Source: http://investors.bobevans.com/secfiling.cfm?filingID=33769-15-68
Timestamp: 2017-03-28 04:31:19
Document Index: 613457632

Matched Legal Cases: ['art 1', '§409', '§409', '§409', '§414', '§1', '§1', '§1', '§125', '§401', '§83', '§401', '§1', '§402', '§502', '§502', '§1', '§409', '§409', '§409']

BOB EVANS FARMS INC (Form: 10-Q, Received: 09/02/2015 15:41:56) UNITED STATES
(Former name, former address and formal fiscal year, if changed since last report):
22,369,395
shares of its common stock, $.01 par value, outstanding.
1,598,566
1,017,281
1,032,587
Current reserve for uncertain tax provision
Credit facility borrowings and other long term debt
Common stock, $.01 par value; authorized 100,000 shares; issued 42,638 shares at July 24, 2015, and April 24, 2015
Treasury stock, 20,286 shares at July 24, 2015, and 19,231 shares at April 24, 2015, at cost
(749,702
Earnings Per Share — Net Income (Loss)
(130,768
: 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 U.S. 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. No significant changes have occurred in the financial disclosures made in our Form 10-K for the fiscal year ended April 24, 2015 (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 share amounts.
: As of July 24, 2015, we owned and operated
full-service Bob Evans Restaurants in
states. Bob Evans Restaurants are primarily located in the Midwest, mid-Atlantic and Southeast regions of the United States. In the BEF Foods segment we produce and distribute pork sausage and a variety of complementary home-style convenience food items under the Bob Evans, Owens and Country Creek brand names. These food products are delivered to our customers throughout the United States and Canada. We also manufacture and sell similar products to food-service accounts, including Bob Evans Restaurants and other restaurants and food sellers.
reporting segments: Bob Evans Restaurants and BEF Foods. The revenues from these
segments include both net sales to unaffiliated customers and intersegment net sales, which are accounted for on a basis consistent with net sales to unaffiliated customers. Intersegment net sales and other intersegment transactions have been eliminated in the consolidated financial statements. Operating income represents earnings before interest and income taxes. Certain costs related to corporate and other functions are not allocated to our reporting segments. Prior to the first quarter of fiscal 2016, we allocated these costs to our reporting segments. This change in reporting was made to present our results in line with the changes made during the first quarter in how management measures results of operations and allocates resources. We have adjusted the prior year amounts to reflect this change in presentation. See Note 9 for detailed segment information.
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. Our gift cards do not have expiration dates or inactivity fees. Revenue in the BEF Foods segment is recognized when products are received by our customers. All revenue is presented net of sales tax collections.
In addition, we recognize income on unredeemed gift cards (“gift card breakage”) based on historical redemption patterns, referred to as the redemption recognition method. Gift card breakage is recognized proportionately over the period of redemption in net sales in the Consolidated Statements of Net Income. The liability for unredeemed gift cards is included in deferred revenue on the Consolidated Balance Sheets, and was
Promotional (Trade) Spending:
We engage in promotional (sales incentive / trade spend) programs in the form of promotional discounts and coupons at Bob Evans Restaurants, and “off-invoice” deductions, billbacks, and cooperative advertising at BEF Foods. Costs associated with these programs are classified as a reduction of gross sales in the period in which the sale occurs. Promotional spending at Bob Evans Restaurants, primarily comprised of discounts taken on dine in sales, was
, respectively. Promotional spending at BEF Foods, primarily comprised of off invoice deductions and billbacks, was
Expenditures related to shipping our BEF Foods products to our customers are expensed when incurred. Shipping and handling costs were
, respectively, and are recorded in the other operating expenses line of the Consolidated Statements of Net Income.
Accounts receivable represents amounts owed to us through our operating activities and are presented net of allowance for doubtful accounts. Accounts receivable for Bob Evans Restaurants consist primarily of credit card receivables, while accounts receivable for BEF Foods consist primarily of trade receivables from customer sales. We evaluate the collectability of our accounts receivable based on a combination of factors. In circumstances where we are aware of a specific customer’s inability to meet its financial obligations to us, we record a specific allowance for bad debts against
amounts due to reduce the net recognized receivable to the amount we reasonably believe will be collected. In addition, we recognize allowances for bad debts based on the length of time receivables are past due with allowance percentages, based on our historical experiences, applied on a graduated scale relative to the age of the receivable amounts. If circumstances such as higher than expected bad debt experience or an unexpected material adverse change in a major customer’s ability to meet its financial obligations to us were to occur, the recoverability of amounts due to us could change by a material amount. We had allowance for doubtful accounts of
, respectively. Accounts receivable was reduced by
, respectively, related to promotional incentives that reduce what is owed to the Company from certain BEF Foods customers.
As a result of the sale of Mimi’s Café to Le Duff America, Inc. ("Le Duff"), we received a Promissory Note ("the Note") for
. The Note has an annual interest rate of
, a term of
and a principal and interest payment due date of February 2020. Partial prepayments are required prior to maturity if the buyer reaches certain levels of EBITDA during specified periods. Our right to repayment under the Note is subordinated to third party lenders as well as other funding that may be provided by the parent company. In the event of a sale or liquidation of the Mimi’s Café restaurant chain or the entity that owns it by its parent company, our right to repayment may be subordinated to payments owed to the parent company and / or potentially reduced based on the funds available for repayment. The note was originally valued using a discounted cash flow model. The Company recognized accretion income on the Note of
, respectively. These gains are reflected within the Net Interest Expense caption of the
We value our Bob Evans Restaurants inventories at the lower of first-in, first-out cost (“FIFO”) or market and our BEF Foods inventories at an average cost method which approximates a FIFO basis due to the perishable nature of that inventory. Inventory includes raw materials and supplies (
) and finished goods (
, and $11,722
Property, plant and equipment is 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 (
years) and machinery and equipment (
years). Improvements to leased properties are depreciated over the shorter of their useful lives or the initial lease terms. Total depreciation expense was
, we capitalized internal labor costs of
, primarily for our enterprise resource planning system ("ERP") and other IT projects. During the
of capitalized costs for ERP and
for new restaurant construction. The first phase of our ERP system was put in service on April 25, 2015, and has an expected useful life of
We evaluate property, plant and equipment held and used in the business for impairment whenever events or changes in circumstance 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. See Note
for further information. Assets for
Bob Evans Restaurants' nonoperating locations and our former Richardson, Texas, plant location totaling
are classified as current assets held for sale in the Consolidated Balance Sheet as of
The rabbi trust assets line on the Consolidated Balance Sheets is comprised entirely of assets held under Company sponsored deferred compensation and supplemental retirement plans and represents the cash surrender value of company-owned life insurance policies. These life insurance policies are intended to be used as a source of funds to match respective funding obligations in our non-qualified deferred compensation plans. The cash surrender value of company owned life insurance policies totaled
, respectively, and are restricted to their use as noted above. The cash receipts and payments related to these company-owned life insurance proceeds are included in cash flows from operating activities on the Consolidated Statements of Cash Flows and changes in the cash surrender value for these assets are reflected within the selling, general, and administrative ("S,G&A") line in the Consolidated Statements of Net Income.
Goodwill, which represents the cost in excess of fair market value of net assets acquired, was
. Other intangible assets were
, respectively. The goodwill and other intangible assets are related to the BEF Foods segment. Other intangible assets represents definite-lived non-compete agreements that are amortized on a straight-line basis over the estimated economic life of
years. Goodwill is tested for impairment during the fourth quarter each year, or on a more frequent basis when indicators of impairment exist.
Goodwill impairment testing involves a comparison of the estimated fair value of reporting units to the respective carrying amount. If the estimated fair value exceeds the carrying amount, then no impairment exists. If the carrying amount exceeds the estimated fair value, then a second step is performed to determine the amount of impairment, if any. We perform our impairment test using a combination of income based and market based approaches. The income based approach indicates the fair value of an asset or business based on the cash flows it can be expected to generate over its remaining useful life. Under the market-based approach, fair value is determined by comparing our reporting segments to similar businesses or guideline companies whose securities are actively traded in public markets.
Our basic EPS computation is based on the weighted-average number of shares of common stock outstanding during the period presented. Our diluted EPS calculation reflects the assumed vesting of restricted shares and market-based performance shares, the exercise and conversion of outstanding employee stock options and the settlement of share-based obligations recorded as liabilities on the Consolidated Balance Sheet (see Note 7 for more information), net of the impact of anti-dilutive shares.
The numerator in calculating both basic and diluted EPS for each period is reported net income. The denominator is based on the following weighted-average shares outstanding:
shares of common stock, respectively, were excluded from the diluted EPS calculations because they were anti-dilutive.
, the Company paid a quarterly dividend equal to
per share on our outstanding common stock. Individuals that hold awards for unvested and outstanding restricted stock units, market-based performance share units and vested deferred stock units are entitled to receive dividend equivalent rights equal to the per-share cash dividends paid on outstanding units. Dividend equivalent rights are forfeitable until the underlying share-units from which they were derived vest. Share based dividend equivalents are recorded as a reduction to retained earnings, with an offsetting increase to capital in excess of par value. Refer to table below:
Stock-based Employee Compensation:
The Stock Compensation Topic of the FASB ASC 718 ("ASC 718") requires that we measure the cost of employee services received in exchange for an equity award, such as stock options, restricted stock awards, restricted stock units and market-based performance share units, based on the estimated fair value of the award on the grant date. The cost is recognized in the income statement over the vesting period of the award on a straight-line basis with the exception of compensation cost related to awards for "Retirement Eligible" (as defined in the applicable plan) employees, which is recognized immediately on the grant date. Compensation cost recognized is based on the grant date fair value estimated in accordance with ASC 718. See Note 6 for more information.
The fair values of our financial instrument approximate their carrying values as of
. We do not use derivative financial instruments for speculative purposes. See Note 2 for more information.
Accrued Non-Income Taxes:
Accrued non-income taxes primarily represent obligations for real estate and personal property taxes, as well as sales and use taxes for Bob Evans Restaurants. Accrued non-income taxes were
We record estimates for certain health, workers’ compensation and general insurance costs that are self-insured programs. Self-insurance reserves include actuarial estimates of both claims filed, carried at their expected ultimate settlement value, and claims incurred but not yet reported. Our liability represents an estimate of the ultimate cost of
claims incurred as of the balance sheet date. Self-insurance reserves were
Media advertising is expensed at the time the media first airs. We expense all other advertising costs as incurred. Advertising expense from continuing operations was
, respectively. Approximately
of advertising costs are incurred in the Bob Evans Restaurants segment. Advertising costs are classified as other operating expenses in the Consolidated Statements of Net Income.
We rent certain restaurant facilities under operating leases having initial terms that primarily expire
years from inception. The leases typically contain renewal clauses of
years exercisable at our option. Most leases 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 claimant. We have accounted for liabilities for casualty losses, including both reported claims and incurred but not reported claims. 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.
Certain prior period amounts have been reclassified or adjusted to conform to the current presentation.
of BEF Foods shipping and handling costs from the S,G&A line to the other operating expenses line on the Consolidated Statements of Net Income for the three months ended
. We believe these costs are better reflected as other operating expenses.
of Bob Evans Restaurants impairment charges related to impairments on long-lived assets classified as held-and-used from the S,G&A line to the impairments line on the
. Formerly, we only separately presented impairments on assets classified as held-for-sale.
of BEF Foods advertising costs from the S,G&A line to the other operating expenses line on the Consolidated Statements of Net Income for the three months ended
. We believe these costs are better classified as other operating expenses rather than S,G&A. Advertising costs for both Bob Evans Restaurants and BEF Foods are now classified as other operating expenses.
These reclassifications had no impact on operating income for the three months ended
In the normal course of business, management evaluates all new accounting pronouncements issued by the FASB, the Securities and Exchange Commission (“SEC”), the Emerging Issues Task Force, the American Institute of Certified Public Accountants or any other authoritative accounting body to determine the potential impact they may have on the Company’s consolidated financial statements.
In August 2014, the FASB issued Accounting Standards Update No. 2014-15, Presentation of Financial Statements - Going Concern ("ASU 2014-15") to provide guidance about management's responsibility to evaluate whether there is substantial doubt about an entity's ability to continue as a going concern. The guidance requires management to assess whether there are conditions or events, considered in the aggregate, that raise substantial doubt about an entity's ability to continue as a going concern within one year after the date that the financial statements are issued. When management identifies such conditions or events, a footnote disclosure is required to disclose their nature, as well as management's plans to alleviate the
substantial doubt to continue as a going concern. We do not expect this update to have an impact on the consolidated financial statements.
In April 2015, the FASB issued ASU 2015-03, to ASC 835-30 "Interest - Imputation of Interest." ASU 2015-03 will require that debt issuance costs related to a recognized term-debt liability to be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this update. We adopted ASU 2015-03 in the first quarter of fiscal 2016. This update did not have an impact on the consolidated financial statements.
, long-term debt was comprised of the outstanding balance on our Revolving Credit Facility Amended and Restated Credit Agreement ("Credit Agreement") of
, a portion of a
Research and Development Investment Loan ("R&D Loan") with the State of Ohio totaling
, and an interest-free loan of
years from the date of borrowing, with imputed interest, which as a result is discounted to
. Refer to the table below:
R&D Loan
The Credit Agreement, R&D Loan and Interest-free loan mature in fiscal 2019, 2021, and 2022, respectively
On January 2, 2014, we entered into the
Credit Agreement. The Credit Agreement represents a syndicated secured revolving credit facility under which up to
will be available, with a letter of credit sub-facility of
, and an accordion option to increase the revolving credit commitment to
. It is secured by the stock pledges of certain material subsidiaries. This Credit Agreement replaced our existing variable-rate revolving credit facility. Borrowings under the Credit Agreement bear interest, at Borrower’s option, at a rate based on LIBOR or the Base Rate, plus a margin based on the Leverage Ratio, ranging from
per annum for LIBOR, and ranging from
per annum for Base Rate. The Base Rate means for any day, a fluctuating per annum rate of interest equal to the highest of (i) the Federal Funds Open Rate, plus
, (ii) the Prime Rate, or (iii) the Daily LIBOR Rate, plus
. We are also required to pay a commitment fee of
per annum of the average unused portion of the total lender commitments then in effect. We incurred financing costs of
associated with this refinancing, which along with previous unamortized debt financing costs of
are being amortized over the remaining term of the agreement.
In the first quarter of fiscal 2015, we entered into a
dated July 23, 2014. The terms of the Credit Agreement that were amended related to: (a) an increase to the Maximum Leverage Ratio for the period starting July 25, 2014, through July 22, 2016, (b) certain restricted payment requirements related to share repurchases, and (c) an update to the Pricing Grid, which determines variable pricing and fees, to reflect changes in the allowable Maximum Leverage Ratio. We incurred financing costs of $1,279
associated with this amendment, which are being amortized using the straight line method, which approximates the effective interest method.
In the first quarter of fiscal 2016, we entered into a
dated May 11, 2015. and an effective date of April 24, 2015. The terms of the Credit Agreement were amended related to: (a) an increase to the Maximum Leverage Ratio for the period starting April 24, 2015, through the remaining term of the agreement, (b) a change in the restrictions related to payments for share repurchases, and (c) a change in the definition of the LIBOR and Daily LIBOR rates that are used to calculate interest on outstanding borrowings. We incurred and paid fees of
associated with this amendment, which will be amortized over the remaining term of the Credit Agreement using the straight line method, which approximates the effective interest method.
Our Credit Agreement contains financial and other various affirmative and negative covenants that are typical for financings of this type. Our Credit Agreement contains financial covenants that require us to maintain a specified minimum coverage ratio and maximum leverage ratio at
, of (1) a minimum coverage ratio of not less than
to 1.00; and (2) a maximum leverage ratio that may not exceed
to 1.00. As of
, our minimum coverage ratio was
, and our leverage ratio was
, as defined in our Credit Agreement. A breach of any of these covenants could result in a
default under our Credit Agreement in which all amounts under our Credit Agreement may become immediately due and payable and commitments under the Credit Agreement to extend further credit, terminated. We were in compliance with the financial covenant requirements of our Credit Agreement as of
. The Credit Agreement also allows for the incurrence of additional indebtedness of up to
, a sale leaseback of our real estate of up to
, and mortgage indebtedness on our corporate headquarters of up to
Our effective interest rate for the Credit Agreement was
, we had outstanding letters of credit that totaled approximately
, of which $12,118
is utilized as part of the total amount available under our Credit Agreement. The letters of credit are used primarily to satisfy insurance-related collateral requirements.
outstanding on the Credit Agreement. The primary purposes of the Credit Agreement is to fund working capital, capital expenditures, stock repurchases, joint ventures and acquisitions and other general corporate purposes as well as for trade and standby letters of credit. A
percent increase in the benchmark rate used for our Credit Agreement would increase our annual interest expense by approximately
outstanding at the end of the first quarter of fiscal 2016 was outstanding for the entire year.
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
, as compared to a
benefit for the corresponding period a year ago. The decrease in tax rate for the
, was driven primarily by discrete items booked in the first quarter related to interest received on refunds from amended tax returns filed, uncertain tax positions and equity compensation, plus the impact of yearly variances in the forecasted annual rate related to wage credits, officers' life insurance and the domestic production activities deduction. 4.
In fiscal 2013 we began a strategic organizational realignment including a closure of production facilities and a reduction of personnel at Bob Evans Restaurants, BEF Foods and at our corporate headquarters, as part of our comprehensive plan to reduce S,G&A expenses. In the second quarter of fiscal 2014, we closed our BEF Foods production plant in Richardson, Texas, and in the third quarter of fiscal 2014, we closed our BEF Foods production plants in Springfield and Bidwell, Ohio. The actions to close these food production facilities was intended to increase efficiency by consolidating production to our high capacity food production facility in Sulphur Springs, Texas. In the fourth quarter of fiscal 2014 we recorded charges related to a reduction of personnel at our corporate headquarters. In the fourth quarter of fiscal 2015 our Board of Directors approved management's plan to further reduce headcount as part of the overall S,G&A cost reduction initiative. Additionally in the fourth quarter of fiscal 2015 the Board of Directors approved, and management committed to, a plan to close
leased under-performing restaurants in fiscal 2016. We believe these closures will strengthen our restaurant portfolio by improving overall returns and freeing up resources for other uses. As of
of these under-performing restaurants, and we expect to close the remaining
by the end of fiscal 2016.
of pretax restructuring charges in the
in the corresponding period last year. These costs, reflected primarily in S,G&A, relate to the organizational realignments discussed above.
relating to corporate severance charges primarily recorded in the fourth quarter of fiscal 2015,
recorded to BEF Foods for remaining payments related to our plant consolidation activities and
recorded to Bob Evans Restaurants for severance charges related to restaurant closures.
See tables below for detail of restructuring activity for the
Balance, April 24, 2015
Restructuring and related severance charges incurred
Balance, July 24, 2015
We evaluate the carrying amount of long-lived assets held and used in the business periodically, and when facts and circumstances indicate that an impairment may exist. The carrying amount of a long-lived asset group is considered impaired when the carrying value of the asset group exceeds its fair value. The impairment loss recognized is the excess of carrying value above its fair value. The estimation of fair value requires significant judgment regarding future restaurant performance and market-based real estate appraisals. To estimate fair value for locations where we own the land and building, we obtain appraisals from third party real estate valuation firms based on sales of comparable properties in the same area as our restaurant location, which approximates fair value. We use discounted future cash flows to estimate fair value for long-lived assets for our leased locations. Our weighted average cost of capital is used as the discount rate in our fair value measurements for leased locations, which is considered a Level 3 measurement. A reasonable change in this discount rate would not have a significant impact on these fair value measurements.
impairments were recorded in the
, we recorded impairment charges of
, a result of adverse performance in the first quarter of fiscal 2015 and a reassessment of expected future cash flows at
nonoperating restaurant location.
The following table represents impairments for those assets remeasured to fair value during the
, and the corresponding period last year.
nonoperating location
, there were equity awards outstanding under the Amended and Restated Bob Evans Farms, Inc. 2010 Equity and Cash Incentive Plan (the “2010 Plan”), as well as previous equity plans adopted in 2006, 1998 and 1993. The types of awards that may be granted under the 2010 Plan include: stock options, stock appreciation rights, restricted stock awards ("RSAs"), restricted stock units ("RSUs"), cash incentive awards, performance share units ("PSUs"), and other awards. During the
RSAs and RSUs, and
PSUs under the 2010 Plan. The PSUs have market-based vesting conditions. Under awards made to date under the 2010 Plan, RSAs and RSUs vest ratably, primarily over
years for employees, and
year for nonemployee directors of the Company. The
PSUs awarded in the first quarter of fiscal 2016 vest at the end of a three-year performance period if they achieve the market-based vesting conditions. During the three month period ending
RSAs and RSUs under the 2010 Plan.
Stock-based compensation expense, included primarily within the S,G&A line on the
We have a 401(k) retirement savings plan that is available to substantially all employees who have at least
hours of service. We also have nonqualified deferred compensation plans, the Bob Evans Farms, Inc. Executive Deferral Plan ("BEEDP") and Bob Evans Farms, Inc. Director Deferral Plan ("BEDDP"), which provides certain executives and members of the Board of Directors, respectively, the opportunity to defer a portion of their current income to future years. A third party manages the investments directed by the employees and board members who participate in the plan. Gains and losses related to investment results of these deferrals are recorded within the S,G&A line in the Consolidated Statements of Net Income.
Obligations to participants who defer equity compensation through our deferral plans are satisfied only in company common stock. There is no change in the vesting term for equity awards that are deferred into these plans. Obligations related to these deferred equity awards are treated as "Plan A" instruments, as defined by ASC 710. These obligations are classified as equity instruments within the Capital in excess of par value line of the Consolidated Balance Sheets. No subsequent changes in fair value are recognized in the Consolidated Financial Statements for these instruments. Participants earn share-based dividend equivalents in an amount equal to the value of per-share dividends paid to holders of our common stock. These dividends accumulate into additional shares of common stock, and are recorded through retained earnings in the period in which dividends are paid. Deferred shares that vest are included in the denominator of basic and diluted EPS in accordance with ASC 260 - Earnings per Share. The dilutive impact of unvested, deferred stock awards is included in the denominator of our diluted EPS calculation. Refer to Note 6 for additional information on stock-based compensation.
Participants who defer cash compensation into our deferral plans have a range of investment options, one of which is company stock. Obligations for participants who choose this investment election are satisfied only in shares of company stock, while all other obligations are satisfied in cash. These share-based obligations are treated as "Plan B" instruments, as defined by ASC 710. These deferred compensation obligations are recorded as liabilities on the Consolidated Balance Sheets, in the Deferred compensation line. We record compensation cost for subsequent changes in fair value of these obligations. Participants earn share-based dividend equivalents in an amount equal to the value of per-share dividends paid to holders of our common stock. These dividends accumulate into additional shares of common stock, and are recorded as compensation cost in the period in which the dividends are paid. The dilutive impact of these shares is included in the denominator of our diluted EPS calculation.
The Supplemental Executive Retirement Plan ("SERP") provides awards to a limited number of executives in the form of nonqualified deferred cash compensation. Gains and losses related to these benefits and the related investment results are recorded within the S,G&A caption in the consolidated statements of net income. The SERP is frozen and no further persons can be added as participants and funding was reduced to a nominal amount per year.
Deferred compensation liabilities expected to be satisfied within the next 12 months are classified as current liabilities within the Accrued wages and other liabilities line of the Consolidated Balance Sheets. Our deferred compensation liabilities as of July 24, 2015, and April 24, 2015 consisted of the following:
Liability for deferred cash obligations in BEEDP and BEDDP Plans
Liability for deferred cash obligations in SERP plan
Liability for deferred share-based obligations in BEEDP and BEDDP Plans
Other noncurrent compensation arrangements
Total deferred compensation liabilities
Noncurrent deferred compensation liabilities
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, and 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.
In August 2012, a former Bob Evans Restaurant employee filed an action against the Company in the United States District Court for the Southern District of Ohio, styled
David Snodgrass v. Bob Evans Farms, LLC, Case No. 2:12-cvg-00768
(“Snodgrass”). The lead plaintiff alleged that the Company violated the Fair Labor Standards Act by misclassifying assistant managers as exempt employees and failing to pay overtime compensation during the period of time the employee worked as an assistant manager. The plaintiff seeks an unspecified amount of alleged back wages, liquidated damages, statutory damages and attorneys’ fees. The lead plaintiff sought to maintain the suit as a collective action on behalf of other similarly situated assistant managers employed at Bob Evans Restaurants between August 2009 and present. In December 2013, the Court in Snodgrass granted conditional certification of those assistant managers that elected to opt-in to the collective action.
In May, 2014, the same plaintiffs’ counsel in the Snodgrass matter filed essentially duplicative claims under the overtime laws of the State of Ohio and Commonwealth of Pennsylvania, styled
Utterback v. Bob Evans Farms, LLC Case No. CV14826909
in the Court of Common Pleas of Cuyahoga County, Ohio (“Utterback”) and
Mackin v. Bob Evans Farms, LLC Case No. 2:14-cv-450
in the United States District Court for the Southern District of Ohio (“Mackin”), respectively. Neither the Utterback nor Mackin proceedings have been certified for class status at this time.
In June 2015 counsel for all parties attended the second mediation in the Snodgrass matter in an attempt to resolve each of the Snodgrass, Utterback and Mackin litigation matters. On July 31, 2015, the Company and counsel for the plaintiffs reached an agreement in principle to resolve all claims presented in the Snodgrass, Mackin and Utterback cases for the total sum of
million on a claims made basis. The agreement in principle is subject to the execution of a definitive settlement agreement and court approval.
While we continue to believe that our assistant managers were properly classified as exempt from the respective Federal and State overtime requirements and that we have meritorious defenses to the claims in each of the Snodgrass, Utterback and Mackin matters, as previously reported in our Annual Report in Form 10-K for the fiscal year ended April 24, 2015, in the fourth quarter of fiscal 2015 we received an unfavorable ruling related to the Snodgrass litigation and determined a settlement of all
matters was in the best interests of the company.
In connection with the unfavorable ruling, we recorded a charge of
million in the fourth quarter of fiscal 2015. As a result of the agreement in principle, we have recorded an additional charge of
million in the first quarter of fiscal 2016. This expense was recorded to the Bob Evans Restaurants segment and in the S,G&A line of the Consolidated Statements of Net Income.
The Division of Enforcement of the SEC is conducting a formal investigation relating to disclosures set forth in our filings on Form 8 - K and Form 10 - Q/A both filed on December 3, 2014. Those filings addressed the correction of our error in the classification of our borrowings under our credit agreement as a current liability rather than as a long-term liability, as reported in our Form 10 - Q filed on August 27, 2014 (“Classification Filings”). We are cooperating fully with the SEC in this matter. The Company cannot predict the duration, scope or outcome of the SEC’s investigation.
reporting segments: Bob Evans Restaurants and BEF Foods. We determine our segments on the same basis that the Company's Chief Operating Decision Maker uses to allocate resources and assess performance. We evaluate our segments based on operating income, excluding expenses and charges from corporate and other functions which we consider to be overall corporate costs, or costs not reflective of the reporting segment’s core operating businesses. This includes corporate functions such as information technology, finance, legal, human resources, supply chain and other corporate functions, and includes costs such as ongoing IT infrastructure costs, including certain costs related to our new ERP system, certain legal and professional fees, depreciation on our corporate assets and other costs. Operating income represents earnings before interest and income taxes. Prior to the first quarter of fiscal 2016, we allocated these costs to our reporting segments. This change in reporting was made to present our results in line with the changes made during the first quarter in how management measures results of operations and allocates resources. We have adjusted the prior year amounts to reflect this change in presentation.
Information on our reporting segments is summarized as follows:
Cash paid for income taxes and interest for the
, the Board of Directors approved a quarterly cash dividend of
per share, payable on
, to shareholders of record at the close of business on
On August 27, 2015, the Board of Directors elected Douglas N. Benham to serve as the Chair of the Board and in the newly established position of Executive Chair of the Company, for so long as the Board has not elected a new, permanent chief executive officer of the Company, to exercise the authority and powers of the chief executive officer of the Company. He will serve as the Executive Chair for a term of
years, expiring at the Company’s 2017 Annual Meeting of Stockholders. Mary Kay Haben, who has served as Non-Executive Chair of the Board since October 2014, was elected by the Board to serve as Lead Independent Director.
In this 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. This MD&A may contain forward-looking statements that set forth our expectations and anticipated results based on management’s plans and assumptions. These statements are often indicated by words such as “expects,” “anticipates,” “believes,” “estimates,” “intends” and “plans.” 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 uncertainties discussed in our Annual Report on Form 10-K for the fiscal year ended April 24, 2015, under the heading “Item 1A. Risk Factors,” and as supplemented in our other filings with the SEC.
The following terms are the principal trademarks and registered trademarks of Bob Evans, many of which are used herein: Get in on Something Good TM, BE Express ®, BE Fit ®, BE Mail ®, BEST Bob Evans Special Touch ®, Big Farm Burgers ®, Bob Evans ®, Bob Evans Express ®, Bob Evans Oven Bake ®, Bob Evans Restaurants ®, Bob Evans Wildfire ®, Country Creek Farm ®, Discover Farm-Fresh Goodness ®, Farm-Fresh Goodness ®, Farmhouse Feast ®, Fit From the Farm ®, Kettle Creations ®, and Owens ®. Bob Evans uses additional registered trademarks and proprietary marks in its business.
As part of our Broasted Chicken® platform, we have licensed the use of the Broasted ®, Broaster Chicken ®, Genuine Broaster Chicken ®, and Broasted Chicken trademarks from The Broaster Company. Our Development Agreement provides us with limited exclusivity rights to use these licensed trademarks and proprietary Broaster equipment for a period of 10 years within the domestic family dining segment.
We have two reporting segments, Bob Evans Restaurants and BEF Foods, which is reflected in management's discussion and analysis of financial condition and result of operations. As of
, we owned and operated 549 full-service Bob Evans Restaurants in 19 states. Bob Evans Restaurants are primarily located in the Midwest, mid-Atlantic and Southeast regions of the United States. In the BEF Foods segment we produce and distribute pork sausage and a variety of complementary home-style convenience food items under the Bob Evans, Owens and Country Creek brand names. These food products are delivered to our customers throughout the United States and Canada. We also manufacture and sell similar products to food-service accounts, including Bob Evans Restaurants and other restaurants and food sellers.
Effective with the first quarter of fiscal year 2016, the results of operations of our reporting segments exclude expenses from certain corporate and other functions which we consider overall corporate costs, or costs not reflective of the reporting segment’s core operating business. Prior year amounts have been adjusted to reflect the change in presentation. Refer to Note 9 for additional reporting segment information.
Bob Evans Farms, Inc. Overview
in the first quarter of fiscal 2016, a decrease of
compared to the prior year. Operating income was
for the first quarter of fiscal 2016, an increase of
as compared to the corresponding period last year. The increase in operating income as compared to the prior year was due to lower cost of sales of
, lower other operating expenses of
and lower impairment charges of
. Offsetting these expense improvements were lower sales, higher operating wages and fringe benefit expenses of
, higher S,G&A costs of
and higher depreciation and amortization expenses of
Pretax net income in the first quarter was
as compared to a pretax loss of
in the prior year. The provision for income taxes was
, as compared to a benefit of
in the prior year. Earnings per diluted share was
, as compared to a loss per share of
in the prior year. Refer to the sections below for analysis on our first quarter fiscal 2016 operating results as compared to the comparable prior year period.
These tables reflect data for the
. The consolidated information is derived from the accompanying Consolidated Statements of Net Income. The table also includes data for our two reporting segments, Bob Evans Restaurants and BEF Foods, and unallocated corporate and other costs. The ratios presented reflect the underlying dollar values expressed as a percentage of the applicable net sales amounts.
in the corresponding period last year. The net sales decrease was comprised of a decrease of
in Bob Evans Restaurants and
in BEF Foods.
Bob Evans Restaurants’ net sales decreased
, compared to the corresponding period last year. Same-store sales declined 0.3%, primarily the result of lower dine-in volumes in our dinner day part. The impact of declining dine-in sales was partially offset by 14.2% growth in off-premises sales, which comprise approximately 14% of total restaurant net sales. Additionally there was a $0.9 million net reduction of sales driven by the impact of closing 18 restaurants in the first quarter fiscal 2016, partially offset by sales from seven restaurants that opened in the prior year.
Same-store sales computations for a given period are based on net sales of restaurants that are open for at least 18 months prior to the start of that period. Net sales of closed restaurants are excluded from the same-store sales computation in the period in which the restaurants are closed.
BEF Foods net sales decreased
, compared to the corresponding period last year. While total volumes increased slightly, the decline in net sales is primarily the result of lower net sausage pricing. Average sow costs in the first quarter of fiscal 2016 were significantly lower than the prior year, which drove a $5.6 million increase in trade promotions offered to customers, reducing our net sales and allowing us to maintain competitive position on shelf pricing. The increase in total volumes as compared to last year is a function of improving side dish and sausage volumes, offset by lower food service volumes. The following chart summarizes pounds sold by category in the three months ended
Consolidated cost of sales was
of net sales, in the
of net sales, in the corresponding period a year ago. The
basis points ("bps") decrease in the cost of sales ratio was driven by a
bps weighted decrease in Bob Evans Restaurants and a
bps weighted decrease in BEF Foods.
Bob Evans Restaurants’ cost of sales, predominantly food costs, was
of net sales, in the corresponding period a year ago. Margin improvements as compared to last year were primarily driven by a $1.4 million decline in food cost rate resulting from lower discounting, favorable commodities costs and a sales mix increase of breakfast items.
BEF Foods’ cost of sales was
of net sales, in the corresponding period a year ago. The decrease in cost of sales as a percentage of sales was primarily due to the $9.9 million benefit of significantly lower sow costs as compared to the prior year. Sow costs averaged
per hundredweight in the first quarter of fiscal 2016, compared to
per hundredweight in the
corresponding period last year. Margins were also positively impacted by a $3.5 million impact from a higher sales mix of our higher margin side dish products and by improved production yields. The impact of lower cost of materials was partially offset by a $5.6 million increase in trade spending, primarily on sausage as a result of lower sow costs.
Consolidated operating wage and fringe benefit expenses (“operating wages”) was
of net sales, in the corresponding period last year. The
bps increase in operating wages ratio was driven by a
bps weighted increase in Bob Evans Restaurants.
Bob Evans Restaurants’ operating wages were
of net sales, in the corresponding period last year. The increase in operating wages as compared to the prior year was primarily the result of $2.0 million higher hourly wages due to higher wage rates, partially offset by $0.9 million reduction in hourly wages due to the closing of 18 restaurants in the first quarter, and lower employee benefit costs.
In BEF Foods, operating wages were
of net sales, in the corresponding period last year. Operating wages decreased from the prior year as a result of lower production wages.
Consolidated other operating expenses were
bps decrease in other operating expenses ratio was driven by
bps weighted increase from BEF Foods. The most significant components of other operating expenses are utilities, advertising costs, repairs and maintenance, restaurant supplies, BEF Foods shipping and handling, credit and gift card processing fees and non-income based taxes.
Bob Evans Restaurants’ other operating expenses were
of net sales, in the corresponding period last year. The decrease in other operating expenses is primarily due to a $1.0 million reduction in restaurant occupancy costs including real estate taxes, a $0.9 million reduction in advertising costs and a $0.7 million reduction in other costs including a $0.6 million reduction in utilities.
BEF Foods’ other operating expenses were
of net sales, in the corresponding period last year. The increase in the other operating expenses is primarily due to a $0.8 million increase in advertising expense, partially offset by reductions in utilities and shipping and handling costs.
Consolidated S,G&A expenses were
bps increase in the S,G&A ratio was driven by a
bps weighted increase from Bob Evans Restaurants.
S,G&A expenses incurred by Bob Evans Restaurants include restaurant operations management and restaurant executive leadership. Bob Evans Restaurants' S,G&A was
of net sales, for the three months ended July 24, 2015, compared to
of net sales, in the corresponding period last year. The increase of $9.6 million is primarily due to a $10.5 million charge for a settlement in principle of a class action lawsuit in the current year as well as higher performance based compensation expense, partially offset by a decline in management wages due to cost savings initiatives.
S,G&A expenses incurred by BEF Foods include costs of our BEF Foods sales organization, and BEF Foods executive leadership. BEF Foods' S,G&A was
of net sales in the corresponding period last year. The reduction in BEF Foods S,G&A is a result of lower wages due to headcount reductions as part of our cost savings initiatives.
Corporate and other costs that are not allocated to our reporting segments include information technology, finance, legal, human resources, supply chain and other corporate functions, and includes costs such as ongoing IT infrastructure costs, including certain costs related to our new ERP system, third party legal and professional fees and other costs. Corporate and other costs that are not allocated to our reporting segments were
for the three months ended July 24, 2015, as compared to
in the corresponding period last year. The decrease in corporate and other S,G&A was primarily the result of a $1.9 million decrease in third party legal and professional fees, incurred last year in response to shareholder activism
and strengthening the Company's internal controls over financial reporting and a $1.4 million decrease in wages due to cost savings initiatives, partially offset by $1.2 million of increased costs associated with higher performance based compensation expense and $0.8 million of higher other costs including IT costs related to support of our new ERP system, which was put in service in the first quarter of fiscal 2016.
Consolidated depreciation and amortization expenses (“D&A”) were
bps increase in the D&A ratio was driven by a weighted bps increase from BEF Foods and higher depreciation on unallocated corporate assets.
Bob Evans Restaurants’ D&A expenses were
of net sales, in the corresponding period last year. The decrease was primarily driven by the impact of ceasing depreciation on stores that were closed in the first quarter of fiscal 2016 and are classified as held for sale, and the impact of assets on accelerated depreciation methods.
BEF Foods’ D&A expenses were
of net sales, in the prior year period. The increase is a result of a higher depreciable base due to equipment purchases and other capital expenditures in the past year.
D&A expenses for unallocated corporate assets were
for the three months ended July 24, 2015, compared to
, in the corresponding period last year. The increase is primarily driven by depreciation on our ERP system, which was put in service on the first day of fiscal 2016.
Net interest expense for the three months ended
, compared to the corresponding period last year, is as follows:
The increase in variable-rate debt was primarily driven by higher average borrowings on our Credit Agreement during the three months ended July 24, 2015, as compared to the corresponding period last year.
benefit for the corresponding period a year ago. The lower tax rate for the three months ended
, was driven primarily by discrete items booked in the first quarter related to interest received on refunds from amended tax returns filed, uncertain tax positions and equity compensation, plus the impact of yearly variances in the forecasted annual rate related to wage credits, officers' life insurance and the domestic production activities deduction. Liquidity and Capital Resources
Our primary sources of liquidity are cash generated from operating activities and the borrowing capacity under our Credit Agreement.
Historically, our working capital requirements have been minimal; overall, our current liabilities 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 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 reporting segments.
, capital expenditures primarily related to our ERP system, other IT infrastructure projects and general restaurant improvements. In the
, capital expenditures primarily related to new restaurant construction and our ERP system. In fiscal
, capital expenditures are expected to approximate $78.0 million to $82.0 million and include expenditures for a new restaurant point-of-sale system and general restaurant improvements, adding an additional side-dish production line at our Lima, Ohio, plant and other production facility upgrades, the next phases of our ERP system and other IT infrastructure.
During each of the first quarters of fiscal years
and 2015, we paid cash dividends of $0.31 per share. While we expect to continue paying regular quarterly cash dividends, the declaration, amount and timing of future dividends are at the discretion of our Board of Directors.
On August 20, 2014, the Board of Directors increased the authorization of our stock repurchase program for up to $150.0 million through fiscal 2016. The program authorizes the Company to repurchase its outstanding common stock pursuant to plans approved by the Board under SEC Rules 10b-18 and 10b5-1, and in the open market or through privately negotiated transactions. The ability to repurchase stock and complete the repurchase program is dependent upon our having available funds and complying with the financial covenants and other restrictions contained in our Credit Agreement and the repurchase authorization. In the first quarter of fiscal 2016 we repurchased approximately 1.3 million shares for
million. The repurchases were funded primarily through additional borrowings on our Credit Agreement and cash from operations, and we expect to repurchase additional shares of our common stock with the remaining authorized $89.4 million before the end of fiscal 2016.
On January 2, 2014, we entered into the Credit Agreement. The Credit Agreement represents a syndicated secured revolving credit facility under which up to $750 million will be available with a letter of credit sub-facility of $50 million. It includes an accordion option to increase the revolving credit commitment to $1.05 billion. It is secured by the stock pledges of certain of our material subsidiaries. Borrowings under the Credit Agreement bear interest, at our option, at a rate based on LIBOR or the Base Rate, plus a margin based on the Leverage Ratio, ranging from 1.00% to 2.75% per annum for LIBOR, and ranging from 0.00% to 1.75% per annum for Base Rate. The Base Rate means for any day, a fluctuating per annum rate of interest equal to the highest of (i) the Federal Funds Open Rate, plus 0.50%, (ii) the Prime Rate, or (iii) the Daily LIBOR Rate, plus 1.00%. We are also required to pay a commitment fee of 0.15% per annum to 0.25% per annum of the average unused portion of the total lender commitments then in effect. Our effective interest rate for the Credit Agreement was
, we had outstanding borrowings of
under our credit facility and
was reserved for certain standby letters of credit.
dated July 23, 2014. The terms of the Credit Agreement that were amended related to: (a) an increase to the Maximum Leverage Ratio for the period starting July 25, 2014, through July 22, 2016, (b) add certain restricted payment requirements related to share repurchases, and (c) an update to the Pricing Grid, which determines variable pricing and fees, to reflect changes in the allowable Maximum Leverage Ratio. We incurred financing costs of $1.3 million associated with this amendment, which are being amortized using the straight line method, which approximates the effective interest method.
dated May 11, 2015. The amendment has an effective as date of April 24, 2015. The terms of the Credit Agreement were amended related to: (a) an increase to the Maximum Leverage Ratio for the period starting April 24, 2015, through the remaining term of the Credit Agreement, (b) a change in the restrictions related to payments for share repurchases, and (c) a change in the definition of the LIBOR and Daily LIBOR rates that are used to calculate interest on outstanding borrowings. We incurred and paid fees of $1.7 million associated with this amendment, which will be amortized over the remaining term of the Credit Agreement using the straight line method, which approximates the effective interest method.
Agreement Regarding Financial Covenant Calculation
("Agreement") on August 10, 2015, with an effective as date of April 24, 2015, in which the terms of the Credit Agreement were clarified regarding the treatment of certain noncash charges in the calculation of our Maximum Leverage Ratio. The Agreement had no impact on our financial covenants.
Our Credit Agreement contains financial and other various affirmative and negative covenants that are typical for financings of this type. Our Credit Agreement contains financial covenants that require us to maintain a specified minimum
coverage ratio and maximum leverage ratio at July 24, 2015, of (1) a minimum coverage ratio of not less than
to 1.00. As of July 24, 2015, our leverage ratio was
, and our coverage ratio was
, as defined in our credit facility. Our credit facility also limits repurchases of our common stock and the amount of dividends that we pay to holders of our common stock in certain circumstances. The Credit Agreement also allows for the incurrence of additional indebtedness of up to
and mortgage indebtedness on our corporate headquarters of up to
. A breach of any of these covenants could result in a default under our Credit Agreement, in which all amounts under our Credit Agreement may become immediately due and payable, and all commitments under our Credit Agreement to extend further credit, terminated. We were in compliance with the financial covenant requirements of our Credit Agreement as of July 24, 2015.
We believe that our cash flow from operations as well as the borrowing under our Credit Agreement, will be sufficient to fund anticipated capital expenditures, working capital requirements and dividend payments during fiscal 2016.
Beginning in fiscal 2015, Management has worked closely with the Board of Directors and its strategic advisers to assess various alternatives to increase shareholder value. In particular, the Company has determined it will pursue several transactions with respect to its real estate assets.
In May 2015, we retained CBRE Groups, Inc., ("CBRE ") to pursue monetization of our New Albany, Ohio, headquarters and BEF Foods’ Lima, Ohio, and Sulphur Springs, Texas, manufacturing facilities through one or more sale and leaseback transactions. The completion of any transaction must be approved by the Board and the Company cannot guarantee that a transaction will occur. We expect to use the net proceeds from these transactions to manage leverage under our Credit Agreement and as a result to repurchase shares of the Company's common stock as permitted under the Credit Agreement.
Additionally the Company has completed its review of alternatives concerning a strategic transaction for our owned restaurant properties and determined that a sale leaseback transaction of up to $200 million is the most appropriate transaction given our current business and market conditions. Combined with the expected sale leaseback of our headquarters building and BEF Foods manufacturing facilities, this will enable us to further enhance shareholder value through our capital deployment strategies as we continue executing the turnaround of our businesses.
, respectively. The increase in cash provided by operating activities as compared to a year ago is primarily due to an increase in net income from operations and improved working capital management.
, respectively. The decrease in cash used in investing activities was primarily due to a decrease in capital expenditures of
compared to the prior year, as the Company completed the first phase of our ERP system in the fourth quarter of fiscal 2015, and proceeds from the sale of a closed restaurant property.
Cash used in financing activities was
. The increase in cash used by financing activities was primarily due to the $60.6 million of repurchases of our common stock in the first quarter of fiscal 2016, partially offset by $40.0 million of incremental borrowings on our Credit Agreement.
Other than the amendment to our Credit Agreement, discussed in Note 2, there have been no significant changes in our contractual obligations and outstanding indebtedness as disclosed in our Annual Report on Form 10-K, for the fiscal year ended
, we have not entered into any “off-balance sheet” arrangements with unconsolidated entities or other persons, as that term is defined in rules issued by the SEC.
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 adjustments where facts and circumstances dictate. 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 24, 2015.
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. Most commodity price aberrations are generally short-term in nature and for some commodities, such as sows, hedge instruments are not generally available.
On April 25, 2015, we implemented an enterprise resource planning (“ERP”) system on a company-wide basis, which is expected to improve the efficiency of certain financial and related transaction processes. The implementation resulted in business and operational changes, which required changes to our internal controls over financial reporting. We believe we have designed adequate controls into and around the new ERP system, which includes performing significant procedures, both within the ERP and outside the ERP, to monitor, review and reconcile financial activity for the first quarter of fiscal 2016 to ensure ongoing reliability of our financial reporting.
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
, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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 this evaluation, Bob Evans’ principal executive officer and principal financial officer have concluded our disclosure controls and procedures were effective.
In June 2015 counsel for all parties attended the second Mediation in the Snodgrass matter in an attempt to resolve each of the Snodgrass, Utterback and Mackin litigation matters. On July 31, 2015, the Company and counsel for the plaintiffs reached an agreement in principle to resolve all claims presented in the Snodgrass, Mackin and Utterback cases for the total sum of $16.5 million on a claims made basis. The agreement in principle is subject to the execution of a definitive settlement agreement and court approval.
While we continue to believe that our assistant managers were properly classified as exempt from the respective Federal and State overtime requirements and that we have meritorious defenses to the claims in each of the Snodgrass, Utterback and Mackin matters, as previously reported in our Annual Report in Form 10-K for the fiscal year ended April 24, 2015, in the fourth quarter of fiscal 2015 we received an unfavorable ruling related to the Snodgrass litigation and determined a settlement of all three matters was in the best interests of the company.
In connection with the unfavorable ruling, we recorded a charge of $6 million in the fourth quarter of fiscal 2015. As a result of the agreement in principle, we have recorded an additional charge of $10.5 million in the first quarter of fiscal 2016. This expense was recorded to the Bob Evans Restaurants segment and in the S,G&A line of the Consolidated Statements of Net Income.
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
On February 25, 2014, the Board of Directors authorized a stock repurchase program for up to $100.0 million. The program will authorize the Company to repurchase its outstanding common stock pursuant to plans approved by the Board under SEC Rules 10b-18 and 10b5-1, and in the open market or through privately negotiated transactions. The ability to repurchase stock and complete the repurchase program is dependent upon the Company having available funds and complying with the financial covenants and other restrictions contained within the Company’s Credit Agreement and the repurchase authorization.
On August 20, 2014, the Board of Directors increased the authorization for the current stock repurchase program to $150.0 million and extended the authorization period through fiscal 2016.
In the first quarter of fiscal 2016 we repurchased approximately 1.3 million shares for $60.6 million. The repurchases were funded primarily through additional borrowings on our Credit Agreement and cash from operations. We expect to repurchase additional shares of our common stock with the remaining authorized $89.4 million before the end of fiscal 2016.
The following table provides information regarding the purchases of shares of Common Stock of Bob Evans made by the Company during each fiscal month of the three months ended July 24, 2015:
Period (Fiscal Month)
April 25, 2015 through May 22, 2015
117,815,494
May 23, 2015 through June 19, 2015
100,002,303
June 20, 2015 through July 24, 2015
89,436,442
/s/ Douglas N. Benham
Messrs. Hood and Johnson have been duly authorized to sign on behalf of the Registrant as its principal financial officer and its principal accounting officer, respectively.
Agreement Regarding Financial Covenant Calculation entered into as of August 10, 2014 among Bob Evans Farms, LLC, as borrower; Bob Evans Farms, Inc. and its wholly-owned subsidiary, BEF Foods, Inc., as guarantors; PNC Bank, National Association, as administrative agent, and the other Lending parties thereto
Bob Evans Farms, Inc. and Affiliates Fourth Amended and Restated Supplemental Executive Retirement Plan (Effective as of August 20, 2015)
Amendment to Bob Evans Farms, Inc. and Affiliates
Fourth Amended and Restated Executive Deferral Program (Effective as of August 20, 2015)
Form of Performance Share Unit, Restricted Stock Unit and Dividend Equivalent Right Award
Form of Board of Directors Restricted Stock Award
Form of Board of Directors Restricted Stock Unit And Dividend Equivalent Right Award
Form of Opportunity and Retention Award Agreement
(Retirement Eligible Version)
Award to Mark E. Hood dated June 18, 2015
Employment Agreement, dated August 27, 2015, between the Company and Douglas N. Benham Incorporated herein by reference to Exhibit 10.1 to Bob Evans Farms, Inc.'s Form 8-K
Filed August 28, 2015 (File No. 0-1667)
THIS AGREEMENT REGARDING FINANCIAL COVENANT CALCULATION (the "
"), is effective as of April 25, 2015 (the "
") and is made by and among BOB EVANS FARMS, LLC, an Ohio limited liability company ("
"), GUARANTORS (as defined in the Credit Agreement), LENDERS (as defined in the Credit Agreement), and PNC BANK, NATIONAL ASSOCIATION, as Administrative Agent ("
"), with reference to that certain Amended and Restated Credit Agreement, dated as of January 2, 2014, as amended by that certain First Amendment to Amended and Restated Credit Agreement, dated as of July 23, 2014 and Second Amendment to Amended and Restated Credit Agreement, effective as of April 24, 2015 (as so amended, and as further amended, restated, modified or supplemented from time to time, the "
"), by and among Borrower, Guarantors, Lenders party thereto and Administrative Agent.
WHEREAS, Borrower and Guarantors (collectively, "
") have requested that Lenders agree to the treatment of certain non-cash charges in the calculation of Consolidated EBITDA as set forth herein; and
WHEREAS, Lenders and Administrative Agent have agreed to such treatment as hereinafter provided upon the terms set forth herein.
. The foregoing recitals are incorporated herein by reference.
. Capitalized terms used in this Agreement unless otherwise defined herein shall have the meanings ascribed to them in the Credit Agreement.
. Administrative Agent and Lenders hereby acknowledge and agree that, notwithstanding any provision to the contrary in the definition of Consolidated EBITDA set forth in Section 1.1 of the Credit Agreement, in the calculation of Consolidated EBITDA, all non-cash charges (with no dollar limitation) to net income will be added back to net income when accrued, regardless of whether any such non-cash charge is expected to result in any future cash payment, but to the extent that any such non-cash charge results in cash payments in the future in excess of $10,000,000 in any trailing twelve (12) month period, Consolidated EBITDA will be reduced by such amount at such future time.
Loan Parties' Certifications
. By execution and delivery of this Agreement to Administrative Agent, each of the Loan Parties certifies, as of the date hereof after giving effect to this Agreement, that: (i) the representations and warranties of each of the Loan Parties contained in Section 6 of the Credit Agreement and in each of the other Loan Documents are true and correct in all material respects on and as of the Effective Date with the same effect as though such representations and warranties had been made on and as of such date (except representations and warranties which relate solely to an earlier date or time, which representations and warranties were true and correct on and as of the specific dates or times referred to therein), and (ii) no Event of Default or Potential Default has occurred and is continuing.
. This Agreement shall be effective as of the Effective Date set forth above upon the satisfaction of the following conditions precedent:
Each of Loan Parties, Required Lenders, and Administrative Agent shall have executed and delivered to Administrative Agent this Agreement;
The representations and warranties set forth in the Credit Agreement and the other Loan Documents are true and correct on and as of the date of this Agreement with the same effect as though such representations and warranties had been made on and as of such date (except representations and warranties that relate solely to an earlier date or time, which representations and warranties were true and correct on and as of the specific dates or times referred to therein), and no Event of Default or Potential Default exists and is continuing under the Credit Agreement or under any Loan Document as of the date of this Agreement and after giving effect to this Agreement;
Borrower shall have reimbursed Administrative Agent all fees and expenses, including without limitation, reasonable attorneys' fees, for which Administrative Agent is entitled to be reimbursed; and
All legal details and proceedings to be consummated and/or otherwise completed as of the date of this Agreement in connection with the transactions contemplated by this Agreement and all other Loan Documents to be delivered to Lenders shall be in form and substance reasonably satisfactory to Administrative Agent.
. Except as expressly set forth herein, the Credit Agreement and each of the other Loan Documents are hereby ratified and confirmed and are in full force and effect. No novation of any Loan Document is intended or shall occur by or as a result of this Agreement.
. This Agreement shall be deemed to be a contract under the laws of the State of Ohio and for all purposes shall be governed by and construed and enforced in accordance with the internal laws of the State of Ohio without regard to its conflict of laws principles.
. This Agreement may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed an original, and all such counterparts shall together constitute one and the same instrument. Delivery by telecopy or electronic portable document format (i.e., "pdf") transmission of executed signature pages hereof from one party hereto to another party hereto shall be deemed to constitute due execution and delivery by such party; provided, however that any Person making delivery by telecopy or electronic portable document format shall promptly deliver an executed original of the same to Administrative Agent.
. From and after the date hereof, each reference to "hereof", "hereunder", "herein" and "hereby" and each other similar reference, and each reference to "this Agreement" and each other similar reference contained in the Credit Agreement shall refer to the Credit Agreement as modified hereby.
[SIGNATURE PAGE - AGREEMENT regarding financial covenant calculation]
IN WITNESS WHEREOF, the parties hereto, by their officers thereunto duly authorized, have executed this Agreement Regarding Financial Covenant Calculation as of the day and year first above written.
, an Ohio limited liability company
, a Delaware corporation
, an Ohio corporation
/s/ J. Michael Townsley
, individually and as Administrative Agent
/s/ George M. Gevas
Name: George M. Gevas
BOB EVANS FARMS, INC. AND AFFILIATES
SECTION 1.00 PURPOSE
SECTION 2.00 DEFINITIONS
2.01 Account
2.02 Beneficiary
2.03 Board
2.04 Cause
2.05 Change Agreement
2.06 Change in Control
2.07 Code
2.08 Committee
2.09 Common Shares
2.10 Confidential Information
2.11 Disability
2.12 Early Retirement Date
2.13 Eligible Employee
2.14 Employer
2.15 Employer Contribution 6
2.16 Enrollment Form
2.17 ERISA 6
2.18 Grandfathered Amount
2.19 Group
2.20 Group Member
2.21 Inactive Participant 6
2.22 Member
2.23 Normal Retirement Date
2.24 Participant
2.25 Plan
2.26 Plan Year
2.27 Section 409A Amount 7
2.28 Specified Employee 7
2.29 Spouse
2.30 Termination
2.31 Valuation Date 7
2.32 Valuation Period
SECTION 3.00 PARTICIPATION
3.01 Eligibility to Participate
3.02 Designation of Beneficiary
SECTION 4.00 MEMBERS’ OBLIGATIONS
4.01 Services During Certain Events
4.02 Confidential Information
4.03 Effect of Breach of Obligations
SECTION 5.00 CONTRIBUTIONS
5.01 Accounts
5.02 Employer Contribution 9
5.03 Effect of Change in Control on Employer Contribution 9
5.04 Interest 13
SECTION 6.00 DISTRIBUTIONS
6.01 Distributions
6.02 Death Benefits 13
6.03 Disability Benefits
6.04 Termination Other Than Due to Death or Prior to Disability 13
6.05 Amount and Payment of Benefits
SECTION 7.00 PLAN COMMITTEE
7.01 Appointment of Committee
7.03 Actions by the Committee
7.04 Interested Committee Members
7.06 Conclusiveness of Action
7.07 Payment of Expenses 17
7.08 Claims Procedure
7.09 Arbitration
SECTION 8.00 AMENDMENT TO THE PLAN
8.01 Right to Amend
8.02 Amendment Procedure
SECTION 9.00 TERMINATION OF THE PLAN
9.01 Right to Terminate 20
9.02 Plan Merger and Consolidation
9.03 Successor Employer
SECTION 10.00 UNFUNDED PLAN
SECTION 11.00 MISCELLANEOUS
11.01 Voluntary Plan
11.02 Non-alienation of Benefits
11.03 Inability to Receive Benefits 21
11.04 Lost Members
11.05 Limitation of Rights
11.06 Invalid Provision
11.07 One Plan
11.08 Governing Law
11.09 Code §409A 22
On April 17, 1992, Bob Evans Farms, Inc. (“Corporation”) adopted the Bob Evans Farms, Inc. Supplemental Executive Retirement Plan to provide deferred and incentive compensation to a select group of its management or highly compensated employees. The Plan was amended and restated effective May 1, 1998, effective May 1, 2002, and effective January 1, 2008. Effective June 10, 2009, the Plan was amended to provide that no additional individuals shall be eligible to participate in the Plan. Effective as of January 1, 2015, the Corporation adopts this fourth amended and restated version of the Plan. This Plan is intended to be an unfunded, nonqualified program of deferred compensation within the meaning of Title I of ERISA.
When used in this Plan, the following terms will have the meanings given to them in this section unless another meaning is expressly provided elsewhere in this Plan. When applying these definitions, the form of any term or word will include any of its other forms.
The account established under Section 5.01 to measure the value of each Member’s Plan benefit. The Account of any Member shall include both Grandfathered Amounts and Section 409A Amounts, as applicable.
The person a Member designates under Section 3.02 to receive any death benefit payable under Section 6.02.
The Corporation’s board of directors.
Unless otherwise specified in any employment agreement between the Member and the Corporation or any other Group Member or in any Change Agreement between the Member and the Corporation or any other Group Member (but only within the context of the events contemplated by the employment agreement or Change Agreement, as applicable), a Member’s:
Willful and continued failure to substantially perform assigned duties;
Breach of any term of any agreement with the Corporation or any other Group Member, including the Plan;
Conviction of (or plea of no contest or nolo contendere to) (a) a felony or a misdemeanor that originally was charged as a felony but which was subsequently reduced to a misdemeanor through negotiation with the charging entity; or (b) a crime other than a felony, which involves a breach of trust or fiduciary duty owed to the Corporation or any other Group Member; or
Violation of any policy of the Corporation or any other Group Member that applies to the Member.
Notwithstanding the foregoing, Cause will not arise solely because the Member is absent from active employment during periods of vacation, consistent with the Corporation’s or any Group Member’s applicable vacation policy, or other period of absence approved by the Corporation or other Group Member.
An individual agreement between the Corporation and any Member describing the effect of a Change in Control.
With respect to any Member who is a party to a Change Agreement, a “change in control” as defined in (and subject to the terms of) that Member’s Change Agreement; and
With respect to all Members, approval by the Corporation’s stockholders of a definitive agreement (a) to merge or consolidate the Corporation with or into another corporation in which the Corporation is not the continuing or surviving corporation or pursuant to which any Common Shares would be converted into cash, securities or other property of another corporation, other than a merger of the Corporation in which holders of Common Shares immediately before the merger have the same proportionate ownership of shares of the surviving corporation immediately after the merger as immediately before or (b) within a 12-consecutive calendar month period, to sell or otherwise dispose of 50 percent or more of the book value of the Group’s assets. For purposes of this definition, “book value” will be established on the basis of the latest consolidated financial statement the Corporation filed with the Securities and Exchange Commission before the date any 12-consecutive calendar month measurement period began.
The Internal Revenue Code of 1986, as amended, or any successor statute.
The committee described in Section 7.00.
The Corporation’s shares of common stock, par value $0.01 per share, or any security issued in substitution, exchange or in place of such shares.
Any and all information (other than information in the public domain) related to the business of the Group or any Group Member, including all processes, inventions, trade secrets, computer programs, engineering or technical data, drawings, or designs, manufacturing techniques, information concerning pricing and pricing policies, marketing techniques, plans and forecasts, new product information, information concerning suppliers, methods and manner of operations, and information relating to the identity and location of all past, present and prospective customers.
With respect to Grandfathered Amounts, an incapacity due to physical or mental illness that has prevented a Member from discharging assigned duties on a full-time basis for at least 26 consecutive weeks.
With respect to Section 409A Amounts:
The Member is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than 12 months; or
The Member is, by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, receiving income replacement benefits for a period of not less than three months under an accident and health plan covering employees of the Member’s Employer; or
The Member is determined to be totally disabled by the Social Security Administration or the Railroad Retirement Board.
The earlier of the date that (1) a Member reaches age 55 and has been credited with at least ten years of service with the Group or (2)(a) the sum of the Member’s age (measured in whole years only) and years of service with the Group (measured in whole years only) equals 70 and (b) the Member has been credited with at least ten years of service with the Group. In the sole discretion of the Committee, the calculation of a Member’s “years of service” with the Group may include the Member’s years of service with a predecessor employer who becomes a Group Member.
Each person who is employed by a Group Member and who is a member of its select group of management or is a highly compensated employee within the meaning of Title I of ERISA.
The Group Member by which a Member is directly employed on the date of any event, act or occurrence described in this Plan. If, without incurring a Termination, a Member becomes a common law employee of a Group Member other than the Employer, that Group Member will automatically become that Member’s “Employer” under this Plan and will be fully liable as the Member’s Employer for all obligations arising under this Plan with respect to that Member during the period of that relationship.
The amount calculated under Section 5.02.
The written or electronic form that each Eligible Employee must complete before he or she may participate in the Plan. To be effective, the Enrollment Form must include all of the information described in Section 3.01.
Grandfathered Amount
The portion, if any, of a Member’s Account that was earned and vested under the Plan (within the meaning of Code §409A) as of December 31, 2004 and any earnings on such portion of the Account (within the meaning of Code §409A).
The Corporation and all persons with whom the Corporation would be considered a single employer under Code §414(b) and (c).
Each entity that is a member of the Group.
A Participant who (1) is actively employed by an Employer but no longer meets the eligibility conditions described in Section 3.01 or (2) has Terminated but has not received a complete distribution of his or her Account balance.
Collectively, (1) a Participant or (2) an Inactive Participant.
The date a Member reaches age 62.
Each Eligible Employee who is actively participating in the Plan as provided in Section 3.01.
The Bob Evans Farms, Inc. and Affiliates Fourth Amended and Restated Supplemental Executive Retirement Plan, as described in this document and as it may be subsequently amended from time to time.
Each fiscal year of the Corporation while the Plan is in effect.
Section 409A Amount
The portion of a Member’s Account that is not a Grandfathered Amount.
A “specified employee” within the meaning of Treasury Regulation §1.409A-1(i) and as determined under the Corporation’s policy for determining specified employees.
The individual to whom a Member is legally married.
A “separation from service” with the Group within the meaning of Treasury Regulation §1.409A-1(h).
The date at the conclusion of a Valuation Period when the Employer Contribution is calculated for that Valuation Period.
A calendar year during which a Participant performs substantial services for a Group Member (i) beginning on the later of (A) the date a Participant first was employed be a Group Member or (B) April 26, 1991 and (ii) ending on the earlier of the date the Participant (A) Terminates; (B) is no longer a Participant (whether or not he or she remains a Member); or (C) reaches his or her Normal Retirement Date, whether or not he or she also retires at that time.
In its sole discretion, the Committee will decide which Eligible Employees may participate in the Plan and the earliest date on which they may participate. Notwithstanding the foregoing, any Eligible Employee who is participating in the Plan on January 1, 2008 shall be a Participant, except as provided in Section 3.01(3). Effective June 10, 2009, no additional individuals shall be eligible to participate in the Plan.
Before an Eligible Employee who is selected by the Committee to participate in the Plan may actually participate in the Plan, the Eligible Employee must complete an Enrollment Form specifying how his or her Account will be distributed (as described in Section 6.05). Such election must be made and become irrevocable no later than the December 31 preceding the first day of the first Plan Year in which services relating to the Eligible Employee’s participation in this Plan will be performed. Notwithstanding the foregoing:
With respect to the first Plan Year in which an Eligible Employee becomes eligible to participate in the Plan, the Eligible Employee may submit the Enrollment Form to the Committee within 30 days after the date on which the Participant is first eligible to participate in this Plan. For purposes of this Section 3.01(2)(a), an Eligible Employee is first eligible to participate in this Plan only if the Eligible Employee is not a participant in any other agreement, method, program or arrangement that, along with this Plan, would be
treated as a single nonqualified deferred compensation plan under Treasury Regulation §1.409A-1(c)(2).
If, in order to receive an Employer Contribution under this Plan, an Eligible Employee is required to provide services to the Corporation or any other Group Member for a period of at least 12 months from the date that the Eligible Employee obtains a non-forfeitable legally binding right to the Employer Contribution, the Eligible Employee may submit the Enrollment Form to the Committee on or before the 30
day after the Eligible Employee obtains such legally binding right, provided that the election is made at least 12 months in advance of the earliest date at which the forfeiture condition could lapse.
An Eligible Employee will continue to be a Participant until the earlier of the date he or she (a) becomes an Inactive Participant or (b) Terminates but is not an Inactive Participant.
Each Eligible Employee must designate one or more Beneficiaries by completing a written or electronic beneficiary designation form prescribed by the Committee. Unless a Member who designates more than one Beneficiary also specifies the sequence or the portion of the death benefit to be paid to each Beneficiary, the death benefit will be paid in equal shares to all named Beneficiaries.
A Member may change his or her Beneficiary at any time by completing a new beneficiary designation form in accordance with such form’s instructions. No change of Beneficiary will be effective until the form is completed and received by the Committee. The identity of a Member’s Beneficiary will be based only on the designation in the form described in this section and will not be inferred from any other evidence.
If a Member has not made an effective Beneficiary designation or if all his or her Beneficiaries die before the Member, Plan death benefits will be paid to the Member’s surviving Spouse or, if there is no surviving Spouse, to the Member’s estate. Any minor’s share of a Plan death benefit will be paid to the adult who has been appointed to act as the minor’s legal guardian and who has assumed custody and support of that minor.
The Member and the Beneficiary (and not the Committee) are responsible for ensuring that the Committee has the Beneficiary’s current address.
Services During Certain Events
By accepting participation in this Plan, if any “person” or entity (including a “group” as defined in Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended, or any successor statute) initiates a tender or exchange offer, distributes proxy materials to the Corporation’s stockholders or takes other steps to effect, or that may result in, a Change in Control, each Member agrees not to Terminate voluntarily during the pendency of that activity other than by reason of retirement, and to continue to serve as a full-time employee of the Employer until those efforts are abandoned, that activity is terminated or until a Change in Control has occurred.
Except as otherwise required by applicable law, by accepting participation in this Plan, each Member expressly agrees to keep and maintain Confidential Information confidential and not, at any time during or subsequent to the Member’s employment with any Group Member, to use any Confidential Information for the Member’s own benefit or to divulge, disclose or
communicate any Confidential Information to any person or entity in any manner except (1) to employees or agents of the Employer or of the Corporation that need the Confidential Information to perform their duties on behalf of any Group Member or (2) in the performance of the Member’s duties to the Employer. Each Member also agrees to notify the Corporation promptly of any circumstance that the Member believes may legally compel the disclosure of Confidential Information and to give this notice before disclosing any Confidential Information.
Effect of Breach of Obligations
If a Member breaches any obligation described in this Section 4.00 or the Plan:
Before the Member has Terminated, the Member will forfeit all benefits under this Plan; or
After the Member Terminates, the Member will repay any amounts previously paid to the Member under this Plan plus interest calculated at the prime interest rate quoted in the Wall Street Journal, or any successor to it, over the period beginning on the date of payment and ending on the date of repayment.
The Committee will establish an Account for each Member to record:
The Employer Contribution as calculated under Section 5.02 (and, if applicable, Section 5.03);
Any distributions made to the Member under Section 6.00.
The Employer also will make a final Employer Contribution, calculated as provided in Section 5.02, for the portion of the Valuation Period during which the Member Terminates but only if the Member Terminates after meeting the conditions described in Section 6.04.
The Employer Contribution for each Participant shall be one dollar ($1.00). This amount will be credited to each Participant’s Account in cash (and credited with interest as described in Section 5.04).
Effect of Change in Control on Employer Contribution
Subject to any limitation imposed under a Change Agreement, if, within 36 months after a Change in Control, either (a) the Plan is terminated and not replaced with a similar program providing comparable benefits and features; or (b) with respect to a Member who is a party to a Change Agreement, an event occurs that generates a change in control payment under that Member’s Change Agreement, all Members’ Accounts will be fully vested and the Employer will credit a special and additional Employer Contribution to the Account of each Member who was a Participant on the date of the Change in Control, whether or not he or she is then a Participant.
The special change in control Employer Contribution shall be calculated as follows:
First, the Committee will calculate the Compensation (as defined below) that each Participant earned during the Valuation Period for which the Employer Contribution is being calculated. For these purposes, “Compensation” means (a) the total taxable remuneration the Participant earned for the Valuation Period (or, if less, the portion of the Valuation Period during which he or she was a Participant)
(b) the amount the Participant deferred during the
Valuation Period to a plan described in Code §125 or Code §401(k) and maintained by any Group Member
(c)(i) the amount of any long-term incentive awards (e.g., performance share awards, restricted stock or stock appreciation rights) granted, earned or exercised during the Valuation Period and (ii) the value of any stock options granted or exercised under Code §83(b) during that Valuation Period. Also, if a Valuation Period is less than 12 months, the taxable remuneration described in Section 5.03(2)(a) will be annualized on the basis of the whole months during that Valuation Period during which the Participant was a Participant.
Then, the Committee will calculate the Participant’s “Projected Compensation” by:
Averaging the Participant’s Compensation over the lesser of (i) the Participant’s current and four preceding Valuation Periods or (ii) the number of Valuation Periods during which the Participant was employed by a Group Member; and
Increasing that average by four percent for each 12-month Valuation Period that will elapse between (i) the end of the Valuation Period for which the Employer Contribution is being calculated and (ii) the last Valuation Period that will end before the Participant’s Normal Retirement Date, then (iii) averaging the Compensation projected to be received during the five Valuation Periods ending before the Participant’s Normal Retirement Date.
Then, the Committee will calculate the Participant’s “Final Average Compensation.”
Until the Participant reaches his or her Normal Retirement Date, Final Average Compensation will be calculated by averaging each Participant’s Projected Compensation (calculated under Section 5.03(3)) over the five consecutive Valuation Periods during the ten Valuation Periods that both (i) end before the Participant’s Normal Retirement Date and (ii) produce the highest average; but
At the Participant’s Normal Retirement Date, Final Average Compensation will be calculated by averaging the Participant’s Compensation over the five consecutive Valuation Periods during the ten Valuation Periods that end before the Participant’s Normal Retirement Date that produces the highest average.
The following rules will be applied when calculating a Participant’s Final Average Compensation:
The Final Average Compensation of a Participant who will have completed fewer than five Valuation Periods at his or her Normal Retirement Date will be the average of the Compensation the Participant received over his or her entire period of participation;
Compensation paid for the Valuation Period during which the Participant reaches Normal Retirement Date will be disregarded until the Participant reaches his or her Normal Retirement Date; and
A Participant’s Final Average Compensation will neither increase nor decrease for any Valuation Period that begins after the Participant reaches his or her Normal Retirement Date.
Then, the Committee will establish each Participant’s Prior Service Rate (as defined below), if any. A Participant’s “Prior Service Rate” (if any) is:
The lesser of (i) 40 percent or (ii) two percent multiplied by the number of 12-month Valuation Periods the Participant will complete if he or she continues to be a Participant until his or her Normal Retirement Date;
The quotient produced by dividing (i) the number of Valuation Periods the Participant had completed as of the last day of the Corporation’s 1997 fiscal year by (ii) the number of 12-month Valuation Periods the Participant will complete if he or she continues to be a Participant until his or her Normal Retirement Date.
A Participant who was first employed after the Corporation’s 1997 fiscal year will not have a Prior Service Rate.
A Participant’s “Future Service Rate” is:
The lesser of (i) 55 percent or (ii) 2.75 percent multiplied by the number of 12-month Valuation Periods the Participant will complete if he or she continues to be a Participant until his or her Normal Retirement Date;
reduced, but not below zero, by
The Participant’s Prior Service Rate (if any) calculated under Section 5.02(5); and then
The lesser of (i) one or (ii) the quotient produced by dividing (A) the number of Valuation Periods the Participant had completed after the Corporation’s 1997 fiscal year into (B) the greater of five or the number of Valuation Periods the Participant will complete after the end of the Corporation’s 1997 fiscal year if he or she continues to be a Participant until his or her Normal Retirement Date.
Then, the Committee will calculate each Participant’s Target Benefit. A Participant’s “Target Benefit” is:
Final Average Compensation (as defined in Section 5.02(4))
the lesser of (i) 20 and (ii) the Participant’s Valuation Periods expected to be earned as of the Participant’s Normal Retirement Date or the date of the Change in Control, if later;
The Participant’s Social Security Benefit (as defined in Section 5.03(7)(e)(i));
The Participant’s Qualified Plan Benefit (as defined in Section 5.03(7)(e)(ii));
The smaller of (i) one or (ii) the quotient produced by dividing the Participant’s actual Valuation Periods earned as of the date the Target Benefit is being calculated by the number of 12-month Valuation Periods the Participant will complete if he or she remains actively employed until his or her Normal Retirement Date. For purposes of this Section 5.03(7)(d), the actual Valuation Periods completed as of the date the Target Benefit is being calculated shall include any partial Valuation Period (measured in increments of one-twelfth) completed by the Participant during the period beginning on the day after the
Valuation Date immediately preceding the date the Target Benefit is being calculated and ending on the date the Target Benefit is being calculated.
For purposes of calculating each Participant’s Target Benefit:
A Participant’s “Social Security Benefit” is 50 percent of the maximum annual Old Age, Survivor and Disability Insurance benefit projected to be payable to the Participant under the Social Security Act as of the Participant’s Normal Retirement Date. This amount will be based on the Participant’s projected “taxable wages,” as defined in the Social Security Act, and other relevant factors in effect as of the date the calculation is being made; and
A Participant’s “Qualified Plan Benefit” is the Participant’s annual benefit, expressed in the form of a single life annuity, that can be derived from the sum of all employer-funded benefits (as defined below), and attributable earnings, under all plans that are maintained by any Group Member and that are intended to comply with Code §401(a). The amount of this single life annuity will be established by applying the RP 2000 Mortality Table for Males and Females, an annual interest rate of eight percent, and by assuming that benefits will begin at the Participant’s Normal Retirement Date. For purposes of establishing a Participant’s Qualified Plan Benefit, “employer-funded benefits” means all benefits funded through Employer contributions (and attributable earnings), for periods of employment before the Participant’s Normal Retirement Date plus any distributions made to, in behalf of or with respect to, the Participant before his or her Normal Retirement Date (e.g., in-service withdrawals, retirement and disability benefits or distributions under any domestic relations order). Also, until the Participant reaches his or her Normal Retirement Date, his or her Qualified Plan Benefit will be projected based on procedures established by the Committee.
Then, the Committee will compare the Participant’s Target Benefit calculated under Section 5.03(7) with the Target Benefit calculated for the same Participant under Section 5.03(7) as in effect for the preceding Valuation Period.
If the Participant’s Target Benefit calculated for the current Valuation Period is less than or equal to the Participant’s Target Benefit calculated for the preceding Valuation Period, no amount will be credited to the Participant’s Account for the current Valuation Period; but
If the Participant’s Target Benefit calculated for the current Valuation Period is greater than the Participant’s Target Benefit calculated for the preceding Valuation Period, an Earned Benefit will be credited to the Participant’s Account. This Earned Benefit will be calculated under the procedures described in Section 5.03(9).
If the Participant’s Target Benefit for the current Valuation Period is greater than the Participant’s Target Benefit for the preceding Valuation Period, the Committee will calculate an “Earned Benefit” for the current Valuation Period by:
Subtracting the Participant’s Target Benefit for the preceding Valuation Period from the Target Benefit calculated for the current Valuation Period; and
Calculating the annuity value of this difference. This calculation is done by calculating the present value of the difference produced under section 5.03(9)(a) by applying the RP 2000 Mortality Table for Males and Females, an annual interest rate of eight percent and by assuming that benefits will begin at the Participant’s Normal Retirement Date or, if the Participant already has reached his or her Normal Retirement Date, that benefits will begin when the Participant reaches age 65.
Regardless of any provision of this Plan, if more than one Change in Control (whether or not related) occurs, the total additional amount calculated under this Section 5.03 will be the greatest amount calculated with respect to any single Change in Control.
As of each Valuation Date, amounts credited as cash to Accounts will be credited with interest at rates established by the Committee.
Subject to Section 6.05, a Member’s Account will become distributable at the earlier of the date the Member (1) dies, (2) becomes Disabled prior to Terminating or (3) Terminates after having earned a right to a Plan benefit as provided in Section 6.04.
If a Member Terminates due to his or her death, the undistributed value of (a) the Member’s Grandfathered Amounts will be paid to the Member’s Beneficiary in a lump sum as of the Valuation Date following the Member’s death and (b) the Member’s Section 409A Amounts will be paid to that Member’s Beneficiary in a lump sum within 60 days of the Member’s death. Any Beneficiary claiming a death benefit under the Plan must provide the Committee with satisfactory proof of the Member’s death before any death benefit will be paid. If a Member dies after Terminating, the undistributed portion of the Member’s Account will be paid to that Member’s Beneficiary in a lump sum within 60 days of the Member’s death.
A Member who becomes Disabled before Terminating will receive a lump sum distribution of 100 percent of his or her Account within 60 days following the date the Member becomes Disabled. If a Member becomes Disabled after Terminating, the undistributed portion of the Member’s Account will be paid in the same form in which it was being paid to the Member prior to the Member’s Disability (or would have been paid, if benefit commencement had not then begun).
Termination Other Than Due to Death or Prior to Disability
A Member who Terminates for any reason other than death or prior to becoming Disabled will not be entitled to any Plan benefit if he or she Terminates before the earlier of:
His or her Early Retirement Date or Normal Retirement Date; or
An event described in Section 5.03(1)(a) or (b).
Notwithstanding the foregoing, in no case will a Member be entitled to receive any Plan benefit if he or she is Terminated for Cause.
Amount and Payment of Benefits
Normal Benefit Form
. Unless the Member has effectively elected an optional benefit form described in Section 6.05(1)(b), all distributions of Grandfathered Amounts made to a Member who Terminates after having earned a nonforfeitable benefit as provided in Section 6.04 will be paid in ten annual installments beginning no later than 60 days after the Member Terminates. The first of these distributions will be equal to one-tenth of the value of the Member’s Grandfathered Amounts on the preceding Valuation Date. Subsequent distributions will be made on the anniversary of the initial distribution date and will equal the balance of the Member’s Grandfathered Amounts as of the most recent Valuation Date divided by the number of unpaid annual installments.
Optional Benefit Form
. Instead of the normal distribution form described in Section 6.05(1)(a), a Member may elect to receive (or begin to receive) his or her Grandfathered Amounts:
In the form of a single lump sum. If this election is made effectively, the Grandfathered Amounts will be distributed within 60 days after the Valuation Date that coincides with or immediately follows the date the Member Terminated; or
As described in Section 6.05(1)(a) but beginning as of the last day of the Plan Year during which the Member reaches age 65 (regardless of whether or not the Member has Terminated).
Section 409A Amounts
. Unless the Member has effectively elected an optional benefit form described in Section 6.05(2)(b), all distributions of Section 409A Amounts made to a Member who Terminates after having earned a nonforfeitable benefit as provided in Section 6.04 will be paid in ten annual installments beginning no later than 60 days after the date that the Member Terminates, determined in the sole discretion of the Committee. The first of these distributions will be equal to one-tenth of the value of the Member’s Section 409A Amounts on the preceding Valuation Date. Subsequent distributions will be made on the anniversary of the initial distribution date and will equal the balance of the Member’s Section 409A Amounts as of the most recent Valuation Date divided by the number of unpaid annual installments.
. Instead of the normal distribution form described in Section 6.05(2)(a), a Member may elect, on a properly submitted Enrollment Form, to receive (or begin to receive) his or her Section 409A Amounts in:
A lump sum within 60 days after the date that the Member Terminates; or
A lump sum on the last day of the Plan Year during which the Member reaches age 65 (regardless of whether or not the Member has Terminated); or
Annual installments of up to 20 years, as designated by the Member on his or her Enrollment Form, beginning within 60 days after the date that the Member Terminates.
Annual installments of up to 20 years, as designated by the Member on his or her Enrollment Form, beginning on the last day of the Plan Year during which the Member reaches age 65 (regardless of whether or not the Member has Terminated).
If a Member elects annual installments under this Section 6.01(2)(b), (I) the first distribution will equal the value of the Section 409A Amounts in the Member’s Account as of the most recent Valuation Date divided by the number of annual installments elected, and (II) each distribution thereafter will be made on the anniversary of the initial distribution date and will equal the balance of the Section 409A Amounts in the Member’s Account as of the most recent Valuation Date divided by the number of remaining annual installments.
Elections Relating to Benefit Form
. To elect an optional benefit form or change a benefit form under this Section 6.05 effectively, a Member must file a written or electronic election with the Committee at the times and in the manner described in this Section 6.05(3).
. A newly eligible Participant may make an election under this Section 6.05 by submitting an Enrollment Form as described in Section 3.01(2).
. With respect to Grandfathered Amounts:
An election to receive an optional benefit form must be made on a form prescribed by the Committee and must be delivered to the Committee no fewer than 12 months before such election is to be effective.
An election to receive an optional benefit form may be revoked if the electing Member files a written or electronic election with the Committee no fewer than 12 months before the benefit otherwise would have been distributed in the optional benefit form previously elected. This revocation must be made on a form prescribed by the Committee.
Any election to receive payment in an optional form (or any revocation of an election to do so) will be disregarded unless the Member strictly complies with the procedures described in this Section 6.05(3)(b).
. With respect to Section 409A Amounts, a Member will be permitted to change the time and form of payment if such change meets the following requirements:
A Member may change the time and form of payment for any Section 409A Amounts (based on the choices available under Section 6.05(2)) by filing a new election form with the Committee; provided that such change meets the following requirements: (A) the subsequent election may not take effect until at least 12 months after the date on which such election is made; (B) the payment with respect to which such election is made must be deferred (other than a distribution upon death or Disability) for a period of not less than five years from the date such payment would otherwise have been paid; and (C) any subsequent election affecting a distribution at a specified time (or pursuant to a fixed schedule) may not be made less than 12 months before the date the payment is scheduled to be paid. A subsequent election may be changed at any time before the last permissible date for making such election, as described in this Section 6.05(3)(c).
Once the distribution of an Account begins, no changes to the Member’s benefit form will be permitted.
. Notwithstanding anything in this Plan to the contrary, in the case of any Member who is a Specified Employee as of the date of his or her Termination, any Section 409A Amount due to the Member under the Plan in connection with such Termination will not be distributed for a period of six months after the date of such Termination or, if earlier, the date of the Specified Employee’s death (the “Distribution Delay Period”). If the Distribution Delay Period applies to a Member, each payment of Section 409A Amounts to which the Member is entitled under the Plan in connection with the Member’s Termination shall be delayed for six months.
Limited Cashout
. Notwithstanding anything in this Section 6.00 to the contrary, the Corporation, in its sole discretion, may make a lump sum distribution of a Member’s Account under the Plan if: (a) the distribution results in the termination and liquidation of the entirety of the Member’s interest under the Plan and all agreements, methods, programs or other arrangements with respect to which deferrals of compensation are treated as having been deferred under a single nonqualified deferred compensation plan under Treasury Regulation §1.409A-1(c)(2); and (b) the aggregate distribution under the arrangements is not greater than the applicable dollar amount under Code §402(g)(1)(B).
. Once a Member’s Account has been fully distributed, the Corporation, all Employers, all Group Members, the Committee and the Plan will have no further liability to the Member or, if appropriate, to his or her Beneficiary.
The Board will appoint a committee to administer the Plan. A Committee member may resign at any time by sending written notice to the Board specifying the effective date of his or her termination (which must always be prospective). Vacancies in the Committee will be filled by the Board as the need arises. Also, in its sole discretion, the Board may remove any Committee member at any time by giving written notice of removal to the affected Committee member and specifying the effective date of that action (which must always be prospective).
The Committee is fully empowered to exercise complete discretion to administer the Plan and to construe and apply all of its provisions. The Committee may delegate any of its powers and duties to any other person or organization. These powers and duties include:
Deciding which employees are Eligible Employees, which of them may participate in the Plan and the value of their benefit;
Resolving disputes that may arise with regard to the rights of Eligible Employees, Members and their legal representatives or Beneficiaries under the terms of the Plan. Subject to Sections 7.08 and 7.09, the Committee’s decisions in these matters will be final;
Obtaining from each Group Member, Member and Beneficiary information that the Committee needs to determine any Member’s or Beneficiary’s rights and benefits under the Plan. The Committee may rely conclusively upon any information furnished by a Group Member, Member or Beneficiary;
Compiling and maintaining all records it needs to administer the Plan;
Upon request, furnishing each Group Member with reasonable and appropriate reports of its administration of the Plan;
Engaging legal, administrative, actuarial, investment, accounting, consulting and other professional services that the Committee believes are necessary and appropriate;
Adopting rules and regulations for the administration of the Plan that are not inconsistent with the terms of the Plan; and
Doing and performing any other acts provided for in the Plan.
The Committee may act at a meeting, or in writing without a meeting, by the vote or assent of a majority of its members. The Committee will appoint one of its members to act as a secretary to record all Committee actions. The Committee also may authorize one or more of its members to execute papers and perform other ministerial duties on behalf of the Committee.
No member of the Committee may participate in any Committee action that directly affects that Committee member’s individual interest in the Plan. These matters will be determined by a majority of the remainder of the Committee.
The Corporation will indemnify and hold harmless any Committee member or employee who performs services to or on behalf of the Plan (“Indemnified Party”) against all liabilities and all reasonable expenses (including attorney fees and amounts paid in settlement other than to any Group Member) incurred or paid in connection with any threatened or pending action, suit or proceeding brought by any party in connection with the Plan. However, this indemnification will not extend to any Indemnified Party whose conduct in connection with the Plan is found to have been grossly negligent or wrongful. This determination will be based on any final judgment rendered in connection with the action, suit or proceeding complaining of the conduct or its effect or, if no final judgment is rendered, by a majority of the Board or by independent counsel to whom the Board has referred the matter.
The obligations under this section may be satisfied, in the Corporation’s discretion, through the purchase of a policy or policies of insurance providing equivalent protection.
Conclusiveness of Action
Subject to Sections 7.08 and 7.09, any action on matters within the discretion of the Committee will be conclusive, final and binding upon all Members and upon all persons claiming any rights under the Plan, including Beneficiaries.
Committee members will not be separately compensated for their services relating to the Plan. However, the Corporation will reimburse Committee members for all appropriate expenses they incur while carrying out their Plan duties.
The compensation or fees of accountants, counsel and other specialists and any other costs of administering the Plan will be paid by the Corporation or allocated among Employers.
Any Member or Beneficiary (“claimant”) who believes that he or she is entitled to an unpaid Plan benefit may file a claim with the Committee. By accepting participation in the Plan,
each Member expressly waives any right to proceed under Section 7.09 unless and until the administrative remedies described in this Section 7.08 are fully exhausted.
If the claim is wholly or partially denied, the Committee will, within a reasonable period of time, and within 90 days of the receipt of such claim, or if the claim is a claim on account of Disability, within 45 days of the receipt of such claim, provide the claimant with written notice of the denial setting forth in a manner calculated to be understood by the claimant:
The specific reason or reasons for which the claim was denied;
Specific reference to pertinent Plan provisions, rules, procedures or protocols upon which the Committee relied to deny the claim;
A description of any additional material or information that the claimant may file to perfect the claim and an explanation of why this material or information is necessary;
An explanation of the Plan’s claims review procedure and the time limits applicable to such procedure and a statement of the claimant’s right to bring a civil action under ERISA §502(a) following an adverse determination upon review; and
In the case of an adverse determination of a claim on account of Disability, the information to the claimant shall include, to the extent necessary, the information set forth in Department of Labor Regulation 2560.503-1(g)(1)(v).
If the special circumstances require the extension of the 45-day or 90-day period described above, the claimant will be notified before the end of the initial period of the circumstances requiring the extension and the date by which the Committee expects to reach a decision. Any extension for deciding a claim will not be for more than an additional 90-day period, or if the claim is on account of Disability, for not more than two additional 30-day periods.
If a claim has been wholly or partially denied, the affected claimant, or his or her authorized representative may:
Request that the Committee reconsider its initial denial by filing a written appeal within 60 days after receiving written notice that all or part of the initial claim was denied (180 days in the case of a denial of a claim on account of Disability);
Review pertinent documents and other material upon which the Committee relied when denying the initial claim; and
Submit a written description of the reasons for which the claimant disagrees with the Committee’s initial adverse decision.
An appeal of an initial denial of benefits and all supporting material must be made in writing and directed to the Committee. The Committee is solely responsible for reviewing all benefit claims and appeals and taking all appropriate steps to implement its decision.
The Committee’s decision on review will be sent to the claimant in writing and will include specific reasons for the decision, written in a manner calculated to be understood by the claimant, as well as specific references to the pertinent Plan provisions, rules, procedures or protocols upon which the Committee relied to deny the appeal. The Committee will consider all information
submitted by the claimant, regardless of whether the information was part of the original claim. The decision will also include a statement of the claimant’s right to bring an action under ERISA §502(a).
The Committee’s decision on review will be made not later than 60 days (45 days in the case of a claim on account of Disability) after the Committee’s receipt of the request for review, unless special circumstances require an extension of time for processing, in which case a decision will be rendered as soon as possible, but not later than 120 days (90 days in the case of a claim on account of Disability) after receipt of the request for review. This notice to the claimant will indicate the special circumstances requiring the extension and the date by which the Committee expects to render a decision and will be provided to the claimant prior to the expiration of the initial 45-day or 60-day period.
Notwithstanding anything in this Section 7.08 to the contrary, in the case of a claim on account of Disability: (1) the review of the denied claim shall be conducted by a named fiduciary who is (a) determined by the Committee and (b) neither the individual who made the benefit determination nor a subordinate of such person; and (2) no deference shall be given to the initial benefit determination. For issues involving medical judgment, the Committee (or, if applicable, the named fiduciary) must consult with an independent health care professional who may not be the health care professional who decided the initial claim.
To the extent permitted by law, the decision of the Committee (if no review is properly requested) or the decision of the Committee (or, if applicable, the named fiduciary) on review, as the case may be, will be final and binding on all parties. No legal action for benefits under the Plan will be brought unless and until the claimant has exhausted his or her remedies under this section.
Binding arbitration will be the exclusive means of resolving all disputes or questions not resolved to the claimant’s satisfaction through the claims procedure described in Section 7.08.
After exhausting the procedures described in Section 7.08, the claimant may initiate arbitration by giving written notice to the Committee specifying the subject of the requested arbitration.
The arbitration will take place in the city in which the affected Member’s last principal place of employment with a Group Member is or was located (or another location mutually agreed upon by the claimant and the Committee) and will be conducted in accordance with the rules of the American Arbitration Association in effect when the arbitration begins by three arbitrators, one appointed by each party and a third appointed by those two arbitrators. The Committee and the claimant (in his or her own behalf and on behalf of all other claimants) each waive any right to a jury trial with respect to any matter arising from this Plan.
Any determination or award made or approved by the arbitrator will be final and binding on the claimant and all Group Members. Judgment upon any award made in any arbitration may be entered and enforced in any court having competent jurisdiction.
The arbitrators will have no authority to add to, alter, amend or refuse to enforce any portion of this Plan or to award punitive damages against any Group Member or the claimant.
The costs of arbitration (including legal and other professional fees incurred) will be borne solely by the party to the arbitration by which they are incurred regardless of the result of the arbitration.
The Corporation may modify, alter or amend the Plan at any time. However, no amendment may affect any Member’s or Beneficiary’s vested rights accrued under the Plan before the effective date of that amendment without such Member’s or, if applicable, Beneficiary’s consent. If an amendment heightens the vesting conditions described in Section 6.04, each affected Member who has completed Valuation Periods comprised of at least 36 months may elect to have his or her vested rights computed without regard to that amendment, but only if the Member files a written election to this effect with the Committee during the period beginning on the date the amendment is adopted and ending on the later of (1)
60 days after the date the amendment is adopted; (2)
60 days after the amendment is effective; or (3)
60 days after the Member is issued a written notice of the amendment.
The Board, an executive committee of the Board or other Board committee or any executive officer to which or to whom the Board delegates discretionary authority over the Plan may exercise the Corporation’s right to amend the Plan.
The Corporation may terminate the Plan in whole or in part at any time by written action of the Board. Each Member affected by a full or partial Plan termination or by a complete discontinuance of contributions will be 100 percent vested in the value of his or her Account as of the date of that action.
The Committee may (a) distribute an affected Member’s Grandfathered Amounts at the time the Plan terminates or partially terminates, even if this date is earlier than the date benefits otherwise would be distributed under Section 6.05 or (b) hold the Member’s Grandfathered Amounts until they are otherwise payable under the terms of the Plan.
In the event of a termination of the Plan, except as permitted under Treasury Regulation §1.409A-3(j)(4)(ix), no Section 409A Amounts shall be distributed until they are otherwise payable under the terms of the Plan.
Plan Merger and Consolidation
If the Plan is merged into or consolidated with any other plan, each affected Member will be entitled to a benefit immediately after the merger, consolidation or transfer (determined as if the surviving plan had then terminated) at least equal to the benefit he or she had accrued immediately before the merger or consolidation (determined as if the Plan terminated immediately before that merger or consolidation).
If any Employer dissolves into, reorganizes, merges into or consolidates with another business entity, provision may be made by which the successor will continue the Plan, in which case the successor will be substituted for the Employer under the terms and provisions of this Plan. The substitution of the successor for the Employer will constitute an assumption by the successor of all Plan liabilities and the successor will have all of the powers, duties and responsibilities of the Employer under the Plan.
Notwithstanding any Plan provision to the contrary, the Plan constitutes an unfunded, unsecured promise by each Employer to pay only those benefits that are accrued by Members under the terms of the Plan. Neither the Corporation nor any Group Member will segregate any assets into a fund established exclusively to pay Plan benefits unless the Corporation, in its sole discretion, establishes a trust for the purpose of holding assets from which all or part of a Plan benefit may be paid. Neither the Corporation nor any other Group Member is liable for the payment of Plan benefits that are actually paid from a trust established for that purpose. However, the Corporation and each other Group Member are obliged to pay any benefits not paid from any trust. Also, Members, Beneficiaries and other persons claiming a Plan benefit through them have only the rights of general unsecured creditors and do not have any interest in or right to any specific asset of any Group Member. Nothing in this Plan constitutes a guaranty by the Corporation, any other Group Member or any other entity or person that their assets will be sufficient to pay Plan benefits.
The Plan is purely voluntary on the part of each Employer. None of the establishment of the Plan, any amendment to it, the creation of any fund or account or the payment of any benefits may be construed as giving any person (1) a legal or equitable right against any Group Member or the Committee other than those specifically granted under the Plan or conferred by affirmative action of the Committee or any Employer in a manner that is consistent with the terms and provisions of this Plan or (2) the right to be retained in the service of any Group Member. All Members remain subject to discharge to the same extent as though this Plan had not been established.
The right of a Member, Beneficiary or any other person to receive Plan benefits may not be assigned, transferred, pledged or encumbered except as provided in the Member’s Beneficiary designation, by will or by applicable laws of descent and distribution. Any attempt to assign, transfer, pledge or encumber a Plan benefit will be null and void and of no legal effect.
Inability to Receive Benefits
Any Plan benefit payable to a Member or Beneficiary who is declared incompetent will be paid to the guardian, conservator or other person legally charged with the care of his or her person or estate. Any payment made under this section will completely discharge the Plan’s liability with respect to that payment. The Committee is not required to see to the application of any distribution made to any person.
Each Member is obliged to keep the Committee apprised of his or her current mailing address and that of his or her Beneficiary. The Committee’s obligation to search for any Member or Beneficiary is limited to sending a registered or certified letter to the Member’s or Beneficiary’s last known address.
Nothing in the Plan, expressed or implied, is intended or may be construed as conferring upon or giving to any person, firm or association (other than Group Members, Members, their Beneficiaries and their successors in interest) any right, remedy or claim under or by reason of this Plan.
If any provision of this Plan is held to be illegal or invalid for any reason, the Plan will be construed and enforced as if the offending provision had not been included in the Plan. However, that determination will not affect the legality or validity of the remaining parts of this Plan.
This Plan may be executed in any number of counterparts, each of which will be deemed to be an original.
The Plan will be governed by and construed in accordance with the laws of the United States and, to the extent applicable, the laws of Ohio.
It is intended that the Plan comply with Code §409A and the Treasury Regulations promulgated thereunder (and any subsequent IRS notices or guidance), and this Plan will be interpreted, administered and operated accordingly. Nothing herein shall be construed as an entitlement to or guarantee of any particular tax treatment to a Member.
The Corporation may accelerate the time or schedule of a distribution of Section 409A Amounts to a Member at any time the Plan fails to meet the requirements of Code §409A and the Treasury Regulations promulgated thereunder. Such payment may not exceed the amount required to be included in income as a result of the failure to comply with Code §409A and the Treasury Regulations promulgated thereunder.
Notwithstanding any terms of the Plan to the contrary, a Member shall be allowed to make changes to the time and/or form of distribution of the Member’s Section 409A Amounts in calendar year 2008, as permitted by the transition relief provided in IRS Notice 2007-86.
EXECUTIVE DEFERRAL PROGRAM
This Amendment (the “Amendment”) to the Bob Evans Farms, Inc. and Affiliates Fourth Amended and Restated Executive Deferral Program (the “Plan”) is effective as of this 19
day of August, 2015.
WHEREAS, Bob Evans Farms, Inc. (the “Corporation”) previously adopted the Plan to be effective as of May 26, 2010; and
WHEREAS, pursuant to Section 8.01 of the Plan, the Corporation desires to amend the Plan as set forth in this Amendment;
Section 6.04(g) is hereby amended by deleting the following:
“Members will be fully vested their Stock Award Accounts.”
And replacing such language with the following:
“6.04 (g) Except as otherwise stated in the award or grant agreement for an equity award which requires vesting of the award or grant, members will be fully vested in their Stock Award Accounts. To the extent there is a conflict between a provision in this Section 6.04 and an award or grant agreement as to vesting, the award or grant agreement shall control.”
All remaining provisions of the Plan shall remain unchanged.
IN WITNESS WHEREOF, the Corporation has caused this Amendment to be adopted by the Compensation Committee of the Board of Directors effective as of the date set forth above.
AMENDED AND RESTATED 2010 EQUITY AND CASH INCENTIVE PLAN
PERFORMANCE SHARE, RESTRICTED STOCK UNIT AND
DIVIDEND EQUIVALENT RIGHT AWARD
PERFORMANCE PERIOD FY____-____ (_____ through _______)
Bob Evans Farms, Inc. (the “Company”) hereby grants the Participant an Other Stock-Based Award consisting of one or more of the following: (a) performance shares (“PSUs”); (b) restricted stock units (“RSUs”); and (c) related dividend equivalent rights (“DERs”); subject to the terms and conditions described in the Amended and Restated Bob Evans Farms, Inc. 2010 Equity and Cash Incentive Plan (the “Plan”) and this Award (“Award”). Except as otherwise defined herein, capitalized terms used in this Award have the respective meanings set forth in the Plan.
. The Company hereby grants you the target number of “PSUs” specified on
, subject to the terms and conditions of the Plan and this Award. This “target” number of shares is computed by multiplying your annual base salary by the target award percentage for your position, and then dividing that by the closing stock price of the Company’s common stock (“Common Stock”) on the grant date multiplied by the Monte Carlo valuation factor established for this grant.
. S&P Small Cap 600 Index (“Index”) component companies within the Index at the start of the three-year period that remain publicly traded companies at the end of the three-year Performance Period.
. The number of PSUs awarded at the end of the three-year Performance Period will vary depending on the degree to which performance, which is measured by the relative Total Shareholder Return, meets the predetermined three-year performance goal, as
compared to the Index over the same three-year period. “Total Shareholder Return” is defined as the change in share price (based on the average closing common stock price for the twenty trading day period immediately before the first day of the Performance Period compared to those for the twenty trading day period before and including the last day of the Performance Period) plus the reinvested dividends, over the performance period. The Performance Goals for determining the number of PSUs awarded are as follows:
Determination of PSUs Earned
. At the target levels, 100% of the PSUs will be earned. At the threshold levels 50% of the PSUs will be earned. Below the threshold levels of performance, no PSUs are earned. At the maximum levels or more, 150% of the PSUs will be earned. Performance between minimum and target, and between target and maximum, will earn PSUs on a pro-rated basis between 50% and 100%, and 100% and 150%, respectively.
The amount earned will be calculated according to the following:
. If during the Performance Period you have a Termination of Service by reason of Disability or death, and you have been employed for at least 18 months and one day after the Performance Period Start Date, then the number of PSUs earned (based on performance as of the end of the Performance Period) will be prorated to reflect the portion of the Performance Period during which you remained employed by the Company. Such prorated portion shall equal the number of PSUs that you would otherwise have earned, multiplied by a fraction equal to the number of full months of the Performance Period completed as of your Termination of Service, divided by the number of months in the Performance Period. Any PSUs earned following your Termination of Service by reason of Disability or death pursuant to this subsection shall be paid at the same time PSUs are paid to other Participants.
. If during the Performance Period you have a Termination of Service by reason of Retirement (as defined in the Plan), and you have been employed for at least 18 months and one day after the Performance Period Start Date, then the number of PSUs earned (based on performance as of the end of the Performance Period) will be prorated to reflect the portion of the Performance Period during which you remained employed by the Company. Such prorated portion shall equal the number of PSUs that you would otherwise have earned, multiplied by a fraction equal to the number of full months of the Performance Period completed as of your Termination of Service, divided by the number of months in the Performance Period. Any PSUs earned following your Termination of Service by reason of Retirement pursuant to this subsection shall be paid at the same time PSUs are paid to other Participants.
Involuntary Termination of Service
. If during the Performance Period you have an involuntary (as determined by the Committee) Termination of Service not for Cause, and you have been employed for at least 18 months and one day after the Performance Period Start Date, then the number of PSUs earned (based on performance as of the end of the Performance Period) will be prorated to reflect the portion of the Performance Period during which you remained employed by the Company. Such prorated portion shall equal the number of PSUs that you would otherwise have earned, multiplied by a fraction equal to the number of full months of the Performance Period completed as of your Termination of Service, divided by the number of months in the Performance Period. Any PSUs earned following your Termination of Service by reason of termination not for Cause pursuant to this subsection shall be paid at the same time PSUs are paid to other Participants.
. If during the Performance Period you have a Termination of Service by voluntary quitting, resigning or retiring (i.e., leaving to retire but not as Retirement is defined in the Plan), or if you are terminated for Cause, or if you have a Termination of Service for any other reason other than as set forth in Section 1(d) or (e) above or Section 1(h) below, as determined by the Committee, then all of your PSUs and DER’s shall be forfeited.
Settlement of Earned PSUs
. At the end of the Performance Period actual performance for the entire Performance Period shall be reviewed, and the amount of the earned Award shall be determined based on this performance and communicated to you. The Company shall transfer to you one share of Common Stock for each PSU earned at that time, net of any applicable tax withholding requirements in accordance with Section 8(b) below. PSUs payable under this Award are intended to be exempt from Internal Revenue Code Section 409A under the exemption for short-term deferrals. Accordingly, PSUs will be settled in Common Stock no later than the 15th day of the third month following the end of the fiscal year of the Company (or if later the calendar year) in which the PSUs are earned.
Settlement following a Change In Control
. Notwithstanding any provision of this Award to the contrary, if there is a Change in Control during the Performance Period, then Article XII of the Plan will apply to any unvested portion of the Award
. The Company hereby grants you the number of RSUs specified on
, subject to the terms and conditions of the Plan and this Award.
Restricted Stock Unit Account
. The Company will maintain an account (the “Account”) on its books in your name to reflect the number of RSUs awarded to you. The Account is for recordkeeping purposes only, and no assets or other amounts shall be set aside from the Company’s general assets with respect to such Account.
. The period prior to the vesting date with respect each RSU is referred to as the “Restricted Period.” Subject to the provisions of the Plan and this Award, unless vested or forfeited earlier as described in this Award, as applicable, your RSUs will become vested and be settled pro rata, one third as of the first, second and third anniversary dates of the Grant Date.
. If during the Restricted Period you have a Termination of Service by reason of Disability or death, then any unvested RSUs will immediately vest on your termination date.
. If you have a Termination of Service by reason of Retirement (as defined in the Plan), then any unvested RSUs will continue to vest based on the original vesting schedule.
. If during the Restricted Period you have a Termination of Service by reason of an involuntary (as determined by the Committee) Termination of Service not for Cause, then you shall thereupon forfeit any RSUs that are still in a Restricted Period on your termination date.
. If during the Restricted Period you have a Termination of Service by reason of voluntary quitting, resigning or retiring (i.e., leaving to retire but not as Retirement is defined in the Plan), or if you are terminated for Cause, or if you have a Termination of Service for any reason, as determined by the Committee, then you shall thereupon forfeit any RSUs that are still in a Restricted Period on your termination date.
Settlement of Vested RSUs.
As promptly as practicable after the applicable Vesting Date, whether occurring upon your Separation from Service or otherwise, but in no event later than 75 days after the Vesting Date, the Company shall transfer to you one share of Common Stock for each RSU becoming vested at such time, net of any applicable tax withholding requirements in accordance with Section 8(b) below; provided, however, that, if you are a Specified Employee at the time of Separation from Service, then to the extent your RSUs are deferred compensation subject to Section 409A of the Code, settlement of which is triggered by your Separation from Service (other than for death), payment shall not be made until the date which is six months after your Separation from Service. Fractional shares shall be settled in cash at the same time as your shares of Common Stock are delivered.
Settlement Following Change in Control
. Notwithstanding any provision of this Award to the contrary, if there is a Change in Control during the Performance Period, then Article XII of the Plan will apply to any unvested portion of the Award.
Related DERs.
Each PSU and RSU entitles the Participant to receive one DER on the date the PSU or RSU is settled, as described herein. Each DER entitles the Participant to be credited with all of the cash dividends that are or would be payable with respect to the Share represented by the PSU or RSU to which the DER relates. Accumulated dividends credited pursuant to this Award shall be payable in cash, without interest, at such time as the PSU or RSU to which the DER relates is settled pursuant to this Award.
If dividends are paid in the form of shares of Common Stock rather than cash, then your Account will be credited with one additional PSU or RSU, as applicable, for each share of Common Stock that would have been received as a dividend had your outstanding PSUs or RSUs been shares of Common Stock
which additional
PSU or RSU shall be payable, at such time as the PSU or RSU to which the DER relates is settled pursuant to this Award.
In the event that a PSU or RSU is forfeited pursuant to this Award, the related DER shall also be forfeited and the Participant shall have no right to payment of any accumulated dividend amounts or shares.
. Until a PSU, RSU or DER becomes vested the PSU, RSU or DER may not be sold, transferred, pledged, assigned or otherwise alienated or hypothecated, except by will or the laws of descent and distribution. However, as described in Section 8(a), the Participant may designate a beneficiary to receive any Shares to be settled after the Participant dies.
Award Subject to Recoupment Policy
. If the Participant is an “executive officer” of the Company as defined in Rule 3b-7 under the Securities Exchange Act of 1934, then this Award is subject to the Bob Evans Farms, Inc. Executive Compensation Recoupment Policy (“Recoupment Policy”). The Award, or any amount traceable to the Award, shall be subject to the recoupment obligations described in the Recoupment Policy.
Award Subject to Non-Competition and Confidentiality Policy
. If the Participant is an officer of the Company or an officer of a Company subsidiary on the date of receipt of this Award, then receipt of this Award is also subject to the Bob Evans Farms, Inc. Non-Competition and Confidentiality Policy and the Participant’s adherence to said Policy.
Unless the Committee otherwise agrees in writing, any outstanding unvested PSUs, RSUs, or accruals related to the DERs under this Award will be forfeited if the Participant:
Serves (or agrees to serve) as an officer, director, manager,
consultant or employee of any proprietorship, partnership, corporation or limited liability company or become the owner of a business or a member of a partnership or limited liability company
that competes with any portion of the Company or an Affiliate’s business or renders any service to entities that compete with any portion of the Company or an Affiliate’s business;
Refuses or fails to consult with, supply information to, or otherwise cooperate with, the Company or any Affiliate after having been requested to do so; or
Deliberately engages in any action that the Committee concludes could harm the Company or any Affiliate.
The Participant may name a beneficiary or beneficiaries to receive any cash or Shares to be paid or settled after the Participant’s death by completing a Beneficiary Designation Form in the form and manner required by the Committee and communicated in writing to the Participant. The Beneficiary Designation Form does not need to be completed now and is not required to be completed as a condition of receiving this Award. However, if the Participant dies without completing a Beneficiary Designation Form or if the designation is ineffective for any reason, the Participant’s beneficiary will be the Participant’s surviving spouse or, if the Participant does not have a surviving spouse, the Participant’s estate.
. The Company or an Affiliate, as applicable, shall have the power and right to deduct, withhold or collect any amount required by law or regulation to be withheld with respect to any taxable event arising with respect to this Award. To the extent permitted by the Committee, in its sole discretion, this amount may be: (i) withheld from other amounts due to the Participant, (ii) withheld from the value of any Award being settled or any Shares transferred in connection with the exercise or settlement of an Award, (iii) withheld from the vested portion of any Award (including shares transferable thereunder), whether or not being exercised or settled at the time the taxable event arises, or (iv) collected directly from the Participant. Subject to the approval of the Committee, the Participant may elect to satisfy the withholding requirement, in whole or in part, by having the Company or an Affiliate, as applicable, withhold shares having a Fair Market Value on the date the tax is to be determined equal to the minimum statutory total tax that could be
imposed on the transaction; provided that such Shares would otherwise be distributable to the Participant at the time of the withholding if such Shares are not otherwise distributable at the time of the withholding, provided that the Participant has a vested right to distribution of such Shares at such time. All such elections shall be irrevocable and made in writing or per an online or web based system used by the Company, and shall be subject to any terms and conditions that the Committee, in its sole discretion, deems appropriate.
. This Award will be construed in accordance with and governed by the laws (other than laws governing conflicts of laws) of the State of Ohio except to the extent that the Delaware General Corporation Law is mandatorily applicable.
. This Award will be subject to the terms of any other written agreements between the Participant and the Company to the extent that those other agreements do not directly conflict with the terms of the Plan or this Award.
Award Subject to the Plan
This Award is subject to the terms and conditions described in this Award and the Plan, which is incorporated by reference into and made a part of this Award. The Plan as it may be amended from time to time is incorporated into this Award by this reference. In the event of a conflict between the terms of the Plan and the terms of this Award, the terms of the Plan will govern. The Committee has the sole responsibility of interpreting the Plan and this Award, and its determination of the meaning of any provision in the Plan or this Award shall be binding on the participant. Capitalized terms that are not defined in this Award have the same meaning as in the Plan.
. You have no rights as a shareholder of the Company with respect to the PSUs, RSUs or DERs until such time as the Common Stock issued in settlement has been recorded in your name in book entry form. Until that time, you shall not have any shareholder rights.
. The Participant may reject this Award and forfeit the Award by notifying the Company or its designee, in the manner prescribed by the Company and communicated to the Participant, within 30 days after the Grant Date. If this Award is rejected pursuant to this Section 8(g), the PSUs, RSUs and DERs evidenced by this Award shall be forfeited, and neither the Participant nor the Participant’s heirs, executors, administrators and successors shall have any rights with respect thereto.
Grant Date: ________ (the “Grant Date”)
PSU Performance Period: Fiscal Year ______ to ______ (_______ through ______)
Performance Shares (PSUs): __________
Restricted Stock Units (RSUs): __________
RSU Vesting Schedule:
First one-third vests ________
Second one-third vests ________
Final one-third vests _________