Bob Evans Farms, Inc.
BOB EVANS FARMS INC (Form: 10-K, Received: 06/19/2015 16:06:49)
 

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 24, 2015
OR
¨
 
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.)
8111 Smith's Mill Road, New Albany, Ohio
 
43054
(Address of principal executive offices)
 
(Zip Code)
(614) 491-2225
(Registrant’s telephone number, including area code)

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   ¨     No  þ
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   ¨     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   ¨
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   þ     No   ¨
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.     ¨
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.
Large accelerated filer   þ
 
Accelerated filer   ¨
 
Non-accelerated filer   ¨
 
Smaller reporting company ¨
 
 
(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   ¨     No   þ
As of October 24, 2014 (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 $1,106,700,605 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 as of June 17, 2015
Common Stock, $.01 par value per share
 
22,321,207
DOCUMENTS INCORPORATED BY REFERENCE
Document
 
Parts Into Which Incorporated
Portions of the registrant’s Proxy Statement for the 2015 Annual Meeting of Stockholders
 
Part III



Forward-Looking Statements
The Securities and Exchange Commission (“SEC”) 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 in this report and in our public disclosures may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, as amended (“Exchange Act”). 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,” “could,” “may,” “will,” “would,” “estimates,” “targets,” “assumes,” “continues,” “intends” and “plans,” and other similar expressions, whether in the negative or the affirmative. Forward-looking statements are not guarantees of future performance and 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. 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. In addition, it is our policy generally not to endorse any projections regarding future performance that may be made by third parties.
Many important factors could affect our future results and could cause those results to differ materially from those expressed in or implied by the forward-looking statements contained herein. Such factors, all of which are difficult or impossible to predict accurately, and many of which are beyond our control, include, but are not limited to, the following:
consumers’ perceptions of the relative quality, variety, affordability and value of the food products we offer;
food safety events, including instances of food-borne illness (such as salmonella or E. Coli) involving our restaurants, production plants or our supply chain;
the effects of negative publicity that can occur from increased use of social media;
success of operating and marketing initiatives, including advertising and promotional efforts and new product and concept development by us and our competitors;
changes in consumer tastes and preferences, and in discretionary consumer spending;
changes in spending patterns and demographic trends, such as the extent to which consumers eat meals away from home;
changes in commodity costs (including sows, beef, chicken, eggs and corn), labor, supply, fuel, utilities, distribution and other operating costs;
development costs, including real estate and restaurant and plant construction costs;
availability of qualified restaurant and plant personnel, and the ability to retain such personnel;
our ability, if necessary, to secure alternative distribution of supplies of food, equipment and other products to our restaurants and production facilities at competitive rates and in adequate amounts, and the potential financial impact of any interruptions in such distribution;
availability and cost of insurance;
adverse weather conditions;
availability, terms (including changes in interest rates) and deployment of capital;
changes in, and our ability to comply with, legal, regulatory or similar requirements, including payment card industry rules, overtime rules, minimum wage rates, wage and hour laws, government-mandated health care benefits, tax legislation, and accounting standards;
the costs, uncertainties and other effects of legal, environmental and administrative proceedings;
the effects of charges for impairment of goodwill or for the impairment of other long-lived assets;
the effects of war or terrorist activities;
the difficulty in predicting the ultimate costs that will be incurred in connection with the Company’s plan to reduce its general and administrative expense, and the future impact on the Company’s earnings;

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the possibility that the Company will not be able to implement certain strategic options and as part of such recapitalize its balance sheet on acceptable terms, as well as risks associated with such plan, including the ability to generate sufficient cash flow to meet increased debt service obligations, compliance with operational and financial covenants, and restrictions on the Company’s ability to raise additional capital following the implementation of certain strategic options and the completion of a recapitalization transaction;
the level of success of our implementation of a new enterprise resource planning system implementation, and;
other risks and uncertainties affecting us and our subsidiaries referred to in this Annual Report on Form 10-K (see “Item 1A. Risk Factors” and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations”) and in our other current and periodic filings with the SEC.

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Table of Contents

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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 direct and indirect subsidiaries.
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 567 Bob Evans Restaurants and licenses four Bob Evans Express locations in 19 states. We are also a leading producer and distributor of pork sausage products and a variety of complementary home-style refrigerated side dishes and frozen food items primarily under the Bob Evans, Owens and Country Creek brand names. These food products are distributed primarily to customers throughout the United States. Additionally, we manufacture and sell similar products to foodservice accounts, including Bob Evans Restaurants and other restaurants and food sellers.
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 was incorporated in Ohio in 1957. We became a publicly traded company in 1963. Our current parent company was incorporated in Delaware in 1985 as the successor to the original company.
In 1987, we expanded our business by acquiring Owens Foods, Inc. (then known as Owens Country Sausage, Inc.).
In 2004 we expanded our business by acquiring SWH Corporation, which owned and operated the Mimi's Café restaurant chain. We sold our Mimi’s Café restaurant chain in February 2013 to Le Duff America, Inc. (“Le Duff”). Le Duff is a U.S.-based subsidiary of Groupe Le Duff, a global bakery and restaurant company headquartered in France.
In August 2010 we closed our fresh sausage plant in Galva, Illinois.
In 2010 we eliminated direct store deliveries and moved to shipping products directly to customer warehouses.
In October 2011 we sold our distribution center in Springfield, Ohio.
In 2011 after performing market research we launched the Farm Fresh Remodel ("FFR") program for Bob Evans Restaurants; a program we completed in 2014.
In August 2012 we purchased the Kettle Creations brand and a 100,000 square foot food production facility in Lima, Ohio, where we primarily produce potato and pasta-based side dishes.
In September 2013 we closed our fresh sausage plant in Richardson, Texas.
In October 2013 we completed the first phase of an expansion at our Lima, Ohio, production facility, including an expansion of 57,000 square feet and constructing an additional production line.
In October 2013 we implemented modifications and completed an expansion at the Sulphur Springs, Texas, production facility to modify and add production lines to increase production capabilities of ready-to-eat food products, as well as adding capacity for soups and gravies.
In October 2013 we moved into our new corporate headquarters in New Albany, Ohio.
In December 2013 we closed our production facility in Bidwell, Ohio.
In February 2014 we closed our production facility in Springfield, Ohio.
We have a 52 or 53-week fiscal year that ends on the last Friday in April. When we refer to fiscal 2015 , fiscal 2014 and fiscal 2013 , we are referring to our fiscal years that ended on April 24, 2015 , April 25, 2014 , and April 26, 2013 , respectively. All years presented are comprised of 52 weeks. Our fiscal 2016 year that ends on April 29, 2016, will be a 53-week fiscal year.



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Our Strategy
We believe our restaurant and foods businesses are regional brands with national potential. Our vision and mission statements embody our expectations for our company’s future. Our mission and vision are to make our regional brands powerful national brands. We are working with a high sense of urgency to implement actions that will enhance performance and create shareholder value. In fiscal 2015 we conducted a comprehensive review of strategic alternatives. Some of the significant actions in this turnaround effort are as follows:
1.    Continue to review the possibility of a separation of the BEF Foods business
2.    Review the potential for real estate transactions or other changes to our capital structure continuing to evaluate various alternatives with respect to all, or a portion of, the Company's real estate assets, including a potential REIT spin-off, a sale-leaseback, and other real estate financing transactions.
3.    Optimize our asset base by periodically reviewing our assets and taking appropriate investment and disposal actions when necessary.
4.    Continue to review our G&A and certain other cost structures to identify sustainable cost savings and establish an enterprise-wide lean efficiency team to focus on these savings opportunities.
With the successful execution of our business objectives and business strategy we believe we will achieve our vision and mission.
Bob Evans Restaurant Segment
As of April 24, 2015 , we operated 567 Bob Evans Restaurant locations. Through our restaurant concept, we offer our customers a variety of high-quality, reasonably priced breakfast, lunch and dinner items either on a dine-in or carryout basis in family-friendly settings.
Our vision for Bob Evans Restaurants is to be 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 one customer at a time. To do this we must get back to basics and simplify our operations to allow our restaurant teams to deliver on that premise. Bob Evans Restaurants are founded on quality, farm-style food and friendly service. Bob Evans Restaurants feature “farm fresh goodness that brings families together,” including a wide variety of comfort foods inspired by our homestead heritage such as sausage gravy, sweet and stacked hotcakes and our rise and shine breakfasts. We are striving to take advantage of this heritage and focus on delivering "Best In Class Breakfast." We want our customers to always feel right at home with us, so we “treat strangers like friends and friends like family.”
Breakfast entrées are served all day and feature traditional favorites such as sausage, bacon and eggs, as well as specialty offerings like sweet and stacked hotcakes, omelets and our signature coffee highlighting the importance of "Best In Class Breakfast" execution. We also offer a wide variety of lunch and dinner entrées, including a full line-up of Farm Fresh Salads and signature dinner items, such as slow-roasted pot roast, slow-roasted turkey and country fried steak. During fiscal 2015, we started rolling out our Broasted Chicken platform. This fresh, never frozen chicken, is hand-breaded in-house and cooked to a golden-crust in our special broaster cooker. It is already becoming a signature Bob Evans entrée and highest selling item in many restaurants.
Bob Evans Restaurants feature an atmosphere inspired by our Ohio farm heritage. Most traditional Bob Evans Restaurants range in size from approximately 3,600 to 6,500 square feet and average approximately 5,000 square feet, while our larger Bob Evans Restaurants & General Stores are approximately 9,800 square feet. In fiscal 2015 we opened seven new restaurants in Ohio, Florida and Kentucky and closed one restaurant in the state of Florida. We expect to open one new restaurant and to close 20 restaurants in fiscal 2016.
We believe our Bob Evans Restaurants draw people who want a delicious meal at a fair price in an alcohol-free, family-friendly atmosphere. Our average annual store sales were $1.7 million for Bob Evans Restaurants in fiscal 2015 . Average per-guest checks for fiscal 2015 for breakfast, lunch and dinner were $9.06, $9.58 and $9.66, respectively, for an average per-guest check of $9.42 for all day parts. The average per-guest check has increased primarily due to a mix shift towards higher price items as well as price increases implemented during the year. 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. In fiscal 2015, we were open on Thanksgiving Day with extended hours. During fiscal 2015 , breakfast, lunch and dinner accounted for 33 percent, 38 percent and 29 percent, respectively, of total Bob Evans Restaurants’ revenue. Weekend sales, defined as Saturday and Sunday, accounted for approximately 40 percent of a typical week’s revenue during fiscal 2015 . Off-premise sales (carryout, catering, bakery, retail and on-line ordering) are

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approximately 14% of the total Bob Evans Restaurants segment revenue and have grown by approximately 16% as compared to the prior year.
Bob Evans Restaurants is focused on growing sales and profits in key product areas. Exciting new products like Broasted Chicken and Brioche French Toast are geared to drive dine-in traffic and sales. Broasted Chicken was also successful at driving carryout sales in those locations where it has been rolled out. Family Meals To Go and $5/$6 Soup and Sides To Go have become major sellers. Catering has also become a significant sales layer. Our Farm House Feasts that serve 8 to 10 people, featured on Thanksgiving and Christmas, have already become a holiday favorite. Bob Evans Restaurants’ total off-premise business accounted for approximately 14% of total revenues, up from approximately 13% in fiscal 2014. We will continue to focus efforts on increasing both our dine-in and off-premise business in fiscal 2016.
Restaurant Operations and Management
We believe that quality restaurant management is critical to the success of our restaurant concept. We must be the best at operations execution to keep our customers satisfied. Our restaurant management structure for Bob Evans Restaurants is organized to drive quality, service, cleanliness and top-line growth and bottom-line profitability.
The Bob Evans Restaurants leadership focuses efforts on the overall growth and development of the concept, with particular focus on increasing sales and profitability. Our restaurant leaders are incented to “act like owners.”
Each Bob Evans Restaurants location employs approximately 50 to 90 hourly employees, and is led by a general manager, an assistant general manager, and one or more assistant managers, depending on the size, location and sales volume of the restaurant. A Bob Evans Restaurants general manager reports to an Above Restaurant Leader who oversees an area of approximately 8-12 restaurants. The Above Restaurant Leader reports to a Region Coach, who is responsible for approximately 8-12 areas. The Region Coach reports to the executive vice president and chief concept officer. Bob Evans Restaurants are visited regularly by all levels of management to ensure they are operating effectively and adhering to our standards.
Restaurant Locations
As of April 24, 2015, Bob Evans Restaurants were located in 19 states, primarily in the Midwest, mid-Atlantic and Southeast. We believe we must innovate and change the way people think about Bob Evans Restaurants by ensuring that the concept is relevant to our target segments which include families, frequent restaurant diner and blissful boomers. During fiscal 2015, we opened seven new Bob Evans Restaurants, compared to four in fiscal 2014, and two in fiscal 2013. During fiscal 2015 we also closed one Bob Evans Restaurants, compared to three in fiscal 2014, and seven in fiscal 2013.


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The following table sets forth the number and location of our Bob Evans Restaurants as of the end of fiscal 2015 :
Restaurants in Operation at April 24, 2015
 
Bob Evans
Restaurants
Arkansas
2
Delaware
7
Florida
50
Illinois
16
Indiana
60
Kansas
3
Kentucky
24
Maryland
28
Michigan
51
Missouri
21
New Jersey
2
New York
8
North Carolina
7
Ohio
194
Pennsylvania
39
South Carolina
4
Tennessee
3
Virginia
17
West Virginia
31
Total
567
Future restaurant growth depends on a variety of factors, including:
the expected rate of return on the capital 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 our Bob Evans Restaurants 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, proximity to retail centers, and the demographics of potential guests.
We periodically evaluate performance of our existing restaurants to determine whether any restaurants should be (1) closed, (2) remodeled, or (3) relocated. On April 24, 2015, the Board of Directors approved and management committed to close 20 underperforming restaurants. We closed 18 of these stores in the first quarter of fiscal 2016 and plan to close the remaining two stores by the end of fiscal 2016. We believe these closures will strengthen our restaurant portfolio and improve overall returns, and free up resources for other uses including managing leverage under our Credit Agreement.



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Supply Chain and Distribution
Controlling our supply costs is a critical component of improving margins with a focus 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 nonfood 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 foods and other commodities we bought for our restaurants increased during fiscal 2015 , and we expect increases during fiscal 2016 . 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 that are also beneficial to our restaurants. We continue to consolidate our purchasing activities for the entire company. This allows us to leverage the combined purchasing power of our restaurant concept and BEF Foods segment. As part of this effort, we use competitive bidding and reverse online auctions for certain products and services.
The BEF Foods segment manufactures sausage products, as well as side dishes and soups, which are distributed, on average, twice per week to our restaurants by third parties. Our distributors purchase products from the suppliers we specify, at the prices we negotiate, and distribute them to our restaurants on a cost-plus basis. Produce, breads and dairy items are sometimes delivered to restaurants more frequently and/or obtained from local suppliers.
We believe we have improved distribution efficiency, attained consistent pricing and lowered costs as we leverage the volume of our restaurant concept. Although only one distributor, through multiple distribution centers, furnishes the majority of inventory items to our restaurants, we believe other distributors can readily provide this inventory. Please see Item 1A. Risk Factors — “Our restaurant and food products businesses are dependent on timely delivery of fresh ingredients by our suppliers and distributors.” for more information.
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 generally available from our existing suppliers or, upon short notice, can be obtained from other qualified suppliers. At the start of fiscal 2016, our prices to purchase shell and liquid eggs began to increase, a result of the avian influenza that has significantly impacted poultry farms in the Midwest. We expect egg prices to rise further in fiscal 2016 and may not be able to pass through the additional costs to customers in the form of increased pricing.
Due to the rapid turnover of perishable food items, our restaurants maintain inventories with a modest (approximately $12 thousand of perishable inventory per restaurant) aggregate cost in relation to revenues.
Advertising and Marketing
We spent approximately $31 million on restaurant advertising and marketing during fiscal 2015. Most of our advertising budget was spent on television, radio, print and outdoor advertising. We focus our advertisements on new Bob Evans Restaurants’ menu items and the concept’s position as offering “farm fresh goodness that brings families together,” and "get in on something good TM ." We also distribute coupons through multiple channels and support in-store merchandising, menus, kids’ marketing programs, and local store marketing. Total discounts, recognized as a reduction of sales for Bob Evans Restaurants, were $53.6 million, $46.4 million and $32.7 million in fiscal 2015, 2014 and 2013 respectively.


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Research and Development
As part of our effort to consistently drive sales growth we continuously test food items to identify new and improved menu and retail food product offerings to appeal to our existing customers, satisfy changing eating trends and attract new customers. We strive to maintain a 12 to 24 month product development pipeline which is focused on creating and introducing innovative menu items and retail food products, as well as enhancements to our existing offerings.
In order to keep our menu and retail food products fresh and appealing to our guests’ taste preferences, our product development team is concentrated on creating appealing menu offerings that are consistent with the positioning of the brand, as well as quality enhancements to some of our best-selling items. Product development for both Bob Evans Restaurants and BEF Foods segments focuses on home-style offerings with a unique Bob Evans twist. New products are market tested before they are widely rolled out. Research and development expenses for our restaurant concept and BEF Foods operations are generally not material.
Competition
The restaurant industry is highly competitive. There are numerous 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.
Key competitive factors in the industry include the quality and value of menu offerings, quality and speed of service, attractiveness of facilities, advertising, brand awareness and image, and restaurant locations. Although we believe our restaurant concept competes 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.
Our BEF Foods Segment
Our vision for our BEF Foods segment is to be a powerful national brand food business driven by innovation and strong retail partnerships with a portfolio of convenient meal solutions that meet consumer needs. We offer a variety of quality, wholesome food products to retail and foodservice customers. We sell our retail food products under the Bob Evans, Owens and Country Creek brand names. Our food products provide “farm-fresh goodness” and convenient meal solutions that uphold our commitment to premium quality. Our food products include approximately 60 varieties of branded fresh, smoked and fully cooked pork and turkey sausage, ham and hickory-smoked bacon products, such as Bob Evans Fresh Sausage (in rolls, patties or links, all in a variety of seasonings), Bob Evans Sweet Italian Sausage, Bob Evans Fully Cooked Maple Links and Bob Evans Fully Cooked Turkey Sausage Patties. We also offer over 100 complementary, convenience food items in the refrigerated and frozen areas of grocery stores such as mashed potatoes (different varieties in various sizes), our Oven Bake™ Scalloped Potatoes and Oven Bake™ Macaroni & Cheese, our sides such as Homestyle Broccoli & Cheese, Seasoned Homestyle Stuffing, Six Cheese Pasta, Original Green Bean Casserole and Sliced Glazed Apples, our Handheld Breakfast Items such as Bob Evans Sausage, Egg, Cheese Biscuits, Bob Evans Sausage Gravy Stuffers, Bob Evans Southwest Breakfast Bake and Bob Evans Sausage, Egg & Cheese Croissant, our Breakfast Burritos, Breakfast Bowls, Owens Kolaches, as well as our Soups (Original Chicken & Noodles and Original Sausage Chili), and Sausage Gravies.
Our refrigerated mashed potatoes and macaroni and cheese side dishes continue to grow as a percentage of our food products volume. We expect to continue to consistently drive sales growth through new product development and enhancements to existing items to address evolving consumer demands.
Production
We have made efforts to increase returns on invested capital by implementing a plant optimization program to ensure we are operating efficiently and are positioned for future growth. The program is geared to identify operational gaps and opportunities to improve production efficiencies at our production facilities. As a part of this program, we closed our fresh sausage plant in Galva, Illinois, and the fresh sausage production portion of our Bidwell, Ohio, plant in fiscal 2011. We closed our ready-to-eat plants in Springfield and Bidwell, Ohio, and our fresh sausage plant in Richardson, Texas, in fiscal 2014.
In August 2012, we purchased Kettle Creations, which included a 100,000 square foot food production facility in Lima, Ohio, where we produce potato and pasta-based side dishes. Kettle Creations previously was a co-packer for BEF Foods. During the second quarter of fiscal 2014 we completed the expansion at the Lima, Ohio, production facility, including an

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additional 57,000 square feet of production facility and constructing an additional production line at a cost of approximately $24 million.
As part of our plant optimization program, we also invested approximately $36 million of capital to expand, modify and add production lines to our food production facility in Sulphur Springs, Texas, which increased production of ready-to-eat food products, as well as added capacity for soups and gravies. This plant expansion was completed during the second quarter of fiscal 2014.
We currently produce food products in our four manufacturing facilities. We produce fresh sausage products at our plants located in Hillsdale, Michigan, and Xenia, Ohio. Ready-to-eat products, such as sandwiches, soups and gravies, are produced at our Sulphur Springs, Texas, plant, and our Lima, Ohio, plant produces refrigerated side dishes. In fiscal 2016 we plan to invest $20 million to add an additional side-dish production line at our Lima, Ohio, plant. The line is expected to be completed in the first quarter of fiscal 2017.
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 2015 , all of our manufacturing plants earned certification pursuant to Global Food Safety Initiative standards.
We also use third parties to manufacture or “co-pack” the Bob Evans and Owens products that are not produced in our own facilities or to supplement production in peak demand periods. These co-packed items include some of our side dish and meat items. We used approximately 20 third parties to manufacture food products for us in fiscal 2015 .
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. This consolidated is expected to continue. 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 not available in all grocery stores across the country, it is the leading brand of refrigerated mashed potatoes in the United States (based on pound sales and Information Resource Inc.'s total U.S. grocery data for 52 weeks ending in April 2015) and has been since 2007. Our goal is to consistently drive sales growth by leveraging our strong share position to secure additional retail store business and gain additional 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.
Our retail sales force, which consists of our national account teams as well as third-party food brokers, sells our food products to the leading national and regional retail chains. Retail sales are approximately 80 percent of net sales, while foodservice sales account for approximately 20 percent of net sales.
A relatively small number of customers account for a large percentage of our sales. For fiscal 2015 , our 10 largest accounts represented approximately 60 percent of our total BEF Foods sales, with the top two customers representing approximately 30 percent of our BEF Foods segment sales. We use national account teams to address the needs of our key retailers on a long-term basis.
Items for our foodservice customers are made to their specifications and include sausage, sausage gravy, breakfast sandwiches and side dishes. Foodservice sales provide us with incremental volume in our production plants. Volumes in foodservice business declined as compared to fiscal 2014, primarily due to a shift of resources towards our growing side dish business.
Distribution
We supply our customers by shipping products directly to their warehouses for further distribution by the customers to their retail stores. We also distribute our products through food wholesalers and distributors who primarily service smaller, independent grocers.

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At the end of fiscal 2015 , Bob Evans or Owens brand products were available for purchase in grocery stores in all 50 states, the District of Columbia and Canada. Our Owens brand products were available for purchase primarily in Oklahoma, Louisiana and Texas.
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.
Sources and Availability of Raw Materials
One of the most important raw materials used in our food products business is live sows (an adult female pig), which we depend upon to produce our pork sausage products. We produce our sausage using the same premium ingredients that Bob Evans used when he started the Company. Sow meat is a high-value product compared to other types of pig meat because it has a different texture and color than other pork; other pork tends to be chewy when made into sausage, 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 volatile in terms of the number of sows available and market price. 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. During fiscal 2014 and part of fiscal 2015, sow costs reached record high prices in part driven by Porcine Epidemic Diarrhea virus ("PEDv") which reduced the supply of sows for slaughter due to the impact PEDv had on young piglets. The supply reduction did not significantly impact our ability to procure the live sows needed to meet customer demand, however it significantly impacted the cost beginning in the second quarter of fiscal 2014 through the third quarter of fiscal 2015. We procure sows in a variety of ways, including under supply contracts, however due to the structure of the sow market, including the limited availability of sows, there is neither a way to “lock” in prices nor any commercially feasible hedging contracts or like financial instruments for sows, like there are for “lean hogs” or “pork bellies.” We experienced significantly declining sow costs in the latter part of fiscal 2015 due to the end of PEDv, rebuilding of the sow herd and low demand.  In fiscal 2016 an adequate supply of sows and static demand look to keep sow costs below the average costs experienced in fiscal 2015.
Other important raw materials used in our food products operations are potatoes, dairy products, seasonings and packaging materials. Historically, these materials have been readily available, although some items may be in short supply during certain seasons and the price fluctuates according to availability. Such shortages did not have a material impact on net sales or operating income in fiscal 2015. 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.
Our raw material prices may be impacted by the spread of avian influenza across poultry farms in the Midwest. Eggs are key ingredient in some of our frozen products and we may not be able to pass additional costs through to our customers.
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 products 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 2015 , we spent approximately $3.6 million advertising our food products, excluding coupons and trade promotion marketing costs. Our food products marketing programs consist of advertising, consumer promotions and trade promotions. Our advertising activities include newspaper and digital advertising 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, price discounts and securing additional shelf space. Trade promotions, recorded as a reduction to net sales, were $56.6 million, $49.1 million and $54.5 million in fiscal years 2015, 2014 and 2013, respectively.
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

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greater financial, marketing and other resources than we have. We also face growing competition from private label sausage products and side dishes.
Items That Impact Both the Bob Evans Restaurants Segment and Our BEF Foods Segment
Seasonality and Quarterly Results
Our Bob Evans Restaurants and BEF Foods segments 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. Holidays, severe weather conditions (such as snow storms, hurricanes, and thunderstorms), natural disasters (such as flooding and tornadoes) and similar conditions can impact restaurant sales volumes in most of the markets in which we operate.
Our BEF Foods segment is seasonal to the extent that third and fourth quarter sales are typically higher due to increased sales of sausage and our home-style side dishes during the colder months from November through April and especially during the holiday season.
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, such as the mark Bob Evans ® for our restaurant business, and Bob Evans ® , Owens ® , Country Creek Farm ® and Kettle Creations ® for BEF Foods. We use additional registered and proprietary marks, some of which are listed under “Item 1. Business” above. 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 such as bobevans.com, beffoods.com and kettlecreations.net. 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 Bob Evans Restaurants and BEF Foods segments. 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.
The following terms are the principal trademarks and registered trademarks of Bob Evans, many of which are used herein: Get in on Something Good TM , BE Express ® , BE Fit ® , BE Mail ® , BEST Bob Evans Special Touch ® , Big Farm Burgers ® , Bob Evans ® , Bob Evans Express ® , Bob Evans Oven Bake ® , Bob Evans Restaurants ® , Bob Evans Wildfire ® , Country Creek Farm ® , Discover Farm-Fresh Goodness ® , Farm-Fresh Goodness ® , Farmhouse Feast ® , Fit From the Farm ® , Kettle Creations ® , and Owens ® . Bob Evans uses additional registered trademarks and proprietary marks in its business.
As part of the roll out of our Broasted Chicken® platform, we have licensed the use of the Broasted ® , Broaster Chicken ® , Genuine Broaster Chicken ® and Broasted Chicken trademarks from The Broaster Company.  Our Development Agreement provides us with limited exclusivity rights to use these licensed trademarks and proprietary Broaster equipment for a period of 10 years within the domestic family dining segment.
Government Regulation
We are subject to numerous federal, state and local laws affecting our businesses. Our Bob Evans Restaurant segment is 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 each of our restaurants 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 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.

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Minimum wages are governed by federal, state and local laws. There have been a number of increases in minimum wage in various states, as well as increasing legislative discussion at the federal level. Additionally, our industry has many tipped employees who receive much of their compensation in the form of customer tips. In many cases, we are allowed to take a tip credit against the required minimum wage rate and pay a lower cash wage rate to those employees. Any significant changes in the level of minimum wage or the permissibility of tipped wages could affect the profitability of our Bob Evans Restaurants and BEF Foods segments. Federal and state legislatures have also proposed bills that would require paid time off at the hourly level. As this has not been common practice in the restaurant industry, such changes could affect our labor costs and profitability.
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. The Affordable Care Act 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 Food and Drug Administration (“FDA”) has released final regulations that have an effective date of December 1, 2015.
The passage of the Affordable Care Act and ongoing changes in the governing rules have required significant effort to ensure compliance. The Company has chosen to continue to make health care available to eligible employees based on the terms set forth in the plan. Further, we are providing medical, prescription drug, dental, vision and an employee assistance program through a private exchange, as we attempt to manage overall health care costs. In the first year under the Affordable Care Act (calendar 2014) we experienced a more significant increase in costs than we had anticipated and were unable to mitigate the cost to the Company by re-distributing the cost of the coverage between the Company and employees. We experienced another significant cost increase in the second year (calendar 2015), which caused us to increase the overall costs to both the Company and employee participants, but due to the size of the increase, the Company is responsible for a greater percentage of the costs than it has historically been responsible. Significant cost increases or administrative burdens could affect our profitability and our ability to continue our current health care strategy.
The nature of our business requires many of our employees to work nights, weekends and nontraditional schedules. Our restaurants may have varying labor needs at various points in time. These factors make it imperative that we carefully monitor and manage the hours that nonexempt employees work to remain compliant with overtime pay regulations. We employ both salaried exempt and hourly nonexempt employees at our restaurants, which require us to manage the type of work done by the different classes of employees. As the definitions and enforcement of overtime and overtime exemption regulations continue to change at the federal and state levels, we may need to consider making changes in these classifications, which could result in higher payroll costs and negatively impact profitability.
Bob Evans must comply with the applicable requirements of the Americans with Disabilities Act of 1990, as amended by the ADA Amendments Act of 2008 (“ADA”) and related state statutes. In pertinent part, 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 ensure each restaurant and facility meets the accessibility requirements of all applicable laws and regulations. We also must make reasonable accommodations for the employment of people with disabilities.
As a manufacturer and distributor of food products, our BEF Foods segment is 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 BEF Foods segment 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 BEF Foods segment, to be bonded, which provides trust protection for producers in the

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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.
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.” One or more of our BEF Foods segment manufacturing facilities could be covered by such new legislation. As in virtually every industry, GHG emissions occur at several points across our operations, including production, transportation and processing. Compliance with future legislation, if any, and compliance with currently evolving regulation of GHGs by the EPA and states may result in increased compliance costs, capital expenditures, and operating costs. In the event that any future compliance requirements at any of our facilities require more than the sustainability measures that we are currently undertaking to monitor emissions and improve our energy efficiency, we may experience increases in our costs of operation. These regulatory changes may also lead to higher cost of goods and services, which may be passed on to us by suppliers. Based on information currently available to us, we believe that compliance with these regulations will not have a material adverse effect on us.
From time to time, we receive notices and inquiries from regulatory authorities and others asserting that we are not in compliance with particular laws and regulations. In some instances, litigation ensues. In addition, individuals may initiate litigation against us. Many of our facilities are subject to environmental permits and other regulatory requirements, violations of which are subject to civil and criminal sanction. In some cases, third parties may also have the right to sue to enforce compliance.
Employees
As of April 24, 2015 , we employed 32,341 employees including approximately 7,471 full-time employees. None of our employees are currently covered by collective bargaining agreements. We consider overall relations with our employees to be satisfactory.
Available Information
We are subject to the informational requirements of the Exchange Act, and, accordingly, we file reports, proxy statements, and other information with the SEC. Such reports, proxy statements, and other information are publicly available and can be read and copied at the reference facilities maintained by the SEC at the Public Reference Room, 100 F Street, NE, Room 1580, Washington, D.C. 20549. Information regarding the operation of the Public Reference Room may be obtained by calling the SEC at 800-SEC-0330. The SEC maintains a website ( www.sec.gov ) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.
Our website is www.bobevans.com. We make available at this address, free of charge, press releases, annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, reports for transactions in the Company stock by insiders on Forms 3, 4 and 5, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after electronically filing such material with, or furnishing it to, the SEC. In addition, we provide periodic investor relations updates and our corporate governance materials at our website.
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, 8111 Smith's Mill Road, New Albany, Ohio 43054.
ITEM 1A.     RISK FACTORS.
The risk factors presented below may have a material adverse effect on our future operating results, financial position and cash flows. The categories listed below are for information purposes only and do not signify that any risk should or should not be included in one or more of the other categories, or that any category or risk is more significant than any other risk. In addition to the risk factors presented below, changes in general economic conditions, consumer tastes and discretionary

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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 ("SEC") depending upon a variety of factors, including, but not limited to, the following risks and uncertainties:
I.    STRATEGIC
Our failure to achieve and maintain positive average unit store growth for an extended period of time could have a material adverse effect upon our financial condition, results of operations 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.
We depend on consumer acceptance of our menu offerings, food products, prices, atmosphere, convenience and service procedures.
Our success in creating demand for our brand as well as 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. Our success is also dependent upon our ability to provide outstanding customer service and convenience and to keep the atmosphere of our Bob Evans Restaurants segment differentiated from our competitors, and relevant and appealing to our customers. If we change our 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.
We depend on initiatives designed to improve the efficiencies, costs and effectiveness of our operations, as well as increase revenues, and failure to fully achieve or sustain these initiatives could adversely affect our results of operations.
We have had, and expect to continue to have, initiatives related to cost efficiencies and revenue generation in various stages of testing, evaluation and implementation, upon which we expect to rely on to improve our results of operations and financial condition. Many of these initiatives are inherently risky and uncertain in their application to our business in general, even when tested successfully on a more limited scale. It is possible that successful testing can result partially from resources and attention that cannot be duplicated in broader implementation. Testing and general implementation also can be affected by other risk factors described herein that reduce the results expected. Successful system-wide implementation of these initiatives across hundreds of restaurants and involving tens of thousands of employees relies on consistency of training, stability of workforce, ease of execution, changes in market conditions and the absence of offsetting factors that can adversely influence results. Failure to achieve successful implementation of our initiatives could adversely affect our results of operations.
Our long-term growth strategy depends on successfully executing our current strategic efforts to turnaround our business results. Our ability to complete our turnaround efforts is influenced by factors beyond our control, which may slow our turnaround efforts and impair our long-term growth
We are pursuing a disciplined long-term growth strategy which, to be successful, will depend in large part on our ability to execute our current turnaround efforts. If we are unable to execute the turnaround efforts due to factors beyond our control our long-term growth opportunities could be impaired.
We are authorized to pursue certain strategic transactions, including one or more sale-leasebacks of our New Albany, Ohio headquarters, our BEF Foods manufacturing facilities in Lima, Ohio, and Sulphur Springs, Texas. The Company cannot guarantee that any of these transactions will occur. The decision to enter into any of these transactions, or the assets subject to

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a transaction, depends on a number of factors including, but not limited to, interest rates and general U.S economic conditions, the performance of the Bob Evan’s business segments, etc., and must first be approved by the Board of Directors. Any transaction would be subject to the normal conditions and covenants for closing. Depending upon the size and structure of any of these transactions, prior to entering into a transaction, the Company could be required to either obtain permission from its credit facility lenders or put in place alternative financing arrangements. The failure to successfully implement on one or more of these strategic transactions within the time period planned could have a material adverse effect on our long-term growth strategy to turn around the business as well as on our results of operations. Additionally, there is no guarantee that the execution of one or more such transactions will have a positive impact on our long-term growth strategy or results of operations.
We may experience higher-than-anticipated costs associated with the opening of new restaurants or with the closing of existing restaurants, which may adversely affect our results of operations.
Our sales and expenses can be impacted significantly by the number and timing of the opening of new restaurants and the closing of existing restaurants. We incur substantial preopening expenses each time we open a new restaurant and other expenses when we close existing restaurants. The expenses of opening or closing any of our restaurants may be higher than anticipated. An increase in such expenses could have an adverse effect on our results of operations.
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 restaurant business depends in significant part upon our ability to attract, train, motivate and retain a sufficient number of qualified employees, including Above Restaurant Leaders, 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 segment is based upon. 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, recruiting and training costs, and customer service, which would result in an adverse effect on our restaurant business and results of operations.
We depend 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, food preparation and consistency of the preparation from restaurant to restaurant, 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 compete with many restaurant operators and other retail establishments for site locations and restaurant employees. We also compete with grocery store chains that offer cooked and prepared products for the consumer. 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 industry 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 BEF Foods segment as other food companies introduce refrigerated side dishes to compete with our successful products. This increased competition could have a material adverse effect on our financial position or results of operations.

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Our marketing and branding strategies may not be successful, which could negatively affect our business.
Our marketing and branding strategies continue to evolve to maximize our appeal to customers and compete effectively. We do not have any assurance that our marketing strategies will be successful. If our current strategy to aggressively use less discounting, new advertising, modified branding, and other marketing programs are not successful, we may not generate the level of restaurant and food products sales we expect and the expenses associated with these programs will negatively affect our financial results. Moreover, many of our competitors have successfully used national marketing strategies, including network and cable television advertising in the past, and we may not be able to successfully compete against those established programs.
The growth of our BEF Foods segment’s sales and profits is dependent upon our ability to expand into existing and new markets.
The successful growth of our BEF Foods segment depends in part on our ability to add new retail customers, as well as expand the number of products sold through existing retail customers by expanding the number of our items they offer for sale and product placement within the refrigerated meat and the frozen products departments. The expansion of the BEF Foods business segment depends on our ability to obtain and retain large-account customers, such as grocery store chains and warehouse customers. Our failure to obtain and retain new large-account customers or maintain our relationships with existing large-account customers could have a material adverse effect on the BEF Foods segments’ business and results of operations.
The financial performance and results of operations of the BEF Foods segment could be adversely affected by availability of and price we pay for sows and pork trimmings.
Sows are the most important raw material used to produce our pork sausage products in our BEF Foods segment. 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 volatile in terms of the number of sows available and the current market price. The live sow market is 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. We also use pork trimmings and the pork trimmings market is also highly volatile in terms of availability and the current market price.
Higher sow and pork trimmings costs could adversely affect the BEF Foods segment’s profitability, and we cannot guarantee that we will be able to pass along any portion of the increased costs to our consumers in a timely manner or at all.
Our BEF Foods segment’s 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 BEF Foods segment’s business is dependent upon a limited number of suppliers, and we have not always identified secondary suppliers for food products manufactured in our plants, or secondary suppliers with sufficient capacity. Our prolonged inability to provide products to fill orders in a timely manner could have an adverse effect on both our Bob Evans Restaurants and the BEF Foods segments’ businesses and our results of operations. Our BEF Foods segment’s business also relies upon a relatively small number of customers for a large percentage of its sales. Our inability to maintain strong relationships with our key customers and meet their requests could result in a loss of business, which could have a material adverse effect on our BEF Foods business and our results of operations.
Our actual operating and financial results in any given period may differ from guidance we provide to the public, including our most recent public guidance.     
From time to time, in press releases, SEC filings, public conference calls and other contexts, we have provided guidance to the public regarding current business conditions and our expectations for our future financial results. We expect that we will provide guidance periodically in the future. Our guidance is based upon a number of assumptions, expectations and estimates that are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control. In providing our guidance, we also make various assumptions with respect to our future business decisions, some of which will change. Our actual financial results, therefore, may vary from our guidance due to our inability to meet the assumptions upon which our guidance is based and the impact on our business of the various risks and uncertainties described in these risk factors and in our public filings with the SEC. Variances between our actual results and our guidance may be material. To the extent that our actual financial results do not meet or exceed our guidance, the trading prices of our securities may be materially adversely affected.

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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, severe weather and other 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. Our business is subject to seasonal adverse weather conditions (especially between October and March) that may at times affect regions in which our restaurants are located, regions that produce raw ingredients for our restaurants, or locations of our distribution network. As a result our quarterly and yearly results have varied in the past, and we believe that our quarterly operating results will vary in the future. In addition, adverse weather conditions could cause us to experience closures, repair and restoration costs, food spoilage, and other significant reopening costs as well as increased food costs and delayed supply shipments, any of which would adversely affect our business. Additionally, during periods of extreme temperatures (either hot or cold) or precipitation, many individuals choose to stay indoors. This impacts transaction counts in our restaurants and could adversely affect our business and results of operations.
Our ability to align our corporate culture to adapt to evolving business changes and requirements could have a material adverse effect on us.
Our results may be adversely affected if we are unable to execute on the key elements of our strategic plan to improve our sales, general and administrative cost structure, delivery execution, and resource utilization. Effecting significant reductions in cost structure, as well as changes in operational regimes and corporate culture is a significant challenge. If we are unable to change and instill within our entire organization the appropriate cost cutting and operational regimes of our corporate culture, we may not be able to gain the required cost savings and improvements and increase our profitability. If we are unable to successfully execute any or all of the initiatives of our strategic plan, our revenues, operating results and profitability may be adversely affected.
II.    OPERATIONS
Our business could suffer if we are the subject of negative publicity or litigation regarding allegations of food-related contaminations or illnesses.
As a business with a restaurant segment and a food production segment, 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 contaminations and illnesses may be caused by a variety of food-borne pathogens, such as e-coli or salmonella, from a variety of illnesses transmitted by restaurant workers, such as hepatitis A, and from contamination of food by foreign substances. Contamination and food-borne illness incidents could also be caused by food suppliers and distributors. As a result, we cannot control all of the potential sources of contamination or illness that can be contained in or transmitted from food. If any person becomes injured or ill, or alleges becoming injured or ill, as a result of eating our food, we may temporarily close some restaurants or a BEF Foods segment plant, which would decrease our revenues, and we may be liable for damages, be subject to governmental regulatory action and/or receive adverse publicity, regardless of whether we are at fault, any of which could have long-lasting, negative effects on our reputation, financial position and results of operations.
Unfavorable publicity, or a failure to respond effectively to adverse publicity, could harm our reputation and adversely impact our guest counts and sales.
The good reputation of our restaurant and foods brands is a key factor in the success of our business. Actual or alleged incidents at any of our restaurants or plants could result in negative publicity that could harm our brands. Given the extensive use of the Internet and various forms of social networking websites, as well as our own website, unfavorable publicity can spread world-wide in only hours. Regardless of whether the allegations or complaints are valid, unfavorable publicity relating to a limited number of our restaurants or plants, or only to a single restaurant or plant, could adversely affect public perception of the entire brand. Negative publicity also may result from health concerns including food safety and flu outbreaks, publication of government or industry findings concerning food products, environmental disasters, crime incidents, data privacy breaches, scandals involving our employees, or operational problems at our restaurants or plants, all of which could make our brands less appealing to our guests and customers, and negatively impact our guest counts and sales.

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Adverse publicity and its effect on overall consumer perceptions of our brands, or our failure to respond effectively to adverse publicity, could have a material adverse effect on our business.
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, our network infrastructure, the Internet, our website and mobile apps for our development, marketing, operational, support, hosted services and sales (including online ordering) activities. A disruption, infiltration or failure of these systems or third-party hosted services in the event of a major natural disaster, fire, power loss, telecommunications failure, cyber-attack, war, terrorist attack, or other catastrophic event could cause system interruptions, reputational harm, delays in our product development, lengthy interruptions in our services, breaches of data security and loss of critical data.
Many of our corporate systems and processes and corporate support for our restaurant operations are centralized at one Ohio location.   We have disaster recovery procedures and business continuity plans in place to address most events of a crisis nature, including tornadoes and other natural disasters, and back up and off-site locations for recovery of electronic and other forms of data and information. However, if we are unable to fully implement our disaster recovery plans, we may experience delays in recovery of data, inability to perform vital corporate functions, tardiness in required reporting and compliance, failures to adequately support field operations and other breakdowns in normal communication and operating procedures that could have a material adverse effect on our financial condition, results of operation and exposure to administrative and other legal claims.
Our BEF Foods segment operates four manufacturing plants. 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 with our co-packers in a timely manner, which could have a material adverse effect on our results of operations.

We rely heavily on information technology and any material failure, interruption, or security breach in our systems could adversely affect our business.
We rely heavily on information technology systems across our operations, including for the order and delivery from distributors, point-of-sale processing in our restaurants, gift and loyalty cards, online business, and various other processes and transactions, including the storage of employee and customer information. Our ability to effectively manage our business and coordinate the production, distribution, and sale of our products depends significantly on the reliability and capacity of our information technology systems to process these transactions, summarize results and manage and report on our business. The failure of these systems to operate effectively, problems with transitioning to upgraded or replacement systems, or a breach in security of these systems could cause delays in product sales and reduced efficiency of our operations, which could have a material adverse effect on our results of operations, and significant capital investments could be required to remediate the problem. Additionally, if a person is able to circumvent the security measures intended to protect our employee or customer private data, he or she could destroy or steal valuable information or disrupt our operations, which could significantly harm our reputation or result in litigation against us or the imposition of penalties.
In addition, our ability to accept credit cards as payment in our restaurants and for online gift card orders depends on us remaining compliant with standards set by the PCI Security Standards Council. These standards require certain levels of system security and procedures to protect our customers’ credit card and other personal information. We employ both internal resources and external consultants to conduct auditing and testing to reduce the likelihood of any security failures or breaches. However, we can provide no assurance that these security measures will be successful. If these security measures are not successful, we may become subject to litigation against us or the imposition of regulatory penalties, which could result in negative publicity and significantly harm our reputation, any of which could have a material adverse effect on our financial performance.

Our inability to improve our systems in fiscal 2016 to provide greater access for customers, increase operational capabilities, and to replace our core enterprise resource planning systems could negatively impact our results of operations.
Operational excellence and the continued improvement of our customer experience are among our highest priorities. As a result, we made increased investments during fiscal 2015 and expect to continue to make investments during fiscal 2016 in our technology infrastructure, and the labor necessary to support this technology, in areas designed to more effectively collect and process our enterprise information and data for resource planning, as well as positively impacting the way in which our customers interact with us, including through the ordering process, food production and finally through the delivery of food to the customer. Our inability to effectively implement our core enterprise resource planning systems' replacement, as well as the other changes to our technology infrastructure could negatively impact our operations and processes and could have a negative impact on our financial results.
If we lose the services of any of our key management personnel, our business could be negatively impacted.

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We depend 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 employees. Competition for high-quality employees is intense. The loss of the services from our key management personnel or the inability to attract additional qualified personnel as needed could harm our business.
Our restaurant and food products businesses are dependent on timely delivery of fresh ingredients by our suppliers and distributors.
Our restaurant operations and food products business 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 the food we offer declines due to the lack or lower quality of our ingredients or due to interruptions in the flow of fresh ingredients, customer traffic or food product orders may decline and negatively affect our sales. We have contracted with one primary and other third-party distributors for the delivery of food and other products to our restaurants. If our primary distributor or 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 which could negatively impact our results of operations.
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, and other costs. During fiscal 2015 , we implemented menu price increases at Bob Evans Restaurants to help offset operating and supply cost increases. Additionally we expect shell and liquid egg prices to increase in fiscal 2016, a result of the avian influenza that has significantly impacted poultry farms in the Midwest. We may not be able to pass through these additional costs to customers in the form of increased pricing.
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 possible, and there may be similar increases implemented in other jurisdictions in which we operate or seek to operate. 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.
We outsource certain business processes and product manufacturing to third-party vendors that subjects us to risks, including disruptions in business and increased costs.
Some of our business processes and the manufacturing of certain products are currently outsourced to third parties. Such processes include distribution of food and retail products to our restaurant locations, manufacturing of certain products, credit card authorization and processing, gift card tracking and authorization, health care and workers’ compensation insurance claims processing and externally hosted systems and business software applications. We cannot ensure that all providers of outsourced services are observing proper internal control practices, such as redundant processing facilities, and there are no guarantees that failures will not occur. Failure of third parties to provide adequate services could have an adverse effect on our financial condition and results of operations.
III.    COMPLIANCE
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 relating to health, sanitation, safety and fire standards, federal and state laws governing our relationships with employees (including the Fair Labor Standards Act of 1938, the Immigration Reform and Control Act of 1986, the Patient Protection and Affordable Care Act ("PPACA"), the Health Care and Education Reconciliation Act of 2010 and applicable requirements concerning minimum wage, overtime, health care coverage, family leave, medical privacy, tip credits, working conditions, safety standards and immigration status), federal and state laws which prohibit discrimination and other laws regulating the design and operation of facilities, such as the Americans With Disabilities Act of 1990, as amended by the ADA Amendments Act of 2008. 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

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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 requirements and exemptions, 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 passed by the U.S. Congress in March 2010 and its provisions will require nutritional information labeling on restaurant menus, menu boards, and drive-through displays;
permit, licensing and other regulatory requirements for the sale of food and beverages;
health, safety and fire regulations;
zoning, land and environmental regulations;
a variety of federal, state and local laws and regulations relating to the use, storage, discharge, emission and disposal of hazardous materials;
sales tax;
new and changing laws and regulations relating to gift cards;
food safety regulations governing the manufacture (including composition and ingredients), labeling, packaging and safety of food in the United States and Canada; and
laws governing public access and employment for people with disabilities.
In March 2010, the President signed the Patient Protection and Affordable Care Act and the Health Care and Education Affordability Reconciliation Act of 2010 (collectively, “Health Care Reform Acts”). Although we developed business processes to deal with and mitigate the costs associated with the Health Care Reform Acts, which may result in significant modifications to our employment and benefits policies and practices, we incurred significant increases in the cost and may incur further increases and are unable to predict with certainty the financial and operational impacts the new law will have on us. We do expect that our expenses will increase as a result of the Health Care Reform Acts. Any such increases could materially and adversely affect our business, financial condition and results of operations, such modifications to our business practices may be disruptive to our operations and impact our ability to attract and retain personnel.
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 regarding the consumption of various types of food, such as trans-fats, pork, beef or chicken. While we have eliminated all artificial and synthetic trans-fats from our restaurant menu offerings and our food products, some foods, such as bacon, naturally contain trans-fats. Some government authorities have proposed increasing regulations regarding naturally occurring trans-fats and sodium. These regulations could, if adopted, require us to limit naturally occurring trans-fats or sodium amounts in our menu offerings and/or food products in the future. This could require us to switch to higher cost ingredients, stop offering certain products, or could hinder our ability to operate in certain markets.
Our business could be adversely impacted 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, we have been faced with allegations of purported class-wide labor violations in Ohio, and we have taken charges related to the settlement of these cases. An unfavorable verdict or a significant settlement in a future class-action lawsuit could have a material adverse effect on our financial position, cash flows and results of operations.

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If we fail to maintain an effective system of internal control over financial reporting, the accuracy and timing of our financial reporting may be adversely affected.
Our management is responsible for establishing and maintaining effective internal control over financial reporting. Internal control over financial reporting is a process to provide reasonable assurance regarding the reliability of financial reporting for external purposes in accordance with Generally Accepted Accounting Principles ("GAAP"). Because of its inherent limitations, internal control over financial reporting is not intended to provide absolute assurance that we would prevent or detect a misstatement of our financial statements or fraud. Any failure to maintain an effective system of internal control over financial reporting could limit our ability to report our financial results accurately and timely or to detect and prevent fraud. The identification of a material weakness could indicate a lack of controls adequate to generate accurate financial statements that, in turn, could cause a loss of investor confidence and decline in the market price of our common stock. In the past we identified certain material weaknesses in our internal control over financial reporting, however we concluded that those material weaknesses were remediated as of April 24, 2015. We cannot assure you that we will be able to maintain all of the controls necessary in the future for continued compliance. Likewise, we cannot assure you that we will be able to retain sufficient skilled finance and accounting personnel, especially in light of the increased demand for such personnel among publicly traded companies.
In addition, we implemented the first phase of our enterprise resource planning system (“ERP”), on April 25, 2015. Any impact from implementation issues we experience or delays in the implementation of future phases of this system could cause disruption of our internal control over financial reporting and cause delays in our ability to adequately assess our internal control over financial reporting.
If we fail to maintain effective internal control over our financial reporting or comply with the federal securities rules and regulations applicable to us, including the Sarbanes-Oxley Act and our SEC reporting obligations related to our internal control over financial reporting, our financial statements may be inaccurate, our ability to report our financial results on an accurate and timely basis may be adversely affected, we may be unable to obtain an unqualified audit opinion, and our access to the capital markets may be restricted. In addition, we may, in the future, identify material weaknesses or significant deficiencies in our internal control over financial reporting. Each of the foregoing could impact the reliability and timeliness of our financial reports and could cause investors to lose confidence in our reported financial information, which could have a negative effect on our business and the value of our securities.
Changes in accounting standards issued by the Financial Accounting Standards Board (“FASB”) or other standard-setting bodies may adversely affect our results of operations and financial condition.
Our financial statements are prepared in accordance with generally accepted accounting principles. The FASB, the American Institute of Certified Public Accountants ("AICPA") and other accounting standard-setting bodies may periodically issue changes to, interpretations of or guidance with respect to GAAP. The adoption of such guidance may have an adverse effect on our results of operations and financial position.
IV.    OTHER
A privacy or security breach of our Company and customer data 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. For example, in connection with credit and debit card sales, we transmit confidential credit card information. Third parties may have the technology or know-how to breach the security of this customer information, and our security measures and those of our technology vendors may not effectively prohibit others from obtaining improper access to this information. If we fail to comply with these laws and regulations or experience a significant breach of customer, employee or company data, we could be exposed to risks of data loss, fines, a loss of the ability to process credit and debit card payments, litigation and serious disruption of our operations. Additionally, any resulting negative publicity could significantly harm our reputation, which could have a material adverse effect on our financial performance.
Failure to comply with laws, regulations and third party contracts regarding the collection, maintenance, privacy and processing of information may result in adverse publicity and adversely affect the operation of our business and results of operations.
We collect, maintain and process certain information about customers and employees, much of which is considered private or confidential. Our use and protection of this information is regulated by various laws and regulations, as well as by

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third party contracts. If our systems or employees fail to comply with these laws, regulations or contract terms, it could require us to notify customers, employees or other groups, resulting in adverse publicity, loss of sales and profits, increased fees payable to third parties, and penalties or remediation and other costs that could adversely affect the operation of our 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;
costs related to the closing of existing restaurants, which may include impairment charges and lease termination expenses;
labor availability and costs for hourly and management personnel;
profitability of our restaurants;
impairments of long-term assets;
trends in same-store sales;
adverse weather conditions, especially during peak winter holiday sales seasons;
special items, such as property purchases or sales;
class action or litigation settlements;
local and national economic conditions, including gasoline and other energy costs; and
changes in consumer preferences and competitive conditions.
Our Bob Evans Restaurants and our BEF Foods business segments 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.
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 on 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 nonoperating 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. 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.

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Covenants in our debt instruments could restrict or prohibit our ability to engage in or enter into a variety of transactions, which could adversely affect us.
Our credit facility contains 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; pay dividends or initiate stock repurchases under certain circumstances; and enter into transactions with affiliates, among other restrictions. The covenants contained in our credit facility 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. The credit facility also requires us to maintain certain financial covenants. At April 24, 2015, we were in compliance with these covenants. However, any failure to maintain these financial covenants or have sufficient liquidity to either repay or refinance the then outstanding balance upon violation of the covenants could have a material adverse effect on our financial condition if we were unable to obtain an amendment or waiver from our bank group or access alternative sources of capital.
A breach of a covenant in our debt instruments could cause acceleration 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 agreements. In addition, the agreements governing our credit facility 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.
If we are unable to continue to pay dividends or repurchase our stock as expected by the market, our earnings per share (“EPS”) and stock price may be harmed.
Our dividend and stock repurchase programs require the use of a significant portion of our cash flow or may exceed our cash flow. Our ability to pay dividends and repurchase stock will depend on our ability to generate sufficient cash flows from operations and our capacity to borrow funds, which may be subject to economic, financial, competitive and other factors that are beyond our control. Any failure to pay dividends or repurchase stock after we have announced our intention to do so may negatively impact investor confidence in us, thereby negatively impacting our EPS and stock price.
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,” "Bob Evans Restaurants" 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, could 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.
As a result of the provisions of the Membership Interest Purchase Agreement dated January 28, 2013, pursuant to which the sale of the Mimi’s Café restaurant chain was sold, we may incur expenses for liabilities we retained and indemnification we provided to the buyer, and we may not receive all or part of the purchase price evidenced by the $30.0 million promissory note from the buyer.
As part of the terms of the Membership Interest Purchase Agreement dated January 28, 2013, pursuant to which we sold the Mimi’s Café restaurant chain, we retained certain liabilities for the presale operations of the Mimi’s Café restaurant chain, including potential claims and most existing litigation, as well as agreeing to indemnify the buyer against the costs of the same. As a result, we are likely to incur expenses for such claims and liabilities related to periods up to the date of sale.

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Part of the consideration we received in the transaction was a promissory note, (the "Note") which has a principal balance of $30.0 million, an annual interest rate of 1.5%, a term of seven years and a principal and interest payment date of February, 2020. Partial prepayments are required prior to maturity if the buyer reaches certain levels of EBITDA during specified periods. Our right to repayment under the Note is subordinated to third party lenders as well as funding that may be provided by the parent company. In the event of a sale or liquidation of Mimi’s Café by its parent company, our right to repayment may be subordinated to payments owed to the parent company and potentially reduced based on the funds available for repayment. Because the Note is subordinated under certain conditions, it is possible that the principal amount of the Note may not be paid in full or at all.
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, auto and property 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.
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 us 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, which could result in expenses that may deter a potential merger, tender offer or other acquisition of our Company.
Our business could be negatively affected as a result of a proxy fight and the actions of activist shareholders.
In 2014 Castlerigg Global Equity Special Event Master Fund, Ltd., one of our stockholders affiliated with the Sandell Asset Management Corp. (together with its affiliates, "Sandell"), conducted a proxy contest with us and elected four individuals to our board of directors at our 2014 annual meeting of shareholders. If a proxy contest or other action by Sandell or another activist shareholder would occur in the future, our business could be adversely affected because:
responding to proxy contests and other actions by activist shareholders can disrupt our operations, be costly and time-consuming, and divert the attention of our board, management and employees;
perceived uncertainties as to our future direction may result in the loss of potential business opportunities, and may make it more difficult to attract and retain qualified personnel and business partners; and
if individuals are elected to our board of directors to pursue an activist shareholder's particular agenda, it may adversely affect our ability to effectively implement our business strategy and create additional value for our shareholders.

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 24, 2015 .
In October 2013, we moved into our current corporate headquarters located at 8111 Smith’s Mill Road, New Albany, Ohio. The headquarters consists of three buildings located on approximately 41-acres of property. We own the property.
We also own the Bob Evans Farm, a 937-acre farm located in Rio Grande, Ohio, and the Spring Creek Farm, a 30-acre farm located in Richardson, Texas. The Rio Grande, Ohio location supports our Bob Evans brand heritage and image through educational and tourist activities. The Richardson farm location is currently classified as held for sale, along with our Richardson, Texas, food production plant.

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Bob Evans Restaurants Segment
At the end of fiscal 2015 , we owned the real estate for 483 of our Bob Evans Restaurants and leased the real estate for the remaining 84 locations. 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 2015 . The initial terms for the majority of our Bob Evans Restaurants’ leases are 20 years and include options to extend the terms. Additionally, we own or lease properties for 19 closed restaurants and other properties.
BEF Foods Segment
Our BEF Foods segment currently produces food products in our four manufacturing facilities. We produce fresh sausage products at our plants located in Hillsdale, Michigan, and Xenia, Ohio. Our Sulphur Springs, Texas, plant produces ready-to-eat products, such as sandwiches, soups and gravies, and our Lima, Ohio, plant produces refrigerated side dishes.
During fiscal 2011, we closed a food product manufacturing plant located in Galva, Illinois, which we sold in 2013, and closed the fresh sausage production portion of our Bidwell, Ohio, plant. In fiscal 2013, we sold the Bidwell and Springfield, Ohio, food production plants, but continued to lease and operate them through December and February of fiscal 2014, respectively.
In August 2012, we purchased Kettle Creations, which included a 100,000 square foot food production facility in Lima, Ohio. Kettle Creations previously was a co-packer for us. The Lima plant produces refrigerated mashed potatoes and other potato-based side dishes, macaroni and cheese and other pasta side dishes. During the second quarter of fiscal 2014, we completed the first phase of expansion at the Lima, Ohio, production facility, which included expanding the production facility by 57,000 square feet and constructing an additional production line, at a cost of approximately $24 million.
During fiscal 2014, we also invested approximately $36 million of capital to expand, modify and add production lines to our food production facility in Sulphur Springs, Texas, which increased production capacity for ready-to-eat food products, as well as added capacity for soups and gravies.
We own all of these properties. We lease various other locations throughout our BEF Foods marketing territory, which serve as regional and divisional sales offices.
We believe our facilities have adequate capacity with our recent capital additions, which will position the BEF Foods segment for growth.
ITEM 3.     LEGAL PROCEEDINGS.
We are from time-to-time involved in ordinary and routine litigation, typically involving claims from customers, employees and others related to operational issues common to the restaurant and food manufacturing industries, and incidental to our business. Management presently believes that the ultimate outcome of these proceedings, individually or in the aggregate, will not have a material adverse effect on our financial position, cash flows or results of operations.
In August 2012, a former Bob Evans Restaurant employee filed an action against the Company in the United States District Court for the Southern District of Ohio, styled David Snodgrass v. Bob Evans Farms, LLC, Case No. 2:12-cvg-00768 (“Snodgrass”). The lead plaintiff alleged that the Company violated the Fair Labor Standards Act by misclassifying assistant managers as exempt employees and failing to pay overtime compensation during the period of time the employee worked as an assistant manager. The plaintiff seeks an unspecified amount of alleged back wages, liquidated damages, statutory damages and attorneys’ fees. The lead plaintiff sought to maintain the suit as a collective action on behalf of other similarly situated assistant managers employed at Bob Evans Restaurants between August 2009 and present. In December 2013, the Court in Snodgrass granted conditional certification of those assistant managers that elected to opt-in to the collective action.
In May, 2014, the same plaintiffs’ counsel in the Snodgrass matter filed essentially duplicative claims under the overtime laws of the State of Ohio and Commonwealth of Pennsylvania, styled Utterback v. Bob Evans Farms, Case No. CV14826909 in the Court of Common Pleas of Cuyahoga County, Ohio (“Utterback”) and Mackin v. Bob Evans Farms, Case No. 2:14-cv-450 in the United States District Court for the Southern District of Ohio (“Mackin”), respectively. Neither the Utterback nor Mackin proceedings have been certified for class status at this time, and remain in the very early stages of litigation with significant uncertainty as to factual issues and outcome of legal proceedings (including any determination as to class certification).
We continue to believe that our assistant managers were properly classified as exempt from the respective Federal and State overtime requirements, have meritorious defenses to the claims in each of the Snodgrass, Utterback and Mackin matters, and have vigorously contested the actions.

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In the fourth quarter of fiscal 2015 however, we received an unfavorable ruling related to the above mentioned Snodgrass litigation and therefore we recorded a charge of $6 million in fiscal 2015 . This reflects the low end of the range of probable loss for the Snodgrass litigation.
While a loss of up to $20 million is possible if all three matters are settled prospectively, we do not believe that there is an amount within the estimated range which is more likely than any other and as such, we recorded an accrual of $6 million as of April 24, 2015 , related only to the Snodgrass litigation matter.
The expense was recorded to the Bob Evans Restaurant segment and in the S,G&A line of the Consolidated Statements of Net Income. We do not believe based on currently available information, that the outcome of these matters will have a material effect on our financial condition, although an adverse outcome could be material to our results of operations for a particular period.

ITEM 4.     MINE SAFETY DISCLOSURES.
Not applicable.

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SUPPLEMENTAL ITEM.     EXECUTIVE OFFICERS OF BOB EVANS FARMS, INC.
The following table sets forth certain information for the “executive officers” of Bob Evans Farms, Inc. for the past five years as of June 10, 2015. The “executive officers” are our “Section 16 officers,” both as defined pursuant to the Securities Exchange of 1934.
Name
 
Age
 
Years of
Service
as Officer
 
Background
T. Alan Ashworth
 
55

 
3

 
Vice President, Corporate Development and Finance and Treasurer from June 2014; Chief Financial Officer (Interim), from May 2014 to June 2014; Vice President, Corporate Development and Finance from August 2012 to June 2014; Senior Director, Finance from December 2011 to August 2012; Vice President, Finance, Convergys Corporation from 2008 to 2011 (NYSE:CVG)

Colin M. Daly
 
43

 
3

 
Executive Vice President, General Counsel and Corporate Secretary since December 2014; Senior Vice President, General Counsel and Corporate Secretary since May 2012; Secretary from March 2009 to December 2014 and General Counsel since February 2008, O’Charley’s Inc.

John J. Fisher

 
52

 
1

 
Executive Vice President and Chief Concept Officer of Bob Evans Farms, LLC (dba Bob Evans Restaurants) since February 2015; Senior Vice President and Chief Concept Officer of Bob Evans Farms, LLC (dba Bob Evans Restaurants) from November 2013 to February 2015; Senior Vice President, Merchandising, Marketing, and Restaurant Operations of The Pantry, Inc. (dba Kangaroo Express) from March 2010 to March 2013; Executive Vice President and General Manager, The Linbeck Group, from October 2003 to March 2009.

Richard D. Hall
 
59

 
19

 
Executive Vice President, Supply Chain Management since September 2008
Mark E. Hood

 
62

 
1

 
Member, Chief Executive Officer’s Office since December 2014; Chief Financial Officer since June 2014; Consultant from July 2012 to June 2014; Senior Vice President and Chief Financial Officer, Brown Shoe Company, Inc. from 2006 to 2012 (NYSE:BWS)

Sylvester J. Johnson
 
55

 
1

 
Senior Vice President, Chief Accounting Officer and Controller since September 2013; Vice President, Chief Accounting Officer, Dex One Corporation from 2009-2013.
Kevin C. O’Neil
 
60

 
5

 
Vice President, Associate General Counsel and Assistant Secretary since May 2012; Vice President, General Counsel and Corporate Secretary, from July 2011 to May 2012; Sr. Director, Corporate Counsel from April 2010 to July 2011; Senior Counsel, Vorys, Sater, Seymour & Peas, from November 2009 to April 2010.
Scott C. Taggart
 
45

 
5

 
Vice President, Investor Relations since September 2011; Senior Director, Finance from January 2010 to September 2011.
J. Michael Townsley
 
56

 
12

 
Member, Chief Executive Officer’s Office since December 2014; President, BEF Foods, Inc. since June 2008






29


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 12  — Quarterly Financial Data (Unaudited) , to our consolidated financial statements which are included in Item 8 of this Annual Report on Form 10-K.
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 our peer group.
Our peer group is comprised of restaurant companies listed on The NASDAQ Stock Market (weighted 70 percent) and a group of meat producers listed on either The NASDAQ Stock Market or the New York Stock Exchange (weighted 30 percent) whose attributes closely align with ours. 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.
The subsequent performance graph is being furnished as part of this Annual Report on Form 10-K solely in accordance with the requirement under Rule 14a-3(b)(9) to furnish our stockholders with such information, and therefore, shall not be deemed to be filed or incorporated by reference into any filings by the Company under the Securities Act or the Exchange Act.

30


CUMULATIVE VALUE OF $100 INVESTMENT
 
2010
2011
2012
2013
2014
2015
Peer Group (1)
$
100.00

$
136.21

$
165.03

$
185.45

$
222.78

$
277.13

Standard & Poor’s 500
$
100.00

$
117.22

$
123.27

$
142.15

$
170.96

$
198.28

Bob Evans Farms, Inc.
$
100.00

$
104.10

$
132.24

$
149.51

$
168.58

$
167.46

(1) The peer group includes the following companies: AFC Enterprises, B&G Foods Inc., Biglari Holdings Inc., BJ's Restaurants, Inc., Bloomin' Brands, Inc., Brinker International, Inc. Buffalo Wild Wings Inc., Chipotle Mexican Grill, Inc., Cracker Barrel Old Country Store, Inc., Denny's Corporation, Diamond Foods, Inc., DineEquity, Inc., Flowers Foods, Inc., Panera Bread Co., Red Robin Gourmet Burgers Inc., Ruby Tuesday, Inc., Sanderson Farms, Inc., Seneca Foods Corp., Snyder's Lance, Inc., Texas Roadhouse, Inc., The Cheesecake Factory Incorporated, The Hain Celestial Group, Inc., The Wendy's Company, Treehouse Foods, Inc.
Issuer Repurchases of Equity Securities
On February 25, 2014, the Board of Directors authorized a stock repurchase program for fiscal 2015 of up to $100.0 million. The fiscal program authorized the Company to repurchase its outstanding common stock pursuant to plans approved by the Board under SEC Rules 10b-18 and 10b5-1, and in the open market or through privately negotiated transactions. On August 20, 2014, the Board of Directors increased the authorization of this stock repurchase program to $150.0 million and extended the authorization period through fiscal 2016. We did not repurchase any shares of our common stock during fiscal 2015. The ability to repurchase stock and complete the repurchase program is dependent upon the Company having available funds and complying with the financial covenants and other restrictions contained within the Company’s credit facility and the repurchase authorization.
From April 25, 2015, through June 1, 2015, we repurchased 1.1 million shares, or $50,000 of Company stock. The purchases were funded through additional borrowings on our Credit Agreement.


31


ITEM 6.     SELECTED FINANCIAL DATA
Consolidated Financial Review
Bob Evans Farms, Inc. and Subsidiaries
(in thousands, except per share amounts)
2015
 
2014
 
2013
 
2012
 
2011
Operating Results
 
 
 
 
 
 
 
 
 
Net sales from continuing operations
$
1,349,190

 
$
1,328,552

 
$
1,330,226

 
$
1,287,210

 
$
1,296,706

Asset impairment charges from continuing operations (1)
$
8,861

 
$
16,850

 
$
4,409

 
$
3,286

 
$
1,896

Operating income from continuing operations
$
17,686

 
$
33,125

 
$
87,954

 
$
106,475

 
$
92,351

Income from continuing operations before income taxes
$
9,037

 
$
31,111

 
$
76,469

 
$
98,591

 
$
83,484

Provision (benefit) for income taxes
$
(7,516
)
 
$
143

 
$
(6,084
)
 
$
28,406

 
$
27,311

Income from continuing operations
$
16,553

 
$
30,968

 
$
82,553

 
$
70,185

 
$
56,173

Income (loss) from discontinued operations, net of income taxes
$

 
$
2,717

 
$
(83,374
)
 
$
2,757

 
$
(2,101
)
Net income (loss)
$
16,553

 
$
33,685

 
$
(821
)
 
$
72,942

 
$
54,072

Earnings Per Share - Income from Continuing Operations
 
 
 
 
 
 
 
 
 
Basic
$
0.70

 
$
1.17

 
$
2.94

 
$
2.38

 
$
1.88

Diluted
$
0.70

 
$
1.16

 
$
2.90

 
$
2.35

 
$
1.85

Earnings Per Share — Income (Loss) from Discontinued Operations
 
 
 
 
 
 
 
 
 
Basic
$

 
$
0.10

 
$
(2.97
)
 
$
0.09

 
$
(0.07
)
Diluted
$

 
$
0.10

 
$
(2.93
)
 
$
0.09

 
$
(0.07
)
Earnings per share - Net Income (Loss)
 
 
 
 
 
 
 
 
 
Basic
$
0.70

 
$
1.27

 
$
(0.03
)
 
$
2.48

 
$
1.81

Diluted
$
0.70

 
$
1.26

 
$
(0.03
)
 
$
2.44

 
$
1.78

Financial Position
 
 
 
 
 
 
 
 
 
Working capital
$
(28,897
)
 
$
(486,499
)
 
$
(190,426
)
 
$
(92,305
)
 
$
(52,343
)
Property, plant and equipment — net
$
853,721

 
$
878,482

 
$
797,272

 
$
890,589

 
$
910,402

Total assets
$
1,032,587

 
$
1,065,752

 
$
1,020,953

 
$
1,075,670

 
$
1,107,994

Debt:
 
 
 
 
 
 
 
 
 
Short-term
$
409

 
$
458,898

 
$
201,433

 
$
38,571

 
$
13,571

Long-term
$
450,676

 
$
835

 
$
816

 
$
97,145

 
$
135,716

Stockholders’ Equity
$
379,991

 
$
389,219

 
$
594,775

 
$
672,135

 
$
679,570

Supplemental Information for the Year
 
 
 
 
 
 
 
 
 
Capital expenditures from continuing operations
$
74,517

 
$
190,995

 
$
118,200

 
$
81,863

 
$
38,739

Depreciation and amortization from continuing operations
$
80,074

 
$
79,456

 
$
69,319

 
$
60,264

 
$
60,061

Weighted-average shares outstanding:
 
 
 
 
 
 
 
 
 
Basic
23,489

 
26,450

 
28,066

 
29,464

 
29,921

Diluted
23,649

 
26,704

 
28,488

 
29,925

 
30,422

Cash dividends per share
$
1.240

 
$
1.205

 
$
1.075

 
$
0.950

 
$
0.780

Common stock market closing prices:
 
 
 
 
 
 
 
 
 
High
$
59.64

 
$
58.86

 
$
45.36

 
$
39.71

 
$
34.59

Low
$
42.70

 
$
42.60

 
$
34.45

 
$
27.41

 
$
23.18

Supplemental Information at Year-End
 
 
 
 
 
 
 
 
 
Employees
32,341

 
34,470

 
34,023

 
33,763

 
34,386

Registered stockholders
16,578

 
17,689

 
18,927

 
19,776

 
20,675

Market price per share at closing
$
45.29

 
$
46.80

 
$
42.52

 
$
38.67

 
$
31.36

Book value per share
$
16.23

 
$
16.69

 
$
21.68

 
$
23.49

 
$
22.48

(1) See Impairments section of Note 1 for additional information.

32


In fiscal 2014 we recast our consolidated financial statements to reflect the Mimi's Café operations as a discontinued operation for that year and all prior periods presented. The selected financial data for fiscal 2014 and prior years reflect Mimi's Café as a discontinued operation.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General Overview
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 (“SEC”) 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 “Forward-Looking Statements” section of this Form 10-K for more information regarding forward-looking statements.
We operate in two segments, Bob Evans Restaurants and BEF Foods, which is reflected in management's discussion and analysis of financial condition and result of operations. Refer to Note 11 for additional reporting segment information.
As of April 24, 2015 , we operated 567 full-service Bob Evans Restaurants in 19 states. Bob Evans Restaurants are primarily located in the Midwest, mid-Atlantic and Southeast regions of the United States. Revenue at Bob Evans Restaurants is recognized at the point of sale.
Effective February 15, 2013, we completed the sale of the Mimi’s Café restaurant chain to Le Duff America, Inc., ("Le Duff") a U.S.-based subsidiary of Groupe Le Duff, a global bakery and restaurant company headquartered in France. Mimi’s Café results are included in our Consolidated Statements of Net Income as discontinued operations in fiscal years 2014 and 2013.
We produce and distribute pork sausage and a variety of complementary home-style convenience food items under the Bob Evans, Owens and Country Creek brand names. These food products are delivered to warehouses that distribute to grocery stores throughout the United States. We also manufacture and sell similar products to foodservice accounts, including Bob Evans Restaurants and other restaurants and food sellers.
References herein to 2015 , 2014 and 2013 refer to fiscal years. All years presented are 52-week years.
Results of Operations
The following table reflects data for our fiscal year ended April 24, 2015 , compared to the preceding two fiscal years. The consolidated information is derived from the accompanying Consolidated Statements of Net Income. The table also includes data for two reporting segments — Bob Evans Restaurants and BEF Foods. The ratios presented reflect the underlying dollar values expressed as a percentage of the applicable net sales amount.
Consolidated Results
 
Bob Evans Farms, Inc.
 
Fiscal 2015
 
Fiscal 2014
 
Fiscal 2013
Net sales
$
1,349,190

 
 
 
$
1,328,552

 
 
 
$
1,330,226

 
 
Cost of sales
457,039

 
33.9
%
 
450,953

 
33.9
%
 
424,536

 
31.9
%
Operating wages and fringe benefit expenses
423,539

 
31.4
%
 
406,307

 
30.6
%
 
410,115

 
30.8
%
Other operating expenses
198,065

 
14.7
%
 
196,827

 
14.8
%
 
189,503

 
14.3
%
Selling, general and administrative expenses
170,129

 
12.6
%
 
149,504

 
11.3
%
 
148,799

 
11.2
%
Depreciation and amortization expense
80,074

 
5.9
%
 
79,456

 
6.0
%
 
69,319

 
5.2
%
Impairment of assets held for sale
2,658

 
0.2
%
 
12,380

 
0.9
%
 

 
%
Operating income
$
17,686

 
1.3
%
 
$
33,125

 
2.5
%
 
$
87,954

 
6.6
%

33


Segment Results
 
Bob Evans Restaurants
 
Fiscal 2015
 
Fiscal 2014
 
Fiscal 2013
Net sales
$
969,877

 
 
 
$
956,579

 
 
 
$
981,418

 
 
Cost of sales
258,677

 
26.7
 %
 
244,871

 
25.6
%
 
245,753

 
25.0
%
Operating wages and fringe benefit expenses
381,874

 
39.4
 %
 
365,698

 
38.2
%
 
372,677

 
38.0
%
Other operating expenses
169,018

 
17.4
 %
 
164,901

 
17.3
%
 
163,194

 
16.6
%
Selling, general and administrative expenses
98,871

 
10.2
 %
 
80,723

 
8.4
%
 
73,650

 
7.5
%
Depreciation and amortization expense
61,531

 
6.3
 %
 
63,872

 
6.7
%
 
56,827

 
5.8
%
Impairment of assets held for sale
2,658

 
0.3
 %
 
9,380

 
1.0
%
 

 
%
Operating income
$
(2,752
)
 
(0.3
)%
 
$
27,134

 
2.8
%
 
$
69,317

 
7.1
%
 
BEF Foods
 
Fiscal 2015
 
Fiscal 2014
 
Fiscal 2013
Net sales
$
379,313

 
 
 
$
371,973

 
 
 
$
348,808

 
 
Cost of sales
198,362

 
52.3
%
 
206,082

 
55.4
%
 
178,783

 
51.3
%
Operating wages and fringe benefit expenses
41,665

 
11.0
%
 
40,609

 
10.9
%
 
37,438

 
10.7
%
Other operating expenses
29,047

 
7.6
%
 
31,926

 
8.6
%
 
26,309

 
7.6
%
Selling, general and administrative expenses
71,258

 
18.8
%
 
68,781

 
18.5
%
 
75,149

 
21.5
%
Depreciation and amortization expense
18,543

 
4.9
%
 
15,584

 
4.2
%
 
12,492

 
3.6
%
Impairment of assets held for sale

 
%
 
3,000

 
0.8
%
 

 
%
Operating income
$
20,438

 
5.4
%
 
$
5,991

 
1.6
%
 
$
18,637

 
5.3
%
Bob Evans Farms, Inc. Overview
Net sales were $1,349.2 million in fiscal 2015, an increase of $20.6 million compared to the prior year. Operating income was $17.7 million for the year, a decrease of $15.4 million as compared to fiscal 2014. Offsetting this increase in net sales were higher cost of sales of $6.1 million, higher operating wages and fringe benefit expenses of $17.2 million, higher other operating expenses of $1.2 million, higher S,G&A costs of $20.6 million and higher depreciation and amortization expenses of $0.6 million. Impairment charges on assets held for sale were $9.7 million lower than the prior year. Pretax net income from continuing operations for fiscal 2015 was $9.0 million as compared to $31.1 million in the prior year. The benefit for income taxes was $7.5 million in fiscal 2015 as compared to a provision of $0.1 million in the prior year. Earnings per diluted share from continuing operations were $0.70 per share in fiscal 2015 as compared to $1.16 per share in the prior year. Refer to the sections below for analysis on our fiscal 2015 operating results as compared to the year ago period.
Bob Evans Restaurants Segment Overview
Same-store sales for a given year are based on net sales of restaurants that are open for at least 18 months prior to the start of that year. Net sales of closed restaurants are excluded from same-store sales in the period in which the restaurants are closed. Closed restaurant days for restaurants that underwent the Farm Fresh Refresh in prior years are included in the same-store sales base.
Same store sales for Bob Evans Restaurants increased 0.9% as compared to fiscal 2014. We opened seven new restaurant locations during the year and closed one restaurant location. Operating margins were negatively impacted by higher food costs, primarily driven by commodity inflation, mix shifts due to changes in day-part sales and on/off premise sales mix, and higher discounts. Operating income was also negatively impacted by higher operating wages and fringe benefit expenses, driven primarily by employee benefit costs, management salaries and hourly wages, increased advertising and utility costs and higher S,G&A expenses. These costs were partially offset by lower depreciation costs.

34


BEF Foods Segment Overview
BEF Foods net sales increased $7.3 million, or 2.0% as compared to fiscal 2014. The increase is a result of an approximate 13% increase in side dish volume combined with $11.3 million of higher net sausage pricing, partially offset by a decrease in other product volumes, primarily driven by declines in food service, sausage and frozen product volumes. Operating income increased by $14.4 million, the result of margin favorability driven by a mix-shift towards higher-margin retail products, lower sow costs and production yield improvements, lower operating expenses due to improved plant efficiencies and lower advertising costs and selling wages. These operating income improvements were partially offset by higher S,G&A and depreciation costs.
Fiscal Year Ended April 24, 2015 (“fiscal 2015 ” or "2015") as Compared to Fiscal Year Ended April 25, 2014 (“fiscal 2014 ” or "2014")
The following tables reflect data for the twelve months ended April 24, 2015 , compared to the prior year's twelve months ended April 25, 2014 . The consolidated information is derived from the accompanying Consolidated Statements of Net Income. The table also includes data for our two segments - Bob Evans Restaurants and BEF Foods. The ratios presented reflect the underlying dollar values expressed as a percentage of the applicable net sales amounts.
 
Consolidated Results
(in thousands)
2015
 
2014
Net sales
$
1,349,190

 
 
 
$
1,328,552

 
 
Cost of sales
457,039

 
33.9
%
 
450,953

 
33.9
%
Operating wage and fringe benefit expenses
423,539

 
31.4
%
 
406,307

 
30.6
%
Other operating expenses
198,065

 
14.7
%
 
196,827

 
14.8
%
Selling, general and administrative expenses
170,129

 
12.6
%
 
149,504

 
11.3
%
Depreciation and amortization expense
80,074

 
5.9
%
 
79,456

 
6.0
%
Impairment of assets held for sale
2,658

 
0.2
%
 
12,380

 
0.9
%
Operating income
$
17,686

 
1.3
%
 
$
33,125

 
2.5
%
 
Bob Evans Restaurants
 
BEF Foods
(in thousands)
2015
 
2014
 
2015
 
2014
Net sales
$
969,877

 
 
 
$
956,579

 
 
 
$
379,313

 
 
 
$
371,973

 
 
Cost of sales
258,677

 
26.7
 %
 
244,871

 
25.6
%
 
198,362

 
52.3
%
 
206,082

 
55.4
%
Operating wage and fringe benefit expenses
381,874

 
39.4
 %
 
365,698

 
38.2
%
 
41,665

 
11.0
%
 
40,609

 
10.9
%
Other operating expenses
169,018

 
17.4
 %
 
164,901

 
17.3
%
 
29,047

 
7.6
%
 
31,926

 
8.6
%
Selling, general and administrative expenses
98,871

 
10.2
 %
 
80,723

 
8.4
%
 
71,258

 
18.8
%
 
68,781

 
18.5
%
Depreciation and amortization expense
61,531

 
6.3
 %
 
63,872

 
6.7
%
 
18,543

 
4.9
%
 
15,584

 
4.2
%
Impairment of assets held for sale
2,658

 
0.3
 %
 
9,380

 
1.0
%
 

 
%
 
3,000

 
0.8
%
Operating income
$
(2,752
)
 
(0.3
)%
 
$
27,134

 
2.8
%
 
$
20,438

 
5.4
%
 
$
5,991

 
1.6
%
Sales
Consolidated net sales increased 1.6% , to $1,349.2 million , for the twelve months ended April 24, 2015 , compared to $1,328.6 million in the corresponding period a year ago. The net sales increase was comprised of an increase of $13.3 million in Bob Evans Restaurants as well as an increase of $7.3 million in BEF Foods.
Bob Evans Restaurants' net sales increased $13.3 million , or 1.4% , for the twelve months ended April 24, 2015 , compared to the corresponding period a year ago. The increase in net sales was the result of a 0.9 % increase in same-store sales, primarily due to a 1.2% increase in average menu prices. Menu price increases were implemented to partially offset the impact of higher food costs incurred throughout fiscal 2015. We also opened seven new restaurants during the year, including four in the fourth quarter, which increased sales by approximately $4.8 million over the comparable period.

35


The chart below summarizes the restaurant openings and closings during the last two fiscal years for Bob Evans Restaurants:
 
Beginning
 
Opened
 
Closed
 
Ending
Fiscal 2015
 
 
 
 
 
 
 
4th quarter
564

 
4

 
1

 
567

3rd quarter
562

 
2

 

 
564

2nd quarter
562

 

 

 
562

1st quarter
561

 
1

 

 
562

Fiscal 2014
 
 
 
 
 
 
 
4th quarter
562

 
1

 
2

 
561

3rd quarter
562

 
1

 
1

 
562

2nd quarter
561

 
1

 

 
562

1st quarter
560

 
1

 

 
561

The BEF Foods segment net sales increased by $7.3 million , or 2.0% , in the twelve months ended April 24, 2015 compared to the corresponding period a year ago. The increase in net sales was primarily due to $11.3 million of net sausage pricing increases implemented to offset higher sow costs compared to the prior year. Side dish volumes increased by approximately 13%, but were offset by lower sausage and foodservice volumes. The decrease in sausage is related to a decline in category demand due to higher pork prices, which began last year and did not recover despite the decline in sow costs in the second half of fiscal 2015. The decline in foodservice volumes is primarily due to a shift of resources towards our growing side dish business. Refer to the table below for pounds sold by category in the year ended April 24, 2015, and corresponding period last year.
(in millions)
2015
 
2014
Category
 
 
 
 
 
 
 
     Side Dishes
101.7

 
50.0
%
 
90.1

 
44.2
%
     Sausage
49.1

 
24.1
%
 
53.1

 
26.1
%
     Food Service
34.9

 
17.1
%
 
42.0

(1)
20.6
%
     Frozen
9.9

 
4.9
%
 
10.7

 
5.3
%
     Other
8.0

 
3.9
%
 
7.8

 
3.8
%
Total
203.6

 
 
 
203.7

 
 

(1) - Excludes 4.7 million pounds sold at the Company's Irvine, California, production facility, which was sold in the second quarter of fiscal 2014.

Cost of Sales
Consolidated cost of sales (cost of materials) was $ 457.0 million , or 33.9% of net sales, for the twelve months ended April 24, 2015 , compared to $ 451.0 million , or 33.9% of net sales, in the corresponding period a year ago. Cost of sales were flat as a percentage of total sales, driven by an 80 bps weighted increase in Bob Evans Restaurants, offset by an 80 bps weighted decrease in BEF Foods.
Bob Evans Restaurants' cost of sales, predominately food costs, was $ 258.7 million , or 26.7% of net sales, for the twelve months ended April 24, 2015, compared to $ 244.9 million , or 25.6% of net sales, in the year ago period. The increase in the cost of sales ratio was primarily the result of the $5.1 million margin impact of higher food costs, the $4.3 million impact of a shift in menu mix towards higher cost items, a $1.9 million impact from increased discounting and a $1.7 million impact of increased carryout sales, partially offset by the $2.6 million impact of menu price increases.
BEF Foods cost of sales was $ 198.4 million , or 52.3% of net sales, in the twelve months ended April 24, 2015 , compared to $ 206.1 million , or 55.4% of net sales, in the corresponding period a year ago. Our cost of sales favorability was primarily due to price increases implemented to offset higher sow costs in the first half of fiscal 2015, lower sow costs in the second half of fiscal 2015 which contributed to a $3.9 million overall reduction in cost of sales as compared to the prior year, improved production yields, and the effect of a higher sales mix of our side dish productions, which have higher margins. Sow costs averaged $69.41 per hundredweight in fiscal 2015 , as compared to $73.23 per hundredweight in fiscal 2014 , the result of significant declines in the second half of fiscal 2015.

36


Operating Wage and Fringe Benefit Expenses
Consolidated operating wage and fringe benefit expenses ("operating wages") were $423.5 million , or 31.4% of net sales, in the twelve months ended April 24, 2015 , compared to $406.3 million , or 30.6% of net sales, in the corresponding period a year ago. The 80 bps increase in the operating wages ratio was driven by an 80 bps weighted increase from Bob Evans Restaurants.
Bob Evans Restaurants' operating wages were $381.9 million , or 39.4% of net sales, in the twelve months ended April 24, 2015 , compared to $365.7 million , or 38.2% of net sales, in the corresponding period a year ago. The increase is primarily the result of a $13.4 million in higher restaurant wages, driven by higher wage rates and higher staffing levels resulting from increased carryout business, higher sales volumes and extended holiday hours. Net benefit expenses also increased $2.8 million as compared to the year ago period.
BEF Foods' operating wages were $41.7 million , or 11.0% of net sales, for the twelve months ended April 24, 2015 , compared to $40.6 million , or 10.9% of net sales, in the corresponding period a year ago. The increase is primarily due to $1.1 million of higher health insurance costs. Operating wages were flat to the prior year as headcount reductions related to the closing of our Richardson, Texas and Springfield and Bidwell, Ohio, production plants last year were offset by expanded production activities at our Sulphur Springs, Texas, and Lima, Ohio, production facilities.
Other Operating Expenses
Consolidated other operating expenses were $198.1 million , or 14.7% of net sales, in the twelve months ended April 24, 2015 , compared to $196.8 million , or 14.8% of net sales, in the corresponding period a year ago. The 10 bps decrease in the other operating expenses ratio was driven by a 10 bps weighted increase from Bob Evans Restaurants, offset by a 20 bps weighted decrease from BEF Foods. Approximately 85% of other operating expenses occur in Bob Evans Restaurants. The most significant components of other operating expenses are utilities, restaurant advertising, repairs and maintenance, restaurant supplies, non-income based taxes, and credit/debit/gift card processing fees.
Bob Evans Restaurants' other operating expenses were $169.0 million , or 17.4% of net sales, for the twelve months ended April 24, 2015 , compared to $164.9 million , or 17.3% of net sales, in the corresponding period a year ago. The increase in other operating expenses in fiscal 2015 was primarily a result of $4.6 million in additional advertising costs, $1.0 million of higher utilities costs driven by the impact of closed restaurant days in the prior year due to severe winter weather and our Farm Fresh Refresh remodel initiative, $0.8 million of higher credit card processing fees driven by higher sales and $0.8 million of other higher costs including rent and real estate taxes. These increases were partially offset by a $3.1 million reduction in preopening expenses, primarily related to costs associated with the Farm Fresh Refresh remodeling initiative that was completed in fiscal 2014.
BEF Foods' other operating expenses were $29.0 million , or 7.6% of net sales, for the twelve months ended April 24, 2015 , compared to $31.9 million , or 8.6% of net sales, in the corresponding period a year ago. The $2.9 million decrease in other operating expenses is due to $1.1 million of incremental production and repairs and maintenance costs incurred in the prior year related to the expansion at our Sulphur Springs, Texas, facility, $0.6 million of lower freight costs, and a $1.2 million decrease of other expenses, including insurance costs.
Selling, General and Administrative Expenses
S,G&A expenses incurred by Bob Evans Restaurants include legal and professional fees, losses (or gains) on the disposal of long-lived assets and impairment charges recorded on restaurant assets to be held and used. S,G&A expenses incurred by BEF Foods include costs related to the Bob Evans Transportation Company which primarily delivers finished goods to our BEF Foods' customers, selling costs including broker commissions, selling wages and advertising and other promotion costs, impairment charges on long-lived assets other than assets classified as held for sale and losses (or gains) on the disposal of long-lived assets. Corporate functions and other corporate overhead costs are also recorded to S,G&A and are allocated to our reporting segments based on the time and resources used to support them. This includes functions such as information technology, finance, legal, human resources, supply chain and other corporate functions. Corporate overhead costs include legal and professional fees, ongoing IT infrastructure costs including certain costs related to our new ERP system, costs related to the separation of our former CEO, costs related to the use of our former ownership interest in a jointly owned aircraft including the loss on sale and other overhead costs.
Consolidated S,G&A expenses were $170.1 million , or 12.6% of net sales, for the twelve months ended April 24, 2015 , compared to $149.5 million , or 11.3% of net sales, in the corresponding period a year ago. The 130 bps increase in the S,G&A ratio was driven by a weighted 130 bps increase from Bob Evans Restaurants.

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The increase in S,G&A was due primarily to an $8.8 million increase in professional fees, which includes legal fees, costs related to shareholder activism, strengthening the Company’s internal processes and controls over financial reporting, and our review of strategic alternatives; a $6.0 million reserve for legal settlements; $3.7 million of separation compensation costs related to our former chief executive officer; $1.9 million of higher impairment charges as compared to last year (excluding those classified as impairment on held for sale assets); a $1.7 million loss on the sale of our interest in a jointly owned aircraft and $1.1 million of higher employee benefit costs including health care costs. These costs were partially offset by a $1.7 million reduction in BEF Foods selling wages and a $0.9 million reduction in other costs, including BEF Foods advertising expenses. The net impact of these items was an $18.1 million increase in S,G&A for Bob Evans Restaurants, and a net $2.5 million increase in S,G&A for BEF Foods.
Depreciation and Amortization
Consolidated depreciation and amortization expenses ("D&A") were $80.1 million , or 5.9% of net sales, for the twelve months ended April 24, 2015 , compared to $79.5 million , or 6.0% of net sales, in the corresponding period a year ago. The 10 bps decrease in the D&A ratio was driven by a 30 bps weighted decrease from Bob Evans Restaurants, partially offset by a 20 bps weighted increase from BEF Foods.
Bob Evans Restaurants' D&A expenses were $61.5 million , or 6.3% of net sales, for the twelve months ended April 24, 2015 , compared to $63.9 million , or 6.7% of net sales, in the corresponding period a year ago. The primary drivers of the decrease in depreciation expenses were the $3.2 million impact of the fiscal 2015 change in useful lives of Farm Fresh Refresh assets and $0.8 million of higher depreciation in the prior year related to assets on accelerated depreciation methods. These declines in depreciation expenses were partially offset by $1.6 million of additional depreciation recorded this year on new stores opened in fiscal 2015, allocated depreciation on our corporate office, and other asset additions.
BEF Foods D&A expenses were $18.5 million , or 4.9% of net sales, for the twelve months ended April 24, 2015 , compared to $15.6 million , or 4.2% of net sales, in the corresponding period a year ago. The increase in D&A ratio is primarily the result of an increase in depreciable assets related to our Lima, Ohio, and Sulphur Springs, Texas, plant expansions, which were completed in the prior year, as well as allocated depreciation on our corporate office.
Impairment of Assets Held for Sale
Impairment on assets held for sale were $ 2.7 million for the twelve months ended April 24, 2015 , compared to $12.4 million in the corresponding period a year ago. In the current year, we recorded impairment charges on nine restaurant properties classified as held for sale as of April 24, 2015. In the prior year we recorded $ 9.4 million of impairment charges on 29 restaurant properties, of which 28 were sold prior to April 25, 2014. In the prior year we also recorded a $ 3.0 million impairment charge on BEF Foods related to our Richardson, Texas, plant, which is classified as held for sale on the April 24, 2015, and April 25, 2014, Consolidated Balance Sheets.
Interest
Net interest expense was $8.6 million for the twelve months ended April 24, 2015 , as compared to $2.0 million in the year ago period. The increase in net interest expense in fiscal 2015 was the result of higher average interest rates on our borrowings as compared to the prior year as well as higher average outstanding borrowings on our Credit Agreement as compared to last year.
We record interest income related to the accretion on the $30,000 note receivable we obtained from the sale of Mimi’s Café to Le Duff. The note has an annual interest rate of 1.5% and a term of seven years . The note was discounted to its fair value at the inception of the agreement, and is recorded at carrying value, which as of April 24, 2015, was $17.3 million, and is reflected as a long-term asset on the Consolidated Balance Sheet along with accrued interest.
As of April 24, 2015 , we had $447.6 million outstanding on our credit facility, $2.6 million outstanding on a Research and Development Loan from the state of Ohio and a $0.9 million interest-free loan ($1.0 million nominal).
Provision (Benefit) for Income Taxes
The effective tax rate for fiscal 2015 was (83.2%) compared to 0.5% for fiscal 2014. The effective income tax rate in fiscal 2015 was substantially different than the statutory rate due to the Company’s domestic production activities deduction and the utilization of tax credits. The effective income tax rate in fiscal 2014 was substantially different than the statutory rate due to the utilization of tax credits, the Company’s domestic production activities deduction, and favorable state settlements. In 2013, 2014 and 2015, the effective tax rate was significantly impacted by the effect of permanent items on low levels of pretax earnings.


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Income (Loss) From Discontinued Operations
We sold Mimi’s Café, previously disclosed as a reporting segment, to Le Duff in the fourth quarter of fiscal 2013. As part of the sale, we entered into a transition services agreement with Le Duff whereby we provided corporate support services and a supply agreement whereby we provided food products. In the first quarter of fiscal 2014, the Company received a notice from SWH Mimi’s Café, LLC that it was terminating its supply agreement with BEF Foods, Inc. The transition services agreement timing did not change significantly and expired in January 2014. As a result of this termination notice, the Company determined it no longer had significant cash flows from Mimi’s Café operations, thus Mimi’s Café was presented within discontinued operations in fiscal 2014 and comparative prior years. Discontinued operations only include the revenues and expenses that are specifically identified with Mimi’s Café. There were no such revenues and expenses in fiscal 2015. The prior year loss from discontinued operations, net of tax, was $2.7 million.

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Fiscal Year Ended April 25, 2014 (“fiscal 2014” or "2014") as Compared to Fiscal Year Ended April 26, 2013 (“fiscal 2013” or "2013")
The following tables reflect data for the twelve months ended April 25, 2014 , compared to the prior year's twelve months ended April 26, 2013 . The consolidated information is derived from the accompanying Consolidated Statements of Net Income. The table also includes data for our two segments - Bob Evans Restaurants and BEF Foods. The ratios presented reflect the underlying dollar values expressed as a percentage of the applicable net sales amounts.
 
Consolidated Results
(in thousands)
2014
 
2013
Net sales
$
1,328,552

 
 
 
$
1,330,226

 
 
Cost of sales
450,953

 
33.9
%
 
424,536

 
31.9
%
Operating wage and fringe benefit expenses
406,307

 
30.6
%
 
410,115

 
30.8
%
Other operating expenses
196,827

 
14.8
%
 
189,503

 
14.3
%
Selling, general and administrative expenses
149,504

 
11.3
%
 
148,799

 
11.2
%
Depreciation and amortization expense
79,456

 
6.0
%
 
69,319

 
5.2
%
Impairment of assets held for sale
12,380

 
0.9
%
 

 
%
Operating income
$
33,125

 
2.5
%
 
$
87,954

 
6.6
%
 
Bob Evans Restaurants
 
BEF Foods
(in thousands)
2014
 
2013
 
2014
 
2013
Net sales
$
956,579

 
 
 
$
981,418

 
 
 
$
371,973

 
 
 
$
348,808

 
 
Cost of sales
244,871

 
25.6
%
 
245,753

 
25.0
%
 
206,082

 
55.4
%
 
178,783

 
51.3
%
Operating wage and fringe benefit expenses
365,698

 
38.2
%
 
372,677

 
38.0
%
 
40,609

 
10.9
%
 
37,438

 
10.7
%
Other operating expenses
164,901

 
17.3
%
 
163,194

 
16.6
%
 
31,926

 
8.6
%
 
26,309

 
7.6
%
Selling, general and administrative expenses
80,723

 
8.4
%
 
73,650

 
7.5
%
 
68,781

 
18.5
%
 
75,149

 
21.5
%
Depreciation and amortization expense
63,872

 
6.7
%
 
56,827

 
5.8
%
 
15,584

 
4.2
%
 
12,492

 
3.6
%
Impairment of assets held for sale
9,380

 
1.0
%
 

 
%
 
3,000

 
0.8
%
 

 
%
Operating income
$
27,134

 
2.8
%
 
$
69,317

 
7.1
%
 
$
5,991

 
1.6
%
 
$
18,637

 
5.3
%
Sales
Consolidated net sales decreased 0.1% , to $1,328.6 million , for the twelve months ended April 25, 2014 , as compared to $1,330.2 million in the corresponding period the year before. The net sales comprised of a decrease of $24.8 million in Bob Evans Restaurants partially offset by an increase of $23.2 million in BEF Foods.
Bob Evans Restaurants' net sales decreased $24.8 million , or 2.5% , in the twelve months ended April 25, 2014 , as compared to the corresponding period the year before. Same-store sales at Bob Evans Restaurants decreased 2.1 % in fiscal 2014. Bob Evans Restaurants experienced negative same-store sales in each fiscal quarter of 2014 as compared to fiscal 2013. We also opened four new restaurants, remodeled 229 existing locations, and closed three underperforming restaurants.
The negative same-store sales in fiscal 2014 were primarily due to the impact of severe and sustained winter weather, which had a (1.6%) impact on same-store sales. We also lost more than 1,400 sales days, which includes 108 incremental lost sales days for the Farm Fresh Refresh remodeling initiative. Bob Evans Restaurants which received a Farm Fresh Refresh remodel were closed an average of five to seven days.
BEF Foods' net sales increased by $23.2 million , or 6.6% , in the twelve months ended April 25, 2014 , compared to the corresponding period the year before. The increase in net sales is a result of pricing and mix, offset by a decrease in total pounds sold of 2.4 percent in fiscal 2014 as compared to fiscal 2013. Sales volumes were adversely impacted by a supplier dispute related to BEF Foods' refrigerated side dish business and the sale of the SWH facility in California that had been supporting Mimi's Café. Excluding sales at our Irvine, California, production facility, volumes increased by 9.9 million pounds, or 5.1%.

40


(in millions)
2014
 
2013
Category
 
 
 
 
 
 
 
     Side Dishes
90.1

 
44.2
%
 
87.1

 
44.9
%
     Sausage
53.1

 
26.1
%
 
53.5

 
27.6
%
     Food Service
42.0

(1)
20.6
%
 
34.3

(2)
17.7
%
     Frozen
10.7

 
5.3
%
 
11.4

 
5.9
%
     Other
7.8

 
3.8
%
 
7.5

 
3.9
%
Total
203.7

 
 
 
193.8

 
 
(1) - Excludes 4.7 million pounds sold at the Company's Irvine, California, production facility.
(2) - Excludes 18.4 million pounds sold at the Company's Irvine, California, production facility.

Cost of Sales
Consolidated cost of sales was $451.0 million , or 33.9% of net sales, in the twelve months ended April 25, 2014 , compared to $424.5 million , or 31.9% of net sales, in the corresponding period the year before. The 200 bps increase in the cost of sales ratio was driven by a 40 bps weighted increase in Bob Evans Restaurants and a 160 bps weighted increase in BEF Foods.
Bob Evans Restaurants' cost of sales, predominately food costs, were $244.9 million , or 25.6% of net sales, in the twelve months ended April 25, 2014 , compared to $245.8 million , or 25.0% of net sales, in the corresponding period the year before. The increase in the cost of sales ratio was due to commodity cost increases, primarily driven by sausage and other pork-related items and beef. We responded to these commodity cost increases in fiscal 2014 by designing an updated menu that focused on higher margin items, such as beverages, breakfasts and less costly proteins, mainly poultry. We also increased average menu prices by 2.6 percent to partially offset these higher costs.
BEF Foods' cost of sales was $206.1 million , or 55.4% of net sales, in the twelve months ended April 25, 2014 , compared to $178.8 million , or 51.3% of net sales, in the period the year before . The increase in the cost of sales ratio in fiscal 2014 was due primarily to higher sow costs, which resulted in an increase in cost of sales of $21.1 million, partially offset by a reduction of sausage trade spending, increased pricing and the effect of the Lima, Ohio, plant acquisition in fiscal 2013. Prior to the acquisition of the Lima, Ohio, plant, substantially all costs related to acquiring product from the Lima, Ohio, plant were included in inventories upon receipt of goods, then expensed to cost of sales upon shipment to customers, as BEF Foods was buying a finished product. Subsequent to the acquisition, as an owned facility, rather than as a co-packer, labor costs are included in operating wages; and utilities, freight, and hauling costs are included in other operating expenses. Sow costs averaged $73.23 per hundredweight in fiscal 2014, an increase of 35.9% as compared to $53.87 per hundredweight in fiscal 2013.
Operating Wage and Fringe Benefit Expenses
Consolidated operating wage and fringe benefit expenses ("operating wages") was $406.3 million , or 30.6% of net sales, in the twelve months ended April 25, 2014 , compared to $410.1 million , or 30.8% of net sales, in the corresponding period the year before. The 20 bps decrease in the operating wage and fringe benefit expenses ratio was driven by a 10 bps increase in Bob Evans Restaurants offset by a 30 bps weighted decrease in BEF Foods.
Bob Evans Restaurants' operating wages were $365.7 million , or 38.2% of net sales, in the twelve months ended April 25, 2014 , compared to $372.7 million , or 38.0% of net sales, in the corresponding period the year before. The fiscal increase in the operating wages ratio as a percentage of sales was due to sales deleverage from same-store sales declines and implementation costs for the new workforce management program, partially offset by bonus favorability as Company results did not meet the performance-based incentive compensation requirements.
BEF Foods' operating wages were $40.6 million , or 10.9% of net sales, in the twelve months ended April 25, 2014 , compared to $37.4 million , or 10.7% of net sales, in the corresponding period the year before. The increase in operating wages in fiscal 2014 is due primarily to an increase in labor hours and to additional wages and fringe benefits associated with our acquisition of the Lima, Ohio, plant during the second quarter of fiscal 2013.



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Other Operating Expenses
Consolidated other operating expenses were $196.8 million , or 14.8% of net sales, in the twelve months ended April 25, 2014 , compared to $189.5 million , or 14.3% of net sales, in the corresponding period the year before. The 60 bps increase in the operating wages ratio was driven by a 50 bps weighted increase in Bob Evans Restaurants and 10 bps weighted increase in BEF Foods.
Bob Evans Restaurants' other operating expenses were $164.9 million , or 17.3% of net sales, in the twelve months ended April 25, 2014 , compared to $163.2 million , or 16.6% of net sales, in the corresponding period the year before. The increase in the other operating expenses ratio in fiscal 2014 was primarily a result of sales deleverage, increases in service contracts due to additional snow removal required in fiscal 2014, utilities and preopening expenses related to our Farm Fresh Refresh remodeling initiative and our new restaurants.
BEF Foods' other operating expenses were $31.9 million , or 8.6% of net sales, in the twelve months ended April 25, 2014 , compared to $26.3 million , or 7.6% of net sales, in the corresponding period the year before . The fiscal 2014 increase in other operating expenses was due primarily to increased utilities, start-up costs related to the expansion of our Sulphur Springs facility and increased repair and maintenance expenses which were also driven by plant expansions.
Selling, General and Administrative Expenses
Consolidated S,G&A expenses were $149.5 million , or 11.3% of net sales, in the twelve months ended April 25, 2014 , compared to $148.8 million , or 11.2% of net sales, in the corresponding period the year before. The 10 bps increase in the S,G&A ratio was driven by a 60 bps weighted increase from Bob Evans Farms, partially offset by a 50 bps weighted decrease from BEF Foods.
The increase in S,G&A expenses were driven by a $6.0 million increase in allocated professional fees, which includes costs related to shareholder activism and strengthening the Company's internal processes and controls over financial reporting and a $3.0 million increase of other S,G&A expenses including an increase of allocated corporate overhead as a result of providing transition services to Mimi's Café at less than cost. These increases were partially offset by a $5.5 million reduction in BEF Foods advertising expenses and a $2.8 million reduction in BEF Foods severance and restructuring charges incurred in fiscal 2013, primarily related to the decision to close our Bidwell and Springfield, Ohio, production plants. The net impact was a $7.1 million increase in Bob Evans Restaurants' fiscal 2014 S,G&A as compared to fiscal 2013, and a $6.4 million reduction in BEF Foods S,G&A.
Depreciation and Amortization
Consolidated depreciation and amortization expenses ("D&A") was $79.5 million , or 6.0% of net sales, in the twelve months ended April 25, 2014 , compared to $69.3 million , or 5.2% of net sales, in the corresponding period the year before. The 80 bps increase in the D&A ratio was driven by a 60 bps weighted increase from Bob Evans Restaurants and a 20 bps weighted increase from BEF Foods.
Bob Evans Restaurants' D&A expenses were $63.9 million , or 6.7% of net sales, in the twelve months ended April 25, 2014 , compared to $56.8 million , or 5.8% of net sales, in the corresponding period the year before. The D&A ratio increased in fiscal 2014, primarily as a result of property, plant and equipment additions from remodeling 424 existing restaurants as part of our Farm Fresh Refresh initiative in the last two years, and opening four new restaurants in fiscal 2014.
BEF Foods' D&A expenses were $15.6 million , or 4.2% of net sales, in the twelve months ended April 25, 2014 , compared to $12.5 million , or 3.6% of net sales, in the corresponding period the year before. The fiscal 2014 D&A ratio increase was due primarily to additional depreciation expense associated with the Lima, Ohio, and Sulphur Springs, Texas, plant expansions and with our acquisition of the Lima, Ohio, plant early in the second quarter of fiscal 2013.
Impairment of Assets Held for Sale
We recorded consolidated impairment charges on assets classified as held for sale of $12.4 million in the twelve months ended April 25, 2014 . Bob Evans Restaurants incurred an impairment charges on assets held for sale of $9.4 million while BEF Foods incurred impairment charges on assets held for sale of $3.0 million.
Interest
Net interest expense was $2.0 million for the twelve months ended April 25, 2014 as compared to $11.5 million in the comparable period the year before.

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The decrease in net interest expense in fiscal 2014 was the result of lower average interest rates on our borrowings as compared to the prior year. During fiscal 2013, we prepaid our outstanding Note Purchase Agreements dated July 28, 2004, as amended, and July 28, 2008, as amended, (“Private Placement Notes”) and $1.9 million of interest income from the accretion on our long-term note receivable in fiscal 2014. This was partially offset by an increase in variable-rate debt as our average borrowings on our credit facility increased in fiscal 2014 as well as interest income from the accretion on our long-term note receivable in fiscal 2014.
Provision (Benefit) for Income Taxes
The effective tax rate for continuing operations for fiscal 2014 was 0.5% compared to an 8.0% benefit for fiscal 2013. The effective income tax rate in fiscal 2014 was substantially different than the statutory rate due to the Company’s domestic production activities deduction, and favorable state settlements. The effective income tax rate in fiscal 2013 was different than the statutory rate primarily due to the impact of the loss on the sale of Mimi’s Café, the impairment of assets held for sale and the conversion of SWH Corporation to a limited liability company (“LLC”) implemented during the fiscal year, as discussed in the General Overview above. In both 2014 and 2013 the effective tax rate was significantly impacted by the effect of permanent items on low levels of pretax earnings.
Income (Loss) From Discontinued Operations
We sold Mimi’s Café, previously disclosed as a reporting segment, to Le Duff in the fourth quarter of fiscal 2013. As part of the sale, we entered into a transition services agreement with Le Duff whereby we provided corporate support services and a supply agreement whereby we provided food products. On July 23, 2013, the Company received a notice from SWH Mimi’s Café, LLC that it was terminating its supply agreement with BEF Foods, Inc. The transition services agreement timing did not change significantly and expired in January 2014. As a result of this termination notice, the Company determined it no longer had significant cash flows from Mimi’s Café operations, thus Mimi’s Café should be presented within discontinued operations for all years presented in the financial statements, effective with the Form 10-Q filed for the three months ended July 26, 2013.
As of April 25, 2014, our recasted and adjusted Consolidated Statements of Net Income present income, net of tax, from discontinued operations, of $2.7 million. The prior year loss from discontinued operations, net of tax, was $83.4 million. The prior year loss was primarily the result of an impairment recorded on Mimi’s long-lived assets.

Liquidity and Capital Resources
Our primary sources of liquidity are cash generated from operating activities and the borrowing capacity under our $750.0 million revolving credit facility with a consortium of banks, with a maturity date of January 1, 2019.
Historically, our working capital requirements have been minimal; overall, our current liabilities have generally exceeded our current assets (excluding cash, cash equivalents and Credit Agreement borrowings). This favorable working capital position results from transacting substantially all of our Bob Evans Restaurants segment sales for cash or third-party credit or debit cards, the relatively short trade credit terms with our BEF Foods customers as well as most of our major suppliers and distributors and the quick turnover of our inventories in both of our reporting segments.
Capital expenditures were and $ 74.5 million and $ 191.0 million in fiscal years 2015 and 2014, respectively. In fiscal 2015 capital expenditures primarily related to our new Enterprise Resource Planning ("ERP") system, new restaurant construction and restaurant equipment. In fiscal 2014 capital expenditures primarily related to completion of our accelerated Farm Fresh Refresh remodeling initiative for Bob Evans Restaurants, plant expansions for BEF Foods, completion of our new corporate headquarters, the development of an ERP system, and the opening of four new Bob Evans Restaurants. In fiscal 2016 , capital expenditures are expected to approximate $80.0 million to $85.0 million and include expenditures for a new restaurant point-of-sale system and improvements, adding an additional side-dish production line at our Lima, Ohio, plant and other production facility upgrades, the next phases of our Enterprise Resource Planning system and other IT infrastructure.
During fiscal 2015 , we paid an annual cash dividend of $1.240 per share, compared to $1.205 for fiscal 2014 . While we expect to continue paying regular quarterly cash dividends, the declaration, amount and timing of future dividends will be at the discretion of our Board of Directors.
On February 25, 2014, the Board of Directors authorized a stock repurchase program for fiscal 2015 of up to $100.0 million. The fiscal program authorized the Company to repurchase its outstanding common stock pursuant to plans approved by the Board under SEC Rules 10b-18 and 10b5-1, and in the open market or through privately negotiated transactions. The ability to repurchase stock and complete the fiscal 2015 repurchase program is dependent upon the Company’s having available funds and complying with the financial covenants and other restrictions contained within the Company’s credit facility and the

43


repurchase authorization. On August 20, 2014, the Board of Directors increased the authorization of this stock repurchase program to $150.0 million and extended the authorization period through fiscal 2016. We did not repurchase any shares of our common stock during fiscal 2015.
On January 2, 2014, we entered into a $750 million Revolving Credit Facility Amended and Restated Credit Agreement ("credit facility"). The credit facility represents a syndicated secured revolving credit facility under which up to $750 million will be available with a letter of credit sub-facility of $50 million, and an accordion option to increase the revolving credit commitment to $1.05 billion. It is secured by the stock pledges of certain material subsidiaries. Borrowings under the credit facility bear interest, at our option, at a rate based on LIBOR or the Base Rate, plus a margin based on the Leverage Ratio, ranging from 1.00% to 2.75% per annum for LIBOR, and ranging from 0.00% to 1.75% per annum for Base Rate. The Base Rate means for any day, a fluctuating per annum rate of interest equal to the highest of (i) the Federal Funds Open Rate, plus 0.5%, (ii) the Prime Rate, or (iii) the Daily LIBOR Rate, plus 1.0%. We are also required to pay a commitment fee of 0.15% per annum to 0.25% per annum of the average unused portion of the total lender commitments then in effect. Our effective interest rate for the credit facility was 2.09% during the year ended April 24, 2015. As of April 24, 2015, we had outstanding borrowings of $447.6 million under our credit facility and $12.4 million was reserved for certain standby letters of credit.
On May 11, 2015, we entered into a Second Amendment to the Credit Agreement. The amendment has an effective date of April 24, 2015. The terms of the Credit Agreement were amended related to: (a) an increase to the Maximum Leverage Ratio for the period starting April 24, 2015, through the remaining term of the agreement, (b) a change in the restrictions related to payments for share repurchases and (c) a change in the definition of the LIBOR and Daily LIBOR rates that are used to calculate interest on outstanding borrowings.
Our Credit Agreement contains financial and other various affirmative and negative covenants that are typical for financings of this type. Our Credit Agreement contains financial covenants that require us to maintain a specified minimum coverage ratio and maximum leverage ratio at April 24, 2015, of (1) a minimum coverage ratio of not less than 3.00 to 1.00; and (2) a maximum leverage ratio that may not exceed 4.50 to 1.00. As of April 24, 2015, our coverage ratio was 11.89 , and our leverage ratio was 3.37 , as defined in our credit facility. Our credit facility also limits repurchases of our common stock and the amount of dividends that we pay to holders of our common stock in certain circumstances. The Credit Agreement also allows for the incurrence of additional indebtedness of up to $300 million, a sale leaseback of our real estate of up to $100 million and mortgage indebtedness on our corporate headquarters of up to $50 million. A breach of any of these covenants could result in a default under our Credit Agreement, in which all amounts under our Credit Agreement may become immediately due and payable, and all commitments under our Credit Agreement to extend further credit may be terminated. We were in compliance with the financial covenant requirements of our Credit Agreement as of April 24, 2015.
During the last six months of fiscal 2015, the Company has worked closely with the Board of Directors and its strategic advisers to assess various alternatives to increase shareholder value. In particular, the Company has determined it will pursue several transactions with respect to its real estate assets.
In May 2015, the Company retained CBRE to pursue monetization of its New Albany, Ohio, headquarters and BEF Foods’ Lima, Ohio, and Sulphur Springs, Texas, manufacturing facilities through one or more sale and leaseback transactions. The completion of any transaction must be approved by the Board and the Company cannot guarantee that a transaction will occur. The Company expects to use the net proceeds from these transactions to manage leverage under its credit agreement and as a result to repurchase shares of the Company’s stock as permitted under the credit agreement.
In June 2015, the Board authorized the Company to pursue a strategic transaction for a select portion of its restaurant properties. The transaction may take the form of either a sale-leaseback or a tax free REIT conversion and spin off. The decision as to which path to pursue will depend on a number of factors including, but not limited to: the performance of the Bob Evans' business segments, and in particular the restaurant segment, market values for restaurant real estate, trading performance of publicly traded real estate companies, interest rates and general U.S economic conditions. The ultimate size of any transaction will depend on the factors we have noted, but is expected to range from thirty to sixty percent of currently owned restaurant real estate. Although the Company expects to conclude the assessment of alternative paths over the next several months, the timing of a transaction remains subject to the Board‘s continued evaluation of these factors, and the Company cannot guarantee if and when a transaction will be undertaken. Either form of a transaction is expected to reduce the Company’s investment in lower return assets, and in structuring such a transaction the Company would expect to maintain flexibility to pursue a separation of the foods and restaurant segments in the future if advisable at that time. Combined with the potential sale-leaseback of the Company's headquarters and select industrial properties, the Company believes such a transaction will enable the Company to further enhance shareholder value through its capital deployment strategies as it continues to execute the turnaround of its businesses. The execution of either a sale-leaseback transaction or REIT conversion and spin-off of restaurant real estate will require the Company either to obtain permission from its credit facility lenders or put in place alternative financing arrangements.

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We believe that our cash flow from operations as well as the borrowing under our credit facility, will be sufficient to fund anticipated capital expenditures, working capital requirements and dividend payments during fiscal 2016.
From April 25, 2015, through June 1, 2015, we repurchased 1.1 million shares, or $50.0 million of Company stock. The purchases were funded through additional borrowings on our Credit Agreement.
Operating activities
Net cash provided by operating activities was $103.1 million and $165.3 million for fiscal 2015 and fiscal 2014 , respectively. The decrease in net cash provided by continuing operations was primarily driven by a decrease in income from operations (including the impact of noncash items), the impact of cash received from tax credits in the prior year and other working capital changes.
Investing activities
Cash used in investing activities was $64.6 million and $178.1 million for fiscal 2015 and fiscal 2014 , respectively. Capital expenditures were significantly higher in the prior year, primarily a result of our Farm Fresh Refresh remodeling initiative which was completed last year, plant expansion projects at our Lima, Ohio, and Sulphur Springs, Texas, facilities and the completion of our new corporate headquarters.
Financing activities
Cash used in financing activities was $40.0 million for fiscal 2015 , while cash provided by financing activities was $9.0 million for fiscal 2014 . In fiscal 2015, cash used in financing activities primarily related to $29.1 million of dividends paid and a reduction in borrowings under our Credit Agreement. In fiscal 2014, cash provided by financing activities were primarily the result of $257.5 million of incremental borrowings under our Credit Agreement, partially offset by $225.0 million of cash used to repurchase common stock and $31.7 million of dividends paid.
On May 21, 2015 , the Board of Directors approved a quarterly cash dividend of $0.31 per share. The quarterly cash dividend was paid on June 15, 2015 , to shareholders of record at the close of business on June 1, 2015 .
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements through the date of this Annual Report on Form 10-K.
Contractual Obligations
Future payments of our contractual obligations and outstanding indebtedness as of April 24, 2015 , are as follows (in thousands):
(in thousands)
 
2016
 
2017
 
2018
 
2019
 
2020
 
Thereafter
 
Total
Operating leases (1)
 
$
4,461

 
$
4,409

 
$
4,459

 
$
4,494

 
$
4,481

 
$
39,380

 
$
61,684

Short-term debt (2)
 
409

 

 

 

 

 

 
409

Long-term debt (3)
 

 
419

 
428

 
448,035

 
445

 
1,492

 
450,819

Purchase obligations (4)
 
45,766

 

 

 

 

 

 
45,766

Deferred compensation (5)
 
8,255

 
2,895

 
1,830

 
1,580

 
1,370

 
14,806

 
30,736

Other (6)
 
2,406

 

 

 

 

 

 
2,406

Totals
 
$
61,297

 
$
7,723

 
$
6,717

 
$
454,109

 
$
6,296

 
$
55,678

 
$
591,820

(1)
Obligations for operating leases include payments through the end of current lease terms and do not include the impact of any available renewal periods.
(2)
The balance represents the current portion of our Research and Development Investment Loan.
(3)
The balances represent principle payments on our Research and Development Investment Loan, the outstanding borrowings on our Credit Agreement, which matures in Fiscal 2019 and an interest free loan which matures in 2022. The amounts exclude expected interest payments on our Credit Agreement, which can fluctuate based on the amount outstanding borrowings in any given period.
(4)
Purchase obligations are comprised of $17.5 million of food purchase commitments for Bob Evans Restaurants and $28.3 million of raw material purchase commitments for BEF Foods, all of which are expected to be satisfied in the next 12 months. Many of these agreements do not obligate us to purchase any specific volumes and include provisions that would allow us to cancel such agreements with appropriate notice. For such agreements, amounts included in the table above represent our estimate of expected purchases prior to any cancellation of these contracts with appropriate notice.

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(5)
Deferred compensation obligations in future years may change due to additional participant deferrals and returns on participant investments, and include share based obligations, see Note 7 for more details.
(6)
The balance relates to unrecognized tax benefits related to state exposures that may be necessary in the coming year due to settlements with taxing authorities or lapses of statutes of limitations, new restaurant construction commitments and operating leases for IT equipment.
Business Outlook
Our outlook for fiscal 2016 relies on a number of assumptions, as well as the risk factors included in our SEC filings. Fiscal 2016 will be a 53 week year, with the fourth quarter being 14 weeks. The information in this section is inclusive of the impact of the 53 rd week on our business operations.
We anticipate consolidated net sales to approximate $1.34 billion to $1.41 billion in fiscal 2016 . We are projecting 25% to 35% increase in operating income, which is reflective of approximately $14.0 million of anticipated savings from our corporate S,G&A reduction initiative. We are projecting net interest expense of approximately $12.5 million to $14.0 million for fiscal 2016 . We estimate that our effective tax rate will approximate 27.5% to 28.5% for all of fiscal 2016 . We project weighted-average diluted shares outstanding to be approximately 22.0 million shares for fiscal year 2016 , and expect diluted EPS to be $1.75 to $1.95.
In fiscal 2016 , we expect capital expenditures to approximate $80 million to $85 million . Depreciation and amortization expense for fiscal 2016 should approximate $83 million to $88 million .
We expect Bob Evans Restaurants to experience a full-year same-store sales increase between 1.5 percent and 2.5 percent as we balance reduced guest discounting, benefits from further menu development, commodity cost increases and other operational efficiencies.
In the BEF Foods segment, we expect overall net sales of $380 million to $ 400 million for the full fiscal year, driven by higher volumes and partially offset by increased trade spend. We anticipate that sow costs will approximate $54 per hundredweight for the full year of fiscal 2016 .
Critical Accounting Policies and Estimates
We prepare our consolidated financial statements in conformity with U.S. generally accepted accounting principles ("US GAAP"). The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. We base our estimates on historical experience, current trends and conditions and various other facts and conditions that we believe to be reasonable under the circumstances.
Our significant accounting policies are described in Note 1 to our consolidated financial statements. Certain significant accounting policies require complex and subjective judgment as a result of estimates surrounding uncertain outcomes. While we believe that our historical experience and other factors considered provide a meaningful basis for the accounting policies applied in the preparation of the consolidated financial statements, the judgments surrounding these critical accounting policies may result in materially different amounts under different financial conditions or by using different assumptions. We consider the following policies to be the most critical in understanding the judgments that are involved in preparing our consolidated financial statements.
Gift Card Revenue
Revenue is recognized for Bob Evans Restaurants at the point of sale, other than revenue from the sale of gift cards, which is deferred and recognized upon redemption. We issue gift cards, which do not have expiration dates or inactivity fees. We recognize revenue from gift cards when they are redeemed by the customer. In addition, we recognize income on unredeemed gift cards (“gift card breakage”) based on historical sales and redemption patterns, referred to as the redemption recognition method. Gift card breakage is recognized proportionately over the period of redemption in net sales of our Bob Evans Restaurants segment in the Consolidated Statements of Net Income. The liability for unredeemed gift cards is included in deferred revenue on the Consolidated Balance Sheets.
We review our gift card breakage rates and rate of redemption periodically to ensure our estimates are reasonable. If actual redemption patterns differ from our estimates, actual gift card breakage amounts may vary from the amounts recorded. A reasonable change in our gift card breakage estimates would not result in a material change to net sales.
BEF Foods Sales Promotions (Trade Spend)
We engage in promotional (sales incentive) programs in the form of “off-invoice” deductions, billbacks, cooperative advertising and coupons, collectively referred to as trade spend programs, with our customers. Costs associated with these

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programs are classified as a reduction of net sales in the period in which the sale occurs. Our sales promotional program may fluctuate based on sow costs trends and during peak holiday periods. As a result, we enter into promotion agreements with our customers during distinct time periods where we expect to maximize the impact of promotions on net sales through increased volume when sow costs trends are expected to be favorable. A change in actual sales volume and sow costs from our estimates will impact sales, and ultimately, profitability of the BEF Foods segment.
Long-Lived Asset Impairment
We evaluate the carrying amount of long-lived assets held and used in the business semi-annually and when events and circumstances indicate that the carrying value of the assets may not be recoverable. Recoverability of long-lived assets is measured by comparing the carrying value of the asset, or asset group, to the undiscounted future cash flows expected to be generated by the asset. A long-lived asset or asset group is considered impaired when the carrying value of the asset or asset group exceeds its fair value. The impairment loss recognized is the excess of carrying value of the asset or asset group above its fair value. To estimate fair value for restaurant locations where we own the land and building, we obtain appraisals from third party real estate valuation firms. The appraised values are based on recent sales of similar assets in the areas where the restaurant is located. To estimate fair value for leased locations we estimate discounted future cash flows. The assumptions used to estimate the recoverability and fair value of long-lived assets require a high degree of judgment and may be affected by many factors, including changes in economic conditions and changes in operating performance. If these assumptions change in the future we may be required to record additional impairment charges on these assets.
Goodwill and Other Intangible Assets
Goodwill and intangible assets with indefinite lives are not amortized and are tested for impairment during the fourth quarter each year or on a more frequent basis when indicators of impairment exist. We have $19.6 million in goodwill in our BEF Foods segment.
Other intangible assets, also recorded in our BEF Foods segment, represent a non-compete agreement related to the Kettle Creations acquisition initially valued at $0.4 million . The non-compete agreement is a definite lived intangible asset and is amortized over the term of the agreement.
Goodwill impairment testing involves a comparison of the estimated fair value of reporting units to the respective carrying amount. If the estimated fair value exceeds the carrying amount, then no impairment exists. If the carrying amount exceeds the estimated fair value, then a second step is performed to determine the amount of impairment, if any. We perform our impairment test using a combination of income based and market based approaches. The income based approach indicates the fair value of an asset or business based on the estimated future discounted cash flows expected to be generated by the BEF Food segment. Significant assumptions used to determine the fair value of our BEF Foods segment includes forecasted trends in sales, operating and allocated expenses, capital expenditures and an appropriate discount rate. Under the market-based approach, fair value is determined by using earnings multiples to compare the value of the BEF Foods segment to similar businesses or guideline companies whose securities are actively traded in public markets. If the BEF Foods segment's future operating performance is materially different from the forecast we may be required to record impairment related to goodwill, however in fiscal 2015 there was significant headroom between the fair value and carrying value of the BEF Foods segment.
Self-insurance Reserves
We record estimates for certain health, workers’ compensation and general insurance costs that are self-insured programs. Self-insurance reserves include actuarial estimates of both claims filed, carried at their expected ultimate settlement value, and claims incurred but not yet reported. Our liability represents an estimate of the ultimate cost of claims incurred as of the balance sheet date. We utilize stop loss insurance to limit our exposure to any significant exposure on a per person basis for health insurance and on a per claim basis for workers’ compensation and general insurance. Estimates for health, workers’ compensation and general liability are calculated utilizing claims development estimates based on historical experience and other factors. Future changes from the actuarial estimates regarding the frequency and severity of claims or settlement practices may result in insurance reserves that are materially different than what is recorded today.
Taxes
We account for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined on the basis of differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.

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We recognize deferred tax assets to the extent that we believe these assets are more likely than not to be realized. In making such a determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. If we determine that we would be able to realize our deferred tax assets in the future in excess of their net recorded amount, we would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes.
We record uncertain tax positions in accordance with ASC 740 on the basis of a two-step process whereby (1) we determine whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, we recognize the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority. The Company recognizes interest and penalties related to unrecognized tax benefits within the income tax expense line in the accompanying Consolidated Statement of Net Income. Accrued interest and penalties are included within the related tax liability line in the Consolidated Balance Sheets.
We generally file our income tax returns several months after our fiscal year end. The major jurisdiction in which the Company files income tax returns includes the U.S. federal jurisdiction, and approximately 30 states in the U.S.

ITEM 7A.     QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We do not currently use derivative financial instruments for speculative or hedging purposes. We maintain our cash and cash equivalents in financial instruments with maturities of three months or less when purchased.
Interest Rate Risk
At April 24, 2015 , our outstanding debt included $ 447.6 million outstanding on the credit facility, and $3.5 million of other outstanding long-term notes. A change in market interest rates will impact our credit facility when there is an outstanding balance. For example, a one percent increase in the benchmark rate used for our credit facility would increase our annual interest expense by approximately $4.5 million , assuming the $447.6 million outstanding at the end of fiscal 2015 was outstanding for the entire year.
Commodities Prices
We purchase certain commodities such as beef, pork, poultry, seafood, produce and dairy products. These commodities are generally purchased based upon market prices established with suppliers. These purchase arrangements may contain contractual features that fix the price paid for certain commodities. We do not use financial instruments to hedge commodity prices because these purchase arrangements help control the ultimate cost paid and most commodity price aberrations are generally short-term in nature. Long term fluctuations in commodity prices could significantly impact the profitability of both our Bob Evans Restaurants and BEF Foods segments.

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ITEM 8.     FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
BOB EVANS FARMS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except par value amounts)
 
April 24, 2015
 
April 25, 2014
Assets
Current Assets