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, 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. Outbreaks of disease and other events, which may be beyond our control, could significantly affect demand for
and consumer perception of our food products and result in negative publicity that may have an adverse effect on our ability to market
our products successfully. Product recalls are also 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. Changes in consumer eating habits may also result
in the enactment or amendment of laws and regulations that impact the sourcing, ingredients, and nutritional content of our food products.
Finally, 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). We have
been experiencing high levels of inflations these past few years, which has had varying impacts on our business. Such prolonged periods
of inflation decrease consumers’ discretionary spending, which negatively impacts our results of operations. 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.
Climate change and related
climate change regulations, including with respect to greenhouse gas effects, may negatively affect our results of operations.
Climate change and rising
global temperatures may contribute to changing weather patterns, droughts, heavier or more frequent storms and wildfires, and increased
frequency and severity of natural disasters. If such climate change has a negative impact on agricultural productivity, we may have decreased
availability or less favorable pricing for the raw materials necessary for our operations. Increased frequency or duration of extreme
weather conditions could cause disruptions in our operations and supply chain, or impact demand for our products.
Increasing concern over climate
change also may result in additional legal or regulatory requirements designed to manage greenhouse gas emissions, climate risks, and
resulting environmental impacts. If such requirements are enacted, we could experience significant cost increases in our operations and
supply chain.
Further, such requirements
may obligate us to make certain climate-related disclosures and set goals for reducing our carbon footprint. While we are committed
to mitigating our impact on the environment and managing greenhouse gas emissions, there can be no assurance that we will accomplish such
goals. If we fail to achieve any such goals related to climate change or the related expectations from stakeholders and consumers
are not met, the resulting negative publicity could adversely impact our results of operations in part as a consequence of changes in
consumer preferences for our products.
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 conflict 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. If there
is a lag between when costs increase and when we are able to increase selling prices, our profits margins may suffer. 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 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. However, we have consulting agreements with each of (1) our former Vice President and current director
Allan L. Bridgford Sr., (2) our former Chief Financial Officer and current director Raymond F. Lancy, (3) our former director and President
of Bridgford Food Processing Corporation Allan Bridgford Jr.
We depend on our major
customers and any loss of such customers could have a negative impact on our profitability.
Sales to Wal-Mart® comprised
27.8% of revenues in fiscal year 2024 and 25.4% of total accounts receivable was due from Wal-Mart® as of November 1, 2024. Sales
to Dollar General® comprised 14.2% of revenues in fiscal year 2024 and 20.2% of total accounts receivable was due from Dollar General®
as of November 1, 2024. 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.
Labor shortages and increased
turnover or increases in employee and employee-related costs could have adverse effects on our profitability.
We have historically experienced
some level of ordinary course of business turnover of employees. 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, 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.
Disputes with labor unions
could have an adverse impact on our operations and financial results.
As of November 1, 2024, approximately
278 of our employees were covered by collective bargaining agreements. We depend on the availability of, and good relations with, our
teams’ members. If we fail to maintain good relations, we may experience strikes or work stoppages, which could have a material
adverse impact on our operations, results of operations, liquidity, or cash flows.
Our business and reputation
could suffer if we experience security breaches and other disruptions to our information technology infrastructure.
We are dependent on information
technology systems, some of which are managed by third-parties, to process, transmit, and store electronic information and to manage or
support a variety of business processes and activities, including distribution, invoicing, and collection of payment. We also collect
and store confidential data from our customers and suppliers in data centers, which are owned by third parties and maintained on their
information technology networks. These complex systems are an important part of ongoing operations. Any failure of these systems could
disrupt our operations and could have a material adverse effect on our business, results of operations, and financial condition. Further,
despite our internal controls and security measures, there can be no assurance that we will be able to evade cyberattacks, disruptions,
or security breaches. We have implemented cyber-security initiatives to mitigate our exposure to these risks, but these measures may not
be adequate Although we have not suffered any significant cyber incidents that resulted in material business impact, we have from time
to time been, and expect to continue to be, the target of malicious cyber threat actors.
With approximately 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, approximately 80% of our outstanding stock. In addition, two members of the Bridgford family currently
serve on the Board of Directors and two members of the Bridgford family serve on the Executive Committee. 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. However, we have not elected to rely on the exemption
with respect to our compensation committee, which is made up entirely of independent directors and has 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 on 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.
Item 1B. Unresolved Staff Comments
None.
Item 1C. Cybersecurity
We maintain an information
security and cybersecurity program, as well as a cybersecurity governance framework, which are designed to protect our information systems
against operational risks related to cybersecurity.
Cybersecurity Risk Management and Strategy
We recognize the importance
of assessing, identifying, and managing material risks associated with cybersecurity threats which include, among other things, operational
risks, intellectual property theft, fraud or extortion, harm to employees or customers, violation of privacy or security laws and related
litigation and legal risk, and reputational risks.
We have developed and implemented
a cybersecurity risk management program overseen by our Audit Committee intended to protect the confidentiality, integrity, and availability
of our critical systems and information, and detect and contain any cybersecurity incidents that impact us. The program is integrated
into our overall risk management systems and processes, and includes a cybersecurity risk assessment process that routinely evaluates
potential impacts of cybersecurity risks on our business, including risks from cybersecurity threats associated with our use of third-party
service providers. These assessments inform our cybersecurity risk mitigation strategies. The results are regularly shared with our information
technology committee comprised of our Vice President of Information Technology, our Information Technology Manager, our President and
our Chief Financial Officer (the “IT Steering Committee”) and the Audit Committee of our Board as part of the committees’
involvement in managing and overseeing cybersecurity risks.
Our cybersecurity risk management
program also includes processes to triage, assess the severity of, escalate, contain, investigate, and remediate an incident, as well
as to comply with potentially applicable legal obligations and mitigate brand and reputational damage. If a cybersecurity incident is
determined to be a potentially material cybersecurity incident, our disclosure controls and procedures define the steps to determine materiality
and disclose such a material cybersecurity incident.
In addition, we engage
an independent third-party provider in connection with our cybersecurity risk management program to monitor cybersecurity threats and
provide certain security measures. We regularly engage with this provider to aid in the identification and remediation of potential threats.
This provider has qualifications that include Microsoft Certified: Security, Compliance, and Identity Fundamentals, Certified Information
Systems Security Professional (CISSP), Certified Hacking Forensic Investigator, Certified Ethical Hacker (CEH) and Security+.
While we believe that our
business strategy, results of operations or financial condition have not been materially adversely affected by any cybersecurity incidents,
cybersecurity threats are pervasive and, similar to other institutions, we, as well as our employees, customers, regulators, service providers,
and other third parties have experienced a significant increase in information security and cybersecurity risk in recent years and will
likely continue to be the potential target of cyber attacks. We continue to assess the risks and changes in the cyber environment and
invest in enhancements to our cybersecurity capabilities as deemed necessary to promote advancements in our cybersecurity capabilities.
Cybersecurity Governance
Our cybersecurity risk management
program is overseen by the Audit Committee and led by the IT Steering Committee. Our Audit Committee is responsible in overseeing risks
from cybersecurity threats, and has the authority to regularly review the adequacy of our cybersecurity, information and technology security,
and data privacy programs, procedures, and policies. Our IT Steering Committee, led by the Vice President of Information Technology,
is primarily responsible for monitoring, assessing, and managing material risks from cybersecurity threats.
The Audit Committee regularly
receives updates from the IT Steering Committee / management with respect to our efforts to manage data protection, cybersecurity, and
information and technology risks, and assesses the results of reviews from internal audits. Materials presented to our Audit Committee
by our IT Steering Committee include updates on our data security posture, results from internal audit and third-party assessments, our
incident response plan, and certain cybersecurity threat risks or incidents and developments, as well as the steps management has taken
to respond to such risks. The Audit Committee / IT Steering Committee also regularly engages with management on technology risk-related
topics.
Our processes also allow for our Board and the
Audit Committee to be informed of key cybersecurity risks outside the regular reporting schedule. While the Audit Committee meets periodically,
the Audit Committee is authorized to meet with management or individual directors at any time it deems appropriate to discuss matters
relevant to the committee. Our policy is for the Board and the Audit Committee to receive prompt and timely information regarding any
cybersecurity risk (including any incident) that meets reporting thresholds, as well as ongoing updates regarding any such risk.
Item 2. Properties
We own the following properties
as of November 1, 2024:
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 November 1, 2024, 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 22, 2025, there
were 1,031 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 2024 and 2023, 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 November 1, 2024, 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 (dollars in thousands)
Fiscal Year Ended November 1, 2024 (52 weeks)
Compared to Fiscal Year Ended November 3, 2023 (53 weeks)
Net Sales-Consolidated
Net sales in fiscal year 2024 decreased $27,991
(11.1%) when compared to the prior fiscal year. The changes in net sales were comprised as follows:
Impact on Net Sales-Consolidated % $
Selling price per pound -0.4 (1,138 )
Unit sales volume in pounds -8.8 (23,988 )
Promotional activity -1.8 (3,242 )
Net Sales-Frozen Food Products Segment
Net sales in the Frozen Food Products segment
in fiscal year 2024 increased $770 (1.3%) 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 3.2 2,117
Unit sales volume in pounds -1.3 (837 )
Promotional activity -0.9 (687 )
Increase in net sales 1.3 770
The increase in net sales for fiscal year 2024
primarily relates to higher selling prices per pound partially offset by lower unit sales volume in pounds. The increase in net sales
was primarily driven by a significant increase in volume to institutional customers and an increase in selling price per pound due to
price increases implemented during the fourth quarter of fiscal year 2023. Other institutional Frozen Food Products sales, including sheet
dough and rolls, increased 8% by volume and retail sales volume decreased 8%. Returns activity decreased compared to the 2023 fiscal year.
Promotional activity was higher in fiscal year 2024 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 2024 decreased $28,761 (14.8%) compared to the prior fiscal year. The changes in net sales were comprised as follows:
Impact on Net Sales-Snack Food Products % $
Selling price per pound -1.6 (3,254 )
Unit sales volume in pounds -11.1 (23,152 )
Promotional activity -1.8 (2,555 )
Net sales of Snack Food Products decreased due
to lower sales through our direct-store-delivery distribution channel during the fiscal year 2024. The weighted average selling price
per pound decreased compared to fiscal year 2023 due to changes in product mix. Unit sales volume in pounds was lower compared to the
prior fiscal year. We believe demand decreased primarily due to inflationary pressure on consumer spending habits as consumers have pulled
back on meat product purchases. Returns activity was lower in dollars but higher as a percentage of sales compared to the 2023 fiscal
year. Promotional offers increased due to higher promotional deductions and billbacks by customers compared to fiscal year 2023.
Cost of Products Sold and Gross Margin-Consolidated
Cost of products sold from continuing operations
decreased on a consolidated basis by $13,962 (7.7%) during fiscal year 2024 compared to the prior fiscal year. The gross margin decreased
from 28.0% to 25.2% during fiscal year 2024 compared to the prior fiscal year.
Frozen Food Products Segment (776 ) -0.4 (522 )
Cost of Products Sold and Gross Margin–Frozen
Food Products Segment
Cost of products sold in the Frozen Food Products
segment decreased by $776 (1.8%) in fiscal year 2024 compared to the prior fiscal year. Lower unit sales volume in pounds and changes
in the product mix were the primary contributing factors to this decrease. The cost of purchased flour decreased approximately $522 contributing
to the decrease in costs of goods sold. The gross margin percentage increased from 25.1% to 27.4% during fiscal year 2024 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 $13,186 (9.5%) during fiscal year 2024 compared to the prior fiscal year due primarily to lower unit sales volume
in our direct-store-delivery distribution channel. The cost of meat commodities increased approximately $4,900 during fiscal year 2024
compared to the prior fiscal year due to unfavorable fluctuations in commodity markets. We increased our net realizable value reserve
by $1,174 during fiscal year 2024 after determining that the market value on some meat products was less than the costs associated with
production and sale of the product. We maintained a net realizable reserve of $1,467 on products as of November 1, 2024. The gross margin
earned in this segment decreased from 28.8% to 24.4% during fiscal year 2024.
Selling, General and Administrative Expenses-Consolidated
Selling, general and administrative expenses (“SG&A”)
in fiscal year 2024 decreased $3,118 (4.8%) when compared to the prior fiscal year. The decrease in this category did not directly correspond
to the change in sales.
The table below summarizes the primary expense
variances in this category:
Lower sales commissions paid on reduced sales
resulted in lower wages and bonus expenses in the 2024 fiscal year compared to the 2023 fiscal year. The increase in pension cost was
a result of lower values in pension plan assets caused by the performance of the underlying markets that support them as well as lower
pension discount rates resulting in higher liability. Costs for product advertising decreased mainly as a result of lower payments under
brand licensing agreements in the Snack Food Products segment during fiscal year 2024. Healthcare costs have increased due to unfavorable
claim trends. Outside consulting costs increased due to higher legal fees, advisory services, inspection and product testing fees. Vehicle
repairs and maintenance on vehicles have increased compared to the prior fiscal year period mainly due to an aging fleet. 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 decrease of “Other SG&A” expenses were lower provision for doubtful accounts, lower postage
and insurance expenses and higher rental income partially offset by higher travel and business expense.
Selling, General and Administrative Expenses-Frozen Food Products
Segment
SG&A expenses in the Frozen Food Products
segment decreased by $241 (1.7%) during fiscal year 2024 compared to the prior fiscal year. The overall decrease in SG&A expenses
was due to lower unit sales volume in pounds, lower equipment rental and lower fuel expenses related to a reduction in the number of company-owned
long-haul trucks partially offset by an increase in insurance expenses and broker commissions.
Selling, General and Administrative Expenses-Refrigerated
and Snack Food Products Segment
SG&A expenses in the Snack Food Products segment
decreased by $2,877 (5.6%) during fiscal year 2024 compared to the prior fiscal year. Most of the decrease was due to the significantly
lower unit sales volume in pounds and the corresponding decrease in wages and bonuses, and lower payments under brand licensing agreements.
Loss on Sale of Property, Plant and Equipment
Losses on the sale of property, plant
and equipment were due to the ordinary disposal of assets located in both the Frozen Food Products segment, $96 and $75, for fiscal years
2024 and 2023, respectively, and Snack Food Products segments, $50 and $86, for fiscal years 2024 and 2023, respectively.
Income Taxes
Income tax for fiscal years 2024 and 2023, respectively,
was as follows:
(Benefit on) provision for income taxes $ (1,311 ) $ 1,021
Effective tax rate 27.9 % 22.7 %
We recorded a tax benefit of $1,311 and tax provision
of $1,021, for fiscal years 2024 and 2023, respectively, related to federal and state taxes, based on the Company’s expected annual
effective tax rate. The effective tax rate was 27.9% and 22.7% for fiscal years 2024 and 2023, respectively. In addition, the effective
tax rates for fiscal years 2024 and 2023 were impacted by such items as non-deductible meals and entertainment, non-taxable gains and
losses on life insurance policies and state income taxes. (Refer to Note 4 of Notes to Consolidated Financial Statements included within
this Report for more information).
Liquidity and Capital Resources (dollars in
thousands)
The principal source of operating cash flows is
cash receipts from the sale of our products, net of costs to manufacture, store, market and deliver such products. We normally fund our
operations from cash balances and cash flow generated from operations. Additionally, we have maintained a revolving line of credit with
Wells Fargo Bank, N.A. pursuant to the terms of the credit agreement dated March 1, 2018, as amended to date. On November 30, 2024, we
entered into a sixth amendment to the credit agreement with Wells Fargo Bank, N.A., and also executed a new revolving line of credit note
pursuant to the amendment. Under the terms of this amendment and the revolving line of credit note, we may borrow up to $7,500 from time
to time up to November 30, 2025. As of November 1, 2024, we had $1,084 of current debt on equipment loans, $61,536 of net working capital
and $7,500 available under our revolving line of credit with Wells Fargo Bank, N.A. Refer to Note 5 to the Consolidated Financial Statements
and the “Revolving Credit Facility” and “Loan Covenants” included within this Report for further information.
The Company was in compliance with all loan covenants as of November 1, 2024.
All of our operating segments have been impacted
by inflation, including higher costs for labor, freight and specific materials related to product manufacturing and delivery through fiscal
year 2024. Additionally, commodity costs, including meat and flour costs, have and may continue to fluctuate due to both political and
economic conditions, including the ongoing conflict between Ukraine and Russia. Despite higher commodity costs like we experienced in
fiscal year 2024, we may not be able to increase our product prices in a timely manner or sufficiently to offset such increased commodity
or other costs due to consumer price sensitivity, pricing in relation to competitors and the reluctance of retailers to accept a price
increase. Instances of higher interest rates, general price inflation or deflation, raw materials costs, labor shortages or supply chain
issues could adversely affect the Company’s financial results and its liquidity. Higher product prices and promotions 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 and the performance of operating divisions and economic conditions of capital markets. If
we are unable to increase liquidity through mortgaging real estate or additional borrowing, 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.
With the cash expected to be generated from the Company’s operations, we anticipate that we will maintain sufficient liquidity or
exercise a portion of the line of credit to operate our business for at least the next twelve months. We will continue to monitor the
impact of inflation and interest rate volatility on our liquidity and, if necessary, take action to preserve liquidity and ensure that
our business can operate during these uncertain times.
Cash flows (used in) provided by operating
activities:
Depreciation and amortization 6,540 6,558
(Recoveries on) provision for losses on accounts receivable (126 ) 147
Provision for (reduction in) promotional allowances 307 (679 )
Loss on sale of property, plant and equipment 146 161
Deferred income taxes, net (720 ) (631 )
Changes in assets and liabilities (3,263 ) (5,045 )
Net cash (used in) provided by operating activities $ (497 ) $ 3,985
For the fifty-two weeks ended November 1, 2024,
net cash used in operating activities was $497, a decrease of $4,482 in cash flows compared to the fifty-three weeks ended November 3,
2023. The decrease in net cash provided by operating activities primarily relates to a net loss of $3,381, an increase in refundable income
taxes of $1,240 and an increase of other non-current assets of $3,320, partially offset by a decrease in inventory of $7,235 due to selling
down inventory finished goods to adjust to lower consumer demand. During fiscal year 2024, we did not contribute towards our defined benefit
pension plan. Plan funding strategies may be adjusted depending upon economic conditions, investment options, tax deductibility, or legislative
changes in funding requirements.
Our cash conversion cycle (defined as days of
inventory and trade receivables less days of trade payables outstanding) was equal to 84 days for the fifty-two weeks ended November 1,
2024, and 83 days for the fifty-three weeks ended November 3, 2023.
For the fifty-three weeks ended November 3, 2023,
net cash provided by operating activities was $3,985. The result was primarily related to net income of $3,474 and a reduction in accounts
receivable of $6,480, partially offset by a decrease in accounts payable of $6,457 and lower non-current liabilities of $1,836. During
fiscal year 2023, we did not contribute towards our defined benefit pension plan.
Cash flows used in investing activities:
Proceeds from sale of property, plant and equipment $ 69 $ 227
Additions to property, plant and equipment (3,902 ) (2,603 )
Net cash used in investing activities $ (3,833 ) $ (2,376 )
Additions to property, plant and equipment include
the acquisition of 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. We
may also capitalize costs related to improvements that extend the life, increase the capacity, or improve the efficiency of existing machinery
and equipment. Specifically, capitalization of upgrades of facilities to maintain operating efficiency include acquisitions of machinery
and equipment used on packaging lines and refrigeration equipment used to process food products.
The table below highlights the additions to property,
plant and equipment for the fifty-two and fifty-three weeks ended:
Building and leasehold improvements $ - $ 192
Furniture and fixture 92 -
Temperature control - -
Vehicles for sales and/or delivery 2,372 1,390
Quality control and communication systems - 66
Computer software and hardware 345 -
Change in projects in process (1,769 ) 205
Additions to property, plant and equipment $ 3,902 $ 2,603
Expenditures for additions to property, plant
and equipment during the fifty-two weeks ended November 1, 2024, include projects in process of $755 related to the production facilities
in Chicago and Statesville.
Cash flows used in financing activities:
Payment of capital lease obligations $ (103 ) $ (1,151 )
Repayments of bank borrowings (1,045 ) (1,083 )
Net cash used in financing activities $ (1,148 ) $ (2,234 )
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 were 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 the end of fiscal year 2024, 120,113 shares remained authorized for repurchase under the program.
The Company leased three long-haul trucks received
during fiscal year 2019. The six-year leases for these trucks would have expired in fiscal year 2025. We returned one long-haul truck
on June 22, 2023, for a loss of $12 and returned remaining two long-haul trucks on July 11, 2024, for a loss of $90, in an effort to reduce
the overall cost of delivering products as we transitioned deliveries to common carriers. All long-haul trucks under this lease agreement
have been returned as of November 1, 2024. The Company leased one box truck for a market value of $27 on April 17, 2023, and that lease
term is two years.
The Company leased one refrigerated truck received
on May 10, 2024, for a net present value of $166. The seven-year lease for this truck will expire in fiscal year 2031. Amortization of
equipment as a finance lease was $44 during the fifty-two weeks ended November 1, 2024.
Equipment Note Payable
The following table reflects major components
of our line of credit and borrowing agreements as of November 1, 2024, and November 3, 2023, respectively.
Revolving credit facility $ - $ -
Equipment notes:
Revolving Credit Facility
On November 30, 2023, we entered into a fifth
amendment to the credit agreement with Wells Fargo Bank, N.A. dated March 1, 2018, as amended, and also executed a revolving line of credit
note pursuant to the amendment. The revolving line of credit note replaces the existing note that expired by its terms on November 30,
2023. Under the terms of this amendment and the revolving line of credit note, we may borrow up to $7,500 from time to time up to November
30, 2024, at an interest rate equal to (a) the daily simple secured overnight financing rate plus 2.0%, or if unavailable, (b) the prime
rate, in each case as determined by the bank. The line of credit has an unused commitment fee of 0.35% of the available loan amount, payable
on a quarterly basis. Amounts may be repaid and reborrowed during the term of the note. Accrued interest is payable on the first day of
each month and the outstanding principal balance and remaining interest are due and payable on November 30, 2024. Refer to Subsequent
Events under Note 1 to the Consolidated Financial Statements included within this Report for further information.
Loan Covenants
The Wells Fargo Loan Agreements and the credit
agreement contain various affirmative and negative covenants that limit the use of funds and define other provisions of the loans. Material
financial covenants are listed below, and the capitalized terms are defined in the applicable agreements:
● Quick Ratio not less than 1.25 to 1.0 at each fiscal quarter end,
As of November 1, 2024, the Company was in compliance
with all covenants under the Wells Fargo Loan Agreements and the credit agreement.
Aggregate contractual maturities
of debt in future fiscal years are as follows as of November 1, 2024:
Fiscal Years Debt Payable
Impact of Inflation
Our operating results are heavily dependent upon
the prices paid for raw materials. The marketing of our value-added products does not lend itself to instantaneous changes in selling
prices. Changes in selling prices are relatively infrequent and do not compare with the volatility of commodity markets. All of our operating
segments have been impacted by inflation, including higher costs for labor, freight, and specific materials. We expect this trend to continue
through fiscal year 2025. Management is of the opinion that the Company’s financial position and its capital resources are sufficient
to provide for its operating needs and capital expenditures for fiscal year 2025. However, future volatility of general price inflation
or deflation and raw material cost and availability could adversely affect our financial results.
Off-Balance Sheet Arrangements
We do not currently have any off-balance sheet
arrangements within the meaning of Item 303(b) of Regulation S-K.
Contractual Obligations
Except as described above, we had no other debt
or other contractual obligations within the meaning of Item 303(b) of Regulation S-K, as of November 1, 2024.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make certain estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported
revenues and expenses during the respective reporting periods. Actual results could differ from those 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 not originally estimated. We record promotions, returns
allowances, bad debt and inventory allowances based on recent and historical trends. Management believes its current estimates are reasonable
and based on the best information available at the time. To the extent there are material differences between the estimates and the actual
results, future results of operations could be affected.
Disclosure concerning our policies on credit risk,
revenue recognition, cash surrender or contract value for life insurance policies, deferred income tax and the recoverability of our long-lived
assets are provided in Notes 1 and 4 of the Notes to the Consolidated Financial Statements included in this Report.
Recently Issued Accounting Pronouncements and
Regulations
Various accounting standard-setting bodies have
been active in soliciting comments and issuing statements, interpretations, and exposure drafts. For information on new accounting pronouncements
and the impact, if any, on our financial position or results of operations, see Note 1 of the Notes to the Consolidated Financial Statements
included within this Report.
Item 7A. Quantitative and Qualitative Disclosures
About Market Risk
Not applicable for a smaller reporting
company.
Item 8. Consolidated Financial Statements
and Supplementary Data
The Consolidated Financial Statements
required by this Item are set forth in Part IV, Item 15 of this Report.
Item 9. Changes in and Disagreements With
Accountants on Accounting and Financial Disclosure
Not applicable.
Item 9A. Controls and Procedures
Evaluation of disclosure
controls and procedures
Disclosure controls and procedures
are designed to help ensure that information required to be disclosed by us in our Exchange Act reports is recorded, processed, summarized
and reported within the time periods specified in the SEC’s rules, regulations and forms, and that such information is collected
and communicated to our management, including our Chairman of the Board and Chief Financial Officer, as appropriate to allow timely decisions
regarding required disclosure.
Our management, with the participation
and under the supervision of our Chairman of the Board and Chief Financial Officer, has evaluated the effectiveness of our disclosure
controls and procedures (as defined in Exchange Act Rule 13a-15(e)) as of the end of the period covered by this Report. Based on this
evaluation, the Chairman of the Board and Chief Financial Officer have concluded that our disclosure controls and procedures were effective
as of the end of the period covered by this Report.
Our management, including
our Chairman of the Board and Chief 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 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 our independent
registered public accounting firm. 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 Statement of Auditing Standards
No. 16 (Communication with Audit Committees). In addition, the Audit Committee and the independent registered public accounting firm have
discussed the independent registered public accounting firm’s independence from our 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”.
Section 404 of the Sarbanes-Oxley
Act of 2002
In order to comply with the
Sarbanes-Oxley Act of 2002, we have undertaken and continue a comprehensive effort, which includes the documentation and review of our
internal controls. In order to comply with the Sarbanes-Oxley Act, we centralized most accounting and many administrative functions in
an effort to control the cost of maintaining our control systems.
The Dodd-Frank Wall Street
Reform and Consumer Protection Act permanently exempts smaller reporting companies with less than $75 million in public float, such as
the Company, from the requirement to obtain an external audit on the effectiveness of internal financial reporting controls provided in
Section 404(b) of the Sarbanes-Oxley Act. As a result, an attestation report on internal controls over financial reporting by an independent
registered public accounting firm has not been presented. Section 404(a) is still effective for smaller reporting companies and requires
the disclosure of management attestations on internal controls over financial reporting as set forth below.
Management’s Annual
Report on Internal Control Over Financial Reporting
Our management is responsible
for establishing and maintaining adequate internal control over financial reporting. Our internal control over financial reporting is
designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted accounting principles.
Management conducted an evaluation
of the effectiveness of the internal controls over financial reporting based on the Committee of Sponsoring Organizations of the Treadway
Commission (COSO) Internal Control-Integrated Framework (2013) and related illustrative documents as an update to Internal Control-Integrated
Framework (1992). Management determined that the 17 principles were present and functioning during its assessment of the effectiveness
of our internal controls. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation
and presentation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness
of our internal control over financial reporting for our fiscal year ended November 1, 2024. Based on management’s assessment and