<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 DECEMBER 10, 1995 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 December 29, 1995 was:
6,882,609
<PAGE> 2
<TABLE>
<CAPTION>
TABLE OF CONTENTS
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>
Twenty-eight Weeks Ended Twelve Weeks Ended
----------------------------- ----------------------------
December 10, December 11, December 10, December 11,
1995 1994 1995 1994
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUE
Sales $91,084,119 $88,771,844 $38,877,144 $38,491,436
Other 787,226 937,082 328,222 381,526
----------- ----------- ----------- -----------
Total revenue 91,871,345 89,708,926 39,205,366 38,872,962
COST AND EXPENSES
Cost of sales
Food and Paper 28,863,530 28,313,377 12,360,221 12,347,249
Payroll and related 31,997,368 30,257,971 13,663,231 13,222,534
Other operating costs 22,744,615 21,754,946 9,783,604 9,296,106
----------- ----------- ----------- -----------
83,605,513 80,326,294 35,807,056 34,865,889
General and administrative 2,246,841 2,528,538 713,941 833,622
Advertising 2,267,764 2,201,241 964,129 957,406
Interest 1,293,394 975,612 559,882 470,532
----------- ----------- ----------- -----------
Total costs and expenses 89,413,512 86,031,685 38,045,008 37,127,449
----------- ----------- ----------- -----------
Earnings before income taxes 2,457,833 3,677,241 1,160,358 1,745,513
INCOME TAXES 787,000 1,366,000 372,000 638,000
----------- ----------- ----------- -----------
NET EARNINGS $ 1,670,833 $ 2,311,241 $ 788,358 $ 1,107,513
=========== =========== =========== ===========
Primary and fully diluted net earnings per
share of common stock $ .24 $ .34 $ .11 $ .16
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an intergral part of these statements.
3
<PAGE> 4
FRISCH'S RESTAURANTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
December 10, May 28,
1995 1995
(unaudited)
------------ -------------
<S> <C> <C>
CURRENT ASSETS
Cash $ 1,102,525 $219,650
Receivables
Trade 979,611 986,360
Other 509,481 560,122
Inventories 4,200,854 3,945,660
Prepaid expenses and sundry deposits 1,997,144 1,705,463
Prepaid and deferred income taxes 536,226 723,523
------------ -------------
Total current assets 9,325,841 8,140,778
PROPERTY, EQUIPMENT AND CAPITALIZED LEASES - AT COST
Land and improvements 24,580,222 23,623,581
Buildings 55,221,525 53,292,215
Equipment and fixtures 54,249,695 53,466,613
Leasehold improvements and buildings on leased land 24,759,165 24,404,208
Capitalized leases 10,030,938 9,640,938
Construction in progress 1,031,599 3,226,921
------------ -------------
169,873,144 167,654,476
Less accumulated depreciation and amortization 72,492,391 69,596,486
------------ -------------
97,380,753 98,057,990
OTHER ASSETS
Intangible assets 762,898 765,092
Investments in land - at cost 2,420,235 641,764
Property held for sale 1,068,949 1,966,681
Net cash surrender value-life insurance policies 3,392,395 3,162,902
Deferred income taxes 409,643 409,643
Other 2,507,673 2,403,243
------------ -------------
10,561,793 9,349,325
------------ -------------
$117,268,387 $115,548,093
============ =============
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE> 5
LIABILITIES
<TABLE>
<CAPTION>
December 10, May 28,
1995 1995
(unaudited)
------------- -------------
<S> <C> <C>
CURRENT LIABILITIES
Long-term obligations due within one year
Long-term debt $1,834,012 $2,206,048
Obligations under capitalized leases 523,594 466,035
Self insurance 2,681,492 1,221,460
Accounts payable 8,424,977 8,572,166
Accrued expenses 5,534,547 5,758,656
------------ ------------
Total current liabilities 18,998,622 18,224,365
LONG-TERM OBLIGATIONS
Long-term debt 18,618,684 18,437,837
Obligations under capitalized leases 6,493,025 6,409,216
Self insurance 5,799,750 5,641,927
Other 2,277,223 2,207,356
------------ ------------
33,188,682 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 4,634,762 6,622,375
------------ ------------
68,509,229 68,055,538
Less cost of treasury stock (197,586 and 189,987 shares) 3,428,146 3,428,146
------------ ------------
65,081,083 64,627,392
------------ ------------
$117,268,387 $115,548,093
============ ============
</TABLE>
5
<PAGE> 6
FRISCH'S RESTAURANTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
TWENTY-EIGHT WEEKS ENDED DECEMBER 10, 1995 AND DECEMBER 11, 1994
(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 twenty-eight weeks - - 2,311,241 - 2,311,241
Treasury shares reissued - (2,232) - 7,836 5,604
Dividends
Cash - $.18 per share - - (1,173,282) - (1,173,282)
Stock - 4% 260,738 2,445,722 (2,706,460) - -
----------- ----------- ---------- ----------- -----------
Balance at December 11,1994 6,808,939 54,631,602 6,972,381 (3,439,318) 64,973,604
Net earnings for twenty-four weeks - - 47,130 - 47,130
Treasury shares reissued - (7,378) - 15,935 8,557
Treasury shares acquired - - - (4,763) (4,763)
Dividends
Cash - $.06 per share - - (397,136) - (397,136)
----------- ----------- ---------- ----------- -----------
Balance at May 28,1995 6,808,939 54,624,224 6,622,375 (3,428,146) 64,627,392
Net earnings for twenty-eight weeks - - 1,670,833 - 1,670,833
Dividends
Cash - $.18 per share - - (1,217,142) - (1,217,142)
Stock - 4% 271,256 2,170,048 (2,441,304) - -
----------- ----------- ---------- ----------- -----------
Balance at December 10, 1995 $7,080,195 $56,794,272 $4,634,762 ($3,428,146) $65,081,083
=========== =========== ========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE> 7
FRISCH'S RESTAURANTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
TWENTY-EIGHT WEEKS ENDED DECEMBER 10, 1995 AND DECEMBER 11, 1994
(UNAUDITED)
<TABLE>
<CAPTION>
1995 1994
----------- ----------
<S> <C> <C>
CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Net income $1,670,833 $2,311,241
Adjustments to reconcile net income
to net cash from operating activities:
Depreciation and amortization 5,591,874 5,155,283
Gain on disposition of assets (221,032) (128,915)
Changes in assets and liabilities:
Decrease in receivables 57,390 539,176
(Increase) decrease in inventories (255,194) 206,304
Increase in prepaid expenses and sundry deposits (291,681) (793,711)
Decrease in accounts payable (570,056) (850,714)
(Increase) decrease in accrued expenses (224,109) 290,905
Increase in income taxes 187,297 451,680
Decrease in other assets 120,631 195,999
Increase in self insured obligations 1,617,855 566,341
Increase in other liabilities 69,867 195,578
----------- ----------
Net cash provided by operating activities 7,753,675 8,139,167
CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES:
Additions to property - net (7,376,055) (12,420,883)
Proceeds from disposition of property 2,221,411 1,175,195
Increase in other assets (482,060) (251,344)
----------- ----------
Net cash (used in) investing activities (5,636,704) (11,497,032)
CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES:
Proceeds from borrowings 4,000,000 4,885,000
Payment of long-term obligations (4,439,821) (470,096)
Cash dividends paid (794,275) (763,820)
Treasury share transactions - 5,604
----------- ----------
Net cash (used in) provided by financing activities (1,234,096) 3,656,688
----------- ----------
Net increase in cash and equivalents 882,875 298,823
Cash and equivalents at beginning of year 219,650 200,900
----------- ----------
Cash and equivalents at end of quarter $1,102,525 $499,723
=========== ==========
Supplemental disclosures:
Stock dividends issued $2,441,304 $2,706,460
Interest paid 1,445,262 883,465
Income taxes paid 1,091,871 983,229
Income tax refunds received (492,168) (68,909)
Dividends declared but not paid 422,867 409,462
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 $47,736 at December 10, 1995 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 three 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.
NOTE B - LONG-TERM DEBT
<TABLE>
<CAPTION>
December 10, 1995 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 $ - $ 9,000 $ - $ 8,000
Term loan 1,500 9,125 1,625 9,875
Industrial revenue
bond financing 200 400 400 400
Other 134 94 181 163
------- --------- ------- ---------
$ 1,834 $ 18,619 $ 2,206 $ 18,438
======= ========= ======= =========
</TABLE>
<TABLE>
<CAPTION>
The portion payable after one year matures as follows:
December 10, May 28,
1995 1995
------------ -------
(in thousands)
<S> <C> <C>
Period ending in 1997 $ 1,794 $ 1,839
1998 10,700 1,724
1999 1,500 9,500
2000 1,500 1,500
Subsequent to 2000 3,125 3,875
--------- ---------
$ 18,619 $ 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, $9,000,000 of which
is outstanding at December 10, 1995. This credit loan matures on August 30,
1998, unless extended. Interest is payable quarterly determined by various
indices, currently 6.71%. 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. Compensating balances are not
required.
The Company also has a $2,494,000 outstanding letter of credit in support of
its self insurance.
The industrial revenue bonds, issued in 1978, are payable in annual
installments of $200,000 through 1998 and bear interest at 7.4%. Property and
equipment having a book value at December 10, 1995 of $2,839,000 is pledged as
collateral for the bonds.
NOTE C - LEASED PROPERTY
The Company has capitalized the leased property of 54% 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.
<TABLE>
<CAPTION>
An analysis of the leased property follows:
Asset balances at
--------------------------
Dec. 10, May 28,
1995 1995
-------- --------
(in thousands)
<S> <C> <C>
Restaurant facilities $ 9,161 $ 9,161
Equipment 870 480
-------- --------
10,031 9,641
Less accumulated amortization (5,339) (5,057)
--------- ---------
$ 4,692 $ 4,584
======== ========
</TABLE>
<TABLE>
<CAPTION>
Total rental expense of operating leases for the twenty-eight weeks was:
1995 1994
------- --------
(in thousands)
<S> <C> <C>
Minimum rentals $ 858 $ 864
Contingent rentals
(percent of excess sales) 9 23
------ -----
$ 867 $ 887
====== =====
</TABLE>
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 December 10, leases leases
-------------------------- ----------- ---------
(in thousands)
<S> <C> <C>
1996 $1,269 $ 1,289
1997 1,163 1,275
1998 1,082 1,137
1999 1,013 957
2000 926 819
2001 to 2020 7,456 4,525
------ --------
Total 12,909 $ 10,002
========
Amount representing interest (5,892)
------
Present value of obligations 7,017
Portion due within one year (524)
------
Long-term obligations $6,493
======
</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, the day after
the expiration of the 1984 Stock Option Plan. The 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.
<TABLE>
<CAPTION>
The outstanding stock options for the 1984 plan follow:
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.
11
<PAGE> 12
Frisch's Restaurants, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE E - CAPITAL STOCK (CONTINUED)
Shares reserved under these plans have been adjusted for stock dividends.
There are no other outstanding options, warrants or rights.
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 twenty-eight weeks ended December 10, 1995 and
December 11, 1994 was $191,298 and $189,538, 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 December 10,1995 6,882,609
Year-to-date at December 10, 1995 6,882,609
Quarter ending December 11, 1994 6,882,220
Year-to-date at December 11, 1994 6,882,181
</TABLE>
12
<PAGE> 13
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.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
- ---------------------
Total revenue increased $2,162,000 or 2.4%, climbing to a record $91,871,000
during the twenty-eight weeks ended December 10, 1995. Record sales of
$91,084,000 were also posted, increasing $2,312,000 or 2.6% over last year. The
increase is attributable principally to five new Big Boy restaurants opened
during the last twelve months. Big Boy same store sales are showing
improvement, but continue to run slightly behind last year. Menu prices were
increased moderately at the beginning of the fourth quarter of fiscal 1995 and
in the first quarter of this year. Hotel operations also added to the sales
improvement.
Other income declined 16.0% for the first half of the year. Franchise fees
declined as there are thirteen fewer licensed units in operation than a year
ago.
The pressure on margins continued. Cost of sales increased $3,279,000 year to
date while revenue rose only $2,162,000. Lower beef prices have helped food and
paper cost to decline from 31.6% of revenue last year to 31.4% this year.
However, payroll and related expenses and other operating expenses have risen
more rapidly than revenues. Payroll and related expenses increased from 33.7%
of revenue last year to 34.8% of revenue 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 and higher
starting salaries for store managers. Other operating expenses increased to
24.8% of revenue this year against 24.3% of revenue last year. Higher
depreciation and other charges relating to recent expansion and modernization
accounted for most of the increase. Estimates for future obligations of
self-insured plans were favorably adjusted during the first quarter of both
years, although this year's adjustment was significantly lower.
General and Administrative expense was $282,000 or 11.1% lower than last year
due principally to lower officer compensation this year.
Interest expense for the first half of the year rose 32.6% or $317,000 above
last year due to higher debt levels that were incurred to complete the fiscal
1995 construction cycle.
The estimated annual rate of income tax is 32.0% this year versus 37.1% last
year. 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 effective 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 was $7,800,000, generated principally
from net income and depreciation.
Investing activities included $7,400,000 in additions to property. This
consisted of approximately $1,900,000 to complete the 1995 construction cycle,
$1,900,000 to remodel existing properties, $1,700,000 for acquisitions of
future sites, $400,000 to start the 1996 expansion, and $1,500,000 in equipment
replacements and other capital expenditures. Approximately $2,200,000 in
proceeds from property dispositions were also included in investing activities,
consisting of the sale of the two Hardee's restaurants that closed in the first
quarter, five other restaurant locations that had been held for sale since
ceasing operations several years ago, and the sale of the Company's former
commissary in Dallas, Texas. Shortly after the end of the quarter, the Company
sold its four remaining Hardee's restaurants. The Company now operates 104 Big
Boy restaurants and two Quality Hotels.
Financing activities included $4,000,000 of new debt, $3,000,000 of which had
been repaid at December 10, 1995. Revised expansion plans that provide for
fewer new restaurants allowed funds scheduled for capital spending to be used
to reduce debt. Real estate sale proceeds were also used to lower debt levels.
Scheduled debt payments of approximately $1,400,000 were also made and
dividends of $800,000 were paid to shareholders.
13
<PAGE> 14
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 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. Capital outlays for restaurants currently under construction will amount
to approximately $1,800,000. It remains the Company's intention to operate
within cash flow and reduce long-term debt whenever cash flow permits.
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
twenty-eight weeks ended December 10, 1995.
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 January 17, 1996
----------------------------
January 17, 1996
BY /s/ Louis J. Ullman
------------------------
Louis J. Ullman
Senior Vice President-Finance
and Principal Financial Officer
14
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AND STATEMENT OF EARNINGS OF FRISCH'S RESTAURANTS, INC. AND SUBSIDIARIES.
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-02-1996
<PERIOD-START> MAY-29-1995
<PERIOD-END> DEC-10-1995
<CASH> 1,102,525
<SECURITIES> 0
<RECEIVABLES> 1,489,092
<ALLOWANCES> 0
<INVENTORY> 4,200,854
<CURRENT-ASSETS> 9,325,841
<PP&E> 169,873,144
<DEPRECIATION> 72,492,391
<TOTAL-ASSETS> 117,268,387
<CURRENT-LIABILITIES> 18,998,622
<BONDS> 25,111,709
<COMMON> 7,080,195
0
0
<OTHER-SE> 58,000,888
<TOTAL-LIABILITY-AND-EQUITY> 117,268,387
<SALES> 91,084,119
<TOTAL-REVENUES> 91,871,345
<CGS> 83,605,513
<TOTAL-COSTS> 83,605,513
<OTHER-EXPENSES> 4,514,605
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,293,394
<INCOME-PRETAX> 2,457,833
<INCOME-TAX> 787,000
<INCOME-CONTINUING> 1,670,833
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,670,833
<EPS-PRIMARY> .24
<EPS-DILUTED> .24
</TABLE>
