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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 January 23, 2004
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OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from
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Commission file number 0-1667
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Bob Evans Farms, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 31-4421866
- ------------------------------- -------------------
(State or other jurisdiction of (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)
(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
----- -----
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Exchange Act).
Yes X No
----- -----
As of February 20, 2004, the registrant had issued 42,638,118 common
shares, of which 35,209,051 were outstanding.
-1-
BOB EVANS FARMS, INC.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
Jan. 23, 2004 April 25, 2003
------------- --------------
Unaudited Audited
ASSETS
Current assets
Cash and equivalents $ 13,836 $ 9,066
Accounts receivable 13,717 11,115
Inventories 17,758 16,872
Deferred income taxes 8,914 8,914
Prepaid expenses 2,545 1,975
----------- -----------
TOTAL CURRENT ASSETS 56,770 47,942
Property, plant and equipment 1,125,862 1,046,815
Less accumulated depreciation 360,626 342,373
----------- -----------
NET PROPERTY, PLANT AND EQUIPMENT 765,236 704,442
Other assets
Deposits and other 3,793 3,112
Long-term investments 17,294 14,306
Deferred income taxes 13,222 13,222
Goodwill 1,567 1,567
----------- -----------
TOTAL OTHER ASSETS 35,876 32,207
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$ 857,882 $ 784,591
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Line of credit $ 32,450 $ 32,255
Current maturities of long-term debt 4,000 4,000
Accounts payable 11,836 10,374
Dividends payable 4,206 3,794
Federal and state income taxes 25,884 10,720
Accrued wages and related liabilities 18,592 18,834
Self insurance 22,009 19,241
Other accrued expenses 46,399 42,331
----------- -----------
TOTAL CURRENT LIABILITIES 165,376 141,549
Long-term liabilities
Deferred compensation 12,745 8,554
Deferred income taxes 45,236 45,236
Long-term debt 25,333 28,333
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TOTAL LONG-TERM LIABILITIES 83,314 82,123
Stockholders' equity
Common stock, $.01 par value; authorized 100,000,000
shares; issued 42,638,118 shares at January 23, 2004,
and April 25, 2003 426 426
Preferred stock, authorized 1,200 shares; issued 120
shares at January 23, 2004, and April 25, 2003 60 60
Capital in excess of par value 146,638 150,253
Retained earnings 598,322 558,147
Treasury stock, 7,590,630 shares at January 23, 2004,
and 8,144,025 shares at April 25, 2003, at cost (136,254) (147,967)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 609,192 560,919
----------- -----------
$ 857,882 $ 784,591
=========== ===========
The accompanying notes are an integral part of the financial statements.
-2-
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
UNAUDITED
(Dollars in thousands, except per share amounts)
Three Months Ended Nine Months Ended
------------------------------- -------------------------------
Jan. 23, 2004 Jan. 24, 2003 Jan. 23, 2004 Jan. 24, 2003
------------- ------------- ------------- -------------
NET SALES $291,397 $271,252 $884,129 $825,874
Cost of sales 84,049 73,689 249,791 216,800
Operating wage and fringe benefit expenses 102,094 93,930 307,161 286,864
Other operating expenses 42,884 41,014 130,751 124,446
Selling, general and administrative expenses 25,180 25,364 76,436 75,480
Depreciation and amortization expense 12,733 11,175 36,909 32,590
-------- -------- -------- --------
OPERATING INCOME 24,457 26,080 83,081 89,694
Net interest expense 210 342 1,064 1,337
-------- -------- -------- --------
INCOME BEFORE INCOME TAXES 24,247 25,738 82,017 88,357
PROVISIONS FOR INCOME TAXES 8,656 9,005 29,280 30,922
-------- -------- -------- --------
NET INCOME $ 15,591 $ 16,733 $ 52,737 $ 57,435
======== ======== ======== ========
EARNINGS PER SHARE - BASIC $ 0.45 $ 0.48 $ 1.52 $ 1.62
======== ======== ======== ========
EARNINGS PER SHARE - DILUTED $ 0.44 $ 0.47 $ 1.49 $ 1.60
======== ======== ======== ========
CASH DIVIDENDS PER SHARE $ 0.12 $ 0.11 $ 0.36 $ 0.33
======== ======== ======== ========
The accompanying notes are an integral part of the financial statements
-3-
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
(Dollars in thousands)
Nine Months Ended
---------------------------------
Jan. 23, 2004 Jan. 24, 2003
------------- -------------
OPERATING ACTIVITIES:
Net income $ 52,737 $ 57,435
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 36,909 32,590
(Gain) loss on sale of assets (352) 142
(Gain) loss on long-term investments (1,711) 1,086
Deferred compensation 4,191 2,304
Compensation expense attributable to stock plans 931 1,170
Cash provided by (used for) current assets
and current liabilities:
Accounts receivable (2,602) (1,307)
Inventories (886) 166
Prepaid expenses (570) (1,843)
Accounts payable 1,462 (1,525)
Federal and state income taxes 15,164 18,086
Accrued wages and related liabilities (242) (1,391)
Self insurance 2,768 3,407
Other accrued expenses 4,984 5,729
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 112,783 116,049
INVESTING ACTIVITIES:
Purchase of property, plant and equipment (102,240) (70,401)
Purchase of long-term investments (1,602) (4,049)
Proceeds from sale of property, plant and equipment 3,367 958
Other (681) 166
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES (101,156) (73,326)
FINANCING ACTIVITIES:
Cash dividends paid (12,150) (11,331)
Line of credit 195 (21,600)
Purchase of treasury stock -- (16,672)
Principal payments on long-term debt (3,000) (3,000)
Proceeds from issuance of treasury stock 8,098 6,083
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NET CASH USED IN FINANCING ACTIVITIES (6,857) (46,520)
--------- ---------
Increase (decrease) in cash and equivalents 4,770 (3,797)
Cash and equivalents at the beginning of the period 9,066 7,934
--------- ---------
Cash and equivalents at the end of the period $ 13,836 $ 4,137
========= =========
The accompanying notes are an integral part of the financial statements.
-4-
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
1. Unaudited Financial Statements
The accompanying unaudited consolidated financial statements of Bob
Evans Farms, Inc. ("Bob Evans") and its subsidiaries (collectively, Bob
Evans and its subsidiaries are referred to as the "company") 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 of the
company's financial position and results of operations have been included.
The financial statements are not necessarily indicative of the results of
operations for a full fiscal year. No significant changes have occurred in
the disclosures made in Bob Evans' Form 10-K for the fiscal year ended
April 25, 2003 (refer to the Form 10-K for a summary of significant
accounting policies followed in the preparation of the consolidated
financial statements).
2. Earnings Per Share
Basic earnings per share computations are based on the
weighted-average number of shares of common stock outstanding during the
period presented. Diluted earnings per share calculations reflect the
assumed exercise and conversion of employee stock options.
The numerator in calculating both basic and diluted earnings per share
for each period is reported net income. The denominator is based on the
following weighted-average number of common shares outstanding:
(in thousands)
Three Months Ended Nine Months Ended
----------------------------- -----------------------------
Jan. 23, 2004 Jan. 24, 2003 Jan. 23, 2004 Jan. 24, 2003
----------------------------------------------------------------------------------
Basic 34,990 35,199 34,750 35,365
Effect of dilutive
stock options 682 525 637 642
------ ------ ------ ------
Diluted 35,672 35,724 35,387 36,007
====== ====== ====== ======
-5-
3. Stock-Based Employee Compensation
The company accounts for its stock-based employee compensation plans
under the recognition and measurement principles of Accounting Principles
Board Opinion No. 25, Accounting for Stock Issued to Employees, and related
interpretations. Accordingly, no compensation expense has been recognized
for stock options when the exercise price of the options is equal to or
greater than the fair market value of the stock at the grant date.
The following table illustrates the effect on net income and
earnings per share if the company had applied the fair value recognition
provisions of Statement of Financial Accounting Standards (SFAS) No. 123,
Accounting for Stock-Based Compensation, to stock based employee
compensation:
(in thousands, except per share data)
Three Months Ended Nine Months Ended
-------------------------------- --------------------------------
Jan. 23, 2004 Jan. 24, 2003 Jan. 23, 2004 Jan. 24, 2003
-----------------------------------------------------------------------------------------------------------------
NET INCOME, AS REPORTED $ 15,591 $ 16,733 $ 52,737 $ 57,435
ADD: stock-based employee compensation
cost, net of related tax effects,
included in reported net income -- 38 -- 112
DEDUCT: Stock-based employee
compensation cost, net of related tax
effects, determined under the fair value
method for all awards (1,151) (1,041) (3,116) (3,121)
---------- ---------- ---------- ----------
NET INCOME, PRO FORMA $ 14,440 $ 15,730 $ 49,621 $ 54,426
---------- ---------- ---------- ----------
EARNINGS PER SHARE - BASIC
As reported $ 0.45 $ 0.48 $ 1.52 $ 1.62
Pro forma $ 0.41 $ 0.45 $ 1.43 $ 1.54
EARNINGS PER SHARE - DILUTED
As reported $ 0.44 $ 0.47 $ 1.49 $ 1.60
Pro forma $ 0.41 $ 0.44 $ 1.40 $ 1.51
-6-
4. Goodwill
Goodwill, which represents the cost in excess of net assets acquired,
was $1,567,000 at both January 23, 2004 and April 25, 2003. SFAS No. 142,
Goodwill and Other Intangible Assets, requires an annual impairment test
instead of amortization of goodwill. The company performs the annual test
at the end of the fourth quarter. There was no goodwill amortization
expense in either fiscal year 2004 or 2003.
5. Industry Segments
The company's operations include restaurant operations and the
processing and sale of food and related products. The revenues from these
segments include both sales to unaffiliated customers and intersegment
sales, which are accounted for on a basis consistent with sales to
unaffiliated customers. Intersegment sales and other intersegment
transactions have been eliminated in the consolidated financial statements.
Information on the company's operating segments is summarized as follows:
(in thousands)
Three Months Ended Nine Months Ended
----------------------------- -----------------------------
Jan. 23, 2004 Jan. 24, 2003 Jan. 23, 2004 Jan. 24, 2003
-----------------------------------------------------------------------------------------------------------
Sales
Restaurant Operations $233,159 $218,016 $727,090 $683,265
Food Products 67,059 60,967 182,452 166,174
-------- -------- -------- --------
300,218 278,983 909,542 849,439
Intersegment sales of food products (8,821) (7,731) (25,413) (23,565)
-------- -------- -------- --------
Total $291,397 $271,252 $884,129 $825,874
======== ======== ======== ========
Operating Income
Restaurant Operations $ 17,894 $ 20,034 $ 70,314 $ 71,739
Food Products 6,563 6,046 12,767 17,955
-------- -------- -------- --------
Total $ 24,457 $ 26,080 $ 83,081 $ 89,694
======== ======== ======== ========
6. New Accounting Standards
The Emerging Issues Task Force (EITF) reached a consensus on EITF
Issue No. 02-16, Accounting by a Customer for Certain Consideration
Received From a Vendor. Issue No. 02-16 requires that certain cash
consideration (rebates) received by a customer from a vendor be classified
in the customer's consolidated statements of income as a reduction of cost
of sales. The company previously classified most rebates as a reduction of
other operating expenses. The consensus is required to be applied to new
arrangements entered into after Dec. 31, 2002, and permits the recasting of
prior-period financial statements for comparative purposes provided that
previously reported income would not change as a result of applying the
consensus. Accordingly, previously reported cost of sales was reduced by
$510,000 and $1,569,000 for the three-months
-7-
and nine-months, respectively, ended January 24, 2003, with a corresponding
increase to other operating expenses. Operating income was unaffected.
7. Reclassifications
Certain fiscal 2003 amounts have been reclassified to conform to the
fiscal 2004 classification.
-8-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
GENERAL OVERVIEW
The company owns and operates 547 full-service, family restaurants in 22
states as Bob Evans Restaurants and Owens Restaurants. Revenue is recognized in
the restaurant segment at the point of sale. The company also produces fresh and
fully cooked pork products as well as distributes other complementary food
products 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.
Revenue in the food products segment is generally recognized when products are
delivered to the retailer.
The following table reflects data for the company's third fiscal quarter
ended January 23, 2004, compared to the prior year's third fiscal quarter ended
January 24, 2003. The consolidated information is derived from the accompanying
consolidated statements of income. Also included is data for the company's two
industry segments - restaurant operations and food products. The ratios
presented reflect the underlying dollar values expressed as a percentage of the
applicable net sales amount.
(DOLLAR AMOUNTS ARE IN THOUSANDS)
CONSOLIDATED RESTAURANT FOOD PRODUCTS
RESULTS SEGMENT SEGMENT
--------------------- --------------------- --------------------
Q3 Q3 Q3 Q3 Q3 Q3
2004 2003 2004 2003 2004 2003
---- ---- ---- ---- ---- ----
Net sales $ 291,397 $ 271,252 $ 233,159 $ 218,016 $ 58,238 $ 53,236
Operating income $ 24,457 $ 26,080 $ 17,894 $ 20,034 $ 6,563 $ 6,046
Cost of sales 28.9% 27.2% 24.7% 23.6% 45.6% 41.9%
Operating wages 35.0% 34.6% 40.5% 39.8% 13.0% 13.3%
Other operating 14.7% 15.1% 17.2% 17.6% 5.0% 5.1%
S.G.&A 8.6% 9.4% 5.3% 5.5% 21.8% 24.9%
Depr. & amort 4.4% 4.1% 4.6% 4.3% 3.3% 3.4%
---------- ---------- ---------- ---------- --------- ---------
Operating income 8.4% 9.6% 7.7% 9.2% 11.3% 11.4%
-9-
RESTAURANT SEGMENT OVERVIEW
The ongoing economic and industry-wide factors relevant to the restaurant
segment include: competition, same-store sales (defined in the Sales section
below), labor and fringe benefit expenses, commodity prices, energy prices,
restaurant openings and closings, governmental initiatives, food safety and
other risks such as the economy, weather and consumer acceptance. For the third
quarter of fiscal 2004, the three factors that had the greatest impact on
restaurant segment profitability were:
1) lower same-store sales than management expected;
2) higher commodity prices for the food items purchased; and
3) increased costs associated with opening new restaurants.
Third quarter same-store sales, which management had projected to increase
approximately 2%, increased only 0.7% compared to the corresponding quarter a
year ago. Management believes that severe weather conditions in December in the
company's Midwestern and Northeastern markets as well as a lagging economic
recovery in the Midwest negatively impacted same-store sales.
Higher commodity prices - particularly for beef, chicken, pork, eggs and
oils - put negative pressure on restaurant cost of sales in the third quarter.
Had restaurant cost of sales in the third quarter of fiscal 2004 matched the
rate in the corresponding quarter last year (24.7% vs. 23.6%), and all other
factors remained constant, restaurant operating income would have been over $2.5
million higher in the third quarter this year.
A shift in the timing of new restaurant openings resulted in a $1.5 million
increase in pre-opening expenses in the third quarter compared to the
corresponding quarter last year. This increase is reflected in both operating
wages and other operating expenses with a corresponding decrease to restaurant
operating income.
All three of the factors are discussed further in the detailed sections
that follow. However, the end result is that restaurant operating income
declined $2.1 million, or 10.7%, in the third quarter this year compared to a
year ago. Furthermore, the segment's operating income margin fell to 7.7% from
9.2% during the same periods.
Mattingly Foods, Inc. ("Mattingly"), which has served as one of the
company's distributors for over thirty years, purchases various restaurant
supplies, food products and other items (collectively, "products")
-10-
from a group of suppliers approved by the company and distributes them on a
cost-plus basis to a substantial majority of the company's restaurants. Although
Mattingly furnishes most products to these restaurants, the company believes the
products can be supplied by other distributors and has not experienced any
material or continued shortage of products distributed by Mattingly.
FOOD PRODUCTS SEGMENT OVERVIEW
The ongoing economic and industry-wide factors relevant to the food
products segment include: hog costs, governmental initiatives, food safety and
other risks such as the economy, weather and consumer acceptance. For the third
quarter of fiscal 2004, the two factors that had the greatest impact on food
products segment profitability were:
1) higher than expected sales growth; and
2) changes in hog costs.
Food products segment net sales increased 9.4% in the third quarter of fiscal
2004 compared to the same period last year, although management had projected an
increase of approximately 7%. The higher net sales were driven by a combination
of a 6.6% increase in pounds sold of comparable products (principally sausage
and refrigerated potatoes) and less discounting (via promotional spending).
Promotional spending represents sales incentives in the form of "off-invoice"
deductions, cooperative advertising programs and coupons, which are all
classified as a reduction of net sales. The decrease in promotional spending,
which did not significantly lessen sales volume, resulted in a higher net sales
price and better profit margins for the products sold.
Hog costs represent the majority of food products segment cost of sales,
and the volatile nature of hog costs greatly impacts the profitability of the
segment. Compared to the third fiscal quarter a year ago, hog costs increased
27.5% in this year's third fiscal quarter. This increase caused cost of sales in
the food products segment to increase from 41.9% to 45.6% of sales in the
corresponding periods.
The significant sales increase in the food products segment provided
improved leverage of most expenses, and despite the higher hog costs, a higher
profit in the segment. The segment's operating income increased $0.5 million, or
8.6%, in the third quarter of fiscal 2004 compared to last year's corresponding
period.
-11-
SALES
Consolidated net sales increased 7.4% to $291.4 million in the third
quarter of fiscal 2004 compared to the corresponding quarter last year. The
increase was comprised of sales increases in the restaurant segment and food
products segment of $15.1 million and $5.0 million, respectively. Restaurant
sales accounted for 80.0% of consolidated sales in the quarter. For the
nine-month period ended January 23, 2004, consolidated net sales increased $58.3
million, or 7.1%, compared to the previous year.
Restaurant sales increased $15.1 million, or 6.9%, in the third quarter of
fiscal 2004 and $43.8 million, or 6.4%, through nine months of fiscal 2004
compared to the corresponding periods a year ago. The third quarter increase was
the result of more restaurants in operation (547 at quarter end versus 507 a
year ago) and a 0.7% increase in same-store sales. The same-store sales increase
included an average menu price increase of 2.0% in the third quarter. Restaurant
same-store sales computations are based on net sales of stores open two full
fiscal years as of the beginning of the fiscal year and are measured in
comparison to the corresponding period in the prior year. Sales of stores to be
rebuilt are excluded from the computation beginning in the period that
construction commences on the replacement building. Sales of closed stores are
excluded from the computation beginning in the period of closure.
The chart below summarizes the restaurant openings and closings during the
last seven quarters:
Beginning Opened Closed Ending
- --------------------------------------------------------------------
Fiscal 2004
1st quarter 523 3 2 524
2nd quarter 524 11 0 535
3rd quarter 535 12 0 547
Fiscal 2003
1st quarter 495 0 0 495
2nd quarter 495 4 0 499
3rd quarter 499 8 0 507
4th quarter 507 17 1 523
In the third quarter of fiscal 2004, 12 new restaurants were opened
compared to 8 in the third quarter a year ago. The company expects to open
approximately 11 additional restaurants in fiscal 2004. Two under-performing
restaurants were closed in the first quarter of fiscal 2004.
-12-
The food products segment experienced a sales increase of $5.0 million, or
9.4%, in the third quarter of fiscal 2004 and $14.4 million, or 10.1%, through
nine months of fiscal 2004 compared to the corresponding periods a year ago. The
third quarter sales increase was due to a 6.6% increase in the volume of
products sold (principally sausage products and refrigerated potatoes) in the
third quarter of fiscal 2004 versus fiscal 2003. Comparable pounds sold is
calculated using the same products in both periods and excludes new products.
The increase in volume was reflective of the strength in the company's core
sausage products, refrigerated potato products and the reformulated Bob Evans
Express fully cooked sausage links. A $1.1 million decrease in promotional
spending also contributed to the increase in sales.
COST OF SALES
Consolidated cost of sales (cost of materials) was 28.9% of sales in the
company's third quarter and 28.3% through nine months of fiscal 2004 compared to
27.2% and 26.3%, respectively, in the corresponding periods a year ago.
In the third quarter, cost of sales (predominantly food cost) increased
significantly in the restaurant segment from 23.6% of sales last year to 24.7%
of sales this year. Most of this increase was attributable to cost increases in
a number of the commodity food items purchased, such as beef, oils, eggs,
chicken and pork. Additional cost pressures were due to a shift in product mix
as the company featured its Dinner Sensations, which carry an above-average food
cost. Restaurant segment cost of sales was 24.3% of sales year-to-date versus
23.8% a year ago.
The food products segment increase in cost of sales (45.6% of sales in this
year's third quarter versus 41.9% last year) was due to higher hog costs, which
averaged $34.75 per hundredweight for the third quarter of fiscal 2004 compared
to $27.25 per hundredweight in the corresponding period last year - a 27.5%
increase. The company expects a slight increase in hog costs for the remainder
of the fiscal year. The food products segment cost of sales ratio was 46.3% of
sales year-to-date versus 38.2% of sales a year ago. Year-to-date, hog costs
averaged $36.15 per hundredweight this year versus $25.35 per hundredweight last
year - an increase of 42.6%.
-13-
OPERATING WAGE AND FRINGE BENEFIT EXPENSES
Consolidated operating wage and fringe benefit expenses ("operating wages")
were 35.0% of sales in the third quarter and 34.7% of sales through nine months
of fiscal 2004 compared to 34.6% and 34.7% of sales in the corresponding periods
last year. The operating wage ratio increased in the restaurant segment but
decreased in the food products segment.
In the restaurant segment, the increase in operating wages was attributable
to higher hourly and management wage expense. Approximately one-half of the
increase was due to increased training costs associated with new store openings.
The remaining increase was due mostly to the fact that wages were not as well
leveraged due to lower-than-expected same-store sales. Restaurant operating
wages were 39.3% of sales through nine months of fiscal 2004 versus 39.0% of
sales last year.
In the food products segment, the operating wages ratio decreased to 13.0%
of sales in the third quarter of fiscal 2004 compared to 13.3% of sales in the
corresponding period a year ago. The improvement was primarily due to
significantly increased sales, resulting in more leverage of wage expense in the
fiscal 2004 period. Operating wages were 13.5% of sales through nine months of
fiscal 2004 compared to 14.4% of sales last year.
OTHER OPERATING EXPENSES
Over 93% of other operating expenses ("operating expenses") occurred in the
restaurant segment in the third quarter and through nine months of both fiscal
2004 and fiscal 2003. The most significant components of operating expenses were
advertising, utilities, restaurant supplies, repair and maintenance, taxes
(other than federal and state income taxes) and credit card processing fees.
Consolidated operating expenses were 14.7% of sales for the third quarter and
14.8% of sales through nine months of fiscal 2004 compared to 15.1% of sales in
the corresponding periods last year.
In the restaurant segment, operating expenses improved to 17.2% of sales in
the third quarter of fiscal 2004 compared to 17.6% of sales in the corresponding
period a year ago. The improvement was due mostly to lower advertising expense
and credit card processing fees partially offset by higher costs associated with
new store openings. Year-to-date, operating expenses in the restaurant segment
were 16.8% of sales in fiscal 2004 versus 17.0% of sales a year ago.
-14-
In the food products segment, the operating expense ratio improved slightly
from 5.1% of sales in last year's third quarter to 5.0% of sales in the third
quarter of fiscal 2004. The improvement was a result of the significant increase
in sales, resulting in a better leverage of costs. Year-to-date, operating
expenses were 5.3% of sales this year versus 5.7% of sales a year ago.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Consolidated selling, general and administrative expenses ("S, G & A
expenses") were 8.6% of sales in the third quarter and through nine months of
fiscal 2004 compared to 9.4% and 9.1% of sales in the corresponding periods last
year. The most significant components of S, G & A expenses were wages, fringe
benefits and food products segment advertising expenses. The decrease as a
percentage of sales in both periods of fiscal 2004 was due mostly to
significantly increased sales in the food products segment resulting in improved
leverage of S,G&A expenses compared to a year ago. Lower advertising expenses in
the food products segment also contributed to the improvement.
TAXES
The effective combined federal and state income tax rates were 35.7% in
fiscal 2004 versus 35.0% in fiscal 2003. The company anticipates the effective
tax rate for fiscal 2004 to remain at approximately 35.7%.
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 are also used for liquidity needs, capital
expansion and repurchases of Bob Evans stock. Bank lines of credit available
total $70.0 million, of which $32.5 million was outstanding at January 23, 2004.
Capital expenditures consist of purchases of land for future restaurant
sites, new restaurants under construction, purchases of new and replacement
furniture and equipment, and ongoing remodeling programs. Capital expenditures
were $102.2 million through the third quarter of fiscal 2004 compared to $70.4
million for the same period of fiscal 2003. The increase was due primarily to
more stores opened
-15-
and under construction in the current year as compared to fiscal 2003. The
company estimates that its capital expenditures during the fourth quarter of
fiscal 2004 will approximate $23 million.
The company believes that the funds needed for capital expenditures,
working capital and repurchases of Bob Evans stock during the remainder of
fiscal 2004 will be generated both internally and from available bank lines of
credit. Financing alternatives will continue to be evaluated by the company as
warranted.
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 2004 and beyond to differ materially from those expressed in such
forward-looking statements. These important factors include, 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 as well as other risks previously
disclosed in the company's securities filings and press releases.
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ITEM 4. CONROLS AND PROCEDURES
With the participation of the company's management, including Bob Evans'
principal executive officer and principal financial officer, the company has
evaluated the effectiveness of the company's disclosure controls and procedures
(as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the
"Exchange Act")) as of the end of the period covered by this Quarterly Report on
Form 10-Q. Based upon that evaluation, Bob Evans' principal executive officer
and principal financial officer have concluded that such disclosure controls and
procedures are effective as of the end of the period covered by this Quarterly
Report on Form 10-Q to ensure that material information relating to Bob Evans
and its consolidated subsidiaries, is made known to them, particularly during
the period for which Bob Evans' periodic reports, including this Quarterly
Report on Form 10-Q, are being prepared.
In addition, there were no significant changes during the period covered by
this Quarterly Report on Form 10-Q in the company's internal control over
financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that
have materially affected, or are reasonably likely to materially affect, the
company's internal control over financial reporting.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
There are no pending legal proceedings involving the company other than
routine litigation incidental to its business. In the opinion of the
company's management, these proceedings should not, individually or in
the aggregate, have a material adverse effect on the company's results
of operations or financial condition.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS. Not Applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES. Not Applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. Not Applicable
ITEM 5. OTHER INFORMATION. Not Applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
Exhibit
No. Description Location
------- ----------- --------
31.1 Rule 13a-14(a)/15d-14(a) Certification Filed herewith
(Principal Executive Officer)
31.2 Rule 13a-14(a)/15d-14(a) Certification Filed herewith
(Principal Financial Officer)
32.1 Section 1350 Certification (Principal Filed herewith
Executive Officer)
32.2 Section 1350 Certification (Principal Filed herewith
Financial Officer)
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(b) Reports on Form 8-K:
Bob Evans filed a Current Report on Form 8-K on November 5, 2003
reporting under Item 9. Regulation FD Disclosure the issuance of a
news release announcing a quarterly dividend for the second quarter
of fiscal 2004 and same-store sales for the month of October 2003.
Bob Evans filed a Current Report on Form 8-K on November 10, 2003
reporting under Item 12. Results of Operations and Financial
Condition the issuance of a news release announcing financial
results for the second quarter of fiscal 2004.
Bob Evans filed a Current Report on Form 8-K on December 3, 2003
reporting under Item 9. Regulation FD Disclosure the issuance of a
news release announcing same-store sales for the month of November
2003.
Bob Evans filed a Current Report on Form 8-K on January 7, 2004
reporting under Item 9. Regulation FD Disclosure the issuance of a
news release announcing same-store sales for the month of December
2003 and under Item 12. Results of Operations and Financial
Condition the issuance of a news release announcing earnings
expectations for the third quarter of fiscal 2004.
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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.
By: /s/ Stewart K. Owens
------------------------------------
Stewart K. Owens
Chairman and Chief Executive Officer
(Principal Executive Officer)
By: /s/ Donald J. Radkoski
------------------------------------
Donald J. Radkoski*
Chief Financial Officer
(Principal Financial Officer)
March 8, 2004
- -----------------------
Date
*Donald J. Radkoski has been duly authorized to sign on behalf of the Registrant
as its principal financial officer.
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INDEX TO EXHIBITS
Quarterly Report on Form 10-Q
Dated March 8, 2004
Bob Evans Farms, Inc.
Exhibit No. Description Location
- ----------- ----------- --------
31.1 Rule 13a-14(a)/15d-14(a) Certification Filed herewith
(Principal Executive Officer)
31.2 Rule 13a-14(a)/15d-14(a) Certification Filed herewith
(Principal Financial Officer)
32.1 Section 1350 Certification (Principal Filed herewith
Executive Officer)
32.2 Section 1350 Certification (Principal Filed herewith
Financial Officer)
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