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
Net Sales-Consolidated
Net sales in fiscal year 2021 increased
Impact on Net Sales-Consolidated % $ Selling price per pound 3.2 6,707 Unit sales volume in pounds 17.5 37,152 Returns activity 0.3 226 Promotional activity 0.4 (1,625 ) Increase in net sales 21.4 42,460
Net Sales-Frozen Food Products Segment
Net sales in the Frozen Food Products segment in fiscal year 2021 increased
Impact on Net Sales-Frozen Food Products % $ Selling price per pound 3.4 1,540 Unit sales volume in pounds -1.3 (571 ) Returns activity 0.2 49 Promotional activity -1.6 (749 ) Increase in net sales 0.7 269
The slight increase in net sales for fiscal year 2021 primarily relates to
higher selling prices per pound partially offset by lower unit sales volume. The
increase in net sales was primarily driven by an increase in selling prices due
to changes in product mix amid a decrease in sales volume to retail customers.
Other institutional Frozen Food Products sales, including sheet dough and rolls,
increased 16% by volume while retail sales volume decreased by 7%. Demand
shifted from retail sales to foodservice sales channels as schools and in-dining
restaurants began to slowly reopen across
Net Sales-Snack Food Products Segment
Net sales in the Snack Food Products segment in fiscal year 2021 increased
Impact on Net Sales-Snack Food Products % $ Selling price per pound 3.1 5,167 Unit sales volume in pounds 22.6 37,722 Returns activity 0.4 177 Promotional activity 0.8 (875 ) Increase in net sales 26.9 42,191
Net sales of Snack Food Products increased due to higher sales through our direct store delivery distribution channel during fiscal year 2021. The weighted average selling price per pound increased due to selling price increases and reductions in packaging size. Returns activity was lower compared to the 2020 fiscal year. Promotional offers decreased as a percentage of sales due to higher sales to high-volume, high-promotion customers.
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Cost of Products Sold and Gross Margin-Consolidated
Cost of products sold from continuing operations increased by
Commodity $ Change in Cost of Products Sold by Segment $ % Increase Frozen Food Products Segment 1,860 1.3 445 Snack Food Products Segment 48,734 35.2 12,692 Total 50,594 36.5 13,137
Cost of Products Sold and Gross Margin-Frozen Food Products Segment
Cost of products sold in the Frozen Food Products segment increased by
Cost of Products Sold and Gross Margin-Snack Food Products Segment
Cost of products sold in the Snack Food Products segment increased by
Selling, General and Administrative Expenses-Consolidated
Selling, general and administrative expenses ("SG&A") in fiscal year 2021
increased
The table below summarizes the primary expense variances in this category:
October 29, 2021 October 30, 2020 Expense Increase (52 Weeks) (52 Weeks) (Decrease) Product advertising $ 8,160 $ 6,714 $ 1,446 Wages and bonus 25,086 24,079 1,007 Healthcare costs 2,790 1,949 841 Other (income) expense (508 ) 41 (549 ) Pension expense 772 1,333 (561 ) Fuel expense 1,738 1,301 437 Postage expense 778 417 361 Outside storage 736 431 305 Travel expense 1,963 1,649 314 Insurance expense 1,337 1,093 244 Other SG&A 17,275 16,159 1,116 Total - SG&A 60,127 55,166 4,961
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 2021. Higher sales commissions resulted in higher wages and bonus expenses in the 2021 fiscal year compared to the 2020 fiscal year. Healthcare costs have increased due to claim activity increasing as pandemic restrictions are lifted. Other income increased due to an estimated gain on life insurance proceeds caused by the passing of a former executive employee during the fourth quarter of fiscal year 2021. The decrease in pension expense was due to higher pension discount rates being used to compute the future liability estimate. 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. Postage expense increased due to higher product shipments to customers. Outside storage costs to warehouse products prior to shipment increased due to reaching storage capacity at our new facility as a result of higher sales volume. Travel expenses increased due to the gradual lifting of travel restrictions and stay-at-home orders which had been imposed in response to the COVID-19 pandemic. Insurance expense increased due to unfavorable market conditions, a change in coverage levels and unfavorable claims experience. 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 customer fines, equipment rental, sales taxes and employee training expenses.
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Selling, General and Administrative Expenses-Frozen Food Products Segment
SG&A expenses in the Frozen Food Products segment decreased by
Selling, General and Administrative Expenses-Refrigerated and Snack Food Products Segment
SG&A expenses in the Snack Food Products segment increased by
Gain on Sale of Property, Plant and Equipment
The gain during fiscal years 2021 and 2020 was due to the ordinary gain on disposal of assets.
Income Taxes
Income tax for fiscal years 2021 and 2020, respectively, was as follows:
October 29, 2021 October 30, 2020 Benefit on income taxes $ (1,779 ) $ (2,193 ) Effective tax rate 24.4 % -42.7 %
We recorded a tax benefit of
Liquidity and Capital Resources (in thousands except share amounts, percentages, and ratios)
The principal source of our operating cash flow 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. We borrowed
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, the performance of operating divisions
and 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. Combined with the cash
expected to be generated from the Company's operations, income tax refunds of
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Cash flows from operating activities:
October 29, 2021 October 30, 2020 (52 Weeks) (52 Weeks) Net (loss) income $ (5,503 ) $ 7,323 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 6,669 5,514 Provision for (recovery of) losses on accounts receivable 125 (8 ) Provision for (reduction in) promotional allowances 319 (423 ) Gain on sale of property, plant and equipment (504 ) (58 ) Deferred income taxes, net 1,063 6,385 Operating assets and liabilities (8,161 ) (8,816 ) Net cash (used in) provided by operating activities $ (5,992 ) $ 9,917
For the fifty-two weeks ended
Our cash conversion cycle (defined as days of inventory and trade receivables
less days of trade payables outstanding) was equal to 74 days for the fifty-two
weeks ended
For the fifty-two weeks ended
Cash used in investing activities:
October 29, 2021 October 30, 2020 (52 Weeks) (52 Weeks) Proceeds from sale of property, plant and equipment $ 520 $ 39 Proceeds from deposits in escrow (750 ) 1,125 Additions to property, plant and equipment (6,239 ) (24,482 ) Net cash used in investing activities $ (6,469 ) $ (23,318 )
Expenditures for 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 of
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. Proceeds from deposits in escrow of
15 The table below highlights the additions to property, plant and equipment for the fifty-two weeks ended: October 29, 2021 October 30, 2020 (52 Weeks) (52 Weeks) Building improvements $ 61 $ 4,669 Furniture and fixture 94 208 Temperature control 31 446 Processing equipment 5,586 29,466 Packaging lines 348 324 Vehicles for sales and/or delivery 1,288 704 Quality control and communication systems 43 24 Computer software and hardware 18 96 Forklifts 9 - Change in projects in process (1,239 ) (11,455 ) Additions to property, plant and equipment $ 6,239 $ 24,482
Expenditures for additions to property, plant and equipment during the fifty-two
weeks ended
Cash provided by financing activities:
October 29, 2021 October 30, 2020 (52 Weeks) (52 Weeks) Payment of capital lease obligations $ (538 ) $ (24 ) Proceeds from bank borrowings 12,000 18,450 Repayments of bank borrowings (4,053 ) (3,076 ) Net cash provided by financing activities $ 7,409 $ 15,350
Our stock repurchase program was approved by the Board of Directors in
The Company leases three long-haul trucks pursuant to six-year leases that
expire in 2025. Amortization of equipment under capital lease was
The following table reflects major components of our line of credit and
borrowing agreements as of
October 29, 2021 October 30, 2020 Revolving credit facility $ 12,000 $ - Equipment notes: 4.13% note due 12/24/25, out of lockout 12/26/20 - 5,823 3.98% note due 04/21/26, out of lockout 04/23/21 - 6,145 3.70% note due 12/21/26, out of lockout 12/23/21 2,901 3,393 3.29% note due 03/05/27, out of lockout 03/06/22 5,951 6,940 3.68% note due 04/16/27, out of lockout 04/17/22 5,888 6,821 SOFR plus 2.00% bridge loan due 03/01/23 10,329 - Total debt 37,069 29,122 Less current debt (1,065 ) (4,430 ) Total long-term debt $ 36,004 $ 24,692 16 Revolving Credit Facility
We maintain a line of credit with
Equipment Notes Payable
On
Bridge Loan
On
Loan Covenants
The Wells Fargo Loan Agreements contain various affirmative and negative covenants that limit the use of funds and define other provisions of the loan. The main financial covenants are listed below:
? Total Liabilities divided by TangibleNet Worth not greater than 2.5 to 1.0 at each fiscal quarter, ? Quick Ratio not less than .85 to 1.0 at each fiscal quarter end, ? Fixed Charge Coverage Ratio not less than 1.25 to 1.0 as of each fiscal quarter end, determined on a trailing 4-quarter basis, and ? Capital Expenditures less than$5,000 .
The Company was in violation of the capital expenditure covenant and fixed
charge coverage ratio which were subsequently waived (per letter dated
Aggregate contractual maturities of debt in future fiscal years are as follows as ofOctober 29, 2021 : Fiscal Years Debt Payable 2022$ 1,065 2023$ 23,761 2024$ 2,588 2025$ 2,681 2026-2027$ 6,974 17 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. While fluctuations in significant cost structure components, such as ingredient commodities and fuel prices, have had a significant impact on profitability over the last two fiscal years, the impact of general price inflation on our financial position and results of operations has not been significant. However, future volatility of general price inflation or deflation and raw material cost and availability could adversely affect our financial results.
Management is of the opinion that our strong financial position and our capital resources are sufficient to provide for our operating needs and capital expenditures for fiscal year 2022.
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
Our expected future liability related to construction of the new
Critical Accounting Policies
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.
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.
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.
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