Bridgford Foods Corporation — FY2020 Form 10-K
Business context and reporting period. The filing covers the 52-week fiscal year ended October 30, 2020, compared with the 52 weeks ended November 1, 2019. Bridgford manufactures and distributes frozen and snack foods in the United States. Snack foods represented 79% of FY2020 sales; frozen foods represented 21%. Unless stated otherwise, financial amounts below are in thousands of dollars.
Financial results and liquidity
| Metric | FY2020 | FY2019 | Change or context |
|---|---|---|---|
| Net sales | $197,970 | $188,785 | Up $9,185, or 4.9% |
| Gross margin | $59,518 | $61,664 | Margin declined to 30.1% from 32.7% |
| SG&A | $54,446 | $52,837 | Up 3.0% |
| Income before taxes | $5,130 | $8,537 | Down 39.9% |
| Income tax benefit (provision) | $(2,193) benefit | $2,053 provision | FY2020 benefit included CARES Act NOL carryback effects |
| Net income | $7,323 | $6,484 | Up 12.9%; net margin approximately 3.7% versus 3.4% |
| Basic EPS | $0.81 | $0.71 | Shares used to calculate EPS were 9,076,832 in both years |
| Operating cash flow | $9,917 | $7,249 | Cash-flow statement figures; MD&A gives slightly different comparative figures |
| Capital expenditures | $24,482 | $25,739 | Primarily related to processing equipment and facilities |
| Cash and cash equivalents | $4,302 | $3,478 | FY2020 also included $1,125 restricted cash in escrow |
| Total assets / shareholders’ equity | $155,283 / $71,246 | $123,456 / $66,484 | Asset growth largely reflects facility investment |
Liquidity and debt. At year-end, current assets were $68,750 and current liabilities were $26,203, implying working capital of $42,547 and a current ratio of approximately 2.6. Management separately cited approximately $42,774 of net working capital, including revolving-credit availability. Equipment notes totaled $29,122, including $4,430 current and $24,692 long-term; no line-of-credit balance was reported at year-end. The company had a $7,500 revolving credit facility and borrowed another $2,000 on December 2, 2020. FY2020 financing activities provided $15,350. Capital expenditures exceeded operating cash flow by approximately $14,565.
Material changes versus FY2019
- Sales mix shifted sharply. Snack Food Products sales rose 13.9% to $156,729, supported by higher direct-store-delivery volume. Frozen Food Products sales fell 19.5% to $41,241, mainly due to lower institutional and foodservice volume during the pandemic.
- Frozen retail sales volume rose 38%, but did not offset foodservice losses. Snack volume increased 16.6%; lower average selling prices reflected a greater share of high-volume, lower-margin accounts.
- Gross margin fell 2.6 percentage points. Management cited higher commodity costs, production labor, inbound freight and overhead; both segments’ gross-margin percentages declined.
- Although net income increased, pretax income declined substantially. The reported tax benefit, including the CARES Act NOL carryback rate differential, materially affected the year-over-year net-income comparison.
- Equipment notes rose from $13,747 to $29,122 as the company financed equipment for its Chicago processing facility. Property, plant and equipment, net, increased to $73,332 from $54,346.
Outlook, risks and unusual items
- COVID-19 outlook: Management expected pandemic-related costs, reduced productivity, absenteeism and facility interruptions to continue in the near term. It expected continued lower Frozen Food Products volume into FY2021; Snack Food Products had experienced short-term volume increases. Supply had remained largely intact, but commodity-price volatility was expected to continue.
- Chicago property sale: The company agreed to sell a Chicago property for a stated $60,000, subject to approvals, closing adjustments and other conditions. The agreement was amended to extend key deadlines; the November 2020 amendment set an August 31, 2021 closing deadline. The sale was not completed at fiscal year-end, and proceeds were conditional, not assured.
- Tax and liquidity: The company reported a $9,517 refundable-income-tax asset and expected material cash benefit from CARES Act NOL carrybacks. It deferred approximately $1,103 of employer Social Security taxes. Management said available resources and expected operating cash, tax refunds and tax deferrals should support operations and completion of the Chicago expansion into FY2021.
- Major risks: Wal-Mart accounted for 36.9% of FY2020 revenue and Dollar General for 13.6%. Other key exposures include commodity and labor costs, food-safety regulation and recalls, COVID-related demand and production disruption, and multiemployer pension-plan withdrawal liability. The defined-benefit pension plan had a reported funded status deficit of $19,965.
- More than 80% of shares were beneficially owned by the Bridgford family, giving the family substantial influence over shareholder matters. Management assessed disclosure controls and internal control over financial reporting as effective; the auditor did not provide an internal-control effectiveness opinion.
Important facts for investors to verify
- Reconcile operating-cash-flow figures: the cash-flow statement reports $9,917 for FY2020 and $7,249 for FY2019, while MD&A cites $9,914 for FY2020 and $7,247 for FY2019.
- Confirm the status, approvals, revised timetable and net proceeds of the conditional $60,000 Chicago property sale, and how the transaction affects facility operations and expansion plans.
- Assess the sustainability and profitability of snack-food volume growth against lower selling prices and reduced segment margins, as well as the pace of recovery in frozen-food foodservice demand.
- Verify the timing and collectability of the $9,517 tax refund and the actual cash effects of NOL carrybacks and deferred payroll taxes.
- Monitor equipment-debt service, covenant compliance, subsequent revolving-credit borrowing and funding needs for remaining Chicago construction obligations.
- Review customer concentration, pension funding assumptions and obligations, and exposure to commodity-price changes and pandemic-related operating disruption.