Bob Evans Farms Announces Fiscal 2010 Year-End Results, Issues Fiscal 2011 Outlook

Adjusted operating income increases for fifth consecutive year

Bob Evans Farms, Inc. (Nasdaq: BOBE) today announced financial results for the 2010 fourth fiscal quarter and fiscal year ended Friday, April 30, 2010.

Fiscal 2010 commentary

Chairman and Chief Executive Officer Steve Davis said an ongoing focus on innovation and productivity initiatives in fiscal 2010 enabled the Company to deliver a solid year, despite top-line challenges. "Excluding special items, our fiscal 2010 operating income results were within our guided range," Davis said. "Productivity initiatives -- particularly in cost of sales, labor and SG&A -- helped offset negative leverage from lower sales and record-high sow costs in our fourth quarter. The food products segment's profitability for the year exceeded our expectations, due largely to a strong first half and lower full-year sow costs relative to fiscal 2009. Our diluted earnings per share of $2.28 benefited from a lower effective tax rate driven by settlements with taxing authorities and reduced interest expense due to an $80 million debt reduction in fiscal 2010.

"During the last five years, we returned to our shareholders $95 million in dividends and $250 million in share repurchases while reducing total debt by $67 million. We have also increased our adjusted operating income for five consecutive years."

Fourth-quarter commentary

Davis said the Company's fourth-quarter results reflect difficult operating conditions in the restaurant segment and higher sow costs in the food products segment. "Adverse February weather exacerbated the sales challenges in our restaurant segment, but our new labor management systems, coupled with effective supply chain management and our actual-versus-theoretical food cost program, helped mitigate the impact from negative same-store sales," Davis said. "Our food products segment faced record-high sow costs in the quarter, which caused the segment's profitability to fall below our expectations, but we have completed the transition to a warehouse distribution model, which has a lower cost structure."

Fiscal 2010 highlights

The Company reported consolidated operating income of $106.4 million in fiscal 2010, compared to $28.4 million in fiscal 2009. The fiscal 2010 results include the negative pretax impact of $4.1 million in net charges. Excluding the negative net impact of these charges, the Company's fiscal 2010 reported consolidated operating income of $106.4 million would have been approximately $110.5 million, or 6.4 percent of net sales.

The 2009 results include the negative pretax impact of $75.3 million in net charges. Excluding the negative pretax impact of these charges, the Company's fiscal 2009 reported consolidated operating income of $28.4 million would have been approximately $103.7 million, or 5.9 percent of net sales.

The fiscal 2010 results also include a 53rd week of operations, which contributed an incremental $31.3 million in sales and $6.9 million in operating income.

See "Disclosure regarding non-GAAP financial measures" below for a reconciliation of all non-GAAP measures used in this release.

Fiscal 2010 consolidated results

The Company reported consolidated operating income of $106.4 million and net income of $70.3 million in fiscal 2010. The full-year results include the negative impact of:

• A total of $6.2 million in pretax noncash fixed-asset impairment charges in the second and fourth quarters for four underperforming Bob Evans restaurants and various other properties. These charges affected the "SG&A" line of the restaurant segment's income statement.


• A total of $1.8 million in pretax cash charges in the second, third and fourth quarters for severance payments and retirement costs. These charges affected the "SG&A" line of the restaurant and food products income statements.

• A total of $2.5 million in pretax life insurance proceeds in the second and third quarters. These proceeds affected the "SG&A" line of the restaurant segment's income statement.


• A $1.4 million pretax gain on the sale of an asset in the fourth quarter. This affected the "SG&A" line of the food products segment's income statement.

• A $0.7 million pretax cash charge in the first quarter for a legal settlement. This charge affected the "SG&A" line of the restaurant segment's income statement.


• A $56.2 million pretax noncash charge in the third quarter for the impairment of goodwill related to the acquisition of Mimi's Cafe. This charge is part of the "Goodwill & other intangibles impairment" line of the restaurant segment's income statement.


• An $11.8 million pretax noncash charge in the third quarter for the impairment of intangible assets (i.e., the Mimi's Cafe trade name) related to the acquisition of Mimi's Cafe. This comprises part of the "Goodwill & other intangibles impairment" line of the restaurant segment's income statement.


• A $6.4 million pretax noncash fixed-asset impairment charge in the third quarter for six underperforming Mimi's Cafe restaurants. This charge affected the "SG&A" line of the restaurant segment's income statement.


• A $0.8 million pretax cash charge in the third quarter for severance payments and retirement costs. This charge affected the "SG&A" line of the restaurant segment's income statement.


• A $0.4 million pretax noncash charge in the third quarter for unusable spare parts in the Company's food products division. This charge affected the "Other operating expenses" line of the food products division's income statement.