Bob Evans Farms, Inc.
BOB EVANS FARMS INC (Form: 10-Q, Received: 12/26/2013 16:06:09)
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

 

 

FORM 10-Q

 

 

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended October 25, 2013

OR

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                     

Commission file number 0-1667

 

 

Bob Evans Farms, Inc.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   31-4421866

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

8111 Smith’s Mill Road, New Albany, Ohio 43054

(Address of principal executive offices) (Zip Code)

(614) 491-2225

(Registrant’s telephone number, including area code)

3776 South High Street, Columbus, OH 43207

(Former name, former address and formal fiscal year, if changed since last report)

 

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes   x     No   ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes   x     No   ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “accelerated filer”, “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large Accelerated Filer   x    Accelerated Filer   ¨
Non-Accelerated Filer   ¨    (Do not check if a smaller reporting company)    Smaller Reporting Company   ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes   ¨     No   x

As of December 13, 2013, the registrant had 26,476,800 common shares outstanding.

 

 

 


Table of Contents

TABLE OF CONTENTS

 

Part I – Financial Information   
 

Item 1.

  

Financial Statements

  
    

Consolidated Balance Sheets

     3   
    

Consolidated Statements of Net Income

     4   
    

Consolidated Statements of Cash Flows

     5   
    

Notes to the Consolidated Financial Statements

     6   
 

Item 2.

  

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     24   
 

Item 3.

  

Quantitative and Qualitative Disclosures about Market Risk

     39   
 

Item 4.

  

Controls and Procedures

     39   
Part II – Other Information   
 

Item 1.

  

Legal Proceedings

     41   
 

Item 1A.

  

Risk Factors

     41   
 

Item 2.

  

Unregistered Sales of Equity Securities and Use of Proceeds

     41   
 

Item 3.

  

Defaults Upon Senior Securities

     42   
 

Item 4.

  

Mine Safety Disclosures

     42   
 

Item 5.

  

Other Information

     42   
 

Item 6.

  

Exhibits

     42   
Signatures      43   
Index to Exhibits      44   


Table of Contents

BOB EVANS FARMS, INC.

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CONSOLIDATED BALANCE SHEETS

 

     (in thousands)  
     Unaudited
October 25, 2013
    April 26, 2013  
           (recast & adj.)  

Assets

    

Current Assets

    

Cash and equivalents

   $ 4,934     $ 9,010  

Accounts receivable, net

     37,671       33,958  

Inventories

     21,815       22,491  

Deferred income taxes

     13,089       13,089  

Federal and state income taxes

     55,359        63,900   

Prepaid expenses

     5,834       5,232  

Current assets held for sale

     5,697       —    
  

 

 

   

 

 

 

Total Current Assets

     144,399        147,680   

Property, Plant and Equipment

     1,546,335       1,462,940   

Less accumulated depreciation

     690,318       675,725  
  

 

 

   

 

 

 

Net Property, Plant and Equipment

     856,017       787,215   

Other Assets

    

Deposits and other

     6,500       6,624  

Long-term note receivable

     15,187       13,815  

Long-term investments

     30,500       29,723  

Goodwill

     19,634       19,634  

Other intangible assets

     3,348       3,427  

Long-term assets held for sale

     —         11,877  
  

 

 

   

 

 

 

Total Other Assets

     75,169       85,100  
  

 

 

   

 

 

 
   $ 1,075,585      $ 1,019,995   
  

 

 

   

 

 

 

Liabilities and Stockholders’ Equity

    

Current Liabilities

    

Credit facility borrowings

   $ 318,227     $ 201,433  

Accounts payable

     21,865       23,058  

Accrued property, plant and equipment purchases

     11,017       11,078  

Accrued non-income taxes

     20,106       16,346  

Accrued wages and related liabilities

     27,729       30,219  

Self-insurance

     21,506       21,072  

Deferred revenue

     11,024       12,915  

Other accrued expenses

     27,851       24,763  
  

 

 

   

 

 

 

Total Current Liabilities

     459,325       340,884  

Long-Term Liabilities

    

Deferred compensation

     35,883       32,140  

Federal and state income taxes

     9,515        9,443   

Deferred income taxes

     38,601       38,601  

Deferred rent and other

     6,456       6,391  

Long-term debt

     826       816  
  

 

 

   

 

 

 

Total Long-Term Liabilities

     91,281        87,391   

Stockholders’ Equity

    

Common stock, $.01 par value; authorized 100,000,000 shares; issued 42,638,118 shares at October 25, 2013, and April 26, 2013

     426       426  

Capital in excess of par value

     221,846       215,593  

Retained earnings

     842,911       844,312  

Treasury stock, 16,166,258 shares at October 25, 2013, and 15,220,014 shares at April 26, 2013, at cost

     (540,204     (468,611
  

 

 

   

 

 

 

Total Stockholders’ Equity

     524,979       591,720  
  

 

 

   

 

 

 
   $ 1,075,585      $ 1,019,995   
  

 

 

   

 

 

 

The accompanying notes are an integral part of the financial statements.

 

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CONSOLIDATED STATEMENTS OF NET INCOME

UNAUDITED

 

     (in thousands, except per share amounts)  
     Three Months Ended     Six Months Ended  
     October 25, 2013     October 26, 2012     October 25, 2013     October 26, 2012  
           (recast & adj.)           (recast & adj.)  

Net Sales

   $ 332,600     $ 329,555     $ 662,049     $ 652,996  

Cost of sales

     111,071       98,064       215,576       195,818  

Operating wage and fringe benefit expenses

     100,656       101,470       202,368       202,797  

Other operating expenses

     51,993       51,372       102,976       102,650  

Selling, general and administrative expenses

     37,933       38,865       72,344       71,510  

Depreciation and amortization expense

     18,281       16,311       35,511       31,620  

Impairment of assets held for sale

     3,771       —         12,380       —    
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating Income

     8,895       23,473       20,894       48,601  

Net interest expense (income)

     140       1,473       (16     3,529  
  

 

 

   

 

 

   

 

 

   

 

 

 

Income From Continuing Operations Before Income Taxes

     8,755       22,000       20,910       45,072  

Provision for income taxes

     2,502       7,450       6,281       15,299  
  

 

 

   

 

 

   

 

 

   

 

 

 

Income From Continuing Operations

     6,253       14,550       14,629       29,773  

Loss from discontinued operations, net of income taxes

     (134     (3,239     (134     (3,353
  

 

 

   

 

 

   

 

 

   

 

 

 

Net Income

   $ 6,119     $ 11,311     $ 14,495     $ 26,420  
  

 

 

   

 

 

   

 

 

   

 

 

 

Earnings Per Share - Income from Continuing Operations:

        

Basic

   $ 0.23     $ 0.51     $ 0.54     $ 1.05  

Diluted

   $ 0.23     $ 0.51     $ 0.53     $ 1.05  

Loss Per Share - Loss from Discontinued Operations:

        

Basic

   $ (0.00 )   $ (0.11   $ (0.00   $ (0.12

Diluted

   $ (0.00   $ (0.11   $ (0.00 )   $ (0.12

Earnings Per Share - Net Income:

        

Basic

   $ 0.23     $ 0.40     $ 0.53     $ 0.93  

Diluted

   $ 0.23     $ 0.40     $ 0.53     $ 0.93  
  

 

 

   

 

 

   

 

 

   

 

 

 

Cash Dividends Paid Per Share

   $ 0.310     $ 0.275     $ 0.585     $ 0.525  
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted Average Shares Outstanding

        

Basic

     27,086       28,398       27,287       28,307  

Dilutive Stock Options

     98       138       115       142  
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

     27,184       28,536       27,402       28,449  
  

 

 

   

 

 

   

 

 

   

 

 

 

The accompanying notes are an integral part of the financial statements.

 

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CONSOLIDATED STATEMENTS OF CASH FLOWS

UNAUDITED

 

     (in thousands)
Six Months Ended
 
     October 25,
2013
    October 26,
2012 (recast & adj.)
 

Operating activities :

    

Net income

   $ 14,495     $ 26,420  

Less loss from discontinued operations

     134       3,353  
  

 

 

   

 

 

 

Income from continuing operations

     14,629       29,773  

Adjustments to reconcile net income to net cash provided by operating activities:

    

Depreciation and amortization

     35,511       31,620   

Loss on disposal/impairment of fixed assets

     13,864       1,095  

Gain on long-term investments

     (777     (202

Deferred compensation

     (1,066     1,052  

Stock compensation expense

     3,578       3,376  

Deferred rent

     220       144  

Changes in current assets and current liabilities:

    

Accounts receivable

     (3,713     (10,047

Inventories

     676       (3,145

Prepaid expenses

     (602     (2,751

Accounts payable

     (1,193     (2,675

Federal and state income taxes

     8,614       (21,388

Accrued wages and related liabilities

     (2,490     (5,645

Self-insurance

     434       (1,137

Accrued non-income taxes

     3,760       2,517  

Deferred revenue

     (1,891     (1,725

Other accrued expenses

     1,615       10,598   
  

 

 

   

 

 

 

Net cash provided by operating activities

     71,169       31,460   

Investing activities:

    

Purchase of property, plant and equipment

     (117,673     (46,800

Acquisition of business

     —         (53,208

Proceeds from sale of property, plant and equipment

     5,638       8,662  

Purchase of long-term investments

     —         (315

Deposits and other

     135       (1,790
  

 

 

   

 

 

 

Net cash used in investing activities

     (111,900     (93,451

Financing activities:

    

Cash dividends paid

     (16,008     (14,810

Net increase in credit facility borrowings

     116,794       99,759  

Proceeds from debt

     —         1,000  

Principal payments on long-term debt

     —         (38,571

Repurchase of common stock

     (75,490     (28,010

Proceeds from issuance of stock awards and treasury stock

     11,148       3,438  

Cash paid for shares net settled related to stock-based compensation

     (2,306     (1,913

Excess tax benefits from stock-based compensation

     2,651       233  
  

 

 

   

 

 

 

Net cash provided by financing activities

     36,789       21,126  

Net cash used in continuing operations

     (3,942     (40,865

Net cash (used in) provided by operating activities of discontinued operations

     (134 )     11,641   

Net cash used in investing activities of discontinued operations

     —         (1,902
  

 

 

   

 

 

 

Net cash (used in) provided by discontinued operations

     (134 )     9,739   

Cash and equivalents at the beginning of the period

     9,010       35,946  
  

 

 

   

 

 

 

Cash and equivalents at the end of the period

   $ 4,934     $ 4,820  
  

 

 

   

 

 

 

The accompanying notes are an integral part of the financial statements.

 

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

UNAUDITED

1. Summary of Significant Accounting Policies

Unaudited Consolidated Financial Statements: The accompanying unaudited consolidated financial statements of Bob Evans Farms, Inc. (“Bob Evans”) and its subsidiaries (collectively, Bob Evans and its subsidiaries are referred to as the “Company,” “we,” “us” and “our”) are presented in accordance with the requirements of Form 10-Q and, consequently, do not include all of the disclosures normally required by generally accepted accounting principles or those normally made in our Form 10-K filing. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation of our financial position and results of operations have been included. The consolidated financial statements are not necessarily indicative of the results of operations for a full fiscal year. The fiscal year 2013 financial statements have been recast in accordance with Accounting Standards Codification (“ASC”) 205-20-55 to recognize the Mimi’s Café operations within discontinued operations and to recognize assets held for sale. See Note 2, Note 7 and Note 8 for additional information. Additionally, the consolidated statements of net income, consolidated balance sheets and consolidated statements of cash flows have been adjusted for prior period errors related to property, plant and equipment, deferred income taxes and federal and state income tax receivables and other individually less significant items. See Note 12 for additional information. No other significant changes have occurred in the financial disclosures made in our Form 10-K for the fiscal year ended April 26, 2013 (refer to the Form 10-K for a summary of significant accounting policies followed in the preparation of the consolidated financial statements). Throughout the Unaudited Consolidated Financial Statements and Notes to the Consolidated Financial Statements, dollars are in thousands, except per share amounts.

Property, Plant and Equipment: Property, plant and equipment are recorded at cost less accumulated depreciation. The straight-line depreciation method is used for nearly all capitalized assets, although some assets purchased prior to fiscal 1995 continue to be depreciated using accelerated methods. Depreciation is calculated at rates adequate to amortize costs over the estimated useful lives of buildings and improvements (15 to 50 years) and machinery and equipment (3 to 30 years). Improvements to leased properties are depreciated over the shorter of their useful lives or the lease terms.

We evaluate property, plant and equipment held and used in the business for impairment whenever events or changes in circumstances indicate that the carrying amount of a long-lived asset may not be recoverable. Impairment is determined by comparing the estimated fair value for the asset group to the carrying amount of its assets. If impairment exists, the amount of impairment is measured as the excess of the carrying amount over the estimated fair values of the assets. Generally, the estimated fair value is determined based on appraisals, which we deem to be Level 3 inputs under the Fair Value Measurements and Disclosures Topic of ASC 820. See Note 8 for further information.

Goodwill and Other Intangible Assets: Goodwill, which represents the cost in excess of fair market value of net assets acquired, was $19,634 as of October 25, 2013, and April 26, 2013. Other intangible assets were $3,348 and $3,427 as of October 25, 2013, and April 26, 2013, respectively. The goodwill and intangible assets are related to the BEF Foods segment. Of the $3,348 of intangible assets, $2,761 represents trademark assets and trained workforce intangibles that are not subject to amortization and $587 represents definite-lived non-compete agreements that are amortized on a straight-line basis over the estimated economic life of five years. Goodwill and trademark intangible assets are deemed to have an indefinite economic life and are not amortized; rather they are tested for impairment at the beginning of the fourth quarter each year or on a more frequent basis when events occur or circumstances change between the annual tests that would more likely than not reduce the fair value of the reporting unit below its carrying value.

Earnings Per Share: Basic earnings-per-share computations are based on the weighted-average number of shares of common stock outstanding during the period presented. Diluted earnings-per-share calculations reflect the assumed exercise and conversion of employee stock options.

The numerator in calculating both basic and diluted earnings per share for each period was reported net income. The denominator was based on the weighted-average number of common shares outstanding.

 

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Stock-Based Compensation: We account for stock-based compensation in accordance with the Stock Option Expensing Topic of ASC 718. Accordingly, stock-based compensation awards are measured on the fair value of the award on the grant date and are recognized over the vesting period of the award on a straight-line basis.

Industry Segments: We have two business segments: Bob Evans Restaurants and BEF Foods. See Note 4 for detailed segment information.

Long-term Investments: Long-term investments include assets held under certain deferred compensation arrangements, which primarily represent the cash surrender value of company-owned life insurance policies. An offsetting liability for the amount of the cash surrender value of company-owned life insurance is included in the deferred compensation liability amount on the Consolidated Balance Sheets.

Financial Instruments: The fair value of our financial instruments (other than long-term debt) approximated their carrying value at October 25, 2013. See Note 8. We do not use derivative financial instruments for speculative purposes.

Commitments and Contingencies: We rent certain restaurant and other facilities under operating leases having initial terms that primarily expire approximately 20 years from commencement. The leases typically contain renewal clauses of five to 30 years exercisable at our option. Most of the leases also contain either fixed or inflation-adjusted escalation clauses.

We are self-insured for most casualty losses and employee health-care claims up to certain stop-loss limits per claim. We have accounted for liabilities of casualty losses, including both reported claims and incurred but not reported claims, based on information provided by independent actuaries. We have accounted for our employee health-care claims liability through a review of incurred and paid claims history. We do not believe that our calculation of casualty losses and employee health-care claims liabilities would change materially under different conditions and/or different methods. However, due to the inherent volatility of actuarially determined casualty losses and employee health-care claims, it is reasonably possible that we could experience changes in estimated losses, which could be material to quarterly net income.

New Accounting Standard: In July 2013, the FASB issued Accounting Standards Update (“ASU”) No. 2013-11, Presentation of an Unrecognized Tax Benefit, which states that an entity must offset any deferred tax asset recorded for a net operating loss with items recorded as unrecognized tax benefits. As such, an entity is required to net the balance sheet presentation of the net operating loss deferred tax asset with the unrecognized tax benefit. This netting is considered by jurisdiction and by legal entity. This standard is effective for interim and annual periods beginning after December 15, 2013, and is not anticipated to affect our consolidated financial statements.

Discontinued Operations: In accordance with ASC 205-20, we use a single accounting model to account for all long-lived assets to be disposed of (by sale, abandonment, or distribution to owners). This includes asset disposal groups meeting the criteria for presentation as a discontinued operation. The criteria for reporting discontinued operations are as follows: 1) the Company has disposed of a component of their business or has met the held-for-sale criteria, 2) there are no ongoing operations or cash flows of the component and 3) the Company will not have continuing involvement in the operations of the component after the disposal transaction. A long-lived asset group classified as held for sale is measured at the lower of its carrying value or fair value less cost to sell. We classify the results of operations of a component classified as held for sale in discontinued operations in the period in which they occur, less applicable income taxes. See Note 2 for additional information regarding the classification of Mimi’s Café as a discontinued operation.

2. Discontinued Operations

We sold Mimi’s Café, previously reported as an industry segment, to SWH Mimi’s Café Holding Company, Inc., a wholly owned subsidiary of Le Duff America, Inc. (“Le Duff”), in the fourth quarter of fiscal 2013. As part of the sale, we entered into a transition services agreement with Le Duff whereby we provide corporate support services and a supply agreement whereby we provide food products. The transition services agreement was originally expected to expire in December of 2013, and the supply agreement was originally expected to expire in February of 2014.

 

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In accordance with FASB ASC 205-20, Discontinued Operations, there is an assessment period for one year after a component has been disposed of, whereby an entity must reassess if they have significant continuing cash flows or significant continuing involvement in the operations of the component after the disposal to assess if the segment should be classified as continuing operations. As a result of having significant continuing cash flows, due to the two agreements noted above, the Mimi’s Café industry segment was not initially presented within discontinued operations. On July 23, 2013, the Company received a notice from SWH Mimi’s Café, LLC that it was terminating this supply agreement with BEF Foods, Inc. The transition services agreement timing did not change significantly and the agreement for some services will continue through the middle of January 2014. As a result of this termination notice, the Company determined that they no longer had significant cash flows from Mimi’s Café operations, thus Mimi’s Café should be presented within discontinued operations for all years presented in the financial statements, effective with the Form 10-Q filed for the three months ended July 26, 2013.

We recorded a loss from discontinued operations, net of income taxes, of $134 for the three months and six months ended October 25, 2013. For the three months and six months ended October 26, 2012, we recorded a loss from discontinued operations, net of income taxes, of $3,239 and $3,353, respectively.

Discontinued operations only include the revenues and expenses that are specifically identified with Mimi’s Café and excludes any allocation of corporate costs, including general and administrative expenses, which represented $738 in the three months ended October 26, 2012, and $1,340 in the six months ended October 26, 2012.

The results of Mimi’s Café consist of the following:

 

     (in thousands)     (in thousands)  
     Three Months Ended     Six Months Ended  
     Oct. 25, 2013     Oct. 26, 2012     Oct. 25, 2013     Oct. 26, 2012  

Net sales

   $ —        $ 81,322      $ —        $ 167,596   
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss from discontinued operations before income taxes

   $ (180   $ (5,229   $ (180   $ (5,559

Income tax benefit

     (46     (1,990     (46     (2,206
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss from discontinued operations, net of income taxes

   $ (134   $ (3,239   $ (134   $ (3,353
  

 

 

   

 

 

   

 

 

   

 

 

 

3. Stock-Based Compensation

Stock-based compensation expense for continuing operations, included in the selling, general and administrative expense line (“SG&A”) within the Consolidated Statements of Net Income, was $1,948 and $1,957 for the three months ended October 25, 2013, and October 26, 2012, respectively, and $3,578 and $3,376 for the six months ended October 25, 2013, and October 26, 2012, respectively.

 

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We granted restricted stock awards during the three months ended October 25, 2013, and October 26, 2012, of 5,724 and 7,410, respectively. We granted restricted stock awards during the six months ended October 25, 2013, and October 26, 2012, of 81,725 and 108,844, respectively.

4. Industry Segments

Information on our industry segments is summarized as follows:

 

     (in thousands)  
     Three Months Ended     Six Months Ended  
     Oct. 25, 2013     Oct. 26, 2012     Oct. 25, 2013     Oct. 26, 2012  
           (recast & adj.)           (recast & adj.)  

Sales:

        

Bob Evans Restaurants

   $ 240,500      $ 246,302      $ 485,051      $ 494,268   

BEF Foods

     95,857       91,142       184,038       173,814  

Intersegment net sales of food products

     (3,757     (7,889 1       (7,040     (15,086 2  
  

 

 

   

 

 

   

 

 

   

 

 

 

Subtotal of BEF Foods

     92,100       83,253       176,998       158,728  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ 332,600      $ 329,555      $ 662,049      $ 652,996   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss):

        

Bob Evans Restaurants

   $ 11,912      $ 19,174      $ 18,394      $ 36,452   

BEF Foods

     (3,017     4,299       2,500       12,149  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ 8,895      $ 23,473      $ 20,894      $ 48,601   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

1   Intersegment net sales of food products includes $3,624 of sales to discontinued operations
2   Intersegment net sales of food products includes $7,363 of sales to discontinued operations

5. Taxes

The provision for income taxes is based on a current estimate of the annual effective income tax rate adjusted to reflect the impact of discrete items. The Company’s effective income tax rate was 28.6% in the second quarter of fiscal 2014 versus 33.9% for the corresponding period a year ago. The Company’s effective tax rate was 30.0% for the first six months of fiscal 2014 versus 33.9% for the corresponding period a year ago. The decreases in the effective income tax rates are primarily attributable to an increase in the impact of FICA tax credits for employee reported tips and Work Opportunity Tax Credits due to lower earnings before income taxes.

6. Debt

In fiscal 2012, we obtained a $300,000 variable-rate revolving credit facility (“credit facility”). The credit facility provides us with liquidity options and supports our primary growth and return initiatives. The credit facility extends over a period of five years and requires us to pay interest on outstanding borrowings at a rate based on London Interbank Offered Rate (“ LIBOR”) or the Base Rate plus a margin based on our leverage ratio, ranging from 0.75% to 2.00% per annum for LIBOR, and ranging from 0.00% to 1.00% per annum for the Base Rate. The Base Rate is the highest of (i) the Administrative Agent’s prime rate (ii) the Federal Funds open rate plus 0.50% or (iii) the Daily LIBOR Rate plus 1.00%. We are also required to pay a commitment fee of 0.150% per annum to 0.275% per annum, based on our leverage ratio, on the average unused portion of the total lender commitments then in effect. We incurred financing costs of $1,000, which are being amortized over five years. The credit facility is considered a Level 2 fair value input. See Note 8.

On April 26, 2013, we exercised a $150,000 accordion option under our credit facility to increase our aggregate commitments and borrowing capacity from $300,000 to $450,000. All other terms of the credit agreement remained unchanged.

 

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Our effective interest rate for the credit facility is 1.5% for both the three months and six months ended October 25, 2013. Of our total credit facility, $13,399 is reserved for certain stand-by letters of credit.

As of October 25, 2013, we had $318,227 outstanding on the credit facility. The funds were borrowed to fund capital investments including our Farm Fresh Refresh remodeling initiative, development of our corporate campus and implementation of an Enterprise Resource Planning (“ERP”) system and to repurchase shares. Our interest expense on variable rate debt may increase in future periods as the credit facility is utilized.

On August 28, 2012, we obtained an interest-free loan of $1,000, due ten years from the date of borrowing, with no prepayment penalty. We have imputed interest based on our current borrowing rate. The loan provided funds to assist with the construction costs of our new corporate headquarters. This loan is considered a Level 2 fair value input. See Note 8.

7. Restructuring and Severance Charges

We recorded pretax restructuring and severance charges in continuing operations totaling $2,114 and $3,198 for the three months ended October 25, 2013, and October 26, 2012, respectively, and $3,082 and $4,742 for the six months ended October 25, 2013, and October 26, 2012, respectively. These costs, reflected in S,G&A related to organizational realignments and closures of production facilities. Additionally, we reduced stock compensation expense by $453 as an offset to our restructuring charges.

As of October 25, 2013, we anticipate that we will incur and pay an additional $515 and $172 related to restructuring and severance charges incurred in the Bob Evans Restaurants and BEF Foods segments, respectively, that are noted in the table below. These additional severance charges will be recognized based on completion of required service through the third quarter of fiscal 2014.

In May 2012, we announced our intention to close our food production plants in Springfield and Bidwell, Ohio, part of the BEF Foods segment. The action to close the food production facilities is intended to increase efficiency by consolidating production to our high capacity food production facility in Sulphur Springs, Texas. As of October 25, 2013, we anticipate that we will incur an additional $485 in severance and restructuring charges related to these plant closures as the required service period for the employee retention agreements is met throughout fiscal 2014.

On September 27, 2013, we announced the closure of our food production plant in Richardson, Texas, reducing our fresh sausage plant network to two facilities that have sufficient capacity to optimize our fresh sausage distribution network to meet our volume needs. As of October 25, 2013, we have incurred $339 in severance and restructuring charges related to this plant closure.

The components of the restructuring and severance charges are summarized below by operating segment for the six months ended October 25, 2013, and October 26, 2012:

 

                                      
     Bob Evans
Restaurants
    BEF
Foods
    Total  

Balance, April 26, 2013

   $ 1,260     $ 2,560     $ 3,820  

Restructuring and severance charges incurred

     1,345       1,737       3,082  

Adjustments

     (131 )     —         (131 )

Amounts paid

     (2,035     (1,366     (3,401
  

 

 

   

 

 

   

 

 

 

Balance, October 25, 2013

   $ 439     $ 2,931     $ 3,370  
  

 

 

   

 

 

   

 

 

 

 

                                      
     Bob Evans
Restaurants
    BEF
Foods
    Total  

Balance, April 27, 2012

   $ —       $ —       $ —    

Restructuring and severance charges incurred

         797       3,945       4,742  

Amounts paid

     (797     (2,408     (3,205
  

 

 

   

 

 

   

 

 

 

Balance, October 26, 2012

   $ —       $ 1,537     $ 1,537  
  

 

 

   

 

 

   

 

 

 

 

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8. Fair Value Measurements

Fair value is defined as the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, and is a market-based measurement based on assumptions of the market participants. As a basis for these assumptions, we classify fair value measurements under the following fair value hierarchy:

 

    Level 1 inputs are unadjusted quoted prices in active markets for identical assets or liabilities that are publicly accessible. Active markets have frequent transactions with enough volume to provide ongoing pricing information.

 

    Level 2 inputs are other than level 1 inputs that are directly or indirectly observable. These can include unadjusted quoted prices for similar assets or liabilities in active markets, unadjusted quoted prices for identical assets or liabilities in inactive markets or other observable inputs.

 

    Level 3 inputs are unobservable inputs.

The following table presents financial assets and liabilities measured at fair value on a recurring basis as of the periods presented:

 

     (in thousands)  
     October 25, 2013  
     Total      Level 1      Level 2      Level 3  

Assets

           

Cash and equivalents (1)

   $ 4,934       $ 4,934       $ —         $ —     

Short-term note receivable (2)

     18        —           18        —     

Long-term note receivable (3)

     15,187        —          234        14,953  

Long-term investments (4)

     30,500        —          —          30,500  
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 50,639       $ 4,934       $ 252       $ 45,453   

Liabilities

           

Long-term debt (5)

   $ 826       $ —         $ 826       $ —     

 

     (in thousands)  
     April 26, 2013  
     Total      Level 1      Level 2      Level 3  

Assets

           

Cash and equivalents (1)

   $ 9,010       $ 9,010       $ —         $ —     

Short-term note receivable (2)

     18        —           18        —     

Long-term note receivable (3)

     13,815        —          245        13,570  

Long-term investments (4)

     29,723        —          —          29,723  
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 52,566       $ 9,010       $ 263       $ 43,293   

Liabilities

           

Long-term debt (5)

   $ 816       $ —         $ 816       $ —     

 

(1)   Cash and equivalents primarily represent cash deposits as well as credit card receivables that generally settle in less than three days.

 

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(2)   Short-term note receivable is current portion of a note receivable from the sale of land with an interest rate of 7% (Level 2).
(3)   Long-term note receivable includes a note receivable from the sale of land with an interest rate of 7% (Level 2), and a promissory note from SWH Mimi’s Café Holding Company, LLC, that is valued using a discounted cash flow model (Level 3).
(4)   Long-term investments are financial assets and liabilities, held under certain deferred compensation arrangements, which primarily represent the cash surrender value of company-owned life insurance policies.
(5)   The fair value of our interest-free long-term debt is based on the current interest rates offered for similar instruments. This loan provided funds to assist with the construction costs of our new corporate headquarters.

The following table presents the activity related to level 3 fair value measurements for the periods presented:

 

    (in thousands)  
    October 25, 2013  
    Long-term note receivable     Long-term investment  

Carrying value at the beginning of the period

  $ 13,570      $ 29,723   

Plus:

   

Accretion (1)

    1,081       —    

Contributions

    —         1,070  

Interest, net realized/unrealized gains (losses) (1)

    302       777  

Less:

   

Distributions

    —         (1,070
 

 

 

   

 

 

 

Carrying value at the end of the period

  $ 14,953      $ 30,500   

 

    (in thousands)  
    April 26, 2013  
    Long-term note receivable     Long-term investment  

Carrying value at the beginning of the period

  $ —        $ 28,132   

Note from SWH Mimi’s Café Holding Company, LLC.

    13,570       —    

Plus:

   

Contributions

    —         2,722  

Interest, net realized/unrealized gains (losses) (1)

    —         1,694  

Less:

   

Distributions

    —         (2,825
 

 

 

   

 

 

 

Carrying value at the end of the period

  $ 13,570      $ 29,723   

 

(1)   Reflected in the line “Net interest expense (income)” in the Consolidated Statements of Net Income.

In addition to the financial assets and liabilities that are measured at fair value on a recurring basis, we measure certain assets and liabilities at fair value on a nonrecurring basis, including, long-lived assets that have been reduced to fair value when they are held for sale and long-lived assets that are written down to fair value when they are impaired.

We evaluate the carrying amount of long-lived assets held and used in the business periodically and when events and circumstances warrant such a review, to ascertain if any assets have been impaired. The carrying amount of a long-lived asset or asset group is considered impaired when the carrying value of the asset or asset group exceeds the expected future cash flows from the asset or asset group. The impairment loss recognized is the excess of the carrying

 

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value of the asset or asset group over its fair value, based on a discounted cash flow analysis using a discount rate determined by management and is recorded in S,G&A. Assets that are written down to fair value when impaired are not subsequently adjusted to fair value unless further impairment occurs. The inputs to determine the fair value are considered level 3 measurements.

Based on our purchase agreement, effective July 25, 2013, and subject to customary due diligence, to sell nonoperating property, plant and equipment at 29 locations for $3,450, we determined that indicators of impairment existed during the three months ended July 26, 2013, for our held for sale asset group. As a result of signing the purchase agreement, we determined that the long-lived asset group’s then-current carrying value of $11,969 was greater than the fair value of $3,360 (the selling price less estimated selling costs). This resulted in a pretax non-cash assets held for sale impairment charge in the Bob Evans Restaurants business segment of $8,609 during the first quarter of fiscal 2014.

In October 2013, we closed on the sale of 27 of the 29 nonoperating properties. The remaining two properties are anticipated to close during the third quarter of fiscal 2014. Based on the anticipated selling price, we booked a pretax noncash assets held for sale impairment charge in the Bob Evans Restaurants business segment of $771 during the second quarter of fiscal 2014, resulting in a year-to-date charge of $9,380. These impairment charges are included in the “Impairment of assets held for sale” line in the Consolidated Statements of Net Income and the fair value of the remaining assets are included in the “Current assets held for sale” line in the consolidated balance sheets, as of October 25, 2013. Upon being classified as held for sale, depreciation ceased for these assets.

On September 27, 2013, we announced our plans to close our food production plant in Richardson, Texas. Based on the estimated value of the facility, we determined that the long-lived asset group’s then-current carrying value of $8,111 was greater than the fair value of $5,111 (the selling price less estimated selling costs). This resulted in a pretax non-cash assets held for sale impairment charge in the BEF Foods segment of $3,000 during the three months ended October 25, 2013. The long-lived asset group related to this plant is included at its fair value in the “Current assets held for sale” line in the consolidated balance sheets, as of October 25, 2013. Upon being classified as held for sale, depreciation ceased for these assets.

We have reclassified the assets for the two remaining nonoperating locations and the Richardson plant to the “Long-term assets held for sale” line in the consolidated balance sheets as of April 26, 2013.

The following table represents impairments for those assets remeasured to fair value on a non-recurring basis:

 

     (in thousands)  
    

Impairments

Three Months Ended

   

Impairments

Six Months Ended

 
     October 25,
2013
     October 26,
2012
    October 25,
2013
     October 26,
2012
 

Bob Evans Restaurants

          

Assets held for use

   $ 1,184       $ 1,227  4      $ 2,364       $ 1,227  4   

Assets held for sale

     771         —         9,380         —    

BEF Foods

          

Assets held for sale

   $ 3,000       $ —        $ 3,000       $ —     

 

1   $1,184 relates to impairment of one operating location
2   $771 relates to impairment of two nonoperating locations
3   $3,000 relates to impairment of one nonoperating location
4   $1,227 relates to impairment of one nonoperating location
5   $2,364 relates to impairment of two operating locations
6   $9,380 relates to impairment of 29 nonoperating locations

 

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9. Commitments and Contingencies

We had outstanding letters of credit that totaled approximately $13,799 and $16,249, respectively, as of October 25, 2013, and April 26, 2013. If certain conditions are met under these arrangements, we would be required to satisfy the obligations in cash. Due to the nature of these arrangements and based on historical experience and future expectations, we do not expect to make any significant payment outside of the terms set forth in these arrangements.

As of October 25, 2013, we have entered into various construction commitments, including capital items to be purchased for projects that were under construction, or for which a lease has been signed. Our obligations under these commitments were approximately $21,881 as of October 25, 2013.

As of October 25, 2013, future minimum rental payments on operating leases were $69,544. Our operating leases are described more fully in Note 1.

We are subject to various claims and contingencies related to lawsuits and other matters arising out of the normal course of business. We are of the opinion that there are no matters pending or threatened that are expected to have a material adverse effect, individually or in the aggregate, on our consolidated financial condition or results of operations.

In August 2012, a former Bob Evans Restaurant employee filed an action against Bob Evans Farms, Inc. (“Bob Evans”) in the United States District Court for the Southern District of Ohio (the “Ohio District Court”). The lead plaintiff alleged that Bob Evans violated the Fair Labor Standards Act by failing to pay overtime compensation during the period of time the employee worked as an assistant manager. The lead plaintiff sought to maintain the suit as a collective action on behalf of other similarly situated assistant managers. Thirteen other former employees have since opted into the case, although three have subsequently withdrawn (including the original lead plaintiff). The Court has since approved the substitution of another former employee as the lead plaintiff. Plaintiffs filed a motion for conditional certification, Bob Evans filed a motion in opposition to the same, and the Ohio District Court granted conditional certification on December 5, 2013. The proceedings remain in the early stages with significant uncertainty as to factual issues, outcome of legal proceedings and likely number of opt-in plaintiffs and/or damages claimed. Accordingly, we are unable to estimate a range of reasonably possible losses for this matter. We do not believe, however, based on currently available information, that the outcome of this matter will have a material adverse effect on our financial condition, though an adverse outcome could be material to our results of operations for a particular period. We believe the claims are without merit and intend to vigorously contest the action.

10. Supplemental Cash Flow Information

Cash paid for income taxes and interest for the six months ended October 25, 2013, and October 26, 2012, is summarized as follows:

 

     (in thousands)  
     Six Months Ended  
     October 25,
2013
    October 26,
2012
 

Income taxes (refunded) paid, net

   $ (4,736   $ 33,985   
  

 

 

   

 

 

 

Interest paid

   $ 1,732      $ 3,865   
  

 

 

   

 

 

 

Non cash investing activities is summarized as follows:

 

     (in thousands)  
     Six Months Ended  
     October 25,
2013
     October 26,
2012
 
     

Accretion of long-term note receivable

   $ 1,081       $ —     
  

 

 

    

 

 

 

 

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11. Subsequent Events

On December 4, 2013, the Board of Directors increased the authorization for the current stock repurchase program to $225,000 for the period ending April 25, 2014. Since $75,500 had been expended, $149,500 remains authorized. This program will repurchase shares pursuant to Section 10b-18 and Section 10b5-1 Plans. The Company can also repurchase stock in the open market or through privately negotiated transactions.

On November 21, 2013, the Board of Directors approved a quarterly cash dividend of $0.310 per share, payable on December 16, 2013, to shareholders of record at the close of business on December 2, 2013.

The Company is currently in the process of negotiating the amendment of its existing Credit Agreement. As currently being discussed with a bank group, the new credit agreement would provide $750,000 of borrowing capacity with an accordion feature of up to $300,000. The credit agreement would have the normal financial covenants and negative restrictions for agreements of this type. We expect to enter into an amended credit agreement during the third quarter of fiscal 2014, subject to final lender approval and the normal conditions of closing.

12. Correction of Prior Consolidated Financial Statements

During the second quarter of fiscal 2014, we identified errors related to federal and state income tax receivable ($966 benefit) primarily related to worthless stock deduction calculation, deferred taxes ($3,272 benefit) primarily related to basis differences on fixed assets and deferred compensation, property plant and equipment ($15,630 benefit), accumulated depreciation ($10,438 expense) and other less significant items (individually and in the aggregate) related to sales and operating wage cut-off and accrued rent. The impact of the errors in the three prior fiscal years was not material to any of those years, however the cumulative effect of all of the prior period errors of $10,589 benefit (as of April 26, 2013) and $9,812 benefit (as of July 26, 2013) would be material to our current year consolidated net income. We also identified an error during the first quarter of fiscal 2014 relating to prior fiscal years pertaining to overstatement of accrued interest on uncertain tax positions of $777 expense. As was disclosed previously, this error, which was originally corrected in the first quarter of fiscal 2014, was material to that period, but was not expected to be material for the fiscal year ended April 25, 2014. Consequently we have corrected the aforementioned errors for all prior periods presented by restating the consolidated financial statements and other information included herein. Periods not presented here will be restated as they are included in future filings.

We have recast the consolidated financial statements to reflect the Mimi’s Cafe operations as a discontinued operation for all periods presented below. We have also restated the financial statements for the impact of the error corrections after reflecting the impact of the discontinued operations. The as recast column is to present Mimi’s Cafe as a discontinued operation for all periods presented. The as adjusted columns are to reflect the corrections of the previously noted errors (in thousands):

 

Consolidated Balance Sheets

                   
     July 26, 2013  
     As Reported      Adjustments     As Adjusted  

Federal and state income taxes

   $ 44,372       $ 966      $ 45,338   

Total Current Assets

     129,863         966        130,829   

Property, Plant and Equipment

     1,506,421         15,630        1,522,051   

Less accumulated depreciation

     686,081         10,438        696,519   

Net Property, Plant and Equipment

     820,340         5,192        825,532   

Total Assets

     1,023,524         6,158        1,029,682   

Federal and state income taxes

     9,825         (382     9,443   

Deferred income taxes

     41,873         (3,272     38,601   

Total Long-Tem Liabilities

     95,152         (3,654     91,498   

Retained earnings

     835,442         9,812        845,254   

Total Stockholders’ Equity

     575,741         9,812        585,553   

Total Liabilities and Stockholders’ Equity

     1,023,524         6,158        1,029,682   
     April 26, 2013  
     As Reported  (1)      Adjustments     As Adjusted  

Federal and state income taxes

   $ 62,934       $ 966      $ 63,900   

Total Current Assets

     146,714         966        147,680   

Land

     232,543        15,630       248,173  

Less accumulated depreciation

     665,287         10,438        675,725   

Net Property, Plant and Equipment

     782,023        5,192       787,215  

Total Assets

     1,013,837        6,158        1,019,995   

Federal and state income taxes

     10,602        (1,159     9,443   

Deferred income taxes

     41,873        (3,272     38,601  

Total Long-Term Liabilities

     91,822        (4,431     87,391   

Retained earnings

     833,723        10,589       844,312  

Total Stockholders’ Equity

     581,131        10,589       591,720  

Total Liabilities and Stockholders’ Equity

     1,013,837        6,158        1,019,995   

 

(1)   Includes reclassification of held for sale assets to conform to the current year presentation.

 

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     April 27, 2012  
     As Reported     As Recast     Adjustments     As Adjusted  

Assets

        

Current Assets

        

Cash and cash equivalents

   $ 35,946      $ 32,846      $ —        $ 32,846   

Accounts receivable, net

     29,850        27,141        —          27,141   

Inventories

     23,388        19,497        —          19,497   

Deferred income taxes

     11,738        11,738        —          11,738   

Prepaid expenses

     2,725        2,340        —          2,340   

Current assets of discontinued operations

     —          10,085        —          10,085   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Current Assets

     103,647        103,647        —          103,647   

Property Plant And Equipment

        

Land

     250,408        242,562        15,630        258,192   

Buildings and improvements

     946,361        754,508        —          754,508   

Machinery and equipment

     504,586        389,946        —          389,946   

Construction in progress

     5,111        5,046        —          5,046   

Less accumulated depreciation

     823,171        669,161        10,226        679,387   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net Property Plant And Equipment

     883,295        722,901        5,404        728,305   

Other Assets

        

Deposits and other

     8,996        6,593        —          6,593   

Long-term note receivable

     263        263        —          263   

Long-term investments

     28,132        28,132        —          28,132   

Goodwill

     1,567        1,567        —          1,567   

Other intangible assets

     39,877        —          —          —     

Long-term assets of discontinued operations

     —          202,674        —          202,674   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Other Assets

     78,835        239,229        —          239,229   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Assets

   $ 1,065,777      $ 1,065,777      $ 5,404      $ 1,071,181   
  

 

 

   

 

 

   

 

 

   

 

 

 

Liabilities and Stockholders’ Equity

        

Current Liabilities

        

Current maturities of long-term debt

   $ 38,571      $ 38,571      $ —        $ 38,571   

Accounts payable

     26,085        26,095        389        26,484   

Federal and state income taxes

     12,469        12,469        2,796        15,265   

Accrued non-income taxes

     21,251        15,738        —          15,738   

Accrued wages and related liabilities

     33,505        28,429        (718     27,711   

Self insurance

     26,079        21,044        —          21,044   

Deferred revenue

     15,476        12,325        —          12,325   

Other accrued expenses

     21,453        18,212        —          18,212   

Current liabilities of discontinued operations

     —          22,006        (621     21,385   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Current Liabilities

     194,889        194,889        1,846        196,735   

Long-Term Liabilities

        

Deferred compensation

     30,688        27,561        —          27,561   

Federal and state income taxes

     9,633        9,633        (1,107     8,526   

Deferred income taxes

     48,089        48,089        (3,192     44,897   

Deferred rent and other

     25,097        5,415        —          5,415   

Long-term debt

     97,145        97,145        —          97,145   

Liabilities of discontinued operations

     —          22,809        1,541        24,350   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total-Long Term Liabilities

     210,652        210,652        (2,758     207,894   

Stockholders’ Equity

        

Common stock

     426        426        —          426   

Capital in excess of par

     202,365        202,365        —          202,365   

Retained earnings

     866,799        866,799        6,316        873,115   

Treasury Stock

     (409,354     (409,354     —          (409,354
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Stockholders’ Equity

     660,236        660,236        6,316        666,552   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Liabilities and Stockholders Equity

   $ 1,065,777      $ 1,065,777      $ 5,404      $ 1,071,181   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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Table of Contents

Consolidated Statements of Net Income

                   
     For the Three Months Ended July 26, 2013  
     As
Reported
     Adjustments     As
Adjusted
 

Provision for income taxes

   $ 3,002       $ 777      $ 3,779   

Income from continuing operations

     9,153        (777     8,376  

Net income

     9,153        (777     8,376  

Earnings per share - Income from continuing operations

       

Basic

   $ 0.33       $ (0.03   $ 0.30   

Diluted

   $ 0.33       $ (0.03   $ 0.30   

Earnings per share - Net income

       

Basic

   $ 0.33       $ (0.03   $ 0.30   

Diluted

   $ 0.33       $ (0.03   $ 0.30   

 

     For the Three Months Ended October 26, 2012  
     As
Reported
     As Recast     Adjustments     As
Adjusted
 

Depreciation and amortization expense

   $ 21,972       $ 16,258      $ 53      $ 16,311   

Operating income

     16,757        23,526       (53     23,473  

Income from continuing operations before income taxes

     15,284        22,053       (53     22,000  

Provision for income taxes from continuing operations

     4,942        7,560       (110     7,450  

Income from continuing operations

     —           14,493       57        14,550  

Loss from discontinued operations, net of income taxes

     —           (4,151     912       (3,239

Net income

     10,342        10,342       969       11,311  

Earnings per share - Income from continuing operations

         

Basic

      $ 0.51      $ 0.00      $ 0.51   

Diluted

      $ 0.51      $ 0.00      $ 0.51   

Earnings per share - Loss from discontinued operations

         

Basic

      $ (0.15   $ 0.03      $ (0.11

Diluted

      $ (0.15   $ 0.03      $ (0.11

Earnings per share - Net income

         

Basic

   $ 0.36       $ 0.36      $ 0.03      $ 0.40   

Diluted

   $ 0.36       $ 0.36      $ 0.03      $ 0.40   
         

 

-17-


Table of Contents
     For the Six Months Ended October 26, 2012  
     As
Reported
    As Recast     Adjustments     As
Adjusted
 

Operating wages and fringe benefit expenses

   $ 266,319      $ 202,079      $ 718      $ 202,797   

Other operating expenses

     145,218       103,039       (389     102,650  

Depreciation and amortization expense

     42,983       31,514       106       31,620  

Operating income

     42,021       49,036       (435 )     48,601  

Income from continuing operations before income taxes

     38,492       45,507       (435 )     45,072  

Provision for income taxes from continuing operations

     13,142       15,986       (687 )     15,299   

Income from continuing operations

     —          29,521       252       29,773  

Loss from discontinued operations, net of income taxes

     —          (4,171     818       (3,353

Net income

     25,350       25,350       1,070        26,420  

Earnings per share - Income from continuing operations

        

Basic

     $ 1.04      $ 0.01      $ 1.05   

Diluted

     $ 1.04      $ 0.01      $ 1.05   

Earnings per share - Loss from discontinued operations

        

Basic

     $ (0.15   $ 0.03      $ (0.12

Diluted

     $ (0.15   $ 0.03      $ (0.12

Earnings per share - Net income

        

Basic

   $ 0.90      $ 0.90      $ 0.04      $ 0.93   

Diluted

   $ 0.89      $ 0.89      $ 0.04      $ 0.93   
     For the Year Ended April 26, 2013  
     As Reported     As Recast     Adjustments     As
Adjusted
 

Net sales

   $ 1,608,909      $ 1,330,226      $ —        $ 1,330,226   

Cost of sales

     486,855        413,916        —          413,916   

Operating wages and fringe benefits expenses

     512,292        404,395        718        405,113   

Other operating expenses

     267,827       200,488       (389     200,099  

Selling, general and administrative

     180,158        153,083        —          153,083   

Depreciation and amortization expense

     79,482       66,138       212       66,350  

Impairment of assets held for sale

     68,409        —          —          —     

Loss on sale of Mimi’s Cafe

     57,743        —          —          —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating (loss) income

     (43,857     92,206        (541     91,665   

Net interest expense

     11,485        11,485        —          11,485   
  

 

 

   

 

 

   

 

 

   

 

 

 

(Loss) income from continuing operations before taxes

     (55,342     80,721       (541     80,180  

(Benefit) for income taxes from continuing operations

     (52,480     (734     (3,871     (4,605
  

 

 

   

 

 

   

 

 

   

 

 

 

(Loss) income from continuing operations

     (2,862     81,455       3,330        84,785  

Loss from discontinued operations, net of income taxes

     —          (84,317     943       (83,374
  

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income

   $ (2,862   $ (2,862   $ 4,273      $ 1,411   
  

 

 

   

 

 

   

 

 

   

 

 

 

Earnings per share - Income from continuing operations

        

Basic

     $ 2.90      $ 0.12      $ 3.02   

Diluted

     $ 2.88      $ 0.12      $ 3.00   

Earnings per share - Loss from discontinued operations

        

Basic

     $ (3.00   $ 0.03      $ (2.97

Diluted

     $ (2.99   $ 0.03      $ (2.95

Earnings per share - Net (loss) income

        

Basic

   $ (0.10   $ (0.10   $ 0.15      $ 0.05   

Diluted

   $ (0.10   $ (0.10   $ 0.15      $ 0.05   

 

-18-


Table of Contents
     For the Year Ended April 27, 2012  
     As
Reported
     As Recast     Adjustments     As
Adjusted
 

Net sales

   $ 1,654,413       $ 1,288,398      $ (1,188   $ 1,287,210   

Cost of sales

     509,816         411,735        —          411,735   

Operating wages and fringe benefits expenses

     535,069        398,782       (1,431     397,351  

Other operating expenses

     268,799        187,346       (1,655     185,691  

Selling, general and administrative

     150,743         125,193        —          125,193   

Depreciation and amortization expense

     82,112        58,536       486       59,022  
  

 

 

    

 

 

   

 

 

   

 

 

 

Operating income

     107,874        106,806       1,412        108,218  

Net interest expense

     7,884         7,884        —          7,884   
  

 

 

    

 

 

   

 

 

   

 

 

 

Income from continuing operations before taxes

     99,990        98,922       1,412       100,334   

Provision for income taxes from continuing operations

     27,140        28,372       1,355       29,727  
  

 

 

    

 

 

   

 

 

   

 

 

 

Income from continuing operations

     72,850         70,550       57       70,607  

Income from discontinued operations, net of income taxes

     —           2,300        457        2,757  
  

 

 

    

 

 

   

 

 

   

 

 

 

Net income

   $ 72,850      $ 72,850     $ 514     $ 73,364  
  

 

 

    

 

 

   

 

 

   

 

 

 

Earnings per share - Income from continuing operations

         

Basic

      $ 2.38      $ 0.00      $ 2.38   

Diluted

      $ 2.37      $ 0.00      $ 2.37   

Earnings per share - Income from discontinued operations

         

Basic

      $ 0.08      $ 0.02      $ 0.09   

Diluted

      $ 0.08      $ 0.02      $ 0.09   

Earnings per share - Net income

         

Basic

   $ 2.45       $ 2.45      $ 0.02      $ 2.47   

Diluted

   $ 2.45       $ 2.45      $ 0.02      $ 2.46   
     For the Year Ended April 29, 2011  
     As
Reported
     As Recast     Adjustments     As
Adjusted
 

Net sales

   $ 1,676,906       $ 1,296,639      $ 67      $ 1,296,706   

Cost of sales

     509,849         406,213        —          406,213   

Operating wages and fringe benefits expenses

     559,193        418,211       (497     417,714  

Other operating expenses

     270,694        187,397       680       188,077  

Selling, general and administrative

     165,482         132,074        —          132,074   

Depreciation and amortization expense

     83,148        58,481        695       59,176   
  

 

 

    

 

 

   

 

 

   

 

 

 

Operating income

     88,540        94,263       (811     93,452   

Net interest expense

     8,867         8,867        —          8,867   
  

 

 

    

 

 

   

 

 

   

 

 

 

Income from continuing operations before taxes

     79,673        85,396       (811     84,585   

Provision for income taxes from continuing operations

     25,510        29,141       (1,131     28,010   
  

 

 

    

 

 

   

 

 

   

 

 

 

Income from continuing operations

     54,163         56,255       320        56,575  

Loss from discontinued operations, net of income taxes

     —           (2,092     (9     (2,101
  

 

 

    

 

 

   

 

 

   

 

 

 

Net income

   $ 54,163      $ 54,163     $ 311     $ 54,474  
  

 

 

    

 

 

   

 

 

   

 

 

 

Earnings per share - Income from continuing operations

         

Basic

      $ 1.85      $ 0.01      $ 1.87   

Diluted

      $ 1.85      $ 0.01      $ 1.86   

Earnings per share - Loss from discontinued operations

         

Basic

      $ (0.07   $ (0.00   $ (0.07

Diluted

      $ (0.07   $ (0.00   $ (0.07

Earnings per share - Net income

         

Basic

   $ 1.79       $ 1.79      $ 0.01      $ 1.80   

Diluted

   $ 1.78       $ 1.78      $ 0.01      $ 1.79   

 

-19-


Table of Contents

Consolidated Statement of Stockholders’ Equity

   April 29, 2011  
     As Reported      Adjustments      As
Adjusted
 

Retained earnings

     822,211         5,802         828,013   

Total stockholders’ equity

     667,760         5,802         673,562   
     April 30, 2010  
     As Reported      Adjustments      As
Adjusted
 

Retained earnings

     791,699         5,491         797,190   

Total stockholders’ equity

     641,807         5,491         647,298   

 

     For the Three Months Ended July 26,
2013
 

Consolidated Statements of Cash Flows

   As
Reported
     Adjustments     As
Adjusted
 

Operating Activities:

       

Net income

   $ 9,153       $ (777   $ 8,376   

Income from continuing operations

     9,153         (777     8,376   

Federal and state income taxes

     17,785         777        18,562   
  

 

 

    

 

 

   

 

 

 

Net cash provided by operating activities

     47,965         —          47,965   

 

     For the Six Months Ended October 26, 2012  
     As  Reported     As Recast     Adjustments     As Adjusted  

Operating Activities:

        

Net income

   $ 25,350      $ 25,350      $ 1,070      $ 26,420   

Less loss from discontinued operations

     —          4,171        (818     3,353   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income from continuing operations

     25,350        29,521        252        29,773   

Depreciation and amortization

     42,983        31,514        106        31,620   

Accounts payable

     (2,276     (2,286     (389     (2,675

Federal and state income taxes

     (20,701     (20,701     (687     (21,388

Accrued wages and related liabilities

     (7,393     (6,363     718        (5,645
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by operating activities

     43,101        31,460        —          31,460   

 

-20-


Table of Contents
     For the Year Ended April 26, 2013  
     As Reported     As Recast     Adjustments     As Adjusted  

Operating Activities:

        

Net (loss) income

   $ (2,862   $ (2,862   $ 4,273      $ 1,411   

Less loss from discontinued operations

     —          84,317        (943     83,374   
  

 

 

   

 

 

   

 

 

   

 

 

 

(Loss) income from continuing operations

     (2,862     81,455        3,330        84,785   

Adjustments to reconcile net income to net cash provided by operating activities:

        

Depreciation and amortization

     79,482        66,138        212        66,350   

Loss on intangibles impairment

     39,398        —          —          —     

Loss on disposal/impairment of fixed assets

     38,753        7,523        —          7,523   

Gain on long-term investments

     (1,277     (1,277     —          (1,277

Loss on sale of business

     57,743        —          —          —     

Deferred compensation

     1,452        4,579        —          4,579   

Stock compensation expense

     8,606        8,606        —          8,606   

Deferred income taxes

     (7,567     (7,567     (80     (7,647

Deferred rent

     1,410        137        —          137   

Changes in current assets and current liabilities:

        

Accounts receivable

     (4,934     (6,344     —          (6,344

Inventories

     (894     (1,571     —          (1,571

Prepaid expenses

     (3,872     (2,879     —          (2,879

Accounts payable

     1,577        (3,212     (389     (3,601

Federal and state income taxes

     (74,434     (22,688     (3,791     (26,479

Accrued wages and related liabilities

     245        1,790        718        2,508   

Self-insurance

     1,467        28        —          28   

Accrued non-income taxes

     1,074        608        —          608   

Deferred revenue

     1,251        590        —          590   

Other accrued expenses

     7,208        11,516          11,516   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by operating activities

     143,826        137,432        —          137,432   
  

 

 

   

 

 

   

 

 

   

 

 

 

Investing Activities:

        

Purchase of property, plant and equipment

     (124,346     (118,200     —          (118,200

Net proceeds from sale of business

     14,517        —          —          —     

Acquisition of business

     (52,285     (52,285     —          (52,285

Proceeds from sale of property, plant and equipment

     15,955        15,512        —          15,512   

Purchase of long-term investments

     (314     (314     —          (314

Deposits and other

     (7     (9     —          (9
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash used in investing activities

     (146,480     (155,296     —          (155,296
  

 

 

   

 

 

   

 

 

   

 

 

 

Financing Activities:

        

Cash dividends paid

     (30,214     (30,214     —          (30,214

Net increase in credit facility borrowings

     201,433        201,433        —          201,433   

Proceeds from debt

     1,000        1,000        —          1,000   

Principal payments on long-term debt

     (135,716     (135,716     —          (135,716

Prepayment penalty on debt

     (6,150     (6,150     —          (6,150

Repurchase of common stock

     (63,052     (63,052     —          (63,052

Proceeds from issuance of stock awards and treasury stock

     8,642        8,642        —          8,642   

Cash paid for shares net settled related to stock-based compensation

     (2,615     (2,615     —          (2,615

Excess tax benefits from stock-based compensation

     2,390        2,390        —          2,390   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash used in financing activities

     (24,282     (24,282     —          (24,282
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash used in continuing operations

     (26,936     (42,146     —          (42,146

Net cash provided by operating activities of discontinued operations

     —          6,394        —          6,394   

Net cash provided by investing activities of discontinued operations

     —          8,816        —          8,816   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by discontinued operations

     —          15,210        —          15,210   
  

 

 

   

 

 

   

 

 

   

 

 

 

Cash and equivalents at the beginning of the period

     35,946        35,946        —          35,946   
  

 

 

   

 

 

   

 

 

   

 

 

 

Cash and equivalents at the end of the period

   $ 9,010      $ 9,010      $ —        $ 9,010   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

-21-


Table of Contents
     For the Year Ended April 27, 2012  
     As Reported     As Recast     Adjustments     As Adjusted  

Operating Activities:

        

Net income

   $ 72,850      $ 72,850      $ 514      $ 73,364   

Less income from discontinued operations

     —          (2,300     (457     (2,757
  

 

 

   

 

 

   

 

 

   

 

 

 

Income from continuing operations

     72,850        70,550        57        70,607   

Adjustments to reconcile net income to net cash provided by operating activities:

        

Depreciation and amortization

     82,112        58,536        486        59,022   

Loss on disposal/impairment of fixed assets

     5,331        2,993        —          2,993   

Gain on long-term investments

     (34     (34     —          (34

Deferred compensation

     1,003        1,333        —          1,333   

Stock compensation expense

     5,610        5,196        —          5,196   

Deferred income taxes

     (5,916     (5,916     (185     (6,101

Deferred rent

     619        1,063        —          1,063   

Changes in current assets and current liabilities:

        

Accounts receivable

     (3,807     (2,134     1,188        (946

Inventories

     138        (465     —          (465

Prepaid expenses

     (1,279     (1,160     —          (1,160

Accounts payable

     (4,333     (4,309     (1,655     (5,964

Federal and state income taxes

     (1,043     (1,043     1,540        497   

Accrued wages and related liabilities

     (2,519     (2,029     (1,431     (3,460

Self-insurance

     21        (1,302     —          (1,302

Accrued non-income taxes

     732        (376     —          (376

Deferred revenue

     (813     (933     —          (933

Other accrued expenses

     4,013        2,996          2,996   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by operating activities

     152,685        122,966        —          122,966   
  

 

 

   

 

 

   

 

 

   

 

 

 

Investing Activities:

        

Purchase of property, plant and equipment

     (88,357     (81,863     —          (81,863

Proceeds from sale of property, plant and equipment

     19,308        19,301        —          19,301   

Purchase of long - term investments

     (469     (469     —          (469

Deposits and other

     (4,305     (3,667     —          (3,667
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash used in investing activities

     (73,823     (66,698     —          (66,698
  

 

 

   

 

 

   

 

 

   

 

 

 

Financing Activities:

        

Cash dividends paid

     (28,262     (28,262     —          (28,262

Debt issuance costs

     (1,000     (1,000     —          (1,000

Principal payments on long-term debt

     (13,571     (13,571     —          (13,571

Repurchase of common stock

     (70,269     (70,269     —          (70,269

Proceeds from issuance of stock awards and treasury stock

     13,103        13,103        —          13,103   

Cash paid for shares net settled related to stock-based compensation

     (1,347     (1,347     —          (1,347

Excess tax benefits from stock-based compensation

     700        700        —          700   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash used in financing activities

     (100,646     (100,646     —          (100,646
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash used in continuing operations

     (21,784     (44,378     —          (44,378

Net cash provided by operating activities of discontinued operations

     —          29,719        —          29,719   

Net cash used in investing activities of discontinued operations

     —          (7,125     —          (7,125
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by discontinued operations

     —          22,594        —          22,594   
  

 

 

   

 

 

   

 

 

   

 

 

 

Cash and equivalents at the beginning of the period

     57,730        57,730        —          57,730   
  

 

 

   

 

 

   

 

 

   

 

 

 

Cash and equivalents at the end of the period

   $ 35,946      $ 35,946      $ —        $ 35,946   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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Table of Contents
     For the Year Ended April 29, 2011  
     As
Reported
    As Recast     Adjustments     As
Adjusted
 

Operating Activities:

        

Net income

   $ 54,163      $ 54,163      $ 311      $ 54,474   

Less loss from discontinued operations

     —          2,092        9        2,101   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income from continuing operations

     54,163        56,255        320        56,575   

Adjustments to reconcile net income to net cash provided by operating activities:

        

Depreciation and amortization

     83,148        58,481        695        59,176   

Loss on disposal/impairment of fixed assets

     17,238        4,330        —          4,330   

Gain on long-term investments

     (2,364     (2,364     —          (2,364

Deferred compensation

     3,289        3,365        —          3,365   

Stock compensation expense

     7,402        7,081        —          7,081   

Deferred income taxes

     (10,446     (10,446     —          (10,446

Deferred rent

     205        425        —          425   

Changes in current assets and current liabilities:

        

Accounts receivable

     (6,186     (6,011     (67     (6,078

Inventories

     2,133        2,124        —          2,124   

Prepaid expenses

     723        794        —          794   

Accounts payable

     1,364        6,750        680        7,430   

Federal and state income taxes

     4,310        4,310        (1,131     3,179   

Accrued wages and related liabilities

     (3,521     (3,747     (497     (4,244

Self-insurance

     1,893        1,767        —          1,767   

Accrued non-income taxes

     (566     92        —          92   

Deferred revenue

     1,842        1,987        —          1,987   

Other accrued expenses

     1,810        3,097          3,097   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by operating activities

     156,437        128,290        —          128,290   
  

 

 

   

 

 

   

 

 

   

 

 

 

Investing Activities:

        

Purchase of property, plant and equipment

     (43,987     (38,739     —          (38,739

Proceeds from sale of property, plant and equipment

     6,407        6,407        —          6,407   

Purchase of long-term investments

     (2,229     (2,229     —          (2,229

Deposits and other

     (84     (16     —          (16
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash used in investing activities

     (39,893     (34,577     —          (34,577
  

 

 

   

 

 

   

 

 

   

 

 

 

Financing Activities:

        

Cash dividends paid

     (23,651     (23,651     —          (23,651

Net decrease in credit facility borrowings

     (14,000     (14,000     —          (14,000

Principal payments on long-term debt

     (26,905     (26,905     —          (26,905

Repurchase of common stock

     (19,010     (19,010     —          (19,010

Proceeds from issuance of stock awards and treasury stock

     8,239        8,239        —          8,239   

Cash paid for shares net settled related to stock-based compensation

     (1,426     (1,426     —          (1,426

Excess tax benefits from stock-based compensation

     404        404        —          404   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash used in financing activities

     (76,349     (76,349     —          (76,349
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by continuing operations

     40,195        17,364        —          17,364   

Net cash provided by operating activities of discontinued operations

     —          28,147        —          28,147   

Net cash used in investing activities of discontinued operations

     —          (5,316     —          (5,316
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by discontinued operations

     —          22,831        —          22,831   
  

 

 

   

 

 

   

 

 

   

 

 

 

Cash and equivalents at the beginning of the period

     17,535        17,535        —          17,535   
  

 

 

   

 

 

   

 

 

   

 

 

 

Cash and equivalents at the end of the period

   $ 57,730      $ 57,730      $ —        $ 57,730   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Results of Operations

General Overview

In our Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”), we use the terms “Bob Evans,” “Company,” “we,” “us” and “our” to collectively refer to Bob Evans Farms, Inc., a Delaware corporation, and its subsidiaries. The following terms used herein are registered trademarks or service marks of Bob Evans: Bob Evans ® , Bob Evans Restaurants ® , Bob Evans Special Touch ® , Best Brand Builders SM , Farm Fresh ® , Kettle Creations ® , Owens ® and Taste of the Farm ® . We may use other trademarks or service marks in this document.

As of October 25, 2013, we owned and operated 561 Bob Evans Restaurants in 19 states. Bob Evans Restaurants are primarily located in the Midwest, Mid-Atlantic and Southeast regions of the United States. Revenue in the Bob Evans Restaurants segment is recognized at the point of sale, other than revenue from the sale of gift cards, which is deferred and recognized upon redemption.

We sold Mimi’s Café, previously reported as an industry segment, to SWH Mimi’s Café Holding Company, Inc., a subsidiary of Le Duff America, Inc. (“Le Duff”) in the fourth quarter of fiscal 2013. As part of the sale, we entered into a transition services agreement with Le Duff America, Inc. where we provide corporate support services and a supply agreement where we provide food products. The transition services agreement was originally expected to expire in December of 2013 and the supply agreement was originally expected to expire in February of 2014.

In accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 205-20, Discontinued Operations, there is an assessment period for one year after a component has been disposed of, whereby an entity must reassess if they have significant continuing cash flows or significant continuing involvement in the operations of the component after the disposal upon the occurrence of a triggering event. As a result of having significant continuing cash flows, due to the two agreements noted above, the Mimi’s Café business segment was not initially presented within discontinued operations. On July 23, 2013, the Company received a notice from SWH Mimi’s Café, LLC that it was terminating this supply agreement with BEF Foods, Inc. The transition services agreement timing did not change significantly and the agreement for some services will continue through the middle of January 2014. As a result of this termination notice, the Company determined that they no longer had significant cash flows from Mimi’s Café operations, thus Mimi’s Café should be presented within discontinued operations for all years presented in the financial statements, effective with the Form 10-Q filed for the three months ended July 26, 2013. The fiscal year 2013 financial statements have been appropriately recast to reflect the Mimi’s Café operations within discontinued operations.

In our BEF Foods segment, we produce and distribute pork sausage products and a variety of complementary homestyle refrigerated side dishes and frozen food items under the Bob Evans, Owens and Country Creek brand names in fifty states, and to third parties who distribute to Mexico. These food products are distributed primarily to warehouses that distribute to grocery stores throughout the United States. Additionally, we manufacture and sell similar products to foodservice accounts, including Bob Evans Restaurants and other restaurants and food sellers. Revenue in the BEF Foods segment is recognized when products are received by our customers. All revenue is presented net of sales tax.

This MD&A and other written or oral statements that we make from time to time may contain forward-looking statements that set forth anticipated results based on management’s plans and assumptions. Statements in this MD&A that are not historical facts are forward-looking statements. These statements are often indicated by words such as “expects,” “anticipates,” “believes,” “estimates,” “intends” and “plans.” Forward-looking statements involve various important assumptions, risks and uncertainties. Actual results may differ materially from those predicted by the forward-looking statements because of various factors and possible events, including the assumptions, risks and

 

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uncertainties discussed in our Annual Report on Form 10-K for the fiscal year ended April 26, 2013, under the heading “Item 1A. Risk Factors,” and as supplemented in our other filings with the Securities and Exchange Commission. We note these factors for investors as contemplated by the Private Securities Litigation Reform Act of 1995. It is impossible to predict or identify all of the risk factors that we face. Consequently, you should not consider any such list to be a complete set of all potential assumptions, risks or uncertainties. Forward-looking statements speak only as of the date on which they are made, and we undertake no obligation to update any forward-looking statement for circumstances or events that occur after the date on which the statement is made. Any further disclosures we make in our filings with the Securities and Exchange Commission should also be consulted.

Three Months Ended October 25, 2013 as Compared to Three Months Ended October 26, 2012

The following table reflects data for the three months ended October 25, 2013, compared to the prior year’s three months ended October 26, 2012. The consolidated information is derived from the accompanying Consolidated Statements of Net Income. The table also includes data for our two segments – Bob Evans Restaurants and BEF Foods. The ratios presented reflect the underlying dollar values expressed as a percentage of the applicable net sales amounts.

 

(in thousands)    Consolidated Results     Bob Evans Restaurants     BEF Foods  
     Q2 2014     Q2 2013     Q2 2014     Q2 2013     Q2 2014     Q2 2013  
           (recast & adj.)           (recast & adj.)           (recast & adj.)  

Net sales

   $ 332,600      $ 329,555      $ 240,500      $ 246,302      $ 92,100      $ 83,253   

Operating income (loss)

   $ 8,895      $ 23,473      $ 11,912      $ 19,174      $ (3,017   $ 4,299   

Cost of sales

     33.4     29.8     24.1     23.8     57.6     47.4

Operating wages

     30.3     30.8     37.7     37.4     10.9     11.3

Other operating

     15.6     15.6     18.3     18.1     8.8     8.2

S,G&A

     11.4     11.8     8.5     7.6     18.9     24.1

Depreciation and amortization

     5.5     4.9     6.1     5.3     3.9     3.9

Impairment of assets held for sale

     1.1     0.0     0.3     0.0     3.3     0.0
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss) from continuing operations

     2.7     7.1     5.0     7.8     –3.3     5.2

Sales

Consolidated net sales from continuing operations increased 0.9% to $332.6 million for the three months ended October 25, 2013, compared to $329.6 million in the corresponding period last year. The net sales increase was comprised of an increase of $8.8 million in BEF Foods segments’ net sales, partially offset by a decrease of $5.8 million in Bob Evans Restaurants. Bob Evans Restaurants experienced a same-store sales decline of 1.9% for the three months ended October 25, 2013, compared to a same-store sales increase of 1.0% in the three months ended October 26, 2012, with unfavorable traffic, partially offset by favorable menu mix and pricing.

Bob Evans Restaurants’ net sales decreased $5.8 million, a 2.4% decrease, in the three months ended October 25, 2013, compared to the corresponding period last year. The decrease in net sales in the three months ended October 25, 2013, was primarily the result of a decline in same store sales of 1.9% and six restaurants closed since the corresponding period last year. Those closed restaurants accounted for approximately 0.6% of the decline. Additionally, sales declined as a result of an increase in closed restaurant days resulting from our acceleration of the Farm Fresh Refresh remodel initiative and an increase in promotional activity, which is a reduction of net sales. The increased promotional activity was designed to drive traffic to restaurants and was partially offset by reductions to media advertising, which is recorded in the other operating expense line item. Our closed restaurant days increased to 411 days in the three months ended October 25, 2013, compared to 290 closed restaurant days in the corresponding period last year. We expect our closed restaurant days to decrease in the latter half of fiscal 2014, as the

 

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Farm Fresh Refresh remodel initiative is expected to be completed. The average number of closed restaurant days per remodeled restaurant is expected to decrease to five days in the latter half of fiscal 2014 from seven days in the first half of fiscal 2014 reflecting the mix of restaurant building types.

Same-store sales computations for a given year are based on net sales of restaurants that are open for at least 18 months prior to the start of that year. Net sales of restaurants to be rebuilt are excluded for all periods in the same-store sales computation when construction of the replacement building commences. Net sales of closed restaurants are excluded from the same-store sales computation in the period in which the restaurants are closed; with the exception of closed restaurant days for restaurants undergoing the Farm Fresh Refresh remodel initiative, which are included in the same-store sales base.

The following chart summarizes the restaurant openings and closings during the last six quarters for Bob Evans Restaurants:

 

    

Beginning

  

Opened

  

Closed

  

Ending

Fiscal 2014

           

1 st quarter

   560    1    1    560

2 nd quarter

   560    1    —      561

Fiscal 2013

           

1 st quarter

   565    2    2    565

2 nd quarter

   565    —      —      565

3 rd quarter

   565    —      —      565

4 th quarter

   565    —      5    560

In the three months ended October 25, 2013, we opened one new Bob Evans Restaurant and remodeled 66 existing locations. Our Farm Fresh Refresh remodeling initiative is designed to drive dine-in sales and expand high growth layers, such as bakery, catering and carryout sales. We continue to focus on improvement of same-store sales at Bob Evans Restaurants and believe our broad sales layer initiatives offer value and menu innovation across the breakfast, lunch and dinner day parts, which are key to this focus. We offer $9.99 Three-Course Dinners, $20 Family Meals-to-Go and our $5 Carryout-to-Go. In December 2013 we introduced a $7.99 Platform. We expect to complete the Farm Fresh Refresh remodeling initiative for all Bob Evans Restaurants during fiscal 2014, except for the six general store-format restaurants which we have decided to exclude from the Farm Fresh Refresh program. We expect to open up to four new restaurants in fiscal 2014, of which two have already opened and one more is expected to open in December 2013, and up to 10 new restaurants in fiscal 2015.

The BEF Foods segment experienced a sales increase of $8.8 million, or 10.6%, in the three months ended October 25, 2013, compared to the corresponding period last year. The increase in net sales in the three months ended October 25, 2013 was primarily due to the higher selling prices of sausage compared to the corresponding period last year. Total pounds sold increased 0.2% in the three months ended October 25, 2013 compared to the corresponding period last year. During the first quarter of the fiscal year, the buyer of Mimi’s Café notified the Company they were terminating their supply agreement with BEF Foods. Excluding the reduction in pounds associated with this termination, the Company believes pounds sold would have increased approximately 6% year over year.

We believe there are opportunities to increase product volume through accelerating product innovation, the expansion of production facilities, expanding our selection of food products at each distribution point, insourcing additional Bob Evans Restaurants needs and through acquisitions. The insourcing relationship not only benefits the BEF Foods segment through potential increases in total pounds sold, it also offers consistency to our guests, reduces product preparation time and helps insulate Bob Evans Restaurants from arbitrary price increases from outside suppliers.

 

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On May 29, 2012, we announced an additional phase to our plant optimization initiatives with the plan to close our ready-to-eat manufacturing plant in Bidwell, Ohio, and our soup and gravy manufacturing plant in Springfield, Ohio. We plan to cease operations at these two facilities in the third quarter of fiscal 2014. We will consolidate the volume in Sulphur Springs, Texas, as part of that plant’s expansion.

Our expansions of our Lima, Ohio and our Sulphur Springs, Texas, production facilities were completed during the second quarter of fiscal 2014. We expect to see continued efficiencies and growth in our refrigerated side dish and pre-cooked food products. We anticipate the efficiencies gained will enable us to focus on product innovation for future growth and margin improvements.

On September 27, 2013, we announced the closure of our food production plant in Richardson, Texas, reducing our fresh sausage plant network to two facilities to optimize our fresh sausage production network.

Cost of Sales

Consolidated cost of sales (cost of materials) from continuing operations was 33.4% of net sales in the three months ended October 25, 2013, compared to 29.8% of net sales in the corresponding periods a year ago.

Bob Evans Restaurants’ cost of sales (predominantly food costs) was 24.1% of net sales for the three months ended October 25, 2013, compared to 23.8% of net sales, respectively in the corresponding period a year ago. The increase in cost of sales as a percentage of net sales was due to increased discount activity, commodity cost increases and mix. The commodity cost increases were driven by bacon and other pork-related items, bakery, and poultry, partially offset by declines in beverages, and desserts.

BEF Foods’ cost of sales ratio was 57.6% of net sales in the three months ended October 25, 2013, compared to 47.4% of net sales in the corresponding period a year ago. The increase was due primarily to the $9.0 million increase in sow costs. Sow costs averaged $77.33 per hundredweight, in the three months ended October 25, 2013, compared to $43.22 per hundredweight, in the corresponding period last year.

Operating Wage and Fringe Benefit Expenses

Consolidated operating wage and fringe benefit expenses (“operating wages”) from continuing operations were 30.3% of net sales in the three months ended October 25, 2013, compared to 30.8% of net sales in the corresponding period last year.

Bob Evans Restaurants’ operating wages were 37.7% of net sales in the three months ended October 25, 2013, compared to 37.4% of net sales, in the corresponding period last year. Operating wages were higher than expected as a percentage of net sales, due to sales deleverage, increased discount activity and cost to implement work force management system.

In BEF Foods, operating wages were 10.9% of net sales for the three months ended October 25, 2013, compared to 11.3% of net sales in the corresponding period last year. The decrease in the operating wages ratio was primarily due to sales leverage.

Other Operating Expenses

Consolidated other operating expenses from continuing operations were 15.6% of net sales for the three months ended October 25, 2013, the same as in the corresponding period last year. Approximately 85% of other operating expenses in the three months ended October 25, 2013, occurred in Bob Evans Restaurants. The most significant components of other operating expenses were utilities, restaurant supplies, restaurant advertising, non-income based taxes, repairs and maintenance, credit/debit/gift card processing fees, rent and preopening expenses related to our Farm Fresh Refresh remodeling initiative, and new restaurant openings.

Bob Evans Restaurants’ other operating expenses were 18.3% of net sales for the three months ended October 25, 2013, compared to 18.1% of net sales in the corresponding period last year. The increase in the other operating expense ratio was a result of increases in restaurant supplies and preopening expenses as part of our Farm Fresh Refresh remodeling initiative, and sales deleverage.

 

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BEF Foods’ other operating expenses ratio was 8.8% of net sales for the three months ended October 25, 2013, compared to 8.2% of net sales in the corresponding period last year. The increase in the other operating expense ratio was due primarily to increased production volume.

Selling, General and Administrative Expenses (“S,G&A”)

Consolidated S,G&A expenses from continuing operations were 11.4% of net sales for the three months ended October 25, 2013, compared to 11.8% of net sales in the corresponding period last year. The most significant components of consolidated S,G&A expenses are non-restaurant wages and fringe benefits, transportation costs, impairment and restructuring and severance costs.

Bob Evans Restaurants’ S,G&A expenses were $20.5 million or 8.5% of net sales for the three months ended October 25, 2013, compared to $18.8 million or 7.6% of net sales in the corresponding period last year. The increase in SG&A expenses as a percent of net sales is due to a $1.1 million increase of corporate overhead allocation as a result of the Company providing transition services to Mimi’s Café at less than cost; $1.1 million of additional professional fees, including $0.8 million of costs related to strengthening the Company’s internal processes and controls over financial reporting; and $0.4 million in incremental travel and training expense related to the roll-out of the new workforce management program. These incentives were partially offset by reductions in the Company’s performance-based compensation program of approximately $1.0 million and SG&A cost savings initiatives.

BEF Foods’ S,G&A expenses were $17.4 million or 18.9% of net sales for the three months ended October 25, 2013, compared to $20.1 million or 24.1% of net sales in the corresponding period last year, a decrease of $2.7 million for the three months ended October 25, 2013. The decrease in SG&A expenses is due to a $2.4 million reduction in severance and retention payments, a $1.0 million reduction in acquisition related costs, and $0.2 million of reductions in the Company’s performance based incentive compensation programs partially offset by $0.7 million of additional professional fees, including $0.3 million of costs primarily related to strengthening the Company’s internal processes and controls over financial reporting and a dispute with a side-dish supplier; a $0.5 million increase of corporate overhead allocation as a result of the Company providing transition services to Mimi’s Café at less than cost; and $0.1 million related to ERP implementation.

Depreciation and Amortization

Consolidated depreciation and amortization expenses (“D&A”) from continuing operations were 5.5% of net sales for the three months ended October 25, 2013, compared to 4.9% of net sales in the corresponding period last year.

Bob Evans Restaurants’ D&A expenses were 6.1% of net sales for the three months ended October 25, 2013, compared to 5.3% of net sales in the corresponding period last year. The increase in the D&A ratio is a result of an increase in depreciable assets related to Bob Evans Restaurants’ Farm Fresh Refresh remodeling initiative and new restaurant development. We remodeled 66 existing Bob Evan Restaurants in the second quarter ended October 25, 2013 as part of our Farm Fresh Refresh remodeling initiative through six months of fiscal 2014. We also opened one new restaurant during the second fiscal quarter ended October 25, 2013. We expect to complete the Farm Fresh Refresh remodeling initiative for all Bob Evans Restaurants during fiscal 2014, except for the six general store-format restaurants which we have decided to exclude from the Farm Fresh Refresh program. We expect to expand our new restaurant opening program in fiscal 2015 with an evolved design and upgraded site selection process intended to drive average unit volumes in excess of our current average unit volume.

BEF Foods’ D&A expenses were 3.9% of net sales for the three months ended October 25, 2013, compared to 3.9% of net sales in the corresponding period last year.

Impairment of Assets Held for Sale

We assess the carrying value of our goodwill, other intangible assets and long-lived assets whenever circumstances indicate that a decline in value may have occurred.

On September 27, 2013, we announced our plans to close our food production plant in Richardson, Texas. Based on the estimated value of the facility, we determined the long-lived asset group’s then-current carrying value of $8.1 million was greater than the fair value of $5.1 million (the selling price less estimated selling costs). This resulted in a pretax non-cash assets held for sale impairment charge in the BEF Foods segment of $3.0 million during the three months ended October 25, 2013. The long-lived asset group related to this plant is valued at fair value and reflected as held for sale on our consolidated balance sheets.

 

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During October, 2013, we sold 27 of the 29 nonoperating restaurant properties that were impaired in the first quarter of fiscal 2014, as a result of a signed purchase agreement. The remaining two properties are anticipated to close during the third quarter of fiscal 2014. Based on the anticipated selling price of the remaining two properties, a pretax noncash assets held for sale impairment charge was taken for $0.8 million.

Interest

Net interest expense for the three months ended October 25, 2013, compared to the corresponding period last year was as follows:

 

     Three Months Ended  

(in thousands)

   October 25, 2013     October 26, 2012  

Gross interest expense:

    

Fixed-rate debt

   $ 65      $ 1,495   

Variable-rate debt

     1,021       352  

Capitalized interest

     (227     (178
  

 

 

   

 

 

 

Total interest expense

     859       1,669  

Gross interest income

    

Accretion

     (419     —    

Other

     (300     (196
  

 

 

   

 

 

 

Total interest income

     (719     (196
  

 

 

   

 

 

 

Net interest expense (income)

   $ 140      $ 1,473   
  

 

 

   

 

 

 

At October 25, 2013, $318.2 million and $0.8 million was outstanding on our variable-rate revolving credit facility and on our other long-term debt, respectively. The other long-term debt represents an interest-free loan of $1.0 million due ten years from the date of borrowing, with no prepayment penalty that we obtained in the second quarter of fiscal 2013. We have imputed interest on the long-term debt based on our current borrowing rate.

A change in market interest rates will impact our credit facility when there is an outstanding balance. For example, a 1% increase in the benchmark rate used for our credit facility would increase our annual interest expense by approximately $3.2 million, assuming the $318.2 million outstanding at the end of the three months ended October 25, 2013, was outstanding for the entire year.

Taxes

Our effective income tax rate for continuing operations was 28.6% and 33.9% for the three months ended October 25, 2013, and the corresponding period last year, respectively.

The decrease in the effective income tax rate for the second quarter of fiscal 2014 as compared to the corresponding period a year ago is primarily attributable to an increase in the impact of FICA tax credits for employee reported tips and Work Opportunity Tax Credits due to lower earnings before income taxes.

On a full year basis, we anticipate our effective rate to be between 30% and 31%. Our effective income tax rate is evaluated each quarter. The effective income tax rate for the quarter may or may not represent the expected annual effective income tax rate for the entire fiscal year and includes the impact of discrete items for the quarter.

 

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Loss From Discontinued Operations

We sold Mimi’s Café, previously reported as an industry segment, to Le Duff in the fourth quarter of fiscal 2013. As part of the sale, we entered into a transition services agreement with Le Duff whereby we provide corporate support services and a supply agreement whereby we provide food products. The transition services agreement was originally expected to expire in December of 2013 and the supply agreement was originally expected to expire in February of 2014.

In accordance with FASB ASC 205-20, Discontinued Operations, there is an assessment period for one year after a component has been disposed of, whereby an entity must reassess if they have significant continuing cash flows or significant continuing involvement in the operations of the component after the disposal to assess if the segment should be classified as continuing operations. As a result of having significant continuing cash flows, due to the two agreements noted above, the Mimi’s Café industry segment was not initially presented within discontinued operations. On July 23, 2013, the Company received a notice from SWH Mimi’s Café, LLC that it was terminating this supply agreement with BEF Foods, Inc. The transition services agreement timing did not change significantly and the agreement for some services will continue through the middle of January 2014. As a result of this termination notice, the Company determined they no longer had significant cash flows from Mimi’s Café operations, thus Mimi’s Café should be presented within discontinued operations for all years presented in the financial statements, effective with the Form 10-Q filed for the three months ended July 26, 2013.

As of October 25, 2013, we recorded a loss, net of income tax, from discontinued operations, of $0.1 million in the Consolidated Statements of Net Income. For the prior year, the loss from discontinued operations, net of tax was $3.2 million.

Discontinued operations only include the revenues and expenses that are specifically identified with Mimi’s Café and excludes any allocation of corporate costs, including general and administrative expenses, which represent $0.7 million for the three months ended October 26, 2012. The general and administrative expenses excluded from the loss on discontinued operations were reallocated to our Bob Evans Restaurants and BEF Foods segments for $0.5 million and $0.2 million, respectively, for the three months ended October 26, 2012, in the S,G&A expenses line of the Consolidated Statements of Net Income.

Six Months Ended October 25, 2013 as Compared to Six Months Ended October 26, 2012

The following table reflects data for the six months ended October 25, 2013, compared to the prior year’s six months ended October 26, 2012. The consolidated information is derived from the accompanying Consolidated Statements of Net Income. The table also includes data for our two segments – Bob Evans Restaurants and BEF Foods. The ratios presented reflect the underlying dollar values expressed as a percentage of the applicable net sales amounts.

 

(in thousands)    Consolidated Results     Bob Evans Restaurants     BEF Foods  
     Q2 YTD
2014
    Q2 YTD
2013
    Q2 YTD
2014
    Q2 YTD
2013
    Q2 YTD
2014
    Q2 YTD
2013
 
           (recast & adj.)           (recast & adj.)           (recast & adj.)  

Net sales

   $ 662,049      $ 652,996      $ 485,051      $ 494,268      $ 176,998      $ 158,728   

Operating income (loss)

   $ 20,894      $ 48,601      $ 18,394      $ 36,452      $ 2,500      $ 12,149   

Cost of sales

     32.6     30.0     24.4     23.9     54.8     49.0

Operating wages

     30.6     31.1     37.7     37.6     11.1     10.6

Other operating

     15.6     15.7     18.0     18.2     8.8     8.0

S,G&A

     10.9     11.0     8.2     7.6     18.4     21.3

Depreciation and amortization

     5.4     4.8     6.0     5.3     3.7     3.5

Impairment of assets held for sale

     1.9     0.0     1.9     0.0     1.7     0.0
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss) from continuing operations

     3.2     7.4     3.8     7.4     1.4     7.7

 

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Sales

Consolidated net sales from continuing operations increased 1.4% to $662.0 million for the six months ended October 25, 2013, compared to $653.0 million in the corresponding period last year. The net sales increase was comprised of a decrease of $9.2 million and an increase of $18.3 million in Bob Evans Restaurants and BEF Foods segments’ net sales, respectively. Bob Evans Restaurants experienced a same-store sales decline of 1.3% compared to a same-store sales increase of 1.0% in the six months ended October 25, 2013, and October 26, 2012, respectively, with unfavorable traffic, partially offset by favorable menu mix.

Bob Evan’s Restaurants’ net sales decreased $9.2 million, a 1.9% decrease, in the six months ended October 25, 2013, compared with the corresponding period last year. The decrease in net sales was primarily the result of a 1.3% same store sales decrease and six restaurants closed since the corresponding period last year. The closed restaurants account for approximately 0.6% of the decrease. Additionally, sales declines as a result of an increase in closed restaurant days resulting from our acceleration of the Farm Fresh Refresh remodel initiative and an increase in promotional activity, which is a reduction to gross sales. Our closed restaurant days reached 849 days compared to 544 days in the corresponding period last year.

The increased promotional activity was designed to drive traffic to restaurants, and was partially offset by reductions to media advertising, which is recorded in the other operating expenses line item. We expect our closed restaurant days to decrease in the latter half of fiscal 2014, as the expected Farm Fresh Refresh remodel initiative ends. The average number of closed restaurant days, per remodeled restaurant is expected to decrease to five days in the latter half of fiscal 2014 from seven days in the first half of fiscal 2014 reflecting the mix of restaurant building types.

Same-store sales computations for a given year are based on net sales of restaurants that are open for at least 18 months prior to the start of that year. Net sales of restaurants to be rebuilt are excluded for all periods in the same-store sales computation when construction commences on the replacement building. Net sales of closed restaurants are excluded from the same-store sales computation in the period in which the restaurants are closed with the exception of closed restaurant days for restaurants undergoing the Farm Fresh Refresh remodel initiative, which are included in the same-store sales base.

During the six months ended October 25, 2013, we opened two new Bob Evans Restaurants, closed one restaurant damaged by a sink hole, and remodeled 126 existing locations. Our Farm Fresh Refresh remodeling initiative is designed to drive dine-in sales and expand high-growth sales layers, such as bakery, catering and carryout sales. We continue to focus on improvement of same-store sales at Bob Evans Restaurants and believe our broad sales layer initiatives offer value and menu innovation across the breakfast, lunch and dinner day parts, which are key to this focus. We offer $9.99 Three-Course Dinners, $20 Family Meals-to-Go and our $5 Soups and Sides Carryout-to-Go. In December 2013, we introduced $7.99 value platform. We expect to complete the Farm Fresh Refresh remodeling initiative for all Bob Evans Restaurants during fiscal 2014, except for the six general store-format restaurants, which we have decided to exclude from the Farm Fresh Refresh program. We expect to open up to four new restaurants in fiscal 2014, of which two have already opened and one more is expected to open in December 2013, and up to 10 new restaurants in fiscal 2015.

The BEF Foods segment experienced a sales increase of $18.3 million, or 11.5%, during the six months ended October 25, 2013, compared to the corresponding period last year. The increase in net sales in the six months ended October 25, 2013, is a result of pricing and an increase in total pounds sold. Total pounds sold increased 6.0% in the six months ended October 25, 2013. The increase in net sales was partially offset by a $2.2 million increase in promotional expenses compared to the corresponding period last year, which are a reduction from gross sales to net sales.

 

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We believe there are opportunities to increase product volume through accelerating product innovation, the expansion of production facilities, expanding our selection of food products at each distribution point, insourcing additional Bob Evans Restaurants needs and acquisitions. The insourcing relationship not only benefits the BEF Foods segment through potential increases in total pounds sold, it also offers consistency to our restaurant guests, reduces product preparation and helps insulate Bob Evans Restaurants from arbitrary price increases from outside suppliers.

On May 29, 2012, we announced an additional phase to our plant optimization initiatives with the plan to close our ready-to-eat manufacturing plant in Bidwell, Ohio, and our soup and gravy manufacturing plant in Springfield, Ohio. We plan to cease operations at these two facilities in the third quarter of fiscal 2014, and we will consolidate the volume in Sulphur Springs, Texas, as part of that plant’s expansion.

Our expansion of our Lima, Ohio, and our Sulphur Springs, Texas, production facilities were completed during the second quarter of fiscal 2014. We expect to see continued efficiencies and growth in our refrigerated side dishes and pre-cooked food products. We anticipate the efficiencies gained will enable us to continue our focus on product innovation for future growth and margin improvements.

On September 27, 2013, we announced the closure of our food production plant in Richardson, Texas, reducing our fresh sausage plant network to two facilities to optimize our fresh sausage production network.

Cost of Sales

Consolidated cost of sales (cost of materials) was 32.6% of net sales in the six months ended October 25, 2013, compared to 30.0% of net sales in the corresponding period a year ago.

Bob Evans Restaurants’ cost of sales (predominantly food costs) was 24.4% of net sales for the six months ended October 25, 2013, compared to 23.9% of net sales in the corresponding period a year ago. The Bob Evans Restaurants’ cost of sales ratio increased due to commodity cost increases, primarily driven by bacon and other pork-related items. We responded to these commodity cost increases late in the first quarter of fiscal 2014 by designing an updated menu that focuses on higher margin items, such as beverages, breakfasts and less costly proteins, primarily poultry. The cost of sales ratio was also negatively impacted by the increased promotional activity, which is reflected as a reduction of gross sales.

BEF Foods’ cost of sales ratio was 54.8% of net sales in the six months ended October 25, 2013, compared to 49.0% of net sales in the corresponding period a year ago. The increase in the BEF Foods’ cost of sales ratio was due primarily to higher sow costs, an increase of $11.1 million, partially offset by the effect of the Lima, Ohio, plant acquisition. Prior to the acquisition of the Lima, Ohio plant, substantially all costs related to acquiring product from the Lima, Ohio, plant were included in inventories upon receipt of goods, then expensed to cost of sales upon shipment to customers, as BEF Foods was buying a finished product. Subsequent to the acquisition, as an owned facility, rather than as a co-packer, labor costs are included in operating wages; and utilities, freight, and hauling costs are included in other operating expenses. Sow costs averaged $70.79 per hundredweight, in the six months ended October 25, 2013, compared to $47.96 per hundredweight, in the corresponding period last year.

Operating Wage and Fringe Benefit Expenses

Consolidated operating wages were 30.6% of net sales in the six months ended October 25, 2013, compared to 31.1% of net sales in the corresponding period last year.

Bob Evans Restaurants’ operating wages were 37.7% of net sales in the six months ended October 25, 2013, compared to 37.6% of net sales, in the corresponding period last year. The operating wages ratio in the six months ended October 25, 2013, increased as a percentage of sales due to implementation costs for the new workforce management program, sales deleverage from same-store sales declines and increased promotional activity.

In BEF Foods, operating wages were 11.1% of net sales for the six months ended October 25, 2013, compared to 10.6% of net sales in the corresponding period last year. The increase in the operating wages ratio was due to additional operating wages and fringe benefits associated with our acquisition of the Lima, Ohio, plant, early in the

 

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second quarter of fiscal 2013. Prior to the acquisition of the Lima, Ohio plant, substantially all costs related to acquiring product from the Lima, Ohio plant were included in inventories upon receipt of goods, then expensed to cost of sales upon shipment to customers, as BEF Foods was buying a finished product. Subsequent to the acquisition of the Lima, Ohio plant, as an owned facility rather than a supplier, Lima, Ohio’s labor costs were included in operating wages, resulting in an increase in operating wages.

Other Operating Expenses

Consolidated other operating expenses were 15.6% of net sales for the six months ended October 25, 2013, compared to 15.7% of net sales in the corresponding period last year. Approximately 85% of other operating expenses in the six months ended October 25, 2013, occurred in Bob Evans Restaurants. The most significant components of other operating expenses were utilities, restaurant advertising, restaurant supplies, rent, non-income based taxes, repairs and maintenance, credit/debit/gift card processing fees, preopening expenses related to our Farm Fresh Refresh remodeling initiative and new restaurant openings.

Bob Evans Restaurants’ other operating expenses were 18.0% of net sales for the six months ended October 25, 2013, compared to 18.2% of net sales in the corresponding period last year. The decrease in the other operating expense ratio was a result of a reduction in advertising expenses, which were reallocated to increased promotional activity that is reflected as a reduction in gross sales. These declines in other operating expenses were partially offset by increases in restaurant supplies and preopening expenses as part of our Farm Fresh Refresh remodeling initiative.

BEF Foods’ other operating expenses ratio was 8.8% of net sales for the six months ended October 25, 2013, compared to 8.0% of net sales in the corresponding period last year. The increase in the other operating expense ratio was due primarily to additional other operating expenses associated with our acquisition of the Lima, Ohio, plant early in the second quarter of fiscal 2013 and volume-related increases in production supplies. Prior to the acquisition of the Lima, Ohio, plant, substantially all costs related to acquiring product from the Lima, Ohio, plant, were included in inventories upon receipt of goods, then expensed to cost of sales upon shipment to customers, as BEF Foods was buying a finished product. Subsequent to the acquisition of the Lima, Ohio, plant, as an owned facility rather than a supplier, cost of materials are still included in inventories and cost of sales, however, other production costs are included in other operating expenses.

Selling, General and Administrative Expenses

Consolidated S,G&A expenses were 10.9% of net sales for the six months ended October 25, 2013, compared to 11.0% of net sales in the corresponding period last year. The most significant components of consolidated S,G&A expenses are non-restaurant wages and fringe benefits, transportation costs, impairment and restructuring and severance costs.

Bob Evans Restaurants’ S,G&A expenses were 8.2% of net sales for the six months ended October 25, 2013, compared to 7.6% of net sales in the corresponding period last year. The increase in SG&A expenses is due to $2.1 million increase of corporate overhead allocation as a result of the Company providing transition services to Mimi’s Café at less than cost; $1.8 million of additional professional expenditures primarily related to ongoing material weakness and remediation related activities; and $0.6 million in incremental travel and meeting expense related to the roll-out of the new workforce management program. These increases were partially offset by reductions in the performance-based incentive plan match of approximately $1.0 million and SG&A cost savings initiatives.

BEF Foods’ S,G&A expenses were 18.4% of net sales for the six months ended October 25, 2013, compared to 21.3% of net sales in the corresponding period last year. The decrease in SG&A is due to a $2.2 million reduction in severance and restructuring charges, $1.4 million reduction in mergers and acquisition related expenses partially offset by a $0.9 million increase of corporate overhead allocation as a result of the Company providing transition services to Mimi’s Café at less than cost, $0.7 million of additional professional expenditures primarily related to strengthening the Company’s internal processes and controls over financial reporting and a dispute with a supplier and $0.4 million related to the ongoing ERP implementation.

 

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Depreciation and Amortization

Consolidated D&A was 5.4% of net sales for the six months ended October 25, 2013, compared to 4.8% of net sales in the corresponding period last year.

Bob Evans Restaurants’ D&A expenses were 6.0% of net sales for the six months ended October 25, 2013 compared to 5.3% of net sales in the corresponding period last year. The increase in the D&A ratio is a result of an increase in depreciable assets related to Bob Evans Restaurants Farm Fresh Refresh remodeling initiative and new restaurant development. We remodeled 126 restaurants as part of our Farm Fresh Refresh remodeling initiative through six months of fiscal 2014. We also opened two new restaurant in the six months ended October 25, 2013. We expect to complete the Farm Fresh Refresh remodeling initiative for all Bob Evans Restaurants during fiscal 2014, except for the six general store-format restaurants, which we have decided to exclude from the Farm Fresh Refresh program. We believe our new restaurant opening program in fiscal 2015, with an evolved design and upgraded site selection process, will drive average unit volumes in excess of our current average unit volume and are targeting up to ten new units.

BEF Foods’ D&A expenses were 3.7% of net sales for the six months ended October 25, 2013, compared to 3.5% of net sales in the corresponding period last year. The increase in the D&A expense ratio is due primarily to additional depreciation expense associated with our acquisition of the Lima, Ohio, plant early in the second quarter of fiscal 2013.

Impairment of Assets Held for Sale

We assess the carrying value of our goodwill, other intangible assets and long-lived assets whenever circumstances indicate that a decline in value may have occurred.

On September 27, 2013, we announced plans to close our food production plant in Richardson, Texas. Based on the estimated value of the facility, we determined that the long-lived asset group’s then-current carrying value of $8.1 million was greater than the fair value of $5.1 million (the selling price less estimated selling costs). This resulted in a pretax non-cash assets held for sale impairment charge in the BEF Foods segment of $3.0 million during the six months ended October 25, 2013. The long-lived asset group related to this plant is valued at fair value and reflected as held for sale on our consolidated balance sheets.

Based on our purchase agreement, effective July 25, 2013, and subject to customary due diligence, to sell nonoperating property, plant and equipment at 29 restaurant locations for $3.5 million, we determined that indicators of impairment existed during the six months ended October 25, 2013.

During October, 2013, we sold 27 of the 29 nonoperating properties that were impaired in the first quarter of fiscal 2014 as a result of a signed purchase agreement. The remaining two properties are anticipated to close during the third quarter of fiscal 2014. Based on the anticipated selling price, a pretax noncash assets held for sale impairment charge was taken for $9.4 million in the Bob Evans Restaurants segment for the six months ended October 25, 2013.

Interest

Net interest expense for the six months ended October 25, 2013, compared to the corresponding period last year, was as follows:

 

     Six Months Ended  

(in thousands)

   October 25, 2013     October 26, 2012  

Gross interest expense:

    

Fixed-rate debt

   $ 130      $ 3,558   

Variable-rate debt

     1,860       482  

Capitalized interest

     (437     (315
  

 

 

   

 

 

 

Total interest expense

     1,553       3,725  

Gross interest income:

    

Accretion

     (1,081     —    

Other

     (488     (196
  

 

 

   

 

 

 

Total interest income

     (1,569     (196
  

 

 

   

 

 

 

Net interest (income) expense

   $ (16   $ 3,529   
  

 

 

   

 

 

 

 

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At October 25, 2013, $318.2 million and $0.8 million was outstanding on our variable-rate revolving credit facility and on our other long-term debt, respectively. The other long-term debt represents an interest-free loan of $1.0 million due ten years from the date of borrowing, with no prepayment penalty that we obtained in the second quarter of fiscal 2013. We have imputed interest on the long-term debt based on our current borrowing rate.

A change in market interest rates will impact our credit facility when there is an outstanding balance. For example, a 1% increase in the benchmark rate used for our credit facility would increase our annual interest expense by approximately $3.2 million, assuming the $318.2 million outstanding at the end of the three months ended October 25, 2013, was outstanding for the entire year.

Taxes

Our effective income tax rate for continuing operations was 30.0% and 33.9% for the six months ended October 25, 2013, and the corresponding period last year, respectively.

The decrease in the effective income tax rate for the six months ended October 25, 2013, as compared to the corresponding period a year ago is primarily attributable to an increase in the impact of FICA tax credits for employee reported tips and Work Opportunity Tax Credits due to lower earnings before income taxes.

On a full-year basis, we anticipate our effective rate to be between 30% and 31%. Our effective income tax rate is evaluated each quarter. The effective income tax rate for the quarter may or may not represent the expected annual effective income tax rate for the entire fiscal year and includes the impact of discrete items for the year-to-date period.

Loss From Discontinued Operations

We sold Mimi’s Café, previously reported as an industry segment, to Le Duff in the fourth quarter of fiscal 2013. As part of the sale, we entered into a transition services agreement with Le Duff. whereby we provide corporate support services and a supply agreement whereby we provide food products. The transition services agreement was originally expected to expire in December of 2013 and the supply agreement was originally expected to expire in February of 2014.

In accordance with FASB ASC 205-20, Discontinued Operations, there is an assessment period for one year after a component has been disposed of, whereby an entity must reassess if they have significant continuing cash flows or significant continuing involvement in the operations of the component after the disposal to assess if the segment should be classified as continuing operations. As a result of having significant continuing cash flows, due to the two agreements noted above, the Mimi’s Café industry segment was not initially presented within discontinued operations. On July 23, 2013, the Company received a notice from SWH Mimi’s Café, LLC that it was terminating its supply agreement with BEF Foods, Inc. The transition services agreement timing did not change significantly and the agreement for some services will continue through the middle of January 2014. As a result of this termination notice, the Company determined it no longer had significant cash flows from Mimi’s Café operations, thus Mimi’s Café should be presented within discontinued operations for all years presented in the financial statements, effective with the Form 10-Q filed for the three months ended July 26, 2013.

 

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For the six months ended October 25, 2013, our recast Consolidated Statements of Net Income present a loss, net of tax, from discontinued operations, of $0.1 million. The prior year loss from discontinued operations, net of tax, was $3.4 million.

Discontinued operations only include the revenues and expenses that are specifically identified with Mimi’s Café and excludes any allocation of corporate costs, including general and administrative expenses, which represent $1.3 million for the six months ended October 26, 2012. The general and administrative expenses excluded from the loss on discontinued operations were reallocated to our Bob Evans Restaurants and BEF Foods segments in the amount of $1.0 million and $0.3 million, respectively, for the six months ended October 26, 2012.

Liquidity and Capital Resources

Our primary sources of liquidity are cash generated from operating activities and the borrowing capacity under our $450.0 million variable-rate revolving credit facility with a consortium of banks, which expires in December 2016. As of October 25, 2013, we had outstanding borrowings of $318.2 million under our credit facility and $13.4 million was reserved for certain standby letters of credit – the remaining $118.4 million was available for liquidity purposes. As of October 25, 2013, cash and equivalents totaled $4.9 million. As of December 20, 2013 borrowings under our credit facility were $397.0 million and our cash equivalents totaled $81.3 million.

Historically, our working capital requirements have been minimal; overall, our current liabilities (excluding credit facility borrowings) have generally exceeded our current assets (excluding cash and equivalents). This favorable working capital position results from transacting substantially all of our Bob Evans Restaurants segment sales for cash or third-party credit or debit cards; the relatively short trade credit terms with our BEF Foods customers as well as most of our major suppliers and distributors; and the quick turnover of our inventories in both of our business segments.

In fiscal year 2014, capital expenditures are expected to approximate $175.0 million to $200.0 million, of which $117.7 million has been incurred during the first six months. These expenditures primarily relate to plant expansions for BEF Foods; the accelerated Farm Fresh Refresh remodel program for Bob Evans Restaurants; the opening of four new Bob Evans Restaurants; completion of our new corporate campus facilities; and the implementation of an ERP system. During fiscal year 2013, capital expenditures totaled $124.3 million.

During the first six months of fiscal year 2014, we have paid quarterly cash dividends of $0.275 per share in June 2013 and of $0.31 per share in September 2013. Our Board of Directors has recently declared a quarterly cash dividend of $0.31 per share payable on December 16, 2013, to shareholders of record at the close of business on December 2, 2013. While we expect to continue paying regular quarterly cash dividends, the declaration, amount and timing of future dividends will be at the discretion of our Board of Directors.

Our Board of Directors has authorized stock repurchases of up to $225.0 million for fiscal year 2014, of which $75.5 million has been expended during the first six months to repurchase 1.4 million shares of our common stock. The remaining $149.5 million authorization is expected to be expended during the second half of this fiscal year. During fiscal year 2013, stock repurchases totaled $63.1 million.

To ensure sufficient liquidity to fund the increased amounts of anticipated capital expenditures during fiscal year 2014 and stock repurchases anticipated during this and future fiscal years, along with any other corporate needs, we are currently negotiating an amendment to our existing credit facility. If completed, the pending amendment, would initially increase our borrowing capacity from $450.0 million to $750.0 million, with an accordion feature that would enable our borrowing capacity to be expanded up to $1.05 billion in the future, subject to the terms and conditions of the final agreement. The various agreements are subject to final lender approvals and normal conditions for closing. We expect the final agreements to be executed during the third quarter of fiscal 2014. If not completed as expected, our stock repurchases during the second half of this fiscal year would likely have to be reduced significantly in order to maintain a prudent liquidity position.

Operating activities

Net cash provided by operating activities was $71.2 million and $31.5 million for the six months ended October 25, 2013, and October 26, 2012, respectively. The increase in cash provided by operating activities was primarily due to federal and state income tax refunds received and reduced estimated tax payments during the six months ended October 25, 2013. Additional tax refunds are expected to be received during the second half of this fiscal year resulting from corporate conversions implemented during December 2012 and reduced taxable income during fiscal year 2013.

Investing activities

Cash used in investing activities was $111.9 million and $93.5 million for the six months ended October 25, 2013, and October 26, 2012, respectively.

 

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The increase in investing activities was primarily due to an increase in capital expenditures of $70.9 million, partially offset by the $53.2 million incurred during the six months ended October 26, 2012, for the acquisition of the Lima, Ohio production facility. Capital expenditures increased during the six months ended October 25, 2013, primarily due to the expansions of our Lima, Ohio and Sulphur Springs, Texas, plants which were announced in May 2012; the Farm Fresh Refresh remodeling of 126 Bob Evans Restaurant locations as compared to 81 in the prior year period; and completion of our new corporate campus headquarters which was announced in February 2011.

Financing activities

Cash provided by financing activities was $36.8 million and $21.1 million for the six months ended October 25, 2013, and October 26, 2012, respectively. The increase in the cash provided by financing activities was primarily due to the following:

 

  a) increased net borrowings of $17.0 million under our credit facility. Net borrowings of $116.8 million during the six months ended October 25, 2013, principally funded our increased capital expenditures and stock repurchases. Net borrowings of $99.8 million during the six months ended October 26, 2012, principally funded our acquisition of Kettle Creations and scheduled maturities of long-term debt.

 

  b) the payment of scheduled maturities on our private placement notes of $38.6 million during the six months ended October 26, 2012;

 

  c) larger net proceeds from issuances of common stock primarily under stock-based compensation programs during the six months ended October 25, 2013;

 

  d) partially offset by the additional purchases of treasury stock of $47.5 million during the six months ended October 25, 2013, pursuant to the stock repurchase programs authorized by our Board of Directors.

Contractual obligations

Future payments on our contractual obligations and outstanding indebtedness as disclosed in our Annual Report on Form 10-K for the fiscal year ended April 26, 2013, has increased primarily due to increased borrowings under our credit facility.

Off-Balance Sheet Arrangements

As of October 25, 2013, we have not entered into any “off-balance sheet” arrangements, as that term is described by the Securities and Exchange Commission.

Proposed Accounting Standards

The Financial Accounting Standards Board periodically issues Accounting Standard Updates, some of which require implementation by a date falling within or after the close of the fiscal year. As of October 25, 2013, there are no new Accounting Standard Updates expected to affect our consolidated financial statements.

Critical Accounting Policies and Estimates

As discussed in Note 1 to our consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q, the preparation of our consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and disclosure of commitments and contingencies at the date of the consolidated financial statements and reported amounts of revenues and expenses during the reporting period. We base these estimates and judgments on our historical experience and other factors we believe to be relevant, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. The process of determining significant estimates is fact-specific and takes into account factors such as historical experience, current and expected economic conditions, product mix, and in some cases, actuarial and appraisal techniques. We routinely re-evaluate these significant factors and make

 

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adjustments where facts and circumstances dictate. With the exception of the policy noted below, our critical accounting policies have not changed materially from those previously reported in our Annual Report on Form 10-K for the fiscal year ended April 26, 2013.

Discontinued Operations

In accordance with FASB ASC 205-20, we use a single accounting model to account for all long-lived assets to be disposed of (by sale, abandonment, or distribution to owners). This includes asset disposal groups meeting the criteria for presentation as a discontinued operation. The criteria for reporting discontinued operations are as follows: 1) the Company has disposed of a component of their business or has met the held-for-sale criteria, 2) there are no ongoing operations or cash flows of the component and 3) the Company will not have continuing involvement in the operations of the component after the disposal transaction. A long-lived asset group classified as held for sale is measured at the lower of its carrying value or fair value less cost to sell. We classify the results of operations of a component classified as held for sale in discontinued operations in the period in which they occur, less applicable income taxes.

 

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We do not currently use derivative financial instruments for speculative or hedging purposes. We maintain our cash and cash equivalents in financial instruments with maturities of three months or less when purchased.

We purchase certain commodities such as beef, pork, poultry, seafood, produce and dairy products. These commodities are generally purchased based upon market prices established with suppliers. These purchase arrangements may contain contractual features that fix the price paid for certain commodities. We do not use financial instruments to hedge commodity prices because these purchase arrangements help control the ultimate cost paid and most commodity price aberrations are generally short-term in nature.

A change in market interest rates will impact our credit facility when there is an outstanding balance. For example, a 1% increase in the benchmark rate used for our credit facility would increase our annual interest expense by approximately $3.2 million, assuming the $318.2 million outstanding at the end of the three months ended October 25, 2013, was outstanding for the entire year.

ITEM 4. CONTROLS AND PROCEDURES

Changes in Internal Control Over Financial Reporting

As previously disclosed in our Quarterly Report on Form 10-Q/A for the fiscal quarter ended January 25, 2013, management concluded that there was a material weakness in internal control over financial reporting related to the calculation of impairment of assets held for sale, a complex transaction and infrequent event. Remedial actions have been implemented to address these controls, including adherence to existing control procedures and implementation of enhanced controls related to review and oversight of complex transactions and infrequent events. As new controls are still being implemented and others have not been in place long enough to provide sufficient assurances to support the conclusion that the identified material weakness has been fully remediated, management concluded that, as of October 25, 2013, there was a material weakness in internal controls over financial reporting related to the review and oversight of complex transactions and infrequent events.

As previously disclosed in Item 9A of our Form 10-K for the year ended April 26, 2013, management concluded that there was a material weakness in internal control over financial reporting related to deferred income tax accounting. Remedial actions have been implemented to address these controls, including adherence to existing control procedures and implementation of enhanced controls related to the reconciliation of deferred income tax accounts. As new controls are still being implemented and others have not been in place long enough to provide sufficient assurances to support the conclusion that the identified material weakness has been fully remediated, management concluded that, as of October 25, 2013, there was a material weakness in internal controls over financial reporting related to the reconciliation of deferred income tax accounts.

During the second quarter ended October 25, 2013, in conjunction with the implementation of enhanced procedures relating to our on-going remediation plan referenced above and our ERP system implementation, management identified prior period errors related to income taxes and property, plant and equipment. The errors relate primarily to the calculation of income taxes related to complex transactions; incorrectly calculating gain on sale of land; and under recording of depreciation expense related to certain restaurant plant and equipment. The most significant impact of the errors relate to periods prior to fiscal year 2011.

Based on our evaluation of relevant quantitative and qualitative factors, we determined the identified corrections are immaterial to the Company’s individual prior period consolidated financial statements for fiscal year 2013, 2012 and 2011; however, the cumulative correction of the prior period errors would be material to our current year consolidated net income. Consequently, we have restated the consolidated balance sheets at July 26, 2013, April 26, 2013, and April 27, 2012, the consolidated statement of net income for the three months ended July 26, 2013, the three and six months ended October 26, 2012, the years ended April 26, 2013, April 27, 2012, and April 29, 2011, and the consolidated statement of cash flows for the three months ended July 26, 2013, the six months ended October 26, 2012, the years ended April 26, 2013, April 27, 2012 and April 29, 2011, appearing herein. The restated balances differ from amounts previously reported to correct the prior period adjustments. As a result of analyzing the nature and cause of the restatement, management concluded that

 

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there was a new material weakness in internal controls over financial reporting related to property plant and equipment accounting. We will continue our on-going actions to enhance controls and remediate existing material weaknesses (relating to complex transactions and infrequent events and the reconciliation of deferred income tax accounts), as well as our new material weakness related to property, plant and equipment accounting.

Except as has been described above, there has been no material change in our internal control over financial reporting (as defined in Rules 13a-15(f) under the Exchange Act) during the quarter ended October 25, 2013, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Evaluation of Disclosure Controls and Procedures

With the participation of our management, including Bob Evans’ principal executive officer and principal financial officer, we have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(c) under the Securities Exchange Act of 1934 (the “Exchange Act”)) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based upon evaluation, Bob Evans’ principal executive officer and principal financial officer have concluded that because of the material weakness in internal controls over financial reporting related to the review and oversight of complex transactions and infrequent events, the material weakness in internal controls over financial reporting related to the reconciliation of deferred income tax accounts and the material weakness in internal controls over financial reporting related to property, plant and equipment accounting, disclosures controls and procedures were not effective.

 

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PART II - OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS.

We are from time-to-time involved in ordinary and routine litigation, typically involving claims from customers, employees and others related to operational issues common to the restaurant and food manufacturing industries. We are currently involved with a number of pending legal proceedings incidental to our business. Management presently believes that the ultimate outcome of these proceedings, individually or in the aggregate, will not have a material adverse effect on our financial position, cash flows or results of operations.

Although we do not believe the matter to be material, we are involved in litigation with one of our suppliers pursuant to a Complaint and accompanying Motion for Preliminary Injunction styled: Reser’s Fine Foods, Inc. (“Reser’s”) v. Bob Evans Farms, Inc. and Bob Evans Farm Foods, Inc., Case Number 313CV00098AA, dated January 17, 2012, and pending in the United States District Court, Portland Division (the “District Court”). We filed certain counterclaims against the plaintiff on February 22, 2012. On May 4, 2013, the District Court denied Reser’s Motion for Preliminary Injunction. We believe the balance of Reser’s claims are without merit and intend to vigorously contest those claims and pursue our counterclaims. We disclose herein as an accompanying note to the references made during our fiscal 2013 third quarter.

In August 2012, a former Bob Evans Restaurant employee filed an action against Bob Evans Farms, Inc. (“Bob Evans”) in the United States District Court for the Southern District of Ohio (the “Ohio District Court”). The lead plaintiff alleged that Bob Evans violated the Fair Labor Standards Act by failing to pay overtime compensation during the period of time the employee worked as an assistant manager. The lead plaintiff sought to maintain the suit as a collective action on behalf of other similarly situated assistant managers. Thirteen other former employees have since opted into the case, although three have subsequently withdrawn (including the original lead plaintiff). The Court has since approved the substitution of another former employee as the lead plaintiff. Plaintiffs filed a motion for conditional certification, Bob Evans filed a motion in opposition to the same, and the Ohio District Court granted conditional certification on December 5, 2013. The proceedings remain in the early stages with significant uncertainty as to factual issues, outcome of legal proceedings and likely number of opt-in plaintiffs and/or damages claimed. Accordingly, we are unable to estimate a range of reasonably possible losses for this matter. We do not believe, however, based on currently available information, that the outcome of this matter will have a material adverse effect on our financial condition, though an adverse outcome could be material to our results of operations for a particular period. We believe the claims are without merit and intend to vigorously contest the action.

 

ITEM 1A. RISK FACTORS.

There have been no material changes from the risk factors disclosed in Part 1, Item 1A, of our Annual Report on Form 10-K for the fiscal year ended April 26, 2013.

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

We repurchased 1,240,257 shares of our common stock for $68.6 million during the three months ended October 25, 2013.

On June 18, 2013, the Board of Directors authorized a stock repurchase program of up to $25.0 million.

On August 16, 2013, the Board of Directors authorized an additional stock repurchase program of up to $150.0 million for the period ending on April 25, 2014. On December 4, 2013, the Board of Directors increased the authorization for the current stock repurchase program to $225.0 million for the period ending on April 25, 2014. Since $75.5 million had been expended, $149.5 million remains authorized.

 

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This program will repurchase shares pursuant to a Section 10b-18 and Section 10b5-1 Plans. The Company can also repurchase stock in the open market or through privately negotiated transactions.

 

Period

   Total Shares
Purchased
     Average Price Paid
Per Share
     Total Shares
Purchased as Part
of Publicly
Announced Plans
or Programs
     Maximum Value of
Shares that May
Yet be Purchased
Under the Plans or
Programs
 

7/27/13-8/23/13

     202,881      $ 50.04        202,881      $ 132,907,924  

8/24/13-9/20/13

     251,500        53.98        251,500        119,329,533  

9/21/13-10/25/13

     785,876        57.04        785,876        99,507,034  
  

 

 

       

 

 

    

Total

     1,240,257      $ 55.27        1,240,257     
  

 

 

       

 

 

    

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

Not Applicable

 

ITEM 4. MINE SAFETY DISCLOSURES.

Not Applicable

 

ITEM 5. OTHER INFORMATION.

Not Applicable

 

ITEM 6. EXHIBITS.

SEE INDEX TO EXHIBITS ON PAGE 44.

 

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

    BOB EVANS FARMS, INC.
Date: December 26, 2013     By:  

/s/ Steven A. Davis

    Steven A. Davis
    Chairman and Chief Executive Officer
    (Principal Executive Officer)
Date: December 26, 2013     By:  

/s/ Paul F. DeSantis

    Paul F. DeSantis*
    Chief Financial Officer, Treasurer and Assistant Secretary
    (Principal Financial Officer)
Date: December 26, 2013     By:  

/s/ Sylvester J. Johnson

    Sylvester J. Johnson*
   

Senior Vice President, Chief Accounting Officer and Controller

(Principal Accounting Officer)

 

* Messrs. DeSantis and Johnson have been duly authorized to sign on behalf of the Registrant as its principal financial officer and its principal accounting officer, respectively.

 

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INDEX TO EXHIBITS

Quarterly Report on Form 10-Q

Dated October 25, 2013

Bob Evans Farms, Inc.

 

Exhibit No.

  

Description

  

Location

  10.1*    Bob Evans Farms, Inc. Amended and Restated 2010 Equity And Cash Incentive Plan, Amended and Restated Effective August 21, 2013    Incorporated herein by reference to Exhibit 10.1 to Bob Evans Farms, Inc.‘s Form 8-K filed August 23, 2013 (File No. 0-1667)
  10.2*    Severance Agreement and General Release dated September 17, 2013 with Harvey Brownlee    Incorporated herein by reference to Exhibit 10.1 to Bob Evans Farms, Inc.‘s Form 8-K/A filed September 17, 2013 (File No. 0-1667)
  10.3*    Offer of Employment Letter with Sylvester J. Johnson dated September 17, 2013 (Principal Accounting Officer)    Incorporated herein by reference to Exhibit 10.1 to Bob Evans Farms, Inc.‘s Form 8-K filed September 25, 2013 (File No. 0-1667)
  10.4*    Severance Agreement and General Release dated October 16, 2013 with Richard Green    Incorporated herein by reference to Exhibit 10.1 to Bob Evans Farms, Inc.‘s Form 8-K/A filed October 18, 2013 (File No. 0-1667)
  31.1    Rule 13a-14(a)/15d-14(a) Certification (Principal Executive Officer)    Filed herewith
  31.2    Rule 13a-14(a)/15d-14(a) Certification (Principal Financial Officer)    Filed herewith
  32.1    Section 1350 Certification (Principal Executive Officer)    Filed herewith
  32.2    Section 1350 Certification (Principal Financial Officer)    Filed herewith
101.INS    XBRL Instance Document    Filed herewith
101.SCH    XBRL Taxonomy Extension Schema Document    Filed herewith
101.CAL    XBRL Taxonomy Extension Calculation Linkbase Document    Filed herewith
101.LAB    XBRL Taxonomy Extension Label Linkbase Document    Filed herewith
101.PRE    XBRL Taxonomy Presentation Linkbase Document    Filed herewith
101.DEF    XBRL Taxonomy Extension Definition Linkbase Document    Filed herewith

 

* Management contract or compensatory plan or arrangement

 

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Exhibit 31.1

Rule 13a-14(a)/15d-14(a) CERTIFICATION

I, Steven A. Davis, certify that:

 

  1. I have reviewed this Quarterly Report on Form 10-Q of Bob Evans Farms, Inc.;

 

  2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

  3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

  4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

  a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

  b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

  c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

  d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

  5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s Board of Directors:

 

  a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

  b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: December 26, 2013

 

/s/ Steven A. Davis

Steven A. Davis
Chairman and Chief Executive Officer
(Principal Executive Officer)

Exhibit 31.2

Rule 13a-14(a)/15d-14(a) CERTIFICATION

I, Paul F. DeSantis, certify that:

 

  1. I have reviewed this Quarterly Report on Form 10-Q of Bob Evans Farms, Inc.;

 

  2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

  3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

  4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

  a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

  b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

  c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

  d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

  5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s Board of Directors:

 

  a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

  b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: December 26, 2013

 

/s/ Paul F. DeSantis

Paul F. DeSantis
Chief Financial Officer, Treasurer and Assistant Secretary
(Principal Financial Officer)

Exhibit 32.1

SECTION 1350 CERTIFICATION*

In connection with the Quarterly Report of Bob Evans Farms, Inc. (the “Company”) on Form 10-Q for the quarterly period ended October 25, 2013, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Steven A. Davis, Chairman and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

 

  (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

  (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: December 26, 2013

 

/s/ Steven A. Davis

Steven A. Davis
Chairman and Chief Executive Officer
(Principal Executive Officer)

 

* This certification is being furnished as required by Rule 13a-14(b) under the Securities Exchange Act of 1934 (the “Exchange Act”) and Section 1350 of Chapter 63 of Title 18 of the United States Code, and shall not be deemed “filed” for purposes of Section 18 of the Exchange Act or otherwise subject to the liability of that Section. This certification shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Exchange Act, except as otherwise stated in such filing.

Exhibit 32.2

SECTION 1350 CERTIFICATION*

In connection with the Quarterly Report of Bob Evans Farms, Inc. (the “Company”) on Form 10-Q for the quarterly period ended October 25, 2013, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Paul F. DeSantis, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

 

  (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

  (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: December 26, 2013

 

/s/ Paul F. DeSantis

Paul F. DeSantis
Chief Financial Officer, Treasurer and Assistant Secretary
(Principal Financial Officer)

 

* This certification is being furnished as required by Rule 13a-14(b) under the Securities Exchange Act of 1934 (the “Exchange Act”) and Section 1350 of Chapter 63 of Title 18 of the United States Code, and shall not be deemed “filed” for purposes of Section 18 of the Exchange Act or otherwise subject to the liability of that Section. This certification shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Exchange Act, except as otherwise stated in such filing.