this tax loss will provide additional benefit through carry-back opportunity.
Net Income(Loss)-Consolidated
The net loss of $477 in the twelve weeks ended July 8, 2011 includes a non-taxable gain on life insurance policies in the amount of $98. The net loss of $761 in the twelve weeks ended July 9, 2010 includes a non-taxable loss on life insurance policies in the amount of $214. Gains and losses on life insurance policies are dependent upon the performance of the underlying equities and future results may vary considerably.
Results of Operations for the Thirty-Six Weeks ended July 8, 2011 and Thirty-Six Weeks ended July 9, 2010
Net Sales-Consolidated
Net sales decreased by $2,414 (2.9%) to $80,598 in the first thirty-six
weeks of the 2011 fiscal year compared to the same thirty-six
week period last year. The changes in net sales were comprised as follows:
|
Impact on Net Sales-Consolidated
|
%
|
$
|
||||||
|
Selling price per pound
|
4.0
|
3,652
|
||||||
|
Unit sales volume in pounds
|
-6.6
|
(6,029
|
)
|
|||||
|
Promotional activity
|
-0.5
|
(342
|
)
|
|||||
|
Returns activity
|
0.2
|
305
|
||||||
|
Decrease in net sales
|
-2.9
|
(2,414
|
)
|
|||||
Net Sales-Frozen Food Products Segment
Net sales in the Frozen Food Products Segment, excluding inter-segment sales, increased by $765 (2.1%) to $37,378 in the first thirty-six weeks of the 2011 fiscal year compared to the same thirty-six
week period last year. The changes in net sales were comprised as follows:
|
Impact on Net Sales-Frozen Food Products
|
%
|
$
|
||||||
|
Selling price per pound
|
4.2
|
1,718
|
||||||
|
Unit sales volume in pounds
|
-3.1
|
(1,247
|
)
|
|||||
|
Promotional activity
|
-0.1
|
(27
|
)
|
|||||
|
Returns activity
|
1.1
|
321
|
||||||
|
Increase in net sales
|
2.1
|
765
|
||||||
16 of 29
The increase in selling price per pound over the prior year period was due to favorable product mix changes, and to a lesser extent, the impact of selling price increases in the second twelve weeks of fiscal 2011. Decreased unit sales volume compared to the same thirty-six week period in fiscal year 2010 partially offset the sales increase.
Net Sales-Refrigerated and Snack Food Products Segment
Net sales in the Refrigerated and Snack Food Products Segment, excluding inter-segment sales, decreased by $3,179 (6.9%) to $43,220 in the first thirty-six
weeks of the 2011 fiscal year compared to the same thirty-six
week period last year. The changes in net sales were comprised as follows:
|
Impact on Net Sales-Refrigerated and Snack Food Products
|
%
|
$
|
||||||
|
Selling price per pound
|
3.8
|
1,934
|
||||||
|
Unit sales volume in pounds
|
-9.4
|
(4,782
|
)
|
|||||
|
Promotional activity
|
-1.2
|
(315
|
)
|
|||||
|
Returns activity
|
-0.1
|
(16
|
)
|
|||||
|
Decrease in net sales
|
-6.9
|
(3,179
|
)
|
|||||
The unit sales volume decrease relates primarily to a lower number of customers served and declining same customer sales compared to the same quarter in the prior year. The increase in selling price per pound primarily relates to price increases implemented in the second quarter of the current fiscal year.
Cost of Products Sold and Gross Margin-Consolidated
Cost of products sold increased by $4,903 (10.0%) to $54,132 in the first thirty-six
weeks of the 2011 fiscal year compared to the same thirty-six
week period in fiscal 2010. The gross margin decreased from 40.7% to 32.8% due primarily to significantly higher commodity costs and lower unit sales volumes described in the segment analysis below.
Cost of Products Sold-Frozen Food Products Products Segment
Cost of products sold in the Frozen Food Products Segment increased by $1,314 (6.0%) to $23,130 in the first thirty-six weeks of the 2011 fiscal year compared to the same thirty-six
week period in fiscal year 2010. The cost of products sold increased partially due to the 2.1% increase in net sales in the Segment. In addition, the cost of purchased flour increased approximately $885 in the first thirty-six
weeks of fiscal 2011 compared to the prior year period. The increase in flour costs partially offset by higher selling prices per pound resulted in a decrease in the gross margin percentage from 40.4% to 38.1% in the first thirty-six weeks of fiscal year 2011 compared to the same thirty-six week period in the prior fiscal year.
Cost of Products Sold-Refrigerated and Snack Food Products Segment
Cost of products sold in the Refrigerated and Snack Food Products Segment increased by $3,497 (12.4%) to $31,769 in the first thirty-six
weeks of the 2011 fiscal year compared to the same thirty-six week period in fiscal year 2010. The cost of significant meat commodities increased approximately $2,716 in the first thirty-six
weeks of fiscal 2011 compared to the same period in the prior year. In addition, the significant decrease in unit sales volume compared to the prior year increased unit overhead in the first thirty-six
weeks of fiscal year 2011, further increasing unit costs and lowering overall margins. The gross margin earned in this segment decreased from 40.9% to 28.3% in the first thirty-six weeks of fiscal year 2011 due primarily to these factors and to a lesser extent as a result of sales mix changes.
17 of 29
Selling, General and Administrative Expenses-Consolidated
Selling, general and administrative (“SG&A”) expenses decreased by $3,306 (11.1%) to $26,424 in the first thirty-six
weeks of fiscal year 2011 compared to the same thirty-six
week period in the prior fiscal year. The decrease in this category for the thirty-six
week period ended July 8, 2011 did not directly correspond to the sales decrease. The table below summarizes the significant expense increases and decreases included in this category:
|
36 weeks Ended
|
Expense/Gain
|
|||||||||||
|
July 8, 2011
|
July 9, 2010
|
Increase
(Decrease)
|
||||||||||
|
Wages and bonus
|
$
|
9,969
|
$
|
11,650
|
$
|
(1,681
|
)
|
|||||
|
Benefits-healthcare
|
1,619
|
2,166
|
(547
|
)
|
||||||||
|
Cash surrender value (gain)
|
(669
|
)
|
(201
|
)
|
(468
|
)
|
||||||
|
Insurance and depreciation
|
505
|
960
|
(455
|
)
|
||||||||
|
Losses (recoveries) on accounts receivable
|
75
|
(100
|
)
|
175
|
||||||||
|
Other SG&A
|
14,925
|
15,255
|
(330
|
)
|
||||||||
|
Total
|
$
|
26,424
|
$
|
29,730
|
$
|
(3,306
|
)
|
|||||
Headcount decreased during the first thirty-six
weeks of the 2011 fiscal year compared to the same period in the prior year, which resulted in decreased wages, and, combined with lower profits, lower profit sharing accruals. The Company’s healthcare benefit expense was more favorable compared to unfavorable claim trends in the comparative thirty-six week period in fiscal 2010. The cash surrender value of life insurance policies increased primarily as a result of favorable trends in the market values of equities that support policy values. The decrease in insurance and depreciation was driven by a reduction in the number of vehicles in the Company-owned fleet compared to the prior year period. The increase in the loss on accounts receivable was mainly the result of the bankruptcy of a significant customer in the first twelve weeks of fiscal 2011.
Selling, General and Administrative Expenses-Frozen Food Products Segment
SG&A expenses in the Frozen Food Products Segment decreased by $310 (2.6%) to $11,517 in the first thirty-six
weeks of fiscal year 2011 compared to the same thirty-six week period in the prior fiscal year. The decrease in this category did not correspond to the overall increase in net sales. Favorable cost trends related to healthcare and pension costs reduced SG&A costs as a percentage of sales. Favorable trends in product mix towards lower distribution and advertising cost products also lowered SG&A costs as a percentage of sales in the first thirty-six
weeks of fiscal year 2011.
Selling, General and Administrative Expenses-Refrigerated and Snack Food Products Segment
SG&A in the Refrigerated and Snack Food Products Segment decreased by $2,900 (16.3%) to $14,911 in the first thirty-six
weeks of fiscal year 2011 compared to the same thirty-six
week period in the prior fiscal year. The decrease in SG&A costs is primarily related to lower unit sales volume compared to the same thirty-six week period in the prior year. The segment recently completed an extensive restructuring and downsizing of its direct door delivery system lowering the cost of distribution of its products as a percentage of sales revenue. Direct distribution costs related to sales commissions and base wages, fuel, vehicle repairs, depreciation and healthcare were significantly reduced in the first thirty-six
weeks of fiscal year 2011 as a result of this reorganization.
18 of 29
Income Taxes-Consolidated
Income tax (benefit) expense for the thirty-six weeks ended July 8, 2011 and July 9, 2010 was as follows:
|
July 8, 2011
|
July 9, 2010
|
|||||||
|
Income tax (benefit) provision
|
$
|
(503
|
)
|
$
|
1,499
|
|||
|
Effective tax rate
|
-1197.6
|
%
|
36.0
|
%
|
||||
The Company expects its effective tax rate for the 2011 fiscal year to be different from the federal statutory rate due to the state tax minimum liability, a net operating loss carryback and retroactive tax law changes as follows:
|
Effective tax rate and provision (benefit)
|
$
|
|||||
|
Estimated state tax minimum payments
|
238
|
|||||
|
Estimated refund from NOL carryback
|
(416
|
)
|
||||
|
Retroactive tax law changes reducing tax liability
|
(207
|
)
|
||||
|
Other
|
(118
|
)
|
||||
|
Total effective tax rate and tax provision (benefit)
|
(503
|
)
|
||||
We recorded a benefit for income taxes in the amount of $503 for the thirty-six week period ended July 8, 2011 related to federal and state taxes, based on the Company’s expected annual effective tax rate.
Included in the benefit is a retroactive change in tax law reducing the fiscal 2010 tax liability. During the first quarter of fiscal 2011, the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 was enacted into law, which allowed the Company to retroactively take additional bonus depreciation on qualified fixed asset purchases in the fourth quarter of fiscal 2010. During preparation of the 2010 tax returns, management elected to take the additional bonus depreciation, which resulted in reduction of the estimated fiscal 2010 income tax liability.
In addition, management expects fixed asset additions made in fiscal 2011 would also provide additional bonus depreciation that would result in a taxable loss for fiscal 2011. Management expects this tax loss will provide additional benefit through carry-back opportunity.
Net Income -Consolidated
The net income of $545 in the thirty-six weeks ended July 8, 2011 includes a non-taxable gain on life insurance policies in the amount of $669. The net income of $2,554 in the thirty-six weeks ended July 9, 2010 includes a non-taxable gain on life insurance policies in the amount of $201. Gains and losses on life insurance policies are dependent upon the performance of the underlying equities and future results may vary considerably.
Cash flows from operating activities for the thirty-six weeks ended:
|
July 8, 2011
|
July 9, 2010
|
|||||||
|
Net income
|
$
|
545
|
$
|
2,554
|
||||
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
||||||||
|
Depreciation
|
1,286
|
1,508
|
||||||
|
Losses (provision) on accounts receivable
|
75
|
(100
|
)
|
|||||
|
Gain on sale of property, plant and equipment
|
(42
|
)
|
(25
|
)
|
||||
|
Changes in operating working capital
|
(5,576
|
)
|
283
|
|||||
|
Net cash (used in) provided by operating activities
|
$
|
(3,712
|
)
|
$
|
4,220
|
|||
Significant changes in working capital for the thirty-six weeks ended:
July 8, 2011 –
Sources of cash include a refund on prior year’s tax overpayment which contributed to net income of $545. Operating cash flows for the period ended July 8, 2011 were reduced by an increase in accounts receivable of $1,472, an increase in inventory of $1,726, an increase in prepaid expenses and other current assets of $579, a decrease in other non-current assets of $669 and a decrease in non-current liabilities of $1,248. During the thirty-six week period we funded $464 towards our defined benefit pension plan.
19 of 29
July 9, 2010-
Sources of cash included a decrease in inventory of $1,289. Operating cash flows for the period ended July 9, 2010 were reduced by an increase in accounts receivable of $565, a decrease in accounts payable of $489 and a decrease in accrued payroll, advertising and other expenses of $712. During the thirty-six week period we funded $631 towards our defined benefit pension plan.
Cash used in investing activities for the thirty-six weeks ended:
|
July 8, 2011
|
July 9, 2010
|
|||||||
|
Proceeds from sale of property, plant and equipment
|
$
|
42
|
$
|
25
|
||||
|
Additions to property, plant and equipment
|
(1,552
|
)
|
(853
|
)
|
||||
|
Net cash used in investing activities
|
$
|
(1,510
|
)
|
$
|
(828
|
)
|
||
Expenditures for property, plant and equipment include the acquisition of new equipment, upgrading of facilities to maintain operating efficiency and investments in cost effective technologies to lower costs. 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 includes acquisitions of machinery and equipment used on packaging lines and refrigeration equipment used to process food products.
The table below highlights the additions to property, plant and equipment for the thirty-six weeks ended:
|
July 8, 2011
|
July 9, 2010
|
|||||||
|
Changes in projects in process
|
$
|
(31
|
)
|
$
|
290
|
|||
|
Processing equipment
|
491
|
235
|
||||||
|
Delivery vehicles
|
56
|
112
|
||||||
|
Quality control
|
-
|
75
|
||||||
|
Building improvements
|
54
|
-
|
||||||
|
Packaging lines
|
79
|
65
|
||||||
|
Software and hardware
|
14
|
-
|
||||||
|
Temperature control and product storage
|
889
|
76
|
||||||
|
Additions to property, plant and equipment
|
$
|
1,552
|
$
|
853
|
||||
Cash used in financing activities for the thirty-six weeks ended:
|
July 8, 2011
|
July 9, 2010
|
|||||||
|
Shares repurchased
|
$
|
(875
|
)
|
$
|
(253
|
)
|
||
|
Cash dividends paid
|
(932
|
)
|
(933
|
)
|
||||
|
$
|
(1,807
|
)
|
$
|
(1,186
|
)
|
|||
Our stock repurchase program was approved by the Board of Directors in November 1999 and was expanded in June 2005. Under the stock repurchase program, we are authorized, at the discretion of management and the Board of Directors, to purchase up to an aggregate of 2,000,000 shares of our common stock on the open market. As of July 8, 2011, 280,953 shares were still authorized for repurchase under the program. One-time cash dividends were paid in the amounts of ten cents per share, during the first twelve weeks of the 2010 and 2011 fiscal years, respectively.
We remained free of interest bearing debt during the first thirty-six weeks of fiscal year 2011. We have remained free of interest-bearing debt for thirty-six consecutive years. We maintain a line of credit with Wells Fargo Bank, N.A. that expires on December 15, 2012. Under the terms of this line of credit, we may borrow up to $2,000 at an interest rate equal to the bank’s reference rate, unless we elect an optional interest rate. The borrowing agreement
contains various covenants, the more significant of which require us to maintain tangible net worth of 1.25 to 1.0 and a Quick Ratio of 1.0 to 1.0 at each quarter end. We were in compliance with all loan covenants as of July 8, 2011. There were no borrowings under this line of credit during the year. Management believes that our strong financial position and our capital resources are sufficient to provide for our operating needs and capital expenditures for the balance of fiscal year 2011.
20 of 29
Recent Accounting Pronouncements
In May 2011, the Financial Accounting Standards Board ("FASB") issued guidance on “Fair Value Measurements: Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS" changing how existing fair value guidance is applied and expanding disclosure requirements. The updated guidance is to be applied prospectively and is effective for the Company's interim and annual periods beginning January 1, 2012, which will be effective for us beginning the first quarter of fiscal 2013. We do not expect the adoption of this guidance to have a significant impact on our consolidated financial statements.
In June 2011, the FASB issued guidance on the presentation of comprehensive income either in a single continuous statement of other comprehensive income or in two separate successive statements of net income and other comprehensive income. This guidance is effective for financial statements issued for interim and fiscal years beginning after December 15, 2011, which will be effective for us beginning the first quarter of fiscal 2013. We do not expect the adoption of this guidance to have a significant impact on our consolidated financial statements.
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.
21 of 29
Not applicable to smaller reporting company.
Our management, with the participation and under the supervision of our principal executive officer and principal financial officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e) and 15d-15(e)) as of the end of the period covered by this Report. Based on this evaluation the principal executive officer and Chief Financial Officer have concluded that our disclosure controls and procedures are effective as of the end of the period covered by this Report in their design and operation to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to management and recorded, processed, summarized and reported within the time periods specified by the Securities and Exchange Commission’s rules and forms
Our management, including our principal executive officer and principal financial officer, does not expect that our disclosure controls and internal controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control.
The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving our stated goals under all potential future conditions; over time, a control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
We maintain and evaluate a system of internal accounting controls, and a program of internal auditing designed to provide reasonable assurance that our assets are protected and that transactions are performed in accordance with proper authorization, and are properly recorded. This system of internal accounting controls is continually reviewed and modified in response to evolving business conditions and operations and to recommendations made by the independent registered public accounting firm and our internal auditor. We have established a code of conduct. Our management believes that the accounting and internal control systems provide reasonable assurance that assets are safeguarded and financial information is reliable.
The Audit Committee of the Board of Directors meets regularly with our financial management and counsel, and with the independent registered public accounting firm engaged by us. Internal accounting controls and the quality of financial reporting are discussed during these meetings. The Audit Committee has discussed with the independent registered public accounting firm matters required to be discussed by the auditing standards adopted or established by the Public Company Accounting Oversight Board. In addition, the Audit Committee and the independent registered public accounting firm have discussed the independent registered public accounting firm’s independence from the Company and its management, including the matters in the written disclosures required by Public Company Accounting Oversight Board Rule 3526 “Communicating with Audit Committees Concerning Independence”.
There have been no changes in our internal controls over financial reporting that occurred during the quarter ended July 8, 2011 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
22 of 29
The risk factors listed in Part I “Item 1A. Risk Factors” in the Annual Report on Form 10-K for the fiscal year ended October 29, 2010 should be considered with the information provided elsewhere in this Quarterly Report on Form 10-Q, which could materially adversely affect our business, financial condition or results of operations. There have been no material changes to the risk factors as previously disclosed in such Annual Report on Form 10-K.
We have not sold any equity securities during the period covered by this Report.
The following table provides information regarding repurchases by us of our common stock, for each of the three four-week periods included in the interim twelve-week period ended July 8, 2011.
|
ISSUER PURCHASES OF EQUITY SECURITIES
|
|
Period (1)
|
Total Number of
Shares Purchased
|
Average Price
Paid Per Share
|
Total Number of Shares
Purchased as Part
of Publicly Announced
Plans or Programs (2)
|
Maximum Number of
Shares that May Yet
Be Purchased Under
the Plans or Programs (2)
|
||||||||||||
|
April 16, 2011 – May 13, 2011
|
6,088
|
$
|
10.08
|
6,088
|
345,415
|
|||||||||||
|
May 14, 2011 – June 10, 2011
|
19,496
|
8.35
|
19,496
|
325,919
|
||||||||||||
|
June 10, 2011 – July 8, 2011
|
44,966
|
$
|
9.35
|
44,966
|
280,953
|
|||||||||||
|
Total
|
70,550
|
$
|
9.13
|
70,550
|
||||||||||||
|
(1)
|
The periods shown are the fiscal periods during the twelve-week quarter ended July 8, 2011.
|
|
(2)
|
Repurchases reflected in the foregoing table were made on the open market. Our stock repurchase program was approved by the Board of Directors in November 1999 (1,500,000 shares authorized, disclosed in a Form 10-K filed on January 26, 2000) and was expanded in June 2005 (500,000 additional shares authorized, disclosed in a press release and Form 8-K filed on June 17, 2005). Under the stock repurchase program, we are authorized, at the discretion of our management and the Board of Directors, to purchase up to an aggregate of 2,000,000 shares of our common stock on the open market. Our Stock Purchase Plan (“Purchase Plan”) is administered by Citigroup Global Markets Inc. (“CGM”) for purchase of shares of our common stock in compliance with the requirements of Rule 10b5-1 under the Exchange Act. Commencing on October 14, 2010 and continuing through and including October 13, 2011, CGM shall act as our exclusive agent to purchase shares of our common stock under the Purchase Plan. This Purchase Plan supplements any purchases of stock by us “outside” of the Purchase Plan, which may occur from time to time, in open market transactions pursuant to Rule 10b-18 of the Exchange Act or in privately-negotiated transactions. As of July 8, 2011, the total maximum number of shares that may be purchased under the Purchase Plan is 280,953 at a purchase price not to exceed $12.00 per share at a total maximum aggregate price (exclusive of commission) of $3,371,436.
|
23 of 29
Item 6.
Exhibits
|
Exhibit No.
|
Description
|
|
|
31.1
|
Certification of Chairman of the Board (Principal Executive Officer), as required by Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
31.2
|
Certification of Chief Financial Officer (Principal Financial and Accounting Officer), as required by Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
32.1
|
Certification of Chairman of the Board (Principal Executive Officer), as required by Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
32.2
|
Certification of Chief Financial Officer (Principal Financial and Accounting Officer), as required by Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
101.1
|
XBRL Instance Document.*
|
|
101.2
|
XBRL Taxonomy Extension Schema Document.*
|
|
101.3
|
XBRL Taxonomy Extension Calculation Linkbase Document.*
|
|
101.4
|
XBRL Taxonomy Extension Definition Linkbase Document.*
|
|
101.5
|
XBRL Taxonomy Extension Label Linkbase Document.*
|
|
101.6
|
XBRL Taxonomy Extension Presentation Linkbase Document.*
|
*
The XBRL information is being furnished and not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not incorporated by reference into any registration statement under the SecuritiesAct of 1933, as amended.
24 of 29
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
BRIDGFORD FOODS CORPORATION
|
|||
|
(Registrant)
|
|||
|
Dated: August 19, 2011
|
By:
|
/s/ Raymond F. Lancy
|
|
|
Raymond F. Lancy
|
|||
|
Chief Financial Officer
|
|||
|
(Duly Authorized Officer, Principal Financial and Accounting Officer)
|
|||
25 of 29
TABLE OF CONTENTS
Part I. Financial InformationItem 1. AItem 1. BItem 1. CItem 1. DNote 1 - Summary Of Significant Accounting Policies:Note 2 - Inventories: Inventories Are Comprised Of The Following At The Respective Period Ends:Note 2 - Inventories:Note 3 - Commitments and Contingencies:Note 4 - Segment Information:Note 5 Income Taxes:Item 2. Management S Discussion and Analysis Of Financial Condition and Results Of OperationsItem 3. Quantitative and Qualitative Disclosures About Market RiskItem 4. Controls and ProceduresPart II. Other InformationItem 1A. Risk FactorsItem 2. Unregistered Sales Of Equity Securities and Use Of Proceeds