BRIDGFORD FOODS CORP - Quarter Report: 2011 July (Form 10-Q)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549
FORM 10-Q
(Mark one)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES AND EXCHANGE ACT OF 1934
For the quarterly period ended July 8, 2011
OR
[   ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to ___________.
Commission file number                                     0-2396

BRIDGFORD FOODS CORPORATION

(Exact name of Registrant as specified in its charter)

California	95-1778176
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	identification number)

1308 N. Patt Street, Anaheim, CA  92801

(Address of principal executive offices-Zip code)

714-526-5533

(Registrant's telephone number, including area code)

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 [   ]

Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes   [ X ]                  No [   ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer [   ]	Accelerated filer [   ]
Non-accelerated filer [   ]   (Do not check if smaller reporting company)	Smaller reporting company [ X ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes   [   ]                  No [ X ]

As of August 18, 2011 the registrant had 9,207,061 shares of common stock outstanding.

BRIDGFORD FOODS CORPORATION

FORM 10-Q QUARTERLY REPORT

INDEX

References to "Bridgford Foods" or the "Company" contained in this Quarterly Report on Form 10-Q refer to Bridgford Foods Corporation.

Part I.  Financial Information

Item 1.  Financial Statements

Page

a. Condensed Consolidated Balance Sheets at July 8, 2011 (unaudited) and October 29, 2010

3

b. Condensed Consolidated Statements of Operations for the twelve and thirty-six weeks ended July 8, 2011 and July 9, 2010 (unaudited)

4

c. Condensed Consolidated Statements of Cash Flows for the thirty-six weeks ended July 8, 2011 and July 9, 2010 (unaudited)

5

d. Notes to Condensed Consolidated Financial Statements (unaudited)

6

Item 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations

11

Item 3.  Quantitative and Qualitative Disclosures about Market Risk

22

Item 4.  Controls and Procedures

22

Part II.  Other Information

Item 1A.  Risk Factors

23

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds

23

Item 6.  Exhibits

24

Signatures

25

Items 1, 3 and 5 of Part II have been omitted because they are not applicable with respect to the current reporting period.

ASSETS		July 8, 2011				October 29, 2010
		(Unaudited)
Current assets:
Cash and cash equivalents		$	8,657			$	15,686
Accounts receivable, less allowance for doubtful accounts of $68 and $80, respectively, and promotional allowances of $2,141 and $1,932, respectively			9,006				7,609
Inventories, less inventory reserves of $322 and $166, respectively (Note 2)			18,033				16,307
Prepaid expenses and other current assets			2,464				1,885
Total current assets			38,160				41,487
Property, plant and equipment, less accumulated depreciation of $56,743 and $56,007, respectively			8,158				7,892
Other non-current assets			11,813				11,144
Total assets		$	58,131			$	60,523
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable		$	3,207			$	3,364
Accrued payroll, advertising and other expenses			8,562				8,287
Total current liabilities			11,769				11,651
Non-current liabilities			11,424				12,672
Total liabilities			23,193				24,323
Commitments and contingencies (Note 3)
Shareholders' equity:
Preferred stock, without par value; authorized - 1,000 shares; issued and outstanding - none
Common stock, $1.00 par value; authorized - 20,000 shares; issued and outstanding – 9,237 and 9,328 shares, respectively			9,294				9,385
Capital in excess of par value			9,612				10,396
Retained earnings			24,084				24,471
Accumulated other comprehensive loss			(8,052	)			(8,052	)
Total shareholders' equity			34,938				36,200
Total liabilities and shareholders' equity		$	58,131			$	60,523

		12 weeks ended								36 weeks ended
		July 8, 2011				July 9, 2010				July 8, 2011				July 9, 2010
Net sales		$	26,611			$	26,933			$	80,598			$	83,012
Cost of products sold			18,412				17,089				54,132				49,229
Gross margin			8,199				9,844				26,466				33,783
Selling, general and administrative expenses			8,782				9,806				26,424				29,730
(Loss) income before taxes			(583	)			38				42				4,053
Income tax (benefit) provision			(106	)			799				(503	)			1,499
Net (loss) income		$	(477	)		$	(761	)		$	545			$	2,554
Net (loss) income per share – Basic and diluted		$	(.05	)		$	(.08	)		$	.06			$	.27
Weighted average common shares – Basic and diluted			9,289				9,330				9,310				9,336
Cash dividends paid per share		$	--			$	--			$	.10			$	.10

		36 weeks ended
		July 8, 2011				July 9, 2010
Cash flows from operating activities:
Net income		$	545			$	2,554
Income or charges not affecting cash and cash equivalents:
Depreciation			1,286				1,508
Losses (recoveries) on accounts receivable			75				(100	)
Gain on sale of property, plant and equipment			(42	)			(25	)
Effect on cash and cash equivalents from changes in operating assets and liabilities:
Accounts receivable			(1,472	)			(565	)
Inventories			(1,726	)			1,289
Prepaid expenses and other current assets			(579	)			529
Other non-current assets			(669	)			(202	)
Accounts payable			(157	)			(489	)
Accrued payroll, advertising and other expenses			275				(712	)
Non-current liabilities			(1,248	)			433
Net cash (used in) provided by operating activities			(3,712)				4,220
Cash used in investing activities:
Proceeds from sale of property, plant and equipment			42				25
Additions to property, plant and equipment			(1,552	)			(853	)
Net cash used in investing activities			(1,510	)			(828	)
Cash used in financing activities:
Shares repurchased			(875	)			(253	)
Cash dividends paid			(932	)			(933	)
Net cash used in financing activities			(1,807	)			(1,186	)
Net (decrease) increase in cash and cash equivalents			(7,029	)			2,206
Cash and cash equivalents at beginning of period			15,686				13,911
Cash and cash equivalents at end of period		$	8,657			$	16,117
Cash paid for income taxes		$	129			$	1,250

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(in thousands, except percentages, share and per share amounts)
Note 1 - Summary of Significant Accounting Policies:
The unaudited consolidated condensed financial statements of Bridgford Foods Corporation (the "Company", "we", "our", "us") for the twelve and thirty-six weeks ended July 8, 2011 and July 9, 2010 have been prepared in conformity with the accounting principles described in the Company's Annual Report on Form 10-K for the fiscal year ended October 29, 2010 (the "Annual Report") and include all adjustments considered necessary by management for a fair presentation of the interim periods.  This report should be read in conjunction with the Annual Report. Due to seasonality and other factors, interim results are not necessarily indicative of the results for the full year.  Recent accounting pronouncements and their effect on the Company are discussed in Management's Discussion and Analysis of Financial Condition and Results of Operations in this Form 10-Q.
The October 29, 2010 balance sheet within these interim condensed consolidated financial statements was derived from the audited fiscal 2010 financial statements.
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported revenues and expenses during the reporting periods. Actual results may vary from these estimates.  Some of the estimates needed to be made by management include the allowance for doubtful accounts, promotional and returns allowances, inventory reserves, the estimated useful lives of property and equipment, and the valuation allowance for the Company’s deferred tax assets. Actual results could materially differ from these estimates. Amounts estimated related to liabilities for self-insured workers’ compensation, employee healthcare and pension benefits are especially subject to inherent uncertainties and these estimated liabilities may ultimately settle at amounts which vary from our current estimates.
Financial instruments that subject the Company to credit risk consist primarily of cash and cash equivalents, accounts receivable, accounts payable and accrued payroll, advertising and other expenses.  The carrying amount of these instruments approximate fair market value due to their short term maturity.  At July 8, 2011, the Company had accounts in excess of the Federal Deposit Insurance Corporation insurance coverage limit.  The Company has not experienced any losses in these accounts and believes it is not exposed to any significant credit risk on cash and cash equivalents.  The Company issues credit to a significant number of customers that are diversified over a wide geographic area.  The Company monitors the payment histories of its customers and maintains an allowance for doubtful accounts which is reviewed for adequacy on a quarterly basis.  The Company does not require collateral from its customers.
For the thirty-six weeks ended July 8, 2011 and July 9, 2010, Dollar General® accounted for 9.1% and 10.4%, respectively of consolidated revenues and 23.6% and 32.6%, respectively, of consolidated accounts receivable.  For the thirty-six weeks ended July 9, 2010, Wal-Mart® accounted for 14.4% of consolidated revenues and 9.4% of consolidated accounts receivable. No other customer accounted for more than 20% of consolidated accounts receivable or 10% of consolidated revenues for the thirty-six weeks ended July 8, 2011 or the thirty-six weeks ended July 9, 2010.
On November 10, 2010, Bridgford Foods Corporation issued a press release announcing that its Board of Directors had approved a one-time cash dividend of $0.10 per share of common stock which was distributed on December 20, 2010 to shareholders of record on November 23, 2010.
Management has evaluated events subsequent to July 8, 2011 through the date that the accompanying condensed consolidated financial statements were filed with the Securities and Exchange Commission for transactions and other events which may require adjustments of and/or disclosure in such financial statements. Future periods relating to current market conditions and volatility in stock markets may cause changes in the measurement of our pension fund liabilities and performance of our life insurance policies and those changes may be significant.

 

Note 2 - Inventories:
Inventories are comprised of the following at the respective period ends:

		(unaudited)
		July 8, 2011				October 29, 2010
Meat, ingredients and supplies		$	6,819			$	3,155
Work in progress			1,160				1,192
Finished goods			10,054				11,960
		$	18,033			$	16,307

Inventories are valued at the lower of cost (which approximates actual cost on a first-in, first-out basis) or market. Costs related to warehousing, transportation and distribution to customers are considered when computing market value. Inventories include the cost of ingredients, labor and manufacturing overhead. We regularly review inventory quantities on hand and write down any excess or obsolete inventories to estimated net realizable value. An inventory reserve is created when potentially slow-moving or obsolete inventories are identified in order to reflect the appropriate inventory value. Changes in economic conditions, production requirements, and lower than expected customer demand could result in additional obsolete or slow-moving inventory that cannot be sold or may need to be sold at reduced prices and could result in additional reserve provisions.

 

Note 3 - Commitments and Contingencies:
The Company leases certain transportation equipment under operating leases.  The terms of the transportation leases provide for renewal options and contingent rental payments based upon mileage and adjustments of rental payments based on the Consumer Price Index.  The Company also leases warehouse and/or office facilities throughout the United States and Canada through month-to-month rental agreements.  No material changes have been made to these agreements during the first thirty-six weeks of fiscal 2011.
The Company is involved in various claims and legal actions arising in the ordinary course of business.  In the opinion of management, the ultimate disposition of these matters is not expected to have a material adverse effect on the Company’s consolidated financial position or results of operations.
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 price increases if agreed quantities are not purchased within the specified contract period. No significant contracts remained unfulfilled at July 8, 2011.

Note 4 - Segment Information:
The Company has two reportable operating segments, Frozen Food Products (the processing and distribution of frozen products) and Refrigerated and Snack Food Products (the processing and distribution of refrigerated meat and other convenience foods).
We evaluate each segment's performance based on revenues and operating income. Selling, general and administrative expenses include corporate accounting, information systems, human resource management and marketing, which are managed at the corporate level. These activities are allocated to each operating segment based on revenues and/or actual usage.
The following segment information is presented for the twelve and thirty-six weeks ended July 8, 2011 and July 9, 2010.

Twelve Weeks Ended		Frozen Food				Refrigerated and Snack Food
July 8, 2011		Products				Products				Other				Elimination				Totals
Sales to external customers		$	10,993			$	15,618			$	-			$	-			$	26,611
Intersegment sales			-				254				-				254				-
Net sales			10,993				15,872				-				254				26,611
Cost of products sold			7,041				11,625				-				254				18,412
Gross margin			3,952				4,247				-				-				8,199
Selling, general and administrative expenses			3,790				4,980				12				-				8,782
Income (loss) before taxes			162				(733	)			(12	)			-				(583	)
Total assets		$	10,424			$	25,476			$	22,231			$	-			$	58,131
Additions to property, plant and equipment		$	472			$	423			$	-			$	-			$	895

Twelve Weeks Ended		Frozen Food				Refrigerated and Snack Food
July 9, 2010		Products				Products				Other				Elimination				Totals
Sales to external customers		$	11,001			$	15,932			$	-			$	-			$	26,933
Intersegment sales			-				322				-				322				-
Net sales			11,001				16,254				-				322				26,933
Cost of products sold			6,657				10,754				-				322				17,089
Gross margin			4,344				5,500				-				-				9,844
Selling, general and administrative expenses			4,072				5,719				15				-				9,806
Income (loss) before taxes			272				(219	)			(15	)			-				38
Total assets		$	10,627			$	22,201			$	26,671			$	-			$	59,499
Additions to property, plant and equipment		$	78			$	123			$	-			$	-			$	201

Thirty-Six Weeks Ended		Frozen Food				Refrigerated and Snack Food
July 8, 2011		Products				Products				Other				Elimination				Totals
Sales to external customers		$	37,378			$	43,220			$	-			$	-			$	80,598
Intersegment sales			-				767				-				767				-
Net sales			37,378				43,987				-				767				80,598
Cost of products sold			23,130				31,769				-				767				54,132
Gross margin			14,248				12,218				-				-				26,466
Selling, general and administrative expenses			11,517				14,911				(4	)			-				26,424
Income (loss) before taxes			2,731				(2,693	)			4				-				42
Total assets		$	10,424			$	25,476			$	22,231			$	-			$	58,131
Additions to property, plant and equipment		$	612			$	782			$	158			$	-			$	1,552

Thirty-Six Weeks Ended		Frozen Food				Refrigerated and Snack Food
July 9, 2010		Products				Products				Other				Elimination				Totals
Sales to external customers		$	36,613			$	46,399			$	-			$	-			$	83,012
Intersegment sales			-				859				-				859				-
Net sales			36,613				47,258				-				859				83,012
Cost of products sold			21,816				28,272				-				859				49,229
Gross margin			14,797				18,986				-				-				33,783
Selling, general and administrative expenses			11,827				17,811				92				-				29,730
Income (loss) before taxes			2,970				1,175				(92	)			-				4,053
Total assets		$	10,627			$	22,201			$	26,671			$	-			$	59,499
Additions to property, plant and equipment		$	320			$	518			$	15			$	-			$	853

Note 5 – Income Taxes:

Effective tax rate and benefit		$
Estimated state tax minimum payments			238
Estimated refund from NOL carryback			(416	)
Retroactive tax law changes reducing tax liability			(207	)
Other			(118	)
Total effective tax rate and tax benefit			(503	)

Management is required to evaluate whether a valuation allowance should be established against its deferred tax assets based on the consideration of all available evidence using a “more likely than not” standard. Realization of deferred tax assets is dependent upon taxable income in prior carryback years, estimates of future taxable income, tax planning strategies, and reversals of existing taxable temporary differences.  Management reevaluated the need for a full valuation allowance at July 8, 2011 based on both positive and negative evidence.  The weight of negative factors and level of economic uncertainty in our current business continued to support the conclusion that the realization of its deferred tax assets does not meet the more likely than not standard.  As a result of this evaluation, a full valuation allowance remained against the net deferred tax assets as of July 8, 2011. Management will continue to periodically reevaluate the valuation allowance and, to the extent that conditions change, some or all of such valuation allowance could be reversed in future periods.  The Company has established objective criteria that must be met before a release of the valuation allowance will occur.

Our federal income tax returns are open to audit under the statute of limitations for the fiscal years ended October 31, 2008 through October 29, 2010. We are subject to income tax in California and various other state taxing jurisdictions. Our state income tax returns are open to audit under the statute of limitations for the fiscal years ended November 3, 2006 through October 29, 2010.

Impact on Net Sales-Consolidated		%				$
Selling price per pound			8.5				2,527
Unit sales volume in pounds			-8.8				(2,618	)
Returns activity			-1.0				(285	)
Promotional activity			0.1				54
Decrease in net sales			-1.2				(322	)

Impact on Net Sales-Frozen Food Products		%				$
Selling price per pound			6.7				816
Unit sales volume in pounds			-7.0				(847	)
Returns activity			-0.2				(20	)
Promotional activity			0.4				43
Decrease in net sales			-0.1				(8	)

Impact on Net Sales-Refrigerated and Snack Food Products		%				$
Selling price per pound			9.8				1,712
Unit sales volume in pounds			-10.1				(1,772	)
Returns activity			-1.8				(265	)
Promotional activity			0.1				11
Decrease in net sales			-2.0				(314	)

		12 Weeks Ended								Expense/Gain
		July 8, 2011				July 9, 2010				Increase (Decrease)
Wages and bonus		$	3,159			$	3,492			$	(333	)
Cash surrender value (gain) loss			(98	)			214				(312	)
Benefits-healthcare			544				852				(308	)
Insurance and depreciation			127				315				(188	)
Fuel			685				604				81
Other SG&A			4,365				4,329				36
Total		$	8,782			$	9,806			$	(1,024	)

		July 8, 2011				July 9, 2010
Income tax (benefit) provision		$	(106	)		$	799
Effective tax rate			18.2	%			2,102.6	%

The Company expects its effective tax rate for the 2011 fiscal year to be different from the federal statutory rate due to the state tax minimum liability, a net operating loss carryback and retroactive tax law changes as described below. We recorded a benefit for income taxes in the amount of $106 for the twelve week period ended July 8, 2011 related to federal and state taxes based on the Company’s expected annual effective tax rate. Included in the benefit is a reduction in the fiscal 2010 liability.  During the first quarter of fiscal 2011, the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 was enacted into law, which allowed the Company to retroactively take additional bonus depreciation on qualified fixed asset purchases in the fourth quarter of fiscal 2010.  During preparation of the 2010 tax returns, management elected to take the additional bonus depreciation, which resulted in reduction of the estimated fiscal 2010 income tax liability.  

Impact on Net Sales-Consolidated		%				$
Selling price per pound			4.0				3,652
Unit sales volume in pounds			-6.6				(6,029	)
Promotional activity			-0.5				(342	)
Returns activity			0.2				305
Decrease in net sales			-2.9				(2,414	)

Impact on Net Sales-Frozen Food Products		%				$
Selling price per pound			4.2				1,718
Unit sales volume in pounds			-3.1				(1,247	)
Promotional activity			-0.1				(27	)
Returns activity			1.1				321
Increase in net sales			2.1				765

Impact on Net Sales-Refrigerated and Snack Food Products		%				$
Selling price per pound			3.8				1,934
Unit sales volume in pounds			-9.4				(4,782	)
Promotional activity			-1.2				(315	)
Returns activity			-0.1				(16	)
Decrease in net sales			-6.9				(3,179	)

		36 weeks Ended								Expense/Gain
		July 8, 2011				July 9, 2010				Increase (Decrease)
Wages and bonus		$	9,969			$	11,650			$	(1,681	)
Benefits-healthcare			1,619				2,166				(547	)
Cash surrender value (gain)			(669	)			(201	)			(468	)
Insurance and depreciation			505				960				(455	)
Losses (recoveries) on accounts receivable			75				(100	)			175
Other SG&A			14,925				15,255				(330	)
Total		$	26,424			$	29,730			$	(3,306	)