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. The Company sells its
products through wholesale outlets, restaurants and institutions. The
products are sold by the Company's own sales force, brokers, cooperatives,
sholesalers and independent distributors. Products are currently sold through
approximately 25,000 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 17,500 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:
Products manufactured or processed by the
Company
Products manufactured or processed by others
Total
1996 1995 1994 1993 1992
83
17
85
15
87
13
89
11
89
11
100
100
100
100
100
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 fixcal quarters.
----- Prices -----
Fiscal Quarter Ended
$High
$Low
Cash Dividends Paid
January 27, 1995
10 & 3/4
9
$.08 **
April 28, 1995
13 & 1/2
9 & 1/4
July 28, 1995
14 10 & 5/8
November 3, 1995
12
9 & 3/4
February 2, 1996
10 & 3/4
8 & 1/2
May 3, 1996
11 & 1/4
8 & 1/4
August 2, 1996
9 & 3/4
6 & 1/2
November 1, 1996
9
7
** Includes $.03 per share extra cash dividend.
$.05
$.05
$.05
$.06
$.06
$.06
$.06
ANNUAL SHAREHOLDERS MEETING
The 1997 annual shareholders meeting was held at the Holiday Inn, 222 W. Houston Avenue, Fullerton,
California at 10:00 a.m. on Wednesday, March 12, 1997.
HISTORICAL TRENDS
88 89 90 9192 93 94 95 96
Fi seal Years
88 89 90 9192 93 94 95 96
Fi seal Years
EQUITY
illil Ii ans
50
40
30
20
: ii 88 89 90 9192 93 94 95 96
Fi seal Years
TO OUR SHAREHOLDERS:
Sales set a new record for the eleventh consecutive year in 1996. Dividends were increased for the tenth year in
a row. Three major capital improvement projects begun in our 1995 fiscal year, including the two largest in
the Company’s 64 year history, were completed with a total capitalized cost of $12,000,000. Net income for
1996 was $5.7 million, which reflects a decrease from 1995 due to extremely high raw material costs in both
our meat and bakery divisions.
SALES, EARNINGS AND DIVIDENDS
Sales in our 52 week 1996 fiscal year increased to $118,316,470, a 5.2% gain over sales in the 53 week 1995
fiscal year. Most of our sales gains are attributed to increases In our number of direct store distribution
customers and strong sales of our meat snack products such as pepperoni and beef jerky. We also added
exciting new Focaccia Club and Focaccia Chicken sandwiches to our Bridgford Micro-Ready product line and
developed new biscuit products for our foodservice customers.
Net income was $5,651,383 or sixty cents per share in 1996, 14.3% less than 1995 net income. During 1996
costs of pork raw materials required in our meat business and wheat flour used in our bakery operations
unexpectedly reached extraordinary high levels. Where possible, price increases to pass on these higher costs
have been implemented. Bakery costs have stabilized somewhat during the first quarter of fiscal 1997. Costs
of pork raw materials will remain relatively high during 1997.
Cash dividends in 1996 were paid at a record level of twenty four cents per share. Cash dividends totaling
$2,255,000 were paid to shareholders in the 1996 fiscal year. Your board of directors maintained the rate of
six cents in the first quarter of 1997 based on our strong financial condition and positive business outlook.
FINANCIAL CONDITION
Bridgford Foods Corporation concluded 1996 with shareholders equity of $40,255,691, a gain of $3,396,119 or
9% over the prior year end. Working capital remained strong at $22,401,167 and our current asset to current
liability ratio was maintained at a 2.2 to 1 level. Our excellent financial condition was sustained while we
invested $5,988,000 in capital improvements during 1996. All improvements were financed internally and the
company remained debt-free for the tenth consecutive year. A $2,000,000 line of credit with a major bank is
available in the event it is needed for business opportunities.
OPERATIONS
A major portion of our expenditures were made to complete construction and equipping of our new state-of-
the-art North Carolina frozen food plant and for the additions and modernization of our Frozen-Rite plant in
Dallas, Texas. These factories are now running efficiently. We also renovated and enlarged the manufacturing
facilities at our Chicago meat processing plant and equipped it with new processing machinery which will
increase our capability to produce dry sausage products. Substantial savings in production, storage and
distribution costs will result from these investments.
SUMMARY
We expect 1997 to be a good year for Bridgford Foods Corporation. The modernization and expansion of our
manufacturing facilities, increased sales volume, new product development and more stable raw material costs
are expected to produce improved operating results.
We thank our directors, customers, suppliers, coworkers and shareholders for their support and confidence
during 1996.
Respectfully submitted,
Allan L. Bridgford
Chairman
Robert E. Schulze
President
BRIDGFORD FOODS CORPORATION FINANCIAL SUMMARY
Fiscal Year Ended
November 1
1996
November 3
1995
%
Change
Net sales
Income before taxes
Net income
Net income per share
Cash dividends per share
Working capital
Total assets
Shareholders' equity
Return on average equity
$118,316,470
9,116,383
5,651,383
.60
.24
22,401,167
58,277,948
40,255,691
14.66%
$112,497,590
10,630,855
6,590,855
.70
.23
22,494,577
52,623,417
36,859,572
19.02%
5
(14)
(14)
(14)
4
-
11
9
SELECTED FINANCIAL DATA
November 3
1995
November 1
1996
October 28
1994
October 29
1993
October 30
1992
Net Sales
Net Income
Net Income Per Share
Current Assets
Current Liabilities
Working Capital
Property, Plant and Equip., Net
Total Assets
Long-term Debt
Deferred Taxes on Income
Shareholders' Equity
Cash Dividends Per Share
$118,316,470 $112,497,590 $108,883,562 $105,146,822 $100,113,269
5,298,407
.56
28,652,723
17,214,946
6,879,902
6,879,902
35,532,625
6,141,726
.65
39,427,179
24,870,630
7,559,382
7,559,382
46,986,561
6,590,855
.70
38,258,422
22,494,577
14,364,995
14,364,995
52,623,417
5,576,332
.59
32,721,065
21,413,629
6,754,042
6,754,042
39,475,107
5,651,383
.60
40,423,424
22,401,167
17,854,524
17,854,524
58,277,948
-
-
-
-
-
-
-
-
-
-
40,255,691
.24
36,859,572
.23
32,430,012
.20
28,167,671
.16
24,094,848
.12
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS LIQUIDITY AND CAPITAL RESOURCES
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 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. Higher
flour and pork prices were experienced during the fiscal 1996 compared o prior fiscal years. Management
anticipates that these costs will continue to stabilize into fiscal year 1997 although no assurances can be given.
Costs of flour have declined in 10 to 20% range since the close of the third quarter of 1996 while pork prices
have remained at historically high levels.
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 results and capital expenditures.
Favorable operating results over the past several years have continued to provide significant liquidity to the
Company. Net cash provided by operating activities was $7,162,000 in the 1996 fiscal year compared to
$5,580,000 in 1995 and $9,902,000 in 1994. Accounts receivable balances decreased by $185,000 in 2996
(2%) due to strong collections, and increased $769,000 (8%) in 1995 and $794,000 (9%) in 1994 due to the
continued expansion of the business and changing nature of the customer base. Inventories increased
$1,754,000 (13%) in 1196 and $1,790,000 (15%) in 1995 due to continued business expansion, higher storage
capacities, higher raw materials costs and increased distribution of the Company’s products. Prepaid expenses
increased $494,000 (15%0, $894,000 (33%), and $256,000 (11%) in 1996, 1995, and 1994 due primarily to
the increased cash surrender value of life-insurance policies. The Company also recorded income tax
receivable in prepaid expenses of $287,000 in 1995. Accounts payable and accrued expenses increased
$2,200,000 (14%) in 1996 and $1,462,000 (10%) in 1995 due primarily to increases in non-funded employee
benefits and accrued advertising.
The Company’s capital improvement programs continued into 1996. Cash used for additions to property, plant
and equipment decreased $2,787,000 (32%). Significant projects were completed at all locations, primarily the
Dallas Freezer expansion at a total cost of $6,005,000 ($1,820,000 for fiscal year 1996) and the North
Carolina plant at a total cost of $5,070,000 ($2,177,000 for fiscal year 1996). The balance of projects in
process at November 1, 1996 was $167,000. Capital expenditures in fiscal year 1995 for these projects totaled
approximately $6.3 million. These investments are expected to yield higher production capacities, improved
plant utilization and realize cost savings in future years, Although annual depreciation expense will increase as
a result of these additions, such increase is not expected to have a material adverse impact on the operating
results of the Company. Cash used for additions to property, plant and equipment increased $993,000 (57%) in
1994 compared to the prior year. Expenditures consisted primarily of additions of delivery vehicles,
machinery and equipment and $1,554,000 in construction projects.
Cash flows used to pay cash dividends increased $94,000 (4%) in 1996, $282,000 (15%) in 1995 and $376,000
(25%) in 1994, when compared to the prior year, in recognition of the continuing success of the Company.
Cash and cash equivalents decreased $1,023,000 (14%) in 1996 and $5,282,000 (42%) in 1995 due primarily
to significant investments made in property, plant and equipment and in an increase in cash dividends paid.
Cash and cash equivalents increased in 1994 $5,375,000 (74%) due to the continued operating success of the
Company and significant increases in non-funded employee benefits. The Company has remained free of
interest-bearing debt for ten consecutive years. Working capital decreased by $93,000 (1%) in 1996 and
$2,376,000 (10%) in 1995 after reaching a record high of $24,871,000 in 1994. The decrease in working
capital is directly attributable to significant investments made by the Company in projects in-process during
the 1996 and 1995 fiscal years. The Company maintains a $2,000,000 revolving line of credit with Bank of
America that expires April 30, 1998. There were no borrowings under this line of credit during 1996.
RESULTS OF OPERTAIONS
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 flood 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 prior year at 38%.
1995 Compared to 1994 (53 versus 52 weeks)
Sales in fiscal year 1995 increased $3,614,000 (3%) when compared to sales of the prior year. After
considering the 53 week year, sales volume increased slightly more than 1% when compared to the prior year.
Cost of products sold increased by $1,274,000 (2%) when compared to the prior year. The gross margin
increased to 36% in 1995 compared to 35% for 1994 and 1993. Commodity costs for meat products were
made more favorable in 1995 compared to prior years and this trend helped improve margins in 1995 despite
channels.
Selling, general and administrative expenses increased $1,125,000 (6%) when compared to the prior year. This
increases was generally consistent with the overall increase in sales. Increased advertising expenses slightly
outpaced the increase in sales as a result of efforts to more heavily promote the Company’s products and to
continue to expand distribution channels.
Depreciation expense increased $93,000 (5%) when compared to the prior year. The Company continued to
expand its vehicle fleet in 1995 and this contributed to the increase. Several projects which were in process in
the prior year were placed in service during 1995 which also contributed to the overall increase in
depreciation. 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%.
1994 compared to 1993
Sales in fiscal year 1994 increased $3,737,000 (4%) when compared to sales of the prior year. Added unit sales
volume was the principal reason for the increase while price increases had minor influence on the overall sales
gain. The closing of Bridgford Meat Company, the Company’s San Diego based fresh meat business, offset
the increase by $2,665,000 in 1994.
Cost of products sold increased by $1,816,000 (3%) as compared to the prior fiscal year due higher unit sales
volume. The gross profit margin remained consistent at 35% for 1994 and 1995.
Selling, General and administrative expenses increased $987,000 (4%) during fiscal 1994. The bulk of the
increase was concentrated in the Company’s advertising programs. Advertising expenditures increased by
approximately $700,000 during 1994 as compared to the prior year. Increases salaries and wages also
contributed to higher costs.
Depreciation expense increased $36,000 (2%) in 1994 compared 1993. The continued expansion of the
Company’s business requires the addition and replacement of facilities and equipment related to
manufacturing and sales activities. The effective tax rate was 38% for 1994 and 1993.
Effective for fiscal year 1994, the Company adopted Statement of Financial Accounting Standards No. 106,
“Employers’ Accounting for Postretirement Benefits Other Than Pensions.” Adoption of this statement did
not materially impact the Company’s consolidated financial statements.
Consolidated Balance Sheets
ASSETS
Current assets:
Cash and cash equivalents
Accounts receivable, less allowance for doubtful accounts of
$503,584 and $505,623
Inventories
Prepaid expenses
Deferred income tax benefits
Total current assets
November 1
1996
November 3
1995
$6,343,022 $7,366,362
10,007,141
10,191,679
15,603,912 13,849,947
3,886,928
3,32,620
4,582,421
3,457,814
40,423,424 38,258,422
Property, plant and equipment, net of accumulated depreciation of
$22,637,673 and $21,065,322
17,854,524 14,364,995
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable
Accrued payroll and other expenses
Income taxes payable
Total current liabilities
$58,277,948 $52,623,417
November 1
1996
November 3
1995
$4,464,855 $4,662,825
13,444,084 11,046,103
54,917
113,318
18,022,257 15,763,845
Contingencies and commitments (Note 6) Shareholders' equity:
Preferred stock, without par value
Authorized - 1,000,000 shares
Issued and outstand - none
Common stock, $1.00 par value
Authorized - 20,000,000 shares
Issued and outstand - 9,396,933 shares
Capital in excess of par value
9,453,816
3,024,881
9,453,816
3,024,881
Retained earnings
27,776,994 24,380,875
40,255,691 36,859,572
$58,277,948 $52,623,417
Consolidated Statements of Income
Fiscal year ended
November 1
1996
(52 weeks)
November 3
1995
(53 weeks)
October 28
1994
(52 weeks)
Net sales
$118,316,470 $112,497,590 $108,883,562
Cost of products sold, excluding depreciation
Selling, general and administrative expenses
Depreciation
75,874,768
30,832,011
2,493,308
71,854,739
28,048,294
1,963,702
70,580,426
26,525,652
1,870,758
109,200,087 101,866,735
98,976,836
Income before taxes
Provision for taxes on income
9,116,383
3,465,000
10,630,855
4,040,000
9,906,726
3,765,000
Net income
Net income per share
$5,561,383
$6,590,855
$6,141,726
$0.60
$0.70
$0.65
Consolidated Statements of Shareholders' Equity
Common stock
Shares
Amount
9,396,933
$9,453,816
9,396,933
$9,453,816
9,396,933
$9,453,816
Balance, October 29, 1993
- Net income
- Cash dividends paid ($.20 per
share)
Balance, October 28, 1994
- Net income
- Cash dividends paid ($.23 per
share)
Balance, november 3, 1995
- Net income
- Cash dividends paid ($.24 per
share)
Balance, November 1, 1996
$9,396,933
$9,453,816
Capital in
excess of par
Retained
earnings
Total
shareholder's
equity
$3,024,881 $15,688,974 $28,167,671
6,141,726
6,141,726
(1,879,385)
(1,879,385)
$3,024,881 $19,951,315 $32,430,012
6,590,855
6,590,855
(2,161,295)
(2,161,295)
$3,024,881 $24,380,875 $36,859,572
5,651,383
5,651,383
(2,255,264)
(2,255,264)
3,024,881 $27,776,994 $40,255,691
Consolidated Statements of Cash Flows
Cash flows from operating activities:
Net income
Income charges not affecting cash:
Depreciation
Provision for losses on accounts receivable
Gain on sale of assets
Effect on cash of changes in assets and liabilities:
Accounts receivable
Inventories
Prepaid expenses
Deferred income tax benefits
Accounts payable and accrued expenses
Income taxes payable
Fiscal year ended
November 1
1996
November 3
1995
October 28
1994
$5,651,383 $6,590,855 $6,141,726
2,493,308
139,150
(52,729)
1,963,702
138,650
(68,153)
1,870,758
64,545
(29,387)
45,388
(908,128)
(1,753,965) (1,789,927)
(849,272)
(704,572)
1,462,211
(254,915)
(494,308)
(1,124,607)
2,200,011
58,401
(858,465)
473,457
(255,920)
(754,275)
2,939,281
309,832
Net cash provided by operating activities
7,162,032
5,580,451
9,901,552
Cash used in investing activities:
Proceeds from sale of assets
Additions to property, plant and equipment
57,601
73,847
(5,987,709) (8,774,616) (2,720,558)
73,454
Net cash used in investing activities
(5,930,108) (8,701,162) (2,646,711)
Cash used for financing activities:
Cash dividends paid
(2,255,264) (2,161,295) (1,879,385)
Net (decrease) increase in cash and cash
equivalents
(1,023,340) (5,282,006)
5,375,456
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
7,366,362 12,648,368
7,272,912
$6,343,022 $7,366,362 $12,648,368
Cash paid for income taxes
$3,955,717
$5,003,099
$4,021,490
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 1996 and 1994
include 52 weeks in each. Fiscal year 1995 includes 53 weeks.
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 $5,194,000 at November 1, 1996 and $6,987,000 at November 3,
1995.
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.
Earnings per share
Net income and cash dividends per share are calculated based on the weighted average number of shares
outstanding, 9,396,933, for all periods presented.
NOTE 2 - COMPOSITION OF CERTAIN FINANCIAL STATEMENT CAPTIONS:
1996 (in thousands)
1995 (in thousands)
Property, plant and equipment:
Land
Buildings and improvements
Machinery and equipment
Transportation equipment
Construction in-progress
Accumulated depreciation
Inventories:
Meat, ingredients and supplies
Work in progress
Finished goods
Accrued payroll and other expenses:
Payroll, vacation and payroll taxes
Property taxes
Other
$1,083
10,683
23,672
5,055
40,493
22,638
$17,855
$4,320
1,501
9,783
$15,604
$12,057
228
1,159
$13,444
$598
7,083
15,186
5,140
7,423
35,430
21,065
$14,365
$3,552
1,862
8,436
$13,850
$10,365
208
473
$11,046
Notes to Consolidated Financial Statements
NOTE 3 - RETIREMENT AND BENEFITS 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):
Cost of benefits earned during the year
Interest cost on projected benefit obligation
Actual return on plan assets
Deferral of unrecognized gain on plan assets
Amortization of transition asset
Amortization of unrecognized prior service costs
Net pension cost
1996
1995
1994
$611
689
120
(679)
(76)
34
$568
585
152
(638)
(76)
24
$547
532
85
(585)
(76)
23
$699
$615
$526
The transition asset is being amortized using the straight-line method over 17.63 years, the average remaining
service periods of active plan participants. The discount rate and rate of increase in future compensation levels
used in determining the actuarial present value of the projected benefit obligation were 7.5% and 6%,
respectively. The expected long-term rate of return on assets for all fiscal years was 7.5%.
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 (in thousands):
Plan assets at fair market value
Actuarial present value of benefit obligations:
&mbsp;Accumulated benefirs based on current salary levels,
including vested benefits of $7,324, $6,823 and $5,841
&mbsp;Additional benefits based on estimated future salary
levels
&mbsp;Projected benefit obligation
Projected benefit obligation in excess of plan assets
Unrecognized prior service costs
Unrecognized loss (gain) on plan assets
Unrecognized net transition asset
Accrued pension cost
1996
1995
1994
$8,657 $7,554 $6,538
6,214
1,902
7,208
1,978
9,186
7,917
2,044
9,961
(1,304) (1,632) (1,578)
236
156
(747)
315
(1,661)
(596)
(671)
(671)
235
8,116
$(3,246) $(2,547) $(1,933)
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 contributed 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 1996, 1995 and 1994 was
$405,000, $470,000 and $358,000, respectively. Benefits payable related to these plans and included in
accrued payroll in the accompanying financial statements were $2,480,000 and $1,872,000 at November 1,
1996 and November 3, 1995, 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 prepaid expenses, was $3,341,000 and $2,763,000 at November 1, 1996
and November 3, 1995, respectively. The total (income) expense recorded related to these policies was
approximately ($46,000), (20,000) and $6,000 for fiscal years 1996, 1995 and 1994, respectively.
Effective for fiscal year 1994, the Company adopted Statement of Financial Accounting Standards No. 106,
"Employers Accounting for Postretirement Benefits Other Than Pensions." This statement focuses principally
on postreitrement health care benefits and requires accrual of the expected cost of providing those benefits
over the service lives of the employees. Adoption of this statement did not materially impact the Company's
consolidated financial statements.
Notes to Consolidated Financial Statements
NOTE 4 - INCOME TAXES:
The provision for taxes on income includes the following (in thousands):
Current:
Federal
State
Deferred:
Federal
State
1996
1995
1994
$4,039
551
$4,102
643
4,590
4,745
(933)
(192)
(1,125)
(609)
(96)
(705)
$3,844
675
4,519
(657)
(97)
(754)
$3,465
$4,040
$3,765
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):
Provision for federal income taxes at the
applicable statutory rate
Increase in provision resulting from: State
income taxes, net of federal income tax benefit
Other, net
1996
1995
1994
$3,100 $3,614 $3,368
335
30
391
6
$3,465 $4,040 $3,765
397
29
Deferred income taxes result from differences in the bases of assets and liabilities for tax and accounting
purposes.
Deferred tax assets (liabilities) are comprised of the following (in thousands):
Receivables allowance
Inventory capitalization
Deferred compensation
Vacation benefits
Pension and health care benefits
1996
1995
$199
297
1,335
407
2,638
$167
218
1,098
321
1,676
Depreciation
Other
(313)
(74)
(54)
(62)
$4,582
$3,458
No valuation allowance was provided against deferred tax assets in the accompanying statements.
Notes to Consolidated Financial 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, 1998. At any time prior to May 1998, the Company may convert borrowings, if any, into a
three-year term loan with principal and interest payable monthly commencing May 31, 1998. 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 an operating lease 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
$263,000, $272,000 and $290,000 in fiscal years 1996, 1995 and 1994, respectively. Contingent payments
were $95,000 in 1996 and 1995, and $92,000 in 1994. Future minimum lease payments are approximately
$257,000 per year from 1996 through 1998, and $130,000 in 1999. The Company also leases certain other
properties which do not result in material commitments.
Report of Independent Accountants
Price Waterhouse 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 floes present fairly, in all material respects, the financial position of
Bridgford Foods Corporation and its subsidiaries at November 1, 1996 and November 3, 1995, and the results
of their operations and their cash flows for each of the three years in the period ended November 1, 1996, 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.
Costa Mesa, California
December 24, 1996