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 24, 2009, we owned and operated 714 full-service restaurants, including 570 Bob Evans Restaurants in 18 states and 144 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 primarily in the East North Central, mid-Atlantic, Southern and Southwestern United States.

References herein to 2010, 2009, 2008 and 2007 refer to fiscal years. All years presented are 52-week years, except for 2010, which will contain 53 weeks.

General Overview

The following table reflects data for our fiscal year ended April 24, 2009,
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
                      2009            2008            2007            2009            2008            2007           2009          2008          2007
                                                                          (Dollars in thousands)

Net sales          $ 1,750,512     $ 1,737,026     $ 1,654,460     $ 1,439,090     $ 1,445,034     $ 1,385,841     $ 311,422     $ 291,992     $ 268,619
Operating income   $    28,367     $   107,240     $    98,422     $    12,796     $    78,686     $    78,553     $  15,571     $  28,554     $  19,869
Cost of sales             30.7 %          29.8 %          29.2 %          25.1 %          25.5 %          24.8 %        56.4 %        51.0 %        51.5 %
Operating wages           34.1 %          34.8 %          36.1 %          39.2 %          39.6 %          40.8 %        11.1 %        11.2 %        11.7 %
Other operating           16.0 %          16.2 %          16.0 %          18.4 %          18.4 %          18.1 %         4.9 %         5.4 %         5.1 %
S,G,&A                     9.0 %           8.6 %           8.3 %           6.6 %           6.3 %           5.8 %        20.0 %        19.9 %        21.3 %
D&A                        4.7 %           4.4 %           4.5 %           5.1 %           4.8 %           4.8 %         2.6 %         2.7 %         3.0 %
Impairment                 3.9 %             -               -             4.7 %             -               -             -             -             -

Operating income           1.6 %           6.2 %           5.9 %           0.9 %           5.4 %           5.7 %         5.0 %         9.8 %         7.4 %

The results for 2009, 2008 and 2007 include the impact of the following:

• 2009 consolidated and restaurant segment results included a pre-tax charge of $68.0 million related to the impairment of goodwill ($56.2 million) and other intangible assets ($11.8 million) for Mimi's Cafés that are reflected separately on the consolidated income statement under "Goodwill and other intangibles impairment."

• 2009 consolidated and restaurant segment results included a pre-tax charge of $6.4 million related to fixed asset impairment for six underperforming Mimi's Cafés that is reflected in selling, general and administrative ("S,G&A") expenses.

• 2009 consolidated and restaurant segment results included pre-tax charges of $0.8 million related to severance and retirement that are reflected in S,G&A.

• 2009 consolidated and restaurant segment results included a pre-tax charge of $0.7 million for a legal settlement that is reflected in S,G&A.

• 2009 consolidated and food products segment results included a pre-tax charge of $0.4 million for unusable spare parts. The charge is reflected in other operating expenses.

• 2008 consolidated and restaurant segment results included a $6.6 million pre-tax 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).

• Consolidated and restaurant segment results for 2008 included a $3.7 million pre-tax charge related to nine underperforming Bob Evans Restaurants that were closed in February 2008, which is reflected in S,G&A.

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

• Consolidated and restaurant segment results for 2009, 2008 and 2007 included $1.0 million, $2.9 million and $4.4 million, respectively, in pre-tax gains on the sale of various properties, which are reflected as a reduction of S,G&A.

Restaurant Segment Overview

The ongoing economic and 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, food safety and weather. The factors that had the greatest positive impact on our restaurant segment performance in 2009 were improved food costs and effective labor management. The factor that had the greatest negative impact was weak same-store sales at Bob Evans Restaurants and Mimi's.

In 2009, same-store sales decreased 0.3 percent at Bob Evans Restaurants and decreased 7.2 percent at Mimi's compared to 2008. 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 75 percent of Mimi's same-store sales. Same-store sales results include the benefit of menu price increases, which are outlined later in the "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 $12.8 million in 2009 compared to $78.7 million in 2008, a decrease of $65.9 million, or 83.7 percent. The restaurant segment operating income decrease is mainly a result of noncash impairment charges that totaled $68.0 million for goodwill and other intangible assets. During the third quarter of 2009, we performed interim impairment tests of goodwill and intangible assets with indefinite lives that resulted in an impairment charge of $56.2 for goodwill and $11.8 million for other intangible assets (see "Goodwill and Other Intangibles Impairment" section below).

Restaurant segment operating income in 2009 benefited from a 40 basis-point improvement as a percentage of net sales in both cost of sales and operating wages as compared to 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.

In 2008, reported restaurant segment operating income increased $0.1 million, or less than 1.0 percent, compared to 2007. Operating margins decreased from 5.7 percent in 2007 to 5.4 percent in 2008 due primarily to rising commodity costs and higher minimum wage rates. We believe that purchasing and productivity initiatives and labor management programs undertaken in 2008 helped us to mitigate the impact of these increased costs.

Food Products Segment Overview

The ongoing economic and industry-wide factors most relevant to the food products segment include: sow costs and other commodity costs, transportation and energy costs, governmental initiatives, food safety and other risks such as the economy, weather and consumer acceptance. While we are pleased with the food products segment's increase in sales growth in 2009, profitability was negatively impacted by a significant increase in sow costs in 2009.

Food products segment net sales increased 6.7 percent in 2009 compared to 2008. The higher net sales were driven by a 5.7 percent increase in pounds sold of comparable products. We define comparable products as principally sausage and refrigerated 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 increased 29.1 percent in 2009. The increase in sow costs, slightly offset by improved sow yields, resulted in an increase in cost of sales in the food products segment from 51.0 percent of sales in 2008 to 56.4 percent of sales in 2009. The higher cost of sales in the food products segment reduced operating income by approximately $16.9 million compared to a year ago.

The food products segment experienced a decrease in operating income of $13.0 million, or 45.5 percent, in 2009 compared to a year ago primarily due to the increase in sow costs. The food products segment operating income margin decreased from 9.8 percent of sales in 2008 to 5.0 percent of sales in 2009.

In the food products segment, we converted from a direct-store-delivery distribution system to a warehouse system in 2009, in response to retailers' needs. The conversion to a warehouse system resulted in some severance costs and higher slotting fees in 2009, but it is expected to result in a lower cost structure in the long-term.

Food products segment operating income increased $8.7 million, or 43.7 percent, in 2008 compared to 2007 due to an 8.7 percent increase in net sales and a 9.4 percent decrease in sow costs. Operating income margin improved to 9.8 percent of sales in 2008 compared to 7.4 percent of sales in 2007.

Sales

Consolidated net sales increased $13.5 million, or 0.8 percent, in 2009 compared to 2008. The 2009 increase was the net result of a $19.4 million increase in food products segment sales, which was partially offset by a $5.9 million decrease in restaurant segment sales.

Restaurant segment sales accounted for 82.2 percent of total sales in 2009, 83.2 percent of total sales in 2008 and 83.8 percent of total sales in 2007. The $5.9 million decline in restaurant sales in 2009 represents a 0.4 percent decrease over 2008 sales, which were 4.3 percent higher than 2007 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 2008. The third quarter of 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 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 2009 decrease in restaurant sales was the result of same-store sales declines. Same-store sales at Bob Evans Restaurants decreased 0.3 percent in 2009 and increased 1.8 percent and 0.1 percent in 2008 and 2007, respectively. The same-store sales comparisons for Bob Evans Restaurants included average menu price increases of 3.1 percent in 2009, 2.5 percent in 2008 and 2.4 percent in 2007. Mimi's same-store sales decreased 7.2 percent in 2009 and 2.4 percent in 2008, and increased 1.6 percent in 2007, including average menu price increases of 2.4 percent, 3.2 percent and 3.4 percent in 2009, 2008 and 2007, 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. Sales of stores to be rebuilt are excluded for all periods in the computation when construction commences on the replacement building. Sales of closed stores are excluded for all periods in the computation.

Carryout and retail sales also contributed to the Bob Evans Restaurant total net sales increase in 2009. Carryout sales represented 7.9 percent of Bob Evans Restaurant sales in 2009 compared to 7.5 percent and 7.0 percent in 2008 and 2007, respectively. Retail merchandise sales comprised 2.0 percent of Bob Evans Restaurant sales in 2009 compared to 2.1 percent and 1.9 percent in 2008 and 2007, respectively. Sales at Mimi's benefited from liquor, beer and wine sales, which represented 3.8 percent of sales in 2009 compared to 3.7 percent of sales and 3.4 percent of sales in 2008 and 2007, respectively. The increase in Mimi's alcohol sales is partially attributable to the addition of distilled spirits in 18 of our existing and all 12 new stores in 2009 and 51 stores in 2008. Historically, Mimi's alcohol offerings were limited to beer and wine. We plan to include a broader selection of alcoholic beverages in all new Mimi's, subject to our ability to obtain the necessary permits and licenses. Sales at Mimi's also benefited from carryout sales, which represented 4.0 percent, 4.2 percent and 4.1 percent of sales in 2009, 2008 and 2007, respectively.

The decline in restaurant same-store sales in 2009 was partially offset by an increase in the number of operating locations: 714 restaurants were in operation at the end of 2009 compared to 703 in 2008. The Bob Evans Restaurant opened in 2009 represents further expansion into an existing market in Kentucky. During 2009, two underperforming Bob Evans Restaurants were closed. Mimi's 2009 openings included further expansion into existing markets, as well as its first stores in Alabama and Iowa.

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

Bob Evans Restaurants:


                                 Beginning      Opened      Closed       Ending

             Fiscal 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
             Fiscal Year 2008
             First Quarter              579           0           0          579
             Second Quarter             579           0           0          579
             Third Quarter              579           1           0          580
             Fourth Quarter             580           1          10          571

Mimi's:


                                 Beginning      Opened      Closed       Ending

             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
             Fiscal Year 2008
             First Quarter              115           1           0          116
             Second Quarter             116           2           0          118
             Third Quarter              118           8           0          126
             Fourth Quarter             126           6           0          132

Consolidated Restaurants:


                                 Beginning      Opened      Closed       Ending

             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
             Fiscal Year 2008
             First Quarter              694           1           0          695
             Second Quarter             695           2           0          697
             Third Quarter              697           9           0          706
             Fourth Quarter             706           7          10          703

We continue to update the appearance of our Bob Evans Restaurants, of which 4 were rebuilt and 25 were reimaged and remodeled in the past year. We believe that the enhanced appearance of the restaurants adds to our customers' experience and will help same-store sales, which will continue to strengthen the Bob Evans Restaurant concept. We reimaged and remodeled 10 Mimi's in 2009. Although we do not plan to develop any new Bob Evans Restaurants in 2010, we do plan to rebuild 2 and reimage 15 existing Bob Evans Restaurants. In addition, we expect to decrease the number of Mimi's openings to approximately two new restaurants in 2010. We also plan to reimage 15 existing Mimi's restaurants in 2010.

The 2009 strategy at Bob Evans Restaurants primarily focused on continuing development of a pipeline of new products, along with more effective marketing programs. We are committed to developing new homestyle products with a Bob Evans twist to help build same-store sales. We continued to experience positive breakfast sales, which has been our traditional strength, with items such as the BoBurrito. In addition, lunch and dinner sales have benefitted from strong consumer acceptance of our seasonal offerings, such as Bob-B-Q, Deep-Dish Dinners and Big Farm Salads. See the "BEST Brand Builders" section for further discussion.

Mimi's experienced negative same-store sales comparisons in 2009. We believe these results 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 account for approximately 75 percent of Mimi's same-store sales. We are looking at a variety of initiatives to help re-energize same-store sales at Mimi's restaurants. See the "BEST Brand Builders" section for further discussion of these initiatives.

Food products segment sales accounted for 17.8 percent, 16.8 percent and 16.2 percent of total sales in 2009, 2008 and 2007, respectively. Food products segment sales increased $19.4 million, or 6.7 percent, in 2009 versus 2008. The 2009 sales increase was reflective of a 5.7 percent increase in the volume of comparable products sold (calculated using the same products in both periods and excluding newer products). The overall increase in food products segment sales 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. In 2009, we introduced 9 new foodservice products and 12 new retail food products, which helped us gain approximately 820 new retail authorizations. We plan to continue our strategy of growing through successful product introductions and additional points of distribution. We believe we are also making progress in penetrating supercenter retail stores, which provides another high-volume sales channel for our food products. See the "BEST Brand Builders" section for further discussion of new products and distribution.

Food products segment sales increased $23.4 million, or 8.7 percent, in 2008 versus 2007. The 2008 sales increase was reflective of a 4.7 percent increase in the volume of comparable products. The overall increase in food products segment sales in 2008 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. The increase in food products sales in 2008 was partially offset by a $6.7 million increase in promotional spending, which is netted against sales.

Cost of Sales

Consolidated cost of sales (cost of materials) was 30.7 percent, 29.8 percent and 29.2 percent of sales in 2009, 2008 and 2007, respectively.

In the restaurant segment, cost of sales (predominantly food cost) was 25.1 percent, 25.5 percent and 24.8 percent of sales in 2009, 2008 and 2007, respectively. The improvement in restaurant segment cost of sales as a percent of sales in 2009 was attributable to decreasing commodity prices, the impact of our supply chain management, as well as menu mix changes. See the "BEST Brand Builders" section for further discussion of commodity price decreases and productivity initiatives.

The increase in restaurant segment cost of sales in 2008 versus 2007 was primarily due to higher commodity prices. The impact of higher commodity prices was partially offset by cost savings from consolidating all of our purchasing programs into a single, company-wide procurement department and implementing certain productivity initiatives in 2008.

Food products segment cost of sales was 56.4 percent, 51.0 percent and 51.5 percent of sales in 2009, 2008 and 2007, respectively. These results were reflective of changing sow costs, which averaged $44.93, $34.79 and $38.41 per hundredweight in 2009, 2008 and 2007, respectively. The 2009 sow cost average represented a 29.1 percent increase compared to 2008, and the 2008 average represented a 9.4 percent decrease compared to 2007. The impact of higher sow costs on the food products cost of sales ratio in 2009 was slightly offset by productivity initiatives in our manufacturing plants, which improved sow yields. We expect that sow costs will average approximately $50 to $55 per hundredweight in 2010, and this will continue to place pressure on our operating margins. Excluding sow cost fluctuations, the cost of sales ratio in the food products segment has generally trended higher in the last few years, reflecting an increasing proportion of sales of products we purchase from third parties for sale under our brand names (e.g. mashed potatoes, frozen entrees, etc.), which have a higher cost of sales compared to the products we produce ourselves.

Operating Wage and Fringe Benefit Expenses

Consolidated operating wage and fringe benefit expenses ("operating wages") were 34.1 percent, 34.8 percent and 36.1 percent of sales in 2009, 2008 and 2007, respectively. The operating wages ratio decreased in both the restaurant and food products segments in 2009.

In the restaurant segment, operating wages were 39.2 percent of sales in 2009, compared to 39.6 percent and 40.8 percent in 2008 and 2007, respectively. Effective labor management at both of our restaurant concepts helped offset federal and state minimum wage increases as well as the negative leverage due to same-store sales declines at Bob Evans Restaurants and at Mimi's. See the "BEST Brand Builders" section for further discussion of labor management.

The 2008 improvement in the operating wages ratio was the result of effective labor management at both of our restaurant concepts, leverage from improved same-store sales at Bob Evans Restaurants and lower health insurance costs than the prior year, which more than offset the impact of federal and state minimum wage increases. In 2008, we continued to work aggressively on our labor management initiatives, such as a shift to team service, more accurate forecasting and improved scheduling. At Bob Evans Restaurants, we were able to eliminate 1.9 million labor hours in 2008, without negatively affecting our customer satisfaction scores.

In the food products segment, operating wages were 11.1 percent, 11.2 percent and 11.7 percent of sales in 2009, 2008 and 2007, respectively. The improvement in both 2009 and 2008 was due to better leveraging of costs in relation to sales volumes discussed in the "Sales" section above.

Other Operating Expenses

Approximately 95 percent of other operating expenses ("operating expenses") occurred in the restaurant segment in 2009, 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, 16.2 percent and 16.0 percent of sales in 2009, 2008 and 2007, respectively. Restaurant segment

operating expenses were 18.4 percent of sales in 2009 and 2008, and 18.1 percent of sales in 2007. The notable fluctuations within the restaurant segment operating expenses for 2009 compared to 2008 were decreases in advertising expenses and Mimi's pre-opening costs offset by higher utility and occupancy costs. The notable fluctuations within the restaurant segment operating expenses for 2008 compared to 2007 were increases in utilities, credit card processing fees, advertising expenses and Mimi's pre-opening costs due to an increase in the number of store openings.

Food products segment operating expenses as a percent of sales in 2009, 2008 and 2007 were 4.9 percent, 5.4 percent and 5.1 percent, respectively. The decrease in the operating expenses ratio in 2009 compared to 2008 was primarily due to lower liability insurance costs. The increase in the operating expenses ratio in 2008 compared to 2007 was due to increases in liability insurance, production supplies, utilities and transportation costs.

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 on real estate sales and charges related to underperforming restaurants. . . .