EVANS BOB FARMS INC.

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-K


þ		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the fiscal year ended April 30, 2010
OR
o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the transition period from to

Commission file number: 0-1667

Bob Evans Farms, Inc.

(Exact name of registrant as specified in its charter)


Delaware		31-4421866
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

3776 South High Street, Columbus, Ohio		43207
(Address of principal executive offices)		(Zip Code)

(614) 491-2225

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Exchange Act:


Title of Each Class		Name of Each Exchange on Which Registered
Common Stock, $.01 par value per share		The NASDAQ Stock Market LLC

Securities registered pursuant to Section 12(g) of the Exchange Act:

None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes þ No o

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes o No þ

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

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

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


Large accelerated filer þ	Accelerated filer o	Non-accelerated filer o	Smaller reporting company o

(Do not check if a smaller reporting company)

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

As of October 23, 2009 (the last business day of the registrant’s most recently completed second fiscal quarter), the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was $843,357,008 based on the closing sale price as reported on the NASDAQ Stock Market.

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date:


Class		Outstanding at June 25, 2010

Common Stock, $.01 par value per share		30,605,080 shares

DOCUMENTS INCORPORATED BY REFERENCE


Document		Parts Into Which Incorporated

Portions of the registrant’s Proxy Statement for the Annual Meeting of Stockholders to be held on September 13, 2010		Part III

TABLE OF CONTENTS


PART I
	Item 1. Business.
	Item 1A. Risk Factors
	Item 1B. Unresolved Staff Comments
	Item 2. Properties
	Item 3. Legal Proceedings
	Item 4. Submission of Matters to a Vote of Security Holders.
PART II
	Item 5. Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer Repurchases of Equity Securities
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Stockholders’ Equity
Consolidated Statements of Cash Flows Years ended April 30, 2010; April 24, 2009; and April 25, 2008
Notes to Consolidated Financial Statements
SIGNATURES
EX-3.1
EX-10.3
EX-10.5
EX-10.23
EX-10.24
EX-10.25
EX-10.31
EX-10.32
EX-10.36
EX-21
EX-23
EX-24
EX-31.1
EX-31.2
EX-32.1
EX-32.2

PART I


Item 1.	*Business.*

In this Annual Report on Form 10-K, we use the terms “Bob Evans,” “company,” “we,” “us” and “our” to collectively refer to Bob Evans Farms, Inc., a Delaware corporation, and its subsidiaries.

The Securities and Exchange Commission encourages companies to disclose forward-looking information so that investors can better understand a company’s future prospects and make informed investment decisions. This Annual Report on Form 10-K and other written or oral statements that we make from time-to-time may contain forward-looking statements that set forth anticipated results based on management’s plans and assumptions. Statements in this Annual Report on Form 10-K, including those contained in Management’s Discussion and Analysis of Financial Condition and Results of Operations included in Item 7 of this Annual Report on Form 10-K, that are not historical facts are forward-looking statements. These statements are often indicated by words such as “expects,” “anticipates,” “believes,” “estimates,” “intends” and “plans.” Forward-looking statements involve various important assumptions, risks and uncertainties. Actual results may differ materially from those predicted by the forward-looking statements because of various factors and possible events, including the assumptions, risks and uncertainties discussed in this Annual Report on Form 10-K under the heading “Item 1A — Risk Factors.” We note these factors for investors as contemplated by the Private Securities Litigation Reform Act of 1995. It is impossible to predict or identify all of the risk factors that we face. Consequently, you should not consider any such list to be a complete set of all potential assumptions, risks or uncertainties. Forward-looking statements speak only as of the date on which they are made, and we undertake no obligation to update any forward-looking statement for circumstances or events that occur after the date on which the statement is made to reflect unanticipated events. Any further disclosures we make in our filings with the Securities and Exchange Commission should also be consulted.

The following description of our business should be read in conjunction with the information contained in Management’s Discussion and Analysis of Financial Condition and Results of Operations included in Item 7 of this Annual Report on Form 10-K and our consolidated financial statements included in Item 8 of this Annual Report on Form 10-K.

Background

We are a full-service restaurant company that operates two restaurant concepts — Bob Evans ^® Restaurants and Mimi’s Cafés ^® . We are also a leading producer and distributor of pork sausage and complementary homestyle convenience food items. Our business began in 1948 when our founder, Bob Evans, began making sausage on his southeastern Ohio farm to serve at his 12-stool diner. Our business grew from there, and we became a publicly traded company in 1963. Our current company was incorporated in Delaware in 1985 as the successor to the original company, which was incorporated in Ohio in 1957. We expanded our business by acquiring Owens Foods, Inc. (then known as Owens Country Sausage, Inc.) in 1987 and SWH Corporation, which does business as Mimi’s Café ^® , in July 2004.

We have a 52 or 53-week fiscal year that ends on the last Friday in April. When we refer to fiscal 2010, fiscal 2009 and fiscal 2008, we are referring to our fiscal years that ended on April 30, 2010, April 24, 2009, and April 25, 2008, respectively. All years presented were comprised of 52 weeks, except fiscal 2010, which had 53 weeks.

The following table contains information regarding revenues, operating profit and identifiable assets of our restaurant business and food products business for each of our last three fiscal years.


	Fiscal Year
	2010			2009			2008
	(Dollars in thousands)

Sales:
Restaurant Operations	$	1,411,092		$	1,439,090		$	1,445,034
Food Products		351,891			349,273			331,060

		1,762,983			1,788,363			1,776,094
Intersegment Sales of Food Products		(36,179	)		(37,851	)		(39,068	)

Total	$	1,726,804		$	1,750,512		$	1,737,026

Operating Income:
Restaurant Operations	$	85,144		$	12,796		$	78,686
Food Products		21,270			15,571			28,554

Total	$	106,414		$	28,367		$	107,240

Identifiable Assets:
Restaurant Operations	$	958,311		$	1,020,298		$	1,086,453
Food Products		116,639			116,729			102,367

		1,074,950			1,137,027			1,188,820
General corporate assets		34,207			27,148			30,398

Total	$	1,109,157		$	1,164,175		$	1,219,218

Our Strategy

We believe our restaurant and food products businesses are regional brands with national potential. Our vision and mission statements embody our expectations for our company’s future. Our vision is to be the “Best in Class” in all of our food businesses. We strive to accomplish this vision by pursuing our mission — building brand loyalty by delighting customers with high-quality, delicious products “at your place or ours,” while balancing the needs of our employees, guests and investors.

We believe we can achieve our vision and mission by following a set of principles we refer to as our BEST ^® (Bob Evans Special Touch) Brand Builders:

1. Win Together as Team — Our entire team must work together in a spirit of collaboration. We must communicate openly and share ideas and BEST ^® practices with one another. We are committed to recognizing outstanding performance with pay incentives.

2. Consistently Drive Sales Growth — We will bring our brand positioning to life in everything we do. Our goal is to drive sales by consistently offering innovative, high-quality food that our customers will crave. We will strive to get more guests in our restaurants and buying our grocery products through effective marketing. We will offer exceptional customer service and suggest our great menu items at every table.

3. Improve Margins With an Eye on Customer Satisfaction — We must keep our customers satisfied with high-quality products and service while improving our long-term profitability. This involves using effective systems and processes to deliver margin improvements, such as our restaurant labor management systems. We must control our “controllables,” such as food costs, yields and waste.

4. Be the BEST ^® at Operations Execution — We are committed to producing the highest-quality products and following the highest food safety standards. We must deliver outstanding customer service every day and fix the problems that make our customers unhappy. We must also ensure employee satisfaction while driving operational efficiency and productivity.

5. Increase Returns on Invested Capital — We must generate a good return on the money we spend. Each business in the Bob Evans Farms family must earn the right to receive funding by generating a favorable return on the money our company invests in it. All of our employees must think and act like owners of our business.

Our Restaurant Concepts

As of April 30, 2010, we owned and operated 569 Bob Evans Restaurants and 146 Mimi’s Cafés, with no franchising. Through our two restaurant concepts, we offer our customers a unique dining experience by serving a variety of high-quality, reasonably priced breakfast, lunch and dinner items in family-friendly settings.

Bob Evans Restaurants

Our vision for Bob Evans Restaurants is to be nationally recognized as a premier restaurant company in all markets in which we compete. Our mission is to be our customers’ favorite restaurant by giving them our BEST (Bob Evans Special Touch) ^® ...one customer at a time. Bob Evans Restaurants are founded on quality, homestyle food and friendly service. The concept is positioned as “The Home of Homestyle ^® ” featuring “Farm Fresh Goodness ^® ” that brings families together. Bob Evans Restaurants feature a wide variety of comfort foods inspired by our homestead heritage, such as Bob Evans sausage gravy and chicken pot pie.

Breakfast entrées are served all day and feature traditional favorites such as sausage, bacon, eggs and hotcakes, as well as specialty offerings like crepes and stuffed French toast. We also offer a wide variety of lunch and dinner entrées, including a full line-up of Big Farm Salads ^® and signature dinner items, such as country fried steak and slow-roasted turkey. During fiscal 2010, we added a number of new items to our menu from our innovation pipeline, including several varieties of Deep Dish Pastas ^® and Farm-Fresh Wraps ^® . Our expanded “Fit from the Farm ^® ” menu offerings, such as Apple-Cranberry Spinach Salad and Chicken, Spinach & Tomato Pasta, provide guests who are following a 2,000 calorie daily diet with the option of eating three balanced meals a day at Bob Evans Restaurants.

Bob Evans Restaurants feature an inviting atmosphere inspired by our Ohio farm heritage. The atmosphere evokes images of a classic, timeless country home. Most traditional Bob Evans Restaurants range in size from approximately 3,600 to 6,500 square feet while our larger Bob Evans Restaurants & General Stores are approximately 9,800 square feet, with an approximate average of 150 seats. It costs approximately $2.3 million to build a new Bob Evans Restaurant, including the land. We are in the process of developing and refining a new prototype Bob Evans Restaurant, as well as a remodeling program for our existing restaurants that is based upon the new prototype, as discussed in more detail in “ Restaurant Locations and Expansion ” below.

We believe our Bob Evans Restaurants draw people who want a wholesome meal at a fair price in an alcohol-free, family-friendly atmosphere. Our average annual store sales were $1.7 million per Bob Evans Restaurant in fiscal 2010. Average per-guest checks for fiscal 2010 for breakfast, lunch and dinner were $7.76, $8.33 and $8.54, respectively, for an average of $8.20 for all day parts. Depending on each location’s business patterns, Bob Evans Restaurants are generally open from 6 a.m. or 7 a.m. until 9 p.m. or 10 p.m. Sunday through Thursday, with extended closing hours on Friday and Saturday at some locations. During fiscal 2010, breakfast, lunch and dinner accounted for 32 percent, 37 percent and 31 percent, respectively, of total Bob Evans Restaurant revenue. Sales on Saturday and Sunday accounted for approximately 39 percent of a typical week’s revenue during fiscal 2010.

We aim to “Consistently Drive Sales Growth” by continuing to implement strategies to build Bob Evans Restaurants’ carryout sales. We have increased marketing of our carryout offerings, including our family meals and take-home holiday family feasts. During fiscal 2010, Bob Evans Restaurants introduced a new catering menu offering a wide array of breakfast, lunch and dinner items. Bob Evans Restaurants’ carryout and catering business accounted for approximately eight percent of the concept’s total fiscal 2010 revenues. To increase our carryout and catering business in fiscal 2011, we will continue to feature carryout offerings in our marketing efforts, especially our new “Family Meal Deals.” We also plan to introduce on-line ordering for Bob Evans Restaurants during fiscal 2011.

We offer retail gifts, food items and other novelties for sale on a limited basis in the Corner Cupboard ^® areas located inside most of our traditional Bob Evans Restaurants and on a much larger scale in our seven Bob Evans Restaurants & General Stores ^® . During fiscal 2010, we continued to improve our selection of retail products by offering more food and other branded items consistent with our brand positioning and homestead heritage.

Mimi’s Cafés

Mimi’s is a casual dining concept positioned as “The All Day Fresh Café. ^® ” Mimi’s colorful French-cottage themed buildings offer guests a place to relax and connect while enjoying freshly prepared meals. The concept combines elements of an upscale casual experience with broad everyday appeal. The cuisine has a touch of “gourmet Francais,” featuring breakfasts, lunches and dinners inspired by the fresh, seasonal dishes and effortless style of the French Countryside. The menu includes a variety of American and ethnic cuisine categories, including:


	•	“Café Classics” featuring signature items such as our Chicken Pot Pie and Oven Fresh Pot Roast;

	•	“Gourmet Francais” featuring French-inspired dishes such as quiches, French Country Brie Salad and Chicken Cordon Bleu; and

	•	“Fresh & Fit ^® ” featuring items with 650 calories or less.

We believe that Mimi’s high-quality food, broad menu, exceptional service, unique atmosphere and affordable average check make the concept attractive to a broad demographic range. We believe that the concept is particularly appealing to women, and we are focusing Mimi’s menu, atmosphere and marketing to attract more female guests.

All Mimi’s offer a selection of high-quality beer and wine. We continue to expand the selection of alcoholic beverages to satisfy guest demand, and in turn, increase alcohol sales and boost profit margins. During fiscal 2010, we added distilled spirits to our beer and wine service at eight existing and two new Mimi’s. We intend to include beer, wine and distilled spirits in all new Mimi’s, subject to our ability to obtain the required liquor licenses and permits. As of the end of fiscal 2010, 90 Mimi’s featured expanded alcoholic beverage service compared to 56 stores that featured only beer and wine.

Mimi’s restaurants are visually appealing and resemble a French country home with dormer windows, gabled roofs, stone walls and bright awnings. The interior of each restaurant, inspired by Southern European bistros, incorporates a warm base of stone floors, brick walls and rough-hewn beamed ceilings. Each restaurant contains distinct dining environments that provide our guests with a variety of dining atmospheres, including a French bistro-themed room, an outdoor patio, and a winery-themed room, which can be used for private parties. Most Mimi’s restaurants range in size from 6,000 to 7,000 square feet.

The current prototype is an approximately 6,500 to 6,800 square-foot building with an approximate average of 240 seats. It costs approximately $2.8 million to build a new Mimi’s, excluding the land.

Mimi’s average annual unit sales in fiscal 2010 were approximately $2.9 million. Average per-guest checks for fiscal 2010 for breakfast, lunch and dinner were $9.68, $10.23 and $12.07, respectively, for an average of $10.72 for all day parts. Sales of alcoholic beverages accounted for approximately 4 percent of Mimi’s sales in fiscal 2010. Mimi’s is open from 7 a.m. to 11 p.m., with breakfast being served all day. During fiscal 2010, breakfast, lunch and dinner accounted for approximately 22 percent, 40 percent and 38 percent, respectively, of Mimi’s total revenue. Sales on Saturday and Sunday accounted for approximately 38 percent of a typical week’s revenue during fiscal 2010.

We aim to “Consistently Drive Sales Growth” by continuing to implement strategies to build Mimi’s carryout sales. We have increased marketing of our carryout offerings, including our take-home holiday family feasts. During fiscal 2010, Mimi’s introduced on-line ordering and a new catering menu offering a wide array of breakfast, lunch and dinner items. Mimi’s carryout and catering business accounted for approximately 4 percent of the concept’s total fiscal 2010 revenues.

We own and operate SWH Custom Foods, an approximately 25,000 square-foot prep kitchen in Fullerton, California, that prepares signature muffin mixes, dressings, sauces and soups for Mimi’s and third-party restaurants. By producing approximately 40 to 45 different items, SWH Custom Foods allows Mimi’s to maintain a consistent flavor profile and efficiently produce an extensive menu of freshly prepared, high-quality items. We believe that our third-party services validate the quality of SWH Custom Foods’ operations and enable us to profitably drive incremental sales and utilize excess capacity with minimal additional capital commitment.

Restaurant Management

We believe that high-quality restaurant management is critical to the success of our restaurant concepts. We must “Be the BEST at Operations Execution” to keep our customers satisfied. Our restaurant management structure varies by concept and restaurant size.

Our restaurant segment management structure is organized to drive top-line growth and bottom-line profitability. Each restaurant concept has a president and chief concept officer. The chief concept officers focus their efforts on the overall growth and development of the concepts, with particular focus on increasing sales, new restaurant development and concept evolution.

We also have a president and chief restaurant operations officer, who is responsible for building a sales, service and people-first culture that delivers “BEST in class” results. The president and chief restaurant operations officer leads the Bob Evans Restaurant and Mimi’s operations teams, and oversees restaurant development and construction in close cooperation with the chief concept officers. The president and chief restaurant operations officer also leads our Operations Services group, which develops “one BEST way” solutions by standardizing operations processes across both restaurant concepts and ensuring that all new procedures and tools are “restaurant ready.” The Operations Services team also leads our BEST University program, which includes the Operations College we launched during fiscal 2010. Operations College is intended to bolster our people capability by providing training on a variety of operations topics such as situational leadership and food safety.

At Bob Evans Restaurants, “we treat strangers like friends and friends like family.” Each Bob Evans Restaurant employs approximately 50 to 90 hourly employees and is led by a general manager and two to three assistant managers, depending on the size, location and sales volume of the restaurant. Bob Evans Restaurant general managers report to an area coach who oversees approximately eight restaurants. The area coaches report to a vice president — head coach or a region coach. Each vice president — head coach is responsible for approximately 14 area coaches, whereas each region coach is responsible for approximately seven area coaches. Bob Evans Restaurants are visited regularly by all levels of management to ensure they are functioning well and adhering to the concept’s standards.

Mimi’s complements fine food with service that emphasizes our high standards, core values and attention to detail. Each Mimi’s employs approximately 100 to 125 hourly employees and is led by a general manager and two to three assistant managers, depending on the size, location and sales volume of the restaurant. Mimi’s general managers report to a market coach, who reports to a head coach, who in turn reports to a vice president of operations. In fiscal 2010, we classified one assistant manager as a sales manager at each Mimi’s location. The sales managers are dedicated to “Consistently Driving Sales Growth” by driving sales of beverages, appetizers and desserts, as well as promoting quarterly sales programs such as happy hours, catering, take-home holiday feasts and gift cards.

During fiscal 2010, we “Improved Margins with an Eye on Customer Satisfaction” by focusing on ways to improve labor and food costs. We eliminated approximately three million labor hours from the restaurant segment during fiscal 2010 (on a 52-week basis) while improving our guest satisfaction scores at both concepts. Bob Evans Restaurants and Mimi’s eliminated approximately two million and one million labor hours, respectively, by improving labor forecasting and scheduling. We also reduced hourly employee and management turnover at Bob Evans Restaurants. Additionally, we deployed technological solutions to improve efficiency, including a computerized point-of-sale system and an actual versus theoretical food cost program at Bob Evans Restaurants, and a labor scheduling tool at both restaurant concepts.

Restaurant Locations and Expansion

As of April 30, 2010, Bob Evans Restaurants (including Bob Evans Restaurants and General Stores) were located in 18 states, primarily in the Midwest, mid-Atlantic and Southeast, and Mimi’s Cafés were located in 24 states, primarily in California and other western states. The following table sets forth the number, concept and location of our restaurants as of the end of fiscal 2010:

Restaurants in Operation at April 30, 2010


	Bob Evans		Mimi’s		Total
	Restaurants		Cafés		Restaurants

Alabama				1		1
Arizona				12		12
Arkansas				2		2
California				58		58
Colorado				8		8
Delaware		7				7
Florida		49		11		60
Georgia				2		2
Illinois		16		3		19
Indiana		59				59
Iowa				1		1
Kansas		3		2		5
Kentucky		23		1		24
Maryland		28		3		31
Michigan		51				51
Missouri		24		2		26
Nebraska				1		1
Nevada				5		5
New Jersey		3				3
New Mexico				1		1
New York		8				8
North Carolina		11		5		16
Ohio		194		3		197
Oklahoma				2		2
Pennsylvania		39				39
South Carolina		4		1		5
Tennessee		3		3		6
Texas				11		11
Utah				4		4
Virginia		17		4		21
West Virginia		30				30

TOTAL		569		146		715

We strive to continuously “Increase Returns on Invested Capital.” Each business segment must earn the right to receive additional capital. We believe that we have to expand our restaurants with a focus on the quality, not just the quantity, of openings. Future restaurant growth depends on a variety of factors, including:


	•	the expected rate of return on the money invested in the new restaurant;

	•	the availability of affordable sites that meet our demographic and other specifications;

	•	general economic conditions, including consumer spending for family and casual dining;

	•	growth trends in consumer demand for our restaurant concepts;

	•	our ability to obtain local permits; and

	•	the availability of high-quality management and hourly employees.

We use a site selection process for each restaurant concept that includes a detailed evaluation of factors such as population density, household income in the area, competition, the site’s visibility and traffic patterns, accessibility and proximity to retail centers and the demographics of potential customers.

We have slowed the expansion of Bob Evans Restaurants dramatically over the past few years. In fiscal 2010, we did not open any new Bob Evans Restaurants, compared to one in fiscal 2009 and two in fiscal 2008. We expect to build three new Bob Evans Restaurants during fiscal 2011, and we also plan to rebuild two existing Bob Evans Restaurants. We plan to locate the three new Bob Evans Restaurants in high-traffic retail areas or near major interstate highways located in existing markets to deepen the concept’s penetration in successful trade areas. We do not intend to substantially increase the construction of new Bob Evans Restaurants until we improve “restaurant level economics” by increasing our sales, lowering our labor, purchasing and construction costs, and increasing our margins and profitability.

We locate Mimi’s in convenient, high-traffic areas in new and existing regional markets that we believe will support the concept. The casual dining segment has been hit particularly hard by the economic recession, and we have significantly reduced our development plans for Mimi’s. During fiscal 2010, we opened two new Mimi’s, compared to 12 in fiscal 2009 and 17 in fiscal 2008. The reduction in development is largely due to challenging economic conditions, sub-prime mortgage issues, lower home values and increasing unemployment rates, especially in regions of the country such as California, Florida, Arizona and Nevada, which account for approximately 70 percent of Mimi’s sales. In light of these economic factors and Mimi’s continued negative same-stores sales, we do not believe that our average new store volumes generate a level of return on our development costs that justifies significant expansion of Mimi’s. We do not intend to substantially increase the construction of new Mimi’s until the economy improves and we are able to improve “restaurant level economics” by increasing our sales, lowering our labor, purchasing and construction costs, and increasing our margins and profitability. As a result, we do not expect to open any new Mimi’s in fiscal 2011.

We continually assess all of our existing restaurants under a program to determine whether any restaurants should be (1) rebuilt, (2) relocated, (3) remodeled or (4) retired. During fiscal 2010, we retired one underperforming Bob Evans Restaurant. We closed a Mimi’s for the first time during the first quarter of fiscal 2011 by not renewing an expiring lease. We believe these closures strengthened our restaurant portfolio by improving overall returns and freeing up resources for other uses.

We believe that we must invest capital in our existing restaurants to ensure that they are safe, well-maintained and appealing to our guests in order to increase customer satisfaction and same-store sales. We select restaurants and determine the level of investment based upon the return on the investment we expect to generate through increases in sales and profitability. We have established “hurdles” for the expected rate of return on invested capital which must be met before a restaurant is remodeled or rebuilt. A “rebuild” occurs when we replace an existing restaurant by constructing a new restaurant at the same site or a nearby site. Remodels range from minor décor updates in existing restaurants to more substantial changes to décor, fixtures, equipment, layout and external appearance.

We believe we must innovate and change the way people think about Bob Evans Restaurants by ensuring that the concept is relevant to our family-first growth target. During fiscal 2010, we rebuilt two Bob Evans Restaurants. The rebuilt Bob Evans Restaurant in Xenia, Ohio is based upon a new prototype that reflects a contemporary twist on the imagery and feel of the original Bob Evans family farm in Rio Grande, Ohio. It features a new color palette, flat screen televisions, free wireless Internet access, an “eat-in kitchen,” a variety of flexible dining spaces, and a large farmhouse table which serves as a gathering spot for families and friends.

We remodeled 15 Bob Evans Restaurants during fiscal 2010. The remodeled Bob Evans Restaurant in Westerville, Ohio features the interior design elements of the Xenia, Ohio prototype, as well as a new “Taste of the Farm ^® ” retail and carryout area. We developed Taste of the Farm ^® to reenergize growth through new sales layers that elevate the brand experience. Taste of the Farm ^® includes:


	•	an expanded carryout area to make purchasing carryout meals quick and easy;

	•	a bakery featuring Bob Evans Restaurants’ signature breads and new freshly baked menu items, such as cookies and seasonal muffins;


	•	a “grab and go” section offering a variety of entrées such as Big Farm Salads and Farm Fresh Wraps, as well as side items such as fruit and yogurt parfaits;

	•	a selection of our Bob Evans ^® brand retail food products; and

	•	a newly designed retail area featuring delicious farm flavors, including Taste of the Farm ^® fruit preserves and baking mixes.

We believe the prototype-inspired design and Taste of the Farm ^® elements of the Westerville, Ohio Bob Evans Restaurant improve the guest experience and the appeal of the Bob Evans Restaurant brand. Based upon the sales performance of this project, we expect to remodel or rebuild the majority of our existing Bob Evans Restaurants within the next five years to varying degrees in order to include Taste of the Farm ^{^®} and to reflect certain design elements of the Xenia and Westerville, Ohio restaurants. As part of this plan, we expect to remodel 40 to 50 and to rebuild two existing Bob Evans Restaurants during fiscal 2011. This will include remodeling existing Bob Evans Restaurants in a single geographic market, which will allow us to develop a “model market” to efficiently market the revised presentation of the Bob Evans Restaurant concept and test its performance.

During fiscal 2010, we remodeled four Mimi’s, three located in southern Arizona and one in southern California. The remodeled locations in Arizona featured a remodel package aimed to revitalize and reposition the concept to create a distinct, niche market focused on attracting “Generation X” female guests (i.e., born between 1961 to 1981). The remodel package includes:


	•	an enhanced bar area with expanded alcohol service;

	•	a new color palette and updated décor inspired by French bistros and the concept’s positioning as the All Day Fresh Cafe ^® ;

	•	a dedicated carryout area to drive off-premise sales; and

	•	a bakery featuring Mimi’s signature muffins and other freshly-baked pastries and desserts.

We expect to remodel approximately ten Mimi’s in fiscal 2011, depending upon the performance and profitability of the new remodel package. This will include existing Mimi’s located in a single geographic market, which will allow us to develop a “model market” to efficiently market the revised presentation of the Mimi’s concept and test its performance.

Supply Chain and Distribution

Controlling our supply costs is a key strategy for “Improving Margins with an Eye on Customer Satisfaction.” Our ability to offer high-quality, reasonably priced menu items at our restaurants depends upon acquiring food products and related items from reliable sources at competitive prices. Our supply chain team sources, negotiates and purchases food and non-food items from more than 700 suppliers. Our suppliers must adhere to strict product specifications and quality control standards.

Our restaurant operating margins are subject to changes in the price and availability of food commodities. Prices for many of the food and other commodities we buy for our restaurants fluctuated significantly during fiscal 2010. Our operating margins are also affected by changes in the price of utilities, such as natural gas upon which many of our restaurants depend for their energy supply.

To help control costs and obtain competitive prices, our supply chain team negotiates directly with our suppliers and occasionally uses purchase commitment contracts to stabilize the potentially volatile pricing associated with certain commodity items. Additionally, we purchase products in bulk for our food products operations and negotiate volume discounts with suppliers. We continue to consolidate our purchasing activities for the entire company. This allows us to leverage the combined purchasing power of both restaurant concepts and our food products division. As part of this effort, we use competitive bidding and reverse on-line auctions for certain products and services.

Our Food Products Division manufactures sausage products for both of our restaurant concepts, which are distributed to our restaurants by third parties. Third parties distribute food and inventory items to our Bob Evans Restaurants once or twice a week. Our distributors purchase products from the suppliers we specify, at the prices we

negotiate, and distribute them to our Bob Evans Restaurants on a cost-plus basis. During fiscal 2010 Bob Evans Restaurants received supplies from one of two primary distributors, Mattingly Foods, Inc. and Gordon Food Service, Inc.

SWH Custom Foods (Mimi’s in-house prep kitchen) prepares muffin mixes, dressings, sauces and soups for all Mimi’s. These items and other products are distributed to Mimi’s by third parties approximately twice per week. Produce, breads and dairy items are generally delivered to each Mimi’s four to five times per week to ensure freshness. During fiscal 2010, Mimi’s received supplies from PFG Customized Distribution, a national food distributor.

Although a limited number of distributors furnish inventory items to our restaurants, we believe other distributors can readily provide this inventory. We have not experienced any material or continued shortage of the products distributed by any third parties.

During fiscal 2010, we collected bids for distribution to our entire restaurant system and awarded contracts to Gordon Food Service, Inc. and Meadowbrook Meat Company, Inc. We expect this arrangement to result in improved distribution efficiency, consistent pricing for both restaurant concepts, and lower costs as we leverage the combined volume of Bob Evans Restaurants and Mimi’s.

Sources and Availability of Raw Materials

Menu mix in the restaurant business is varied enough that raw materials historically have been readily available. However, some food products may be in short supply during certain seasons and raw material prices often fluctuate according to availability. We believe that all essential food products will continue to be available from our existing suppliers or, upon short notice, can be obtained from other qualified suppliers. Due to the rapid turnover of perishable food items, our restaurants maintain inventories with a modest aggregate dollar value in relation to revenues.

Advertising and Marketing

We spent approximately $31 million on restaurant advertising and marketing during fiscal 2010. Most of our advertising budget was spent on television, radio, print and outdoor advertising for Bob Evans Restaurants. We focus our advertisements on new Bob Evans Restaurant menu items and the concept’s position as “Home of Homestyle ^® ” and our focus on offering “Farm Fresh Goodness ^® ” that brings families together. Our fiscal 2010 advertising campaigns featured new menu offerings from our innovation pipeline. We also remained focused on our digital marketing efforts by utilizing BE-Mail ^® , Facebook and Twitter, as well as the Bob Evans Web site. We also distribute coupons and support in-store merchandising, menus, kids’ marketing programs, and local store marketing. For example, we support the openings of new and rebuilt stores with a special “Rise and Shine” grand opening celebration attended by members of our Bob Evans Restaurant leadership team.

Traditionally, Mimi’s relied on word-of-mouth and local store marketing rather than traditional advertising media. During fiscal 2010, we significantly expanded Mimi’s marketing efforts. These new marketing efforts included in-store merchandising, bounce-back coupons, targeted mailings and digital media, such as the expansion of the Mimi’s Café E-Club, targeted cable television commercials on a regional basis and the relaunch of the Mimi’s Café Web site. In fiscal 2011, Mimi’s will focus its advertising efforts on digital media.

Research and Development

Research and development expenses for our restaurant operations have not been material. As part of our effort to “Consistently Drive Sales Growth,” we continuously test food items to identify new and improved menu offerings to appeal to our existing customers, satisfy changing eating trends and attract new customers. We maintain 18-month product development pipelines for both of our restaurant concepts. These pipelines are focused on creating and introducing innovative items, as well as enhancements to existing offerings.

In order to keep our menus fresh and appealing to our guests’ taste preferences, our product development is concentrated on creating appealing menu offerings that are consistent with the positioning of each brand, as well as quality enhancements to some of our best-selling items. Product development for Bob Evans Restaurants focuses on homestyle offerings with a unique Bob Evans twist, whereas Mimi’s develops products made with freshly prepared items consistent with its positioning as the “All Day Fresh Café ^® .”

Competition

The restaurant industry is highly competitive. There are many different segments within the restaurant industry, distinguishable based on the type of food, food quality, service, location, associated price-to-value relationship and overall dining experience. We have positioned our Bob Evans Restaurants in the family dining segment and our Mimi’s in the casual dining segment. We must “Be the BEST at Operations Execution” to effectively compete for customers’ “share of stomach.”

The restaurant business is affected by changes in the public’s eating habits and preferences, population trends, traffic patterns, weather conditions and gasoline and other energy costs, as well as by local and national economic conditions affecting consumer spending habits, many of which are beyond our control. Key competitive factors in the industry include the quality and value of menu offerings, quality and speed of service, attractiveness of facilities, advertising, name-brand awareness and image, and restaurant locations. Although we believe our restaurant concepts compete favorably with respect to each of these factors, many of our competitors are well-established national, regional or local chains, and some have substantially greater financial, marketing and other resources than we have. Additionally, we compete with many restaurant operators and other retail establishments for site locations and restaurant employees. We also face growing competition from quick-service and fast-casual restaurants that are improving the quality and expanding the variety of their offerings, especially at breakfast.

Food Products Operations

Our vision for our food products business is to be a BEST in class food business with a portfolio of convenient meal solutions that meet consumer needs driven by innovation and strong retail partnerships. We offer a wide variety of quality, homestyle food products to retail and foodservice customers. We sell our retail food products under the Bob Evans ^® and Owens ^® brand names. We believe our food products provide convenient meal solutions that uphold our high-quality standards and unique farm-fresh taste. Our food products include approximately 100 varieties of fresh, smoked and fully cooked pork sausage and hickory-smoked bacon products. We also offer approximately 100 complementary, convenience food items in the refrigerated and frozen areas of grocery stores such as mashed potatoes, macaroni and cheese, microwaveable sandwiches and slow-roasted main dish entrées.

During fiscal 2010, we refined our product innovation pipeline for foodservice products and introduced approximately 30 new retail food products, including an assortment of Bob Evans Wrappers ^® (sausage wrapped in dough) and Bob Evans Stuffers ^® (biscuits stuffed with a variety of fillings). Pounds sold from comparable products were up seven percent, with overall food products net sales up 1.4 percent, in fiscal 2010 compared to fiscal 2009. Our refrigerated mashed potatoes and macaroni and cheese side dishes continue to grow as a percentage of our food products volume. We will continue to “Consistently Drive Sales Growth” through new product development and enhancing existing items to address changing consumer demands.

Production

We produce food products in our seven manufacturing facilities. We produce fresh sausage products at our plants located in Galva, Illinois, Hillsdale, Michigan, Richardson, Texas and Xenia, Ohio. Our Bidwell, Ohio plant produces both fresh and fully cooked sausage products. Our Sulphur Springs, Texas and Springfield, Ohio plants produce ready-to-eat products, such as sandwiches, soups and gravies. We also operate a distribution center in Springfield, Ohio.

We have made efforts to “Increase Returns on Invested Capital” by implementing a plant rationalization program to ensure we are positioned for future growth. The program is geared to identify operational gaps and opportunities to improve production efficiencies. As part of this program, we completed an expansion of our Springfield, Ohio distribution center in fiscal 2008 at a cost of approximately $9 million. During fiscal 2010, we completed an approximately $16 million expansion of our Sulphur Springs, Texas facility to add more capacity to produce fully cooked products. We also “Increased Returns on Invested Capital” in fiscal 2010 by continuing to improve boneless meat yields at our fresh sausage manufacturing plants. During fiscal 2011, we plan to reduce our production costs though the implementation of process improvements at our manufacturing plants.

We strive to “Be the BEST at Operations Execution” by always focusing on food safety. We follow a Hazard Analysis and Critical Control Points (“HACCP”) program at each of our manufacturing plants. HACCP is a comprehensive system developed in conjunction with government agencies to prevent food safety problems by addressing physical, chemical and biological hazards. We use HACCP to identify potential safety hazards so that key actions can be taken to reduce or eliminate risks during production. We also have a team dedicated to food safety and quality assurance. During fiscal 2010, all of our manufacturing plants and our Springfield, Ohio, distribution center earned certification through the British Retail Consortium (BRC) Global Standard for Food Safety.

We use third parties to manufacture or “co-pack” all of the Bob Evans ^® and Owens ^® products that are not produced in our own facilities. These co-packed items include our mashed potatoes, macaroni and cheese, and some meat items. At the end of fiscal 2010, we used approximately 26 third parties to manufacture food products for us.

Sales

The U.S. food industry has experienced significant consolidation over the last 20 years as competitors have shed non-core businesses and made strategic acquisitions to complement category positions, maximize economies of scale in raw material sourcing and production, and expand retail distribution. The importance of sustaining strong relationships with retailers has become a critical success factor for food companies because it drives category management and continuous replenishment programs. Food companies with category leadership positions and strong retail relationships have increasingly benefited from these initiatives as a way to maintain shelf space and maximize distribution efficiencies.

Although our Bob Evans ^® brand mashed potatoes are only available on a limited basis in some parts of the country, we believe it is the leading brand of refrigerated mashed potatoes in the United States. Our goal is to “Consistently Drive Sales Growth” by leveraging our strong share position to secure additional retail store business and gain more market penetration. We also believe strong brand awareness is critical in maintaining and securing valuable retail shelf space and will provide a strong platform for introducing product line extensions and new products.

Before the elimination of intercompany sales to our restaurants, retail sales accounted for approximately 88 percent of our fiscal 2010 food products business, with foodservice sales comprising approximately 9 percent and sales to our restaurants comprising approximately 3 percent. Our sales force, which consists of our national account teams and third party food brokers, sells our food products to a number of leading national and regional retail chains. A relatively small number of customers accounts for a large percentage of our sales. For fiscal 2010, our largest 10 accounts represented approximately 60 percent of our total food products sales, with Wal-Mart Stores, Inc. (and its affiliates) and The Kroger Co. each accounting for over 10 percent of our food products segment sales. As part of our effort to “Win Together as a Team,” we maintain national account teams to address the needs of our key retailers on a long-term basis.

We continue to devote time and effort on sales of our products to foodservice customers. Items for our foodservice customers are made to their specifications and include sausage, sausage gravy and breakfast sandwiches. Although foodservice represents only a small portion of our food products sales, it provides us with incremental volume in our production plants, as well as an opportunity for future growth.

We sell a variety of products to food brokers who in turn supply the U.S. military, including convenience food items and sausage. Products sold to the military represented less than one percent of our food products volume in fiscal 2010.

In fiscal 2010, we sold our grilling sausage, side dish and frozen breakfast items in the Ontario, Canada area. Less than one percent of our fiscal 2010 revenue is attributable to sales of our food products in Canada or Mexico.

Distribution

We currently supply our customers by shipping products directly to their warehouses for further distribution by the customers to their retail stores. In the past, we supplied customers through our direct-store delivery system, in which members of our route-sales team periodically called on retail stores to purchase products off a delivery truck.

During fiscal 2010, we completed the conversion of our direct-store-delivery system to a warehouse system. Although the conversion to a warehouse system initially resulted in some severance costs and higher slotting fees, we expect it will provide a lower cost structure in the long-term. We also distribute our products through food wholesalers and distributors who primarily service smaller, independent grocers.

At the end of fiscal 2010, Bob Evans ^® and Owens ^® brand products were available for purchase in grocery stores in all 50 states, the District of Columbia, and the Ontario, Canada area. Our Owens ^® brand products were available for purchase primarily in Oklahoma and Texas. Several of our Owens ^® brand products were also available in parts of Mexico through H.E. Butt Grocery Company (dba HEB Grocery Stores).

We continue to work with retailers in states where there is an opportunity to distribute our products. We will explore expansion prospects with retailers to profitably increase points of distribution. During fiscal 2010, we added approximately 700 new product authorizations (i.e., orders from customers for products they have not ordered from us before).

Sources and Availability of Raw Materials

The most important raw material used in our food products business is live sows, which we depend upon to produce our pork sausage products. We procure live sows at prevailing market prices from terminals, local auctions, country markets and corporate and family farms in many states and Canada. The live sow market is highly cyclical in terms of the number of sows available and the current market price. During fiscal 2010, there was a significant contraction in the live sow market, and we believe that the sow herd is at its lowest level since the early 1900’s. The live sow market is also dependent upon supply and demand for pork products, as well as corn and soybean meal prices (the major food supply for sows), weather and farmers’ access to capital. In fiscal 2011, we believe our food products segment will continue to be challenged by sow costs that are significantly higher than historical averages, as well as limited supplies of sows. To date, we have not experienced any significant or prolonged difficulty in procuring live sows. We have not traditionally contracted in advance for the purchase of live sows, although we have done so in limited quantities from time-to-time. We have in the past year however entered into some contracts with regard to the purchase of live sows where we have agreed to accept a specific number of truck loads per week with pricing based on the current market price plus yield premiums.

Other important raw materials used in our food products operations are seasonings and packaging materials. Historically, these materials have been readily available, although some items may be in short supply during certain seasons and prices fluctuate according to availability. Generally, we purchase these items under supply contracts, and we occasionally engage in forward buying when we believe it to be advantageous. We believe that these items will continue to be available from our existing suppliers or, upon short notice, can be obtained from other qualified suppliers.

Most of our food products are highly perishable and require proper refrigeration. Product shelf life ranges from 18 to 60 days for refrigerated products. Due to the highly perishable nature and shelf life of these items, our production plants normally process only enough product to fill existing orders. As a result, we maintain minimal inventory levels. With our transition to a warehouse delivery system, many of our breakfast and dinner sausage items are frozen and shipped to warehouses. Shipping frozen product allows our retailers added flexibility to slack out product to meet consumer demand and allows us to build inventory for heavy consumption periods.

Advertising and Marketing

During fiscal 2010, we spent approximately $9.5 million marketing our food products. Our food products marketing programs consist of advertising, consumer promotions and trade promotions. Our advertising activities include television, radio, newspaper and magazine advertisements aimed at increasing brand awareness and building consumer loyalty. Consumer promotions include the distribution of recipes featuring our products and targeted coupons designed to attract new customers and increase the frequency of purchases. Our trade promotions are aimed at providing retail display support and securing additional shelf space. During fiscal 2010, we continued to “Win Together as a Team” and “Consistently Drive Sales Growth” through joint marketing programs to support both Bob Evans Restaurants and Bob Evans Food Products.

Competition

The food products business is highly competitive and is affected by changes in the public’s eating habits and preferences, as well as by local and national economic conditions affecting consumer spending habits, many of which are beyond our control. Key competitive factors in the industry are the quality, flavor and value of the food products offered, advertising and name brand awareness. We believe that we compete favorably with respect to each of these factors. Our competitors include well-established national, regional and local producers and wholesalers of similar products, some of whom have substantially greater financial, marketing and other resources than we have. We also face growing competition from private label sausage products and side dishes. With respect to our sausage products, our major competitors include the sausage products of Johnsonville Sausage LLC and the Sarah Lee Corporation (i.e., Jimmy Dean brand). We believe that sales of our sausage and mashed potato products constitute a significant portion of sales of comparable products in the majority of our core markets.

Productivity — Project BEST Way

We maintain and support a company-wide productivity initiative called Project BEST Way. The objective of Project BEST Way is to achieve efficiencies and productivity in all business units through various initiatives and projects. A number of projects fall within the umbrella of Project BEST Way, including our efforts to control and reduce supply chain costs, reducing restaurant labor costs, and our manufacturing plant process improvement project (i.e., LEAN manufacturing). We believe Project BEST Way supports our annual and five-year strategic plans by leveraging operational productivity with capital allocation to add profit to our bottom line.

Seasonality and Quarterly Results

Our restaurant and food products businesses are subject to seasonal fluctuations. Historically, our highest levels of revenue and net income at Bob Evans Restaurants occurred in the first and second quarters of our fiscal year. Many Bob Evans Restaurants are located near major interstate highways and generally experience increased revenue during the summer travel season. Conversely, Mimi’s business traditionally tends to be slightly lower in the summer months. Holidays, severe weather conditions (such as snow storms, hurricanes, thunderstorms), natural disasters (such as flooding, tornadoes, and earthquakes) and similar conditions may impact restaurant sales volumes in some of the markets in which we operate.

Our food products business is seasonal to the extent that third and fourth quarter sales are typically higher due to increased sales of sausage during the colder months from November through April. We promote our bratwurst and Italian sausage products for outdoor grilling in an attempt to grow volume during the summer months.

Our consolidated quarterly results are significantly impacted by the cost and availability of raw materials, especially live sows. Our consolidated quarterly results are also impacted by the timing of new restaurant openings and remodels and their associated costs. As a result of these and other factors, our financial results for any given quarter may not be indicative of the results that may be achieved for a full fiscal year.

Trademarks and Service Marks

We have registered trademarks and service marks, including the marks “Bob Evans ^® ” and “Mimi’s Cafe ^® ” for our restaurant business, “Bob Evans ^® ” and “Owens ^® ” for our food products business and “SWH Custom Foods ^® ” for our prep kitchen services, as well as the Bob Evans and Mimi’s Café logos. We maintain a registration program for our marks with the United States Patent and Trademark Office and in certain foreign countries. In order to better protect our brands, we have also registered our ownership of the Internet domain names “www.bobevans.com” and “www.mimiscafe.com.” We believe that our trademarks, service marks, proprietary recipes and other proprietary rights have significant value and are important to our brand-building efforts and the marketing of our restaurant concepts and food products. We have vigorously protected our proprietary rights in the past and expect to continue to do so. We cannot predict, however, whether steps taken by us to protect our proprietary rights will be adequate to prevent misappropriation of these rights or the use by others of restaurant features based upon, or otherwise similar to, our concepts. It may be difficult for us to prevent others from copying elements of our restaurant concepts and food products, and any litigation to enforce our rights would likely be costly.

Government Regulation

We are subject to numerous federal, state and local laws affecting our businesses. Our restaurants are subject to licensing and regulation by a number of governmental authorities, which may include health, sanitation, environmental, zoning and public safety agencies in the state or municipality in which the restaurant is located. Difficulties in obtaining or failures to obtain the required licenses or approvals could delay or prevent the development and openings of new restaurants or could disrupt the operations of existing restaurants. However, we believe that we are in compliance in all material respects with all applicable governmental regulations and, to date, we have not experienced abnormal difficulties or delays in obtaining the licenses or approvals required to open or operate any of our restaurants.

Various federal and state labor laws govern our operations and our relationships with our employees, including such matters as minimum wage, meal and rest breaks, overtime, fringe benefits, safety, working conditions and citizenship requirements. Significant government-imposed increases in minimum wages, paid or unpaid leaves of absence, paid “sick days” or other paid time off, mandated health benefits for all employees or increased tax reporting, assessment or payment requirements related to our employees who receive gratuities could be detrimental to the profitability of our restaurants and food products operations. Minimum wage increases at the federal level and in California, Ohio, and many other states in which we operated during fiscal 2009 affected the profitability of our restaurant and food products businesses and led to increased menu prices. Various proposals that would require employers to provide paid time off for all of their employees are considered from time-to-time in Congress and various states.

The costs of insurance and medical care have risen significantly over the past few years and are expected to continue to increase. Existing or potential legislation changes, such as proposals to require employers to provide health insurance to all employees, could negatively impact our operating results. The imposition of any requirement that we provide paid time off or health insurance to all employees could have an adverse effect on our results of operations and financial position, as well as the restaurant industry in general. Our suppliers may also be affected by higher minimum wage and benefit standards, which could result in higher costs for goods and services supplied to us.

We have a significant number of hourly restaurant employees that receive tip income. We have elected to voluntarily participate in a Tip Reporting Alternative Commitment (“TRAC”) agreement with the Internal Revenue Service. By complying with the educational and other requirements of the TRAC agreement, we reduce the likelihood of potential employer-only FICA assessments for unreported or underreported tips.

There have been a number of federal, state and local proposals and regulations to require restaurants to provide nutritional information on menus and/or require that restaurants label menus with the country of origin of meal ingredients. For example, our Mimi’s Cafés located in California are subject to a state-wide menu labeling law that became effective on July 1, 2009, and our Bob Evans Restaurant located in Montgomery County, Maryland is subject to a menu-labeling law that becomes effective on July 1, 2010. The national health care reform legislation enacted on March 23, 2010 contains provisions that require restaurants with 20 or more locations to post calorie information on menus and additional nutritional information in writing at the restaurant. The FDA is currently drafting specific regulations which it must implement within one year from the date of passage of the federal legislation. Although the new federal legislation preempts the legislation already enacted in California, Montgomery County, Maryland, and other state and local jurisdictions (e.g., Maine, Massachusetts, New Jersey, Oregon, New York City and Philadelphia), these jurisdictions are requiring compliance with their regulations until the FDA regulations are enacted. We are concerned that the imposition of menu-labeling laws could have an adverse effect on our results of operations and financial position, as well as the restaurant industry in general. However, we support the implementation of uniform standards across the United States by the FDA, rather than a state-by-state and locality-by-locality approach.

Potential changes in labor laws, including the possible passage of all or parts of the proposed Employee Free Choice Act (“EFCA”), could result in portions of our workforce being subjected to greater organized labor influence. The EFCA, also referred to as the “card check” bill, could impact the nature of labor relations in the United States, specifically, how union elections and contract negotiations are conducted. The EFCA aims to make it easier for unions to form, and employers of unionized employees may face mandatory, binding arbitration of labor scheduling, costs and standards, which could increase the costs of doing business. Although we do not currently

have any union employees, EFCA or similar labor legislation could have an adverse effect on our business and financial results by imposing requirements that could potentially increase our costs, reduce our flexibility and impact our ability to service our guests.

Our restaurants and manufacturing plants must comply with the applicable requirements of the Americans with Disabilities Act of 1990 (“ADA”) and related state statutes. The ADA prohibits discrimination on the basis of disability with respect to public accommodations and employment. Under the ADA and related state laws, when constructing new restaurants and facilities or undertaking significant remodeling of existing restaurants and facilities, we must make them more readily accessible to people with disabilities. We also must make reasonable accommodations for the employment of people with disabilities. The ADA was amended to significantly expand the categories of individuals who are deemed to have disabilities.

Alcoholic beverage control regulations require each Mimi’s Café to apply to a state authority and, in certain locations, county and municipal authorities for licenses and permits to sell alcoholic beverages on the premises. Typically, licenses must be renewed annually and may be subject to penalties, temporary suspension or revocation for cause at any time. Alcoholic beverage control regulations impact many aspects of the daily operations of our Mimi’s Cafés, including the minimum ages of patrons and employees, employee alcoholic beverage training, hours of operation, advertising, wholesale purchasing, inventory control and the handling, storage and dispensing of alcoholic beverages. We have not encountered any significant problems related to alcoholic beverage licenses to date.

Mimi’s Cafés located in certain states may be subject to “dram-shop” statutes, which generally provide a person injured by an intoxicated person with the right to recover damages from an establishment that wrongfully served alcoholic beverages to the intoxicated person. We train our Mimi’s Café employees how to serve alcohol and we carry liquor liability coverage as part of our existing comprehensive general liability insurance. We have never been named as a defendant in a lawsuit involving “dram-shop” statutes.

As a manufacturer and distributor of food products, we are subject to a number of food safety regulations, including regulations promulgated by the U.S. Department of Agriculture (“USDA”) and the FDA. These agencies enact and enforce regulations relating to the manufacturing, labeling, packaging, distribution and safety of food in the United States. Among other matters, these agencies: enforce statutory prohibitions against misbranded and adulterated foods; establish safety standards for food processing; establish standards for ingredients and manufacturing procedures for certain foods; establish standards for identifying certain foods; determine the safety of food additives; establish labeling standards and nutrition labeling requirements for food products; and enforce regulations to prevent the introduction, transmission or spread of communicable diseases. In addition, various states regulate our operations by: enforcing federal and state standards for selected food products; grading food products; licensing and inspecting plants and warehouses; regulating trade practices related to the sale of food products; and imposing their own labeling requirements on food products. Some of the food commodities we use in our operations are also subject to governmental agricultural programs. These programs have substantial effects on prices and supplies and are subject to Congressional and administrative review.

Through our sausage manufacturing operations, our food products business is subject to the requirements of the Packers & Stockyards Act (the “P&S Act”). The general purpose of the P&S Act is to: (1) assure fair competition and fair trade practices; (2) safeguard farmers and ranchers; (3) protect consumers; and (4) protect members of the livestock, meat and poultry industries from unfair, deceptive, unjustly discriminatory and monopolistic practices. The P&S Act is administered by the Grain Inspection, Packers & Stockyards Administration (“GIPSA”), which is part of the USDA. Among other requirements, the P&S Act requires meat packers, such as our food products business, to be bonded, provides trust protection for producers in the event they are not paid for livestock by a meat packer, and requires that livestock producers be paid promptly by meat packers for the sale of livestock. Violations of the P&S Act may be resolved through a notice of violation, a stipulation agreement with GIPSA, administrative actions and court actions. During fiscal 2010, we resolved an administrative action filed against us alleging violations of the prompt pay requirements of the P&S Act. The settlement of this matter will not have a material adverse effect on our financial condition or results of operations.

We are subject to federal and state environmental regulations, including various laws concerning the handling, storage and disposal of hazardous materials, such as cleaning solvents. These regulations have not had a material adverse effect on our operations to date. We do not anticipate that compliance with federal, state and local provisions

regulating the discharge of materials into the environment, or which otherwise relate to the protection of the environment, will have a material adverse effect upon our capital expenditures, revenues or competitive position.

U.S. federal, state and local laws and regulations are increasingly being enacted to address concerns about the effects that carbon dioxide emissions and other identified greenhouse gases (“GHG”) may have on the environment and climate worldwide. These effects are widely referred to as “Climate Change.” In the U.S., Climate Change legislation is currently pending in Congress and, if enacted, would limit GHG emissions from covered entities through a “cap and trade” system to reduce the quantity of national GHG emissions in accordance with established goals and time lines. One or more of our food processing facilities could be covered by such new legislation. There also has been recent regulatory activity relative to the regulation of GHG emissions by the U.S. Environmental Protection Agency (“EPA”) under the Clean Air Act, including the proposed mandatory reporting of greenhouse gases rule. Additionally, several states already have taken steps to require the reduction of GHGs by certain companies and public utilities, primarily through the planned development of GHG inventories and/or regional GHG cap and trade programs. GHG emissions occur at several points across our operations, including production, transportation and processing. Our compliance with any future legislation or regulation of GHGs, if it occurs, may result in increased compliance and operating costs. It is not, however, possible at this time to predict the structure or outcome of any future legislative or regulatory efforts to address such emissions or the eventual cost to us of compliance. Based on information currently available to us, we believe that compliance with these regulations will not have a material adverse effect on us.

Employees

As of April 30, 2010, we employed 44,086 persons (full and part-time), including 42,741 persons in our restaurant business and 1,345 persons in our food products business. None of our employees are currently covered by collective bargaining agreements, and we have never experienced an organized work stoppage, strike or labor dispute. We believe our working conditions and compensation packages are generally comparable with those offered by our competitors. We consider overall relations with our employees to be favorable.

Available Information

Our Internet Web site address is www.bobevans.com. Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 are available through our Web site as soon as reasonably practicable after such material is electronically filed with, or furnished to, the Securities and Exchange Commission. The information contained on or connected to our Web site is not incorporated into this Annual Report on Form 10-K.

Upon the written request of a stockholder, we will provide without charge a copy of this Annual Report on Form 10-K, including the financial statements and financial statement schedules included herein. In addition, upon the written request of a stockholder, we will provide a copy of any exhibit to this Annual Report on Form 10-K upon the payment of a reasonable fee. Written requests should be delivered to Bob Evans Farms, Inc., Attention: Investor Relations, 3776 South High Street, Columbus, Ohio 43207.


Item 1A.	*Risk Factors*

The risk factors presented below may affect our future operating results, financial position and cash flows. In addition to the risk factors presented below, changes in general economic conditions, consumer tastes and discretionary spending patterns, demographic trends and consumer confidence in the economy, which affect consumer behavior and spending for restaurant dining occasions and retail purchases in general, may have a material adverse effect on us. Our actual results could vary significantly from any results expressed or implied by any forward-looking statements contained in this Annual Report on Form 10-K or our other filings with the Securities and Exchange Commission depending upon a variety of factors, including, but not limited to, the following risks and uncertainties:

Our business could suffer if we are the subject of negative publicity or litigation regarding allegations of food-related illnesses.

As a multi-unit restaurant business and food products business, we can be adversely affected by complaints or litigation from consumers alleging illness, injury or other food quality, adverse health effects (including obesity) or operational concerns. Our reputation and business can also be adversely affected by negative publicity resulting from such complaints or litigation. Food-related illnesses may be caused by a variety of foodborne pathogens, such as e-coli or salmonella, and from a variety of illnesses transmitted by restaurant workers, such as hepatitis. Foodborne illness incidents could also be caused by food suppliers and distributors. As a result, we cannot control all of the potential sources of illness that can be transmitted from food. If any person becomes ill, or alleges becoming ill, as a result of eating our food, we may be liable for damages, be subject to governmental regulatory action and/or receive adverse publicity, regardless of whether the allegations are valid or whether we are liable, any of which could have long-lasting, negative effects on our financial position and results of operations.

Legislation and regulations requiring the display and provision of nutritional information for our menu offerings in our restaurants could increase our operating costs, affect consumer preferences, increase the likelihood of litigation, and negatively impact our results of operations.

We are concerned about regulations requiring restaurants to provide calorie and other nutritional information on menus and/or in our restaurants. Our Mimi’s Cafés located in California are subject to a state-wide menu labeling law that became effective on July 1, 2009, and our Bob Evans Restaurant located in Montgomery County, Maryland is subject to a menu labeling law that becomes effective on July 1, 2010. The national health care reform legislation enacted on March 23, 2010, contains provisions that require restaurants with 20 or more locations to post calorie information on menus and additional nutritional information in writing at the restaurant. The FDA is currently drafting specific regulations which it must implement within one year from the date of passage of the federal legislation. Although the new federal legislation preempts the legislation already enacted in California, Montgomery County, Maryland, and other state and local jurisdictions (e.g., Maine, Massachusetts, New Jersey, Oregon, New York City and Philadelphia), some of these jurisdictions are requiring compliance with their regulations until the FDA regulations are enacted.

Menu labeling regulations could have an adverse effect on our results of operations and financial condition due to the potential impact on our sales and profitability if the disclosures change guest preferences and menu mix, as well as increased operating costs incurred to comply with these regulations. Moreover, we could become subject to litigation arising from our nutritional disclosures, such as claims that our nutritional disclosures are inaccurate or that our menu offerings are harmful to human health.

The financial performance and results of operations of our food products business could be adversely affected by availability of and price we pay for sows.

In fiscal 2011, we believe our food products segment will continue to be challenged by sow costs that are significantly higher than historical averages, as well as limited supplies of sows. We estimate our fiscal 2011 sow costs will be in the range of $55 to $60 per hundredweight, compared to $42 in fiscal 2010. Higher sow costs adversely affect the profitability of our food products business, and we cannot assure you that we will be able to pass along any portion to our food products consumers in a timely manner or at all.

Health concerns and government regulations relating to the consumption of trans-fats, pork, beef, chicken and other food products could affect consumer preferences and could negatively impact our results of operations.

Consumer food preferences could be affected by health concerns about the consumption of various types of food, such as trans-fats, pork, beef and chicken. Negative publicity concerning trans-fats related to fried foods and other items, “mad cow” and “foot-and-mouth” disease relating to the consumption of beef and other meat products, “H1N1” or “swine flu” related to pork products, “avian flu” related to poultry products and the publication of government, academic or industry findings about health concerns relating to menu items served by any of our restaurants could also affect consumer food preferences. These types of health concerns and negative publicity concerning our food products may adversely affect the demand for our food and negatively impact our business and results of operations. Additionally, some government authorities are increasing regulations regarding trans-fats, and sodium which may require us to limit or eliminate trans-fats and sodium from our menu offerings and/or food products. For example, our Mimi’s Cafés located in California are subject to a state-wide trans-fat ban which began in 2010. These regulations may require us to switch to higher cost ingredients and may hinder our ability to operate in certain markets.

The success of our restaurant operations is dependent, in part, upon our ability to effectively respond to changes in consumer health and disclosure regulations and to adapt our menu offerings to trends in eating habits. If consumer health regulations or consumer eating habits change significantly, we may be required to modify or delete certain menu items. To the extent we are unable to respond with appropriate changes to our menu offerings, it could materially affect customer demand and have an adverse impact on our revenues.

The global economic crisis adversely impacted our business and financial results in fiscal 2010, and a prolonged recession could have a material adverse effect on us in the future.

The restaurant industry is dependent upon consumer discretionary spending. The global economic crisis has reduced consumer confidence to historic lows impacting the public’s ability and desire to spend discretionary dollars as a result of job losses, home foreclosures, significantly reduced home values, investment losses in the financial markets, personal bankruptcies and reduced access to credit, resulting in lower levels of guest traffic in our restaurants. If this difficult economic situation continues for a prolonged period of time or deepens in magnitude, our business and results of operation could be materially adversely effected and may result in a further deceleration of the number and timing of new restaurant openings. Continued deterioration in guest traffic and a reduction in the average amount guests spend in our restaurants will negatively impact our revenues. This will result in spreading fixed costs across a lower level of sales, and will, in turn cause downward pressure on our profitability. This could result in asset impairment charges and potential restaurant closures. Future recessionary effects on us are unknown at this time and could have a material adverse effect on our financial position and results of operations.

Certain economic and business factors specific to the restaurant industry and certain general economic factors including unemployment, energy prices and interest rates that are largely out of our control may adversely affect our results of operations.

The results of operations of our restaurant concepts depend upon a number of industry-specific and general economic factors, many of which are beyond our control. The restaurant industry is affected by changes in national, regional and local economic conditions, consumer spending patterns and consumer preferences. Recessionary economic cycles, a protracted economic slowdown, a worsening economy, increased unemployment, decreased salaries and wage rates, increased energy prices, inflation, rising interest rates or other industry-wide cost pressures affect consumer behavior and decrease spending for restaurant dining occasions, leading to a decline in our sales and earnings. When gasoline, natural gas, electricity and other energy costs increase, and credit card, home mortgage and other borrowing costs increase with rising interest rates, our guests may have less disposable income and reduce the frequency with which they dine out. This is particularly the case with casual dining concepts like Mimi’s Café because consumers may choose more inexpensive restaurants (such as quick-service restaurants or fast casual dining) when eating outside the home. Unfavorable changes in the factors described above or in other business and economic conditions affecting our customers could increase our costs, reduce traffic in some or all of

our restaurants or impose practical limits on pricing, any of which would lower our profit margins and have a material adverse effect on our financial condition and results of operations.

Because many of our restaurants are concentrated in certain geographic areas, there could be a material adverse effect on our operations by regional economic conditions and events.

The concentration of many of our existing and planned restaurants in particular regions of the United States could affect our operating results in a number of ways. For example, our results of operations may be adversely affected by economic conditions in that region, the local labor market and regional competition. Also, adverse publicity relating to our restaurants in a region in which they are concentrated could have a more pronounced adverse effect on our overall revenue than might be the case if our restaurants were more broadly dispersed.

A majority of our Bob Evans Restaurants are located in Ohio and other parts of the Midwest, which makes us particularly sensitive to economic conditions, natural disasters, severe weather and other events in this region. We believe same-store sales at our Bob Evans Restaurants are particularly sensitive to economic conditions in the Midwest, which has been hit particularly hard by the downturn in the United States’ economy, the troubled auto industry, increased unemployment and lower home values. Nearly 250 Bob Evans Restaurants are located in Michigan and Ohio where the impact of job losses in the automotive industry (manufacturers and suppliers) could have a material adverse effect on our sales. Also, because a significant percentage of our Mimi’s are located in California, we are also particularly sensitive to events and developments in that state, such as earthquakes or other natural disasters and energy shortages. We are particularly concerned about Mimi’s sales and profit trends in California, Florida, Arizona and Nevada. These states accounted for approximately 70 percent of Mimi’s sales in fiscal 2010 and have been hit particularly hard by the downturn in the United States’ economy, sub-prime mortgage issues, increased unemployment and lower home values.

Our failure to achieve and maintain positive same-store sales for an extended period of time would likely have a material adverse effect upon our financial condition, results of operation and cash flows.

Same-store sales are a key measure of the financial health of our company, as well as our individual restaurants. Same-store sales growth may be affected by a number of factors, including:


	•	local and national economic conditions affecting consumer spending habits;

	•	gasoline prices;

	•	customer trends;

	•	intense competition in the restaurant business;

	•	customer satisfaction;

	•	extraordinary events such as weather or natural disasters; and

	•	pricing pressure.

In fiscal 2010, same-store sales at Mimi’s decreased 7.2 percent and Bob Evans Restaurants’ same-store sales decreased 3.5 percent. Our failure to achieve and maintain positive same-store sales for extended periods of time for either of our restaurant concepts would have a material adverse effect upon our business, results of operations and financial condition.

Our business could suffer if we are the subject of increased litigation regarding personal injuries suffered on our premises, discrimination, harassment or other labor matters.

Employee and customer claims against us based on, among other things, personal injury, discrimination, harassment, wage and hour disputes or wrongful termination may divert our financial and management resources from operating our businesses. Restaurant companies have been the target of class actions and other lawsuits alleging, among other things, violation of federal and state law. Like many employers, Mimi’s has been faced with allegations of purported class-wide wage and hour violations in California, and we have taken charges related to the settlement of these cases.

Although we believe Mimi’s Café properly classified its assistant managers as exempt employees under California law, we elected to resolve the Flores lawsuit through voluntary mediation. The Orange County California Superior Court granted preliminary approval of a settlement in the amount of $1,030,000 in January 2010. We recently completed the administration of claims, and the Orange County Superior Court granted final approval of the settlement on June 10, 2010.

On October 13, 2009, a class action complaint entitled Edder Diaz and Rosolyn Gray, et al. vs. SWH Corporation d/b/a Mimi’s Café was filed in Alameda County California Superior Court. Mr. Diaz and Ms. Gray purport to represent a class of various nonexempt employees, including bartenders, hosts and servers, who are allegedly similarly situated. The case involves claims that current and former nonexempt employees working in these positions in California from October 2005 to the present (1) were not reimbursed for certain expenses incurred in connection with the discharge of their duties and (2) were denied rest breaks and meal periods as required for nonexempt employees under California wage and hour laws. The complaint seeks unspecified damages, penalties, interest and attorneys’ fees and costs.

We believe Mimi’s has complied with the California wage and hour laws at issue in the Diaz lawsuit. We are evaluating the results of similar proceedings in California and are consulting with advisors with specialized expertise. An unfavorable verdict or a significant settlement could have a material adverse effect on our financial position, cash flows and results of operations.

The restaurant and food products industries are heavily regulated, and compliance with applicable laws and regulations may be more costly than we expect.

The restaurant industry and the food products industry are subject to various federal, state and local laws and regulations. Compliance with these legal requirements may be more costly than we expect. The failure to obtain and/or retain licenses, permits or other regulatory approvals could delay or prevent the opening of a restaurant and/or the continued operation of a particular restaurant or food products manufacturing facility. Our failure to comply with applicable laws and regulations could also result in fines or legal actions that could adversely affect our business, results of operations and financial position. Significant legal and regulatory issues affecting our business include:


	•	employment laws, including minimum wage requirements, overtime pay, meal and rest break requirements, paid “sick days” or other paid time off, unemployment tax rates, discrimination laws, workers’ compensation rates and citizenship and immigration requirements;

	•	national health care reform legislation that passed the U.S. Congress in March 2010 and its provisions that will require labeling on restaurant menus, menu boards, and drive-through displays;

	•	permit, licensing and other regulatory requirements for the sale of food and alcoholic beverages;

	•	health, safety and fire regulations;

	•	zoning, land and environmental regulations;

	•	sales tax;

	•	food safety regulations governing the manufacture (including composition and ingredients), labeling, packaging and safety of food in the United States and Canada;


	•	laws governing public access and employment for people with disabilities; and

	•	state “dram shop” statutes, which generally allow a person injured by an intoxicated person to recover damages from an establishment that wrongfully served alcoholic beverages to the intoxicated person.

A privacy breach could adversely affect our business.

The protection of customer, employee and company data is critical to us. The regulatory environment surrounding information security and privacy is increasingly demanding, with the frequent imposition of new and constantly changing requirements. Compliance with these requirements may result in cost increases due to necessary systems changes and the development of new administrative processes. In addition, customers have a high expectation that we will adequately protect their personal information. If we fail to comply with these laws and regulations or experience a significant breach of customer, employee or company data, our reputation could be damaged and we could experience lost sales, fines or lawsuits.

Our success depends on our ability to compete effectively in the restaurant and food products industries.

The restaurant industry is highly competitive and is affected by changes in the public’s eating habits and preferences, population trends, traffic patterns and weather conditions, as well as by local and national economic conditions affecting consumer spending habits, many of which are beyond our control. Key competitive factors in the restaurant industry include the quality and value of the menu items offered, quality and speed of service, attractiveness of facilities, advertising, name brand awareness and image and restaurant locations. Many of our competitors are well-established national, regional or local chains, and some have substantially greater financial, marketing and other resources than we have, which may give them competitive advantages. We also compete with many restaurant operators and other retail establishments for site locations and restaurant employees. We expect competition to intensify as our competitors expand operations in our markets and quick-service restaurant chains expand their breakfast offerings. This increased competition could have a material adverse effect on our financial position or results of operations.

The food products business is also highly competitive and is affected by changes in the public’s eating habits and preferences, as well as by local and national economic conditions affecting consumer spending habits. Key competitive factors in the industry include the quality, flavor and value of the food products offered, advertising and name brand awareness. Our competitors include well-established national, regional and local producers and wholesalers of similar products, many of whom have substantially greater name recognition and financial, marketing and other resources than we have, which may give them competitive advantages. We are facing increased competition from private label sausage products and side dishes. We expect competition to intensify in our food products segment as other food companies introduce refrigerated side dishes to compete with our successful mashed potatoes and macaroni and cheese products. This increased competition could have a material adverse effect on our financial position or results of operations.

The price and availability of food, ingredients and utilities used by our restaurants could adversely affect our revenues and results of operations.

Our business is subject to the general risks of inflation. Our results of operations depend significantly on our ability to anticipate and react to changes in the price and availability of food, ingredients, utilities, and other related costs over which we may have little control. Fluctuations in economic conditions, weather and demand, as well as natural disasters can adversely affect the availability, quality and cost of the ingredients and products that we buy. We require fresh produce, dairy products and meat, and therefore are subject to the risk that shortages or interruptions in supply of these food products could develop. Our operating margins are subject to changes in the price and availability of food commodities. For example, during fiscal 2010, the profitability of our food products segment was negatively impacted by supply issues as well as by price volatility including record high sow costs in the fourth quarter, which represent the majority of food products segment cost of sales. The effect of, introduction of, or changes to tariffs or exchange rates on imported retail products or food products could increase our costs and possibly affect the supply of those products. Our operating margins are also affected by fluctuations in the price of utilities such as natural gas, whether as a result of inflation or otherwise, on which our restaurants

depend for much of their energy supply. Our inability to anticipate and respond effectively to an adverse change in any of these factors could have a significant adverse effect on our results of operations. In addition, because we provide a moderately priced product, we may not seek or be able to pass along price increases to our guests sufficient to offset cost increases.

Our inability to successfully and sufficiently raise menu and food products prices to offset increased costs could result in a decline in margins.

We utilize price increases for menu offerings and food products to help offset cost increases, including increased costs for wholesale food, raw materials, distribution, minimum wages, employee benefits, construction, fuel, utility, inflation and other costs. During fiscal 2010, we implemented menu price increases at a significant number of Bob Evans Restaurants and Mimi’s Cafés to help offset operating and supply cost increases. Further federal legislation to increase the minimum wage as well as the tip credit wage we pay to certain staff members receiving guest gratuities is probable, and there may be similar increases implemented in other jurisdictions in which we operate or seek to operate. Additional minimum wage increases could have a material adverse effect on our labor costs. Our food products business is also sensitive to sow costs. During fiscal 2010, the profitability of our food products segment was negatively impacted by a significant and rapid increase in sow costs compared to previous years. We believe our food products segment will continue to be challenged by high sow costs in fiscal 2011. We may not be able to anticipate and react to changing costs by adjusting our purchasing practices and prices to sufficiently account for increased costs, especially further minimum wage increases at the federal and/or state level. Also, because we offer moderately priced food, we may not be able to, or we may choose not to, pass along price increases to our customers, which could have a material adverse effect on our business and results of operations.

Our success depends on consumer acceptance of our menu offerings, food products, prices, atmosphere and service procedures.

Our success in creating demand for our restaurant menu offerings and food products is dependent on our ability to continue to accurately predict consumer dining and taste preferences and adapt our menu and food products to trends in food consumption. If customer eating habits change significantly and we are unable to respond with appropriately priced menu offerings and food products, it could have a material adverse effect on demand for our menu offerings and food products, which would result in lost customers and a material adverse effect on our business and results of operations. Our success is also dependent upon our ability to keep the atmosphere of our two restaurant concepts relevant and provide satisfactory customer service. If we change a restaurant concept or customer service technique, we may lose customers who do not prefer the changed concept or customer service technique, and we may not be able to attract a sufficient new customer base to produce the revenue needed to make the concept or technique profitable.

Catastrophic events may disrupt our business and could adversely affect our revenues and results of operations.

We are a highly automated business and rely on our production facilities and our network infrastructure and our Web site for our development, marketing, operational, support, hosted services and sales activities. A disruption, infiltration or failure of these systems or third party hosted services in the event of a major earthquake, fire, power loss, telecommunications failure, cyber attack, war, terrorist attack, or other catastrophic event could cause system interruptions, reputational harm, loss of intellectual property, delays in our product development, lengthy interruptions in our services, breaches of data security and loss of critical data.

Our food products business has seven manufacturing plants which we believe have adequate capacity to serve their intended purpose. If we were forced to close or delay production at one or more of these plants due to a natural disaster or significant labor issue, we may be unable to increase production at our other plants in a timely manner, which could have a material adverse effect on our results of operations. Also, Mimi’s Cafés rely on a single site prep kitchen for preparation of substantially all of the concept’s signature muffin mixes, dressings, sauces and soups. Any temporary or permanent disruption in the operation of this facility would affect the ability of Mimi’s to serve

the full range of menu offerings or require us to obtain these items from alternative sources, which could have a material adverse effect on our results of operations.

In fiscal 2009, Hurricane Ike and its remnants affected our business operations as hurricane-force winds caused widespread power outages in parts of the Midwest, primarily Indiana, Kentucky and Ohio. These power outages affected power supply to three Mimi’s Cafés located in Kentucky and Ohio, approximately 60 Bob Evans Restaurants located in Indiana, Kentucky and Ohio and our corporate headquarters in Columbus, Ohio. Additionally, our manufacturing plant in Xenia, Ohio temporarily ceased operations as a result of a power outage.

We have developed certain disaster recovery plans and certain backup systems to reduce the potentially adverse effect of such events, but a catastrophic event that results in the destruction or disruption of any of our data centers or our critical business or information technology systems could severely affect our ability to conduct normal business operations and, as a result, our future operating results could be adversely affected.

Our food products business is dependent upon a limited number of suppliers for the production of a significant number of items and relies upon a relatively small number of customers for a large percentage of its sales.

Our food products business is dependent upon a limited number of suppliers, and we have not identified secondary suppliers for food products manufactured in our plants. Our prolonged inability to provide products to fill orders in a timely manner would have an adverse effect on both our restaurant and food products businesses and our results of operations. Our food products business also relies upon a relatively small number of customers for a large percentage of its sales. For fiscal 2010, our largest 10 accounts represented approximately 60 percent of our total food products sales, with Wal-Mart Stores, Inc. (and its affiliates) and The Kroger Co. each accounting for over 10 percent of our food products segment sales. Our inability to maintain strong relationships with our key customers could result in a loss of business, which would have a material adverse effect on our food products business and our results of operations.

We are dependent on timely delivery of fresh ingredients by our suppliers.

Our restaurant operations are dependent on timely deliveries of fresh ingredients, including fresh produce, dairy products and meat. The cost, availability and quality of the ingredients we use to prepare our food are subject to a variety of factors, many of which are beyond our control. Fluctuations in weather, supply and demand, the economy and political conditions could adversely affect the cost, availability and quality of our ingredients. If the variety or quality of our food products declines due to the lack or lower quality of our ingredients or due to interruptions in the flow of fresh ingredients, customer traffic may decline and negatively affect our sales. We have contracted with third-party distributors for the delivery of food and other products to our restaurants. If these contracts were suddenly and unexpectedly terminated, supply costs could increase and disruptions in distribution could occur during the transition to other third-party distributors.

Our long-term growth strategy depends on opening new restaurants. Our ability to expand our restaurant base is influenced by factors beyond our control, which may further slow restaurant expansion and impair our growth strategy.

We are pursuing a moderate and disciplined long-term growth strategy which, to be successful, will depend in large part on our ability to open new restaurants and operate those restaurants on a profitable basis. Currently, we do not believe that our average new restaurant volumes generate a level of return on our development costs that justifies significant expansion of Bob Evans Restaurants or Mimi’s Cafés. We do not intend to substantially increase the construction of new restaurants until the economy improves and we improve “restaurant level economics” by increasing our sales, lowering our labor, purchasing and construction costs and increasing our margins and profitability. We cannot guarantee that we will be able to achieve our expansion goals or operating results similar to those of our existing restaurants. One of our biggest challenges in meeting our long-term growth objectives will be to locate and secure an adequate supply of suitable new restaurant sites. We have experienced delays in opening some of our restaurants and may experience delays in the future. Delays or failures in opening new restaurants could

have a material adverse effect on our planned long-term growth strategy. The success of our planned expansion will depend upon numerous factors, many of which are beyond our control, including the following:


	•	our ability to generate a suitable level of return on the money we invest in new restaurants;

	•	the availability and hiring of qualified personnel;

	•	reliance on management to identify available and suitable restaurant sites;

	•	competition for restaurant sites;

	•	negotiation of favorable purchase or lease terms for restaurant sites;

	•	timely development of new restaurants, including the availability of construction materials and labor;

	•	management of construction and development costs of new restaurants;

	•	securing required governmental approvals and permits in a timely manner, or at all;

	•	cost and availability of capital;

	•	competition in our markets; and

	•	general economic conditions.

In addition, we contemplate entering new markets in which we have no operating experience. These new markets may have different demographic characteristics, competitive conditions, consumer tastes and discretionary spending patterns than our existing markets, which may cause the new restaurants to be less successful in these new markets than in our existing markets.

Our long-term growth strategy may strain our management, financial and other resources. For instance, our existing systems and procedures, restaurant management systems, financial controls, information systems, management resources and human resources may be inadequate to support our planned expansion of new restaurants. Also, we may not be able to respond on a timely basis to all of the changing demands that the planned expansion will impose on our infrastructure and other resources.

The growth of our food products sales and profits is dependent upon our ability to expand into existing and new markets.

The successful growth of our food products business depends on our ability to expand our reach into existing and new markets through both the retention of new customers and the introduction of new products. The expansion of our food products business depends on our ability to obtain and retain large-account customers, such as grocery store chains and warehouse customers, and enter into long-term contracts with those customers. Our failure to contract with new large-account customers or maintain our contractual relationships with existing large-account customers could have a material adverse effect on our food products business and results of operations.

Our quarterly operating results may fluctuate significantly and could fall below the expectations of securities analysts and investors due to a variety of other factors, resulting in a decline in our stock price.

Our quarterly operating results may fluctuate significantly because of several factors, including:


	•	fluctuations in food and commodity prices, including sow costs;

	•	the timing of new restaurant openings and related expenses;

	•	restaurant operating costs for our newly opened restaurants, which are often materially greater during the first several months of operation;

	•	labor availability and costs for hourly and management personnel;

	•	profitability of our restaurants, especially in new markets;

	•	impairments of long-term assets;


	•	trends in same-store sales;

	•	adverse weather conditions;

	•	special items, such as property sales;

	•	local and national economic conditions, including gasoline and other energy costs; and

	•	changes in consumer preferences and competitive conditions.

Our restaurant and food products businesses are also subject to seasonal fluctuations. As a result, our quarterly and annual operating results, same-store sales and comparable food products sales may fluctuate significantly as a result of seasonality and the factors discussed above. Accordingly, results for any one quarter are not necessarily indicative of results to be expected for any other quarter or for any fiscal year. If our quarterly operating results fall below the expectations of securities analysts and investors due to the factors discussed above, this could result in a decline in our stock price.

If we lose the services of any of our key management personnel, our business could suffer.

Our future success significantly depends on the continued services and performance of our key management personnel. Our future performance will depend on our ability to motivate and retain these and other key officers and key team members, particularly regional and area managers and restaurant general managers. Competition for high-quality employees is intense. The loss of the services of members of our senior management or key team members or the inability to attract additional qualified personnel as needed could harm our business.

Many factors, including those over which we have no control, affect the trading price of our stock.

Factors such as reports on the economy or the price of commodities, as well as negative or positive announcements by competitors, regardless of whether the report relates directly to our business, could have an impact of the trading price of our common stock. The market price of our common stock may also be affected by stock market conditions, including price and trading fluctuations on the NASDAQ Stock Market, the New York Stock Exchange or other exchanges. In addition to investor expectations about our prospects, trading activity in our common stock can reflect the portfolio strategies and investment allocation changes of institutional holders, as well as non-operating initiatives such as share repurchase programs. Any failure to meet market expectations for our financial performance, particularly with respect to comparable restaurant sales, revenues, operating margins and earnings per share, would likely cause our stock price to decline.

Disruptions in the financial markets may adversely impact the availability and cost of credit and consumer spending patterns.

Our ability to make scheduled payments or to refinance our debt and to obtain financing for general corporate purposes will depend on our operating and financial performance which, in turn, is subject to prevailing economic conditions and to financial, business and other factors beyond our control. Global credit markets and the financial services industry have been experiencing a period of unprecedented turmoil in recent months, characterized by the bankruptcy, failure or sale of various financial institutions and an unprecedented level of intervention from the United States and other governments. These events may adversely impact the availability of credit already arranged, and the availability and cost of credit in the future. There can be no assurances that we will be able to arrange credit on terms we believe are acceptable or that permit us to finance our business with historical margins. These events have also adversely affected the U.S. and world economy, and any new or continuing disruptions in the financial markets may also adversely affect the U.S. and world economy, which could negatively impact consumer spending patterns. There can be no assurances that various U.S. and world government responses to the disruptions in the financial markets in the near future will restore consumer confidence, stabilize the markets, or increase liquidity or the availability of credit. There can be no assurances as to how or when this unprecedented period of turmoil will be resolved.

As of April 30, 2010, we had available bank lines of credit from two different lenders totaling $120.0 million, consisting of a $75.0 million revolving line of credit (no amount outstanding) and a $45.0 million revolving line of

credit ($14.0 million outstanding). We utilize our bank lines of credit for liquidity needs, capital expansion, and general corporate purposes. Under the $75.0 million revolving line of credit, all outstanding amounts become due and payable on April 19, 2011. Under the $45.0 million bank line of credit, all outstanding amounts become due and payable on December 1, 2010, subject to acceleration upon the occurrence of certain specified events of default. If we are unable to extend the maturity date of either line of credit, and we are unable to secure adequate replacement financing on terms we believe are acceptable or at all, there could be a material adverse effect on our liquidity and financial condition.

Restrictive covenants in our debt instruments restrict or prohibit our ability to engage in or enter into a variety of transactions, which could adversely affect us.

Our credit facilities and the agreements governing our senior notes contain various covenants that limit, among other things, our ability to: incur liens on our assets; merge or consolidate with other entities; transfer or sell a substantial part of our assets; substantially change the nature of our business; engage in sale and leaseback transactions; and enter into transactions with affiliates.

The agreements governing our senior notes contain additional restrictive covenants, including financial maintenance requirements relating to our: consolidated net worth; ratio of consolidated indebtedness to consolidated capitalization; ratio of consolidated income available for fixed charges to fixed charges; and levels of priority indebtedness.

The covenants contained in our debt instruments could have a material adverse effect on our business by limiting our ability to take advantage of financing, merger, acquisition or other corporate opportunities, to fund our business operations or to successfully implement our current and future operating strategies.

A breach of a covenant in our debt instruments could cause acceleration of a significant portion of our outstanding indebtedness.

A breach of a covenant or other provision in any debt instrument governing our current or future indebtedness could result in a default under that instrument and, due to cross-default and cross-acceleration provisions, could result in a default under our other debt instruments. In addition, the agreements governing our senior notes require us to maintain certain financial ratios. Our ability to comply with these covenants may be affected by events beyond our control (such as uncertainties related to the current economy), and we cannot be sure that we will be able to comply with these covenants at all times in the future. Upon the occurrence of an event of default under any of our debt instruments, the lenders could elect to declare all amounts outstanding to be immediately due and payable and terminate all commitments to extend further credit. If the lenders under our current or future indebtedness accelerate the payment of the indebtedness, we cannot be sure that our assets would be sufficient to repay in full our outstanding indebtedness.

Our restaurant business is dependent upon satisfactory customer service, and we may have difficulty hiring and retaining a sufficient number of qualified employees to deliver appropriate service.

Our success depends in part upon our ability to attract, train, motivate and retain a sufficient number of qualified employees, including restaurant managers, kitchen staff and servers who can meet the high standards necessary to deliver the levels of food quality and service on which our restaurant concepts are based. The short supply of qualified individuals in some areas could strain our restaurant operations, delay new restaurant openings or require us to increase wages to attract desired individuals, which could have a material adverse effect on our financial position or results of operations. Also, high rates of employee turnover could have a negative impact on food quality and customer service, which would result in an adverse effect on our restaurant business and results of operations.

Our failure or inability to enforce our trademarks or other proprietary rights could adversely affect our competitive position or the value of our brand.

We believe that our trademarks, service marks and other proprietary rights are important to our success and our competitive position. Our primary trademarks, “Bob Evans ^® ,” “Mimis Cafe ^® ” and “Owens ^® ,” are key components of our operating and marketing strategies. As a result, we devote appropriate resources to the protection of our

trademarks and other proprietary rights. The protective actions that we take, however, may not be sufficient to prevent unauthorized usage or imitation by others, which could harm our image, brand or competitive position and, if we commence litigation to enforce our rights, cause us to incur significant legal costs.

In addition, third parties might claim that our trademarks or menu offerings infringe upon their proprietary rights. Any such claim, whether or not it has merit, could be time-consuming, result in costly litigation, cause delays in introducing new menu items or require us to enter into royalty or licensing agreements. As a result, any such claim could have a material adverse effect on our business, results of operations and financial condition.

Our current insurance loss estimates may not be adequate and, if claims exceed such estimates, it could have a material adverse effect on our profitability.

We are self-insured for a significant portion of our current exposures related to our workers’ compensation, general liabilities and employee health insurance programs. Although we base our loss estimates on actuarial data, as well as on our historical trends, we may not be able to accurately predict the number or value of the claims that occur. In particular, health insurance costs have increased significantly over the last 10 years. In the event that our actual liability exceeds our estimate for any given period, or if we are unable to control rapidly increasing health care costs, there could be a material adverse effect on our level of profitability.

Adverse weather conditions could harm our sales.

Weather conditions can adversely impact sales at our restaurants. Adverse weather conditions, such as snow and ice in the Midwest, that keep customers from dining out, result in lost opportunities for our restaurants. Adverse weather conditions may also cause shortages or interruptions in the supply of fresh meat and produce to our restaurants and hamper the distribution of our food products to grocery stores. Adverse weather conditions adversely affected fiscal 2010 fourth quarter restaurant sales.

Our Certificate of Incorporation and Bylaws, as well as Delaware law may have anti-takeover effects.

Provisions of our Certificate of Incorporation and Bylaws may have the effect of discouraging, delaying or preventing a merger, tender offer or proxy contest, which could have an adverse effect on the market price of our common stock. In addition, certain provisions of Delaware law applicable to our Company could also delay or make more difficult a merger, tender offer or proxy contest involving our company, including Section 203 of the Delaware General Corporation Law, which prohibits a Delaware corporation from engaging in any business combination with any “interested shareholder” (as defined in the statute) for a period of three years unless certain conditions are met. In addition, our senior management is entitled to certain payments and rights upon a change in control of our Company.


Item 1B.	*Unresolved Staff Comments*

None.


Item 2.	*Properties*

The following provides a brief summary of the location and general character of our principal plants and other physical properties as of April 30, 2010.

We own our principal executive offices located at 3776 S. High St., Columbus, Ohio. We also own a 937-acre farm located in Rio Grande, Ohio and a 30-acre farm located in Richardson, Texas. The two farm locations support our brand heritage and image through educational and tourist activities.

Bob Evans Restaurants

At the end of fiscal 2010, we owned the real estate for 491 of our Bob Evans Restaurants and leased the real estate for the remaining 78. The table located in Item 1 of this Annual Report on Form 10-K shows the location of all of our Bob Evans Restaurants in operation as of the end of fiscal 2010. The initial terms for the majority of our Bob Evans Restaurant leases’ are 20 years and include options to extend the terms. Additionally, we own 24 closed restaurants that we intend to sell or lease in the future.

We own approximately 17 acres of improved property commonly known as the Southland Mall, located adjacent to our Bob Evans Farms corporate headquarters in Columbus, Ohio. Part of our corporate headquarters is located in this facility and we lease space in the remainder of the facility.

Mimi’s Cafés

The Mimi’s Café corporate offices are located in Irvine, California, under a lease that expires in 2014. The SWH Custom Foods prep kitchen is located in Fullerton, California, under a 10-year lease and has two five-year renewal options with the initial term ending in July 2010. The Mimi’s Café décor and furnishings warehouse is located in Corona, California, under a lease that expires in July 2012.

At the end of fiscal 2010, we leased the real estate for all but seven of our Mimi’s Cafés. The table located in Item 1 of this Annual Report on Form 10-K shows the location of all of our Mimi’s Cafés in operation as of the end of fiscal 2010. The initial terms for the majority of our Mimi’s Café leases’ are 20 years and include options to extend the terms for up to 15 additional years.

Food Products

Our food products business has seven manufacturing plants located in Galva, Illinois, Hillsdale, Michigan, Bidwell, Springfield and Xenia, Ohio and Sulphur Springs and Richardson, Texas. We also operate a distribution center in Springfield, Ohio. We own all of these properties.

During fiscal 2010, we completed an approximately $16 million expansion of our Sulphur Springs, Texas facility to add more capacity to produce fully cooked products.

We believe that our manufacturing facilities currently have adequate capacity to serve their intended purpose. We believe our facilities have adequate capacity over the next five years and will position our food products business for growth during that period.

We own a regional food products sales office in Westland, Michigan. We lease various other locations throughout our food products marketing territory which serve as regional and divisional sales offices.


Item 3.	*Legal Proceedings*

On October 28, 2008, a class action complaint entitled Leonard Flores, et al. v. SWH Corporation d/b/a Mimi’s Café was filed in Orange County California Superior Court. Mr. Flores was employed as an assistant manager of Mimi’s Café until September 2006 and purports to represent a class of assistant managers who are allegedly similarly situated. Mimi’s Café classified its assistant managers as exempt employees until October 2009. The case involves claims that current and former assistant managers working in California from October 2004 to October 2009 were misclassified by Mimi’s Café as exempt employees. As a result, the complaint alleges that these assistant managers were deprived of overtime pay, rest breaks and meal periods as required for nonexempt employees under California wage and hour laws. The complaint seeks injunctive relief, equitable relief, unpaid benefits, penalties, interest and attorneys’ fees and costs. Although we believe Mimi’s Café properly classified its assistant managers as exempt employees under California law, we elected to resolve the Flores lawsuit through voluntary mediation. The Orange County California Superior Court granted preliminary approval of a settlement in the amount of $1,030,000 in January 2010. We recently completed the administration of claims, and the Orange County Superior Court granted final approval of the settlement on June 10, 2010.

We believe Mimi’s Café has complied with the California wage and hour laws at issue in the Diaz lawsuit. We are evaluating the results of similar proceedings in California and are consulting with advisors with specialized expertise. An unfavorable verdict or a significant settlement could have a material adverse effect on our financial position, cash flows and results of operations.

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. In addition to the class action lawsuit described above, we are involved with a number of pending legal proceedings incidental to our business. Management presently believes that the ultimate outcome of these proceedings, individually or in the aggregate, will not have a material adverse effect on our financial position, cash flows or results of operations.


Item 4.	*Submission of Matters to a Vote of Security Holders .*

Not applicable.

Supplemental Item. Executive Officers of Bob Evans Farms, Inc .

The following table sets forth the executive officers of Bob Evans Farms, Inc. and certain information regarding each executive officer as of June 25, 2010. The executive officers are appointed by and serve at the pleasure of the Board of Directors of Bob Evans Farms, Inc.


			Years as
Name	Age		Officer	Principal Occupation for Past Five Years

Harvey Brownlee		48	1	President and Chief Restaurant Operations Officer since February 2009; KFC Chief Operating Officer (Yum! Brands) from 2004 to January 2009; Chief Operating Officer of Yum! Multibrand Operations from 2003 to 2004
Mary L. Cusick		54	19	Senior Vice President — Bob Evans Restaurant Marketing since 2007; Senior Vice President — Marketing and Corporate Communications from 2005 to 2007; Senior Vice President of Investor Relations and Corporate Communications from 2000 to 2005
Steven A. Davis		52	4	Chief Executive Officer since May 2006; President, Long John Silver’s and A&W All-American Food Restaurants (Yum! Brands), from 2002 to May 2006
Joe R. Eulberg		52	2	Executive Vice President — Human Resources since March 2008; Executive Vice President of Human Resources, Acosta Sales and Marketing (in-store sales, marketing and service company), from March 2007 to August 2007; Senior Vice President of Human Resources, Nash-Finch Company (wholesale food distributor), from November 2003 to August 2006
Mary L. Garceau		37	4	Vice President, General Counsel and Corporate Secretary since September 2007; Vice President, General Counsel and Assistant Secretary from July 2006 to September 2007; Attorney, Vorys, Sater, Seymour and Pease LLP, Partner from 2005 to June 2006, Associate from 1997 to 2004.


			Years as
Name	Age		Officer	Principal Occupation for Past Five Years

Richard B. Green		52	1	Chief Risk and Compliance Officer since February 2010; Vice President -CAO and Controller, Embarq Corporation, from May 2007 to July 2009; Vice President - Financial Planning and Decision Support, Embarq Corporation, from April 2004 — May 2007.
Richard D. Hall		54	14	Executive Vice President — Supply Chain Management since September 2008; Senior Vice President — Corporate Procurement from August 2006 to September 2008; Vice President — Food Products Operations from May 1997 to April 2007.
Randall L. Hicks		50	15	President and Chief Concept Officer — Bob Evans Restaurants since February 2009; Executive Vice President — Bob Evans Restaurant Operations from 2004 to February 2009; Senior Vice President of Restaurant Operations 2003 to 2004.
Edward A. Mitchell		44	January 2010	Vice President and Corporate Controller; Director of Corporate Accounting at Greif, Inc. from March 2005 to September 2009.
Timothy J. Pulido		55	3	President and Chief Concept Officer — Mimi’s Café since February 2009; President — Mimi’s Café from December 2007 to February 2009; Chief Executive Officer, Shakey’s USA (pizza chain), from 2006 to December 2008; President and Chief Operating Officer, Pick Up Stix (a quick-casual Asian restaurant chain), from 2003 to 2005.
Tod P. Spornhauer		44	11	Chief Financial Officer, Treasurer and Assistant Secretary since September 2009; Senior Vice President — Finance, Controller, Assistant Treasurer and Assistant Secretary since 2003.
J. Michael Townsley		51	7	President — Food Products since June 2008; Executive Vice President — Food Products from November 2006 to June 2008; President and Chief Executive Officer, Owens Foods, Inc. (formerly Owens Country Sausage, Inc.), from June 2003 to November 2006.

PART II


Item 5.	*Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer Repurchases of Equity Securities*

Market Information, Holders of Common Equity and Dividends

The information required by Item 201(a) through (c) of Regulation S-K is incorporated herein by reference to Note H, Quarterly Financial Data (Unaudited) , to our consolidated financial statements which are included in Item 8 of this Annual Report on Form 10-K.

Performance Graph

Comparison of Five-Year Cumulative Total Return

The following line graph compares the yearly percentage change in our cumulative total stockholder return on our common stock over our preceding five fiscal years against the cumulative total return of the Standard & Poor’s 500 Stock Index (“S&P 500”) and the weighted average of our peer group. Our peer group is comprised of restaurant companies listed on The NASDAQ Stock Market (weighted 80 percent) and a group of meat producers listed on either The NASDAQ Stock Market or the New York Stock Exchange (weighted 20 percent). We measure cumulative stockholder return by dividing (a) the sum of (i) the cumulative amount of dividends for the measurement period, assuming dividend reinvestment, and (ii) the difference between the price of our common stock at the end and the beginning of the measurement period by (b) the price of our common stock at the beginning of the measurement period.

CUMULATIVE VALUE OF $100 INVESTMENT


	2005		2006		2007		2008		2009		2010
Peer Group	$	100.00	$	124.88	$	116.42	$	80.09	$	64.64	$	102.00
S&P 500	$	100.00	$	113.29	$	128.14	$	119.77	$	75.45	$	102.58
Bob Evans Farms, Inc.	$	100.00	$	144.32	$	186.57	$	145.21	$	129.19	$	168.96

Issuer Repurchases of Equity Securities

In May 2010, our Board of Directors authorized a share repurchase program for fiscal 2011. The program authorized us to repurchase, through April 29, 2011, up to $25.0 million in shares of our outstanding common stock from time-to-time on the open market or through privately negotiated transactions, depending on market conditions.


Item 6.	*Selected Financial Data*

Consolidated Financial Review

Bob Evans Farms, Inc. and Subsidiaries


	2010			2009			2008			2007			2006
	Dollars and shares in thousands, except per share amounts

Operating Results
Net sales	$	1,726,804		$	1,750,512		$	1,737,026		$	1,654,460		$	1,584,819
Operating income		106,414			28,367			107,240			98,422			85,357
Income before income taxes		96,326			16,061			96,250			89,427			73,712
Income taxes		25,998			21,207			31,374			28,885			18,938
Net income (loss)		70,328			(5,146	)		64,876			60,542			54,774
Earnings (loss) per share of common stock:
Basic	$	2.29		$	(0.17	)	$	1.96		$	1.68		$	1.53
Diluted	$	2.28		$	(0.17	)	$	1.95		$	1.66		$	1.52
Financial Position
Working capital	$	(116,532	)	$	(165,545	)	$	(255,330	)	$	(94,490	)	$	(77,083	)
Property, plant and equipment — net		961,974			1,002,692			999,011			963,363			967,717
Total assets		1,109,157			1,164,175			1,221,907			1,196,962			1,185,078
Debt:
Short-term		40,905			93,904			165,404			34,000			4,000
Long-term		149,287			176,192			133,096			172,333			206,333
Stockholders’ equity		638,157			597,706			612,625			705,231			704,456
Supplemental Information for the Year
Capital expenditures	$	51,266		$	95,985		$	120,955		$	84,242		$	112,860
Depreciation and amortization	$	83,988		$	81,934		$	77,131		$	74,238		$	76,062
Weighted-average shares outstanding:
Basic		30,775			30,744			33,065			36,105			35,691
Diluted		30,890			30,744			33,315			36,484			35,944
Cash dividends paid per share	$	0.68		$	0.60		$	0.56		$	0.54		$	0.48
Common stock market closing prices:
High	$	33.61		$	34.09		$	39.59		$	38.15		$	30.93
Low	$	23.38		$	13.44		$	24.49		$	25.10		$	21.09
Supplemental Information at Year-End
Employees		44,086			46,495			49,149			51,092			50,810
Registered stockholders		22,659			23,608			24,302			30,969			32,296
Market price per share at closing	$	30.93		$	24.97		$	27.57		$	37.12		$	28.88
Book value per share	$	21.01		$	19.46		$	20.01		$	20.07		$	19.55


Item 7.	*Management’s Discussion and Analysis of Financial Condition and Results of Operations*

Results of Operations

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 contains 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 this Annual Report on Form 10-K under the heading “Item 1A — Risk Factors.” The Securities and Exchange Commission encourages companies to disclose forward-looking information so that investors can better understand a company’s future prospects and make informed investment decisions. Please refer to “Part I, Item 1. Business.” of this Form 10-K for more information regarding forward-looking statements.

As of April 30, 2010, we owned and operated 715 full-service restaurants, including 569 Bob Evans Restaurants in 18 states and 146 Mimi’s Cafés in 24 states. Bob Evans Restaurants are primarily located in the Midwest, mid-Atlantic and Southeast regions of the United States. Mimi’s Cafés are primarily located in California and other western states. Revenue in the restaurant segment is recognized at the point of sale.

We also produce and distribute pork sausage and a variety of complementary homestyle convenience food items under the Bob Evans and Owens brand names. These food products are delivered to warehouses that distribute to grocery stores throughout the United States. Revenue in the food products segment is generally recognized when products are delivered to our customers’ warehouses.

References herein to 2011, 2010, 2009 and 2008 refer to fiscal years. All years presented are 52-week years, except for 2010, which contained 53 weeks.

General Overview

The following table reflects data for our fiscal year ended April 30, 2010, compared to the preceding two fiscal years. The consolidated information is derived from the accompanying Consolidated Statements of Income. The table also includes data for our two industry segments — restaurant operations and food products. The ratios presented reflect the underlying dollar values expressed as a percentage of the applicable net sales amount.


	Consolidated Results									Restaurant Segment									Food Products Segment
	2010			2009			2008			2010			2009			2008			2010			2009			2008
	(Dollars in thousands)

Net sales	$	1,726,804		$	1,750,512		$	1,737,026		$	1,411,092		$	1,439,090		$	1,445,034		$	315,712		$	311,422		$	291,992
Operating income	$	106,414		$	28,367		$	107,240		$	85,144		$	12,796		$	78,686		$	21,270		$	15,571		$	28,554
Cost of sales		29.9	%		30.7	%		29.8	%		24.2	%		25.1	%		25.5	%		55.4	%		56.4	%		51.0	%
Operating wages		34.5	%		34.1	%		34.8	%		39.5	%		39.2	%		39.6	%		12.2	%		11.1	%		11.2	%
Other operating		16.0	%		16.0	%		16.2	%		18.4	%		18.4	%		18.4	%		5.3	%		4.9	%		5.4	%
S,G,&A		8.5	%		9.0	%		8.6	%		6.6	%		6.6	%		6.3	%		17.4	%		20.0	%		19.9	%
D&A		4.9	%		4.7	%		4.4	%		5.3	%		5.1	%		4.8	%		3.0	%		2.6	%		2.7	%
Impairment		—			3.9	%		—			—			4.7	%		—			—			—			—

Operating income		6.2	%		1.6	%		6.2	%		6.0	%		0.9	%		5.4	%		6.7	%		5.0	%		9.8	%

The results for fiscal 2010, fiscal 2009 and fiscal 2008 include the impact of the following:


	•	Fiscal 2010, fiscal 2009 and fiscal 2008 consolidated and restaurant segment results included pretax charges of $6.2 million, $6.4 million and $3.7 million, respectively, related to fixed asset impairment that is reflected in selling, general and administrative (“S,G&A”) expenses.

	•	Fiscal 2010 consolidated and food products segment results included a $1.4 million pretax gain on the sale of 49 percent of our corporate aircraft, which is reflected as a reduction of S,G&A.


	•	Fiscal 2010 consolidated and restaurant segment results included $2.5 million in pretax life insurance proceeds, which are reflected as a reduction of S,G&A.

	•	Fiscal 2010 consolidated and food products results included a pretax charge of $1.0 million related to severance payments and retirement costs, which is included in S,G&A.

	•	Fiscal 2010 results included the positive impact of a 53 ^rd week of operations, which contributed $6.9 million in operating income to the consolidated results: $5.7 million in operating income to the restaurant segment and $1.2 million in operating income to the food products segment.

	•	Fiscal 2010 and fiscal 2009 consolidated and restaurant segment results included pretax charges of $0.8 million each year related to severance and retirement, which are reflected in S,G&A.

	•	Fiscal 2009 consolidated and restaurant segment results included a pretax charge of $68.0 million related to the impairment of goodwill ($56.2 million) and other intangible assets ($11.8 million) for Mimi’s, which are reflected on the Consolidated Statements of Income under “Goodwill and other intangibles impairment.”

	•	Fiscal 2009 consolidated and food products segment results included a pretax charge of $0.4 million for unusable spare parts, which is reflected in “other operating expenses.”

	•	Fiscal 2009 and fiscal 2008 consolidated and restaurant segment results included $1.0 million and $2.9 million, respectively, in pretax gains on the sale of various properties, which are reflected as a reduction of S,G&A.

	•	Fiscal 2009 consolidated and restaurant segment results included a $0.7 million pretax charge related to a legal settlement, which is reflected in S,G&A.

	•	Fiscal 2008 consolidated and restaurant segment results included a $6.6 million pretax gain for unredeemed gift certificates and gift cards (“breakage”) at Bob Evans Restaurants, which is included in net sales (see Note A to our consolidated financial statements).

	•	Fiscal 2008 consolidated and restaurant segment results included a $0.7 million pretax charge related to the settlement of a dispute with a third party, which is reflected in S,G&A.

Restaurant Segment Overview

The ongoing industry-wide factors most relevant to our restaurant segment include: the economy, labor and fringe benefit expenses, commodity prices, energy prices, competition, same-store sales, consumer acceptance, restaurant openings and closings, governmental initiatives and regulations, food safety and weather. The factors that had the greatest positive impact on our restaurant segment performance in fiscal 2010 were improved food costs and effective labor management as well as the impact of a 53 ^rd week of operations, which contributed $25.8 million and $5.7 million in net sales and operating income, respectively. The factor that had the greatest negative impact was weak same-store sales at Bob Evans Restaurants and Mimi’s.

In fiscal 2010, same-store sales decreased 3.5 percent at Bob Evans Restaurants and decreased 7.2 percent at Mimi’s compared to fiscal 2009. We believe same-store sales at our Bob Evans Restaurants are particularly sensitive to economic conditions in the Midwest, which has been hit especially hard by the downturn in the United States’ economy, the troubled auto industry, increased unemployment and lower home values. Nearly 250 Bob Evans Restaurants are located in Michigan and Ohio where the impact of job losses in the automotive industry (manufacturers and suppliers) could have a material adverse effect on our net sales. We believe the negative same-store sales trend at Mimi’s reflects the challenging economic environment in the casual dining sector, as well as pressures on consumer spending in certain key areas, particularly in California, Arizona, Florida and Nevada, which account for approximately 70 percent of Mimi’s same-store sales. Same-store sales results include the benefit of menu price increases, which are outlined later in the “Net Sales” section. We remain focused on improving same-store sales at Bob Evans Restaurants and Mimi’s in a challenging economic environment.

Reported restaurant segment operating income was $85.1 million in fiscal 2010 compared to $12.8 million in fiscal 2009, an increase of $72.3 million. The restaurant segment operating income increase is mainly a result of noncash impairment charges during the third quarter of fiscal 2009 that totaled $68.0 million for goodwill and other intangible assets, as well as the factors listed above. See the “Goodwill and Other Intangibles Impairment” section below.

In fiscal 2009, restaurant segment operating income benefited from a 40 basis-point improvement as a percentage of net sales in both cost of sales and operating wages as compared to fiscal 2008. The cost of sales improvement was due largely to effective supply chain management, lower commodity costs and menu mix shifts to higher margin items. The operating wages improvement was due largely to effective use of labor management and scheduling systems.

Food Products Segment Overview

The ongoing industry-wide factors most relevant to the food products segment include: sow costs and other commodity costs, transportation and energy costs, governmental initiatives and regulations, food safety and other risks such as the economy, weather and consumer acceptance. The food products segment’s profitability was positively impacted by the lower overall cost structure associated with our conversion from a direct-store delivery (“DSD”) distribution model to a warehouse system that occurred mostly in the fourth quarter of fiscal 2009. The conversion to a warehouse system resulted in some severance costs and higher slotting fees in both fiscal 2010 and fiscal 2009. The food products segment’s fiscal 2010 results were also positively impacted by the effect of the 53 ^rd week of operations, which resulted in an incremental $5.5 million and $1.2 million in net sales and operating income, respectively.

The food products segment’s net sales increased 1.4 percent in fiscal 2010 compared to fiscal 2009. The increase in net sales was driven by a 7 percent increase in pounds sold of comparable products and the additional week of operations. We define comparable products as principally sausage and refrigerated side dishes, such as mashed potatoes.

Sow costs represent a significant component of food products segment cost of sales, and the volatile nature of sow costs greatly impacts the profitability of the segment. Compared to a year ago, average sow costs decreased 6.1 percent in fiscal 2010. The decrease in sow costs resulted in a decrease in cost of sales in the food products segment from 56.4 percent of net sales in fiscal 2009 to 55.4 percent of net sales in fiscal 2010.

The food products segment experienced an increase in operating income of $5.7 million, or 36.6 percent, in fiscal 2010 compared to a year ago, and its operating income margin increased to 6.7 percent of net sales in fiscal 2010 compared to 5.0 percent of net sales in fiscal 2009. The improvement was primarily due to the conversion from the DSD model to a warehouse system, lower sow costs relative to fiscal 2009 and the benefit of a 53 ^rd week of operations.

In fiscal 2009, the food products segment operating income decreased $13.0 million, or 45.5 percent, compared to fiscal 2008 due to an increase in average sow costs of 29.1 percent, offset slightly by improved sow yields. The food products segment’s operating income margin decreased from 9.8 percent of net sales in fiscal 2008 to 5.0 percent of net sales in fiscal 2009.

Net Sales

Consolidated net sales decreased $23.7 million, or 1.4 percent, in fiscal 2010 compared to fiscal 2009. The fiscal 2010 decrease was the net result of a $28.0 million decrease in restaurant segment net sales, partly offset by a $4.3 million increase in food products segment net sales.

Restaurant segment net sales accounted for 81.7 percent of total net sales in fiscal 2010, 82.2 percent of total net sales in fiscal 2009 and 83.2 percent of total net sales in fiscal 2008. The $28.0 million decline in restaurant net sales in fiscal 2010 represents a 1.9 percent decrease over fiscal 2009 net sales, which were 0.4 percent lower than fiscal 2008 net sales. As noted in the “General Overview” section above, the recognition of $6.6 million in gift certificate and gift card breakage at Bob Evans Restaurants provided a benefit to net sales in the third quarter of fiscal 2008. The third quarter of fiscal 2008 was the first quarter in which we had enough historical information for

Bob Evans Restaurants to reasonably determine the breakage amount for the current and all previous periods (see Note A to our consolidated financial statements). We have recorded breakage on a regular basis since the third quarter of fiscal 2008 for Bob Evans Restaurants and in all years presented for Mimi’s. We do not expect future breakage amounts to be material in any particular quarter or year.

The fiscal 2010 decrease in restaurant net sales was the result of same-store sales declines, partially offset by the impact of the 53 ^rd operating week in fiscal 2010 that contributed $25.8 million of incremental net sales. Same-store sales at Bob Evans Restaurants decreased 3.5 percent and 0.3 percent in both fiscal 2010 and fiscal 2009, respectively, and increased 1.8 percent in fiscal 2008. The same-store sales comparisons for Bob Evans Restaurants included average menu price increases of 1.9 percent in fiscal 2010, 3.1 percent in fiscal 2009 and 2.5 percent in fiscal 2008. Mimi’s same-store sales decreased 7.2 percent in both fiscal 2010 and fiscal 2009 and 2.4 percent in fiscal 2008, including average menu price increases of 2.2 percent, 2.4 percent and 3.2 percent in fiscal 2010, fiscal 2009 and fiscal 2008, respectively. Same-store sales computations for a given year are based on net sales of stores that are open for at least two years prior to the start of that year. Net sales of stores to be rebuilt are excluded for all periods in the same-store sales computation when construction commences on the replacement building. Net sales of closed stores are excluded for all periods in the same-store sales computation.

Carryout net sales represented 8.2 percent of Bob Evans Restaurant net sales in fiscal 2010 compared to 7.9 percent and 7.5 percent in fiscal 2009 and fiscal 2008, respectively. Retail merchandise net sales comprised 1.7 percent of Bob Evans Restaurant net sales in 2010 compared to 2.0 percent and 2.1 percent in fiscal 2009 and fiscal 2008, respectively. Net sales at Mimi’s benefited from liquor, beer and wine net sales, which represented 3.9 percent of net sales in fiscal 2010 compared to 3.8 percent and 3.7 percent in fiscal 2009 and fiscal 2008, respectively. Historically, Mimi’s alcohol offerings were limited to beer and wine. We will continue to include a broader selection of alcoholic beverages in all new and remodeled Mimi’s, subject to our ability to obtain the necessary permits and licenses. At the end of fiscal 2010, 90 of Mimi’s stores offered the broader selection of alcoholic beverages and 56 Mimi’s stores offered only beer and wine. Net sales at Mimi’s also benefited from carryout net sales, which represented 4.1 percent of net sales, 4.0 percent of net sales and 4.2 percent of net sales in fiscal 2010, fiscal 2009 and fiscal 2008, respectively.

The net sales impact of lower same-store sales in fiscal 2010 was slightly offset by an increase in the number of operating locations: 715 restaurants were in operation at the end of fiscal 2010 compared to 714 in 2009. During fiscal 2010, one underperforming Bob Evans Restaurant was closed. Mimi’s opened two new restaurants in existing markets in fiscal 2010.

The chart below summarizes the restaurant openings and closings during the last two fiscal years for Bob Evans Restaurants and Mimi’s:

Bob Evans Restaurants:


	Beginning		Opened		Closed		Ending

Fiscal Year 2010
First Quarter		570		0		1		569
Second Quarter		569		0		0		569
Third Quarter		569		0		0		569
Fourth Quarter		569		0		0		569
Fiscal Year 2009
First Quarter		571		0		0		571
Second Quarter		571		0		1		570
Third Quarter		570		0		1		569
Fourth Quarter		569		1		0		570

Mimi’s:


	Beginning		Opened		Closed		Ending

Fiscal Year 2010
First Quarter		144		0		0		144
Second Quarter		144		1		0		145
Third Quarter		145		1		0		146
Fourth Quarter		146		0		0		146
Fiscal Year 2009
First Quarter		132		3		0		135
Second Quarter		135		4		0		139
Third Quarter		139		2		0		141
Fourth Quarter		141		3		0		144

Consolidated Restaurants:


	Beginning		Opened		Closed		Ending

Fiscal Year 2010
First Quarter		714		0		1		713
Second Quarter		713		1		0		714
Third Quarter		714		1		0		715
Fourth Quarter		715		0		0		715
Fiscal Year 2009
First Quarter		703		3		0		706
Second Quarter		706		4		1		709
Third Quarter		709		2		1		710
Fourth Quarter		710		4		0		714

We continue to update the appearance of our Bob Evans Restaurants, of which 2 were rebuilt and 15 were remodeled in fiscal 2010. We also remodeled four Mimi’s in fiscal 2010. We believe that the enhanced appearance of the restaurants adds to our customers’ experience, which will help same-store sales and continue to strengthen our restaurant concepts. During fiscal 2011, we plan to build 3 new, rebuild 2 and remodel 40 to 50 Bob Evans Restaurants. We do not plan to open or rebuild any Mimi’s restaurants in fiscal 2011, but plan to remodel approximately 10 existing restaurants.

Given the same-store sales declines at Bob Evans Restaurants and the challenging economic environment, a strong product development pipeline, focused marketing message and customer value initiatives take on a heightened importance. We are committed to the ongoing development of new homestyle products with a Bob Evans twist to help build same-store sales, such as Breakfast Bowls, Deep-Dish Pastas, Farm-Fresh Wraps and new Bob-B-Q offerings. We have created a new Fit from the Farm menu. Additionally, we currently offer more than 30 meals for $5.99 or less at Bob Evans Restaurants. We have also added two new incremental layers of net sales at Bob Evans Restaurants. The first is our catering menu, which we launched in the third quarter of fiscal 2010, and the second is our family meals, which feed a family of four. See the “BEST Brand Builders” section for further discussion of our sales initiatives.

Mimi’s experienced negative same-store sales comparisons in fiscal 2010 for the third consecutive year. We believe these results continue to reflect the challenging environment in the casual dining sector, as well as pressures on consumer spending in certain key markets, such as California, Arizona, Florida and Nevada, which currently account for approximately 70 percent of Mimi’s same-store sales. We are refocusing our marketing efforts to drive net sales at Mimi’s. Our marketing initiatives to drive net sales include free standing inserts (“FSIs”) and special offers through our e-club, which has grown its membership from 50,000 members to nearly 500,000 in one year. Online ordering is also now available at all Mimi’s, and we have also expanded into catering at Mimi’s with our to-go party packs. We are looking at a variety of other initiatives to help reenergize same-store sales at Mimi’s restaurants. See the “BEST Brand Builders” section for further discussion of these initiatives.

Food products segment net sales accounted for 18.3 percent, 17.8 percent and 16.8 percent of total net sales in fiscal 2010, fiscal 2009 and fiscal 2008, respectively. Food products segment net sales increased $4.3 million, or 1.4 percent, in fiscal 2010 versus fiscal 2009. The fiscal 2010 net sales increase was reflective of a 7.0 percent increase in the volume of comparable products sold (calculated using the same products in both periods and excluding newer products) as well as the impact of the 53 ^rd week of operations, which contributed $5.5 million of incremental net sales. The impact of the increase in comparable pounds sold was partially offset by a $9.2 million increase in promotional discounts provided to retailers in fiscal 2010 versus fiscal 2009, which reduced net sales.

The overall increase in food products segment net sales volume was driven mostly by our complementary homestyle convenience items, primarily refrigerated mashed potatoes and macaroni and cheese, as well as expanded distribution of all products. We plan to continue our strategy of growing through successful product introductions and additional points of distribution. We are also making progress in penetrating supercenter retail stores, which provides another high-volume net sales channel for our food products. At the end of fiscal 2010, Bob Evans and Owens brand products were available for purchase in grocery stores in 50 states, the District of Columbia, the Toronto, Canada area and parts of Mexico. The significant increase in promotional discounts during fiscal 2010 was designed to increase market share and promote brand awareness. See the “BEST Brand Builders” section for further discussion of new products and distribution.

Food products segment net sales increased $19.4 million, or 6.7 percent, in fiscal 2009 versus fiscal 2008. The fiscal 2009 net sales increase was reflective of a 5.7 percent increase in the volume of comparable products. The overall increase in food products segment net sales in fiscal 2009 was driven mostly by our complementary homestyle convenience items, primarily refrigerated mashed potatoes and macaroni and cheese, as well as expanded distribution of all products.

Cost of Sales

Consolidated cost of sales (cost of materials) was 29.9 percent, 30.7 percent and 29.8 percent of net sales in fiscal 2010, fiscal 2009 and fiscal 2008, respectively.

In the restaurant segment, cost of sales (predominantly food cost) was 24.2 percent, 25.1 percent and 25.5 percent of net sales in fiscal 2010, fiscal 2009 and fiscal 2008, respectively. The improvement in restaurant segment cost of sales in both fiscal 2010 and fiscal 2009 was attributable to lower commodity costs, mix shifts to higher-margin products and lower costs resulting from effective supply chain management. See the “BEST Brand Builders” section for further discussion of commodity price decreases and productivity initiatives.

Food products segment cost of sales was 55.4 percent, 56.4 percent and 51.0 percent of net sales in fiscal 2010, fiscal 2009 and fiscal 2008, respectively. These results were reflective of changing sow costs, which averaged $42.18, $44.93 and $34.79 per hundredweight in fiscal 2010, fiscal 2009 and fiscal 2008, respectively. The fiscal 2010 sow cost average represented a 6.1 percent decrease compared to fiscal 2009, and the fiscal 2009 average represented a 29.1 percent increase compared to fiscal 2008. The fiscal 2010 decrease in sow costs was partly offset by deleverage from increased promotional discounts and a mix-shift from fewer manufactured items to more co-packed items, which are products we purchase from third parties for sale under our brand names (e.g. mashed potatoes, frozen entrees, etc.). Co-packed items have historically had a higher cost of sales than our manufactured sausage products. We expect that sow costs will average approximately $55 to $60 per hundredweight in fiscal 2011, which will place significant pressure on our operating margins.

The increase in food products segment cost of sales in fiscal 2009 versus fiscal 2008 was primarily due to higher sow costs described above and a mix shift to more co-packed items versus manufactured items.

Operating Wage and Fringe Benefit Expenses

Consolidated operating wage and fringe benefit expenses (“operating wages”) were 34.5 percent, 34.1 percent and 34.8 percent of net sales in fiscal 2010, fiscal 2009 and fiscal 2008, respectively. The operating wages ratio increased in both the restaurant and food products segments in fiscal 2010 after a decrease in both segments in fiscal 2009.

In the restaurant segment, operating wages were 39.5 percent of net sales in fiscal 2010, compared to 39.2 percent and 39.6 percent in fiscal 2009 and fiscal 2008, respectively. The fiscal 2010 increase in the operating wages ratio was due to deleverage from lower same-store sales at Bob Evans Restaurants and at Mimi’s, higher health insurance claims and minimum wage increases partially offset by lower manager bonuses and labor hours. See the “BEST Brand Builders” section for further discussion of labor management.

In fiscal 2009, the decrease in the restaurant segment operating wage and fringe benefit expense ratio was due to effective labor management at both of our restaurant concepts, partially offset by federal and state minimum wage increases, as well as the negative leverage due to lower same-store sales at Bob Evans Restaurants and Mimi’s.

In the food products segment, operating wages were 12.2 percent, 11.1 percent and 11.2 percent of net sales in fiscal 2010, fiscal 2009 and fiscal 2008, respectively. The fiscal 2010 increase in the operating wages ratio was primarily due to additional expenses associated with increased production at our Sulphur Springs, Texas, manufacturing facility and overtime labor hours in an effort to meet shipment demand for key accounts, particularly in our third quarter. The improvement in fiscal 2009 versus fiscal 2008 was due to better leveraging of costs in relation to net sales volumes discussed in the “Net Sales” section above.

Other Operating Expenses

Approximately 94 percent of other operating expenses (“operating expenses”) occurred in the restaurant segment in fiscal 2010, the most significant components of which were utilities, advertising, restaurant supplies, repair and maintenance, rent, nonincome based taxes and credit card processing fees. Consolidated operating expenses were 16.0 percent of net sales in fiscal 2010 and fiscal 2009 and 16.2 percent of net sales in fiscal 2008. Restaurant segment operating expenses were 18.4 percent of net sales in fiscal 2010, fiscal 2009 and fiscal 2008. The restaurant segment other operating expenses for fiscal 2010 compared to fiscal 2009 were stable as the deleverage impact from lower same-store sales was offset by lower utilities and preopening expenses. The notable fluctuations within the restaurant segment operating expenses for fiscal 2009 compared to fiscal 2008 were decreases in advertising expenses and preopening costs offset by higher utility and occupancy costs.

Food products segment other operating expenses as a percent of net sales in fiscal 2010, fiscal 2009 and fiscal 2008 were 5.3 percent, 4.9 percent and 5.4 percent, respectively. The increase in the operating expense ratio in fiscal 2010 compared to fiscal 2009 was due to additional expenses associated with the expansion of our Sulphur Springs, Texas, manufacturing facility, as well as deleverage from increased promotional discounts. The decrease in the operating expenses ratio in fiscal 2009 compared to fiscal 2008 was primarily due to lower liability insurance costs. The fiscal 2009 operating expense included the $0.4 million noncash charge for unusable spare parts.

Selling, General and Administrative Expenses

The most significant components of S,G&A expenses are wages and fringe benefits, food products advertising expense, food products transportation costs, gains/losses on asset sales and fixed asset impairment charges. Consolidated S,G&A expenses represented 8.5 percent, 9.0 percent and 8.6 percent of net sales in fiscal 2010, fiscal 2009 and fiscal 2008, respectively.

In fiscal 2010, S,G&A was negatively impacted by charges of $6.2 million related to fixed asset impairments for four underperforming Bob Evans Restaurants and 22 other properties, as well as $1.8 million related to severance payments and retirement costs. Pretax gains of $2.5 million and $1.4 million related to proceeds from corporate-owned life insurance policies and gains on asset sales, respectively, partly offset these charges.

In fiscal 2009, S,G&A was impacted by charges of $6.4 million related to fixed asset impairments for six underperforming Mimi’s Cafés, $0.7 million related to a legal settlement and $0.8 million related to severance payments and retirement costs. A pretax gain of $1.0 million related to the sale of real estate assets partially offset these charges in fiscal 2009.

The fiscal 2010 S,G&A results benefited from converting the food products segment to a more efficient warehouse distribution system and the $1.4 million in pretax gain on the sale of 49 percent of our corporate aircraft, which more than offset the negative leverage from declining same-store sales in the restaurant segment.

Depreciation and Amortization

Depreciation and Amortization (“D&A”) was 4.9 percent, 4.7 percent and 4.4 percent of consolidated net sales in fiscal 2010, fiscal 2009 and fiscal 2008, respectively. Restaurant segment D&A was 5.3 percent, 5.1 percent and 4.8 percent of restaurant net sales in fiscal 2010, fiscal 2009 and fiscal 2008, respectively. The fiscal 2010 increase as a percentage of restaurant net sales is primarily due to the fiscal 2010 capital expenditures and declining restaurant net sales. Food products segment D&A was 3.0 percent, 2.6 percent and 2.7 percent of food products net sales in fiscal 2010, fiscal 2009 and fiscal 2008, respectively. The fiscal 2010 increase as a percentage of food product net sales is due to the fiscal 2010 capital expenditures, primarily for a 50,000-square foot expansion at our plant in Sulphur Springs, Texas, and relatively stable food products net sales.

Goodwill and Other Intangibles Impairment

We are required for accounting purposes to assess the carrying value of our goodwill and other intangible assets annually or whenever circumstances indicate that a decline in value may have occurred. Based on our consolidated stock valuation relative to our book value, a scaled-back Mimi’s development plan and continued declining same-store sales at Mimi’s, we determined that indicators of potential impairment were present during the third quarter of fiscal 2009. As a result, we performed interim impairment tests of goodwill and intangible assets with indefinite lives.

The result of our impairment test in fiscal 2009 of the unamortized Mimi’s business trade name asset indicated that the asset had a fair value of $34.0 million, compared to its carrying value of $45.8 million. This resulted in a pretax impairment charge related to the business trade name of $11.8 million in the restaurant segment in the third quarter of fiscal 2009. The fair value of the business trade name was estimated using the relief-from-royalty method, an income approach to valuation.

We also performed an interim test in fiscal 2009 to determine if the carrying amount of goodwill was impaired. The results indicated that the carrying value of Mimi’s goodwill of $56.2 million was fully impaired. Therefore, we recorded a pretax goodwill impairment charge in the restaurant segment in the third quarter of fiscal 2009 for the entire $56.2 million. The fair value of the Mimi’s reporting unit was estimated based on a discounted cash flow model using our business plans and projections for Mimi’s as the basis for expected future cash flows. We believe the assumptions used for the impairment test are consistent with those that a market participant would use.

We also reviewed the Mimi’s restaurant concept asset for impairment in the third quarter of fiscal 2009. This asset is being amortized over a 15-year life. The estimated fair value of the restaurant concept, calculated using a relief-from-royalty method, exceeded its carrying value and therefore, no impairment charge was recorded related to this asset.

There were no goodwill and other intangibles impairment charges in fiscal 2010 or fiscal 2008.

Interest

Net interest expense for fiscal 2010, fiscal 2009 and fiscal 2008, was as follows:


	2010			2009			2008
	(Dollars in thousands)

Gross interest expense:
Fixed-rate debt	$	10,406		$	10,601		$	8,799
Variable-rate debt		531			2,777			4,232
Capitalized interest		(836	)		(933	)		(1,325	)

		10,101			12,445			11,706
Gross interest income		(13	)		(139	)		(716	)

Net interest expense	$	10,088		$	12,306		$	10,990

The decrease in net interest expense in fiscal 2010 was primarily the result of lower average borrowings in fiscal 2010 as compared to fiscal 2009. We reduced our total debt by $79.9 million during fiscal 2010. The increase

in net interest expense in fiscal 2009 was the result of additional debt incurred primarily to fund our share repurchase program.

At April 30, 2010, our outstanding debt included $14.0 million on our variable-rate revolving lines of credit and $176.2 million of fixed-rate unsecured senior notes. A change in market interest rates will not impact interest expense associated with our fixed-rate debt, but will impact our variable-rate debt. For example, a 1 percent increase in the benchmark rate used for our revolving lines of credit would increase our annual interest expense by $0.1 million, assuming the $14.0 million outstanding at April 30, 2010, was outstanding for the entire year.

Taxes

The effective federal and state income tax rates were 27.0 percent, 29.4 percent (excluding the nondeductible goodwill impairment charge, discussed earlier) and 32.6 percent in fiscal 2010, fiscal 2009 and fiscal 2008, respectively. The decrease in fiscal 2010 is primarily due to the impacts of settlements with certain state taxing authorities, an increase in the cash surrender value of company owned life insurance policies and life insurance proceeds received. The decrease in fiscal 2009 is primarily due to the impact of federal tax credits, mainly work-opportunity and FICA tip credits, which have remained relatively consistent with prior periods despite the decrease in pretax income. The fiscal 2009 effective tax rates also benefited from the impact of settlements with certain state taxing authorities.

In fiscal 2008, we adopted the Income Taxes Topic of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”), which provides guidance for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return and provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. The adoption of the Income Taxes Topic of the FASB ASC resulted in a cumulative effect adjustment of $0.2 million for unrecognized tax benefits recorded as a reduction to the opening balance of retained earnings in fiscal 2008.

Liquidity and Capital Resources

Cash generated from both the restaurant and food products segments were used as the main source of funds for working capital, capital expenditures, debt repayments and share repurchases in fiscal 2010. Cash and equivalents totaled $17.8 million at April 30, 2010.

In the second quarter of fiscal 2009, we completed a private placement of $70 million in senior unsecured fixed-rated notes. These notes were issued in two series. The $40 million Series A senior notes bear interest at 6.39 percent and mature on July 28, 2014, with a mandatory prepayment of $20 million due on July 28, 2012. The $30 million Series B senior notes bear interest at 6.39 percent and mature on July 28, 2013. The net proceeds from the notes we issued in fiscal 2009 were used to repay outstanding debt under existing bank credit facilities and to repay a portion of our outstanding senior notes issued in fiscal 2004.

Bank lines of credit were increased to $180.0 million in December 2007 as a temporary measure to provide additional credit until the $70.0 million private placement of notes was completed. With the completion of the private placement in the second quarter of fiscal 2009, the bank lines of credit were reduced in the third quarter of fiscal 2009 to $165.0 million and again in fiscal 2010 to $120.0 million. At April 30, 2010, and April 24, 2009, $14.0 million and $67.0 million, respectively, were outstanding on these lines of credit. At April 30, 2010, our bank lines of credit total $120.0 million, of which $10.1 million is reserved for certain standby letters-of-credit. The remaining $109.9 million of our bank lines of credit is available for liquidity needs, capital expansion and repurchases of our common stock.

In fiscal 2010, we repurchased 0.7 million shares of our outstanding common stock under our share repurchase program at a total cost of $21.1 million. In fiscal 2009, we repurchased 0.2 million shares of our outstanding common stock under our share repurchase program at a total cost of $5.4 million. In fiscal 2008, we repurchased 5.0 million shares of our outstanding common stock under our share repurchase program at a total cost of $154.6 million. Additionally, dividend payments totaled $20.9 million in 2010, $18.4 million in fiscal 2009 and $18.7 million in fiscal 2008.