<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
Quarterly Report Under Section 13 or 15 (d)
of the Securities Exchange Act of 1934
FOR QUARTER ENDED MARCH 3, 1996 COMMISSION FILE NUMBER 1-7323
FRISCH'S RESTAURANTS, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
OHIO 31-0523213
- -------------------------------- ---------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2800 GILBERT AVENUE, CINCINNATI, OHIO 45206
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 513-961-2660.
------------
Not Applicable
- --------------------------------------------------------------------------------
Former name, former address and former fiscal year, if changed since
last report.
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
--------- ---------
The total number of shares outstanding of the issuer's no par common stock, as
of March 27, 1996 was:
6,882,609
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF EARNINGS .............. 3
CONSOLIDATED BALANCE SHEET ...................... 4 - 5
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY .. 6
CONSOLIDATED STATEMENT OF CASH FLOWS ............ 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ...... 8 - 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS ............. 13 - 14
PART II - OTHER INFORMATION ......................................... 14
</TABLE>
<PAGE> 3
FRISCH'S RESTAURANTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF EARNINGS
(UNAUDITED)
<TABLE>
<CAPTION>
Forty Weeks Ended Twelve Weeks Ended
--------------------------- ---------------------------
March 3, March 5, March 3, March 5,
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUE
Sales $124,795,224 $123,095,656 $ 33,711,105 $ 34,323,812
Other 1,071,510 1,283,290 284,284 346,208
------------ ------------ ------------ ------------
Total revenue 125,866,734 124,378,946 33,995,389 34,670,020
COSTS AND EXPENSES
Cost of sales
Food and paper 39,993,957 39,713,999 11,130,427 11,400,622
Payroll and related 44,359,358 42,744,513 12,361,990 12,486,542
Other operating costs 31,908,097 31,400,516 9,163,482 9,645,570
------------ ------------ ------------ ------------
116,261,412 113,859,028 32,655,899 33,532,734
General and administrative 2,924,195 3,737,557 677,354 1,209,019
Advertising 3,089,400 3,048,821 821,636 847,580
Interest 1,840,173 1,506,513 546,779 530,901
------------ ------------ ------------ ------------
Total costs and expenses 124,115,180 122,151,919 34,701,668 36,120,234
------------ ------------ ------------ ------------
Earnings (loss) before income taxes 1,751,554 2,227,027 (706,279) (1,450,214)
INCOME TAXES 525,000 668,000 (262,000) (698,000)
------------ ------------ ------------ ------------
NET EARNINGS (LOSS) $ 1,226,554 $ 1,559,027 ($ 444,279) ($ 752,214)
============ ============ ============ ============
Primary and fully diluted net earnings (loss)
per share of common stock $ .18 $ .23 ($ .06) ($ .11)
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these statements
3
<PAGE> 4
FRISCH'S RESTAURANTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
March 3, May 28,
1996 1995
(unaudited)
------------ ------------
<S> <C> <C>
CURRENT ASSETS
Cash $ 520,472 $ 219,650
Receivables
Trade 1,087,839 986,360
Other 479,407 560,122
Inventories 4,044,474 3,945,660
Prepaid expenses and sundry deposits 1,658,341 1,705,463
Prepaid and deferred income taxes 1,801,228 723,523
------------ ------------
Total current assets 9,591,761 8,140,778
PROPERTY AND EQUIPMENT - AT COST
Land and improvements 24,562,833 23,623,581
Buildings 54,894,386 53,292,215
Equipment and fixtures 53,800,886 53,466,613
Leasehold improvements and buildings on leased land 25,138,307 24,404,208
Capitalized leases 9,682,186 9,640,938
Construction in progress 2,054,353 3,226,921
------------ ------------
170,132,951 167,654,476
Less accumulated depreciation and amortization 72,101,345 69,596,486
------------ ------------
Net property and equipment 98,031,606 98,057,990
OTHER ASSETS
Intangible assets 761,958 765,092
Investments in land - at cost 2,261,638 641,764
Property held for sale 1,068,949 1,966,681
Net cash surrender value-life insurance policies 3,416,331 3,162,902
Deferred income taxes 409,643 409,643
Other 2,588,320 2,403,243
------------ ------------
Total other assets 10,506,839 9,349,325
------------ ------------
$118,130,206 $115,548,093
============ ============
</TABLE>
The accompanying notes are an integral part of these statements
4
<PAGE> 5
LIABILITIES
<TABLE>
<CAPTION>
March 3, May 28,
1996 1995
(unaudited)
------------ ------------
<S> <C> <C>
CURRENT LIABILITIES
Long-term obligations due within one year
Long-term debt $ 1,835,910 $ 2,206,048
Obligations under capitalized leases 499,031 466,035
Self insurance 2,034,800 1,221,460
Accounts payable 8,332,094 8,572,166
Accrued expenses 5,369,776 5,758,656
------------ ------------
Total current liabilities 18,071,611 18,224,365
LONG-TERM OBLIGATIONS
Long-term debt 20,709,134 18,437,837
Obligations under capitalized leases 6,351,054 6,409,216
Self insurance 5,996,762 5,641,927
Other 2,364,840 2,207,356
------------ ------------
Total long term obligations 35,421,790 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- 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 4,190,484 6,622,375
------------ ------------
68,064,951 68,055,538
Less cost of treasury stock (197,586 and 189,987 shares) 3,428,146 3,428,146
------------ ------------
Total shareholders' equity 64,636,805 64,627,392
------------ ------------
$118,130,206 $115,548,093
============ ============
</TABLE>
5
<PAGE> 6
FRISCH'S RESTAURANTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FORTY WEEKS ENDED MARCH 3, 1996 AND MARCH 5, 1995
(UNAUDITED)
<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 29, 1994 $6,548,201 $ 52,188,112 $ 8,540,882 ($3,447,154) $ 63,830,041
Net earnings for forty weeks -- -- 1,559,027 -- 1,559,027
Treasury shares reissued -- (9,610) -- 23,771 14,161
Treasury shares acquired -- -- -- (4,763) (4,763)
Dividends
Cash - $.18 per share -- -- (1,173,281) -- (1,173,281)
Stock - 4% 260,738 2,445,722 (2,706,460) -- --
---------- ------------ ----------- ----------- ------------
Balance at March 5,1995 6,808,939 54,624,224 6,220,168 (3,428,146) 64,225,185
Net earnings for twelve weeks -- -- 799,344 -- 799,344
Dividends
Cash - $.06 per share -- -- (397,137) -- (397,137)
---------- ------------ ----------- ----------- ------------
Balance at May 28,1995 6,808,939 54,624,224 6,622,375 (3,428,146) 64,627,392
Net earnings for forty weeks -- -- 1,226,554 -- 1,226,554
Dividends
Cash - $.18 per share -- -- (1,217,141) -- (1,217,141)
Stock - 4% 271,256 2,170,048 (2,441,304) -- --
---------- ------------ ----------- ----------- ------------
Balance at March 3, 1996 $7,080,195 $ 56,794,272 $ 4,190,484 ($3,428,146) $ 64,636,805
========== ============ =========== =========== ============
</TABLE>
The accompanying notes are an integral part of these statements.
6
<PAGE> 7
FRISCH'S RESTAURANTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FORTY WEEKS ENDED MARCH 3, 1996 AND MARCH 5, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Net income $ 1,226,554 $ 1,559,027
Adjustments to reconcile net income
to net cash from operating activities:
Depreciation and amortization 7,967,773 7,510,907
Gain on disposition of assets (966,721) (190,030)
Changes in assets and liabilities:
(Increase) decrease in receivables (20,764) 522,366
Increase in inventories (98,814) (172,952)
Decease (increase) in prepaid expenses and sundry deposits 47,122 (326,688)
Decrease in accounts payable (240,072) (318,561)
Decrease in accrued expenses (388,880) (53,557)
Increase in income taxes (1,077,705) (441,913)
Decrease in other assets 39,941 266,305
Increase in self insured obligations 1,168,175 738,286
Increase in other liabilities 157,484 302,035
------------ ------------
Net cash provided by operating activities 7,814,093 9,395,225
CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES:
Additions to property (11,172,160) (16,968,507)
Proceeds from disposition of property 3,900,455 1,829,572
Increase in other assets (510,418) (272,175)
------------ ------------
Net cash (used in) investing activities (7,782,123) (15,411,110)
CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES:
Proceeds from borrowings 8,000,000 8,135,000
Payment of long-term obligations (6,514,007) (659,846)
Cash dividends paid (1,217,141) (1,173,281)
Treasury share transactions -- 9,398
------------ ------------
Net cash provided by financing activities 268,852 6,311,271
------------ ------------
Net increase in cash and equivalents 300,822 295,386
Cash and equivalents at beginning of year 219,650 200,900
------------ ------------
Cash and equivalents at end of quarter $ 520,472 $ 496,286
============ ============
Supplemental disclosures:
Stock dividends issued $ 2,441,304 $ 2,706,460
Interest paid 2,035,227 1,499,593
Income taxes paid 2,094,873 1,243,233
Income tax refunds received 492,168 133,320
Lease transactions capitalized 390,000 --
</TABLE>
The accompanying notes are an integral part of these statements.
7
<PAGE> 8
Frisch's Restaurants, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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
at May 28, 1995 were included in accounts payable.
Receivables
- -----------
The Company values its trade notes and accounts receivable on the reserve
method. The reserve balance was $16,177 at March 3, 1996 and $56,736 at May 28,
1995.
Inventories
- -----------
Inventories, comprised principally of food items, are valued at the lower of
cost or market. During the first quarter of fiscal 1995, the Company changed its
method of determining cost for its commissary inventories from the last-in,
first-out (LIFO) method to the first-in, first-out (FIFO) method. The change to
the FIFO method more appropriately reflects the Company's financial condition,
and conforms all its inventories to the same valuation method.
Due to this change, inventories were increased by approximately $365,000 and the
cumulative effect on retained earnings, net of income taxes, was approximately
$241,000. Last year's financial statements have been restated to reflect this
change in accounting principle.
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 Assets 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.
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. Although adjustments may become necessary to values in existence prior
to August 12, 1994, the rehabilitator has concluded that policyholders' account
values should be fully preserved.
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.
8
<PAGE> 9
Frisch's Restaurants, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE A - ACCOUNTING POLICIES (CONTINUED)
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. The amounts shown on the balance sheet represent 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.
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. Income distributions are recorded in earnings when received. No
distributions were received in 1996 or 1995.
NOTE B - LONG-TERM DEBT
<TABLE>
<CAPTION>
March 3, 1996 May 28, 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 1,500 8,750 1,625 9,875
Other 336 459 581 563
-------- ------- -------- -------
$ 1,836 $20,709 $ 2,206 $18,438
======== ======= ======== =======
</TABLE>
The portion payable after one year matures as follows:
<TABLE>
<CAPTION>
March 3, May 28,
1996 1995
--------- ---------
(in thousands)
<S> <C> <C> <C>
Period ending in 1997 $ -- $ 1,839
1998 1,759 1,724
1999 13,200 9,500
2000 1,500 1,500
2001 1,500 1,500
Subsequent to 2001 2,750 2,375
--------- ---------
$ 20,709 $ 18,438
========= =========
</TABLE>
9
<PAGE> 10
Frisch's Restaurants, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE B - LONG TERM DEBT (CONTINUED)
The revolving credit loan is a $20,000,000 line of credit, $11,500,000 of which
is outstanding at March 3, 1996. This credit loan matures on August 30, 1998,
unless extended. Interest is payable quarterly determined by various indices,
currently 6.06%. 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. A waiver has been obtained relating to the
interest expense covenant. Compensating balances are not required.
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 which bear interest at 7.4%.
Property and equipment having a book value at March 3, 1996 of $3,109,000 is
pledged as collateral for the bonds.
NOTE C - LEASED PROPERTY
The Company has capitalized the leased property of 51% 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
--------------------------
Mar. 3, May 28,
1996 1995
-------- --------
(in thousands)
<S> <C> <C>
Restaurant facilities $ 8,812 $ 9,161
Equipment 870 480
-------- --------
9,682 9,641
Less accumulated amortization (5,154) (5,057)
-------- --------
$ 4,528 $ 4,584
======== ========
</TABLE>
Total rental expense of operating leases for the forty weeks was approximately
$1,222,000 in 1996 and $1,296,000 in 1995.
10
<PAGE> 11
Frisch's Restaurants, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE C - LEASED PROPERTY (CONTINUED)
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
Period ending March 3, leases leases
- ---------------------- -------- -------
(in thousands)
<C> <C> <C>
1997 $ 1,227 $ 1,209
1998 1,123 1,189
1999 1,053 1,044
2000 997 927
2001 902 803
2002 to 2020 7,242 4,328
-------- -------
Total 12,544 $ 9,500
=======
Amount representing interest (5,694)
--------
Present value of obligations 6,850
Portion due within one year (499)
--------
Long-term obligations $ 6,351
========
</TABLE>
NOTE D - INCOME TAXES
The provision for income taxes in all periods has been computed based on
management's estimate of the tax rate for the entire fiscal year.
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>
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.
11
<PAGE> 12
Frisch's Restaurants, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE F - PENSION PLANS
The following table sets forth the plans' funded status and amounts recognized
in the Company's balance sheet at May 28, 1995 and May 29, 1994 (latest
available data, in thousands):
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Plan assets at fair market value, primarily marketable securities and insurance funds $ 16,451 $ 18,229
-------- --------
Actuarial present value of benefit obligations:
Vested benefits 8,300 10,116
Non vested benefits 823 814
-------- --------
Accumulated benefit obligations 9,123 10,930
Effect of projected future salary increases 3,201 3,388
-------- --------
Projected benefit obligations 12,324 14,318
-------- --------
Plan assets in excess of projected benefit obligations (including approximately
$360 at 1995 and $531 at 1994 withdrawable by participants upon demand) 4,127 3,911
Unrecognized net gains (3,259) (2,840)
Unrecognized prior service cost 599 947
Unrecognized net transition (assets) (1,658) (1,895)
-------- --------
Net (accrued) prepaid pension cost included in the balance sheet $ (191) $ 123
======== ========
</TABLE>
Assumptions used to develop net periodic pension cost and the actuarial present
value of projected benefit obligations:
<TABLE>
<CAPTION>
1995 1994
--------- --------
<S> <C> <C>
Expected long-term rate of return on plan assets 8.50% 8.50%
Weighted average discount rate 7.25 7.25
Rate of increase in compensation levels 5.50 5.50
</TABLE>
Pension expense for the forty weeks ended March 3, 1996 and March 5, 1995 was
$280,896 and $261,113, respectively.
NOTE G - EARNINGS PER SHARE
Earnings per common share are based on the weighted average number of common and
common equivalent shares outstanding during each period, which gives effect to
stock options.
<TABLE>
<CAPTION>
Weighted average
common shares
(Primary and
fully diluted)
--------------
<S> <C>
Quarter ending March 3,1996 6,882,609
Year-to-date at March 3, 1996 6,882,609
Quarter ending March 5, 1995 6,882,662
Year-to-date at March 5, 1995 6,882,325
</TABLE>
NOTE H - COMPANY REPRESENTATIONS
The financial information is unaudited but in the opinion of management includes
all adjustments (all of which were normal recurring adjustments) necessary for a
fair presentation of results of operations for such periods.
12
<PAGE> 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
- ---------------------
Total revenue climbed a modest 1.2% to $125,867,000, to again reach a record
level during the forty weeks ended March 3, 1996. 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 $124,795,000 were also posted, increasing 1.4% over last year.
However, sales for the twelve week quarter ended March 3, 1996 decreased 1.8%,
to $33,711,000 from $34,324,000 a year ago.
During the last twelve months, five new Big Boy restaurants were opened and
three menu price increases were implemented, accounting for most of the increase
in year-to-date sales. Hotel operations also added to the sales improvement.
However, several factors have offset these sales increases. In the first
quarter, an older, lower volume Big Boy restaurant and two Hardee's restaurants
were closed. The remaining four Hardee's were sold at the beginning of the third
quarter. In addition, Big Boy same store sales declined slightly during the
forty weeks ended March 3, 1996. One new Big Boy restaurant is scheduled to open
in mid-April. However, the disposal of the Hardee's operation and the planned
closing of two existing Big Boy restaurants in the spring for rebuilding will
likely result in lower comparable fourth quarter sales. This year's fourth
quarter will be comprised of thirteen weeks compared with twelve weeks last
year.
Other income declined 16.5% during the forty weeks ended March 3, 1996. Revenue
from franchise fees declined as there are sixteen fewer licensed units in
operation than a year ago.
The pressure on profit margins continued. Cost of sales increased $2,402,000
year-to-date while revenue rose only $1,488,000. Lower beef prices helped food
and paper cost to decline to 31.8% of revenue this year from 31.9% last year.
However, payroll and related expenses rose more rapidly than revenues,
increasing from 34.4% of revenue last year to 35.2% this year. Competition for
employees due to labor shortages in most of the Company's marketing areas
continues to result in higher average hourly rates for restaurant workers,
higher salaries for store managers and higher recruiting and training costs.
Other operating expenses rose to 25.4% of revenue this year against 25.2% last
year. A decrease in operating expenses occurred during the twelve weeks ended
March 3, 1996, dropping to 27.0% of revenue versus 27.8% last year as a result
of the gain from the Hardee's disposal. The year-to-date real estate gains were
offset by higher depreciation and other charges relating to the recent expansion
and modernization. Disappointing sales levels have been experienced at most new
locations opened during the last two years in markets outside of the
headquarters market of Greater Cincinnati. In addition, the adjustment of
estimates for future obligations of self-insurance programs which were favorably
adjusted during the first quarter of both years was significantly lower this
year.
General and Administrative expense was $813,000 or 21.8% lower than last year.
Lower executive compensation and higher gains from the sale of real estate not
used in the business were the principal reasons for the improvement.
Interest expense for the forty weeks rose 22.1% or $334,000 above last year due
to higher debt levels that were incurred to complete the fiscal 1995
construction cycle. Interest expense for the third quarter increased slightly
compared to last year.
The estimated annual rate of income tax was lowered to 30.0% in the third
quarter of both years. However, the third quarter last year benefited
disproportionately because last year's estimated tax rate at the end of the
second quarter was higher than this year's second quarter estimate. Congress is
presently considering a bill that would replace the Targeted Jobs Tax Credit
that expired at the end of 1994 with a scaled down version to be known as the
Work Opportunity Tax Credit that would be retroactive to January 1, 1996. While
potentially helpful to the Company in the long run, the impact on this year's
effective tax rate would be minimal.
Liquidity and Capital Resources
- -------------------------------
Cash provided by operating activities during the forty weeks ended March 3, 1996
was $7,800,000, generated principally from net income and depreciation.
Investing activities included $11,200,000 in additions to property, a reduction
of $5,800,000 from last year. This year's capital spending consists of
approximately $8,700,000 for Big Boy operations and $2,500,000 for hotel
13
<PAGE> 14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
properties. Proceeds from property dispositions of $3,900,000 were also included
in investing activities which were generated by the sale of six Hardee's
restaurants, five older Big Boy restaurant locations which 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 the lessee of the property.
Financing activities included $8,000,000 in new debt, $4,500,000 of which had
been repaid at March 3, 1996. Scheduled long-term debt payments of approximately
$1,600,000 were also made, which lowered the net increase in long-term debt for
fiscal 1996 to approximately $1,900,000. The Company also paid dividends of
$1,200,000 to shareholders. Revised expansion plans that provide for fewer new
restaurants should help the Company meet its goal to operate within cash flow
and reduce long-term debt as cash flow permits.
The 1996 construction cycle is underway. It calls for the opening of two new Big
Boy restaurants in the spring, introducing a new, smaller building design. The
projected cost to build and equip each of these units is estimated at $1,300,000
to $1,500,000 each including land, a reduction of approximately $200,000 from
last year's average new unit cost. This smaller prototype will allow the Company
to reduce break-even sales for new restaurants and to expand into locations not
feasible previously. Current plans also include the replacement of two existing
restaurants with new buildings that will open in the summer of 1996. At the end
of the quarter, the remaining capital outlay needed to complete the construction
of these four new restaurants was approximately $2,700,000.
PART II - OTHER INFORMATION
- ---------------------------
Items 1, 2, 3, 4, and 5, the answers to which are either "none" or "not
applicable", are omitted.
Item 6. Exhibits and reports on Form 8-K.
a) Exhibits
(27) Financial Data Schedule
b) Reports on Form 8-K.
The Company did not file a report on Form 8-K during the forty
weeks ended March 3, 1996.
SIGNATURE
---------
Pursuant to the requirements 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)
DATE April 9, 1996
----------------------
April 9, 1996
BY Louis J. Ullman
---------------------------------
Louis J. Ullman
Senior Vice President-Finance
and Principal Financial Officer
14
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