| The Company and Summary of Significant Accounting Policies | NOTE 1 - The Company and Summary of Significant
Accounting Policies: Bridgford Foods Corporation
was organized in 1952. We originally began operations in 1932 as a retail meat market in San Diego, California and evolved into
a meat wholesaler for hotels and restaurants, a distributor of frozen food products, a processor and packer of meat, and a manufacturer
and distributor of frozen food products for sale on a retail and wholesale basis. We, including our subsidiaries, are primarily
engaged in the manufacturing, marketing and distribution of an extensive line of frozen, refrigerated, and snack food products
throughout the United States. The consolidated financial
statements include the accounts of the Company and its subsidiaries, all of which are wholly owned. All inter-company transactions
have been eliminated. Use of estimates and
assumptions 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, as well as the reported revenues and expenses during the respective reporting periods. Actual results could
differ from those estimates. Amounts estimated related to liabilities for pension benefits, self-insured workers’ compensation
and employee healthcare benefits are subject to inherent uncertainties and these estimated liabilities may ultimately settle at
amounts which may vary from current estimates. Other areas with underlying estimates include realization of deferred tax assets,
cash surrender or contract value of life insurance policies, promotional allowances and the allowance for doubtful accounts and
inventory reserves. Management believes its current estimates are reasonable and based on the best information available at the
time. We test long-lived assets
for recoverability whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If an
impairment is indicated, we measure the fair value of assets to determine if and when adjustments are recorded. Subsequent events Management has evaluated
events subsequent to October 30, 2020 through the date the accompanying consolidated financial statements were filed with the Securities
and Exchange Commission for transactions and other events that may require adjustment of and/or disclosure in such financial statements.
The Company maintains a line of credit with Wells Fargo Bank, N.A. that expires on March 1, 2022. Under the terms of this line
of credit, we may borrow up to $7,500 at an interest rate equal to the bank’s prime rate or LIBOR plus 1.5%. The Company
borrowed an additional $2,000 under the line of credit on December 2, 2020. Effective November 3,
2020, Allan Bridgford Jr. resigned as a member of the Board of Directors of Bridgford Foods Corporation. The resignation was not
the result of a disagreement with management regarding operations, policies or practices of the Company. Mr. Bridgford will continue
to serve as a consultant to the Company. As previously reported,
on March 16, 2020, Bridgford Food Processing Corporation (“BFPC”), a wholly-owned subsidiary of the Company, entered
into a Purchase and Sale Agreement (the “CRG Purchase Agreement”) with CRG Acquisition, LLC (“CRG”), pursuant
to which BFPC agreed to sell to CRG, pursuant to the terms and conditions set forth in the CRG Purchase Agreement, a parcel of
land including an approximate 156,000 square foot four-story industrial food processing building located at 170 N. Green Street
in Chicago, Illinois (the “Property”). The purchase price for the Property is $60,000 subject to a due diligence period
and certain closing adjustments and prorations, and is conditioned upon, among other customary closing conditions, CRG receiving
zoning and other governmental approvals necessary for the construction and development of a mixed use project on the Property in
accordance with certain development plans to be approved by the City of Chicago. The cost basis of the Property was immaterial. On November 2, 2020, the
Company executed a fourth amendment to the CRG Purchase Agreement. Under the original terms and conditions of the CRG Purchase
Agreement, the closing of the sale of the Property to CRG would occur on the date that is thirty (30) days after CRG’s receipt
of the necessary zoning approvals, but in any event no earlier than October 31, 2020 and no later than March 31, 2021. The first
amendment dated as of April 10, 2020 extended the inspection period to June 1, 2020. The second amendment dated as of June 1, 2020
extended the inspection period to July 31, 2020, zoning period to February 1, 2021 and closing date to February 5, 2021. The third
amendment dated July 31, 2020 extended the inspection period to October 31, 2020, zoning period to April 30, 2021 and closing date
to May 6, 2021. The fourth amendment dated November 2, 2020 further extended the inspection period to February 1, 2021, the zoning
period to August 2, 2021 and closing date to August 31, 2021. The escrow account has received $1,350 in earnest money through October
30, 2020. We have received a total of $225 which is non-refundable earnest money and thus not part of restricted cash. Based on management’s
review, no other material subsequent events were identified that require adjustment to the financial statements or additional disclosure. Accounts Receivable Accounts receivable are
recorded at net realizable value. The value is presented net of allowance for doubtful accounts and promotional incentives. Our
accounts receivable consists mainly of trade receivables from customer sales. We evaluate the collectability of our accounts receivable
based on several factors. The provision for doubtful accounts receivable is based on historical trends and current collectability
risk. Our provision for doubtful accounts was $16 and $31 as of October 30, 2020 and November 1, 2019, respectively. Concentrations of credit
risk Our credit risk is diversified
across a broad range of customers and geographic regions. Losses due to credit risk have recently been immaterial. The carrying
amount of cash equivalents, accounts and other receivables, accounts payable and accrued liabilities approximate fair market value
due to the short maturity of these instruments. We maintain cash balances at financial institutions, which may at times exceed
the amounts insured by the Federal Deposit Insurance Corporation. Management does not believe there is significant credit risk
associated with these financial institutions. Sales to Wal-Mart®
comprised 36.9% of revenues in fiscal year 2020 and 19.8% of total accounts receivable was due from Wal-Mart® as of October
30, 2020. Sales to Wal-Mart® comprised 35.7% of revenues in fiscal year 2019 and 31.9% of total accounts receivable was due
from Wal-Mart® as of November 1, 2019. Sales to Dollar General® comprised 13.6% of revenues in fiscal year 2020 and 31.1%
of total accounts receivable was due from Dollar General® as of October 30, 2020. Sales to Dollar General® comprised
11.1% of revenues in fiscal year 2019 and 21.7% of total accounts receivable was due from Dollar General® as of November 1,
2019. COVID-19 pandemic We have considered the impact of federal, state
and local government actions related to the global novel coronavirus pandemic (“COVID-19” or “pandemic”)
on our consolidated financial statements. The business disruptions associated with the pandemic had a significant negative impact
on our consolidated financial statements for the fifty-two week period ended October 30, 2020. We expect these events to have future
business impact, the extent of which is uncertain and largely subject to whether the severity worsens, or the duration of current
business shutdowns continue. These impacts could include but may not be limited to risks and uncertainty related to shifts in demand
between sales channels, market volatility, constraints in our supply chain, our ability to operate production facilities and worker
availability. These unknowns may subject the Company to future risks related to long-lived asset impairments, increased reserves
for uncollectible accounts, price and availability of ingredients and raw materials used in our products and adjustments to reflect
the market value of our inventory. Business segments The Company and subsidiaries
operate in two business segments - the processing and distribution of frozen foods products, and the processing and distribution
of snack food products. See Note 7 for further information. Fiscal year We maintain our accounting
records on a 52-53-week fiscal basis ending on the Friday closest to October 31. As part of the regular accounting cycle, fiscal
years 2020 and 2019 included 52 weeks. Revenues The Company recognizes revenue
for the sale of the product at the point in time when our performance obligation has been satisfied and control of the product
has transferred to our customer, which generally occurs upon shipment, pickup or delivery to a customer based on terms of the sale.
Contracts with customers are typically short-term in nature with completion of a single performance obligation. Product is sold
to foodservice, retail, institutional and other distribution channels. Products are delivered to customers primarily through our
own long-haul fleet, common carrier or through a Company owned direct store delivery system. These delivery costs, $4,537 and $5,012
for fiscal years 2020 and 2019, respectively, are included in selling, general and administrative expenses in the accompanying
consolidated financial statements. Shipping and handling that occurs after the customer has obtained control of the product is
recorded as a fulfillment cost rather than an additional assured service. Costs paid to third party brokers to obtain contracts
are recognized as part of selling expenses. Other sundry items in context of the contract are also recognized as selling expense.
Any taxes collected on behalf of the government are excluded from net revenue. We record revenue at the
transaction price which is measured as the amount of consideration we anticipate to receive in exchange for providing product to
our customers. Revenue is recognized as the net amount estimated to be received after deducting estimated or known amounts including
variable consideration for discounts, trade allowances, consumer incentives, coupons, volume-based incentives, cooperative advertising,
product returns and other such programs. Promotional allowances, including customer incentive and trade promotion activities, are
recorded as a reduction to sales based on amounts estimated being due to customers, based primarily on historical utilization and
redemption rates. Estimates are reviewed regularly until incentives or product returns are realized and the result of any such
adjustments are known. Promotional allowances deducted from sales for fiscal years 2020 and 2019 were $11,418 and $11,105, respectively. Advertising expenses Advertising and other
promotional expenses are recorded as selling, general and administrative expenses. Advertising expenses for fiscal years 2020 and
2019 were $2,246 and $2,574, respectively. Cash and cash equivalents We consider all investments
with original maturities of three months or less to be cash equivalents. Cash equivalents include money market funds and treasury
bills. Cash equivalents totaled $4,302 as of October 30, 2020 and $3,478 as of November 1, 2019. All material cash and cash equivalents
as of October 30, 2020 were held at Wells Fargo Bank N.A. Restricted cash Proceeds from deposits
in escrow of $1,125 as of October 30, 2020 relate to the pending sale of a parcel of land including an approximate 156,000 square
foot four-story industrial food processing building located at 170 N. Green Street in Chicago, Illinois. Refer to Note 1 –
Subsequent Events for more information. Fair value measurements We classify levels of
inputs to measure the fair value of financial assets as follows:
â—Ź Level 1 inputs: Level 1 inputs are quoted market prices in active markets for identical assets or liabilities that are accessible at the measurement date.
â—Ź Level 2 inputs: Level 2 inputs are from other than quoted market prices included in Level 1 that are observable for the asset or liability, either directly or indirectly.
â—Ź Level 3 inputs: Level 3 inputs are unobservable and should be used to measure fair value to the extent that observable inputs are not available. The hierarchy noted above
requires us to minimize the use of unobservable inputs and to use observable market data, if available, when determining fair value. The Company does not have
any assets or liabilities measured at fair value on a recurring or non-recurring basis for the fiscal years ended October 30, 2020
and November 1, 2019. Inventories Inventories are valued
at the lower of cost (which approximates actual cost on a first-in, first-out basis) or net realizable value. Inventories include
the cost of raw materials, labor and manufacturing overhead. We regularly review inventory quantities on hand and write down any
excess or obsolete inventories to net realizable value. An inventory reserve is created when potentially slow-moving or obsolete
inventories are identified in order to reflect the appropriate inventory value. Changes in economic conditions, production requirements,
and lower than expected customer demand could result in additional obsolete or slow-moving inventory that cannot be sold or must
be sold at reduced prices and could result in additional reserve provisions. Property, plant and
equipment Property, plant and equipment
are carried at cost less accumulated depreciation. Major renewals and improvements are charged to the asset accounts while the
cost of maintenance and repairs is charged to expense as incurred. When assets are sold or otherwise disposed of, the cost and
accumulated depreciation are removed from the respective accounts and the resulting gain or loss is credited or charged to income.
Depreciation is computed on a straight-line basis over 10 to 20 years for buildings and improvements, 5 to 10 years for machinery
and equipment, and 3 to 5 years for transportation equipment. We built a processing plant from the ground up and as such have attributed
long useful lives accordingly to these types of assets employed at the new facility in Chicago. The Company incurred interest costs
of $879 for fiscal year 2020, all of which was capitalized in relation to the construction of the new facility in Chicago. Leases Leases are recognized
in accordance with Accounting Standards Update (“ASU”) 2016-02 Leases (ASC 842) which requires a lessee to recognize
assets and liabilities with lease terms of more than 12 months. We lease or rent property for such operations as storing inventory,
packaging or processing product, equipment and parking vehicles. We analyze our agreements to evaluate whether or not a lease exists
by determining what assets exist for which we control usage for a period of time in exchange for consideration. In the event a
lease exists, we classify it as a finance or operating lease and record a right-of-use (“ROU”) asset and the corresponding
lease liability at the inception of the lease. In the case of month-to-month lease or rental agreements with terms of 12 months
or less, we made an accounting policy election to not recognize lease assets and liabilities and record them on a straight-line
basis over the lease term. The storage units rented for use by our Snack Food Product Segment direct store delivery route system
are not costly to relocate, contain no significant leasehold improvements, no degree of integration over leased assets, orders
can be fulfilled by another route storage unit interchangeably, no specialized assets exist, market price is paid for storage units
and there is no guarantee of debt. Finance lease assets are
recorded within property, plant and equipment, net of accumulated depreciation and amortization. The Company’s leases of
long-haul trucks used in its Frozen Food Products Segment qualify as finance leases. Finance lease liabilities are recorded as
a separate line item on the consolidated balance sheets reflecting both the current and long-term obligation. The classification
as a finance or operating lease determines whether the recognition, measurement and presentation of expenses and cash flows are
considered operating or financing. Life insurance policies We record the cash surrender
value 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. The cash surrender value is included in other non-current assets in the accompanying
Consolidated Balance Sheets. Income taxes Deferred taxes are provided
for items whose financial and tax bases differ. A valuation allowance is provided against deferred tax assets when it is expected
that it is more likely than not that the related asset will not be fully realized. The determination as to whether or not a deferred
tax asset can be fully realized is subject to a significant degree of judgment, based at least partially upon a projection of future
taxable income, which takes into consideration past and future trends in profitability, customer demand, supply costs, and multiple
other factors, which are inherently difficult to predict. We provide tax accruals
for federal, state and local exposures relating to audit results, tax planning initiatives and compliance responsibilities. The
development of these accruals requires judgments about tax issues, potential outcomes and timing. (See Note 4 for further information).
Although the outcome of these tax audits is uncertain, in management’s opinion adequate provisions for income taxes have
been made for potential liabilities emanating from these reviews. If actual outcomes differ materially from these estimates, they
could have a material impact on our results of operations. Stock-based compensation We measure and recognize
compensation expense for all share-based payments to employees, including grants of employee stock options, in the financial statements
based on the fair value at the date of the grant. We have not issued, awarded, granted or entered into any stock-based payment
agreements since April 29, 1999, and no such expense was recognized in fiscal years 2020 and 2019. Comprehensive income
or loss Comprehensive income or
loss consists of net income and additional minimum pension liability adjustments. Recently issued accounting
pronouncements and regulations In May 2014, the Financial Accounting Standards
Board (the “FASB”) issued ASU 2014-09 “Revenue from Contracts with Customers” to supersede previous revenue
recognition guidance under current U.S. GAAP. The guidance presents a single five-step model for comprehensive revenue recognition
that requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that
reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Two options are
available for implementation of the standard which are either the retrospective approach or cumulative effect adjustment approach.
The guidance became effective for annual reporting periods beginning after December 15, 2017, including interim periods within
that reporting period, with early adoption permitted. The Company adopted the modified retrospective transition method beginning
with the first quarter of fiscal 2019. The adoption did not have a material impact on our consolidated financial statements. For
further information please refer to Revenues above. Disaggregated revenue is disclosed in Note 7 - Segment Information. In January 2016, the FASB issued ASU 2016-01,
“Recognition and Measurement of Financial Assets and Financial Liabilities” that requires most equity investments to
be measured at fair value and subsequent changes in fair value to be recognized in net income. The guidance covers presentation
and disclosure requirements of financial liabilities and the classification and measurement of financial instruments. The guidance
is effective for annual reporting periods and interim periods within those annual reporting periods beginning after December 15,
2017. We adopted this guidance in the first quarter of fiscal 2019. The adoption did not have a material impact on our consolidated
financial statements. In February 2016, the FASB issued ASU 2016-02,
“Leases”, which requires a lessee to recognize assets and liabilities with lease terms of more than 12 months. Both
capital and operating leases are to be recognized on the balance sheet. The guidance is effective for annual reporting periods
beginning after December 15, 2018 and interim periods within fiscal years beginning after December 15, 2019 which is our first
quarter of fiscal 2020. We have analyzed all lease transactions during fiscal year 2019 and 2020 to date. The Company elected not
to reassess expired contracts or adjust comparative periods. The Company determined that no change to current accounting treatment
is warranted for most transactions due to the underlying nature of our leases. In the case of month-to-month lease or rental agreements
with terms of 12 months or less, the Company made an accounting policy election to not recognize lease assets and liabilities.
The Company performed a detailed analysis and determined that the only indication of a long-term lease was Hogshed Ventures, LLC.
The accounting treatment of this lease for warehouse storage included establishing a right-of-use asset and corresponding liability
was recorded for Hogshed Ventures, LLC for 40th Street in Chicago during the fourth quarter of fiscal 2020. The application of
this pronouncement resulted in additional disclosures detailing our lease arrangements. The Company adopted this guidance during
the first quarter of fiscal 2020 and it did not have a material impact on our consolidated financial statements. In October 2016, the FASB issued ASU 2016-16,
“Income Taxes – Classification of Certain Cash Receipts and Cash Payments”. The guidance involves eight specific
cash flow issues and aims to unify accounting for these transactions. The guidance became effective for annual reporting periods
beginning after December 15, 2017 with early adoption permitted. The Company adopted this guidance during the first quarter of
fiscal 2019 and it did not have a material impact on our consolidated financial statements. In March 2017, the FASB issued ASU 2017-07,
“Compensation – Retirement Benefits”. The guidance separates service cost from other pension cost components
changing the presentation of net periodic benefit cost related to company sponsored defined benefit or other postretirement benefits.
The guidance became effective for annual and interim reporting periods beginning after December 15, 2017 with early adoption permitted.
Additional disclosure reconciling net periodic benefit cost is detailed in Note 3 - Retirement and Other Benefit Plans. The Company
adopted this guidance during the first quarter of fiscal 2019 and it did not have a material impact on our consolidated financial
statements. In December 2019, the FASB issued ASU 2019-12,
“Income Taxes – Simplifying the Accounting for Income Taxes”. The guidance removes exceptions to the general
principles in Topic 740 for allocating tax expense between financial statement components, accounting basis differences stemming
from an ownership change in foreign investments and interim period income tax accounting for year-to-date losses that exceed projected
losses. The guidance becomes effective for annual reporting periods beginning after December 15, 2020 and interim periods within
those fiscal years with early adoption permitted. We do not expect the adoption of this guidance to have a material impact on our
consolidated financial statements. |
