<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 29, 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
-------------------------------------
Bob Evans Farms, Inc.
-------------------------------------
(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
- --------------------------------------------------------------------------------
(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 40,998,705 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)
Jan. 29, 1999 April 24,1998
------------- -------------
Unaudited Audited
--------- -------
ASSETS
- ------
<S> <C> <C>
Current assets
Cash and equivalents $ 11,837 $ 15,397
Trade accounts receivable 15,896 17,061
Inventories 23,650 22,709
Federal and state income taxes 0 1,032
Deferred income taxes 7,559 7,559
Prepaid expenses 2,318 1,640
----------- -----------
TOTAL CURRENT ASSETS 61,260 65,398
Property, plant and equipment 758,392 725,244
Less accumulated depreciation 260,461 239,295
----------- -----------
NET PROPERTY, PLANT AND EQUIPMENT 497,931 485,949
Other assets
Deposits and other 3,101 3,223
Long-term investments 8,302 6,264
Deferred income taxes 8,900 8,900
Cost in excess of net assets acquired 8,995 9,399
Other intangible assets 561 798
----------- -----------
TOTAL OTHER ASSETS 29,859 28,584
----------- -----------
$ 589,050 $579,931
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities
Line of credit $ 26,515 $ 39,420
Accounts payable 8,130 7,909
Dividends payable 3,690 3,334
Federal and state income taxes 549 0
Accrued wages and related liabilities 13,516 14,644
Other accrued expenses 46,976 40,961
----------- -----------
TOTAL CURRENT LIABILITIES 99,376 106,268
Long-term liabilities
Deferred compensation 40 0
Deferred income taxes 15,244 15,244
Notes payable (net of discount of $117,000 at
Jan. 29, 1999, and $187,000 at April 24, 1998) 1,293 1,223
----------- -----------
TOTAL LONG-TERM LIABILITIES 16,577 16,467
Stockholders' equity
Common stock: $.01 par value; authorized 100,000,000
shares; issued 42,638,118 shares at Jan. 29, 1999,
and April 24, 1998 426 426
Preferred stock: authorized 1,200 shares; issued 120
shares at Jan. 29, 1999, and April 24, 1998 60 60
Capital in excess of par value 149,466 147,213
Retained earnings 356,761 323,720
Treasury stock: 1,639,413 shares at Jan. 29, 1999,
and 964,013 shares at April 24, 1998, at cost (33,616) (14,223)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 473,097 457,196
----------- -----------
$ 589,050 $579,931
=========== ===========
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE> 3
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
UNAUDITED
---------
<TABLE>
<CAPTION>
(Dollars in thousands, except per share amounts)
Three Months Ended Nine Months Ended
------------------ -----------------
Jan. 29, 1999 Jan. 23, 1998 Jan. 29, 1999 Jan. 23, 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
NET SALES $250,530 $219,621 $730,195 $666,341
Cost of sales 69,490 66,548 208,131 206,872
Operating wage and fringe benefit expenses 78,885 68,017 228,766 206,642
Other operating expenses 33,502 30,536 98,722 92,103
Selling, general and administrative expenses 37,097 28,356 98,812 82,817
Depreciation expense 8,646 8,060 25,420 23,372
---------------- ------------- -------------- --------------
OPERATING INCOME 22,910 18,104 70,344 54,535
Net interest expense (244) (413) (852) (1,774)
---------------- ------------- -------------- --------------
INCOME BEFORE INCOME TAXES 22,666 17,691 69,492 52,761
PROVISIONS FOR INCOME TAXES
Federal 6,845 5,343 20,987 15,969
State 1,541 1,203 4,725 3,588
---------------- ------------- -------------- --------------
8,386 6,546 25,712 19,557
---------------- ------------- -------------- --------------
NET INCOME $ 14,280 $ 11,145 $ 43,780 $ 33,204
================ ============= ============== ==============
EARNINGS PER SHARE - BASIC $0.35 $0.27 $1.06 $0.80
================ ============= ============== ==============
EARNINGS PER SHARE - DILUTED $0.34 $0.27 $1.05 $0.80
================ ============= ============== ==============
CASH DIVIDENDS PER SHARE $0.09 $0.08 $0.26 $0.24
================ ============= ============== ==============
The accompanying notes are an integral part of the financial statements
-3-
</TABLE>
<PAGE> 4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
---------
<TABLE>
<CAPTION>
(Dollars in thousands)
Nine Months Ended
-----------------
Jan. 29, 1999 Jan. 23, 1998
------------- -------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $43,780 $33,204
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 26,319 24,193
Loss (Gain) on sale of property and equipment 121 (34)
Compensation expense attributable to stock plans 1,309 453
Cash provided by (used for) current assets and current liabilities:
Accounts receivable 1,165 (1,169)
Inventories (941) 546
Prepaid expenses (678) 554
Accounts payable 221 1,023
Federal and state income taxes 1,581 4,572
Accrued wages and related liabilities (2,397) (769)
Other accrued expenses 6,015 5,028
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 76,495 67,601
INVESTING ACTIVITIES:
Purchase of property, plant and equipment (37,673) (34,826)
Purchase of investments (2,296) (96)
Proceeds from sale of property, plant and equipment 150 181
Other 122 428
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (39,697) (34,313)
FINANCING ACTIVITIES:
Cash dividends paid (10,385) (9,991)
Payments on line of credit (12,905) (22,360)
Purchase of treasury stock (27,143) (1,907)
Interest accrued on long-term notes 70 90
Distribution of treasury stock
due to the exercise of stock
options and employee bonuses 10,005 2,682
----------- -----------
NET CASH USED IN FINANCING ACTIVITIES (40,358) (31,486)
----------- -----------
(Decrease) Increase in cash and equivalents (3,560) 1,802
Cash and equivalents at the beginning of the period 15,397 12,283
----------- -----------
Cash and equivalents at the end of the period $11,837 $14,085
=========== ===========
The accompanying notes are an integral part of the financial statements.
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</TABLE>
<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:
<TABLE>
<CAPTION>
(in thousands)
Three Months Ended Nine Months Ended
------------------ -----------------
Jan. 29, 1999 Jan. 23, 1998 Jan. 29, 1999 Jan. 23, 1998
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Basic 41,168 41,608 41,407 41,592
Effect of dilutive
stock options 382 281 321 169
------ ------ ------ ------
Diluted 41,550 41,889 41,728 41,761
====== ====== ====== ======
</TABLE>
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<PAGE> 6
3. INDUSTRY SEGMENTS
In fiscal 1999, the company 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 Nine Months Ended
------------------ -----------------
Jan. 29, 1999 Jan. 23, 1998 Jan. 29, 1999 Jan. 23, 1998
------------------------------------------ ----------------- ----------------- --- ----------------- ------------------
<S> <C> <C> <C> <C>
Sales
Restaurant Operations $176,738 $155,301 $533,903 $485,891
Food Products 82,060 72,334 221,158 206,828
-------- -------- -------- --------
258,798 227,635 755,061 692,719
Intersegment sales of food products (8,268) (8,014) (24,866) (26,378)
-------- -------- -------- --------
Total $250,530 $219,621 $730,195 $666,341
======== ======== ======== ========
Operating Income
Restaurant Operations $13,953 $11,990 $50,890 $44,514
Food Products 8,957 6,114 19,454 10,021
-------- -------- -------- --------
Total $22,910 $18,104 $70,344 $54,535
======== ======== ======== ========
</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 as other comprehensive income.
The company has evaluated the statement and determined that there are
no items which qualify as 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.
5. FISCAL PERIODS
The third quarter of fiscal 1999 was comprised of 14 weeks versus 13
weeks in fiscal 1998. The nine-month data represents 40 weeks of
activity versus 39 weeks in fiscal 1998.
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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 $30.9 million, or 14.1%, for the third quarter ended January
29, 1999, compared to the corresponding quarter a year ago. The increase was the
result of a $21.4 million sales increase in the restaurant segment and a $9.5
million sales increase in the food products segment during the period. For the
nine-month period ended January 29, 1999, consolidated net sales increased $63.9
million, or 9.6%, compared to the previous year. This increase was comprised of
a restaurant segment sales increase of $48.0 million and a food products segment
sales increase of $15.9 million. Restaurant segment sales historically account
for approximately 75% of total sales.
The restaurant segment sales increase of $21.4 million, or 13.8%, in the
third quarter, was the result of increased same-store sales, more restaurants in
operation and the effect of the extra week of sales in fiscal 1999. Same-store
sales increased 5.0% in the third quarter, excluding the effect of the extra
week in fiscal 1999. The same-store sales increase, inclusive of an average menu
price increase of 2.7%, represented the ninth consecutive quarter of same-store
sales growth. Additional sales growth was provided by an increase in the number
of operating locations: 412 at January 29, 1999 versus 403 a year earlier.
During the third quarter, the company opened five new restaurants and closed one
existing restaurant.
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<PAGE> 8
The company expects to open thirteen restaurants in the last quarter of fiscal
1999. The chart below summarizes the openings and closings during the last seven
quarters:
<TABLE>
<CAPTION>
Beginning Opened Closed Ending
---------------------------------------------------------------
<S> <C> <C> <C> <C>
Fiscal 1999
1st quarter 408 0 1 407
2nd quarter 407 2 1 408
3rd quarter 408 5 1 412
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
</TABLE>
The food products segment sales increased $9.5 million, or 14.7%, for the
third quarter. This increase was due mostly to additional sausage sales volume
as comparable pounds of sausage products sold were up 17.1% for the quarter
(8.7% excluding the effect of the extra week in fiscal 1999). Including new
products, total volume increased 22.7% for the quarter (13.9% excluding the
effect of the extra week in fiscal 1999). The factors that contributed to the
increase in volume sold were increased promotional activity and 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 was $2.99 through the third quarter and first nine
months of fiscal 1999 compared to an average of $3.09 during the corresponding
periods a year ago. The price decrease reduced net sales but was not significant
enough to offset the sales increase provided by the additional volume sold.
Also impacting the sales increase in the food products segment were higher
sales at two of the company's wholly-owned subsidiaries, Hickory Specialties and
Mrs. Giles Country Kitchens. Combined, sales increased $2.2 million for the two
companies in the third quarter. Although Hickory Specialties and Mrs. Giles
contributed to the increase in food products segment sales, their contribution
to the quarterly operating margin
-8-
<PAGE> 9
was not significant to the food products segment's results as they also
experienced an increase in cost of sales (see discussion below).
COST OF SALES
Consolidated cost of sales (cost of materials) was 27.7% of sales in the
third quarter compared to 30.3% of sales in the third quarter a year ago.
Year-to-date, consolidated cost of sales represented 28.5% versus 31.0% of sales
last fiscal year.
In the restaurant segment, food cost (cost of sales) was 25.7% of sales in
the third quarter and 25.8% of sales year-to-date, versus 26.4% and 26.2%,
respectively, in the corresponding periods last year. The improvement in food
cost was reflective of changes in product mix. Management believes that changes
made in the menu layout to highlight higher margin offerings contributed to the
positive changes in product mix.
In the food products segment, cost of sales was 32.7% of sales in the third
quarter and 35.9% year-to-date compared to 39.7% and 44.0%, respectively, in the
corresponding periods last year. These changes were due to significant
reductions in hog costs, which averaged $21.03 per hundredweight in the third
quarter of this year versus $36.70 per hundredweight in the third quarter last
year, a 42.7% decrease. Hog costs have continued a general downward trend after
the first quarter of fiscal 1998.
The decrease in cost of sales for the food products segment was slightly
offset by increased cost of sales at Hickory Specialties and Mrs. Giles. Both
companies experienced significant increases in raw materials cost in the third
quarter. The impact of these increases on the food products segment was de
minimis.
OPERATING WAGE AND FRINGE BENEFIT EXPENSES
Consolidated operating wage and fringe benefit expenses increased to 31.5%
from 31.0% of sales in the third quarter and to 31.3% from 31.0% of sales
year-to-date in comparison to the corresponding periods last year.
In the restaurant segment, operating wage and fringe benefit expenses
represented 39.8% of sales for the quarter and 38.4% of sales year-to-date
versus 39.1% and 38.1%, respectively, for the corresponding periods a
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<PAGE> 10
year ago. The third quarter increase was due mostly to higher management wages
and health insurance expense.
In the food products segment, operating wage and fringe benefit expenses
were 11.5% of sales for the quarter and remained relatively consistent with the
11.4% of sales experienced in the third quarter last year. Year-to-date,
operating wage and fringe benefit expenses represented 12.1% of sales for fiscal
1999 compared to 11.8% for fiscal 1998.
OTHER OPERATING EXPENSES
Approximately 90% of other operating expenses occurred in the restaurant
segment; the most significant components of which were advertising, utilities,
repair and maintenance, restaurant supplies, general liability insurance and
taxes (other than income taxes). Consolidated other operating expenses
represented 13.4% of sales for fiscal 1999's third quarter versus 13.9% of sales
for fiscal 1998's third quarter; the year-to-date comparisons were 13.5% versus
13.8%. Operating expenses, as a percentage of sales, decreased in the restaurant
segment primarily due to decreases in general liability insurance as well as
flat costs for restaurant supplies.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
The most significant components of selling, general and administrative
expenses were wages and fringe benefits and food products segment promotional
and advertising expenses. Consolidated selling, general and administrative
expenses represented 14.8% of sales for the quarter and 13.5% of sales
year-to-date in comparison to 12.9% and 12.4%, respectively, in the
corresponding periods a year ago. The increase was the result of increased
promotional activity for the company's sausage products.
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<PAGE> 11
NET INCOME
Consolidated net income increased $3.1 million, or 28.1%, for the third quarter
of fiscal 1999 compared to the same period a year ago. Both segments benefited
from the extra week of operations in fiscal 1999 and contributed positively to
the higher net income amount. The food products segment's operating income
increased to $9.0 million from $6.1 million as a result of strong volume growth
and favorable hog costs. The restaurant segment contributed to the higher
profits with a $2.0 million (or 16.4%) increase in operating income. This
increase was due mostly to the continued positive momentum in same-store sales.
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 $26.5 million was outstanding at Jan. 29, 1999.
Management 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 contacted critical suppliers of products and services to determine
if the suppliers' operations and the products and services they provide are year
2000 compliant. Management will continue to monitor critical suppliers' progress
with their year 2000 projects. The current estimated costs associated with
implementing the company's year 2000 readiness
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<PAGE> 12
plan 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 90% 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 implementing the company's year 2000 readiness plan 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 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 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.
-12-
<PAGE> 13
PART II - OTHER INFORMATION
ITEM 3. 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 12, 1999
---------------------
Date
-13-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> APR-30-1999
<PERIOD-START> APR-25-1998
<PERIOD-END> JAN-29-1999
<EXCHANGE-RATE> 1
<CASH> 11,837
<SECURITIES> 0
<RECEIVABLES> 15,896
<ALLOWANCES> 0
<INVENTORY> 23,650
<CURRENT-ASSETS> 61,260
<PP&E> 758,392
<DEPRECIATION> 260,461
<TOTAL-ASSETS> 589,050
<CURRENT-LIABILITIES> 99,376
<BONDS> 0
0
60
<COMMON> 426
<OTHER-SE> 472,611
<TOTAL-LIABILITY-AND-EQUITY> 589,050
<SALES> 730,195
<TOTAL-REVENUES> 730,195
<CGS> 208,131
<TOTAL-COSTS> 561,039
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 852
<INCOME-PRETAX> 69,492
<INCOME-TAX> 25,712
<INCOME-CONTINUING> 43,780
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 43,780
<EPS-PRIMARY> 1.06
<EPS-DILUTED> 1.05
</TABLE>
