(dollars in thousands)
NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements included within in this Report, and the information and documents incorporated by reference with this Report, constitute "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 (the "Exchange Act"). These forward-looking statements are intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact included in this Report or incorporated by reference into this Report are forward-looking statements. These statements include, among other things, any predictions of earnings, revenues, expenses or other financial items; plans or expectations with respect to our business strategy; statements concerning industry trends; statements regarding anticipated demand for our products, or the products of our competitors; statements relating to manufacturing forecasts; statements relating to forecasts of our liquidity position or available cash resources; statements regarding the anticipated impact of the global novel coronavirus ("COVID-19") pandemic; statements regarding operational challenges, including as a result of global supply chain disruptions and labor shortages; statements regarding inflationary pressures and the resulting impact on our results of operations; statements regarding new regulations related to federal income tax and the impact on our financial statements and cash flow; statements regarding the impact of the adoption of recent accounting pronouncements on our business; and statements relating to the assumptions underlying any of the foregoing. Throughout this Report, we have attempted to identify forward-looking statements by using words such as "may," "believe," "will," "could," "project," "anticipate," "expect," "estimate," "should," "continue," "potential," "plan," "forecasts," "goal," "seek," "intend," other forms of these words or similar words or expressions or the negative thereof (although not all forward-looking statements contain these words).
Such forward-looking statements involve known and unknown risks, uncertainties,
and other factors which may cause our actual results, performance, or
achievements to be materially different from any future results, performance or
achievements expressed or implied by such forward-looking statements. Such
factors include, among others, the following: general economic and business
conditions; the impact of the COVID-19 pandemic on our production facilities,
supply chain, consumer demand, and cost of products sold, the impact of
competitive products and pricing; success of operating initiatives; development
and operating costs; advertising and promotional efforts; adverse publicity;
acceptance of new product offerings; consumer trial and frequency; changes in
business strategy or development plans; availability, terms and deployment of
capital; availability of qualified personnel; commodity, labor, and employee
benefit costs; changes in, or failure to comply with, government regulations;
weather conditions; construction schedules; and other factors referenced in this
Report as well as in our other filings with the
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 the second quarter of 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
to date 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
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? 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
? 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 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 reduced volumes and 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
? 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
? Liquidity - Operations provided
Critical Accounting Policies and Management Estimates
The preparation of Condensed Consolidated Financial Statements in conformity
with generally accepted accounting principles in
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Current accounting principles require that our pension benefit obligation be
measured using an internal rate of return ("IRR") analysis to be included in the
discount rate selection process. The IRR calculation for the Retirement Plan for
Employees of
Our credit risk is diversified across a broad range of customers and geographic regions. Losses due to credit risk have recently been immaterial. The provision for doubtful accounts receivable is based on historical trends and current collection risk. We have significant receivables with a couple of large, well-known customers which, although historically secure, could be subject to material risk should these customers' operations suddenly deteriorate. We monitor these customers closely to minimize the risk of loss.
Customer Concentration > 20% of AR or >10% of Sales
The table below shows customers that accounted for more than 20% of consolidated
accounts receivable ("AR") or 10% of consolidated sales for the twenty-four
weeks ended
Walmart(1) Dollar General Sales AR Sales AR April 15, 2022 31.4 % 4.4 % 17.7 % 38.1 % April 16, 2021 37.6 % 5.7 % 14.0 % 13.5 %
(1) Walmart accounts receivable represented a lower percentage of sales as of
The table below shows customers that accounted for more than 20% of consolidated
accounts receivable or 10% of consolidated sales for the twelve weeks ended
Walmart(1) Dollar General Sales AR Sales AR April 15, 2022 30.5 % 4.4 % 19.6 % 38.1 % April 16, 2021 38.7 % 5.7 % 14.2 % 13.5 %
(1) Walmart accounts receivable represented a lower percentage of sales as of
April 15, 2022 , due to accelerated payments on outstanding accounts receivable.
Revenues are recognized in accordance with ASC 606 - Contracts with Customers upon passage of title to the customer, typically upon product pick-up, shipment, or delivery to customers. Products are delivered to customers primarily through our own long-haul fleet or through a Company owned direct store delivery system.
We record the cash surrender or contract value for life insurance policies as an adjustment of premiums paid in determining the expense or income to be recognized under the contract for the period.
We provide tax reserves for federal, state, local and international exposures relating to audit results, tax planning initiatives and compliance responsibilities. The development of these reserves requires judgments about tax issues, potential outcomes, and timing, and is a subjective estimate. Although the outcome of these tax audits is uncertain, in management's opinion adequate provisions for income taxes have been made for potential liabilities, if any, resulting from these reviews. Actual outcomes may differ materially from these estimates.
We assess the recoverability of our long-lived assets on a quarterly basis or whenever adverse events or changes in circumstances or business climate indicate that expected undiscounted future cash flows related to such long-lived assets may not be sufficient to support the net book value of such assets. If undiscounted cash flows are not sufficient to support the recorded assets, we recognize an impairment to reduce the carrying value of the applicable long-lived assets to their estimated fair value.
We participate in "multiemployer" pension plans administered by labor unions on behalf of their employees. We pay monthly contributions to union trust funds, a portion of which is used to fund pension benefit obligations to plan participants. 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. 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.
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We are subject to the Patient Protection and Affordable Care Act, as amended by
the Health Care and Education Reconciliation Act (collectively, the "PPACA").
Requirements of the law include the removal of the lifetime limits on active and
retiree medical coverage, expanding dependent coverage to age 26 and the
elimination of pre-existing conditions that may impact other postretirement
benefits costs. The PPACA law also includes a potential excise tax on the value
of benefits that exceed a pre-defined limit. Fortunately, this potential tax has
been indefinitely deferred and we do not see significant financial exposure from
the so called "Cadillac Tax". Finally, the PPACA includes provisions that
require employers to offer health benefits to all full-time employees (defined
as 30 hours per week). The health coverage must meet minimum standards for the
actuarial value of the benefits offered and employee affordability. We believe
that the current administration seems more likely to enhance the scope and
coverage associated with PPACA than to repeal or significantly change this law.
The recent legislative packages related to pandemic relief included some minor
provisions that will impact health benefits in the future. These changes most
prominently focus on the impact of surprise balance bills from out-of-network
providers. When these changes become law in 2022, the
Overview of Reporting Segments
We operate in two business segments - the processing and distribution of frozen food products (the Frozen Food Products segment), and the processing and distribution of snack food products (the Snack Food Products segment). For information regarding the separate financial performance of the business segments refer to Note 4 - Segment Information of the Notes to the Condensed Consolidated Financial Statements included in this Report. We manufacture and distribute an extensive line of food products, including biscuits, bread dough items, roll dough items, dry sausage products and beef jerky.
Frozen Food Products Segment
Our Frozen Food Products segment primarily manufactures and distributes
biscuits, bread dough items, roll dough items and shelf stable sandwiches. All
items within this segment are considered similar products and have been
aggregated at this level. Our frozen food business covers
Snack Food Products Segment
Our Snack Food Products segment primarily distributes products manufactured by us. All items within this segment are considered similar products and have been aggregated at this level. The dry sausage division includes products such as jerky, meat snacks, sausage, and pepperoni products. Our Snack Food Products segment sells approximately 170 different items through a direct store delivery network serving approximately 19,000 supermarkets, mass merchandise and convenience retail stores located in 49 states. These customers are comprised of large retail chains and smaller "independent" operators.
Products produced or distributed by the Snack Food Products segment are supplied to customers through either direct-store-delivery or direct delivery to customer warehouses. Product delivered using the Company-owned fleet direct to the store is considered a direct-store-delivery. In this case, we provide the service of setting up and maintaining the display and stocking our products. Products delivered to customer warehouses are distributed to the retail store and stocked by the customer where it is then resold to the end consumer.
Results of Operations for the Twelve Weeks Ended
Net Sales-Consolidated
Net sales increased by
Impact on Net Sales-Consolidated % $ Selling price per pound 11.0 5,967 Unit sales volume in pounds 8.6 4,697 Returns activity -0.6 (485 ) Promotional activity -0.2 (670 ) Increase in net sales 18.8 9,509 18 of 29
Net Sales-Frozen Food Products Segment
Net sales in the Frozen Food Products segment increased by
Impact on Net Sales-Frozen Food Products % $ Selling price per pound 7.4 744 Unit sales volume in pounds 34.0 3,432 Returns activity -0.1 (23 ) Promotional activity -0.4 (530 ) Increase in net sales 40.9 3,623
The increase in net sales for the twelve-week period ended
Net Sales-Snack Food Products Segment
Net sales in the Snack Food Products segment increased by
Impact on Net Sales-Snack Food Products % $ Selling price per pound 11.8 5,223 Unit sales volume in pounds 2.9 1,265 Returns activity -0.8 (462 ) Promotional activity 0.2 (140 ) Increase in net sales 14.1 5,886
Net sales of Snack Food Products increased partially due to higher selling prices per pound and to a lesser extent higher unit sales volume through our direct store delivery distribution channel during the second quarter of fiscal year 2022. The weighted average selling price per pound increased compared to the same twelve-week period in the prior fiscal year due to selling price increases and reductions in packaging size. Returns activity was higher compared to the same twelve-week period in the 2021 fiscal year. Promotional offers decreased as a percentage of sales due to higher sales to high-volume, low-promotion customers.
Cost of Products Sold and Gross Margin-Consolidated
Cost of products sold increased by
Commodity $ Change in Cost of Products Sold by Segment $ % Increase Frozen Food Products Segment 2,250 5.7 290 Snack Food Products Segment 1,164 2.9 3,652 Total 3,414 8.6 3,942
Cost of Products Sold-Frozen Food Products Segment
Cost of products sold in the Frozen Food Products segment increased by
Cost of Products Sold-Snack Food Products Segment
Cost of products sold in the Snack Food Products segment increased by
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Selling, General and Administrative Expenses-Consolidated
Selling, general and administrative expenses ("SG&A") increased by$2,272 (17.6%) to$15,178 in the second twelve-week period of fiscal year 2022 compared to the same twelve-week period in the prior fiscal year. The table below summarizes the significant expense increases (decreases) included in this category: 12 Weeks Ended Expense April 15, 2022 April 16, 2021 Increase (Decrease) Wages and bonus $ 6,504 $ 5,001 $ 1,503 Pension (income) expense (367 ) 193 (560 ) Product advertising 2,438 2,199 239 Fuel 558 385 173 Vehicle repairs and maintenance 354 192 162 Other SG&A 5,691 4,936 755 Total - SG&A$ 15,178 $ 12,906 $ 2,272
Higher sales commissions resulted in higher wages and bonus expenses in the second twelve weeks of the 2022 fiscal year compared to the same period in the prior year. The decrease in pension expense was a result of an increase in pension plan assets caused by performance of the underlying markets that support them as well as higher pension discount rates resulting in lower liabilities. Costs for product advertising increased mainly as a result of higher payments under brand licensing agreements in the Snack Food Products segment during the second twelve-week period of fiscal 2022. 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. Repairs and maintenance on vehicles have increased compared to the prior 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 increase of "Other SG&A" expenses were higher healthcare cost, insurance premiums, postage expense and sales and lease tax audit fees.
Selling, General and Administrative Expenses-Frozen Food Products Segment
SG&A expenses in the Frozen Food Products segment increased by
Selling, General and Administrative Expenses-Snack Food Products Segment
SG&A expenses in the Snack Food Products segment increased by
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