<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------
FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED MAY 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-7323
--------------------
FRISCH'S RESTAURANTS, INC.
INCORPORATED IN THE IRS EMPLOYER IDENTIFICATION NUMBER
STATE OF OHIO 31-0523213
2800 GILBERT AVENUE
CINCINNATI, OHIO 45206
513/961-2660
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- -------------------
COMMON STOCK OF NO PAR VALUE AMERICAN STOCK EXCHANGE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
NONE
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES [ X ] NO [ ]
INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM
405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE
BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS
INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS
FORM 10-K [ ].
AS OF JULY 10, 1998, 6,006,139 COMMON SHARES WERE OUTSTANDING, AND THE
AGGREGATE MARKET VALUE OF THE COMMON SHARES (BASED UPON THE JULY 10, 1998
CLOSING PRICE OF THESE SHARES ON THE AMERICAN STOCK EXCHANGE) OF FRISCH'S
RESTAURANTS, INC. HELD BY NONAFFILIATES WAS APPROXIMATELY $41.3 MILLION.
DOCUMENTS INCORPORATED BY REFERENCE
PORTIONS OF THE REGISTRANT'S DEFINITIVE PROXY STATEMENT TO BE FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION WITHIN 120 DAYS AFTER MAY 31, 1998 ARE
INCORPORATED BY REFERENCE INTO PART III.
<PAGE> 2
PART I
(Items 1 through 4)
Item 1. - Business
- ------------------
Frisch's Restaurants, Inc. ("Company") is an Ohio Corporation incorporated in
1947. The Company and its subsidiaries are engaged in the food service business,
including operating and licensing others to operate restaurants, and in the
lodging business.
Operations in the food service industry are vertically integrated, and include
the manufacture and distribution of food products and supplies to the Company's
restaurants and to licensees for resale to the general public. Fees are charged
to licensees for use of trademarks and trade names and for advertising services
based principally on percentages of sales. Operations in the lodging industry
consist of two high-rise hotels located in greater Cincinnati, under the name
"Quality Hotel"; one containing 148 guest rooms, banquet facilities for 400, a
restaurant and cocktail lounge; the other having 236 guest rooms, banquet
facilities for 700, and two restaurants with cocktail lounges. Financial
information by industry segment as of and for the three fiscal years in the
period ended May 31, 1998 appears in Note H - Segment Information - to the
Consolidated Financial Statements included in Part II, Item 8 of this Form 10-K.
The Company operates or licenses others to operate family restaurants, most of
which have "drive-thru" service, located in Ohio, Kentucky and Indiana which use
the tradename "Big Boy". The Company also has the right to operate or license
others to operate Big Boy family restaurants in Florida, Texas, Oklahoma,
portions of Kansas, the unfranchised areas of Tennessee and Georgia and, under
certain circumstances, in prescribed areas of states adjacent to Tennessee and
Georgia. As of May 31, 1998, there were 88 Big Boy restaurants operated by the
Company and 34 operated by licensees.
In 1998 the Company entered into an area development agreement with Golden
Corral Franchising Systems, Inc. under which development rights were granted to
the Company to establish and operate twenty-three Golden Corral restaurants in
certain markets in Ohio, Kentucky and Indiana. The development schedule calls
for the restaurants to be opened over a seven year period, with the first two to
be opened by December 31, 1998. Golden Corral is a grill-buffet style restaurant
featuring steaks and a wide variety of buffet items on its menu.
The following tabulation sets forth restaurant openings and closings for both
operated and licensed restaurants for the five years ended May 31, 1998:
Year ended
5/29/94 5/28/95 6/2/96 6/1/97 5/31/98
------- ------- ------ ------ -------
Operated Restaurants
Big Boy
Opened 9 9 4 3 --
Replaced by new units -- (1) (1) (2) --
Closed (2) (1) (3) *(16) --
---- ---- ---- --- --
Total Big Boy 96 103 103 88 88
Hardee's
Closed (2) -- (6) -- --
Total Hardee's 6 6 0 0 0
---- ---- ---- --- --
Total Operated Restaurants 102 109 103 88 88
==== ==== ==== === ==
*15 of these restaurants were closed on June 10, 1997.
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Year ended
5/29/94 5/28/95 6/2/96 6/1/97 5/31/98
------- ------- ------ ------ -------
Licensed Restaurants
Big Boy
Opened -- -- -- 2 --
Closed (4) (13) (12) (5) (5)
--- --- --- --- ---
Total Licensed Big Boy 67 54 42 39 34
=== === === === ===
The following tabulation sets forth the range and average floor space and the
range and average seating capacity for Big Boy restaurants operated by the
Company (similar information for licensed restaurants is not available):
Floor space - Sq. Ft. Seating capacity
- ---------------------------------- ----------------------------------
Range Range
- --------------------- ---------------------
Smallest Largest Average Smallest Largest Average
- -------- ------- ------- -------- ------- -------
3,578 6,820 5,598 105 200 155
Big Boy restaurants are family restaurants which the Company operates under the
name of "Frisch's". Some of the licensed Big Boy restaurants do not use the name
"Frisch's". Menus are generally standardized with a wide variety of items at
moderate prices, featuring the "Big Boy" double-deck hamburger sandwich and
other sandwiches, pasta, chicken and seafood dinners, desserts and other items.
In addition, a full breakfast menu is offered, and most of the restaurants also
contain breakfast bars, soup and salad bars and drive-thru service. The
Company's customers have not shown any significant preference for highly
nutritional, low fat foods, although such items are available on the menu and
salad bars. Older restaurants are located in suburban or urban neighborhoods
which cater to local trade rather than highway travel. Restaurants opened in
recent years have generally been located near expressways.
The agreements with licensees are not uniform, but most of the licenses for
individual restaurants are covered by agreements containing the following
provisions:
1. The Licensor grants to the Licensee the right to use the name "Frisch" and/or
"Frisch's" and related trademarks and names in connection with the operation of
a food and restaurant business, in return for which the Licensee pays a license
fee equal to three and three-quarters percent (3-3/4%) of its gross sales.
2. The Licensor provides local and regional advertising through publications,
radio, television, etc., in return for which the Licensee pays an amount equal
to two and one-half percent (2-1/2%) of its gross sales.
3. The Licensee agrees to conduct its business on a high scale, in an efficient
manner, with cleanliness and good service, all to the complete satisfaction of
the Licensor, and to comply with all food, sanitary and other regulations, and
to serve only quality foods.
4. The term of the license is for a period of five (5) years. The license can be
renewed for two further periods of five (5) years each provided the terms are
similar to those contained in license agreements given by the Licensor at such
time.
To service its owned and certain licensed Big Boy restaurants, the Company
operates a commissary at Cincinnati, Ohio, where it prepares foods, and stocks
foods, forms, paper products and other supplies. Some companies in the
foodservice industry operate commissaries, while others purchase from outside
sources. Fourteen of the licensed Big Boy restaurants (41%) currently purchase
items from the commissary. Big Boy restaurants licensed in northern Indiana and
northwestern Ohio do not buy food and supplies from the Company.
The Company provides bookkeeping and payroll services to its owned and some of
its licensed Big Boy restaurants. Eight of the licensed Big Boy restaurants
(24%) currently purchase these services from the Company. The Company also
expects to provide bookkeeping and payroll services to its Golden Corral
restaurants.
Pursuant to an agreement with Elias Brothers Restaurants, Inc., the Company has
the right to use and sub-license others to use the registered trademark and
tradename "Big Boy" for a perpetually renewable term at no license fee in Ohio,
Kentucky, Indiana, Florida, Texas, Oklahoma, parts of Kansas, the unfranchised
areas of Tennessee and Georgia and, under certain circumstances, prescribed
areas of states adjacent to Tennessee and Georgia.
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Seasonal weather conditions can have a marked effect upon revenues and earnings.
Due to this seasonality, the first and fourth quarters of the Company's fiscal
year normally account for a greater share of annual revenues and earnings than
the second and third quarters.
The business in which the Company is engaged is highly competitive and many of
its competitors are substantially larger and possess greater financial resources
than does the Company. The Company has numerous competitors, none of which is
dominant in the family restaurant sector of the foodservice industry. The
principal methods of competition in the foodservice industry are service, food
quality, cleanliness, customer perception of value, advertising and a fresh,
attractive dining atmosphere.
Raw materials used in the Company's business (which consist principally of food
items) are generally plentiful and may be obtained from any number of suppliers.
Quality and price are the principal determinants of source.
The Company is able to operate with negative working capital since, as is common
to the restaurant industry, substantially all its retail sales are cash sales.
The Company's working capital practices are further defined as incorporated
herein by reference to Management's Discussion and Analysis in Part II, Item 7
of this Form 10-K, under the caption "Liquidity and Capital Resources."
The Company's business does not have any material dependence upon a single
customer or on any group of a few customers. No backlog of orders exist and no
material portion of the Company's business is subject to renegotiation of
profits or termination of contracts or subcontracts at the election of the
government.
The Company does not believe that various federal, state and local environmental
regulations will have any material impact upon its capital expenditures,
earnings or competitive position.
As of May 31, 1998, the Company and its subsidiaries employed approximately
5,300 persons, approximately 3,200 of whom were full-time and 2,100 of whom were
part-time.
Item 2. - Properties
- --------------------
The Company owns the building which houses its commissary in Cincinnati, Ohio.
The area of this building is approximately 79,000 square feet. The facility
normally operates one shift daily so that additional productive capacity is
available when needed. It is suitable and adequate to supply Company restaurants
and franchise needs in all of the Company's market areas for the forseeable
future. The Company also maintains administrative office space in Cincinnati,
approximating 49,000 square feet, under a lease expiring December 31, 2002, with
a renewal option available through December 31, 2012.
It is the Company's policy to own its restaurant locations whenever possible. Of
the 88 Big Boy restaurants operated by the Company in Ohio, Kentucky and Indiana
as of May 31, 1998, fifty-eight (58) locations are owned and thirty (30)
locations are leased. The leases generally provide for prime terms of fifteen
(15) or twenty (20) years with options aggregating ten (10) or fifteen (15)
years.
During the next five years, leases for restaurant facilities will expire as
follows:
Fiscal year ending in Number of leases expiring
--------------------- -------------------------
1999 2
2000 4
2001 4
2002 2
2003 3
All but one of the above fifteen leases have options to renew for from 5 to 20
years, and/or favorable purchase options.
The Company has assigned or sub-let certain leases of closed restaurants with
average annual obligations approximating $235,000 over the next five years. In
the event of default by assignees or sub-lessees, the Company generally retains
the right to re-assign or sub-let the properties.
4
<PAGE> 5
The Company owns and operates two hotels in greater Cincinnati, one of which is
located on land that is owned and the other of which is on land leased through
April 30, 2020, with renewal options aggregating 50 years. The Company has the
option to purchase this land at any time during the current term or any renewal
thereof.
The furniture, fixtures and equipment used in the operation of the business are
owned by the Company.
The Company owns a one-fifteenth limited partner's interest in the Cincinnati
Reds professional baseball team. On August 6, 1998, the Company entered into a
letter of intent to sell this investment for $7,000,000 in cash. Although the
transaction is conditioned upon the execution of a definitive sale agreement,
approvals by the National League and the General Partner of the Partnership and
waiver of the other team partner's right of first refusal, the deal is expected
to close on or before September 30, 1998. Pursuant to the terms of a loan
agreement dated July 9, 1997 (see exhibit (10) (m) of this Form 10-K), the
Company is required to apply the after tax proceeds, expected to be
approximately $4,900,000, against the outstanding indebtedness.
Nine closed Big Boy restaurants yet to be sold (of the fifteen closed at the end
of fiscal year 1997) are listed for sale with a broker, and are carried at a net
realizable value of approximately $7,324,000 on the Company's May 31, 1998
balance sheet under the caption "Property held for sale." In addition,
continuing lease payments of approximately $75,000 per year must be paid on one
of the closed restaurants in Indianapolis and an undeveloped site in Muncie,
Indiana. The Company expects to dispose of these properties and leases within
the next nine to twelve months. These restaurant properties have been pledged as
collateral under a loan agreement dated July 9, 1997 (see Exhibit (10) (m) of
this Form 10-K) and the Company is required to immediately apply the after-tax
sale proceeds against the outstanding indebtedness.
Four other surplus land locations are also currently held for sale. Two of these
sites are in Ohio, and one each in Indiana and Texas.
Item 3. - Legal Proceedings
- ---------------------------
From time to time, the Company is subject to various claims and suits in the
ordinary course of its business. The Company does not believe that any ultimate
liability for these claims will have a material impact on its earnings or
financial condition.
Item 4. - Submission of Matters to a Vote of Security Holders
- -------------------------------------------------------------
Not applicable.
5
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Executive Officers of the Registrant
- ------------------------------------
The executive officers are chosen at the annual meeting of the Board of
Directors for a term of one year and until their successors are chosen and
qualified. Each of the executive officers listed below has been continuously
employed by the Company for at least the past five years:
<TABLE>
<CAPTION>
Present
Office
Held
Name Age Office Since
---- --- ------ -----
<S> <C> <C> <C>
Jack C. Maier 73 Chairman of the Board 1970
Craig F. Maier 48 President and Chief Executive Officer 1989
Marvin G. Fields 63 Senior Vice President-Operations 1971
Donald H. Walker 52 Vice President, Treasurer-Chief Financial Officer 1996
W. Gary King 61 Secretary-Counsel 1996
</TABLE>
PART II
(Items 5 through 9)
Item 5. - Market for the Registrant's Common Equity and Related Stockholder
- ---------------------------------------------------------------------------
Matters
-------
The Company's common stock, no par value, is traded on the American Stock
Exchange under the symbol "FRS". The following table sets forth the high and low
sales prices for the common stock for each quarter within the Company's two most
recent fiscal years:
<TABLE>
<CAPTION>
Year Ended May 31, 1998 Year Ended June 1, 1997
----------------------------- ----------------------------
Stock Prices Stock Prices
------------ Dividend ------------ Dividend
High Low per share High Low per share
---- --- --------- ---- --- ---------
<S> <C> <C> <C> <C> <C> <C>
1st Quarter 17-3/8 12-7/8 6 cents 15 11-1/8 6 cents
2nd Quarter 14 12 6 cents 15-1/4 12-1/2 6 cents
3rd Quarter 13-7/8 12 7 cents 16 13-1/4 6 cents
4th Quarter 13-3/8 11-13/16 7 cents 15-1/2 13-5/8 6 cents
</TABLE>
In addition to cash dividends above, a 4% stock dividend was paid in 1997.
Through July 10, 1998, the Company has paid 150 consecutive quarterly cash
dividends during its thirty-seven year history as a public company. The closing
price of the Company's common stock as reported by the American Stock Exchange
on May 27, 1998 was $11.94. There were approximately 2800 shareholders of record
as of June 26, 1998.
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Item 6. - Selected Financial Data
- ---------------------------------
FRISCH'S RESTAURANTS, INC. AND SUBSIDIARIES
SUMMARY OF OPERATIONS
<TABLE>
<CAPTION>
(In thousands, except per share data)
-------------------------------------
REVENUE 1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Sales $150,999 $164,521 $165,426 $161,429 $157,995
Other 1,223 1,410 1,519 1,630 2,070
-------- -------- -------- -------- --------
Total revenue 152,222 165,931 166,945 163,059 160,065
COSTS AND EXPENSES
Cost of sales
Food and paper 47,027 52,033 53,123 52,299 51,071
Payroll and related 50,978 55,479 58,572 56,335 52,827
Other operating expenses 36,066 41,086 41,650 40,781 37,792
-------- -------- -------- -------- --------
134,071 148,598 153,345 149,415 141,690
General and administrative 4,217 4,625 3,745 4,582 5,030
Advertising 3,670 4,007 4,026 4,008 3,873
Impairment of long-lived assets 375 4,600 -- -- --
Interest expense 3,076 2,373 2,411 1,961 1,554
-------- -------- -------- -------- --------
Total costs and expenses 145,409 164,203 163,527 159,966 152,147
-------- -------- -------- -------- --------
Earnings before income taxes 6,813 1,728 3,418 3,093 7,918
INCOME TAXES
Current 1,871 1,555 1,438 843 3,553
Deferred 397 (1,014) (330) (108) (711)
-------- -------- -------- -------- --------
2,268 541 1,108 735 2,842
-------- -------- -------- -------- --------
NET EARNINGS $ 4,545 $ 1,187 $ 2,310 $ 2,358 $ 5,076
======== ======== ======== ======== ========
BASIC AND DILUTED NET EARNINGS PER SHARE $ .73 $ .17 $ .32 $ .33 $ .71
======== ======== ======== ======== ========
DIVIDENDS PER SHARE
Cash $ .26 $ .24 $ .24 $ .24 $ .24
Stock -- 4% 4% 4% 4%
OTHER FINANCIAL STATISTICS
Capital expenditures $ 11,235 $ 10,221 $ 15,362 $ 23,283 $ 18,312
Total assets 106,724 111,260 118,396 115,548 104,349
Long-term obligations 41,855 30,878 34,631 32,696 24,319
Shareholders' equity 49,910 64,684 65,307 64,627 63,830
Per share $ 8.00 $ 9.05 $ 9.12 $ 9.03 $ 8.91
Return on investment 7.0% 1.8% 3.6% 3.7% 8.4%
Average number of common shares outstanding 6,238 7,151 7,157 7,157 7,160
Percentage (decrease) increase in total revenue (8.3%) (.6%) 2.4% 1.9% 7.4%
Earnings as a percentage of total revenue
Earnings before income taxes 4.5% 1.0% 2.0% 1.9% 4.9%
Net earnings 3.0% .7% 1.4% 1.4% 3.2%
</TABLE>
Note: Per share data, except for dividends, are based on the weighted average
number of common shares outstanding.
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Item 7. - Management's Discussion and Analysis of Financial Condition and
- -------------------------------------------------------------------------
Results of Operations
---------------------
RESULTS OF OPERATIONS
- ---------------------
TOTAL REVENUE was $152,222,000 for the fiscal year ended May 31, 1998, a
decrease of $13,709,000 or 8.3% from last year, and a $14,723,000 decrease when
compared to two years ago. The decrease is primarily due to the closing of
fifteen unprofitable Big Boy restaurants at the end of fiscal 1997. The closed
restaurants contributed $14,576,000 to sales last year, and $15,619,000 in
fiscal 1996. In addition, fiscal 1996 consisted of 53 weeks. The extra week
generated revenue of $3,206,000.
Strong same store sales gains achieved during the last half of fiscal 1998,
stimulated in part by mild winter weather in the Company's markets, erased
year-to-date declines reported through the first half of the year. The second
half sales gain is particularly noteworthy considering that the 1997 winter was
equally mild. Same store sales were moderately higher in fiscal 1997 and down
slightly in fiscal 1996. Outside sales, consisting of carryout and drive-thru
trade, accounted for most of the same store sales increase in fiscal 1998, while
dining room sales remained flat. As home meal replacement has become more
popular throughout the restaurant industry, the Big Boy drive thru/carryout menu
was reformulated to emphasize combo meals. Each combo meal includes one of the
four most popular signature sandwiches, packaged with french fries and a drink
and sold at a lower price than if purchased separately. This proved to be a
better value and more convenient for the customer.
The point-of-sale system also contributed to fiscal 1998 sales gains by ensuring
that all orders were entered correctly and by the elimination of guest check
pricing errors. Menu price increases of approximately 2% were implemented in the
first and third quarters of fiscal 1998. Prices were increased 3% and 2%,
respectively, in the second and third quarters of fiscal 1997, and 2% and 1%,
respectively, in the first and third quarters of fiscal 1996. Another price
increase is currently being planned for autumn 1998.
Average annual sales volume of a Big Boy restaurant in operation for the entire
fiscal 1998 year increased 7.5% to $1,512,000 from $1,406,000 in fiscal 1997.
The average volume was $1,393,000 in the comparable 52 week period in fiscal
1996. The healthy 1998 gain is primarily the result of excluding the fifteen
closed low-volume restaurants from the average. At the end of 1998, the Company
operated 88 Big Boy restaurants and two Quality Hotels. The Company did not open
or close any restaurants during the year.
Hotel sales decreased 3.5% in fiscal 1998, after achieving strong to moderate
sales increases in fiscal years 1997 and 1996. In addition, OTHER REVENUE has
declined due to lower fees earned from Big Boy licensees. At the end of 1998,
there were 34 licensed restaurants operating compared with 54 such restaurants
at the beginning of the three year period. The Company does not expect a
significant reversal of this downward trend in the near term.
COST OF SALES decreased $14,527,000 or 9.8% during fiscal 1998, as costs fell to
88.1% of revenue from 89.6% last year. Cost of sales was 91.9% of revenue in
fiscal 1996. Closing the fifteen unprofitable restaurants was the principal
factor behind the fiscal 1998 improvement. Also, favorable claims experience in
the Company's self-insurance programs allowed estimates for future obligations
to be lowered in all three fiscal years. An analysis of the components of cost
of sales follows.
Lower FOOD AND PAPER COSTS were achieved again in fiscal 1998, falling to 30.9%
of revenue from 31.4% in fiscal 1997, and 31.8% in fiscal 1996. While commodity
prices continue to inch upward, the Company continues to reap the benefits of
effective menu management and the economies of scale afforded by an efficient
commissary operation. In addition, the food cost of carryout and drive-thru
meals is usually lower than for typical dining room meals.
The savings from the food and paper cost component of cost of sales was more
than offset by higher payroll costs, driven by an unrelenting, tight labor
market. Recent increases in the federal minimum wage have not materially
affected payroll costs as market forces are driving higher pay rates. PAYROLL
AND RELATED EXPENSES receive the greatest portion of the insurance reserve
adjustments discussed earlier. Without a reduction for lower insurance reserves,
payroll and related expense would have been 33.8%, 34.2% and 35.4% of revenue,
respectively, for fiscal years 1998, 1997 and 1996. Several factors are driving
these percentages downward in spite of higher pay rates. First, service hours
worked in relation to hours of operation were cut in all three fiscal years in a
move to lower payroll costs. The percentage reduction in fiscal 1998 also
reflects the elimination of higher than average payroll costs in the
Indianapolis area where ten of the fifteen closed restaurants had operated. The
fiscal 1997 reduction from fiscal 1996 resulted
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<PAGE> 9
principally from the permanent structural cost reduction associated with the
Company's withdrawal from the Ohio Workers' Compensation system at the beginning
of fiscal 1997. A new variable compensation program for restaurant managers was
instituted at the beginning of fiscal 1999. Managers now earn variable
compensation equal to certain percentages of cash flows generated at their
restaurant. This change allows incentive compensation to be paid on a more
consistent basis, replacing the long-standing bonus plan that was based on
increases in sales and profits over the previous year that sometimes had the
adverse effect of penalizing better managers. As a result, higher payroll costs
for restaurant management can be expected in fiscal 1999. The Company views the
higher compensation as an investment in human capital, the return on which
should be lower management turnover and reductions in training and other
restaurant costs. In addition, the higher payroll costs will be offset by the
elimination of service trainer management positions and through a fifteen
percent reduction in field supervisors.
OTHER OPERATING EXPENSES decreased to 23.7% of revenue in fiscal 1998 from 24.8%
in fiscal 1997 and 24.9% in fiscal 1996. Lower manager trainee expenses and
lower pre-opening costs are reflected in the fiscal 1998 improvement. The
elimination of fixed costs in the fifteen low-volume closed restaurants also
aided the improvement. Included in last year's other operating costs was a
charge of $485,000 to write-off future occupancy costs of certain leased
property. Fiscal 1996 included a gain of $480,000 from the sale of the Company's
unprofitable Hardee's division.
Countering the fiscal 1998 improvement in total cost of sales were higher
payroll, maintenance and depreciation charges to the hotels. These factors, when
combined with lower room revenue, resulted in hotel operations sustaining an
operating loss in fiscal 1998, the first such loss since fiscal 1992.
GENERAL AND ADMINISTRATIVE EXPENSE in fiscal 1998 decreased $408,000 or 8.8%
less than fiscal 1997 but was 12.6% higher than fiscal 1996. The improvement is
principally due to gains recorded this year from dispositions of property
unrelated to the fifteen restaurants closed at the end of fiscal 1997. Last
year's expense included the cost of the Strategic Planning Committee's
initiatives with respect to the stock repurchase plan, a proxy contest and a
charge to lower the carrying cost of certain property held for sale, all of
which were largely offset by the $880,000 gain on the sale of the Big Boy Farm.
Large gains from the sale of non-operating real estate were also recorded in
fiscal 1996.
ADVERTISING EXPENSE declined proportionately with the lower revenue in fiscal
1998, reflecting the Company's policy of spending a constant percentage of sales
dollars, remaining steady at 2.4% of revenue in the last three fiscal years. In
September 1997, the Company initiated a new marketing relationship with an
agency which is conducting consumer research and making recommendations
influencing strategic direction, marketplace repositioning and execution. To
date, the research has resulted in communications that include new radio and
television commercials that feature consumers' "favorite things at Frisch's"
distinct signature items like the Super Big Boy, hot fudge cake and freshly made
onion rings. The new direction reallocated media dollars with expanded use of
radio to increase the frequency of message delivery and of cable TV to reach
more consumers more cost effectively.
Results for fiscal 1997 were adversely affected by a $4,600,000 IMPAIRMENT OF
LONG-LIVED ASSETS charge associated with the closing of the fifteen unprofitable
Big Boy restaurants. These restaurants sustained pre-tax losses of approximately
$2,200,000 in fiscal 1997 and $2,800,000 in fiscal 1996. In the fourth quarter
of fiscal 1998, the Company absorbed an additional pre-tax impairment of
long-lived assets charge of $375,000 to lower estimates of expected proceeds
from the disposal of the remaining closed properties. Recording impairment
charges is required under Statement of Financial Accounting Standards No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of."
INTEREST EXPENSE in fiscal 1998 increased $702,000 or 29.6% over fiscal 1997 and
27.5% over fiscal 1996 levels, increasing to 2% of revenue from 1.4% last year
and in fiscal 1996. The fiscal 1998 increase included $794,000 on the loan that
funded the Company's repurchase of common stock. Despite the fiscal 1998
increase, improved operating results caused the ratio of pre-tax earnings before
interest to total interest expense to improve to 3.22 to 1, up from 1.73 to l a
year ago, and up from 2.42 to 1 in fiscal 1996. The fiscal 1997 ratio would have
been 3.67 to 1 without last year's impairment charge. Average interest rates on
the Company's revolving credit loan were slightly higher this year. Interest
expense is expected to be lower in fiscal 1999 as the tender offer loan is
repaid. However, the reduction will likely be tempered by borrowing needed to
construct Golden Corral Restaurants in fiscal 1999.
Provision for INCOME TAX EXPENSE as a percentage of pre-tax earnings was 33.3%
in fiscal 1998, compared with 31.3% in fiscal 1997 and 32.4% in fiscal 1996.
Improved profits in fiscal 1998 caused total federal tax credits to be a
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<PAGE> 10
lower percentage of pre-tax earnings, which resulted in a higher effective rate.
In addition, although the Company benefited from the Work Opportunity Tax Credit
for the first time in fiscal 1998, total tax credits were lower in fiscal 1998
due to the loss of FICA tax credits reflected in the fiscal 1997 and fiscal 1996
tax rates that were associated with the fifteen closed restaurants. Subsidiary
filing efficiencies in fiscal years 1998 and 1997 resulted in lower effective
rates for state income tax than was provided for in fiscal 1996.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
CASH PROVIDED BY OPERATING ACTIVITIES in fiscal 1998 was $12,460,000, generated
principally from net income and depreciation. These funds were utilized for
discretionary capital improvements and dividends, and to service debt.
INVESTING ACTIVITIES in fiscal 1998 included $11,240,000 in capital costs, an
increase of $1,020,000 from last year and $4,120,000 lower than fiscal 1996 when
three new Big Boy restaurants were constructed. This year's costs consisted of
$3,670,000 for management information systems, which includes the new
point-of-sale system, $3,850,000 to renovate the hotel properties, $1,150,000 to
remodel Big Boy restaurants, $600,000 for commissary improvements and $1,970,000
in routine equipment replacements and other capital outlays. There was no new
restaurant construction nor was any land acquired for future restaurants.
Proceeds from property sales amounted to $6,800,000, of which $5,060,000 was
from the disposal of six of the fifteen restaurants closed last year. The
Company expects to complete the disposal of the remaining nine closed
restaurants over the next nine to twelve months.
FINANCING ACTIVITIES in fiscal 1998 consisted principally of transactions
involving the stock repurchase plan that was completed during the first quarter,
when 1,142,966 shares of the Company's common stock were repurchased at a cost
of $17,690,000. This transaction is more fully described in note F to the
consolidated financial statements. Funding was provided by a loan agreement
under which $17,140,000 was borrowed. The terms of the agreement required the
application of $5,230,000 of the proceeds from sales of six closed restaurants
to be used to repay the debt. Anticipated proceeds from the sale of the
remaining nine closed restaurants will also be required to service this debt. On
August 6, 1998, the Company announced that it entered into a letter of intent to
sell its limited partnership investment in the Cincinnati Reds professional
baseball team. Although the transaction is conditioned upon the execution of a
definitive sale agreement, approvals by the National League and the General
Partner of the Partnership and waiver of the other team partners' right of first
refusal, the $7,000,000 cash deal is expected to be closed on or before
September 30, 1998. The transaction is expected to result in a pre-tax gain of
$5,800,000. Pursuant to the terms of the tender offer loan agreement discussed
above, the after tax proceeds approximating $4,900,000 will be immediately used
to further reduce the loan's outstanding principal. Financing activities in
fiscal 1998 also included $1,500,000 borrowed under the Company's $16,000,000
revolving line of credit. Scheduled long-term debt payments of $2,070,000 were
made and four regular quarterly cash dividends to shareholders totaling
$1,630,000 were paid in fiscal 1998.
The Company expects funds from operations to be sufficient to cover near term
capital spending on Big Boy and hotel facilities, scheduled debt service
unrelated to the tender offer loan and regular quarterly cash dividends. While
the Company does not currently plan to build any new Big Boy restaurants during
the next twelve months, fiscal 1999 is the final year of a five year plan to
totally renovate both hotel properties. The fiscal 1999 outlay for hotel
renovations is expected to be approximately $3,300,000. Twenty-one Big Boy
restaurants will be remodeled in fiscal 1999 at an average cost of $75,000 each.
Through the end of fiscal 1998, the point-of-sale system has been installed in
42 Big Boy restaurants. The remaining 46 installations are expected to be
completed by January 1999 requiring a capital outlay of approximately $55,000 to
$60,000 per restaurant.
The terms of a recently signed development agreement with Golden Corral
Franchising Systems, Inc. call for the Company to open 23 Golden Corral
restaurants over the next seven years, including two during calendar year 1998.
In addition, the agreement requires that three more restaurants be opened and in
operation by the end of calendar year 1999. Site selection work is currently
underway. The Company has entered into agreements to purchase sites for the
first two restaurants. Costs will be funded through cash flow, existing lines of
credit and additional borrowing. The average cost to build and equip each Golden
Corral restaurant is expected to be $2,400,000, including land.
Year 2000 Impact
- ----------------
The Company has identified its Year 2000 compliance issues and is currently
executing a plan to insure that its information systems are fully Year 2000
compliant. The cost of compliance is not expected to have a material impact on
the Company's financial position, results of operations, or cash flows. Although
the Company has not yet determined the extent of vendor's software compliance,
management believes the risk due to third-party non-
10
<PAGE> 11
compliance will be immaterial.
Safe Harbor Statement
- ---------------------
Statements included 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 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, but are not limited
to, 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.
Item 7A. - Quantitative and Qualitative Disclosures About Market Risk
- ---------------------------------------------------------------------
Not applicable.
<TABLE>
<CAPTION>
Item 8. - Financial Statements and Supplementary Data Page
- ----------------------------------------------------- ----
<S> <C>
Index to Consolidated Financial Statements
Auditors' Report 12
Consolidated Balance Sheet - May 31, 1998 and June 1, 1997 13-14
Consolidated Statement of Earnings - Three years ended May 31, 1998 15
Consolidated Statement of Cash Flows - Three years ended May 31, 1998 16
Consolidated Statement of Shareholders' Equity - Three years ended May 31, 1998 17
Notes to Consolidated Financial Statements - Three years ended May 31, 1998 18-26
Quarterly Results (Unaudited) 26
</TABLE>
11
<PAGE> 12
AUDITORS' REPORT
Shareholders
Frisch's Restaurants, Inc.
We have audited the accompanying consolidated balance sheet of Frisch's
Restaurants, Inc. (an Ohio corporation) and Subsidiaries as of May 31, 1998 and
June 1, 1997 and the related consolidated statements of earnings, cash flows,
and shareholders' equity for each of the three years in the period ended May 31,
1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Frisch's
Restaurants, Inc. and Subsidiaries as of May 31, 1998 and June 1, 1997, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended May 31, 1998, in conformity with generally
accepted accounting principles.
As discussed in Note A to the consolidated financial statements, in 1997
the Company adopted the provisions of Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of."
GRANT THORNTON LLP
Cincinnati, Ohio
July 8, 1998 (except for Note I, as to which the date is August 6, 1998)
12
<PAGE> 13
FRISCH'S RESTAURANTS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
May 31, 1998 and June 1, 1997
ASSETS
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
CURRENT ASSETS
Cash $ 84,260 $ 231,453
Receivables
Trade 782,101 1,037,001
Other 236,670 190,312
Inventories 3,638,740 3,657,844
Prepaid expenses and sundry deposits 827,571 957,311
Prepaid and deferred income taxes 939,089 808,198
------------ ------------
Total current assets 6,508,431 6,882,119
PROPERTY AND EQUIPMENT
Land and improvements 20,171,685 19,788,269
Buildings 50,172,522 48,319,998
Equipment and fixtures 54,750,152 51,021,079
Leasehold improvements and buildings on leased land 26,321,313 24,913,657
Capitalized leases 8,682,298 9,096,008
------------ ------------
160,097,970 153,139,011
Less accumulated depreciation and amortization 77,901,512 72,374,953
------------ ------------
Net property and equipment 82,196,458 80,764,058
OTHER ASSETS
Intangible assets 752,867 756,943
Investments in land 1,737,933 1,953,130
Property held for sale 7,853,073 13,628,457
Net cash surrender value-life insurance policies 3,767,594 3,613,878
Deferred income taxes 891,243 1,530,868
Other 3,016,124 2,130,512
------------ ------------
Total other assets 18,018,834 23,613,788
------------ ------------
$106,723,723 $111,259,965
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
13
<PAGE> 14
CONSOLIDATED BALANCE SHEET
May 31, 1998 and June 1, 1997
<TABLE>
<CAPTION>
LIABILITIES
1998 1997
------------ ------------
<S> <C> <C>
CURRENT LIABILITES
Long-term obligations due within one year
Long-term debt $ 1,500,000 $ 1,723,890
Obligations under capitalized leases 458,480 470,497
Self insurance 877,725 1,095,993
Accounts payable 6,342,187 6,357,177
Accrued expenses 5,779,923 6,051,004
------------ ------------
Total current liabilities 14,958,315 15,698,561
LONG-TERM OBLIGATIONS
Long-term debt 29,914,490 17,875,000
Obligations under capitalized leases 5,597,202 6,055,682
Self insurance 3,623,276 4,151,229
Other 2,720,454 2,795,689
------------ ------------
Total long-term obligations 41,855,422 30,877,600
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
shares - stated value - $1 7,362,279 7,362,279
Additional contributed capital 60,427,299 60,427,514
------------ ------------
67,789,578 67,789,793
Retained earnings 3,347,485 432,732
------------ ------------
71,137,063 68,222,525
Less cost of treasury stock (1,356,821 and 213,945 shares) 21,227,077 3,538,721
------------ ------------
Total shareholders' equity 49,909,986 64,683,804
------------ ------------
$106,723,723 $111,259,965
============ ============
</TABLE>
14
<PAGE> 15
FRISCH'S RESTAURANTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF EARNINGS
Three years ended May 31, 1998
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
REVENUE
Sales $150,999,125 $164,521,025 $165,425,731
Other 1,222,580 1,410,384 1,519,025
------------ ------------ ------------
Total revenue 152,221,705 165,931,409 166,944,756
COSTS AND EXPENSES
Cost of sales
Food and paper 47,027,012 52,032,873 53,123,133
Payroll and related 50,977,525 55,478,791 58,571,618
Other operating costs 36,066,384 41,086,258 41,650,300
------------ ------------ ------------
134,070,921 148,597,922 153,345,051
General and administrative 4,217,150 4,625,243 3,745,047
Advertising 3,669,902 4,007,381 4,025,872
Impairment of long-lived assets 375,000 4,600,000 --
Interest 3,075,615 2,373,313 2,411,313
------------ ------------ ------------
Total cost and expenses 145,408,588 164,203,859 163,527,283
------------ ------------ ------------
Earnings before income taxes 6,813,117 1,727,550 3,417,473
INCOME TAXES
Current
Federal 1,862,251 1,723,149 1,366,294
Less tax credits (198,532) (233,396) (290,884)
State and municipal 207,632 56,228 362,549
Deferred 397,033 (1,014,078) (330,225)
------------ ------------ ------------
2,268,384 540,903 1,107,734
------------ ------------ ------------
NET EARNINGS $ 4,544,733 $ 1,186,647 $ 2,309,739
============ ============ ============
Basic and diluted net earnings
per share $.73 $.17 $.32
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
15
<PAGE> 16
FRISCH'S RESTAURANTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
Three years ended May 31, 1998
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Net income $ 4,544,733 $ 1,186,647 $ 2,309,739
Adjustments to reconcile net income
to net cash from operating activities:
Depreciation and amortization 9,256,466 10,486,163 10,350,326
Gain on disposition of assets (896) (561,918) (829,854)
Impairment of long-lived assets 375,000 4,600,000 --
Changes in assets and liabilities:
Decrease (increase) in receivables 208,542 843,428 (524,259)
Decrease in inventories 19,104 67,911 219,905
Decrease in prepaid expenses and sundry deposits 129,740 322,695 425,457
Decrease (increase) in prepaid and deferred income taxes 508,735 (435,679) (770,221)
Decrease in accounts payable (14,990) (1,751,847) (463,142)
(Decrease) increase in accrued expenses (271,081) 245,742 46,606
(Decrease) increase in accrued income taxes -- (50,161) 50,161
(Increase) decrease in other assets (1,469,493) (80,346) 111,697
(Decrease) increase in self insured obligations (746,221) (2,494,846) 878,681
(Decrease) increase in other liabilities (75,235) 372,204 216,129
------------ ------------ ------------
Net cash provided by operating activities 12,464,404 12,749,993 12,021,225
CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES:
Additions to property (11,235,376) (10,221,353) (15,362,001)
Proceeds from disposition of property 6,798,563 2,696,741 3,941,466
Increase in other assets (201,336) (156,845) (104,970)
------------ ------------ ------------
Net cash (used in) investing activities (4,638,149) (7,681,457) (11,525,505)
CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES:
Proceeds from borrowings 18,644,490 3,000,000 8,000,000
Payment of long-term debt and capital lease obligations (7,299,387) (6,162,150) (6,950,329)
Cash dividends paid (1,629,980) (1,699,302) (1,630,097)
Treasury share transactions (17,688,571) (110,575) --
------------ ------------ ------------
Net cash (used in) financing activities (7,973,448) (4,972,027) (580,426)
------------ ------------ ------------
Net (decrease) increase in cash and equivalents (147,193) 96,509 (84,706)
Cash and equivalents at beginning of year 231,453 134,944 219,650
------------ ------------ ------------
Cash and equivalents at end of year $ 84,260 $ 231,453 $ 134,944
============ ============ ============
Supplemental disclosures:
Stock dividends issued $ -- $ 3,915,326 $ 2,441,304
Interest paid 2,700,697 2,474,985 2,549,352
Income taxes paid 1,984,439 1,919,485 2,319,962
Income tax refunds received 224,789 892,742 492,168
Lease transactions capitalized -- 407,247 390,000
</TABLE>
The accompanying notes are an integral part of these statements.
16
<PAGE> 17
FRISCH'S RESTAURANTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
Three years ended May 31, 1998
<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 the year -- -- 2,309,739 -- 2,309,739
Dividends
Cash - $.24 per share -- -- (1,630,097) -- (1,630,097)
Stock - 4% 271,256 2,170,048 (2,441,304) -- --
---------- ----------- ----------- ------------ ------------
Balance at June 2, 1996 7,080,195 56,794,272 4,860,713 (3,428,146) 65,307,034
Net earnings for the year -- -- 1,186,647 -- 1,186,647
Treasury shares acquired -- -- -- (110,575) (110,575)
Dividends
Cash - $.24 per share -- -- (1,699,302) -- (1,699,302)
Stock - 4% 282,084 3,633,242 (3,915,326) -- --
---------- ----------- ----------- ------------ ------------
Balanced at June 1, 1997 7,362,279 60,427,514 432,732 (3,538,721) 64,683,804
Net earnings for the year -- -- 4,544,733 -- 4,544,733
Treasury shares reissued -- (215) -- 1,407 1,192
Treasury shares acquired -- -- -- (17,689,763) (17,689,763)
Dividends
Cash - $.26 per share -- -- (1,629,980) -- (1,629,980)
---------- ----------- ----------- ------------ ------------
Balance at May 31, 1998 $7,362,279 $60,427,299 $ 3,347,485 ($21,227,077) $ 49,909,986
========== =========== =========== ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
17
<PAGE> 18
FRISCH'S RESTAURANTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three years ended May 31, 1998
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, most of
which have "drive-thru" service, which use the trade 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," "Quality Hotel," and "Golden Corral."
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, net
realizable value of property 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 for the years ended May 31, 1998 and
June 1, 1997.
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
- ----------------------
Property and equipment are stated at cost. Depreciation is provided principally
on the straight-line method over the estimated service lives of the assets.
Investments in land, consisting of land on which construction is not likely
within the next twelve months, is also stated at cost.
18
<PAGE> 19
Intangible and Other Assets
- ---------------------------
The excess of cost over equity in net assets of subsidiaries acquired prior to
November 1, 1970, is not currently being amortized because, in the opinion of
management, the value has not decreased.
Advertising Costs
- -----------------
Advertising costs are charged to expense as incurred. There are no significant
advertising costs on the balance sheet for the years ended May 31, 1998 and June
1, 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
was $35,000 in 1998, $584,000 in 1997, and $1,271,000 in 1996. The American
Institute of Certified Public Accountants has issued Statement of Position 98-5
(SOP 98-5), "Reporting on the Costs of Start-Up Activities." SOP 98-5 requires
new store opening costs to be expensed as incurred. Although not required to do
so until fiscal 2000, the Company has elected early application and will expense
these costs as incurred beginning in fiscal year 1999.
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 insurance coverages. Self
insurance costs are accrued based on management's estimate for future claims.
There is insurance in place which provides for catastrophic self insured losses.
Recognition of Franchise Fee Revenue
- ------------------------------------
Franchise fees, based on sales of Big Boy franchisees, are recorded on the
accrual method as earned. Initial franchise fees, of which there has been no
significant income during the last three years, are recognized as revenue when
the licensed restaurants begin operations.
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 professional
baseball team is carried at cost. Distributions of partnership income are
recorded in earnings when received. No distributions have been received during
the last three years. The Company has committed to actively pursue the sale of
this asset (see notes C and I).
Fiscal Year
- -----------
The Company's fiscal year ends on the Sunday nearest to the last day of May.
Fiscal years 1998 and 1997 were comprised of 52 weeks. Fiscal 1996 was comprised
of 53 weeks.
19
<PAGE> 20
Stock Based Compensation
- ------------------------
The Company accounts for stock options using the intrinsic value method of
measuring compensation expense prescribed by Accounting Principles Board Opinion
No. 25 (APB 25), as permitted by Statement of Financial Accounting Standards No.
123 (SFAS 123), "Accounting for Stock Based Compensation." When required, pro
forma disclosures of net income and earnings per share based on options granted
and stock issued are reflected in Note F - Capital Stock.
Accounting for the Impairment of Long-Lived Assets
- --------------------------------------------------
In the first quarter of fiscal 1997, the Company adopted Statement of Financial
Accounting Standards No. 121 (SFAS 121), "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of." 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 immediate effect
upon adoption was immaterial.
During the fourth quarter of fiscal 1997, the Company made a further review of
operations in those markets in which losses occurred and determined that all ten
restaurants in the Indianapolis market and five other restaurants in three other
areas should be closed. The restaurants chosen for closing incurred combined
pre-tax operating losses of approximately $2,200,000 in fiscal 1997 and
$2,800,000 in 1996. A non-cash pre-tax charge of $4,600,000 was recorded in
fiscal 1997 as an impairment loss to reduce the carrying costs of the properties
to net realizable value as determined by the Company's experience in disposing
of other unprofitable restaurant properties and estimates provided by real
estate brokers. During the fourth quarter of fiscal 1998, the Company recorded
an additional charge of $375,000 to further lower the net realizable value of
the properties remaining to be sold.
NOTE B - PROPERTY HELD FOR SALE
Of the fifteen properties closed at the end of fiscal 1997 as described in note
A, six have been disposed of through May 31, 1998. The sale proceeds were used
to repay borrowings under the loan agreement that funded the Company's recent
modified "Dutch Auction" self-tender offer (see notes C and F). The remaining
nine properties are listed for sale with a broker, and are carried at a net
realizable value of approximately $7,324,000 on the Company's balance sheet at
May 31, 1998 as a component of the caption "Property held for sale." The Company
expects to dispose of the majority of these restaurant properties within the
next nine to twelve months. Certain surplus land is also currently held for sale
and is stated at cost.
NOTE C - LONG-TERM DEBT
<TABLE>
<CAPTION>
1998 1997
---------------------- ---------------------
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 $ -- $12,500 $ -- $11,000
Term loan 1,500 5,500 1,500 6,875
Tender offer -- 11,914 -- --
Other -- -- 224 --
------ ------- ------ -------
$1,500 $29,914 $1,724 $17,875
====== ======= ====== =======
</TABLE>
20
<PAGE> 21
The portion payable after one year matures as follows:
<TABLE>
<CAPTION>
1998 1997
------- -------
(in thousands)
<S> <C> <C>
Period ending in 1999 $ -- $ 1,500
2000 25,914 12,500
2001 1,500 1,500
2002 1,500 1,500
2003 1,000 875
Subsequent to 2003 -- --
------- -------
$29,914 $17,875
======= =======
</TABLE>
The revolving credit loan is a $16,000,000 line of credit, $12,500,000 of which
is outstanding at May 31, 1998. This credit loan matures on September 1, 1999,
unless extended. Interest is payable quarterly determined by various indices,
currently 6.63%. 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, not to exceed 8.5%.
The tender offer loan was arranged to fund the Company's repurchase of up to
1,000,000 shares of the Company's common stock in August 1997 (see note F). Of
$17,144,000 borrowed, $5,230,000 had been repaid as of May 31, 1998 (see note
B), reducing the balance outstanding to $11,914,000. The loan agreement matures
on August 15, 1999. Interest is payable monthly at the lender's prime rate or a
LIBOR-adjusted rate, at the option of the Company. The LIBOR-adjusted rate of
7.16% was in effect as of May 31, 1998. The loan is collateralized by the real
property and equipment owned by the Company at the nine remaining closed
restaurant locations (see note B), the cash value of all life insurance policies
owned by the Company and a security assignment of the after tax proceeds from
the possible sale of the Company's limited partnership investment in the
Cincinnati Reds professional baseball team. The Company expects to repay
borrowings under the loan agreement through the sale of the remaining restaurant
properties and its interest in the Cincinnati Reds, and is required by the loan
agreement to immediately apply the after tax proceeds from the sale of these
assets against the outstanding indebtedness. Internally generated funds may also
be needed to service the debt. When the credit facility is retired, the
Company's $16,000,000 revolving line of credit will be restored to $20,000,000.
These loan 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.
The Company also has three outstanding letters of credit totaling $1,546,000 in
support of its self insurance program.
NOTE D - LEASED PROPERTY
The Company has capitalized the leased property of 47% 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, with a
renewal option available through 2013.
An analysis of the capitalized leased property follows:
Asset balances at
------------------------
1998 1997
------- -------
(in thousands)
Restaurant facilities $ 7,705 $ 8,119
Equipment 977 977
------- -------
8,682 9,096
Less accumulated amortization (5,059) (4,924)
------- -------
$ 3,623 $ 4,172
======= =======
Total rental expense of operating leases was approximately $1,416,000 in 1998,
$1,438,000 in 1997 and $1,575,000 in 1996.
Future minimum lease payments under capitalized leases and operating leases
having an initial or remaining term of one year or more follow:
21
<PAGE> 22
<TABLE>
<CAPTION>
Capitalized Operating
Year ending in: leases leases
--------------- ------ ------
(in thousands)
<S> <C> <C>
1999 $ 1,085 $1,236
2000 1,030 1,205
2001 927 1,098
2002 886 851
2003 873 683
2004 to 2020 5,406 3,084
------- ------
Total 10,207 $8,157
======
Amount representing interest (4,152)
-------
Present value of obligations 6,055
Portion due within one year (458)
-------
Long-term obligations $ 5,597
=======
</TABLE>
NOTE E - INCOME TAXES
The variations between the statutory Federal rate and the effective rates are
summarized as follows:
<TABLE>
<CAPTION>
Percent of pretax earnings
--------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Statutory U.S. Federal income tax 34.0 34.0 34.0
Tax credits (2.9) (13.5) (8.5)
State and municipal income taxes
(net of Federal tax benefit) 2.0 2.1 7.0
Other .2 8.7 (.1)
---- ---- ----
Effective Rate 33.3 31.3 32.4
==== ==== ====
</TABLE>
The components of the deferred tax asset (liability) were as follows (in
thousands):
1998 1997
---- ----
Deferred compensation $ 665 $ 648
Compensated absences 590 607
Self insurance 1,385 1,640
Impairment of assets 1,331 1,564
Other 369 290
------- -------
Total deferred tax assets 4,340 4,749
New store opening cost -- (12)
Partnership interest (62) (174)
Investment in tax benefits (430) (594)
Depreciation (1,652) (1,384)
Pension contributions (195) (153)
Other (508) (408)
------- -------
Total deferred tax liabilities (2,847) (2,725)
------- -------
Net deferred tax asset $ 1,493 $ 2,024
======= =======
The Internal Revenue Service (IRS) has completed its examination of the
Company's 1994 Federal income tax return. During the examination, the scope of
the audit was expanded to include returns for 1995 and 1996 as well. The IRS has
proposed additional taxes aggregating $236,000 plus interest. The Company
continues to believe that it has meritorious defenses to most of the proposed
deficiencies and is vigorously contesting this action. In any event, the
ultimate liability will have no material impact on the Company's statement of
earnings, as such taxes would be recovered in future years.
22
<PAGE> 23
NOTE F - 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 fair market value on the date
granted and may include stock appreciation rights. On May 11, 1998, certain key
employees were granted options to purchase 37,500 shares at $12.38 per share,
the market value on the date granted. These options vest in three equal annual
installments and expire 10 years from the date of grant.
The 1984 Stock Option Plan expired 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, subsequently adjusted for stock
dividends in accordance with the anti-dilution provisions of the plan.
Transactions involving both the 1993 and 1984 plans are summarized below:
<TABLE>
<CAPTION>
1998 1997 1996
--------------------------- ------------------------- -------------------------
NO. OF OPTION No. of Option No. Of Option
SHARES PRICE Shares Price Shares Price
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Outstanding and
exercisable at
beginning of year 259,835 $14.38 TO $20.83 259,423 $14.95 to $21.66 262,604 $15.55 to $22.43
Granted during the year 37,500 $12.38 -- --
Exercised during the year -- -- --
Expired during the year (162,922) $16.81 (9,765) $16.81 to $17.48 (13,156) $18.18
Increase for 4% stock
dividend -- 10,177 $14.38 to $20.83 9,975 $14.95 to $21.66
-------- ------- -------
Outstanding at
end of year 134,413 $12.38 TO $20.83 259,835 $14.38 to $20.83 259,423 $14.95 to $21.66
======== ======= =======
Exercisable at
end of year 96,913 $14.38 TO $20.83 259,835 $14.38 to $20.83 259,423 $14.95 to $21.66
======== ======= =======
</TABLE>
Pro forma net income and net income per common share were determined as if the
Company had accounted for the stock options granted in 1998 using the fair value
method as prescribed by SFAS 123. The fair value of each option granted is
estimated on the date of the grant using the modified Black-Scholes option
pricing model with the following weighted average assumptions: dividend yield of
2.38%; expected volatility of 22.35%; risk free interest rate of 5.75% and
expected lives of five years. The weighted average fair value of the options
granted in 1998 was $2.93 per share. The pro forma effect of these options on
net earnings, basic and diluted earnings per share was not material.
The Company also has reserved 58,492 common shares for issuance under the Frisch
Executive Savings Plan. Shares reserved under these plans have been adjusted for
stock dividends. There are no other outstanding options, warrants or rights.
Modified "Dutch Auction" Self-Tender Offer
- ------------------------------------------
On July 8, 1997, the Board of Directors approved the repurchase of up to
1,000,000 shares of the Company's common stock from existing shareholders
subject to the terms of a modified "Dutch Auction" self-tender offer. The tender
offer provided for a net cash price not greater than $17.00 nor less than $15.00
per share. Repurchases of 1,142,966 shares at $15.00 per share were completed on
August 15, 1997 at a cost of approximately $17,690,000. As permitted by the
terms of the offer, the Company increased the number of shares repurchased by
142,966 shares. Since 1,212,479 shares were tendered at $15.00 per share, a
proration was made among the shareholders who tendered at that price. Before the
repurchase of the shares, the Company had 7,148,334 shares of common stock
outstanding. Immediately following the repurchase, the Company had 6,005,368
shares of common stock outstanding.
23
<PAGE> 24
Earnings Per Share
- ------------------
The Company adopted Statement of Financial Accounting Standards No. 128 (SFAS
128), "Earnings Per Share," on December 15, 1997. SFAS 128 simplifies
established standards by requiring a presentation of basic earnings per share
(EPS), and if applicable, diluted EPS, instead of primary and fully diluted EPS.
The adoption of SFAS 128 had no impact on the recalculation of prior period
earnings per share.
The computation of basic EPS is based on the weighted average number of
outstanding common shares during the year: 6,237,761 in 1998, 7,151,145 in 1997
and 7,156,789 in 1996.
Diluted EPS includes the effect of common stock equivalents which assumes the
exercise of dilutive stock options. Stock options outstanding for the years
ended May 31, 1998 and June 2, 1996 were not included in the computation of
diluted EPS because their exercise prices exceeded the average market price of
the common shares. The year ended June 1, 1997 included 132 shares of common
stock equivalents in the computation of diluted EPS.
NOTE G - PENSION PLANS
Net pension expense included the following components (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Service cost - benefits earned during the period $ 1,209 $ 1,128 $ 1,022
Interest cost on projected benefit obligations 1,013 1,020 939
Investment gain on plan assets (4,449) (2,736) (3,032)
Net amortization and deferral 2,514 940 1,439
------- ------- -------
Net periodic pension cost $ 287 $ 352 $ 368
======= ======= =======
</TABLE>
The following table sets forth the plans' funded status and amounts recognized
in the Company's balance sheet at May 31, 1998 and June 1, 1997 (in thousands):
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Plan assets at fair market value, primarily marketable securities and insurance funds $23,189 $19,242
------- -------
Actuarial present value of benefit obligations:
Vested benefits 10,178 9,217
Non vested benefits 1,037 1,033
------- -------
Accumulated benefit obligations 11,215 10,250
Effect of projected future salary increases 3,550 3,542
------- -------
Projected benefit obligations 14,765 13,792
------- -------
Plan assets in excess of projected benefit obligations (including approximately
$380 at 1998 and $361 at 1997 withdrawable by participants upon demand) 8,424 5,450
Unrecognized net gains (7,761) (5,284)
Unrecognized prior service cost 669 739
Unrecognized net transition (assets) (948) (1,185)
------- -------
Net prepaid (accrued) pension cost included in the balance sheet $ 384 $ (280)
======= =======
</TABLE>
Assumptions used to develop net periodic pension cost and the actuarial present
value of projected benefit obligations:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Expected long-term rate of return on plan assets 8.50% 8.50% 8.50%
Weighted average discount rate 7.25 7.25 7.25
Rate of increase in compensation levels 5.50 5.50 5.50
</TABLE>
The Company is required to adopt Statement of Financial Accounting Standards No.
132 (SFAS 132), "Employers' Disclosures about Pensions and Other Postretirement
Benefits" in fiscal year 1999. SFAS 132 standardizes the
24
<PAGE> 25
disclosure requirements for pensions and other postretirement benefits and
requires additional information on changes in the benefit obligations and fair
values of plan assets. Since SFAS 132 does not change the measurement or
recognition of these plans, its adoption will not affect the Company's statement
of earnings.
NOTE H - SEGMENT INFORMATION
The Company operates principally in the food service and lodging industries.
Prior to 1997, operations in the food service industry constituted a dominant
segment in accordance with Statement of Financial Accounting Standards No. 14
(SFAS 14), "Financial Reporting Segments of a Business Enterprise." Operations
in the food service industry are vertically integrated, and include the
manufacture and distribution of food products and supplies to the Company's
restaurants and to licensees for resale to the general public. Fees are charged
to licensees for use of trademarks and tradenames and for advertising services
based principally on percentage of sales. Intersegment sales are immaterial.
<TABLE>
<CAPTION>
(in thousands)
--------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Revenue
Food service $140,697 $153,981 $155,283
Lodging 11,525 11,950 11,662
-------- -------- --------
$152,222 $165,931 $166,945
======== ======== ========
Operating profit (loss)
Food service $ 13,055 $ 6,848 $ 7,482
Lodging (172) 468 573
-------- -------- --------
$ 12,883 $ 7,316 $ 8,055
======== ======== ========
Identifiable assets
Food service $ 92,463 $ 99,383 $108,978
Lodging 14,261 11,877 9,418
-------- -------- --------
$106,724 $111,260 $118,396
======== ======== ========
Depreciation and amortization
Food service $ 7,828 $ 9,301 $ 9,533
Lodging 1,428 1,185 817
-------- -------- --------
$ 9,256 $ 10,486 $ 10,350
======== ======== ========
Capital expenditures
Food service $ 7,141 $ 6,554 $ 11,644
Lodging 4,094 3,667 3,718
-------- -------- --------
$ 11,235 $ 10,221 $ 15,362
======== ======== ========
</TABLE>
Impairment losses of $375,000 and $4,600,000 respectively were charged against
food service operating profit in 1998 and 1997.
The Company is required to adopt Statement of Financial Accounting Standards No.
131 (SFAS 131) "Disclosures about Segments of an Enterprise and Related
Information" in fiscal year 1999. SFAS 131 establishes standards for reporting
information about operating segments and related disclosures about products and
services, geographic areas and major customers. The Company does not believe
that it presently operates in more than the two segments identified in the table
above.
NOTE I - SUBSEQUENT EVENT
On August 6, 1998, the Company entered into a letter of intent to sell its
limited partnership investment in the Cincinnati Reds professional baseball team
for $7,000,000 in cash. Under the terms of the letter of intent, which was
approved by the Board of Directors, the transaction is to be closed on or before
September 30, 1998. The transaction is conditioned upon the execution of a
definitive sale agreement, approvals by the National League and the General
Partner of the Partnership and waiver of the other team partners' right of first
refusal. The transaction is expected to result in a pre-tax gain of $5,800,000.
The after tax proceeds, expected to be approximately $4,900,000, have been
pledged as a security assignment pursuant to the terms of a loan agreement dated
July 9, 1997 (see note C) and will be
25
<PAGE> 26
immediately applied against the outstanding principal.
QUARTERLY RESULTS (UNAUDITED)
<TABLE>
<CAPTION>
Year Ended May 31, 1998 Year Ended June 1, 1997
----------------------------------------------------- ---------------------------------------------
(In Thousands) (In Thousands)
------------------------------------- --------------------------------
Net Earnings
Gross Net Earnings Gross earnings (loss)
Revenue profit earnings per share Revenue profit (loss) per share
-------- ------- -------- --------- -------- ------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1st Quarter $ 46,529 $ 5,536 $1,703 $.25 $ 51,730 $ 5,553 $ 1,427 $.20
2nd Quarter 35,927 4,224 1,378 .23 39,607 4,023 937 .13
3rd Quarter 34,032 3,442 750 .12 35,927 2,682 203 .03
4th Quarter 35,734 3,726 714 .12 38,667 3,665 (1,380) (.19)
-------- ------- ------ ------ -------- ------- ------- ------
Year's Total $152,222 $16,928 $4,545 $.73 $165,931 $15,923 $ 1,187 $.17
======== ======= ====== ====== ======== ======= ======= ======
</TABLE>
The first quarter of each year contained sixteen weeks, while the last three
quarters each contained twelve weeks.
Net earnings for the first quarters of 1998 and 1997 included favorable
adjustments of $450,000 and $1,200,000, respectively, resulting from lower than
anticipated claims in the Company's self insured casualty insurance program.
The fourth quarters of fiscal 1998 and 1997 included an impairment loss of
$250,000 and $3,040,000 respectively, net of tax, resulting from the closing
of fifteen underperforming restaurants. In addition, the fourth quarter of both
years includes adjustments of income tax to reflect the actual effective tax
rate for the year. A $75,000 charge was absorbed in 1998 while 1997 included a
favorable adjustment of $170,000.
Quarterly earnings per share amounts for 1998 do not sum to the earnings per
share for the year due to changes in the weighted average resulting from the
Company's repurchase of 1,142,966 shares of common stock.
Item 9. - Changes in and Disagreements with Accountants on Accounting and
- -------------------------------------------------------------------------
Financial Disclosure
--------------------
Not applicable.
26
<PAGE> 27
PART III
(Items 10 through 13)
Item 10. - Directors and Executive Officers of the Registrant
- -------------------------------------------------------------
Information regarding directors is incorporated by reference to the Registrant's
proxy statement to be filed with the Securities and Exchange Commission within
120 days after May 31, 1998.
Information regarding executive officers appears at the end of Part I.
Item 11. - Executive Compensation
- ---------------------------------
Incorporated by reference to the Registrant's proxy statement to be filed with
the Securities and Exchange Commission within 120 days after May 31, 1998.
Item 12. - Security Ownership of Certain Beneficial Owners and Management
- -------------------------------------------------------------------------
Incorporated by reference to the Registrant's proxy statement to be filed with
the Securities and Exchange Commission within 120 days after May 31, 1998.
Item 13. - Certain Relationships and Related Transactions
- ---------------------------------------------------------
Incorporated by reference to the Registrant's proxy statement to be filed with
the Securities and Exchange Commission within 120 days after May 31, 1998.
PART IV
Item 14. - Exhibits, Financial Statement Schedules, and Reports on Form 8-K
- ---------------------------------------------------------------------------
a). List of documents filed as part of this report.
1. Financial Statements
All financial statements of the Registrant as set forth under Part II,
Item 8
2. Financial Statement Schedules
All schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required
under the related instructions or are not applicable and, therefore,
have been omitted.
3. Exhibits
(3) Articles of Incorporation and By-Laws
-------------------------------------
(3) (a) Exhibit (3)(a) to the Registrant's Form 10-K Annual Report
for 1993, being The Third Amended Articles of Incorporation, is
incorporated herein by reference.
(3) (b) Exhibit (3)(a) to the Registrant's Form 10-Q Quarterly
Report for December 15, 1996, being the Code of Regulations, is
incorporated herein by reference.
(3) (c) Exhibit (3)(b) to the Registrant's Form 10-Q Quarterly
Report for December 15, 1996, being Amendments to Regulations
adopted October 1, 1984, is incorporated herein by reference.
27
<PAGE> 28
(3) (d) Exhibit (3)(c) to the Registrant's Form 10-Q Quarterly
Report for December 15, 1996, being Amendments to Regulations
adopted October 24, 1996, is incorporated herein by reference.
(10) Material Contracts
------------------
(10) (a) Exhibit (10)(a) to the Registrant's Form 10-Q Quarterly
Report for December 14, 1997, being Area Development Agreement and
Addendum between the Registrant and Golden Corral Franchising
Systems, Inc. effective January 6, 1998, is incorporated herein by
reference.
(10) (b) Exhibit (10)(a) to the Registrant's Form 10-K annual
Report for 1997, being employment agreement between the Registrant
and Jack C. Maier effective June 2, 1997, is incorporated herein by
reference.
(10) (c) Exhibit (10)(a) to the Registrant's Form 10-K Annual
Report for 1995, being employment contract between the Registrant
and Jack C. Maier effective May 29,1995, is incorporated herein by
reference.
(10) (d) Exhibit (10)(b) to the Registrant's Form 10-K Annual
Report for 1995, being employment contract between the Registrant
and Craig F. Maier effective May 29, 1995, is incorporated herein
by reference.
(10) (e) Exhibit 10(a) to the Registrant's Form 10-Q Quarterly
Report for September 17, 1995, being the Frisch's Executive Savings
Plan effective November 15, 1993, is incorporated herein by
reference.
(10) (f) Exhibit 10(b) to the Registrant's Form 10-Q Quarterly
Report for September 17, 1995, being the Frisch's Executive
Retirement Plan effective June 1, 1994, is incorporated herein by
reference.
(10) (g) Exhibit 10(a) to the Registrant's Form 10-K Annual Report
for 1994, being the 1993 Stock Option Plan (Appendix A to the
Registrant's Proxy Statement dated August 24, 1993), is
incorporated herein by reference.
(10) (h) Exhibit (10)(a) to the Registrant's Form 10-K Annual
Report for 1990, being employment contract between the Registrant
and Jack C. Maier dated July 20, 1990, is incorporated herein by
reference.
(10) (i) Exhibit (10)(e) to the Registrant's Form 10-K Annual
Report for 1985, being the 1984 Stock Option Plan, is incorporated
herein by reference.
(10) (j) Exhibit (10)(f) to the Registrant's Form 10-K Annual
Report for 1990, being First Amendment to the 1984 Stock Option
Plan, is incorporated herein by reference.
(10) (k) Exhibit (10)(g) to the Registrant's Form 10-K Annual
Report for 1990, being Agreement between the Registrant and Craig
F. Maier dated November 21, 1989, is incorporated herein by
reference. There is an identical agreement between the Registrant
and Marvin G. Fields.
(10) (l) Exhibit (10)(f) to the Registrant's amended Form 10-K
Annual Report for 1988, being the Restated and Amended Area
Franchise Agreement between Elias Brothers Restaurants, Inc. and
the Registrant, is incorporated herein by reference.
(10) (m) Exhibit (99)(b) to the Registrant's Schedule 13E-4 Issuer
Tender Offer Statement dated July 14, 1997, being loan agreement
between the Registrant and Star Bank, N. A. dated July 9, 1997, is
incorporated herein by reference.
(21) Subsidiaries of the Registrant
------------------------------
(27) Financial Data Schedule
-----------------------
28
<PAGE> 29
(b) Reports on Form 8-K:
On August 10, 1998, under item 5, to report that the Company has
entered into a Letter of Intent to sell its 1/15th limited
partnership interest in the Cincinnati Reds professional baseball
team. Financial Statements were not required to be filed.
29
<PAGE> 30
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.
FRISCH'S RESTAURANTS, INC.
(Registrant)
By DONALD H. WALKER August 24, 1998
------------------------- ----------------
Donald H. Walker Date
Vice President, Treasurer
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the date indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
Chairman of the Board
Jack C. Maier Director August 24, 1998
---------------------- -------------------------
Jack C. Maier
President and Chief Executive Officer
Craig F. Maier Director August 24, 1998
---------------------- -------------------------
Craig F. Maier
Daniel W. Geeding Director August 24, 1998
---------------------- -------------------------
Daniel W. Geeding
Christopher B. Hewett Director August 24, 1998
---------------------- -------------------------
Christopher B. Hewett
Malcolm M. Knapp Director August 24, 1998
---------------------- -------------------------
Malcolm M. Knapp
Blanche F. Maier Director August 24, 1998
---------------------- -------------------------
Blanche F. Maier
William A. Mauch Director August 24, 1998
---------------------- -------------------------
William A. Mauch
Director
---------------------- -------------------------
Barry S. Nussbaum
Jerry L. Ruyan Director August 24, 1998
---------------------- -------------------------
Jerry L. Ruyan
</TABLE>
30
<PAGE> 1
EXHIBIT 21
Subsidiaries
------------
State of
Corporate Name Incorporation
-------------- -------------
Subsidiaries of Registrant:
Frisch Kentucky, Inc. Kentucky
Frisch Indiana, Inc. Indiana
Frisch Florida, Inc. Florida
Kip's of Oklahoma, Inc. Oklahoma
Frisch Ohio, Inc. Ohio
<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> YEAR
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-START> JUN-02-1997
<PERIOD-END> MAY-31-1998
<CASH> 84,260
<SECURITIES> 0
<RECEIVABLES> 1,018,771
<ALLOWANCES> 0
<INVENTORY> 3,638,740
<CURRENT-ASSETS> 6,508,431
<PP&E> 160,097,970
<DEPRECIATION> 77,901,512
<TOTAL-ASSETS> 106,723,723
<CURRENT-LIABILITIES> 14,958,315
<BONDS> 35,511,692
0
0
<COMMON> 7,362,279
<OTHER-SE> 42,547,707
<TOTAL-LIABILITY-AND-EQUITY> 106,723,723
<SALES> 150,999,125
<TOTAL-REVENUES> 152,221,705
<CGS> 134,070,921
<TOTAL-COSTS> 134,070,921
<OTHER-EXPENSES> 8,262,052
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,075,615
<INCOME-PRETAX> 6,813,117
<INCOME-TAX> 2,268,384
<INCOME-CONTINUING> 4,544,733
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,544,733
<EPS-PRIMARY> .73
<EPS-DILUTED> .73
</TABLE>
