Consolidated Financial Review
Bob Evans Farms, Inc. and Subsidiaries
Comparative Highlights for Ten Years
Income
Income Per Share Cash
Before Before Dividends
Long-Term Income Before Income Extraordinary Extraordinary Per
Year Total Assets Debt Net Sales Income Taxes Taxes Gain Gain Share
================================================================================================================================
1996* $535,813,000 $1,927,000 $806,627,000 $46,745,000 $17,529,000 $29,216,000 $ .69 $.32
1995 488,101,000 2,250,000 766,968,000 86,869,000 33,359,000 53,510,000 1.27 .29
1994 413,875,000 - 699,038,000 76,514,000 28,332,000 48,182,000 1.15 .27
1993 363,075,000 - 653,176,000 68,540,000 25,478,000 43,062,000 1.03 .25
1992 325,538,000 1,200,000 556,304,000 62,409,000 23,080,000 39,329,000 .94 .21
1991 287,254,000 1,600,000 501,305,000 53,882,000 20,247,000 33,635,000 .81 .20
1990 260,643,000 2,000,000 454,339,000 44,046,000 16,301,000 27,745,000 .65 .19
1989 244,198,000 2,400,000 419,529,000 48,754,000 18,091,000 30,663,000 .71 .17
1988 219,448,000 2,800,000 395,061,000 48,343,000 19,014,000 29,329,000 .68 .17
1987 193,098,000 3,200,000 327,160,000 41,226,000 19,756,000 21,470,000 .52 .15
* Includes pre-tax loss of $22,000,000 on the write-down of assets, which
reduced the income tax provision by $8,209,000 and decreased net income
by $13,791,000, or $0.33 per share. (See Note G)
Stock Price Ranges and Dividends
The common stock of the company is traded on the NASDAQ National Market
System and is identified by the symbol BOBE. The approximate number of record
holders of the company's common stock at May 24, 1996, was 37,239. The high
and low closing bid quotations for the company's common stock, as reported on
NASDAQ, and cash dividends declared thereon for each fiscal quarter (13 weeks)
of the company's past two fiscal years have been as follows:
Cash
Dividends
Fiscal Year High Low Per Share
========================================================================
1996
1st Quarter ............ $21 1/8 ........... $19 1/4 ......... $.0800
2nd Quarter ............ 19 1/2 ........... 16 7/8 ......... .0800
3rd Quarter ............ 19 1/4 ........... 15 15/16 ....... .0800
4th Quarter ............ 17 1/8 ........... 15 1/4 ......... .0800
1995
1st Quarter ............ $22 ............... $20 3/8 ......... $.0725
2nd Quarter ............ 21 5/8 ........... 19 5/8 ......... .0725
3rd Quarter ............ 22 3/16 .......... 19 1/2 ......... .0725
4th Quarter ............ 21 1/2 .......... 19 7/8 ......... .0725
-26-
Comparative Highlights by Segment
Bob Evans Farms, Inc. and Subsidiaries
Restaurant Segment
Income
Income Per Share
Before Before
Income Before Income Extraordinary Extraordinary
Year Net Sales Income Taxes Taxes Gain Gain
================================================================================
1996* $590,063,000 $29,504,000 $10,739,000 $18,765,000 $.44
1995 550,209,000 60,234,000 22,789,000 37,445,000 .89
1994 495,129,000 56,973,000 20,975,000 35,998,000 .86
1993 457,396,000 51,254,000 19,057,000 32,197,000 .77
1992 397,583,000 44,258,000 16,426,000 27,832,000 .67
1991 358,248,000 40,277,000 15,205,000 25,072,000 .60
1990 322,266,000 34,288,000 12,579,000 21,709,000 .51
1989 293,531,000 31,599,000 11,451,000 20,148,000 .47
1988 259,226,000 30,750,000 11,957,000 18,793,000 .43
1987 221,315,000 28,105,000 13,476,000 14,629,000 .35
* Includes pre-tax loss of $21,370,000 on the write-down of assets, which
reduced the income tax provision by $7,969,000 and decreased net income
by $13,401,000, or $0.32 per share. (See Note G)
Food Products Segment
Income
Income Per Share
Before Before
Income Before Income Extraordinary Extraordinary
Year Net Sales Income Taxes Taxes Gain Gain
================================================================================
1996* $216,564,000 $17,241,000 $ 6,790,000 $10,451,000 $.25
1995 216,759,000 26,635,000 10,570,000 16,065,000 .38
1994 203,909,000 19,541,000 7,357,000 12,184,000 .29
1993 195,780,000 17,286,000 6,421,000 10,865,000 .26
1992 158,721,000 18,151,000 6,654,000 11,497,000 .27
1991 143,057,000 13,605,000 5,042,000 8,563,000 .21
1990 132,073,000 9,758,000 3,722,000 6,036,000 .14
1989 125,998,000 17,155,000 6,640,000 10,515,000 .24
1988 135,835,000 17,593,000 7,057,000 10,536,000 .25
1987 105,845,000 13,121,000 6,280,000 6,841,000 .17
* Includes pre-tax loss of $630,000 on the write-down of assets, which
reduced the income tax provision by $240,000 and decreased net income by
$390,000, or $0.01 per share. (See Note G)
================================================================================
See Notes to Consolidated Financial Statements
================================================================================
-27-
Consolidated Balance Sheets
Bob Evans Farms, Inc. and Subsidiaries
Assets April 26, 1996 April 28, 1995
===========================================================================================
Current Assets
Cash and equivalents..................................... $ 14,369,000 $ 10,451,000
Trade accounts receivable ............................... 14,509,000 15,570,000
Inventories ............................................. 20,876,000 17,256,000
Deferred income taxes ................................... 5,882,000 6,162,000
Prepaid expenses ........................................ 3,263,000 2,936,000
------------ ------------
Total Current Assets ................................ 58,899,000 52,375,000
Property, Plant and Equipment, at cost
Buildings ............................................... 312,084,000 288,260,000
Machinery and equipment ................................. 166,824,000 146,255,000
Other ................................................... 20,919,000 19,572,000
------------ ------------
499,827,000 454,087,000
Less accumulated depreciation ........................... 199,606,000 177,542,000
------------ ------------
300,221,000 276,545,000
Land .................................................... 141,399,000 133,135,000
Construction in progress ................................ 5,623,000 7,168,000
------------ ------------
Net Property, Plant and Equipment ................... 447,243,000 416,848,000
Other Assets
Deposits and other ...................................... 2,955,000 2,243,000
Long-term investments ................................... 4,893,000 2,303,000
Deferred income taxes ................................... 9,918,000 1,573,000
Cost in excess of net assets acquired ................... 10,477,000 11,016,000
Other intangible assets ................................. 1,428,000 1,743,000
------------ ------------
Total Other Assets .................................. 29,671,000 18,878,000
------------ ------------
$535,813,000 $488,101,000
============ ============
Liabilities and Stockholders' Equity
=========================================================================================
Current Liabilities
Line of credit........................................... $59,655,000 $ 25,600,000
Accounts payable ........................................ 5,940,000 7,325,000
Dividends payable ....................................... 3,382,000 3,068,000
Federal and state income taxes .......................... 535,000 4,633,000
Accrued wages and related liabilities ................... 14,245,000 13,691,000
Other accrued expenses .................................. 32,674,000 31,253,000
------------ ------------
Total Current Liabilities ........................... 116,431,000 85,570,000
Long-Term Liabilities
Deferred income taxes ................................... 8,300,000 6,409,000
Notes payable (net of discount of $443,000
at April 26, 1996 and $600,000 at
April 28, 1995) ...................................... 1,927,000 2,250,000
------------ ------------
Total Long-Term Liabilities ......................... 10,227,000 8,659,000
Stockholders' Equity
Common stock, $.01 par value; authorized
100,000,000 shares; issued 42,638,118
shares in 1996 and 1995 .............................. 426,000 426,000
Preferred stock; authorized 1,200 shares;
issued 120 shares in 1996 ............................ 60,000 --
Capital in excess of par value .......................... 145,584,000 144,741,000
Retained earnings ....................................... 268,677,000 252,961,000
------------ ------------
414,747,000 398,128,000
Less treasury stock: 362,875 shares in
1996 and 309,620 shares in 1995, at cost ............. 5,592,000 4,256,000
------------ ------------
Total Stockholders' Equity .......................... 409,155,000 393,872,000
------------ ------------
$535,813,000 $488,101,000
============ ============
================================================================================
See Notes to Consolidated Financial Statements
================================================================================
-28-
Consolidated Statements of Income
Bob Evans Farms, Inc. and Subsidiaries
Years Ended April 26, 1996,
April 28, 1995, and April 29, 1994 1996 1995 1994
====================================================================================
Net sales.................................$806,627,000 $766,968,000 $699,038,000
Cost of sales............................. 246,020,000 229,256,000 221,558,000
Operating wage and fringe
benefit expenses 248,000,000 225,280,000 201,606,000
Other operating expenses.................. 113,828,000 101,703,000 91,287,000
Selling, general and administrative
expenses 102,621,000 98,048,000 85,015,000
Depreciation expense...................... 27,605,000 25,820,000 23,082,000
Loss on impaired assets................... 22,000,000 - -
------------ ------------ ------------
Operating Profit................... 46,553,000 86,861,000 76,490,000
Net interest.............................. 192,000 8,000 24,000
------------ ------------ ------------
Income Before Income Taxes......... 46,745,000 86,869,000 76,514,000
Provisions for income taxes
Federal................................. 14,304,000 27,316,000 23,060,000
State................................... 3,225,000 6,043,000 5,272,000
------------ ------------ ------------
17,529,000 33,359,000 28,332,000
------------ ------------ ------------
Net Income.........................$ 29,216,000 $ 53,510,000 $ 48,182,000
============ ============ ============
Net income per share...................... $0.69 $1.27 $1.15
===== ===== =====
================================================================================
See Notes to Consolidated Financial Statements
================================================================================
-29-
Consolidated Statements
of Stockholders' Equity
Bob Evans Farms, Inc. and Subsidiaries
Years Ended April 26, 1996, April 28, 1995,
and April 29, 1994
Capital Total
Common Preferred in Excess Retained Treasury Stockholders'
Stock Stock of Par Value Earnings Stock Equity
======================================================================================================================
Balances at 4/30/93 $426,000 $ - $144,339,000 $174,169,000 $(9,634,000) $309,300,000
Net income 48,182,000 48,182,000
Dividends declared of
$.27 per share (11,351,000) (11,351,000)
Purchase of treasury
stock (116,000) (116,000)
Tax benefit from disqualified
disposition of stock
options exercised 294,000 294,000
Compensation expense
attributable to stock
options granted 500,000 500,000
Distribution of treasury
stock.......... (57,000) 2,076,000 2,019,000
-------- ------- ------------ ------------ ----------- ------------
Balances at 4/29/94 426,000 - 144,782,000 211,294,000 (7,674,000) 348,828,000
Net income 53,510,000 53,510,000
Dividends declared of
$.29 per share (12,245,000) (12,245,000)
Tax benefit from disqualified
disposition of stock
options exercised 402,000 402,000
Compensation expense
attributable to stock
options granted 706,000 706,000
Compensation expense
attributable to stock
awards (203,000) 525,000 322,000
Distribution of treasury
stock (544,000) 2,893,000 2,349,000
-------- ------- ------------ ------------ ----------- ------------
Balances at 4/28/95 426,000 - 144,741,000 252,961,000 (4,256,000) 393,872,000
Net income 29,216,000 29,216,000
Dividends declared of
$.32 per share (13,542,000) (13,542,000)
Issuance of preferred stock 60,000 60,000
Purchase of treasury
stock (2,091,000) (2,091,000)
Tax benefit from disqualified
disposition of stock
options exercised 42,000 42,000
Compensation expense
attributable to stock
options granted 474,000 474,000
Compensation expense
attributable to stock
awards 153,000 184,000 337,000
Distribution of treasury
stock 216,000 571,000 787,000
-------- ------- ------------ ------------ ----------- ------------
Balances at 4/26/96 $426,000 $60,000 $145,584,000 $268,677,000 $(5,592,000) $409,155,000
======== ======= ============ ============ =========== ============
====================================================================================
See Notes to Consolidated Financial Statements
====================================================================================
-30-
Consolidated Statements
of Cash Flows
Bob Evans Farms, Inc. and Subsidiaries
Years Ended April 26, 1996,
April 28, 1995, and April 29, 1994 1996 1995 1994
======================================================================================================
Operating Activities:
Net income ........................................ $ 29,216,000 $ 53,510,000 $ 48,182,000
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization .................... 28,459,000 26,674,000 23,937,000
Deferred federal income taxes .................... (6,174,000) (1,187,000) (2,061,000)
Loss (gain) on sale of property and equipment .... 445,000 (115,000) (85,000)
Loss on impaired assets .......................... 22,000,000 -- --
Compensation expense attributable to stock plans . 437,000 1,080,000 822,000
Cash provided by (used for) current assets
and current liabilities:
Accounts receivable ......................... 1,061,000 (125,000) (2,900,000)
Inventories ................................. (3,620,000) (1,457,000) (985,000)
Prepaid expenses ............................ (327,000) 578,000 (143,000)
Accounts payable ............................ (1,385,000) 5,793,000 2,670,000
Federal and state income taxes .............. (4,056,000) (1,196,000) (1,143,000)
Accrued wages and related liabilities ....... 928,000 3,093,000 345,000
Other accrued expenses ...................... 1,421,000 2,349,000 838,000
Net cash provided by operating activities .. 68,405,000 88,997,000 69,477,000
Investing Activities:
Purchase of property, plant and equipment ......... (80,967,000) (94,766,000) (72,910,000)
Net proceeds from sale of short-term investments .. -- -- 1,947,000
Purchase of long-term investments ................. (2,590,000) (2,303,000) --
Proceeds from sale of property, plant
and equipment .................................. 522,000 1,983,000 909,000
Other ............................................. (712,000) (241,000) 161,000
Net cash used in investing activities ...... (83,747,000) (95,327,000) (69,893,000)
Financing Activities:
Cash dividends paid ............................... (13,228,000) (12,016,000) (11,130,000)
Purchase of treasury stock ........................ (2,091,000) -- (116,000)
Draws on line of credit ........................... 34,055,000 16,100,000 9,500,000
Proceeds from issuance of note payable ............ -- 2,250,000 --
Payments on principal of note payable ............. (323,000) -- --
Proceeds from issuance of preferred stock ......... 60,000 -- --
Distribution of treasury stock
due to the exercise of stock
options and employee bonuses ................... 787,000 2,349,000 2,019,000
Net cash provided by financing activities 19,260,000 8,683,000 273,000
Increase (decrease) in cash and equivalents ......... 3,918,000 2,353,000 (143,000)
Cash and equivalents at the beginning of the year ... 10,451,000 8,098,000 8,241,000
Cash and equivalents at the end of the year ......... $ 14,369,000 $ 10,451,000 $ 8,098,000
================================================================================
See Notes to Consolidated Financial Statements
================================================================================
-31-
Notes to Consolidated
Financial Statements
Bob Evans Farms, Inc. and Subsidiaries -- April 26, 1996
Note A -- Summary of Significant Accounting Policies
Description of Business: Bob Evans Farms, Inc. owns and operates 390
restaurants in 19 states, including Bob Evans Restaurants, Owens Family
Restaurants, Bob Evans "small-town" Restaurants and Cantina Del Rio Mexican
restaurants. The company also produces fresh and fully-cooked sausage products
and fresh, deli-style salads which are distributed primarily to grocery stores
in the Midwest, Southwest and Southeast. The company's charcoal products and
liquid-smoke flavorings are distributed nationally and internationally.
Principles of Consolidation: The consolidated financial statements
include the accounts of the company and its wholly owned subsidiaries.
Intercompany accounts and transactions have been eliminated.
Fiscal Year: The company's fiscal year ends on the last Friday in April.
References herein to 1996, 1995 and 1994 refer to fiscal years ended April 26,
1996; April 28, 1995; and April 29, 1994, respectively.
Inventories: The company values inventories at the lower of first-in,
first-out cost or market. Inventory is composed of raw materials and supplies
($12,138,000 in 1996, and $11,880,000 in 1995) and finished goods ($8,738,000
in 1996, and $5,376,000 in 1995).
Property, Plant and Equipment: The company calculates depreciation on the
straight-line and declining-balance methods at rates adequate to amortize
costs over the estimated useful lives of buildings (15 to 25 years), machinery
and equipment (3 to 10 years), and other (5 to 25 years). The straight-line
depreciation method was adopted for all property placed in service on or after
April 30, 1994. Depreciation on property placed in service prior to April 30,
1994, continues to be calculated principally on accelerated methods. The
company believes the new method will more accurately reflect its financial
results by better matching costs of new property over the useful lives of the
assets. In addition, the new method more closely conforms with that prevalent
in the industry.
Long-Term Investments: The company records its long-term investments
(investments in limited partnerships) at market.
Cost in Excess of Net Assets Acquired: The cost in excess of net assets
acquired (goodwill) is being amortized over 25 years using the straight-line
method. The company uses the cash flow method to assess the recoverability of
goodwill. Accumulated amortization at April 26, 1996, and April 28, 1995, was
$2,998,000 and $2,459,000, respectively.
Pre-opening Expenses: Expenditures related to the opening of new
restaurants, other than those for capital assets, are charged to expense when
incurred.
Advertising Costs: The company expenses advertising costs as incurred.
Advertising expense was $37,342,000, $32,585,000 and $29,927,000 in 1996, 1995
and 1994, respectively.
Stock Options: The company accounts for stock options under APB 25,
Accounting for Stock Issued to Employees.
Cost of Sales: Cost of sales represents food cost in the restaurant
segment and cost of materials in the food products segment.
Net Income Per Share: The company calculates net income per share based
upon the weighted average number of common shares outstanding during the year.
Weighted average number of common shares outstanding for 1996, 1995 and 1994,
was 42,311,000; 42,179,000; and 42,006,000 respectively. Outstanding stock
options do not have a material dilutive effect.
-32-
Notes to Consolidated
Financial Statements
Bob Evans Farms, Inc. and Subsidiaries -- April 26, 1996
Use of Estimates: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues and expenses and disclosure of contingent assets and
liabilities. Actual results could differ from the estimates and assumptions
used.
Note B -- Credit Arrangements
The company has arrangements with certain banks from which it may borrow
up to $124,400,000 on a short-term basis. The arrangements are reviewed
annually for renewal. At April 26, 1996, $59,655,000 was outstanding under
these arrangements. During 1996 and 1995, respectively, the maximum amounts
outstanding under these arrangements were $63,905,000 and $25,600,000 and the
average amounts outstanding were $43,104,000 and $10,857,000 with weighted
average interest rates of 6.34% and 5.95%.
Total interest expense of $2,394,000; $569,000; and $78,000 incurred in
1996, 1995 and 1994, respectively, was capitalized in connection with the
company's construction activities.
Note C -- Income Taxes
Deferred federal income taxes reflect the net tax effect of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes.
Significant components of the company's deferred tax liabilities and assets as
of April 26, 1996, and April 28, 1995, are as follows:
April 26, 1996 April 28, 1995
Deferred tax liabilities:
Accelerated depreciation... $ 7,991,000 $6,409,000
Other taxes................ 309,000 -
----------- ----------
Total deferred tax liabilities 8,300,000 6,409,000
Deferred tax assets:
Loss on impaired assets.... 8,244,000 -
Self-insurance............. 4,470,000 4,303,000
Other taxes................ - 605,000
Vacation pay............... 1,020,000 913,000
Stock compensation plans... 1,281,000 1,281,000
Accrued bonus.............. 310,000 244,000
Inventory and other........ 475,000 389,000
----------- ----------
Total deferred tax assets.. 15,800,000 7,735,000
----------- ----------
Net deferred tax assets $ 7,500,000 $1,326,000
=========== ==========
-33-
Notes to Consolidated
Financial Statements
Bob Evans Farms, Inc. and Subsidiaries -- April 26, 1996
Significant components of the provisions for income taxes are as follows:
1996 1995 1994
Current:
Federal ................ $ 20,113,000 $ 29,563,000 $ 25,438,000
State .................. 4,209,000 6,484,000 5,462,000
------------ ------------ ------------
Total Current .......... 24,322,000 36,047,000 30,900,000
Deferred:
Federal ................ (5,809,000) (2,247,000) (2,378,000)
State .................. (984,000) (441,000) (190,000)
------------ ------------ ------------
Total Deferred ....... (6,793,000) (2,688,000) (2,568,000)
------------ ------------ ------------
$ 17,529,000 $ 33,359,000 $ 28,332,000
============ ============ ============
The company's provisions for income taxes differ from the amounts
computed by applying the federal statutory rate due to the following:
1996 1995 1994
Tax at statutory rate ....... $ 16,400,000 $ 30,404,000 $ 26,780,000
State income tax (net) ...... 2,100,000 3,928,000 3,427,000
Other ....................... (971,000) (973,000) (1,875,000)
------------ ------------ ------------
Provisions for income taxes.. $17,529,000 $33,359,000 $28,332,000
============ ============ ============
Taxes paid during 1996, 1995 and 1994 were $28,429,000; $36,647,000; and
$31,643,000, respectively.
Note D -- Stockholders' Equity
The company has employee stock option plans adopted in 1985, 1987, 1991
and 1994; a non-employee directors stock option plan adopted in 1989; and a
nonqualified stock option plan adopted in 1992, in conjunction with a
supplemental executive retirement plan. The 1992 plan provides that the option
price shall be not less than 50% of the fair market value of the stock at the
date of grant; all other plans provide that the option price shall be the fair
market value of the stock at the grant date. Options may be granted for a
period of up to 10 years under the 1985, 1987, 1991 and 1994 plans, and until
all available shares reserved have been issued or until the board determines
that the plan shall terminate under the 1989 and 1992 plans. Except for the
1992 plan, options granted under the plans become exercisable at the rate of
20% per year beginning at the date of grant. The 1994 plan also provides for
the granting of performance share awards in the form of common shares if
certain performance objectives are met. As of April 26, 1996, options for
1,538,511 shares were outstanding, and options for 792,904 shares were
exercisable at prices ranging from $8.69 to $20.50 per share.
During 1996, 1995 and 1994, options of 44,914; 226,749; and 151,726
shares, respectively, were exercised at prices ranging from $8.63 to $20.19
per share. At April 26, 1996, 3,087,147 shares were reserved for issuance
under the plans.
The company's supplemental executive retirement plan (SERP) provides
retirement benefits to certain key management employees of the company and its
-34-
Notes to Consolidated
Financial Statements
Bob Evans Farms, Inc. and Subsidiaries -- April 26, 1996
subsidiaries. The purpose of the 1992 nonqualified stock option plan discussed
earlier is to fund and settle benefit obligations of the company that arise
under the SERP. To the extent that benefits under the SERP are satisfied by
grants of stock options under the nonqualified plan, the plan will operate as
an incentive plan that produces both risk and reward to participants based on
future growth in the market value of the company's common stock. Since the
company intends to fund and settle its obligations under the SERP on a current
basis by granting stock options under the nonqualified plan, the company
anticipates that no long-term unfunded pension obligations will arise under
the SERP. Compensation expense attributable to stock options granted in 1996,
1995 and 1994 pursuant to the 1992 plan was $474,000; $706,000; and $500,000,
respectively.
The company's long-term incentive plan (LTIP) for managers, an unfunded
plan, provides for the award of up to an aggregate of 500,000 shares of the
company's common stock to mid-level managers as incentive compensation to
attain growth in the net income of the company as well as to help attract and
retain management personnel. Shares awarded are restricted until certain
vesting requirements are met, at which time all restricted shares are
converted to unrestricted shares. LTIP participants are entitled to cash
dividends and to vote their respective shares. Restrictions generally limit
the sale, pledge or transfer of the shares during a restricted period, not to
exceed 12 years. In 1996 and 1995, 20,089 and 40,286 shares, respectively,
were awarded as part of the LTIP. Compensation expense attributable to the
LTIP was de minimis in 1996, $374,000 in 1995, and $322,000 in 1994.
Note E -- Profit Sharing Plan
The company has a profit sharing plan which covers substantially all
employees with at least one year of service. The annual contribution to the
plan is at the discretion of the company's board of directors. The company's
expenses related to contributions to the plan in 1996, 1995 and 1994 were
$2,994,000, $3,412,000, and $3,104,000, respectively.
Note F -- Commitments and Contingencies
At April 26, 1996, the company had contractual commitments approximating
$9,953,000 for restaurant construction, plant equipment additions and the
purchase of land and inventory.
The company is from time to time involved in a number of claims and
litigation considered normal in the course of business. Various lawsuits and
assessments, among them employment discrimination, product liability, workers'
compensation claims and tax assessments, are in litigation or pending
litigation. While it is not feasible to predict the outcome of these actions,
in the opinion of the company, these actions should not ultimately have a
material adverse effect on the financial position or results of operations of
the company.
Note G -- Impairment of Long-Lived Assets
In April 1996, the company adopted FASB Statement No. 121, Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of. Accordingly, the company evaluated the ongoing value of its property,
plant and equipment. Based on this evaluation, the company determined that
assets with a carrying value of $58,598,000 were impaired, and wrote them down
by $22,000,000 to their fair value. Fair value was based on external real
estate appraisals and estimates which took into consideration prices of
comparable assets. The $22,000,000 loss was comprised of a $21,370,000
write-down in the restaurant segment, and a $630,000 write-down in the food
products segment.
-35-
Notes to Consolidated
Financial Statements
Bob Evans Farms, Inc. and Subsidiaries -- April 26, 1996
Note H -- Industry Segments
The company's operations include restaurant operations and the processing
and sale of food and related products. The revenue from these segments
includes 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 financial statements.
Operating profit represents earnings before interest and income taxes.
Identifiable assets by segment are those assets that are used in the company's
operations in each segment. General corporate assets consist of investments
and deferred income taxes.
Information on the company's industry segments is summarized as follows:
Fiscal Year 1996 1995 1994
=========================================================================================
Sales
Restaurant operations ............... $ 590,063,000 $ 550,209,000 $ 495,129,000
Food products ....................... 253,202,000 248,036,000 234,811,000
843,265,000 798,245,000 729,940,000
Intersegment sales of food products . (36,638,000) (31,277,000) (30,902,000)
Total ........................... $ 806,627,000 $ 766,968,000 $ 699,038,000
Operating Profit
Restaurant operations ............... $ 29,384,000 $ 60,135,000 $ 56,910,000
Food products ....................... 17,169,000 26,726,000 19,580,000
Total ........................... $ 46,553,000 $ 86,861,000 $ 76,490,000
Depreciation and Amortization Expense
Restaurant operations ............... $ 20,911,000 $ 18,732,000 $ 16,216,000
Food products ....................... 7,548,000 7,942,000 7,721,000
Total ........................... $ 28,459,000 $ 26,674,000 $ 23,937,000
Capital Expenditures
Restaurant operations ............... $ 56,429,000 $ 81,772,000 $ 62,576,000
Food products ....................... 24,538,000 12,994,000 10,334,000
Total ........................... $ 80,967,000 $ 94,766,000 $ 72,910,000
Identifiable Assets
Restaurant operations.....................$395,804,000 $383,569,000 $317,739,000
Food products............................ 119,316,000 94,494,000 90,502,000
515,120,000 478,063,000 408,241,000
General corporate assets................. 20,693,000 10,038,000 5,634,000
Total.................................$535,813,000 $488,101,000 $413,875,000
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Notes to Consolidated
Financial Statements
Bob Evans Farms, Inc. and Subsidiaries -- April 26, 1996
Note I -- Quarterly Financial Data (Unaudited)
Net
Gross Net Income
Sales Profit Income Per Share
================================================================================
Fiscal Year 1996
First Quarter $205,862,000 $144,709,000 $14,397,000 $.34
Second Quarter 207,700,000 144,352,000 13,010,000 .31
Third Quarter 194,740,000 134,578,000 7,577,000 .18
Fourth Quarter * 198,325,000 136,968,000 (5,768,000) (.14)
Fiscal Year 1995
First Quarter $197,939,000 $135,060,000 $13,183,000 $.31
Second Quarter 194,403,000 137,036,000 14,163,000 .34
Third Quarter 185,587,000 133,262,000 13,904,000 .33
Fourth Quarter 189,039,000 132,354,000 12,260,000 .29
Fiscal Year 1994
First Quarter $178,431,000 $121,246,000 $11,815,000 $.28
Second Quarter 177,038,000 121,386,000 12,409,000 .30
Third Quarter 166,625,000 115,253,000 12,204,000 .29
Fourth Quarter 176,944,000 119,595,000 11,754,000 .28
Note: gross profit represents net sales less cost of sales (materials)
* Includes pre-tax loss of $22,000,000 on the write-down of assets, which
decreased net income by $13,791,000, or $0.33 per share. (See Note G)
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Auditor's Report
Bob Evans Farms, Inc. and Subsidiaries
Report of Ernst & Young LLP, Independent Auditors
Board of Directors
Bob Evans Farms, Inc.
Columbus, Ohio
We have audited the accompanying consolidated balance sheets of Bob Evans
Farms, Inc. and subsidiaries as of April 26, 1996, and April 28, 1995, and the
related consolidated statements of income, stockholders' equity, and cash
flows for each of the three years in the period ended April 26, 1996. These
financial statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Bob Evans Farms,
Inc. and subsidiaries at April 26, 1996, and April 28, 1995, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended April 26, 1996, in conformity with generally
accepted accounting principles.
Columbus, Ohio
May 31, 1996
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Management's Discussion and Analysis
of Selected Financial Information
Bob Evans Farms, Inc. and Subsidiaries
Sales
Consolidated net sales for Bob Evans Farms, Inc. and subsidiaries
increased $39.7 million, or 5.2%, in 1996 compared to 1995. The increase in
net sales resulted from a $39.9 million increase in restaurant segment sales
and a $0.2 million decrease in food products segment sales. Net sales in 1995
represented a 9.7% increase over 1994 sales.
Restaurant segment sales accounted for 73.2%, 71.7% and 70.8% of total
sales for 1996, 1995 and 1994, respectively. The $39.9 million sales increase
in the restaurant segment in 1996 was due entirely to more restaurants in
operation: 390 at the end of 1996 versus 354 at the end of 1995. In 1996, the
company opened 37 new restaurants and closed one underperforming restaurant.
The new restaurants included 10 traditional Bob Evans Restaurants, 26 Bob
Evans "small-town" Restaurants and one Cantina del Rio Mexican restaurant.
This compares with 44 restaurants opened during 1995, comprised of 12
traditional Bob Evans Restaurants, 25 Bob Evans "small-town" Restaurants and
seven Cantina del Rios.
The increase in sales brought about by this expansion was partially
offset by a decrease in same-store sales for core restaurants of 1.8% in 1996.
(Core restaurants are restaurants that have been open two full years.) Severe
winter weather during the third and fourth quarters of this year was a
contributing factor to the decrease in same-store sales. In 1995, same-store
sales for core restaurants increased 3.4%.
Restaurant menus were changed at various times throughout the year to
keep the company's menus fresh, provide seasonal choices and give customers an
opportunity to try something new. Menu changes in 1996 included the addition
of items which represented nontraditional Bob Evans fare as well as various
homestyle offerings. A variety of promotional programs were implemented
throughout 1996, including a "LunchSavors" program, which offered
value-priced, lunch-sized salads and entrees before 4 p.m. during the week. No
one single menu item or program had a material impact on sales although the
company believes without the combination of these additional menu items and
promotional programs, same-store sales comparisons would have been less
favorable. For 1996, the traditional Bob Evans Restaurant menu price increase
amounted to 2.8% compared with 3.1% in 1995.
Food products segment sales accounted for 26.8%, 28.3% and 29.2% of
total sales for 1996, 1995 and 1994, respectively. The $0.2 million sales
decrease in the food products segment in 1996 was the result of a $3.0 million
increase in sausage sales and a combined $3.2 million decrease in sales at
Mrs. Giles Country Kitchens and Hickory Specialties.
The sausage sales increase was due to a 3.0% increase in comparable
pounds of sausage sold (5.0% in 1995). Additional volume increases were due to
the introduction of Snackwiches to all Bob Evans markets, expansion into the
Milwaukee and Madison, Wis., markets, and other new product introductions such
as frozen rolls and biscuits, sliced country bacon and ham steaks. New product
introductions during 1995 included Bob Evans Homestyle Chicken & Noodles and a
maple-flavored sausage product. New product introductions added additional
volume but were not significant compared with the total pounds sold in 1996 or
1995. The benchmark retail price for a one-pound roll of sausage averaged
$2.74 in 1996, $2.79 in 1995 and $2.84 in 1994.
Mrs. Giles Country Kitchens and Hickory Specialties had combined sales
of $49.1 million in 1996, $52.3 million in 1995 and $46.7 million in 1994.
These amounts represented 22.7%, 24.1% and 22.9% of total food products
segment sales in 1996, 1995 and 1994, respectively. The decreased sales in
1996 occurred in all the major product lines: salads, charcoal and
liquid-smoke flavorings. The increase in sales in 1995 was attributable to
increased sales of charcoal products at Hickory Specialties.
Cost of Sales
As a percentage of sales, the consolidated cost of sales (cost of
materials) was 30.5%, 29.9% and 31.7% in 1996, 1995 and 1994, respectively.
The restaurant segment cost of sales percentage was 26.8% in 1996, 27.0% in
1995 and 27.5% in 1994. These decreases were due mostly to various changes in
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product mix. The food products segment cost of sales percentage was 40.6%,
37.1% and 41.9% in 1996, 1995 and 1994, respectively. These changes were the
direct result of changes in live hog costs which averaged $36.43, $31.00 and
$39.25 per hundredweight in 1996, 1995 and 1994, respectively.
Operating Wage and Fringe Benefit Expenses
Consolidated operating wage and fringe benefit expenses were 30.7%,
29.4% and 28.8% of sales in 1996, 1995 and 1994, respectively. In the
restaurant segment, labor and fringe benefit expenses were 37.4% of sales in
1996 compared to 36.2% of sales in 1995. The increase was due primarily to
higher hourly labor costs in addition to higher health insurance costs. In the
food products segment, labor and fringe benefit expenses amounted to 12.8% of
sales in 1996 compared to 12.1% of sales in 1995. The increase was due to
higher health insurance costs as well as a decrease in the sales base at Mrs.
Giles Country Kitchens and Hickory Specialties.
Other Operating Expenses
Approximately 90% of other operating expenses were in the restaurant
segment; the most significant components of which were advertising, utilities,
repair and maintenance, restaurant supplies and taxes (other than income
taxes). Consolidated other operating expenses were 14.1%, 13.3% and 13.1% of
sales in 1996, 1995 and 1994, respectively. The increases were due mostly to
an increase in restaurant advertising expenses. Operating expenses were also
negatively impacted by increases in utilities expense and repair and
maintenance expense in the restaurant segment.
Selling, General and Administrative Expenses
As a percentage of sales, consolidated selling, general and
administrative expenses were 12.7%, 12.8% and 12.2% in 1996, 1995 and 1994,
respectively. The most significant components of selling, general and
administrative expenses were wages and fringe benefits and food products
segment promotional expenses. The increase in 1995 compared to 1994 was mainly
the result of increased management training expenses needed to support
increased restaurant openings.
Taxes
The effective federal and state income tax rates were 37.5%, 38.4% and
37.0% in 1996, 1995 and 1994, respectively. The decrease in 1996 was
attributable to the significant decrease in pre-tax income of $40.1 million,
or 46%, and decreases in state taxes. The increase in 1995 was due mostly to
an increase in state taxes. In fiscal 1997, the effective tax rate is expected
to approximate 37.5%.
Liquidity and Capital Resources
Cash generated from both the restaurant and food products segments has
been used as the main source of funds for working capital and capital
expenditure requirements. Cash and cash equivalents totaled $14.4 million at
April 26, 1996, and $10.5 million at April 28, 1995. Dividends paid
represented 45.3% of net income in 1996 and 22.5% of net income in 1995.
Bank lines of credit were used for liquidity needs and capital expansion
during fiscal year 1996. At April 26, 1996, $59.7 million was outstanding
under such arrangements. The bank lines of credit available were increased to
$124.4 million during 1996 (compared to $63.0 million at the end of fiscal
1995) to meet liquidity and capital resource requirements anticipated because
of increased restaurant expansion. The company believes that the funds needed
for capital expenditures and working capital during 1997 will be generated
internally and from available bank lines of credit. Longer-term financing
alternatives will be evaluated by the company, especially in the event of
acquisitions.
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At April 26, 1996, the company had contractual commitments for
restaurant construction, plant equipment additions and land purchases of
approximately $10.0 million. Capital expenditures for 1997 are expected to
approximate $63.0 million and depreciation and amortization expenses are
expected to approximate $30.0 million. The company plans to build
approximately 25 to 30 restaurants in fiscal year 1997, as well as upgrade
various properties, plants and equipment in both segments.
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================================================================================
================================================================================
Management's Outlook
Bob Evans Farms, Inc. and Subsidiaries
Management is unaware of any material events or uncertainties that would
cause the reported financial information not to be indicative of future
operating results. However, various degrees of business risks are present in
both operating segments.
The restaurant segment is continually impacted by an intensely
competitive environment. Competition from quick-service restaurants and casual
dining restaurants as well as the family style category in which traditional
Bob Evans Restaurants and "small-town" Bob Evans Restaurants operate has been
greater than ever. Increased numbers of restaurants, in all categories, have
provided more options for the consumer and have tended to suppress the
industry's same-store sales. Same-store sales for Bob Evans Restaurants
decreased 1.8% in fiscal 1996. This impact on sales and corresponding profit
margins is significant. Continued sales declines in the future would put
continued pressure on restaurant profit margins. To combat same-store sales
declines, the company has begun initiatives with menu development, improved
service steps and a fresh advertising approach.
Management is continually evaluating all restaurants and restaurant
concepts for under-performing restaurants or restaurant concepts. In fiscal
1996, the company closed one restaurant. Depending on profitability, as well
as changes in market conditions, the company may close other restaurants in
fiscal 1997. In May 1996, four restaurants were closed due to
less-than-desired performance.
Competition for qualified labor was intense in 1996, and is expected to
continue in fiscal 1997, as unemployment remains historically low in most of
the company's marketing area. Increases in the federally mandated minimum wage
base will tend to increase restaurant labor costs and correspondingly decrease
operating margins.
Plans are to add approximately 25 to 30 new restaurants in 1997. This
projected growth will be slower than the 37 restaurants and 44 restaurants
opened in fiscal 1996 and fiscal 1995, respectively. Availability of sites and
weather conditions add uncertainty to restaurant expansion.
In the food products segment, uncertainties in fiscal 1997 include the
cyclical nature of the live hog market and its effect on profitability as well
as consumer acceptance of new items. Planned product introductions and
expansions in fiscal 1997 include a continued roll-out of frozen dinner rolls
and biscuits, various sausage products and a line of frozen dinner entrees,
scheduled for test marketing in the fall of 1996.
Various risks and uncertainties are present in both operating segments.
Food safety is an issue of top priority: risk of food contamination is an
exposure at the company's restaurants and with its food products. Continued
emphasis with quality control programs, such as the HACCP (Hazard Analysis of
Critical Control Points) program, limits the company's exposure. Increased
governmental initiatives at the local, state and federal level tend to
increase costs and present challenges to management in both segments of the
business. Other uncertainties, such as the general economy, weather and
consumers' changing life-styles and eating habits impose various degrees of
risk on our business.
Safe Harbor Statement Under the Private Securities Litigation Reform Act of
1995
The statements contained in this report which are not historical in fact
are "forward-looking statements" that involve various important assumptions,
risks, uncertainties and other factors which could cause the company's actual
results for 1997 and beyond to differ materially from those expressed in such
forward-looking statements. These important factors include, without
limitation, the assumptions, risks and uncertainties set forth above in
"Management's Outlook," as well as other assumptions, risks, uncertainties and
factors previously disclosed in this report and the company's securities
filings.
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