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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
( X ) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended April 28, 2000
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 0-1667
Bob Evans Farms, Inc.
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(Exact name of company as specified in its charter)
Delaware 31-4421866
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3776 South High Street, Columbus, Ohio 43207
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(Address of principal executive offices) (Zip Code)
Company's telephone number, including area code: 614-491-2225
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Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock with $.01 par value
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(Title of class)
This report contains 69 pages of which this is page 1. The Exhibit Index begins
at page 41.
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Indicate by check mark whether the company (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 company was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of company's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ( )
State the aggregate market value of the voting and non-voting common equity held
by non-affiliates of the company. The aggregate market value has been computed
by reference to the last quoted sale price of the company's common stock (the
only common equity), as of July 14, 2000.
Total shares outstanding 35,301,495
Number of shares owned beneficially and/or of record by directors 725,467
and executive officers*
Number of shares held by persons other than directors and executive 34,576,028
officers
Last quoted sale price (as of the close of business on July 14, 2000) $ 15.2344
Market value of shares held by persons other than directors and $526,745,040.96
executive officers
*For purposes of this computation, all executive officers and directors are
included, although not all are necessarily "affiliates."
Indicate the number of shares outstanding of each of the company's classes of
common stock, as of the latest practicable date:
35,301,495 shares of common stock with $.01 par value were outstanding at July
14, 2000.
DOCUMENTS INCORPORATED BY REFERENCE
1. Annual report to stockholders for the fiscal year ended
April 28, 2000 (in pertinent part, as indicated) ..................................... PART II.
2. Proxy statement dated Aug. 7, 2000, for the annual
meeting of stockholders to be held on Sept. 11, 2000
(in pertinent part, as indicated) .................................................... PART III.
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PART I
ITEM 1. BUSINESS.
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Bob Evans Farms, Inc. (the company) is a Delaware corporation incorporated on
Nov. 4, 1985. It is the successor by merger to Bob Evans Farms, Inc., an Ohio
corporation incorporated in 1957. BEF Holding Co., Inc. is a wholly owned
subsidiary of the company. The subsidiaries owned by BEF Holding Co., Inc.
include Bob Evans Farms, Inc., an Ohio corporation (BEF Ohio); Owens Country
Sausage, Inc. (Owens); Hickory Specialties, Inc. (Hickory Specialties) and BEF
Aviation, Inc. (Aviation). On Oct. 16, 1995, BEF RE Holding Co., Inc. (RE
Holding) was formed as a wholly owned subsidiary of BEF Ohio and BEF REIT, Inc.
was formed as a majority-owned subsidiary of BEF RE Holding Co., Inc. On April
26, 1997, Bob Evans Restaurants, Inc. (Restaurants), which was incorporated on
April 23, 1997, became a wholly owned subsidiary of BEF Ohio and RE Holding
became a wholly owned subsidiary of Restaurants. On Oct. 24, 1997, Bob Evans
Restaurants of Michigan, Inc. (Michigan Restaurants), which was incorporated on
Oct. 16, 1997, became a wholly owned subsidiary of BEF Ohio and Restaurants
became a wholly owned subsidiary of Michigan Restaurants. On Aug. 3, 1998, Owens
Foods, Inc., which was incorporated on Aug. 3, 1998, became a wholly owned
subsidiary of Owens. Also on Aug. 3, 1998, Owens Country Foods, Inc., which was
incorporated on July 8, 1998, became a wholly owned subsidiary of Owens Foods,
Inc. Bob Evans Farms, Inc.; BEF Holding Co., Inc.; RE Holding; BEF REIT, Inc.;
BEF Ohio; Restaurants; Michigan Restaurants; Owens; Hickory Specialties; and
Aviation are collectively referred to as the company.
On April 23, 1999, the company sold substantially all of the assets of Mrs.
Giles Country Kitchens, Inc. (Mrs. Giles), a wholly owned subsidiary of BEF
Holding Co., Inc. On March 24, 2000, Mrs. Giles was merged into BEF Holding Co.,
Inc.
The business of the company is divided into two principal industry segments: the
restaurant segment and the food products segment.
RESTAURANT SEGMENT OPERATIONS
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General
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The company operates full-service, family restaurants under the Bob Evans
Restaurants, Bob Evans Restaurant & General Stores and Owens Family Restaurants
names. The company experienced a same-store sales increase of 3.4 percent in
fiscal 2000 as compared to a 5.6 percent increase during fiscal 1999 in its
restaurant segment.
All of the company's family restaurants feature a wide variety of homestyle menu
offerings designed to appeal to its customers. Breakfast entree items are served
all day. The restaurants are typically open from 6 a.m. until 10 p.m. Sunday
through Thursday, with extended closing hours on Friday and Saturday for most
locations. Average guest check for breakfast, lunch and dinner are $5.71, $6.28
and $6.83, respectively. Approximately 63 percent of total revenues from
restaurant operations are generated from 6 a.m. to 4 p.m., with the balance
generated from 4 p.m. to closing. Sales on Saturday and Sunday account for
approximately 39 percent of a typical week's revenues. The company's restaurants
are supplied with food and inventory items
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(other than sausage products, related meat items and certain salad products) by
five independent food and non-food distributors twice a week. Sausage products,
other meat items and certain salad products are supplied by the company to each
restaurant by the company's driver-salesmen, with the exception of the
restaurants located in Florida, Massachusetts, New York, North Carolina and
South Carolina and parts of Missouri which are supplied by the aforementioned
food distributors.
RESTAURANTS IN OPERATION AT APRIL 28, 2000
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General Total
Traditional Stores Owens Restaurants
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Delaware 5 5
Florida 23 23
Illinois 17 17
Indiana 50 50
Iowa 1 1
Kansas 1 1
Kentucky 14 14
Maryland 18 18
Massachusetts 1 1
Michigan 42 42
Missouri 13 1 14
New Jersey 2 2
New York 13 13
North Carolina 8 8
Ohio 155 1 156
Pennsylvania 26 1 27
South Carolina 1 1
Tennessee 4 1 5
Texas 9 9
Virginia 11 11
West Virginia 22 1 23
TOTAL 426 6 9 441
During the company's 2000 fiscal year, 26 restaurants were opened, the majority
of which were in the company's existing market area.
From time to time, restaurants are evaluated and closed due to a changing
market, poor performance or a change in access or building safety. During the
2000 fiscal year, six traditional Bob Evans Restaurants were closed in Orlando,
Fla.; Connersville and Decatur, Ind.; Columbus, Ohio; Hanover and Johnstown,
Pa.; one Bob Evans General Store in Orlando, Fla. was closed; and two Owens
Family Restaurants were closed in Ft. Worth and Plano, Texas, due to their
inability to perform to company expectations.
The company has typically opened restaurants in areas where a strong consumer
awareness and acceptance of its sausage products have been established over the
years. It has deviated from this
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practice only in Florida, Massachusetts, North Carolina and South Carolina,
where the company did not have sausage distribution at the time of the
restaurants' opening.
Seasonality
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Certain restaurants located near major interstate highways generally experience
increased revenues during the summer travel season.
Restaurant Expansion
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During fiscal 2001, the company plans to build and open 30 new restaurants,
about 90 percent of which will be constructed in current Bob Evans Restaurant
markets. Determined by anticipated business needs, approximately 70 percent of
the new restaurants will be the company's 130-seat building and the remaining
will seat 158 people. Future restaurant growth will depend on the availability
of sites, as well as restaurant industry trends. The company believes, however,
that it can continue with its planned expansion and is actively seeking quality
restaurant sites, not only in its present market areas, but in new market areas
as well. As a further commitment to customer satisfaction and same-store sales
growth, the company plans to rebuild 10 and remodel approximately 50 restaurants
to various degrees: from major remodels and expansions to minor equipment and
decor updates during fiscal 2001. The restaurant remodel/rebuild plan, which
requires significant capital expenditures, demonstrates the company's commitment
to customer service and satisfaction. Capital expenditures for 2001 are
estimated at $86 million.
Carryout Business
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During fiscal 2000, carryout business in the company's restaurants accounted for
approximately four percent of the total revenues generated in the restaurant
segment. The company's restaurants do not have a drive-through or pick-up window
for carryout business. To increase carryout business and customer satisfaction,
the company continues to introduce Carry Home Kitchen areas into its
restaurants. Through dedicated staffing and facilities, the Carry Home Kitchen
is designed to not only better serve carryout customers, but also has a residual
benefit of increased eat-in dessert sales as a result of the dessert case in the
Carry Home Kitchen. The company's rollout of Carry Home Kitchens will be
complete by the end of summer 2000.
Retail
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The company has offered some retail items for sale on a limited basis in its
traditional units and on a much larger scale in its six Bob Evans Restaurants &
General Stores. During fiscal 2001, the company plans to introduce Corner
Cupboard retail areas in all new traditional restaurants plus six existing
units, which will bring the total to approximately 111. This retail area offers
similar gifts and retail food items as the Bob Evans Restaurant & General Stores
in a scaled-down version.
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Competition
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The company's restaurant segment is engaged in an intensely competitive
business. The company's restaurants compete directly with both local and
national family, casual and fast-food restaurant chains, and individual
restaurant operators for favorable expansion sites, as well as customer trial
and return visits. The company's restaurant segment sales are not a significant
factor in the overall restaurant business in the company's market areas.
Labor and Fringe Benefit Expense
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Competition for qualified labor was intense in 2000 and is expected to continue
in fiscal 2001, as unemployment remains historically low in most of the
company's marketing area. Labor and fringe benefit expense in the restaurant
segment was 39.3 percent of sales in fiscal 2000 as compared to 38.8 percent in
fiscal 1999, both of which are high from a historical perspective. Congress is
currently considering increases to the minimum wage rate which would
significantly impact the company's labor costs.
Sources and Availability of Raw Materials
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Menu mix in the restaurant segment is varied enough that raw materials have
historically been readily available; however, some food products may be in short
supply during certain seasons and raw material prices often fluctuate according
to availability. The restaurant segment experienced a decrease in food costs as
a percentage of sales, which is impacted by menu price increases, raw material
prices and sales mix, during the company's 2000 fiscal year. The company does
not currently anticipate that food costs will fluctuate significantly during its
2001 fiscal year.
Marketing
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The company spent approximately $31 million in the restaurant segment for
marketing during its 2000 fiscal year. Seventy-nine percent of the marketing
dollars were spent on television, radio, print and outdoor advertising. The
remaining dollars were spent primarily on in-store promotion of programs such as
seasonal menu items, Breakfast Savors, Lunch Savors, kids' programs and
local-store marketing. These programs were developed to increase sales during
the weekday via variety, speed and value pricing. The company has typically not
used coupons, except in certain outlying markets where it is attempting to gain
new customer trials. During fiscal 2000, the company continued its primary
sponsorship of a Busch Series NASCAR team for additional promotional
opportunities.
Research and Development
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The company is continuously testing new food items in its search for new and
improved menu offerings to appeal to its customer base and to satisfy changing
eating trends. Product development has been concentrated on unique homestyle
options, as well as quality enhancements to some of the company's best-selling
items. The company's Breakfast Savors and Lunch Savors programs, designed to
drive weekday sales, continue to be updated with new
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items to maintain the programs' success. Research and development expenses, to
date, have not been material.
Trademarks, Service Marks and Licenses
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The company maintains various trademarks and service marks in connection with
its family restaurant operations. These trademarks and service marks are renewed
periodically and the company believes that such trademarks and service marks
adequately protect the various products and services to which they relate. The
operations of the restaurant segment of the company are not dependent upon any
patents, franchises or concessions.
FOOD PRODUCTS SEGMENT OPERATIONS
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Principal Products and Procurement Methods
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The company's traditional business in its food products segment has been the
production and distribution of approximately 40 varieties of fresh, smoked and
fully cooked pork sausage and ham products under the brand names of Bob Evans
Farms, Owens Country Sausage and Country Creek Farm. The company continues to
devote time and effort on both new product development and sales of its pork
sausage and ham products to institutional and foodservice purchasers. In
addition to the company's well-known meat offerings, the company increased its
presence with other refrigerated items including mashed potatoes and beef and
chicken gravies during fiscal 2000. The company also has a frozen foods division
which creates new points of distribution through grocers' freezers, primarily
with dough items and frozen entrees. Several items in the Bob Evans and Owens
product lines are microwaveable convenience items for meals and snacks.
During fiscal 2000, the food products segment of the company continued to
produce specialty items for its institutional and foodservice customers. These
products are made to customer specifications and include sausage links and
patties, sausage gravy and biscuit sandwiches. Although this segment of the
business does not command the higher margins that branded items do, it gives the
company incremental volume in its production plants. During fiscal 2000,
foodservice sales accounted for approximately 9 percent of the company's food
products sales and is expected to remain in that range in fiscal 2001.
Through Hickory Specialties, the company is also involved in food-related
products which complement its existing food products business. Hickory
Specialties produces liquid smoke flavorings under the brand name of Zesti
Smoke. Hickory Specialties' products are marketed nationwide, and the company is
exploring various opportunities abroad. Previously, Hickory Specialties also
produced charcoal, however, during the fourth quarter of fiscal 1999, the
company sold substantially all of the assets of Hickory Specialties' charcoal
operations to Royal Oak Sales, Inc.
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% of Food Products Segment Revenues
FISCAL YEAR ENDED
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APRIL 28, 2000 APRIL 30, 1999 APRIL 24, 1998
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Sales of Bob Evans 71% 57% 56%
Products
Sales of Owens 24% 20% 21%
Country Sausage
Products
Sales of Mrs. Giles 0% 10% 9%
Products*
Sales of Hickory 5% 13% 14%
Specialties Products*
*On April 23, 1999, the company sold substantially all of the assets of Mrs.
Giles. Accordingly, the company did not record any sales of Mrs. Giles' products
in fiscal 2000. Also, on April 23, 1999, the company sold substantially all of
the assets of the charcoal division of Hickory Specialties. Accordingly, sales
of Hickory Specialties' products decreased in fiscal 2000 because sales were
comprised only of smoke products whereas past years included charcoal products.
The company's pork sausage and ham products are produced in the company's six
processing plants located in Xenia, Bidwell and Springfield, Ohio; Hillsdale,
Mich.; Galva, Ill.; and Richardson, Texas. The Springfield, Ohio, and Hillsdale,
Mich., plants also manufacture the products for sale to foodservice
distributors.
Live hogs are procured from terminals; local auctions and country markets; and
corporate and family farms in Ohio, Indiana, Illinois, Iowa, North Carolina,
Kansas, Michigan, Nebraska, South Dakota, Pennsylvania, Wisconsin, Minnesota,
West Virginia, Missouri, Oklahoma and Texas at daily prevailing market prices.
The company does not contract in advance for the purchase of live hogs. Live
hogs procured in these markets are purchased by an employee of the company. Live
hogs are then transported overnight directly from the various markets and farms
in which they were purchased to five of the company's processing plants where
they are slaughtered and processed into various pork sausage products. These
products, in turn, are shipped daily from the plant facilities for distribution
to the company's customers. The company generally has not experienced difficulty
in procuring live hogs for its pork sausage products.
Hickory Specialties liquid smoke flavoring products are produced at the
company's plants in Crossville, Tenn.; Greenville, Mo.; and Summer Shade, Ky.
The company generally has not experienced difficulty in obtaining raw materials
for its Hickory Specialties products and does not currently anticipate future
difficulty in that regard.
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Distribution Methods
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The company uses two delivery methods for Bob Evans products:
(1) Primarily, the direct store delivery system (i.e., the company's
products are not warehoused, but are delivered to grocery stores as
described below) is used for the retail distribution of the sausage and
other refrigerated products bearing the Bob Evans brand name. One
hundred-thirteen driver-salesmen, driving company-owned refrigerated
trucks, deliver the company's products directly to more than 10,500
grocery stores.
(2) On a smaller scale, the company uses alternate distribution methods for
its sausage products such as warehouses in Atlanta, the Greater New
York City area and upstate New York, and a distributor in Madison and
Milwaukee, Wis., on a limited basis. Warehousing is also used for the
frozen foods division.
The marketing territory for Bob Evans brand products includes Ohio, Michigan,
Indiana, Illinois, Maryland, Delaware and the District of Columbia, as well as
portions of New Jersey, New York, Iowa, Pennsylvania, Missouri, Tennessee,
Georgia, Alabama, Virginia, Kansas, Kentucky, South Carolina, West Virginia and
Wisconsin.
Products distributed under the Owens Country Sausage brand name are distributed
to retail customers in two ways:
(1) Company-owned transport trucks deliver directly to most major
supermarket chain warehouse distribution centers in the Owens market
areas. Thereafter, the products are shipped to individual retail
outlets.
(2) Twenty-six driver-salesmen, driving company-owned refrigerated trucks,
deliver products directly to grocery stores.
Owens' marketing territory includes Texas, Arkansas, Oklahoma, New Mexico,
Louisiana, Arizona, Colorado, Nevada and portions of Mississippi and Kansas.
Owens Country Sausage products are available in more than 5,000 grocery stores.
Distribution to the company's foodservice customers is accomplished through food
brokers and distributors.
Hickory Specialties' liquid smoke flavoring products are distributed nationally
and internationally to food products manufacturers and pet food manufacturers,
through brokers and distributors and through direct shipment to customers.
Inventory Levels
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All of the company's products are highly perishable and require proper
refrigeration. Shelf life of the products ranges from 18 to 45 days for
refrigerated products. Due to the highly perishable nature and short shelf life
of the company's food products, the company's processing plants
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normally process only enough product to fill existing orders. Therefore, the
company maintains minimal inventory levels because such products are generally
manufactured only to meet existing demand and are delivered to retail outlets
within a three-day period after processing.
Because the demand for Hickory Specialties' liquid smoke flavoring products is
generally constant and does not fluctuate greatly with the seasons, they are
manufactured throughout the year which generally enables production and sales to
match.
Trademarks and Service Marks
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The company maintains various trademarks and service marks that identify various
Bob Evans Farms, Owens Country Sausage and Hickory Specialties products. These
trademarks and service marks are renewed periodically and the company believes
that such trademarks and service marks adequately protect the brand names of the
company. The operations of the food products segment of the company are not
dependent upon any patents, licenses, franchises or concessions.
Competition and Seasonality
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The sausage business is highly competitive. It is also seasonal to the extent
that more pounds of fresh sausage are typically sold during the colder months
from October through April. The company continues to promote products for summer
outdoor grilling in an attempt to create more volume during the summer months.
The company competes primarily on the basis of the price and quality of its
sausage products. The company is in direct competition with a large number and
variety of producers and wholesalers of similar products, including companies
active both locally and nationally, companies engaged in a general meat packing
business and companies in the same specialized field. Many such competitors have
substantially greater financial resources and higher sales volumes than the
company. The company believes that sales of its products constitute a
significant portion of sales of sausage of comparable price and quality in the
majority of its market areas.
The company is aware of only one major competitor, Red Arrow Products Co., Inc.,
in its liquid smoke flavoring business. In 1999, a new manufacturer, Forest
Flavors International, began operations. The extent of the competitiveness of
Forest Flavors International is yet to be seen. The company believes that
Hickory Specialties' liquid smoke products account for a significant percentage
of the liquid smoke flavorings produced and sold in the United States.
Marketing
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During the 2000 fiscal year, the company spent approximately $11 million for
marketing of its food products under the Bob Evans and Owens brand names.
Approximately 68 percent was spent on media with the remaining spent to build
brand awareness and to encourage consumers to try the company's food products.
During the 1999 fiscal year, the company spent approximately $0.1 million on
marketing for products sold by Hickory Specialties.
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Dependence on a Single Customer
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Bob Evans and Owens products are sold through more than 15,500 retail grocery
stores and are available through such stores to more than 50 percent of the
population of the continental United States. The company's liquid smoke
flavoring products are sold nationally and internationally. The company is not
dependent upon a single customer or group of affiliated customers.
Sales on Credit; Aged Product
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The company typically allows seven to 30-day terms on the sales of its food
products, and up to 60 days on its liquid smoke products. The company has not
experienced any significant bad debt problems, nor has the return of aged
product had a significant effect on the company.
Sources and Availability of Raw Materials
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The company is dependent upon the availability of live hogs to produce its pork
sausage and ham products. Historically, the company has not experienced
shortages in the number of hogs available at prevailing market prices. The live
hog market is highly cyclical (both in terms of the number of hogs available and
the current market price) and is dependent upon corn production, since corn is
the major food supply for hogs.
Expansion of Distribution Area
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The company has no current plans for further geographic expansion of its
distribution area for food products or liquid smoke flavoring products in fiscal
2001.
Profit Margins Related to Sausage Production
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The company's profit margins for the portion of the company's business relating
to sausage production are normally more favorable during periods of lower live
hog costs. During the 2000 fiscal year, hog prices averaged $34.81 per
hundredweight. The company believes live hog costs will increase during fiscal
2001 over fiscal 2000 levels.
GENERAL
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Employees
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The company had in its employment 33,736 persons in the restaurant segment and
1,840 persons in the food products segment as of April 28, 2000.
Compliance with Environmental Protection Requirements
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The company does not anticipate that compliance with federal, state and local
provisions which have been enacted or adopted regulating the discharge of
materials into the environment, or otherwise relating to the protection of the
environment, will have a material effect upon the capital expenditures, earnings
or the competitive position of the company.
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FISCAL YEAR ENDED
(Dollars in thousands)
April 28, April 30, April 24,
2000 1999 1998
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Sales:
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Restaurant Operations: $750,851 $708,896 $645,330
Intersegment Sales of
Food Products: $ 28,612 $ 32,765 $ 33,678
Food Products (excluding
intersegment sales): $213,772 $259,607 $241,508
Operating Profit:
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Restaurant Operations: $ 67,877 $ 65,905 $ 57,922
Food Products: $ 17,610 $ 26,043 $ 16,538
Identifiable Assets:
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Restaurant Operations: $519,168 $470,033 $448,314
Food Products: $ 75,311 $ 77,412 $105,076
Year 2000
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The company experienced no significant disruptions in mission critical
information technology and non-information technology systems and believes those
systems successfully responded to the Year 2000 date change.
Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995
- --------------------------------------------------------------------------------
The statements contained in this filing 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 2001 and beyond to differ materially from those expressed in such
forward-looking statements. These important factors include, without limitation,
changes in hog costs and the possibility of severe weather conditions where the
company operates its restaurants, changes in labor markets, as well as other
risks previously disclosed in the company's securities filings and press
releases.
ITEM 2. PROPERTIES.
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The materially important properties of the company, in addition to those
described below, consist of its executive offices located at 3776 South High
Street, Columbus, Ohio; a 937-acre farm located in Rio Grande, Ohio; and a
30-acre farm located in Richardson, Texas. The two farm locations support the
company's heritage and image through educational and recreational tourist
activities.
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Restaurant Segment
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Of the 441 restaurants operated by the company, 388 are owned in fee and 53 are
leased from unaffiliated persons. All lease agreements contain either multiple
renewal options or options to purchase.
Food Products Segment
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The food products segment has six sausage manufacturing plants -- three in Ohio;
and one each in Texas, Michigan and Illinois; one liquid smoke manufacturing
plant in each of Tennessee, Kentucky and Missouri. All of these properties are
owned in fee by the company. The company owns regional sales offices in
Westland, Mich., and Tyler, Texas. In addition, various other locations are
rented by the company throughout its marketing territory which serve as regional
and divisional sales offices.
ITEM 3. LEGAL PROCEEDINGS.
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There are no pending legal proceedings to which the company or any of its
subsidiaries is a party or to which any of their respective properties are
subject, except routine legal proceedings to which they are parties incident to
their respective businesses. None of such proceedings are considered by the
company to be material.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
---------------------------------------------------
Not applicable.
EXECUTIVE OFFICERS OF THE COMPANY
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The following table sets forth the executive officers of the company and certain
information with respect to each executive officer as of the beginning of fiscal
2001*. Unless otherwise indicated, each person has held his or her principal
occupation for more than five years. The executive officers are appointed by and
serve at the pleasure of the board of directors.
Name, Age and Position with the Company; Period of Principal Occupations for Past Five Years and
Service as an Officer of the Company Other Information
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Daniel E. Evans, age 63; chairman of the board; Chairman of the board since 2000; chairman of the
director of the company; 40 years as an officer of board, chief executive officer and secretary from
the company. 1971 to 2000, in each case of the company.
Stewart K. Owens, age 45; president and chief President and chief executive officer since 2000;
executive officer; director of the company; 10 years president and chief operating officer from 1995 to
as an officer of the company. 2000, in each case of the company.
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Name, Age and Position with the Company; Period of Principal Occupations for Past Five Years and
Service as an Officer of the Company Other Information
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Donald J. Radkoski, age 45; chief financial officer, Chief financial officer, treasurer and secretary
treasurer and secretary of the company; 12 years as since 2000; chief financial officer and treasurer
an officer of the company. from 1994 to 2000, in each case of the company.
Larry C. Corbin, age 58; executive vice president - Executive vice president - restaurant division
restaurant division; director of the company; 26 since 1995, of the company.
years as an officer of the company.
Roger D. Williams, age 49; executive vice president Executive vice president - food products division
- - food products division of the company; 20 years as since 1997; executive vice president - food
an officer of the company. products/marketing/purchasing/technical services
from 1995 to 1997, in each case of the company.
Howard J. Berrey, age 58; group vice president - Group vice president - real estate/construction &
real estate/construction & engineering group of the engineering group since 1990, of the company.
company; 22 years as an officer of the company.
Mary L. Cusick, age 44; vice president - corporate Vice president - corporate communications since
communications since 1990; 10 years as an officer of 1990, of the company.
the company.
*In conjunction with the new fiscal year, Daniel E. Evans stepped down as chief
executive officer and secretary, positions he held since 1971, but will continue
as chairman of the board until April 2001. Stewart K. Owens replaced Evans as
chief executive officer.
PART II
ITEM 5. MARKET FOR COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
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In accordance with General Instruction G(2), the information in Note H,
Quarterly Financial Data, in the company's annual report to stockholders for the
fiscal year ended April 28, 2000, is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA.
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In accordance with General Instruction G(2), the information for the years 1996
through 2000 contained under the subcaption Consolidated Financial Review in the
company's annual report to stockholders for the fiscal year ended April 28,
2000, is incorporated herein by reference.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
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RESULTS OF OPERATION.
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In accordance with General Instruction G(2), the information contained under the
caption Management's Discussion and Analysis of Selected Financial Information
in the company's annual report to stockholders for the fiscal year ended April
28, 2000, is incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
----------------------------------------------------------
Not material.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
-------------------------------------------
The financial statements and the auditor's report thereon included in the
company's annual report to stockholders for the fiscal year ended April 28,
2000, are incorporated herein by reference.
The Quarterly Financial Data included in Note H of the notes to consolidated
financial statements in the company's annual report to stockholders for the
fiscal year ended April 28, 2000, is also incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
---------------------------------------------------------------
FINANCIAL DISCLOSURE.
---------------------
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY.
-----------------------------------------------
In accordance with General Instruction G(3), the information contained under the
caption "ELECTION OF DIRECTORS" in the company's definitive proxy statement
dated Aug. 7, 2000, to be filed with the Securities and Exchange Commission
pursuant to Regulation 14A promulgated under the Securities Exchange Act of
1934, is incorporated herein by reference. The information regarding executive
officers required by Item 401 of Regulation S-K is included in Part I hereof
under the caption "Executive Officers of the Company." To the company's
knowledge, based solely on a review of the copies of the reports furnished to
the company and written representations that no other reports were required
during the 2000 fiscal year, all filing requirements applicable to officers,
directors and owners of more than 10 percent of the outstanding common shares of
the company under Section 16(a) of the Securities Exchange Act of 1934, as
amended, were complied with, except that E.W. (Bill) Ingram III did not file on
a timely basis one Form 4 (Statement of Changes in Beneficial Ownership)
relating to his purchase of 3,000 common shares of the company on Nov. 22, 1999.
15
16
ITEM 11. EXECUTIVE COMPENSATION.
----------------------
In accordance with General Instruction G(3), the information contained under the
captions "COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS" and "COMPENSATION
COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION" in the company's proxy statement
dated Aug. 7, 2000, to be filed with the Securities and Exchange Commission
pursuant to Regulation 14A promulgated under the Securities Exchange Act of
1934, is incorporated herein by reference. Neither the report of the
compensation committee of the company's board of directors on executive
compensation nor the performance graph included in the company's proxy statement
dated Aug. 7, 2000, shall be deemed to be incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
--------------------------------------------------------------
In accordance with General Instruction G(3), the information contained under the
caption "VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF" in the company's
definitive proxy statement dated Aug. 7, 2000, to be filed with the Securities
and Exchange Commission pursuant to Regulation 14A promulgated under the
Securities Exchange Act of 1934, is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
----------------------------------------------
In accordance with General Instruction G(3), the information contained under the
caption "ELECTION OF DIRECTORS" in the company's definitive proxy statement
dated Aug. 7, 2000, to be filed with the Securities and Exchange Commission
pursuant to Regulation 14A promulgated under the Securities Exchange Act of
1934, is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
---------------------------------------------------------------
(a) Documents Filed as Part of this Report
--------------------------------------
1 & 2 Financial Statements and Financial Statement Schedules:
The response to this portion of Item 14 is submitted as a
separate section of this report. See the "List of Financial
Statements" at page 24.
3 Exhibits:
Exhibits filed with this annual report on Form 10-K are attached hereto.
For a list of such exhibits, see "Index to Exhibits" at page 41. The following
table provides certain information
16
17
concerning executive compensation plans and arrangements required to be filed as
exhibits to this annual report on Form 10-K.
17
18
Executive Compensation Plans and Arrangements
Exhibit No. Description Location
- ----------- ----------- --------
10(a) Restated Bob Evans Farms, Inc. and Incorporated herein by reference to
Affiliates 401K Retirement Plan Exhibit 10(a) to the Company's Annual
(effective Jan. 1, 1994, except as Report on Form 10-K for the fiscal year
otherwise provided) ended April 28, 1995 (File No. 0-1667)
10(b) Amendment No. 1 to the Bob Evans Incorporated herein by reference to
Farms, Inc. and Affiliates 401K Exhibit 10(b) to the Company's Annual
Retirement Plan Report on Form 10-K for the fiscal year
ended April 26, 1996 (File No. 0-1667)
10(c) Bob Evans Farms, Inc. and Affiliates Incorporated herein by reference to
401K Retirement Plan Trust (effective Exhibit 4(f) to the Company's
May 1, 1990) Pre-Effective Amendment No. 1 to Form
S-8 Registration Statement, filed April
27, 1990 (Registration No. 33-34149)
10(d) Bob Evans Farms, Inc. 1987 Incentive Incorporated herein by reference to
Stock Option Plan Exhibit 4(a) to the Company's
Registration Statement on Form S-8,
filed Oct. 19, 1987 (Registration No.
33-17978)
10(e) Agreement, dated Feb. 24, 1989, Incorporated herein by reference to
between Daniel E. Evans and Bob Evans Exhibit 10(g) to the Company's Annual
Farms, Inc.; and Schedule A to Report on Form 10-K for the fiscal
Exhibit 10(e) identifying other year ended April 28, 1989;
substantially identical Agreements Incorporated herein by reference to
between Bob Evans Farms, Inc. and Exhibit 10(e) to the Company's Annual
certain of the executive officers of Report on Form 10-K for the fiscal
Bob Evans Farms, Inc. year ended April 30, 1999
(File No. 0-1667)
10(f) Bob Evans Farms, Inc. 1989 Stock Incorporated herein by reference to
Option Plan for Nonemployee Directors Exhibit 4(d) to the Company's
Registration Statement on Form S-8,
filed Aug. 23, 1989
(Registration No. 33-30665)
10(g) Bob Evans Farms, Inc. 1991 Incentive Incorporated herein by reference to
Stock Option Plan Exhibit 4(d) to the Company's
Registration Statement on Form S-8,
filed Sept. 13, 1991
(Registration No. 33-42778)
18
19
Exhibit No. Description Location
- ----------- ----------- --------
10(h) Bob Evans Farms, Inc. Supplemental Incorporated herein by reference to
Executive Retirement Plan Exhibit 10(i) to the Company's Annual
Report on Form 10-K for the fiscal
year ended April 24, 1992 (File
No. 0-1667)
10(i) Bob Evans Farms, Inc. Nonqualified Incorporated herein by reference to
Stock Option Plan Exhibit 10(j) to the Company's Annual
Report on Form 10-K for the fiscal
year ended April 24, 1992 (File
No. 0-1667)
10(j) Bob Evans Farms, Inc. Long Term Incorporated herein by reference to
Incentive Plan for Managers Exhibit 10(k) to the Company's Annual
Report on Form 10-K for the fiscal
year ended April 30, 1993 (File
No. 0-1667)
10(k) Bob Evans Farms, Inc. 1994 Long Term Incorporated herein by reference to
Incentive Plan Exhibit 10(n) to the Company's Annual
Report on Form 10-K for the fiscal
year ended April 29, 1994 (File
No. 0-1667)
10(l) Bob Evans Farms, Inc. Supplemental Incorporated herein by reference to
Executive Retirement Plan Exhibit 10(l) to the Company's Annual
Report on Form 10-K for the fiscal
year ended April 24, 1998 (File
No. 0-1667)
10(m) Bob Evans Farms, Inc. 1998 Directors Incorporated herein by reference to
Compensation Plan Exhibit 10(m) to the Company's Annual
Report on Form 10-K for the fiscal
year ended April 24, 1998 (File
No. 0-1667)
10(n) Bob Evans Farms, Inc. 1998 Stock Incorporated herein by reference to
Option and Incentive Plan Exhibit 4(f) to the Company's
Registration Statement on Form S-8
filed March 22, 1999 (Registration
No. 33-74829)
10(o) Bob Evans Farms, Inc. Dividend Incorporated herein by reference to
Reinvestment and Stock Purchase Plan the Company's Registration Statement
on Form S-3 filed March 19, 1999
(Registration No. 333-74739)
10(p) Bob Evans Farms, Inc. Nonqualified Incorporated herein by reference to
Salary Deferral Plan Exhibit 10(p) to the Company's Annual
Report on Form 10-K for the fiscal
year ended April 30, 1999 (File
No. 0-1667)
19
20
(b) Reports on Form 8-K
--------------------
The company filed no current reports on Form 8-K during the last quarter
of the period covered by this report.
(c) Exhibits
--------
See Item 14(a) (3) above.
(d) Financial Statement Schedules
-----------------------------
All schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required
under the related instructions or are inapplicable and, therefore, have
been omitted.
20
21
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the company has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
Bob Evans Farms, Inc.
July 17, 2000 By: /s/ Donald J. Radkoski
----------------------
Donald J. Radkoski
Chief Financial Officer, Treasurer
and Secretary (Chief
Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the company and in
the capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ Daniel E. Evans Chairman of the Board July 17, 2000
- ------------------------------------
Daniel E. Evans
/s/ Larry C. Corbin Director July 17, 2000
- ------------------------------------
Larry C. Corbin
/s/ Daniel A. Fronk Director July 17, 2000
- ------------------------------------
Daniel A. Fronk
21
22
/s/ Michael J. Gasser Director July 17, 2000
- ------------------------------------
Michael J. Gasser
/s/ E.W. (Bill) Ingram III Director July 17, 2000
- ------------------------------------
E.W. (Bill) Ingram III
/s/ Cheryl L. Krueger-Horn Director July 17, 2000
- ------------------------------------
Cheryl L. Krueger-Horn
/s/ G. Robert Lucas II Director July 17, 2000
- ------------------------------------
G. Robert Lucas II
/s/ Stewart K. Owens Director July 17, 2000
- ------------------------------------
Stewart K. Owens
/s/ Robert E.H. Rabold Director July 17, 2000
- ------------------------------------
Robert E.H. Rabold
/s/ Donald J. Radkoski Chief Financial Officer,
- ------------------------------------ Treasurer and Secretary July 17, 2000
Donald J. Radkoski (Chief Accounting Officer)
22
23
ANNUAL REPORT ON FORM 10-K
ITEM 14(a)(1) AND (2)
LIST OF FINANCIAL STATEMENTS
FISCAL YEAR ENDED APRIL 28, 2000
BOB EVANS FARMS, INC.
COLUMBUS, OHIO
23
24
FORM 10-K -- ITEM 14(a) (1) AND (2)
BOB EVANS FARMS, INC.
LIST OF FINANCIAL STATEMENTS
The following consolidated financial statements of Bob Evans Farms, Inc. and its
subsidiaries, included in the Annual Report of the registrant to its
stockholders for the fiscal year ended April 28, 2000, are incorporated by
reference in Item 8:
Consolidated Financial Review - April 28, 2000, April 30, 1999, April
24, 1998, April 25, 1997 and April 26, 1996
Consolidated Balance Sheets -- April 28, 2000 and April 30, 1999
Consolidated Statements of Income -- Years ended April 28, 2000, April
30, 1999 and April 24, 1998
Consolidated Statements of Stockholders' Equity -- Years ended April
28, 2000, April 30, 1999, April 24, 1998 and April 25, 1997
Consolidated Statements of Cash Flows -- Years ended April 28, 2000,
April 30, 1999 and April 24, 1998
Notes to Consolidated Financial Statements -- April 28, 2000
Report of Ernst & Young LLP, Independent Auditors
24
25
CONSOLIDATED FINANCIAL REVIEW
BOB EVANS FARMS, INC. AND SUBSIDIARIES
Dollars and shares in thousands, except per share amounts
2000 1999 1998 1997 1996*
- -----------------------------------------------------------------------------------------------------
OPERATING RESULTS
Net sales $ 964,623 $ 968,503 $ 886,838 $ 822,155 $ 806,627
Operating income 85,487 91,948 74,460 57,800 46,553
Income before income taxes 83,954 91,374 72,521 56,992 46,745
Income taxes 31,061 33,808 26,833 20,916 17,529
Net income 52,893 57,566 45,688 36,076 29,216
Earnings per share of common stock:
Basic $ 1.38 $ 1.40 $ 1.10 $ 0.86 $ 0.69
Diluted $ 1.38 $ 1.39 $ 1.09 $ 0.86 $ 0.69
FINANCIAL POSITION
Working capital $(129,475) $ (34,372) $ (40,870) $ (67,426) $ (57,532)
Property, plant and equipment - net 546,594 493,369 485,949 473,021 447,243
Total assets 624,441 590,452 579,931 564,079 535,813
Debt:
Short-term (line of credit) 99,295 25,000 39,420 68,880 59,655
Long-term 431 833 1,223 1,587 1,927
Stockholders' equity 428,790 470,095 457,196 422,807 409,155
SUPPLEMENTAL INFORMATION
FOR THE YEAR
Capital expenditures $ 96,867 $ 68,525 $ 47,801 $ 60,048 $ 80,967
Depreciation and amortization $ 36,480 $ 35,386 $ 32,882 $ 29,544 $ 28,459
Weighted-average shares outstanding:
Basic 38,230 41,210 41,610 41,987 42,311
Diluted 38,366 41,509 41,803 42,020 42,387
Cash dividends declared per share $ 0.36 $ 0.35 $ 0.32 $ 0.32 $ 0.32
Common stock market prices:
High $ 22.06 $ 26.13 $ 22.19 $ 17.00 $ 21.13
Low $ 12.06 $ 18.25 $ 13.13 $ 12.13 $ 15.25
SUPPLEMENTAL INFORMATION
AT YEAR-END
Employees 35,576 32,363 31,189 29,375 28,728
Stockholders 42,102 44,173 43,980 43,570 37,239
Market price per share at closing $ 13.06 $ 18.31 $ 20.25 $ 13.13 $ 16.13
Book value per share $ 12.09 $ 11.67 $ 10.97 $ 10.17 $ 9.68
* Fiscal 1996 amounts reflect a pre-tax loss of $22,000 on the write-down of
assets, which reduced the income tax provision by $8,209 and decreased net
income by $13,791, or $0.33 per share.
25
26
CONSOLIDATED BALANCE SHEETS
BOB EVANS FARMS, INC. AND SUBSIDIARIES
Dollars in thousands
APRIL 28, 2000 April 30, 1999
- ---------------------------------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash and equivalents $ 6,780 $ 25,455
Accounts receivable 13,651 17,036
Inventories 16,456 14,299
Deferred income taxes 7,665 8,150
Prepaid expenses 1,694 1,697
---------------------------
TOTAL CURRENT ASSETS 46,246 66,637
PROPERTY, PLANT AND EQUIPMENT
Land 169,069 155,271
Buildings and improvements 427,357 391,517
Machinery and equipment 222,224 201,497
Construction in progress 6,891 2,127
---------------------------
825,541 750,412
Less accumulated depreciation 278,947 257,043
---------------------------
NET PROPERTY, PLANT AND EQUIPMENT 546,594 493,369
OTHER ASSETS
Deposits and other 1,388 3,505
Long-term investments 11,400 8,331
Deferred income taxes 10,654 9,767
Cost in excess of net assets acquired 7,849 8,360
Other intangible assets 310 483
---------------------------
TOTAL OTHER ASSETS 31,601 30,446
---------------------------
$ 624,441 $ 590,452
===========================
- -----------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Line of credit $ 99,295 $ 25,000
Accounts payable 9,085 9,559
Dividends payable 3,191 3,626
Federal and state income taxes 5,050 896
Accrued wages and related liabilities 14,851 17,009
Other accrued expenses 44,249 44,919
---------------------------
TOTAL CURRENT LIABILITIES 175,721 101,009
LONG-TERM LIABILITIES
Deferred compensation 4,616 1,190
Deferred income taxes 14,883 17,325
Notes payable (net of discount of $34 in 2000 and $97 in 1999) 431 833
---------------------------
TOTAL LONG-TERM LIABILITIES 19,930 19,348
STOCKHOLDERS' EQUITY
Common stock, $.01 par value; authorized 100,000,000 shares;
issued 42,638,118 shares in 2000 and 1999 426 426
Preferred stock, $500 par value; authorized 1,200 shares; issued 120 shares
in 2000 and 1999 60 60
Capital in excess of par value 150,225 151,364
Retained earnings 406,280 366,924
Treasury stock, 7,180,340 shares in 2000 and 2,353,332 shares
in 1999, at cost (128,201) (48,679)
---------------------------
TOTAL STOCKHOLDERS' EQUITY 428,790 470,095
---------------------------
$ 624,441 $ 590,452
===========================
See Notes to Consolidated Financial Statements
26
27
CONSOLIDATED STATEMENTS OF INCOME
BOB EVANS FARMS, INC. AND SUBSIDIARIES
Dollars in thousands, except per share amounts
Years Ended April 28, 2000; April 30, 1999; and April 24, 1998 2000 1999 1998
- ----------------------------------------------------------------------------------------------------------------
NET SALES $ 964,623 $ 968,503 $ 886,838
Cost of sales 274,388 275,898 271,448
Operating wage and fringe benefit expenses 320,174 306,816 275,559
Other operating expenses 138,754 132,123 121,870
Selling, general and administrative expenses 110,438 127,531 111,860
Depreciation expense 35,382 34,187 31,641
---------------------------------------------
OPERATING INCOME 85,487 91,948 74,460
Net interest (1,533) (574) (1,939)
---------------------------------------------
INCOME BEFORE INCOME TAXES 83,954 91,374 72,521
PROVISIONS FOR INCOME TAXES
Federal 25,349 27,595 21,901
State 5,712 6,213 4,932
---------------------------------------------
31,061 33,808 26,833
---------------------------------------------
NET INCOME $ 52,893 $ 57,566 $ 45,688
---------------------------------------------
EARNINGS PER SHARE - BASIC $ 1.38 $ 1.40 $ 1.10
---------------------------------------------
EARNINGS PER SHARE - DILUTED $ 1.38 $ 1.39 $ 1.09
---------------------------------------------
See Notes to Consolidated Financial Statements
27
28
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
BOB EVANS FARMS, INC. AND SUBSIDIARIES
Dollars in thousands
CAPITAL
COMMON PREFERRED IN EXCESS OF RETAINED TREASURY
STOCK STOCK PAR VALUE EARNINGS STOCK TOTAL
- ----------------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY AT 4/25/97 $426 $60 $145,889 $291,364 $ (14,932) $422,807
Net income 45,688 45,688
Dividends declared (13,332) (13,332)
Treasury stock repurchased (3,470) (3,470)
Treasury stock reissued under employee plans 789 4,179 4,968
Stock options granted under employee plans 146 146
Tax reductions - employee plans 389 389
- ----------------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY AT 4/24/98 426 60 147,213 323,720 (14,223) 457,196
Net income 57,566 57,566
Dividends declared (14,362) (14,362)
Treasury stock repurchased (42,284) (42,284)
Treasury stock reissued under employee plans 3,319 7,828 11,147
Stock options granted under employee plans 165 165
Tax reductions - employee plans 667 667
- ----------------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY AT 4/30/99 426 60 151,364 366,924 (48,679) 470,095
Net income 52,893 52,893
Dividends declared (13,537) (13,537)
Treasury stock repurchased (82,228) (82,228)
Treasury stock reissued under employee plans (1,385) 2,706 1,321
Stock options granted under employee plans 122 122
Tax reductions - employee plans 124 124
- ----------------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY AT 4/28/00 $426 $60 $150,225 $406,280 $(128,201) $428,790
See Notes to Consolidated Financial Statements
28
29
CONSOLIDATED STATEMENTS OF CASH FLOWS
BOB EVANS FARMS, INC. AND SUBSIDIARIES
Dollars in thousands
Years Ended April 28, 2000; April 30, 1999; and April 24, 1998 2000 1999 1998
- ------------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES:
Net income $ 52,893 $ 57,566 $ 45,688
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 36,480 35,386 32,882
Deferred compensation 3,426 1,190 0
Deferred income taxes (2,844) 623 4,211
Loss (gain) on sale of assets (24) 25 243
Compensation expense attributable to stock plans 395 1,168 646
Cash provided by (used for) current assets and current liabilities:
Accounts receivable 3,385 (1,391) (667)
Inventories (2,157) (224) 891
Prepaid expenses 3 (155) 689
Accounts payable (474) 1,650 790
Federal and state income taxes 4,278 2,683 (8)
Accrued wages and related liabilities (2,158) 2,661 1,206
Other accrued expenses 711 4,640 5,373
---------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 93,914 105,822 91,944
INVESTING ACTIVITIES:
Purchase of property, plant and equipment (96,867) (68,525) (47,801)
Purchase of long-term investments (3,483) (2,412) (1,550)
Proceeds from sale of property, plant
and equipment 6,903 11,336 2,492
Cash proceeds from divestitures 0 24,901 0
Other 2,117 (44) 180
---------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (91,330) (34,744) (46,679)
FINANCING ACTIVITIES:
Cash dividends paid (13,973) (14,070) (13,325)
Purchase of treasury stock (82,228) (42,284) (3,470)
Line of credit 74,295 (14,420) (29,460)
Payments on principal of note payable (402) (390) (364)
Proceeds from issuance of treasury stock 1,049 10,144 4,468
---------------------------------------------
NET CASH USED IN FINANCING ACTIVITIES (21,259) (61,020) (42,151)
---------------------------------------------
INCREASE (DECREASE) IN CASH AND EQUIVALENTS (18,675) 10,058 3,114
CASH AND EQUIVALENTS AT THE BEGINNING OF THE YEAR 25,455 15,397 12,283
---------------------------------------------
CASH AND EQUIVALENTS AT THE END OF THE YEAR $ 6,780 $ 25,455 $ 15,397
=============================================
See Notes to Consolidated Financial Statements
29
30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BOB EVANS FARMS, INC. AND SUBSIDIARIES - APRIL 28, 2000
Dollars in thousands unless otherwise noted, except per share amounts
NOTE A -- SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS: Bob Evans Farms, Inc. owns and operates 441
restaurants in 21 states as Bob Evans Restaurants and Owens Family Restaurants.
The company also produces fresh and fully cooked pork products, as well as other
food products, that are distributed 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. The company's liquid-smoke flavorings are
distributed nationally and internationally. In April 1999, the company sold its
salad production and charcoal manufacturing businesses (see Note C).
PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include
the accounts of the company and its 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 2000, 1999 and 1998 refer to fiscal years ended April 28,
2000; April 30, 1999; and April 24, 1998, respectively. Fiscal 1999 was
comprised of 53 weeks as compared to 2000 and 1998, which were both comprised of
52 weeks.
CASH EQUIVALENTS: The company considers all highly liquid instruments, with
a maturity of three months or less when purchased, to be cash equivalents.
INVENTORIES: The company values inventories at the lower of first-in,
first-out cost or market. Inventory includes raw materials and supplies ($10,223
in 2000 and $9,188 in 1999) and finished goods ($6,233 in 2000 and $5,111 in
1999).
PROPERTY, PLANT AND EQUIPMENT: The company calculates depreciation on the
straight-line and accelerated methods at rates adequate to amortize costs over
the estimated useful lives of buildings and improvements (15 to 25 years) and
machinery and equipment (3 to 10 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.
LONG-TERM INVESTMENTS: Long-term investments include assets held under
certain deferred compensation arrangements and investments in income tax credit
limited partnerships. Assets held under certain deferred compensation
arrangements represent the cash surrender value of company-owned life insurance
policies. An offsetting liability for the amount of the cash surrender value is
included in the deferred compensation liability on the balance sheet.
Investments in income tax credit limited partnerships are recorded at amortized
cost. The company amortizes the investments to the expected residual value of
the partnerships once the income tax credits are fully utilized. The
amortization period of the investments matches the respective income tax credit
period.
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 28, 2000, and April 30, 1999, was
$5,299 and $4,615, respectively.
FINANCIAL INSTRUMENTS: The fair values of the company's financial
instruments approximate their carrying values at April 28, 2000, and April 30,
1999. The company entered into an interest rate swap agreement with a bank in
1998 as a hedge against the interest rate risk associated with its borrowings.
The swap agreement, with a notional amount of $25 million, effectively locked in
a portion of the company's variable rate line-of-credit liability at a fixed
rate of 6.18% for 10 years. The differential to be paid or received is accrued
as interest rates change and is recognized as an adjustment to interest expense
in the statements of income. The company does not use derivative financial
instruments for speculative purposes.
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 $41,548; $41,150; and $38,564 in 2000, 1999 and 1998,
respectively.
COST OF SALES: Cost of sales represents food cost in the restaurant segment
and cost of materials in the food products segment.
COMPREHENSIVE INCOME: Comprehensive income is the same as reported net
income.
30
31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BOB EVANS FARMS, INC. AND SUBSIDIARIES - APRIL 28, 2000
Dollars in thousands unless otherwise noted, except per share amounts
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 year is reported net income. The denominator is based on the following
weighted-average number of common shares outstanding:
2000 1999 1998
- ------------------------------------------------------------------
Basic 38,230,000 41,210,000 41,610,000
Dilutive
stock options 136,000 299,000 193,000
---------------------------------------------
Diluted 38,366,000 41,509,000 41,803,000
=============================================
Options to purchase 1,048,000; 367,000; and 776,000 shares of common stock
in 2000, 1999 and 1998, respectively, were excluded from the diluted
earnings-per-share calculations since they were anti-dilutive.
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.
RECLASSIFICATIONS: Certain 1999 and 1998 amounts have been reclassified to
conform to the 2000 classification.
EFFECT OF NEW ACCOUNTING STANDARDS: The Financial Accounting Standards
Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 133,
Accounting for Derivative Instruments and Hedging Activities, in 1998 and SFAS
No. 137, Accounting for Derivative Instruments and Hedging Activities-Deferral
of the Effective Date of FASB Statement No. 133, in 1999. The statements require
that all derivatives be recorded as either assets or liabilities in the balance
sheet and be measured at fair value. Gains or losses resulting from changes in
the values of those derivatives would be accounted for depending on the use of
the derivative and whether it qualifies for hedge accounting. The company is
currently assessing the impact of these statements on the company's consolidated
financial statements. The company plans to adopt the statements in the first
quarter of fiscal 2002.
NOTE B -- CREDIT ARRANGEMENTS
The company has arrangements with certain banks from which it may borrow up
to $150,000 on a short-term basis. The arrangements are reviewed annually for
renewal. At April 28, 2000, $99,295 was outstanding under these arrangements.
During 2000 and 1999, respectively, the maximum amounts outstanding under these
arrangements were $104,165 and $44,240, and the average amounts outstanding were
$53,613 and $30,229 with weighted-average interest rates of 6.58% and 6.11%. All
interest paid on these arrangements is at floating rates (see Financial
Instruments in Note A).
Interest costs of $1,389; $911; and $1,085 incurred in 2000, 1999 and 1998,
respectively, were capitalized in connection with the company's construction
activities.
Note C -- Divestitures
In 1999, the company sold its salad production and charcoal manufacturing
businesses. The sales prices of the two transactions totaled $29,152 (comprised
of $24,901 in cash and the remainder in short-term receivables) plus the
assumption of $1,673 of liabilities. No material gain or loss was realized on
the transactions. The company's results of operations for 1999 and 1998 included
net sales of $46,318 and $43,529, respectively, and operating income of $355 and
$564, respectively, from the divested businesses.
31
32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BOB EVANS FARMS, INC. AND SUBSIDIARIES - APRIL 28, 2000
Dollars in thousands unless otherwise noted, except per share amounts
NOTE D -- INCOME TAXES
Deferred 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 28, 2000, and
April 30, 1999, were as follows:
APRIL 28, 2000 April 30, 1999
- -----------------------------------------------------------------------------------
DEFERRED TAX ASSETS:
Loss on impaired assets $ 7,546 $ 7,546
Self-insurance 5,985 5,705
Vacation pay 1,150 1,080
Stock compensation plans 3,108 2,221
Accrued bonus 530 762
Inventory and other 0 603
--------------------------------
TOTAL DEFERRED TAX ASSETS 18,319 17,917
DEFERRED TAX LIABILITIES:
Accelerated depreciation/asset disposals 12,615 15,640
Other taxes 180 1,685
Inventory and other 2,088 0
--------------------------------
TOTAL DEFERRED TAX LIABILITIES 14,883 17,325
--------------------------------
NET DEFERRED TAX ASSETS $ 3,436 $ 592
================================
Significant components of the provisions for income taxes are as follows:
2000 1999 1998
- ----------------------------------------------------------------------
CURRENT:
Federal $ 27,669 $ 26,869 $ 20,880
State 6,235 6,316 5,054
------------------------------------------
TOTAL CURRENT 33,904 33,185 25,934
DEFERRED:
Federal (2,320) 726 1,021
State (523) (103) (122)
------------------------------------------
TOTAL DEFERRED (2,843) 623 899
------------------------------------------
TOTAL TAX PROVISIONS $ 31,061 $ 33,808 $ 26,833
==========================================
The company's provisions for income taxes differ from the amounts computed by
applying the federal statutory rate due to the following:
2000 1999 1998
- -----------------------------------------------------------------------------
Tax at statutory rate $ 29,384 $ 31,981 $ 25,382
State income tax (net) 3,713 4,039 3,206
Other (2,036) (2,212) (1,755)
-------------------------------------------
PROVISIONS FOR INCOME TAXES $ 31,061 $ 33,808 $ 26,833
===========================================
Taxes paid during 2000, 1999 and 1998 were $28,390; $28,687; and $22,630,
respectively.
32
33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BOB EVANS FARMS, INC. AND SUBSIDIARIES - APRIL 28, 2000
Dollars in thousands unless otherwise noted, except per share amounts
NOTE E -- STOCK-BASED
COMPENSATION PLANS
The company has employee stock option plans adopted in 1987, 1991, 1994 and
1998; a nonemployee 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 not be less than 50% of the fair market value of the stock at the
date of grant. The 1998 plan provides that the option price for 1) incentive
stock options shall be the fair market value of the stock at the grant date and
2) nonqualified stock options shall be determined by the compensation committee
of the board of directors. 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 five years under the 1989 plan and up to 10 years under
all other plans.
The company's supplemental executive retirement plan (SERP) provides
retirement benefits to certain key management employees of the company and its
subsidiaries. The purpose of the 1992 nonqualified stock option plan discussed
earlier is to fund and settle benefit contributions of the company that may
arise under the SERP. To the extent that benefits under the SERP are satisfied
by grants of stock options under the nonqualified stock option plan, it operates
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.
The following table summarizes option-related activity for the last three
years:
SHARES PRICE RANGE
- --------------------------------------------------------------------------------
OUTSTANDING, APRIL 25, 1997 1,516,690 $ 8.00 to $21.25
Granted 378,364 6.56 to 16.44
Exercised (280,613) 8.69 to 20.50
Canceled or expired (97,224) 13.13 to 20.50
OUTSTANDING, APRIL 24, 1998 1,517,217 6.56 to 21.25
Granted 414,889 9.94 to 21.38
Exercised (592,988) 6.56 to 21.38
Canceled or expired (155,410) 6.56 to 21.38
OUTSTANDING, APRIL 30, 1999 1,183,708 6.56 to 21.38
GRANTED 713,062 9.22 to 19.38
EXERCISED (60,583) 9.13 to 20.50
CANCELED OR EXPIRED (144,842) 6.56 to 21.38
OUTSTANDING, APRIL 28, 2000 1,691,345 6.56 to 21.38
In addition to the outstanding options, 4,914,690 stock option shares were
available for grant at April 28, 2000. The following table summarizes
information regarding stock options outstanding at April 28, 2000:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------------- --------------------------
NUMBER WEIGHTED-AVG. WEIGHTED-AVG. NUMBER WEIGHTED-AVG.
OUTSTANDING REMAINING EXERCISE EXERCISABLE EXERCISE
RANGE OF EXERCISE PRICES AT 4/28/00 CONTRACTUAL LIFE PRICE AT 4/28/00 PRICE
- ---------------------------------------------------------------------------------------------------------------------
$ 6.56 to $10.99 300,466 12.33 $ 9.44 196,949 $ 9.41
11.00 to 14.99 48,890 1.99 13.13 33,270 13.13
15.00 to 15.99 249,493 6.34 15.31 150,585 15.31
16.00 to 16.99 73,443 1.09 16.25 67,287 16.23
17.00 to 19.99 688,766 8.37 19.38 21,314 19.43
20.00 to 21.38 330,287 6.81 21.38 115,113 21.38
$ 6.56 to $21.38 1,691,345 7.97 $17.09 584,518 $14.65
33
34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BOB EVANS FARMS, INC. AND SUBSIDIARIES - APRIL 28, 2000
Dollars in thousands unless otherwise noted, except per share amounts
The company has adopted the disclosure-only provisions of SFAS No. 123,
Accounting for Stock-Based Compensation, and as permitted under SFAS No. 123,
applies Accounting Principles Board Opinion No. 25, Accounting for Stock Issued
to Employees, and related interpretations in accounting for employee stock
options. Accordingly, no compensation expense has been recognized for the stock
option plans when the exercise price of the options is equal to or greater than
the fair market value of the stock at the grant date. Compensation expense
recognized in income for stock options granted at less than fair market value in
2000, 1999 and 1998 was $167, $165 and $146, respectively. Had the company
elected to recognize compensation expense by using the fair-value method
prescribed by SFAS No. 123, pro forma net income and earnings per share would be
as follows:
2000 1999 1998
- --------------------------------------------------------------------------------
NET INCOME
As reported $ 52,893 $ 57,566 $ 45,688
Pro forma 50,066 56,128 45,024
EARNINGS PER SHARE-BASIC
As reported $ 1.38 $ 1.40 $ 1.10
Pro forma 1.31 1.36 1.08
EARNINGS PER SHARE-DILUTED
As reported $ 1.38 $ 1.39 $ 1.09
Pro forma 1.31 1.35 1.08
Note: The financial effects of applying SFAS No. 123 for the years reported may
not be representative of the effects on reported net income and earnings per
share in future years.
Reflected in these pro forma amounts are weighted-average fair values of
options of $7.28, $7.39 and $5.08 in 2000, 1999 and 1998, respectively. The fair
value of each option granted was estimated on the date of grant using the
Black-Scholes option-pricing model and the following weighted-average
assumptions:
2000 1999 1998
- ------------------------------------------------------------------------
Dividend yield 2.15% 1.70% 1.70%
Expected volatility 37.74% 32.43% 27.15%
Risk-free interest rate 5.98% 5.57% 6.39%
Expected life (in years) 5.9 5.8 6.0
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
2000 and 1999, 113,104 and 55,157 shares, respectively, were awarded as part of
the LTIP. No shares were awarded in 1998. Compensation expense attributable to
the plan was $301 in 2000, $1,003 in 1999 and $500 in 1998.
34
35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BOB EVANS FARMS, INC. AND SUBSIDIARIES - APRIL 28, 2000
Dollars in thousands unless otherwise noted, except per share amounts
NOTE F -- OTHER COMPENSATION PLANS
The company has a profit sharing plan that covers substantially all
employees who have 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 2000, 1999 and 1998 were
$3,278; $3,850; and $3,209, respectively.
In January 1999, the company implemented the Bob Evans Executive Deferral
Plan (BEEDP). The BEEDP provides certain executives the opportunity to defer a
portion of their current income to future years.
The company's SERP also provides executives with an option to accept all or
a portion of individual awards in the form of nonqualified deferred
compensation. The company's expense related to contributions to the SERP
deferred compensation plan was $798 in 2000 and $1,026 in 1999. There was no
such expense prior to 1999.
NOTE G -- COMMITMENTS AND CONTINGENCIES
At April 28, 2000, the company had contractual commitments approximating
$26,010 for restaurant construction, plant equipment additions and the purchases
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 administrative
hearings. While it is not feasible to predict the outcome, 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 H -- QUARTERLY FINANCIAL DATA (UNAUDITED)
FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER
-------------------- -------------------- -------------------- ---------------------
2000 1999 2000 1999 2000 1999 2000 1999
- -------------------------------------------------------------------------------------------------------------------
Net sales $243,757 $240,337 $245,599 $239,328 $236,294 $250,530 $ 238,973 $ 238,308
Gross profit 174,711 168,347 176,812 172,677 168,732 181,040 169,980 170,541
Operating income 23,980 22,741 22,865 24,693 19,854 22,910 18,788 21,604
Net income 15,120 14,103 14,380 15,397 12,328 14,280 11,065 13,786
Earnings per share
Basic $0.38 $0.34 $0.37 $0.37 $0.33 $0.35 $0.31 $0.34
Diluted 0.38 0.34 0.37 0.37 0.33 0.34 0.31 0.34
Common stock
market prices:
High $21.38 $21.69 $22.06 $20.75 $17.31 $26.13 $16.13 $23.38
Low 18.25 19.31 12.94 18.25 13.50 19.69 12.06 18.31
Cash dividends
declared $.09 $.08 $.09 $.09 $.09 $.09 $.09 $.09
- - Gross profit represents net sales less cost of sales (materials).
- - Each fiscal quarter is comprised of a 13-week period, except the third
quarter of 1999, which had 14 weeks.
- - Total quarterly earnings per share may not equal the annual amount because
earnings per share is calculated independently for each quarter.
- - Stock prices are for the NASDAQ National Market (trading symbol-BOBE),
which is the principal market for the company's common stock.
- - The number of stockholders of the company's common stock at June 8, 2000,
was 42,018.
NOTE I -- INDUSTRY SEGMENTS
In 1999, the company adopted SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information. 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.
Operating income 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 cash
equivalents, long-term investments and income taxes.
35
36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BOB EVANS FARMS, INC. AND SUBSIDIARIES - APRIL 28, 2000
Dollars in thousands unless otherwise noted, except per share amounts
Information on the company's industry segments is summarized as follows:
2000 1999 1998
- -------------------------------------------------------------------------------------------------------------------
SALES
Restaurant operations $750,851 $ 708,896 $645,330
Food products 242,384 292,372 275,186
------------------------------------------------
993,235 1,001,268 920,516
Intersegment sales of food products (28,612) (32,765) (33,678)
------------------------------------------------
TOTAL $964,623 $ 968,503 $886,838
===============================================
OPERATING INCOME
Restaurant operations $ 67,877 $ 65,905 $ 57,922
Food products 17,610 26,043 16,538
------------------------------------------------
TOTAL $ 85,487 $ 91,948 $ 74,460
===============================================
DEPRECIATION AND AMORTIZATION EXPENSE
Restaurant operations $ 29,165 $ 26,475 $ 22,991
Food products 7,315 8,911 9,891
------------------------------------------------
TOTAL $ 36,480 $ 35,386 $ 32,882
===============================================
CAPITAL EXPENDITURES
Restaurant operations $ 91,006 $ 61,055 $ 41,794
Food products 5,861 7,470 6,007
------------------------------------------------
TOTAL $ 96,867 $ 68,525 $ 47,801
===============================================
IDENTIFIABLE ASSETS
Restaurant operations $519,168 $ 470,033 $448,314
Food products 75,311 77,412 105,076
------------------------------------------------
594,479 547,445 553,390
General corporate assets 29,962 43,007 26,541
------------------------------------------------
TOTAL $624,441 $ 590,452 $579,931
===============================================
36
37
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Stockholders and Board of Directors of Bob Evans Farms, Inc.
We have audited the accompanying consolidated balance sheets of Bob Evans Farms,
Inc. and subsidiaries as of April 28, 2000, and April 30, 1999, and the related
consolidated statements of income, stockholders' equity and cash flows for each
of the three years in the period ended April 28, 2000. 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 auditing standards generally accepted
in the United States. 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 28, 2000, and April 30, 1999, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended April 28, 2000, in conformity with accounting
principles generally accepted in the United States.
/s/ Ernst & Young LLP
- ---------------------
Columbus, Ohio
June 6, 2000
37
38
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF SELECTED FINANCIAL INFORMATION
Bob Evans Farms, Inc. and Subsidiaries
During the fourth quarter of fiscal 1999, the company sold its salad
production and charcoal manufacturing businesses held by wholly owned
subsidiaries Mrs. Giles Country Kitchens (Giles) and Hickory Specialties
(Hickory), respectively. Therefore, certain comparisons of fiscal 2000 to fiscal
1999 have been adjusted to exclude the effect of the businesses sold. The
company's results of operations for fiscal 1999 and 1998 included net sales of
$46.3 million and $43.5 million, respectively, and operating income of $355,000
and $564,000, respectively, from the divested businesses. In addition, fiscal
1999 included one more week of operations than both fiscal 2000 and fiscal 1998.
SALES
Consolidated net sales for Bob Evans Farms, Inc. and subsidiaries decreased
$3.9 million, or 0.4%, in 2000 compared to 1999. The 2000 decrease was the net
result of a $41.9 million increase in restaurant segment sales and a $45.8
million decrease in food products segment sales. Net sales in 1999 represented a
9.2% increase over 1998 sales. Excluding the divested businesses, consolidated
net sales rose $42.4 million, or 4.6%, in fiscal 2000 compared to 1999.
Restaurant segment sales accounted for 77.8%, 73.2% and 72.8% of total
sales for 2000, 1999 and 1998, respectively. The $41.9 million additional
restaurant sales in 2000 represented a 5.9% increase over 1999 sales, which were
9.9% higher than 1998 sales.
The increase in restaurant sales in 2000 was the result of a 3.4% increase
in same-store sales (excluding the effect of the extra week in 1999) as well as
more restaurants in operation. Same-store sales increased in all four quarters
of 2000, and included an average menu price increase of 2.3% for the year. Menu
price increases were 2.6% in 1999 and 2.9% in 1998. Same-store sales have
improved each quarter since the third quarter of fiscal 1997. New restaurant
openings also provided additional sales growth as stores in operation totaled
441 at the end of 2000 compared to 424 at the end of 1999. The fiscal 2000
openings included further expansion into existing markets for the company with
an emphasis on North Carolina, where four new restaurants were opened. In
addition, the company opened its first units in Memphis, Tenn., and Kansas.
During 2000, the company closed nine under-performing restaurants. The following
chart summarizes the openings and closings during the last two years:
BEGINNING OPENED CLOSED ENDING
- -----------------------------------------------------------------------
FISCAL YEAR 2000
First Quarter 424 1 1 424
Second Quarter 424 7 2 429
Third Quarter 429 8 6 431
Fourth Quarter 431 10 0 441
FISCAL YEAR 1999
First Quarter 408 0 1 407
Second Quarter 407 2 1 408
Third Quarter 408 5 1 412
Fourth Quarter 412 13 1 424
Management believes that seasonal product promotions and an emphasis on
dessert and carryout sales have contributed to the sales increase in 2000. Sales
also benefited from the updated appearance of many of the restaurants, of which
60 were remodeled and nine were rebuilt in the past year. In addition,
management believes that excellent customer service, reflective of a commitment
to full staffing at all restaurants, has been a key driver of sales growth.
Various promotional programs were employed throughout 2000 and 1999,
including those involving gift certificates, children's programs and seasonal
menu offerings. No single menu item or promotional program had a material impact
on sales, although management believes that without the menu changes and
promotional programs, same-store sales comparisons would have been less
favorable.
Food products segment sales accounted for 22.2%, 26.8% and 27.2% of total
sales for 2000, 1999 and 1998, respectively. The $0.5 million (0.2%) sales
increase, excluding the divested businesses, in the food products segment in
2000 was comprised of a $1.1 million sales increase in sausage and other
products, partially offset by a $0.6 million decrease in sales of liquid-smoke
flavorings. The $18.1 million (7.5%) sales increase in the food products segment
in 1999 was comprised of a $15.2 million sales increase in sausage and other
products and a $2.9 million increase in sales at Hickory and Giles.
Increases in sausage sales in 2000 were primarily due to a 2% increase in
pounds sold of comparable products over 1999, which were 10% higher than in 1998
(all volume calculations exclude the effect of the extra week in 1999). Fiscal
2000 also benefited from expansion into a new marketing territory-the Kansas
City metropolitan area. In 2000 and 1999, additional sales were provided by
newer products, such as refrigerated home fries, hash browns, mashed potatoes
and chicken and noodles. The average benchmark retail price for a one-pound roll
of sausage in 2000 was $3.04 compared to an average price of $2.99 for 1999 and
$3.07 for 1998.
Increased promotional activity and new items' contributions to sales led to
higher unit volume in the first half of 2000. However, as hog costs began a
significant upward trend in the last half of the year, the company responded
with both a large reduction in its promotional activity and a price increase.
These actions, in turn, led to lower unit volumes, but helped minimize the
decrease in profit margins.
COST OF SALES
Consolidated cost of sales (cost of materials) was 28.4%, 28.5% and 30.6%
of sales in 2000, 1999 and 1998, respectively.
In the restaurant segment, food cost (cost of sales) was 25.2%, 25.7% and
26.2% of sales in 2000, 1999 and 1998, respectively. The improvement in 2000 was
due mainly to favorable commodity prices and discounts received on large volume
purchases. The 1999 improvement in food cost was mostly reflective of changes in
product mix. Management believes that changes made in the menu layout to
highlight higher margin offerings contributed to the positive changes in product
mix. Food cost comparisons in both 2000 and 1999 to the prior year were
positively impacted by menu price increases.
In the food products segment, cost of sales was 40.0%, 36.1% and 42.5% in
2000, 1999 and 1998, respectively.
38
39
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF SELECTED FINANCIAL INFORMATION
Bob Evans Farms, Inc. and Subsidiaries
These percentages were reflective of fluctuating hog costs, which averaged
$34.81, $25.59 and $40.43 per hundredweight in 2000, 1999 and 1998,
respectively. The 2000 average represented a 36.0% increase compared to 1999,
and the 1999 average was a 36.7% reduction compared to 1998. Hog costs trended
downward from the first quarter of 1998 through the third quarter of 1999, when
they were at record-low levels. Hog costs began rising from that point, and rose
precipitously in the middle of the third quarter of 2000.
OPERATING WAGE AND
FRINGE BENEFIT EXPENSES
Consolidated operating wage and fringe benefit expenses were 33.2%, 31.7%
and 31.1% of sales in 2000, 1999 and 1998, respectively.
In the restaurant segment, operating wage and fringe benefit expenses
represented 39.3% of sales for 2000; 38.8% for 1999; and 38.3% for 1998. The
increase in 2000 was primarily due to higher hourly wages. The lowest national
unemployment rates in 30 years have led to increased competition among employers
for workers, which has led to higher hourly wage rates for the company. The
increase in 1999 was due largely to higher management wages and health insurance
costs. The increased management wages reflected a continuing effort by the
company to provide competitive wages.
In the food products segment, operating wage and fringe benefit expenses
were 11.9% of sales for 2000; 12.2% for 1999; and 11.8% for 1998. Excluding the
divested businesses, the operating wage and fringe benefit expenses were 11.5%
of sales for 1999 and 11.2% for 1998. The increase in 2000, excluding the
divested businesses, was primarily due to higher hourly wages that were also
impacted by the unusually low national unemployment rate. The increase in 1999
compared to 1998, excluding the divested businesses, was due to the significant
increase in volume produced in 1999, which required additional labor resources.
OTHER OPERATING EXPENSES
More than 90% of other operating expenses occurred in the restaurant
segment; the most significant components of which were advertising, utilities,
restaurant supplies, repair and maintenance, taxes (other than income taxes) and
credit card processing fees. Consolidated other operating expenses represented
14.4%, 13.6% and 13.7% of sales in 2000, 1999 and 1998, respectively. Operating
expenses, as a percentage of sales, increased in fiscal 2000 primarily due to
higher advertising expense, restaurant supplies and credit card processing fees.
In 1999, the decrease was due mostly to improved leverage of expenses as a
result of large same-store sales increases.
SELLING, GENERAL
AND ADMINISTRATIVE EXPENSES
The most significant components of selling, general and administrative
expenses were wages and fringe benefits and food products segment promotional
and advertising expenses. Consolidated selling, general and administrative
expenses represented 11.4%, 13.2% and 12.6% of sales in 2000, 1999 and 1998,
respectively. The decrease for 2000 reflected the decreased promotional activity
for the company's food products in the second half of the year. As hog prices
trended upward in the last half of 2000, the company opted to significantly
decrease in-store promotions and advertising allowances to partially offset the
rising cost of materials. The decrease was also impacted by lower bonus
accruals. The increase in 1999 reflected the increased promotional activity that
was exercised when hog prices were on a downward trend.
TAXES
The effective federal and state income tax rates were 37.0% in 2000, 1999
and 1998.
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 equivalents totaled $6.8 million at April 28, 2000, and
$25.5 million at April 30, 1999. Dividends paid represented 26.4% of net income
in 2000 and 24.4% of net income in 1999.
Bank lines of credit were used for liquidity needs, capital expansion and
purchases of treasury shares during 2000 and 1999. At April 28, 2000, $99.3
million was outstanding under such arrangements. Unused bank lines of credit
available at year-end were $50.7 million. The company believes that the funds
needed for capital expenditures, working capital and treasury share purchases
during 2001 will be generated internally and from available bank lines of
credit. Longer-term financing alternatives will continue to be evaluated by the
company as warranted.
At April 28, 2000, the company had contractual commitments for restaurant
construction, plant equipment additions and the purchases of land and inventory
of approximately $26.0 million. Capital expenditures for 2001 are expected to
approximate $94.0 million and depreciation and amortization expenses are
expected to approximate $40.0 million. The company plans to open approximately
30 restaurants in fiscal 2001, as well as upgrade various property, plant and
equipment in both segments.
IMPACT OF YEAR 2000
In prior years, the company discussed the nature and progress of its plans
to become Year 2000 ready. Late in calendar 1999, the company completed its
remediation and testing of systems. As a result of those planning and
implementation efforts, the company experienced no significant disruptions in
mission critical information technology and non-information technology systems
and believes those systems successfully responded to the Year 2000 date change.
The company expensed less than $500,000 to date in connection with remediating
its systems. The company is not aware of any material problems resulting from
Year 2000 issues, either with its products, its internal systems or the products
and services of third parties. The company will continue to monitor its mission
critical computer applications and those of its suppliers and vendors throughout
the year 2000 to ensure that any latent Year 2000 matters that may arise are
addressed promptly.
39
40
MANAGEMENT'S DISCUSSION OF RISK FACTORS
Bob Evans Farms, Inc. and Subsidiaries
Management believes that the current reported financial information is
indicative of future operating results and is not aware of any material events
or uncertainties that would indicate otherwise. However, some level of business
risk and uncertainty is present in any industry; the following documents some of
the risks specific to both operating segments.
Restaurant segment business risks include: competition, same-store sales,
labor and fringe benefit expenses, restaurant closings, governmental initiatives
and general (economy, weather, consumer acceptance, etc.).
The restaurant industry is an intensely competitive environment that will
continue to challenge and influence the company's restaurant segment.
Competition from restaurants in the quick-service, casual-dining and
family-style categories is greater than ever. Increased numbers of restaurants
have provided more options for consumers and have tended to suppress the
industry's same-store sales. The industry has seen several restaurant chains
struggle to maintain market share and have had to close substantial numbers of
locations. Same-store sales for Bob Evans Restaurants have been strong for three
years in a row: the increase was 3.4% in 2000, 5.6% in 1999 and 4.6% in 1998.
The impact of same-store sales on overall sales and corresponding profit margins
is significant. All restaurants continue to be evaluated by management in order
to identify under-performing units. In fiscal 2000, the company closed nine
restaurants. Depending on profitability, as well as changes in site and access,
the company may close other restaurants in fiscal 2001.
Competition for qualified labor was a challenge in fiscal 2000 and is
expected to continue in fiscal 2001. The lowest national unemployment rate in 30
years has increased this competition and has led to higher wage rates in the
restaurant industry. Proposed increases in the federally mandated minimum wage
may have an impact in the future as Congress considers additional increases to
the rate currently in effect.
Availability of sites and weather conditions generate uncertainty when
evaluating future expansion. However, the plans for fiscal 2001 are to add
approximately 30 new restaurants in comparison to 26 in 2000 and 20 in 1999.
Food products segment business risks include: hog costs, governmental
initiatives and general (economy, weather, consumer acceptance, etc.). The
prices to be paid in the live hog market have always been an uncertainty for the
food products segment as was evidenced in fiscal 2000 and fiscal 1999. In the
third quarter of 1999, hog costs were at record-low levels. In 2000, hog cost
averages increased nearly 50% from just the second to the fourth quarter. Trends
at the beginning of fiscal 2001 lead management to believe that hog costs in
2001 may be even higher than in 2000.
Another uncertainty is the consumer acceptance of new items. Some of the
planned product introductions in fiscal 2001 include frozen sausage gravy,
expansion of the Snackwich convenience items and expanded distribution of the
refrigerated mashed potatoes.
The restaurant and food products segments share various risks and
uncertainties. Food safety is an issue that has taken precedence: risk of food
contamination is an issue focused on by the company at its restaurants as well
as in the manufacturing of its food products. The company has continued emphasis
upon quality control programs that limit the company's exposure, including
compliance with all aspects of the Hazard Analysis of Critical Control Points
program. Increased government initiatives at the local, state and federal level
tend to increase costs and present challenges to management in both segments of
the business.
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 2001 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
Discussion of Risk Factors," as well as other assumptions, risks, uncertainties
and factors previously disclosed in this report, the company's securities
filings and press releases.
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41
BOB EVANS FARMS, INC.
ANNUAL REPORT ON FORM 10-K
FOR FISCAL YEAR ENDED APRIL 28, 2000
INDEX TO EXHIBITS
Exhibit
Number Description Location
- ------ ----------- --------
3(a) Certificate of Incorporation of the Incorporated herein by reference to
Company (filed with the Delaware Exhibit 3 (a) to the Company's Annual
secretary of state on Nov. 4, 1985) Report on Form 10-K for its fiscal
year ended April 24, 1987
(File No. 0-1667)
3(b) Certificate of Amendment of Incorporated herein by reference to
Certificate of Incorporation of the Exhibit 3(b) to the Company's Annual
Company dated Aug. 26, 1987 (filed Report on Form 10-K for its fiscal
with the Delaware secretary of state year ended April 28, 1989
on Sept. 4, 1987) (File No. 0-1667)
3(c) Certificate of Adoption of Amendment Incorporated herein by reference to
to Certificate of Incorporation of Exhibit 3(c) to the Company's Annual
the Company dated Aug. 9, 1993 (filed Report on Form 10-K for its fiscal
with the Delaware secretary of state year ended April 29, 1994
on Aug. 10, 1993) (File No. 0-1667)
3(d) Restated Certificate of Incorporation Incorporated herein by reference to
of Company reflecting amendments Exhibit 3(d) to the Company's Annual
through Aug. 10, 1993. Note: filed Report on Form 10-K for its fiscal
for purposes of SEC reporting year ended April 29, 1994
compliance only -- this document has (File No. 0-1667)
not been filed with the Delaware
secretary of state
3(e) Amended and Restated By-Laws of the Attached hereto.
Company
10(a) Restated Bob Evans Farms, Inc. and Incorporated herein by reference to
Affiliates 401K Retirement Plan Exhibit 10(a) to the Company's Annual
(effective Jan. 1, 1994, except as Report on Form 10-K for the fiscal year
otherwise provided) ended April 28, 1995
(File No. 0-1667)
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42
Exhibit
Number Description Location
- ------ ----------- --------
10(b) Amendment No. 1 to the Bob Evans Incorporated herein by reference to
Farms, Inc. and Affiliates 401K Exhibit 10(b) to the Company's Annual
Retirement Plan Report on Form 10-K for the fiscal year
ended April 26, 1996
(File No. 0-1667)
10(c) Bob Evans Farms, Inc. and Affiliates Incorporated herein by reference to
401K Retirement Plan Trust (effective Exhibit 4(f) to the Company's
May 1, 1990) Pre-Effective Amendment No. 1 to Form
S-8 Registration Statement, filed April
27, 1990 (Registration No. 33-34149)
10(d) Bob Evans Farms, Inc. 1987 Incentive Incorporated herein by reference to
Stock Option Plan Exhibit 4(a) to the Company's
Registration Statement on Form S-8,
filed Oct. 19, 1987 (Registration No.
33-17978)
10(e) Agreement, dated Feb. 24, 1989, Incorporated herein by reference to
between Daniel E. Evans and Bob Evans Exhibit 10(g) to the Company's Annual
Farms, Inc.; and, Schedule A to Report on Form 10-K for the fiscal
Exhibit 10(e) identifying other year ended April 28, 1989
substantially identical Agreements (File No. 0-1667); Incorporated
between Bob Evans Farms, Inc. and herein by reference to the Company's
certain of the executive officers of Annual Report on Form 10-K for the
Bob Evans Farms, Inc. fiscal year ended April 30, 1999
(File No. 0-1667)
10(f) Bob Evans Farms, Inc. 1989 Stock Incorporated herein by reference to
Option Plan for Nonemployee Directors Exhibit 4(d) to the Company's
Registration Statement on Form S-8,
filed Aug. 23, 1989
(Registration No. 33-30665)
10(g) Bob Evans Farms, Inc. 1991 Incentive Incorporated herein by reference to
Stock Option Plan Exhibit 4(d) to the Company's
Registration Statement on Form S-8,
filed Sept. 13, 1991
(Registration No. 33-42778)
10(h) Bob Evans Farms, Inc. Supplemental Incorporated herein by reference to
Executive Retirement Plan Exhibit 10(i) to the Company's Annual
Report on Form 10-K for the fiscal
year ended April 24, 1992 (File No.
0-1667)
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43
Exhibit
Number Description Location
- ------ ----------- --------
10(i) Bob Evans Farms, Inc. Nonqualified Incorporated herein by reference to
Stock Option Plan Exhibit 10(j) to the Company's Annual
Report on Form 10-K for the fiscal
year ended April 24, 1992 (File No.
0-1667)
10(j) Bob Evans Farms, Inc. Long Term Incorporated herein by reference to
Incentive Plan for Managers Exhibit 10(k) to the Company's Annual
Report on Form 10-K for the fiscal
year ended April 30, 1993 (File No.
0-1667)
10(k) Bob Evans Farms, Inc. 1994 Long Term Incorporated herein by reference to
Incentive Plan Exhibit 10(n) to the Company's Annual
Report on Form 10-K for the fiscal
year ended April 29, 1994 (File No.
0-1667)
10(l) Bob Evans Farms, Inc. 1998 Incorporated herein by reference to
Supplemental Executive Retirement Plan Exhibit 10(l) to the Company's Annual
Report on Form 10-K for the fiscal
year ended April 24, 1998 (File No.
0-1667)
10(m) Bob Evans Farms, Inc. 1998 Directors Incorporated herein by reference to
Compensation Plan Exhibit 10(m) to the Company's Annual
Report on Form 10-K for the fiscal
year ended April 24, 1998 (File No.
0-1667)
10(n) Bob Evans Farms, Inc. 1998 Stock Incorporated herein by reference to
Option and Incentive Plan Exhibit 4(f) to the Company's
Registration Statement on Form S-8
filed March 22, 1999 (Registration
No. 33-74829)
10(o) Bob Evans Farms, Inc. Dividend Incorporated herein by reference to
Reinvestment and Stock Purchase Plan the Company's Registration Statement
on Form S-3 filed March 19, 1999
(Registration No. 333-74739)
10(p) Bob Evans Farms, Inc. Nonqualified Incorporated herein by reference to
Salary Deferral Plan Exhibit 10(p) to the Company's Annual
Report on Form 10-K for the fiscal
year ended April 30, 1999 (File No.
0-1667)
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44
Exhibit
Number Description Location
- ------ ----------- --------
13 Company's Annual Report to Incorporated herein.
Stockholders for the fiscal year
ended April 28, 2000 (Not deemed
filed except for portions thereof
which are specifically incorporated
by reference into this Annual Report
on Form 10-K)
21 Subsidiaries of the Company Attached hereto.
23 Consent of Ernst & Young, LLP Attached hereto.
27 Financial Data Schedule Attached hereto.
44