<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 30, 1999
------------------------------------------
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 issued 42,638,118 common shares, of which 39,475,175 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 30, 1999 April 30, 1999
------------- --------------
Unaudited Audited
--------- -------
<S> <C> <C>
ASSETS
- ------
Current assets
Cash and equivalents $ 17,521 $ 25,455
Accounts receivable 13,782 17,036
Inventories 14,525 14,299
Deferred income taxes 8,150 8,150
Prepaid expenses 2,811 1,697
--------------- ---------------
TOTAL CURRENT ASSETS 56,789 66,637
Property, plant and equipment 767,118 750,412
Less accumulated depreciation 263,894 257,043
--------------- ---------------
NET PROPERTY, PLANT AND EQUIPMENT 503,224 493,369
Other assets
Deposits and other 2,870 3,505
Long-term investments 9,872 8,331
Deferred income taxes 9,767 9,767
Cost in excess of net assets acquired 8,232 8,360
Other intangible assets 439 483
--------------- ---------------
TOTAL OTHER ASSETS 31,180 30,446
--------------- ---------------
$ 591,193 $ 590,452
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities
Line of credit $ 36,100 $ 25,000
Accounts payable 9,794 9,559
Dividends payable 3,553 3,626
Federal and state income taxes 5,817 896
Accrued wages and related liabilities 11,211 17,009
Other accrued expenses 41,128 44,919
--------------- ---------------
TOTAL CURRENT LIABILITIES 107,603 101,009
Long-term liabilities
Deferred compensation 1,951 1,190
Deferred income taxes 17,325 17,325
Notes payable (net of discount of $80 at
July 30, 1999, and $97 at April 30, 1999) 850 833
--------------- ---------------
TOTAL LONG-TERM LIABILITIES 20,126 19,348
Stockholders' equity
Common stock, $.01 par value; authorized 100,000,000
shares; issued 42,638,118 shares at July 30, 1999,
and April 30, 1999 426 426
Preferred stock, authorized 1,200 shares; issued 120
shares at July 30, 1999, and April 30, 1999 60 60
Capital in excess of par value 149,674 151,364
Retained earnings 378,491 366,924
Treasury stock, 3,162,943 shares at July 30, 1999,
and 2,353,332 shares at April 30, 1999, at cost (65,187) (48,679)
--------------- ---------------
TOTAL STOCKHOLDERS' EQUITY 463,464 470,095
--------------- ---------------
$ 591,193 $ 590,452
=============== ===============
</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
------------------
July 30, 1999 July 24, 1998
------------- -------------
<S> <C> <C>
NET SALES $ 243,757 $ 240,337
Cost of sales 69,046 71,990
Operating wage and fringe benefit expenses 80,324 75,156
Other operating expenses 35,026 32,802
Selling, general and administrative expenses 26,882 29,334
Depreciation expense 8,499 8,314
--------------- ---------------
OPERATING INCOME 23,980 22,741
Net interest income (expense) 20 (356)
--------------- ---------------
INCOME BEFORE INCOME TAXES 24,000 22,385
PROVISIONS FOR INCOME TAXES
Federal 7,248 6,760
State 1,632 1,522
--------------- ---------------
8,880 8,282
--------------- ---------------
NET INCOME $ 15,120 $ 14,103
=============== ===============
EARNINGS PER SHARE - BASIC $ .38 $ .34
=============== ===============
EARNINGS PER SHARE - DILUTED $ .38 $ .34
=============== ===============
CASH DIVIDENDS PER SHARE $ .09 $ .08
=============== ===============
</TABLE>
The accompanying notes are an integral part of the financial statements
<PAGE> 4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
---------
<TABLE>
<CAPTION>
(Dollars in thousands)
Three Months Ended
------------------
July 30, 1999 July 24, 1998
------------- -------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 15,120 $ 14,103
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 8,774 8,614
Loss (gain) on sale of property and equipment (93) 6
Deferred compensation 722 0
Compensation expense attributable to stock plans 229 297
Cash provided by (used for) current assets and current liabilities:
Accounts receivable 3,254 (107)
Inventories (226) 1,628
Prepaid expenses (1,114) (1,177)
Accounts payable 235 (197)
Federal and state income taxes 4,921 7,762
Accrued wages and related liabilities (5,798) (4,018)
Other accrued expenses (4,065) (659)
--------------- ---------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 21,959 26,252
INVESTING ACTIVITIES:
Purchase of property, plant and equipment (18,889) (9,664)
Purchase of long-term investments (1,644) (1,309)
Proceeds from sale of property, plant and equipment 628 51
Other 635 58
--------------- ---------------
NET CASH USED IN INVESTING ACTIVITIES (19,270) (10,864)
FINANCING ACTIVITIES:
Cash dividends paid (3,627) (3,337)
Line of credit 11,100 3,130
Purchase of treasury stock (18,635) (3,154)
Interest accrued on long-term notes 17 23
Distribution of treasury stock
due to the exercise of stock
options and employee bonuses 522 1,424
--------------- ---------------
NET CASH USED IN FINANCING ACTIVITIES (10,623) (1,914)
--------------- ---------------
Increase (decrease) in cash and equivalents (7,934) 13,474
Cash and equivalents at the beginning of the period 25,455 15,397
--------------- ---------------
Cash and equivalents at the end of the period $ 17,521 $ 28,871
=============== ===============
</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
30, 1999 (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
------------------
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:
<TABLE>
<CAPTION>
(in thousands)
Three Months Ended
------------------
July 30, 1999 July 24, 1998
---------------------- ----------------- ------------------
<S> <C> <C>
Basic 39,926 41,665
Effect of dilutive
stock options 221 265
------ ------
Diluted 40,147 41,930
====== ======
</TABLE>
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<PAGE> 6
3. Industry Segments
-----------------
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 30, 1999 July 24, 1998
------------------------------------------- ----------------- ------------------
<S> <C> <C>
Sales
Restaurant Operations $193,783 $177,843
Food Products 57,202 70,698
------- -------
250,985 248,541
Intersegment sales of food products (7,228) (8,204)
------- -------
Total $243,757 $240,337
======== ========
Operating Income
Restaurant Operations $19,919 $17,939
Food Products 4,061 4,802
------- -------
Total $23,980 $22,741
======= =======
</TABLE>
4. Reclassifications
-----------------
Certain prior period amounts have been reclassified to conform to the
current classification.
5. New Accounting Standards
------------------------
In 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 133 requires an entity to
recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair
value. Gains or losses resulting from changes in the values of those
derivatives would be accounted for depending on the use of the
derivative and whether it qualifies for hedge accounting. The company
is currently assessing the impact of this statement on the company's
consolidated financial statements and plans to adopt SFAS No. 133 in
fiscal 2002.
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<PAGE> 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
During the fourth quarter of fiscal 1999, the company sold its salad
production and charcoal manufacturing businesses. As a result, certain
comparisons of the first quarter of fiscal 2000 to the same period in fiscal
1999 have been adjusted to exclude the effect of the businesses sold. The
company's results of operations for the first quarter of fiscal 1999 included
net sales and operating income of $15.6 million and $0.5 million, respectively,
from the divested businesses.
SALES
Consolidated net sales increased $3.4 million, or 1.4%, for the first
quarter ended July 30, 1999, compared to the corresponding quarter a year ago.
Excluding the divested businesses, consolidated net sales increased $19.0
million, or 8.5%, for the first quarter of fiscal 2000 compared to a year ago.
Restaurant segment sales accounted for approximately 79% of total sales in the
first quarter of fiscal 2000.
The restaurant segment's sales increased $15.9 million (9.0%) in the
first quarter due to an increase in same-store sales of 4.9 % as well as an
additional 17 restaurants in operation (424 restaurants in operation at the end
of the first quarter this year versus 407 last year). The same-store sales
increase, inclusive of an average menu price increase of 2.0%, reflects the
continued trend of same-store sales gains since the third quarter of fiscal
1997.
The chart below summarizes the restaurant openings and closings during
the last five quarters:
<TABLE>
<CAPTION>
Beginning Opened Closed Ending
----------------- ------------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Fiscal 2000
1st quarter 424 1 1 424
Fiscal 1999
1st quarter 408 0 1 407
2nd quarter 407 2 1 408
3rd quarter 408 5 1 412
4th quarter 412 13 1 424
</TABLE>
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<PAGE> 8
The company expects to open approximately 26 stores in fiscal 2000.
The food products segment sales, excluding the divested businesses,
increased $3.1 million (6.6%) over the same period a year ago. A 10% increase
in comparable pounds of sausage products sold contributed to the increase in net
sales.
COST OF SALES
Consolidated cost of sales (cost of materials) was 28.3% of sales in
the first quarter of fiscal 2000 compared to 30.0% of sales in the first quarter
of fiscal 1999. Restaurant segment cost of sales (food cost) was more favorable
at 25.7% of sales for the first quarter compared to 26.0% of sales for the same
period a year ago. Food products segment cost of sales decreased to 38.7% versus
41.2% of sales in the first quarter this year versus the corresponding period
last year. Excluding Mrs. Giles and Hickory, food products cost of sales
increased to 39.5% of sales in this year's first quarter from 39.1% of sales in
the corresponding period a year ago. This increase was mainly due to hog costs
averaging $32.60 per hundredweight for the first three months of fiscal 2000
versus $31.77 per hundredweight in the same period last year, a 2.6% increase.
OPERATING WAGE AND FRINGE BENEFIT EXPENSES
Consolidated operating wage and fringe benefit expenses increased to
33.0% of sales for the first quarter of fiscal 2000 compared to 31.3% for the
corresponding period in fiscal 1999. In the restaurant segment, operating wage
and fringe benefit expenses represented 38.1% of sales for the first three
months of fiscal 2000 compared to 37.9% for the same period a year ago. In the
food products segment (excluding Mrs. Giles and Hickory), operating wage and
fringe benefit expenses were 12.8% of sales versus 12.1% for the corresponding
quarter a year ago. Higher health insurance expense and higher hourly wage
expense contributed to the increase in both segments' ratios.
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<PAGE> 9
OTHER OPERATING EXPENSES
Approximately 93% of other operating expenses occurred in the
restaurant segment in the first quarter this year; 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 2000,
as a percentage of sales, were 14.4% compared to 13.6% in the same period a year
ago. Excluding Mrs. Giles and Hickory, consolidated other operating expenses for
the first three months of fiscal 2000, as a percentage of sales, were 14.5%
compared to 14.2% for the corresponding period a year ago. The increase was due
mostly to higher advertising expense offset partially by lower general liability
insurance.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
As a percentage of sales, consolidated selling, general and
administrative expenses were 11.0% and 12.2% in the first quarters of fiscal
2000 and fiscal 1999, respectively. Excluding Mrs. Giles and Hickory,
consolidated selling, general and administrative expenses were 10.7% and 11.0%
of sales in the first quarters of fiscal 2000 and fiscal 1999, respectively. The
most significant components of selling, general and administrative expenses were
wages, fringe benefits and food products segment promotional expenses. The
decrease as a percentage of sales is primarily due to the fact that
administrative costs remained somewhat steady while sales increased.
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 $36.1 million was outstanding at July 30, 1999.
The company believes that the funds needed for capital expenditures and
working capital during the remainder of fiscal 2000 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.
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<PAGE> 10
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 95% complete. All phases of implementation and testing are expected to be
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.
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<PAGE> 11
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 15, 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 fiscal 2000 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 1999 Annual
Meeting of Stockholders, any qualified stockholder of the company who intends to
submit a proposal at the 2000 Annual Meeting of Stockholders (the "2000 Annual
Meeting") must submit such proposal to the company not later than April 11, 2000
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 2000 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 27, 2000 or the company's
management proxies for the 2000 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 10, 1999
------------------
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 30, 1999.
</LEGEND>
<MULTIPLIER> 1000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> APR-28-2000
<PERIOD-START> MAY-01-1999
<PERIOD-END> JUL-30-1999
<EXCHANGE-RATE> 1
<CASH> 17,521
<SECURITIES> 0
<RECEIVABLES> 13,782
<ALLOWANCES> 0
<INVENTORY> 14,525
<CURRENT-ASSETS> 56,789
<PP&E> 767,118
<DEPRECIATION> 263,894
<TOTAL-ASSETS> 591,193
<CURRENT-LIABILITIES> 107,603
<BONDS> 0
0
60
<COMMON> 426
<OTHER-SE> 462,978
<TOTAL-LIABILITY-AND-EQUITY> 591,193
<SALES> 243,757
<TOTAL-REVENUES> 243,757
<CGS> 69,046
<TOTAL-COSTS> 192,895
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 24,000
<INCOME-TAX> 8,880
<INCOME-CONTINUING> 15,120
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,120
<EPS-BASIC> .38
<EPS-DILUTED> .38
</TABLE>
