<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 January 23, 1998
-----------------------------------------------
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)
- --------------------------------------------------------------------------------
(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 41,638,585 common shares outstanding.
<PAGE> 2
BOB EVANS FARMS, INC.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Dollars in Thousands)
January 23, 1998 April 25, 1997
---------------- --------------
Unaudited Audited
--------- -------
ASSETS
- ------
<S> <C> <C>
Current Assets
Cash and equivalents $ 14,085 $ 12,283
Trade accounts receivable 17,563 16,394
Inventory 23,054 23,600
Federal and state income taxes 0 635
Deferred income taxes 6,182 6,182
Prepaid expenses 1,775 2,329
-------- --------
TOTAL CURRENT ASSETS 62,659 61,423
Property, Plant and Equipment 720,783 687,705
Less accumulated depreciation 236,455 214,684
-------- --------
NET PROPERTY, PLANT AND EQUIPMENT 484,328 473,021
Other Assets
Deposits and other 2,975 3,403
Long-term investments 5,017 5,101
Deferred income taxes 10,080 10,080
Cost in excess of net assets acquired 9,534 9,938
Other intangible assets 876 1,113
-------- --------
TOTAL OTHER ASSETS 28,482 29,635
-------- --------
$575,469 $564,079
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Line of credit $ 46,520 $ 68,880
Accounts payable 8,142 7,119
Dividends payable 3,331 3,327
Federal and state income taxes 3,937 0
Accrued wages and related liabilities 13,122 13,438
Other accrued expenses 41,113 36,085
-------- --------
TOTAL CURRENT LIABILITIES 116,165 128,849
Long-Term Liabilities
Deferred income taxes 10,836 10,836
Notes payable (net of discount of $213,000 at
Jan. 23, 1998 and $303,000 at April 25, 1997) 1,677 1,587
-------- --------
TOTAL LONG-TERM LIABILITIES 12,513 12,423
Stockholders' Equity
Common stock, $.01 par value; authorized 100,000,000
shares; issued 42,638,118 shares at Jan. 23, 1998,
and April 25, 1997 426 426
Preferred stock: authorized 1,200 shares; issued 120
shares at Jan. 23, 1998, and April 25, 1997 60 60
Capital in excess of par value 146,517 145,889
Retained earnings 314,573 291,364
-------- --------
461,576 437,739
Less treasury stock: 999,533 shares at Jan. 23, 1998,
and 1,054,949 shares at April 25, 1997, at cost 14,785 14,932
-------- --------
TOTAL STOCKHOLDERS' EQUITY 446,791 422,807
-------- --------
$575,469 $564,079
======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
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<PAGE> 3
BOB EVANS FARMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
UNAUDITED
<TABLE>
<CAPTION>
(Dollars in Thousands Except Earnings
Per Share and Cash Dividend Amounts)
Three Months Ended Nine Months Ended
------------------ -----------------
Jan. 23, 1998 Jan. 24, 1997 Jan. 23, 1998 Jan. 24, 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
NET SALES $ 219,621 $ 199,189 $ 666,341 $ 618,493
Cost of sales 66,548 66,169 206,872 200,574
Operating wage and fringe benefit expenses 68,017 62,200 206,642 193,943
Other operating expenses 30,536 27,392 92,103 85,785
Selling, general and administrative expenses 28,356 23,865 82,817 75,591
Depreciation expense 8,060 7,121 23,372 20,944
--------- --------- --------- ---------
OPERATING PROFIT 18,104 12,442 54,535 41,656
Net interest income (expense) (413) (194) (1,774) 89
--------- --------- --------- ---------
INCOME BEFORE INCOME TAXES 17,691 12,248 52,761 41,745
PROVISIONS FOR INCOME TAXES
Federal 5,343 3,624 15,969 12,591
State 1,203 818 3,588 2,765
--------- --------- --------- ---------
6,546 4,442 19,557 15,356
--------- --------- --------- ---------
NET INCOME $ 11,145 $ 7,806 $ 33,204 $ 26,389
========= ========= ========= =========
Basic and Diluted Earnings Per Share $ 0.27 $ 0.19 $ 0.80 $ 0.63
========= ========= ========= =========
Cash Dividends Per Common Share $ 0.08 $ 0.08 $ 0.24 $ 0.24
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements
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<PAGE> 4
BOB EVANS FARMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
<TABLE>
<CAPTION>
(Dollars in Thousands)
Nine Months Ended
-----------------
January 23, 1998 January 24, 1997
---------------- ----------------
OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 33,204 $ 26,389
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 24,193 21,584
Gain on sale of property and equipment (34) (242)
Compensation expense attributable to stock plans 453 137
Cash provided by (used for) current assets
and current liabilities:
Accounts receivable (1,169) (2,409)
Inventories 546 (3,031)
Prepaid expenses 554 (516)
Accounts payable 1,023 1,257
Federal and state income taxes 4,572 715
Accrued wages and related liabilities (769) (1,897)
Other accrued expenses 5,028 619
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 67,601 42,606
INVESTING ACTIVITIES:
Purchase of property, plant and equipment (34,826) (41,473)
Purchase of investments (96) (448)
Proceeds from sale of property, plant and equipment 181 317
Other 428 (233)
-------- --------
NET CASH USED IN INVESTING ACTIVITIES (34,313) (41,837)
FINANCING ACTIVITIES:
Cash dividends paid (9,991) (10,129)
Draws (payments) on line of credit (22,360) 9,970
Purchase of treasury stock (1,907) (7,476)
Interest accrued on long-term notes 90 108
Distribution of treasury stock
due to the exercise of stock
options and employee bonuses 2,682 533
-------- --------
NET CASH USED IN FINANCING ACTIVITIES (31,486) (6,994)
-------- --------
Increase (decrease) in cash and equivalents 1,802 (6,225)
Cash and equivalents at the beginning of the period 12,283 14,369
-------- --------
Cash and equivalents at the end of the period $ 14,085 $ 8,144
======== ========
</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) except as noted below.
2. Accounting Change
-----------------
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 adopted Statement No. 128 in
the third quarter of fiscal 1998. The following table sets forth the
computation of basic and diluted earnings per share:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------ -----------------
Jan. 23, 1998 Jan. 24, 1997 Jan. 23, 1998 Jan. 24, 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
NUMERATOR:
Net income - for both basic and
diluted earnings per share $11,145,000 $ 7,806,000 $33,204,000 $26,389,000
=========== =========== =========== ===========
DENOMINATOR:
Denominator for basic earnings
per share - weighted avg. shares 41,608,328 42,084,834 41,591,919 42,084,834
Effect of dilutive securities:
Employee stock options 280,518 19,551 168,796 33,536
------------ ------------- ------------ -------------
Denominator for diluted earnings
per share - adjusted weighted avg.
shares and assumed conversions 41,888,846 42,104,385 41,760,715 42,118,370
========== ========== ========== ==========
Basic earnings per share $0.27 $0.19 $0.80 $0.63
===== ===== ===== =====
Diluted earnings per share $0.27 $0.19 $0.80 $0.63
===== ===== ===== =====
</TABLE>
3. Subsequent Events
-----------------
Effective Feb. 2, 1998, the company entered into an interest rate swap
agreement with National City Bank. The purpose of the swap transaction
was to effectively lock in a portion of the company's line of credit
liability at a fixed rate. The notional amount of the swap was $25
million. The swap locks in the notional amount at a net effective rate
of 6.18% to the company for a period of ten years.
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<PAGE> 6
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 $20.4 million, or 10.3%, in the third quarter ended January
23, 1998, compared to the corresponding quarter a year ago. This increase was
comprised of a $15.7 million sales increase in the restaurant segment and a $4.7
million sales increase in the food product segment. Through the first nine
months of fiscal 1998, consolidated net sales increased $47.8 million, or 7.7%,
compared to the previous year. This increase was comprised of a restaurant
segment sales increase of $37.3 million and a food product segment sales
increase of $10.5 million. Restaurant sales account for approximately 70-75% of
total sales.
In the restaurant segment, the third quarter sales increase of $15.7
million, or 11.2%, was the result of a 6.1% increase in same-store sales as well
as more restaurants in operation. The same-store sales increase (the fifth
consecutive quarter of same-store sales growth) included an average menu price
increase of 3.0%. For the nine month period, same-store sales grew at a rate of
4.7%. New restaurant openings also provided additional sales growth: stores in
operation totaled 403 at January 23, 1998, compared to 387 at January 24, 1997.
During the third quarter, the company opened three new restaurants and closed
one underperforming restaurant. The company expects to open seven additional
restaurants in the last quarter of fiscal 1998. The chart below summarizes the
openings and closings during the last seven quarters:
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<PAGE> 7
<TABLE>
<CAPTION>
SUMMARY OF RESTAURANTS OPENED AND CLOSED
Beginning Opened Closed Ending
--------- ------ ------ ------
<S> <C> <C> <C> <C>
Fiscal 1998
1st quarter 394 4 1 397
2nd quarter 397 5 1 401
3rd quarter 401 3 1 403
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 $4.7 million, or 8.0%, in the
third quarter and $10.5 million, or 6.2%, through three quarters compared to the
corresponding periods a year ago. The third quarter increase was due mostly to
increased sausage sales volume as comparable pounds of sausage products sold
increased 5% compared to a year ago; increased sales were also provided by a
growing contribution from newer products. The year-to-date comparison benefited
from higher volumes as well as increases in prices the company charges for its
sausage products. The benchmark retail price for a one-pound roll of sausage
averaged $2.89 to $2.99 through the first four months of fiscal 1997, and $3.09
thereafter, including all of fiscal 1998.
COST OF SALES
As a percentage of sales, consolidated cost of sales (cost of materials
only) was 30.3% in the third quarter versus 33.2% a year ago. Year-to-date,
consolidated cost of sales represented 31.0% of sales compared to 32.4% the
previous fiscal year.
In the restaurant segment, food cost was 26.4% of sales in the third
quarter versus 26.6% a year ago. Through nine months, food cost represented
26.2% of sales compared to 26.7% the previous year. The improvement in food cost
was reflective of the impact of menu price increases as well as various changes
in product mix.
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<PAGE> 8
In the food products segment, cost of sales was 39.7% of sales in the
third quarter and 44.0% year-to-date versus 48.7% and 47.5%, respectively, in
the corresponding periods last year. These improved ratios were the result of
significant decreases in hog costs. For the third quarter, hog costs averaged
$36.70 per hundredweight this year versus $54.00 last year, a 32.0% decrease.
Since September, hog costs have continued to trend downward. The company has
held its prices steady during this time, resulting in much stronger gross
margins.
OPERATING WAGE AND FRINGE BENEFIT EXPENSES
Consolidated operating wage and fringe benefit expenses, as a
percentage of sales, declined from 31.2% to 31.0% in the third quarter and from
31.4% to 31.0% through nine months compared to the corresponding periods a year
ago.
In the restaurant segment, wages and fringes were 39.1% versus 39.5% of
sales for the quarter and 38.1% versus 38.6% of sales through nine months.
Although historically high, the relative improvement from fiscal 1997 to fiscal
1998 was the result of slightly lower health insurance and workers' compensation
costs 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 product segment, wages and fringes were 11.4% versus 11.8%
of sales for the quarter and 11.8% versus 12.3% of sales through nine months
compared to the corresponding periods a year ago. These improvements were
attributable to operating efficiencies attained by transferring the production
of some products to different facilities as well as the fact that 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 13.9% versus
13.8% of sales for the third quarter and 13.8% and 13.9% of sales through three
quarters. Operating expenses were
-8-
<PAGE> 9
positively impacted 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 nine-month
periods, and to a smaller extent, advertising expense.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Consolidated selling, general and administrative expenses represented
12.9% versus 12.0% of sales for the third quarter and 12.4% versus 12.2% of
sales through nine months. The most significant components of selling, general
and administrative expenses were wages and fringe benefits and food products
segment promotional and advertising expenses. As hog costs trended downward in
the third quarter, the company opted to significantly increase promotional
activity to stimulate sales rather than to decrease base prices. This policy led
to significant increases in selling, general and administrative expenses,
although sausage profit margins increased considerably due to lower live hog
costs discussed previously.
NET INTEREST
Interest expense exceeded interest income by $0.4 million in the third
quarter of fiscal 1998, and by $1.8 million through nine months. In fiscal 1997,
interest expense exceeded interest income by $0.2 million for the quarter and
nearly equaled interest income year-to-date. 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 third quarter of fiscal 1998, a more significant share of interest
costs was expensed.
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 $46.5 million was outstanding at January 23, 1998.
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<PAGE> 10
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> 11
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
/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)
March 6, 1998
- ---------------------------
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 JANUARY 23, 1998.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> US
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> APR-24-1998
<PERIOD-START> APR-26-1997
<PERIOD-END> JAN-23-1998
<EXCHANGE-RATE> 1
<CASH> 14,085
<SECURITIES> 0
<RECEIVABLES> 17,563
<ALLOWANCES> 0
<INVENTORY> 23,054
<CURRENT-ASSETS> 62,659
<PP&E> 720,783
<DEPRECIATION> 236,455
<TOTAL-ASSETS> 575,469
<CURRENT-LIABILITIES> 116,165
<BONDS> 0
0
60
<COMMON> 426
<OTHER-SE> 446,305
<TOTAL-LIABILITY-AND-EQUITY> 575,469
<SALES> 666,341
<TOTAL-REVENUES> 666,341
<CGS> 206,872
<TOTAL-COSTS> 528,989
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,774
<INCOME-PRETAX> 52,761
<INCOME-TAX> 19,557
<INCOME-CONTINUING> 33,204
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 33,204
<EPS-PRIMARY> 0.80
<EPS-DILUTED> 0.80
</TABLE>
