<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------
FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JUNE 2, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-7323
--------------------
FRISCH'S RESTAURANTS, INC.
INCORPORATED IN THE IRS EMPLOYER IDENTIFICATION NUMBER
STATE OF OHIO 31-0523213
2800 GILBERT AVENUE
CINCINNATI, OHIO 45206
513/961-2660
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
COMMON STOCK OF NO PAR VALUE AMERICAN STOCK EXCHANGE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
NONE
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 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 [ X ] 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 [ X ].
AS OF AUGUST 9, 1996, 6,882,609 COMMON SHARES WERE OUTSTANDING, AND THE
AGGREGATE MARKET VALUE OF THE COMMON SHARES (BASED UPON THE AUGUST 9, 1996
CLOSING PRICE OF THESE SHARES ON THE AMERICAN STOCK EXCHANGE) OF FRISCH'S
RESTAURANTS, INC. HELD BY NONAFFILIATES WAS APPROXIMATELY $86.7 MILLION.
DOCUMENTS INCORPORATED BY REFERENCE
PORTIONS OF THE REGISTRANT'S DEFINITIVE PROXY STATEMENT TO BE FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION WITHIN 120 DAYS AFTER JUNE 2, 1996 ARE
INCORPORATED BY REFERENCE INTO PART III.
<PAGE> 2
PART I
(Items 1 through 4)
Item 1. - Business
Frisch's Restaurants, Inc. ("Company") was incorporated in 1947. The Company and
its subsidiaries are engaged in the food service business, including the
operation of and licensing of others to operate restaurants, and in the lodging
business.
The food service industry is the Company's dominant industry segment. Operations
in this industry are vertically integrated, and include the manufacture and
distribution of food products and supplies to its restaurants and to licensees
for resale to the general public. Fees are charged to licensees for use of
trademarks and trade names and for advertising services based principally on
percentages of sales.
The Company also operates two high-rise hotels located in greater Cincinnati,
under the name "Quality Hotel"; one containing 147 guest rooms, banquet
facilities for 400, a restaurant and cocktail lounge; the other having 236 guest
rooms, banquet facilities for 700, and two restaurants with cocktail lounges.
The Company operates or licenses others to operate family restaurants, most of
which have "drive-thru" service, located in Ohio, Kentucky and Indiana which use
the tradename "Big Boy". The Company also has the right to operate or license
others to operate Big Boy family restaurants in Florida, Texas, Oklahoma,
portions of Kansas, the unfranchised areas of Tennessee and Georgia and, under
certain circumstances, in prescribed areas of states adjacent to Tennessee and
Georgia. During the year ended June 2, 1996, the Company closed the six
restaurants it had operated pursuant to licenses from Hardee's Food Systems,
Inc. As of June 2, 1996, there were 103 Big Boy restaurants operated by the
Company and 42 operated by licensees. The following tabulation sets forth
restaurant openings and closings for both operated and licensed restaurants for
the five years ended June 2, 1996:
<TABLE>
<CAPTION>
Year ended
5/31/92 5/30/93 5/29/94 5/28/95 6/2/96
------- ------- ------- ------- ------
<S> <C> <C> <C> <C> <C>
Operated Restaurants
- --------------------
Big Boy
Opened 1 13 9 9 4
Replaced by new units - (2) - (1) (1)
Closed (3) (9) (2) (1) (3)
Sold to licensees (12) - - - -
Total Big Boy 87 89 96 103 103
Hardee's
Opened 1 - - - -
Closed - - (2) - (6)
Total Hardee's 8 8 6 6 0
----- ----- ---- ---- ----
Total Operated Restaurants 95 97 102 109 103
== == === === ===
</TABLE>
2
<PAGE> 3
<TABLE>
<CAPTION>
Licensed Restaurants
- --------------------
<S> <C> <C> <C> <C> <C>
Big Boy
Opened 2 1 - - -
Closed (2) (11) (4) (13) (12)
Acquired from licensor 12 - - - -
----- ----- ----- ----- -----
Total Licensed Big Boy 81 71 67 54 42
===== ===== ==== ==== ====
</TABLE>
The following tabulation sets forth the range and average floor space and the
range and average seating capacity for Big Boy restaurants operated by the
Company (similar information for licensed restaurants is not available):
<TABLE>
<CAPTION>
Floor space - Sq. Ft. Seating capacity
------------------------------------ ----------------------
Range Range
--------------------- --------------------
Smallest Largest Average Smallest Largest Average
-------- ------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
3578 6820 5693 120 200 157
</TABLE>
Big Boy restaurants are family restaurants which the Company operates under the
name of "Frisch's". Some of the licensed Big Boy restaurants do not use the name
"Frisch's". Menus are generally standardized with a wide variety of items at
moderate prices, featuring the "Big Boy" double-deck hamburger sandwich and
other sandwiches, steak, pasta, chicken and seafood dinners, desserts and other
items. In addition, a full breakfast menu is offered, and most of the
restaurants also contain breakfast bars, soup and salad bars and drive-thru
service. Older restaurants are located in suburban or urban neighborhoods which
cater to local trade rather than highway travel. Restaurants opened in recent
years have generally been located near expressways.
The agreements with licensees are not uniform, but substantially all of the
licenses for individual restaurants are covered by agreements containing the
following provisions:
1. The Licensor grants to the Licensee the right to use the name "Frisch" and/or
"Frisch's" and related trademarks and names in connection with the operation of
a food and restaurant business, in return for which the Licensee pays a license
fee equal to three and three-quarters percent (3- 3/4%) of its gross sales.
2. The Licensor provides local and regional advertising through publications,
radio, television, etc., in return for which the Licensee pays an amount equal
to two and one-half percent (2-1/2%) of its gross sales.
3. The Licensee agrees to conduct its business on a high scale, in an efficient
manner, with cleanliness and good service, all to the complete satisfaction of
the Licensor, and to comply with all food, sanitary and other regulations, and
to serve only quality foods.
4. The term of the license is for a period of five (5) years. The license can be
renewed for two further periods of five (5) years each provided the terms are
similar to those contained in license agreements given by the Licensor at such
time.
To service its owned and certain licensed restaurants, the Company operates a
commissary at Cincinnati, Ohio, where it prepares foods, and stocks foods,
forms, paper products and other supplies. Certain companies in the foodservice
industry operate commissaries, while others purchase from outside sources.
Sixteen of the licensed restaurants (38%) currently purchase items from the
commissary. Big Boy restaurants licensed in northern Indiana and northwestern
Ohio do not buy food and supplies from the Company.
3
<PAGE> 4
The Company also provides bookkeeping and payroll services to its owned and some
of its licensed restaurants. Nine of the licensed restaurants (21%) currently
purchase these services from the Company.
Pursuant to an agreement with Elias Brothers Restaurants, Inc., the Company has
the right to use and sub-license others to use the registered trademark and
tradename "Big Boy" for a perpetually renewable term at no license fee in Ohio,
Kentucky, Indiana, Florida, Texas, Oklahoma, parts of Kansas, the unfranchised
areas of Tennessee and Georgia and, under certain circumstances, prescribed
areas of states adjacent to Tennessee and Georgia.
Seasonal weather conditions can have a marked effect upon revenues and earnings.
Due to this seasonality, the first and fourth quarters of the Company's fiscal
year normally account for a disproportionate share of annual revenues and
earnings.
The business in which the Company is engaged is highly competitive and many of
its competitors are substantially larger and possess greater financial resources
than does the Company. The Company has numerous competitors, none of which is
dominant in the family restaurant sector of the foodservice industry. The
principal methods of competition in the foodservice industry are service, food
quality, cleanliness, customer perception of value and advertising.
Raw materials used in the Company's business (which consist principally of food
items) are generally plentiful and may be obtained from any number of suppliers.
Quality and price are the principal determinants of source.
The Company's working capital practices are incorporated herein by reference to
Management's Discussion and Analysis in Part II, item 7, page 10 of this Form
10-K, under the caption "Liquidity and Capital Resources."
The Company does not believe that various federal, state and local environmental
regulations will have any material impact upon its capital expenditures,
earnings or competitive position.
As of June 2, 1996, the Company and its subsidiaries employed approximately
6,100 persons, approximately 4,200 of whom were full-time and 1,900 were
part-time.
Item 2. - Properties
The Company owns the building which houses its commissary in Cincinnati, Ohio.
The area of this building is approximately 79,000 square feet. The facility
operates one shift daily so that additional productive capacity is available
when needed. It is suitable and adequate to supply Company restaurants and
franchise needs in all of the Company's market areas for the forseeable future.
The Company also maintains administrative office space in Cincinnati,
approximating 49,000 square feet, under a lease expiring December 31, 2002.
It is the Company's policy to own its restaurant locations whenever possible. Of
the 103 Big Boy restaurants operated by the Company in Ohio, Kentucky and
Indiana as of June 2, 1996, seventy (70) locations are owned and thirty-three
(33) locations are leased. The leases generally provide for prime terms of
fifteen (15) or twenty (20) years with options aggregating ten (10) or fifteen
(15) years.
4
<PAGE> 5
During the next five years, leases for restaurant facilities will expire as
follows:
<TABLE>
<CAPTION>
Fiscal year ending in Number of leases expiring
--------------------- -------------------------
<S> <C> <C>
1997 4
1998 4
1999 3
2000 4
2001 4
</TABLE>
All but one of the above nineteen leases have options to renew for from 5 to 20
years, and/or favorable purchase options.
The Company has assigned or sub-let certain leases of closed restaurants with
average annual obligations approximating $290,000 over the next five years. In
the event of default by assignees or sub-lessees, the Company generally retains
the right to re-assign or sub-let the properties.
The Company owns and operates two hotels in greater Cincinnati, one of which is
located on land that is leased through April 30, 2020, with renewal options
aggregating 50 years. The Company has the option to purchase this land at any
time during the current term or any renewal thereof.
The furniture, fixtures and equipment used in the operation of the business are
owned by the Company.
Mortgages totaling approximately $760,000 encumber the commissary in Cincinnati,
Ohio, one restaurant location, office equipment and commissary production
equipment.
The Company owns a one-fifteenth limited partner's interest in the Cincinnati
Reds professional baseball team.
The Company owns farm property in Warren County, Ohio, approximating 167 acres,
which is operated profitably as a thoroughbred horse boarding, breeding and
training facility. Related parties do not use this facility.
The farm property, certain surplus land and two former restaurant locations are
currently held for sale.
Item 3. - Legal Proceedings
From time to time, the Company is subject to various claims and suits in the
ordinary course of its business. The Company does not believe that any ultimate
liability for these claims will have a material impact on its earnings or
financial condition.
5
<PAGE> 6
Item 4 . Submission of Matters to a Vote of Security Holders
Not applicable.
Executive Officers of the Registrant
The executive officers are chosen at the annual meeting of the Board of
Directors for a term of one year and until their successors are chosen and
qualified. Each of the executive officers listed below has been continuously
employed by the Company for at least the past five years:
<TABLE>
<CAPTION>
Present
Office
Held
Since
-------
Name Age
---- ---
<S> <C> <C> <C>
Jack C. Maier 71 Chairman of the Board 1970
Craig F. Maier 46 President and Chief Executive Officer 1989
Marvin G. Fields 61 Senior Vice President - Operations 1971
Louis J. Ullman 64 Senior Vice President - Finance 1971
Donald H. Walker 50 Treasurer 1982
W. Gary King 59 Assistant Secretary 1972
</TABLE>
PART II
(Items 5 through 9)
Item 5. - Market for the Registrant's Common Equity and Related Stockholder
Matters
<TABLE>
<CAPTION>
Year Ended June 2, 1996 Year Ended May 28, 1995
-------------------------------------------------- -----------------------------------------------
Stock Prices Stock Prices
-------------------------------- Dividend ----------------------------- Dividend
High Low per share High Low per share
-------------- ----------------- -------------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
1st Quarter 10 1/4 8 5/8 6(cents) 14 7/8 11 3/4 6(cents)
2nd Quarter 10 3/4 8 5/8 6(cents) 13 1/4 9 7/8 6(cents)
3rd Quarter 10 1/8 7 11/16 6(cents) 10 5/8 8 7/8 6(cents)
4th Quarter 11 7/8 8 1/4 6(cents) 9 5/8 8 1/4 6(cents)
</TABLE>
In addition to cash dividends above, a 4% stock dividend was paid in 1996 and
1995. There are approximately 3,000 shareholders of record. The Company's common
stock is traded on the American Stock Exchange under the symbol FRS.
Through July 10, 1996, the Company has paid 142 consecutive quarterly dividends
during its thirty-five year history as a public company. The Company has also
paid twenty-five stock dividends since 1970, which has resulted in increased
dividend payouts in every year since 1975.
6
<PAGE> 7
Item 6. - Selected Financial Data
FRISCH'S RESTAURANTS, INC. AND SUBSIDIARIES
SUMMARY OF OPERATIONS
<TABLE>
<CAPTION>
(In Thousands)
----------------------------------------------------------
Revenue 1996 1995 1994 1993 1992
---------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Sales $165,426 $161,429 $157,995 $146,732 $135,412
Other 1,519 1,630 2,070 2,255 2,918
---------- --------- --------- --------- ---------
Total revenue 166,945 163,059 160,065 148,987 138,330
Costs and expenses
Cost of sales
Food and paper 53,123 52,299 51,071 46,795 42,794
Payroll and related 58,572 56,335 52,827 49,741 46,337
Other operating expenses 41,650 40,781 37,792 34,337 31,481
---------- --------- --------- --------- ---------
153,345 149,415 141,690 130,873 120,612
General and administrative 3,745 4,582 5,030 4,701 4,819
Advertising 4,026 4,008 3,873 3,632 3,367
Interest expense 2,411 1,961 1,554 1,341 1,389
---------- --------- --------- --------- ---------
Total costs and expenses 163,527 159,966 152,147 140,547 130,187
---------- --------- --------- --------- ---------
Earnings before income taxes 3,418 3,093 7,918 8,440 8,143
Income taxes
Current 1,438 843 3,553 3,493 3,451
Deferred (330) (108) (711) (445) (604)
---------- --------- --------- --------- ---------
1,108 735 2,842 3,048 2,847
---------- --------- --------- --------- ---------
Net earnings $ 2,310 $ 2,358 $ 5,076 $ 5,392 $ 5,296
========== ========= ========= ========= =========
Primary and fully diluted net earnings
per share of common stock $.34 $.34 $.74 $.78 $.78
========== ========= ========= ========= =========
Dividends Per Share
Cash $.24 $.24 $.24 $.24 $.24
Stock 4% 4% 4% 4% 4%
Other Financial Statistics
Capital expenditures $ 15,362 $ 23,283 $ 18,312 $ 22,823 $ 7,860
Total assets 118,396 115,548 104,349 98,095 86,990
Long-term obligations 34,631 32,696 24,319 18,703 14,583
Shareholders' equity 65,307 64,627 63,830 60,299 56,381
Per share $9.49 $9.39 $9.27 $8.76 $8.27
Return on investment 3.6% 3.7% 8.4% 9.6% 10.1%
Average number of common shares outstanding 6,883 6,882 6,886 6,884 6,821
Percentage increase (decrease) in total revenue 2.4% 1.9% 7.4% 7.7% (4.3%)
Earnings as a percentage of total revenue
Earnings before income taxes 2.0% 1.9% 4.9% 5.7% 5.9%
Net earnings 1.4% 1.4% 3.2% 3.6% 3.8%
</TABLE>
Note: Per share data, except for dividends, are based on the weighted average
number of common shares outstanding.
7
<PAGE> 8
Item 7. - Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
TOTAL REVENUE climbed a modest 2.4%, or $3,886,000 to reach $166,945,000, a
record level for the fourth consecutive year. Fiscal 1996 and the fourth quarter
contained one additional week compared to the prior two years. Without the
benefit of $3,206,000 of revenue contributed during the extra week this year,
the increase, while still a record, would have been .4%. Revenue increases were
1.9% in 1995 and 7.4% in 1994. Total revenue consists of retail sales by
Company-operated restaurants and hotels, and wholesale sales to and fees from
licensed Big Boy restaurants.
Record SALES of $165,426,000 were also posted, increasing 2.5% or $3,997,000, of
which $3,191,000 was added during the extra week. Sales increases were 2.2% in
1995 and 7.7% in 1994. Changes in sales occur when new restaurants are opened,
older restaurants are closed, sales patterns shift in existing restaurants, and
menu prices are changed.
Twenty new Big Boy restaurants have been opened at new locations during the last
three years, including three in 1996. In addition, two replacement restaurant
buildings were opened at existing locations, one each in 1996 and 1995. Many of
the new restaurants were built in markets outside the Company's headquarters
market of Greater Cincinnati and have experienced disappointing sales levels.
Six older, lower volume Big Boy restaurants were closed during the last three
years, including three in 1996. Eight Hardee's ceased operating during the last
three years, six of which were sold in 1996, bringing the Hardee's era of the
Company to an end. The Company operated 103 Big Boy restaurants and two Quality
Hotels at the end of the year.
On a comparable 52 week basis, average sales of a Big Boy restaurant in
operation the entire year decreased 1.3% from $1,393,000 to $1,375,000. Although
four menu price increases were implemented during the last three years, same
store sales declined slightly in 1996, after a moderate decline in 1995 and a
modest increase in 1994. Estimated price increases were 1.4% and 2.0% in the
third and first quarters, respectively, of fiscal 1996, 2.4% in the fourth
quarter of fiscal 1995, and 2.3% late in fiscal 1994. Factors such as the
introduction of new menu items, product sales mix changes after price increases,
marketing strategies emphasizing specific menu items, and competition make the
effect of these price increases difficult to quantify.
OTHER REVENUE has continued to decline due principally to lower franchise fees
and the lack of distributions during the last two years from the Company's
investment in the Cincinnati Reds limited partnership. At the end of 1996, there
were 42 licensed Big Boy restaurants, compared with 71 such restaurants at the
beginning of the three year period. The Company does not expect a significant
reversal of this trend.
The pressure on profit margins continued in 1996. Cost of sales increased
$3,930,000 while revenue rose only $3,886,000. PAYROLL AND RELATED EXPENSES were
the principal cause, rising from 33% of revenue in 1994 to 34.5% in 1995 and
35.1% this year. Competition for employees due to labor shortages in most of the
Company's market areas resulted in higher average hourly rates for restaurant
workers and higher salaries for restaurant managers. Although higher pay rates
lowered employee turnover by 11% in 1996, tight labor markets are likely to
continue in the near term. Favorable claims experience in the Company's self
insurance programs allowed estimates for future obligations to be lowered in the
first quarter of all three years, the largest of which occurred in 1994. The
fourth quarter of 1996 also benefited from a further lowering of these
estimates. The Company has put in place new insurance programs for 1997 that
will result in significantly lower rates for workers' compensation, which will
lower payroll related expenses in 1997.
The Company does not expect the Federal minimum wage legislation that was
recently passed by Congress to have an immediate material effect on earnings due
to current labor market conditions,
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<PAGE> 9
and because of provisions in the bill that freeze the minimum wage paid to
tipped workers at current levels. However, the long-term effects of this bill
will create additional pressure on profit margins.
Lower beef prices helped FOOD AND PAPER COST to decline to 31.8% of revenue this
year from 32.1% in 1995 and from 31.9% in 1994. Although general price levels
have been stable for several years, future beef and other commodity price
fluctuations can not be accurately predicted.
OTHER OPERATING EXPENSES include depreciation, occupancy expenses, training and
opening expenses, various other costs, and gains and losses from dispositions of
operating real estate. These costs have remained stable at 24.9% of revenue in
1996 and 25% in 1995, having risen from 23.6% in 1994. Real estate gains were
included in other operating expenses in all three years. These real estate gains
were more than offset in all three years by higher depreciation and other
charges relating to recent expansion and modernization.
During the last three years, expansion efforts have largely been directed toward
gaining greater market penetration in Indianapolis and Columbus. While these
areas are presently incurring higher operating costs against lower than expected
sales volumes, the Company believes better management now in place, along with
increased customer awareness through effective advertising, will produce
improved economic performance.
Menu prices in all the Company's markets will continue to be increased modestly
in an effort to return margins to normal levels. The Company believes there is
room in its markets to increase current menu prices which are below most of its
competition. A new menu featuring meals built around side dishes such as
macaroni and cheese, mashed potatoes, green beans, carrots and corn has already
been introduced in some of the Company's markets and will be rolled out in all
markets by this fall. This new menu will not add additional low-fat foods since
the Company's customers have not shown any significant preference for these
items, although they are currently available.
The Company is testing a new point of sale system in three of its restaurants.
When this pilot phase is successfully completed, the fully functional system
will be installed in all restaurants. The system is expected to improve service
and sales by correctly entering all orders and by eliminating guest check
pricing errors. Additionally, cost reduction and control should be enhanced
through efficient scheduling of employees, replacement of employee time cards
with precision employee time-keeping functions, in-store inventory control, and
credit card processing.
GENERAL AND ADMINISTRATIVE EXPENSE was $836,000 or 18.3% lower than last year.
Lower executive compensation and gains from the sale of real estate not used in
the business were the principal reasons for the improvement. General and
administrative expense was much higher in 1994 due to the write-off of the
remaining goodwill of the Big Boy licensing rights in the state of Texas.
INTEREST EXPENSE rose 22.9% or $450,000 above last year due to much higher debt
levels that were incurred in 1995 and early in 1996 to complete the fiscal 1995
construction cycle. Average interest rates have remained relatively steady to
slightly higher in 1996. The Company intends to operate within cash flow and to
reduce long-term debt as cash flow permits. Interest expense should level-off or
decline in 1997.
The effective INCOME TAX rate was 32.4% in 1996, compared with 23.8% in 1995 and
35.9% in 1994. This year's tax rate was adversely affected by higher provisions
for state income taxes and lower tax credits, principally the loss of the
Targeted Jobs Tax Credit (TJTC) that expired at the end of calendar year 1994.
Legislation has recently been enacted by Congress that replaces TJTC with a
scaled down version known as the Work Opportunity Tax Credit. While potentially
9
<PAGE> 10
helpful to the Company in the long-run, the near term impact will be minimal.
The effective tax rate in 1994 was adversely affected by a non-deductible
write-off of goodwill.
Looking ahead to 1997, if earnings do not return to earlier levels, the
effective tax rate could increase substantially. Continued lower earnings would
impair the Company's ability to utilize its general business tax credits.
General business tax credits can only be used to the extent that the regular tax
liability exceeds the alternative minimum tax liability.
Liquidity and Capital Resources
During the year, CASH PROVIDED BY OPERATING ACTIVITIES was $12,000,000,
generated principally from net income and depreciation.
INVESTING ACTIVITIES included $15,400,000 in property additions, a reduction of
$7,900,000 from last year. Capital spending consisted of approximately
$11,700,000 for Big Boy operations and $3,700,000 for hotel properties. Proceeds
from the sale of property amounting to $3,900,000 are also included in investing
activities. These proceeds were generated by the sale of six Hardee's
restaurants, five older Big Boy restaurant locations that had been held for sale
since ceasing operations several years ago, the Company's former commissary in
Dallas, Texas, and the sale of investment property pursuant to a purchase option
exercised by a lessee.
FINANCING ACTIVITIES included $8,000,000 in new debt, $4,500,000 of which had
been repaid by the end of the year. Scheduled long-term debt payments of
approximately $2,450,000 were also made, which reduced the net increase in
long-term debt for fiscal 1996 to $1,050,000. The Company also paid dividends in
excess of $1,600,000.
The 1996 construction cycle is underway. It calls for the opening of two new Big
Boy restaurants, introducing a new, smaller building design. The cost to build
and equip each of these units ranges from $1,300,000 to $1,500,000 including
land, a reduction of approximately $200,000 from last year's average new unit
cost. The first of these units opened in April. The cost to build and equip this
restaurant was approximately $250,000 lower than the last unit opened under the
1995 construction cycle. This smaller prototype will allow the Company to reduce
break-even sales for new restaurants and to expand into locations not previously
feasible. Construction of two replacement restaurants should be completed by
September, 1996. At the end of the year, the estimated remaining capital outlay
needed to complete the construction of the other new restaurant and the two
replacement restaurants was $1,800,000. The Company intends to fund these
expenditures out of cash flow. A revolving credit loan is available to meet
additional borrowing requirements.
10
<PAGE> 11
<TABLE>
<CAPTION>
Item 8. - Financial Statements and Supplementary Data Page
<S> <C>
Index to Consolidated Financial Statements
Auditors' Report 11
Consolidated Balance Sheet - June 2, 1996 and May 28, 1995 12-13
Consolidated Statement of Earnings - Three years ended June 2, 1996 14
Consolidated Statement of Cash Flows - Three years ended June 2, 1996 15
Consolidated Statement of Shareholders' Equity - Three years ended June 2, 1996 16
Notes to Consolidated Financial Statements - Three years ended June 2, 1996 17-23
Quarterly Results (Unaudited) 23
</TABLE>
AUDITORS' REPORT
Shareholders
Frisch's Restaurants, Inc.
We have audited the accompanying consolidated balance sheet of Frisch's
Restaurants, Inc. (an Ohio corporation) and Subsidiaries as of June 2, 1996 and
May 28, 1995 and the related consolidated statements of earnings, cash flows,
and shareholders' equity for each of the three years in the period ended June 2,
1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Frisch's
Restaurants, Inc. and Subsidiaries as of June 2, 1996 and May 28, 1995, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended June 2, 1996, in conformity with generally
accepted accounting principles.
GRANT THORNTON LLP
Cincinnati, Ohio
July 10, 1996
11
<PAGE> 12
FRISCH'S RESTAURANTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
June 2, 1996 and May 28, 1995
ASSETS
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Current Assets
Cash $ 134,944 $ 219,650
Receivables
Trade 1,107,394 986,360
Other 963,347 560,122
Inventories 3,725,755 3,945,660
Prepaid expenses and sundry deposits 1,280,006 1,705,463
Prepaid and deferred income taxes 1,352,315 723,523
------------ ------------
Total current assets 8,563,761 8,140,778
Property and Equipment - At Cost
Land and improvements 24,712,017 23,623,581
Buildings 54,871,830 53,292,215
Equipment and fixtures 53,876,413 53,466,613
Leasehold improvements and buildings on leased land 24,640,369 24,404,208
Capitalized leases 9,632,186 9,640,938
Construction in progress 2,393,653 3,226,921
------------ ------------
170,126,468 167,654,476
Less accumulated depreciation and amortization 70,886,768 69,596,486
------------ ------------
Net property and equipment 99,239,700 98,057,990
Other Assets
Intangible assets 761,017 765,092
Investments in land - at cost 2,001,135 641,764
Property held for sale 1,766,068 1,966,681
Net cash surrender value-life insurance policies 3,447,360 3,162,902
Deferred income taxes 551,072 409,643
Other 2,065,728 2,403,243
------------ ------------
Total other assets 10,592,380 9,349,325
------------ ------------
$118,395,841 $115,548,093
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
12
<PAGE> 13
FRISCH'S RESTAURANTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
June 2, 1996 and May 28, 1995
LIABILITIES
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Current Liabilities
Long-term obligations due within one year
Long-term debt $ 2,162,860 $ 2,206,048
Obligations under capitalized leases 467,706 466,035
Self insurance 1,862,957 1,221,460
Accounts payable 8,109,024 8,572,166
Accrued expenses 5,805,262 5,758,656
Income taxes 50,161 -
------------ ------------
Total current liabilities 18,457,970 18,224,365
Long-Term Obligations
Long-term debt 20,098,890 18,437,837
Obligations under capitalized leases 6,229,351 6,409,216
Self insurance 5,879,111 5,641,927
Other 2,423,485 2,207,356
------------ ------------
Total long term obligations 34,630,837 32,696,336
Commitments - -
Shareholders' Equity
Capital stock
Preferred stock - authorized, 3,000,000 shares
without par value; none issued - -
Common stock - authorized, 12,000,000 shares
without par value; issued, 7,080,195 and 6,808,939
shares - stated value - $1 7,080,195 6,808,939
Additional contributed capital 56,794,272 54,624,224
------------ ------------
63,874,467 61,433,163
Retained earnings 4,860,713 6,622,375
------------ ------------
68,735,180 68,055,538
Less cost of treasury stock (197,586 and 189,987 shares) 3,428,146 3,428,146
------------ ------------
Total shareholders' equity 65,307,034 64,627,392
------------ ------------
$118,395,841 $115,548,093
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
13
<PAGE> 14
FRISCH'S RESTAURANTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF EARNINGS
Three years ended June 2, 1996
<TABLE>
<CAPTION>
1996 1995 1994
------------- ------------- -------------
<S> <C> <C> <C>
Revenue
Sales $165,425,731 $161,429,199 $157,995,557
Other 1,519,025 1,629,985 2,069,787
------------- ------------- -------------
Total revenue 166,944,756 163,059,184 160,065,344
Costs and expenses
Cost of sales
Food and paper 53,123,133 52,298,714 51,070,559
Payroll and related 58,571,618 56,334,783 52,827,393
Other operating costs 41,650,300 40,781,489 37,792,524
------------- ------------- -------------
153,345,051 149,414,986 141,690,476
General and administrative 3,745,047 4,581,541 5,030,018
Advertising 4,025,872 4,008,237 3,872,710
Interest 2,411,313 1,961,084 1,554,168
------------- ------------- -------------
Total costs and expenses 163,527,283 159,965,848 152,147,372
------------- ------------- -------------
Earnings before income taxes 3,417,473 3,093,336 7,917,972
Income taxes
Current
Federal 1,366,294 1,169,007 3,403,354
Less tax credits (290,884) (436,358) (551,624)
State and municipal 362,549 110,246 701,878
Deferred (330,225) (107,930) (711,210)
------------- ------------- -------------
1,107,734 734,965 2,842,398
------------- ------------- -------------
NET EARNINGS $ 2,309,739 $ 2,358,371 $ 5,075,574
============= ============= =============
Primary and fully diluted net earnings per share $.34 $.34 $.74
============= ============= =============
Weighted average number of primary and fully
diluted common shares and equivalents
assumed outstanding during the year 6,882,609 6,882,391 6,885,993
============= ============= =============
</TABLE>
The accompanying notes are an integral part of these statements.
14
<PAGE> 15
FRISCH'S RESTAURANTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
Three years ended June 2, 1996
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash flows provided by (used in) operating activities:
Net income $ 2,309,739 $ 2,358,371 $ 5,075,574
Adjustments to reconcile net income
to net cash from operating activities:
Depreciation and amortization 10,350,326 9,821,080 9,289,290
(Gain) loss on disposition of assets (829,854) (345,380) 30,044
Write off Texas goodwill - - 886,447
Changes in assets and liabilities:
(Increase) decrease in receivables (524,259) 858,036 (282,222)
Decrease (increase) in inventories 219,905 (8,621) (348,890)
Decrease in prepaid expenses and sundry deposits 425,457 83,465 462,468
Increase in prepaid and deferred income taxes (770,221) (509,494) (1,001,096)
(Decrease) increase in accounts payable (463,142) 162,257 (119,749)
Increase in accrued expenses 46,606 128,095 165,976
Increase (decrease) in accrued income taxes 50,161 (36,102) (68,819)
Decrease (increase) in other assets 111,697 321,374 (14,041)
Increase in self insured obligations 878,681 1,077,583 314,735
Increase (decrease) in other liabilities 216,129 336,239 (84,221)
------------ ------------ ------------
Net cash provided by operating activities 12,021,225 14,246,903 14,305,496
Cash flows provided by (used in) investing activities:
Additions to property (15,362,001) (23,283,499) (18,312,487)
Proceeds from disposition of property 3,941,466 2,245,680 2,654,072
Increase in other assets (104,970) (524,789) (486,200)
------------ ------------ ------------
Net cash (used in) investing activities (11,525,505) (21,562,608) (16,144,615)
Cash flows provided by (used in) financing activities:
Proceeds from borrowings 8,000,000 10,385,000 4,000,000
Payment of long-term debt and capital lease obligations (6,950,329) (1,489,525) (961,863)
Cash dividends paid (1,630,097) (1,570,418) (1,518,263)
Treasury share transactions - 9,398 (26,532)
------------ ------------ ------------
Net cash (used in) provided by financing activities (580,426) 7,334,455 1,493,342
------------ ------------ ------------
Net (decrease) increase in cash and equivalents (84,706) 18,750 (345,777)
Cash and equivalents at beginning of year 219,650 200,900 546,677
------------ ------------ ------------
Cash and equivalents at end of year $ 134,944 $ 219,650 $ 200,900
============ ============ =============
Supplemental disclosures:
Stock dividends issued $ 2,441,304 $ 2,706,460 $ 3,855,228
Interest paid 2,549,352 1,872,183 1,548,826
Income taxes paid 2,319,962 1,419,798 3,914,978
Income tax refunds received 492,168 139,237 2,665
Lease transactions capitalized 390,000 - 179,640
</TABLE>
The accompanying notes are an integral part of these statements.
15
<PAGE> 16
FRISCH'S RESTAURANTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
Three years ended June 2, 1996
<TABLE>
<CAPTION>
Common stock
at $1 per share - Additional
Shares and contributed Retained Treasury
amount capital earnings shares Total
------ ------- -------- ------ -----
<S> <C> <C> <C> <C> <C>
Balance at May 30, 1993 $6,297,536 $48,591,962 $8,838,799 ($3,429,035) $60,299,262
Net earnings for the year - - 5,075,574 - 5,075,574
Treasury shares reissued - (8,413) - 52,973 44,560
Treasury shares acquired - - - (71,092) (71,092)
Dividends
Cash - $.24 per share - - (1,518,263) - (1,518,263)
Stock - 4% 250,665 3,604,563 (3,855,228) - -
---------- ----------- ---------- ----------- -----------
Balance at May 29, 1994 6,548,201 52,188,112 8,540,882 (3,447,154) 63,830,041
Net earnings for the year - - 2,358,371 - 2,358,371
Treasury shares reissued - (9,610) - 23,771 14,161
Treasury shares acquired - - - (4,763) (4,763)
Dividends
Cash - $.24 per share - - (1,570,418) - (1,570,418)
Stock - 4% 260,738 2,445,722 (2,706,460) - -
---------- ----------- ---------- ----------- -----------
Balance at May 28, 1995 6,808,939 54,624,224 6,622,375 (3,428,146) 64,627,392
Net earnings for the year - - 2,309,739 - 2,309,739
Dividends
Cash - $.24 per share - - (1,630,097) - (1,630,097)
Stock - 4% 271,256 2,170,048 (2,441,304) - -
---------- ----------- ---------- ----------- -----------
Balance at June 2, 1996 $7,080,195 $56,794,272 $4,860,713 ($3,428,146) $65,307,034
========== =========== ========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
16
<PAGE> 17
FRISCH'S RESTAURANTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three years ended June 2, 1996
NOTE A - ACCOUNTING POLICIES
A summary of the Company's significant accounting policies consistently applied
in the preparation of the accompanying consolidated financial statements
follows:
Consolidation Practices
The consolidated financial statements include the accounts of Frisch's
Restaurants, Inc. and all of its subsidiaries.
Cash and Cash Equivalents
Highly liquid investments with original maturities of three months or less are
considered to be cash equivalents. Outstanding checks in the amount of $690,462
were included in accounts payable at May 28, 1995.
Receivables
The Company values its trade notes and accounts receivable on the reserve
method. The reserve balance was immaterial for the years ended June 2, 1996 and
May 28, 1995.
Inventories
Inventories, comprised principally of food items, are valued at the lower of
cost, determined by the first-in, first-out method, or market.
Income Taxes
Taxes are provided on all items included in the statement of earnings regardless
of when such items are reported for tax purposes.
Property and Equipment
Depreciation is provided principally on the straight-line method over the
estimated service lives of the assets.
Intangible and Other Assets
The excess of cost over equity in net assets of subsidiaries acquired prior to
November 1, 1970, is not currently being amortized because, in the opinion of
management, the value has not decreased.
Due to changed business conditions, plans for the development of Company
operated or franchised Big Boy restaurants in the state of Texas ceased during
the year ended May 29, 1994. Accordingly, the remaining goodwill of $886,447
ascribed to the acquisition of Big Boy licensing rights for Texas was charged
against earnings during the year ended May 29, 1994.
Net cash surrender value of life insurance policies includes the cash values of
two policies written by a life insurance company that is under regulatory
supervision pursuant to an Order of Rehabilitation on August 12, 1994. There are
restraints which restrict policy surrenders, loans and reductions in face
amount. This company's mortgage portfolio has been sold, significantly improving
the liquidity of its estate, thus facilitating the anticipated transfer of
policy liabilities to creditworthy carriers. Although adjustments may
17
<PAGE> 18
become necessary to values in existence prior to August 12, 1994, the
rehabilitator has concluded that policyholders' account values should be fully
preserved.
Advertising Costs
Advertising costs are charged to expense as incurred. There are no significant
advertising costs on the balance sheet for the years ended June 2, 1996 and May
28, 1995.
New Store Opening Costs
New store opening costs are capitalized and amortized over a one year period
from the date each new store opened. Items capitalized include new employee
training costs, the cost of an employee team to coordinate the opening and the
cost of certain replacement items such as uniforms and china.
Benefit Plans
The Company has two defined benefit pension plans covering substantially all of
its employees. The benefits are based on years-of-service and other factors. The
Company's funding policy is to contribute annually the maximum amount that can
be deducted for federal income tax purposes. Contributions are intended to
provide not only for benefits attributed to service-to-date, but also for those
expected to be earned in the future. The Company also has a non-qualified
supplemental retirement plan for certain key employees.
Self Insurance
The Company self-insures its casualty and a portion of its employee medical
coverages. Self insurance costs are accrued based on management's estimate for
future claims. There is insurance in place which provides for catastrophic
losses.
Revenue Recognition
Franchise fees, based on sales of franchisees, are recorded on the accrual
method as earned. There was no significant income from initial fees during the
last three years.
Fair Value of Financial Instruments
The carrying value of the Company's financial instruments approximates fair
value.
Investment in Sports Franchise
The Company's limited partnership investment in the Cincinnati Reds is carried
at cost. An income distribution of $254,500 was recorded in earnings in 1994. No
distributions were received in 1996 or 1995.
Fiscal Year
The Company's fiscal year ends on the Sunday nearest to the last day of May.
Fiscal year 1996 was comprised of 53 weeks compared with 52 weeks for fiscal
years 1995 and 1994.
Business Segments
The Company operates principally in the food service industry and additionally
operates two hotels. During the last three years, restaurant operations have
constituted a dominant segment in accordance with SFAS statement No. 14,
"Financial Reporting for Segments of a Business Enterprise."
18
<PAGE> 19
Use of Estimates
The preparation of financial statements requires management to use estimates and
assumptions in certain areas that affect the amounts reported. These judgments
are based on knowledge and experience about past and current events, and
assumptions about future events. Although management believes its estimates are
reasonable and adequate, future events affecting them may differ markedly from
current judgment.
Some of the more significant areas requiring the use of estimates include self
insurance liabilities, deferred store closing costs, value of goodwill, real
estate held for sale, and deferred executive compensation.
New Accounting Standards
The Company is required to adopt Financial Accounting Standard Number 121 (SFAS
121), "Accounting for the Impairment of Long-Lived Assets and for Long Lived
Assets to be Disposed of" and SFAS 123 "Accounting for Stock Based Compensation"
in fiscal year 1997.
SFAS 121 requires impairment losses to be recognized on long-lived assets,
whether used in the operation of the business or held for disposal, when events
or changes in circumstances indicate that the assets' carrying amount may not be
fully recoverable. The Company considers a history of cash flow losses in
established areas to be its primary indicator of potential impairment. Based on
current information, the Company does not believe the effect upon adoption will
be material.
SFAS 123 establishes new accounting and reporting standards for stock based
compensation plans. Companies may elect to adopt this standard using a
fair-value based method or continue using the intrinsic value method of
measuring compensation expense prescribed under the current guidance of
Accounting Principles Board Opinion Number 25 (APB 25).
Since the Company will elect to continue using the intrinsic value method, SFAS
123 will not affect the Company's statement of earnings or financial position.
SFAS 123 requires companies electing to continue using the rules of APB 25 to
make pro forma disclosures of net income and earnings per share as though the
fair value method had been elected. Pro forma disclosures of future options
granted and stock issued will be reflected in the footnotes of the Company's
consolidated financial statements when required.
NOTE B - LONG-TERM DEBT
<TABLE>
<CAPTION>
1996 1995
--------------------------- ---------------------------
Payable Payable Payable Payable
within after within after
one year one year one year one year
(in thousands)
<S> <C> <C> <C> <C>
Revolving credit loan $ - $11,500 $ - $ 8,000
Term loan 1,625 8,375 1,625 9,875
Other 538 224 581 563
-------- ------- --------- ---------
$ 2,163 $20,099 $ 2,206 $ 18,438
========= ======= ========= =========
</TABLE>
The portion payable after one year matures as follows:
<TABLE>
<CAPTION>
1996 1995
(in thousands)
<S> <C> <C>
Period ending in 1997 $ - $ 1,839
1998 1,724 1,724
1999 1,500 9,500
2000 13,000 1,500
2001 1,500 1,500
Subsequent to 2001 2,375 2,375
--------- --------
$ 20,099 $ 18,438
========= =========
</TABLE>
19
<PAGE> 20
The revolving credit loan is a $20,000,000 line of credit, $11,500,000 of which
is outstanding at June 2, 1996. This credit loan matures on September 1, 1999,
unless extended. Interest is payable quarterly determined by various indices,
currently 6.26%. The term loan, converted from a revolving credit loan during
the year ended May 28, 1995, is payable in monthly installments of $125,000
through December 31, 2002. Interest is also payable monthly at a rate equal to
the prime rate up to a maximum of 7.5% through December 31, 1997. The rate for
the final five years shall also be equal to the prime rate, not to exceed 8.5%.
These agreements contain covenants relating to net worth, interest expense, debt
and capitalization changes, investments, leases, and restrictions on pledging
certain restaurant operating assets.
The Company also has a $2,494,000 outstanding letter of credit in support of its
self insurance.
Other debt includes industrial revenue bonds that were issued in 1978, payable
in annual installments of $200,000 through 1998 and bear interest at 7.4%.
Property and equipment having a book value at June 2, 1996 of $3,150,000 is
pledged as collateral for the bonds.
NOTE C - LEASED PROPERTY
The Company has capitalized the leased property of 50% of its non-owned
restaurant locations. The majority of the leases are for fifteen or twenty years
and contain renewal options for ten to fifteen years. Delivery equipment is held
under capitalized leases expiring during periods to 2001. The Company also
occupies office space under an operating lease which expires during 2003.
An analysis of the leased property follows:
<TABLE>
<CAPTION>
Asset balances at
1996 1995
--------------------------
(in thousands)
<S> <C> <C>
Restaurant facilities $ 8,762 $ 9,161
Equipment 870 480
--------- --------
9,632 9,641
Less accumulated amortization (5,154) (5,057)
--------- --------
$ 4,478 $ 4,584
========= ========
</TABLE>
Total rental expense of operating leases was approximately $1,575,000 in 1996,
$1,675,000 in 1995 and $1,828,000 in 1994.
Future minimum lease payments under capitalized leases and operating leases
having an initial or remaining term of one year or more follow:
<TABLE>
<CAPTION>
Capitalized Operating
Year ending in: leases leases
----------- ---------
(in thousands)
<S> <C> <C> <C>
1997 $ 1,181 $ 1,283
1998 1,098 1,242
1999 1,036 1,075
2000 981 966
2001 878 855
2002 to 2020 7,028 4,135
--------- -------
Total 12,202 $ 9,556
=======
Amount representing interest (5,505)
----------
Present value of obligations 6,697
Portion due within one year (468)
----------
Long-term obligations $ 6,229
==========
</TABLE>
20
<PAGE> 21
NOTE D - INCOME TAXES
The variations between the statutory Federal rate and the effective rates are
summarized as follows:
<TABLE>
<CAPTION>
Percent of pretax earnings
----------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Statutory U.S. Federal income tax 34.0 34.0 34.0
Tax credits (8.5) (14.1) (7.0)
State and municipal income taxes
(net of Federal tax benefit) 7.0 2.4 5.8
Non-deductible write off of goodwill - - 3.9
Other (.1) 1.5 (.8)
-------- -------- -----
Effective Rate 32.4 23.8 35.9
======== ======== ======
</TABLE>
The components of the deferred tax asset (liability) were as follows (in
thousands):
<TABLE>
<CAPTION>
1996 1995
--------- ------
<S> <C> <C>
Deferred compensation $ 623 $ 593
Partnership interest - 266
Compensated absences 563 546
Self insurance 2,442 2,231
Other 160 131
--------- -------
Total deferred tax assets 3,788 3,767
New store opening cost (118) (275)
Investment in tax benefits (731) (846)
Depreciation (1,545) (1,481)
Other (384) (554)
--------- -------
Total deferred tax liabilities (2,778) (3,156)
--------- -------
Net deferred tax asset $ 1,010 $ 611
========= =======
</TABLE>
NOTE E - CAPITAL STOCK
Shareholders approved the 1993 Stock Option Plan on October 4, 1993. The plan
authorizes the grant of stock options for up to 540,800 shares of the Common
Stock of the Company for a ten year period beginning May 9, 1994. Shares may be
optioned at not less than seventy-five percent of the fair market value on the
date granted and may include stock appreciation rights. No options have been
granted under the 1993 plan.
The 1984 Stock Option Plan expired on May 8, 1994. Outstanding options are
exercisable within ten years from the date of grant. The exercise price is the
fair market value as of the date granted.
The outstanding stock options for the 1984 plan follow:
<TABLE>
<CAPTION>
Option Price
------------------------------------------
Shares Per Share Total
------------------- -------------------- -------------------
<S> <C> <C> <C>
Chairman 82,110 $17.48 $1,435,283
President 97,975 $14.95-$21.66 1,956,804
Other key employees 79,338 $17.48 1,386,828
</TABLE>
21
<PAGE> 22
The Company also has reserved 56,243 shares for issuance under the Frisch's
Executive Savings Plan. Shares reserved under these plans have been adjusted for
stock dividends. There are no other outstanding options, warrants or rights.
NOTE F - PENSION PLANS
Net pension expense included the following components (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- -------
<S> <C> <C> <C>
Service cost - benefits earned during the period $ 1,022 $ 1,008 $ 1,039
Interest cost on projected benefit obligations 939 978 988
Investment gain on plan assets (3,032) (2,001) (1,288)
Net amortization and deferral 1,439 359 (418)
--------- --------- ---------
Net periodic pension cost $ 368 $ 344 $ 321
========= ========= ========
</TABLE>
The following table sets forth the plans' funded status and amounts recognized
in the Company's balance sheet at June 2, 1996 and May 28, 1995 (in thousands):
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Plan assets at fair market value, primarily marketable securities and insurance funds $18,597 $16,451
------- -------
Actuarial present value of benefit obligations:
Vested benefits 9,895 8,300
Non vested benefits 802 823
------- -------
Accumulated benefit obligations 10,697 9,123
Effect of projected future salary increases 2,997 3,201
------- -------
Projected benefit obligations 13,694 12,324
------- -------
Plan assets in excess of projected benefit obligations (including approximately
$369 at 1996 and $360 at 1995 withdrawable by participants upon demand) 4,903 4,127
Unrecognized net gains (4,349) (3,259)
Unrecognized prior service cost 641 599
Unrecognized net transition (assets) (1,421) (1,658)
------- --------
Net accrued pension cost included in the balance sheet $ (226) $ (191)
======= =======
</TABLE>
Assumptions used to develop net periodic pension cost and the actuarial present
value of projected benefit obligations:
<TABLE>
<CAPTION>
1996 1995 1994
--------- -------- ------
<S> <C> <C> <C>
Expected long-term rate of return on plan assets 8.50% 8.50% 8.50%
Weighted average discount rate 7.25 7.25 7.25
Rate of increase in compensation levels 5.50 5.50 5.50
</TABLE>
22
<PAGE> 23
NOTE G - EARNINGS PER SHARE
Earnings per common share are based on the weighted average number of common
shares outstanding during the year (6,882,609 in 1996, 6,882,391 in 1995 and
6,885,993 in 1994). Stock options outstanding during the three years did not
have a material dilutive effect on earnings per share.
QUARTERLY RESULTS (UNAUDITED)
<TABLE>
<CAPTION>
Year Ended June 2, 1996 Year Ended May 28, 1995
------------------------------------------- -------------------------------------------
(In Thousands) (In Thousands)
------------------------------- -------------------------------
Net Earnings Net Earnings
Operating earnings (loss) Operating earnings (loss)
Revenue profit (loss) per share Revenue profit (loss) per share
------- ------ ------ --------- ------- ------ ------ ---------
<C> <C> <C> <C> <C> <C> <C> <C> <C>
1st Quarter $ 52,666 $ 4,409 $ 883 $.13 $ 50,836 $ 4,820 $1,203 $.17
2nd Quarter 39,205 3,070 788 .11 38,873 3,626 1,108 .16
3rd Quarter 33,996 1,055 (444) (.06) 34,670 791 (752) (.11)
4th Quarter 41,078 3,547 1,083 .16 38,680 2,777 799 .12
-------- ------- ------ ---- -------- ------- ------ ----
Year's Total $166,945 $12,081 $2,310 $.34 $163,059 $12,014 $2,358 $.34
======== ======= ====== ==== ======== ======= ====== ====
</TABLE>
The first quarter of each year contained sixteen weeks. The second and third
quarters of each year contained twelve weeks. The fourth quarter of fiscal 1996
contained thirteen weeks compared to twelve weeks in fiscal 1995.
Net earnings for the first quarters of 1996 and 1995 and the fourth quarter of
1996 included favorable adjustments of $220,000, $440,000, and $330,000
respectively, resulting from lower than anticipated claims in the Company's self
insured casualty insurance program.
The fourth quarter of 1995 included a $160,000 favorable adjustment of income
tax expense to reflect the actual effective rate for the year.
23
<PAGE> 24
Item 9. - Disagreements on Accounting and Financial Disclosure
Not applicable
PART III
(Items 10 through 13)
Item 10. - Directors and Executive Officers of the Registrant
Information regarding directors is incorporated by reference to the Registrant's
proxy statement to be filed with the Securities and Exchange Commission within
120 days after June 2, 1996.
Information regarding executive officers appears at the end of Part I.
Item 11. - Executive Compensation
Incorporated by reference to the Registrant's proxy statement to be filed with
the Securities and Exchange Commission within 120 days after June 2, 1996.
Item 12. - Security Ownership of Certain Beneficial Owners and Management
Incorporated by reference to the Registrant's proxy statement to be filed with
the Securities and Exchange Commission within 120 days after June 2, 1996.
Item 13. - Certain Relationships and Related Transactions
Incorporated by reference to the Registrant's proxy statement to be filed with
the Securities and Exchange Commission within 120 days after June 2, 1996.
PART IV
Item 14. - Exhibits, Financial Statement Schedules, and Reports on Form 8-K
a). List of documents filed as part of this report
1. Financial Statements
All financial statements of the Registrant as set forth under Part
II, Item 8
2. Financial Statement Schedules
All schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are
not required under the related instructions or are not applicable
and, therefore, have been omitted.
3. Exhibits
(3) Articles of Incorporation and By-Laws
24
<PAGE> 25
(3) (a) Exhibit (3)(a) to the Registrant's Form 10-K Annual Report
for 1993, being The Third Amended Articles of Incorporation, is
incorporated herein by reference.
(3) (b) A portion of Exhibit 3 to the Registrant's Form 10-K
Annual Report for 1985, being the Code of Regulations, is
incorporated herein by reference .
(10) Material Contracts
(10) (a) Exhibit (10)(a) to the Registrant's Form 10-K Annual
Report for 1995, being employment contract between the Registrant
and Jack C. Maier effective May 29,1995, is incorporated herein by
reference.
(10) (b) Exhibit (10)(b) to the Registrant's Form 10-K Annual
Report for 1995, being employment contract between the Registrant
and Craig F. Maier effective May 29, 1995, is incorporated herein
by reference.
(10) (c) Exhibit 10(a) to the Registrant's Form 10-Q Quarterly
Report for September 17, 1995, being the Frisch's Executive Savings
Plan effective November 15, 1993, is incorporated herein by
reference.
(10) (d) Exhibit 10(b) to the Registrant's Form 10-Q Quarterly
Report for September 17, 1995, being the Frisch's Executive
Retirement Plan effective June 1, 1994, is incorporated herein by
reference.
(10) (e) Exhibit 10(a) to the Registrant's Form 10-K Annual Report
for 1994, being the 1993 Stock Option Plan (Appendix A to the
Registrant's Proxy Statement dated August 24, 1993), is
incorporated herein by reference.
(10) (f) Exhibit (10)(a) to the Registrant's Form 10-K Annual
Report for 1990, being employment contract between the Registrant
and Jack C. Maier dated July 20, 1990, is incorporated herein by
reference.
(10) (g) Exhibit (10)(e) to the Registrant's Form 10-K Annual
Report for 1985, being the 1984 Stock Option Plan, is incorporated
herein by reference.
(10) (h) Exhibit (10)(f) to the Registrant's Form 10-K Annual
Report for 1990, being First Amendment to the 1984 Stock Option
Plan, is incorporated herein by reference.
(10) (i) Exhibit (10)(g) to the Registrant's Form 10-K Annual
Report for 1990, being Agreement between the Registrant and Craig
F. Maier dated November 21, 1989, is incorporated herein by
reference.
(10) (j) Exhibit (10)(d) to the Registrant's Form 10-K Annual
Report for 1984, being agreement between the Registrant and Jack C.
Maier dated August 3, 1984, is incorporated herein by reference.
There are identical agreements dated August 3, 1984 between the
Registrant and Louis J. Ullman and Marvin G.
Fields.
(10) (k) Exhibit (10)(f) to the Registrant's amended Form 10-K
Annual Report for 1988, being the Restated and Amended Area
Franchise Agreement between Elias Brothers Restaurants, Inc. and
the Registrant, is incorporated herein by reference.
25
<PAGE> 26
(21) Subsidiaries of the Registrant
(27) Financial Data Schedule
(b) No reports on Form 8-K were filed during the quarter ended June 2, 1996.
26
<PAGE> 27
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.
FRISCH'S RESTAURANTS, INC.
(Registrant)
By Louis J. Ullman August 6, 1996
----------------------- --------------
Louis J. Ullman Date
Senior Vice President-Finance
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the date indicated:
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
Chairman of the Board and Director
Jack C. Maier (A Principal Executive Officer) August 6, 1996
- --------------------------- -----------------
Jack C. Maier
President and Director
Craig F. Maier (A Principal Executive Officer) August 6, 1996
- --------------------------- -----------------
Craig F. Maier
Senior Vice President-Finance and Director
Louis J. Ullman (Principal Financial and Accounting Officer) August 6, 1996
- --------------------------- -----------------
Louis J. Ullman
Marvin G. Fields Director August 6, 1996
- --------------------------- -----------------
Marvin G. Fields
Blanche F. Maier Director August 6, 1996
- --------------------------- -----------------
Blanche F. Maier
Alfred M. Cohen Director August 22, 1996
- --------------------------- -----------------
Alfred M. Cohen
Daniel W. Geeding Director August 6, 1996
- --------------------------- -----------------
Daniel W. Geeding
William A. Mauch Director August 6, 1996
- --------------------------- -----------------
William A. Mauch
</TABLE>
27
<PAGE> 1
EXHIBIT 21
Subsidiaries
<TABLE>
<CAPTION>
State of
Corporate Name Incorporation
Subsidiaries of Registrant:
<S> <C> <C>
Frisch Kentucky, Inc. Kentucky
Frisch Indiana, Inc. Indiana
Frisch Germantown Road, Inc. Ohio
Frisch Florida, Inc. Florida
Kip's of Oklahoma, Inc. Oklahoma
Frisch Ohio, Inc. Ohio
</TABLE>
28
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The balance sheet and statement of earnings of Frisch's Restaurants Inc. and
subsidiaries.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-02-1996
<PERIOD-START> MAY-29-1995
<PERIOD-END> JUN-02-1996
<CASH> 134,944
<SECURITIES> 0
<RECEIVABLES> 2,070,741
<ALLOWANCES> 0
<INVENTORY> 3,725,755
<CURRENT-ASSETS> 8,563,761
<PP&E> 170,126,468
<DEPRECIATION> 70,886,768
<TOTAL-ASSETS> 118,395,841
<CURRENT-LIABILITIES> 18,457,970
<BONDS> 26,328,241
0
0
<COMMON> 7,080,195
<OTHER-SE> 58,226,839
<TOTAL-LIABILITY-AND-EQUITY> 118,395,841
<SALES> 165,425,731
<TOTAL-REVENUES> 166,944,756
<CGS> 153,345,051
<TOTAL-COSTS> 153,345,051
<OTHER-EXPENSES> 7,770,919
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,411,313
<INCOME-PRETAX> 3,417,473
<INCOME-TAX> 1,107,734
<INCOME-CONTINUING> 2,309,739
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,309,739
<EPS-PRIMARY> .34
<EPS-DILUTED> .34
</TABLE>
