<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 9, 1997 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 31, 1997 was:
7,148,334
<PAGE> 2
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
<S> <C> <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 - 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 14 - 15
PART II - OTHER INFORMATION 15
</TABLE>
<PAGE> 3
FRISCH'S RESTAURANTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF EARNINGS
(UNAUDITED)
<TABLE>
<CAPTION>
Forty Weeks Ended Twelve Weeks Ended
--------------------------- ---------------------------
March 9, March 3, March 9, March 3,
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUE
Sales $126,147,004 $124,795,224 $ 35,639,008 $ 33,711,105
Other 1,116,901 1,071,510 287,842 284,284
------------ ------------ ------------ ------------
Total revenue 127,263,905 125,866,734 35,926,850 33,995,389
COSTS AND EXPENSES
Cost of sales
Food and paper 40,024,735 39,993,957 11,257,682 11,130,427
Payroll and related 42,388,536 44,359,358 12,297,233 12,361,990
Other operating costs 31,475,315 31,908,097 9,401,623 9,163,482
------------ ------------ ------------ ------------
113,888,586 116,261,412 32,956,538 32,655,899
General and administrative 4,502,138 2,924,195 1,232,905 677,354
Advertising 3,062,286 3,089,400 854,665 821,636
Interest 1,832,527 1,840,173 568,841 546,779
------------ ------------ ------------ ------------
Total costs and expenses 123,285,537 124,115,180 35,612,949 34,701,668
------------ ------------ ------------ ------------
Earnings (loss) before income taxes 3,978,368 1,751,554 313,901 (706,279)
INCOME TAXES 1,412,000 525,000 111,000 (262,000)
------------ ------------ ------------ ------------
NET EARNINGS (LOSS) $ 2,566,368 $ 1,226,554 $ 202,901 ($ 444,279)
============ ============ ============ ============
Primary and fully diluted net earnings (loss)
per share of common stock $ 0.36 $ 0.17 $ 0.03 ($ 0.06)
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE> 4
FRISCH'S RESTAURANTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
ASSETS
March 9,
1997 June 2,
(unaudited) 1996
------------ ------------
<S> <C> <C>
CURRENT ASSETS
Cash $ 941,981 $ 134,944
Receivables
Trade 1,229,686 1,107,394
Other 229,422 963,347
Inventories 3,998,352 3,725,755
Prepaid expenses and sundry deposits 1,550,530 1,280,006
Prepaid and deferred income taxes 767,004 1,352,315
------------ ------------
Total current assets 8,716,975 8,563,761
PROPERTY AND EQUIPMENT - AT COST
Land and improvements 25,674,547 24,712,017
Buildings 58,073,452 54,871,830
Equipment and fixtures 56,250,606 53,876,413
Leasehold improvements and buildings on leased land 25,387,143 24,640,369
Capitalized leases 9,096,008 9,632,186
Construction in progress -- 2,393,653
------------ ------------
174,481,756 170,126,468
Less accumulated depreciation and amortization 75,993,066 70,886,768
------------ ------------
Net property and equipment 98,488,690 99,239,700
OTHER ASSETS
Intangible assets 757,883 761,017
Investments in land - at cost 2,188,416 2,001,135
Property held for sale 2,167,958 1,766,068
Net cash surrender value-life insurance policies 3,579,040 3,447,360
Deferred income taxes 551,072 551,072
Other 2,031,363 2,065,728
------------ ------------
Total other assets 11,275,732 10,592,380
------------ ------------
$118,481,397 $118,395,841
============ ============
</TABLE>
The accompanying notes are an integral part of these statements
4
<PAGE> 5
LIABILITIES
<TABLE>
<CAPTION>
March 9,
1997 June 2,
(unaudited) 1996
------------ ------------
<S> <C> <C>
CURRENT LIABILITIES
Long-term obligations due within one year
Long-term debt $ 1,759,135 $ 2,162,860
Obligations under capitalized leases 471,219 467,706
Self insurance 2,250,738 1,862,957
Accounts payable 7,060,115 8,109,024
Accrued expenses 5,793,272 5,805,262
Income Taxes -- 50,161
------------ ------------
Total current liabilities 17,334,479 18,457,970
LONG-TERM OBLIGATIONS
Long-term debt 21,950,000 20,098,890
Obligations under capitalized leases 6,173,991 6,229,351
Self insurance 3,884,835 5,879,111
Other 2,645,667 2,423,485
------------ ------------
Total long term obligations 34,654,493 34,630,837
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 7,362,279 and, 7,080,195 shares - stated value $1 7,362,279 7,080,195
Additional contributed capital 60,427,514 56,794,272
------------ ------------
67,789,793 63,874,467
Retained earnings 2,241,353 4,860,713
------------ ------------
70,031,146 68,735,180
Less cost of treasury stock (213,945 and 197,586 shares) 3,538,721 3,428,146
------------ ------------
Total shareholders' equity 66,492,425 65,307,034
------------ ------------
$118,481,397 $118,395,841
============ ============
</TABLE>
5
<PAGE> 6
FRISCH'S RESTAURANTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FORTY WEEKS ENDED MARCH 9, 1997 AND MARCH 3, 1996
(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 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
Net earnings for thirteen weeks -- -- 1,083,185 -- 1,083,185
Dividends
Cash - $.06 per share -- -- (412,956) -- (412,956)
------------ ------------ ------------ ------------ ------------
Balance at June 2, 1996 7,080,195 56,794,272 4,860,713 (3,428,146) 65,307,034
Net earnings for forty weeks -- -- 2,566,368 -- 2,566,368
Treasury shares acquired -- -- -- (110,575) (110,575)
Dividends
Cash - $.18 per share -- -- (1,270,402) -- (1,270,402)
Stock - 4% 282,084 3,633,242 (3,915,326) -- --
------------ ------------ ------------ ------------ ------------
Balance at March 9, 1997 $ 7,362,279 $ 60,427,514 $ 2,241,353 ($ 3,538,721) $ 66,492,425
============ ============ ============ ============ ============
</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 9, 1997 AND MARCH 3, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Net income $ 2,566,368 $ 1,226,554
Adjustments to reconcile net income
to net cash from operating activities:
Depreciation and amortization 8,108,763 7,967,773
Loss (gain) on disposition of assets 414,699 (966,721)
Changes in assets and liabilities:
Decrease (increase) in receivables 611,633 (20,764)
Increase in inventories (272,597) (98,814)
(Increase) decrease in prepaid expenses and sundry deposits (270,524) 47,122
Decrease (increase) in prepaid and deferred income taxes 585,311 (1,077,705)
Decrease in accounts payable (1,048,909) (240,072)
Decrease in accrued expenses (11,990) (388,880)
Decrease in accrued income taxes (50,161) --
(Increase) decrease in other assets (13,173) 39,941
(Decrease) increase in self insured obligations (1,606,495) 1,168,175
Increase in other liabilities 222,182 157,484
------------ ------------
Net cash provided by operating activities 9,235,107 7,814,093
CASH FLOWS (USED IN) PROVIDED BY INVESTING ACTIVITIES:
Additions to property (8,478,362) (11,172,160)
Proceeds from disposition of property 452,815 3,900,455
Increase in other assets (88,672) (510,418)
------------ ------------
Net cash (used in) investing activities (8,114,219) (7,782,123)
CASH FLOWS (USED IN) PROVIDED BY FINANCING ACTIVITIES:
Proceeds from borrowings 3,000,000 8,000,000
Payment of long-term obligations (1,932,874) (6,514,007)
Cash dividends paid (1,270,402) (1,217,141)
Treasury share transactions (110,575) --
------------ ------------
Net cash (used in) provided by financing activities (313,851) 268,852
------------ ------------
Net increase in cash and equivalents 807,037 300,822
Cash and equivalents at beginning of year 134,944 219,650
------------ ------------
Cash and equivalents at end of third quarter $ 941,981 $ 520,472
============ ============
Supplemental disclosures:
Stock dividends issued $ 3,915,326 $ 2,441,304
Interest paid 1,894,992 2,035,227
Income taxes paid 1,513,395 2,094,873
Income tax refunds received 636,545 492,168
Lease transaction capitalized 407,247 390,000
</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:
DESCRIPTION OF THE BUSINESS
- ---------------------------
Frisch's Restaurants, Inc., operates and licenses family restaurants with
drive-thru service under the name Frisch's Big Boy. These operations are located
in Ohio, Indiana and Kentucky. Additionally, the Company operates two hotels
with restaurants in metropolitan Cincinnati, where it is headquartered.
Trademarks which the Company has the right to use include "Frisch's," "Big Boy,"
and "Quality Hotel."
CONSOLIDATION PRACTICES
- -----------------------
The consolidated financial statements include the accounts of Frisch's
Restaurants, Inc. and all of its subsidiaries. Significant inter-company
accounts and transactions are eliminated in consolidation.
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.
CASH AND CASH EQUIVALENTS
- -------------------------
Highly liquid investments with original maturities of three months or less are
considered to be cash equivalents.
RECEIVABLES
- -----------
The Company values its trade notes and accounts receivable on the reserve
method. The reserve balance was immaterial at March 9, 1997 and June 2, 1996.
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.
8
<PAGE> 9
Frisch's Restaurants, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE A - ACCOUNTING POLICIES (CONTINUED)
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 has been under an order of
rehabilitation since August, 1994. As expected, an assumption reinsurance
agreement has been reached with a creditworthy carrier that fully preserves cash
values and which contains rights and benefits comparable with the original
policies. Restraints on policy loans, surrenders and reductions in face amounts,
which were imposed by the order of rehabilitation, will remain in effect until
the agreement is closed. The closing, which is subject to court and regulatory
approval, is anticipated during the fourth quarter of calendar 1997.
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. Opening expense
for the forty weeks was $466,000 at March 9, 1997 and $1,045,000 at March 3,
1996.
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 portions of its casualty and 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.
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 1997 or 1996.
BUSINESS SEGMENTS
- -----------------
Restaurant operations constitute a dominant segment in accordance with SFAS
statement No. 14, "Financial Reporting for Segments of a Business Enterprise."
9
<PAGE> 10
Frisch's Restaurants, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE A - ACCOUNTING POLICIES (CONTINUED)
NEW ACCOUNTING STANDARDS
- ------------------------
Effective June 3, 1996, the Company adopted 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."
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. The
effect upon adoption was immaterial.
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 elected to continue using the intrinsic value method, SFAS 123
has not affected 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 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>
March 9, 1997 June 2, 1996
--------------------- ---------------------
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 $ - $ 14,500 $ - $ 11,500
Term loan 1,500 7,250 1,625 8,375
Other 259 200 538 224
------- --------- -------- ---------
$ 1,759 $ 21,950 $ 2,163 $ 20,099
======= ========= ======== =========
</TABLE>
The portion payable after one year matures as follows:
<TABLE>
<CAPTION>
March 9, June 2,
1997 1996
--------- ---------
(in thousands)
<S> <C> <C>
Period ending in 1998 $ - $ 1,724
1999 1,700 1,500
2000 16,000 13,000
2001 1,500 1,500
2002 1,500 1,500
Subsequent to 2002 1,250 875
--------- ---------
$ 21,950 $ 20,099
========= =========
</TABLE>
The revolving credit loan is a $20,000,000 line of credit, $14,500,000 of which
is outstanding at March 9, 1997. This credit loan matures on September 1, 1999,
unless extended. Interest is payable quarterly determined by various indices,
currently 6.41%. The term loan 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, asset dispositions, investments, leases, and
restrictions on pledging certain restaurant operating assets.
10
<PAGE> 11
Frisch's Restaurants, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE B - LONG TERM DEBT (CONTINUED)
The Company also has a $2,233,000 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 9, 1997 of $3,140,000 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 2004. 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
--------------------------
March 9, June 2,
1997 1996
-------- --------
(in thousands)
<S> <C> <C>
Restaurant facilities $ 8,119 $ 8,762
Equipment 977 870
-------- --------
9,096 9,632
Less accumulated amortization (4,783) (5,154)
-------- --------
$ 4,313 $ 4,478
======== ========
</TABLE>
Total rental expense of operating leases for the forty weeks was $1,136,000 at
March 9, 1997 and $1,222,000 at March 3, 1996.
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 9, leases leases
---------------------- ------ ------
(in thousands)
<S> <C> <C>
1998 $ 1,160 $ 1,287
1999 1,102 1,207
2000 1,046 1,095
2001 951 969
2002 893 755
2003 to 2020 6,497 3,334
------- -------
Total 11,649 $ 8,647
=======
Amount representing interest (5,004)
-------
Present value of obligations 6,645
Portion due within one year (471)
-------
Long-term obligations $ 6,174
=======
</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.
11
<PAGE> 12
Frisch's Restaurants, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 562,432 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 85,394 $16.81 $1,435,473
President 101,891 $14.38-$20.83 1,957,073
Other key employees 72,550 $16.81 1,291,566
</TABLE>
The Company also has reserved 58,492 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
The following table sets forth the plans' funded status and amounts recognized
in the Company's balance sheet at June 2, 1996 and May 2, 1995 (latest available
data, 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
---- ----
<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 9, 1997 and March 3, 1996 was
$248,000 and $281,000, respectively.
12
<PAGE> 13
Frisch's Restaurants, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 9, 1997 7,148,334
Year-to date at March 9, 1997 7,151,988
Quarter ending March 3, 1996 7,156,789
Year-to date at March 3, 1996 7,156,789
</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.
13
<PAGE> 14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
- ---------------------
Total revenue reached a record level during the forty weeks ended March 9, 1997,
rising $1,397,000 or 1.1% above last year. Revenue for the third quarter was
also a record, reaching $35,927,000 or 5.7% higher than the previous year. Last
year's revenue included sales of $3,283,000 for the forty week period from the
Company's former Hardee's restaurants and two older Big Boy restaurants that
were closed at the end of fiscal 1996. At the end of the quarter, the Company
operated 103 Big Boy restaurants and two Quality Hotels. One underperforming Big
Boy restaurant was closed during the quarter.
Big Boy same-store sales improved significantly in the quarter, fueled by mild
winter weather in the Company's markets and a 2% menu price increase that was
implemented during February. On a year-to-date basis, there was a moderate
increase in Big Boy same store sales. Menu prices were increased roughly 3%
early in the second quarter this year and approximately 2% and 1%, respectively,
in the first and third quarters of fiscal 1996.
Other income advanced 4.2% during the forty weeks, principally from higher
franchise fee income.
Cost of sales decreased $2,373,000 or 2% for the forty week period, as costs
fell to 89.5% of revenue from 92.4% a year ago. Payroll and related expenses
were significantly impacted in the first quarter by favorable claims experience
in the Company's self insurance programs that allowed major reductions to be
made in estimates for future self insured obligations. In addition, the
Company's withdrawal from the Ohio Workers' Compensation system at the beginning
of the year, which was achieved by our long-term emphasis on safety, has
provided the continuing decline in payroll and related costs through the third
quarter. Other cost reductions reflected in both the year-to-date and third
quarter include lower opening expenses, lower maintenance costs, and the savings
that resulted from eliminating underperforming Big Boy and Hardee's restaurants.
These cost saving measures offset the effects of tight labor market conditions,
particularly in Indianapolis and Columbus, which continued to put pressure on
payroll costs. Although food and paper costs improved during the quarter,
creeping commodity prices continue to be a concern.
Other operating costs included a credit of $480,000 from the gain on the sale of
the Hardee's division in the third quarter last year. There have been no
significant real estate gains or losses posted to other operating expense this
year. However, the first quarter this year included a $485,000 charge associated
with the writeoff of future occupancy costs of certain leased property.
For the quarter, costs of sales fell to 91.7% of revenue from 96.1% in the
comparable period last year. As a percentage of revenue, these costs are
typically higher during the low-volume winter months.
General and administrative expense for the forty weeks was $1,579,000 or 54%
higher than last year, and was $556,000 or 82.1% higher for the quarter than a
year ago. The increase includes the cost of this year's proxy fight, advisory
services rendered to Big Boy licensees, a charge to lower the carrying cost of
property held for sale, and gains recorded last year of $771,000 from the sale
of non-operating real estate, including $358,000 in the twelve week period ended
March 3, 1996. There have been no real estate gains or losses posted to general
and administrative expense this year.
Interest expense decreased slightly for the year. However, seasonal borrowing
caused interest to rise 4% for the quarter. Average interest rates on the
revolving credit loan have been slightly lower than last year.
The estimated annual income tax rate is 35.5% this year versus 30% last year.
Projected tax-credits represent a much lower percentage of expected pre-tax
earnings this year.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Cash provided by operating activities was $9,240,000, generated principally from
net income and depreciation.
Investing activities included $8,480,000 in property additions, a reduction of
$2,690,000 from last year. Capital spending consisted of $1,940,000 to complete
the 1996 construction cycle, $4,270,000 to remodel Big Boy restaurants and to
renovate hotel operations, $900,000 to exercise purchase options on existing Big
Boy locations, $220,000 on the new point of sale system and $1,150,000 in
routine equipment replacements and other capital costs. Proceeds of $450,000,
principally from the sale of land, were also included in investing activities.
14
<PAGE> 15
Financing activities included $3,000,000 in new debt. Scheduled long-term debt
payments of $1,930,000 were made and the Company paid regular quarterly
dividends to shareholders of $1,270,000.
Shortly after the quarter ended, the Company sold its farm operation and an
underperforming Big Boy restaurant that closed during the quarter. Proceeds of
$2,220,000 from these transactions allowed the Company to reduce its revolving
line of credit by $2,500,000. Gains from these transactions will be reported in
the final quarter of the year.
Current plans do not call for any new Big Boy restaurant construction for the
remainder of 1997. Hotel renovations and Big Boy remodelings will continue as
scheduled, requiring a capital outlay of approximately $1,100,000 during the
fourth quarter. Installation of the Company's point of sale system is expected
to begin by June 1, 1997. The capital cost will be $30,000 to $35,000 per Big
Boy restaurant.
SAFE HARBOR STATEMENT
- ---------------------
Statements contained in this Management's Discussion and Analysis of Financial
Condition and Results of Operations (MD&A) that are not historical facts are
forward-looking statements as that item is defined in the Private Securities
Litigation Reform Act of 1995. Such forward looking statements are subject to
risks and uncertainties that could cause actual results to differ materially
from anticipated results. Such risks and uncertainties include, among others,
the following: estimates used in preparing financial statements; seasonal
weather conditions, particularly in the third quarter; intense competition;
changes in business strategy and development plans; consumer perceptions of
value, food quality and food safety; changing demographics and consumer
preferences; changes in the supply and cost of food and labor; the effects of
inflation and variable interest rates; legal claims; and changes in governmental
regulations regarding the environment and changes in tax laws. The Company
undertakes no obligation to update the forward-looking statements that may be
contained in this MD&A.
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 9, 1997.
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 22, 1997
-----------------------------
April 22, 1997
BY /s/ DONALD H. WALKER
------------------------
Donald H. Walker
Vice President - Finance and
Principal Financial Officer
15
<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> 9-MOS
<FISCAL-YEAR-END> JUN-01-1997
<PERIOD-START> JUN-03-1996
<PERIOD-END> MAR-09-1997
<CASH> 941,981
<SECURITIES> 0
<RECEIVABLES> 1,459,108
<ALLOWANCES> 0
<INVENTORY> 3,998,352
<CURRENT-ASSETS> 8,716,975
<PP&E> 174,481,756
<DEPRECIATION> 75,993,006
<TOTAL-ASSETS> 118,481,397
<CURRENT-LIABILITIES> 17,334,479
<BONDS> 28,123,991
<COMMON> 7,362,279
0
0
<OTHER-SE> 59,130,146
<TOTAL-LIABILITY-AND-EQUITY> 118,481,397
<SALES> 126,147,004
<TOTAL-REVENUES> 127,263,905
<CGS> 113,888,586
<TOTAL-COSTS> 113,888,586
<OTHER-EXPENSES> 7,564,424
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,832,527
<INCOME-PRETAX> 3,978,368
<INCOME-TAX> 1,412,000
<INCOME-CONTINUING> 2,566,368
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,566,368
<EPS-PRIMARY> .36
<EPS-DILUTED> .36
</TABLE>
