Item 1A. Risk Factors 8
Item 1B. Unresolved Staff Comments 10
Item 2. Properties 10
Item 3. Legal Proceedings 10
Item 4. Mine Safety Disclosures 10
Item 6. [Reserved] 11
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 18
Item 8. Consolidated Financial Statements and Supplementary Data 18
Item 9A. Controls and Procedures 19
Item 9B. Other Information 20
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections 20
PART III 21
Item 10. Directors, Executive Officers and Corporate Governance 21
Item 11. Executive Compensation 25
Item 14. Principal Accountant Fees and Services 36
Item 15. Exhibits and Financial Statement Schedules 38
SIGNATURES 39
PART
I
Item
1. Business (dollars in thousands)
This
Annual Report on Form 10-K (this “Report”) contains certain forward-looking statements within the meaning of Section 27A
of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and Bridgford Foods Corporation
intends that such forward-looking statements be subject to the safe harbors created thereby. Readers are cautioned that such statements,
which may be identified by words including “anticipates,” “believes,” “intends,” “estimates,”
“expects,” and similar expressions, are only predictions or estimations and are subject to known and unknown risks and uncertainties.
These forward-looking statements include, but are not limited to, statements regarding 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;
supply chain constraints and resulting cost pressures; changes in, or failure to comply with, government regulations; weather conditions;
construction schedules; relationships with customers and suppliers; statements regarding the anticipated impact of the COVID-19 pandemic;
and other factors referenced in this Report.
The
forward-looking statements included herein are based on current expectations that involve a number of risks and uncertainties. These
forward-looking statements are based on assumptions regarding our business, which involve judgments with respect to, among other things,
future economic and competitive conditions, and future business decisions, all of which are difficult or impossible to predict accurately
and many of which are beyond our control. Although we believe that the assumptions underlying the forward-looking statements are reasonable,
actual results may differ materially from those set forth in the forward-looking statements. In light of the significant uncertainties
inherent in the forward-looking information included herein, the inclusion of such information should not be regarded as representation
by us or any other person that the objectives or plans of our company will be achieved. The forward-looking statements contained herein
speak as of the date of this Report and we undertake no obligation to update such statements after the date hereof.
COVID-19
We
are monitoring and responding to the evolving nature of state and local government actions related to the COVID-19 pandemic and its impact
on each of our production plant locations and our customer base. We coordinate with our local managers for the primary purpose of maintaining
the health and safety of our team members, ensuring our ability to operate our processing facilities, and maintaining the liquidity of
our business. We continue to experience multiple challenges related to the pandemic. These challenges may continue to increase our operating
costs and negatively impact our sales volumes.
During
fiscal year 2022, the Frozen Food Products segment has continued to see a lessening of pandemic related restrictions on food service
venues. In our Frozen Food Products segment, the recent sales volume increases in foodservice have been sufficient to offset the losses
in retail and as a result, we experienced increased unit sales volume during fiscal year 2022 in this segment. Our Snack Food Products
segment has experienced continued commodity cost increases caused in part by supply and demand constraints related to reopening the economy
from pandemic restrictions. The cost of significant meat commodities increased approximately $7,949 and the cost of purchased flour increased
approximately $1,844 during fiscal year 2022 compared to fiscal year 2021.
●
Team Members – The health and safety of our team members is our top priority. To protect our team members, we have implemented
safety measures recommended by the Centers for Disease Control and Prevention and the Occupational Safety and Health Administration in
our facilities and have implemented social distancing, temperature checks of team members, increased efforts to deep clean and sanitize
facilities, the use of protective face coverings in certain environments, and making protective face coverings and other protective equipment
available to team members. We encourage team members who feel sick to stay at home and provide relaxed attendance policies in some instances.
We continue to explore and implement additional ways to promote social distancing in our production facilities by creating additional
breakroom space and allowing extra time between shifts to reduce interaction of team members, as well as erecting dividers between workstations
or increasing the space between workers on the production floor.
●
Customers and Production – The most significant impact from business shutdowns relates to channel shifts and lower production in
our Frozen Food Products segment. We are committed to doing our best to ensure the continuity of our business and the availability of
our products to customers. Since the second quarter of fiscal year 2021, we have continued to see a shift in demand from our retail to
our foodservice sales channels as schools and in-dining restaurants reopened across the country. Our production capabilities, including
our large scale and geographic proximities, allow us to adapt some of our facilities to the changing demand by shifting certain amounts
of production from retail to foodservice. In addition, our production facilities have experienced varying levels of production impacts,
including worker absenteeism, and we may continue to experience these impacts.
●
Supply Chain – Our supply chain has stayed largely intact. Although we have experienced some minor disruptions, these events have
not significantly impacted our production to date. We have experienced volatility in commodity inputs, in part due to impacts caused
by COVID-19 related business disruptions, and we expect this volatility to continue, which may impact our future input costs. Commodity
costs increased approximately $9,794 during fiscal year 2022 compared to fiscal year 2021.
●
Insurance and CARES Act – Although we maintain insurance policies for various risks, we believe most COVID-19 impacts will not
be covered by these policies. 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, includes provisions relating to refundable payroll
tax credits, deferral of the employer portion of social security payments, and expanded income tax net operating loss carryback provisions.
While we continue to examine the potential impacts of these actions, we anticipate new regulations related to federal income tax will
have a significant impact on our financial statements and cash flow. Late in the second quarter of fiscal 2020 we began implementing
the deferral of the employer portion of social security payments and intend to continue this deferral for the duration of its availability
which will have a favorable impact on short-term liquidity. The remaining deferral amount as of October 28, 2022, is approximately $758
due on December 31, 2022.
●
Liquidity – Operations used $7,830 in operating cash flows during the fifty-two-weeks ended October 28, 2022. We received $55,388
in net proceeds on June 1, 2022, from the closing of the sale of real property located at 170 N. Green Street in Chicago (the “Green
Street Property”) pursuant to the terms of the Purchase and Sale Agreement dated March 16, 2020, as amended, between Bridgford
Food Processing Corporation and CRG Acquisition, LLC (“the CRG Purchase Agreement”). On December 1, 2021, we expanded the
maximum borrowing under our revolving line of credit with Wells Fargo Bank, N.A. (“Wells Fargo”) to $25,000 from $15,000.
The credit limit returned to $15,000 on June 15, 2022 for the balance of the term to March 1, 2023. The line of credit was paid off on
June 7, 2022, using $18,000 in proceeds from the sale of the Green Street Property. As of October 28, 2022, we had approximately $66,076
of net working capital and $15,000 available under our revolving line of credit with Wells Fargo Bank, N.A. We entered into a bridge
loan with Wells Fargo Bank, N.A. on August 30, 2021, for up to $25,000 of which we used $18,653 to pay off a portion of the existing
equipment loans as they came out of the lock out period and could be repaid. We repaid and terminated the bridge loan on June 2, 2022,
using $18,653 in proceeds from the sale of the Green Street Property. As of October 28, 2022, we have $1,089 of current debt remaining
on equipment loans. Refer to Note 5 – Line of Credit and Borrowing Agreements of the Notes to the Condensed Consolidated Financial
Statements included within this Report for further information. 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. We received $2,205 from a life insurance receivable during
the second quarter of fiscal year 2022. Higher product prices could potentially lower demand for our product and decrease volume. Management
believes there are various options available to generate additional liquidity to repay debt or fund operations such as 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. From the cash expected to be
generated from the Company’s operations, we anticipate that we will maintain sufficient liquidity to operate our business for at
least the next twelve months. 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.
Background
of Business
Bridgford
Foods Corporation (collectively with its subsidiaries, “Bridgford”, the “Company”, “we”, “our”),
a California 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. Currently, we are primarily engaged
in the manufacturing, marketing, and distribution of an extensive line of frozen and snack food products throughout the United States.
We have not been involved in any bankruptcy, receivership, or similar proceedings since inception nor have we been party to any merger,
acquisition, etc. or acquired or disposed of any material amounts of assets during the past five years other than those discussed in
Item 7 of this Report. Substantially all of our assets have been acquired in the ordinary course of business.
Description
of Business
Bridgford
currently operates in two business segments - the processing and distribution of frozen food products and the processing and distribution
of snack food products. For information regarding the separate financial performance of the business segments refer to Note 7 of the
Notes to Consolidated Financial Statements included in this Report.
The
following table shows sales, as a percentage of consolidated sales, for each business segment during the last two fiscal years:
Frozen Food Products 21 % 17 %
Snack Food Products 79 % 83 %
We
manufacture nearly all of our food products and distribute an extensive line of biscuits, bread dough items, roll dough items, dry sausage
products and beef jerky. Our direct store delivery network consists of non-refrigerated snack food products. Our frozen food products
division serves both food service and retail customers.
Although
we have recently introduced several new products, most of these products have not contributed significantly to our revenue growth for
fiscal year 2022. Our sales are not subject to material seasonal variations. Historically we have been able to respond quickly to the
receipt of orders and, accordingly, do not maintain a significant sales backlog. Neither Bridgford nor its industry generally has unusual
demands or restrictions on working capital items. During the last fiscal year, we did not enter into any new markets or any significant
contractual or other material relationships.
Availability
of SEC Filings and Code of Conduct on Internet Website
We
maintain an Internet website at www.bridgford.com. Available on this website, free of charge, are our annual reports on Form 10-K, quarterly
reports on Form 10-Q, current reports on Form 8-K and amendments thereto, and reports filed under Section 16 of the Securities Exchange
Act of 1934, as amended, filed with the Securities and Exchange Commission. Our Code of Conduct is also available on the website.
Product
Distribution Methods
Our
products are delivered to customers using several distinct distribution channels. The distribution channel utilized is dependent upon
the needs of our customers, the most efficient proximity to the delivery point, trade customs, and operating segment as well as product
type, life, and stability. Among our customers are many of the country’s largest broadline and specialty food service distributors.
These and other large-end purchasers occasionally go through extensive qualification procedures and our manufacturing capabilities are
subjected to thorough review by the end purchasers prior to our approval as a vendor. Large end purchasers typically select suppliers
that can consistently meet increased volume requirements on a national basis during peak promotional periods. We believe that our manufacturing
flexibility, national presence, and long-standing customer relationships should allow us to compete effectively with other manufacturers
seeking to provide similar products to our current large food service end purchasers, although no assurances can be given.
The
factors that contribute to higher or lower margins generated from each method of distribution depend upon the accepted selling price,
level of involvement by our employees in setting up and maintaining displays, distance traveled, and fuel consumed by our company-owned
fleet as well as freight and shipping costs depending on the distance the product travels to the delivery point. Management is continually
evaluating the profitability of product delivery methods, analyzing alternate methods, and weighing economic inputs to determine the
most efficient and cost-effective method of delivery to fulfill the needs of our customers.
Major
Product Classes
Frozen
Food Products
Our
frozen food products division serves both food service and retail customers. We sell approximately 130 unique frozen food products through
approximately 800 wholesalers, cooperatives, and distributors.
Frozen
Food Products – Food Service Customers
The
food service industry is composed of establishments that serve food outside the home and includes restaurants, the food operations of
health care providers, schools, hotels, resorts, corporations, and other traditional and non-traditional food service outlets. Growth
in this industry has been driven by the increase in away-from-home meal preparation, which has accompanied the expanding number of both
dual income and single-parent households. Another trend within the food service industry is the growth in the number of non-traditional
food service outlets such as convenience stores, retail stores and supermarkets. These non-traditional locations often lack extensive
cooking, storage, or preparation facilities resulting in a need for pre-cooked and prepared foods similar to those we provide. The expansion
in the food service industry has also been accompanied by the continued consolidation and growth of broadline and specialty food service
distributors, many of which are long-standing customers. Orders from food service customers have continued to increase as schools and
in-dining restaurants have reopened across the United States in response to the COVID-19 pandemic restriction changes.
Frozen
Food Products – Retail Customers
The
majority of our existing and targeted retail customers are involved in the resale of branded and private label packaged foods. The same
trends which have contributed to the increase in away-from-home meal preparation have also fueled the growth in easy to prepare, microwaveable
frozen and refrigerated convenience foods. Among the fastest growing segments is the frozen and refrigerated hand-held foods market.
This growth has been driven by improved product quality and variety and the increasing need for inexpensive and healthy food items that
require minimal preparation. Despite rapid growth, many categories of frozen and refrigerated hand-held foods have achieved minimal household
penetration. We believe we have been successful in establishing and maintaining supply relationships with certain selected leading retailers
in this market.
Frozen
Food Products – Sales and Marketing
Our
frozen food business covers the United States. Products produced by the Frozen Food Products segment are generally supplied to food service
and retail distributors who take title to the product upon shipment receipt through Company-leased long-haul vehicles. In addition to
regional sales managers, we maintain a network of independent food service and retail brokers covering most of the United States. Brokers
are compensated on a commission basis. We believe that our broker relationships, in close cooperation with our regional sales managers,
are a valuable asset providing significant new product and customer opportunities. Regional sales managers perform several significant
functions for us, including identifying and developing new business opportunities and providing customer service and support to our distributors
and end purchasers through the effective use of our broker network.
Our
annual advertising expenditures are directed towards retail and institutional customers. These customers participate in various special
promotional and marketing programs and direct advertising allowances we sponsor. We also invest in general consumer advertising in various
periodicals, and coupons to advertise in major markets. We direct advertising toward food service customers with campaigns in major industry
publications and through our participation in trade shows throughout the United States. Our advertising strategy includes our presence
on social media and online distribution of promotional material.
Snack
Food Products
During
fiscal year 2022, our snack food products division sold approximately 160 different items through customer-owned distribution centers
and a direct-store-delivery network serving approximately 20,000 supermarkets, mass merchandise and convenience retail stores located
in 50 states.
Products
produced or distributed by the Snack Food Products segment are supplied to customers through either direct delivery to customer warehouses
or direct-store-delivery to retail locations. We utilize customer managed warehouse distribution centers to lower distribution cost.
Product delivered to the customer’s warehouse is then distributed to the store where it is resold to the end consumer. Our direct-store-delivery
system focus emphasizes high quality service and supply of our premium branded product to our customers. We also provide the service
of setting up and maintaining the display and restocking our products.
Snack
Food Products — Customers
Our
customers are comprised of large retail chains and smaller “independent” operators. This part of our business is highly competitive.
Proper placement of our product lines is critical to selling success since most items could be considered “impulse” items
which are often consumed shortly after purchase. Our ability to sell successfully to this distribution channel depends on aggressive
marketing and maintaining relationships with key buyers.
Snack
Food Products — Sales and Marketing
Snack
food products are distributed across the United States. Regional sales managers perform several significant functions including identifying
and developing new business opportunities and providing customer service and support to our customers. We also utilize the services of
brokers, where appropriate, to support efficient product distribution and customer satisfaction. We sponsor a fishing team which participates
at the highest levels of both the Fishing League Worldwide (also known as the “FLW”) and Wild West Bass Trail.
Product
Planning and Research and Development
We
continually monitor the consumer acceptance of each product within our extensive product line. Individual products are regularly added
to and deleted from our product line. Historically, the addition or deletion of any individual product has not had a material effect
on our operations at fiscal yearend. We believe that a key factor in the success of our products is our system of carefully targeted
research and testing of our products to ensure high quality and that each product matches an identified market opportunity. The emphasis
in new product introductions in the past several years has been on single-serve items. We are constantly searching to develop new products
to complement our existing product lines and improve processing techniques and formulas. We utilize an in-house test kitchen and consultants
to research and experiment with unique food preparation methods, improve quality control and analyze new ingredient mixtures.
Competition
Our
products are sold under highly competitive conditions. All food products can be considered competitive with other food products, but
we consider our principal competitors to include national, regional, and local producers and distributors of refrigerated, frozen and
non-refrigerated snack food products. Several of our competitors include large companies with substantially greater financial and marketing
resources than ours. Existing competitors may broaden their product lines and potential competitors may enter or increase their focus
on our markets, resulting in greater competition for us. We believe that our products compete favorably with those of our competitors.
Such competitors’ products compete against ours for retail shelf space, institutional distribution, and customer preference.
Effect
of Government Regulations
Our
operations are subject to extensive inspection and regulation by the United States Department of Agriculture (the “USDA”),
the Food and Drug Administration (the “FDA”), and by other federal, state, and local authorities regarding the processing,
packaging, storage, transportation, distribution, and labeling of products that we manufacture, produce and process. Our processing facilities
and products are subject to continuous inspection by the USDA and/or other federal, state, and local authorities. The USDA has issued
strict regulations concerning the control of listeria monocytogenes in ready-to-eat meat and poultry products and contamination by food
borne pathogens such as E. coli and salmonella and implemented a system of regulation known as the Hazard Analysis Critical Control Points
(“HACCP”) program. The HACCP program requires all meat and poultry processing plants to develop and implement sanitary operating
procedures and other program requirements. OSHA oversees safety compliance and establishes certain employer responsibilities to help
“assure safe and healthful working conditions” and keep the workplace free of recognized hazards or practices likely to cause
death or serious injury. We believe that we are currently in compliance with governmental laws and regulations and that we maintain the
necessary permits and licenses relating to our operations.
To
date, federal, state, and local environmental laws, and regulations, including those relating to the discharge of materials into the
environment, have not had a material effect on our business.
Importance
of Key Customers
Sales
to Wal-Mart® comprised 29.8% of revenues in fiscal year 2022 and 26.1% of total accounts receivable was due from Wal-Mart® as
of October 28, 2022. 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. The increase in accounts receivable from Wal-Mart® as of October 28, 2022 versus October
29, 2021 is attributable to the Company no longer accelerating payments from Wal-Mart®. Sales to Dollar General® comprised 16.9%
of revenues in fiscal year 2022 and 19.9% of total accounts receivable was due from Dollar General® as of October 28, 2022. 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.
Sources
and Availability of Raw Materials
We
purchase large quantities of pork, beef, and flour. These ingredients are generally available from a number of different suppliers although
the availability of these ingredients is subject to seasonal variation. We build ingredient inventories to take advantage of downward
trends in seasonal prices or anticipated supply limitations.
We
purchase bulk flour under short-term fixed price contracts at current market prices. The contracts are usually effective for and settle
within three months or less. We monitor and manage our ingredient costs to help negate volatile daily swings in market prices when possible.
We do not participate in the commodity futures market or hedging to limit commodity exposure.
Employees
We
had 705 employees (695 full-time employees) as of October 28, 2022, approximately 45% of whose employment relationship is governed by
collective bargaining agreements. These agreements currently expire between September 2023 and March 2027. We believe that our relationship
with all of our employees is favorable and that contracts will be settled favorably.
Item
1A. Risk Factors
In
addition to the other matters set forth in this Report, the continuing operations and the price of our common stock are subject to the
following risks, each of which could materially adversely affect our business, financial condition, and results of operations. The risks
described below are only the risks that we currently believe are material to our business. However, additional risks not presently known,
or risks that are currently believed to be immaterial, may also impair our business operations.
We
are subject to general risks in the food industry, including, among other things, risk relating to changes in consumer preferences and
product contamination as well as general economic conditions, any of which risks, if realized, could negatively impact our operating
results and financial position.
The
food industry, and the markets within the food industry in which we compete, are subject to various risks, including the following: evolving
consumer preferences, nutritional and health-related concerns, federal, state, and local food inspection and processing controls, consumer
product liability claims, risks of product tampering, and the availability and expense of liability insurance. The meat and poultry industries
are subject to scrutiny due to the association of meat and poultry products with recent outbreaks of illness, and on rare occasions even
death, caused by food borne pathogens. Product recalls are sometimes required in the food industry to withdraw contaminated or mislabeled
products from the market. Additionally, the failure to identify and react appropriately to changes in consumer trends, demands and preferences
could lead to, among other things, reduced demand, and price reduction for our products. Further, we may be adversely affected by changes
in domestic or foreign economic conditions, including inflation or deflation, interest rates, availability of capital markets, consumer
spending rates, and energy availability and costs (including fuel surcharges). These and other general risks related to the food industry,
if realized by us, could have a significant adverse effect on demand for our products, as well as the costs and availability of raw materials,
ingredients, and packaging materials, thereby negatively affecting our operating results and financial position.
Fluctuations
in commodity prices and the availability of raw materials could negatively impact our financial results.
We
purchase large quantities of commodity pork, beef, and flour. Historically, market prices for products we process have fluctuated in
response to a number of factors, including changes in the United States government farm support programs, changes in international agricultural
and trading policies, weather, and other conditions during the growing and harvesting seasons. Our operating results are heavily dependent
upon the prices paid for raw materials, as well as the available supply of commodities. Commodity costs have and may continue to fluctuate
due to political and economic conditions, including the ongoing conflicts between Ukraine and Russia. The marketing of our value-added
products does not lend itself to instantaneous changes in selling prices. In addition, if we increase prices to offset higher costs,
we could experience lower demand for our products and sales volumes. Conversely, decreases in our commodity and other input costs may
create pressure on us to decrease our prices. Changes in selling prices are relatively infrequent and do not compare with the volatility
of commodity markets. Production and pricing of commodities, on the other hand, are determined by constantly changing market forces of
supply and demand over which we have limited or no control. Such factors include, among other things, weather patterns throughout the
world, outbreaks of disease, the global level of supply inventories and demand for grains and other feed ingredients, as well as agricultural
and energy policies of domestic and foreign governments. While fluctuations in significant cost structure components, such as ingredient
commodities and fuel prices, have had a significant impact on profitability over the last three years, the impact of general price inflation
on our financial position and results of operations has not been significant. However, current inflationary market conditions may have
a negative impact on future earnings. Future volatility of general price inflation or deflation and raw material cost and availability
could adversely affect our financial results.
We
are subject to extensive government regulations and a failure to comply with such regulations could negatively impact our financial results.
Our
operations are subject to extensive inspection and regulation by the USDA, FDA and by other federal, state, and local authorities regarding
the processing, packaging, storage, transportation, distribution, and labeling of products that are manufactured, produced, and processed
by us. Our processing facilities and products are subject to continuous inspection by the USDA and/or other federal, state, and local
authorities. The USDA has issued strict regulations concerning the control of listeria monocytogenes in ready-to-eat meat and poultry
products and contamination by food borne pathogens such as E. coli and salmonella and implemented a system of regulation known as the
HACCP program. The HACCP program requires all meat and poultry processing plants to develop and implement sanitary operating procedures
and other program requirements. OSHA oversees safety compliance and establishes certain employer responsibilities to help “assure
safe and healthful working conditions” and keep the workplace free of recognized hazards or practices likely to cause death or
serious injury. We believe that we are currently in compliance with governmental laws and regulations and that we maintain necessary
permits and licenses relating to our operations.
A
failure to obtain or a loss of necessary permits and licenses could delay or prevent us from meeting current product demand and could
adversely affect our operating performance. Furthermore, we are routinely subject to new or modified laws, regulations, and accounting
standards. If found to be out of compliance with applicable laws and regulations in these or other areas, we could be subject to civil
remedies, including fines, injunctions, recalls, or asset seizures, as well as potential criminal sanctions, any of which could have
a significant adverse effect on our financial results.
We
depend on our key management, the loss of which could negatively impact our operations.
Our
executive officers and certain other key employees have been primarily responsible for the development and expansion of our business,
and the loss of the services of one or more of these individuals could adversely affect us. Our success will be dependent in part upon
our continued ability to recruit, motivate, and retain qualified personnel. We cannot assure that we will be successful in this regard.
We have no employment or non-competition agreements with key personnel except for (1) a consulting agreement with Allan L. Bridgford
Sr. that became effective October 30, 2021, after his retirement from employment with our company, (2) a consulting agreement with Raymond
F. Lancy which will become effective on February 1, 2022, after his retirement from employment with our company and (3) a consulting
agreement with Allan Bridgford Jr. to provide consulting services to the Chicago plant and management.
Labor
shortages and increased turnover or increases in employee and employee-related costs could have adverse effects on our profitability.
We
have recently experienced increased labor shortages at some of our production facilities and other locations. While we have historically
experienced some level of ordinary course turnover of employees, the COVID-19 pandemic and resulting actions and impacts have exacerbated
labor shortages and increased turnover. A number of factors have had and may continue to have adverse effects on the labor force available
to us, including reduced employment pools, federal unemployment subsidies, including unemployment benefits offered in response to the
COVID-19 pandemic, and other government regulations, which include laws and regulations related to workers’ health and safety,
wage and hour practices and immigration. Labor shortages and increased turnover rates within our team members have led to and could in
the future lead to increased costs, such as increased overtime to meet demand and increased wage rates to attract and retain employees
and could negatively affect our ability to efficiently operate our production facilities or otherwise operate at full capacity. An overall
or prolonged labor shortage, lack of skilled labor, increased turnover or labor inflation could have a material adverse impact on our
operations, results of operations, liquidity, or cash flows.
We
depend on our major customers and any loss of such customers could have a negative impact on our profitability.
We
could suffer significant reductions in revenues and operating income if we lost one or more of our largest customers, including Wal-Mart®
and Dollar General®, which accounted for 29.8% and 16.9%, respectively, of sales in fiscal year 2022. The increase in accounts receivable
from Wal-Mart® as of October 28, 2022 versus October 29, 2021 is attributable to the Company no longer accelerating payments from
Wal-Mart®. Many of our customers, such as supermarkets, warehouse clubs, and food distributors have consolidated in recent years.
Such consolidation has produced large, sophisticated customers with increased buying power who are more capable of operating with reduced
inventories while demanding lower pricing and increased promotional programs. These customers also may use their shelf space for their
own private label products. Failure to respond to these trends could reduce our volume and cause us to lower prices or increase promotional
spending for our product lines which could adversely affect our profitability.
With
more than 80% of our stock beneficially owned by the Bridgford family, there are risks that they can exert significant influence or control
over our corporate matters.
Members
of the Bridgford family beneficially own, in the aggregate, more than 80% of our outstanding stock. In addition, two members of the Bridgford
family currently serve on the Board of Directors. As a result, members of the Bridgford family have the ability to exert substantial
influence or actual control over our management and affairs and over substantially all matters requiring action by our shareholders,
including amendments to by-laws, election and removal of directors, any proposed merger, consolidation or sale of all or substantially
all of our assets and other corporate transactions. This concentration of ownership may also delay or prevent a change in control otherwise
favored by our other shareholders and could depress our stock price. Additionally, as a result of the Bridgford family’s significant
ownership of the outstanding voting stock, we have relied on the “controlled company” exemption from certain corporate governance
requirements of the NASDAQ stock market. Therefore, among other things, we have elected not to implement the rule that provides for a
nominating committee to identify and recommend nominees to the Board of Directors and have instead elected to have the full Board of
Directors perform such function. Additionally, pursuant to this exemption, our compensation committee, which is made up of independent
directors, does not have sole authority to determine the compensation of our executive officers, including our Chairman of the Board.
We
participate in Multiemployer Pension Plans which could negatively impact our operations and profitability.
We
participate in “multiemployer” pension plans administered by labor unions on behalf of their employees. We make monthly contributions
for healthcare and pension benefit obligations. The contribution amount may change depending upon the ability of participating companies
to fund these pension liabilities as well as the actual and expected returns on pension plan assets. Volatility in the capital markets
or interest rates can impact the market value of plan assets and cause volatility in the net periodic benefit cost and our future funding
requirements. The exact amount of cash contributions made to the pension plans in any year is dependent upon a number of factors, including
minimum funding requirements. In addition, should we withdraw from the union and cease participation in a union plan, federal law could
impose a penalty for additional contributions to the plan. The penalty would be recorded as an expense in the consolidated statement
of operations. The ultimate amount of the withdrawal liability is dependent upon several factors including the funded status of the plan
and contributions made by other participating companies. We continue to participate in other multiemployer union plans. In the event
of a full or partial withdrawal from these plans, the impact to our financial statements could be material.
Eminent
domain and land risk regulations could negatively impact our financial results and financial position.
We
own real property on which we operate our processing and/or our distribution operations. As is the case with any owner of real property,
we may be subject to eminent domain proceedings that can impact the value of investments we have made in real property as well as potentially
disrupt our business operations. If subject to eminent domain proceedings or other government takings, we may not be adequately compensated.
The
COVID-19 pandemic could negatively impact our operations and financial condition.
We
have considered the impact of federal, state, and local government actions related to the COVID-19 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 fiscal year ended October 29, 2021, and to a lesser extent for fiscal year ended October 28, 2022. We expect these events to
have future business impacts, 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.
Item
1B. Unresolved Staff Comments
None
Item
2. Properties
We
own the following properties as of October 28, 2022:
Property Location Building Square Footage Acreage
Statesville, North Carolina * 42,000 8.0
* - property used by Frozen Food Products Segment.
** - property used by Snack Food Products Segment.
We
utilize each of the foregoing properties for processing, warehousing, distributing and administrative purposes. We also lease warehouse
and/or office facilities throughout the United States through month-to-month rental agreements. We believe that our properties are generally
adequate to satisfy our foreseeable needs. Additional properties may be acquired and/or plants expanded if favorable opportunities and
conditions arise.
Item
3. Legal Proceedings
No
material legal proceedings were pending against us as of October 28, 2022, or as of the date of filing of this Report. We are likely
to be subject to claims arising from time to time in the ordinary course of our business. In certain of such actions, plaintiffs may
request punitive or other damages that may not be covered by insurance and, accordingly, no assurance can be given with respect to the
ultimate outcome of any such possible future claims or litigation or their effect on us. Any adverse litigation trends and outcomes could
significantly and negatively affect our financial results.
Item
4. Mine Safety Disclosures
Not
applicable.
PART
II
Item
5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Common
Stock and Dividend Data
Our
common stock is traded on the Nasdaq Global Market under the symbol “BRID”.
As
of January 23, 2023, there were 883 shareholders of record in our common stock.
The
payment of future dividends, if any, will be at the discretion of our Board of Directors and will depend upon future earnings, financial
requirements, and other factors.
Unregistered
Sales of Equity Securities
During
the period covered by this Report, we did not sell or issue any equity securities that were not registered under the Securities Act of
1933, as amended.
Repurchases
of Equity Securities by the Issuer
Our
stock repurchase program was approved by our Board of Directors in November 1999 and was expanded in June 2005. Under the stock repurchase
program, we are authorized, at the discretion of management and our Board of Directors, to purchase up to an aggregate of 2,000,000 shares
of our common stock on the open market. During fiscal years 2022 and 2021, we did not repurchase any shares of our common stock pursuant
to our stock repurchase program previously authorized by the Board of Directors. As of October 28, 2022, 120,113 shares remained authorized
for repurchase under the program.
Item
6. [Reserved]
Item
7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
For
a complete understanding, this Management’s Discussion and Analysis of Financial Condition and Results of Operations should be
read in conjunction with the Consolidated Financial Statements and Notes to the Consolidated Financial Statements contained in this Report.
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 (refer to Part I., Item 1. Business for more information).
Results
of Operations (in thousands except percentages)
Fiscal
Year Ended October 28, 2022 (52 weeks) Compared to Fiscal Year Ended October 29, 2021 (52 weeks)
Net
Sales-Consolidated
Net
sales in fiscal year 2022 increased $25,468 (10.6%) when compared to the prior fiscal year. The changes in net sales were comprised as
follows:
Impact on Net Sales-Consolidated % $
Unit sales volume in pounds 3.0 7,597
Returns activity -0.2 (831 )
Promotional activity -0.7 (3,003 )
Net
Sales-Frozen Food Products Segment
Net
sales in the Frozen Food Products segment in fiscal year 2022 increased $14,744 (35.5%) compared to the prior fiscal year. The changes
in net sales were comprised as follows:
Impact on Net Sales-Frozen Food Products % $
Selling price per pound 8.5 3,949
Returns activity 0.2 55
Promotional activity -1.3 (2,320 )
The
increase in net sales for fiscal year 2022 primarily relates to higher unit sales volume in pounds coupled with a higher selling price
per pound. The increase in net sales was primarily driven by a significant increase in volume to institutional customers and an increase
in selling prices due to price increases implemented during the fourth quarter of fiscal year 2021 and second quarter of fiscal year
2022. Other institutional Frozen Food Products sales, including sheet dough and rolls, increased 44% by volume and retail sales volume
decreased 6%. Demand has shifted from retail to foodservice sales channels as schools and in-dining restaurants have reopened in response
to the lifting of restrictions caused by the COVID-19 pandemic. Returns activity decreased compared to the 2021 fiscal year. Promotional
activity was higher in fiscal year 2022 as a percentage of sales due to increased sales to high promotion customers.
Net
Sales-Snack Food Products Segment
Net
sales in the Snack Food Products segment in fiscal year 2022 increased $10,724 (5.4%) compared to the prior fiscal year. The changes
in net sales were comprised as follows:
Impact on Net Sales-Snack Food Products % $
Unit sales volume in pounds -2.6 (5,463 )
Returns activity -0.4 (886 )
Promotional activity -0.1 (683 )
Net
sales of Snack Food Products increased due to higher average selling prices per pound compared to fiscal year 2021. Price increases were
implemented in the second quarter of fiscal year 2022 in response to record high meat commodity input costs. Unit sales volume in pounds
through our direct store delivery distribution channel decreased due to lower demand caused by inflationary pressures on consumer spending
habits. Returns activity was higher compared to the 2021 fiscal year. Promotional offers increased slightly compared to fiscal year 2021.
Cost
of Products Sold and Gross Margin-Consolidated
Cost
of products sold from continuing operations increased by $4,791 (2.5%) compared to the prior fiscal year. The gross margin increased
from 21.4% to 27.1% during fiscal year 2022 compared to the prior fiscal year.
Change in Cost of Products Sold by Segment $ % Commodity $ Increase
Cost
of Products Sold and Gross Margin–Frozen Food Products Segment
Cost
of products sold in the Frozen Food Products segment increased by $11,553 (39.1%) in fiscal year 2022 compared to the prior fiscal year.
Higher commodity costs, increased volume and changes in product mix were the primary contributing factors to this increase. The cost
of purchased flour increased approximately $1,844, which contributed to the increase in costs of goods sold. The gross margin percentage
decreased from 28.8% to 26.9% during fiscal year 2022 compared to the prior fiscal year.
Cost
of Products Sold and Gross Margin–Snack Food Products Segment
Cost
of products sold in the Snack Food Products segment decreased by $6,762 (4.2%) compared to the prior fiscal year due primarily to lower
unit sales volume. Meat commodity costs increased during fiscal year 2022 partially offsetting the decrease in cost of products sold.
The cost of meat commodities increased approximately $7,949 during fiscal year 2022 compared to the prior fiscal year. As a result, a
net realizable value reserve of $131 was recorded during the fiscal year after determining that the market value on some meat products
was less than the costs associated with production and sale of the product. Higher depreciation on processing equipment impacted the
cost of products sold. The gross margin earned in this segment increased from 19.8% to 27.1% during fiscal year 2022.
Selling,
General and Administrative Expenses-Consolidated
Selling,
general and administrative expenses (“SG&A”) in fiscal year 2022 increased $5,107 (8.5%) when compared to the prior fiscal
year. The increase in this category did not directly correspond to the change in sales.
The
table below summarizes the primary expense variances in this category:
Higher
sales commissions resulted in higher wages and bonus expenses in the 2022 fiscal year compared to the 2021 fiscal year. The decrease
in pension expense was a result of an increase in pension plan assets caused by the performance of the underlying markets that support
them as well as higher pension discount rates resulting in lower liability. The increase in fuel expense was driven by per gallon fuel
price increases compared to the prior year as a result of higher cost trends in petroleum markets. Costs for product advertising increased
mainly as a result of higher payments under brand licensing agreements in the Snack Food Products segment during fiscal year 2022. Healthcare
costs have increased due to unfavorable claim trends. Other income decreased due to a gain on life insurance proceeds caused by the passing
of a former executive employee during the fourth quarter of fiscal year 2021. Vehicle repairs and maintenance on vehicles have increased
compared to the prior year period mainly due to an aging fleet. Rent for storage units that house inventory increased due to inflationary
price pressure. Travel expenses increased due to the lifting of travel restrictions and stay-at-home orders which had been imposed in
response to the COVID-19 pandemic. Outside storage costs to warehouse products prior to shipment increased due to reaching storage capacity
at our new Chicago facility as a result of higher sales volume. None of the changes individually or as a group of expenses in “Other
SG&A” were significant enough to merit separate disclosure. The major components comprising the increase of “Other SG&A”
expenses were higher sales taxes, office supplies and professional fees.
Selling,
General and Administrative Expenses-Frozen Food Products Segment
SG&A
expenses in the Frozen Food Products segment increased by $2,664 (22.3%) compared to the prior fiscal year. The overall increase in SG&A
expenses was due to higher sales volume and corresponding increased wages and bonus and product advertising partially offset by lower
pension expense.
Selling,
General and Administrative Expenses-Refrigerated and Snack Food Products Segment