<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED OCTOBER 30, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________ TO ___________
Commission file number: 0-2396
BRIDGFORD FOODS CORPORATION
---------------------------
(Exact name of Registrant as specified in its charter)
California 95-1778176
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1308 North Patt Street, Anaheim, California 92801
- ------------------------------------------- -----
(Address of principal executive offices) (Zip code)
(714) 526-5533
----------------------------------------------------
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $1.00 per share
---------------------------------------
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
form 10-K. [X]
The aggregate market value of voting stock held by non-affiliates of the
registrant on January 15, 1999 was $51,091,000.
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date: 11,369,812 shares of Common
Stock, par value of $1.00 per share, as of January 19, 1999.
DOCUMENTS INCORPORATED BY REFERENCE
Items 5, 6, 7 and 8 of Part II are incorporated by reference from the
registrant's Annual Report to Shareholders for the fiscal year ended October 30,
1998. Items 10, 11, 12 and 13 of Part III are incorporated by reference from the
registrant's Proxy Statement for the Annual Meeting of Shareholders to be held
March 10, 1999.
<PAGE> 2
PART I
------
ITEM 1. BUSINESS
Background of Business
----------------------
Bridgford Foods Corporation, a California corporation (collectively with
its subsidiaries, the "Company"), was organized in 1952. The Company originally
began its operations 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.
For more than the past five years, the Company and its subsidiaries have been
primarily engaged in the manufacturing, marketing and distribution of an
extensive line of frozen, refrigerated and snack food products throughout the
United States. The Company has not been involved in any bankruptcy, receivership
or similar proceedings, nor has it been party to any merger, acquisition, etc.
or acquired or disposed of any material amounts of assets during the past five
years. Substantially all of the assets of the Company have been acquired in the
ordinary course of business. The Company had no significant change in the type
of products produced or distributed, nor in the markets or methods of
distribution since the beginning of the fiscal year.
Certain statements in this report constitute "forward-looking statements"
within the meaning of the Securities Act of 1933 and the Securities Exchange Act
of 1934. 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.
Description of Business
-----------------------
The Company operates in one business segment - the manufacture and
distribution of frozen, refrigerated and snack food products. The products
manufactured and distributed by the Company consist of an extensive line of food
products, including a variety of sliced luncheon meats and cheeses, wieners,
bacon, sandwiches, dry sausages, biscuits, bread dough items and roll dough
items. The products purchased by the Company for resale include a variety of
jerky, cheeses, salads, party dips, Mexican foods, nuts and other delicatessen
type food products. In the aggregate, the Company manufactures or distributes a
product line consisting of a total of approximately 485 food products.
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Products manufactured or processed
by the Company 78% 82% 83%
Items manufactured or processed
by third parties for distribution 22% 18% 17%
--- --- ---
100% 100% 100%
=== === ===
</TABLE>
Although the Company has recently introduced several new products, none
of these products have contributed significantly to the Company's revenue growth
for the fiscal year. The Company's sales are not subject to material seasonal
variations. Historically the Company has been able to respond quickly to the
receipt of orders and, accordingly, the Company does not maintain a significant
sales backlog. The Company and its industry generally have no unusual demands or
restrictions on working capital items. The Company is not dependent upon a
single customer, or a few customers, the loss of which would have a material
adverse effect on the Company's results of operations. During the last fiscal
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year the Company did not enter into any new markets or any significant
contractual or other material relationships.
The Company has two classes of similar food products, each of which has
accounted for 10% or more of consolidated sales in the prior three fiscal years
listed below. The following table shows sales, as a percentage of consolidated
sales, for each of these two classes of similar products for each of the last
three fiscal years:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Frozen Food Products 41% 44% 44%
Refrigerated and Snack Food Products 59% 56% 56%
---- ---- ----
100% 100% 100%
==== ==== ====
</TABLE>
To date, federal, state and local environmental laws and regulations,
including those relating to the discharge of materials into the environment,
have not had a material effect on the Company's business.
Product Planning and Research and Development
---------------------------------------------
The Company continually monitors the consumer acceptance of each product
within its extensive product line. Individual products are regularly added to
and deleted from the Company's product line. The addition or deletion of any
product has not had a material effect on the Company's operations. The Company
believes that a key factor in the success of its products is its system of
carefully targeted research and testing of its products to ensure high quality
and that each product matches an identified market opportunity. The emphasis in
new product introductions in the past few years has been in microwaveable,
single service items. The Company is constantly searching to develop new
products to complement its existing product line and improved processing
techniques and formulas for its existing product line. The Company utilizes an
in-house test kitchen to research and experiment with unique food preparation
methods, improve quality control and analyze new ingredient mixtures. The
Company does not anticipate any significant change in product-mix as a result of
its research and development efforts.
Marketing, Sales and Distribution
---------------------------------
The Company markets and sells its products with its own sales force,
brokers, cooperatives, wholesalers and independent distributors. Currently,
products are sold by the Company's own sales force to approximately 27,300
retail food stores located in 49 states and Canada. In addition, the Company
sells its products through wholesalers, cooperatives and distributors to
approximately an additional 17,700 retail outlets and 19,000 restaurants and
institutions.
The Company's annual advertising expenditures are directed towards retail
and institutional customers. These customers participate in various special
promotional programs including "slotting" and direct advertising allowances
sponsored by the Company. The Company also invests in general consumer
advertising in various newspapers and periodicals. The Company directs
advertising at food service customers with campaigns in major industry
publications and through Company participation in trade shows throughout the
United States.
Competition
-----------
The products of the Company are sold under highly competitive conditions.
All food products can be considered competitive with other food products, but
the Company regards its principal competitors to include national, regional and
local producers and distributors of refrigerated, frozen and snack food
products. Several of the Company's competitors include large companies with
substantially greater financial and marketing resources than those of the
Company. Existing competitors may broaden their product lines and potential
competitors may enter or increase their focus on the Company's market,
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resulting in greater competition for the Company. The Company believes that its
products compete favorably with those of the Company's competitors. Such
competitors' products compete against those of the Company for retail shelf
space, institutional distribution and customer preference.
Employees
---------
At the end of fiscal 1998, the Company had approximately 640 employees,
approximately one-half of whose employment relationship with the Company was
governed by collective bargaining agreements. These agreements currently expire
between September 1999 and October 2001. The Company believes that its
relationship with its employees is good.
Raw Materials
-------------
Although the Company has numerous sources of raw materials, the
availability of raw materials is subject to some volatility. From time to time
drought or flood conditions affect the cost of grain products adversely in the
short run, and costs of meat products in the subsequent two to five year cycle.
Similarly, periods of surplus grain products, usually occasioned by favorable
growing weather and adequate moisture, result in an increased supply and
lowering of grain costs in ensuing seasons. Government commodity programs and
export enhancement programs can also have material effects on commodity prices.
These programs are generally not predictable beyond published information.
Year 2000
---------
The Year 2000 problem concerns the inability of information systems to
properly recognize and process date-sensitive information on and beyond January
1, 2000. Many of the Company's systems and related software are Year 2000
compliant. However, the Company has a program in place designed to bring the
remaining software and systems into Year 2000 compliance in time to minimize any
significant detrimental effects on operations. The program covers information
systems infrastructure, financial and administrative systems, process control
and manufacturing operating systems and significant vendors and customers. The
Company's program realizes that date sensitive systems may fail at different
points in time depending on their function. Forward-looking production and
procurement systems may fail earlier and require corrective actions sooner to
allow for reasonable testing. Other applications, including gauging and
recording systems, may fail only during the transition to the Year 2000. The
Company is using internal personnel to identify Year 2000 noncompliance
problems, modify code and test the modifications. In some cases, non-compliant
software and hardware will be replaced. Certain systems have already been tested
and successfully modified. While not all testing of systems has been completed,
management believes that the testing of remaining untested significant systems
will be completed in mid-1999.
The Company relies on third party suppliers for raw materials, water, utilities,
transportation and other key services. Interruption of supplier operations due
to Year 2000 issues could affect Company operations. Management has and will
continue to evaluate the status of suppliers' efforts to determine alternatives
and contingency plan requirements. While approaches to reducing risks of
interruption due to supplier failures will vary by business and facility,
options include the identification of alternative suppliers and accumulation of
inventory to assure production capacity where feasible or warranted. These
activities are intended to provide a means of managing risk, but cannot
eliminate the potential disruption due to third party failure.
The Company is also dependent upon customers for sales and cash flow. Year 2000
interruptions in the Company's customer's operations could result in reduced
sales, increased inventory or receivable levels and cash flow reductions. While
these events are possible, the Company's customer base is generally broad enough
to minimize the affects of a single occurrence. Management has and will continue
to monitor the status of customers as a means of determining risks to our
business.
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<PAGE> 5
The Company's manufacturing facilities rely on control systems, which include
production monitoring, power, emissions and safety. These systems have been
evaluated and while all risks cannot be eliminated, management believes the risk
of interruption to these systems causing a material business failure to be
insignificant. While comparable control systems are used at all facilities, any
system failure would be isolated to the affected facility.
Recovery under existing insurance policies may be available depending upon the
circumstances of a Year 2000 related event and the type of facility involved.
Generally, no recovery would be available in the event of an orderly shutdown,
which does not result in damage to a facility. Potential recoveries in the event
of facility damage, including business interruption, would be subject to
deductibles under policies in force at the time.
The Company relies on various administrative and financial applications (e.g.,
order processing and collection systems) that require correction to handle Year
2000 dates. In the event one of these systems was not corrected, the Company's
ability to capture, schedule and fulfill customer demands could be impaired.
Likewise, if a collection processing system failed, we may, in the short run, be
unable too properly apply payments to customer balances or correctly determine
cash balances. Alternative methods of maintaining such information could be
developed in a timely manner if required, although management does not believe
that these systems will fail on or before the Year 2000. The Company accepts
purchase orders, invoices and account remittances using Electronic Data
Interchange (EDI). The Company is currently accepting transactions using a Year
2000 compliant standard (Uniform Communications Standard version 4010).
Management anticipates moving several more EDI partners to this standard in
early 1999 and has the resources to complete these conversions when our trading
partners are ready. The Company will also support prior versions for those
customers unable to move to version 4010.
The total costs that the Company incurs in connection with the Year 2000 problem
will be influenced by management's ability to accurately identify Year 2000
systems' flaws, the nature and amount of programming required to fix affected
programs, the related labor and or consulting costs for such remediation and the
ability of third parties with whom we have business relationships to
successfully address their own Year 2000 concerns. These and other unforeseen
factors could have a material adverse affect on the Company's results of
operations and financial condition. Nevertheless, management believes the
estimated cost of these programs are and will be immaterial to the Company and
are not expected to exceed $100,000. Management estimates costs to date to be in
the range of $25,000.
ITEM 2. PROPERTIES
The Company owns its headquarters and plant located in Anaheim, California, a
100,000 square-foot processing facility located on five acres of land. The
Company owns a 130,000 square-foot processing facility on 1-1/2 acres of land in
Chicago, Illinois. In Dallas, Texas, facilities include a 86,000 square-foot
food processing facility on 3-3/4 acres of land, a 4,000 square foot warehouse
facility on 1.5 acres of land and a 28,000 square foot food processing facility
on 1-3/4 acres of land. In Statesville, North Carolina, a new 42,000 square
foot, state of the art frozen food plant was completed in April 1996. The
foregoing plants are, in general, fully utilized by the Company for processing,
warehousing, distributing and administrative purposes. In addition, the Company
owns an unoccupied 2,500 square-foot warehouse on 1/3 acre of land in Modesto,
California. The Company also owns 1/4 acre of land in San Diego, California. A
portion of this land is currently being leased to a third party. In November
1998 the Company sold a portion of this land and recognized a pre-tax gain of
approximately $610,000.
The Company leases warehouse and/or office space in Oakland, California,
Phoenix and Tucson, Arizona. The Company's properties are adequate to satisfy
its foreseeable needs. Additional properties may be acquired and/or plants
expanded if favorable opportunities and conditions arise.
5
<PAGE> 6
ITEM 3. LEGAL PROCEEDINGS
No material legal proceedings were pending at October 30, 1998 against
the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to the Company's shareholders during the fourth
quarter of the fiscal year ended October 30, 1998.
EXECUTIVE OFFICERS OF THE REGISTRANT
The names, ages and positions of all the executive officers of the
Company as of January 1, 1999 are listed below. Messrs. Hugh Wm. Bridgford and
Allan L. Bridgford are brothers. Officers are normally appointed annually by the
board of directors at their meeting immediately following the annual meeting of
shareholders. All executive officers are full-time employees of the Company,
except for Hugh Wm. Bridgford, who works 80% of full-time.
Name Age Position(s) with the Company
- ---- --- ----------------------------
Allan L. Bridgford 63 Chairman and member of the Executive Committee
Robert E. Schulze 64 President and member of the Executive Committee
Hugh Wm. Bridgford 67 Vice President and Chairman of the Executive
Committee
Salvatore F. DeGeorge 67 Senior Vice President
Lawrence D. English 67 Vice President
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER
MATTERS
The Company's Common Stock, par value $1.00 per share (the "Common
Stock"), is traded in the over-the-counter market and prices are quoted on The
Nasdaq National Market under the symbol "BRID." As of January 1, 1999, there
were 545 holders of record of the Company's Common Stock. The market price and
dividend information with respect to the Company's Common Stock are set forth on
the inside cover of the Company's 1998 Annual Report to Shareholders
incorporated herein by reference. Future dividends will be dependent upon future
earnings, financial requirements and other factors.
ITEM 6. SELECTED FINANCIAL DATA
The information set forth on page 4 of the Company's 1998 Annual Report
to Shareholders is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information set forth on pages 4 and 5 of the Company's 1998 Annual
Report to Shareholders is incorporated herein by reference.
6
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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information set forth on pages 6 through 11 of the Company's 1998
Annual Report to Shareholders in the sections thereof entitled "Consolidated
Balance Sheets", "Consolidated Statements of Income", "Consolidated Statements
of Shareholders' Equity", "Consolidated Statements of Cash Flows", "Notes to
Consolidated Financial Statements" and "Report of Independent Accountants" is
incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
7
<PAGE> 8
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information set forth in the Company's definitive proxy statement for the
1999 Annual Meeting of Shareholders to be held on March 10, 1999 is incorporated
herein by reference. Information concerning the executive officers of the
Company is set forth in Part I hereof under the heading "Executive Officers of
the Registrant."
ITEM 11. EXECUTIVE COMPENSATION
Information set forth in the Company's definitive proxy statement for the
1999 Annual Meeting of Shareholders to be held on March 10, 1999 is incorporated
herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information set forth in the Company's definitive proxy statement for the
1999 Annual Meeting of Shareholders to be held on March 10, 1999 is incorporated
herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information set forth in the Company's definitive proxy statement for the
1999 Annual Meeting of Shareholders to be held on March 10, 1999 is incorporated
herein by reference.
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this report:
(1) FINANCIAL STATEMENTS. See "Index to Consolidated Financial
Statements" included in this report.
(2) FINANCIAL STATEMENT SCHEDULES. See "Index to Consolidated
Financial Statements" included in this report.
(3) EXHIBITS. The exhibits filed as a part of this report are
listed in the accompanying "Index to Exhibits".
(b) Report on Form 8-K. The Company did not file a Current Report on
Form 8-K during the quarter ended October 30, 1998.
9
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SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
BRIDGFORD FOODS CORPORATION
By: /s/ Allan L. Bridgford
------------------------------
Allan L. Bridgford, Chairman
Date: January 22, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Allan L. Bridgford Chairman January 22, 1999
- ---------------------------
Allan L. Bridgford
/s/ Robert E. Schulze President January 22, 1999
- --------------------------
Robert E. Schulze
/s/ Hugh Wm. Bridgford Vice President January 22, 1999
- --------------------------
Hugh Wm. Bridgford
/s/ Paul A. Gilbert Director January 11, 1999
- --------------------------
Paul A. Gilbert
/s/ John W. McNevin Director January 11, 1999
- --------------------------
John W. McNevin
/s/ Steven H. Price Director January 11, 1999
- --------------------------
Steven H. Price
/s/ Norman V. Wagner II Director January 11, 1999
- --------------------------
Norman V. Wagner II
/s/ Paul R. Zippwald Director January 11, 1999
- --------------------------
Paul R. Zippwald
</TABLE>
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BRIDGFORD FOODS CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial statements of the Registrant and its
subsidiaries, including the report thereon of PricewaterhouseCoopers LLP dated
December 18, 1998, appearing on pages 6 through 11 of the accompanying 1998
Annual Report to Shareholders are incorporated by reference in this Annual
Report on Form 10-K. With the exception of the aforementioned information and
the information incorporated in Items 5, 6, 7 and 8, the 1998 Annual Report to
Shareholders is not to be deemed filed as part of this Annual Report on Form
10-K. The following Financial Statement Schedules should be read in conjunction
with the financial statements in such 1998 Annual Report to Shareholders.
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Accountants on Financial Statement Schedules F-1
Financial Statement Schedules for the three years ended October 30, 1998:
Schedule II - Valuation and Qualifying Accounts F-2
</TABLE>
All other schedules are omitted because they are not applicable or the required
information is shown in the financial statements or notes thereto.
11
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REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULES
To the Board of Directors of
Bridgford Foods Corporation
Our audits of the consolidated financial statements referred to in our report
dated December 18, 1998 appearing on page 11 of the 1998 Annual Report to
Shareholders of Bridgford Foods Corporation (which report and consolidated
financial statements are incorporated by reference in this Annual Report on Form
10-K) also included an audit of the Financial Statement Schedules listed in Item
14(a) of this Form 10-K. In our opinion, these Financial Statement Schedules
present fairly, in all material respects, the information set forth therein when
read in conjunction with the related consolidated financial statements.
/s/ PricewaterhouseCoopers LLP
Costa Mesa, California
December 18, 1998
F-1
<PAGE> 13
BRIDGFORD FOODS CORPORATION
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Provision for Accounts Balance at
Balance at losses on written off close
beginning Accounts less of
of period Receivable Recoveries period
--------- ------------- ----------- ----------
November 1, 1996
----------------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts $505,623 $139,150 $141,188 $503,585
======== ======== ======== ========
October 31, 1997
----------------
Allowance for doubtful accounts $503,585 $149,150 $75,579 $577,156
======== ======== ======= ========
October 30, 1998
----------------
Allowance for doubtful accounts $577,156 $254,150 $248,519 $582,787
======== ======== ======== ========
</TABLE>
F-2
<PAGE> 14
BRIDGFORD FOODS CORPORATION
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
No. Page No.
- ------- --------
<S> <C> <C>
3.1 Articles of Incorporation (filed as Exhibit 1 to Form 10 on January 28,1993 and NA
incorporated herein by reference).
3.2 Amendment to Articles of Incorporation dated June 24, 1954 (filed as
Exhibit 1-a to Form 10 on January 28,1993 and incorporated herein by
reference). NA
3.3 Amendment to Articles of Incorporation dated September 30, 1955 (filed as
Exhibit 1-c to Form 10 on January 28,1993 and incorporated herein by
reference). NA
3.4 Amendment to Articles of Incorporation dated April 3, 1963 (filed as
Exhibit 1-c to Form 10 on January 28,1993 and incorporated herein by
reference). NA
3.5 Restated Articles of Incorporation, dated December 29, 1989 (filed as
Exhibit 3.5 to Form 10 on January 28, 1993 and incorporated herein by
reference). NA
3.6 Amendment to Articles of Incorporation, dated July 27, 1990 (filed as
Exhibit 3.6 to Form 10 on January 28, 1993 and incorporated herein by
reference). NA
3.7 By-laws, as amended (filed as Exhibit 2 to Form 10 on January 28, 1993 and
incorporated herein by reference). NA
10.1 Bridgford Foods Corporation Defined Benefit Pension Plan (filed as Exhibit
10.1 to Form 10 on January 28, 1993 and incorporated herein by
reference). NA
10.2 Bridgford Foods Corporation Supplemental Executive Retirement Plan (filed
as Exhibit 10.2 to Form 10 January 28, 1993 and incorporated herein by
reference). NA
10.3 Bridgford Foods Corporation Deferred Compensation Savings Plan (filed as
Exhibit 10.3 to Form 10 January 28, 1993 and incorporated herein by
reference). NA
13.1 1998 Annual Report to Shareholders. --
21.1 Subsidiaries of the Registrant. 15
27.1 Financial Data Schedule for the fiscal year ended October 30, 1998
submitted to the Securities Exchange Commission in electronic format (for
SEC information only).
</TABLE>
<PAGE> 1
EXHIBIT 13.1
BRIDGFORD FOODS CORPORATION
1998 ANNUAL REPORT
[COVER/PHOTO]
<PAGE> 2
DESCRIPTION OF BUSINESS
Bridgford Foods Corporation and its subsidiaries manufacture and/or
distribute refrigerated, frozen and snack food products. The Company markets its
products throughout the United States and Canada. The Company sells its products
through wholesale outlets, restaurants and institutions. The products are sold
by the Company's own sales force, brokers, cooperatives, wholesalers and
independent distributors. Products are currently sold through approximately
27,300 retail food stores in forty-eight states within the continental United
States, Hawaii and Canada that are serviced by Company-owned service routes.
Company products are also sold throughout the country to approximately another
17,700 retail outlets and 19,000 restaurants and institutions.
The following summary represents the approximate percentage of net sales
by class of product for each of the last five fiscal years:
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
---------------------------------
<S> <C> <C> <C> <C> <C>
Products manufactured or
processed by the Company....... 78 82 83 85 87
Products manufactured or
processed by others............ 22 18 17 15 13
---------------------------------
Total............................ 100 100 100 100 100
================================
</TABLE>
COMMON STOCK AND DIVIDEND DATA
The common stock of the Company is traded in the national
over-the-counter market and is authorized for quotation on The Nasdaq National
Market under the symbol "BRID". The following table reflects the high and low
closing prices and cash dividends paid as quoted by Nasdaq for each of the last
eight fiscal quarters adjusted for the 10% stock dividend declared November 16,
1998.
<TABLE>
<CAPTION>
Fiscal Cash
Quarter Ended $High $Low Dividends Paid
---------------- ------ ------ --------------
<S> <C> <C> <C>
January 31, 1997 7-3/8 5-3/8 $.05
May 2, 1997 8-1/8 6-1/4 $.05
August 1, 1997 8-1/2 7-3/8 $.05
October 31, 1997 11-3/4 8-1/4 $.05
January 30, 1998 13-7/8 10-3/8 $.055
May 1, 1998 12-3/4 9-1/2 $.055
July 31, 1998 12-3/8 11-1/8 $.055
October 30, 1998 11-7/8 10-1/4 $.055
</TABLE>
ANNUAL SHAREHOLDERS MEETING
The 1999 annual shareholders meeting will be held at the Four Points
Sheraton, 1500 South Raymond Avenue, Fullerton, California at 10:00 a.m. on
Wednesday March 10, 1999.
BRIDGFORD FOODS CORPORATION
RECENT HISTORICAL TRENDS
[GRAPHS]
<PAGE> 3
TO OUR SHAREHOLDERS:
1998 was an outstanding year for Bridgford Foods Corporation. All-time
highs were established for sales, earnings and equity. Favorable commodity
costs, manufacturing efficiencies, tight cost controls and strong marketing
programs all contributed to the greatest one year success in company history.
SALES, EARNINGS & DIVIDENDS
Sales in the fiscal year ended October 30, 1998 were $134,815,787, a 5.4% gain
over sales in 1997. Fiscal 1998 was our 13th consecutive year of sales
increases. Excellent sales gains were experienced in our dry sausage, meat snack
and delicatessen sales divisions. Bridgford Four Ounce Beef Jerky, pictured on
the cover of this report, became the number one selling meat snack item in
Supermarkets and Warehouse Stores in the U.S. during 1998.
Frozen sandwich sales increased in both the retail and food service
divisions during 1998. Sales of our new four pack sandwiches to supermarkets for
their "large pack" sections have met with good success.
Net income for 1998 was $8,720,430, a 32% gain over 1997 income. Low
pork costs during all of 1998 and favorable flour prices, combined with
increased sales and efficiencies, made these gains possible.
Cash dividends of twenty-four cents per share were paid in 1998 on the
10,336,415 shares then outstanding.
On November 16, 1998 your Board of Directors authorized a ten percent
stock dividend for the second consecutive year and a regular six cent cash
dividend to be paid on the 11,369,812 shares outstanding after the stock
dividend. The financial statements reflect historical earnings and dividends
based on the new number of shares outstanding.
FINANCIAL CONDITION
Shareholders' equity exceeded $50,000,000 for the first time in 1998,
reaching $50,842,000. This is 14% more than the record equity reached in 1997.
Working capital reached $37,251,000 in 1998, a 25% gain over the prior year. Our
working capital ratio was 3.8 to 1 at October 30,1998.
Your company remained debt-free in 1998 while investing $2,285,000 in
capital improvements and paying $2,484,000 in cash dividends. We continue to
maintain a $2,000,000 bank line of credit that is available for future
expansion.
1
<PAGE> 4
OPERATIONS
During 1998 we broke ground on a $1,500,000 addition to our Chicago meat
processing plant which will enable us to greatly improve our warehouse and
distribution functions by the second half of 1999. We will also build an
$800,000 freezer addition at our Dallas, Texas sandwich manufacturing plant
during 1999. We have upgraded our biscuit production line in Dallas to increase
line speeds by 50% with no increase in labor cost. These and other plant
improvements will enable us to continue increasing our production efficiency in
1999.
We expect raw material costs to increase during the second half of 1999.
Supplies of pork are projected to decrease. We anticipate increased grain prices
during the same period.
SUMMARY
1998 was a record shattering year for Bridgford Foods. We have excellent
people, facilities and equipment in place and are positioned to have another
good year in 1999. We thank our directors, officers, customers, suppliers,
associates and shareholders for helping us set all-time financial records in
1998.
Respectfully submitted,
/s/ ALLAN L. BRIDGFORD /s/ ROBERT E. SCHULZE
------------------------------ ----------------------------
Allan L. Bridgford Robert E. Schulze
Chairman President
2
<PAGE> 5
BRIDGFORD FOODS CORPORATION
FINANCIAL SUMMARY
Fiscal Year Ended
<TABLE>
<CAPTION>
October 30 October 31 %
1998 1997 Change
------------ ------------ ------
<S> <C> <C> <C>
Net sales ..................... $134,815,787 $127,859,491 5.4
Income before taxes ........... 14,065,430 10,654,354 32.0
Net income .................... 8,720,430 6,605,354 32.0
Basic earnings per share ...... .77 .58 32.8
Cash dividends per share ...... .22 .20 10.0
Working capital ............... 37,251,202 29,682,086 25.5
Total assets .................. 75,792,941 65,663,892 15.4
Shareholders' equity .......... 50,842,248 44,605,782 14.0
Return on average equity ...... 18.27% 15.57% 17.3
</TABLE>
3
<PAGE> 6
- --------------------------------------------------------------------------------
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
October 30 November 1 November 1 November 3 October 28
1998 1997 1996 1995* 1994
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Sales ..................... $134,815,787 $127,859,491 $118,316,470 $112,497,590 $108,883,562
----------------------------------------------------------------------
Net Income .................... 8,720,430 6,605,354 5,651,383 6,590,855 6,141,726
----------------------------------------------------------------------
Basic Earnings Per Share** .... .77 .58 .50 .58 .54
----------------------------------------------------------------------
Current Assets *** ............ 50,558,938 41,136,786 33,871,431 32,946,552 35,285,042
----------------------------------------------------------------------
Current Liabilities*** ........ 13,307,736 11,454,700 9,625,313 8,484,009 8,697,371
----------------------------------------------------------------------
Working Capital*** ............ 37,251,202 29,682,086 24,246,118 24,462,543 26,587,671
----------------------------------------------------------------------
Property, Plant and Equip., Net 16,197,108 16,853,248 17,854,524 14,364,995 7,559,382
----------------------------------------------------------------------
Deferred Taxes on Income*** ... 3,738,976 3,102,479 3,008,911 2,353,377 1,742,430
----------------------------------------------------------------------
Total Assets ................. 75,792,941 65,663,892 58,277,948 52,623,417 46,986,561
----------------------------------------------------------------------
Shareholders' Equity .......... 50,842,248 44,605,782 40,255,691 36,859,572 32,430,012
----------------------------------------------------------------------
Cash Dividends Per Share** .... .22 .20 .20 .19 .16
----------------------------------------------------------------------
</TABLE>
- -------------
* 53 weeks
** Recalculated to give effect to a 10% stock dividend declared November 16,
1998.
*** Certain financial statement reclassifications have been recorded in
years prior to 1997 to conform to the current year presentation.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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. 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.
The Company's operating results are heavily dependent upon the prices
paid for raw materials. The marketing of the Company's 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. The impact of inflation on the Company's financial position
and results of operations has not been significant during the last three years.
Management is of the opinion that the Company's strong financial position and
its capital resources are sufficient to provide for its operating needs and
capital expenditures.
RESULTS OF OPERATIONS
1998 COMPARED TO 1997
Sales in fiscal year 1998 increased $6,956,000 (5.4%) when compared to
sales of the prior year, primarily as a result of increased sales volume.
Cost of products sold increased by only $255,000 when compared to the
prior year. The gross margin was approximately 40% in 1998, 36.9% in 1997 and
35.9% in 1996. Costs for pork commodity products reached historically low levels
and flour costs continued to be favorable in 1998 and 1997 compared to the prior
years.
Selling, general and administrative expenses increased $3,303,000 (9.8%)
when compared to the prior year. This increase was generally consistent with the
overall increase in sales. Selling expenses outpaced sales growth due to an
increased sales force and higher performance bonuses due to record
profitability.
The Company's capital expansion projects declined significantly compared
to recent years. The Company expects to continue the growth and modernization of
facilities and equipment used in the business and, after experiencing lower
capital expenditures in 1998 and 1997, anticipates increased capital investments
in future years. The effective tax rate remained consistent with the prior year
at 38%.
1997 COMPARED TO 1996
Sales in fiscal year 1997 increased $9,543,000 (8.1%) when compared to
sales of the prior year, primarily as a result of increased sales volume.
Cost of products sold increased by $4,747,000 (6.3%) when compared to
the prior year. The gross margin was approximately 36.9% in 1997 and 35.9% in
1996. Costs for pork commodity products remained at historically high levels
while flour costs became more
4
<PAGE> 7
favorable in 1997 compared to the prior year. Improved sales of higher margin
products and lower flour costs resulted in a slight improvement in the gross
margin.
Selling, general and administrative expenses increased $2,801,000 (9.1%)
when compared to the prior year. This increase was generally consistent with the
overall increase in sales. Advertising expenses continued to outpace the
increase in sales as a result of aggressive promotional programs to increase
sales of the Company's products and to maintain current distribution channels.
Depreciation expense increased $457,000 (18%) when compared to the prior year.
The Company completed significant expansion projects to existing facilities
located in Texas and a food processing facility in North Carolina. Second year
(half-year convention) depreciation related to these projects totaled
approximately $980,000. The Company expects to continue the growth and
modernization of facilities and equipment used in the business and, after
experiencing lower capital expenditures in 1997, anticipates increased capital
investments in future years. The effective tax rate remained consistent with the
prior year at 38%.
1996 (52 WEEKS) COMPARED TO 1995 (53 WEEKS)
Sales in fiscal year 1996 increased $5,819,000 (5.2%) when compared to
sales of the prior year. After considering the 53-week year, sales volume
increased approximately 7.2% when compared to the prior year.
Cost of products sold increased by $4,020,000 (5.6%) when compared to
the prior year. The gross margin was approximately 36% in 1996 and 1995 compared
to 35% for 1994. Costs for commodity products were less favorable in 1996
compared to prior years. However, a changing sales mix and increased selling
prices helped mitigate the impact of these increased costs.
Selling, general and administrative expenses increased $2,784,000 (9.9%)
when compared to the prior year. This increase was generally consistent with the
overall increase in sales. Advertising expenses outpaced the increase in sales
as a result of aggressive promotional allowances to promote the Company's
products and to maintain current distribution channels.
Depreciation expense increased $530,000 (27%) when compared to the prior
year. The Company completed significant expansion projects to existing
facilities located in Texas and a food processing facility in North Carolina.
First year (half-year convention) depreciation from these projects totaled
approximately $490,000. The Company expects to continue the growth and
modernization of facilities and equipment used in the business. The effective
tax rate remained consistent with the prior year at 38%.
LIQUIDITY AND CAPITAL RESOURCES
Favorable operating results over the past several years have continued
to provide significant liquidity to the Company. Net cash provided by operating
activities was $14,579,000 in the 1998 fiscal year compared to $10,189,000 in
1997 and $7,162,000 in 1996. Accounts receivable balances increased $699,000
(6%) in 1998 and $1,367,000 in 1997 (13%) due to record fourth quarter sales and
decreased by $185,000 in 1996 (2%) due to strong collections. Inventories
decreased $1,490,000 in fiscal 1998 due primarily to significantly lower
commodity costs and lower quantities compared to the prior fiscal year.
Inventories increased $1,754,000 (13%) in 1996 due to continued business
expansion, higher storage capacities, higher raw materials costs and increased
distribution of the Company's products. Non-current assets increased $1,363,000
(18%), $1,122,000 (17%) and $1,240,000 (23%) in 1998, 1997, and 1996,
respectively, due primarily to the increased cash surrender value of
life-insurance policies and increases in deferred income tax benefits due
principally to increases in non-funded employee benefits. Accounts payable and
accrued expenses increased $1,759,000 (19%) in 1997 due to higher purchasing
activity to support record fourth quarter sales volume, and increased product
promotion and bonus accruals. In 1996 the $1,083,000 (13%) increase was
primarily a result of increases in accrued advertising.
The Company's capital improvement expenditures decreased in 1998 and
1997 compared to recent years. Cash used for additions to property, plant and
equipment decreased $4,039,000 (67%) in 1997. Significant projects were
completed at all locations in 1996, primarily the Dallas freezer expansion at a
total cost of $6,005,000 and the North Carolina plant at a total cost of
$5,070,000. Cash and cash equivalents increased $9,894,000 (80%) in 1998 and
$6,035,000 (95%) in 1997 primarily as a result of lower capital expenditures,
improved profitability and significant increases in non-funded employee
benefits. Cash and cash equivalents decreased $1,023,000 (14%) in 1996 due
primarily to significant investments made in property, plant and equipment and
to increases in cash dividends paid. The Company has remained free of
interest-bearing debt for twelve consecutive years. Working capital increased
$7,569,000 (25.5%) and $5,436,000 (22.4%) in 1998 and 1997, respectively. The
increase in working capital reflects lower capital spending, improved
profitability and significant increases in non-funded employee benefits. The
Company maintains a line of credit with Bank of America that expires April 30,
2000. There were no borrowings under this line of credit during 1998.
The Company has and will continue to make certain investments in its
software systems and applications to ensure year 2000 compliance. The financial
impact to the Company has not been and is not anticipated to be material to its
financial position or results of operations in any given year. Detail disclosure
regarding the Company's year 2000 plan and discussion of risk factors is
contained under Item 1., "Business" in Form 10-K for the fiscal year ended
October 30, 1998.
5
<PAGE> 8
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
October 30 October 31
1998 1997
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ........................ $22,272,141 $12,377,932
Accounts receivable, less allowance for doubtful
accounts of $582,787 and $577,156 ................ 12,072,818 11,374,263
Inventories ................................... 14,066,898 15,556,750
Prepaid expenses .............................. 233,848 137,747
Deferred income tax benefits .................. 1,913,233 1,690,094
----------- -----------
Total current assets ................... 50,558,938 41,136,786
Property, plant and equipment, net of accumulated
depreciation of $27,894,827 and $25,432,473 ......... 16,197,108 16,853,248
Other non-current assets .............................. 5,297,919 4,571,379
Deferred income tax benefits .......................... 3,738,976 3,102,479
----------- -----------
$75,792,941 $65,663,892
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable .............................. $ 5,343,725 $ 5,343,687
Accrued payroll and other expenses ............ 6,373,886 5,927,156
Income taxes payable .......................... 1,590,125 183,857
----------- -----------
Total current liabilities .............. 13,307,736 11,454,700
----------- -----------
Non-current liabilities ............................... 11,642,957 9,603,410
----------- -----------
Contingencies and commitments (Note 6)
Shareholders' equity:
Preferred stock, without par value
Authorized - 1,000,000 shares
Issued and outstanding - none
Common stock, $1.00 par value
Authorized - 20,000,000 shares
Issued and outstanding - 11,369,812 (Note 7) 11,426,695 10,393,298
Capital in excess of par value ................ 26,347,123 13,946,359
Retained earnings ............................ 13,068,430 20,266,125
----------- -----------
Total shareholders' equity ............. 50,842,248 44,605,782
----------- -----------
$75,792,941 $65,663,892
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE> 9
CONSOLIDATED STATEMENTS OF INCOME
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Fiscal year ended
-----------------------------------------------
October 30 October 31 November 1
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Net sales .......................... $134,815,787 $127,859,491 $118,316,470
------------ ------------ ------------
Cost of products sold,
excluding depreciation ......... 80,876,022 80,621,498 75,874,768
Selling, general and
administrative expenses ........ 36,935,860 33,633,263 30,832,011
Depreciation ....................... 2,938,475 2,950,376 2,493,308
------------ ------------ ------------
120,750,357 117,205,137 109,200,087
------------ ------------ ------------
Income before taxes ................ 14,065,430 10,654,354 9,116,383
Provision for taxes on income ...... 5,345,000 4,049,000 3,465,000
------------ ------------ ------------
Net income ......................... $ 8,720,430 $ 6,605,354 $ 5,651,383
============ ============ ============
Basic earnings per share (Note 7) .. $ .77 $ .58 $ .50
============ ============ ============
</TABLE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (NOTE 7)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Common stock Capital Total
------------------- in excess Retained shareholders'
Shares Amount of par earnings equity
--------- ---------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balance, November 3, 1995 ............. 9,396,933 $9,453,816 $3,024,881 $ 24,380,875 $36,859,572
Net income .................... 5,651,383 5,651,383
Cash dividends paid*
($.20 per share)............ (2,255,264) (2,255,264)
---------- ---------- ---------- ------------ -----------
Balance, November 1, 1996 ............. 9,396,933 9,453,816 3,024,881 27,776,994 40,255,691
Net income .................... 6,605,354 6,605,354
Cash dividends paid*
($.20 per share) ........... (2,255,265) (2,255,265)
10% stock dividends,
November 10, 1997 .......... 939,482 939,482 10,921,478 (11,860,960)
---------- ---------- ---------- ------------ -----------
Balance, October 31, 1997 ............. 10,336,415 10,393,298 13,946,359 20,266,125 44,605,782
Net income 8,720,430 8,720,430
Cash dividends paid*
($.22 per share) ........... (2,483,964) (2,483,964)
10% stock dividends,
November 16, 1998 .......... 1,033,397 1,033,397 12,400,764 (13,434,161)
---------- ----------- ----------- ------------ -----------
Balance, October 30, 1998 ............. 11,369,812 $11,426,695 $26,347,123 $ 13,068,430 $50,842,248
========== =========== =========== ============ ===========
</TABLE>
- ------------------
* Per share amounts give effect to 10% stock dividends declared November 10,
1997 and November 16, 1998.
See accompanying notes to consolidated financial statements.
7
<PAGE> 10
CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Fiscal year ended
----------------------------------------
October 30 October 31 November 1
1998 1997 1996
----------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income ................................... $ 8,720,430 $ 6,605,354 $ 5,651,383
Income charges not affecting cash:
Depreciation ......................... 2,938,475 2,950,376 2,493,308
Provision for losses on accounts
receivable ........................ 254,150 149,150 139,150
Gain on sale of assets ............... (81,941) (50,129) (52,729)
Effect on cash of changes in assets and
liabilities:
Accounts receivable .................. (952,705) (1,516,171) 45,388
Inventories .......................... 1,489,852 47,162 (1,753,965)
Prepaid expenses ..................... (96,101) 206,099 90,281
Deferred income tax benefits, net .... (859,636) (210,152) (1,124,607)
Other non-current assets ............. (726,540) (1,028,297) (584,589)
Accounts payable and accrued expenses. 446,768 1,758,848 1,082,903
Income taxes payable ................. 1,406,268 70,539 58,401
Non-current liabilities............... 2,039,547 1,206,466 1,117,108
----------- ----------- -----------
Net cash provided by operating
activities ................. 14,578,567 10,189,145 7,162,032
----------- ----------- -----------
Cash used in investing activities:
Proceeds from sale of assets ......... 84,941 50,129 57,601
Additions to property, plant and
equipment ......................... (2,285,335) (1,949,100) (5,987,709)
----------- ----------- -----------
Net cash used in investing
activities ................. (2,200,394) (1,898,971) (5,930,108)
----------- ----------- -----------
Cash used in financing activities:
Cash dividends paid .................. (2,483,964) (2,255,264) (2,255,264)
----------- ----------- -----------
Net increase (decrease) in cash and
cash equivalents ......................... 9,894,209 6,034,910 (1,023,340)
Cash and cash equivalents at beginning of year 12,377,932 6,343,022 7,366,362
----------- ----------- -----------
Cash and cash equivalents at end of year ..... $22,272,141 $12,377,932 $ 6,343,022
=========== =========== ===========
Cash paid for income taxes ................... $ 4,891,000 $ 4,022,000 $ 3,955,717
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
8
<PAGE> 11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1 - THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The consolidated financial statements include the accounts of the
Company and its subsidiaries, all of which are wholly owned. All intercompany
transactions have been eliminated. The carrying amount of cash and cash
equivalents, accounts and other receivables, accounts payable and accrued
liabilities approximate fair market value due to the short maturity of these
instruments.
Business segment
The Company and its subsidiaries operate in one business segment - the
manufacturing and/or distributing of refrigerated, frozen and snack food
products.
Fiscal year
The Company maintains its accounting records on a 52-53 week fiscal
basis. Fiscal years 1998, 1997 and 1996 include 52 weeks each.
Revenues
Revenues are recognized upon product shipment or delivery to customers.
Cash equivalents
The Company considers all investments with original maturities of three
months or less to be cash equivalents. Cash equivalents include treasury bills
of $20,985,000 at October 30, 1998 and $10,990,000 at October 31, 1997.
Inventories
Inventories are stated at the lower of cost (determined on a first-in,
first-out basis) or market.
Property, plant and equipment
Property, plant and equipment is carried at cost less accumulated
depreciation. Major renewals and betterments are charged to the asset accounts
while the cost of maintenance and repairs is charged to income 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 the 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.
Income taxes
Deferred taxes are provided for items whose financial and tax bases
differ.
Basic earnings per share
Basic earnings and cash dividends per share are calculated based on the
weighted average number of shares outstanding, 11,369,812 for all periods
presented, after giving effect to 10% stock dividends declared November 10, 1997
and November 16, 1998.
NOTE 2 - COMPOSITION OF CERTAIN FINANCIAL STATEMENT CAPTIONS:
<TABLE>
<CAPTION>
(in thousands)
1998 1997
------- -------
<S> <C> <C>
Property, plant and equipment:
Land ................................ $ 1,083 $ 1,083
Buildings and improvements .......... 11,310 10,736
Machinery and equipment ............. 25,616 24,889
Transportation equipment ............ 6,083 5,577
------- -------
44,092 42,285
Accumulated depreciation ............ 27,895 25,432
------- -------
$16,197 $16,853
======= =======
Inventories:
Meat, ingredients and supplies ...... $ 3,695 $ 4,453
Work in progress .................... 1,353 1,357
Finished goods ...................... 9,019 9,747
------- -------
$14,067 $15,557
======= =======
Accrued payroll and other expenses:
Payroll, vacation and payroll taxes . $ 5,533 $ 4,581
Property taxes ...................... 263 265
Other ............................... 578 1,081
------- -------
$ 6,374 $ 5,927
======= =======
</TABLE>
NOTE 3 - RETIREMENT AND BENEFIT PLANS:
The Company has noncontributory trusteed defined benefit retirement
plans for sales, administrative, supervisory and certain other employees. The
benefits under these plans are primarily based on years of service and
compensation levels. The Company's funding policy is to contribute annually the
maximum amount deductible for federal income tax purposes.
Net pension cost consisted of the following (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Cost of benefits earned during the year ....... $ 568 $ 485 $ 611
Interest cost on projected benefit obligation.. 907 810 689
Actual return on plan assets .................. (748) (1,602) (1,238)
Deferral of unrecognized (loss) gain on plan
assets ...................................... (34) 931 679
Amortization of unrecognized gain ............. (83) (38)
Amortization of transition asset .............. (76) (76) (76)
Amortization of unrecognized prior service
costs ....................................... 34 34 34
----- ------ ------
Net pension cost .............................. $ 568 $ 544 $ 699
===== ====== ======
</TABLE>
9
<PAGE> 12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The transition asset is being amortized using the straight-line method
over 16.41 years, the average remaining service periods of active plan
participants. The discount rate and expected long-term rate of return used in
determining the projected benefit obligation for fiscal years 1998 and 1997 was
7.75%. The assumed rate of future compensation increases for fiscal years 1998
and 1997 were 4% and 6%, respectively.
Plan assets are primarily invested in marketable equity securities,
corporate and government debt securities and real estate and are administered by
a life insurance company.
The funded status of the plan is as follows:
<TABLE>
<CAPTION>
(in thousands)
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Plan assets at fair market value ................ $10,622 $10,081 $ 8,657
Actuarial present value of benefit obligations:
Accumulated benefits based on current salary
levels, including vested benefits of $9,974,
$8,927 and $7,324 .......................... 10,502 9,415 7,917
Additional benefits based on estimated future
salary levels.................................. 817 1,152 2,044
------- ------- -------
Projected benefit obligation .................... 11,319 10,567 9,961
------- ------- -------
Projected benefit obligation in excess of
plan assets ................................... (697) (486) (1,304)
Unrecognized prior service costs ................ 247 281 315
Unrecognized gain on plan assets ................ (3,463) (3,065) (1,661)
Unrecognized net transition asset ............... (445) (520) (596)
------- ------- -------
Accrued pension cost ................... $(4,358) $(3,790) $(3,246)
======= ======= =======
</TABLE>
In fiscal year 1991, the Company adopted a non-qualified supplemental
retirement plan for certain key employees. Benefits provided under the plan are
equal to 60% of the employee's final average earnings, less amounts provided by
the Company's defined benefit pension plan and amounts available through Social
Security. Total annual benefits are limited to $120,000 for each participant in
the plan. Effective January 1, 1991 the Company adopted a deferred compensation
savings plan for certain key employees. Under this arrangement, selected
employees contribute a portion of their annual compensation to the plan. The
Company contributes an amount to each participant's account by computing an
investment return equal to Moody's Average Seasoned Bond Rate plus 2%. Employees
receive vested amounts upon death, termination or retirement. Total benefit
expense recorded under these plans for fiscal years 1998, 1997 and 1996 was
$303,000, $348,000 and $405,000 respectively. Benefits payable related to these
plans and included in other non-current liabilities in the accompanying
financial statements were $3,594,000 and $2,988,000 at October 30, 1998 and
October 31, 1997, respectively. In connection with this arrangement the Company
is the beneficiary of life insurance policies on the lives of certain key
employees. The aggregate cash surrender value of these policies, included in
non-current assets was $5,298,000 and $4,571,000 at October 30, 1998 and October
31, 1997, respectively.
The Company provides a deferred compensation plan for certain key
executives, which is based upon the Company's pretax income and return on
shareholders' equity. The payment of these bonuses is generally deferred over a
five-year period. The total amount payable related to this arrangement was
$4,598,000 and $3,574,000 at October 30, 1998 and October 31, 1997,
respectively. Future payments are approximately $1,252,000, $1,162,000,
$925,000, $717,000 and $542,000 for fiscal years 1999 through 2003,
respectively.
Postretirement health care benefits in the approximate amount of
$345,000 and $340,000 are included in non-current liabilities at October 30,
1998 and October 31, 1997, respectively.
NOTE 4 - INCOME TAXES:
The provision for taxes on income includes the following:
(in thousands)
1998 1997 1996
------ ------ -------
Current:
Federal .................... $5,241 $3,602 $ 4,039
State ...................... 964 658 551
------ ------ -------
6,205 4,260 4,590
------ ------ -------
Deferred:
Federal..................... (735) (99) (933)
State ...................... (125) (112) (192)
------ ------ -------
(860) (211) (1,125)
------ ------ -------
$5,345 $4,049 $ 3,465
====== ====== =======
The total tax provision differs from the amount computed by applying the
statutory federal income tax rate to income before income taxes as follows:
(in thousands)
1998 1997 1996
------ ------ ------
Provision for federal income taxes at
the applicable statutory rate ............ $4,782 $3,622 $3,100
Increase in provision resulting from:
State income taxes, net of federal income
tax benefit............................. 518 416 335
Other, net ............................... 45 11 30
------ ------ ------
$5,345 $4,049 $3,465
====== ====== ======
Deferred income taxes result from differences in the bases of assets and
liabilities for tax and accounting purposes.
10
<PAGE> 13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Deferred tax assets (liabilities) are comprised of the following:
<TABLE>
<CAPTION>
(in thousands)
1998 1997
------ ------
<S> <C> <C>
Receivables allowance ..................... $ 235 $ 233
Inventory capitalization .................. 329 290
Deferred compensation ..................... 382 385
Franchise tax ............................. 154 107
Employee benefits ......................... 842 631
Other ..................................... (29) 44
------ ------
Current tax assets ................ $1,913 $1,690
====== ======
Deferred compensation ..................... $1,348 $1,001
Pension and health care benefits .......... 3,343 2,870
Depreciation .............................. (952) (769)
------ ------
Non-current tax assets, net ....... $3,739 $3,102
====== ======
</TABLE>
No valuation allowance was provided against deferred tax assets in the
accompanying statements.
NOTE 5 - LINE OF CREDIT:
Under the terms of a revolving line of credit with Bank of America, the
Company may borrow up to $2,000,000 through April 30, 2000. At any time prior to
May 2000, the Company may convert borrowings, if any, into a three-year term
loan with principal and interest payable monthly commencing May 31, 2000. The
interest rate is at the bank's reference rate unless the Company elects an
optional interest rate. The borrowing agreement contains various covenants, the
more significant of which require the Company to maintain certain levels of
shareholders' equity and working capital. The Company was in compliance with all
provisions of the agreement during the year. There were no borrowings under this
line of credit during the year.
NOTE 6 - CONTINGENCIES AND COMMITMENTS:
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.
The Company leases certain transportation equipment under operating
leases expiring in 1999. The terms of the lease provide for annual renewal
options and contingent rental payments based upon mileage and adjustments of
rental payments based on the Consumer Price Index. Minimum rental payments were
$316,000, $255,000 and $263,000 in fiscal years 1998, 1997 and 1996,
respectively. Contingent payments were $105,000 in 1998, $98,000 in 1997 and
$95,000 in 1996. Future minimum lease payments are approximately $130,000 in
1999. The Company also leases certain other properties which do not result in
material commitments.
NOTE 7 - SUBSEQUENT EVENTS:
In November 1998, the Board of Directors declared a 10% stock dividend.
Net income and cash dividends per share are calculated based on the weighted
average number of shares after giving retroactive effect to the stock dividend.
The weighted average shares used for computing basic earnings per share in the
accompanying statements of income were 11,369,812 for all periods presented.
In November 1998 the Company sold land and recognized a pre-tax gain of
approximately $610,000.
Subject to approval by the Company's shareholders, the Board of
Directors adopted the 1999 Stock Incentive Plan (the "1999 Plan") on January 11,
1999.
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
PRICEWATERHOUSECOOPERS LLP
To the Board of Directors and Shareholders of Bridgford Foods Corporation
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of income, shareholders' equity and cash flows
present fairly, in all material respects, the financial position of Bridgford
Foods Corporation and its subsidiaries at October 30, 1998 and October 31, 1997
and the results of their operations and their cash flows for each of the three
years in the period ended October 30, 1998, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
/s/ PRICEWATERHOUSECOOPERS LLP
Costa Mesa, California
December 18, 1998
11
<PAGE> 14
<TABLE>
<CAPTION>
<S> <C> <C>
DIRECTORS OFFICERS GENERAL OFFICES
ALLAN L. BRIDGFORD ALLAN L. BRIDGFORD BRIDGFORD FOODS CORPORATION
Chairman Chairman, Board of Directors 1308 North Patt Street
P.O. Box 3773
HUGH WM. BRIDGFORD ROBERT E. SCHULZE Anaheim, California 92803
President Phone (714) 526-5533
PAUL A. GILBERT www.bridgford.com
Senior Vice President, HUGH WM. BRIDGFORD
Salomon Smith Barney, Inc. Chairman, Executive Committee BRANCH OPERATIONS
and Vice President Phoenix, Arizona
JOHN W. MCNEVIN Fresno, California
Consultant SALVATORE F. DEGEORGE Modesto, California
(Formerly Vice President Senior Vice President Oakland, California
Eastman/Office Depot, Inc.) Sacramento, California
LAWRENCE D. ENGLISH Chicago, Illinois
STEVEN H. PRICE Vice President Statesville, North Carolina
Property Management Dallas, Texas
WILLIAM L. BRIDGFORD
ROBERT E. SCHULZE Secretary TRANSFER AGENT AND REGISTRAR
CHASEMELLON SHAREHOLDER
NORMAN V. WAGNER II RAYMOND F. LANCY SERVICES, L.L.C.
Retired (formerly Treasurer 85 Challenger Road
President, Signal Assistant Secretary Ridgefieldpark, NJ 07760
Landmark Properties, Inc.) Phone (800) 356-2017
www.chasemellon.com
PAUL R. ZIPPWALD
Retired (formerly Regional INDEPENDENT ACCOUNTANTS
Vice President, PRICEWATERHOUSECOOPERS LLP
Bank of America) Costa Mesa, California
</TABLE>
[PHOTO]
CAPTION: Bridgford Foods Corporation exhibit at the 1998 National Association
of Convenience Stores Convention.
L to R -- Christopher Cole, Michael Myers, Allan Bridgford, Jr., Allan
Bridgford, Bob Hebel, John Simmons, James Schlumbrecht, Pat Pallarino, Larry
English, Bruce Bridgford
<PAGE> 1
EXHIBIT 21.1
BRIDGFORD FOODS CORPORATION
SUBSIDIARIES OF REGISTRANT
<TABLE>
<CAPTION>
State in which
Name of Subsidiary Incorporated
------------------ --------------
<S> <C>
Bridgford Distributing Company California
Bridgford Meat Company California
Bridgford Foods of Illinois, Inc. California
A.S.I. Corporation California
Bridgford Distributing Company of
Delaware (inactive) Delaware
American Ham Processors, Inc.* (inactive) Delaware
Bert Packing Company (inactive) Illinois
Moriarty Meat Company (inactive) Illinois
</TABLE>
- --------------
* No shares have been issued.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF BRIDGFORD FOODS CORPORATION FOR THE FIFTY-TWO WEEKS
ENDED OCTOBER 30, 1998 AS SET FORTH IN ITS 10-K FOR SUCH FISCAL YEAR AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-30-1998
<PERIOD-END> OCT-30-1998
<CASH> 22,272,141
<SECURITIES> 0
<RECEIVABLES> 12,655,605
<ALLOWANCES> 582,787
<INVENTORY> 14,066,898
<CURRENT-ASSETS> 50,558,938
<PP&E> 44,091,935
<DEPRECIATION> 27,894,827
<TOTAL-ASSETS> 75,792,941
<CURRENT-LIABILITIES> 13,307,736
<BONDS> 0
0
0
<COMMON> 11,426,695
<OTHER-SE> 39,415,553
<TOTAL-LIABILITY-AND-EQUITY> 75,792,941
<SALES> 134,815,787
<TOTAL-REVENUES> 134,815,787
<CGS> 80,876,022
<TOTAL-COSTS> 80,876,022
<OTHER-EXPENSES> 39,874,335
<LOSS-PROVISION> 254,150
<INTEREST-EXPENSE> 305,611
<INCOME-PRETAX> 14,065,430
<INCOME-TAX> 5,345,000
<INCOME-CONTINUING> 8,720,430
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,720,430
<EPS-PRIMARY> .77
<EPS-DILUTED> .77
</TABLE>
