BRIDGFORD FOODS CORP - Quarter Report: 2011 April (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 April 15, 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   [   ]                  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 May 25, 2011 the registrant had 9,296,362 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 April 15, 2011 (unaudited) and October 29, 2010

3

b. Condensed Consolidated Statements of Operations for the twelve and twenty-four weeks ended April 15, 2011 and April 16, 2010 (unaudited)

4

c. Condensed Consolidated Statements of Cash Flows for the twenty-four weeks ended April 15, 2011 and April 16, 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

21

Item 4.  Controls and Procedures

21

Part II.  Other Information

Item 1A.  Risk Factors

22

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

22

Item 6.  Exhibits

23

Signatures

24

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

 

ASSETS		April 15, 2011				October 29, 2010
		(Unaudited)
Current assets:
Cash and cash equivalents		$	10,644			$	15,686
Accounts receivable, less allowance for doubtful accounts of $57
and $80, respectively, and promotional allowances of $1,725
and $1,932, respectively			8,880				7,609
Inventories, less inventory reserves of $161 and $166, respectively (Note 2)			18,278				16,307
Prepaid expenses and other current assets			2,594				1,885
Total current assets			40,396				41,487
Property, plant and equipment, less accumulated depreciation of $56,489
and $56,007, respectively			7,619				7,892
Other non-current assets			11,715				11,144
Total assets		$	59,730			$	60,523
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable		$	3,819			$	3,364
Accrued payroll, advertising and other expenses			7,778				8,287
Total current liabilities			11,597				11,651
Non-current liabilities			12,073				12,672
Total liabilities			23,670				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 – 9,308 and 9,328 shares, respectively			9,365				9,385
Capital in excess of par value			10,187				10,396
Retained earnings			24,560				24,471
Accumulated other comprehensive loss			(8,052	)			(8,052	)
Shareholders' equity			36,060				36,200
Liabilities and shareholders' equity		$	59,730			$	60,523

 

		12 weeks ended								24 weeks ended
		April 15, 2011				April 16, 2010				April 15, 2011				April 16, 2010
Net sales		$	25,178			$	26,831			$	53,987			$	56,079
Cost of products sold			16,720				15,063				35,720				32,140
Gross margin			8,458				11,768				18,267				23,939
Selling, general and administrative expenses			8,602				9,513				17,642				19,924
(Loss) income before taxes			(144	)			2,255				625				4,015
Income tax (benefit) provision			--				350				(397	)			700
Net (loss) income		$	(144	)		$	1,905			$	1,022			$	3,315
Net (loss) income per share		$	(0.02	)		$	0.20			$	0.11			$	0.35
Weighted average common shares			9,316				9,334				9,320				9,339
Cash dividends paid per share		$	--			$	--			$	0.10			$	0.10

		24 weeks ended
		April 15, 2011				April 16, 2010
Cash flows from operating activities:
Net income		$	1,022			$	3,315
Income or charges not affecting cash and cash equivalents:
Depreciation			929				1,123
Losses (recoveries) on accounts receivable			77				(92	)
Gain on sale of property, plant and equipment			(35	)			(11	)
Effect on cash and cash equivalents from changes in operating assets and liabilities:
Accounts receivable			(1,348	)			1,621
Inventories			(1,971	)			1,625
Prepaid expenses and other current assets			(709	)			(257	)
Other non-current assets			(571	)			(415	)
Accounts payable			455				(1,339	)
Accrued payroll, advertising and other expenses			(509	)			(961	)
Non-current liabilities			(599	)			261
Net cash (used in) provided by operating activities			(3,259	)			4,870
Cash used in investing activities:
Proceeds from sale of property, plant and equipment			35				11
Additions to property, plant and equipment			(657	)			(651	)
Net cash used in investing activities			(622	)			(640	)
Cash used in financing activities:
Shares repurchased			(229	)			(253	)
Cash dividends paid			(932	)			(933	)
Net cash used in financing activities			(1,161	)			(1,186	)
Net (decrease) increase in cash and cash equivalents			(5,042	)			3,044
Cash and cash equivalents at beginning of period			15,686				13,911
Cash and cash equivalents at end of period		$	10,644			$	16,955
Cash paid for income taxes		$	91			$	1,113

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 twenty-four weeks ended April 15, 2011 and April 16, 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.  New 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 the short maturity of these instruments.  At April 15, 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 twenty-four weeks ended April 15, 2011, Dollar General® accounted for 8.5% of consolidated revenues and 25.4% of consolidated accounts receivable.  For the twenty-four weeks ended April 16, 2010, Wal-Mart® accounted for 11.8% of consolidated revenues and 15.8% of consolidated accounts receivable.
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.

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

		(unaudited)
		April 15, 2011				October 29, 2010
Meat, ingredients
and supplies		$	6,654			$	3,155
Work in progress			1,312				1,192
Finished goods			10,312				11,960
		$	18,278			$	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 twenty-four 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 April 15, 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 twenty-four weeks ended April 15, 2011 and April 16, 2010.

 

Note 5 – Income Taxes:

Effective tax rate and benefit		%				$
Estimated state tax minimum payments			33.7				210
Estimated refund from NOL carryback			-94.3				(588	)
R&D tax credit			-3.0				(19	)
Total effective tax rate and tax benefit			-63.6				(397	)

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 April 15, 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 April 15, 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.

During the year ended October 29, 2010, the Internal Revenue Service settled its audit of our U.S. federal income tax returns for fiscal years ended November 1, 2002, October 31, 2003, November 3, 2006 and November 2, 2007. This settlement resulted in the reversal of $35 of unrecognized tax benefits associated with R&D credits we reported, which increased our tax expense by $5.  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.

We do not anticipate a significant change to the total amount of unrecognized tax benefits within the next 12 months.

Impact on Net Sales-Consolidated		%				$
Selling price per pound			3.5				1,018
Unit sales volume in pounds			-7.3				(2,159	)
Promotional activity			-0.7				(121	)
Returns activity			-1.7				(391	)
Decrease in net sales			-6.2				(1,653	)

Impact on Net Sales-Frozen Food Products		%				$
Selling price per pound			4.1				595
Unit sales volume in pounds			-9.6				(1,399	)
Promotional activity			-0.2				(16	)
Returns activity			-1.7				(177	)
Decrease in net sales			-7.4				(997	)

 

Impact on Net Sales-Refrigerated and Snack Food		%				$
Selling price per pound			2.9				424
Unit sales volume in pounds			-5.1				(759	)
Promotional activity			-1.2				(105	)
Returns activity			-1.5				(216	)
Decrease in net sales			-4.9				(656	)

		12 Weeks Ended								Expense/Gain
		April 15, 2011				April 16, 2010				Increase (Decrease)
Wages and bonus		$	3,187			$	3,923			$	(736	)
Healthcare			493				663				(170	)
Fuel			1,360				1,214				146
Depreciation			239				343				(104	)
Other SG&A combined			3,323				3,370				(47	)
Total		$	8,602			$	9,513			$	(911	)

		April 15, 2011				April 16, 2010
Income tax provision		$	-			$	350
Effective tax rate			-				15.5	%

Impact on Net Sales-Consolidated		%				$
Selling price per pound			1.8				1,089
Unit sales volume in pounds			-5.4				(3,375	)
Promotional activity			-0.2				(57	)
Returns activity			0.1				251
Decrease in net sales			-3.7				(2,092	)

Impact on Net Sales-Frozen Food Products		%				$
Selling price per pound			3.0				875
Unit sales volume in pounds			-1.3				(374	)
Promotional activity			0.0				(7	)
Returns activity			1.3				279
Increase in net sales			3.0				773

Impact on Net Sales-Refrigerated and Snack Food		%				$
Selling price per pound			0.6				214
Unit sales volume in pounds			-9.0				(3,001	)
Promotional activity			-0.8				(50	)
Returns activity			-0.2				(28	)
Decrease in net sales			-9.4				(2,865	)