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:
Products manufactured or processed by the
Company
Products manufactured or processed by others
Total
1998 1997 1996 1995 1994
78
22
82
18
83
17
85
15
87
13
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 fiscal quarters
adjusted for the 10% stock dividend declared November 16, 1998.
----- Prices -----
Fiscal Quarter Ended
$High
$Low
Cash Dividends Paid
January 31, 1997
7 & 3/8
5 & 5/8
May 2, 1997
8 & 1/8
6 & 1/4
August 1, 1997
8 & 1/2
7 & 3/8
October 31, 1997
11 & 3/4
8 & 1/4
Jaunary 30, 1998
13 & 7/8 10 & 3/8
May 1, 1998
12 & 3/4
9 & 1/2
July 31, 1998
12 & 3/8 11 & 1/8
October 30, 1998
11 & 7/8 10 & 1/4
$.05
$.05
$.05
$.05
$.055
$.055
$.055
$.055
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.
RECENT HISTORICAL TRENDS
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 AND 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.
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.
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.
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,
Allan L. Bridgford
Chairman
Robert E. Schulze
President
BRIDGFORD FOODS CORPORATION FINANCIAL SUMMARY
Fiscal Year Ended
October 30
1998
October 31
1997
%
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
$134,815,787
14,065,430
8,720,430
.77
.22
37,251,202
75,792,941
50,842,248
18.27%
$127,859,491
10,654,354
6,605,354
.58
.20
29,682,086
65,663,892
44,605,782
15,57%
5.4
32.0
32.0
32.8
10.0
25.5
15.4
14.0
17.3
SELECTED FINANCIAL DATA
November 1
1997
October 30
1998
November 1
1996
November 3
1995*
October 28
1994
Net Sales
Net Income
Basic Earnings Per Share **
Current Assets ***
Current Liabilities ***
Working Capital ***
Property, Plant and Equip., Net
Deferred Taxes on Income *** 3,738,976
Total Assets
Shareholders' Equity
Cash Dividends Per Share **
75,792,941
50,842,248
.22
$134,815,787 $127,859,491 $118,316,470 $112,497,590 $108,883,562
6,141,726
.54
35,285,042
8,697,371
26,587,671
7,559,382
8,720,430
.77
50,558,938
13,307,736
37,251,202
16,197,108
6,605,354
.58
41,136,786
11,454,700
29,682,086
16,853,248
3,102,479
65,663,892
44,605,782
.20
5,651,383
.50
33,871,431
9,625,313
24,246,118
17,854,524
3,008,911
58,277,948
40,255,691
.20
6,590,855
.58
32,946,552
8,484,009
24,462,543
14,364,995
2,353,377
52,623,417
36,859,572
.19
1,742,430
46,986,561
32,430,012
.16
* 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 persentation.
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 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 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.
Consolidated Balance Sheets
October 30
1998
October 31
1997
ASSETS
Current assets:
Cash and cash equivalents
Accounts receivable, less allowance for doubtful accounts of
$22,272,141 $12,377,932
$582,787 and $577,156
Inventories
Prepaid expenses
Deferred income tax benefits
Total current assets
12,072,818
11,374,263
14,066,898 15,556,750
137,747
1,690,094
233,848
1,913,233
50,558,938 41,136,786
Property, plant and equipment, net of accumulated depreciation of
$27,894,827 and $25,432,473
Other non-current assets
Deferred income tax benefits
16,197,108 16,853,248
4,571,379
3,102,479
5,297,919
3,738,976
$75,792,941 $65,663,892
October 30
1998
October 31
1997
$5,343,725 $5,343,687
6,373,886
5,927,156
1,590,125
183,857
13,307,736 11,454,700
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable
Accrued payroll and other expenses
Income taxes payable
Total current liabilities
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 - 11,369,812 (Note 7)
Capital in excess of par value
Retained earnings
10,393,298
11,426,695
26,347,123 13,946,359
13,068,430 20,266,125
50,842,248 44,605,782
$75,792,941 $65,663,892
Consolidated Statements of Income
Fiscal year ended
October 30
1998
October 31
1997
November 1
1996
Net sales
$134,815,787 $127,859,491 $118,316,70
Cost of products sold, excluding depreciation
Selling, general and administrative expenses
Depreciation
80,876,022
36,935,860
2,938,475
80,621,498 75,874,768
33,633,263 30,832,011
2,950,376
2,493,308
120,750,357 117,205,137 109,200,087
Income before taxes
Provision for taxes on income
14,065,430
5,345,000
10,654,354
4,049,000
9,116,383
3,465,000
Net income
Net income per share
$8,720,430
$6,605,354 $5,651,383
$0.77
$0.58
$0.50
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (NOTE 7)
Balance, November 3, 1995
- Net income
- Cash dividends paid ($.20 per
share)
Balance, November 1, 1996
- Net income
- Cash dividends paid* ($.20
per share)
Balance, October 31, 1997
- Net income
- Cash dividends paid* ($.22
per share)
- 10% stock dividends,
November 16, 1998
Common stock
Shares
Amount
9,396,933
$9,453,816
9,396,933
$9,453,816
Capital in
excess of par
Retained
earnings
Total
shareholder's
equity
$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
6,605,354
6,605,354
(2,255,265)
10,336,415 $10,393,298 $13,946,359 $20,266,125
8,720,430
(2,483,964)
12,400,764 (13,434,161)
1,033,397
1,033,397
(2,255,265)
$8,720,430
8,720,430
(2,483,964)
Balance, October 30, 1998
$11,369,812 $11,426,695
26,347,123 $13,068,430 $50,842,248
* Per share amounts give effect to 10% stock dividends declared November 10, 1997 and november 16, 1998.
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
Other non-current assets
Accounts payable and accrued expenses
Income taxes payable
Non-current liabilities
Fiscal year ended
October 30
1998
October 31
1997
November
1
1996
$8,720,430 $6,605,354 $5,651,383
2,938,475
254,150
(81,941)
2,950,376 2,493,308
139,150
(52,729)
149,150
(50,129)
(952,705) (1,516,171)
1,489,852
(96,101)
(859,636)
(726,540) (1,028,297)
45,388
47,162 (1,753,965)
206,099
90,281
(210,152) (1,124,607)
(584,589)
1,758,848 1,082,903
58,401
1,206,466 1,117,108
446,768
1,406,268
2,039,547
70,539
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
Additions to property, plant and equipment
84,941
57,601
(2,285,335) (1,949,100) (5,987,709)
50,129
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
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:
Property, plant and equipment:
1998 (in thousands)
1997 (in thousands)
Land
Buildings and improvements
Machinery and equipment
Transportation equipment
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
11,310
25,616
6,083
44,092
27,895
$16,197
$3,695
1,353
9,019
$14,067
$5,533
263
578
$6,374
$1,083
10,736
24,889
5,577
42,285
25,432
$16,853
$4,453
1,357
9,747
$15,557
$4,581
265
1,081
$5,927
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 (loss) on plan assets
Amortization of unrecognized gain
Amortization of transition asset
Amortization of unrecognized prior service costs
Net pension cost
1998
1997
1996
$568
907
$485
810
(748)
(34)
(83)
(76)
(1,602)
931
(38)
(76)
34
34
$611
689
(1,238)
679
(76)
34
$568
$544
$699
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 (in thousands):
Plan assets at fair market value
Actuarial present value of benefit obligations:
&mbsp;Accumulated benefits based on current salary levels,
including vested benefits of $9,974, $8,927 and $7,324
&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 gain on plan assets
Unrecognized net transition asset
1998
1997
1996
$10,622 $10,081 $8,657
7,917
2,044
10,502
817
9,415
1,152
11,319 10,567
(3,463) (3,065) (1,661)
315
(3,463) (3,065) (1,661)
(596)
(520)
247
281
9,961
(445)
Accrued pension cost
$(4,358) $(3,790) $(3,246)
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.
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
1998
1997
1996
$5,241
964
$3,602
658
6,205
4,260
(735)
(125)
(860)
(99)
(112)
(211)
$5,345
$4,049
$4,039
551
4,590
(933)
(192)
(1,125)
$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):
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
1998
1997
1996
$4,782 $3,622 $3,100
518
45
335
30
$5,345 $4,049 $3,465
416
11
Deferred income taxes result from differences in the bases of assets and
liabilities for tax and accounting purposes.
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):
1998
1997
Receivables allowance
Inventory capitalization
Deferred compensation
Franchise tax
Employee benefits
Other
Current tax assets
Deferred compensation
Pension and health care benefits
Depreciation
Non-current taz assets, net
$235
329
382
154
842
(29)
$1,913
$1,348
3,343
(952)
3,739
$233
233
385
107
631
44
$1,690
$1,001
2,870
(769)
3,102
No valuation allowance was provided against deferred tax assets in the
accompanying statements.
Notes to Consolidated Financial Statements
NOTE 5 - LINE OF CREDIT:
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.
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
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 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.
Costa Mesa, California
December 18, 1998