-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EPO6bE5ZUWWBs2MGWsWgX+hr0bF1Fk0Gx5Jjsy+mWpaHxG1AxqiVQzzDYxpU2xtD a2uXbcs/fd3xG8WhMNebWg== 0000950152-04-001663.txt : 20040308 0000950152-04-001663.hdr.sgml : 20040308 20040308104403 ACCESSION NUMBER: 0000950152-04-001663 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20040123 FILED AS OF DATE: 20040308 FILER: COMPANY DATA: COMPANY CONFORMED NAME: EVANS BOB FARMS INC CENTRAL INDEX KEY: 0000033769 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-EATING PLACES [5812] IRS NUMBER: 314421866 STATE OF INCORPORATION: DE FISCAL YEAR END: 0425 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-01667 FILM NUMBER: 04653754 BUSINESS ADDRESS: STREET 1: 3776 S HIGH ST CITY: COLUMBUS STATE: OH ZIP: 43207 BUSINESS PHONE: 6144421866 MAIL ADDRESS: STREET 1: 3776 S HIGH STREET CITY: COLUMBUS STATE: OH ZIP: 43207 FORMER COMPANY: FORMER CONFORMED NAME: TAM O SHANTER LTD INC DATE OF NAME CHANGE: 19750908 FORMER COMPANY: FORMER CONFORMED NAME: EVANS BOB FARMS SALES INC DATE OF NAME CHANGE: 19750423 10-Q 1 l06201ae10vq.txt BOB EVANS FARMS, INC. 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 -------------------------------------------- OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ----------------------------------------------- Commission file number 0-1667 ----------------------------------------------- Bob Evans Farms, Inc. ------------------------------------------------------ (Exact name of registrant as specified in its charter) Delaware 31-4421866 - ------------------------------- ------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 3776 South High Street Columbus, Ohio 43207 ------------------------------------------- (Address of principal executive offices) (Zip Code) (614) 491-2225 ---------------------------------------------------- (Registrant's telephone number, including area code) - ------------------------------------------------------------------------------- (Former name, former address and formal fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- 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 ----------- ----------- $ 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 ----------- ----------- 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 --------- --------- 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. -16- 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. -17- 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) -18- (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. -19- 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. -20- 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) -21- EX-31.1 3 l06201aexv31w1.txt EXHIBIT 31.1 RULE 13A-14(A)/15D-14(A) CERTIFICATION EXHIBIT 31.1 I, Stewart K. Owens, certify that: 1. I have reviewed this Quarterly Report on Form 10-Q of Bob Evans Farms, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) Designed such disclosure controls and procedures or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors: a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: March 8, 2004 /s/ Stewart K. Owens ------------------------------------ Stewart K. Owens Chairman and Chief Executive Officer (Principal Executive Officer) -22- EX-31.2 4 l06201aexv31w2.txt EXHIBIT 31.2 RULE 13A-14(A)/15D-14(A) CERTIFICATION EXHIBIT 31.2 I, Donald J. Radkoski, certify that: 1. I have reviewed this Quarterly Report on Form 10-Q of Bob Evans Farms, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a. Designed such disclosure controls and procedures or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors: a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: March 8, 2004 /s/ Donald J. Radkoski ------------------------------ Donald J. Radkoski Chief Financial Officer (Principal Financial Officer) -23- EX-32.1 5 l06201aexv32w1.txt EXHIBIT 32.1 EXHIBIT 32.1 SECTION 1350 CERTIFICATION* In connection with the Quarterly Report of Bob Evans Farms, Inc. (the "Company") on Form 10-Q for the quarterly period ended January 23, 2004, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Stewart K. Owens, Chairman and Chief Executive Officer of the Company, certify, pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge: (1) The Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: March 8, 2004 /s/ Stewart K. Owens ------------------------------------ Stewart K. Owens Chairman and Chief Executive Officer (Principal Executive Officer) *This certification is being furnished as required by Rule 13a-14(b) under the Securities Exchange Act of 1934 (the "Exchange Act") and Section 1350 of Chapter 63 of Title 18 of the United States Code, and shall not be deemed "filed" for purposes of Section 18 of the Exchange Act or otherwise subject to the liability of that Section. This certification shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Exchange Act, except as otherwise stated in such filing. -24- EX-32.2 6 l06201aexv32w2.txt EXHIBIT 32.2 EXHIBIT 32.2 SECTION 1350 CERTIFICATION* In connection with the Quarterly Report of Bob Evans Farms, Inc. (the "Company") on Form 10-Q for the quarterly period ended January 23, 2004, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Donald J. Radkoski, Chief Financial Officer of the Company, certify, pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge: (3) The Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and (4) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: March 8, 2004 /s/ Donald J. Radkoski ----------------------------- Donald J. Radkoski Chief Financial Officer (Principal Financial Officer) *This certification is being furnished as required by Rule 13a-14(b) under the Securities Exchange Act of 1934 (the "Exchange Act") and Section 1350 of Chapter 63 of Title 18 of the United States Code, and shall not be deemed "filed" for purposes of Section 18 of the Exchange Act or otherwise subject to the liability of that Section. This certification shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Exchange Act, except as otherwise stated in such filing. -25- -----END PRIVACY-ENHANCED MESSAGE-----