<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 SEPTEMBER 20, 1998 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 September 29, 1998 was:
6,006,139
<PAGE> 2
TABLE OF CONTENTS
PAGE
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...............8-15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.....................16-18
PART II - OTHER INFORMATION...............................................19-20
<PAGE> 3
FRISCH'S RESTAURANTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF EARNINGS
SIXTEEN WEEKS ENDED SEPTEMBER 20, 1998 AND SEPTEMBER 21, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
REVENUE
Sales $47,518,926 $46,136,477
Other 362,970 392,696
----------- -----------
Total revenue 47,881,896 46,529,173
COSTS AND EXPENSES
Cost of sales
Food and paper 14,490,385 14,415,040
Payroll and related 16,285,639 15,201,802
Other operating costs 11,153,086 10,983,838
----------- -----------
41,929,110 40,600,680
General and administrative 1,844,878 1,521,548
Advertising 1,160,527 1,114,932
Interest 890,393 786,944
----------- -----------
Total costs and expenses 45,824,908 44,024,104
----------- -----------
Earnings before income taxes 2,056,988 2,505,069
INCOME TAXES 679,000 802,000
=========== ===========
NET EARNINGS $ 1,377,988 $ 1,703,069
=========== ===========
Basic and diluted net earnings per share $.23 $.25
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE> 4
FRISCH'S RESTAURANTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
September 20, May 31,
1998 1998
(unaudited)
------------ ------------
<S> <C> <C>
CURRENT ASSETS
Cash $ 168,472 $ 84,260
Receivables
Trade 865,511 782,101
Other 195,438 236,670
Inventories 3,374,098 3,638,740
Prepaid expenses and sundry deposits 1,761,456 827,571
Prepaid and deferred income taxes 786,267 939,089
------------ ------------
Total current assets 7,151,242 6,508,431
PROPERTY AND EQUIPMENT
Land and improvements 20,221,831 20,171,685
Buildings 50,326,716 50,172,522
Equipment and fixtures 56,395,205 54,750,152
Leasehold improvements and buildings on leased land 27,568,664 26,321,313
Capitalized leases 8,682,298 8,682,298
Construction in Progress 826,005 --
------------ ------------
164,020,719 160,097,970
Less accumulated depreciation and amortization 79,949,349 77,901,512
------------ ------------
Net property and equipment 84,071,370 82,196,458
OTHER ASSETS
Intangible assets 751,615 752,867
Investments in land 1,756,998 1,737,933
Property held for sale 6,911,451 7,853,073
Net cash surrender value-life insurance policies 3,902,088 3,767,594
Deferred income taxes 891,243 891,243
Other 2,982,358 3,016,124
------------ ------------
Total other assets 17,195,753 18,018,834
------------ ------------
$108,418,365 $106,723,723
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE> 5
LIABILITIES
<TABLE>
<CAPTION>
September 20, May 31,
1998 1998
(unaudited)
------------ ------------
<S> <C> <C>
CURRENT LIABILITIES
Long-term obligations due within one year
Long-term debt $ 1,500,000 $ 1,500,000
Obligations under capitalized leases 453,290 458,480
Self insurance 1,328,646 877,725
Accounts payable 8,363,282 6,342,187
Accrued expenses 4,913,012 5,779,923
Income Taxes 284,243 --
------------ ------------
Total current liabilities 16,842,473 14,958,315
LONG-TERM OBLIGATIONS
Long-term debt 30,294,490 29,914,490
Obligations under capitalized leases 5,480,899 5,597,202
Self insurance 2,703,950 3,623,276
Other 2,641,308 2,720,454
------------ ------------
Total long-term obligations 41,120,647 41,855,422
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 60,424,771 60,427,299
------------ ------------
67,787,050 67,789,578
Retained earnings 3,884,614 3,347,485
------------ ------------
71,671,664 71,137,063
Less cost of treasury stock (1,356,140 and 1,356,821 shares) 21,216,419 21,227,077
------------ ------------
Total shareholders' equity 50,455,245 49,909,986
------------ ------------
$108,418,365 $106,723,723
============ ============
</TABLE>
5
<PAGE> 6
FRISCH'S RESTAURANTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
SIXTEEN WEEKS ENDED SEPTEMBER 20, 1998 AND SEPTEMBER 21, 1997
(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 June 1, 1997 $7,362,279 $60,427,514 $ 432,732 ($3,538,721) $64,683,804
Net earnings for sixteen weeks - - 1,703,069 - 1,703,069
Treasury shares acquired - - - (17,689,763) (17,689,763)
Dividends
Cash - $.12 per share - - (789,222) - (789,222)
---------- ----------- ---------- ------------ -----------
Balance at September 21, 1997 7,362,279 60,427,514 1,346,579 (21,228,484) 47,907,888
Net earnings for thirty-six weeks - - 2,841,664 - 2,841,664
Treasury shares reissued - (215) - 1,407 1,192
Dividends
Cash - $.14 per share - - (840,758) - (840,758)
---------- ----------- ---------- ------------ -----------
Balance at May 31, 1998 7,362,279 60,427,299 3,347,485 (21,227,077) 49,909,986
Net earnings for sixteen weeks - - 1,377,988 - 1,377,988
Treasury shares reissued - (2,528) - 10,658 8,130
Dividends
Cash - $.14 per share - - (840,859) - (840,859)
---------- ----------- ---------- ------------ -----------
Balance at September 20, 1998 $7,362,279 $60,424,771 $3,884,614 ($21,216,419) $50,455,245
============ =========== ========== ============ ============
</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
SIXTEEN WEEKS ENDED SEPTEMBER 20, 1998 AND SEPTEMBER 21, 1997
(UNAUDITED
<TABLE>
<CAPTION>
1998 1997
----------- ------------
<S> <C> <C>
CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Net income $ 1,377,988 $ 1,703,069
Adjustments to reconcile net income
to net cash from operating activities:
Depreciation and amortization 2,966,470 2,808,569
Loss on disposition of assets 152,693 57,221
Changes in assets and liabilities:
(Increase) decrease in receivables (42,178) 80,723
Decrease (increase) in inventories 264,642 (71,127)
Increase in prepaid expenses and sundry deposits (933,885) (677,683)
Decrease in prepaid and deferred income taxes 152,822 166,007
Increase in accounts payable 1,600,665 1,426,161
Decrease in accrued expenses (866,911) (1,138,226)
Increase in accrued income taxes 284,243 368,372
Increase in other assets (23,184) (405,694)
Decrease in self insured obligations (468,405) (554,898)
Decrease in other liabilities (79,146) (59,995)
----------- ------------
Net cash provided by operating activities 4,385,814 3,702,499
CASH FLOWS (USED IN) PROVIDED BY INVESTING ACTIVITIES:
Additions to property (5,017,137) (3,676,415)
Proceeds from disposition of property 1,001,699 2,904,758
Increase in other assets (132,372) (161,508)
----------- ------------
Net cash (used in) investing activities (4,147,810) (933,165)
CASH FLOWS (USED IN) PROVIDED BY FINANCING ACTIVITIES:
Proceeds from borrowings 2,000,000 18,144,490
Payment of long-term debt and capital lease obligations (1,741,493) (2,841,164)
Cash dividends paid (420,429) (428,900)
Treasury share transactions 8,130 (17,689,763)
----------- ------------
Net cash (used in) financing activities (153,792) (2,815,337)
----------- ------------
Net increase (decrease) in cash and equivalents 84,212 (46,003)
Cash and equivalents at beginning of year 84,260 231,453
----------- ------------
Cash and equivalents at end of quarter $ 168,472 $ 185,450
=========== ============
Supplemental disclosures:
Interest paid $ 861,058 $ 584,196
Income taxes paid 241,934 376,044
Income tax refunds received -- 108,423
Dividends declared but not paid 420,430 360,322
</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, 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 at September 20, 1998 and May 31,
1998.
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.
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.
8
<PAGE> 9
FRISCH'S RESTAURANTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE A - ACCOUNTING POLICIES (CONTINUED)
New Store Opening Costs
Effective June 1, 1998, the Company elected early application of The American
Institute of Certified Public Accountants' 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. Opening expense was zero for the
sixteen weeks ended September 20, 1998 and $35,000 for the sixteen weeks ended
September 21, 1997. There were no unamortized new store opening costs on the
balance sheet at September 21, 1997.
Benefit Plans
The Company has two defined benefit pension plans covering substantially all of
its employees. The benefits are based on years-of-service and other factors. The
Company's funding policy is to contribute annually the maximum amount that can
be deducted for federal income tax purposes. Contributions are intended to
provide not only for benefits attributed to service-to-date, but also for those
expected to be earned in the future. The Company also has a non-qualified
supplemental retirement plan for certain key employees.
Self Insurance
The Company self-insures its Ohio workers' compensation claims up to $250,000
per claim. Costs are accrued based on management's estimate for future claims.
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, 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
On September 30, 1998, the Company completed the sale of its limited partnership
investment in the Cincinnati Reds professional baseball team for $7,000,000 in
cash. The transaction resulted in a pre-tax gain of $5,800,000. After tax
proceeds of $4,900,000 were used to reduce debt incurred in August 1997 in
connection with the Company's tender offer (see notes C and F). The net gain of
approximately $.63 per share will be reported as an extraordinary gain in the
Company's second quarter ending December 13, 1998.
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.
9
<PAGE> 10
FRISCH'S RESTAURANTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE A - ACCOUNTING POLICIES (CONTINUED)
Accounting for the Impairment of Long-Lived Assets
The Company considers a history of cash flow losses in established areas to be
its primary indicator of potential impairment. During the fourth quarter of
fiscal 1997, the Company closed fifteen restaurants in certain markets in which
cash flow losses had occurred. A non-cash pre-tax charge of $4,600,000 was
recorded as in impairment loss pursuant to 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." The impairment loss reduced
the carrying costs of the properties to net realizable value as determined by
the Company's experience in disposing of 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, seven have been disposed of through September 20, 1998. The sale proceeds
were used to repay borrowings under the loan agreement that funded the Company's
modified "Dutch Auction" self-tender offer (see notes C and F). The remaining
eight properties are listed for sale with a broker, and are carried at a net
realizable value of approximately $6,380,000 on the Company's balance sheet at
September 20, 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 six to nine months. Certain surplus land is also currently held for
sale and is stated at cost.
NOTE C - LONG-TERM DEBT
<TABLE>
<CAPTION>
September 20, 1998 May 31, 1998
--------------------- -------------------------
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 $ -- $12,500
Term loan 1,500 5,000 1,500 5,500
Tender offer -- 10,794 -- 11,914
------- ------- ------- -------
$ 1,500 $30,294 $ 1,500 $29,914
======= ======= ======= =======
</TABLE>
The portion payable after one year matures as follows:
<TABLE>
<CAPTION>
Sept. 20, May 31,
1998 1998
--------- -------
(in thousands)
<S> <C> <C> <C>
Period ending in 2000 $12,294 $25,914
2001 16,000 1,500
2002 1,500 1,500
2003 500 1,000
------- -------
$30,294 $29,914
======= =======
</TABLE>
10
<PAGE> 11
FRISCH'S RESTAURANTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE C - LONG-TERM DEBT (CONTINUED)
The revolving credit loan is a $16,000,000 unsecured line of credit, $14,500,000
of which is outstanding at September 20, 1998. This credit loan was renegotiated
in October 1998 to mature on September 1, 2001, unless extended. Interest rates
are determined by various indices as selected by the Company, currently 6.59%.
Interest is payable in arrears on the last day of the rate period chosen by the
Company, which may be monthly, bi-monthly or quarterly. The term loan is also
unsecured and 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
the $17,144,000 borrowed, $6,350,000 had been repaid as of September 20, 1998
(see note B), reducing the balance outstanding to $10,794,000. The loan
agreement was renegotiated in October 1998 to mature on August 15, 2000.
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 7.08% was in effect as
of September 20, 1998. The loan is collateralized by the real property and
equipment owned by the Company at the eight 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 sale of
the Company's limited partnership investment in the Cincinnati Reds professional
baseball team. Borrowings under the loan agreement are being repaid through the
sale of the remaining restaurant properties and the Company's interest in the
Cincinnati Reds. The loan agreement requires the after tax proceeds from the
sale of these assets to be immediately applied against the outstanding
indebtedness. The investment in the Cincinnati Reds was sold on September 30,
1998. The after tax proceeds of $4,900,000 were used to further reduce this
debt. (See note A). The Company believes the expected sale proceeds from the
remaining property will be sufficient to extinguish the debt. Upon its
retirement, the Company's $16,000,000 revolving line of credit will be increased
to $20,000,000.
In October 1998, the Company entered into an unsecured draw credit facility
under which it may borrow up to $20,000,000 to enable the Company to construct
and open Golden Corral Restaurants. No more than $8,000,000 may be advanced for
new restaurants under construction at any one time. Availability of draws ceases
on September 1, 2001. During the construction phase, payment will be on an
interest only basis. At the Company's option, interest on prime rate based
borrowings will be payable monthly, or, in the case of LIBOR or CD based
adjusted rate borrowings, payable at the end of each specific rate period
selected by the Company, which may be monthly, bi-monthly or quarterly. Within
six months of the completion and opening of each restaurant, the balance
outstanding under each draw note will be converted to a term note amortized for
a period not to exceed seven years. Upon conversion, the Company will have the
option to fix the interest rate at the lender's then cost of funds plus 150
basis points.
These loan agreements contain covenants relating to tangible net worth, interest
expense, cash flow, debt levels, capitalization changes, asset dispositions,
investments, and restrictions on pledging certain restaurant operating assets.
The Company was in compliance with all financial covenants at September 20,
1998.
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.
11
<PAGE> 12
FRISCH'S RESTAURANTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE D - LEASED PROPERTY (CONTINUED)
An analysis of the capitalized leased property follows:
<TABLE>
<CAPTION>
Asset balances at
-----------------
Sept. 20, May 31,
1998 1998
--------- -------
(in thousands)
<S> <C> <C>
Restaurant facilities $ 7,705 $ 7,705
Equipment 977 977
------- -------
8,682 8,682
Less accumulated amortization (5,194) (5,059)
------- -------
$ 3,488 $ 3,623
======= =======
</TABLE>
Total rental expense of operating leases for the sixteen weeks was $439,000 at
September 20, 1998 and $420,000 at September 21, 1997.
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 September 20, leases leases
--------------------------- ----------- ---------
(in thousands)
<S> <C> <C>
1999 $1,068 $1,236
2000 1,014 1,176
2001 903 1,042
2002 878 826
2003 873 617
2004 to 2020 5,188 2,960
------- ------
Total 9,924 $7,857
======
Amount representing interest (3,990)
------
Present value of obligations 5,934
Portion due within one year (453)
------
Long-term obligations $5,481
======
</TABLE>
NOTE E - 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.
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.
12
<PAGE> 13
FRISCH'S RESTAURANTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE F - CAPITAL STOCK
Stock Options
The 1993 Stock Option 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 to employees at not less than 75%
of fair market value on the date granted. Shareholders approved the Amended and
Restated 1993 Stock Option Plan (Amended Plan) in October 1998 which provides
for automatic, annual stock option grants of 1,000 shares to each of the
Company's non-employee directors. The per share exercise price for options
granted to non-employee directors must equal 100% of fair market value on the
date of grant. The Amended Plan adds a Company right to repurchase shares
acquired on exercise of options if an optionee chooses to dispose of such
shares. Stock appreciation rights are not provided for under the Amended Plan.
Outstanding options under the 1993 Plan were granted at fair market value and
vest in three equal annual installments and expire 10 years from the date of
grant.
The 1984 Stock Option Plan expired May 8, 1994. As of September 20, 1998, 96,913
options remain outstanding, which are exercisable within 10 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 the 1984 Plans are summarized below:
<TABLE>
<CAPTION>
Sixteen weeks ended Sixteen weeks ended
September 20, 1998 September 21, 1997
--------------------------- ---------------------------
No. of Option No. of Option
Shares Price Shares Price
------ ------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 134,413 $12.38 to $20.83 259,835 $14.38 to $20.83
Exercisable at beginning of year 96,913 $14.38 to $20.83 259,835 $14.38 to $20.83
Granted during the sixteen weeks 28,500 $11.25 0
Exercised during the sixteen weeks 0 0
Expired during the sixteen weeks 0 0
Outstanding at end of quarter 162,913 $11.25 to $20.83 259,835 $14.38 to $20.83
Exercisable at end of quarter 96,913 $14.38 to $20.83 259,835 $14.38 to $20.83
</TABLE>
Based upon information presented in the above table, pro forma disclosures of
net income and earnings per share as required by SFAS 123 are unnecessary.
Shareholders approved the Employee Stock Option Plan in October 1998. The Plan
is effective November 1, 1998 and provides employees who have completed 90 days
continuous service an opportunity to purchase shares of the Company's common
stock through payroll deduction. Immediately following the end of each
semi-annual offering period, participant account balances are used to purchase
shares of stock at the lesser of 85% of the fair market value of shares at the
beginning of the offering period or at the end of the offering period. The Plan
authorizes a maximum of 1,000,000 shares which may be purchased on the open
market or from the Company's treasury.
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.
13
<PAGE> 14
Stock Repurchase Program
On October 5, 1998, the Board of Directors approved a program to repurchase up
to 500,000 shares of the Company's common stock on the open market. Purchases
will be made from time to time within a two-year time frame.
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 period.
<TABLE>
<CAPTION>
Weighted average
Common Shares Outstanding
-------------------------
<S> <C>
Quarter ending September 20, 1998 6,006,011
Quarter ending September 21, 1997 6,760,542
</TABLE>
Diluted EPS includes the effect of common stock equivalents which assumes the
exercise of dilutive stock options. Stock options outstanding for the sixteen
weeks ended September 20, 1998, were not included in the computation of diluted
EPS because their exercise prices exceeded the average market price of the
common shares. The sixteen weeks ended September 21, 1997 included 935 shares of
common stock equivalents in the computation of diluted EPS.
14
<PAGE> 15
FRISCH'S RESTAURANTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE G - PENSION PLANS
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 (latest
available data, 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 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
---- ----
<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 sixteen weeks ended September 20, 1998 and September 21,
1997 was approximately $94,000 and $82,000 respectively.
Effective June 1, 1998 the Company adopted Statement of Financial Accounting
Standards No. 132 (SFAS 132), "Employers' Disclosures about Pensions and Other
Postretirement Benefits". SFAS 132 standardizes the 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
had no affect on the Company's statement of earnings.
NOTE H - COMPANY REPRESENTATIONS
The financial information is unaudited, but in the opinion of management
includes all adjustments (all of which were normal and recurring) necessary for
a fair presentation of results of operations for such periods.
15
<PAGE> 16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Total revenue was $47,882,000 for the sixteen-week first quarter of fiscal 1999,
an increase of $1,353,000 or 2.9% from the comparable period last year. Strong
same store sales gains in Big Boy restaurants, especially from carryout and
drive-thru trade, were primarily responsible for the increase. Menu prices were
increased approximately 2% in the third quarter of fiscal 1998. Another price
increase of almost 2% was implemented shortly before the quarter ended on
September 20, 1998. Revenue from hotel operations decreased 2.8% from the same
period last year.
The Company did not open or close any restaurants during the first quarter. The
Company currently operates 88 Big Boy restaurants and two Quality Hotels. One
Golden Corral restaurant is currently under construction. It is expected to open
in January 1999. The Company expects average annual sales volume of $3,000,000
from each Golden Corral restaurant it plans to open. The typical Golden Corral
building will have double the square footage of the average Frisch's Big Boy
restaurant. Average annual sales volume of a Frisch's Big Boy restaurant during
fiscal 1998 was $1,512,000.
Cost of sales increased $1,328,000 or 3.3% during this year's first quarter, as
costs increased to 87.6% of revenue from 87.3% in last year's first quarter.
Most of the increase was in proportion to sales increases. An analysis of the
components of cost of sales follows.
Food and paper costs decreased during this year's first quarter, falling to
30.3% of revenue from 31% in the first quarter last year. While commodity prices
generally continue to inch upward, lower pork and beef prices aided the
improvement. In addition, the food cost of carryout and drive-thru meals is
usually lower than for dining room meals.
Payroll and related expenses rose during this year's first quarter to 34% of
revenue from 32.7% in last year's first quarter, more than eliminating the
savings achieved from lower food and paper costs. Higher hourly pay rates,
driven by a tight labor market, were the principal cause. In addition, service
hours in relation to hours of operation were increased over last year. This
action was taken to provide proper service levels to meet the higher sales
volume. Favorable claims experience in the Company's self-insurance programs
resulted in credits to payroll and related expenses of $549,000 and $494,000,
respectively, in the first quarters of fiscal 1999 and 1998. A new variable
compensation program for restaurant managers was instituted at the beginning of
fiscal 1999. As had been expected, the program resulted in higher payroll costs
for restaurant management. However, these higher payroll costs have been more
than offset by the elimination of service trainer management positions and
through a fifteen percent reduction in field supervisors.
Other operating expenses decreased to 23.3% of revenue in the first quarter of
fiscal 1999 from 23.6% in last year's first quarter. Lower manager trainee
expenses that resulted from lower management turnover due to the new variable
compensation plan are reflected in the improvement.
Total cost of sales was also negatively impacted by higher payroll, remodeling
and depreciation charges for the hotels during this year's first quarter.
Combined with lower revenue, these factors produced disappointing hotel
operating results. The restaurant in the Quality Hotel Central in Norwood, Ohio,
which had been operated under the name "Dockside VI" for many years, recently
reopened as "Highlands Bar and Grill." The theme change is designed to turn
around sagging sales and losses in the restaurant. The Company is currently
exploring an agreement to re-flag the Quality Hotel Riverview in Covington,
Kentucky with a more upscale chain. The Company believes a new upscale trade
name will allow the hotel to charge premium rates for its rooms, resulting in a
much higher return on invested capital.
General and administrative expense during the first quarter of fiscal 1999
increased $323,000 or 21.3% over the first quarter of fiscal 1998. The increase
is principally due to a gain recorded last year from the disposition of property
unrelated to 15 Big Boy restaurants that were closed at the end of fiscal 1997.
Also, this year's general and administrative expense includes costs incurred in
preparation for opening Golden Corral restaurants.
Interest expense in the first quarter of fiscal 1999 increased $103,000 or 13.1%
over the comparable period a year ago, increasing to 1.9% of revenue from 1.7%
last year. Interest attributable to the tender offer loan (see notes C and F to
the consolidated financial statements) was $265,000 during this year's
sixteen-week first quarter, compared with $121,000 last year. Last year's
quarter included only five weeks of tender offer interest, as the $17,144,000
loan was
16
<PAGE> 17
drawn on August 15, 1997. Interest on the tender offer loan will spiral
downward as the current year progresses, as more of the principal is repaid. The
Company repaid $4,900,000 on the loan shortly after the quarter ended, reducing
the principal to under $5,900,000. However, the savings from the reduction in
tender offer interest 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% in
the first quarter of fiscal 1999, compared with 32% in the comparable period
last year. The expiration of the Work Opportunity Tax Credit on June 30, 1998 is
reflected in the current quarter's tax rate.
On September 30, 1998, the Company completed the sale of its limited partnership
investment in the Cincinnati Reds professional baseball team for $7,000,000 in
cash. The transaction resulted in an after tax gain of approximately $3,800,000
or $.63 per share, which will be reported as an extraordinary gain in the
Company's second quarter ending December 13, 1998.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities during the first quarter of fiscal 1999
was $4,390,000, an increase of $680,000 from last year's first quarter. These
funds were generated principally from net income and depreciation, and were
utilized for discretionary capital improvements, dividends, and to service debt.
Investing activities during the first quarter of fiscal 1999 included $5,020,000
in capital costs, an increase of $1,340,000 from last year's first quarter. This
year's first quarter costs consisted of $1,260,000 for the new point-of-sale
system, $1,820,000 to renovate the hotel properties, $300,000 to remodel five
Big Boy restaurants, $830,000 for Golden Corral, and $810,000 in routine
equipment replacements and other capital outlays. Proceeds from property sales
were $1,000,000, all of which came from the disposal of one of the fifteen
restaurants closed last year (see notes A and B to the consolidated financial
statements). The Company expects to complete the disposal of the remaining eight
closed restaurants over the next six to nine months.
Financing activities in the first quarter of fiscal 1999 included $2,000,000 of
new debt borrowed against the Company's revolving line of credit. Scheduled
long-term debt payments of $620,000 were made and $1,120,000 was paid against
the tender offer loan principally with proceeds from the sale of one of the
fifteen closed restaurants. Anticipated sale proceeds from the remaining eight
closed restaurants will also be used to service the tender offer debt as
required by the loan agreement. On September 30, 1998, the Company used the
after tax proceeds from the sale of its partnership interest in the Cincinnati
Reds to repay $4,900,000, reducing the loan's outstanding principal to
$5,890,000. A regular quarterly cash dividend to shareholders totaling $420,000
was also paid during the quarter ended September 20, 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. The
Company does not currently plan to build any new Big Boy restaurants during the
remainder of fiscal 1999. Although fiscal 1999 is the final year of a five year
plan to totally renovate the hotel properties, capital spending plans are
presently being evaluated in connection with the possible re-flagging of the
Riverview hotel with a more upscale chain. Costs to remodel sixteen Big Boy
restaurants scheduled over the remainder of the fiscal year will average $75,000
each. Through September 20, 1998, the point-of-sale system has been installed in
66 Big Boy restaurants. The remaining 22 installations are expected to be
completed by early February 1999 requiring a capital outlay of approximately
$55,000 to $60,000 per restaurant.
The terms of a development agreement with Golden Corral Franchising Systems,
Inc. call for the Company to open 23 Golden Corral restaurants through 2004. In
addition, the agreement requires that five of the restaurants be opened and in
operation by the end of calendar year 1999. One restaurant is presently under
construction and the Company has entered into agreements to purchase two
additional sites. Costs are being funded through cash flow and a new credit
facility under which the Company may borrow up to $20,000,000 through September
1, 2001. The average cost to build and equip each Golden Corral restaurant is
expected to be $2,400,000, including land.
On October 5, 1998, the Board of Directors approved a program to repurchase up
to 500,000 shares of the Company's common stock on the open market. Purchases
will be made from time to time within a two-year time frame and will be funded
through cash flow and the Company's revolving line of credit if needed.
Shareholders approved the Employee Stock Option Plan on October 5, 1998. The
Plan, which is effective November 1, 1998,
17
<PAGE> 18
authorizes a maximum of 1,000,000 shares to be purchased by employees at a
discount. Purchases may be made from the Company's treasury or on the open
market.
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 plan calls for the Company to be Year 2000 compliant in May 1999.
For the Company's custom written software, all of the required date fields that
need to be modified have been identified. The Company is utilizing internal
resources to manually convert and test these systems without material additional
expense. Certain prepackaged software systems will require upgrade or
replacement, the estimated cost of which will have no material adverse effect on
the Company's financial position, results of operations or cash flows. Although
the Company has not yet determined the full extent of vendors' software
compliance, management believes the risk due to third-party non-compliance is
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.
18
<PAGE> 19
PART II - OTHER INFORMATION
Items 1, 2, 3, and 5, the answers to which are either "none" or "not
applicable", are omitted.
Item 4. Submission of matters to a vote of Security Holders.
a) The annual meeting of Shareholders was held on October 5, 1998.
b) Directors elected on October 5, 1998:
Jack C. Maier William J. Reik, Jr.
William A. Mauch Lorrence T. Kellar
Directors whose terms continued after the meeting:
Craig F. Maier Daniel W. Geeding
Malcolm M. Knapp Blanche F. Maier
Christopher B. Hewett
c) The following matters were voted upon:
1) Election of Directors:
Name For
---- ---
Jack C. Maier 5,401,674
William A. Mauch 5,402,683
William J. Reik, Jr. 5,401,654
Lorrence T. Kellar 5,405,237
2) Management proposal to approve the Amended and Restated 1993
Stock Option Plan. It received the following votes:
For Against Abstain
--- ------- -------
3,689,505 377,792 23,830
3) Management proposal to approve the Frisch's Restaurants, Inc.
Employee Stock Option Plan. It received the following votes:
For Against Abstain
--- ------- -------
3,762,439 308,557 20,131
4) Management proposal to ratify and approve the appointment of
Grant Thornton LLP as independent auditors was approved. It
received the following votes:
For Against Abstain
--- ------- -------
5,405,620 9,678 13,272
Item 6. Exhibits and reports on Form 8-K.
a) Exhibits
(10) Material Contracts
(10) (a) Amendment dated October 9, 1998 to loan agreement
between the Registrant and Star Bank, N.A. dated July 9,
1997. The loan agreement was originally filed as Exhibit
99(b) to the Registrant's Schedule 13 E-4 Issuer Tender
Offer Statement dated July 14, 1997.
(27) Financial Data Schedule
19
<PAGE> 20
b) Reports on Form 8-K.
The Company filed the following Forms 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.
On October 6, 1998, under item 5, to report that the
Company's Board of Directors approved a program to repurchase
up to 500,000 shares of the Company's Common Stock on the
open market. Financial statements were not required to be
filed.
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 October 30, 1998
--------------------------------
October 30, 1998
BY /s/ Donald H. Walker
-----------------------------
Donald H. Walker
Vice President - Finance and
Principal Financial Officer
20
<PAGE> 1
Exhibit 10(a)
STAR BANK
October 9, 1998
Frisch's Restaurants, Inc.
2800 Gilbert Avenue
Cincinnati, OH 45206
Attn: Mr. Donald H. Walker
Vice President-Finance
Gentlemen:
This letter (this "Amendment") confirms and evidences certain
agreements between Star Bank, National Association, a national banking
association (the "Bank"), and Frisch's Restaurants, Inc., an Ohio corporation
(the "Borrower"), with respect to the Loan Agreement between the Bank and the
Borrower dated as of July 9, 1997 (as the same may be amended from time to time,
the "Agreement"), as follows:
1. Financial Information and Reports. Exhibit A to the Agreement is
hereby deleted and replaced with Exhibit A attached hereto, and the last
sentence of Section 1(d) of the Agreement is hereby deleted and replaced with
the following:
There has been no material adverse change in the business, operations
or condition (financial or otherwise) of the Borrower or any Subsidiary
since the date of such financial statements.
2. Actions. Exhibit B to the Agreement is hereby deleted and replaced
with Exhibit B attached hereto.
3. Permitted Liens. Exhibit C to the Agreement is hereby deleted and
replaced with Exhibit C attached hereto, and clause (ii) of Section 1(g) of the
Agreement is hereby deleted and replaced with the following:
(ii) leases required under generally accepted accounting principles to
be capitalized on the Borrower's or such Subsidiary's books
("Capitalized Leases") so long as there is no violation of any of the
Financial Covenants set forth on Exhibit D hereto,
4. Year 2000 Compliance Representation. The following is hereby added
to the Agreement as Section 1(m) thereof:
(m) Year 2000 Compliance. The Borrower has conducted a thorough
review of its mainframe
21
<PAGE> 2
Frisch's Restaurants, Inc.
October 9, 1998
Page 2
information systems, PC/LAN systems, software, facilities, machinery
and equipment (collectively, "Computer-Related Systems") and has
determined the total costs of becoming Year 2000 Compliant (as
hereinafter defined), including costs related to remediation,
replacement, upgrading, conversion and testing of hardware and other
equipment and software. On the basis of this review, the Borrower has
concluded that the incremental cost to the Borrower of becoming Year
2000 Compliant will not have a material adverse effect on the business,
operations, properties or financial condition of the Borrower. Further,
the Borrower's Computer-Related Systems are Year 2000 Compliant or the
Borrower has adequate plans and processes in place sufficient for all
of the Borrower's Computer-Related Systems to become Year 2000
Compliant prior to such time that a failure to be Year 2000 Compliant
might reasonably be expected to have a material adverse effect upon the
Borrower's business, operations, properties or financial condition. For
purposes of this Agreement, "Year 2000 Compliant" means that the
Borrower's Computer-Related Systems will (i) process all dates in and
after the Year 2000 in a correct and consistent manner in all
applicable operations including but not limited to input, output,
comparisons (branching) and arithmetic operations (such as the
difference between two dates), (ii) use fields providing at least four
decimal digits for the year portion of all stored dates, (iii)
calculate and handle leap year dates correctly, and (iv) otherwise
generally manipulate data and generate output and reports in a
fault-free manner during and after the Year 2000.
5. Financial Covenants. Exhibit D to the Agreement is hereby deleted
and replaced with Exhibit D attached hereto.
6. Financial Statements. Clauses (A), (B) and (C) of Section 2(b) of
the Agreement are hereby deleted and replaced with the following clauses (A) and
(B):
(A) setting forth a comparison between actual calculated results and
covenanted results for each of the Financial Covenants set forth on
Exhibit D hereto and (B) stating that, to the best of such Chief
Financial Officer's knowledge after diligent investigation, no Event of
Default hereunder then exists, or if such an Event of Default hereunder
does then exist, specifying the nature thereof, the period of existence
thereof, and the action the Borrower proposes to take with respect
thereto.
22
<PAGE> 3
Frisch's Restaurants, Inc.
October 9, 1998
Page 3
7. Liens. The following sentence is hereby added to the end of Section
2(i) of the Agreement:
Furthermore, the Borrower shall not, and shall not permit any
Subsidiary to, enter into any agreement with any other person or entity
pursuant to which the Borrower or any Subsidiary agrees not to create,
assume or permit to exist any Lien with respect to any of its assets,
whether now owned or hereafter acquired.
8. Permitted Indebtedness. Exhibit E to the Agreement is hereby deleted
and replaced with Exhibit E attached hereto, and clause (iv) of Section 2(j) of
the Agreement is hereby deleted and replaced with the following:
(iv) Indebtedness incurred in connection with Capitalized Leases so
long as there is no violation of any of the Financial Covenants set
forth on Exhibit D hereto.
9. Designated Properties. The term "Designated Properties" as used in
the Agreement shall not include any properties which have been sold as permitted
under the Agreement.
10. Lease/Rentals. Section 2(m) of the Agreement is hereby deleted and
replaced with the following:
(m) (This section omitted]
11. Year 2000 Compliant Covenant. Section 2(r) of the Agreement is
hereby re-named as "Section 2(s)", and the following is hereby added as Section
2(r) of the Agreement:
(r) Year 2000 Compliance. While any Loans are outstanding
hereunder, the Borrower shall (i) promptly evaluate each newly-acquired
item of software, hardware, machinery and equipment to determine if it
is Year 2000 Compliant and (ii) promptly take steps to ensure that all
material suppliers, vendors, third-parties providing goods or services
to the Borrower and all material customers of the Borrower are Year
2000 Compliant or have a comprehensive and reasonable plan to become
Year 2000 Compliant in a timely manner, such that suppliers, vendors,
third-parties and customers will not experience Year 2000 related
problems that could result in a material adverse effect upon the
Borrower's business, operations, property or financial condition.
23
<PAGE> 4
Frisch's Restaurants, Inc.
October 9, 1998
Page 4
12. Note and Maturity Date. Exhibit J to the Agreement is hereby
deleted and replaced with Exhibit J attached hereto, and the last two (2)
sentences of Section 4(a) are hereby deleted and replaced with the following:
The Loan shall be evidenced by an Amended and Restated Promissory Note
given by the Borrower to the Bank in substantially the form of Exhibit
J attached hereto (the "Note"). The Note shall replace the Promissory
Note dated as of August 15, 1997 given by the Borrower to the Bank (the
"Prior Note"), and amounts outstanding under the Prior Note shall not
be deemed cancelled or satisfied, but shall be evidenced by the Note
instead of by the Prior Note. The Loan shall mature and be payable in
full on August 15, 2000 (the "Maturity Date"), unless accelerated as
described herein, and subject to required principal and interest
payments as provided herein.
13. LIBOR-Based Rate Spread. The definition of "LIBOR-Based Rate
Spread" set forth in Section 4(b) of the Agreement is hereby deleted and
replaced with the following:
The "LIBOR-Based Rate Spread" shall be one hundred fifty (150) basis
points through and including October 15, 1998, and commencing on
October 16, 1998, the LIBOR-Based Rate Spread shall be one hundred
twenty-five (125) basis points.
14. Prime-Based Rate. The definition of "Prime-Based Rate" set forth in
Section 4(b) of the Agreement is hereby deleted and replaced with the following:
The "Prime-Based Rate" shall be the Prime Rate minus twenty-five
(25) basis points.
15. Recording. Section 4(d) of the Agreement is hereby deleted and
replaced with the following:
(d) Recording. The Bank will not record or file the Mortgages or
the Financing Statements if the outstanding principal balance of the
Loan has been reduced to the Designated Level on or before November 30,
1998 and so long as no Event of Default hereunder shall have occurred.
If the outstanding principal balance of the Loan has not been reduced
to the Designated Level on or before November 30, 1998, or if an Event
of Default hereunder shall have occurred, the Bank shall at any time
thereafter have the right, at its option, to record and file the
Mortgages and the Financing Statements, or any of them, at the expense
of
24
<PAGE> 5
Frisch's Restaurants, Inc.
October 9, 1998
Page 5
the Borrower, in the appropriate recording and filing offices, and upon
request by the Bank, the Borrower shall promptly provide the Bank, at
the expense of the Borrower, with title insurance policies insuring the
lien of any such recorded Mortgages which reflect no encumbrances or
restrictions on title other than as may be reflected in the Title
Reports, together with any endorsements thereto as may be deemed
appropriate by the Bank.
16. Bank Agreement Default. Section 5(e) of the Agreement is hereby
deleted and replaced with the following:
(e) There shall have occurred any violation or breach of any
covenant, agreement or condition contained in any other agreement
between the Borrower and the Bank which has not been cured by the
Borrower prior to the expiration of the applicable cure period, if any,
including without limitation, the 1996 Agreement, the Loan Agreement
dated as of October 9, 1998 between the Borrower and the Bank (as
amended from time to time, the "1998 Agreement") and the Loan Agreement
dated as of December 31, 1992 between the Borrower and the Bank (as
amended from time to time, the "1992 Agreement"); or
17. Conditions. The effectiveness of this Amendment shall be
conditioned upon the following:
(a) This Amendment and the Note shall have been duly executed and
delivered; and
(b) There shall have been delivered to the Bank a copy of the
Resolutions of the Board of Directors of the Borrower authorizing the execution
and delivery of this Amendment and the Note, certified by an officer of the
Borrower as being true and correct and in full force and effect, together with a
certificate as to the individuals authorized to sign this Amendment and the Note
(with specimen signatures included and certified to).
18. Representations, Warranties and Covenants. Except as expressly
amended hereby, all representations, warranties and covenants of the Borrower
set forth in the Agreement shall be deemed restated as of the date hereof, and
the Borrower further represents and warrants that:
(a) This Amendment and the Note have been duly executed and delivered
by the Borrower and authorized by all requisite action on the part of the
Borrower; and
25
<PAGE> 6
Frisch's Restaurants, Inc.
October 9, 1998
Page 6
(b) The execution and delivery by the Borrower of this Amendment and
the Note do not constitute a violation of any applicable law or a breach of any
provision contained in the Borrower's Articles of Incorporation or Code of
Regulations or contained in any order of any court or other governmental agency
or in any agreement, instrument or document to which the Borrower is a party or
by which the Borrower or any of its assets or properties is bound.
19. Miscellaneous.
(a) The Borrower shall reimburse the Bank for all out-of-pocket costs
and expenses, including without limitation reasonable attorney's fees, incurred
by the Bank or for which the Bank becomes obligated in connection with or
arising out of this Amendment.
(b) As amended hereby, the Agreement shall remain in full force and
effect, and all references in the Loan Documents to the Agreement shall mean the
Agreement as amended hereby.
(c) Capitalized terms used but not defined herein shall have the same
meanings herein as in the Agreement.
Please acknowledge the agreement of the Borrower to the foregoing by
having four copies of this Amendment signed in the appropriate place below and
return three of them to the Bank.
STAR BANK, NATIONAL ASSOCIATION
By: /s/Kendra L. Bach
-----------------
Title: Vice President
--------------
Acknowledged and Agreed:
FRISCH'S RESTAURANTS, INC.
By: /s/ Donald H. Walker
---------------------------
Title: Vice President - Finance
------------------------
26
<PAGE> 7
EXHIBIT A
FINANCIAL INFORMATION AND REPORTS
1. Annual Report for the year ended May 31, 1998.
27
<PAGE> 8
EXHIBIT B
ACTIONS
NONE
28
<PAGE> 9
October 9, 1998
Andrew T. Hawking
Star Bank, NA
425 Walnut Street
Cincinnati, OH 45202
RE: Star Bank, N.A., Loan Agreement
dated as of October 9, 1998 and
Amendments to Loan Agreement
dated as of July 9, 1997
Amended and Restated Loan
Agreement dated as of August
29, 1996 and Loan Agreement
dated as of December 31, 1992.
Dear Andy:
This will confirm that from time-to-time, there are pending against Frisch's
Restaurants, Inc., or its subsidiaries, a number of lawsuits which are not
listed on Exhibit B to the above referenced Loan Agreements. These actions are
brought by business invitees of the Company's restaurants. The complaints filed
in these suits demand damages for alleged negligence on the Company's part. All
are covered by the Company's liability insurance policy and are, at any one
time, in the aggregate, within the policy limits and not a material liability of
the Company.
Typically, there are no more than fifty such suits pending at any one time.
Substantially all of these suits are settled for relatively nominal amounts,
without proceeding to trial. As of this date, there are thirty-seven such
actions pending, which, in the aggregate, are within the limits of the Company's
liability insurance policy and are not a material liability of the Company.
Sincerely,
Frisch's Restaurants, Inc.
By /s/ W. Gary King
-------------------
W. Gary King
Counsel-Secretary
/mm
Star Bank-Hawking 10-9
C: Elizabeth A. Galloway, Esq.
Donald H. Walker
29
<PAGE> 10
EXHIBIT C
PERMITTED LIENS
Balance
Lien October 9,1998
- -------------------------------------------------------------------------------
Loans against cash surrender values of life insurance policies:
Company Policy No. Amount
------- ---------- ------
Great West Life Assurance 1231-348 74,865
Great West Life Assurance 1511-228 23,608
Great West Life Assurance 1629-356 105,417
Great West Life Assurance 1724-573 96,928
The Hartford R559-474L 100,000
Lincoln National Life 64-1471679 75,648
Lincoln National Life 66-1099177 6,535
Lincoln National Life 66-1154063 16,376
Lincoln National Life 66-1183154 21,212
Lincoln National Life 64-1592945 6,891
Lincoln National Life 64-1273454 50,944
Lincoln National Life 64-1351694 24,369 602,793
--------
--------
$602,793
========
And any liens on property which is described above that replace any liens
described above, provided that the obligations secured by such liens do not
exceed the amounts described above.
30
<PAGE> 11
EXHIBIT D
FINANCIAL COVENANTS
The Borrower agrees that it shall:
(a) Tangible Net Worth. Not permit the Borrower's tangible net worth,
on a consolidated basis, to be less than the following amounts (each, a "Base
Tangible Net Worth") at any time during the following time periods (each, a "TNW
Year"):
TNW Year Worth Base Tangible Net Worth
-------------- -----------------------
the period commencing with the last
day of the fiscal year ended May 31, $48,000,000
1998, through the next to last day
of the next fiscal year ("FY 99")
any period commencing with the last the Base Tangible Net
day of a fiscal year, beginning with Worth for the immediately
the period commencing on the last day preceding TNW year plus of FY 99,
through the next to last $2,000,000
day of the next fiscal year
"Tangible net worth" for purposes hereof shall mean the total of book net worth
less any assets, except capitalized leases, considered intangible under
generally accepted accounting principles.
(b) Ratio of Senior Bank Debt to EBITDA. Not permit the ratio of the
Borrower's Senior Bank Debt to EBITDA to exceed 2.50 to 1.0 at any time.
"Senior Bank Debt" for purposes hereof shall mean the sum of all obligations of
the Borrower to the Bank, including without limitation all obligations of the
Borrower to the Bank incurred in connection with this Agreement, the 1998
Agreement, the 1996 Agreement and the 1992 Agreement and all obligations of the
Borrower to the Bank incurred in connection with any existing or future lease
transactions capitalized or required to be capitalized on the Borrower's books.
"EBITDA" for purposes hereof shall mean the Borrower's consolidated gross
(before interest, taxes, depreciation and amortization) earnings, less cash and
non-cash extraordinary gains and non-cash extraordinary losses, calculated in
accordance with generally accepted accounting principles consistently applied in
accordance with past practices on a rolling four (4) quarter basis.
(c) Cash Flow Coverage Ratio. Not permit the ratio of (i) the Borrower's
EBITDA plus operating lease payments minus Unfunded Capex minus cash dividends
to the Borrower's shareholders, to (ii) the sum of the Borrower's current
portion
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<PAGE> 12
of long-term debt plus interest expense plus operating and capital lease
payments, calculated in accordance with generally accepted accounting principles
consistently applied in accordance with past practices on a rolling four (4)
quarter basis, to be less than 1.25 to 1.0 at any time.
"Unfunded Capex" for purposes hereof shall mean the Borrower's gross capital
expenditures minus any borrowings, as determined by the Bank, used to fund such
capital expenditures.
(d) Interest Coverage Ratio. Not permit the Borrower's Interest Coverage
Ratio to be less than 2.0 to 1.0 at any time. "Interest Coverage Ratio" for
purposes hereof shall mean the Borrower's ratio, on a consolidated basis, of (i)
its earnings before total interest expense (as required to be reflected in
audited financial statements prepared in accordance with generally accepted
accounting principles) and current and deferred taxes, less cash and non-cash
extraordinary gains and non-cash extraordinary losses, to (ii) its total
interest expense (as required to be reflected in audited financial statements
prepared in accordance with generally accepted accounting principles),
calculated on a rolling four (4) quarter basis.
32
<PAGE> 13
EXHIBIT E
PERMITTED INDEBTEDNESS
<TABLE>
<CAPTION>
Balance
October 9, 1998
---------------
<S> <C>
Loan Agreement dated December 31, 1992 (as amended) payable to Star Bank, N. A. $6,375,000
Loan Agreement dated August 29, 1996 (as amended) payable to Star Bank, N. A. 12,500,000
Loan Agreement dated July 9, 1997 (as amended) payable to Star Bank, N. A. 5,894,490
-----------
$24,769,490
===========
</TABLE>
Contingent liability as assignor/guarantor of the following leases:
Remaining
Location Assignee Lease Term
-------- -------- ----------
Dayton, OH (HS Needmore) S & L Fast Foods, Inc. 9/30/98
Silver Springs, FL Ferguson Foods, Inc. 1/31/00
Ocala, FL Ferguson Foods, Inc. 8/1/00
Blue Ash, OH (HS Blue Ash) S & L Fast Foods, Inc. 9/30/00
Florence, KY (P & W) Olive Garden 12/31/01
Houston, TX (Westheimer) Pappas Companies 10/31/03
Lease liability for closed restaurants & other non-operating property (lease not
presently assigned)
Remaining Rent Per
Location Lease Term Month
--------- ---------- -----
Indianapolis, IN (Ky. Ave.) 6/4/00 (ground lease) $3,000
Orlando, FL (Pershing) 3/31/06 8,150
Plus indebtedness secured by permitted liens as described on Exhibit C and
indebtedness replacing the indebtedness secured by the permitted liens as
described on Exhibit C, provided that no such replacement indebtedness shall
exceed the amount being replaced as shown on Exhibit C.
33
<PAGE> 14
EXHIBIT J
AMENDED AND RESTATED PROMISSORY NOTE
$18,000,000 Cincinnati, Ohio
October 9, 1998
FRISCH'S RESTAURANTS, INC., an Ohio corporation (the "Borrower"), for
value received, hereby promises to pay to the order of STAR BANK, NATIONAL
ASSOCIATION, a national banking association (the "Bank"), or it successors or
assigns, on or before August 15, 2000, the principal sum of Eighteen Million
Dollars ($18,000,000), or such portion thereof as may be outstanding from time
to time, together with interest thereon as hereinafter provided.
This Note evidences the loan (the "Loan") made under the Loan Agreement
dated as of July 9, 1997 between the Borrower and the Bank, as amended from time
to time (the "Loan Agreement"), and is subject to the terms and conditions
thereof, including, without limitation, the terms thereof providing for
acceleration of maturity of the Loan. If any term or condition of this Note
conflicts with the express terms or conditions of the Loan Agreement, the terms
and conditions of the Loan Agreement shall control. Terms used herein shall have
the same meanings as in the Loan Agreement.
Subject to the terms of the Loan Agreement, the Borrower shall from
time to time have the option of designating that portions of the principal
balance of the Loan bear interest at a rate per annum equal to (i) the One-Month
LIBOR-Based Rate (as hereinafter defined) for a one (1) month period (the
"One-Month LIBOR-Based Rate Period") and (ii) the Two-Month LIBOR-Based Rate (as
hereinafter defined) for a two (2) month period (the "Two-Month LIBOR-Based Rate
Period"). Any portion of the Loan with respect to which a One-Month LIBOR-Based
Rate or a Two-Month LIBOR-Based Rate is not in effect shall bear interest at a
rate per annum equal to the Prime-Based Rate (as hereinafter defined), with such
rate to be adjusted on the effective date of any change in the Prime Rate (as
hereinafter defined) by the Bank.
The "One-Month LIBOR-Based Rate', shall mean the sum of (i) the annual
rate, determined solely by the Bank, as the British Banking Association 11:00
a.m. Fix offered rate obtained from Telerate Systems Incorporated, Bloomberg
Financial Systems or any other electronic media deemed appropriate by the Bank
(rounded upwards, if necessary, to the nearest 1/10000 of one percent), for
deposits in immediately available Dollars in the London Interbank Market (as
hereinafter defined) at or about 11:00 a.m., London time, for the applicable
One-Month LIBOR-Based Rate Period on the day two (2) London Business Days (as
hereinafter defined) preceding the first day of such One-Month LIBOR-Based Rate
Period, plus (ii) the LIBOR-Based Rate Spread
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<PAGE> 15
(as hereinafter defined), and adjusted for Reserve Percentages (as hereinafter
defined) and any other regulatory and/or governmental costs incurred by the Bank
from eurocurrency liabilities. The "Two-Month LIBOR-Based Rate" shall mean the
sum of (i) the annual rate, determined solely by the Bank, as the British
Banking Association 11:00 a.m. Fix offered rate obtained from Telerate Systems
Incorporated, Bloomberg Financial Systems or any other electronic media deemed
appropriate by the Bank (rounded upwards, if necessary, to the nearest 1/10000
of one percent), for deposits in immediately available Dollars in the London
Interbank Market at or about 11:00 a.m., London time, for the applicable
Two-Month LIBOR-Based Rate Period on the day two (2) London Business Days
preceding the first day of such Two-Month LIBOR-Based Rate Period, plus (ii) the
LIBOR-Based Rate Spread, and adjusted for Reserve Percentages and any other
regulatory and/or governmental costs incurred by the Bank from eurocurrency
liabilities. In the event that Telerate Systems Incorporated, Bloomberg
Financial Systems or any other electronic media selected by the Bank ceases to
quote such rates, the Bank shall, in its discretion, select an alternative rate
source. The One-Month LIBOR-Based Rate and the Two-Month LIBOR-Based Rate are
each sometimes referred to herein as a "LIBOR-Based Rate," and the One-Month
LIBOR-Based Rate Period and the Two-Month LIBOR-Based Rate Period are each
sometimes referred to herein as a "LIBOR-Based Rate Period."
The "LIBOR-Based Rate Spread" shall be one hundred fifty (150) basis
points through and including October 15, 1998, and commencing on October 16,
1998, the LIBOR-Based Rate Spread shall be one hundred twenty-five (125) basis
points.
"London Interbank Market" shall mean the London eurodollar interbank
market where rates are offered to the Bank by prime banks for deposits of
immediately available Dollars. "London Business Day" shall mean any day other
than a Saturday, Sunday or holiday on which banks in London, England are
authorized by law to close.
"Reserve Percentages" shall mean the total maximum reserve percentages
for determining the reserves to be maintained by member banks of the Federal
Reserve System for eurocurrency liabilities, as defined in Federal Reserve Board
Regulation D, rounded upward to the nearest 1/100 of one percent, and includes,
but is not limited to, marginal, emergency, supplemental, special and other
reserve percentages. The amount of the adjustment for Reserve Percentages and
regulatory and/or governmental costs shall be based upon the assumption that the
Bank funded one hundred percent (100%) of the Loan or portion thereof bearing
interest at a LIBOR-Based Rate in the London Interbank Market.
The "Prime Rate", shall mean that rate announced by the Bank as its
prime rate, which rate is determined solely by the Bank pursuant to market
factors and its own operating needs and
-2-
35
<PAGE> 16
is not necessarily the Bank's best or most favorable rate for commercial or
other loans. The "Prime-Based Rate" shall be the Prime Rate minus twenty-five
(25) basis points.
Interest on any portion of the Loan bearing interest at the Prime-Based
Rate shall be payable monthly, in arrears, commencing on October 31, 1998, and
on the last day of each calendar month thereafter, and when this Note is due
(whether by reason of acceleration or otherwise). Interest on any portion of the
Loan bearing interest at a LIBOR-Based Rate shall be payable, in arrears, on the
last day of the LIBOR-Based Rate Period applicable thereto, and when this Note
is due (whether by reason of acceleration or otherwise). Interest on this Note
shall be computed on the basis of a year consisting of three hundred sixty (360)
days but applied to the actual number of days elapsed. At the option of the
Bank, (a) prior to acceleration of this Note, in the event that any interest on
or principal of this Note remains unpaid past thirty (30) days of the date due,
and/or (b) upon the occurrence of any other Event of Default under the Loan
Agreement or upon the acceleration of this Note, interest (computed and adjusted
in the same manner, and with the same effect, as interest on this Note prior to
maturity) on the outstanding balance of this Note shall be payable on demand at
the Prime Rate plus an additional three percent (3%) per annum up to any maximum
rate permitted by law, in all cases until paid and whether before or after the
entry of any judgment thereon. In addition, in the event that the Borrower
should fail to make any payment hereunder within ten (10) days of the date due,
the Borrower shall pay the Bank a fee in an amount of up to five percent (5%) of
the amount of such payment, but in no event less than fifty dollars ($50.00),
which fee shall be immediately due and payable without notice or demand.
The Borrower shall prepay the outstanding principal balance of the Loan
in an amount equal to the net after-tax proceeds from the sale of any assets of
the Borrower or any of its Subsidiaries (other than sales of any assets as
described in Section 2(l)(ii) or Section 2(l)(iii) of the Loan Agreement) on the
date of receipt of such proceeds (provided that if prepayment on such date would
cause the Borrower to be subject to a charge hereunder because of repayment of a
portion of the Loan bearing interest at a LIBOR-Based Rate prior to the
expiration of the LIBOR-Based Rate Period applicable hereto, then, at the option
of the Borrower, such proceeds shall not be applied to the prepayment of the
Loan on such date, but instead shall be deposited into a non-interest bearing
account at the Bank under the sole control of the Bank and shall be applied to
prepayment of the Loan at the expiration of such LIBOR-Based Rate Period).
Unless sooner due and payable as provided hereunder, the entire outstanding
principal balance of this Note shall be due and payable in full on August 15,
2000.
-3-
36
<PAGE> 17
All payments of principal and interest hereunder shall be made in
immediately available funds to the Bank at 425 Walnut Street, Location 9150,
Cincinnati, Ohio 45202, or at such other place as may be designated by the Bank
to the Borrower in writing. The Bank is authorized by the Borrower to enter from
time to time the balance of this Note and all payments and prepayments thereon
on the reverse of this Note or in the Bank's regularly maintained data
processing records, and the aggregate unpaid amount set forth thereon or therein
shall be presumptive evidence of the amount owing to the Bank and unpaid on this
Note.
The Borrower may, at its option, from time to time repay or prepay part
or all of the outstanding principal balance of the Loan bearing interest at the
Prime-Based Rate without premium. The Loan or any portion thereof bearing
interest at a LIBOR-Based Rate may only be repaid without charge at the
expiration of the LIBOR-Based Rate Period applicable thereto, and any repayment
of the Loan or any portion thereof bearing interest at a LIBOR-Based Rate at any
time prior to the expiration of the LIBOR-Based Rate Period applicable thereto
shall be subject to a charge in an amount determined by the Bank in its
reasonable discretion, such charge to compensate the Bank for loss of bargain
with respect to the Loan or portion thereof being so paid, and not as a penalty,
payable upon demand accompanied by a reasonably detailed statement as to such
charge (which statement shall be conclusive in the absence of manifest error).
IMPORTANT: This Note shall be deemed made in Ohio and shall in all
respects be governed by and construed in accordance with the laws of the State
of Ohio, including all matters of construction, validity and performance.
Without limitation on the ability of the Bank to initiate and prosecute any
action or proceeding in any applicable jurisdiction related to loan repayment,
the Borrower and the Bank agree that any action or proceeding commenced by or on
behalf of the parties arising out of or relating to this Note shall be commenced
and maintained exclusively in the District Court of the United States for the
Southern District of Ohio, or any other court of applicable jurisdiction located
in Cincinnati, Ohio. The Borrower and the Bank also agree that a summons and
complaint commencing an action or proceeding in any such Ohio courts by or on
behalf of such parties shall be properly served and shall confer personal
jurisdiction on a party to which said party consents, if (a) served personally
or by certified mail to the other party at any of its addresses noted herein, or
(b) as otherwise provided under the laws of the State of Ohio. The interest
rates and all other terms of this Note negotiated with the Borrower are, in
part, related to the aforesaid provisions on jurisdiction, which the Bank deems
a vital part of this loan arrangement.
-4-
37
<PAGE> 18
This Note amends and restates the Promissory Note dated as of August
15, 1997 given by the Borrower to the Bank, and evidences all amounts
outstanding as of the date hereof under said Promissory Note.
Presentment for payment, notice of dishonor, protest and notice of
protest are hereby waived.
FRISCH'S RESTAURANTS, INC.
By:
-------------------------------------
Title:
----------------------------------
Address: 2800 Gilbert Avenue
Cincinnati, Ohio 45206
-5-
38
<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> 3-MOS
<FISCAL-YEAR-END> MAY-30-1999
<PERIOD-START> JUN-01-1998
<PERIOD-END> SEP-20-1998
<CASH> 168,472
<SECURITIES> 0
<RECEIVABLES> 1,060,949
<ALLOWANCES> 0
<INVENTORY> 3,374,098
<CURRENT-ASSETS> 7,151,242
<PP&E> 164,020,719
<DEPRECIATION> 79,949,349
<TOTAL-ASSETS> 108,418,365
<CURRENT-LIABILITIES> 16,842,473
<BONDS> 35,775,389
0
0
<COMMON> 7,362,279
<OTHER-SE> 43,092,966
<TOTAL-LIABILITY-AND-EQUITY> 108,418,365
<SALES> 47,518,926
<TOTAL-REVENUES> 47,881,896
<CGS> 41,929,110
<TOTAL-COSTS> 41,929,110
<OTHER-EXPENSES> 3,005,405
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 890,393
<INCOME-PRETAX> 2,056,988
<INCOME-TAX> 679,000
<INCOME-CONTINUING> 1,377,988
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,377,988
<EPS-PRIMARY> .23
<EPS-DILUTED> .23
</TABLE>
