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 29,000 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 19,000 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
1999 1998 1997 1996 1995
69
31
78
22
82
18
83
17
85
15
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.
----- Prices -----
Fiscal Quarter Ended
$High
$Low
Cash Dividends Paid
January 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
Jaunary 29, 1999
12 & 1/2 12 & 1/2
April 30, 1999
10 & 1/4
10
July 30, 1999
10 & 7/8 10 & 3/4
October 29, 1999
9 & 15/16
9 & 7/8
$.055
$.055
$0.55
$.055
$.06
$.06
$.06
$.06
ANNUAL SHAREHOLDERS MEETING
The 2000 annual shareholders meeting will be held at the Four Points Sheraton, 1500 South Raymond Avenue,
Anaheim, California at 10:00 a.m. on Wednesday March 15, 2000.
RECENT HISTORICAL TRENDS
TO OUR SHAREHOLDERS:
It is a great pleasure to report that 1999 was a banner year for Bridgford Foods Corporation. New all-time
record highs were attained in sales, earnings, dividends and capital. Net profits exceeded ten million dollars
for the first time in our sixty-seven year history.
SALES, EARNINGS AND DIVIDENDS
Sales in fiscal 1999 reached $138,786,260, a record high by 3%. It was our fourteenth consecutive annual sales
gain. Our meat snack division, Bridgford Foods of Illinois, again recorded outstanding sales volume increases
as we added a variety of new flavors, sizes and improved packaging graphics to our meat snack line.
Especially successful are our new 8-ounce packages of natural beef jerky. Bridgford's 4-ounce natural beef
jerky continued to maintain the number one sales ranking for a meat snack product in American supermarkets
and mass merchandising stores in 1999.
During the year, hundreds of new customers have been added to our direct distribution deli and meat snack
systems. Two new frozen retail-pack par-baked roll items were successfully tested during the fall of 1999. We
expect to bring these new items to market in the year 2000. Also, our new french dip sandwiches, as well as
our sausage, cheese and egg breakfast sandwiches, have shown excellent sales gains during 1999.
Net income in 1999 reached a record high of $10,024,505. This represents a 15% gain over 1998 income.
Bridgford has now set earnings records for three consecutive years and in 12 of the last 13 years. We
experienced favorable flour costs in 1999. Meat costs increased substantially in the second half of 1999 when
compared with costs in the first half of the year.
Cash dividends of twenty-four cents per share were paid in 1999 on the 11,369,812 shares outstanding. At the
November 1999 Board of Directors meeting, the quarterly cash dividend rate was raised to 7¢ per share, a
17% increase.
FINANCIAL MATTERS
Shareholders equity increased more than 14% to $58,134,865 during 1999, a gain of $7,292,617. Working
capital was $43,760,200 at year-end, more than 17% higher than at the end of fiscal 1998.
Our working capital ratio was a very strong 4.2 to 1 at year-end. We continued to be debt-free for the 13th
consecutive year while investing $4,901,936 in property, plant and equipment. A $2,000,000 bank line of
credit remains available to us for new business opportunities.
Employee stock options were authorized and issued to members of the Corporate Operating Committee during
1999. Options for shares were issued at a price of $10.00 per share. Members of the current Executive
Committee are excluded from receiving options.
During November of 1999 the Board authorized the Company to repurchase up to 1,000,000 shares of its
common stock on the open market. The Company believed that the stock was undervalued at the time and that
the repurchase program is a good investment of available funds. The investment firm of Salomon Smith
Barney was engaged to manage the repurchase program.
OPERATIONS
During 1999 we completed a new 27,000 square foot addition to our Chicago meat snack foods plant and
warehouse. We also finished a 6,000 square foot freezer addition at our Dallas, Texas sandwich manufacturing
plant. Plans for our 2000 fiscal year include expansion of the freezer at the Bridgford-Superior bakery and
frozen dough plant in Dallas. We have offered to purchase property adjacent to both our Frozen-Rite and
Superior plants in Dallas to facilitate future growth. The Company is adding substantial amounts of new
modern equipment to its Chicago and Dallas facilities for expanded production of current and new products.
We are experiencing higher meat raw material costs in the first quarter of 2000. It appears that grain supplies
are plentiful and we do not expect higher costs for our basic bakery raw materials.
SUMMARY
Thank you to our customers, shareholders, directors, officers, associates and suppliers for enabling us to
experience an extraordinarily successful year in 1999.
We are poised to continue our progress in the year 2000.
Respectfully submitted,
Allan L. Bridgford
Chairman
Robert E. Schulze
President
BRIDGFORD FOODS CORPORATION FINANCIAL
SUMMARY
Fiscal Year Ended
October 29
1999
October 30
1998
%
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
$138,786,260
16,169,505
10,024,505
.88
.24
43,760,200
85,469,476
58,134,865
18.40%
$134,815,787
14,065,430
8,720,430
.77
.22
37,251,202
75,792,941
50,842,248
18.27%
2.95
14.95
14.94
14.29
9.09
17.47
12.77
14.34
-
SELECTED FINANCIAL DATA
October 30
1998
October 29
1999
November 1
1997
November 1
1996
November 3
1995*
Net Sales
Net Income
Basic Earnings Per Share
Current Assets **
Current Liabilities **
Working Capital **
Property, Plant and Equip., Net
Deferred Taxes on Income
Total Assets
Shareholders' Equity
Cash Dividends Per Share
$138,786,260 $134,815,787 $127,859,491 $118,316,470 $112,497,590
6,590,855
10,024,505
.88
57,236,926
13,476,726
43,760,200
17,764,652
4,605,530
85,469,476
58,134,865
.24
8,720,430
.77
50,558,938
13,307,736
37,251,202
16,197,108
3,738,976
75,792,941
50,842,248
.22
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
.58
32,946,552
8,484,009
24,462,543
14,364,995
2,353,377
52,623,417
36,859,572
.19
* 53 weeks
** 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
1999 compared to 1998
Sales in fiscal year 1999 increased $3,970,000 (2.9%) when compared to sales of the prior year, primarily as a
result of increased sales volume.
Cost of products sold decreased by $332,000 when compared to the prior year. The gross margin was
approximately 42% in 1999, 40% in 1998 and 36.9% 1997. Costs for pork commodity products remained at
historically low levels and flour costs continued to be favorable in 1999 and 1998.
Selling, general and administrative expenses increased $1,844,000 (5.0%) when compared to the prior year.
This increase was generally consistent with the overall increase in sales. Selling expenses slightly outpaced
sales growth due to an increased sales force and higher performance bonuses due to record profitability.
The Company's capital expansion projects increased compared to recent years. 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%.
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% 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 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% 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 result in a slight improvement in the gross margin.
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 $9,635,000 in the 1999 fiscal year compared to
$14,579,000 in 1998 and $10,189,000 in 1997. Accounts receivable balances increased $1,617,000 (13%) in
1999, $699,000 (6%) in 1998 and $1,367,000 (13%) in 1997 due to higher sales and slower collections.
Inventories increased in 1999 $2,083,000 due to higher unit quantities and decreased $1,490,000 in fiscal 1998
due primarily to significantly lower commodity costs and lower quantities compared to the prior fiscal year.
Non-current assets increased $1,431,000 (16%), $1,363,000 (18%), and $1,122,000 (17%) in 1999, 1998, and
1997, respectively, due primarily to the increased cash surrender value of life-insurance policies and increases
in deferred income tax benefits due primarily 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.
The Company's capital improvement expenditures increased in 1999 compared to recent years. Cash used for
additions to property, plant and equipment increased $2,617,000 (114%) compared to fiscal year 1998.
Significant projects were completed in 1999, primarily the Dallas Sandwich Freezer expansion at a total cost
of $966,000 and the shipping dock expansion of the Chicago plant at a total cost of $1,541,000. Cash and cash
equivalents increased $2,749,000 in 1999 (12.3%). The increase was lower than in recent years due to higher
tax payments, increased capital expenditures and higher accounts receivable and inventory balances. Cash and
cash equivalents increased $9,894,000 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. The
Company has remained free of interest-bearing debt for twelve consecutive years. Working capital increased
$6,509,000 (17.5%) and $7,569,000 (25.5%) in 1999 and 1998. The increases in working capital reflect lower
capital spending in 1998, 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, 2001. There were no
borrowings under this line of credit during 1999.
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 continued under Item 1., "Business" in Form 10-K
for the fiscal year ended October 29, 1999.
Consolidated Balance Sheets
October 29
1999
October 30
1998
ASSETS
Current assets:
Cash and cash equivalents
Accounts receivable, less allowance for doubtful accounts of
$25,020,839 $22,272,141
$647,219 and $582,787
Inventories
Prepaid expenses
Deferred income tax benefits
Total current assets
13,689,463
12,072,818
16,149,918 14,066,898
233,848
1,913,233
268,892
2,107,814
57,236,926 50,558,938
Property, plant and equipment, net of accumulated depreciation of
$30,533,865 and $27,894,827
Other non-current assets
Deferred income tax benefits
17,764,652 16,197,108
5,297,919
3,738,976
5,862,368
4,605,530
$85,469,476 $75,792,941
October 29
1999
October 30
1998
$5,849,237 $5,343,725
6,759,979
6,373,886
867,510
1,590,125
13,476,726 13,307,736
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 outstanding - none
Common stock, $1.00 par value
Authorized - 20,000,000 shares
Issued and outstand - 11,369,812
Capital in excess of par value
Retained earnings
11,426,695
11,426,695
26,347,123 26,347,123
20,361,047 13,068,430
58,134,865 50,842,248
$85,469,476 $75,792,941
Consolidated Statements of Income
Fiscal year ended
October 29
1999
October 30
1998
October 31
1997
Net sales
$138,786,260 $134,815,787 $127,859,491
Cost of products sold, excluding depreciation
Selling, general and administrative expenses
Depreciation
80,544,109
38,780,300
3,292,346
80,876,022
36,935,860
2,938,475
80,621,498
33,633,263
2,950,376
122,616,755 120,750,357 117,205,137
Income before taxes
Provision for taxes on income
16,169,505
6,145,000
14,065,430
5,345,000
10,654,354
4,049,000
Net income
Net income per share
$10,024,505
$8,720,430
$6,605,354
$0.88
$0.77
$0.58
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Common stock
Shares
Amount
9,396,933
$9,453,816
Capital in
excess of par
Retained
earnings
Total
shareholder's
equity
$3,024,881 $27,776,994 $40,255,691
6,605,354
6,605,354
(2,263,265)
(2,255,265)
10,921,478 (11,860,960)
939,482
939,482
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
$8,720,430
8,720,430
(2,483,964)
$11,369,812 $11,426,695
26,347,123 $13,068,430 $50,842,248
10,024,505
10,024,505
Balance, November 1, 1996
- Net income
- Cash dividends paid ($.20 per
share)
- 10% stock dividends,
November 10, 1997
Balance, October 31, 1997
- Net income
- Cash dividends paid* ($.22
per share)
- 10% stock dividends,
November 16, 1998
Balance, October 30, 1998
- Net income
- Cash dividends paid* ($.24
per share)
(2,731,888)
(2,731,888)
Balance, October 29, 1999
$11,369,812 $11,426,695
26,347,123 $20,361,047 $58,134,865
Consolidated Statements of Cash Flows
Fiscal year ended
October 29
1999
October 30
1998
October 31
1997
Cash flows from operating activities:
Net income
Income charges not affecting cash:
Depreciation
Provision for losses on accounts receivable
Gain on sale of assets
$10,024,505 $8,720,430 $6,605,354
3,292,346
221,650
(705,288)
2,938,475
254,150
(81,941)
2,950,376
149,150
(50,129)
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
(1,838,295)
(2,083,020)
(35,044)
(1,061,135)
(564,449)
891,605
(722,615)
2,214,928
(952,705) (1,516,171)
1,489,852
47,162
(96,101)
206,099
(859,636)
(210,152)
(726,540) (1,028,297)
1,758,848
70,539
1,206,466
446,768
1,406,268
2,039,547
Net cash provided by operating activities
9,635,188 14,578,567 10,189,145
Cash used in investing activities:
Proceeds from sale of assets
Additions to property, plant and equipment
747,334
50,129
(4,901,936) (2,285,335) (1,949,100)
84,941
Net cash used in investing activities
(4,154,602) (2,200,394) (1,898,971)
Cash used in financing activities:
Cash dividends paid
(2,731,888) (2,483,964) (2,255,264)
Net increase (decrease) in cash and cash
equivalents
2,748,698
9,894,209
6,034,910
Cash and cash equivalents at beginning of year
22,272,141 12,377,932
6,343,022
Cash and cash equivalents at end of year
Cash paid for income taxes
$25,020,839 $22,272,141 $12,377,932
$7,837,000 $4,891,000 $4,022,000
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 1999, 1998 and 1997
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 $24,980,000 at October 29, 1999 and $20,985,000 at October 30,
1998.
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.
Stock-based compensation
Statement of Financial Accounting Standards (SFAS No. 123), "Accounting for Stock-Based Compensation,"
encourages, but does not require, companies to record compensation cost for stock-based employee
compensation plans based on the fair market value of options granted. The Company has chosen to account
for stock based compensation using the intrinsic value method prescribed in Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations. Accordingly,
compensation for stock options is measured as the excess, if any, of the fair market value of the Company's
stock price at the date of grant as determined by the Board of Directors over the amount an employee must
pay to acquire the stock.
Basic and diluted 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. Diluted earnings per share is calculated based on the
weighted average number of shares outstanding plus shares issuable on conversion or exercise of all
potentially dilutive securities.
NOTE 2 - COMPOSITION OF CERTAIN FINANCIAL STATEMENT CAPTIONS:
1999 (in thousands)
1998 (in thousands)
Property, plant and equipment:
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
$1,087
12,511
27,761
6,940
48,299
(30,534)
$17,765
$3,288
1,837
11,025
$16,150
$6,051
263
446
$6,760
$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
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
1999
1998
1997
$646
958
(990)
138
(68)
(76)
34
$568
907
(748)
(34)
(83)
(76)
34
$485
810
(1,602)
931
(38)
(76)
34
$644
$568
$544
The transition asset is being amortized using the straight-line method over 15.02 years, the average remaining
service period of active plan participants. The discount rate and expected long-term rate of return used in
determining the projected benefit obligation for fiscal years 1999, 1998 and 1997 was 7.75%. The assumed
rate of future compensation increases for fiscal years 1999 and 1998 was 4% and for fiscal year 1997 was 6%.
Plan assets are primarily invested in marketable equity securities, corporate and government debt securities and
real estate and are administered by an investment management 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
1999
1998
1997
$11,455 $10,622 $10,081
12,970 10,502
817
946
9,415
1,152
13,916 11,319 10,567
(2,461) (3,463) (3,065)
281
(2,404) (3,463) (3,065)
(520)
(445)
233
247
(369)
Accrued pension cost
$(5,001) $(4,358) $(3,790)
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 1999, 1998 and 1997 was
$320,000, $303,000 and $348,000, respectively. Benefits payable related to these plans and included in other
non-current liabilities in the accompanying financial statements were $4,384,000 and $3,594,000 at October
29, 1999 and October 30, 1998, 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 $5,862,000 and $5,298,000 at October 29, 1999
and October 30, 1998, 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 $5,823,000 and
$4,598,000 at October 29, 1999 and October 30, 1998, respectively. Future payments are approximately
$1,700,000, $1,434,000, $1,226,000, $942,000 and $521,000 for fiscal years 2000 through 2004, respectively.
Postretirement health care benefits in the approximate amount of $350,000 and $345,000 are included in non-
current liabilities at October 29, 1999 and October 30, 1998, respectively.
The Company's 1999 Stock Incentive Plan ("the Plan") was approved by the Board of Directors on January 11,
1999 and 275,000 shares were granted on April 29, 1999. Under the Plan, the maximum aggregate number of
shares which may be optioned and sold is 900,000 shares of common stock, subject to adjustment upon
changes in capitalization or merger. Generally, options granted under the plan vest in annual installments over
four years following the date of grant (as determined by the Board of Directors) subject to the optionee's
continuous service. Options expire ten years from the date of grant with the exception of an incentive stock
option granted to an optionee who owns stock representing more than 10% of the voting power of all classes
of stock of the Company, in which case the term of the option is five years. Options generally terminate three
months after termination of employment or one year after termination due to permanent disability or death.
Options are generally granted at a fair market value determined by the Board of Directors subject to the
following:
a.) With respect to options granted to an employee or service provider who, at the time of grant owns stock
representing more than 10% of the voting power of all classes of stock of the Company, the per share exercise
price shall be no less than 110% of the fair market value on the date of grant.
b.) With respect to options granted to an employee or service provider other than described in the preceding
paragraph, the exercise price shall be no less than 100% for incentive stock options and 85% for non-statutory
stock options of the fair market value on the date of grant. Stock option activity under the plan was as follows:
Granted
Canceled
Exercised
Balance at October 29, 1999
Options
Outstanding
Exercise Price
Per Share
900,000
-
-
900,000
$10.00
-
-
$10.00
Options Outstanding
Options Exercisable
Weighted
average Weighted
Weighted
average
Exercise
price
Shares
remaining
life
(years)
average
exercise
price
Shares
$10
900,000
9.2
$10
0
exercise
price
(years)
$10
The Company adopted the disclosure requirements of Statement of Financial Accounting Standards No. 123
("FAS 123"). As permitted by FAS 123, the Company measures compensation cost in accordance with APB
25. Therefore, the adoption of FAS 123 had no impact on the Company's financial condition or results of
operations. Had compensation cost for the Company's Stock Option Plan been determined based on the fair
value of the options consistent with FAS 123, the Company's net income and earnings per share would have
been reduced to the pro forma amounts indicated below:
Net Income
Basic Earning Per Share
October 29, 1999
As reported
Pro forma
As reported
Pro forma
$10,024,505
$9,845,208
$.88
$.87
The fair value of compensatory stock options was estimated using the Black-Scholes option pricing model
using the following weighted average assumptions:
Risk-free interest rate
Expected years until exercise
Expected stock volatility
Expected dividends
October 29, 1999
5.34%
6.0 years
40.0%
2.20%
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
1999
1998
1997
$6,034
1,172
$5,241
964
7,206
6,205
(867)
(194)
(1,061)
(735)
(125)
(860)
$3,602
658
4,260
(99)
(112)
(211)
$6,145
$5,345
$4,049
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
1999
1998
1997
$5,498 $4,782 $3,622
596
51
416
11
$6,145 $5,345 $4,049
518
45
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.
Receivables allowance
$263
$235 $233
1999
1998
1997
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
367
478
183
853
(36)
329
382
154
842
(29)
233
385
107
631
44
$2,108
$1,673
3,951
(1,018)
4,606
$1,913 $1,690
$1,348 $1,001
3,343 2,870
(952)
(769)
3,739 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:
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, 2001. At any time prior to May, 2001, the Company may convert borrowings, if
any, into a three-year term loan with principal and interest payable monthly commencing May 31, 2001. 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 2005. 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
$320,000, $316,000, and $255,000 in fiscal years 1999, 1998, and 1997, respectively. Contingent payments
were $102,000, $105,000 and $98,000 in 1999, 1998 and 1997, respectively. Future minimum lease payments
are approximately $320,000 in the years 2000 through 2004 and $240,000 in 2005.
NOTE 7 - SUBSEQUENT EVENTS:
In November 1999 the City of San Diego redevelopment agency acquired, under eminent domain proceedings,
land owned by the Company and a pretax gain of $675,000 was recognized.
In November 1999 the Board of Directors approved the repurchase of up to 1,000,000 shares of common stock.
These repurchases will be made on the open market at prevailing market prices or in negotiated transactions
off the market.
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 29, 1999 and October 30, 1998, and the results of
their operations and their cash flows for each of the three years in the period ended October 29, 1999, in
conformity with accounting principles generally accepted in the United States. 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 auditing
standards generally accepted in the United States, 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 10, 1999