# Bridgford Foods Corp: Form 10-Q for the period ended Jan 26, 2018

- Company: [Bridgford Foods Corp](/companies/brid.md) (CIK 14177)
- Form: 10-Q
- Filed: 2018-03-09
- Accepted by EDGAR: Mar 9, 2018, 17:24 ET
- Period: 2018-01-26
- Accession: 0001493152-18-003182
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/14177/000149315218003182/form10-q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/14177/000149315218003182/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2018-01-26.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Gross profit | 3 months, 2017-11-04 to 2018-01-26 | $14.0m | us-gaap:GrossProfit |
| Selling, general and administrative | 3 months, 2017-11-04 to 2018-01-26 | $11.9m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Income tax | 3 months, 2017-11-04 to 2018-01-26 | $3.7m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2017-11-04 to 2018-01-26 | −$1.6m | us-gaap:NetIncomeLoss |
| Basic EPS | 3 months, 2017-11-04 to 2018-01-26 | −$0.18 | us-gaap:EarningsPerShareBasic |
| Operating cash flow | 3 months, 2017-11-04 to 2018-01-26 | −$1.2m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2017-11-04 to 2018-01-26 | $3.6m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2018-01-26 | $7.2m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2018-01-26 | $50.3m | us-gaap:AssetsCurrent |
| Total assets | at 2018-01-26 | $92.1m | us-gaap:Assets |
| Current liabilities | at 2018-01-26 | $15.4m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2018-01-26 | $37.7m | us-gaap:Liabilities |
| Shareholders' equity | at 2018-01-26 | $54.4m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 33,829 characters.

### (dollars in thousands)

### NOTE REGARDING FORWARD-LOOKING STATEMENTS

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, as amended, and the Securities Exchange Act of 1934 (the “Exchange Act”). Such forward-looking statements involve known and unknown risks, uncertainties, and other factors which may cause the actual results, performance or achievements of Bridgford Foods Corporation 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 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. Assumptions relating to budgeting, marketing, and other management decisions are subjective in many respects and thus susceptible to interpretations and periodic revisions based on actual experience and business developments, the impact of which may cause us to alter our marketing, capital expenditure or other budgets, which may in turn affect our business, financial position, results of operations and cash flows. The reader is therefore cautioned not to place undue reliance on forward-looking statements contained herein and to consider other risks detailed more fully in our Annual Report on Form 10-K, as amended, for the fiscal year ended November 3, 2017. We undertake no obligation to publicly release the result of any revisions to these forward-looking statements which may be made to reflect events or circumstances after the date hereof, or to reflect the occurrence of unanticipated events.

### Critical Accounting Policies and Management Estimates

The preparation of consolidated financial statements in conformity with generally accepted accounting principles in the United States of America 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. Some of the estimates needed to be made by management include the allowance for doubtful accounts, promotional and returns allowances, inventory reserves, the estimated useful lives of property and equipment, and the valuation allowance for the Company’s deferred tax assets. Actual results could materially differ from these estimates. We determine the amounts to record based on historical experience and various other assumptions that we view as reasonable under the circumstances and consider all relevant available information. The results of this analysis form the basis for our conclusion as to the value of assets and liabilities that are not readily available from other independent sources. 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 which vary from our current estimates.

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 Bridgford Foods Corporation is measured annually and based on the Citigroup Pension Discount Rate. The Citigroup Pension Discount Rate as of January 31, 2018 was 3.78% as compared to 3.65% at November 3, 2017. The discount rate applied can significantly affect the value of the projected benefit obligation as well as the net periodic benefit cost.

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 few 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.

The table below shows customers that accounted for more than 20% of consolidated accounts receivable (“AR”) or 10% of consolidated sales for the twelve-weeks ended January 26, 2018 and January 20, 2017, respectively.

### Customer Concentration \> 20% of AR or 10% of Sales \*

|  | Wal-Mart Sales | AR | Dollar General Sales | AR |
| --- | ---: | ---: | ---: | ---: |
| January 26, 2018 | 36.0% | 32.7% | 8.7% | 22.4% |
| January 20, 2017 | 37.0% | 31.7% | 8.9% | 24.0% |

\* = No other customer accounted for more than 20% of consolidated accounts receivable or 10% of consolidated sales for the twelve-weeks ended January 26, 2018 or the twelve-weeks ended January 20, 2017.

Sales are recognized 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 our own 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.

In March 2010, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act (collectively, the “PPACA”), was signed into law. Requirements of the law include the removal of the lifetime limits on active and retiree medical coverage, expanding dependent coverage to age 26 and elimination of pre-existing conditions that may impact other postretirement benefits costs. In addition, the PPACA includes potential excise tax on the value of benefits that exceed a pre-defined limit which may require changes in benefit plan levels in order to minimize this additional cost. 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. While the new administration has indicated a desire to eliminate and replace PPACA with an alternative system, there has yet been no change in the rules that compel an employer such as Bridgford Foods to offer affordable coverage to all of its employees. The recent tax law changes removed the individual mandate provision that is included in PPACA and requires all individuals to have health insurance or pay a penalty. Despite this change, the recent tax changes did not adjust or remove the employer mandate. We cannot anticipate further changes at this point in time. We believe that current plans meet the existing requirements. We will continue to assess the accounting implications of the PPACA and its impact on our financial position and results of operations as more legislative and interpretive guidance becomes available. The potential future effects and cost of complying with the provisions of the PPACA are not determinable at this time.

### Overview of Reporting Segments

We operate in two business segments – the processing and distribution of frozen 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 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 the United States. Products produced by the Frozen Food Products segment are generally supplied to food service and retail distributors who take title to the product upon shipment receipt through company leased long-haul vehicles. In addition to regional sales managers, we maintain a network of independent food service and retail brokers covering most of the United States. Brokers are compensated on a commission basis. We believe that our broker relationships, in close cooperation with our regional sales managers, are a valuable asset providing significant new product and customer opportunities. Regional sales managers perform several significant functions for us, including identifying and developing new business opportunities and providing customer service and support to our distributors and end purchasers through the effective use of our broker network.

### 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 110 different items through a direct store delivery network serving approximately 15,000 supermarkets, mass merchandise and convenience retail stores located in 48 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 January 26, 2018 and January 20, 2017

### Net Sales-Consolidated

Net sales increased by $1,111 (2.8%) to $41,192 in the first twelve-week period of the 2018 fiscal year compared to the same twelve-week period last year. The changes in net sales were comprised as follows:

| Impact on Net Sales-Consolidated% |  | $ |
| --- | ---: | ---: |
| Selling price per pound | - | (8) |
| Unit sales volume in pounds | 2.5 | 1,056 |
| Returns activity | -0.2 | (101) |
| Promotional activity | 0.5 | 164 |
| Increase in net sales | 2.8 | 1,111 |

### Net Sales-Frozen Food Products Segment

Net sales in the Frozen Food Products segment decreased by $1,124 (9.6%) to $10,591 in the first twelve-week period of the 2018 fiscal year compared to the same twelve-week period last year. The changes in net sales were comprised as follows:

| Impact on Net Sales-Frozen Food Products% |  | $ |
| --- | ---: | ---: |
| Selling price per pound | - | 3 |
| Unit sales volume in pounds | -8.8 | (1,176) |
| Returns activity | -0.1 | (16) |
| Promotional activity | -0.7 | 65 |
| Decrease in net sales | -9.6 | (1,124) |

The decrease in net sales for the twelve-weeks ended January 26, 2018 primarily relates to lower unit sales volume. Weak customer demand in the retail distribution channel for rolls, monkey bread and certain other bread products resulted in a combined 21% decline in volume. The food-service channel declined 6% due to high volume, low margin products being discontinued by significant operators. Sales of items designed to conform to strict school nutritional requirements declined after the requirements were relaxed. Changes in promotional activity and returns were insignificant compared to the same twelve-week period in the prior year.

### Net Sales-Snack Food Products Segment

Net sales in the Snack Food Products segment, increased by $2,235 (7.9%) to $30,601 in the first twelve-week period of the 2018 fiscal year compared to the same twelve-week period last year. The changes in net sales were comprised as follows:

| Impact on Net Sales-Snack Food Products% |  | $ |
| --- | ---: | ---: |
| Selling price per pound | - | (11) |
| Unit sales volume in pounds | 7.6 | 2,232 |
| Returns activity | -0.1 | (85) |
| Promotional activity | 0.4 | 99 |
| Increase in net sales | 7.9 | 2,235 |

Unit volume in pounds increased significantly in the beef products category. The volume of pork-based products was also higher compared to the prior twelve-week period. The weighted average selling price per pound remained the same compared to the same twelve-week period in the prior year. Promotional offers decreased due to the timing of programs with significant customers. Returns activity was slightly lower compared to the same twelve-week period in the 2017 fiscal year.

### Cost of Products Sold and Gross Margin-Consolidated

Cost of products sold increased by $2,067 (8.2%) to $27,233 in the first twelve-week period of the 2018 fiscal year compared to the same twelve-week period in fiscal year 2017. The gross margin decreased from 37.2% to 33.9%.

| Change in Cost of Products Sold by Segment | $% |  | Commodity $ Increase |
| --- | ---: | ---: | ---: |
| Frozen Food Products Segment | (203) | -0.8 | 70 |
| Snack Food Products Segment | 2,270 | 9.0 | 1,054 |
| Total | 2,067 | 8.2 | 1,124 |

### Cost of Products Sold-Frozen Food Products Segment

Cost of products sold in the Frozen Food Products segment decreased by $203 (2.8%) to $7,161 in the first twelve-week period of the 2018 fiscal year compared to the same twelve-week period in fiscal year 2017. Lower sales volume was the primary contributing factor to this decrease. Overhead spending decreased related to higher overhead absorption and lower pension costs. The cost of purchased flour increased approximately $70 in the first twelve-week period of fiscal 2018 compared to the same twelve-week period in the prior year.

### Cost of Products Sold-Snack Food Products Segment

Cost of products sold in the Snack Food Products segment increased by $2,270 (12.8%) to $20,072 in the first twelve-week period of the 2018 fiscal year compared to the same twelve-week period in fiscal year 2017 due to a substantial increase in sales volume. Meat commodity costs continued to rise during the 2018 period contributing to the increase in cost of products sold. Higher workers’ compensation costs and hourly wages impacted the cost of products sold. The cost of significant meat commodities increased approximately $1,054 in the first twelve-week period of fiscal 2018 compared to the same period in the prior year..

### Selling, General and Administrative Expenses-Consolidated

Selling, general and administrative (“SG&A”) expenses increased by $399 (3.5%) to $11,864 in the first twelve-week period of fiscal year 2018 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 January 26, 2018 | January 20, 2017 | Expense Increase (Decrease) |
| --- | ---: | ---: | ---: |
| Pension cost | $283 | $560 | $(277) |
| Product advertising | 1,881 | 1,629 | 252 |
| Cash surrender value | (528) | (279) | (249) |
| Outside storage | 29 | 235 | (206) |
| Workers’ compensation cost | 240 | 45 | 195 |
| Other SG&A | 9,959 | 9,275 | 684 |
| Total - SG&A | $11,864 | $11,465 | $399 |

The decrease in pension costs was due to higher pension discount rates being used to compute the future liability estimate. Costs for product advertising increased mainly as a result of higher payments under brand licensing agreements in the Snack Food Products segment during the first quarter of fiscal 2018. The cash surrender value of life insurance policies increased substantially due to stock market gains compared to the same twelve-week period in fiscal 2017. Workers’ compensation costs increased due to unfavorable trends in claims experience in the current fiscal year. 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 display rack purchases, provision for bad debts and legal expenses.

### Selling, General and Administrative Expenses-Frozen Food Products Segment

SG&A expenses in the Frozen Food Products segment decreased by $189 (5.3%) to $3,384 in the first twelve-week period of fiscal year 2018 compared to the same twelve-week period in the prior fiscal year. The overall decrease in SG&A expenses was due to an increase in allocated cash surrender value gains and lower pension costs.

### Selling, General and Administrative Expenses-Snack Food Products Segment

SG&A expenses in the Snack Food Products segment increased by $588 (7.5%) to $8,480 in the first twelve-week period of fiscal year 2018 compared to the same twelve-week period in the prior fiscal year. Most of the increase was due to higher sales, higher expenses related to licensing agreements and sales commissions as well as higher workers’ compensation costs partially offset by lower outside storage fees.

### Income Taxes-Consolidated

Income tax for the twelve-weeks ended January 26, 2018 and January 20, 2017, respectively, was as follows:

|  | January 26, 2018 | January 20, 2017 |
| --- | ---: | ---: |
| Income tax provision | $3,722 | $976 |
| Effective tax rate | 177.68% | 28.3% |

We recorded a tax provision of $3,722 for the twelve-week period ended January 26, 2018, related to federal and state taxes, based on the Company’s expected annual effective tax rate. The effective tax rate for the first quarter of 2018 reflects impacts of the Tax Cuts and Jobs Act signed into law on December 22, 2017. These impacts include a $3.2 million expense related to the remeasurement of deferred taxes, as well as a 23.07% statutory federal income tax rate for fiscal 2018 compared to the 35% statutory federal income tax rate effective for the prior year. The effective income tax rate differed from the applicable mixed statutory rate of approximately 24.9% primarily due to non- taxable gains and losses on life insurance policies and domestic production activities deductions under Internal Revenue Code (“IRC”) Section 199.

### Net (Loss) Income-Consolidated

The net loss of $1,627 in the twelve-weeks ended January 26, 2018 includes a non-taxable gain on life insurance policies in the amount of $528. The net income of $2,474 in the twelve-weeks ended January 20, 2017 includes a non-taxable gain on life insurance policies in the amount of $279. Gains and losses on life insurance policies are dependent upon the performance of the underlying equities that support policy values and future results may vary considerably.

### Liquidity and Capital Resources

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. We have remained free of interest bearing debt (excluding capital leases) for twenty-eight of the last twenty-nine years (with fiscal 2014 being the only exception) and we normally fund our operations from cash balances and cash flow generated from operations. Historically, we expect positive operating cash flows in the first quarter of our fiscal year from the liquidation of inventory and accounts receivable balances related to holiday season sales. Anticipated commodity price trends may affect future cash balances. Certain commodities may be purchased in advance of our immediate needs to lower the ultimate cost of processing.

### Cash flows from operating activities for the twelve-weeks ended:

|  | January 26, 2018 | January 20, 2017 |
| --- | ---: | ---: |
| Net (loss) income | $(1,627) | $2,474 |
| Income or charges not affecting cash and cash equivalents: |  |  |
| Depreciation | 878 | 687 |
| Provision for losses on (recovery on) accounts receivable | 35 | 1 |
| Provision for (reduction in) promotional allowances | 23 | (254) |
| Gain on sale of property, plant and equipment | (7) | (4) |
| Deferred income taxes | 3,200 | - |
| Changes in operating assets and liabilities: |  |  |
| Changes in operating working capital | 1,938 | 3,681 |
| Net cash (used in) provided by operating activities | $(1,240) | $6,585 |

For the twelve-weeks ended January 26, 2018, net cash used in operating activities was $1,240, $7,825 less cash provided than during the same period in fiscal 2017. The net decrease in cash provided by operating activities primarily related to a decrease in non-current liabilities of $2,994, payments for estimated income taxes of $1,198 and a net loss of $1,627 partially offset by collections of accounts receivable of $1,345. During the twelve-week period ended January 26, 2018 we funded $300 towards our defined benefit pension plan. Plan funding strategies may be adjusted depending upon economic conditions, investment options, tax deductibility, or recent legislative changes in funding requirements. The Company did not borrow against its line of credit with Wells Fargo Bank N.A. during the twelve-weeks ended January 26, 2018.

Our cash conversion cycle (defined as days of inventory and trade receivables less days of trade payables outstanding) was equal to 67 days for the twelve-week period ended January 26, 2018. The cash conversion cycle was similar to last year due to extended payment terms with significant customers.

For the twelve-weeks ended January 20, 2017, net cash provided by operating activities was $6,585 primarily due to net income of $2,474 and a liquidation of inventory of $4,913 partially offset by estimated income tax payments of $1,291. During the twelve-week period ended January 20, 2017 we funded $300 towards our defined benefit pension plan.

### Cash used in investing activities for the twelve-weeks ended:

|  | January 26, 2018 | January 20, 2017 |
| --- | ---: | ---: |
| Proceeds from sale of property, plant and equipment | $7 | $4 |
| Additions to property, plant and equipment | (3,620) | (1,044) |
| Net cash used in investing activities | $(3,613) | $(1,040) |

In general, we capitalize the cost of additions and improvements and expense the cost for repairs and maintenance. The Company 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.

The table below highlights additions to property, plant and equipment for the twelve-weeks ended:

|  | January 26, 2018 | January 20, 2017 |
| --- | ---: | ---: |
| Changes in projects in process | $2,660 | $843 |
| Building improvements | 178 | - |
| Direct store delivery and sales vehicles | 363 | 177 |
| Packaging lines | 3 | - |
| Processing equipment | 385 | 24 |
| Forklifts | 31 | - |
| Additions to property, plant and equipment | $3,620 | $1,044 |

### Cash used in financing activities for the twelve-weeks ended:

|  | January 26, 2018 | January 20, 2017 |
| --- | ---: | ---: |
| Payment of capital lease obligations | (35) | (33) |
| Net cash used in financing activities | $(35) | $(33) |

Our stock repurchase program was approved by the Board of Directors in November 1999 and was expanded in June 2005. Under the stock repurchase program, we are authorized, at the discretion of management and the Board of Directors, to purchase up to an aggregate of 2,000,000 shares of our common stock on the open market. As of January 26, 2018, 120,113 shares were still authorized for repurchase under the program.

We invested in OTR (over-the-road) tractors financed by a capital lease obligation in the amount of $1,060 during fiscal 2012. The total capital lease obligation remaining as of January 26, 2018 is $389. The capital lease arrangement replaced the long-standing month-to-month leases of transportation equipment.

We maintain a line of credit with Wells Fargo Bank, N.A. that expires on March 1, 2020. 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 borrowing agreement contains various covenants, the more significant of which require us to maintain a minimum tangible net worth, a minimum quick ratio, a minimum net income after tax and total capital expenditures less than $5,000. The Company was in compliance with all covenants as of January 26, 2018. There have been no borrowings under this line of credit during fiscal 2018.

The impact of inflation on the Company’s financial position and results of operations has not been significant. Management is of the opinion that the Company’s financial position and its capital resources are sufficient to provide for its operating needs and capital expenditures for the remainder of fiscal 2018.

### Recent Accounting Pronouncements

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 becomes effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period, with early adoption permitted. The Company anticipates using the modified retrospective transition method beginning with the first quarter of fiscal 2019. The Company is in the process of evaluating the full impact of adoption of this guidance and does not presently expect adoption to have a material impact on its consolidated financial statements aside from more detailed and improved disclosure requirements.

In July 2015, the FASB issued ASU 2015-11 “Simplifying the Measurement of Inventory”. The guidance is part of the “Simplification Initiative” to identify and re-evaluate areas where the generally accepted accounting principles may be complex and cumbersome to apply. The guidance will require that inventory be stated at the lower of cost and net realizable value as opposed to the lower of cost or market. Net realizable value is the estimated selling price for the inventory less completion, disposal and transportation costs. The guidance is effective for fiscal years beginning after December 15, 2016. Adoption of this guidance did not have a material impact on the Company’s results of operations or financial position.

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. The Company is currently evaluating this statement and its impact on its results of operations or financial position.

In February 2016, the FASB issued ASU 2016-02, “Leases”, which will require a lessee to recognize assets and liabilities with lease terms of more than 12 months. Both capital and operating leases will need to be recognized on the balance sheet. The guidance is effective for annual reporting periods beginning after December 15, 2019 and interim periods within fiscal years beginning after December 15, 2020. The Company is currently evaluating this statement and its impact on its results of operations or financial position.

In March 2016, the FASB issued ASU 2016-09 “Compensation-Stock Compensation” guidance which simplifies various aspects of the accounting for employee share-based payment transactions, including the accounting for income tax consequences, forfeitures, and statutory tax withholding requirements, as well as classification of related amounts within the statement of cash flows. The guidance is effective for annual and interim reporting periods beginning after December 15, 2016 with early adoption permitted. Adoption of this guidance did not have a material impact on results of Company operations or financial position.

In June 2016 the FASB issued ASU 2016-13 “Financial Instruments – Credit Losses”, which requires a financial asset to be presented at the net carrying value which is the amount expected to be collected net of expected credit losses. The guidance is effective for annual and interim reporting periods beginning after December 15, 2019 with early adoption permitted. The Company is currently evaluating this statement and its impact on its results of operations or financial position.

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 becomes effective for annual reporting periods beginning after December 15, 2017 with early adoption permitted. The Company is currently evaluating this guidance and its impact on its results of operations or financial position.

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 is effective for annual and interim reporting periods beginning after December 15, 2017 with early adoption permitted. The Company is currently evaluating this guidance and its impact on its results of operations or financial position.

In February 2018, the FASB issued ASU 2018-02, “Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income”. The guidance allows reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the application of the U.S. Tax Cuts and Jobs Act. The guidance is effective for annual and interim reporting periods beginning after December 15, 2018 with early adoption permitted. The Company elected to early adopt this guidance during the quarter ended January 26, 2018.

### Off-Balance Sheet Arrangements

We are not engaged in any “off-balance sheet arrangements” within the meaning of Item 303(a)(4)(ii) of Regulation S-K.

## Controls and procedures

As filed, 5,051 characters.

Our management, with the participation and under the supervision of our principal executive officer and principal financial officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e) and 15d-15(e)) as of the end of the period covered by this Report. Based on this evaluation the principal executive officer and principal financial officer have concluded that our disclosure controls and procedures are effective as of the end of the period covered by this Report in their design and operation to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to management and recorded, processed, summarized and reported within the time periods specified by the Securities and Exchange Commission’s rules and forms and were accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosures.

Our management, including our principal executive officer and principal financial officer, does not expect that our disclosure controls and internal controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control.

The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving our stated goals under all potential future conditions; over time, a control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

We maintain and evaluate a system of internal accounting controls, and a program of internal auditing designed to provide reasonable assurance that our assets are protected and that transactions are performed in accordance with proper authorization and are properly recorded. This system of internal accounting controls is continually reviewed and modified in response to evolving business conditions and operations and to recommendations made by the independent registered public accounting firm. On May 14, 2013, the Committee of Sponsoring Organizations of the Treadway Commission (COSO) published Internal Control-Integrated Framework (2013) (the “2013 Framework”) and related illustrative documents as an update to Internal Control-Integrated Framework (1992) (the “1992 Framework”). The Company has adopted the 2013 Framework this fiscal year and has determined that the 17 principles are present and functioning during our assessment of the effectiveness of internal controls. We have established a code of conduct. Our management believes that the accounting and internal control systems provide reasonable assurance that assets are safeguarded, and financial information is reliable.

The Audit Committee of the Board of Directors meets regularly with our financial management and counsel, and with the independent registered public accounting firm engaged by us. Internal accounting controls and the quality of financial reporting are discussed during these meetings. The Audit Committee has discussed with the independent registered public accounting firm matters required to be discussed by the auditing standards adopted or established by the Public Company Accounting Oversight Board. In addition, the Audit Committee and the independent registered public accounting firm have discussed the independent registered public accounting firm’s independence from the Company and its management, including the matters in the written disclosures required by Public Company Accounting Oversight Board Rule 3526 “Communicating with Audit Committees Concerning Independence”.

There have been no changes in our internal controls over financial reporting that occurred during the fiscal quarter ended January 26, 2018 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

## Risk factors

As filed, 358 characters.

The risk factors listed in Part I “Item 1A. Risk Factors” in the Annual Report should be considered with the information provided elsewhere in this Report, which could materially adversely affect our business, financial condition or results of operations. There have been no material changes to the risk factors as previously disclosed in such Annual Report.

Filed Mar 9, 2018.
Source: SEC EDGAR, the filing index for accession 0001493152-18-003182. Last ingested by Listed: Oct 24, 2026, 14:51 ET. No prices; not investment advice.