<PAGE> 1
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 24, 1997
----------------------------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from
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Commission file number 0-1667
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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
<TABLE>
<CAPTION>
(Dollars in Thousands)
October 24, 1997 April 25, 1997
---------------- --------------
Unaudited Audited
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<S> <C> <C>
ASSETS
- ------
Current Assets
Cash and equivalents $ 9,356 $ 12,283
Trade accounts receivable 17,481 16,394
Inventory 23,192 23,600
Federal and state income taxes 0 635
Deferred income taxes 6,182 6,182
Prepaid expenses 2,680 2,329
----------- -----------
TOTAL CURRENT ASSETS 58,891 61,423
Property, Plant, and Equipment 709,456 687,705
Less accumulated depreciation 228,607 214,684
----------- -----------
NET PROPERTY, PLANT AND EQUIPMENT 480,849 473,021
Other Assets
Deposits and other 2,776 3,403
Long-term investments 5,081 5,101
Deferred income taxes 10,080 10,080
Cost in excess of net assets acquired 9,668 9,938
Other intangible assets 955 1,113
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TOTAL OTHER ASSETS 28,560 29,635
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$568,300 $564,079
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current Liabilities
Line of credit $ 48,550 $ 68,880
Accounts payable 8,834 7,119
Dividends payable 3,326 3,327
Federal and state income taxes 4,595 0
Accrued wages and related liabilities 11,544 13,438
Other accrued expenses 41,052 36,085
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TOTAL CURRENT LIABILITIES 117,901 128,849
Long-Term Liabilities
Deferred income taxes 10,836 10,836
Notes payable (net of discount of $243,000 at
October 24, 1997 and $303,000 at April 25, 1997) 1,647 1,587
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TOTAL LONG-TERM LIABILITIES 12,483 12,423
Stockholders' Equity
Common stock, $.01 par value; authorized 100,000,000 shares; issued
42,638,118 shares at October 24, 1997
and April 25, 1997 426 426
Preferred stock: authorized 1,200 shares; issued 120
shares at October 24, 1997 and April 25, 1997 60 60
Capital in excess of par value 145,885 145,889
Retained earnings 306,761 291,364
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453,132 437,739
Less treasury stock: 1,062,413 shares at October 24, 1997
and 1,054,949 shares at April 25, 1997, at cost 15,216 14,932
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 437,916 422,807
----------- -----------
$568,300 $564,079
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 3
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
UNAUDITED
---------
<TABLE>
<CAPTION>
(Dollars in Thousands Except Net Income
Per Share and Cash Dividend Amounts)
Three Months Ended Six Months Ended
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Oct. 24, 1997 Oct. 25, 1996 Oct. 24, 1997 Oct. 25, 1996
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<S> <C> <C> <C> <C>
NET SALES $224,675 $206,244 $446,720 $419,304
Cost of sales 69,232 66,432 140,324 134,405
Operating wage and fringe benefit expenses 69,199 64,164 138,625 131,743
Other operating expenses 31,100 28,670 61,567 58,393
Selling, general and administrative expenses 27,930 24,888 54,461 51,726
Depreciation expense 7,845 7,052 15,312 13,823
----------- ----------- ------------ -----------
OPERATING PROFIT 19,369 15,038 36,431 29,214
Net interest income (expense) (772) 217 (1,361) 283
----------- ----------- ------------ -----------
INCOME BEFORE INCOME TAXES 18,597 15,255 35,070 29,497
PROVISIONS FOR INCOME TAXES
Federal 5,635 4,595 10,626 8,967
State 1,264 978 2,385 1,947
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6,899 5,573 13,011 10,914
----------- ----------- ------------ -----------
NET INCOME $ 11,698 $ 9,682 $ 22,059 $ 18,583
=========== =========== ============ ===========
Weighted average number of common
shares outstanding 41,577,889 42,201,899 41,583,714 42,201,899
============ =========== ============ ===========
Net income per common share based upon
the weighted average number of
common shares $.28 $.23 $.53 $.44
======== ======== ========= ========
Cash dividend per common share $.08 $.08 $.16 $.16
======== ======== ========= ========
</TABLE>
The accompanying notes are an integral part of the financial statements
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
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<TABLE>
<CAPTION>
(Dollars in Thousands)
Six Months Ended
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October 24, 1997 October 25, 1996
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<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 22,059 $ 18,583
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 15,740 14,250
(Gain) on sale of property and equipment (40) (194)
Compensation expense attributable to stock plans 261 92
Cash provided by (used for) current assets and current liabilities:
Accounts receivable (1,087) (2,460)
Inventories 408 (3,004)
Prepaid expenses (351) (876)
Accounts payable 1,715 3,083
Federal and state income taxes 5,230 1,933
Accrued wages and related liabilities (2,155) (3,235)
Other accrued expenses 4,967 843
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NET CASH PROVIDED BY OPERATING ACTIVITIES 46,747 29,015
INVESTING ACTIVITIES:
Purchase of property, plant and equipment (23,265) (25,519)
Purchase of investments 0 (272)
Proceeds from sale of property, plant and equipment 165 194
Other 647 (72)
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NET CASH USED IN INVESTING ACTIVITIES (22,453) (25,669)
FINANCING ACTIVITIES:
Cash dividends paid (6,661) (6,761)
Draws (payments) on line of credit (20,330) 7,200
Purchase of treasury stock (599) (3,192)
Interest accrued on long-term notes 60 72
Distribution of treasury stock
due to the exercise of stock
options and employee bonuses 309 533
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NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (27,221) (2,148)
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Increase (decrease) in cash and equivalents (2,927) 1,198
Cash and equivalents at the beginning of the period 12,283 14,369
-----------
-----------
Cash and equivalents at the end of the period $ 9,356 $ 15,567
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</TABLE>
The accompanying notes are an integral part of the financial statements.
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<PAGE> 5
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 25, 1997 (refer to Form 10-K for a summary of
significant accounting policies followed in the preparation of the
consolidated financial statements).
2. Pending Accounting Changes
--------------------------
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, "Earnings per Share," which simplifies the
calculation of earnings per share (EPS) and makes it comparable to
international EPS standards. The company will adopt Statement 128 in
the third quarter of fiscal 1998 and, based on current circumstances,
does not believe the effect of adoption will be material.
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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. and subsidiaries (the
company) increased $18.4 million, or 8.9%, in the second quarter ended October
24, 1997, compared to the corresponding quarter a year ago. This increase was
comprised of a $14.6 million increase in restaurant segment sales and a $3.8
million increase in food product segment sales. For the six-month period ended
October 24, 1997, consolidated net sales increased $27.4 million, or 6.5%,
compared to the previous year. This increase was comprised of a restaurant
segment sales increase of $21.6 million and a food product segment sales
increase of $5.8 million. Restaurant segment sales account for approximately
74% of total sales.
The restaurant segment sales increase of $14.6 million, or 9.6%, in
the second quarter was the result of a 4.8% increase in same-store sales as
well as more restaurants in operation. The same-store sales increase, inclusive
of an average menu price increase of 3.2%, represented the fourth consecutive
quarter of same-store sales growth. Through six months, same store sales grew
at a 4.1% rate. Additional sales growth was provided by an increase in the
number of operating locations: 401 at October 24, 1997 versus 383 a year
earlier. During the second quarter, the company opened five new restaurants and
closed one existing restaurant. The company expects to open an additional
eleven locations in the last half of fiscal 1998. The chart below summarizes
the openings and closings during the last six quarters:
S U M M A R Y O F R E S T A U R A N T S O P E N E D A N D C L O S E D
<TABLE>
<CAPTION>
Beginning Opened Closed Ending
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<S> <C> <C> <C> <C>
Fiscal 1998
1st quarter 394 4 1 397
2nd quarter 397 5 1 401
Fiscal 1997
1st quarter 390 5 5 390
2nd quarter 390 7 14 383
3rd quarter 383 4 0 387
4th quarter 387 7 0 394
</TABLE>
The food product segment sales increased $3.8 million, or 7.1%, for
the second quarter and $5.8 million, or 5.2%, through six months compared to
the corresponding periods a year ago. The second quarter increase was due
mostly to an increase in sausage sales volume as comparable pounds of sausage
products sold were up 3%. Also affecting the quarterly comparison, and to a
larger extent the six-month comparison, were increases in prices the company
charges for its sausage products. The price increases were intended to help
offset the impact of exceptionally high hog costs (discussed in the cost of
sales section below). The
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<PAGE> 7
benchmark retail price for a one-pound roll of sausage was $3.09 through the
first six months of fiscal 1998 compared to an average of $2.99 during the
corresponding period a year ago.
Also impacting the second quarter sales increases in the food products
segment were higher sales of liquid smoke products, which contributed to
overall sales increases at Hickory Specialties of $0.9 million in the second
quarter. Sales of salad products have not changed appreciably.
COST OF SALES
Consolidated cost of sales (cost of materials) was 30.8% of sales in
the second quarter compared to 32.2% of sales in the second quarter a year ago.
Year-to-date, consolidated cost of sales represented 31.4% of sales versus
32.1% last fiscal year.
In the restaurant segment, food cost (cost of sales) was 26.2% of
sales in the second quarter and 26.1% of sales year-to-date, versus 26.9% and
26.8%, respectively, in the corresponding periods last year. The improvement in
food cost was reflective of the impact of menu price increases as well as
various changes in product mix.
In the food products segment, cost of sales was 44.2% of sales for the
quarter and 46.4% year-to-date compared to 47.3% and 46.9%, respectively, for
the corresponding periods a year ago. These fluctuations were due to
significant changes in hog costs, which averaged $45.50 per hundredweight in
the second quarter of this year versus $53.00 per hundredweight in the second
quarter last year, a 14.2% decrease. The first quarter comparisons were $50.91
versus $46.90, an 8.6% increase. The company raised its sausage prices three
times from April 1996 to September 1996 to help absorb the increased hog costs,
which rose precipitously in the first quarter of fiscal 1997, and remained
relatively high until September of this year. Since September, hog costs have
trended downward.
OPERATING WAGE AND FRINGE BENEFIT EXPENSES
Consolidated operating wage and fringe benefit expenses decreased from
31.1% to 30.8% of sales in the second quarter and from 31.4% to 31.0% of sales
year-to-date in comparison to the corresponding periods last year.
In the restaurant segment, wages and fringe benefits represented 37.3%
of sales for the quarter and 37.7% of sales year-to-date versus 37.7% and
38.2%, respectively, for the corresponding periods a year ago. Although these
rates are historically high, the relative improvement from fiscal 1997 to
fiscal 1998 was the result of lower health insurance costs as well as well as
the closing in August, 1996 of the Cantina del Rio restaurants, which had much
higher wage costs than the company's other restaurants.
In the food products segment, wages and fringe benefits represented
11.8% of sales for the quarter and 12.1% of sales year-to-date versus 12.3% and
12.6%, respectively, of sales for the corresponding periods a year ago. The
improvement in these ratios was attributable to several factors: operating
efficiencies resulted from transferring the production of some products to
different facilities; sales increases of the company's
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<PAGE> 8
frozen products, which are not produced in the company's facilities; and
increases in sausage sales in the first four months of fiscal 1998 were
primarily the result of price increases rather than increased production.
OTHER OPERATING EXPENSES
Approximately 90% of other operating expenses were attributable to 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 13.8% of sales
for both the quarter and year-to-date in comparison to 13.9% for both periods
last year. Operating expenses were positively affected by the August, 1996
closing of the Cantina del Rio restaurants, which had higher operating expenses
than the company's other restaurants. However, this benefit was mostly offset
by increases in restaurant supplies and repair and maintenance expenses in both
the quarter and six-month periods.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Consolidated selling, general and administrative expenses represented
12.4% of sales for the quarter and 12.2% of sales year-to-date in comparison to
12.1% 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 and
advertising expenses. Second quarter increases in sausage promotional and
advertising expenses as well as restaurant management training and recruiting
costs were mostly offset by decreases in promotional expenses at Hickory
Specialties.
NET INTEREST
Interest expense exceeded interest income by $0.8 million in the
second quarter of fiscal 1998, and by $1.4 million through six months. In
fiscal 1997, interest income exceed interest expense by $0.2 million in the
second quarter, and by $0.3 million through six months. The company has
historically capitalized nearly all its interest costs in connection with its
construction activities. Beginning in the third quarter of fiscal 1997, and
continuing through the second quarter of fiscal 1998, a more significant share
of interest costs was expensed. The company expects that due to reduced
borrowings and the timing of certain capital projects that interest expense in
the last half of fiscal 1998 will be significantly less than in the first six
months.
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
$120.0 million, of which $48.6 million was outstanding at October 24, 1997.
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<PAGE> 9
The company believes that the funds needed for capital expenditures
and working capital during the remainder of fiscal 1998 will be generated both
internally and from available bank lines of credit. Longer-term financing
alternatives will continue to be evaluated by the company as conditions
warrant.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM
ACT OF 1995
The statements contained in this report which are not historical fact are
"forward-looking statements" that involve various important assumptions, risks,
uncertainties and other factors which could cause the company's actual results
for 1998 and beyond to differ materially from those expressed in such
forward-looking statements. These important factors include, without
limitation, changes in hog costs and the possibility of severe weather
conditions where the company operates its restaurants, as well as other risks
previously disclosed in the company's securities filings and press releases.
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<PAGE> 10
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 8, 1997. At the close of business on
the record date, 41,579,041 common shares were
outstanding and entitled to vote. At the
Annual Meeting 32,804,921 or 78.9 % of the
outstanding common shares entitled to vote
were represented in person or by proxy.
(b) Directors elected at the Annual Meeting:
Larry C. Corbin
Stewart K. Owens
Robert E.H. Rabold
Directors whose term of office continued after
the Annual Meeting:
Daniel E. Evans Daniel A. Fronk
Robert S. Wood Cheryl L. Krueger
Michael J. Gasser G. Robert Lucas II
(c) Matters voted upon at the Annual Meeting:
FOR AGAINST WITHHELD
--- ------- --------
1) Election of Larry C. Corbin 32,597,085 207,836 0
2) Election of Stewart K. Owens 32,299,270 505,651 0
3) Election of Robert E.H. Rabold 32,527,574 277,347 0
(d) Not applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27. Financial Data Schedule
(b) Reports on Form 8-K
None
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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
/s/ DANIEL E. EVANS
--------------------------------------
Daniel E. Evans
Chairman of the Board
(Chief Executive Officer)
/s/ DONALD J. RADKOSKI
--------------------------------------
Donald J. Radkoski
Group Vice President and Treasurer
(Chief Financial Officer)
December 5, 1997
- --------------------------
Date
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<TABLE> <S> <C>
<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 24, 1997.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> APR-24-1998
<PERIOD-START> APR-26-1997
<PERIOD-END> OCT-24-1997
<EXCHANGE-RATE> 1
<CASH> 9,356
<SECURITIES> 0
<RECEIVABLES> 17,481
<ALLOWANCES> 0
<INVENTORY> 23,192
<CURRENT-ASSETS> 58,891
<PP&E> 709,456
<DEPRECIATION> 228,607
<TOTAL-ASSETS> 568,300
<CURRENT-LIABILITIES> 117,901
<BONDS> 0
0
60
<COMMON> 426
<OTHER-SE> 437,430
<TOTAL-LIABILITY-AND-EQUITY> 568,300
<SALES> 446,720
<TOTAL-REVENUES> 446,720
<CGS> 140,324
<TOTAL-COSTS> 355,828
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,361
<INCOME-PRETAX> 35,070
<INCOME-TAX> 13,011
<INCOME-CONTINUING> 22,059
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 22,059
<EPS-PRIMARY> 0.53
<EPS-DILUTED> 0.53
</TABLE>
