<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 July 24, 1998
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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
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(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, of which 41,660,000 were outstanding.
<PAGE> 2
BOB EVANS FARMS, INC.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Dollars in thousands)
July 24, 1998 April 24,1998
------------- -------------
Unaudited Audited
--------- -------
<S> <C> <C>
ASSETS
- ------
Current assets
Cash and equivalents $ 28,871 $ 15,397
Trade accounts receivable 17,168 17,061
Inventories 21,081 22,709
Federal and state income taxes 0 1,032
Deferred income taxes 7,559 7,559
Prepaid expenses 2,817 1,640
-------- --------
TOTAL CURRENT ASSETS 77,496 65,398
Property, plant and equipment 733,604 725,244
Less accumulated depreciation 246,362 239,295
-------- --------
NET PROPERTY, PLANT AND EQUIPMENT 487,242 485,949
Other assets
Deposits and other 3,165 3,223
Long-term investments 7,487 6,264
Deferred income taxes 8,900 8,900
Cost in excess of net assets acquired 9,264 9,399
Other intangible assets 719 798
-------- --------
TOTAL OTHER ASSETS 29,535 28,584
-------- --------
$594,273 $579,931
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities
Line of credit $ 42,550 $ 39,420
Accounts payable 7,712 7,909
Dividends payable 3,333 3,334
Federal and state income taxes 6,730 0
Accrued wages and related liabilities 10,923 14,644
Other accrued expenses 40,302 40,961
-------- --------
TOTAL CURRENT LIABILITIES 111,550 106,268
Long-term liabilities
Deferred income taxes 15,244 15,244
Notes payable (net of discount of $164,000 at
July 24, 1998, and $187,000 at April 24, 1998) 1,246 1,223
-------- --------
TOTAL LONG-TERM LIABILITIES 16,490 16,467
Stockholders' equity
Common stock, $.01 par value; authorized 100,000,000 shares;
issued 42,638,118 shares at July 24, 1998, and April 24, 1998 426 426
Preferred stock: authorized 1,200 shares; issued 120
shares at July 24, 1998, and April 24, 1998 60 60
Capital in excess of par value 146,543 147,213
Retained earnings 334,487 323,720
-------- --------
481,516 471,419
Less treasury stock: 978,118 shares at July 24, 1998,
and 964,013 shares at April 24, 1998, at cost 15,283 14,223
-------- --------
TOTAL STOCKHOLDERS' EQUITY 466,233 457,196
-------- --------
$594,273 $579,931
======== ========
</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 per share amounts)
Three Months Ended
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July 24, 1998 July 25, 1997
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<S> <C> <C>
NET SALES $240,337 $222,045
Cost of sales 71,990 71,092
Operating wage and fringe benefit expenses 75,156 69,426
Other operating expenses 32,802 30,467
Selling, general and administrative expenses 29,334 26,531
Depreciation expense 8,314 7,467
-------- --------
OPERATING INCOME 22,741 17,062
Net interest income (expense) (356) (589)
-------- --------
INCOME BEFORE INCOME TAXES 22,385 16,473
PROVISIONS FOR INCOME TAXES
Federal 6,760 4,991
State 1,522 1,121
-------- --------
8,282 6,112
-------- --------
NET INCOME $ 14,103 $ 10,361
======== ========
EARNINGS PER SHARE - BASIC $.34 $.25
======== ========
EARNINGS PER SHARE - DILUTED $.34 $.25
======== ========
CASH DIVIDENDS PER SHARE $.08 $.08
======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements
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<PAGE> 4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
<TABLE>
<CAPTION>
(Dollars in thousands)
Three Months Ended
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July 24, 1998 July 25, 1997
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<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 14,103 $ 10,361
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 8,614 7,681
Loss on sale of property and equipment 6 0
Compensation expense attributable to stock plans 297 67
Cash provided by (used for) current assets and current liabilities:
Accounts receivable (107) (911)
Inventories 1,628 2,567
Prepaid expenses (1,177) (568)
Accounts payable (197) 218
Federal and state income taxes 7,762 4,999
Accrued wages and related liabilities (4,018) (3,772)
Other accrued expenses (659) 2,814
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NET CASH PROVIDED BY OPERATING ACTIVITIES 26,252 23,456
INVESTING ACTIVITIES:
Purchase of property, plant and equipment (9,664) (11,750)
Purchase of investments (1,309) (40)
Proceeds from sale of property, plant and equipment 51 0
Other 58 386
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NET CASH USED IN INVESTING ACTIVITIES (10,864) (11,404)
FINANCING ACTIVITIES:
Cash dividends paid (3,337) (3,332)
Draws on line of credit 3,130 270
Purchase of treasury stock (3,154) (414)
Interest accrued on long-term notes 23 30
Distribution of treasury stock due to the exercise of
stock options and employee bonuses 1,424 206
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NET CASH USED IN FINANCING ACTIVITIES (1,914) (3,240)
-------- --------
Increase in cash and equivalents 13,474 8,812
Cash and equivalents at the beginning of the period 15,397 12,283
-------- --------
Cash and equivalents at the end of the period $ 28,871 $ 21,095
======== ========
</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
24, 1998 (refer to Form 10-K for a summary of significant accounting
policies followed in the preparation of the consolidated financial
statements).
2. Earnings Per Share
In 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 128, Earnings
Per Share. The company adopted SFAS No. 128 in the third quarter of
fiscal 1998. All earnings per share data presented in these financial
statements have been restated to conform with the provisions of SFAS
No. 128. Basic earnings per share computations are based on the
weighted-average number of shares of common stock outstanding during
the period presented. Diluted earnings per share calculations reflect
the assumed exercise and conversion of employee stock options.
The numerator in calculating both basic and diluted earnings per share
for each period is reported net income. The denominator is based on the
following weighted-average number of common shares outstanding:
(in thousands)
Three Months Ended
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July 24, 1998 July 25, 1997
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Basic 41,665 41,590
Effect of dilutive
stock options 265 77
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Diluted 41,930 41,667
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<PAGE> 6
3. Industry Segments
For the first quarter of fiscal 1999, the company has adopted SFAS
No.131, Disclosures about Segments of an Enterprise and Related
Information. The company's operations include restaurant operations and
the processing and sale of food and related products. The revenues from
these segments include both sales to unaffiliated customers and
intersegment sales, which are accounted for on a basis consistent with
sales to unaffiliated customers. Intersegment sales and other
intersegment transactions have been eliminated in the consolidated
financial statements. Information on the company's operating segments
is summarized as follows:
<TABLE>
<CAPTION>
(in thousands)
Three Months Ended
July 24, 1998 July 25, 1997
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<S> <C> <C>
Sales
Restaurant Operations $177,843 $163,227
Food Products 70,698 68,020
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248,541 231,247
Intersegment sales of food products (8,204) ( 9,202)
------- -------
Total $240,337 $222,045
======== ========
Operating Income
Restaurant Operations $17,939 $15,919
Food Products 4,802 1,143
------- -------
Total $22,741 $17,062
======= =======
</TABLE>
4. New Accounting Standard
In 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income,
which requires that an enterprise report the change in its equity
during the period from nonowner sources. The company has evaluated the
changes in equity and determined that no items qualify as transactions
from nonowner sources (other comprehensive income). As a result, SFAS
No. 130 does not currently apply to the company and has not been
presented in the general-purpose financial statements.
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<PAGE> 7
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 $18.3 million, or 8.2%, for the first quarter ended July 24,
1998, compared to the corresponding quarter a year ago. The overall increase was
the result of a $14.6 million sales increase in the restaurant segment and a
$3.7 million sales increase in the food products segment. Restaurant segment
sales accounted for 74.0% and 73.5% of total sales in the first quarters of
fiscal 1999 and 1998, respectively.
The restaurant segment sales increase of $14.6 million (9.0%) in the first
quarter was due to an increase in same-store sales of 5.6 % as well as an
additional ten restaurants in operation (407 restaurants in operation at the end
of the first quarter this year versus 397 last year). The same-store sales
increase, inclusive of an average menu price increase of 2.7%, reflects the
continued trend of same-store sales gains since the third quarter of fiscal
1997. The introduction of a new seasonal menu contributed to the sales increase
in the first quarter.
The chart below summarizes the restaurant openings and closings during the
last five quarters:
Beginning Opened Closed Ending
--------- ------ ------ ------
Fiscal 1999
1st quarter 408 0 1 407
Fiscal 1998
1st quarter 394 4 1 397
2nd quarter 397 5 1 401
3rd quarter 401 3 1 403
4th quarter 403 7 2 408
The company expects to open approximately 23 stores in fiscal 1999.
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<PAGE> 8
The food product segment sales increase of $3.7 million (6.2%) over the
corresponding period a year ago was primarily the result of a 10% increase in
comparable pounds of sausage products sold. This significant increase in the
volume of product sold was the result of three factors:
1) The reintroduction of grilling sausages (bratwurst and italian
sausage), which included new packaging and other improvements,
2) increased promotional activity, and
3) reduced wholesale and retail prices for most of the company's sausage
products, which made them more affordable to consumers.
The benchmark retail price for a one-pound roll of sausage averaged $2.99 in the
first quarter of fiscal 1999 compared to $3.09 in the first quarter of fiscal
1998. The price decrease, made possible by the lower hog costs discussed below,
offset a portion of the sales increase provided by the additional volume sold.
COST OF SALES
Consolidated cost of sales (cost of materials) was 30.0% of sales in the
first quarter of fiscal 1999 compared to 32.0% of sales in the first quarter of
fiscal 1998. Restaurant segment cost of sales (food cost) remained relatively
constant at 26.0% of sales for the first quarter compared to 26.1% of sales for
the same period a year ago. Food products segment cost of sales decreased to
41.2% of sales in this year's first quarter from 48.6% of sales the
corresponding period a year ago. This decrease was due to favorable hog costs,
which averaged $31.77 per hundredweight for the first three months of fiscal
1999 versus $50.91 per hundredweight in the same period last year, a 37.6%
decrease.
OPERATING WAGE AND FRINGE BENEFIT EXPENSES
Consolidated operating wage and fringe benefit expenses remained the same
at 31.3% of sales for the first quarters of both fiscal 1999 and 1998. In the
restaurant segment, operating wage and fringe benefit expenses represented 37.9%
of sales for the first three months of fiscal 1999 compared to 38.1% for the
same period a year ago. In the food products segment, operating wage and fringe
benefit expenses were 12.3% of sales
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<PAGE> 9
versus 12.4% for the corresponding quarter a year ago. Lower health insurance
expense contributed to the improvement in both segments' ratios.
OTHER OPERATING EXPENSES
Approximately 90% of other operating expenses occurred in the restaurant
segment; the most significant components of which were advertising, utilities,
restaurant supplies, repair and maintenance, general liability insurance and
taxes (other than income taxes). Consolidated other operating expenses for the
first three months of fiscal 1999, as a percentage of sales, were 13.6% compared
to 13.7% in the same period a year ago. Decreases in restaurant advertising and
insurance expenses were mostly offset by small increases in food products
operating expenses.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
As a percentage of sales, consolidated selling, general and administrative
expenses were 12.2% and 11.9% in the first quarters of 1999 and 1998,
respectively. The most significant components of selling, general and
administrative expenses were wages, fringe benefits and food products segment
promotional expenses. The increase was the result of increased promotional
activity for the company's sausage products.
NET INCOME
Consolidated net income increased $3.7 million, or 36.1%, in the first
quarter of fiscal 1999 compared to the same period a year ago. Most of the
increase was provided by the food products segment, which had a $3.7 million
increase in operating income. The food products segment benefited from both
strong volume growth and favorable hog costs. The restaurant segment contributed
to higher profits with a $2.0 million operating income increase. This increase
was due mostly to the continued positive momentum in same-store sales.
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<PAGE> 10
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 $100.0 million, of
which $42.6 million was outstanding at July 24, 1998.
The company believes that the funds needed for capital expenditures and
working capital during the remainder of fiscal 1999 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.
YEAR 2000
In 1998, the company established a formal plan to assess the impact of the
year 2000 issue on the software and hardware utilized in its internal
operations, including those that affect customers, suppliers and other
constituents. The company has plans such that all changes to software and
hardware necessitated by the year 2000 issue will be completed in a timely
manner, and that all such systems will be year 2000 compliant by Dec. 31, 1999.
The company is also contacting critical suppliers of products and services to
determine that the suppliers' operations and the products and services they
provide are year 2000 compliant. The current estimated costs associated with the
necessary changes are not material in any year to the company's consolidated
financial position, results of operations or cash flows. However, the company
could be adversely impacted if its suppliers and customers do not make necessary
changes to their own systems and products successfully and in a timely manner.
All modification costs relating to this issue are expensed as incurred.
State of readiness: The company has addressed the impact on both
information technology ("IT") and non-IT systems. An assessment of steps the
company will take to address year 2000 problems, with all of its systems, is
complete. The implementation of these steps and the testing of systems are more
than 75% complete. All phases of implementation and testing are expected to be
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<PAGE> 11
completed by the fall of 1999. The company is actively monitoring the status of
year 2000 projects at third parties with which the company has material
relationships.
Costs to address year 2000 issues: Historical and estimated future costs of
remediation are expected to total less than $500,000.
Risks associated with year 2000 issues: Management believes that the
aforementioned plan is comprehensive and will reduce the risks associated with
year 2000 issues to a minimal level for its internal systems. The risks to the
company of third parties' (e.g. utility companies, banks and other critical
suppliers and customers) failure to be year 2000 compliant is difficult to
determine, but could be potentially significant.
Contingency Plan: The company does not yet have a formal contingency plan,
but is in the process of creating one. The contingency plan is expected to be
completed by December 31, 1999.
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 1999 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> 12
PART II - OTHER INFORMATION
ITEM 5. OTHER INFORMATION
As discussed in the company's Proxy Statement for the 1998 Annual Meeting
of Stockholders, any qualified stockholder of the company who intends to submit
a proposal to the company at the 1999 Annual Meeting of Stockholders (the "1999
Annual Meeting") must submit such proposal to the company not later than April
13, 1999 to be considered for inclusion in the company's Proxy Statement and
form of Proxy (the "Proxy Materials") relating to that meeting. If a stockholder
intends to present a proposal at the 1999 Annual Meeting of Stockholders, but
has not sought the inclusion of such proposal in the company's Proxy Materials,
such proposal must be received by the company prior to June 29, 1999 or the
company's management proxies for the 1999 Annual Meeting will be entitled to use
their discretionary voting authority should such proposal then be raised,
without any discussion of the matter in the company's Proxy Materials.
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)
September 4, 1998
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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 JULY 24, 1998.
</LEGEND>
<MULTIPLIER> 1000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> APR-30-1999
<PERIOD-START> APR-25-1998
<PERIOD-END> JUL-24-1998
<EXCHANGE-RATE> 1
<CASH> 28,871
<SECURITIES> 0
<RECEIVABLES> 17,168
<ALLOWANCES> 0
<INVENTORY> 21,081
<CURRENT-ASSETS> 77,496
<PP&E> 733,604
<DEPRECIATION> 246,362
<TOTAL-ASSETS> 594,273
<CURRENT-LIABILITIES> 111,550
<BONDS> 0
0
60
<COMMON> 426
<OTHER-SE> 465,747
<TOTAL-LIABILITY-AND-EQUITY> 594,273
<SALES> 240,337
<TOTAL-REVENUES> 240,337
<CGS> 71,990
<TOTAL-COSTS> 188,262
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 356
<INCOME-PRETAX> 22,385
<INCOME-TAX> 8,282
<INCOME-CONTINUING> 14,103
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,103
<EPS-PRIMARY> .34
<EPS-DILUTED> .34
</TABLE>
