UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported): September 20, 2004
Bob Evans Farms, Inc.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 0-1667 31-4421866
- ---------------------------- ------------------------ ---------------------------------
(State or Other Jurisdiction (Commission File Number) (IRS Employer Identification No.)
of Incorporation)
3776 South High Street, Columbus, Ohio 43207
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(614) 491-2225
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Not Applicable
- --------------------------------------------------------------------------------
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions:
[ ] Written communications pursuant to Rule 425 under the Securities
Act (17 CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act
(17 CFR 240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under
the Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under
the Exchange Act (17 CFR 240.13e-4(c))
Item 2.01. Completion of Acquisition or Disposition of Assets.
On July 12, 2004, Bob Evans Farms, Inc. (the "Company") filed a
current report on Form 8-K with respect to the acquisition by its wholly-owned
subsidiary, Mimi's Cafe, LLC, of all of the issued and outstanding common stock
of SWH Corporation, a California corporation ("SWH"), in a privately-negotiated
transaction. SWH owns and operates Mimi's Cafe casual restaurants, primarily in
California and other western states.
Pursuant to Item 7 of Form 8-K (as in effect prior to August 23,
2004 and now replaced by Item 9.01 of Form 8-K), the Company was permitted to
file certain financial information by amendment no later than September 20,
2004. This Current Report on Form 8-K/A amends and supplements the Current
Report on Form 8-K filed by the Company on July 12, 2004 to include the
historical financial statements of SWH and the unaudited pro forma financial
information listed below.
Item 9.01. Financial Statements and Exhibits.
Page
(a) Financial Statements of Business Acquired
Financial Statements of SWH as of and for the fiscal
year ended December 31, 2003
Report of Independent Registered Public
Accounting Firm 4
Consolidated Balance Sheet as of December 31, 2003 5-6
Consolidated Statement of Operations for the year
ended December 31, 2003 7
Consolidated Statement of Stockholders' Equity
(Deficiency) for the year ended December 31, 2003 8
Consolidated Statement of Cash Flows for the year
ended December 31, 2003 9
Notes to the Financial Statements 10-24
(b) Pro Forma Financial Information (Unaudited)
Pro Forma Condensed Consolidated Balance Sheet as of
April 30, 2004 26
Pro Forma Condensed Consolidated Statement of Income
for the year ended April 30, 2004 27
-2-
Pro Forma Condensed Consolidated Statement of Income for
the three months ended July 30, 2004 28
Notes to Pro Forma Financial Information 29-30
(c) Exhibits
2* Stock Purchase Agreement, dated as of June 11, 2004, among SWH
Corporation, the Equity Holders of SWH Corporation and Bob Evans
Farms, Inc.
4(a)* Loan Agreement, dated July 7, 2004, between BEF Holding Co., Inc.
and National City Bank
4(b)* Guaranty of Payment, dated as of July 7, 2004, made by Bob Evans
Farms, Inc. and Mimi's Cafe, LLC, in favor of National City Bank
4(c)* Promissory Note, dated as of July 7, 2004, in the aggregate
principal amount of $200,000,000, made by BEF Holding Co., Inc. in
favor of National City Bank
10* Escrow Agreement, dated as of July 7, 2004, among Saunders Karp &
Megrue LLC, Bob Evans Farms, Inc., Mimi's Cafe, LLC and U.S. Bank
National Association, as Escrow Agent
23 Consent of Independent Registered Public Accounting Firm
- -----------------------
* Previously filed with the Company's Current Report on Form 8-K on
July 12, 2004.
-3-
Report of Independent Registered Public Accounting Firm
To the Board of Directors
SWH Corporation, dba Mimi's Cafe
We have audited the accompanying balance sheet of SWH Corporation (dba Mimi's
Cafe) as of December 31, 2003, and the related statements of operations,
stockholders' equity (deficiency) and cash flows for the year then ended. 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 audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (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 audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of SWH Corporation at December 31,
2003, and the results of its operations and its cash flows for the year then
ended in conformity with U.S. generally accepted accounting principles.
/s/ Ernst & Young LLP
Irvine, California
May 5, 2004
except for Notes 2 and 12, as to which the date is July 7, 2004
-4-
SWH Corporation
dba Mimi's Cafe
Balance Sheet (Restated-Note 2)
(Dollars in thousands, except shares)
December 31, 2003
ASSETS
Current assets:
Cash $ 5,131
Restricted cash 2,215
Receivable from landlords and employees 122
Income tax receivable 1,335
Inventories 3,268
Deferred taxes 3,630
Prepaids and other current assets 554
---------
Total current assets 16,255
Property, equipment, and improvements:
Restaurant and other equipment 68,565
Buildings 42,942
Leasehold improvements 17,318
---------
128,825
Accumulated depreciation and amortization (41,296)
---------
Property, equipment, and improvements, net 87,529
Construction-in-progress 6,179
Employee loans receivable 224
Other assets (net of accumulated amortization of $2,684) 2,851
---------
Total assets $ 113,038
=========
-5-
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities:
Accounts payable $ 8,871
Accrued payroll and related costs 6,244
Accrued insurance reserves 2,371
Accrued legal settlement 2,500
Other accrued expenses 4,040
Current portion of long-term debt 1,499
---------
Total current liabilities 25,525
Long-term debt 75,103
Deferred rent and revenue 5,552
Long-term deferred taxes 6,417
Deferred compensation 1,495
Commitments and contingencies (Notes 5 and 7)
Stockholders' deficiency:
Common stock, no par value:
Authorized shares - 200,000
Issued and outstanding shares - 9,270 20,355
Additional paid-in capital 44
Accumulated deficit (including a $20,662 charge for the repurchase of common stock (Note 6)) (21,095)
Notes receivable from stockholders (358)
---------
Total stockholders' deficiency (1,054)
---------
Total liabilities and stockholders' deficiency $ 113,038
=========
See accompanying notes.
-6-
SWH Corporation
dba Mimi's Cafe
Statement of Operations (Restated-Note 2)
(Dollars in thousands)
Year ended December 31, 2003
Revenues:
Food and beverage sales $ 240,538
Costs and expenses:
Food and beverage 68,017
Payroll and related costs 92,412
Occupancy costs and other operating expenses 45,176
Depreciation and amortization 7,842
Pre-opening costs 3,591
General and administrative, including bonuses of $2,923 14,374
Legal settlement and related costs 2,815
---------
Total costs and expenses 234,227
---------
Operating income 6,311
Interest expense, net 10,298
---------
Loss before income tax benefit (3,987)
Income tax benefit 1,339
---------
Net loss $ (2,648)
=========
See accompanying notes.
-7-
SWH Corporation
dba Mimi's Cafe
Statements of Stockholders' Equity (Deficiency)
(Dollars in thousands, except shares)
NOTES
ADDITIONAL RECEIVABLE
COMMON STOCK PAID-IN ACCUMULATED FROM
SHARES AMOUNT CAPITAL DEFICIT STOCKHOLDERS TOTAL
------ ------ ------- ------- ------------ -----
Balance at December 31, 2002 9,225 $20,227 $ 4 $(13,115) $(485) $ 6,631
Prior year restatements (Note 2) - - - (5,332) - (5,332)
----- ------- --- -------- ----- -------
Balance at December 31, 2002, as restated 9,225 20,227 4 (18,447) (485) 1,299
Net loss - - - (2,648) - (2,648)
Exercise of stock options 45 128 40 - - 168
Collection of notes receivable from
stockholders - - - - 127 127
----- ------- --- -------- ----- -------
Balance at December 31, 2003 9,270 $20,355 $44 $(21,095) $(358) $(1,054)
===== ======= === ======== ===== =======
See accompanying notes.
-8-
SWH Corporation
dba Mimi's Cafe
Statement of Cash Flows (Restated-Note 2)
(Dollars in thousands)
Year ended December 31, 2003
OPERATING ACTIVITIES
Net loss $ (2,648)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization 7,842
Amortization of deferred financing costs 1,555
Deferred taxes (630)
Deferred rent and revenue 1,083
Changes in operating assets and liabilities:
Income tax receivable (184)
Inventories (959)
Prepaids and other current assets (250)
Other assets (530)
Accounts payable 280
Accrued payroll and related costs 740
Accrued insurance reserves 1,044
Accrued legal settlement 2,500
Other accrued expenses 708
Deferred compensation 615
--------
Net cash provided by operating activities 11,166
INVESTING ACTIVITIES
Purchase of property, equipment, and improvements (23,689)
Change to construction-in-progress 91
Receivable from landlords and employees 1,489
--------
Net cash used in investing activities (22,109)
FINANCING ACTIVITIES
Proceeds from long-term debt 18,475
Repayment of long-term debt (5,782)
Proceeds from issuance of common stock 168
Repayment of shareholder notes 127
Restricted cash 229
--------
Net cash provided by financing activities 13,217
--------
Net increase in cash 2,274
Cash at beginning of year 2,857
--------
Cash at end of year $ 5,131
========
See accompanying notes.
-9-
SWH Corporation
dba Mimi's Cafe
Notes to Financial Statements
(Dollars in thousands)
December 31, 2003
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
SWH Corporation (the Company), a California corporation, currently owns and
operates 78 restaurants including 47 in California, nine in Arizona, six in
Colorado, four in Texas, three in Nevada, three in Utah, two in Florida, two in
Kansas, one in New Mexico and one in Oklahoma. During 2003, the Company opened
twelve new restaurants. All of the restaurants operate under the name Mimi's
Cafe.
USE OF ESTIMATES
The preparation of the financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
RESTRICTED CASH
Restricted cash represents deposits held in trust and cash collateralizing
letters of credit for the payment of workers' compensation, general liability
and state disability insurance claims.
INVENTORIES
Inventories consist primarily of food and beverage products and are stated at
the lower of cost (first-in, first-out) or market.
PROPERTY, EQUIPMENT, IMPROVEMENTS AND DEPRECIATION AND AMORTIZATION
Property, equipment and improvements are recorded at cost. Expenditures that
materially increase property lives are capitalized. The cost of maintenance,
repairs and replacing china, glassware, utensils, etc. is charged to expense as
incurred.
-10-
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY, EQUIPMENT, IMPROVEMENTS AND DEPRECIATION AND AMORTIZATION (CONTINUED)
Depreciation and amortization are provided using the straight-line method over
the following estimated useful lives:
CLASSIFICATIONS LIFE IN YEARS
--------------- -------------
Restaurant and other equipment 7 - 10 years
Buildings 20 years
Leasehold improvements 5 - 25 years (limited to lease term)
LONG-LIVED ASSETS
Management reviews the Company's long-lived assets for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. Management believes that no impairment of the carrying
value of the Company's long-lived assets existed.
DEFERRED FINANCING COSTS
Costs relating to debt refinancing have been deferred and are amortized over the
terms of the underlying debt instruments. In connection with the amendment to
its credit facility in June 2003, the Company recorded $268 in new deferred
financing costs. Included in other assets are deferred financing costs totaling
$2,170 (net of accumulated amortization of $2,684).
STOCK-BASED COMPENSATION
The Company has stock-based employee compensation plans, which are described
more fully in Note 5. The Company accounts for those plans under the recognition
and measurement principles of APB Opinion No. 25, Accounting for Stock Issued to
Employees, and related interpretations. No stock-based employee compensation
cost is reflected in the results of operations of the Company, as all options
granted under those plans had an exercise price equal to the market value of the
underlying common stock on the date of grant.
-11-
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
STOCK-BASED COMPENSATION (CONTINUED)
Pro forma information regarding net income is required by SFAS No. 123,
Accounting for Stock-Based Compensation (SFAS No. 123), and has been determined
as if the Company had accounted for its employee stock options under the fair
value method of the Statement. However, because the effect of applying the fair
value method of SFAS No. 123 to the Company's stock options results in net
income (loss) that is not materially different from amounts reported, such pro
forma information is not presented. The fair value of each option granted was
estimated on the date of grant using the Black-Scholes option pricing model with
the following weighted average assumptions: (i) risk free interest rate of
5.71%, (ii) expected option life of five years and (iii) expected dividend rate
of 2.34%. The weighted average fair value of the options granted during 2003 was
$671 per share.
REVENUE RECOGNITION
Revenue for food and beverage sales at restaurants is recognized when services
are rendered. Revenue from the sale of gift cards is deferred and recognized
upon redemption of the gift cards. A portion of gift cards unredeemed after
thirteen months are recognized in the Company's results of operations based on
historical redemption patterns.
INCOME TAXES
The Company utilizes the liability method of accounting for income taxes. Under
the liability method, deferred taxes are determined based on the difference
between the financial statement and tax bases of assets and liabilities using
enacted tax rates in effect in the years in which the differences are expected
to reverse.
STATEMENTS OF CASH FLOWS
Cash paid for interest (net of amounts capitalized) was $8,619.
The Company paid no income taxes.
-12-
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
STATEMENTS OF CASH FLOWS (CONTINUED)
The Company received $83 in promissory notes related to the purchase by certain
employees of a portion of the cash flows from certain restaurants. The Company
has recorded these transactions as employee loans receivable and deferred
compensation in the accompanying balance sheet.
PRE-OPENING COSTS
Restaurant payroll, supplies and other expenses incurred prior to the opening of
new restaurants are expensed as incurred.
IMPACT OF RECENTLY ISSUED ACCOUNTING PRINCIPLES
In January 2003, the FASB issued Interpretation ("FIN") No. 46, Consolidation of
Variable Interest Entities, an Interpretation of Accounting Research Bulletin
No. 51. This interpretation clarifies the application of Accounting Research
Bulletin No. 51, Consolidated Financial Statements, and requires consolidation
of variable interest entities by their primary beneficiaries if certain
conditions are met. This interpretation applies to variable interest entities
created or obtained after January 31, 2003. For variable interest entities
created or obtained before February 1, 2003, the adoption of this standard is
effective as of December 31, 2003 for a variable interest in special-purpose
entities and as of March 31, 2004 for all other variable interest entities. The
Company does not believe it holds any variable interest entities, accordingly,
the interpretation will not impact the Company.
In May 2003, the Financial Accounting Standards Board ("FASB") issued SFAS No.
150, Accounting for Certain Financial Instruments with Characteristics of both
Liabilities and Equity. This statement clarifies the definition of a liability,
as currently defined by FASB Concepts Statement No. 6, Elements of Financial
Statements, as well as other items. The statement requires that financial
instruments that embody an obligation of an issuer be classified as a liability.
Furthermore, the standard provides guidance for the initial and subsequent
measurement as well as disclosure requirements of these financial instruments.
SFAS No. 150 is effective for financial instruments entered into or modified
after May 31, 2003. The Company is required to adopt this statement by the year
ending December 31, 2004.
-13-
2. RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS
The Company has restated its previously issued financial statements for the
following items:
INCREASE INCREASE TO
(DECREASE) TO ACCUMULATED
NET LOSS DEFICIT
------------ -------------
2003 PRIOR TO 2003
---- -------------
Valuation allowance for deferred tax assets $ 1,141 $3,568
Straight-line rent expense for probable future rental escalations 411 1,297
Accrued vacation 58 385
Compensatory accounting for market partner arrangements 198 82
Capitalization of certain costs previously expensed (174) -
------- ------
$ 1,634 $5,332
======= ======
In evaluating the likelihood of the realization of its deferred tax assets,
management believes it is more likely than not that $3,568 and $1,141 of
deferred tax assets prior to 2003 and as of December 31, 2003, respectively,
will not be realized in the near term. Accordingly, a valuation allowance of
$3,568 and $4,709 was recorded to reduce the deferred tax asset to an amount
that will more likely than not be realized prior to 2003 and as of December 31,
2003, respectively
The Company has entered into several lease agreements whereby future periodic
rental escalations are based on the lesser of a multiple of 2-4 times the
consumer price index (CPI) or a stated percentage (floor). Although CPI is a
variable measure, management believes the contingent future rental escalation
is a disguised future minimum lease payment which is probable of being achieved
and should be included on a pro-rata basis within rent expense over the term of
the lease. Accordingly, deferred rent liability was increased by $1,297 prior to
2003 and rent expense and deferred rent liability was increased by $411 as of
and for the year ended December 31, 2003.
The Company changed its vacation policy during 2002 whereby employees became
eligible for accrued vacation based on a defined formula. As a result of the new
vacation policy accrued vacation expense was recorded of $385 and $58 prior to
2003 and during 2003, respectively.
-14-
2. RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS (CONTINUED)
In response to certain changes made by other restaurant companies in the
accounting for market partner arrangements (Note 9), the Company has changed its
accounting for its market and managing partner arrangements to be compensatory
over the expected employment term of the market and managing partner.
Accordingly, deferred compensation was increased by $82 prior to 2003 and
deferred compensation and compensation expense was increased by $198 as of and
for the year ended December 31, 2003.
The Company incorrectly expensed certain costs during 2003 that were incurred
related to new restaurants. These costs qualify for capitalization as they have
an estimated useful life of seven to ten years. Accordingly, $174 was
capitalized as equipment as of December 31, 2003.
The following table reflects the effect of the restatement on the Statement of
Operations:
Year Ended December 31, 2003
----------------------------
As Previously
Reported As Restated
-------- -----------
Selected Statement of Operations Data:
Payroll and related costs $ 92,253 $ 92,412
Occupancy costs and other operating expenses 44,765 45,176
Pre-opening costs 3,765 3,591
Total costs and expenses 232,474 234,227
Operating income 8,064 6,311
Loss before income tax benefit (3,494) (3,987)
Income tax benefit 2,417 1,339
Net loss (1,077) (2,648)
-15-
2. RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS (CONTINUED)
The following table reflects the effect of the restatement on the Balance Sheet:
December 31, 2003
-----------------
As Previously
Reported As Restated
-------- -----------
Selected Balance Sheet Data:
Current deferred taxes $ 3,611 $ 3,630
Total current assets 16,236 16,255
Restaurant and other equipment 68,391 68,565
Property, equipment and improvements, net 87,355 87,529
Total assets 112,845 113,038
Accrued payroll and related costs 5,801 6,244
Total current liabilities 25,082 25,525
Deferred rent and revenue 3,844 5,552
Long-term deferred taxes 1,752 6,417
Deferred compensation 1,215 1,495
Accumulated deficit (14,192) (21,095)
Total stockholders' equity (deficit) 5,849 (1,054)
Total liabilities and stockholders' equity (deficit) 112,845 113,038
The following table reflects the effect of the restatement on the Cash Flows:
Year Ended December 31, 2003
----------------------------
As Previously
Reported As Restated
-------- -----------
Selected Cash Flow Data:
Net loss $ (1,077) $ (2,648)
Deferred taxes (1,708) (630)
Deferred rent and revenue 672 1,083
Accrued payroll and related costs 682 740
Deferred compensation 417 615
Net cash provided by operating activities 12,481 11,166
Purchase of property, equipment, and improvements (23,515) (23,689)
Net cash used in investing activities (23,424) (22,109)
3. FINANCING ARRANGEMENTS
LONG-TERM DEBT
CREDIT FACILITY
On April 16, 2002, the Company entered into a new credit facility with a
financial institution, consisting of a $65,000 senior revolving loan with an
initial outstanding balance of $40,750 and a subordinated term loan in the
amount of $3,500. On June 19, 2003, the credit agreement was amended, increasing
the senior revolving loan to $72,000 and the subordinated term loan to $6,500.
-16-
Proceeds from the new credit facility were used to repay amounts outstanding
under the existing credit facility and to finance growth. The senior revolving
loan bears interest at an annual rate of 11%, payable monthly, and matures in
April 2005. The term loan bears interest at an annual rate of 18%, with interest
payable quarterly and principal due at maturity in April 2005. The balance
outstanding under the senior revolving loan was $65,375.
The Company has $6,625 available for borrowing under its senior revolving loan.
The Company is required to pay an annual commitment fee of -3/4% per annum on
the unused senior revolving loan balance, payable monthly. Additionally, the
Company is required to pay a monthly loan servicing fee of $15 and an
anniversary fee of -1/2% of the available revolving loan commitment. In
addition, the Company is required to pay fees totaling $50 every six months in
association with the June 19, 2003 amendment to the credit facility.
Substantially all of the Company's property, equipment and improvements are
pledged as collateral under the terms of the credit facility.
The credit facility contains various financial covenants that include, among
other things, tests for total leverage, tangible net worth, fixed charge
coverage and cash flow per restaurant. As of December 31, 2003, the Company was
in compliance with its financial covenants.
TERM NOTES
The Company has two term notes payable to the bank in the original amounts of
$4,021 (Term Note A) and $3,472 (Term Note B). Term Note A bears interest at
7.94%, and is due in monthly installments of principal and interest of $81,
commencing November 30, 2001 and is due in full on October 30, 2006. Term Note B
bears interest at 8.45%, and is due in monthly installments of principal and
interest of $71, commencing January 28, 2003 and is due in full on December 28,
2006. The outstanding balance on Term Notes A and B was $2,471 and $2,256,
respectively. These notes are secured by the equipment, seating and decor of 12
of the Company's restaurants.
-17-
3. FINANCING ARRANGEMENTS (CONTINUED)
LONG-TERM DEBT (CONTINUED)
CREDIT FACILITY (CONTINUED)
Principal repayments of long-term debt, related to the Company's credit facility
and term notes, for each of the next fiscal years are as follows:
2004 $ 1,499
2005 73,502
2006 1,601
-------
$76,602
=======
4. INCOME TAXES
The income tax benefit consists of the following:
Current:
Federal $ (552)
State (157)
-------
(709)
Deferred:
Federal (583)
State (47)
-------
(630)
-------
Total income tax benefit $(1,339)
=======
A reconciliation of income taxes computed at the statutory federal income tax
rate to income tax benefit is as follows:
Tax at statutory federal rate $(1,356)
State taxes, net of federal benefit (135)
FICA tip credit (1,110)
Valuation allowance 1,141
Meals and entertainment 23
Other 98
-------
Total income tax benefit $(1,339)
=======
-18-
4. INCOME TAXES (CONTINUED)
The Company has recorded deferred tax assets and deferred tax liabilities, which
represent future tax effects of temporary differences. The tax effects of
significant temporary differences giving rise to deferred tax assets and
liabilities is as follows:
Deferred tax assets:
FICA tax credit carryforwards, net $ 6,591
NOL carryforward 1,301
Accrued legal settlement 1,071
Deferred revenue and expense 660
State income taxes 243
Accrued workers' compensation 887
Other 81
--------
Total deferred tax assets 10,834
Valuation allowance (4,709)
--------
Net deferred tax asset 6,125
Deferred tax liabilities:
Property, equipment and improvements - book basis in excess of tax basis (8,912)
--------
Net deferred tax liabilities $ (2,787)
========
The Company has FICA tax credit carryforwards of $6,591 for federal tax purposes
that begin to expire in 2012.
The Company has federal and state net operating loss carryforwards of $3,197 and
$2,415, respectively, which begin to expire in 2023 and 2013, respectively.
The change in the valuation allowance of $1,141 during 2003 relates to FICA tax
credits that are more likely than not to be realized in the foreseeable future.
-19-
5. LEASING ACTIVITIES
The Company conducts the majority of its operations using leased restaurant
facilities that expire on various dates through 2023. The leases have initial
terms ranging from one to 25 years with renewal options ranging from five to 10
years. Most of the leases require additional rental payments by the Company
based on cost of living increases and/or if sales volumes at the related
restaurants exceed specified levels. Most of the lease agreements require
payment of property taxes, insurance, maintenance and utilities by the Company.
OPERATING LEASES
Future minimum rental payments (exclusive of additional rental based on sales
volume, property taxes, insurance, maintenance and utilities) by year under
operating leases that have initial or remaining noncancelable lease terms in
excess of one year as of December 31, 2003 are as follows:
2004 $ 12,639
2005 12,765
2006 12,608
2007 11,987
2008 11,701
Thereafter 113,200
--------
$174,900
========
Rental expense was as follows:
Minimum rentals $10,770
Additional rentals based on sales 1,314
-------
$12,084
=======
The Company entered into eight additional lease agreements with aggregate
minimum lease payments of $28,545. Because the rental commencement date has not
yet begun, the future minimum rental payments have been excluded from the
schedule of future minimum rental payments.
-20-
6. STOCKHOLDERS' DEFICIENCY
STOCK OPTIONS
In October 1996, the Company adopted the Long-Term Incentive Plan (the Plan).
The Plan authorizes the grant of non-qualified stock options to eligible
employees, consultants and directors for up to 1,033 shares of the Company's
common stock of which 10 shares are available for future grant as of December
31, 2003. All options granted have 10-year terms and vest ratably over five
years. The Plan provides for the grant of stock appreciation rights, none of
which have been granted as of December 31, 2003.
Stock option activity during the periods indicated is as follows:
WEIGHTED
AVERAGE
NUMBER OF EXERCISE
SHARES PRICE
------ -----
Balance at December 31, 2002 1,003 $3,302
Granted 20 4,880
Exercised (45) 2,848
----- ------
Balance at December 31, 2003 978 $3,355
===== ======
Price ranges of outstanding and exercisable options as of December 31, 2003 is
summarized below:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------- -------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
RANGE OF NUMBER OF CONTRACTUAL EXERCISE NUMBER EXERCISE
EXERCISE PRICES SHARES LIFE (YEARS) PRICE OF SHARES PRICE
--------------- ------ ------------ ----- --------- -----
December 31, 2003 $2,848 - $4,880 978 4.95 $3,355 665 $3,086
-21-
6. STOCKHOLDERS' DEFICIENCY (CONTINUED)
WARRANTS
The Company has reserved 78 shares of common stock in connection with warrants
issued on October 31, 1996. The warrants are exercisable from date of issuance
through October 31, 2006 at an exercise price of $2,848 per share.
NOTES RECEIVABLE FROM STOCKHOLDERS
In June 2001, in connection with the Company's sale and issuance of common
stock, the Company issued 1,482 shares of common stock at $3,700 per share in
exchange for cash of $5,000 and full-recourse promissory notes of $485 bearing
interest at a variable rate determined by the Company's borrowing rate,
currently 11%. The notes are secured by 131 shares of common stock with
principal and interest due on the earlier of (i) June 30, 2006 or (ii) the 90th
day following employment termination. During 2003, two of the stockholders
repaid their notes in full. As of December 31, 2003, the note receivable balance
was $358 and has been classified as a reduction of stockholders' equity in the
accompanying balance sheets, since the notes were issued in connection with a
common stock issuance.
ACCUMULATED DEFICIT
As of December 31, 2003, the Company has reported an accumulated deficit of
$21,095 in the accompanying balance sheet. Included in accumulated deficit is a
charge of $20,662, which was recorded in 1996 to redeem common stock pursuant to
a leveraged recapitalization transaction.
7. COMMITMENTS AND CONTINGENCIES
The Company has secured irrevocable standby letters of credit aggregating to
$582 to cover potential disability income claims, worker's compensation claims,
and a deposit on a building.
The Company is involved in certain litigation arising in the ordinary course of
its business. Management believes it has adequate legal defenses as to these
lawsuits and claims and does not believe that they will materially impact the
Company's results of operations, financial position or cash flows.
-22-
8. EMPLOYEE BENEFIT PLAN
DEFINED CONTRIBUTION PLAN
The Company has a defined contribution plan covering all eligible employees who
have completed one year of service. Participants are able to contribute, on a
pre-tax basis, up to 20% of their earnings to the plan (subject to certain
limitations), which the Company may match at its discretion. The Company's
contributions are subject to a five-year vesting period. No matching
contributions were made by the Company for the years ended December 31, 2003.
9. MARKET AND MANAGING PARTNER ARRANGEMENTS
Beginning in 2001, the Company began entering into arrangements with certain key
employees under its Market and Managing Partner Programs (MMPP). Under the MMPP
certain key employees are given the right to enter into a five year employment
agreement and purchase a 5% interest in the future cash flow stream of a
specific, newly opened, restaurant at which the key employee has management
responsibilities as general manager or multi-unit manager. Amounts due and paid
to managing partner participants are included in payroll and related costs and
amounted to $283 and amounts due and paid to market partner participants are
included in general and administrative expenses and amounted to $280.
The MMPP participants' purchase price is a fixed amount, generally $25 (initial
purchase price) and gives the purchaser the right to the related 5% cash flow of
its restaurant until such interest is sold. The purchaser has a perpetual
interest in the cash flow interest acquired, subject to certain situations in
which the Company may obtain the right to repurchase such interest, but never
has the obligation to repurchase the interest. The Company receives the right to
repurchase the interest upon the death or disability of the holder, or upon the
sale or wind-up of the Company based on a fixed formula of five times the
average of the last two years annual cash flows of the respective restaurant,
not less than $25. However, should the individual cease their employment with
the Company through either termination or resignation the Company has a
repurchase right at $25 or less if that occurs within the first 5 years of
employment.
The Company also receives a one-time option, but does not have the obligation,
to repurchase the cash flow right for a 60-day period after 5 years of ownership
using the five times cash flow formula. With respect to the one-time purchase
option if the Company does not exercise its repurchase option within 60 days,
the MMPP participants' maintain their 5% interest in the future cash flow of the
specific restaurant until the MMPP participant elects to sell the right. The
Company has the first right of refusal if the MMPP participant elects to sell
it's right but has no control over the value to be paid if it is based on any
bonafide offer. The initial purchase price
-23-
9. MARKET AND MANAGING PARTNER ARRANGEMENTS (CONTINUED)
totaled $525 in 2003, respectively, which is recorded as a deferred compensation
arrangement. Should the Company repurchase a MMPP participants' interest at some
time in the future, to the extent the repurchase price exceeds the deferred
compensation obligation recorded in the balance sheet, additional expense will
be recorded. The Company has made five repurchases of MMPP participants'
interests and none were in excess of the deferred compensation obligation in the
balance sheet so there was no expense relating to the repurchase. With respect
to possible future repurchases that could be in excess of the obligation
recorded at the time of repurchase, the Company is recording the increase in the
MMMP participants' interest based on the five times cash flow formula over the
participants' expected employment term of seven to nine years partially offset
by expected terminations whereby the Company will repurchase the cash flow right
at its cost. During 2003, the Company recorded $97 as compensation expense and
$101 as general and administrative expense related to the increase in the value
of the MMMP participants' interest.
10. LEGAL SETTLEMENT
A former restaurant manager filed an action against the Company for himself and
on behalf of a putative class of similarly situated restaurant managers. The
action alleged that restaurant managers were improperly classified as exempt
employees under California's wage and hour laws and were wrongfully denied
overtime pay as a result of the misclassification. The plaintiff was seeking
unpaid overtime for himself and for the putative class. The Company believes
that it has meritorious defenses to these actions and that it has acted properly
at all times in dealing with these matters. However, prior to the hearing for
class certification, the Company elected to settle this action for $2,500. In
addition, the Company incurred legal costs of $315 in 2003 related to this
action. Accordingly, the Company has recognized charges for legal settlement and
related costs in the amount of $2,815 during the year ended December 31, 2003.
11. RELATED PARTY TRANSACTIONS
An annual advisory fee was paid to Saunders Karp and Megrue, LLC, the majority
stockholder, aggregating $175 in 2003. These amounts are included in general and
administrative expenses in the accompanying statements of operations.
12. SUBSEQUENT EVENT
On July 7, 2004, all issued and outstanding common stock of the Company was
acquired by Bob Evans Farms, Inc. (BOBE) for a purchase price of approximately
$182 million. BOBE paid cash of approximately $103 million and assumed
outstanding indebtedness of approximately $79 million.
-24-
PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
The following unaudited pro forma condensed consolidated balance sheet financial
information as of April 30, 2004, gives effect to the acquisition by Bob Evans
Farms, Inc. (the "Company") of SWH Corporation ("SWH") as if such transaction
had occurred on April 30, 2004. The following unaudited pro forma condensed
consolidated statements of income financial information for the year ended April
30, 2004 and for the three months ended July 30, 2004, give effect to the
acquisition as if it occurred on April 26, 2003 (the beginning of the Company's
2004 fiscal year).
The pro forma adjustments as reflected in the following financial information
are based upon available information and certain assumptions that the Company
believes are reasonable under the circumstances. The pro forma financial
information does not purport to be indicative of the operating results or
financial position that would have been achieved had the acquisition been
consummated on the dates indicated and should not be construed as representative
of future operating results or financial position. The pro forma information
should be read in conjunction with the consolidated financial statements and
notes thereto in the Company's Annual Report on Form 10-K for the fiscal year
ended April 30, 2004, and the historical financial statements of SWH included in
this Current Report on Form 8-K/A.
The pro forma adjustments were applied to the respective historical financial
statements to reflect and account for the acquisition using the purchase method
of accounting. The aggregate purchase price of SWH will be allocated to the
tangible and intangible assets acquired and liabilities assumed based on their
respective values. The actual purchase accounting to reflect the fair value of
the assets acquired and liabilities assumed will be based upon valuation studies
and the Company's evaluation of such assets and liabilities as of the closing
date. These studies and evaluation have not yet been completed. Accordingly, the
pro forma financial information presented herein in subject to change pending
the final purchase price allocations and any purchase price adjustment.
Additionally, the pro forma adjustments do not reflect any operating
efficiencies or additional costs that may result with respect to the combined
businesses.
-25-
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
APRIL 30, 2004
(IN THOUSANDS)
Historical
----------
Bob Evans
Farms, Inc. SWH Corp. Adjustments Pro Forma
----------- --------- ----------- ---------
Assets
Current assets:
Cash and equivalents $ 3,986 $ 1,991 $ 0 $ 5,977
Accounts receivable 13,413 781 (550) (a) 13,644
Inventories 19,540 3,605 23,145
Deferred income taxes 8,869 3,543 774 (b) 13,186
Prepaid expenses 1,664 316 1,980
--------- --------- --------- -----------
Total current assets 47,472 10,236 224 57,932
Property, plant and equipment, net 783,397 94,567 0 (c) 877,964
Deposits and other 3,075 2,205 (1,275) (d) 4,005
Long-term investments 17,791 0 17,791
Deferred income taxes 14,931 0 14,931
Goodwill 1,567 0 104,631 (e) 106,198
--------- --------- --------- -----------
Total assets $ 868,233 $ 107,008 $ 103,580 $ 1,078,821
========= ========= ========= ===========
Liabilities and stockholders' equity Current liabilities:
Line of credit $ 34,620 $ 0 $ 0 $ 34,620
Current maturities of long-term debt 4,000 75,465 (75,465) (f) 4,000
Accounts payable 12,390 5,989 18,379
Dividends payable 4,229 0 4,229
Federal and state income taxes 11,375 (1,377) 1,377 (b) 11,375
Accrued wages and related liabilities 20,887 2,917 23,804
Self insurance 17,441 2,590 20,031
Other accrued expenses 40,905 12,205 53,110
--------- --------- --------- -----------
Total current liabilities 145,847 97,789 (74,088) 169,548
Long-term liabilities:
Deferred compensation 13,519 1,364 14,883
Deferred income taxes 54,371 7,166 (5,741) (b) 55,796
Long-term debt 24,333 1,601 182,497 (f) 208,431
--------- --------- --------- -----------
Total long-term liabilities 92,223 10,131 176,756 279,110
Stockholders' equity:
Common stock 426 20,355 (20,355) (g) 426
Preferred stock 60 0 60
Capital in excess of par value 149,967 44 (44) (g) 149,967
Retained earnings (deficit) 613,371 (21,311) 21,311 (g) 613,371
Treasury stock (133,661) 0 (133,661)
--------- --------- --------- -----------
Total stockholders' equity 630,163 (912) 912 630,163
--------- --------- --------- -----------
Total liabilities and stockholders' equity $ 868,233 $ 107,008 $ 103,580 $ 1,078,821
========= ========= ========= ===========
The accompanying notes are an integral part of the financial statements.
-26-
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
YEAR ENDED APRIL 30, 2004
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Historical
----------
Bob Evans (l)
Farms, Inc. SWH Corp. Adjustments Pro Forma
----------- --------- ----------- ---------
Net sales $1,197,997 $ 256,004 $ 0 $1,454,001
Operating expenses:
Cost of sales 340,840 73,239 414,079
Operating wages and fringe benefits 418,029 102,824 520,853
Other operating expenses 174,932 49,559 224,491
Selling, general and administrative 100,789 14,138 (199) (h) 114,728
Depreciation and amortization 50,106 8,503 0 (i) 58,609
---------- --------- --------- ----------
Operating income 113,301 7,741 199 121,241
Net interest expense 1,311 10,931 (2,051) (j) 10,191
---------- --------- --------- ----------
Income (loss) before income taxes 111,990 (3,190) 2,250 111,050
Provisions for income taxes 39,955 (1,935) 1,599 (k) 39,619
---------- --------- --------- ----------
Net income (loss) $ 72,035 $ (1,255) $ 651 $ 71,431
========== ========= ========= ==========
Earning per share:
Basic $ 2.07 $ 2.05
Diluted $ 2.03 $ 2.01
Weighted-average shares outstanding:
Basic 34,878 34,878
Dilutive 35,513 35,513
The accompanying notes are an integral part of the financial statements.
-27-
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
THREE MONTHS ENDED JULY 30, 2004
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Historical *
------------
Bob Evans
Farms, Inc. SWH Corp. Adjustments Pro Forma
----------- --------- ----------- ---------
Net sales $320,615 $ 50,669 $ 0 $371,284
Operating expenses:
Cost of sales 94,564 14,635 109,199
Operating wages and fringe benefits 112,878 19,615 132,493
Other operating expenses 49,281 9,747 59,028
Selling, general and administrative 26,864 4,656 (1,847) (h) 29,673
Depreciation and amortization 13,944 1,728 0 (i) 15,672
-------- -------- --------- --------
Operating income 23,084 288 1,847 25,219
Net interest expense 876 2,191 (524) (j) 2,543
-------- -------- --------- --------
Income (loss) before income taxes 22,208 (1,903) 2,371 22,676
Provisions for income taxes 7,972 (918) 1,086 (k) 8,140
-------- -------- --------- --------
Net income (loss) $ 14,236 $ (985) $ 1,285 $ 14,536
======== ======== ========= ========
Earning per share:
Basic $ 0.40 $ 0.41
Diluted $ 0.40 $ 0.41
Weighted-average shares outstanding:
Basic 35,260 35,260
Dilutive 35,671 35,671
* Historical amounts shown for Bob Evans Farms, Inc. include results of SWH
Corporation after July 7, 2004; whereas historical amounts shown for SWH
Corporation include results through July 7, 2004 only.
The accompanying notes are an integral part of the financial statements.
-28-
NOTES TO PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
(a) Reflects the elimination of employee loans receivable of $550,000 at the
closing of the acquisition.
(b) Reflects changes to the status of SWH's current and deferred tax accounts
and related valuation allowances as a result of the acquisition.
(c) Typically, there would be an adjustment to reflect a change of historical
property, plant and equipment bases to fair value. The Company is
currently in the process of evaluating the fair values of the property,
plant and equipment purchased using internal and external resources. Based
on initial inquiries, management believes that any fair value adjustment
to historical net book value will not be significant; therefore, no
adjustment to the historical bases has been made at this time. Upon the
completion of the assessment of the fair value of the assets acquired and
liabilities assumed, the Company will update its purchase price allocation
accordingly.
(d) Reflects the elimination of net deferred financing costs ($1,870,000)
associated with SWH's prior debt that was paid in full at closing, and the
addition of deferred financing costs of $595,000 that the Company incurred
in connection with the issuance of new senior notes to finance the
acquisition.
(e) Reflects the excess of acquisition cost over the estimated fair value of
net assets acquired (goodwill). At this time, the Company does not believe
that intangible assets subject to amortization will be significant. The
final purchase price of the acquisition will not be determined until
certain contractual items have been settled. The preliminary calculation
of the purchase price is as follows:
Paid to equity and debt holders at closing $182,669,000
Closing costs and transaction fees 834,000
------------
Preliminary acquisition cost $183,503,000
============
(f) Reflects the full payment of all of SWH's prior debt ($75,465,000 -
current; $1,601,000 - long-term) and additional borrowings of $184,098,000
(all long-term) via the Company's issuance of new senior notes to finance
the acquisition. The additional borrowings represent the $183,503,000
preliminary acquisition cost discussed in note (e) plus the $595,000
deferred financing costs discussed in note (d).
(g) Reflects the elimination of all of the equity balances of SWH in
accordance with the purchase method of accounting for business
combinations.
(h) Reflects the elimination of management fees paid to the previous majority
owner of SWH ($199,000 for the year ended April 30, 2004, and $29,000 for
the three months ended July 30, 2004) and the elimination of a charge at
closing of $1,818,000 in net deferred financing costs related to SWH's
prior debt that was paid in full at closing.
(i) Typically there would be an adjustment to reflect a change of historical
property, plant and equipment bases to fair value. However, preliminary
reviews of the acquired assets indicate that the fair value of the
property, plant and equipment will not be substantially different
-29-
from the historical net book value recorded by SWH. The historical
financial information for SWH utilizes similar classification and useful
lives for property, plant and equipment. Accordingly, no adjustment to
depreciation expense has been made for adjustments to fair values or
useful lives of the property, plant and equipment acquired.
(j) Reflects the incremental change in interest expense (including the
amortization of deferred financing costs) associated with the pro forma
interest expense calculated using the weighted-average interest rate
(4.87%) of the Company's new senior notes used to finance the acquisition
and the elimination of the interest expense associated with SWH's prior
credit facilities.
(k) Reflects the combined tax expense based on the Company's effective tax
rate and tax structure.
(l) In December 2003, SWH recognized a charge of $2,815,000 related to the
settlement of a lawsuit filed by a former restaurant manager (see Note 10
to the Financial Statements of SWH included herein). This charge is
reflected in the historical results shown for SWH in the Pro Forma
Condensed Consolidated Statement of Income for the year ended April 30,
2004. The pro forma financial statements do not reflect an adjustment for
this item.
-30-
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
BOB EVANS FARMS, INC.
Dated: September 20, 2004 By: /s/ Donald J. Radkoski
--------------------------------------
Donald J. Radkoski
Chief Financial Officer, Treasurer and
Secretary
-31-
INDEX TO EXHIBITS
Current Report on Form 8-K/A
Dated September 20, 2004
Exhibit No. Description
- ----------- -----------
2* Stock Purchase Agreement, dated as of June 11, 2004, among SWH
Corporation, the Equity Holders of SWH Corporation and Bob Evans
Farms, Inc.
4(a)* Loan Agreement, dated July 7, 2004, between BEF Holding Co., Inc.
and National City Bank
4(b)* Guaranty of Payment, dated as of July 7, 2004, made by Bob Evans
Farms, Inc. and Mimi's Cafe, LLC, in favor of National City Bank
4(c)* Promissory Note, dated as of July 7, 2004, in the aggregate
principal amount of $200,000,000, made by BEF Holding Co., Inc.
in favor of National City Bank
10* Escrow Agreement, dated as of July 7, 2004, among Saunders Karp &
Megrue LLC, Bob Evans Farms, Inc., Mimi's Cafe, LLC and U.S. Bank
National Association, as Escrow Agent
23 Consent of Independent Registered Public Accounting Firm
- -----------------------
* Previously filed with the Company's Current Report on Form 8-K on July 12,
2004.
-32-