FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended October 25, 1996
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ___________________________
Commission file number 0-1667
Bob Evans Farms, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 31-4421866
- --------------------------------------------- -------------------
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
3776 South High Street Columbus, Ohio 43207
-------------------------------------------
(Address of principal executive offices)
(Zip Code)
(614) 491-2225
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(Registrant's telephone number, including area code)
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(Former name, former address and formal fiscal year,
if changed since last report)
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 _____
As of the close of the period covered by this report, the registrant had
issued 42,638,118 common shares.
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BOB EVANS FARMS, INC.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
(Dollars in Thousands)
October 25, 1996 April 26, 1996
---------------- --------------
Unaudited Audited
Current Assets
<S> <C> <C>
Cash and equivalents $ 15,567 $ 14,369
Accounts receivable 16,969 14,509
Inventory 23,880 20,876
Deferred income taxes 5,882 5,882
Prepaid expenses 4,139 3,263
-------- --------
Total Current Assets 66,437 58,899
Property, Plant, and Equipment, at Cost 713,147 646,849
Less accumulated depreciation 254,208 199,606
-------- --------
Net Property, Plant and Equipment 458,939 447,243
Other Assets
Deposits and other 3,027 2,955
Long-term investments 5,165 4,893
Deferred income taxes 9,918 9,918
Cost in excess of net assets acquired 10,208 10,477
Other intangible assets 1,270 1,428
-------- --------
Total Other Assets 29,588 29,671
-------- --------
$554,964 $535,813
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Line of credit $ 66,855 $ 59,655
Accounts payable 9,023 5,940
Dividends payable 3,367 3,382
Federal and state income taxes 2,468 535
Accrued wages and related liabilities 11,102 14,245
Other accrued expenses 33,517 32,674
-------- --------
Total Current Liabilities 126,332 116,431
Long-Term Liabilities
Deferred income taxes 8,300 8,300
Notes payable (net of discount of $371,000 at
October 25, 1996 and $443,000 at April 26, 1996) 1,999 1,927
-------- --------
10,299 10,227
Stockholders' Equity
Common stock, $.01 par value; authorized 100,000,000
shares; issued 42,638,118 shares at October 25, 1996
and April 26, 1996 426 426
Preferred stock: authorized 1,200 shares; issued 120
shares at October 25, 1996 and April 26, 1996 60 60
Capital in excess of par value 145,617 145,584
Retained earnings 280,514 268,677
-------- --------
426,617 414,747
Less treasury stock: 546,196 shares at October 25, 1996
and 362,875 shares at April 26, 1996, at cost 8,284 5,592
-------- --------
Total Stockholders' Equity 418,333 409,155
-------- --------
$554,964 $535,813
======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
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<TABLE>
BOB EVANS FARMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
UNAUDITED
(Dollars in Thousands Except Net Income
Per Share and Cash Dividend Amounts)
Three Months Ended Six Months Ended
------------------ ----------------
Oct. 25, 1996 Oct. 27, 1995 Oct. 25, 1996 Oct. 27, 1995
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales $ 206,244 $ 207,700 $ 419,304 $ 413,562
Cost of sales 66,432 63,348 134,405 124,501
Operating wage and fringe benefit expenses 64,164 62,437 131,743 123,868
Other operating expenses 28,670 28,314 58,393 56,658
Selling, general and administrative expenses 24,888 25,724 51,726 51,004
Depreciation expense 7,052 6,762 13,823 13,204
----------- ------------ ----------- -----------
Operating Profit 15,038 21,115 29,214 44,327
Net interest 217 (42) 283 4
----------- ------------ ----------- -----------
Income Before Income Taxes 15,255 21,073 29,497 44,331
Provisions for income taxes
Federal 4,595 6,627 8,967 13,889
State 978 1,436 1,947 3,035
----------- ----------- ----------- -----------
5,573 8,063 10,914 16,924
----------- ------------ ----------- -----------
Net Income $ 9,682 $ 13,010 $ 18,583 $ 27,407
=========== ============ =========== ===========
Weighted average number of common
shares outstanding 42,201,899 42,341,053 42,201,899 42,341,053
=========== ============ =========== ===========
Net income per common share based upon
the weighted average number of
common shares $ .23 $ .31 $ .44 $ .65
=========== ============ =========== ===========
Cash dividends per common share $ .08 $ .08 $ .16 $ .16
=========== ============ =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
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<TABLE>
BOB EVANS FARMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
(Dollars in Thousands)
Six Months Ended
October 25, 1996 October 27, 1995
---------------- ----------------
<S> <C> <C>
Operating activities:
Net income $ 18,583 $ 27,407
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 14,250 13,630
Loss (gain) on sale of property and equipment (194) 94
Compensation expense attributable to stock plans 92 390
Cash provided by (used for) current assets
and current liabilities:
Accounts receivable (2,460) 736
Inventories (3,004) (1,746)
Prepaid expenses (876) (883)
Accounts payable 3,083 4,370
Federal and state income taxes 1,933 (802)
Accrued wages and related liabilities (3,235) (2,060)
Other accrued expenses 843 (1,400)
-------- --------
Net cash provided by operating activities 29,015 39,736
Investing activities:
Purchase of property, plant and equipment (25,519) (47,509)
Purchase of investments (272) (1,539)
Proceeds from sale of property, plant and equipment 194 225
Other (72) 292
-------- --------
Net cash used in investing activities (25,669) (48,531)
Financing activities:
Cash dividends paid (6,761) (6,457)
Net borrowings on line of credit 7,200 13,325
Purchase of treasury stock (3,192) (1,438)
Interest accrued on long-term notes 72 78
Distribution of treasury stock
due to the exercise of stock
options and employee bonuses 533 698
-------- --------
Net cash provided by (used in) financing activities (2,148) 6,206
-------- --------
Increase (decrease) in cash and equivalents 1,198 (2,589)
Cash and equivalents at the beginning of the period 14,369 10,451
-------- --------
Cash and equivalents at the end of the period $ 15,567 $ 7,862
======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
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================================================================================
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
UNAUDITED
1. Unaudited Financial Statements
The accompanying unaudited financial statements are presented in
accordance with the requirements of Form 10-Q and, consequently, do not
include all of the disclosures normally required by generally accepted
accounting principles, or those normally made in the Company's Form 10-K
filing. In the opinion of management, all adjustments (consisting of
normal recurring accruals) considered necessary for a fair presentation
have been included. No significant changes have occurred in the
disclosures made in Form 10-K for the fiscal year ended April 26, 1996
(refer to Form 10-K for a summary of significant accounting policies
followed in the preparation of the consolidated financial statements).
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Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Sales
Consolidated net sales for Bob Evans Farms, Inc. decreased approximately
$1.4 million, or 0.7% in the second quarter ended October 25, 1996 as compared
to the corresponding quarter a year ago. This decrease was comprised of a $2.6
million sales decrease in the restaurant segment, and a $1.2 sales increase in
the food products segment. For the six-month period ended October 25, 1996,
consolidated net sales rose $5.7 million, or 1.4%, which was comprised of a $0.1
million increase in the restaurant segment, and a $5.6 million increase in the
food products segment.
In the restaurant segment, the second quarter sales decrease of $2.6
million (1.7%) was the result of closing the company's 14 remaining Cantina del
Rio Mexican restaurants near the beginning of the quarter (August 5, 1996) as
well as continued same-store sales declines. Year-to-date, the factors which
resulted in the second quarter sales decline nearly offset the sales increases
brought about by newly opened restaurants, resulting in a sales increase of $0.1
million. The chart below summarizes the openings and closings during the last
six quarters:
SUMMARY OF RESTAURANTS OPENED AND CLOSED
Beginning Opened Closed Ending
--------- ------ ------ ------
Fiscal 1996
1st quarter 354 7 0 361
2nd quarter 361 13 0 374
3rd quarter 374 10 1 383
4th quarter 383 7 0 390
Fiscal 1997
1st quarter 390 5 5 390
2nd quarter 390 7 14 383
Of the seven restaurants opened in the second quarter, four were
traditional restaurants and three were "small-town" restaurants.
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Continued declines in same-store sales contributed to the restaurant
segment sales decline in the second quarter and the flat sales experienced for
the six-month period. Same-store sales for core restaurants (restaurants that
have been open two full years) decreased 3.2% for both the quarter and
year-to-date. The average menu price increase amounted to 1.5% for the quarter
and 1.4% for the six-month period.
In the food products segment, sales increased $1.2 million (2.3%) for the
quarter and $5.6 million (5.4%) year-to-date. The second quarter increase was
the result of price increases which offset a decline of 6% in comparable pounds
of sausage products sold. The retail price of the benchmark one-pound roll
sausage was $3.09 for most of the second quarter this year versus $2.69 for most
of the second quarter a year ago. Year-to-date, the food products segment
experienced a 4% decline in comparable pounds of sausage products sold.
Also impacting the sales increases in the food products segment were
higher sales of charcoal products. Sales at Hickory Specialties increased $0.7
million for the quarter and $3.5 million year-to-date. Sales of salad products
have not changed appreciably.
Cost of Sales
Consolidated cost of sales (cost of materials only) was 32.2% of sales in
the second quarter compared to 30.5% of sales in the second quarter a year ago.
Year-to-date, consolidated cost of sales represented 32.1% of sales versus 30.1%
last fiscal year.
In the restaurant segment, food cost (cost of sales) was 26.9% of sales in
the second quarter and 26.8% of sales year-to-date, versus 26.6% of sales in
both periods last year. There were no notable items which led to the increase in
the food cost percentage.
In the food products segment, cost of sales was 47.3% of sales for the
quarter and 46.9% year-to-date compared to 42.1% and 40.5%, respectively, for
the corresponding periods a year ago. These increases were due to significant
increases in hog costs, which averaged $53.00 per hundredweight in the second
quarter of this year versus $39.60 per hundredweight in the second quarter last
year. The first quarter comparisons were $46.90 versus $32.00. The increases in
hog costs were not fully absorbed by price increases of the company's sausage
products, resulting in decreases in operating profit of $2.8 million in the
second quarter and $7.0 million year-to-date.
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Operating Wage and Fringe Benefit Expenses
Consolidated operating wage and fringe benefit expenses increased from
30.1% to 31.1% of sales in the second quarter and from 30.0% to 31.4% of sales
year-to-date in comparison to the corresponding periods last year.
In the restaurant segment, wages and fringes represented 37.7% of sales
for the quarter and 38.2% of sales year-to-date versus 35.8% and 35.7%,
respectively, for the corresponding periods a year ago. The increases are the
result of higher hourly labor costs, higher managerial costs and increased
health insurance expense. Specific items which impacted the percentage
comparisons were labor costs associated with closing 14 restaurants in the
quarter (19 for the year) and the effect of the decrease in same-store sales
discussed above.
In the food products segment, wages and fringes represented 12.3% of sales
for the quarter and 12.6% of sales year-to-date versus 13.0% and 12.9%,
respectively, of sales for the corresponding periods a year ago. The improvement
in these ratios was due to the fact that the increases in food products sales
were primarily the result of price increases rather than increased production.
The volume of sausage produced was down for both the quarter and the
year-to-date.
Other Operating Expenses
Approximately 90% of other operating expenses were in the restaurant
segment; the most significant components of which were advertising, utilities,
repair and maintenance, restaurant supplies, and taxes (other than income
taxes). Consolidated other operating expenses represented 13.9% of sales for the
quarter and year-to-date in comparison to 13.6% and 13.7%, respectively, for the
corresponding periods last year. Increases in repair and maintenance expense and
utilities expense contributed to the increases, although not substantially. The
increase in other operating expenses as a percentage of sales was more a
function of the fixed nature of the expenses combined with the decreased
same-store sales than actual increases in the expenses per se.
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Selling, General and Administrative Expenses
Consolidated selling, general and administrative expenses represented
12.1% of sales for the quarter and 12.3% of sales year-to-date in comparison to
12.4% and 12.3%, respectively, in the corresponding periods a year ago. The most
significant components of selling, general and administrative expenses were
wages and fringe benefits and food products segment promotional expenses.
Increases in promotional expenses at Hickory Specialties were offset by
decreases in both corporate administrative costs and sausage promotional
expenses.
Net Income
Consolidated net income decreased $3.3 million, or 25.6%, in the second
quarter in comparison to the corresponding period a year ago. In the restaurant
segment, the same-store sales decline impacted margins and as a result, net
income decreased $1.5 million, or 14.0%. Additional factors which led to
decreased restaurant segment profit were higher labor costs, higher health
insurance expense and the increase in food cost. Food products segment net
income decreased $1.8 million, or 88%, and the pre-tax profit margin fell from
6.5% to 0.8%. The unfavorable results in the food products segment were the
direct result of rapidly rising hog costs, and also to the increased promotional
expenses at Hickory Specialties.
Liquidity and Capital Resources
Cash generated from both the restaurant and food products segments has
been used as the main source of working capital and capital expenditure
requirements. Bank lines of credit were also used for liquidity needs and
capital expansion at various times. The total bank lines of credit available is
$124.4 million, of which $66.9 was outstanding at October 25, 1996.
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The company believes that funds needed for capital expenditures and
working capital during the remainder of fiscal 1997 will be generated both
internally and from available bank lines of credit. Longer-term financing
alternatives will be evaluated by the company, especially in the event of
acquisitions.
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PART II - OTHER INFORMATION
ITEM 4. Submission of Matters to a Vote of Security Holders
(a) The Annual Meeting of Stockholders of the Company (the "Annual
Meeting") was held on September 9, 1996. At the close of business
on the record date 42,272,663 common shares were outstanding and
entitled to vote. At the Annual Meeting 31,306,013 or 74.1% of
the outstanding common shares entitled to vote were represented
in person or by proxy.
(b) Directors elected at the Annual Meeting:
Daniel A. Fronk
Cheryl L. Krueger
G. Robert Lucas II
Directors whose term of office continued after the Annual
Meeting:
Larry C. Corbin Daniel E. Evans
Stewart K. Owens J. Tim Evans
Robert E.H. Rabold Robert S. Wood
(c) Matters voted upon at the Annual Meeting:
FOR AGAINST ABSTAIN
----- ------- -------
1) Election of Daniel A. Fronk 29,254,807 2,051,206 0
2) Election of Cheryl L. Krueger 28,750,357 2,555,656 0
3) Election of G. Robert Lucas II 29,225,230 2,080,783 0
(d) Not applicable
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ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27. Financial Data Schedule
(b) Reports on Form 8-K
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Bob Evans Farms, Inc.
---------------------------
Registrant
Daniel E. Evans
---------------------------
Chairman of the Board
(Chief Executive Officer)
Donald J. Radkoski
---------------------------
Group Vice President and Treasurer
(Chief Financial Officer)
December 6, 1996
----------------
Date
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<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEETS AND STATEMENTS OF INCOME OF BOB EVANS
FARMS, INC. AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-Q FOR
THE PERIOD ENDED OCTOBER 25, 1996.
</LEGEND>
<MULTIPLIER> 1000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> APR-25-1997
<PERIOD-START> APR-27-1996
<PERIOD-END> OCT-25-1996
<EXCHANGE-RATE> 1
<CASH> 15,567
<SECURITIES> 0
<RECEIVABLES> 16,969
<ALLOWANCES> 0
<INVENTORY> 23,880
<CURRENT-ASSETS> 66,437
<PP&E> 713,147
<DEPRECIATION> 254,208
<TOTAL-ASSETS> 554,964
<CURRENT-LIABILITIES> 126,332
<BONDS> 0
0
60
<COMMON> 426
<OTHER-SE> 417,847
<TOTAL-LIABILITY-AND-EQUITY> 554,964
<SALES> 419,304
<TOTAL-REVENUES> 419,587
<CGS> 134,405
<TOTAL-COSTS> 338,364
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 29,497
<INCOME-TAX> 10,914
<INCOME-CONTINUING> 18,583
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 18,583
<EPS-PRIMARY> 0.44
<EPS-DILUTED> 0.44
</TABLE>
