SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark one)

 

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934

 

For the quarterly period ended January 25, 2008

 

OR

 

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

 

For the transition period from              to               .

 

Commission file number 0-2396

 

BRIDGFORD FOODS CORPORATION

(Exact name of Registrant as specified in its charter)

 

 

1308 N. Patt Street, Anaheim, CA 92801

(Address of principal executive offices-Zip code)

 

714-526-5533

(Registrant’s telephone number, including area code)

 

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

 

Yes x          No o

 

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

 

 

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

 

Yes o          No x

 

As of March 5, 2008 the registrant had 9,856,074 shares of common stock outstanding.

 

 

BRIDGFORD FOODS CORPORATION

FORM 10-Q QUARTERLY REPORT

INDEX

 

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

 

		Page
Part I. Financial Information
Item 1.	Financial Statements
	a.  Consolidated Condensed Balance Sheets at January 25, 2008 (unaudited) and November 2, 2007	3
	b.  Consolidated Condensed Statements of Operations for the twelve weeks ended January 25, 2008 and January 26, 2007 (unaudited)	4
	c.  Consolidated Condensed Statement of Shareholders’ Equity and Comprehensive Income (Loss) for the twelve weeks ended January 25, 2008 (unaudited)	4
	d.  Consolidated Condensed Statements of Cash Flows for the twelve weeks ended January 25, 2008 and January 26, 2007 (unaudited)	5
	e.  Notes to Consolidated Condensed Financial Statements (unaudited)	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	9
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	15
Item 4.	Controls and Procedures	16
Part II. Other Information
Item 1A.	Risk Factors	18
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	18
Item 6.	Exhibits	19
Signatures		20
Items 1 and 3-5 of Part II. have been omitted because they are not applicable with respect to the current reporting period.

 

2

 

Part I.   Financial Information

 

Item 1. a.

 

BRIDGFORD FOODS CORPORATION

CONSOLIDATED CONDENSED BALANCE SHEETS

(in thousands, except per share amounts)

 

		January 25			November 2
		2008			2007
		(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents		$	15,610		$	11,336
Accounts receivable, less allowance for doubtful accounts of $475 and $482, respectively, and promotional allowances of $2,319 and $1,980, respectively		8,230			8,563
Inventories (Note 3)		13,435			18,332
Prepaid expenses and other current assets		2,856			3,124
Total current assets		40,131			41,355
Property, plant and equipment, less accumulated depreciation of $54,362 and $53,840, respectively		10,904			11,221
Other non-current assets		17,125			15,071
		$	68,160		$	67,647
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	3,177		$	2,978
Accrued payroll, advertising and other expenses		7,805			8,924
Total current liabilities		10,982			11,902
Non-current liabilities		11,612			5,776
Commitments (Notes 5 and 6)
Shareholders’ equity:
Preferred stock, without par value
Authorized - 1,000 shares
Issued and outstanding - none		—			—
Common stock, $1.00 par value
Authorized - 20,000 shares
Issued and outstanding - 9,867 and 9,889 shares		9,924			9,946
Capital in excess of par value		13,666			13,789
Retained earnings		26,482			26,837
Accumulated other comprehensive loss		(4,506		)	(603		)
		45,566			49,969
		$	68,160		$	67,647

 

See accompanying notes to consolidated condensed financial statements.

 

3

 

Item 1. b.

 

BRIDGFORD FOODS CORPORATION

CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS

(Unaudited)

 

		(in thousands, except per share amounts)
		12 weeks ended			12 weeks ended
		January 25			January 26
		2008			2007
Net sales		$	31,319		$	32,314
Cost of products sold, excluding depreciation		20,977			21,556
Selling, general and administrative expenses		10,025			9,921
Depreciation		748			782
		31,750			32,259
(Loss) income before taxes		(431		)	55
Income tax (benefit) provision		(168		)	15
Net (loss) income		$	(263	)	$	40
Basic and diluted (loss) income per share (Note 4)		$	(.03	)	$	.00
Basic and diluted shares computed		9,880			9,955

 

See accompanying notes to consolidated condensed financial statements.

 

Item 1. c.

 

CONSOLIDATED CONDENSED STATEMENT OF SHAREHOLDERS’ EQUITY AND COMPREHENSIVE INCOME (LOSS)

(Unaudited)

(in thousands)

 

													Accumulated
							Capital						other
		Common Stock					in excess			Retained			comprehensive
		Shares		Amount			of par			earnings			income (loss)			Total
November 2, 2007		9,889		$	9,946		$	13,789		$	26,837		$	(603	)	$	49,969
Adoption of FIN#48 (Note 8)											(92	)					(92	)
Shares repurchased		(22	)	(22		)	(123		)							(145		)
Net loss										(263		)				(263		)
Other comprehensive income:
Unrealized income on investments													(34		)	(34		)
Increase in pension liability													(3,869		)	(3,869		)
Comprehensive income																(4,166		)
January 25, 2008		9,867		$	9,924		$	13,666		$	26,482		$	(4,506	)	$	45,566

 

See accompanying notes to consolidated condensed financial statements.

 

4

 

Item 1. d.

 

BRIDGFORD FOODS CORPORATION

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)

 

		12 weeks ended				12 weeks ended
		January 25				January 26
		2008				2007
		(in thousands)				(in thousands)
Cash flows from operating activities:
Net income (loss)		$		(263	)	$	40
Income charges not affecting cash:
Depreciation		748				782
Loss (recovery) on accounts receivable		24				(197		)
Gain on sale of property, plant and equipment		(13			)	(2		)
Effect on cash of changes in assets and liabilities:
Trading securities		—				(3,000		)
Accounts receivable, net		309				2,360
Inventories		4,897				4,468
Prepaid expenses and other current assets		234				(343		)
Other non-current assets		317				(184		)
Accounts payable		199				(1,098		)
Accrued payroll, advertising and other expenses		(1,211			)	(1,067		)
Non-current liabilities		(404			)	(61		)
Net cash provided by operating activities		4,837				1,698
Cash used in investing activities:
Proceeds from sale of property, plant and equipment		13				2
Additions to property, plant and equipment		(431			)	(346		)
Net cash used in investing activities		(418			)	(344		)
Cash used in financing activities:
Shares repurchased		(145			)	(39		)
Net cash used in financing activities		(145			)	(39		)
Net increase in cash and cash equivalents		4,274				1,315
Cash and cash equivalents at beginning of period		11,336				1,180
Cash and cash equivalents at end of period		$	15,610			$	2,495
Cash paid for income taxes		$	0			$	0

 

See accompanying notes to consolidated condensed financial statements.

 

5

 

Item 1. e.

 

BRIDGFORD FOODS CORPORATION

 

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Unaudited)

(in thousands, except share and per share amounts)

 

Note 1 - The Company and Summary of Significant Accounting Policies:

 

The unaudited consolidated condensed financial statements of Bridgford Foods Corporation (the “Company”)for the twelve weeks ended January 25, 2008 and January 26, 2007 have been prepared in conformity with the accounting principles described in the Company’s Annual Report on Form 10-K for the fiscal year ended November 2, 2007 (the “Annual Report”) and include all adjustments considered necessary by management for a fair statement of the interim periods.  Such adjustments consist only of normal recurring items.  This report should be read in conjunction with the Annual Report.  Due to seasonality and other factors, interim results are not necessarily indicative of the results to be expected for the full year.  New accounting pronouncements and their affect on the Company are included in Management’s Discussion and Analysis of Financial Condition and Results of Operations in this Form 10-Q.

 

Note 2 - Trading Securities:

 

At January 25, 2008, the Company held no auction rate securities.  The Company elected to sell all auction rate securities during the second quarter of fiscal 2007 and invest in 90-day treasury bills which are classified as cash and cash equivalents on the accompanying consolidated condensed balance sheet.

 

At January 26, 2007, the Company held $15,200 of auction rate securities, identified as a separately stated current asset  in accordance with SFAS 115, “Accounting for Certain Debt and Equity Securities.”  Auction rate securities are variable-rate bonds tied to short-term interest rates with maturities on the face of the securities in excess of 90 days.  The Company’s investments in these auction rate securities are classified as trading securities under SFAS 115.  The securities are recorded at cost, which approximates fair market value because of their variable interest rates, which typically reset every 7 to 35 days.  Despite the long-term nature of their stated contractual maturities, the Company has the intent and ability to quickly liquidate these securities; therefore, the Company has no cumulative gross unrealized holding gains or losses, or gross unrealized gains or losses from these investments.  All income generated from these investments was recorded as interest income.

 

Note 3 - Inventories:

 

Inventories are comprised as follows at the respective periods:

 

		January 25			November 2
		2008			2007
Meat, ingredients and supplies		$	3,843		$	3,726
Work in progress		1,354			1,360
Finished goods		8,238			13,246
		$	13,435		$	18,332

 

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

 

Note 4 - Basic and diluted earnings per share:

 

The Company had 250,000 employee stock options outstanding during the twelve week periods ended January 25, 2008 and January 26, 2007, respectively.  The effect of the employee stock options outstanding for the twelve weeks ended January 25, 2008 and January 26, 2007 was not included in the calculation of diluted shares and diluted earnings per share as to do so would be anti-dilutive.  No options were granted during the first twelve weeks ended January 25, 2008 and January 26, 2007.

 

6

 

Note 5 - Retirement and Other Benefit Plans:

 

The Company has noncontributory-trusteed defined benefit retirement plans for sales, administrative, supervisory and certain other employees. The benefits under these plans are primarily based on years of service and compensation levels. The Company’s funding policy is to contribute annually the maximum amount deductible for federal income tax purposes, without regard to the plans’ unfunded current liabilities. The measurement date for the plans is the Company’s fiscal year end.

 

Net pension cost consisted of the following:

 

		12 weeks ended			12 weeks ended
		January 25			January 26
		2008			2007
Service cost		$	56		$	61
Interest cost		505			429
Expected return on plan assets		(543		)	(462		)
Amortization of net loss from earlier periods		—			—
Amortization of unrecognized prior service cost		1			—
Curtailment cost		—			47
Amortization of net (gain) loss		8			—
Net pension cost		$	27		$	75

 

The expected Company contribution to the plans in fiscal year 2008 is $2,877. The Company has funded the plans in the amount of $1,442 through the first twelve weeks of fiscal 2008.

 

Note 6 - Commitments:

 

The Company leases certain transportation and computer equipment under operating leases.  The terms of the transportation leases provide for annual renewal options and contingent rental payments based upon mileage and adjustments of rental payments based on the Consumer Price Index.   No material changes have been made to these contracts during the first twelve weeks of fiscal 2008.

 

Note 7 - Segment Information:

 

The Company has two reportable operating segments, Frozen Food Products (the processing and distribution of frozen products) and Refrigerated and Snack Food Products (the processing and distribution of refrigerated meat and other convenience foods).

 

The Company evaluates each segment’s performance based on revenues and operating income. Selling, general and administrative expenses include corporate accounting, information systems, human resource management and marketing, which are managed at the corporate level. These activities are allocated to each operating segment based on revenues and/or actual usage.

 

7

 

The following segment information is presented for the twelve week periods ended January 25, 2008 and January 26, 2007.

 

					Refrigerated
					and
Twelve Weeks Ended		Frozen Food			Snack Food
January 25, 2008		Products			Products			Other			Elimination			Totals
Sales from external customers		$	13,448		$	17,871		$	—		$	—		$	31,319
Intersegment sales		—			458			—			458			—
Net sales		13,448			18,329			—			458			31,319
Cost of products sold, excluding depreciation		8,750			12,685			—			458			20,977
Selling, general and administrative expenses		3,490			6,535			—			—			10,025
Depreciation		181			493			74			—			748
		12,421			19,713			74			458			31,750
Income (loss) before taxes		1,027			(1,384		)	(74		)	—			(431		)
Income tax provision (benefit)		380			(548		)	—			—			(168		)
Net income (loss)		$	647		$	(836	)	$	(74	)	$	—		$	(263	)
Total assets		$	10,541		$	22,312		$	35,307		$	—		$	68,160
Additions to property, plant and equipment		$	—		$	342		$	89		$	—		$	431

 

					Refrigerated
					and
Twelve Weeks Ended		Frozen Food			Snack Food
January 26, 2007		Products			Products			Other			Elimination			Totals
Sales from external customers		$	11,918		$	20,396		$	—		$	—		$	32,314
Intersegment sales		—			299			—			299			—
Net sales		11,918			20,695			—			299			32,314
Cost of products sold, excluding depreciation		7,462			14,393			—			299			21,556
Selling, general and administrative expenses		3,438			6,483			—			—			9,921
Depreciation		203			483			96			—			782
Gain on sale of equity securities		—			—			—			—			—
		11,103			21,359			96			299			32,259
Income (loss) before taxes		815			(664		)	(96		)	—			55
Income tax provision (benefit)		296			(281		)	—			—			15
Net income (loss)		$	519		$	(383	)	$	(96	)	$	—		$	40
Total assets		$	10,411		$	25,289		$	34,879		$	—		$	70,579
Additions to property, plant and equipment		$	64		$	290		$	(8	)	$	—		$	346

 

Note 8 - Income taxes:

 

In July 2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes,” (“FIN 48”), an interpretation of FASB Statement No. 109, “Accounting for Income Taxes,” (“FASB 109”).  FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with FASB 109. This Interpretation prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.  FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006.  The cumulative effect, if any, of applying FIN 48 is reported as an adjustment to the opening balance of retained earnings in the year of adoption.

 

As of November 3, 2007, the Company has provided a liability of $92 for unrecognized tax benefits related to various federal and state income tax matters. The cumulative effect of applying FIN 48 has been recorded as a decrease of $92 to opening retained earnings with an offsetting increase in the accrued FIN 48 liability. This entire amount would reduce the Company’s effective income tax rate if an asset is recognized in future reporting periods.

 

As of January 25, 2008, the Company has not identified any new unrecognized tax benefits.

 

The Company will recognize any future accrued interest and penalties related to unrecognized tax benefits in income tax expense.  As of January 25, 2008, the Company had approximately $2 in accrued interest and penalties which is included as a component of the $92 unrecognized tax benefit noted above.

 

The Company is subject to U.S. federal income tax, and is currently under audit by the Internal Revenue Service for the years ended November 1, 2002 through October 28, 2005. The Company’s federal income tax returns are open to audit under the statute of limitations for the years ended October 29, 2004 through November 3, 2006.  The Company’s statute of limitations for its years ended November 1, 2002 and October 31, 2003 have been extended to October 31, 2008.  The Company believes the appropriate provisions for all outstanding issues have been made for all years under audit.

 

The Company is subject to income tax in California and various other state taxing jurisdictions. The Company’s state income tax returns are open to audit under the statute of limitations for the years ended October 31, 2003 through November 3, 2006. The Company is currently under examination relating to its income taxes in New York and Texas.

 

The Company does not anticipate a significant change to the total amount of unrecognized tax benefits within the next twelve months.

 

8

 

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

 

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 Report.  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 the Company to alter its marketing, capital expenditure or other budgets, which may in turn affect the Company’s 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 the Company’s Annual Report on Form 10-K for the fiscal year ended November 2, 2007.  The Company undertakes 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 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. The Company records 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.

 

The Company’s 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.  The Company has significant amounts receivable with a few large, well known customers which, although historically secure, could be subject to material risk should these customers’ operations suddenly deteriorate. The Company monitors these customers closely to minimize the risk of loss.  Sales to Wal-Mart® comprised 13.8% of revenues in the first twelve weeks of fiscal year 2008 and 20.4% of accounts receivable was due from Wal-Mart® at January 25, 2008. Sales to Wal-Mart® comprised 14.9% of revenues in the first quarter of fiscal year 2007 and 21.5% of accounts receivable was due from Wal-Mart® at January 26, 2007.

 

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 the Company’s own long-haul fleet or through a Company owned direct store delivery system.

 

The Company records 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.

 

Estimated amounts related to liabilities for pension benefits are especially subject to inherent uncertainties and these liabilities may ultimately settle at amounts not originally estimated. Management believes its current estimates are reasonable and based on the best information available at the time.

 

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.

 

9

 

The Company provides tax reserves for federal, state, local and international exposures relating to audit results, tax planning initiatives and compliance responsibilities.  The development of these reserves require 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 emanating from these reviews.  Actual outcomes may differ materially from these estimates.

 

The Company assesses the recoverability of its 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, the Company recognizes an impairment to reduce the carrying value of the applicable long-lived assets to their estimated fair value.

 

Executive Level Overview of Business Segments

 

The Company operates in two business segments — the processing and distribution of frozen products (the Frozen Food segment), and the processing and distribution of refrigerated and snack food products, (the Refrigerated and Snack Food segment).  For information regarding the separate financial performance of the business segments refer to Note 7 of the Notes to the Consolidated Condensed Financial Statements included in this Quarterly Report on Form 10-Q.  The products manufactured and distributed by the Company consist 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.  The products purchased by the Company for resale include a variety of jerky, cheeses, salads, party dips, Mexican foods, nuts and other delicatessen type food products. Although the Company has recently introduced several new products, most of these products have not contributed significantly to the Company’s revenue growth for the 2008 fiscal year

 

Frozen Food Products Segment

 

The products manufactured and distributed by the Company in the Frozen Food Products Segment consist of 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.  The Company’s frozen food division serves both food service and retail customers.  The Company sells approximately 200 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 Segment

 

The products distributed by the Company in the Refrigerated and Snack Food Products segment consist of both products manufactured by the Company and product 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, summer sausage and pepperoni products.  The deli division includes products such as ham, sandwiches, cheese, Mexican food, pastries and other delicatessen type food products.  The Company’s refrigerated and snack food products division sells approximately 260 different items through a direct store delivery network serving approximately 35,000 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.

 

Results of Operations for the Twelve Weeks ended January 25, 2008 and Twelve Weeks ended January 26, 2007 (in thousands, except share amounts)

 

Net Sales-Consolidated

 

Net sales decreased by $995 (3.1%) to $31,319 in the first twelve weeks of the 2008 fiscal year compared to the same twelve-week period last year. Unit volume decreased approximately 12.4% offset by unit price increases of 7.5%.  Promotional allowances decreased by approximately 0.7% as a percent of sales also offsetting the net sales decrease compared to the same twelve-week period last year.  Product return levels were slightly lower against the comparative prior period which also offset the decrease in net sales.

 

10

 

Compared to the prior sixteen-week period ended November 2, 2007 (not shown), average weekly sales increased $223 (9.3%).  The increase primarily relates to unit price increases of 4.1% and higher unit sales volume of 3.2% during the first twelve weeks of the 2008 fiscal year compared to the previous sixteen-week period.  The increase in unit sales resulted from normal seasonal factors.  Lower promotional allowances also helped increase weekly sales compared to the prior period.

 

Net Sales-Frozen Food Products Segment

 

Net sales in the Frozen Food Products segment increased by $1,530 (12.8%) to $13,448 in the first twelve weeks of the 2008 fiscal year compared to the same twelve-week period last year.  Unit volume decreases of 2.1% were offset by unit price increases of 8.9%. Promotional allowances were lower compared to the same twelve-week period last year also contributing to the net sales increase.

 

Net Sales-Refrigerated and Snack Food Segment

 

Net sales in the Refrigerated and Snack Food Products segment decreased by $2,525 (12.4%) to $17,871 in the first twelve weeks of the 2008 fiscal year compared to the same twelve-week period last year.  Unit volume decreased by 20.6% compared to the same twelve-week period last year.  An increase in unit selling prices (6.5%) partially offset the impact of the unit volume decreases.

 

Cost of Products Sold and Gross Margin -Consolidated

 

Cost of products sold decreased by $579 (2.7%) to $20,977 in the first twelve weeks of the 2008 fiscal year compared to the same twelve-week period in fiscal 2007.  The gross margin before depreciation decreased from 33.3% to 33.0% primarily due to higher commodity costs when compared to the same twelve-week period in fiscal 2007.  Lower promotional allowances also increased net selling prices helping to mitigate the gross margin decline.

 

Compared to the prior sixteen-week period ended November 2, 2007 (not shown), the average weekly cost of products sold increased $206 (13.4%) for the first twelve weeks of fiscal year 2008.  The increase is consistent with the weekly sales increase and higher trends in commodity costs.

 

Cost of Products Sold- Frozen Food Products Segment

 

Cost of products sold in the Frozen Food Products segment increased by $1,288 (17.3%) to $8,750 in the first twelve weeks of the 2008 fiscal year compared to the same twelve-week period in fiscal 2007.  An increase in unit volume and higher flour commodity costs were the primary contributing factor to this increase.

 

Cost of Products Sold-Refrigerated and Snack Food Segment

 

Cost of products sold in the Refrigerated and Snack Food Products segment decreased by $1,708 (11.9%) to $12,685 in the first twelve weeks of the 2008 fiscal year compared to the same twelve-week period in fiscal 2007.  Unit volume declines were the primary factor causing this decrease.  Meat commodity costs were generally consistent between the comparative twelve week periods.

 

Selling, General and Administrative Expenses-Consolidated

 

Selling, general and administrative expenses increased by $104 (1.0%) to $10,025 in the first twelve weeks of fiscal year 2008 compared to the same twelve-week period in the prior fiscal year.  The change in this category for the twelve-week period ended January 25, 2008 did not directly correspond to the sales decrease.  Unfavorable trends were experienced in cash surrender value gains, bad debt recoveries and interest income causing an increase in this category.  Favorable trends in healthcare and workers’ compensation expenses helped mitigate these unfavorable trends compared to the same twelve week period in the prior year.

 

Compared to the prior sixteen-week period ended November 2, 2007 (not shown), average weekly selling, general and administrative expenses increased by $31 (3.9%).  The increase was primarily caused by an increase in average weekly sales and unfavorable trends in cash surrender value gains offset by lower cost trends related to healthcare and workers’ compensation expenses.

 

11

 

Selling, General and Administrative Expenses-Frozen Food Products Segment

 

Selling, general and administrative expenses in the Frozen Food Products segment increased by $52 (1.5%) to $3,490 in the first twelve weeks of fiscal year 2008 compared to the same twelve week period in the prior fiscal year.  The increase was primarily driven by higher sales volumes.  Lower healthcare and workers’ compensation costs offset some of the increase.

 

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

 

Selling, general and administrative expenses in the Refrigerated and Snack Food Products segment increased by $52 (0.8%) to $6,535 in the first twelve weeks of fiscal year 2008 compared to the same twelve-week period in the prior fiscal year.  The increase was primarily caused by a favorable bad debt recovery in the prior year that did not recur.

 

Depreciation Expense-Consolidated

 

Depreciation expense decreased by $34 (4.3%) to $748 in the first twelve weeks of the 2008 fiscal year compared to the same twelve-week period in fiscal year 2007.  The decrease in depreciation expense reflects lower capital expenditure levels in recent years and certain significant assets becoming fully depreciated in the 2008 fiscal year.  Compared to the prior sixteen-week period ended November 2, 2007 (not shown), average weekly depreciation decreased by $7 due to the reasons mentioned previously.

 

Depreciation Expense-Frozen Food Products and Refrigerated and Snack Food Segments

 

Depreciation expense in the Frozen Food Products segment decreased by $22 (10.8%) to $181 in the first twelve weeks of the 2008 fiscal year compared to the same twelve-week period in fiscal year 2007.  This decrease reflects lower capital spending activity and significant facilities becoming fully depreciated.

 

Depreciation expense in the Refrigerated and Snack Food Products segment increased by $10 (2.1%) to $493 in the first twelve weeks of the 2008 fiscal year compared to the same twelve-week period in fiscal year 2007.  The increase in depreciation expense reflects the impact of a new major manufacturing line put in service in the last sixteen weeks of fiscal year 2007.

 

Income Taxes-Consolidated

 

The Company recorded an income tax provision based on an estimated annual effective tax rate of 38.9% in the first twelve weeks of fiscal 2008 as compared to 27.4% in the prior fiscal year and 20.4% for the prior sixteen-week period. The change from the first twelve weeks of fiscal 2007 reflects revisions to the Company’s fourth fiscal period tax rate to reflect actual results.  The change from the same period in the prior year relates to lower expected cash surrender value gains expected for fiscal year 2008.

 

Net Income (Loss)-Consolidated

 

The net loss of $263 in the twelve weeks ended January 25, 2008 included non-taxable losses on life insurance policies in the amount of $318. Gains and losses on life insurance policies are dependent upon the performance of the underlying equities and future results may not produce gains of equal magnitude or may produce losses.  Taxable investment income also decreased on a comparative basis during the first twelve weeks of fiscal 2008 in the amount of $63 due to lower cash balances and lower short-term interest rates.

 

After considering the effect of these transactions, the Company’s results for the twelve week periods ended January 25, 2008 and January 26, 2007 are as follows:

 

		January 25, 2008			January 26, 2007
Net loss before taxes, life insurance gain and investment income		$	(213	)	$	(293	)
Life insurance (loss) gain and investment income		(218		)	348
(Loss) income before taxes		(431		)	55
Income tax (provision) benefit		(168		)	15
Net (loss) income		$	(263	)	$	40

 

The Company presents net income or loss before taxes, life insurance gain or loss and investment income because the Company believes it is an important measure for investors to use in understanding the Company’s underlying operations.

 

12

 

Liquidity and Capital Resources (in thousands except share amounts)

 

The Company’s need for operations growth, capital expenses and share repurchases are expected to be met with cash flows provided by operating activities.

 

Cash flows from operating activities for the twelve weeks ended:

 

		January 25, 2008		January 26, 2007
Net (loss) income		$(263	)	$40
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation		748		782
Loss (recovery) on accounts receivable		24		(197	)
Gain on sale of property, plant and equipment		(13	)	(2	)
Changes in working capital		4,341		1,074
Net cash provided by operating activities		$4,837		$1,697

 

Cash provided by operating activities was $4,837 which enabled the Company to fund pension contributions in the amount of $1,442, additions to property, plant and equipment in the amount of $431and share repurchases of $145.

 

Significant changes in working capital for the twelve weeks ended were as follows:

 

January 25, 2008 – Operating cash flows increased primarily due to a significant reduction in inventories in the amount of $4,897 offset by a reduction in accrued payroll, advertising and other expenses in the amount of $1,211. During the period the Company funded $1,442 towards its defined benefit pension plan.

 

January 26, 2007- Operating cash flows increased primarily due to the a significant reduction in inventories in the amount of $4,468 offset by purchases of trading securities of  $3,000 and reductions  in accounts payable and accrued payroll, advertising and other expenses in the amount of $2,165. During the period the Company funded $1,333 toward its defined benefit pension plan.

 

Cash used in investing activities for the twelve weeks ended:

 

		January 25, 2008			January 26, 2007
Proceeds from sale of property, plant and equipment		$	13		$	2
Additions to property, plant and equipment		(431		)	(346		)
Net cash used in investing activities		$	(418	)	$	(344	)

 

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 the Company carefully scrutinizes capital investments for short term pay-back of investment.

 

13

 

Cash used in financing activities for the twelve weeks ended: