Bridgford Foods Corporation — FY2021 Form 10-K
Reporting period: 52 weeks ended October 29, 2021; comparable period was the 52 weeks ended October 30, 2020. Dollar amounts are in thousands unless stated otherwise. Bridgford manufactures, markets and distributes frozen and snack food products. Snack Foods generated 83% of FY2021 sales and Frozen Foods 17%.
Financial performance and liquidity
| Metric | FY2021 | FY2020 |
|---|---|---|
| Net sales | $240,430 | $197,970 |
| Gross margin | $51,384; 21.4% | $59,518; 30.1% |
| Operating income (loss) | $(8,239) | $4,410 |
| Net income (loss) | $(5,503); $(0.61) per share | $7,323; $0.81 per share |
| Operating cash flow | $(5,992) | $9,917 |
| Capital expenditures | $6,239 | $24,482 |
| Total debt at year-end | $37,069 | $29,122 |
Sales increased 21.4%, driven primarily by Snack Food unit growth. Snack Food sales rose 26.9% to $198,920; Frozen Food sales increased 0.7% to $41,510. Despite higher sales, consolidated gross margin fell sharply as product costs rose 36.5%, including approximately $13,137 of higher commodity costs. Segment gross margin rates declined to 19.8% for Snack Foods from 29.3%, and to 28.8% for Frozen Foods from 32.9%. SG&A increased 9.0% to $60,127.
At year-end, cash and cash equivalents were zero and restricted cash was $375. Net working capital was approximately $44,638; current assets were $70,257 and current liabilities $25,619. Accounts receivable was $24,384 and inventory was $36,771, up $7,475 year over year. Total liabilities were $81,812 and shareholders’ equity $74,978. Debt included $12,000 drawn on the revolving facility and a $10,329 bridge loan; $1,065 was classified as current debt. The company reported a $469 book overdraft.
Material changes and notable items
- Snack Food growth more than offset slightly higher Frozen Food sales. Snack Food volume benefited from direct-store-delivery sales; Frozen Food retail volume declined while foodservice demand began recovering as restrictions eased.
- Higher meat and flour costs, production costs and depreciation compressed margins. Bridgford recorded a $2,353 inventory net realizable value reserve on meat products.
- Net loss included $1,214 of interest expense and a $2,171 gain in cash surrender value of life insurance. SG&A included an estimated gain related to life insurance proceeds following a former executive’s death; the filing reports $2,205 receivable on life insurance at year-end.
- Defined-benefit pension funded status improved from a $19,965 deficit in FY2020 to a $7,587 deficit in FY2021, principally reflecting investment returns and actuarial changes. Other comprehensive income was $9,235 after tax, partly offsetting the net loss in total comprehensive income.
- Operating cash flow swung from a $9,917 inflow to a $5,992 outflow, chiefly reflecting the net loss and increased inventory and receivables. Investing cash outflow narrowed to $6,469 as capital spending fell from the prior year’s Chicago facility build-out.
Outlook, risks and contingencies
Management stated that operating cash generation, the expanded credit facilities, expected tax refunds of $6,156, life insurance proceeds of $2,205 and anticipated proceeds from the Chicago property sale should provide sufficient liquidity for a reasonable period. Management also said resources were sufficient for FY2022 operating needs and capital expenditures. These expectations depend on business performance and the timing and completion of the property transaction.
- On December 1, 2021, the revolving credit limit was temporarily expanded from $15,000 to $25,000 through June 15, 2022, then scheduled to revert to $15,000. Subsequent draws included $2,000 on November 1, $2,000 on December 16 and $2,000 on January 24, 2022. The bridge loan, up to $25,000, is due by August 31, 2023 or earlier upon closing the specified property-sale transaction. A further $2,778 of equipment debt was repaid with bridge-loan proceeds on January 12, 2022.
- The company was in violation of its capital-expenditure and fixed-charge-coverage covenants at October 29, 2021; the lender waived those violations by letter dated January 25, 2022. It reported compliance with its other loan covenants.
- A Chicago parcel and approximately 156,000-square-foot building were subject to a pending sale agreement with a stated gross purchase price of $60,000. The filing describes the sale as pending, not completed. Estimated remaining construction liability for the new Chicago facility was approximately $3,006.
- COVID-19-related labor shortages, absenteeism and temporary facility disruptions, shifting retail and foodservice demand, supply-chain constraints and commodity volatility could affect sales, costs and liquidity. Management noted that higher prices may not fully offset input-cost increases and could reduce demand.
- Customer concentration is significant: Walmart represented 35.7% of FY2021 revenue and Dollar General 14.5%. The Bridgford family beneficially owned approximately 80% of shares, creating control and governance risks. About 47% of employees were covered by collective bargaining agreements expiring between March 2022 and February 2024.
- Other material risks include food safety and regulatory compliance, competition, labor and benefit costs, multiemployer pension exposure, and uncertainty in inventory and promotional-allowance estimates. No material legal proceedings were pending at filing.
Important facts for investors to verify
- Whether the Chicago property sale closed, when proceeds were received, and how they were applied to debt and liquidity needs.
- Subsequent credit-facility balances, availability, interest costs, covenant compliance and the bridge loan’s repayment or maturity terms.
- Whether commodity inflation and pricing actions allow gross margins to recover, particularly in Snack Foods.
- Inventory quality and realization, including the $2,353 reserve, and working-capital and operating-cash-flow trends.
- Customer retention and sales concentration, alongside the effects of channel shifts, labor availability and COVID-19 disruptions.