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, wholesalers and independent
distributors. Products are currently sold through approximately
37,000 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 23,000 retail outlets and
22,000 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
2000 1999 1998 1997 1996
68
69
76
82
83
32
31
24
18
17
Total
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
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
January 28, 2000
9 & 7/8
8
April 28, 2000
9 & 3/4
8 & 1/2
July 28, 2000
12 & 15/16
9 & 1/4
November 3,2000
13
12
$.06
$.06
$.06
$.06
$.07
$.07
$.07
$.07
ANNUAL SHAREHOLDERS MEETING
The 2001 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 14, 2001.
RECENT HISTORICAL TRENDS
TO OUR SHAREHOLDERS:
The year 2000 was a good year for Bridgford Foods. Sales reached an all-time record level while
profits were the second best in Company history. Lower profits were due to higher costs for raw
materials, energy, transportation, petroleum based packaging materials and employee health care.
New product and new customer development also contributed to increased expenses.
SALES, EARNINGS AND DIVIDENDS
Sales reached $156,291,805 during the 53 week 2000 fiscal year. This was a new record and
exceeded 1999 sales by 12.6%. 2000 marked our fifteenth consecutive year of record high sales
gains. Both our frozen food and meat snack divisions recorded strong volume increases. We
increased the variety and sizes of products offered to the trade. New offerings of “Deli Pack”
Biscuits, “Bake & Serve” Rolls and larger packages of Beef Jerky added to our sales volume.
Exciting new sandwich items like Chicken Fried Steak with Gravy and Biscuit and lunch packs
including drinks, cookies and chips were recently introduced.
Bridgford’s direct store distribution route customer count has continued to grow and reached a total
of 37,367 accounts during fiscal 2000. Net income in 2000 was $8,766,469, a 12.5% decline from
the record income of $10,024,505 set in 1999. Meat raw material costs were higher in 2000 and
reduced our operating margins. Pork raw materials used for meat processing averaged 40% higher
in cost during fiscal 2000 than in 1999. We estimate that national energy costs have also increased
at a 40% annual rate since the spring of 1999.
Quarterly cash dividends paid in 2000 were 7¢ per quarter and totaled 28¢ per common share. This
represents an increase of 17% over dividends paid in the prior fiscal year. The 7¢ per share
quarterly cash dividend was continued during the first quarter of our 2001 fiscal year.
FINANCIAL MATTERS
The Company recognized a $675,000 pretax gain in the first quarter of fiscal year 2000 on the sale
of a parcel of land in San Diego, California as a result of eminent domain action. Management does
not anticipate any transactions of a similar nature in our 2001 fiscal year.
The Company purchased 754,500 shares of its outstanding common stock on the open market
during the 2000 fiscal year at an average cost of $10.13. Subsequent to November 3, 2000, the
Company has purchased an additional 17,900 shares at an average cost of $12.62. The shares
were purchased in connection with the stock repurchase plan approved by the Board of Directors in
November, 1999 to purchase up to 1,000,000 shares of the Company’s common stock.
Shareholders’ equity decreased by $1,938,538 (3.3%) during the year to $56,196,327, due primarily
to the cost of shares acquired by the stock repurchase program. On a per share basis, however,
shareholders’ equity actually increased 3.5% to $5.29 per share.
Working capital declined 12.1% for the year to $38,469,237. The stock repurchases ($7,642,876)
contributed to this change in working capital. The Company invested $5,123,710 in additions to
property, plant and equipment during the year, 4.5% more than in the prior year. Cash dividends
increased 12.1% for the year to $3,062,131. The working capital ratio (3.63 to 1) remained strong as
of year-end. At November 3, 2000, the Company had $18,179,000 invested in interest-bearing
securities. The Company remained debt-free for the 14th consecutive year.
OPERATIONS
During 2000 we purchased two parcels of land behind our Superior Foods plant in Dallas and your
board approved a $2,500,000 freezer construction project at that site. We also developed a
production line at the Frozen-Rite Dallas plant for manufacture of our new “Bake & Serve” Rolls. At
our Chicago meat processing plant we invested in a new high speed slicing line to add capacity and
efficiency to the production of popular Bridgford Sliced Pepperoni. Your board also approved the
purchase and installation of “state of the art” hardware and software for a new company-wide
management information system that will cost approximately $3,000,000.
John V. Simmons and Daniel R. Yost were elected Vice Presidents of the Company at our March
2000 board of directors meeting. Both men have been employed by the Company for more than 20
years and they concentrate their efforts on frozen food sales and marketing.
SUMMARY
We appreciate the loyalty and hard work of our officers, directors and associates during 2000 and
thank our customers and suppliers for their support. Your Company expects 2001 to be an excellent
year for sales and profits.
Allan L. Bridgford
Chairman
Robert E.
Schulze
President
BRIDGFORD FOODS CORPORATION FINANCIAL SUMMARY
Fiscal Year Ended
(53 weeks)
November 3
2000
(52 weeks)
October 30
1999
%
Change
Net sales
$156,291,805
$138,786,260
12.6%
Income before taxes
14,140,469
16,169,505
(12.5%)
Net income
8,766,469
10,024,505
(12.5%)
Net income per share
Cash dividends per share
.80
.28
.88
.24
(9.1%)
16.7%
Working capital
38,469,237
43,760,200
(12.1%)
Total assets
82,680,999
85,469,476
(3.3%)
Shareholders' equity
56,196,327
58,134,865
(3.3%)
Return on average equity
15.34%
18.40%
-
SELECTED FINANCIAL DATA
November 3
2000*
October 29
1999
October 30
1998
November 1
1997
November 1
1996
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
$156,291,805 $138,786,260 $134,815,787 $127,859,491 $118,316,470
5,651,383
8,766,469
.80
53,099,779
14,630,542
38,469,237
18,964,335
3,781,172
82,680,999
56,196,327
.28
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
.50
33,871,431
9,625,313
24,246,118
17,854,524
3,008,911
58,277,948
40,255,691
.20
* 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
2000 compared to 1999
Sales in fiscal year 2000 increased $17,506,000 (12.6%) when compared to sales of the prior year,
primarily as a result of increased unit sales volume.
Cost of products sold increased by $14,751,000 (18.3%) when compared to the prior year. The
gross margin was approximately 39% in 2000, 42% in 1999, and 40% in 1998. Costs for pork
commodity products increased in 2000 compared to the historical lows experienced during 1999.
Flour costs continued to be favorable in 2000, 1999 and 1998.
Selling, general and administrative expenses increased $4,303,000 (11.1%) when compared to the
prior year. This increase was generally consistent with the overall increase in sales.
The Company’s capital expansion projects remained at levels consistent with the prior year. 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%.
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 and 40% in 1998. 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%.
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 $8,348,000 in the 2000 fiscal year,
$9,635,000 in 1999 and $14,579,000 in 1998. Accounts receivable balances increased $1,617,000
(13%) in 1999 and $699,000 (6%) in 1998 due to higher sales and slower collections. Inventories
increased $2,042,000 in 2000 and $2,083,000 in 1999 due to higher unit quantities. Non-current
assets increased $1,431,000 (16%) and $1,363,000 (18%), in 1999 and 1998 primarily due to the
increased cash surrender value of life-insurance policies and increases in deferred income tax
benefits. Accounts payable and accrued expenses increased $1,901,000 in 2000 due to higher
purchasing activity to support strong fourth quarter sales.
The Company’s capital improvement expenditures remained consistent in 2000 compared to the
prior year. Significant projects in process at November 3, 2000 included $1.8 million for an updated
management information system. Cash and cash equivalents decreased $6,720,000 in 2000
(26.9%). The decrease was primarily a result of capital expenditures in the amount of $5,124,000;
common stock repurchases of $7,643,000, and higher inventory balances. The company also
funded its defined benefit pension plan in the amount of $3,000,000 during fiscal year 2000. 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 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 fourteen
consecutive years. Working capital decreased $5,291,000(12.1%) in 2000 and increased
$6,509,000 (17.5%) and $7,569,000 (25.5%) in 1999 and 1998. The decrease in working capital in
2000 primarily resulted from the common stock repurchase program and significant pension
contribution during 2000. The Company maintains a line of credit with Bank of America that expires
April 30, 2002. There were no borrowings under this line of credit during fiscal 2000.
Consolidated Balance Sheets
ASSETS
Current assets:
Cash and cash equivalents
Accounts receivable, less allowance for doubtful
accounts of $694,491 and $647,219
Inventories
Prepaid expenses
Deferred income tax benefits
November 3
2000
October 29
1999
$18,300,803 $25,020,839
13,689,463
13,642,063
18,191,480 16,149,918
268,892
2,107,814
527,902
2,437,531
Total current assets
53,099,779 57,236,926
Property, plant and equipment, net of accumulated
depreciation of $31,598,952 and $30,533,865
Other non-current assets
Deferred income tax benefits
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable
Accrued payroll and other expenses
Income taxes payable
18,964,335
6,835,713
3,781,172
17,764,652
5,862,368
4,605,530
$82,680,999 $85,469,476
November 3
2000
October 30
1998
$7,723,023 $5,849,237
6,759,979
867,510
6,787,268
120,251
Total current liabilities
14,630,542 13,476,726
Non-current liabilities
11,854,130 13,857,885
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
10,672,195
11,426,695
19,458,747 26,347,123
26,065,385 20,361,047
56,196,327 58,134,865
$82,680,999 $85,469,476
Consolidated Statements of Income
Fiscal year ended
(53 weeks)
November 3
2000
(52 weeks)
October 29
1999
(52 weeks)
October 30
1998
Net sales
$156,291,805 $138,786,260 $134,815,787
Cost of products sold, excluding
depreciation
Selling, general and administrative
expenses
Depreciation
95,295,374
80,544,109
80,876,022
43,083,496
38,780,300
3,772,466
3,292,346
36,935,860
2,938,475
142,151,336 122,616,755 120,750,357
Income before taxes
Provision for taxes on income
14,140,469
5,374,000
16,169,505
6,145,000
14,065,430
5,345,000
Net income
$8,766,469 $10,024,505
$8,720,430
Net income per share
$0.80
$0.88
$0.77
Shares used to compute basic
earnings per share
Diluted earnings per share
10,907,701
$0.80
11,369,812
$0.88
11,369,812
Shares used to compute diluted
earnings per share
10,926,630
11,374,714
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Common stock
Shares
Amount
Capital in
excess of
par
Retained
earnings
Total
shareholder's
equity
10,336,415 $10,393,298 $13,946,359 $20,266,125 $44,605,782
8,720,430
8,720,430
(2,483,964)
(2,483,964)
1,033,397
1,033,397
12,400,764
(13,434,161)
11,369,812 11,426,695 26,347,123 13,068,430 50,842,248
10,024,505 10,024,505
Balance, October 31, 1997
- Net income (52 weeks)
- Cash dividends paid ($.22
per share)
- 10% stock dividends,
November 16, 1998
Balance, October 30, 1998
- Net income (52 weeks)
- Cash dividends paid ($.24
per share)
Balance, October 29, 1999
- Net income (53 weeks)
- Cash dividends paid ($.28
per share)
- Shares repurchased and
retired
(2,731,888)
(2,731,888)
11,369,812 11,426,695 26,347,123 20,361,047 58,134,865
8,766,469
8,766,469
(754,500)
(754,500)
(6,888,376)
(7,642,876)
(3,062,131)
(3,062,131)
Balance, November 3, 2000
10,615,312 10,672,195 19,458,747 26,065,385 56,196,327
Consolidated Statements of Cash Flows
Fiscal year ended
(53 weeks)
November
3
2000
(53 weeks)
October 29
1999
(52 weeks)
October 30
1998
$8,766,469 $10,024,505 $8,720,430
3,772,466
3,292,346
2,938,475
324,650
(609,376)
221,650
(705,288)
254,150
(81,941)
(277,250) (1,838,295)
(2,041,562) (2,083,020)
(35,044)
494,641 (1,061,135)
(564,449)
(259,010)
(973,345)
(952,705)
1,489,852
(96,101)
(859,636)
(726,540)
1,901,075
(747,259)
(2,003,755)
891,605
(722,615)
2,214,928
446,768
1,406,268
2,039,547
Cash flows from operating activities:
Net income
Income charges not affecting cash:
Depreciation
Provision for losses on accounts
receivable
Gain on sale of assets
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
Net cash provided by operating
activities
8,347,744
9,635,188
14,578,567
Cash used in investing activities:
Proceeds from sale of assets
Additions to property, plant and
equipment
760,937
747,334
84,941
(5,123,710)
(4,901,936)
(2,285,335)
Net cash used in investing activities
(4,362,773) (4,154,602) (2,200,394)
Cash used in financing activities:
Shares repurchased
Cash dividends paid
(7,642,876)
(3,062,131) (2,731,888) (2,483,964)
Cash used in financing activities
Net (decrease) increase in cash and cash
equivalents
(10,705,007)
(6,720,036)
(2,731,888)
2,748,698
(2,483,964)
9,894,209
Cash and cash equivalents at beginning of
year
25,020,839
22,272,141
12,377,932
Cash and cash equivalents at end of year
$18,300,803
$25,020,839
$22,272,141
Cash paid for income taxes
$5,878,000
$7,837,000
$4,891,000
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.
Concentrations of credit risk
The Company’s credit risk is diversified across a broad range of customers and geographic regions.
Losses due to credit risk have been immaterial. 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 processing 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 year 2000
included 53 weeks. Fiscal years 1999 and 1998 include 52 weeks each.
Revenues
Revenues are recognized upon passage of title to the customer typically 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 $18,179,000 at November 3, 2000 and
$24,980,000 at October 29, 1999.
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 are 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. A valuation allowance is
provided against deferred tax assets when it is expected that it is more likely than not, that the
related asset will not be fully realized.
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 per share is calculated based on the weighted average number of shares
outstanding 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:
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
2000 (in thousands)
1999 (in thousands)
$1,614
12,649
28,546
7,754
50,563
(31,599)
$1,087
12,511
27,761
6,940
48,299
(30,534)
$18,964
$17,765
$3,909
2,193
12,089
$3,288
1,837
11,025
$18,191
$16,150
$6,005
287
495
$6,787
$6,051
263
446
$6,760
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):
2000
1999
1998
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 (15.2 years)
Amortization of unrecognized prior service costs
958
(1,059) (990)
138
(68)
(76)
$746 $646 $568
907
1,025
(748)
(34)
(83)
(76)
34
(95)
(76)
36
36
40
Net pension cost
$617 $644 $568
The 1987 transition asset is being amortized using the straight-line method over the average
remaining service period of active plan participants at the date of adoption of the plan. At November
3, 2000, 3.93 years of amortization remained. The discount rate and expected long-term rate of
return used in determining the projected benefit obligation for fiscal years 2000, 1999 and 1998 was
7.75%. The assumed rate of future compensation increases for fiscal years 2000, 1999 and 1998
was 4%.
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:
Plan assets at fair market value
Actuarial present value of benefit obligations:
&mbsp;Accumulated benefits based on current salary
levels, including vested benefits of $13,184, $12,162
and $9,974
&mbsp;Additional benefits based on estimated future
salary levels
&mbsp;Projected benefit obligation
(in thousands)
1999
1998
2000
$15,323
$11,455
$10,622
14,166
849
12,970
946
10,502
817
15,015
13,916
11,319
Projected benefit obligation in excess of plan assets
Unrecognized prior service costs
Unrecognized gain on plan assets
308 (2,461)
233
197
(697)
247
(2,829) (2,404) (3,463)
(445)
(369)
(294)
Unrecognized net transition asset
Accrued pension cost
$(2,618) $(5,001) $(4,358)
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 2000, 1999 and 1998 was $351,000, $320,000
and $303,000, respectively. Benefits payable related to these plans and included in other non-
current liabilities in the accompanying financial statements were $4,860,000 and $4,384,000 at
November 3, 2000 and October 29, 1999, 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 $6,836,000
and $5,862,000 at November 3, 2000 and October 29, 1999, 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
amounts is generally deferred over a five-year period. The total amount payable related to this
arrangement was $5,813,000 and $5,823,000 at November 3, 2000 and October 29, 1999,
respectively. Future payments are approximately $1,776,000, $1,569,000, $1,285,000, $852,000
and $331,000 for fiscal years 2001 through 2005, respectively.
Postretirement health care benefits in the approximate amount of $340,000 and $350,000 are
included in non-current liabilities at November 3, 2000 and October 29, 1999, respectively.
The Company’s 1999 Stock Incentive Plan (“the Plan”) was approved by the Board of Directors on
January 11, 1999 and 275,000 options 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.
As of October 29, 1999, 275,000 options were outstanding at an exercise price of $10.00 per share.
No shares were exercisable at October 31, 1999. During fiscal year 2000, 25,000 options with a
weighted average exercise price of $10.00 were cancelled. As of November 3, 2000, 250,000
options were outstanding at an exercise price of $10.00 per share.
The following balances are reflected as of November 3, 2000:
Options Outstanding
Options Exercisable
Weighted
average
remaining
life
(years)
Weighted
average
exercise
price
Shares
Weighted
average
exercise
price
(years)
Exercise
price
Shares
$10
250,000
8.5
$10
94,863
$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:
November 3, 2000
October 29, 1999
Net Income
As reported
$8,766,469
As reported
$10,024,505
Pro forma
$8,505,838
Pro forma
$9,845,208
Basic Earning Per Share As reported
Pro forma
$.80
$.78
As reported
Pro forma
$.88
$.87
The fair value of compensatory stock options was estimated using the Black-Scholes option pricing
model using the following weighted average assumptions:
October 29, 1999
Risk-free interest rate
Expected years until exercise
Expected stock volatility
Expected dividends
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
2000
1999
1998
$4,060
819
$6,034
1,172
$5,241
964
4,879
7,206
6,205
444
51
(867)
(194)
495
(1,061)
(735)
(125)
(860)
$5,374
$6,145
$5,345
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
2000
1999
1998
$4,808
$5,498
$4,782
596
521
518
45
$5,374 $6,145 $5,345
51
45
Deferred income taxes result from differences in the bases of assets and liabilities for tax and
accounting purposes. (in thousands)
Receivables allowance
Inventory capitalization
2000
1999
$284
387
$263
367
Deferred compensation
Franchise tax
Employee benefits
Other
Current tax assets, net
Deferred compensation
Pension and health care benefits
Depreciation
Non-current tax assets, net
590
148
903
126
2,438
1,649
3,192
(1,060)
3,781
478
183
853
(36)
2,108
1,673
3,951
(1,018)
4,606
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, 2002. At any time prior to May 2002, the Company may convert
borrowings, if any, into a three-year term loan with principal and interest payable monthly
commencing May 31, 2002. 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 2006.
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 in fiscal years 2000 and 1999 and $316,000 in 1998, respectively.
Contingent payments were $110,000, $102,000, and $105,000 in fiscal years 2000, 1999, and
1998, respectively. Future minimum lease payments are approximately $340,000 in the years 2000
through 2004 and $270,000 in 2005 and $20,000 in 2006.
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 November 3, 2000 and
October 29, 1999, and the results of their operations and their cash flows for each of the three years
in the period ended November 3, 2000, 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.
Orange County. California
December 22, 2000