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
38,000 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 20,000 retail outlets and
23,000 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:
2001 2000 1999 1998 1997
Products manufactured or processed by
the Company
Products manufactured or processed by
others
69
31
68
69
76
82
32
31
24
18
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
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
February 2, 2001
May 4, 2001
13
13
13
12
11.88
12.80
August 3, 2001
13.85
12.23
November 2, 2001
14.25
12.45
$.07
$.07
$.07
$.07
$.07
$.07
$.07
$.07
ANNUAL SHAREHOLDERS MEETING
The 2002 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 13, 2002.
TO OUR SHAREHOLDERS:
2001 was a challenging year for Bridgford Foods. Our business was adversely affected by the recession and the
tragic events of September 11. Sales reached a record level in 2001, but profits were down substantially
compared to the prior year. Meat raw materials, energy and fuel costs were higher than anticipated for most of
fiscal 2001, while competition was especially strong in the food service area and the meat snack business.
SALES AND EARNINGS
Sales totaled $156,361,000 in the 52 week 2001 fiscal year, a slight gain over sales in the 53 week 2000 year.
This was our sixteenth consecutive year of record high sales.
Beef Jerky sales continued strong while new single – serve portions of Kippered Beef Steaks, Beef & Cheese
Sticks, Spicy Beef Sticks, and Red Hot Pickled Sausages were added to our meat snack line. New “Club Pack
Biscuits” and “Club Pack Bake & Serve Rolls” were added to our frozen bakery products group in 2001.
Our direct store distribution system continued to expand in the 2001 year. We now operate 256 company
owned routes in 49 states. Net income in 2001 was $6,244,000, a 29% decline from income in the 2000 fiscal
year. Contributing to our income decline were: lower operating margins in our processed meat business due to
higher raw material costs; higher energy and fuel costs during the first three quarters; one less week of
operations than in the 53 week 2000 year; and high costs related to development of our new computer system.
Also, the year 2000 had a non-recurring gain of $675,000 from the sale of land in San Diego.
OPERATIONS
We recently completed the new freezer expansion project at our Superior Foods plant in Dallas, Texas. This
adds 750 pallet spaces to our frozen warehouse capacity. We are installing a new specialty dough product line
at our North Carolina bakery. Packaging capacity at our Chicago meat processing facility was increased and
improved in 2001. An additional high-speed packaging line will be installed during 2002 to accommodate
increased demand for Bridgford dry sausage products. The more than $4,000,000 computer hardware and
software project approved last year is now on-line at our Anaheim headquarters.
State of the art financial, cost accounting and route accounting systems should be installed during the first half
of 2002. This will provide outstanding management information systems throughout the Company.
FINANCIAL MATTERS
The Company purchased 167,041 shares of its outstanding common stock on the open market during the 2001
fiscal year at an average cost of $12.88 per share. Since the inception of the stock repurchase plan in 1999,the
Company has acquired a total of 921,541 shares at an average cost of $10.63 per share. In 2001, the Board of
Directors increased the number of shares authorized to be purchased under the plan from 1,000,000 to
1,500,000.
The annual cash dividend rate of $ .28 per share remained the same during the year, but total cash dividends
paid during 2001 were $108,000 less than the prior year due to fewer shares of common stock outstanding.
Working capital at November 2, 2001 totaled $38,025,000, a 1.2% decrease for the year. The change in
working capital primarily relates to the $4,590,000 invested in additions to property, and equipment during the
year.
The working capital ratio at year-end improved to 3.77 to 1 from 3.63 to 1 a year earlier. At November 2,
2001, the Company had $12,303,000 invested in interest-bearing securities. The Company remained debt-free
for the fifteenth consecutive year.
Shareholders’ equity increased $1,139,000 (2.0%) during the year to $57,335,000 and shareholders’ equity per
share increased 3.7% to $5.49 per share during the same period.
SUMMARY
Thank you to our officers, directors and fellow employees for their sincere and dedicated efforts in 2001.
Also, thank you to our customers and suppliers for their contributions during the 2001 year. We anticipate
improvements in sales volume and profits during 2002.
Allan L. Bridgford
Chairman
Robert E.
Schulze
President
BRIDGFORD FOODS CORPORATION FINANCIAL SUMMARY
Fiscal Year Ended
(52 weeks)
November
2
2001
(53 weeks)
November 3
2000
%
Change
Net sales
$156,361
$156,292
Income before taxes
Net income
Net income per share
Cash dividends per share
Working capital
Total assets
Shareholders' equity
10,072
6,244
.59
.28
38,025
82,338
57,335
Return on average equity
11.00%
14,140
8,766
.80
.28
38,469
82,681
56,196
15.34%
(28.8%)
(28.8%)
(26.3%)
-
(1.2%)
(.4%)
2.0%
-
SELECTED FINANCIAL DATA
November 2
2001*
November 3
2000*
October 29
1999
October 30
1998
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
$156,361,000 $156,291,805 $138,786,260 $134,815,787
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
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
8,766,469
.80
53,099,779
14,630,542
38,469,237
18,964,335
3,781,172
82,680,999
56,196,327
.28
6,244,000
.59
51,777,000
13,752,000
38,025,000
19,471,000
3,441,000
82,338,000
57,335,000
.28
* 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
2001 compared to 2000
Sales in fiscal year 2001 (52 weeks) remained essentially flat when compared to sales of the prior
year (53 weeks). Average weekly sales increased approximately 2% in fiscal 2001 compared to the
prior 53-week year. The sales increase is primarily a result of increased selling prices and changes
in product mix. Cost of products sold remained essentially flat when compared to the prior year. The
gross margin was approximately 38% in 2001, 39% in 2000 and 42% in 1999. Commodity costs
over the course of the 2001 fiscal year were generally comparable to fiscal year 2000 and higher
than the historical lows experienced during 1999. Selling, general and administrative expenses
increased $2,867 (6.7%) when compared to the prior 53-week year. Weekly average costs
increased 8.7% compared to a weekly average sales increase of only 2%. Higher costs related to
advertising and product promotions, fuel and insurance were the primary contributors to these
increases. Interest income also declined significantly which adversely impacted these costs. 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%.
2000 compared to 1999
Sales in fiscal year 2000 increased $17,506 (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 (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 (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 (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 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 (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
(in thousands)
Favorable operating results over the past several years have continued to
provide significant liquidity to the Company. Net cash provided by operating
activities was $4,308 in the 2001 fiscal year and $8,348 in 2000. Accounts
receivable balances increased $915 in 2001 due to slower collections.
Inventories increased $974 in 2001 and $2,042 in 2000 due to higher unit
quantities and values. Accounts payable and accrued expenses decreased
$1,089 in 2001 due to lower capital project levels and lower accruals due to lower
earnings. Accounts payable and accrued expenses increased $1,901 in 2000
due to higher purchasing activity to support strong fourth quarter sales.
The Company’s capital improvement expenditures remained consistent in 2001
compared to the prior year. Significant projects in process at November 2, 2001
included $1.2 million for an updated management information system, which will
be fully activated in the first half of fiscal 2002. Cash and cash equivalents
decreased $5,327 in 2001 and $6,720 in 2000 (26.9%). The decreases were
primarily a result of capital expenditures in the amounts of $4,590 and $5,124;
common stock repurchases of $2,151 and $7,643, and higher inventory and
refundable income tax balances. The Company also funded its defined benefit
pension plan in the amounts of $756 and $3,000 during fiscal years 2001 and
2000, respectively. Cash and cash equivalents increased $2,749 in 1999
(12.3%). The increase was lower than in prior years due to higher tax payments,
increased capital expenditures and higher accounts receivable and inventory
balances. The Company has remained free of interest-bearing debt for fifteen
consecutive years. Working capital decreased $5,291 (12.1%) in 2000. The
overall change in working capital in fiscal 2001 was insignificant. The decrease in
working capital in 2000 primarily resulted from the common stock
Consolidated Balance Sheets (in thousands)
ASSETS
Current assets:
Cash and cash equivalents
Accounts receivable, less allowance for doubtful
accounts of $779 and $694
Inventories
Prepaid expenses
Refundable income taxes
Deferred income taxes
Total current assets
Property, plant and equipment, net of accumulated
depreciation of $35,378 and $31,599
Other non-current assets
Deferred income tax benefits
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable
Accrued payroll and other expenses
Income taxes payable
Total current liabilities
November
2
2001
November
3
2000
$12,974
$18,301
14,282
19,165
864
2,041
2,451
13,642
18,191
528
2,438
51,777
53,100
19,471
7,649
3,441
18,964
6,836
3,781
$82,338
$82,681
November
2
2001
November
3
2000
$6,958
6,464
330
$7,723
6,788
120
13,752
14,631
Non-current liabilities
11,251
11,854
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 - $10,448 and $10,615 respectively
Capital in excess of par value
Retained earnings
10,505
17,475
29,355
10,672
19459
26,065
57,335
56,196
$82,338
$82,681
Consolidated Statements of Income (in thousands, except per share amounts)
Fiscal year ended
(52 weeks)
November
2
2001
(53 weeks)
November
3
2000
(52 weeks)
October
29
1999
Net sales
$156,361 $156,292 $138,786
Cost of products sold, excluding depreciation
Selling, general and administrative expenses
Depreciation
96,305
45,951
4,033
95,296
43,084
3,772
80,544
38,780
3,292
146,289
142,152
122,616
Income before taxes
Provision for taxes on income
10,072
3,828
14,140
5,374
16,170
6,145
Net income
$6,244
$8,766
$10,025
Net income per share
$0.59
$0.80
$0.88
Shares used to compute basic earnings per
share
Diluted earnings per share
10,538,091 10,907,701 11,369,812
$0.88
$0.59
$0.80
Shares used to compute diluted earnings per
share
10,595,091 10,926,630 11,374,714
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (in thousands)
Common stock
Shares
Amount
Capital in
excess of
par
Retained
earnings
Total
shareholder's
equity
Balance, October 30, 1998
- Net income (52 weeks)
- Cash dividends paid ($.24
per share)
Balance, October 29, 1999
- Net income (53 weeks)
- Cash dividends paid ($.28
per share)
- Shares repurchased and
retired
11,370
$11,427
$26,347
11,370
11,427
26,347
$13,068
10,025
$50,842
10,025
(2,732)
(2,732)
20,361
8,766
58,135
8,766
(3,062)
(3,062)
(755)
(755)
(6,888)
(7,643)
Balance, November 3, 2000
- Net income (52 weeks)
- Cash dividends paid ($.28
per share)
- Shares repurchased and
retired
10,615
10,672
19,4597
26,065
6,244
56,196
6,244
(2,954)
(2,954)
(167)
(167)
(1,984)
(2,151)
Balance, November 2, 2001
10,448
$10,505
$17,475
$29,355
$57,335
Consolidated Statements of Cash Flows (in thousands)
Fiscal year ended
(52 weeks)
November
2,
2001
(53 weeks)
November
3,
2000
(52
weeks)
October
29,
1999
Cash flows from operating activities:
Net income
Income charges not affecting cash:
Depreciation
Provision for losses on accounts receivable
Gain on sale of assets
$6,244
$8,766 $10,025
4,033
275
(10)
3,772
325
(609)
3,292
222
(705)
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
(915)
(974)
(336)
327
(813)
(1,089)
(1,831)
(603)
(277)
(2,042)
(259)
495
(973)
1,901
(747)
(2,004)
(1,838)
(2,083)
(35)
(1,061)
(566)
892
(723)
2,215
Net cash provided by operating activities
4,308
8,348
9,635
Cash used in investing activities:
Proceeds from sale of assets
Additions to property, plant and equipment
60
(4,590)
761
(5,124)
748
(4,902)
Net cash used in investing activities
(4,530)
(4,363)
(4,154)
Cash used in financing activities:
Shares repurchased
Cash dividends paid
(2,151)
(2,954)
(7,643)
(3,062)
(2,732)
Cash used in financing activities
Net (decrease) increase in cash and cash
equivalents
(5,105)
(10,705)
(2,732)
(5,327)
(6,720,)
2,749
Cash and cash equivalents at beginning of year
18,301
25,021
22,272
Cash and cash equivalents at end of year
Cash paid for income taxes
$12,974
$18,301
$25,021
$5,108
$5,878
$7,837
Notes to Consolidated Financial Statements
NOTE 1 - THE COMPANY AND SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (in thousands):
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 2001 and 1999 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 $12,303 at November 2, 2001 and $18,179 at November 3, 2000.
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:
2001 (in thousands)
2000 (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
$1,614
12,649
31,718
8,868
54,849
(35,378)
$1,614
12,649
28,546
7,754
50,563
(31,599)
$19,471
$18,964
$3,757
1,324
14,084
$3,909
2,193
12,089
$19,165
$18,191
$5,790
328
346
$6,464
$6,005
287
495
$6,787
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):
2001
2000
1999
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
$746 $646
$827
1,142
958
1,025
1,372 (1,059) (990)
138
(68)
(76)
36
(2,609)
(88)
(76)
(95)
(76)
40
36
36
Net pension cost
$604
$617 $644
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 2, 2001, 2.93 years of
amortization remained. The discount rate in determining the projected benefit obligation was 7% for fiscal
year 2001 and 7.75% for fiscal years 2000 and 1999. The expected long-term rate of return used in
determining the projected benefit obligation for fiscal years 2001, 2000 and 1999 was 8%. The assumed rate
of future compensation increases for fiscal years 2001, 2000 and 1999 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:
Accumulated benefits based on current salary levels,
including vested benefits of
$15,272, $13,184 and $12,162
Additional benefits based on estimated future salary
levels
Projected benefit obligation
(in thousands)
2000
2001
1999
$14,464
$15,323
$11,455
16,523
2,321
14,166
849
12,970
946
18,844
15,015
13,916
Projected benefit obligation in excess of plan assets
Unrecognized prior service costs
Unrecognized gain on plan assets
Unrecognized net transition asset
Accrued pension cost
(4,380)
162
1,972
(219)
308
197
(2,829)
(294)
(2,461)
233
(2,404)
(369)
$(2,465) $(2,618) $(5,001)
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 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 2001, 2000 and 1999 was $393,
$351 and $320 respectively. Benefits payable related to these plans and included in other non-current
liabilities in the accompanying financial statements were $5,018 and $4,860 at November 2, 2001 and
November 3, 2000, 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 $7,649 and $6,836 at November 2, 2001 and November 3, 2000,
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 $5,168 and $5,813
at November 2, 2001 and November 3, 2000, respectively. Future payments are approximately $1,730,
$1,445, $1,012, $752 and $229 for fiscal years 2002 through 2006, respectively.
Postretirement health care benefits in the approximate amount of $330 and $340 are included in non-current
liabilities at November 2, 2001 and November 3, 2000, 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:
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.
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 November 2, 2001, 250,000 options were outstanding at an
exercise price of $10.00 per share.
Options Outstanding
Options Exercisable
Weighted
average
remaining
life
Weighted
average
exercise
Weighted
average
exercise
price
Exercise
price
Shares
(years)
price
Shares
(years)
$10
250,000
7.5
$10
157,192
$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 (in thousands, except per share amounts):
2001
2000
1999
Net Income
As
reported
$6,244
As
reported
$8,766
As
reported
$10,025
Pro forma
$6,007 Pro forma
$8,506
Pro forma
$9,845
Basic Earning Per
Share
As
reported
As
reported
$.59
Pro forma
$.57 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
2001
2000
1999
$2,830
671
$4,060
819
$6,034
1,172
3,501
4,879
7,206
292
35
327
444
51
(867)
(194)
495
(1,061)
$3,828
$5,374
$6,145
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
2001
2000
1999
$3,424
$4,808
$5,498
376
28
521
45
596
51
$3,828 $5,374 $6,145
Deferred income taxes result from differences in the bases of assets and liabilities for tax and
accounting purposes. (in thousands)
Receivables allowance
$319
$284
2001
2000
Inventory capitalization
Deferred compensation
Franchise tax
Employee benefits
Other
Current tax assets, net
Deferred compensation
Pension and health care benefits
Depreciation
Non-current tax assets, net
406
614
148
862
102
387
590
148
903
126
2,451
2,438
1,408
3,198
(1,165)
1,649
3,192
(1,060)
3,441
3,781
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
through April 30, 2003. 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 $340 in
fiscal year 2001 and were $320 in fiscal years 2000 and 1999. Contingent payments were $110 in fiscal years
2001 and 2000 and $102 in fiscal year 1999. Future minimum lease payments are approximately $340 in the
years 2002 through 2004 and $270 in 2005 and $20 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 2, 2001 and November 3, 2000, and the results
of their operations and their cash flows for each of the three years in the period ended November 2, 2001, 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 21, 2001