Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
(dollars in thousands)
NOTE REGARDING FORWARD-LOOKING STATEMENTS
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 (the “Exchange Act”). 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 Quarterly Report on Form 10-Q. Assumptions relating to budgeting, marketing, and other management decisions are subjective in many respects and thus susceptible to interpretations and periodic revisions based on actual experience and business developments, the impact of which may cause us to alter our marketing, capital expenditure or other budgets, which may in turn affect our business, financial position, results of operations and cash flows. The reader is therefore cautioned not to place undue reliance on forward-looking statements contained herein and to consider other risks detailed more fully in our Annual Report on Form 10-K for the fiscal year ended October 30, 2009. We undertake no obligation to publicly release the result of any revisions to these forward-looking statements which may be made to reflect events or circumstances after the date hereof, or to reflect the occurrence of unanticipated events.
Critical Accounting Policies and Management Estimates
The preparation of consolidated financial statements in conformity with generally accepted accounting principles in the United States of America 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, 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. We record promotional and returns allowances based on recent and historical trends. Management believes its current estimates are reasonable and based on the best information available at the time.
Our credit risk is diversified across a broad range of customers and geographic regions. Losses due to credit risk have recently been immaterial. The provision for doubtful accounts receivable is based on historical trends and current collection risk. We have 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. We monitor these customers closely to minimize the risk of loss. Sales to Wal-Mart® comprised 11.8% of revenues in the first twenty-four weeks of fiscal year 2010 and 15.8% of accounts receivable was due from Wal-Mart® at April 16, 2010. In comparison, Wal-Mart® comprised 9.1% of revenues for the first twenty-four weeks of fiscal year 2009 and 15.4% of accounts receivable at the end of the second quarter of fiscal year 2009.
Revenues are recognized upon passage of title to the customer, typically upon product pick-up, shipment or delivery to customers. Products are delivered to customers primarily through our own long-haul fleet or through our own direct store delivery system. The Company also uses independent distributors to deliver products in remote geographic areas of the country. Revenues are recognized upon shipment to the distributor, net of return allowances. Historically, returns from distributors have been minimal. The distributor pays for these products in full, typically within 15 days, and such payment is not contingent upon payment from the large chain stores. As a convenience to certain large chain stores, we bill such customers on behalf of the distributors and such distributors bear the risk of loss from collection. No additional revenue is recognized in conjunction with the billing services as these services are considered perfunctory to the overall transaction.
We record the cash surrender or contract value for life insurance policies as an adjustment of premiums paid in determining the expense or income to be recognized under the contract for the period.
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. During the fourth quarter of fiscal 2008, management recorded a full valuation reserve with respect to its deferred tax assets. The determination as to whether or not a deferred tax asset can be fully realized is subject to a significant degree of judgment, based at least partially upon a projection of future taxable income, which takes into consideration past and future trends in profitability, customer demand, supply costs, and multiple other factors, none of which are predictable. The Company policy outlines measurable objective criteria that must be met before a release of the valuation allowance will occur. Due to the degree of judgment involved, actual taxable income could differ materially from management's estimates, or the timing of taxable income could be such that the net operating losses could expire prior to their utilization. Management could determine in the future that the assets are realizable, materially increasing net income in one or many periods. Following a recognition, management could again change its determination in the future, materially decreasing income.
We provide tax reserves for federal, state, local and international exposures relating to audit results, tax planning initiatives and compliance responsibilities. The development of these reserves requires judgments about tax issues, potential outcomes and timing, and is a subjective estimate. Although the outcome of these tax audits is uncertain, in management’s opinion adequate provisions for income taxes have been made for potential liabilities if any, resulting from these reviews. Actual outcomes may differ materially from these estimates.
We assess the recoverability of our long-lived assets on an annual basis or whenever adverse events or changes in circumstances or business climate indicate that expected undiscounted future cash flows related to such long-lived assets may not be sufficient to support the net book value of such assets. If undiscounted cash flows are not sufficient to support the recorded assets, we recognize an impairment to reduce the carrying value of the applicable long-lived assets to their estimated fair value.
In March 2010, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability Reconciliation Act (collectively, the “PPACA”), was signed into law. The PPACA contains provisions which may impact the Company’s accounting of other postemployment benefit (OPEB) obligations in future periods. Regulatory guidance for implementation of some of the provisions of the PPACA has not yet been established. Requirements of the law include the removal of the lifetime limits on retiree medical coverage, expanding dependent coverage to age 26 and elimination of pre-existing conditions that may impact OPEB costs. We will continue to assess the accounting implications of the PPACA and its impact on our financial position and results of operation as more legislative and interpretive guidance becomes available. The potential future effects and cost of complying with the provisions of the PPACA is not determinable at this time.
Overview of Reporting Segments
We operate in two business segments -- the processing and distribution of frozen products (the Frozen Food Products Segment), and the processing and distribution of refrigerated and snack food products, (the Refrigerated and Snack Food Products Segment). For information regarding the separate financial performance of the business segments refer to Note 4 of the Notes to the Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q. We manufacture and distribute products consisting of an extensive line of food products, including biscuits, bread dough items, roll dough items, dry sausage products, beef jerky and a variety of sandwiches and sliced luncheon meats. We purchase products for resale including a variety of jerky, cheeses, salads, party dips, Mexican foods, nuts and other delicatessen type food products.
Frozen Food Products Segment
In our Frozen Food Products Segment, we manufacture and distribute an extensive line of food products, including biscuits, bread dough items, roll dough items and sandwiches. All items within this Segment are considered similar products and have been aggregated at this level. Our frozen food division serves both food service and retail customers. We sell approximately 170 unique frozen food products through wholesalers, cooperatives and distributors to approximately 21,000 retail outlets and 22,000 restaurants and institutions.
Refrigerated and Snack Food Products Segment
In our Refrigerated and Snack Food Products Segment, we distribute both products manufactured by us and products manufactured or processed by third parties. All items within this Segment are considered similar products and have been aggregated at this level. The dry sausage division includes products such as jerky, meat snacks, sausage and pepperoni products. The deli division includes products such as ham, sandwiches, cheese, Mexican food, pastries and other delicatessen type food products. Our Refrigerated and Snack Food Products Segment sells approximately 240 different items through a direct store delivery network serving approximately 23,000 supermarkets, mass merchandise and convenience retail stores located in 49 states and Canada. These customers are comprised of large retail chains and smaller “independent” operators. Independent distributors serve approximately 2,400 customers of all types in areas impractical to serve by our Company-owned vehicles and personnel.
Results of Operations for the Twelve Weeks ended April 16, 2010 and Twelve Weeks ended April 17, 2009
(in thousands, except percentages)
Net Sales-Consolidated
Net sales increased by $1,199 (4.7%) to $26,831 in the second twelve weeks of the 2010 fiscal year compared to the same twelve-week period last year. The changes in net sales were comprised as follows:
|
Impact on Net Sales-Consolidated
|
|
|
|
|
|
|
|
Selling price per pound
|
|
|
-7.1 |
% |
|
$ |
(2,062 |
) |
|
Unit sales volume in pounds
|
|
|
9.2 |
% |
|
|
2,644 |
|
|
Promotional activity
|
|
|
1.1 |
% |
|
|
280 |
|
|
Returns activity
|
|
|
1.5 |
% |
|
|
337 |
|
|
Increase in net sales
|
|
|
4.7 |
% |
|
$ |
1,199 |
|
Compared to the prior twelve-week period ended January 22, 2010 (not shown), average weekly net sales decreased $201 (8.3%). The average selling price per pound increased 0.5% during the second twelve weeks of the 2010 fiscal year compared to the previous twelve-week period coupled with a unit sales volume increase of 0.8%. Promotional and returns activity caused an aggregate decrease of 2.5%.
Net Sales-Frozen Food Products Segment
Net sales in the Frozen Food Products Segment, excluding inter-segment sales, increased by $1,785 (15.4%) to $13,385 in the second twelve weeks of the 2010 fiscal year compared to the same twelve-week period last year. The changes in net sales were comprised as follows:
|
Impact on Net Sales-Frozen Food Products
|
|
|
|
|
|
|
|
Selling price per pound
|
|
|
-3.8 |
% |
|
$ |
(490 |
) |
|
Unit sales volume in pounds
|
|
|
14.8 |
% |
|
|
1,923 |
|
|
Promotional activity
|
|
|
3.9 |
% |
|
|
291 |
|
|
Returns activity
|
|
|
0.5 |
% |
|
|
61 |
|
|
Increase in net sales
|
|
|
15.4 |
% |
|
$ |
1,785 |
|
The slight decrease in selling price per pound was due to product mix changes and was more than off-set by increased unit volume compared to the same twelve week period in fiscal year 2009.
Net Sales-Refrigerated and Snack Food Segment
Net sales in the Refrigerated and Snack Food Products Segment, excluding inter-segment sales, decreased by $586 (4.2%) to $13,446 in the second twelve weeks of the 2010 fiscal year compared to the same twelve-week period last year. The changes in net sales were comprised as follows:
|
Impact on Net Sales-Refrigerated and Snack Food
|
|
|
|
|
|
|
|
Selling price per pound
|
|
|
-10.0 |
% |
|
$ |
(1,572 |
) |
|
Unit sales volume in pounds
|
|
|
4.6 |
% |
|
|
721 |
|
|
Promotional activity
|
|
|
-0.2 |
% |
|
|
(11 |
) |
|
Returns activity
|
|
|
1.4 |
% |
|
|
276 |
|
|
Decrease in net sales
|
|
|
-4.2 |
% |
|
$ |
(586 |
) |
The selling price per pound decreased due to product mix changes, however, this decline was partially off-set by a higher volume of pounds sold compared to the same twelve week period in fiscal year 2009.
Cost of Products Sold and Gross Margin-Consolidated
Cost of products sold decreased by $106 (0.7%) to $15,063 in the second twelve weeks of the 2010 fiscal year compared to the same twelve-week period in fiscal 2009. Cost of products sold decreased even though sales increased in the comparative twelve weeks and despite a slight increase in major flour and meat commodity costs. This decrease relates to changes in product mix and improved facility utilization compared to the comparative twelve weeks. The gross margin increased from 40.8% to 43.9% due to these factors.
Compared to the prior twelve-week period ended January 22, 2010 (not shown), the average weekly cost of products sold during the second twelve weeks of fiscal year 2010 decreased $168 (11.8%). This decrease reflects a change in product mix involving higher margin items when compared to the prior twelve-week period.
Cost of Products Sold-Frozen Food Products Segment
Cost of products sold in the Frozen Food Products Segment increased by $634 (9.1%) to $7,575 in the second twelve weeks of the 2010 fiscal year compared to the same twelve-week period in fiscal year 2009. Higher sales levels and a change in product mix contributed to this increase in the current year period. The cost of purchased flour declined approximately $122 in the second twelve weeks of fiscal 2010 compared to the prior year, which improved the gross margin earned in this Segment from 40.2% to 43.4%.
Cost of Products Sold-Refrigerated and Snack Food Segment
Cost of products sold in the Refrigerated and Snack Food Products Segment decreased by $639 (7.6%) to $7,777 in the second twelve weeks of the 2010 fiscal year compared to the same twelve-week period in fiscal year 2009. This decrease corresponds to lower sales levels and increased in-sourcing of products previously purchased from outside suppliers compared to the same twelve week period in the prior fiscal year. The cost of significant meat commodities increased approximately $181 in the second twelve weeks of fiscal 2010 compared to corresponding period in the prior year. The gross margin earned in this Segment increased from 40.8% to 43.4% due to these factors.
Selling, General and Administrative Expenses-Consolidated
Selling, general and administrative (“SG&A”) expenses increased by $140 (1.5%) to $9,513 in the second twelve weeks of fiscal year 2010 compared to the same twelve-week period in the prior fiscal year. The increase in this category for the twelve-week period ended April 16, 2010 did not correspond to the sales increase. The table below summarizes the significant expense increases and decreases included in this category:
| |
|
|
|
|
Expense/Gain
|
|
| |
|
April 16, 2010 |
|
|
April 17, 2009 |
|
|
|
Increase (Decrease)
|
|
|
Wages and bonus
|
|
$ |
3,923 |
|
|
$ |
3,701 |
|
|
$ |
222 |
|
|
Benefits-healthcare
|
|
|
662 |
|
|
|
509 |
|
|
|
153 |
|
|
Cash surrender value (gain)
|
|
|
(268 |
) |
|
|
(167 |
) |
|
|
(101 |
) |
|
Fuel
|
|
|
615 |
|
|
|
519 |
|
|
|
96 |
|
|
Other SG&A
|
|
|
4,581 |
|
|
|
4,811 |
|
|
|
(230 |
) |
|
Total
|
|
$ |
9,513 |
|
|
$ |
9,373 |
|
|
$ |
140 |
|
Although headcount decreased compared to the same period in the prior year, overall wages increased slightly due to normal wage inflation and higher profits increasing profit sharing accruals. The Company’s self-insured healthcare benefit expense was negatively impacted in the period due to negative claim trends. The cash surrender value of life insurance policies increased primarily as a result favorable trends in the market values of equities that support policy values. The increase in fuel expense was driven by per gallon fuel price increases compared to the prior year as a result of negative trends in petroleum markets. When comparing the first twelve weeks of fiscal year 2010 to the prior twelve-week period ended January 22, 2010 (not shown), average weekly SG&A decreased by $75 (8.6%) consistent with lower seasonal sales levels.
Selling, General and Administrative Expenses-Frozen Food Products Segment
SG&A expenses in the Frozen Food Products Segment increased by $77 (1.9%) to $4,027 in the second twelve weeks of fiscal year 2010 compared to the same twelve week period in the prior fiscal year. The increase in this category primarily relates to higher sales levels and changes in product mix. Increases in fuel cost, vehicle repairs and healthcare benefit expense also impacted this category.
Selling, General and Administrative Expenses-Refrigerated and Snack Food Segment
SG&A in the Refrigerated and Snack Food Products Segment increased by $66 (1.2%) to $5,448 in the second twelve weeks of fiscal year 2010 compared to the same twelve-week period in the prior fiscal year. Increases in fuel cost, in-store displays, pension and healthcare benefit expense contributed to the increase in SG&A expenses when compared to the same twelve-week period in the prior fiscal year.
Income Taxes-Consolidated
The income tax expense for the first twelve weeks ended April 16, 2010 and April 17, 2009 was as follows:
| |
|
April 16, 2010
|
|
|
April 17, 2009
|
|
|
Income tax provision
|
|
$ |
350 |
|
|
$ |
-- |
|
| |
|
|
|
|
|
|
|
|
|
Effective tax rate
|
|
|
15.5 |
% |
|
|
0.0 |
% |
We expect our effective tax rate for the 2010 fiscal year to be less than the federal statutory rate due to a full valuation allowance on all deferred tax assets. We recorded a provision for income taxes in the amount of $350 for the twelve week period ended April 16, 2010, related to federal and state taxes, based on our current projected taxable income for the year.
Net Income -Consolidated
The net income of $1,905 in the twelve weeks ended April 16, 2010 includes a non-taxable gain on life insurance policies in the amount of $268. Gains and losses on life insurance policies are dependent upon the performance of the underlying equities and future results may vary considerably.
The net income of $1,090 in the twelve weeks ended April 17, 2009 includes a non-taxable gain on life insurance policies in the amount of $167. Taxable investment income decreased on a comparative basis due to lower short-term interest rates.
Results of Operations for the Twenty-Four Weeks ended April 16, 2010 and Twenty-Four Weeks ended April 17, 2009
(in thousands, except percentages)
Net Sales-Consolidated
Net sales decreased by $1,076 (1.9%) to $56,079 in the first twenty-four weeks of the 2010 fiscal year compared to the same twenty-four-week period last year. The changes in net sales were comprised as follows:
|
Impact on Net Sales-Consolidated
|
|
|
|
|
|
|
|
Selling price per pound
|
|
|
-8.2 |
% |
|
$ |
(5,167 |
) |
|
Unit sales volume in pounds
|
|
|
6.2 |
% |
|
|
3,912 |
|
|
Promotional activity
|
|
|
-0.7 |
% |
|
|
(308 |
) |
|
Returns activity
|
|
|
0.8 |
% |
|
|
487 |
|
|
Decrease in net sales
|
|
|
-1.9 |
% |
|
$ |
(1,076 |
) |
Net Sales-Frozen Food Products Segment
Net sales in the Frozen Food Products Segment, excluding inter-segment sales, decreased by $102 (0.4%) to $25,612 in the first twenty-four weeks of the 2010 fiscal year compared to the same twelve-week period last year. The changes in net sales were comprised as follows:
|
Impact on Net Sales-Frozen Food Products
|
|
|
|
|
|
|
|
Selling price per pound
|
|
|
-3.0 |
% |
|
$ |
(870 |
) |
|
Unit sales volume in pounds
|
|
|
3.2 |
% |
|
|
930 |
|
|
Promotional activity
|
|
|
-1.0 |
% |
|
|
(250 |
) |
|
Returns activity
|
|
|
0.4 |
% |
|
|
88 |
|
|
Decrease in net sales
|
|
|
-0.4 |
% |
|
$ |
(102 |
) |
The slight decrease in selling prices per pound was due to product mix changes and was more than off-set by increased unit volume compared to the same twenty-four week period in fiscal year 2009.
Net Sales-Refrigerated and Snack Food Segment
Net sales in the Refrigerated and Snack Food Products Segment, excluding inter-segment sales, decreased by $974 (3.1%) to $30,467 in the first twenty-four weeks of the 2010 fiscal year compared to the same twenty-four-week period last year. The changes in net sales were comprised as follows:
|
Impact on Net Sales-Refrigerated and Snack Food
|
|
|
|
|
|
|
|
Selling price per pound
|
|
|
-12.4 |
% |
|
$ |
(4,297 |
) |
|
Unit sales volume in pounds
|
|
|
8.6 |
% |
|
|
2,981 |
|
|
Promotional activity
|
|
|
-0.3 |
% |
|
|
(57 |
) |
|
Returns activity
|
|
|
1.0 |
% |
|
|
399 |
|
|
Decrease in net sales
|
|
|
-3.1 |
% |
|
$ |
(974 |
) |
The selling price per pound decreased due to product mix changes, however this decline was partially off-set by a higher volume of pounds sold compared to the same twenty-four week period in fiscal year 2009.
Cost of Products Sold and Gross Margin-Consolidated
Cost of products sold decreased by $2,864 (8.2%) to $32,140 in the first twenty-four weeks of the 2010 fiscal year compared to the same twenty-four-week period in fiscal 2009. The decrease in cost of products sold relates to lower unit sales volume, increased utilization of production facilities and lower flour and meat commodity costs. The gross margin increased from 38.8% to 42.7% due to these factors.
Cost of Products Sold-Frozen Food Products Segment
Cost of products sold in the Frozen Food Products Segment decreased by $104 (0.7%) to $15,159 in the first twenty-four weeks of the 2010 fiscal year compared to the same twenty-four-week period in fiscal year 2009. Lower flour costs and lower sales levels contributed to this decrease in the current year period. The cost of purchased flour declined approximately $240 in the first twenty-four weeks of fiscal 2010 compared to same period in the prior year. The gross margin increased from 40.6% to 40.8% due to these factors.
Cost of Products Sold-Refrigerated and Snack Food Segment
Cost of products sold in the Refrigerated and Snack Food Products Segment decreased by $2,581 (12.8%) to $17,518 in the first twenty-four weeks of the 2010 fiscal year compared to the same twenty-four-week period in fiscal year 2009. This decrease corresponds to lower sales levels, increased in-sourcing of products previously purchased from outside suppliers and lower commodity costs compared to the same twenty-four week period in the prior fiscal year. The cost of significant meat commodities decreased approximately $976 in the first twenty-four weeks of fiscal 2010 compared to the same period in the prior year. The gross margin increased from 36.8% to 43.5% due to these factors.
Selling, General and Administrative Expenses-Consolidated
Selling, general and administrative (“SG&A”) expenses increased by $344 (1.8%) to $19,924 in the first twenty-four weeks of fiscal year 2010 compared to the same twenty-four-week period in the prior fiscal year. The increase in this category for the twenty-four-week period ended April 16, 2010 did not correspond to the sales decrease. The table below summarizes the significant expense increases and decreases included in this category:
| |
|
|
|
|
Expense/Gain
|
|
| |
|
April 16, 2010 |
|
|
April 17, 2009 |
|
|
Increase (Decrease) |
|
|
Cash surrender value (gain)/loss
|
|
$ |
(415 |
) |
|
$ |
73 |
|
|
$ |
(488 |
) |
|
Fuel
|
|
|
1,318 |
|
|
|
956 |
|
|
|
362 |
|
|
Wages and bonus
|
|
|
8,158 |
|
|
|
7,948 |
|
|
|
210 |
|
|
In-store displays
|
|
|
227 |
|
|
|
63 |
|
|
|
164 |
|
|
Benefits-healthcare
|
|
|
1,313 |
|
|
|
1,167 |
|
|
|
146 |
|
|
Other SG&A
|
|
|
9,323 |
|
|
|
9,373 |
|
|
|
(50 |
) |
|
Total
|
|
$ |
19,924 |
|
|
$ |
19,580 |
|
|
$ |
344 |
|
The cash surrender value of life insurance policies increased primarily as a result favorable trends in the market values of equities that support policy values. The increase in fuel expense was driven by per gallon fuel price increases compared to the prior year as a result of negative trends in petroleum markets. Although headcount decreased compared to the same period in the prior year, overall wages increased slightly due to normal wage inflation and higher profits increasing profit sharing accruals. The increase in-store displays primarily relates to the timing of Christmas holiday season product placements. The Company’s self-insured healthcare benefit expense was negatively impacted in the period due to adverse plan experience resulting in higher claim payments.
Selling, General and Administrative Expenses-Frozen Food Products Segment
SG&A expenses in the Frozen Food Products Segment decreased by $37 (0.5%) to $7,755 in the first twenty-four weeks of fiscal year 2010 compared to the same twenty-four week period in the prior fiscal year. The decline in this category primarily relates to lower sales levels and changes in product mix. Offsetting increases in fuel, vehicle repairs and healthcare benefit expense also impacted this category.
Selling, General and Administrative Expenses-Refrigerated and Snack Food Segment
SG&A in the Refrigerated and Snack Food Products Segment increased by $385 (3.3%) to $12,092 in the first twenty-four weeks of fiscal year 2010 compared to the same twenty-four-week period in the prior fiscal year. Increases in fuel cost, in-store displays, pension, healthcare benefits and workers’ compensation benefits contributed to the increase in SG&A expenses when compared to the same twenty-four-week period in the prior fiscal year.
Income Taxes-Consolidated
The income tax expense for the first twenty-four weeks ended April 16, 2010 and April 17, 2009 was as follows:
| |
|
April 16, 2010
|
|
|
April 17, 2009
|
|
|
Income tax provision
|
|
$ |
700 |
|
|
$ |
-- |
|
| |
|
|
|
|
|
|
|
|
|
Effective tax rate
|
|
|
17.4 |
% |
|
|
0.0 |
% |
We expect our effective tax rate for the 2010 fiscal year to be less than the federal statutory rate due to a full valuation allowance on all deferred tax assets. We recorded a provision for income taxes in the amount of $700 for the twenty-four week period ended April 16, 2010, related to federal and state taxes, based on our current projected taxable income for the year.
Net Income -Consolidated
The net income of $3,315 in the twenty-four weeks ended April 16, 2010 includes a non-taxable gain on life insurance policies in the amount of $415. Gains and losses on life insurance policies are dependent upon the performance of the underlying equities and future results may vary considerably.
The net income of $2,571 in the twenty-four weeks ended April 17, 2009 includes a non-taxable loss on life insurance policies in the amount of $73. Taxable investment income decreased on a comparative basis due to lower short-term interest rates.
Liquidity and Capital Resources (in thousands, except per share amounts)
Our need for operations growth, capital expenses and share repurchases are expected to be met with cash flows provided by future operating activities.
Cash flows from operating activities for the twenty-four weeks ended:
| |
|
|
|
|
|
|
| |
|
April 16, 2010
|
|
|
April 17, 2009
|
|
| |
|
|
|
|
|
|
|
Net income
|
|
$ |
3,315 |
|
|
$ |
2,571 |
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
1,123 |
|
|
|
1,431 |
|
|
Recovery for losses on accounts receivable
|
|
|
(92 |
) |
|
|
(26 |
) |
|
Gain on sale of property, plant and equipment
|
|
|
(11 |
) |
|
|
(9 |
) |
|
Changes in operating working capital
|
|
|
534 |
|
|
|
2,126 |
|
|
Net cash provided by operating activities
|
|
$ |
4,870 |
|
|
$ |
6,093 |
|
Significant changes in working capital for the twenty-four weeks ended:
April 16, 2010 – Sources of cash included reductions in accounts receivable of $1,621 and inventory of $1,625. Operating cash flows for the period ended April 16, 2010 were reduced by a decrease in accounts payable of $1,339 and a decrease in accrued payroll, advertising and other expenses of $961. During the twenty-four week period we funded $631 towards our defined benefit pension plan.
April 17, 2009- Sources of cash included reductions in inventory of $1,050 and accounts receivable of $1,467. The increase in operating cash flows for the period ended April 17, 2009 included an increase in accounts payable of $982 and a decrease in other non-current assets of $72. During the period we funded $361 towards our defined benefit pension plan.
Cash used in investing activities for the twenty-four weeks ended:
| |
|
April 16, 2010
|
|
|
April 17, 2009
|
|
|
|
Proceeds from sale of property, plant and equipment
|
|
$ |
11 |
|
|
$ |
54 |
|
|
Additions to property, plant and equipment
|
|
|
(652 |
) |
|
|
(774 |
) |
|
Net cash used in investing activities
|
|
$ |
(641 |
) |
|
$ |
(720 |
) |
Expenditures for property, plant and equipment include the acquisition of new equipment, upgrading of facilities to maintain operating efficiency and investments in cost effective technologies to lower costs. Overall capital spending has declined in recent years as we carefully scrutinize capital investments for short term pay-back. In general, we capitalize the cost of additions and improvements and expense cost for repairs and maintenance. The Company may also capitalize costs related to improvements that extend the life, increase the capacity, or improve the efficiency of existing machinery and equipment. Specifically, capitalization of upgrades of facilities to maintain operating efficiency include acquisitions of machinery and equipment used on packaging lines and refrigeration equipment used to process food products.
The table below highlights the additions to property, plant and equipment for the twenty-four weeks ended:
| |
|
April 16, 2010
|
|
|
Increase in projects in process
|
|
$ |
253 |
|
|
Delivery vehicles
|
|
$ |
105 |
|
|
Processing equipment
|
|
$ |
78 |
|
|
Temperature control
|
|
$ |
76 |
|
|
Quality control
|
|
$ |
75 |
|
|
Packaging lines
|
|
$ |
65 |
|
|
Additions to property, plant and equipment
|
|
$ |
652 |
|
Cash used in financing activities for the twenty-four weeks ended:
| |
|
April 16, 2010
|
|
|
April 17, 2009
|
|
|
|
Shares repurchased
|
|
$ |
(253 |
) |
|
$ |
(12 |
) |
|
Cash dividends paid
|
|
$ |
(933 |
) |
|
$ |
|
|
|
Net cash used in financing activities
|
|
$ |
(1,186 |
) |
|
$ |
(12 |
) |
Our stock repurchase program was approved by the Board of Directors in November 1999 and was expanded in June 2005. Under the stock repurchase program, we are authorized, at the discretion of management and the Board of Directors, to purchase up to an aggregate of 2,000 shares of our common stock on the open market. As of April 16, 2010, up to approximately 363 shares were still authorized for repurchase under the program. A one-time cash dividend in the amount of $0.10 per share was paid during the first twelve weeks of the 2010 fiscal year.
We remained free of interest bearing debt during the first twenty-four weeks of fiscal year 2010. We have remained free of interest-bearing debt for twenty-three consecutive years. We maintain a line of credit with Bank of America that expires April 30, 2011. Under the terms of this line of credit, we may borrow up to $2,000 at an interest rate equal to the bank’s reference rate, unless we elect an optional interest rate. The borrowing agreement contains various covenants, the more significant of which require us to maintain certain levels of shareholders’ equity and working capital. We were in compliance with all loan covenants as of April 16, 2010. There were no borrowings under this line of credit during the year. Management believes that our strong financial position and our capital resources are sufficient to provide for our operating needs and capital expenditures for fiscal 2010.
Recent Accounting Pronouncements
In December 2008, the FASB issued additional guidance on an employers' disclosures about plan assets of a defined benefit pension or other postretirement plan. This interpretation is effective for financial statements issued for fiscal years ending after December 15, 2009. We plan to adopt this interpretation in fiscal 2010. The adoption of this interpretation will increase the disclosures in the financial statements related to the assets of our defined benefit pension plans. We do not expect the adoption of this guidance to have a significant impact on our consolidated financial statements.
Off-Balance Sheet Arrangements
We are not engaged in any “off-balance sheet arrangements” within the meaning of Item 303(a)(4)(ii) of Regulation S-K.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Not applicable to smaller reporting company.
Item 4T. Controls and Procedures
Our management, with the participation and under the supervision of our Chairman and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)) as of the end of the period covered by this report. Based on this evaluation the Chairman and Chief Financial Officer have concluded that our disclosure controls and procedures are effective as of the end of the period covered by this report in their design and operation to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to management and recorded, processed, summarized and reported within the time periods specified by the Securities and Exchange Commission’s rules and forms.
Our management, including our Chairman and Chief Financial Officer, does not expect that our disclosure controls and internal controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control.
The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving our stated goals under all potential future conditions; over time, a control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
We maintain and evaluate a system of internal accounting controls, and a program of internal auditing designed to provide reasonable assurance that our assets are protected and that transactions are performed in accordance with proper authorization, and are properly recorded. This system of internal accounting controls is continually reviewed and modified in response to evolving business conditions and operations and to recommendations made by the independent registered public accounting firm and internal auditor. We have established a code of conduct. Our management believes that the accounting and internal control systems provide reasonable assurance that assets are safeguarded and financial information is reliable.
The Audit Committee of the Board of Directors meets regularly with our financial management and counsel, and with the independent registered public accounting firm engaged by us. Internal accounting controls and the quality of financial reporting are discussed during these meetings. The Audit Committee has discussed with the independent registered public accounting firm matters required to be discussed by Statement of Auditing Standards No. 114 (Communication with Audit Committees). In addition, the Audit Committee and the independent registered public accounting firm have discussed the independent registered public accounting firm’s independence from our Company and its management, including the matters in the written disclosures required by Public Company Accounting Oversight Board Rule 3526 “Communicating with Audit Committees Concerning Independence”.
Section 404 of the Sarbanes-Oxley Act of 2002
In order to comply with the Sarbanes-Oxley Act of 2002 (the “Act”), we have undertaken and continue a comprehensive effort, which includes the documentation and review of our internal controls. In order to comply with the Act, we centralized most accounting and many administrative functions at our corporate headquarters in an effort to control the cost of maintaining our control systems.
The SEC has adopted measures to grant relief to smaller public companies by extending the date of compliance with Section 404 of the Act. Under these measures, we are required to comply with the Act in two phases. The first phase was completed by us commencing with the fiscal year ended October 31, 2008 and requires us to issue a management report on internal control over financial reporting with each Annual Report on Form 10-K thereafter. The second phase requires us to provide an auditor’s attestation report on our internal control over financial reporting beginning with our fiscal year ending October 30, 2010.
There have been no changes in our internal controls over financial reporting that occurred during our second quarter ended April 16, 2010 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
Part II. Other Information
Item 1A. Risk Factors
The risk factors listed in Part I “Item 1A. Risk Factors” in the Annual Report on Form 10-K for the fiscal year ended October 30, 2009, should be considered with the information provided elsewhere in this Quarterly Report on Form 10-Q, which could materially adversely affect our business, financial condition or results of operations. There have been no material changes to the risk factors as previously disclosed in such Annual Report on Form 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
We have not sold any equity securities during the period covered by this report.
The following table provides information regarding repurchases by us of our common stock, for each of the three four-week periods included in the interim twelve-week period ended April 16, 2010.
ISSUER PURCHASES OF EQUITY SECURITIES
|
Period (1)
|
|
Total Number of Shares Purchased
|
|
Average Price Paid Per Share
|
|
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (2)
|
|
Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs (2)
|
|
January 23, 2010 - February 19, 2010
|
|
3,579 |
|
$ |
10.55 |
|
3,579 |
|
379,077 |
|
February 20, 2010 - March 19, 2010
|
|
3,357 |
|
$ |
11.94 |
|
3,357 |
|
375,720 |
|
March 20, 2010 - April 16, 2010
|
|
2,552 |
|
$ |
11.89 |
|
2,552 |
|
373,168 |
|
Total
|
|
9,488 |
|
$ |
11.40 |
|
9,488 |
|
|
|
(1)
|
The periods shown are the fiscal periods during the twelve-week quarter ended April 16, 2010.
|
|
(2)
|
Repurchases reflected in the foregoing table were made on the open market. Our stock repurchase program was approved by the Board of Directors in November 1999 (1,500,000 shares authorized, disclosed in a Form 10-K filed on January 26, 2000) and was expanded in June 2005 (500,000 additional shares authorized, disclosed in a press release and Form 8-K filed on June 17, 2005). Under the stock repurchase program, we are authorized, at the discretion of our management and the Board of Directors, to purchase up to an aggregate of 2,000,000 shares of our common stock on the open market. Our Stock Purchase Plan (“Purchase Plan”) is administered by Citigroup Global Markets Inc. (“CGM”) for purchase of shares of our common stock in compliance with the requirements of Rule 10b5-1 under the Exchange Act. Commencing on October 14, 2009 and continuing through and including October 13, 2010, CGM shall act as our exclusive agent to purchase shares of our common stock under the Purchase Plan. This Purchase Plan supplements any purchases of stock by us “outside” of the Purchase Plan, which may occur from time to time, in open market transactions pursuant to Rule 10b-18 of the Exchange Act or in privately-negotiated transactions. As of April 16, 2010, the total maximum number of shares that may be purchased under the Purchase Plan is 373,168 at a purchase price not to exceed $12.00 per share at a total maximum aggregate price (exclusive of commission) of $4,478,016.
|
Item 6.
Exhibits
|
|
31.1
|
Certification of Chairman (Principal Executive Officer), as required by Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
|
31.2
|
Certification of Chief Financial Officer (Principal Financial Officer), as required by Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
|
32.1
|
Certification of Chairman (Principal Executive Officer), as required by Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
|
32.2
|
Certification of Chief Financial Officer (Principal Financial Officer), as required by Section 906 of the Sarbanes-Oxley Act of 2002.
|
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| |
BRIDGFORD FOODS CORPORATION
(Registrant)
|
|
| |
|
|
|
|
Dated: May 28, 2010
|
By:
|
/s/ Raymond F. Lancy |
|
| |
|
Raymond F. Lancy |
|
| |
|
Chief Financial Officer |
|
| |
|
(Duly Authorized Officer, Principal Financial and Accounting Officer) |
|