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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended April 27, 2001
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 0-1667
Bob Evans Farms, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 31-4421866
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3776 South High Street, Columbus, Ohio 43207
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 614-491-2225
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Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock With $.01 Par Value
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(Title of class)
The Exhibit Index begins at page 40.
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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
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ( )
Based upon the last quoted sale price reported on the Nasdaq stock market on
July 13, 2001, the aggregate market value of the registrant's common stock held
by non-affiliates on that date was $634,797,082.24
34,791,717 shares of the registrant's common stock with $.01 par value were
outstanding at July 13, 2001.
DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of the registrant's annual report to stockholders for the
fiscal year ended April 27, 2001, are incorporated by reference into
Part II of this Annual Report on Form 10-K.
2. Portions of the registrant's definitive proxy statement for its annual
meeting of stockholders to be held on Sept. 10, 2001, are incorporated
by reference into Part III of this Annual Report on Form 10-K.
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PART I
ITEM 1. BUSINESS.
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Bob Evans Farms, Inc. was incorporated on Nov. 4, 1985, under the laws of the
State of Delaware. It is the successor by merger to Bob Evans Farms, Inc., an
Ohio corporation incorporated in 1957.
Bob Evans Farms, Inc. wholly owns BEF Holding Co., Inc. The subsidiaries owned
by BEF Holding Co., Inc. include Bob Evans Farms, Inc., an Ohio corporation
("BEF Ohio"); Owens Country Sausage, Inc. ("Owens"); Hickory Specialties, Inc.
("Hickory Specialties"); and BEF Aviation Co., Inc. ("Aviation"). BEF Ohio
wholly owns Bob Evans Transportation Company, LLC ("Transportation") and BEF IN
Holding Co., Inc. ("BEF IN Holding"). BEF Ohio is the limited partner and BEF IN
Holding is the general partner of Bob Evans Restaurants of Indiana, L.P. ("BEF
Indiana"). BEF Indiana wholly owns Bob Evans Restaurants of Michigan, Inc.
("Michigan Restaurants"). Michigan Restaurants wholly owns Bob Evans
Restaurants, Inc. ("Restaurants"). Restaurants wholly owns BEF RE Holding Co.,
Inc. ("RE Holding"). RE Holding majority owns BEF REIT, Inc. Bob Evans Farms,
Inc. and its direct and indirect subsidiaries are collectively referred to as
the "company."
The company's business is divided into two principal industry segments: the
ownership and operation of a chain of full-service, family restaurants located
in 22 states, and the manufacture and sale of fresh and fully cooked pork
products and other complementary food products in 30 states.
RESTAURANT SEGMENT OPERATIONS
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GENERAL
The company operates a total of 469 full-service, family restaurants under the
Bob Evans Restaurant, Bob Evans Restaurant & General Store and Owens Family
Restaurant names. The company experienced a same-store sales increase of 2.6
percent in fiscal 2001 as compared to a 3.4 percent increase during fiscal 2000
in its restaurant segment.
All of the company's family restaurants feature a wide variety of homestyle menu
offerings designed to appeal to its diverse customer base, primarily families.
Breakfast entrees, including traditional items and unique specialty offerings,
are served all day. The restaurants are typically open from 6 a.m. until 10 p.m.
Sunday through Thursday, with extended closing hours on Friday and Saturday for
most locations. Average guest checks for breakfast, lunch and dinner are $5.87,
$6.49 and $6.92, respectively. Approximately 65 percent of total revenues from
restaurant operations are generated from 6 a.m. to 4 p.m., with the balance
generated from 4 p.m. to closing. Sales on Saturday and Sunday account for
approximately 39 percent of a typical week's revenues.
The company's restaurants are supplied with food and other inventory items
(other than sausage products and related meat items) by five independent food
and non-food distributors twice a week. Sausage products and other meat items
are supplied by the company to each restaurant by
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the company's driver-salesmen, with the exception of the restaurants located in
Florida, Massachusetts, Mississippi, New York, North Carolina and South Carolina
and parts of Missouri which are supplied by the aforementioned food
distributors.
The following table sets forth the number, type and location of restaurants
operated by the company as of the end of the 2001 fiscal year.
RESTAURANTS IN OPERATION AT APRIL 27, 2001
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Traditional General Owens Total
Stores Restaurants
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Delaware 5 5
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Florida 27 27
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Illinois 18 18
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Indiana 51 51
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Iowa 1 1
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Kansas 2 2
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Kentucky 16 16
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Maryland 19 19
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Massachusetts 1 1
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Michigan 44 44
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Mississippi 1 1
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Missouri 15 1 16
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New Jersey 2 2
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New York 13 13
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North Carolina 13 13
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Ohio 161 1 162
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Pennsylvania 27 1 28
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South Carolina 1 1 2
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Tennessee 2 1 3
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Texas 9 9
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Virginia 12 12
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West Virginia 23 1 24
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TOTAL 454 6 9 469
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During fiscal 2001, the company opened 30 new restaurants. The majority of these
new restaurants are located in the company's existing market area. However, the
company also expanded its restaurant operations by opening restaurants in new
marketing areas.
From time to time, restaurants are evaluated and closed due to a changing
market, poor performance or a change in access or building safety. During the
2001 fiscal year, two traditional Bob Evans Restaurants were closed in Knoxville
and Goodlettsville, Tenn., due to their inability to perform to company
expectations.
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The company has typically opened restaurants in areas where a strong consumer
awareness and acceptance of its sausage products have been established over the
years. It has deviated from this practice only in Florida, Massachusetts,
Mississippi, North Carolina and South Carolina, where the company's
driver-salesmen do not distribute Bob Evans Sausage.
SEASONALITY
Certain restaurants located near major interstate highways generally experience
increased revenues during the summer travel season.
RESTAURANT EXPANSION
During fiscal 2002, the company plans to build and open approximately 30 new
restaurants, about 80 percent of which will be constructed in existing market
areas. Determined by anticipated business needs, approximately 90 percent of the
new restaurants will be the company's 130-seat building plan and the remaining
will seat 158 people. Future restaurant growth will depend on the availability
of sites at prices that will permit the company's projected returns, as well as
growth trends in consumer demand for mid-scale family style restaurants. During
fiscal 2002, the company plans to rebuild 10 and remodel 33 restaurants to
various degrees, including major remodels and expansions to minor equipment and
decor updates. The restaurant remodel/rebuild plan, which requires significant
capital expenditures, demonstrates the company's commitment to same-store sales
growth and customer service and satisfaction. Restaurant capital expenditures
for fiscal 2002 are estimated at $92 million as compared to approximately $94
million in fiscal 2001.
CARRYOUT BUSINESS
During fiscal 2001, carryout business in the company's restaurants accounted for
approximately five percent of the total revenues generated by the restaurant
segment. To increase carryout business and customer satisfaction, the company
completed its chainwide introduction of Carry Home Kitchen areas into its
restaurants during fiscal 2001, and continues to include this enhanced carryout
area in all new units. Through dedicated staffing and facilities, Carry Home
Kitchens not only better serve carryout customers, but also increase eat-in
dessert sales as a result of the added dessert case. The company's restaurants
do not have a drive-through service for carryout business. Plans for fiscal 2002
are to continue to expand carryout business by increasing marketing programs and
consumer awareness.
RETAIL SALES OF GOODS
The company offers some retail items for sale on a limited basis in its
traditional units and on a much larger scale in its six Bob Evans Restaurants &
General Stores. These retail items include food products featured in the
company's restaurant menus, gifts and other novelties. In 1997, Corner Cupboard
retail areas were introduced in select Bob Evans Restaurants. These retail areas
offer a scaled-down version of the gifts and retail food items available in Bob
Evans Restaurants & General Stores. Given the success of this program, the
company plans on including Corner Cupboard retail areas in all new restaurants.
The company also introduced retail Corner
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Cupboard areas in 30 existing units during fiscal 2001, and plans to add an
additional 74 in existing units during fiscal 2002, which will bring the total
to approximately 247.
COMPETITION
The company's restaurant segment is engaged in an intensely competitive
business. The company's restaurants compete for favorable expansion sites and
customers with both local and national family, casual and fast-food restaurant
chains, as well as with individual restaurant operators. The line continues to
blur between family and casual restaurants. Competition in the restaurant
industry lies in price/value, menu variety, relevance and brand image. The
company's restaurant segment sales are not a significant factor in the overall
restaurant business in the company's market areas.
LABOR AND FRINGE BENEFIT EXPENSE
Competition for qualified labor was intense in fiscal 2001 and is expected to
continue in fiscal 2002, as unemployment remains historically low in most of the
company's marketing area. Labor and fringe benefit expense in the restaurant
segment accounted for 40 percent of sales in fiscal 2001 as compared to 39.3
percent in fiscal 2000, both of which are high from a historical perspective.
Congress is currently considering increases to the minimum wage rate which could
significantly impact the company's labor costs.
SOURCES AND AVAILABILITY OF RAW MATERIALS
Menu mix in the restaurant segment is varied enough that raw materials
historically have been readily available. However, some food products may be in
short supply during certain seasons and raw material prices often fluctuate
according to availability. Food costs accounted for approximately 25 percent of
restaurant segment sales during fiscal 2001, which is consistent with fiscal
2000. Restaurant segment food costs were impacted by menu price increases, raw
material prices and sales mix. The company does not currently anticipate that
food costs will fluctuate significantly during its 2002 fiscal year.
MARKETING
The company spent approximately $32 million in the restaurant segment for
marketing during its 2001 fiscal year. Sixty-seven percent of the marketing
dollars were spent on television, radio, print and outdoor advertising. The
remaining dollars were spent primarily on in-store menu development,
merchandising, kids' programs and local-store marketing. The company typically
does not use coupons, except in certain outlying markets to attract new
customers.
RESEARCH AND DEVELOPMENT
The company is continuously testing new food items in its search for new and
improved menu offerings to appeal to its customer base and to satisfy changing
eating trends. Product development has been concentrated on unique homestyle
options, as well as quality enhancements to some of the company's best-selling
items. The company's Breakfast Savors and Lunch Savors programs, which are
designed to drive weekday sales, continue to be updated
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with new items to maintain their success. Research and development expenses, to
date, have not been material.
TRADEMARKS, SERVICE MARKS AND LICENSES
The company maintains various trademarks and service marks in connection with
its family restaurant operations, such as Bob Evans Carry Home Kitchen,
Breakfast Savors, Lunch Savors and Sunshine Skillet. These trademarks and
service marks are renewed periodically and the company believes that they
adequately protect the various products and services to which they relate. The
operations of the restaurant segment of the company are not dependent upon any
patents, franchises or concessions.
FOOD PRODUCTS SEGMENT OPERATIONS
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PRINCIPAL PRODUCTS AND PROCUREMENT METHODS
The company's traditional business in its food products segment is the
production and distribution of approximately 40 varieties of fresh, smoked and
fully cooked pork sausage and ham products under the brand names of Bob Evans,
Owens Country Sausage and Country Creek Farm. The company continues to devote
time and effort on both new product development and sales of its pork sausage
and ham products to institutional and foodservice purchasers. During fiscal
2001, maple sausage patties and hickory smoked bacon were introduced in Bob
Evans markets. In addition to the company's well-known meat offerings, the
company also sells a number of other food products, including side dishes and
dough items. During fiscal 2001, the company expanded its food products
offerings by introducing garlic mashed potatoes, Owens Pizza Tacos and Owens
Large Bacon, Egg and Cheese SnackWiches. The company also has a frozen foods
division which creates new points of distribution through grocers' freezers,
primarily with dough items and frozen entrees. Several items in the Bob Evans
and Owens product lines, including SnackWiches, are microwaveable convenience
items for meals and snacks.
Specialty items for the company's institutional and foodservice customers are
made to their specifications and include sausage links and patties, sausage
gravy and biscuit sandwiches. Although foodservice sales do not generate margins
as high as sales of branded items, they provide the company with incremental
volume in its production plants. During fiscal 2001, foodservice sales accounted
for approximately eight percent of the company's food products sales compared to
nine percent in fiscal 2000. Foodservice sales are expected to remain relatively
constant in fiscal 2002.
Through Hickory Specialties, the company also produces and sells food-related
products that complement its food products business. Hickory Specialties
produces liquid-smoke flavorings under the Zesti Smoke brand name. Hickory
Specialties' products are marketed nationally and internationally to North
America (United States, Canada, Costa Rica, Dominican Republic, Guatemala,
Mexico, Panama and Puerto Rico); South America (Argentina, Brazil, Chile,
Colombia, Peru and Venezuela); Asia (Indonesia, Japan, South Korea, Malaysia,
Philippines, Singapore, Thailand and Israel); Europe (England, France, Germany,
Greece, Italy, Netherlands and Spain); Australia and Africa (South Africa).
International sales represent 22.9 percent of the
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total sales for Hickory Specialties products. Previously, Hickory Specialties
also produced charcoal, however the company sold substantially all of the assets
of Hickory Specialties' charcoal operations to Royal Oak Sales, Inc. during the
fourth quarter of fiscal 1999.
Percentage of Food Products Segment Revenues
FISCAL YEAR ENDED
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APRIL 27, 2001 APRIL 28, 2000 APRIL 30, 1999
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Sales of Bob Evans 71% 71% 57%
Products
Sales of Owens 24% 24% 20%
Country Sausage
Products
Sales of Mrs. Giles 0% 0% 10%
Products*
Sales of Hickory 5% 5% 13%
Specialties Products*
*On April 23, 1999, the company sold substantially all of the assets of Mrs.
Giles Country Kitchens, Inc. and substantially all of the assets of Hickory
Specialties' charcoal operations. Hickory Specialties sales decreased because
fiscal 2000 and fiscal 2001 sales were comprised only of liquid-smoke products,
whereas past years also included sales of charcoal products.
The company's pork sausage products are produced in the company's six processing
plants located in Xenia, Bidwell and Springfield, Ohio; Hillsdale, Mich.; Galva,
Ill.; and Richardson, Texas. The Bidwell, Springfield and Hillsdale plants also
manufacture the products sold to foodservice distributors. On July 12, 2001, the
company announced its plan to build a distribution center near Springfield,
Ohio, with completion expected in the fall of 2002. The distribution center will
serve as a hub for the company's direct store distribution system.
The company procures live hogs at prevailing market prices from terminals, local
auctions, country markets and corporate and family farms in Ohio, Indiana,
Illinois, Iowa, North Carolina, Kansas, Michigan, Nebraska, South Dakota,
Pennsylvania, Wisconsin, Minnesota, West Virginia, Missouri, Oklahoma and Texas.
Live hogs procured in these markets are purchased by an employee of the company.
Live hogs are then transported overnight directly from the various markets and
farms from which they were purchased to five of the company's processing plants
where they are slaughtered and processed into various pork sausage products.
These products, in turn, are shipped daily from the processing plants for
distribution to the company's customers. The company generally has not
experienced difficulty in procuring live hogs for its pork sausage products. The
company has not traditionally contracted in advance for the purchase of live
hogs, although it is currently evaluating contract pricing and may do so with
limited quantities in fiscal 2002.
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Hickory Specialties liquid-smoke flavoring products are produced at the
company's plants in Crossville, Tenn., and Greenville, Mo. The company generally
has not experienced difficulty in obtaining raw materials for its Hickory
Specialties products and does not currently anticipate future difficulty in that
regard. Hickory Specialties raw materials consist of hickory sawdust, mixed
hardwood sawdust and mesquite sawdust.
DISTRIBUTION METHODS
Products distributed under the Bob Evans brand name are distributed to retail
customers in two ways:
(1) Primarily, the direct store delivery system is used for the retail
distribution of the sausage and other refrigerated products bearing the Bob
Evans brand name. Ninety-one driver-salesmen, driving company-owned
refrigerated trucks, deliver the company's products directly to more than
5,870 grocery stores.
(2) On a smaller scale, the company uses alternate distribution methods for its
sausage and frozen food products through warehouses and distributors, which
makes the products available in approximately 4,000 additional grocery
stores.
The marketing territory for Bob Evans brand products includes Ohio, Michigan,
Indiana, Illinois, Maryland, Delaware and the District of Columbia, as well as
portions of New Jersey, New York, Iowa, Pennsylvania, Missouri, Tennessee,
Georgia, Alabama, Virginia, Kansas, Kentucky, North Carolina, South Carolina,
West Virginia and Wisconsin.
Owens Country Sausage products are distributed to more than 5,500 retail
customers in two ways:
(1) Company-owned transport trucks deliver directly to most major supermarket
chain warehouse distribution centers in the Owens' market areas.
Thereafter, the products are shipped to individual grocery stores.
(2) Ten driver-salesmen, driving company-owned refrigerated trucks, and various
broker networks deliver products to grocery stores.
The marketing territory for Owens brand products includes Texas, Arkansas,
Oklahoma, New Mexico, Louisiana, Arizona and Colorado, and portions of Nevada,
Mississippi and Kansas.
Distribution to the company's foodservice customers is accomplished through food
brokers and distributors.
Hickory Specialties' liquid-smoke flavoring products are distributed nationally
and internationally to food product manufacturers and pet food manufacturers
through brokers and distributors and through direct shipment to customers.
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INVENTORY LEVELS
Most of the company's food products are highly perishable and require proper
refrigeration. Shelf life of the products ranges from 18 to 45 days for
refrigerated products. Due to the highly perishable nature and short shelf life
of the company's food products, the company's processing plants normally process
only enough product to fill existing orders. Therefore, the company maintains
minimal inventory levels because such products are generally manufactured only
to meet existing demand and are delivered to retail outlets within a three-day
period after processing.
Because the demand for Hickory Specialties' liquid-smoke flavoring products is
generally constant and does not fluctuate greatly with the seasons, they are
manufactured throughout the year which generally enables production and sales to
match.
TRADEMARKS AND SERVICE MARKS
The company maintains various trademarks and service marks in connection with
its food products operations, such as SnackWiches, Hotz and Border Breakfast,
that identify various Bob Evans Farms, Owens Country Sausage and Hickory
Specialties products. These trademarks and service marks are renewed
periodically and the company believes that they adequately protect the brand
names of the company. The operations of the food products segment of the company
are not dependent upon any patents, licenses, franchises or concessions.
COMPETITION AND SEASONALITY
The sausage business is highly competitive. It is also seasonal to the extent
that more pounds of fresh sausage are typically sold during the colder months
from October through April. The company continues to promote products for
outdoor grilling in an attempt to create more volume during the summer months.
The company competes primarily on the basis of the price and quality of its
sausage products. The company is in direct competition with a large number and
variety of producers and wholesalers of similar products, including companies
active both locally and nationally. Although many such competitors have
substantially greater financial resources and higher sales volumes, the company
believes that sales of its products constitute a significant portion of sales of
sausage of comparable price and quality in the majority of its market areas.
The company is aware of only one major competitor, Red Arrow Products Co., Inc.,
in its liquid-smoke flavoring business. In 1999, a new manufacturer, Forest
Flavors International, began operations and competes only in selected areas,
primarily with commodity-type products. The company believes that Hickory
Specialties' liquid-smoke products account for a significant percentage of the
liquid-smoke flavorings produced and sold in the United States. The breadth of
the product line, compared to that of the major competitor, is perceived as a
slight disadvantage. The company believes, however, that its technical expertise
in the separation of products into functional components and the level of field
technical service provided to customers are competitive advantages.
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MARKETING
During the 2001 fiscal year, the company spent approximately $12 million on
marketing its food products under the Bob Evans and Owens brand names.
Approximately 64 percent of this amount was spent on media with the remaining
amount spent to build brand awareness and to encourage consumers to try the
company's food products. During the 2001 fiscal year, the company spent
approximately $0.1 million on marketing Hickory Specialties' liquid-smoke
flavorings.
DEPENDENCE ON A SINGLE CUSTOMER
Bob Evans and Owens products are available to more than fifty percent of the
population of the continental United States through more than 15,370 retail
grocery stores. The company's liquid-smoke flavoring products are sold
nationally and internationally. The company's food products segment is not
dependent upon a single customer or group of affiliated customers.
SALES ON CREDIT; AGED PRODUCT
The company typically allows seven- to 30-day terms on the sales of its food
products, and up to 60 days on its liquid-smoke products. The company has not
experienced any significant bad debt problems, nor has the return of aged
product had a significant effect on the company.
SOURCES AND AVAILABILITY OF RAW MATERIALS
The company is dependent upon the availability of live hogs to produce its pork
sausage and ham products. Historically, the company has not experienced
shortages in the number of hogs available at prevailing market prices. The live
hog market is highly cyclical in terms of the number of hogs available and the
current market price. The live hog market is also dependent upon supply and
demand for pork products and corn production, since corn is the major food
supply for hogs.
EXPANSION OF DISTRIBUTION AREA
The company has no current plans to expand the distribution area for its food
products or liquid-smoke flavoring products in fiscal 2002.
PROFIT MARGINS RELATED TO SAUSAGE PRODUCTION
Profit margins relating to sausage production are normally more favorable during
periods of lower live hog costs. During fiscal 2001, hog prices averaged $39.51
per hundredweight as compared to $34.81 per hundredweight during fiscal 2000.
The company believes live hog costs may increase during fiscal 2002 over fiscal
2001 levels.
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GENERAL
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EMPLOYEES
The company employed 37,189 persons in the restaurant segment and 1,353 persons
in the food products segment as of April 27, 2001.
COMPLIANCE WITH ENVIRONMENTAL PROTECTION REQUIREMENTS
The company does not anticipate that compliance with federal, state and local
provisions which have been enacted or adopted to regulate the discharge of
materials into the environment, or which otherwise relate to the protection of
the environment, will have a material effect upon the capital expenditures,
earnings or the competitive position of the company.
SALES, OPERATING PROFIT AND IDENTIFIABLE ASSETS
The following table sets forth information regarding revenues, operating profit
and identifiable assets of the company's restaurant segment and food products
segment for each of the last three fiscal years.
FISCAL YEAR ENDED
(Dollars in thousands)
April 27, April 28, April 30,
2001 2000 1999
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SALES:
Restaurant Operations: $805,957 $750,851 $708,896
Intersegment Sales of
Food Products: $ 30,074 $ 28,612 $ 32,765
Food Products (excluding
intersegment sales): $217,857 $213,772 $259,607
OPERATING PROFIT:
Restaurant Operations: $ 68,663 $ 67,877 $ 65,905
Food Products: $ 14,803 $ 17,610 $ 26,043
IDENTIFIABLE ASSETS:
Restaurant Operations: $574,430 $519,168 $470,033
Food Products: $ 73,025 $ 75,311 $ 77,412
CAUTIONARY STATEMENT REGARDING FORWARD LOOKING INFORMATION
Certain statements contained in this Annual Report on Form 10-K which are not
statements of historical fact are "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995 (the "Act"). In
addition, certain statements in future filings by the company with the
Securities and Exchange Commission, in press releases and in oral and written
statements made by or with the approval of the company which are not statements
of historical
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fact constitute forward-looking statements within the meaning of the Act.
Examples of forward-looking statements include statements of plans and
objectives of the company or its management or board of directors; statements
regarding future economic performance; and statements of assumptions underlying
such statements. Words such as "believes," "anticipates," "expects" and
"intends" and similar expressions are intended to, but are not the exclusive
means of, identifying those statements.
Forward-looking statements involve various important assumptions, risks and
uncertainties. Actual results may differ materially from those predicted by the
forward-looking statements because of various factors and possible events,
including, without limitation, changes in hog costs, the possibility of severe
weather conditions where the company operates its restaurants, the availability
and cost of acceptable new restaurant sites, shortages of restaurant labor,
acceptance of the company's restaurant concepts into new geographic areas, and
other risks disclosed from time to time in the company's securities filings and
press releases. There is also the risk that the company may incorrectly analyze
these risks or that the strategies developed by the company to address them will
be unsuccessful.
Forward-looking statements speak only as of the date on which they are made, and
the company undertakes no obligation to update any forward-looking statement to
reflect circumstances or events after the date on which the statement is made to
reflect unanticipated events. All subsequent written and oral forward-looking
statements attributable to the company or any person acting on behalf of the
company are qualified by the cautionary statements in this section.
ITEM 2. PROPERTIES.
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The company owns its principal executive offices located at 3776 S. High St.,
Columbus, Ohio. The company also owns a 937-acre farm located in Rio Grande,
Ohio, and a 30-acre farm located in Richardson, Texas. The two farm locations
support the company's heritage and image through educational and recreational
tourist activities.
RESTAURANT SEGMENT
Of the 469 restaurants operated by the company, 409 are owned by the company and
60 are leased from unaffiliated persons. All lease agreements contain either
multiple renewal options or options to purchase.
FOOD PRODUCTS SEGMENT
The food products segment has six sausage-manufacturing plants located in
Bidwell, Springfield, and Xenia, Ohio; Richardson, Texas; Hillsdale, Mich.; and
Galva, Ill. The food products segment also operates two liquid-
smoke-manufacturing plants located in Greenville, Mo., and Crossville, Tenn. All
of these properties are owned by the company. The company believes that its
manufacturing facilities are adequate to serve their intended purposes at this
time.
The company owns regional sales offices in Westland, Mich., and Tyler, Texas. In
addition, the company leases various other locations throughout its marketing
territory which serve as regional and divisional sales offices.
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ITEM 3. LEGAL PROCEEDINGS.
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There are no pending legal proceedings to which the registrant or any of its
subsidiaries is a party or to which any of their respective properties are
subject, except routine legal proceedings to which they are parties incident to
their respective businesses. None of such proceedings are considered by the
registrant to be material.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
---------------------------------------------------
Not applicable.
EXECUTIVE OFFICERS OF THE REGISTRANT
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The following table sets forth the executive officers of the registrant and
certain information with respect to each executive officer as of July 13, 2001.
Unless otherwise indicated, each person has held his or her principal occupation
for more than five years. The executive officers are appointed by and serve at
the pleasure of the board of directors.
Principal Occupations for Past Five Years and Other
Name Age Information
- -------------------- ------ ----------------------------------------------------
Stewart K. Owens 46 Chairman of the Board*, Chief Executive Officer,
President and Chief Operating Officer since 2001;
President, Chief Executive Officer and Chief
Operating Officer from 2000 to 2001; President and
Chief Operating Officer from 1995 to 2000; 11 years
as an officer of the registrant.
Donald J. Radkoski 46 Chief Financial Officer, Treasurer and Secretary since
2000; Chief Financial Officer and Treasurer from 1994 to
2000; 13 years as an officer of the registrant.
Larry C. Corbin 59 Executive Vice President of Restaurant Division since
1995; 27 years as an officer of the registrant.
Roger D. Williams 50 Executive Vice President of Food Products Division since
1997; Executive Vice President of Food
Products/Marketing/Purchasing/Technical Services from 1995
to 1997; 21 years as an officer of the registrant.
Howard J. Berrey 59 Group Vice President of Real Estate/Construction and
Engineering Group since 1990; 23 years as an officer of the
registrant.
Mary L. Cusick 45 Senior Vice President of Investor Relations and Corporate
Communications since 2000; Vice President of Corporate
Communications from 1990 to 2000; 11 years as an officer of
the registrant.
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*On April 28, 2001, Stewart K. Owens replaced Daniel E. Evans as chairman of the
board. Mr. Evans continues to serve as a member of the board of directors.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
----------------------------------------------------------------------
In accordance with General Instruction G(2), the information called for in Item
201 of Regulation S-K is incorporated herein by reference to Note H, Quarterly
Financial Data (Unaudited), located on page 27 of the registrant's Annual Report
to Stockholders for the fiscal year ended April 27, 2001, ("the registrant's
2001 Annual Report to Stockholders").
ITEM 6. SELECTED FINANCIAL DATA.
-----------------------
In accordance with General Instruction G(2), the financial information for
fiscal years 1997 through 2001 contained under the subcaption Consolidated
Financial Review, located on page 17 of the registrant's 2001 Annual Report to
Stockholders, is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
---------------------------------------------------------------
RESULTS OF OPERATION.
--------------------
In accordance with General Instruction G(2), the information contained under the
caption Management's Discussion and Analysis of Selected Financial Information,
located on pages 30 through 33 of the registrant's 2001 Annual Report to
Stockholders, is incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
----------------------------------------------------------
As noted in Note A, Summary of Significant Accounting Policies, located on page
22 of the registrant's 2001 Annual Report to Stockholders, the company does not
use derivative financial instruments for speculative purposes. The company
maintains its cash and cash equivalents in financial instruments with maturity
of three months or less when purchased.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
-------------------------------------------
The financial statements and the auditor's report thereon included on pages 18
through 29 of the registrant's 2001 Annual Report to Stockholders are
incorporated herein by reference.
The Quarterly Financial Data included in Note H of the notes to consolidated
financial statements, located on page 27 of the registrant's 2001 Annual Report
to Stockholders, is also incorporated herein by reference.
15
16
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
---------------------------------------------------------------
FINANCIAL DISCLOSURE.
--------------------
No response required.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
--------------------------------------------------
In accordance with General Instruction G(3), the information contained under the
caption "ELECTION OF DIRECTORS" in the registrant's definitive proxy statement
relating to the annual meeting of stockholders to be held on Sept. 10, 2001, is
incorporated herein by reference. In addition, the information regarding the
registrant's executive officers required by Item 401 of Regulation S-K is
included in Part I of this Annual Report on Form 10-K under the caption
"Executive Officers of the Registrant."
To the registrant's knowledge, based solely on a review of the copies of the
reports furnished to the registrant and written representations that no other
reports were required during the 2001 fiscal year, all filing requirements
applicable to officers, directors and owners of more than 10 percent of the
outstanding shares of the registrant's common stock under Section 16(a) of the
Securities Exchange Act of 1934, as amended, were complied with, except that
each of Donald J. Radkoski, Howard J. Berrey and Mary L. Cusick did not file on
a timely basis the Form 5 for the 2001 fiscal year reporting a single
nonqualified stock options grant on May 1, 2000, and a single stock options
grant, inclusive of incentive stock options and nonqualified stock options, on
June 8, 2000, and each of Roger D. Williams, Larry C. Corbin and Stewart K.
Owens did not file on a timely basis the Form 5 for the 2001 fiscal year
reporting a single stock options grant, inclusive of incentive stock options and
nonqualified stock options, on June 8, 2000. Messrs. Corbin and Owens are
directors and executive officers of the registrant. Messrs. Radkoski, Berrey and
Williams and Ms. Cusick are executive officers of the registrant.
ITEM 11. EXECUTIVE COMPENSATION.
----------------------
In accordance with General Instruction G(3), the information contained under the
captions "COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS" and "COMPENSATION
COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION" in the registrant's definitive
proxy statement relating to the annual meeting of stockholders to be held on
Sept. 10, 2001, is incorporated herein by reference. Neither the report of the
compensation committee of the registrant's board of directors on executive
compensation nor the performance graph included in the registrant's definitive
proxy statement for the annual meeting of stockholders to be held on Sept. 10,
2001, shall be deemed to be incorporated herein by reference.
16
17
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
--------------------------------------------------------------
In accordance with General Instruction G(3), the information contained under the
caption "VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF" in the registrant's
definitive proxy statement relating to the annual meeting of stockholders to be
held on Sept. 10, 2001, is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
----------------------------------------------
In accordance with General Instruction G(3), the information contained under the
captions "ELECTION OF DIRECTORS" and "COMPENSATION COMMITTEE INTERLOCKS AND
INSIDER PARTICIPATION" in the registrant's definitive proxy statement relating
to the annual meeting of stockholders to be held on Sept. 10, 2001, is
incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
---------------------------------------------------------------
(a)(1) FINANCIAL STATEMENTS
For a list of all financial statements included with this Annual
Report on Form 10-K, see the "List of Financial Statements" at page
22.
(a)(2) FINANCIAL STATEMENT SCHEDULES
All schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required
under the related instructions or are inapplicable and, therefore,
have been omitted.
(a)(3) EXHIBITS
Exhibits filed with this Annual Report on Form 10-K are attached
hereto. For a list of such exhibits, see the "Index to Exhibits" at
page 40. The following table provides certain information concerning
executive compensation plans and arrangements required to be filed as
exhibits to this Annual Report on Form 10-K.
17
18
EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS
Exhibit No. Description Location
- ----------- ----------- --------
10(a) Agreement, dated Feb. 24, 1989, Incorporated herein by reference to
between Daniel E. Evans and Bob Evans Exhibit 10(g) to the Registrant's Annual
Farms, Inc.; and Schedule A to Report on 10-K for its fiscal year ended
Exhibit 10(a) identifying other April 28, 1989 (File No. 0-1667);
substantially identical Agreements Attached hereto.
between Bob Evans Farms, Inc. and
certain of the executive officers of
Bob Evans Farms, Inc.
10(b) Bob Evans Farms, Inc. 1989 Stock Incorporated herein by reference to
Option Plan for Nonemployee Directors Exhibit 4(d) to the Registrant's
Registration Statement on Form S-8,
filed Aug. 23, 1989.
(Registration No. 33-30665)
10(c) Bob Evans Farms, Inc. 1991 Incentive Incorporated herein by reference to
Stock Option Plan Exhibit 4(d) to the Registrant's
Registration Statement on Form S-8,
filed Sept. 13, 1991.
(Registration No. 33-42778)
10(d) Bob Evans Farms, Inc. Nonqualified Incorporated herein by reference to
Stock Option Plan (effective April Exhibit 10(j) to the Registrant's Annual
17, 1992) Report on Form 10-K for the fiscal year
ended April 24, 1992.
(File No. 0-1667)
10(e) Bob Evans Farms, Inc. Long Term Incorporated herein by reference to
Incentive Plan for Managers Exhibit 10(k) to the Registrant's Annual
Report on Form 10-K for the fiscal year
ended April 30, 1993.
(File No. 0-1667)
10(f) Bob Evans Farms, Inc. 1994 Long Term Incorporated herein by reference to
Incentive Plan Exhibit 10(n) to the Registrant's Annual
Report on Form 10-K for the fiscal year
ended April 29, 1994.
(File No. 0-1667)
10(g) Bob Evans Farms, Inc. Supplemental Incorporated herein by reference to
Executive Retirement Plan Exhibit 10(l) to the Registrant's Annual
Report on Form 10-K for the fiscal year
ended April 24, 1998.
(File No. 0-1667)
10(h) Bob Evans Farms, Inc. 1998 Directors Incorporated herein by reference to
Compensation Plan Exhibit 10(m) to the Registrant's Annual
Report on Form 10-K for the fiscal year
ended April 24, 1998.
(File No. 0-1667)
18
19
Exhibit No. Description Location
- ----------- ----------- --------
10(i) Bob Evans Farms, Inc. 1998 Stock Incorporated herein by reference to
Option and Incentive Plan Exhibit 4(f) to the Registrant's
Registration Statement on Form S-8 filed
March 22, 1999.
(Registration No. 333-74829)
10(j) Bob Evans Farms, Inc. Dividend Incorporated herein by reference to the
Reinvestment and Stock Purchase Plan Registrant's Registration Statement on
Form S-3 filed March 19, 1999.
(Registration No. 333-74739)
10(k) Bob Evans Farms, Inc. and Affiliates Attached hereto.
Executive Deferral Program
(originally effective Jan. 1, 1999,
and amended and restated effective
June 14, 1999)
10(l) First Amendment to Bob Evans Farms, Attached hereto.
Inc. and Affiliates Executive
Deferral Program
(b) REPORTS ON FORM 8-K
The registrant filed no current reports on Form 8-K during the last
quarter of the period covered by this report.
(c) EXHIBITS
Exhibits filed with this Annual Report on Form 10-K are attached
hereto. For a list of such exhibits, see the "Index to Exhibits" at
page 40.
(d) FINANCIAL STATEMENT SCHEDULES
None.
19
20
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the company has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
Bob Evans Farms, Inc.
July 16, 2001 By: /s/ Donald J. Radkoski
----------------------
Donald J. Radkoski
Chief Financial Officer, Treasurer
and Secretary (Chief Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the company and in
the capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ Stewart K. Owens Chairman of the Board July 16, 2001
- ------------------------------------
Stewart K. Owens
/s/ Larry C. Corbin Director July 16, 2001
- ------------------------------------
Larry C. Corbin
/s/ Daniel E. Evans Director July 16, 2001
- ------------------------------------
Daniel E. Evans
/s/ Daniel A. Fronk Director July 16, 2001
- ------------------------------------
Daniel A. Fronk
20
21
/s/ Michael J. Gasser Director July 16, 2001
- ------------------------------------
Michael J. Gasser
/s/ E.W. (Bill) Ingram III Director July 16, 2001
- ------------------------------------
E.W. (Bill) Ingram III
/s/ G. Robert Lucas II Director July 16, 2001
- ------------------------------------
G. Robert Lucas II
/s/ Robert E.H. Rabold Director July 16, 2001
- ------------------------------------
Robert E.H. Rabold
/s/ Donald J. Radkoski Chief Financial Officer, July 16, 2001
- ------------------------------------ Treasurer and Secretary
Donald J. Radkoski (Chief Accounting Officer)
21
22
BOB EVANS FARMS, INC.
ANNUAL REPORT ON FORM 10-K
FOR FISCAL YEAR ENDED APRIL 27, 2001
INDEX TO FINANCIAL STATEMENTS
Page(s) in 2001
Annual Report to
Description Stockholders
Consolidated Financial Review for the fiscal years ended April 27, 2001;
April 28, 2000; April 30, 1999; April 24, 1998; and April 25, 1997............ 17
Consolidated Balance Sheets at April 27, 2001 and April 28, 2000..................... 18
Consolidated Statements of Income for the fiscal years ended April 27, 2001;
April 28, 2000 and April 30, 1999............................................. 19
Consolidated Statements of Stockholders' Equity for the fiscal years ended
April 27, 2001; April 28, 2000; April 30, 1999 and April 24, 1998............. 20
Consolidated Statements of Cash Flows for the fiscal years ended April 27,
2001; April 28, 2000 and April 30, 1999....................................... 21
Notes to Consolidated Financial Statements........................................... 22-28
Report of Ernst & Young LLP, Independent Auditors.................................... 29
22
23
CONSOLIDATED FINANCIAL REVIEW
BOB EVANS FARMS, INC. AND SUBSIDIARIES
Dollars and shares in thousands, except per share amounts
2001 2000 1999 1998 1997
------------------------------------------------------------------------
OPERATING RESULTS
Net sales $ 1,023,814 $ 964,623 $ 968,503 $ 886,838 $ 822,155
Operating income 83,466 85,487 91,948 74,460 57,800
Income before income taxes 78,714 83,954 91,374 72,521 56,992
Income taxes 27,943 31,061 33,808 26,833 20,916
Net income 50,771 52,893 57,566 45,688 36,076
Earnings per share of common stock:
Basic $ 1.45 $ 1.38 $ 1.40 $ 1.10 $ 0.86
Diluted $ 1.44 $ 1.38 $ 1.39 $ 1.09 $ 0.86
FINANCIAL POSITION
Working capital $ (114,449) $ (129,475) $ (34,372) $ (40,870) $ (67,426)
Property, plant and equipment - net 603,063 546,594 493,369 485,949 473,021
Total assets 678,715 624,441 590,452 579,931 564,079
Debt:
Short-term 69,965 99,295 25,000 39,420 68,880
Long-term 36,000 431 833 1,223 1,587
Stockholders' equity 457,095 428,790 470,095 457,196 422,807
SUPPLEMENTAL INFORMATION
FOR THE YEAR
Capital expenditures $ 99,807 $ 96,867 $ 68,525 $ 47,801 $ 60,048
Depreciation and amortization $ 39,792 $ 36,480 $ 35,386 $ 32,882 $ 29,544
Weighted-average shares outstanding:
Basic 35,005 38,230 41,210 41,610 41,987
Diluted 35,284 38,366 41,509 41,803 42,020
Cash dividends declared per share $ 0.36 $ 0.36 $ 0.35 $ 0.32 $ 0.32
Common stock market prices:
High $ 21.38 $ 22.06 $ 26.13 $ 22.19 $ 17.00
Low $ 12.56 $ 12.06 $ 18.25 $ 13.13 $ 12.13
SUPPLEMENTAL INFORMATION
AT YEAR-END
Employees 38,542 35,576 32,363 31,189 29,375
Stockholders 39,466 42,102 44,173 43,980 43,570
Market price per share at closing $ 18.85 $ 13.06 $ 18.31 $ 20.25 $ 13.13
Book value per share $ 13.13 $ 12.09 $ 11.67 $ 10.97 $ 10.17
23
24
CONSOLIDATED BALANCE SHEETS
BOB EVANS FARMS, INC. AND SUBSIDIARIES
Dollars in thousands
APRIL 27, 2001 April 28, 2000
------------------------------
ASSETS
CURRENT ASSETS
Cash and equivalents $ 1,787 $ 6,780
Accounts receivable 13,620 13,651
Inventories 16,970 16,456
Deferred income taxes 8,335 7,665
Prepaid expenses 2,964 1,694
----------------------
TOTAL CURRENT ASSETS 43,676 46,246
PROPERTY, PLANT AND EQUIPMENT
Land 182,421 169,069
Buildings and improvements 474,754 427,357
Machinery and equipment 245,386 222,224
Construction in progress 3,216 6,891
----------------------
905,777 825,541
Less accumulated depreciation 302,714 278,947
----------------------
NET PROPERTY, PLANT AND EQUIPMENT 603,063 546,594
OTHER ASSETS
Deposits and other 1,644 1,388
Long-term investments 11,077 11,400
Deferred income taxes 11,762 10,654
Goodwill and other intangible assets 7,493 8,159
----------------------
TOTAL OTHER ASSETS 31,976 31,601
----------------------
$ 678,715 $ 624,441
======================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Line of credit $ 65,965 $ 99,295
Current maturities of long-term debt 4,000 0
Accounts payable 8,509 9,085
Dividends payable 3,132 3,191
Federal and state income taxes 12,616 5,050
Accrued wages and related liabilities 16,220 14,851
Other accrued expenses 47,683 44,249
----------------------
TOTAL CURRENT LIABILITIES 158,125 175,721
LONG-TERM LIABILITIES
Deferred compensation 4,694 4,616
Deferred income taxes 22,801 14,883
Long-term debt 36,000 431
----------------------
TOTAL LONG-TERM LIABILITIES 63,495 19,930
STOCKHOLDERS' EQUITY
Common stock, $.01 par value; authorized 100,000,000 shares;
issued 42,638,118 shares in 2001 and 2000 426 426
Preferred stock, $500 par value; authorized 1,200 shares; issued 120 shares
in 2001 and 2000 60 60
Capital in excess of par value 150,670 150,225
Retained earnings 444,476 406,280
Treasury stock, 7,834,255 shares in 2001 and 7,180,340 shares
in 2000, at cost (138,537) (128,201)
----------------------
TOTAL STOCKHOLDERS' EQUITY 457,095 428,790
----------------------
$ 678,715 $ 624,441
======================
See Notes to Consolidated Financial Statements
24
25
CONSOLIDATED STATEMENTS OF INCOME
BOB EVANS FARMS, INC. AND SUBSIDIARIES
Dollars in thousands, except per share amounts
YEARS ENDED APRIL 27, 2001; APRIL 28, 2000; AND APRIL 30, 1999 2001 2000 1999
--------------------------------------------------------
NET SALES $1,023,814 $ 964,623 $ 968,503
Cost of sales 292,902 274,388 275,898
Operating wage and fringe benefit expenses 347,923 320,174 306,816
Other operating expenses 145,886 138,754 132,123
Selling, general and administrative expenses 113,845 109,340 126,332
Depreciation and amortization expense 39,792 36,480 35,386
--------------------------------------------------------
OPERATING INCOME 83,466 85,487 91,948
Net interest expense 4,752 1,533 574
--------------------------------------------------------
INCOME BEFORE INCOME TAXES 78,714 83,954 91,374
Provisions For Income Taxes 27,943 31,061 33,808
--------------------------------------------------------
NET INCOME $ 50,771 $ 52,893 $ 57,566
=========================================================
EARNINGS PER SHARE - BASIC $ 1.45 $ 1.38 $ 1.40
=========================================================
EARNINGS PER SHARE - DILUTED $ 1.44 $ 1.38 $ 1.39
=========================================================
See Notes to Consolidated Financial Statements
25
26
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
BOB EVANS FARMS, INC. AND SUBSIDIARIES
Dollars in thousands
CAPITAL
COMMON PREFERRED IN EXCESS RETAINED TREASURY
STOCK STOCK OF PAR VALUE EARNINGS STOCK TOTAL
- ----------------------------------------------------------------------------------------------------------------
Stockholders' Equity at 4/24/98 $426 $60 $147,213 $323,720 $ (14,223) $457,196
- ----------------------------------------------------------------------------------------------------------------
Net income 57,566 57,566
Dividends declared (14,362) (14,362)
Treasury stock repurchased (42,284) (42,284)
Treasury stock reissued under employee plans 3,319 7,828 11,147
Stock options granted under employee plans 165 165
Tax reductions - employee plans 667 667
- ----------------------------------------------------------------------------------------------------------------
Stockholders' Equity at 4/30/99 426 60 151,364 366,924 (48,679) 470,095
- ----------------------------------------------------------------------------------------------------------------
Net income 52,893 52,893
Dividends declared (13,537) (13,537)
Treasury stock repurchased (82,228) (82,228)
Treasury stock reissued under employee plans (1,385) 2,706 1,321
Stock options granted under employee plans 122 122
Tax reductions - employee plans 124 124
- ----------------------------------------------------------------------------------------------------------------
Stockholders' Equity at 4/28/00 426 60 150,225 406,280 (128,201) 428,790
- ----------------------------------------------------------------------------------------------------------------
Net income 50,771 50,771
Dividends declared (12,575) (12,575)
Treasury stock repurchased (13,722) (13,722)
Treasury stock reissued under employee plans (261) 3,386 3,125
Stock options granted under employee plans 390 390
Tax reductions - employee plans 316 316
- ----------------------------------------------------------------------------------------------------------------
Stockholders' Equity at 4/27/01 $426 $60 $150,670 $444,476 $(138,537) $457,095
- ----------------------------------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements
26
27
CONSOLIDATED STATEMENTS OF CASH FLOWS
BOB EVANS FARMS, INC. AND SUBSIDIARIES
Dollars in thousands
YEARS ENDED APRIL 27, 2001; APRIL 28, 2000; AND APRIL 30, 1999 2001 2000 1999
------------------------------------------------------
OPERATING ACTIVITIES:
Net income $ 50,771 $ 52,893 $ 57,566
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 39,792 36,480 35,386
Deferred compensation 78 3,426 1,190
Deferred income taxes 6,140 (2,844) 623
Loss (gain) on sale of assets 248 (24) 25
Loss on long-term investments 1,244 0 0
Compensation expense attributable to stock plans 1,092 395 1,168
Cash provided by (used for) current assets
and current liabilities:
Accounts receivable 31 3,385 (1,391)
Inventories (514) (2,157) (224)
Prepaid expenses (1,270) 3 (155)
Accounts payable (576) (474) 1,650
Federal and state income taxes 7,882 4,278 2,683
Accrued wages and related liabilities 1,369 (2,158) 2,661
Other accrued expenses 5,152 711 4,640
------------------------------------------------------
Net cash provided by operating activities 111,439 93,914 105,822
INVESTING ACTIVITIES:
Purchase of property, plant and equipment (99,807) (96,867) (68,525)
Purchase of long-term investments (1,352) (3,483) (2,412)
Proceeds from sale of property, plant
and equipment 2,677 6,903 11,336
Cash proceeds from divestitures 0 0 24,901
Other (256) 2,117 (44)
------------------------------------------------------
Net cash used in investing activities (98,738) (91,330) (34,744)
FINANCING ACTIVITIES:
Cash dividends paid (12,633) (13,973) (14,070)
Purchase of treasury stock (13,722) (82,228) (42,284)
Line of credit (33,330) 74,295 (14,420)
Proceeds from issuance of long-term debt 40,000 0 0
Payments on principal of note payable (431) (402) (390)
Proceeds from issuance of treasury stock 2,422 1,049 10,144
------------------------------------------------------
Net cash used in financing activities (17,694) (21,259) (61,020)
------------------------------------------------------
INCREASE (DECREASE) IN CASH AND EQUIVALENTS (4,993) (18,675) 10,058
CASH AND EQUIVALENTS AT THE BEGINNING OF THE YEAR 6,780 25,455 15,397
------------------------------------------------------
CASH AND EQUIVALENTS AT THE END OF THE YEAR $ 1,787 $ 6,780 $ 25,455
------------------------------------------------------
See Notes to Consolidated Financial Statements
27
28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BOB EVANS FARMS, INC. AND SUBSIDIARIES APRIL 27, 2001
Dollars in thousands unless otherwise noted, except per share amounts
NOTE A | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS: Bob Evans Farms, Inc. owns and operates 469
restaurants in 22 states as Bob Evans Restaurants and Owens Family Restaurants.
The company also produces fresh and fully cooked pork products, as well as other
food products, that are distributed primarily to grocery stores in the East
North Central, Mid-Atlantic, Southern and Southwestern United States. Frozen
rolls, biscuits and entrees are distributed primarily to grocery stores in Ohio
and various surrounding areas. The company's liquid-smoke flavorings are
distributed nationally and internationally. In 1999, the company sold its salad
production and charcoal manufacturing businesses (see Note C).
PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include
the accounts of the company and its subsidiaries. Intercompany accounts and
transactions have been eliminated.
FISCAL YEAR: The company's fiscal year ends on the last Friday in April.
References herein to 2001, 2000 and 1999 refer to fiscal years ended April 27,
2001; April 28, 2000; and April 30, 1999, respectively. Fiscal 1999 was
comprised of 53 weeks as compared to 2001 and 2000, both of which were comprised
of 52 weeks.
CASH EQUIVALENTS: The company considers all highly liquid instruments, with a
maturity of three months or less when purchased, to be cash equivalents.
INVENTORIES: The company values inventories at the lower of first-in,
first-out cost or market. Inventory includes raw materials and supplies ($11,481
in 2001 and $10,223 in 2000) and finished goods ($5,489 in 2001 and $6,233 in
2000).
PROPERTY, PLANT AND EQUIPMENT: The company calculates depreciation on the
straight-line and accelerated methods at rates adequate to amortize costs over
the estimated useful lives of buildings and improvements (15 to 25 years) and
machinery and equipment (3 to 10 years). The straight-line depreciation method
was adopted for all new property beginning in fiscal 1995. Depreciation on
property placed in service prior to fiscal 1995 continues to be calculated
principally on accelerated methods.
LONG-TERM INVESTMENTS: Long-term investments include assets held under
certain deferred compensation arrangements and investments in income tax credit
limited partnerships. Assets held under certain deferred compensation
arrangements represent the cash surrender value of company-owned life insurance
policies. An offsetting liability for the amount of the cash surrender value is
included in the deferred compensation liability on the balance sheet.
Investments in income tax credit limited partnerships are recorded at amortized
cost. The company amortizes the investments to the expected residual value of
the partnerships once the income tax credits are fully utilized. The
amortization period of the investments matches the respective income tax credit
period.
GOODWILL AND OTHER INTANGIBLE ASSETS: Intangible assets include goodwill
($7,338 in 2001 and $7,849 in 2000) and other intangible assets ($155 in 2001
and $310 in 2000). Goodwill (the cost in excess of net assets acquired) is
amortized over 25 years using the straight-line method. The company uses the
cash flow method to assess the recoverability of goodwill. Other intangible
assets are amortized on a straight-line basis over their estimated useful lives
(10 to 15 years). The expense associated with the amortization of intangible
assets in 2001, 2000 and 1999 was $666; $684; and $854, respectively.
FINANCIAL INSTRUMENTS: The fair values of the company's financial instruments
approximate their carrying values at April 27, 2001, and April 28, 2000. The
company does not use derivative financial instruments for speculative purposes.
PRE-OPENING EXPENSES: Expenditures related to the opening of new restaurants,
other than those for capital assets, are charged to expense when incurred.
ADVERTISING COSTS: The company expenses advertising costs as incurred.
Advertising expense was $43,488; $41,548; and $41,150 in 2001, 2000 and 1999,
respectively.
COST OF SALES: Cost of sales represents food costs in the restaurant segment
and cost of materials in the food products segment.
COMPREHENSIVE INCOME: Comprehensive income is the same as reported net
income.
28
29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BOB EVANS FARMS, INC. AND SUBSIDIARIES APRIL 27, 2001
Dollars in thousands unless otherwise noted, except per share amounts
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 outstanding stock options.
The numerator in calculating both basic and diluted earnings per share for
each year is reported net income. The denominator is based on the following
weighted-average number of common shares outstanding in thousands:
2001 2000 1999
--------------------------------------------
Basic 35,005 38,230 41,210
Dilutive stock
options 279 136 299
--------------------------------------------
Diluted 35,284 38,366 41,509
============================================
Options to purchase 1,002,000; 1,048,000; and 367,000 shares of common stock
in 2001, 2000 and 1999, respectively, were excluded from the diluted
earnings-per-share calculations since they were anti-dilutive.
USE OF ESTIMATES: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets, liabilities,
revenues and expenses and disclosure of contingent assets and liabilities.
Actual results could differ from the estimates and assumptions used.
RECLASSIFICATIONS: Certain 2000 and 1999 amounts have been reclassified to
conform to the 2001 classification.
EFFECT OF NEW ACCOUNTING STANDARDS: The Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting Standards (SFAS) No. 133,
Accounting for Derivative Instruments and Hedging Activities, in 1998, SFAS No.
137, Accounting for Derivative Instruments and Hedging Activities - Deferral of
the Effective Date of FASB Statement No. 133, in 1999 and SFAS No. 138,
Accounting for Certain Derivative Instruments and Certain Hedging Activities -
An Amendment of SFAS No. 133, in 2000. The statements require that all
derivatives be recorded as either assets or liabilities in the balance sheet and
be measured 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 did not
have any applicable derivative instruments at April 27, 2001. Accordingly, the
adoption of these statements will not impact the company's financial statements.
In May 2000, the Emerging Issues Task Force (EITF) reached consensus on EITF
Issue No. 00-14, Accounting for Certain Sales Incentives, which requires that
certain sales incentives provided to customers be classified in the consolidated
statements of income as a reduction of sales. The company currently classifies
such incentives as promotional expenses within selling, general and
administrative expenses. The company plans to apply the consensus in its
financial statements in the first quarter of fiscal 2002. Had the company
applied the consensus in fiscal 2001, both net sales and selling, general and
administrative expenses would have been reduced by approximately $16,306;
operating income would have been unchanged.
- --------------------------------------------------------------------------------
NOTE B | LONG-TERM DEBT AND CREDIT ARRANGEMENTS
In April 2001, the company issued a $40 million unsecured note to a bank to
replace an equivalent amount outstanding on its unsecured line of credit. The
note bears interest at a fixed rate of 7.35% and matures in May 2008. Required
principal payments are $4 million per year for each of the next five years.
Customary for this type of agreement, the note contains certain restrictive
covenants related to tangible net worth, debt levels and fixed charge coverage.
The company also has arrangements with certain banks from which it may borrow
up to $110 million ($150 million prior to the issuance of the note in April
2001) on a short-term basis. The arrangements are reviewed annually for renewal.
At April 27, 2001, $65,965 was outstanding under these arrangements. During 2001
and 2000, respectively, the maximum amounts outstanding under these arrangements
were $114,480 and $104,165, and the average amounts outstanding were $103,959
and $53,613 with weighted-average interest rates of 6.75% and 6.58%. All
interest paid on these arrangements is at floating rates.
Interest costs of $1,784; $1,389; and $911 incurred in 2001, 2000 and 1999,
respectively, were capitalized in connection with the company's construction
activities.
29
30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BOB EVANS FARMS, INC. AND SUBSIDIARIES APRIL 27, 2001
Dollars in thousands unless otherwise noted, except per share amounts
NOTE C DIVESTITURES
In 1999, the company sold its salad production and charcoal manufacturing
businesses. The sale prices of the two transactions totaled $29,152 (comprised
of $24,901 in cash and the remainder in short-term receivables) plus the
assumption of $1,673 of liabilities. No material gain or loss was realized on
the transactions. The company's results of operations for 1999 included net
sales of $46,318 and operating income of $355 from the divested businesses.
- --------------------------------------------------------------------------------
NOTE D | INCOME TAXES
Deferred income taxes reflect the net tax effect of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the company's deferred tax liabilities and assets as of April 27, 2001, and
April 28, 2000, were as follows:
APRIL 27, 2001 April 28, 2000
------------------------------
DEFERRED TAX ASSETS:
Loss on impaired assets $ 7,546 $ 7,546
Self-insurance 6,107 5,985
Vacation pay 1,173 1,150
Stock compensation plans 4,016 3,108
Accrued bonus 984 530
Inventory and other 271 0
----------------------
Total deferred tax assets 20,097 18,319
DEFERRED TAX LIABILITIES:
Accelerated depreciation/asset disposals 20,352 12,615
Other taxes 0 180
Inventory and other 2,449 2,088
----------------------
Total deferred tax liabilities 22,801 14,883
----------------------
NET DEFERRED TAX ASSETS (LIABILITIES) $(2,704) $ 3,436
======================
Significant components of the provisions for income taxes are as follows:
2001 2000 1999
-------------------------------------
Current:
Federal $19,771 $31,701 $28,479
State 2,032 2,203 4,706
-------------------------------------
Total Current 21,803 33,904 33,185
Deferred, primarily federal 6,140 (2,843) 623
-------------------------------------
TOTAL TAX PROVISIONS $27,943 $31,061 $33,808
=====================================
The company's provisions for income taxes differ from the amounts computed by
applying the federal statutory rate due to the following:
2001 2000 1999
-------------------------------------
Tax at statutory rate $27,550 $29,384 $31,981
State income tax (net) 1,321 1,432 3,059
Other (928) 245 (1,232)
-------------------------------------
PROVISIONS FOR INCOME TAXES $27,943 $31,061 $33,808
=====================================
Taxes paid during 2001, 2000 and 1999 were $13,751; $28,390; and $28,687,
respectively.
30
31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BOB EVANS FARMS, INC. AND SUBSIDIARIES APRIL 27, 2001
Dollars in thousands unless otherwise noted, except per share amounts
NOTE E | STOCK-BASED COMPENSATION PLANS
The company has employee stock option plans adopted in 1987, 1991, 1994 and
1998; a nonemployee directors' stock option plan adopted in 1989; and a
nonqualified stock option plan adopted in 1992, in conjunction with a
supplemental executive retirement plan. The 1992 plan provides that the option
price shall not be less than 50% of the fair market value of the stock at the
date of grant. The 1998 plan provides that the option price for 1) incentive
stock options shall be the fair market value of the stock at the grant date and
2) nonqualified stock options shall be determined by the compensation committee
of the board of directors. All other plans provide that the option price shall
be the fair market value of the stock at the grant date. Options may be granted
for a period of up to five years under the 1989 plan and up to 10 years under
all other plans.
The company's supplemental executive retirement plan (SERP) provides
retirement benefits to certain key management employees of the company and its
subsidiaries. The purpose of the 1992 nonqualified stock option plan discussed
earlier is to fund and settle benefit contributions of the company that may
arise under the SERP. To the extent that benefits under the SERP are satisfied
by grants of stock options under the nonqualified stock option plan, it operates
as an incentive plan that produces both risk and reward to participants based on
future growth in the market value of the company's common stock.
The following table summarizes option-related activity for the last three
years:
SHARES PRICE RANGE
- ----------------------------------------------------------------------------------------------------
OUTSTANDING, APRIL 24, 1998 1,517,217 $6.56 TO $21.25
- ----------------------------------------------------------------------------------------------------
Granted 414,889 9.94 to 21.38
Exercised (592,988) 6.56 to 21.38
Canceled or expired (155,410) 6.56 to 21.38
- ----------------------------------------------------------------------------------------------------
OUTSTANDING, APRIL 30, 1999 1,183,708 6.56 TO 21.38
- ----------------------------------------------------------------------------------------------------
Granted 713,062 9.22 to 19.38
Exercised (60,583) 9.13 to 20.50
Canceled or expired (144,842) 6.56 to 21.38
- ----------------------------------------------------------------------------------------------------
OUTSTANDING, APRIL 28, 2000 1,691,345 6.56 TO 21.38
- ----------------------------------------------------------------------------------------------------
Granted 927,048 6.78 to 14.44
Exercised (175,681) 6.56 to 19.38
Canceled or expired (58,406) 6.56 to 21.38
- ----------------------------------------------------------------------------------------------------
OUTSTANDING, APRIL 27, 2001 2,384,306 $6.56 TO $21.38
- ----------------------------------------------------------------------------------------------------
In addition to the outstanding options, 4,044,368 stock option shares were
available for grant at April 27, 2001. The following table summarizes
information regarding stock options outstanding at April 27, 2001:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------------- -------------------------
NUMBER WEIGHTED-AVG. WEIGHTED-AVG. NUMBER WEIGHTED-AVG.
OUTSTANDING REMAINING EXERCISE EXERCISABLE EXERCISE
RANGE OF EXERCISE PRICES AT 4/27/01 CONTRACTUAL LIFE PRICE AT 4/27/01 PRICE
- ---------------------------------------------------------------------------------------------------
$ 6.56 to $12.99 315,416 12.2 $ 9.13 201,170 $ 9.19
13.00 to 13.99 29,700 1.0 13.13 29,700 13.13
14.00 to 14.99 855,403 8.5 14.44 19,638 14.44
15.00 to 18.99 202,683 5.4 15.34 192,017 15.34
19.00 to 20.99 665,932 7.4 19.38 229,165 19.38
21.00 to 21.38 315,172 5.9 21.38 206,057 21.38
- ---------------------------------------------------------------------------------------------------
$ 6.56 to $21.38 2,384,306 8.0 $16.09 877,747 $16.31
- ---------------------------------------------------------------------------------------------------
31
32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BOB EVANS FARMS, INC. AND SUBSIDIARIES APRIL 27, 2001
Dollars in thousands unless otherwise noted, except per share amounts
The company has adopted the disclosure-only provisions of SFAS No. 123,
Accounting for Stock-Based Compensation, and as permitted under SFAS No. 123,
applies Accounting Principles Board Opinion No. 25, Accounting for Stock Issued
to Employees, and related interpretations in accounting for employee stock
options. Accordingly, no compensation expense has been recognized for the stock
option plans when the exercise price of the options is equal to or greater than
the fair market value of the stock at the grant date. Compensation expense
recognized in income for stock options granted at less than fair market value in
2001, 2000 and 1999 was $390; $167; and $165, respectively. Had the company
elected to recognize compensation expense by using the fair-value method
prescribed by SFAS No. 123, pro forma net income and earnings per share would be
as follows:
2001 2000 1999
- --------------------------------------------------------------------------------------------------
NET INCOME
As reported $50,771 $52,893 $57,566
Pro forma 46,934 50,066 56,128
EARNINGS PER SHARE - BASIC
As reported $ 1.45 $ 1.38 $ 1.40
Pro forma 1.34 1.31 1.36
EARNINGS PER SHARE - DILUTED
As reported $ 1.44 $ 1.38 $ 1.39
Pro forma 1.33 1.31 1.35
Note: the financial effects of applying SFAS No. 123 for the years
reported may not be representative of the effects on reported net
income and earnings per share in future years.
Reflected in these pro forma amounts are weighted-average fair values of
options of $5.77, $7.28 and $7.39 in 2001, 2000 and 1999, respectively. The fair
value of each option granted was estimated on the date of grant using the
Black-Scholes options-pricing model and the following weighted average
assumptions:
- --------------------------------------------------------------------------------
2001 2000 1999
- --------------------------------------------------------------------------------------------------
Dividend yield 2.05% 2.15% 1.70%
Expected volatility 39.00% 37.74% 32.43%
Risk-free interest rate 6.37% 5.98% 5.57%
Expected life (in years) 6.1 5.9 5.8
The company's long-term incentive plan (LTIP) for managers, an unfunded plan,
provides for the award of up to an aggregate of 500,000 shares of the company's
common stock to mid-level managers as incentive compensation to attain growth in
the net income of the company as well as to help attract and retain management
personnel. Shares awarded are restricted until certain vesting requirements are
met; at which time all restricted shares are converted to unrestricted shares.
LTIP participants are entitled to cash dividends and to vote their respective
shares. Restrictions generally limit the sale, pledge or transfer of the shares
during a restricted period, not to exceed 12 years. In 2000 and 1999, 113,104
and 55,157 shares, respectively, were awarded as part of the LTIP. No shares
were awarded in 2001. Compensation expense attributable to the plan was $702 in
2001, $301 in 2000 and $1,003 in 1999.
32
33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BOB EVANS FARMS, INC. AND SUBSIDIARIES APRIL 27, 2001
Dollars in thousands unless otherwise noted, except per share amounts
NOTE F | OTHER COMPENSATION PLANS
The company has a profit sharing plan that covers substantially all employees
who have at least one year of service. The annual contribution to the plan is at
the discretion of the company's board of directors. The company's expenses
related to contributions to the plan in 2001, 2000 and 1999 were $3,773; $3,278;
and $3,850, respectively.
In 1999, the company implemented the Bob Evans Executive Deferral Plan
(BEEDP). The BEEDP provides certain executives the opportunity to defer a
portion of their current income to future years.
The company's SERP also provides executives with an option to accept all or a
portion of individual awards in the form of nonqualified deferred compensation.
The company's expense related to contributions to the SERP deferred compensation
plan was $200; $798; and $1,026 in 2001, 2000 and 1999, respectively.
- --------------------------------------------------------------------------------
NOTE G | COMMITMENTS AND CONTINGENCIES
At April 27, 2001, the company had contractual commitments approximating
$33,731 for restaurant construction, plant equipment additions and purchases of
land and inventory.
The company is from time to time involved in a number of claims and
litigation considered normal in the course of business. Various lawsuits and
assessments, among them employment discrimination, product liability, workers'
compensation claims and tax assessments, are in litigation or administrative
hearings. While it is not feasible to predict the outcome, in the opinion of the
company, these actions should not ultimately have a material adverse effect on
the financial position or results of operations of the company.
NOTE H | QUARTERLY FINANCIAL DATA (UNAUDITED)
FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER
2001 2000 2001 2000 2001 2000 2001 2000
---------------------------------------------------------------------------------------------------
Net sales $255,601 $243,757 $261,316 $245,599 $255,434 $236,294 $251,463 $238,973
Gross profit 181,955 174,711 186,301 176,812 182,707 168,732 179,949 169,980
Operating income 22,165 23,980 22,813 22,865 19,040 19,854 19,448 18,788
Net income 13,425 15,120 14,021 14,380 11,473 12,328 11,852 11,065
Earnings per share:
Basic $ 0.38 $ 0.38 $ 0.40 $ 0.37 $ 0.33 $ 0.33 $ 0.34 $ 0.31
Diluted 0.38 0.38 0.40 0.37 0.33 0.33 0.34 0.31
Common stock market prices:
High $ 16.06 $ 21.38 $ 18.50 $ 22.06 $ 21.38 $ 17.31 $ 20.50 $ 16.13
Low 12.56 18.25 16.00 12.94 17.69 13.50 16.63 12.06
Cash dividends declared $ .09 $ .09 $ .09 $ .09 $ .09 $ .09 $ .09 $ .09
- - Gross profit represents net sales less cost of sales (materials).
- - Each fiscal quarter is comprised of a 13-week period.
- - Total quarterly earnings per share may not equal the annual amount because
earnings per share is calculated independently for each quarter.
- - Stock prices are for the NASDAQ National Market (trading symbol - BOBE),
which is the principal market for the company's common stock.
- - The number of stockholders of the company's common stock at June 14, 2001,
was 39,226.
33
34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BOB EVANS FARMS, INC. AND SUBSIDIARIES APRIL 27, 2001
Dollars in thousands unless otherwise noted, except per share amounts
NOTE I | 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.
Operating income represents earnings before interest and income taxes.
Identifiable assets by segment are those assets that are used in the company's
operations in each segment. General corporate assets consist of cash
equivalents, long-term investments and income taxes.
Information on the company's industry segments is summarized as follows:
2001 2000 1999
-----------------------------------------
SALES
Restaurant operations $ 805,957 $750,851 $ 708,896
Food products 247,931 242,384 292,372
-----------------------------------------
1,053,888 993,235 1,001,268
Intersegment sales of food products (30,074) (28,612) (32,765)
-----------------------------------------
TOTAL $1,023,814 $964,623 $ 968,503
=========================================
Operating Income
Restaurant operations $ 68,663 $ 67,877 $ 65,905
Food products 14,803 17,610 26,043
-----------------------------------------
TOTAL $ 83,466 $85,487 $ 91,948
=========================================
DEPRECIATION AND AMORTIZATION EXPENSE
Restaurant operations $ 32,634 $ 29,165 $ 26,475
Food products 7,158 7,315 8,911
-----------------------------------------
TOTAL $ 39,792 $ 36,480 $ 35,386
=========================================
CAPITAL EXPENDITURES
Restaurant operations $ 93,554 $ 91,006 $ 61,055
Food products 6,253 5,861 7,470
-----------------------------------------
TOTAL $ 99,807 $ 96,867 $ 68,525
=========================================
IDENTIFIABLE ASSETS
Restaurant operations $ 574,430 $519,168 $ 470,033
Food products 73,025 75,311 77,412
-----------------------------------------
647,455 594,479 547,445
General corporate assets 31,260 29,962 43,007
-----------------------------------------
TOTAL $ 678,715 $624,441 $ 590,452
=========================================
34
35
REPORT OF ERNST & Young LLP, Independent Auditors
To the Stockholders and Board of Directors of
Bob Evans Farms, Inc.:
We have audited the accompanying consolidated balance sheets of Bob Evans
Farms, Inc. and subsidiaries as of April 27, 2001, and April 28, 2000, and the
related consolidated statements of income, stockholders' equity and cash flows
for each of the three years in the period ended April 27, 2001. These financial
statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Bob Evans Farms,
Inc. and subsidiaries at April 27, 2001, and April 28, 2000, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended April 27, 2001, in conformity with accounting
principles generally accepted in the United States.
/s/ Ernst & Young LLP
Columbus, Ohio
May 31, 2001
35
36
MANAGEMENT'S DISCUSSION AND ANALYSIS OF SELECTED FINANCIAL INFORMATION
BOB EVANS FARMS, INC. AND SUBSIDIARIES
During the fourth quarter of fiscal 1999, the company sold its salad
production and charcoal-manufacturing businesses held by wholly owned
subsidiaries Mrs. Giles Country Kitchens (Giles) and Hickory Specialties
(Hickory), respectively. Therefore, certain comparisons of fiscal 2000 to fiscal
1999 have been adjusted to exclude the effect of the businesses sold. The
company's results of operations for fiscal 1999 included net sales of $46.3
million and operating income of $355,000 from the divested businesses. In
addition, fiscal 1999 included one more week of operations than both fiscal 2001
and fiscal 2000.
SALES
Consolidated net sales for Bob Evans Farms, Inc. and subsidiaries increased
$59.2 million, or 6.1%, in 2001 compared to 2000. The increase was the result of
a $55.1 million increase in restaurant segment sales and a $4.1 million increase
in food products segment sales. Net sales in 2000 represented a 0.4% decrease
when compared to 1999 sales. Excluding the divested businesses, consolidated net
sales rose $42.4 million, or 4.6%, in 2000 compared to 1999.
Restaurant segment sales accounted for 78.7%, 77.8% and 73.2% of total sales
in 2001, 2000 and 1999, respectively. The $55.1 million additional restaurant
sales in 2001 represented a 7.3% increase over 2000 sales, which were 5.9%
higher than 1999 sales.
The increase in restaurant sales in 2001 was the result of a 2.6% increase in
same-store sales as well as more restaurants in operation. Same-store sales
increased in all four quarters of 2001 and included an average menu price
increase of 3.3% for the year. Menu price increases were 2.3% in 2000 and 2.6%
in 1999. The 2001 same-store sales increase reflected the continued trend of
quarterly same-store sales gains for four years running. Excluding the effect of
the extra week in 1999, same-store sales increases were 3.4% in 2000 and 5.6% in
1999. New restaurant openings also provided additional sales growth as stores in
operation totaled 469 at the end of 2001 compared to 441 at the end of 2000. The
2001 openings included further expansion into existing markets for the company
with an emphasis on North Carolina and Florida, where five and four restaurants
were opened, respectively. In addition, the company opened a second restaurant
in both South Carolina and Kansas as well as its first in Mississippi. During
2001, the company closed two under-performing restaurants. The following chart
summarizes the openings and closings during the last two years:
BEGINNING OPENED CLOSED ENDING
-----------------------------------------
Fiscal Year 2001
First Quarter 441 3 1 443
Second Quarter 443 5 1 447
Third Quarter 447 7 0 454
Fourth Quarter 454 15 0 469
Fiscal Year 2000
First Quarter 424 1 1 424
Second Quarter 424 7 2 429
Third Quarter 429 8 6 431
Fourth Quarter 431 10 0 441
An emphasis on dessert and carryout sales and seasonal product promotions
also contributed to the sales increase in 2001. Carryout sales represented 4.9%
of total sales in 2001 compared to 4.1% in 2000 and comprised 16.3% of the total
increase in restaurant sales in 2001. Same-store carryout sales increased 23.3%
in 2001. Sales also benefited from the updated appearance of many of our
restaurants, of which 13 were rebuilt and many remodeled in the past year. In
addition, management believes that excellent customer service, reflective of a
commitment to full staffing at all restaurants, has been an essential driver of
sales growth.
Various promotional programs were employed throughout the last few years,
including those involving gift certificates, children's programs and seasonal
menu offerings. Additionally, the layout of the menu was significantly updated
late in fiscal 2001 and the children's menu was enhanced in January 2001. No
single menu item nor promotional program had a material impact on sales,
although management believes that without the menu changes and promotional
programs, same-store sales comparisons would have been less favorable.
36
37
MANAGEMENT'S DISCUSSION AND ANALYSIS OF SELECTED FINANCIAL INFORMATION
BOB EVANS FARMS, INC. AND SUBSIDIARIES
Food products segment sales accounted for 21.3%, 22.2% and 26.8% of total
sales in 2001, 2000 and 1999, respectively. The $4.1 million (1.9%) sales
increase in the food products segment in 2001 was the result of a $4.7 million
sales increase in sausage and other products, partially offset by a $0.6 million
decrease in sales of liquid-smoke flavorings. Excluding the divested businesses,
the $0.5 million (0.2%) sales increase in the food products segment in 2000 was
comprised of a $1.1 million sales increase in sausage and other products,
partially offset by a $0.6 million decrease in sales of liquid-smoke flavorings.
The increase in food products sales in 2001 reflected additional sales
provided by new products and higher sales prices partially offset by a 3%
decrease in pounds sold of comparable sausage products and a 36% decrease in
sales of salad products. The average benchmark retail price for a one-pound roll
of sausage in 2001 was $3.19 compared to an average price of $3.04 in 2000 and
$2.99 in 1999. The decrease in comparable pound volume in 2001 was primarily due
to lower sales of grilling products that resulted from competitors' aggressive
promotional activities and less promotional spending by the company. A more
aggressive promotional program has been planned for 2002. Salad products
continued to decline in 2001 and were discontinued as of the end of the year. In
the last three years, newer products, such as garlic and original mashed
potatoes, refrigerated home fries and hash browns, provided growing volume.
Increases in sausage sales in 2000 were primarily
due to a 2% increase in pounds sold of comparable products over 1999, excluding
the effect of the extra week in 1999. Fiscal 2000 also benefited from expansion
into a new marketing territory - the Kansas City metropolitan area.
COST OF SALES
Consolidated cost of sales (cost of materials) was 28.6%, 28.4% and 28.5% of
sales in 2001, 2000 and 1999, respectively.
In the restaurant segment, food costs (cost of sales) was 25.1%, 25.2% and
25.7% of sales in 2001, 2000 and 1999, respectively. The improvement in 2000,
and continuing into 2001, was due mainly to favorable commodity prices,
discounts received on large volume purchases and menu price increases.
In the food products segment, cost of sales was 41.6%, 40.0% and 36.1% in
2001, 2000 and 1999, respectively. These percentages were reflective of
fluctuating hog costs, which averaged $39.51, $34.81 and $25.59 per
hundredweight in 2001, 2000 and 1999, respectively. The 2001 average represented
a 13.5% increase compared to 2000, and the 2000 average was a 36.0% increase
compared to 1999. Hog costs were at record-low levels through the third quarter
of 1999 and began rising from that point through early 2001. Hog costs
stabilized in the range of $34 - $40 per hundredweight through the second and
third quarters of fiscal 2001 and rose again in the fourth quarter.
OPERATING WAGE AND FRINGE BENEFIT EXPENSES
Consolidated operating wage and fringe benefit expenses were 34.0%, 33.2% and
31.7% of sales in 2001, 2000 and 1999, respectively.
In the restaurant segment, operating wage and fringe benefit expenses
represented 40.0% of sales in 2001, 39.3% in 2000 and 38.8% in 1999. The
increase in 2001 was primarily due to higher hourly and management wages. The
increase in 2000 was mostly due to higher hourly wages. The lowest national
unemployment rates in 30 years led to increased competition among employers for
workers in 2001 and 2000, which led to higher wage rates for the company as it
tried to provide competitive compensation.
In the food products segment, operating wage and fringe benefit expenses were
11.7% of sales in 2001, 11.9% in 2000 and 12.2% (11.5% excluding the divested
businesses) in 1999. The improvement in 2001 in the food products ratio was due
to the fact that the increased food products sales were primarily the result of
price increases and increased sales of purchased products rather than increased
sales volume of manufactured products. The increase in 2000, excluding the
divested businesses, was primarily due to higher hourly wages that were impacted
by the unusually low national unemployment rate.
37
38
MANAGEMENT'S DISCUSSION AND ANALYSIS OF SELECTED FINANCIAL INFORMATION
BOB EVANS FARMS, INC. AND SUBSIDIARIES
OTHER OPERATING EXPENSES
More than 90% of other operating expenses occurred in the restaurant segment;
the most significant components of which were advertising, utilities, restaurant
supplies, repair and maintenance, taxes (other than income taxes) and credit
card processing fees. Consolidated other operating expenses represented 14.2%,
14.4% and 13.6% of sales in 2001, 2000 and 1999, respectively. Operating
expenses, as a percentage of sales, decreased in 2001 due mostly to improved
leverage of expenses (primarily advertising and taxes) with the increase in
restaurant segment sales. The improvement was partially offset by higher utility
costs. The increase in 2000 was due mostly to higher advertising expense,
restaurant supplies and credit card processing fees.
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 11.1%, 11.3% and 13.0% in 2001, 2000 and 1999,
respectively. The decrease in 2001 and 2000 reflected decreased promotional
activity for the company's food products. As hog prices continued trending
upward in the last half of 2000, the company opted to decrease in-store
promotions and advertising allowances to partially offset the rising cost of
materials. The decrease in 2000 was also impacted by lower bonus accruals.
TAXES
The effective federal and state income tax rates were 35.5% in 2001 and 37.0%
in both 2000 and 1999. The lower effective rate in 2001 reflected the impact of
various state tax planning strategies.
LIQUIDITY AND CAPITAL RESOURCES
Cash generated from both the restaurant and food products segments has been
used as the main source of funds for working capital and capital expenditure
requirements. Cash and cash equivalents totaled $1.8 million at April 27, 2001,
and $6.8 million at April 28, 2000. Dividends paid represented 24.9% of net
income in 2001 and 26.4% of net income in 2000.
Bank lines of credit were used for liquidity needs, capital expansion and
purchases of treasury shares during 2001 and 2000. At April 27, 2001, $66.0
million was outstanding under such arrangements. Unused bank lines of credit
available at year-end were $44.0 million. In April 2001, the company issued a
$40.0 million unsecured note to a bank to replace an equivalent amount
outstanding on its unsecured line of credit. The company believes that funds
needed for capital expenditures, working capital and treasury share purchases
during 2002 will be generated internally and from available bank lines of
credit. Additional financing alternatives will continue to be evaluated by the
company as warranted.
At April 27, 2001, the company had contractual commitments for restaurant
construction, plant equipment additions and the purchases of land and inventory
of approximately $33.7 million. Capital expenditures for 2002 are expected to
approximate $112.0 million and depreciation and amortization expenses are
expected to approximate $43.0 million. The company plans to open approximately
30 restaurants in 2002, as well as upgrade various property, plant and equipment
in both segments.
38
39
MANAGEMENT'S DISCUSSION OF RISK FACTORS
BOB EVANS FARMS, INC. AND SUBSIDIARIES
Management believes that the current reported financial information is
indicative of future operating results and is not aware of any material events
or uncertainties that would indicate otherwise. However, some level of business
risk and uncertainty is present in any industry; the following documents some of
the risks specific to both operating segments.
Restaurant segment business risks include: competition, same-store sales,
labor and fringe benefit expenses, energy prices, restaurant closings,
governmental initiatives and other risks such as the economy, weather, consumer
acceptance, etc.
The restaurant industry is an intensely competitive environment that will
continue to challenge and influence the company's restaurant segment.
Competition from restaurants in the quick service, casual dining and
family-style categories is significant. Increased numbers of restaurants have
provided more options for consumers and have suppressed the industry's
same-store sales. The industry has seen several restaurant chains struggle to
maintain market share and that have closed substantial numbers of locations.
Same-store sales for Bob Evans Restaurants have improved for three years in a
row: the increase was 2.6% in 2001, 3.4% in 2000 and 5.6% in 1999. The impact of
same-store sales on overall sales and corresponding profit margins is
significant. All restaurants continue to be evaluated by management in order to
identify under-performing locations. In fiscal 2001, the company closed two
restaurants. Depending on profitability, as well as changes in access, the
company may close other restaurants in fiscal 2002.
Competition for qualified labor was a challenge in fiscal 2001 and is
expected to continue in fiscal 2002, although some easing is expected. Proposed
increases in the federally mandated minimum wage may have an impact on future
wage rates as Congress considers increases to the rate currently in effect.
Natural gas prices rose significantly in the winter of fiscal 2001.
Predictions are that prices of all energy sources will be significantly higher
in fiscal 2002. The company will closely monitor energy costs and evaluate all
options carefully.
Availability of sites and weather conditions generate uncertainty when
evaluating future expansion. However, the plans for fiscal 2002 are to add
approximately 30 new restaurants in comparison to 30 in 2001 and 26 in 2000.
Food products segment business risks include: hog costs, governmental
initiatives and other risks such as economy, weather, consumer acceptance, etc.
The prices to be paid in the live hog market have always been an uncertainty for
the food products segment as evidenced in the last three years. In the third
quarter of 1999, hog costs were at record-low levels. In 2000, hog cost averages
increased nearly 50% from just the second to the fourth quarter. In 2001, hog
cost averages were relatively high in the first and fourth quarters, but were
stable in the second and third quarters. Trends at the beginning of fiscal 2002
lead management to believe that hog costs in 2002 may be higher than in 2001.
Another uncertainty is the consumer acceptance of new items. Some of the
planned product introductions in fiscal 2002 include Wildfire Barbecue Sauce,
expansion of the SnackWiches line to include a new pizza burrito, frozen entree
extensions and expanded distribution of refrigerated mashed potatoes.
The restaurant and food products segments share various risks and
uncertainties. Food safety is an issue that has taken precedence: risk of food
contamination is an issue focused on by the company at its restaurants as well
as in the manufacturing and distribution of its food products. The company has
continued its emphasis on quality control programs that limit the company's
exposure, including compliance with all aspects of the Hazard Analysis of
Critical Control Points program. Increased government initiatives at the local,
state and federal levels tend to increase costs and present challenges to
management in both segments of the business.
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 2002 and beyond to differ materially from those expressed in such
forward-looking statements. These important factors include, without limitation,
the assumptions, risks and uncertainties set forth above in "Management's
Discussion of Risk Factors," as well as other assumptions, risks, uncertainties
and factors previously disclosed in this report, the company's securities
filings and press releases.
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BOB EVANS FARMS, INC.
ANNUAL REPORT ON FORM 10-K
FOR FISCAL YEAR ENDED APRIL 27, 2001
INDEX TO EXHIBITS
Exhibit
Number Description Location
- ------- ----------- --------
3(a) Certificate of Incorporation of the Incorporated herein by reference to
Registrant (filed with the Delaware Exhibit 3 (a) to the Registrant's
Secretary of State on Nov. 4, 1985) Annual Report on Form 10-K for its
fiscal year ended April 24, 1987.
(File No. 0-1667)
3(b) Certificate of Amendment of Incorporated herein by reference to
Certificate of Incorporation of the Exhibit 3(b) to the Registrant's Annual
Registrant dated Aug. 26, 1987 (filed Report on Form 10-K for its fiscal year
with the Delaware Secretary of State ended April 28, 1989.
on Sept. 4, 1987) (File No. 0-1667)
3(c) Certificate of Adoption of Amendment Incorporated herein by reference to
to Certificate of Incorporation of Exhibit 3(c) to the Registrant's Annual
the Registrant dated Aug. 9, 1993 Report on Form 10-K for its fiscal year
(filed with the Delaware Secretary of ended April 29, 1994.
State on Aug. 10, 1993) (File No. 0-1667)
3(d) Restated Certificate of Incorporation Incorporated herein by reference to
of Registrant reflecting amendments Exhibit 3(d) to the Registrant's Annual
through Aug. 10, 1993. Note: filed Report on Form 10-K for its fiscal year
for purposes of SEC reporting ended April 29, 1994.
compliance only - this document has (File No. 0-1667)
not been filed with the Delaware
Secretary of State
3(e) Amended and Restated By-Laws of the Incorporated herein by reference to
Registrant Exhibit 3(e) to the Registrant's Annual
Report on Form 10-K for its fiscal year
ended April 28, 2000.
(File No. 0-1667)
4 Agreement to furnish instruments Attached hereto.
defining rights of holders of
long-term debt
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Exhibit
Number Description Location
- ------- ----------- --------
10(a) Agreement, dated Feb. 24, 1989, Incorporated herein by reference to
between Daniel E. Evans and Bob Evans Exhibit 10(g) to the Registrant's
Farms, Inc.; and Schedule A to Annual Report on 10-K for its fiscal
Exhibit 10(a) identifying other year ended April 28, 1989 (File No.
substantially identical Agreements 0-1667);
between Bob Evans Farms, Inc. and Attached hereto.
certain of the executive officers of
Bob Evans Farms, Inc.
10(b) Bob Evans Farms, Inc. 1989 Stock Incorporated herein by reference to
Option Plan for Nonemployee Directors Exhibit 4(d) to the Registrant's
Registration Statement on Form S-8,
filed Aug. 23, 1989.
(Registration No. 33-30665)
10(c) Bob Evans Farms, Inc. 1991 Incentive Incorporated herein by reference to
Stock Option Plan Exhibit 4(d) to the Registrant's
Registration Statement on Form S-8,
filed Sept. 13, 1991.
(Registration No. 33-42778)
10(d) Bob Evans Farms, Inc. Nonqualified Incorporated herein by reference to
Stock Option Plan (effective April Exhibit 10(j) to the Registrant's
17, 1992) Annual Report on Form 10-K for its
fiscal year ended April 24, 1992.
(File No. 0-1667)
10(e) Bob Evans Farms, Inc. Long Term Incorporated herein by reference to
Incentive Plan for Managers Exhibit 10(k) to the Registrant's
Annual Report on Form 10-K for its
fiscal year ended April 30, 1993.
(File No. 0-1667)
10(f) Bob Evans Farms, Inc. 1994 Long Term Incorporated herein by reference to
Incentive Plan Exhibit 10(n) to the Registrant's
Annual Report on Form 10-K for the
fiscal year ended April 29, 1994.
(File No. 0-1667)
10(g) Bob Evans Farms, Inc. 1998 Supplemental Incorporated herein by reference to
Executive Retirement Plan Exhibit 10(l) to the Registrant`s
Annual Report on Form 10-K for the
fiscal year ended April 24, 1998.
(File No. 0-1667)
10(h) Bob Evans Farms, Inc. 1998 Directors Incorporated herein by reference to
Compensation Plan Exhibit 10(m) to the Registrant's
Annual Report on Form 10-K for the
fiscal year ended April 24,
1998.
(File No. 0-1667)
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Exhibit
Number Description Location
- ------- ----------- --------
10(i) Bob Evans Farms, Inc. 1998 Stock Incorporated herein by reference to
Option and Incentive Plan Exhibit 4(f) to the Registrant's
Registration Statement on Form S-8
filed March 22, 1999.
(Registration No. 333-74829)
10(j) Bob Evans Farms, Inc. Dividend Incorporated herein by reference to the
Reinvestment and Stock Purchase Plan Registrant's Registration Statement on
Form S-3 filed March 19, 1999.
(Registration No. 333-74739)
10(k) Bob Evans Farms, Inc. and Affiliates Attached hereto.
Executive Deferral Program (originally
effective Jan. 1, 1999, and amended
and restated effective June 14, 1999)
10(l) First Amendment to Bob Evans Farms, Attached hereto.
Inc. and Affiliates Executive Deferral
Program
13 Registrant's Annual Report to Stockholders Incorporated herein.
for the fiscal year ended April 27, 2001
(Not deemed filed except for portions
thereof which are specifically incorporated
by reference into this Annual Report on
Form 10-K)
21 Subsidiaries of the Registrant Attached hereto.
23 Consent of Ernst & Young, LLP Attached hereto.
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