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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 26, 2002
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OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from
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Commission file number 0-1667
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Bob Evans Farms, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 31-4421866
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(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
3776 South High Street Columbus, Ohio 43207
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(Address of principal executive offices)
(Zip Code)
(614) 491-2225
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(Registrant's telephone number, including area code)
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(Former name, former address and formal fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
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As of the close of the period covered by this report, the registrant
had issued 42,638,118 common shares, of which 35,609,215 were outstanding.
BOB EVANS FARMS, INC.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
July 26, 2002 April 26, 2002
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Unaudited Audited
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ASSETS
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Current assets
Cash and equivalents $ 11,114 $ 7,934
Accounts receivable 11,258 11,629
Inventories 15,778 15,252
Deferred income taxes 8,871 8,871
Prepaid expenses 3,210 1,016
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TOTAL CURRENT ASSETS 50,231 44,702
Property, plant and equipment 987,405 971,843
Less accumulated depreciation 334,015 323,664
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NET PROPERTY, PLANT AND EQUIPMENT 653,390 648,179
Other assets
Deposits and other 3,116 3,037
Long-term investments 13,059 12,196
Deferred income taxes 12,292 12,292
Goodwill 1,567 1,567
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TOTAL OTHER ASSETS 30,034 29,092
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$ 733,655 $ 721,973
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LIABILITIES AND STOCKHOLDERS' EQUITY
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Current liabilities
Line of credit $ 17,135 $ 27,750
Current maturities of long-term debt 4,000 4,000
Accounts payable 9,584 10,741
Dividends payable 3,917 3,529
Federal and state income taxes 17,638 9,329
Accrued wages and related liabilities 13,593 19,804
Other accrued expenses 56,015 55,343
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TOTAL CURRENT LIABILITIES 121,882 130,496
Long-term liabilities
Deferred compensation 7,651 6,182
Deferred income taxes 31,597 31,597
Long-term debt 31,333 32,333
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TOTAL LONG-TERM LIABILITIES 70,581 70,112
Stockholders' equity
Common stock, $.01 par value; authorized 100,000,000 shares; issued
42,638,118 shares at July 26, 2002, and April 26, 2002 426 426
Preferred stock, authorized 1,200 shares; issued 120
shares at July 26, 2002, and April 26, 2002 60 60
Capital in excess of par value 147,364 151,264
Retained earnings 515,227 498,522
Treasury stock, 7,028,903 shares at July 26, 2002,
and 7,343,596 shares at April 26, 2002, at cost (121,885) (128,907)
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TOTAL STOCKHOLDERS' EQUITY 541,192 521,365
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$ 733,655 $ 721,973
=========== ===========
The accompanying notes are an integral part of the financial statements.
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CONDENSED CONSOLIDATED STATEMENTS OF INCOME
UNAUDITED
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(Dollars in thousands, except per share amounts)
Three Months Ended
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July 26, 2002 July 27, 2001
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NET SALES $ 277,021 $ 267,461
Cost of sales 72,046 76,810
Operating wage and fringe benefit expenses 96,196 91,513
Other operating expenses 40,752 39,485
Selling, general and administrative expenses 25,081 25,223
Depreciation and amortization expense 10,690 10,471
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OPERATING INCOME 32,256 23,959
Net interest expense 527 1,165
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INCOME BEFORE INCOME TAXES 31,729 22,794
PROVISIONS FOR INCOME TAXES 11,105 7,750
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NET INCOME $ 20,624 $ 15,044
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EARNINGS PER SHARE - BASIC $ 0.58 $ 0.43
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EARNINGS PER SHARE - DILUTED $ 0.57 $ 0.43
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CASH DIVIDENDS PER SHARE $ 0.11 $ 0.09
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The accompanying notes are an integral part of the financial statements
-3-
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
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(Dollars in thousands)
Three Months Ended
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July 26, 2002 July 27, 2001
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OPERATING ACTIVITIES:
Net income $ 20,624 $ 15,044
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 10,690 10,471
Loss (gain) on sale of assets (5) 11
Loss on long-term investments 150 150
Deferred compensation 1,428 738
Compensation expense attributable to stock plans 323 304
Cash provided by (used for) current assets
and current liabilities:
Accounts receivable 371 (326)
Inventories (526) (205)
Prepaid expenses (2,194) (882)
Accounts payable (1,157) 119
Federal and state income taxes 8,309 3,914
Accrued wages and related liabilities (6,211) (3,456)
Other accrued expenses 390 2,096
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NET CASH PROVIDED BY OPERATING ACTIVITIES 32,192 27,978
INVESTING ACTIVITIES:
Purchase of property, plant and equipment (15,844) (19,963)
Purchase of long-term investments (1,122) (588)
Proceeds from sale of property, plant and equipment 57 105
Other (79) (402)
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NET CASH USED IN INVESTING ACTIVITIES (16,988) (20,848)
FINANCING ACTIVITIES:
Cash dividends paid (3,531) (3,134)
Line of credit (10,615) 2,950
Purchase of treasury stock (2,383) (1,721)
Principal payments on long-term debt (1,000) (667)
Proceeds from issuance of treasury stock 5,505 510
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NET CASH USED IN FINANCING ACTIVITIES (12,024) (2,062)
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Increase in cash and equivalents 3,180 5,068
Cash and equivalents at the beginning of the period 7,934 1,787
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Cash and equivalents at the end of the period $ 11,114 $ 6,855
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The accompanying notes are an integral part of the financial statements.
-4-
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
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1. Unaudited Financial Statements
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The accompanying unaudited financial statements are presented
in accordance with the requirements of Form 10-Q and, consequently, do
not include all of the disclosures normally required by generally
accepted accounting principles, or those normally made in the company's
Form 10-K filing. In the opinion of management, all adjustments
(consisting of normal recurring adjustments) considered necessary for a
fair presentation have been included. No significant changes have
occurred in the disclosures made in Form 10-K for the fiscal year ended
April 26, 2002 (refer to Form 10-K for a summary of significant
accounting policies followed in the preparation of the consolidated
financial statements).
2. Earnings Per Share
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Basic earnings per share computations are based on the
weighted-average number of shares of common stock outstanding during
the period presented. Diluted earnings per share calculations reflect
the assumed exercise and conversion of employee stock options.
The numerator in calculating both basic and diluted earnings
per share for each period is reported net income. The denominator is
based on the following weighted-average number of common shares
outstanding:
(in thousands)
Three Months Ended
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July 26, 2002 July 27, 2001
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Basic 35,438 34,810
Effect of dilutive
stock options 819 343
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Diluted 36,257 35,153
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3. Industry Segments
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The company's operations include restaurant operations and the
processing and sale of food and related products. The revenues from
these segments include both sales to unaffiliated customers and
intersegment sales, which are accounted for on a basis consistent with
sales to unaffiliated customers. Intersegment sales and other
intersegment transactions have been eliminated in the consolidated
financial statements. Information on the company's operating segments
is summarized as follows:
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(in thousands)
Three Months Ended
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July 26, 2002 July 27, 2001
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Sales
Restaurant Operations $234,037 $221,467
Food Products 50,676 53,469
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284,713 274,936
Intersegment sales of food products (7,692) (7,475)
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Total $277,021 $267,461
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Operating Income
Restaurant Operations $27,361 $23,634
Food Products 4,895 325
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Total $32,256 $23,959
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4. New Accounting Standards
------------------------
In June 2001, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards (SFAS) No. 142,
Goodwill and Other Intangible Assets, effective for fiscal years
beginning after December 15, 2001. Under this statement, goodwill and
intangible assets deemed to have indefinite lives will no longer be
amortized but will be subject to annual impairment tests in accordance
with the statement. Other intangible assets will continue to be
amortized over their useful lives.
The company applied the new rules on accounting for goodwill
and other intangible assets in the first quarter of fiscal 2003.
Application of the nonamortization provisions of the statement had a de
minimus impact on pre-tax income. During the first quarter of fiscal
2003, the company completed the required transition test for impairment
of goodwill and concluded that no impairment existed at April 26, 2002.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
SALES
Consolidated net sales increased 3.6% to $277.0 million in the first
quarter of fiscal 2003 compared to the corresponding quarter last year. The
increase was comprised of an increase in the restaurant segment of $12.6
million, partially offset by a decrease in the food products segment of $3.0
million. Restaurant segment sales accounted for approximately 84.5% of
consolidated sales in the quarter.
The restaurant segment sales increase of $12.6 million represented a
5.7% increase over the first quarter of last year. The increase was the result
of both more restaurants in operation (495 versus 470) and a 0.6% increase in
same-store sales. The same store sales increase included a menu price increase
of 2.7% in the first quarter.
The chart below summarizes the restaurant openings and closings during
the last five quarters:
Beginning Opened Closed Ending
- ------------------- -------------- ----------- ---------- ----------
Fiscal 2003
1st quarter 495 0 0 495
Fiscal 2002
1st quarter 469 1 0 470
2nd quarter 470 4 1 473
3rd quarter 473 8 0 481
4th quarter 481 14 0 495
The company expects to open approximately 30 additional stores in
fiscal 2003. One under-performing store was closed in fiscal 2002; no stores
have been closed in fiscal 2003.
The food products segment experienced a sales decline of $3.0 million,
or 6.5%, in the first quarter of fiscal 2003 compared to the same period last
year. Excluding the sales contributed by Hickory Specialties, Inc. (HSI) in the
first quarter of fiscal 2002, the food products segment experienced a sales
decline of $0.3 million, or 0.7%. The divestiture of HSI occurred in the second
quarter of fiscal 2002. The decrease in net sales was due to an increase in
promotional incentives of $2.7 million, or 113.1%, which was mostly offset by
the additional gross sales provided by an increase in the volume of products
sold. The increase in promotional spending is in response to lower hog costs
discussed in the cost of sales section below. The volume of sausage products
sold (calculated using the same products in both periods and excluding new
products) increased 3% in the first quarter of fiscal 2003.
-7-
COST OF SALES
Consolidated cost of sales (cost of materials) was 26.0% of sales in
the company's first quarter of fiscal 2003 compared to 28.7% of sales in last
year's first quarter.
In the restaurant segment, cost of sales (predominantly food cost) was
24.1% of sales in the first quarter of 2003 versus a corresponding 24.7% of
sales last year. The company attributes this improvement to three factors: menu
price increases, favorable purchase prices on certain ingredients and changes in
product mix.
The food products segment cost of sales ratio decreased sharply to
36.4% of sales in the first quarter of 2003 compared to 48.0% of sales in the
first quarter a year ago. This decrease was the result of lower hog costs, which
averaged $26.22 per hundredweight in this year's first quarter compared to
$45.25 in the corresponding period last year - a 42.1% decrease.
OPERATING WAGE AND FRINGE BENEFIT EXPENSES
Consolidated operating wage and fringe benefit expenses ("operating
wages") were 34.7% of sales in the first quarter of fiscal 2003 compared to
34.2% in the first quarter last year. A higher operating wage ratio in the food
products segment was partially offset by an improved operating wage ratio in the
restaurant segment.
In the restaurant segment, operating wages were 38.4% of sales in
fiscal 2003's first quarter versus a corresponding 38.5% of sales last year. The
improvement was attributable to lower hourly wage expense as well as some
decreased benefit costs. The company launched several programs early in fiscal
2002 aimed at reducing employee-related expenses, including overtime costs. The
benefit of these programs was not fully realized in the first quarter of fiscal
2002.
In the food products segment, operating wages were 15.0% of sales in
the first quarter of fiscal 2003 compared to 13.7% of sales in the first quarter
of 2002. Operating wage expense increased as a percentage of sales in the food
products segment primarily due to lower sales, resulting in less leverage in the
first quarter.
OTHER OPERATING EXPENSES
Over 93% of other operating expenses ("operating expenses") occurred
in the restaurant segment in the first quarter of both fiscal 2003 and fiscal
2002. The most significant components of operating expenses were advertising,
utilities, restaurant supplies, repair and maintenance, taxes (other than income
taxes), and credit card processing fees. Consolidated operating expenses were
14.7% of sales in the first quarter this year versus 14.8% of sales in the
corresponding period a year ago. The decrease was due mostly to lower utility
costs and small equipment purchases in the restaurant segment, partially offset
by an increase in operating expenses at Owens in the food products segment.
-8-
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
As a percentage of sales, consolidated selling, general and
administrative expenses ("S, G & A expenses") were 9.1% and 9.4% in the first
quarters of fiscal 2003 and 2002, respectively. Excluding the effect of HSI,
which was sold in the second quarter of fiscal 2002, S, G & A expenses were 9.1%
of sales in the first quarter of fiscal 2002. The most significant components of
S, G & A expenses were wages, fringe benefits and food products segment
advertising expenses. After adjusting for HSI, S, G & A as a percentage of sales
remained unchanged in the first quarter.
TAXES
The effective federal and state income tax rates were 35.0% in the
first quarter of fiscal 2003 and 34.0% in the first quarter of 2002. The company
anticipates the effective tax rate for fiscal 2003 to remain at approximately
35.0%.
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. Bank lines of credit were also used for liquidity
needs, capital expansion and repurchases of company stock at various times. Bank
lines of credit available total $90 million, of which $17.1 million was
outstanding at July 26, 2002.
The company believes that the funds needed for capital expenditures,
working capital and company stock repurchases during the remainder of fiscal
2003 will be generated both internally and from available bank lines of credit.
Financing alternatives will continue to be evaluated by the company as
warranted.
-9-
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 2003 and beyond to differ materially from those expressed in such
forward-looking statements. These important factors include, without limitation,
changes in hog costs and the possibility of severe weather conditions where the
company operates its restaurants, as well as other risks previously disclosed in
the company's securities filings and press releases.
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PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Index to Exhibits on Page 13
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BOB EVANS FARMS, INC. SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Bob Evans Farms, Inc.
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Registrant
/s/ Stewart K. Owens
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Stewart K. Owens
Chairman and Chief Executive Officer
/s/ Donald J. Radkoski
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Donald J. Radkoski
Chief Financial Officer
August 28, 2002
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Date
-12-
BOB EVANS FARMS, INC. INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION PAGE NO.
99(a) Certification of Chief Executive Officer 14
99(b) Certification of Chief Financial Officer 15
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