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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549 

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 FORM 10-K 

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the fiscal year ended October 31, 2014

 

Commission file number: 0-2396 

BRIDGFORD FOODS CORPORATION

(Exact name of Registrant as specified in its charter) 

California	95-1778176
(State of incorporation)	(I.R.S. Employer
	Identification No.)

 1308 North Patt Street

Anaheim, California 92801

(Address of principal executive offices)

 

(714) 526-5533

(Registrant’s telephone number, including area code)  

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     Securities registered pursuant to Section 12(b) of the Act: Common Stock, par value $1.00 per share, the NASDAQ Stock Market LLC.

     Securities registered pursuant to Section 12(g) of the Act: None

     Indicate by check mark whether the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes  ☐  No  ☒

     Indicate by check mark whether the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes  ☐  No  ☒

     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 ☒ 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 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☒

     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 definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer   ☐	Accelerated filer   ☐
Non-accelerated filer   ☐ (Do not check if a smaller reporting company)	Smaller reporting company   ☒

     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act. Yes ☐ No ☒

     The aggregate market value of voting stock held by non-affiliates of the registrant on April 18, 2014 was $17,183,000.

 

     As of January 13, 2015, there were 9,112,165 shares of common stock outstanding.

 

     Portions of the registrant’s Proxy Statement for the registrant’s Annual Meeting of Shareholders to be held March 18, 2015 are incorporated by reference into Part III, Items 10-14 of this Annual Report on Form 10-K.

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INDEX TO FORM 10K

 

 

	Page
PART I	3
Item 1. Business	3
Item 1A. Risk Factors	7
Item 1B. Unresolved Staff Comments	8
Item 2. Properties	9
Item 3. Legal Proceedings	9
Item 4. Mine Safety Disclosures	9
PART II	10
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	10
Item 6. Selected Financial Data	11
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations	12
Item 7A. Quantitative and Qualitative Disclosures About Market Risk	17
Item 8. Consolidated Financial Statements and Supplementary Data	17
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	17
Item 9A. Controls and Procedures	18
Item 9B. Other Information	19
PART III	20
Item 10. Directors, Executive Officers and Corporate Governance	20
Item 11. Executive Compensation	20
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	20
Item 13. Certain Relationships and Related Transactions, and Director Independence	20
Item 14. Principal Accountant Fees and Services	20
PART IV	21
Item 15. Exhibits and Financial Statement Schedules	21
SIGNATURES	22

  

 

PART I

 

Item 1.          Business

 

This Annual Report on Form 10-K contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 and Bridgford Foods Corporation intends that such forward-looking statements be subject to the safe harbors created thereby. Readers are cautioned that such statements, which may be identified by words including “anticipates,” “believes,” “intends,” “estimates,” “expects,” and similar expressions, are only predictions or estimations and are subject to known and unknown risks and uncertainties. These forward-looking statements include, but are not limited to, statements regarding the following: general economic and business conditions; the impact of competitive product and pricing; success of operating initiatives; development and operating costs; advertising and promotional efforts; adverse publicity; acceptance of new product offerings; consumer trial and frequency; changes in business strategy or development plans; availability, terms and deployment of capital; availability of qualified personnel; commodity, labor, and employee benefit costs; changes in, or failure to comply with, government regulations; weather conditions; construction schedules; and other factors referenced in this Report.

 

The forward-looking statements included herein are based on current expectations that involve a number of risks and uncertainties. These forward-looking statements are based on assumptions regarding our business, which involve judgments with respect to, among other things, future economic and competitive conditions, and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond our control. Although we believe that the assumptions underlying the forward-looking statements are reasonable, actual results may differ materially from those set forth in the forward-looking statements. In light of the significant uncertainties inherent in the forward-looking information included herein, the inclusion of such information should not be regarded as representation by us or any other person that the objectives or plans of our company will be achieved. The forward-looking statements contained herein speak as of the date of this Report and we undertake no obligation to update such statements after the date hereof.

 

Background of Business

 

Bridgford Foods Corporation (collectively with its subsidiaries, “Bridgford”, the “Company”, “we”, “our”), a California corporation, was organized in 1952. We originally began operations in 1932 as a retail meat market in San Diego, California and evolved into a meat wholesaler for hotels and restaurants, a distributor of frozen food products, a processor and packer of meat, and a manufacturer and distributor of frozen food products for sale on a retail and wholesale basis. For more than the past five years we and our subsidiaries have been primarily engaged in the manufacturing, marketing and distribution of an extensive line of frozen, refrigerated, and snack food products throughout the United States. Bridgford Foods Corporation has not been involved in any bankruptcy, receivership, or similar proceedings since inception nor have we been party to any merger, acquisition, etc. or acquired or disposed of any material amounts of assets during the past five years. Substantially all of our assets have been acquired in the ordinary course of business. We have had no significant change in the type of products produced or distributed, nor in the markets we serve.

 

Description of Business

 

Bridgford Foods Corporation operates in two business segments - the processing and distribution of frozen products and the processing and distribution of refrigerated and snack food products.  For information regarding the separate financial performance of the business segments refer to Note 7 of the Notes to the Consolidated Financial Statements included in this Annual Report on Form 10-K.

 

The following table shows sales, as a percentage of consolidated sales, for each of these segments for each of the last two fiscal years:

 

		2014				2013
Frozen Food Products			38	%			40	%
Refrigerated and Snack Food Products			62	%			60	%
			100	%			100	%

 

We manufacture and distribute 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. The products we purchase for resale include a variety of cheeses, salads, party dips, Mexican foods, pastries, and other delicatessen type food products.

 

		2014				2013
Products manufactured, processed or packaged by Bridgford			96	%			93	%
Products manufactured or processed by third parties for distribution			4	%			7	%
			100	%			100	%

  

  

Although we have recently introduced several new products, most of these products have not contributed significantly to our revenue growth for the 2014 fiscal year. Our sales are not subject to material seasonal variations. Historically we have been able to respond quickly to the receipt of orders and, accordingly, do not maintain a significant sales backlog. Bridgford Foods Corporation and its industry generally have no unusual demands or restrictions on working capital items. During the last fiscal year we did not enter into any new markets or any significant contractual or other material relationships.

 

Availability of SEC Filings and Code of Conduct on Internet Website

 

We maintain an Internet website at http://www.bridgford.com.  Available on this website, free of charge, are annual reports on Form 10-K, quarterly reports on Form 10-Q, and reports filed under Section 16 of the Securities Exchange Act of 1934 which we file with the Securities and Exchange Commission.  Our Code of Conduct is also available on the website.

 

Product Distribution Methods

 

Our products are delivered to customers using several distinct distribution channels.  The distribution channel utilized is dependent upon the needs of our customers, the most efficient proximity to the delivery point, trade customs, operating segment as well as product type, life and stability.  Among our customers are many of the country’s largest broadline and specialty food service distributors. These and other large end purchasers occasionally go through extensive qualification procedures and our manufacturing capabilities are subjected to thorough review by the end purchasers prior to our approval as a vendor. Large end purchasers typically select suppliers that can consistently meet increased volume requirements on a national basis during peak promotional periods. We believe that our manufacturing flexibility, national presence, and long-standing customer relationships should allow us to compete effectively with other manufacturers seeking to provide similar products to our current large food service end purchasers, although no assurances can be given.

 

The factors that contribute to higher or lower margins generated from each method of distribution depend upon the accepted selling price, level of involvement by our employees in setting up and maintaining displays, distance traveled and fuel consumed by our company-owned fleet as well as freight and shipping costs depending on the distance the product travels to the delivery point.  Management is continually evaluating the profitability of product delivery methods, analyzing alternate methods and weighing economic inputs to determine the most efficient and cost effective method of delivery to fulfill the needs of our customers.

 

Major Product Classes

 

Frozen Food Products

 

Our frozen food products division serves both food service and retail customers. Approximately 160 unique frozen food products are sold through wholesalers, cooperatives, and distributors to approximately 21,000 retail outlets and 24,000 restaurants and institutions.

 

Frozen Food Products – Food Service Customers

 

The food service industry is composed of establishments that serve food outside the home and includes restaurants, the food operations of health care providers, schools, hotels, resorts, corporations, and other traditional and non-traditional food service outlets. Growth in this industry has been driven by the increase in away-from-home meal preparation, which has accompanied the expanding number of both dual income and single-parent households. Another trend within the food service industry is the growth in the number of non-traditional food service outlets such as convenience stores, retail stores, and supermarkets. These non-traditional locations often lack extensive cooking, storage, or preparation facilities resulting in a need for pre-cooked and prepared foods similar to those we provide. The expansion in the food service industry has also been accompanied by the continued consolidation and growth of broadline and specialty food service distributors, many of which are long-standing customers.

 

Frozen Food Products – Retail Customers

 

The majority of our existing and targeted retail customers are involved in the resale of branded and private label packaged foods. The same trends which have contributed to the increase in away-from-home meal preparation have also fueled the growth in easy to prepare, microwaveable frozen and refrigerated convenience foods. Among the fastest growing segments is the frozen and refrigerated hand-held foods market. This growth has been driven by improved product quality and variety and the increasing need for inexpensive and healthy food items that require minimal preparation. Despite rapid growth, many categories of frozen and refrigerated hand-held foods have achieved minimal household penetration.  We believe we have been successful in establishing and maintaining supply relationships with certain selected leading retailers in this market.

  

 

Frozen Food Products – Sales and Marketing

 

Our frozen food business covers the United States and Canada.  Products produced by the Frozen Food Products segment are generally supplied to food service and retail distributors who take title to the product upon shipment receipt through company leased long-haul vehicles.  In addition to regional sales managers, we maintain a network of independent food service and retail brokers covering most of the United States as well as Canada. Brokers are compensated on a commission basis. We believe that our broker relationships, in close cooperation with our regional sales managers, are a valuable asset providing significant new product and customer opportunities. Regional sales managers perform several significant functions for us, including identifying and developing new business opportunities and providing customer service and support to our distributors and end purchasers through the effective use of our broker network.

 

Our annual advertising expenditures are directed towards retail and institutional customers. These customers participate in various special promotional and marketing programs and direct advertising allowances we sponsor. We also invest in general consumer advertising in various newspapers and periodicals including free standing inserts and coupons to advertise in major markets. We direct advertising toward food service customers with campaigns in major industry publications and through our participation in trade shows throughout the United States.

 

Refrigerated and Snack Food Products

 

         Through the end of fiscal 2014, our direct store delivery network consisted of two separate divisions, refrigerated and non-refrigerated snack food products. Refrigerated snack food products were distributed through eight different regions located in the southwest, primarily operating in California, Arizona, and Nevada. By the end of fiscal 2014, we ceased refrigerated snack food product distribution because of continued net losses.

 

During fiscal 2014, our refrigerated and snack food products division sold approximately 220 different items through customer owned distribution centers and a direct store delivery network serving approximately 18,000 supermarkets, mass merchandise and convenience retail stores located in 49 states and Canada. By the end of fiscal 2014, we also ceased our route distribution operations in Canada as a cost cutting measure to concentrate on our core route business in the United States.

 

Products produced or distributed by the Refrigerated and Snack Food segment are supplied to customers through either direct delivery to customer warehouses or direct-store-delivery to retail locations. We utilize customer managed warehouse distribution centers to lower distribution cost. Product delivered to the customer’s warehouse is then distributed to the store where it is resold to the end consumer.   Our direct-store-delivery system focus emphasizes high quality service of our premium branded product to our customers. We also provide the service of setting up and maintaining the display and restocking our products.   

 

Refrigerated and Snack Food Products — Customers

 

Our customers are comprised of large retail chains and smaller “independent” operators. This part of our business is highly competitive. Proper placement of our product lines is critical to selling success since most items could be considered “impulse” items which are often consumed shortly after purchase. Our ability to sell successfully to this distribution channel depends on aggressive marketing and maintaining relationships with key buyers.

 

Refrigerated and Snack Food Products — Sales and Marketing

 

Non-refrigerated snack food products are distributed across the United States. Regional sales managers perform several significant functions including identifying and developing new business opportunities and providing customer service and support to our customers. We also utilize the services of brokers, where appropriate, to support efficient product distribution and customer satisfaction.

   

Product Planning and Research and Development

 

We continually monitor the consumer acceptance of each product within our extensive product line. Individual products are regularly added to and deleted from our product line. Historically, the addition or deletion of any individual product has not had a material effect on our operations in the current fiscal year. We believe that a key factor in the success of our products is our system of carefully targeted research and testing of our products to ensure high quality and that each product matches an identified market opportunity. The emphasis in new product introductions in the past several years has been in single service items. We are constantly searching to develop new products to complement our existing product lines and improve processing techniques and formulas. We utilize an in-house test kitchen and consultants to research and experiment with unique food preparation methods, improve quality control and analyze new ingredient mixtures.

  

 

Competition

 

Our products are sold under highly competitive conditions. All food products can be considered competitive with other food products, but we consider our principal competitors to include national, regional and local producers and distributors of refrigerated, frozen and non-refrigerated snack food products. Several of our competitors include large companies with substantially greater financial and marketing resources than ours. Existing competitors may broaden their product lines and potential competitors may enter or increase their focus on our market, resulting in greater competition for us. We believe that our products compete favorably with those of our competitors. Such competitors’ products compete against ours for retail shelf space, institutional distribution and customer preference.

 

Effect of Government Regulations

 

Our operations are subject to extensive inspection and regulation by the United States Department of Agriculture (the “USDA”), the Food and Drug Administration (the “FDA”), and by other federal, state, and local authorities regarding the processing, packaging, storage, transportation, distribution, and labeling of products that we manufacture, produce and process.  Our processing facilities and products are subject to continuous inspection by the USDA and/or other federal, state, and local authorities.  The USDA has issued strict regulations concerning the control of listeria monocytogenes in ready-to-eat meat and poultry products and contamination by food borne pathogens such as E. coli and salmonella, and implemented a system of regulation known as the Hazard Analysis Critical Control Points (“HACCP”) program. The HACCP program requires all meat and poultry processing plants to develop and implement sanitary operating procedures and other program requirements.  We believe that we are currently in compliance with governmental laws and regulations and that we maintain the necessary permits and licenses relating to our meat operations.

 

The U.S. Occupational Safety and Health Administration ("OSHA") oversees safety compliance and establishes certain employer responsibilities to help "assure safe and healthful working conditions" and keep the workplace free of recognized hazards or practices likely to cause death or serious injury.   Failure to comply with regulations of OSHA could adversely affect our results of operations. We resolved prior OSHA matters favorably and no unpaid OSHA penalties are outstanding as of October 31, 2014.

 

To date, federal, state, and local environmental laws and regulations, including those relating to the discharge of materials into the environment, have not had a material effect on our business.

 

Importance of Key Customers

 

Sales to Wal-Mart® comprised 28.8% of revenues in fiscal 2014 and 31.8% of total accounts receivable was due from Wal-Mart® at October 31, 2014. Sales to Wal-Mart® comprised 19.6% of revenues in fiscal 2013 and 17.0% of total accounts receivable was due from Wal-Mart® at November 1, 2013. Sales to Dollar General® comprised 9.9% of revenues for fiscal year 2013 and 20.7% of total accounts receivable was due from Dollar General at November 1, 2013.

 

Sources and Availability of Raw Materials

 

We purchase large quantities of pork, beef, and flour.  These ingredients are generally available from a number of different suppliers although the availability of these ingredients is subject to seasonal variation.  We build ingredient inventories to take advantage of downward trends in seasonal prices or anticipated supply limitations.

  

Most flour purchases are made at market price without contracts. The Company also purchases bulk flour under short-term fixed price contracts at current market prices.  The contracts are usually effective for a month or less and are not material to our operations.  These contracts are settled within a month’s time and no significant contracts remain open at the close of the reporting period.  We monitor and manage our ingredient costs to help negate volatile daily swings in market prices when possible.  The Company does not participate in the commodity futures market or hedging to limit commodity exposure.

 

Employees

 

We had 487 employees at October 31, 2014, approximately 41% of whose employment relationship is governed by collective bargaining agreements. These agreements currently expire between March 2014 and March 2017.  We believe that our relationship with all of our employees is favorable and contracts will be settled favorably. During the fourth quarter of fiscal 2014, we closed the refrigerated snack food products division and withdrew from the Western Conference of Teamsters Pension Plan, terminating approximately 44 employees.

 

 

Executive Officers of the Registrant

 

The names, ages, and positions of all our executive officers as of January 16, 2015 are listed below. Messrs. Hugh Wm. Bridgford and Allan L. Bridgford are brothers. William L. Bridgford is the son of Hugh Wm. Bridgford and the nephew of Allan L. Bridgford. Officers are normally appointed annually by the board of directors at their meeting immediately following the annual meeting of shareholders. Three executive officers are full-time employees of our company, Allan L. Bridgford and Hugh Wm Bridgford worked 60% of full time during fiscal 2014. Allan L. Bridgford reduced his schedule to 50% of full time effective November 1, 2014.

 

Name		Age		Position(s) with our company
Allan L. Bridgford		79		Vice President and member of the Executive Committee
Hugh Wm. Bridgford		83		Vice President and Chairman of the Executive Committee
William L. Bridgford		60		Chairman and member of the Executive Committee
John V. Simmons		59		President and member of the Executive Committee
Raymond F. Lancy		61		Chief Financial Officer, Executive Vice President, Treasurer and member of the Executive Committee

 

 

Item 1A.          Risk Factors

 

In addition to the other matters set forth in this Annual Report on Form 10-K, the continuing operations and the price of our common stock are subject to the following risks, each of which could materially adversely affect our business, financial condition, and results of operations.  The risks described below are only the risks that we currently believe are material to our business.  However, additional risks not presently known, or risks that are currently believed to be immaterial, may also impair our business operations.

 

We are subject to general risks in the food industry, including, among other things, risk relating to changes in consumer preferences and product contamination as well as general economic conditions, any of which risks, if realized, could negatively impact our operating results and financial position.

 

The food industry, and the markets within the food industry in which we compete, are subject to various risks, including the following: evolving consumer preferences, nutritional and health-related concerns, federal, state and local food inspection and processing controls, consumer product liability claims, risks of product tampering, and the availability and expense of liability insurance. The meat and poultry industries are subject to scrutiny due to the association of meat and poultry products with recent outbreaks of illness, and on rare occasions even death, caused by food borne pathogens. Product recalls are sometimes required in the food industry to withdraw contaminated or mislabeled products from the market.  Additionally, the failure to identify and react appropriately to changes in consumer trends, demands and preferences could lead to, among other things, reduced demand and price reduction for our products.  Further, we may be adversely affected by changes in domestic or foreign economic conditions, including inflation or deflation, interest rates, availability of capital markets, consumer spending rates, and energy availability and costs (including fuel surcharges).  These and other general risks related to the food industry, if realized by us, could have a significant adverse effect on demand for our products, as well as the costs and availability of raw materials, ingredients and packaging materials, thereby negatively affecting our operating results and financial position.

 

Fluctuations in the prices that we pay for raw materials could negatively impact our financial results.

 

We purchase large quantities of commodity pork, beef, and flour. Historically, market prices for products we process have fluctuated in response to a number of factors, including changes in the United States government farm support programs, changes in international agricultural and trading policies, weather, and other conditions during the growing and harvesting seasons. Our operating results are heavily dependent upon the prices paid for raw materials. The marketing of our 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.   While fluctuations in significant cost structure components, such as ingredient commodities and fuel prices, have had a significant impact on profitability over the last three years, the impact of general price inflation on our financial position and results of operations has not been significant. Future volatility of general price inflation or deflation and raw material cost and availability could adversely affect our financial results.

 

We are subject to extensive government regulations and a failure to comply with such regulations could negatively impact our financial results.

 

Our operations are subject to extensive inspection and regulation by the United States Department of Agriculture (the “USDA”), the Food and Drug Administration (the “FDA”), and by other federal, state, and local authorities regarding the processing, packaging, storage, transportation, distribution, and labeling of products that are manufactured, produced and processed by us. Our processing facilities and products are subject to continuous inspection by the USDA and/or other federal, state, and local authorities. The USDA has issued strict policies concerning the control of listeria monocytogenes in ready-to-eat meat and poultry products and contamination by food borne pathogens such as E. coli and salmonella, and established a system of regulation known as the Hazard Analysis Critical Control Points (“HACCP”) program. The HACCP program requires all meat and poultry processing plants to develop and implement sanitary operating procedures and other program requirements. We believe that we are currently in compliance with governmental laws and regulations and that we maintain necessary permits and licenses relating to our meat operations.

  

 

A failure to obtain or a loss of necessary permits and licenses could delay or prevent us from meeting current product demand and could adversely affect our operating performance.  Furthermore, we are routinely subject to new or modified laws, regulations and accounting standards.  If found to be out of compliance with applicable laws and regulations in these or other areas, we could be subject to civil remedies, including fines, injunctions, recalls, or asset seizures, as well as potential criminal sanctions, any of which could have a significant adverse effect on our financial results.

 

We depend on our key management, the loss of which could negatively impact our operations.

 

Our executive officers and certain other key employees have been primarily responsible for the development and expansion of our business, and the loss of the services of one or more of these individuals could adversely affect us.  Our success will be dependent in part upon our continued ability to recruit, motivate, and retain qualified personnel. We cannot assure that we will be successful in this regard. We have no employment or non-competition agreements with key personnel.

 

We depend on our major customers and any loss of such customers could have a negative impact on our profitability.

 

We could suffer significant reductions in revenues and operating incomes if we lost one or more of our largest customers, including Wal-Mart®, which accounted for 28.8% of sales in fiscal year 2014.  Many of our customers, such as supermarkets, warehouse clubs, and food distributors have consolidated in recent years.  Such consolidation has produced large, sophisticated customers with increased buying power who are more capable of operating with reduced inventories while demanding lower pricing and increased promotional programs. These customers also may use their shelf space for their own private label products.  Failure to respond to these trends could reduce our volume and cause us to lower prices or increase promotional spending for our product lines which could adversely affect our profitability.

 

With more than 80% concentration of beneficial ownership of our stock held by the Bridgford family, there are risks that they can exert significant influence or control over our corporate matters.

 

Members of the Bridgford family beneficially own, in the aggregate, more than 80% of our outstanding stock. In addition, three members of the Bridgford family currently serve on the Board of Directors.  As a result, members of the Bridgford family have the ability to exert substantial influence or actual control over our management and affairs and over substantially all matters requiring action by our shareholders, including amendments to by-laws, election and removal of directors, any proposed merger, consolidation or sale of all or substantially all of our assets and other corporate transactions.  This concentration of ownership may also delay or prevent a change in control otherwise favored by our other shareholders and could depress our stock price. Additionally, as a result of the Bridgford family’s significant ownership of the outstanding voting stock, we have relied on the “controlled company” exemption from certain corporate governance requirements of the NASDAQ stock market. Therefore, among other things, we have elected not to implement the rule that provides for a nominating committee to identify and recommend nominees to the Board of Directors and have instead elected to have the full Board of Directors perform such function.  Additionally, pursuant to this exemption, our compensation committee, which is made up of independent directors, does not have sole authority to determine the compensation of our executive officers, including our Chairman of the Board.

 

We participate in Multiemployer Pension Plans which could negatively impact our operations and profitability.

 

We participate in “multiemployer” pension plans administered by labor unions on behalf of their employees. We pay union dues monthly, a portion of which is used to fund pension benefit obligations to plan participants. The contribution amount may change depending upon the ability of participating companies to fund these pension liabilities as well as the actual and expected returns on pension plan assets. Should we withdraw from the union and cease participation in a union plan, federal law could impose a penalty for additional contributions to the plan. The penalty would be recorded as an expense in the consolidated statement of operations. The ultimate amount of the withdrawal liability is dependent upon several factors including the funded status of the plan and contributions made by other participating companies. During fiscal 2014, we withdrew from the Western Conference of Teamsters Pension Plan and recorded an estimated pension expense and a corresponding non-current liability of $798 related to this plan. The ultimate amount paid may differ from this estimate due to the factors stated above. We continue to participate in other multiemployer union plans. In the event of a full or partial withdrawal from these plans, the impact to our financial statements could be material.

 

Item 1B.          Unresolved Staff Comments

 

Not applicable.

 

 

Item 2.            Properties

 

We own the following properties:

 

Property Location		Building Square Footage				Acreage
Anaheim, California ***			100,000				5.0
Dallas, Texas *			94,000				4.0
Dallas, Texas *			30,000				2.0
Dallas, Texas *			16,000				1.0
Dallas, Texas *			3,200				1.5
Statesville, North Carolina *			42,000				8.0
Chicago, Illinois **			156,000				1.5

 

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*    - property used by Frozen Food Products Segment

 

**  - property used by Refrigerated and Snack Products Food Segment

 

***- property used by both Frozen Food Products and Refrigerated and Snack Food Products Segments.

 

We utilize the foregoing properties for processing, warehousing, distributing and administrative purposes.  The Company also leases warehouse and/or office facilities throughout the United States and Canada through month-to-month rental agreements.  We believe that our properties are generally adequate to satisfy our foreseeable needs. Additional properties may be acquired and/or plants expanded if favorable opportunities and conditions arise. 

 

Item 3.          Legal Proceedings

 

No material legal proceedings were pending against us at October 31, 2014 or as of the date of filing of this Annual Report on Form 10-K. We are likely to be subject to claims arising from time to time in the ordinary course of our business. In certain of such actions, plaintiffs may request punitive or other damages that may not be covered by insurance and, accordingly, no assurance can be given with respect to the ultimate outcome of any such possible future claims or litigation or their effect on us. Any adverse litigation trends and outcomes could significantly and negatively affect our financial results.

 

Item 4.          Mine Safety Disclosures

 

Not applicable.

 

 

PART II

 

Item 5.           Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

 

 

Common Stock and Dividend Data

 

Our common stock is traded in the national over-the-counter market and is authorized for quotation on the Nasdaq Global Market under the symbol “BRID”. The following table reflects the high and low closing sale prices reported by Nasdaq as well as cash dividends paid for each of the last eight fiscal quarters.

 

Fiscal Year 2014		High				Low				Cash Dividends Paid
First Quarter		$	10.16			$	9.36			$	0.00
Second Quarter		$	10.20			$	9.55			$	0.00
Third Quarter		$	10.00			$	7.79			$	0.00
Fourth Quarter		$	8.58			$	7.77			$	0.00

 

Fiscal Year 2013		High				Low				Cash Dividends Paid
First Quarter		$	7.10			$	6.46			$	0.05
Second Quarter		$	8.65			$	6.50			$	0.00
Third Quarter		$	8.25			$	7.04			$	0.00
Fourth Quarter		$	12.39			$	7.31			$	0.00

 

On November 12, 2012, Bridgford Foods Corporation issued a press release announcing that its Board of Directors had approved a one-time cash dividend of $0.05 per share of common stock which was distributed on December 24, 2012 to shareholders of record on November 27, 2012.

 

On January 13, 2015, the closing sale price for our common stock on the Nasdaq Global Market was $7.21 per share. As of January 13, 2015, there were 839 shareholders of record in our common stock.

 

The payment of any future dividends will be at the discretion of our Board of Directors and will depend upon future earnings, financial requirements, and other factors.

 

Unregistered Sales of Equity Securities

 

During the period covered by this Report we did not sell or issue any equity securities that were not registered under the Securities Act of 1933, as amended.

 

 

Repurchases of Equity Securities by the Issuer

 

During fiscal year 2014, we repurchased an aggregate of 19,688 shares of our common stock for $184,117 pursuant to our repurchase plan previously authorized by the Board of Directors.  The following table provides information regarding our repurchases of common stock in each of the four periods comprising the fourth quarter of fiscal year 2014.

 

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)
July 12, 2014 – August 8, 2014			0			$	0				0				163,110
August 9, 2014 – September 5, 2014			3,120				8.09				3,120				159,990
September 6, 2014 – October 3, 2014			1,670				8.06				1,670				158,320
October 4, 2014 – October 31, 2014			620				8.52				620				157,700
Total			5,410			$	8.13				5,410

 

---

 

(1)	The periods shown are our fiscal periods during the sixteen-week quarter ended October 31, 2014.

 

(2)

All 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 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 common stock (“Stock”) issued by us in compliance with the requirements of Rule 10b5-1 under the Securities Exchange Act of 1934 (“Exchange Act”).  Commencing on October 15, 2014 and continuing through and including October 14, 2015, CGM shall act as our exclusive agent to purchase 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. The daily purchase quantity is defined as a number of shares up to, but not to exceed, each day’s applicable Rule 10b-18 maximum volume limit (i.e. 25% of the prior four calendar weeks’ average daily trading volume); however, once per week a block of stock may be purchased that exceeds the Rule 10b-18 average daily trading volume condition, provided that no other Purchase Plan purchases are made on any day on which such a block is purchased.  As of October 31, 2014, the total maximum number of shares that may be purchased under the Purchase Plan is 157,700 at a purchase price not to exceed $10.00 per share for a total maximum aggregate price (exclusive of commission) of $1,577,000.

 

Item 6.          Selected Financial Data

 

Not applicable to smaller reporting company.  

 

 

Item 7.           Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

For a complete understanding, this Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the Consolidated Financial Statements and Notes to the Consolidated Financial Statements contained in this Report.

 

Certain statements under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this Report constitute “forward-looking statements” within the meaning of the Securities Act of 1933 and the Securities Exchange Act of 1934. Such forward-looking statements involve known and unknown risks, uncertainties, and other factors which may cause the actual results, performance or achievements of Bridgford Foods Corporation to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among others, the following: general economic and business conditions; the impact of competitive products and pricing; success of operating initiatives; development and operating costs; advertising and promotional efforts; adverse publicity; acceptance of new product offerings; consumer trial and frequency; changes in business strategy or development plans; availability, terms and deployment of capital; availability of qualified personnel; commodity, labor, and employee benefit costs; changes in, or failure to comply with, government regulations; weather conditions; construction schedules; and other factors referenced in this Report.

 

Results of Operations (in thousands except percentages)

 

Fiscal Year Ended October 31, 2014 (52 weeks) Compared to Fiscal Year Ended November 1, 2013 (52 weeks)

 

Net Sales-Consolidated

 

Net sales in fiscal 2014 increased $4,398 (3.4%) when compared to the prior year.  The changes in net sales were comprised as follows:

 

Impact on Net Sales - Consolidated
Selling price per pound			-0.4	%		$	(590	)
Unit volume in pounds			5.8	%			8,255
Returns activity			-1.0	%			(1,419	)
Promotional activity			-1.0	%			(1,848	)
Increase in net sales			3.4	%		$	4,398

 

Unit sales volume in pounds in fiscal 2014 increased significantly in the Refrigerated and Snack Food Products segment. Overall, the decrease in selling price per pound in fiscal 2014 primarily relates to product mix changes as discussed in the segment analysis below. Returns activity and promotional spending increased compared to the prior year on a consolidated basis.

 

Net Sales-Frozen Food Products Segment

 

Net sales in the Frozen Food Products segment in fiscal 2014 decreased $709 (1.4%) compared to the prior year.  The changes in net sales were comprised as follows:

 

Impact on Net Sales - Frozen Food Products Segment
Selling price per pound			0.0	%		$	(19	)
Unit volume in pounds			0.0	%			(904	)
Returns activity			0.1	%			35
Promotional activity			-1.5	%			179
Decrease in net sales			-1.4	%		$	(709	)

 

The decrease in net sales for fiscal 2014 primarily relates to an unfavorable change in product mix. Returns were slightly lower compared to the prior year. Higher promotional activity compared to fiscal 2013 added to the impact of relatively no change in unit volume or selling price per pound within the Frozen Food Products segment.

  

 

Net Sales-Refrigerated and Snack Food Products Segment

 

Net sales, excluding intersegment sales, in the Refrigerated and Snack Food Products segment in fiscal 2014 increased $5,107 (6.6%) compared to the prior year. The changes in net sales were comprised as follows:

  

Impact on Net Sales - Refrigerated and Snack Food Products Segment
Selling price per pound			-0.7	%		$	(570	)
Unit volume in pounds			10.9	%			9,159
Returns activity			-1.5	%			(1,455	)
Promotional activity			-2.1	%			(2,027	)
Increase in net sales			6.6	%		$	5,107

 

The increase in net sales in fiscal 2014 was attributable to higher unit volume (in pounds) compared to the prior year. The volume increase resulted from large seasonal programs that did not occur in the prior year. The combined selling price per pound in fiscal 2014 decreased despite price increases instituted in the non-refrigerated snack food products division in the last half of fiscal year 2014. Lower selling prices in the discontinued refrigerated snack food products division also negatively affected per pound selling prices. Selling prices for large seasonal program items were significantly lower than prices per pound obtained for other Company products. Higher promotional activity and returns related to these programs partially offset the unit sales volume increases.

 

Cost of Products Sold and Gross Margin-Consolidated

 

Cost of products sold in fiscal 2014 increased $11,178 (13.4%) compared to the prior year.  Changes in unit sales volumes and record high meat commodity costs are described in the segment analysis below and were the primary contributing factors to the increase in cost of products sold. The gross margin decreased to 29.0% in fiscal year 2014 compared to 35.2% in fiscal year 2013.

 

Cost of Products Sold and Gross Margin–Frozen Food Products Segment

 

Cost of products sold in the Frozen Food Products segment in fiscal 2014 decreased $647 (2.0%) compared to the prior year primarily as result of lower sales volume and lower commodity costs. The cost of purchased flour decreased approximately $78 in fiscal 2014 compared to the prior year. The gross margin in the Frozen Food Products segment increased slightly from 37.0% in fiscal 2013 to 37.3% in fiscal 2014 due to lower commodity costs.

 

Cost of Products Sold and Gross Margin–Refrigerated and Snack Food Products Segment

 

Cost of products sold in the Refrigerated and Snack Food Products segment increased by $11,285 (21.7%) during the 2014 fiscal year compared to the prior year due to higher unit sales volume. The cost of significant meat commodities increased approximately $5,504 during fiscal 2014 compared to the prior year. The gross margin earned in this segment decreased from 34.1% to 23.8% due primarily to higher meat commodity costs and high volume low margin product sales.

 

Selling, General and Administrative Expenses-Consolidated

 

Selling, general and administrative expenses ("SG&A") in fiscal 2014 increased $737 (1.7%) when compared to the prior year.  The increase in this category did not directly correspond to the change in sales.

 

The table below summarizes the primary expense variances in this category:

 

	52 weeks Ended						Expense/Loss
	October 31, 2014			November 1, 2013			Increase (Decrease)
Teamster pension withdrawal liability	$	798		$	-		$	798
Pension expense		646			1,373			(727	)
Healthcare cost		2,491			2,121			370
Depreciation		1,122			754			368
Fuel		2,422			2,763			(341	)
Cash surrender value gain		(514	)		(825	)		311
Wages and bonus		15,361			15,661			(300	)
Insurance		992			721			271
Repairs and maintenance		753			1,025			(272	)
Workers’ compensation		772			1,040			(268	)
Outside consultants		1,530			1,380			150
Other SG&A		16,716			16,339			377
Total	$	43,089		$	42,352		$	737

     

  

During the fourth quarter of fiscal 2014, we closed the refrigerated snack food products division (a division within the Refrigerated and Snack Food Segment involving primarily deli products) and withdrew from the Western Conference of Teamsters Pension Plan. According to the Multi-employer Pension Plan Act of 1980 we are subject to the Western Conference of Teamsters Pension Trust Fund Withdrawal Liability. The decrease in pension expense (non-Teamster) was caused by an increase in the pension liability discount rate. Healthcare costs have increased due to recent unfavorable claim activity. The increase in depreciation expense was due to significant vehicle purchases in recent years. The decrease in fuel expense was driven by lower cost per gallon as compared to the prior year. The cash surrender value gain on life insurance policies decreased due to less favorable changes in the underlying equities that support them compared to fiscal 2013. Lower profits and profit sharing accruals resulted in lower wages and bonus in fiscal year 2014 compared to the prior year and the closing of our refrigerated snack food products division. Higher insurance expense relates to unfavorable trends in renewal rates. Repairs and maintenance decreased due to replacement of vehicles in the Company’s fleet as well as closing the delivery route business concentrated in California. The Company’s workers’ compensation expense decreased in fiscal 2014 as a result of favorable claim trends compared to the prior year. The increase in outside consultants related primarily to legal fees and settlements with former employees. None of the changes individually or as a group of expenses in “Other SG&A” were significant enough in value to merit separate disclosure. The major components comprising the decrease of “Other SG&A” were higher outside storage and postage expenses.

 

Selling, General and Administrative Expenses-Frozen Food Products Segment

 

SG&A expenses in the Frozen Food Products segment decreased by $920 (5.5%) in fiscal year 2014 compared to the prior fiscal year.  The overall decrease in SG&A expenses was mainly due to lower product advertising and lower pension cost.

 

Selling, General and Administrative Expenses-Refrigerated and Snack Food Products Segment

 

SG&A expenses in the Refrigerated and Snack Food Products segment increased by $1,657 (6.4%) in fiscal year 2014 compared to the prior fiscal year.  Higher payments under labor commissions and licensing agreements, higher property and liability insurance, higher product advertising costs and depreciation for new vehicles led to the increase in SG&A expenses compared to the prior year. The increase in SG&A expenses was also related to the increase in sales, increased cost for healthcare and higher outside storage costs.

 

Income Taxes

 

The effective income tax rate was 2.0% and 5.5% in fiscal years 2014 and 2013, respectively.  The 2014 tax benefit of $88 relates to the reduction in the liability on unrecognized tax benefits related to research and development tax credits being carried forward due to utilization of a net operating loss. In fiscal year 2014, the effective income tax rate differed from the applicable mixed statutory rate of approximately 39.6% primarily due to recording a full valuation allowance of $1,598 (refer to Note 4 of Notes to the Consolidated Financial Statements) on our deferred tax assets.  The 2013 provision for taxes on income of $169 consists of minimum federal and state income taxes.

 

The Company policy outlines measurable objective criteria that must be met before a release of the valuation allowance will occur.  The three criteria set forth in the policy must all be satisfied before the valuation allowance can be reversed.  The criteria are as follows: first, the Company’s available federal tax net operating loss ("NOL") must be zero; second, the prior thirty-six month cumulative book basis pre-tax income (loss), after considering “one-time” events, is positive; third, the Company considers its outlook of near term continued profitable operations and assesses any material negative and positive trends or events on the immediate horizon.  As of October 31, 2014, the Company (1) has a federal tax NOL of $6,160, (2) has positive thirty-six month cumulative book income and (3) volatility and recent record highs in commodity costs create uncertainty about the Company's ability to generate future earnings.  Only the second criterion has been satisfied, therefore, the Company will maintain a full valuation allowance against its deferred tax assets as of October 31, 2014.

 

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 recognition, management could reinstate a full valuation allowance should operating performance decline.

 

Liquidity and Capital Resources (in thousands except share amounts)

 

The principal source of our operating cash flow is cash receipts from the sale of our products, net of costs to manufacture, store, market and deliver to customers. The Company temporarily borrowed on the line of credit during the fourth quarter of fiscal 2014 to provide capital to pay for operating expenses including payments to meat suppliers with seven or less day terms. The Company paid approximately $7.4 million more dollars for the same commodities in fiscal 2014 as compared to their cost in fiscal 2013. There were no borrowings outstanding under this line of credit as of October 31, 2014. The Company is currently in compliance with all provisions of the line of credit agreement. We typically fund our operations from cash balances and cash flow generated from operations.  We normally expect positive operating cash flows in the first quarter of our fiscal year from the liquidation of inventory and accounts receivable balances related to holiday season sales.  We typically build inventories in the third quarter for anticipated holiday season sales that occur in the fourth and first quarters.  Anticipated commodity price trends may also affect cash balances.  Certain commodities may be purchased in advance of our immediate needs to lower the ultimate cost of processing.

  

 

Cash flows from operating activities:

 

		52 Weeks
		2014				2013
Net (loss) income		$	(4,344	)		$	2,916
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:
Depreciation			2,827				2,236
Provision for losses on accounts receivable			28				23
Gain on sale of property, plant and equipment			(152	)			(66	)
Deferred income taxes, net			1,598				(1,214	)
Tax valuation allowance			(1,598	)			1,214
Changes in operating working capital			(2,380	)			(1,349	)
Net cash (used in) provided by operating activities		$	(4,021	)		$	3,760

 

For the fifty-two weeks ended October 31, 2014, net cash used in operating activities was $4,021, a decrease of $7,781 compared to the fifty-two weeks ended November 1, 2013.  The decrease is primarily related to an increase in inventory in the Refrigerated and Snack Food Products segment as well as an increase in accrued payroll, advertising and other expenses.   During fiscal year 2014 we funded $1,587 towards our defined benefit pension plan.  Plan funding strategies may be adjusted depending upon economic conditions, investment options, tax deductibility, or recent legislative changes in funding requirements.

 

Our cash conversion cycle (defined as days of inventory and trade receivables less days of trade payables outstanding) is relatively quick, and was equal to 57 days for the fifty-two weeks ended October 31, 2014 and 61 days for the fifty-two weeks ended November 1, 2013.  Compared with the prior year, the favorable impact on the 2014 cash conversion cycle resulted from lower days of inventory, primarily due to a selloff of inventory in the Refrigerated and Snack Food Products segment to provide a source of cash to cover payments to meat commodity suppliers at record high prices.

 

For the fifty-two weeks ended November 1, 2013, net cash provided by our operating activities was $3,760.  The increase was primarily related to net income. During fiscal year 2013, we funded $1,922 towards our defined benefit pension plan.

 

Cash used in investing activities:

 

		52 Weeks
		2014				2013
Proceeds from sale of property, plant and equipment		$	163			$	72
Additions to property, plant and equipment			(3,877	)			(4,378	)
Net cash used in investing activities		$	(3,714	)		$	(4,306	)

 

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.  In general, we capitalize the cost of additions and improvements and expense the 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 fifty-two weeks ended:

 

		52 Weeks
		October 31, 2014				November 1, 2013
Temperature control		$	10			$	38
Processing equipment			2,228				1,516
Packaging lines			250				763
Office and building improvements			438				142
Vehicles for sales and/or delivery			963				1,712
Computer software and hardware			6				264
Forklifts			51				-
Decrease in projects in process			(69	)			(57	)
Additions to property, plant and equipment		$	3,877			$	4,378

 

 

Cash used in financing activities:

 

		52 Weeks
		2014				2013
Shares repurchased		$	(184	)		$	(209	)
Payments of capital lease obligations			(214	)			(206	)
Dividends paid			-				(458	)
Net cash used in financing activities		$	(398	)		$	(873	)

 

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 2,000,000 shares of our common stock on the open market.  As of the end of fiscal year 2014, 157,700 shares were still authorized for repurchase under the program.  A one-time cash dividend of five cents per share of common stock was approved on November 12, 2012 to shareholders of record on November 27, 2012, payable on December 24, 2012.  

 

We invested in transportation equipment during fiscal 2012 financed by a capital lease obligation in the amount of $1,848.  The term of the lease is six years.  The total capital lease obligation remaining as of October 31, 2014 is $1,345.  The capital lease arrangement replaces the long-standing month-to-month leases of transportation equipment.

 

We maintain a line of credit with Wells Fargo Bank, N.A. that expires on March 1, 2015. During the fourth quarter of fiscal 2014, we converted our line of credit to a borrowing base line collateralized by accounts receivable. Under the terms of this line of credit, we may borrow up to $6,500 at an interest rate equal to the bank’s prime rate. The borrowing agreement contains various covenants, the more significant of which require us to maintain a minimum tangible net worth and a minimum net income after tax and total capital expenditures less than $3,000. The Company was in violation of the capital expenditure covenant which was waived (letter dated December 17, 2013) at October 31, 2014. The Company was also in violation of the tangible net worth and net income covenants which were waived (letter dated December 24, 2014) at October 31, 2014. The Company temporarily borrowed on the line of credit during the fourth quarter of fiscal 2014 to pay for working capital purposes. There were no borrowings under this line of credit as of October 31, 2014. Other than noted above, the Company is currently in compliance with all provisions of the agreement.

 

Impact of Inflation

 

Our operating results are heavily dependent upon the prices paid for raw materials.  The marketing of our 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.  While fluctuations in significant cost structure components, such as ingredient commodities and fuel prices, have had a significant impact on profitability over the last two fiscal years, the impact of general price inflation on our financial position and results of operations has not been significant.  However, future volatility of general price inflation or deflation and raw material cost and availability could adversely affect our financial results.

  

 

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 for fiscal 2015. 

 

Off-Balance Sheet Arrangements

 

We do not currently have any off balance sheet arrangements within the meaning of Item 303(a)(4) of Regulation S-K.

 

Contractual Obligations

 

We temporarily utilized interest bearing debt (excluding capital leases) during the fourth quarter of fiscal 2014 to provide capital to pay for operating expenses including payments to meat suppliers with seven or less day terms. As of October 31, 2014 we had no outstanding balance on the line of credit or any other debt or other contractual obligations.

 

Critical Accounting Policies

 

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, employee healthcare and pension benefits are especially subject to inherent uncertainties and these estimated liabilities may ultimately settle at amounts not originally estimated.  We record promotional and returns allowances and bad debt and inventory allowances based on recent and historical trends. Management believes its current estimates are reasonable and based on the best information available at the time.

 

Disclosure concerning our policies on credit risk, revenue recognition, cash surrender or contract value for life insurance policies, deferred income tax and the recoverability of our long-lived assets are provided in Notes 1 and 4 of Notes to the Consolidated Financial Statements.

 

Recently Issued Accounting Pronouncements and Regulations

 

Various accounting standard-setting bodies have been active in soliciting comments and issuing statements, interpretations and exposure drafts. For information on new accounting pronouncements and the impact, if any, on our financial position or results of operations, see Note 1 of the Notes to the Consolidated Financial Statements.

 

Item 7A.          Quantitative and Qualitative Disclosures About Market Risk

 

Not applicable for smaller reporting company.

 

Item 8.          Consolidated Financial Statements and Supplementary Data

 

The consolidated financial statements required by this Item are set forth under Item 15.

 

Item 9.          Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

 

Not applicable. 

 

 

Item 9A.          Controls and Procedures

 

Evaluation of disclosure 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, including our principal executive officer and principal financial officer, and recorded, processed, summarized and reported within the time periods specified by the Securities and Exchange Commission’s rules and forms to allow timely decisions regarding required disclosures.

 

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 the 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 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 our independent registered public accounting firm.  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”.

  

Changes in Internal Control over Financial Reports

 

There has been no change in our internal control over financial reporting during the last fiscal quarter covered by this Report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

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 Dodd-Frank Wall Street Reform and Consumer Protection Act, signed into law by the President on July 21, 2010, permanently exempts small public companies with less than $75 million in market capitalization, such as the Company, from the requirement to obtain an external audit on the effectiveness of internal financial reporting controls provided in Section 404(b) of the Sarbanes-Oxley Act. As a result, an attestation report on internal controls over financial reporting by an independent registered public accounting firm has not been presented. Section 404(a) is still effective for smaller public companies and requires the disclosure of management attestations on internal controls over financial reporting.  

  

 

Management’s Annual Report on Internal Control Over Financial Reporting

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting.  Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

 

Management conducted an evaluation of the effectiveness of the internal controls over financial reporting based on the framework in Internal Control - Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission and related COSO guidance. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

Management assessed the effectiveness of our internal control over financial reporting for our fiscal year ended October 31, 2014.  Based on management’s assessment and the above-referenced criteria, management believes that the internal control over financial reporting for our fiscal year ended October 31, 2014 was effective.

 

Item 9B.           Other Information

 

Not applicable. 

 

 

PART III

 

Item 10.          Directors, Executive Officers and Corporate Governance

 

Information set forth in the sections entitled “Proposal 1 – Election of Directors” and “Section 16(a) Beneficial Ownership Reporting Compliance” contained in our definitive proxy statement for the 2015 Annual Meeting of Shareholders to be held on March 18, 2015 is incorporated herein by reference. Information concerning our executive officers is set forth in Part I, Item 1, hereof under the heading “Executive Officers of the Registrant”.

 

Item 11.          Executive Compensation

 

Information set forth in the section entitled “Compensation of Executive Officers” contained in our definitive proxy statement for the 2015 Annual Meeting of Shareholders to be held on March 18, 2015 is incorporated herein by reference.

 

Item 12.          Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

 

Information set forth in the section entitled “Principal Shareholders and Management” contained in our definitive proxy statement for the 2015 Annual Meeting of Shareholders to be held on March 18, 2015 is incorporated herein by reference.

 

Equity Compensation Plan Information

 

Not applicable, as we do not have any compensation plans under which our equity securities are authorized for issuance.

 

Item 13.          Certain Relationships and Related Transactions, and Director Independence

 

Information set forth in the sections entitled “Proposal 1 – Election of Directors” and “Certain Relationships and Related Party Transactions” contained in our definitive proxy statement for the 2015 Annual Meeting of Shareholders to be held on March 18, 2015 is incorporated herein by reference.

 

We are considered a “controlled company” within the meaning of Rule 5615(c)(1) of the NASDAQ Listing Rules based on the more than 80% beneficial ownership of  our outstanding common stock by Bridgford Industries Incorporated and are therefore exempted from various NASDAQ Listing Rules pertaining to certain “independence” requirements of our directors. Nevertheless, the Board of Directors has determined that Messrs. Andrews, Scott and Zippwald, who together comprise the Audit Committee, are all “independent directors” within the meaning of Rule 5605 of the NASDAQ Listing Rules.

 

Our general legal counsel is the son of the former senior chairman of the board of directors.  As legal counsel to the board, he currently is paid a fee of one thousand eight hundred dollars for each meeting attended. Total fees paid under this arrangement for fiscal year 2014 were approximately twenty-one thousand dollars. Legal services are performed on our behalf and billed by a firm in which he is a partner.  Total fees billed under this arrangement for fiscal year 2014 were approximately one thousand dollars.

 

Director Allan Bridgford Jr., son of the former senior chairman of the board of directors, is providing consulting services to the Chicago plant and management.  The contract on behalf of the Company with Allan Bridgford Jr. is for consulting services at twelve hundred dollars per day.  Total fees billed under this arrangement for fiscal year 2014 were approximately $173,000.  As a member of the board of directors, he was paid a fee of one thousand eight hundred dollars for each meeting attended during fiscal 2014. Total fees paid under this arrangement for fiscal year 2014 were $8,800. He was reappointed as Director as of January 12, 2015.

 

 

Item 14.          Principal Accountant Fees and Services

 

Information set forth in the sections entitled “Principal Accountant Fees and Services” and “Policy on Audit Committee Pre-Approval of Audit Services And Permissible Non-Audit Services of Independent Accountants”   contained in our definitive proxy statement for the 2015 Annual Meeting of Shareholders to be held on March 18, 2015 is incorporated herein by reference.

 

 

PART IV

 

Item 15.          Exhibits and Financial Statement Schedules

 

(a)(1)  Financial Statements . The following documents are filed as a part of this report:

 

	Page
Management’s Report on Internal Control Over Financial Reporting	19
Report of Independent Registered Public Accounting Firm	23
Consolidated Balance Sheets as of October 31, 2014 and November 1, 2013	24
Consolidated Statements of Operations for years ended October 31, 2014 and November 1, 2013	25
Consolidated Statements of Comprehensive Income (Loss) for years ended October 31, 2014 and November 1, 2013	26
Consolidated Statements of Shareholders’ Equity for years ended October 31, 2014 and November 1, 2013	26
Consolidated Statements of Cash Flows for years ended October 31, 2014 and November 1, 2013	27
Notes to Consolidated Financial Statements	28

 

(2)  Financial Statement Schedules

 

Not applicable for smaller reporting company.

 

(3)  Exhibits

 

(a)  The exhibits below are filed or incorporated herein by reference.

 

Exhibit Number		Description
3.5		Restated Articles of Incorporation, dated December 29, 1989 (filed as Exhibit 3.5 to Form 10-K on January 28, 1993 and incorporated herein by reference).
3.6		Amendment to Articles of Incorporation, dated July 27, 1990 (filed as Exhibit 3.6 to Form 10-K on January 28, 1993 and incorporated herein by reference).
3.7		By-laws, as amended (filed as Exhibit 2 to Form 10-K on January 28, 1993 and incorporated herein by reference).
3.8		Certificate of Amendment to By-laws (filed as Exhibit 99.1 to Form 8-K on October 10, 2007 and incorporated herein by reference).
10.1		Bridgford Foods Corporation Defined Benefit Pension Plan (filed as Exhibit 10.1 to Form 10-K on January 28, 1993 and incorporated herein by reference).*
10.2		Bridgford Foods Corporation Supplemental Executive Retirement Plan (filed as Exhibit 10.2 to Form 10-K on January 28, 1993 and incorporated herein by reference).*
10.3		Bridgford Foods Corporation Deferred Compensation Savings Plan (filed as Exhibit 10.3 to Form 10-K on January 28, 1993 and incorporated herein by reference).*
21.1		Subsidiaries of the Registrant.
24.1		Power of Attorney (included as part of the signature page)
31.1		Certification of Principal Executive Officer, Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Certification of Principal Financial Officer, Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1		Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Principal Executive Officer).
32.2		Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Principal Financial Officer).
101.INS		XBRL Instance Document.**
101.SCH		XBRL Taxonomy Extension Schema Document.**
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document.**
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document.**
101.LAB		XBRL Taxonomy Extension Label Linkbase Document.**
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document.**

  

---

           * Each of these Exhibits constitutes a management contract, compensatory plan or arrangement.

** The XBRL information is being furnished and not filed or a part of a registration statement or prospectus for purposes of Section 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these Sections or otherwise incorporated by reference.

  

 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) 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
	By:	/s/  WILLIAM L. BRIDGFORD
		William L. Bridgford
		Chairman of the Board

Date: January 16, 2015

 

POWER OF ATTORNEY

 

We, the undersigned directors and officers of Bridgford Foods Corporation, do hereby constitute and appoint William L. Bridgford and Raymond F. Lancy, or either of them, with full power of substitution and resubstitution, our true and lawful attorneys and agents, to do any and all acts and things in our name and behalf in our capacities as directors and officers and to execute any and all instruments for us and in our names in the capacities indicated below, which said attorneys and agents, or either of them, or their substitutes, may deem necessary or advisable to enable said corporation to comply with the Securities Exchange Act of 1934, as amended, and any rules, regulations and requirements of the Securities and Exchange Commission in connection with this Annual Report on Form 10-K, including specifically, but without limitation, power and authority to sign for us or any of us in our names and in the capacities indicated below, any and all amendments; and we do hereby ratify and confirm all that the said attorneys and agents, or either of them, shall do or cause to be done by virtue hereof.

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

Signature		Title		Date
/s/ WILLIAM L. BRIDGFORD		Chairman of the Board		January 16, 2015
William L. Bridgford		(Principal Executive Officer)
/s/ BRUCE H. BRIDGFORD		Director		January 16, 2015
Bruce H. Bridgford
/s/ JOHN V. SIMMONS		President & Director		January 16, 2015
John V. Simmons
/s/ RAYMOND F. LANCY		Chief Financial Officer, Vice President, Treasurer & Director		January 16, 2015
Raymond F. Lancy		(Principal Financial and Accounting  Officer)
/s/ TODD C. ANDREWS		Director		January 16, 2015
Todd C. Andrews
/s/ ALLAN BRIDGFORD JR.		Director		January 16, 2015
Allan Bridgford Jr.
/s/ D. GREGORY SCOTT		Director		January 16, 2015
D. Gregory Scott
/s/ PAUL R. ZIPPWALD		Director		January 16, 2015
Paul R. Zippwald

 

 

Report Of Independent Registered Public Accounting Firm

 

To the Board of Directors and Shareholders

Bridgford Foods Corporation

 

We have audited the accompanying consolidated balance sheets of Bridgford Foods Corporation (the "Company") as of October 31, 2014 and November 1, 2013 and the related consolidated statements of operations, comprehensive income (loss), shareholders’ equity and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

 

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

 

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Bridgford Foods Corporation as of October 31, 2014 and November 1, 2013 and the results of its consolidated operations and its cash flows for the years then ended, in conformity with U.S. generally accepted accounting principles.

 

/s/ Squar, Milner, Peterson, Miranda & Williamson, LLP

 

Newport Beach, California

January 16, 2015

 

 

BRIDGFORD FOODS CORPORATION

CONSOLIDATED BALANCE SHEETS

October 31, 2014 and November 1, 2013

(in thousands, except per share amounts)

 

 

See accompanying notes to consolidated financial statements.

 

 

BRIDGFORD FOODS CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

For the fiscal years ended October 31, 2014 and November 1, 2013

(in thousands, except share and per share amounts)

 

 

See accompanying notes to consolidated financial statements

 

 

BRIDGFORD FOODS CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

For the fiscal years ended October 31, 2014 and November 1, 2013

(in thousands)

 

  

 

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

For the fiscal years ended October 31, 2014 and November 1, 2013

(in thousands)

 

 

 

See accompanying notes to consolidated financial statements.

 

 

BRIDGFORD FOODS CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the fiscal years ended October 31, 2014 and November 1, 2013

(in thousands)

 

 

See accompanying notes to consolidated financial statements.

 

 

BRIDGFORD FOODS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands except share and per share amounts, time periods and percentages)

 

 

 

 

 

 

 

 

 

 

39