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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 30, 2004
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from
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Commission file number 0-1667
Bob Evans Farms, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 31-4421866
- ---------------------------------------------- ---------------------
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
3776 South High Street Columbus, Ohio 43207
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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 August 27, 2004, the registrant had issued 42,638,118 common shares,
of which 35,299,483 were outstanding.
-1-
BOB EVANS FARMS, INC.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
July 30, 2004 April 30, 2004
Unaudited Audited
------------- --------------
ASSETS
Current assets
Cash and equivalents $ 18,173 $ 3,986
Accounts receivable 13,039 13,413
Inventories 23,006 19,540
Deferred income taxes 8,869 8,869
Prepaid expenses 4,342 1,664
---------- ----------
TOTAL CURRENT ASSETS 67,429 47,472
Property, plant and equipment 1,268,789 1,152,461
Less accumulated depreciation 380,671 369,064
---------- ----------
NET PROPERTY, PLANT AND EQUIPMENT 888,118 783,397
Other assets
Deposits and other 3,546 3,075
Long-term investments 18,261 17,791
Deferred income taxes 14,931 14,931
Goodwill 105,265 1,567
---------- ----------
TOTAL OTHER ASSETS 142,003 37,364
---------- ----------
$1,097,550 $ 868,233
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Line of credit $ 32,260 $ 34,620
Current maturities of long-term debt 4,000 4,000
Accounts payable 20,579 12,390
Dividends payable 4,235 4,229
Federal and state income taxes 18,357 11,375
Accrued wages and related liabilities 17,121 20,887
Self insurance 21,421 17,441
Other accrued expenses 54,764 40,905
---------- ----------
TOTAL CURRENT LIABILITIES 172,737 145,847
Long-term liabilities
Deferred compensation 14,253 13,519
Deferred income taxes 56,361 54,371
Long-term debt 213,333 24,333
---------- ----------
TOTAL LONG-TERM LIABILITIES 283,947 92,223
Stockholders' equity
Common stock, $.01 par value; authorized 100,000,000
shares; issued 42,638,118 shares at July 30, 2004,
and April 30, 2004 426 426
Preferred stock, authorized 1,200 shares; issued 120
shares at July 30, 2004, and April 30, 2004 60 60
Capital in excess of par value 149,717 149,967
Retained earnings 623,370 613,371
Treasury stock, 7,348,334 shares at July 30, 2004
and 7,397,219 shares at April 30, 2004, at cost (132,707) (133,661)
---------- ----------
TOTAL STOCKHOLDERS' EQUITY 640,866 630,163
---------- ----------
$1,097,550 $ 868,233
========== ==========
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
------------------
July 30, 2004 July 25, 2003
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NET SALES $ 320,615 $ 295,472
Cost of sales 94,564 82,135
Operating wage and fringe benefit expenses 112,878 102,429
Other operating expenses 49,281 43,502
Selling, general and administrative expenses 26,864 25,031
Depreciation and amortization expense 13,944 11,947
--------- ----------
OPERATING INCOME 23,084 30,428
Net interest expense 876 496
--------- ----------
INCOME BEFORE INCOME TAXES 22,208 29,932
PROVISIONS FOR INCOME TAXES 7,972 10,686
--------- ----------
NET INCOME $ 14,236 $ 19,246
========== ==========
EARNINGS PER SHARE - BASIC $ 0.40 $ 0.56
========== ==========
EARNINGS PER SHARE - DILUTED $ 0.40 $ 0.55
========== ==========
EARNINGS PER SHARE - BASIC
CASH DIVIDENDS PER SHARE $ 0.12 $ 0.12
========== ==========
The accompanying notes are an integral part of the financial statements
-3-
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
(Dollars in thousands)
Three Months Ended
July 30, 2004 July 25, 2003
------------- -------------
OPERATING ACTIVITIES:
Net income $ 14,236 $ 19,246
Adjustments to reconcile net income to net
cash provided by (used for) operating activities:
Depreciation and amortization 13,944 11,947
(Gain) loss on sale of assets 298 58
(Gain) loss on long-term investments 40 150
Deferred compensation (464) 983
Compensation expense attributable to stock plans 290 333
Cash provided by (used for) current assets
and current liabilities:
Accounts receivable 1,677 (1,235)
Inventories (79) 88
Prepaid expenses (1,629) (1,156)
Accounts payable 123 (266)
Federal and state income taxes 7,695 7,137
Accrued wages and related liabilities (7,099) (5,156)
Self insurance 1,293 1,434
Other accrued expenses 4,444 567
---------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 34,769 34,130
INVESTING ACTIVITIES:
Purchase of property, plant and equipment (26,082) (36,394)
Acquisition of business (178,893) -
Purchase of long-term investments (619) (1,243)
Proceeds from sale of property, plant and equipment 2,014 288
Other (115) (1,028)
---------- ----------
NET CASH USED IN INVESTING ACTIVITIES (203,695) (38,377)
FINANCING ACTIVITIES:
Cash dividends paid (4,231) (3,795)
Line of credit (2,360) 11,695
Proceeds from debt issuance 372,775 -
Principal payments on debt (183,775) (1,000)
Proceeds from issuance of treasury stock 704 1,622
---------- ----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 183,113 8,522
---------- ----------
Increase in cash and equivalents 14,187 4,275
Cash and equivalents at the beginning of the period 3,986 9,066
---------- ----------
Cash and equivalents at the end of the period $ 18,173 $ 13,341
========== ==========
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 30, 2004 (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
July 30, 2004 July 25, 2003
------------- -------------
Basic 35,260 34,572
Effect of dilutive
stock options 411 613
------ ------
Diluted 35,671 35,185
====== ======
-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
July 30, 2004 July 25, 2003
------------- -------------
NET INCOME, AS REPORTED $ 14,236 $ 19,246
ADD: stock-based employee compensation
cost, net of related tax effects,
included in reported net
income - -
DEDUCT: Stock-based employee compensation
cost, net of related tax effects,
determined under the fair value method
for all awards (1,877) (933)
---------- ----------
NET INCOME, PRO FORMA $ 12,359 $ 18,313
---------- ----------
EARNINGS PER SHARE - BASIC
As reported $ 0.40 $ 0.56
Pro forma $ 0.35 $ 0.53
EARNINGS PER SHARE - DILUTED
As reported $ 0.40 $ 0.55
Pro forma $ 0.35 $ 0.52
-6-
4. Goodwill
Goodwill, which represents the cost in excess of net assets
acquired, was $105,265,000 and $1,567,000 at July 30, 2004 and April 30,
2004, respectively. The increase in goodwill is due to the acquisition of
SWH Corporation (d/b/a Mimi's Cafe) (see note 6 below). 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.
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
-----------------------------
July 30, 2004 July 25, 2003
------------- -------------
Sales
Restaurant Operations $ 269,615 $ 247,548
Food Products 60,159 55,771
---------- ----------
329,774 303,319
Intersegment sales of food products (9,159) (7,847)
---------- ----------
Total $ 320,615 $ 295,472
========== ==========
Operating Income
Restaurant Operations $ 23,917 $ 27,777
Food Products (833) 2,651
---------- ----------
Total $ 23,084 $ 30,428
========== ==========
6. Acquisition and Debt Issuance
On July 7, 2004, the company acquired all of the stock of SWH
Corporation (d/b/a Mimi's Cafe) for approximately $103 million in cash,
plus the assumption of approximately $79 million in outstanding
indebtedness.
SWH Corporation, based in Tustin, California, operates 81
company-owned Mimi's Cafe restaurants in 10 states, with most locations in
California and other western states. The restaurants are open for
breakfast, lunch and dinner, and offer a wide variety of freshly prepared
food in an atmosphere reminiscent of a New Orleans cafe or European
bistro.
The transaction was accounted for using the purchase method of
accounting as required by SFAS No. 141, Business Combinations, and
accordingly, the results of operations of SWH
-7-
Corporation have been included in the company's consolidated financial
statements from the date of acquisition.
The primary reason for the acquisition was to add a complementary
growth vehicle in the casual segment of the restaurant industry. The
company attributes the goodwill associated with the transaction to the
long-term historical financial performance and the anticipated future
performance of SWH Corporation.
The company is in the process of obtaining third-party valuations of
certain intangible assets of SWH Corporation; thus, the purchase price
allocation required by SFAS No. 141 has not yet been finalized.
The acquisition was financed through a committed credit facility of
approximately $183 million; the proceeds of which were used to purchase
all of the outstanding stock of SWH Corporation, repay existing
indebtedness of SWH Corporation and pay certain transaction expenses. The
credit facility was refinanced on July 28, 2004 through a private
placement of $190 million in unsecured senior notes. Maturities range from
3 to 12 years, with a weighted average interest rate of 4.9%.
-8-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
GENERAL OVERVIEW
As of July 30, 2004, the company owned and operated 648 full-service
restaurants in 32 states, including 567 Bob Evans Restaurants (all references to
Bob Evans Restaurants include Owens Restaurants) and 81 Mimi's Cafe restaurants.
The company acquired SWH Corporation (d/b/a Mimi's Cafe) ("Mimi's") in the first
quarter of fiscal 2005 (see note 6 to the consolidated financial statements).
Revenue in the restaurant segment is recognized at the point of sale. The
company also produces and distributes fresh and fully cooked pork products and
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 first fiscal quarter
ended July 30, 2004, compared to the prior year's first fiscal quarter ended
July 25, 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 consolidated
and restaurant segment information contains financial results for Mimi's after
July 7, 2004 only. The ratios presented reflect the underlying dollar values
expressed as a percentage of the applicable net sales amount.
CONSOLIDATED RESTAURANT FOOD PRODUCTS
RESULTS SEGMENT SEGMENT
------- ------- -------
Q1 Q1 Q1 Q1 Q1 Q1
(IN THOUSANDS) 2005 2004 2005 2004 2005 2004
- ---------------- -------- -------- -------- -------- -------- --------
Net sales $320,615 $295,472 $269,615 $247,548 $ 51,000 $ 47,924
Operating income $ 23,084 $ 30,428 $ 23,917 $ 27,777 $ (833) $ 2,651
Cost of sales 29.5% 27.8% 24.4% 24.1% 56.5% 47.0%
Operating wages 35.2% 34.7% 39.2% 38.6% 13.9% 14.3%
Other operating 15.4% 14.7% 17.2% 16.5% 5.8% 5.5%
S.G.&A. 8.4% 8.5% 5.9% 5.5% 21.5% 23.9%
Depr. & amort. 4.3% 4.0% 4.4% 4.1% 3.9% 3.8%
-------- -------- -------- -------- -------- --------
Operating income 7.2% 10.3% 8.9% 11.2% (1.6)% 5.5%
-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 first
quarter of fiscal 2005, the three factors that had the greatest impact on
restaurant segment profitability were:
1) lower same-store sales at Bob Evans Restaurants;
2) higher commodity prices for the food items purchased; and
3) increased costs associated with opening new restaurants.
The restaurant information contains financial results for Mimi's after
July 7, 2004, or approximately three weeks of operating results in the quarter.
First quarter same-store sales at Bob Evans Restaurants decreased 3.1% compared
to the corresponding period last year. Management believes that higher gasoline
prices and a lagging economic recovery in the Midwest negatively impacted
same-store sales.
Higher commodity prices put negative pressure on restaurant cost of sales
in the first quarter of fiscal 2005. If restaurant cost of sales matched the
rate in the corresponding quarter last year (24.1% last year vs. 24.4% this
year), and all other factors remained constant, restaurant operating income
would have been approximately $800,000 higher.
A shift in the timing of new restaurant openings resulted in a $900,000
increase in pre-opening expenses in the first 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 $3.9 million, or 13.9%, in the first quarter this year compared to a
year ago. Furthermore, the segment's operating income margin fell to 8.9% from
11.2% during the same periods.
-10-
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 first
quarter of fiscal 2005, the one factor that had the greatest impact on food
products segment profitability was the dramatic increase in hog costs.
Food products segment net sales increased 6.4% in the first quarter of
fiscal 2005 compared to the same period last year. The higher net sales were
driven by a combination of a 1.2% 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 resulted in a slightly 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. For the first quarter, hog costs increased 45.5% compared with the
quarter a year ago. This increase caused cost of sales in the food products
segment to increase from 47.0% to 56.5% of sales in the corresponding periods.
The significant increase in cost of sales resulted in an operating loss of
$833,000 compared to a profit of $2.7 million in the corresponding period last
year.
-11-
SALES
Consolidated net sales increased 8.5% to $320.6 million in the first
quarter of fiscal 2005 compared to the corresponding quarter last year. The
increase was comprised of sales increases in the restaurant segment and food
products segment of $22.1 million and $3.1 million, respectively. Restaurant
sales (including Mimi's sales for the period after July 7, 2004 only) accounted
for 84.1% of consolidated sales in the first quarter.
Restaurant sales increased $22.1 million, or 8.9%, in the first quarter of
fiscal 2005 compared to the corresponding period a year ago. The first quarter
increase was the result of more restaurants in operation (567 Bob Evans
Restaurants and 81 Mimi's Cafe restaurants at quarter end versus 524 Bob Evans
Restaurants a year ago), offset by a decrease in same-store sales. Bob Evans
Restaurants experienced a same-store sales decline of 3.1% in the quarter, which
included an average menu price increase of 2.4%. Bob Evans 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. Mimi's sales were included
for the period subsequent to July 7, 2004 only.
The chart below summarizes the restaurant openings and closings during the
last five quarters for Bob Evans restaurants and one quarter for Mimi's
restaurants:
Bob Evans Restaurants:
Beginning Opened Closed Ending
--------- ------ ------ ------
Fiscal 2005
1st quarter 558 11 2 567
Fiscal 2004
1st quarter 523 3 2 524
2nd quarter 524 11 0 535
3rd quarter 535 12 0 547
4th quarter 547 11 0 558
-12-
Mimi's Restaurants:
Beginning Opened Closed Ending
--------- ------ ------ ------
Fiscal 2005
1st quarter 81 0 0 81
Consolidated Restaurants:
Beginning Opened Closed Ending
--------- ------ ------ ------
Fiscal 2005
1st quarter 639 11 2 648
In the first quarter of fiscal 2005, 11 new Bob Evans Restaurants opened,
compared to 3 in the corresponding period a year ago. Mimi's did not open any
restaurants in the first quarter of 2005. The company expects to open an
additional 29 Bob Evans Restaurants and 12 Mimi's Cafe restaurants,
respectively, in fiscal 2005. Two under-performing Bob Evans Restaurants were
closed in the first quarter of fiscal 2005.
The food products segment experienced a sales increase of $3.1 million, or
6.4%, in the first quarter of fiscal 2005 compared to the corresponding period a
year ago. The first quarter sales increase was due to a 1.2% increase in the
volume of comparable products sold (principally sausage products and
refrigerated potatoes) in the first quarter of fiscal 2005 versus fiscal 2004.
Comparable pounds sold is calculated using the same products in both periods and
excludes new products. A $2.6 million decrease in promotional spending, which is
classified as a reduction of net sales, also contributed to the increase in
sales.
COST OF SALES
Consolidated cost of sales (cost of materials) was 29.5% of sales in the
company's first quarter of fiscal 2005 compared to 27.8%, in the corresponding
period a year ago.
-13-
In the first quarter, cost of sales (predominantly food cost) increased in
the restaurant segment to 24.4% of sales this year from 24.1% of sales last
year. A majority of the increase was attributable to higher commodity prices.
The food products segment increase in cost of sales (56.5% of sales in
this year's first quarter versus 47.0% last year) was due to higher hog costs,
which averaged $52.31 per hundredweight for the first quarter of fiscal 2005
compared to $35.94 per hundredweight in the corresponding period last year - a
45.5% increase. The company expects that hog costs may moderate later in the
fiscal year.
OPERATING WAGE AND FRINGE BENEFIT EXPENSES
Consolidated operating wage and fringe benefit expenses ("operating
wages") were 35.2% of sales in the first quarter of fiscal 2005 compared to
34.7% of sales in the corresponding period last year. The operating wage ratio
increased in the restaurant segment and decreased in the food products segment.
In the restaurant segment, the increase in operating wages was
attributable to higher management wage expense and health insurance costs. A
portion of the increase was due to increased training costs associated with more
new store openings than in the corresponding period last year. The remaining
increase was due mostly to the fact that wages were not as well leveraged due to
lower-than-expected same-store sales.
In the food products segment, the operating wages ratio decreased to 13.9%
of sales in the first quarter of fiscal 2005 compared to 14.3% of sales in the
corresponding period a year ago. The decrease was due to better leverage of
costs as a result of the decreased promotional spending discussed in the "Sales"
section above.
OTHER OPERATING EXPENSES
Over 93% of other operating expenses ("operating expenses") occurred in
the restaurant segment in the first quarter of both fiscal 2005 and fiscal 2004.
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 15.4% of sales for the first quarter of fiscal 2005
compared to 14.7% of sales in the corresponding period last year.
In the restaurant segment, operating expenses increased to 17.2% of sales
in the first quarter of fiscal 2005 compared to 16.5% of sales in the
corresponding period a year ago. The increase was due mostly to
-14-
higher costs for repair and maintenance, utilities, advertising, and other costs
associated with new store openings.
In the food products segment, the operating expense ratio increased
slightly to 5.8% of sales in the first quarter of fiscal 2005 from 5.5% of sales
in the corresponding period last year primarily due to freight costs and repair
and maintenance.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Consolidated selling, general and administrative expenses ("S, G & A
expenses") were 8.4% of sales in the first quarter of fiscal 2005 compared to
8.5% of sales in the corresponding period last year. The most significant
components of S, G & A expenses were wages, fringe benefits and food products
segment advertising expenses.
TAXES
The effective combined federal and state income tax rates were 35.9% in
fiscal 2005 versus 35.7% in fiscal 2004. The company anticipates the effective
tax rate for fiscal 2005 to remain at approximately 35.9%.
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 $32.3 million was outstanding at
July 30, 2004.
The acquisition of SWH Corporation was financed through a committed credit
facility of approximately $183 million; the proceeds of which were used to
purchase all of the outstanding stock of SWH Corporation, repay existing
indebtedness of SWH Corporation and pay certain transaction expenses. The credit
facility was refinanced on July 28, 2004 through a private placement of $190
million in unsecured senior notes. Maturities range from 3 to 12 years, with a
weighted average interest rate of 4.9%.
-15-
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 $26.1 million in the first quarter of fiscal 2005 compared to $36.4 million
in the corresponding period last year. The decrease was due primarily to more
land purchases for future restaurant sites in the first quarter of fiscal 2004
compared to fiscal 2005. In addition, many of the capital expenditures for the
restaurants opened in the first quarter of fiscal 2005 occurred in the fourth
quarter of fiscal 2004. The company estimates that its capital expenditures for
the remainder of fiscal 2005 will approximate $132 million.
The company believes that the funds needed for capital expenditures and
working capital during the remainder of fiscal 2005 will be generated both
internally and from available bank lines of credit. However, the company is
currently considering increasing its available bank lines of credit. Financing
alternatives will continue to be evaluated by the company as warranted. Payments
of the company's contractual obligations under outstanding indebtedness as of
July 30, 2004 are as follows:
PAYMENTS DUE BY PERIOD (IN THOUSANDS)
LESS
CONTRACTUAL THAN 1 2-3 4-5 AFTER 5
OBLIGATIONS TOTAL YEAR YEARS YEARS YEARS
- ------------------------------------------------------------------------
Operating leases $233,826 $ 8,387 $33,208 $31,068 $161,163
Long-term debt $218,333 $ 4,000 $38,000 $70,141 $106,192
Purchase Obligations $ 49,694 $49,694 $ - $ - $ -
Other $ 2,500 $ 2,500 $ - $ - $ -
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM
ACT OF 1995
Certain statements contained in this Quarterly Report on Form 10-Q 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 SEC, in
press releases and in oral and written statements made by or with the approval
of the company which are not statements of historical 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
-16-
statements. Words such as "plan," "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
- Accurately assessing the value, future growth potential, strengths,
weaknesses, contingent and other liabilities and potential
profitability of Mimi's Cafe
- Unanticipated changes in business and economic conditions affecting
Mimi's Cafe
- 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.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Bob Evans Farms, Inc. does not use derivative financial instruments for
speculative purposes. Bob Evans Farms, Inc. maintains its cash and cash
equivalents in financial instruments with maturities of three months or less
when purchased.
ITEM 4. CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
With the participation of the company's management, including Bob Evans'
principal executive officer and principal financial officer, the company's
management 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:
- information required to be disclosed by Bob Evans in this Quarterly
Report on Form 10-Q would be accumulated and communicated to Bob
Evans' management, including its principal executive officer and
principal financial officer, as appropriate to allow timely
decisions regarding required disclosure;
- information required to be disclosed by Bob Evans in this Quarterly
Report on Form 10-Q would be recorded, processed, summarized and
reported within the time periods specified in the SEC's rules and
forms; and
- Bob Evans' 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 in which the periodic reports of Bob Evans, including
this Quarterly Report on Form 10-Q, are being prepared.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
There were no changes in the company's internal control over financial
reporting (as defined in Rule 13a-15(f) under the Exchange Act) during the
period covered by this Quarterly Report on Form 10-Q 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. UNREGISTERED SALES OF EQUITY 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
- ---------- ----------- --------
4(a) Note Purchase Agreement, dated as of July Incorporated herein by
28, 2004, by and among Bob Evans Farms, reference to Exhibit 4(a) to
Inc., BEF Holding Co., Inc. and the Bob Evans' Current Report on
purchasers of the notes set forth on the Form 8-K dated July 29, 2004.
signature pages thereto (File No. 0-1667)
4(b) Subsidiary Guaranty, dated as of July Incorporated herein by 2004, by
28, Mimi's Cafe, LLC reference to Exhibit 4(b) to
Bob Evans' Current Report on
Form 8-K dated July 29, 2004.
(File No. 0-1667)
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 May 3, 2004
reporting under Item 5. Other Events and Regulation FD Disclosure
the issuance of a news release announcing the resignation of Larry
C. Corbin as Executive Vice President-Restaurant Operations of Bob
Evans and the promotion of Randall J. Hicks to that position
effective July 1, 2004.
Bob Evans filed a Current Report on Form 8-K on May 13, 2004
reporting under Item 9. Regulation FD Disclosure the issuance of a
news release on May 11, 2004 announcing same-store sales for the
month of April 2004 and a quarterly dividend for the fourth fiscal
quarter ended April 30, 2004 and reporting under Item 12. Results of
Operations and Financial Condition the issuance of a news release on
May 11, 2004 announcing updated earnings guidance for fiscal 2004.
Bob Evans filed a Current Report on Form 8-K on May 26, 2004
reporting under Item 12. Results of Operations and Financial
Condition the issuance of a news release on May 25, 2004 announcing
updated earnings guidance for fiscal 2005.
Bob Evans filed a Current Report on Form 8-K on June 7, 2004
reporting under Item 9. Regulation FD Disclosure the issuance of a
news release announcing same-store sales for the month of May 2004
and reporting under Item 12. Results of Operations and Financial
Condition the issuance of a news release announcing financial
results for the fourth quarter and fiscal year ended April 30, 2004.
Bob Evans filed a Current Report on Form 8-K on June 14, 2004
reporting under Item 9. Regulation FD Disclosure the issuance of a
news release announcing the execution of a definitive agreement to
acquire SWH Corporation (d/b/a Mimi's Cafe).
Bob Evans filed a Current Report on Form 8-K on July 8, 2004
reporting under Item 9. Regulation FD Disclosure the issuance of a
news release on July 7, 2004 announcing the closing of the
acquisition of SWH Corporation (d/b/a Mimi's Cafe).
Bob Evans filed a Current Report on Form 8-K on July 8, 2004
reporting under Item 9. Regulation FD Disclosure the issuance of a
news release on July 6, 2004 announcing same-store sales for the
month of June 2004.
Bob Evans filed a Current Report on Form 8-K on July 12, 2004
reporting under Item 2. Acquisition or Disposition of Assets the
acquisition of SWH Corporation (d/b/a Mimi's Cafe) in a
privately-negotiated transaction and the terms of the financing of
the acquisition.
Bob Evans filed a Current Report on Form 8-K on July 29, 2004
reporting under Item 5. Other Events and Regulation FD Disclosure
the completion of a private placement of $190 million in unsecured
senior notes by BEF Holding Co., Inc. on July 28, 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)
September 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 September 8, 2004
Bob Evans Farms, Inc.
Exhibit No. Description Location
- ----------- ----------- --------
4(a) Note Purchase Agreement, dated as of July 28, 2004, Incorporated herein by
by and among Bob Evans Farms, Inc., BEF Holding Co., reference to Exhibit 4(a) to
Inc. and the purchasers of the notes Bob Evans' Current Report on
set forth on the signature pages thereto Form 8-K dated July 29, 2004.
(File No. 0-1667)
4(b) Subsidiary Guaranty, dated as of July 28, 2004, by Incorporated herein by
Mimi's Cafe, LLC reference to Exhibit 4(b) to
Bob Evans' Current Report on
Form 8-K dated July 29, 2004.
(File No. 0-1667)
31.1 Rule 13a-14(a)/15d-14(a) Certification (Principal Filed herewith
Executive Officer)
31.2 Rule 13a-14(a)/15d-14(a) Certification (Principal Filed herewith
Financial Officer)
32.1 Section 1350 Certification (Principal Executive Filed herewith
Officer)
32.2 Section 1350 Certification (Principal Financial Filed herewith
Officer)
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