BRIDGFORD FOODS CORP - Quarter Report: 2003 January (Form 10-Q)

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SECURITIES AND EXCHANGE COMMISSION

For the quarterly period ended January 24, 2003

OR

[   ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from

BRIDGFORD FOODS CORPORATION

1308 N. Patt Street, Anaheim, CA 92801

714-526-5533

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months ( or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes    [ X ]       No   [   ]

As of March 10, 2003 the registrant had 10,448,000 shares of common stock outstanding.

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of The Exchange Act).

Yes    [   ]       No   [ X ]

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BRIDGFORD FOODS CORPORATION

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Part I. Financial Information

BRIDGFORD FOODS CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS

See accompanying notes to consolidated condensed financial statements.

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BRIDGFORD FOODS CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited)

CONSOLIDATED CONDENSED STATEMENTS OF SHAREHOLDERS’ EQUITY
(Unaudited)
(in thousands, except per share amounts)

See accompanying notes to consolidated condensed financial statements.

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BRIDGFORD FOODS CORPORATION

See accompanying notes to consolidated condensed financial statements.

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Item 1.d.

BRIDGFORD FOODS CORPORATION

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

Note 1 - General Comments

     The unaudited consolidated condensed financial statements of Bridgford Foods Corporation (the “Company”) for the twelve weeks ended January 24, 2003 and thirteen weeks ended February 1, 2002 have been prepared in conformity with the accounting principles described in the 2002 Annual Report to Shareholders and include all adjustments considered necessary by management for a fair statement of the interim periods. Such adjustments consist only of normal recurring items. This report should be read in conjunction with the Company’s 2002 Annual Report to Shareholders.

     The Company has historically reported quarterly results to reflect fiscal quarters of 13 weeks in length. Starting with its 2003 fiscal year, the Company is changing its quarterly fiscal reporting periods to report results after 12, 24, 36 and 52 week periods (or 53 weeks as applicable). The Company changed its quarterly reporting periods during the fiscal year to align reported periods with its internal financial systems and provide more meaningful comparison with its peer group companies.

     The provision for losses on accounts receivable is based on historical trends and current collectibility risk. Losses due to credit risk have been immaterial prior to the fiscal year 2002.

     Revenues are recognized upon passage of title to the customer typically upon product shipment or delivery to customers.

     The company implemented EITF 01-09, “Accounting Considerations Given by a Vendor to a Customer” in fiscal year 2002. As a result, certain items previously recorded in Selling, General and Administrative Expenses have been reclassified against Net Sales and in Cost of Products Sold in the accompanying Statements. All prior periods have been retroactively reclassified to give effect to this requirement.

Note 2 - Inventories

     Inventories are comprised as follows at the respective periods:

Note 3 - Basic and diluted earnings per share

The difference between the calculation of basic and diluted shares outstanding for the twelve week period ended January 24, 2003 was a result of the dilutive effect of employee stock options totaling 250,000 shares. The effect of the employee stock options outstanding for the twelve weeks ended January 24, 2003 was not included in the calculation of diluted shares and diluted earnings per share as to do so would be antidilutive.

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Item 2.

Certain statements in this Form 10-Q under Item 2., “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this Form 10-Q constitute “forward-looking statements” within the meaning of the Securities Act of 1933 and the Securities Exchange Act of 1934. In addition, the Company may from time to time make oral forward-looking statements. 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 Form 10-Q and in Bridgford Foods Corporation’s Annual Report on Form 10-K for the fiscal year ended November 1, 2002. Because of these and other factors that may affect the Company’s operating results, past financial performance should not be considered an indicator of future performance, and investors should not use historical trends to anticipate results or trends in future periods.

Management’s Discussion and Analysis of Financial
Condition and Results of Operations

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. Amounts estimated related to liabilities for self-insured Workers’ Compensation and Employee Healthcare are especially subject to inherent uncertainties and these estimated liabilities may ultimately settle at amounts not originally estimated. Management believes its current estimates are reasonable and based on the best information available at the time. The Company’s credit risk is diversified across a broad range of customers and geographic regions. Losses due to credit risk have historically been immaterial although losses in fiscal year 2002 were significant. The provision for losses on accounts receivable is based on historical trends and current collectibility risk. The Company has significant amounts receivable with a few large, well known customers which, although historically secure, could be subject to material risk should these customers’ operations suddenly deteriorate. The Company monitors these customers closely to minimize the risk of loss. One customer comprised 12.5% of revenues in fiscal year 2002.

Revenues are recognized upon passage of title to the customer typically upon product shipment or delivery to customers. Products are delivered to customers through its own fleet or through a company owned Direct Store Delivery System.

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 Company has historically reported quarterly results to reflect fiscal quarters of 13 weeks in length. Starting with its 2003 fiscal year, the Company is changing its quarterly fiscal reporting periods to report results after 12, 24, 36 and 52 week periods (or 53 weeks as applicable). The Company changed its quarterly reporting periods during the fiscal year to align reported periods with its internal financial systems and provide more meaningful comparison with its peer group companies.

Net Sales, as reclassified, decreased by $5,778,000 (15.1%) to $32,445,000 in the first twelve weeks of the 2003 fiscal year compared to the 13 week period last year. Compared to the prior thirteen-week period, sales decreased $1,829,000 (5.3%). Including the additional week in the prior period sales comparison, contributes an additional decrease of $2,636,000 (7.9%) in sales. All segments of the Company’s business continued to be adversely affected by the recession with unit sales volumes declining significantly compared to the first thirteen weeks of 2002. Since the prior year comparison period contains one more week than the current reporting period, $2,948,000 (7.1%) of the decline in sales results relates to the Company’s change in reporting periods. Sales to a significant customer who declared bankruptcy in the first quarter of last year declined $1.7 million during the first twelve weeks of 2002 compared to the prior year. Sales compared to the prior thirteen-week period ended November 1, 2002 (not shown) decreased due to normal seasonal trends.

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Management’s Discussion and Analysis of Financial
Condition and Results of Operations (continued)

Cost of products sold decreased by $2,063,000 (8.9%) in the first twelve weeks of the 2003 fiscal year to $21,158,000 compared to the 13 week period in 2002. The decrease in cost of sales relates primarily to the lower sales volumes noted above. Since the prior year comparison period contains one more week than the current reporting period, $1,786,000 (7.6%) of the decrease relates to the Company’s change in reporting periods. Compared to the prior thirteen-week period (not shown), the cost of products sold increased $1,507,000 (6.7%). The additional week included in the comparison period resulted in an increase in cost of products sold of $1,743,000 (7.8%). More favorable flour commodity costs in the first 12 weeks of 2003 compared to the prior thirteen week period contributed to a slight improvement in margins.

Selling, general and administrative expenses decreased by $849,000 (7.5%) to $10,542,000 in the first twelve weeks of 2003 compared to the 13 week period last year. This decrease relates to a recent increase in costs for employee healthcare, workers’ compensation, property & liability insurance, fuel and vehicle repair costs and pension expense. Including the extra week in the comparison period results in an additional increase in selling expense of $876,000 (7.7%). Compared to the prior thirteen-week period (not shown), selling, general and administrative expenses decreased by $2,109,000 (16.7%). The additional week included in the comparison period, resulted in a decrease in selling, general and administrative expenses of $973,000 (7.0%). The decrease relates primarily to a significant decrease in the provision for losses on accounts receivable compared to the prior quarter.

Depreciation expense decreased by $115,000 (10.4%) in the first twelve weeks of the 2003 fiscal year compared to the 13 week period in 2002. The additional week included in the comparison period results in an additional decrease in depreciation expense of $85,000 (7.4%). Depreciation expense increased $78,000 (8.5%) in the first twelve weeks of fiscal 2003 compared to the prior fiscal thirteen-week period (not shown). The additional week included in the comparison period, resulted in an increase of $70,000 (9.0%) in depreciation expense. The effective income tax rate was 38.0% in the first twelve weeks of fiscal 2003, consistent with the prior fiscal year and the prior twelve-week period.

Cash and cash equivalents increased by $2,021,000 (19.6%) to $12,326,000 during the first twelve weeks of the 2003 fiscal year. The principal items favorably affecting the $3,209,000 net cash provided by operating activities were a reduction in inventory of $4,293,000 and depreciation of $991,000 offset by a net loss of $153,000, an increase in accounts receivable of $305,000 and a reduction in non-current liabilities of $914,000.

Cash used in investing activities for the first twelve weeks of fiscal 2003 consisted of $666,000 in additions to property, plant and equipment. This amount reflects the Company’s continued investment in processing, transportation and information technology equipment.

Cash used for financing activities consisted of cash dividends in the amount of $522,000 and $731,000, respectively, in the first twelve weeks of fiscal year 2003 and thirteen weeks of fiscal year 2002, respectively. No change in the results from financing activities occurs by including one more week in the comparison period. The decline in cash dividends reflects the decrease in dividends per share from $0.07 to $0.05 per share.

The Company remained free of interest bearing debt during the first twelve weeks of 2003. The Company’s revolving line of credit with Bank of America expires April 30, 2004 and provides for borrowings up to $2,000,000. The Company has not borrowed under this line for more than sixteen consecutive years.

The impact of inflation on the Company’s financial position and results of operations has not been significant. 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.

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Proforma Comparative Results

     The Company changed its quarterly reporting periods during fiscal year to align reported periods with its internal financial systems and provide more meaningful comparisons with its peer group companies. The Company will begin reporting “quarterly” results after 12, 24, 36 and 52 (or 53 week) periods.

The following table reflects proforma comparative income statement information using the new reporting periods.

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

The Company does not have significant domestic or foreign currency exposure at January 24, 2003. The Company’s financial instruments consist of cash and cash equivalents and life insurance policies at January 24, 2003. The carrying value of the Company’s financial instruments approximated their fair market values based on current market prices and rates. It is not the Company’s policy to enter into derivative financial instruments.

The Company purchases bulk flour under short-term fixed price contracts during the normal course of business. Under these arrangements, the Company is obligated to purchase specific quantities at fixed prices, within the specified contract period. These contracts provide for automatic prices increases if agreed quantities are not delivered.

Item 4. Controls and Procedures.

(a)  Evaluation of Controls and Procedures

The Company’s Chairman and President have concluded, based on their evaluation of a date within 90 days prior to the date of the filing of this quarterly report on Form 10-Q, that the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed in the Company’s reports filed or submitted by the Company under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and include controls and procedures designed to ensure that information required to be disclosed by the Company in such reports is accumulated and communicated to the Company’s management, including its Chairman and President, as appropriate to allow timely decisions regarding required disclosures.

(b)  Change in Internal Controls

There have not been any significant changes in the Company’s internal controls or in other factors that could significantly affect such controls subsequent to the date of such evaluation.

Part II. Other Information

Item 6. Exhibits and Reports on Form 8-K

A.  Exhibits

* Compensation plan, contract or arrangement required to be filed as an exhibit pursuant to applicable rules of the Securities and Exchange Commission.

B.  Reports on Form 8-K

The registrant did not file any reports on Form 8-K during the three months ended January 24, 2003.

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SIGNATURES

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Certifications

I, Allan L. Bridgford, certify that:

Dated: March 10, 2003

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I, Robert E. Schulze, certify that:

Dated: March 10, 2003

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EXHIBIT INDEX

* Compensation plan, contract or arrangement required to be filed as an exhibit pursuant to applicable rules of the Securities and Exchange Commission.

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