<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Quarterly Report Under Section 13 or 15 (d)
of the Securities Exchange Act of 1934
FOR QUARTER ENDED DECEMBER 13, 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 December 31, 1998 was:
5,943,580
<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 ...................16-19
PART II - OTHER INFORMATION 20-21
<PAGE> 3
FRISCH'S RESTAURANTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF EARNINGS
(UNAUDITED)
<TABLE>
<CAPTION>
Twenty-Eight Weeks Ended Twelve Weeks Ended
----------------------------- -----------------------------
December 13, December 14, December 13, December 14,
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUE
Sales $85,046,039 $81,765,571 $37,527,113 $35,629,094
Other 647,822 690,103 284,852 297,407
----------- ----------- ----------- -----------
Total revenue 85,693,861 82,455,674 37,811,965 35,926,501
COSTS AND EXPENSES
Cost of sales
Food and paper 25,923,680 25,480,947 11,433,295 11,065,907
Payroll and related 29,003,689 27,122,088 12,718,050 11,920,286
Other operating costs 19,584,456 19,402,562 8,431,370 8,418,724
----------- ----------- ----------- -----------
74,511,825 72,005,597 32,582,715 31,404,917
General and administrative 3,190,585 2,386,412 1,345,699 864,864
Advertising 2,073,053 1,981,990 912,534 867,058
Impairment of long lived assets 1,125,000 - 1,125,000 -
Interest 1,481,760 1,550,579 591,367 763,635
----------- ----------- ----------- -----------
Total costs and expenses 82,382,223 77,924,578 36,557,315 33,900,474
----------- ----------- ----------- -----------
Earnings before income taxes
and extraordinary item 3,311,638 4,531,096 1,254,650 2,026,027
INCOME TAXES 1,192,000 1,450,000 513,000 648,000
----------- ----------- ----------- -----------
Earnings before extraordinary item 2,119,638 3,081,096 741,650 1,378,027
EXTRAORDINARY ITEM (NET OF APPLICABLE TAX) 3,712,000 - 3,712,000 -
----------- ----------- ----------- -----------
NET EARNINGS $ 5,831,638 $ 3,081,096 $ 4,453,650 $ 1,378,027
=========== =========== =========== ===========
Basic and diluted net earnings
per share of common stock:
Before extraordinary item $.35 $.48 $.12 $.23
Extraordinary item .62 - .62 -
----------- ----------- ----------- -----------
$.97 $.48 $.74 $.23
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE> 4
FRISCH'S RESTAURANTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
ASSETS
December 13, May 31,
1998 1998
(unaudited)
------------ ------------
<S> <C> <C>
CURRENT ASSETS
Cash $ 621,398 $ 84,260
Receivables
Trade 944,014 782,101
Other 181,617 236,670
Inventories 4,011,035 3,638,740
Prepaid expenses and sundry deposits 1,573,676 827,571
Prepaid and deferred income taxes 786,267 939,089
------------ ------------
Total current assets 8,118,007 6,508,431
PROPERTY AND EQUIPMENT
Land and improvements 20,221,130 20,171,685
Buildings 50,494,488 50,172,522
Equipment and fixtures 56,377,886 54,750,152
Leasehold improvements and buildings on leased land 28,130,358 26,321,313
Capitalized leases 8,224,712 8,682,298
Construction in Progress 1,437,148 -
------------ ------------
164,885,722 160,097,970
Less accumulated depreciation and amortization 81,191,143 77,901,512
------------ ------------
Net property and equipment 83,694,579 82,196,458
OTHER ASSETS
Intangible assets 750,674 752,867
Investments in land 1,759,546 1,737,933
Property held for sale 5,061,393 7,853,073
Net cash surrender value-life insurance policies 3,936,995 3,767,594
Deferred income taxes 891,243 891,243
Other 1,717,244 3,016,124
------------ ------------
Total other assets 14,117,095 18,018,834
------------ ------------
$105,929,681 $106,723,723
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE> 5
<TABLE>
<CAPTION>
LIABILITIES
December 13, 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 459,407 458,480
Self insurance 1,332,904 877,725
Accounts payable 8,500,370 6,342,187
Accrued expenses 5,219,191 5,779,923
Income taxes 1,249,154 -
------------ ------------
Total current liabilities 18,261,026 14,958,315
LONG-TERM OBLIGATIONS
Long-term debt 23,219,490 29,914,490
Obligations under capitalized leases 5,361,529 5,597,202
Self insurance 2,757,717 3,623,276
Other 2,449,830 2,720,454
------------ ------------
Total long-term obligations 33,788,566 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 60,423,818 60,427,299
------------ ------------
67,786,097 67,789,578
Retained earnings 7,922,073 3,347,485
------------ ------------
75,708,170 71,137,063
Less cost of treasury stock (1,416,699 and 1,356,821 shares) 21,828,081 21,227,077
------------ ------------
Total shareholders' equity 53,880,089 49,909,986
------------ ------------
$105,929,681 $106,723,723
============ ============
</TABLE>
5
<PAGE> 6
FRISCH'S RESTAURANTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
TWENTY-EIGHT WEEKS ENDED DECEMBER 13, 1998
AND DECEMBER 14, 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 twenty-eight weeks - - 3,081,096 - 3,081,096
Treasury shares acquired - - - (17,689,763) (17,689,763)
Dividends
Cash - $.19 per share - - (1,209,597) - (1,209,597)
---------- ----------- ----------- ------------ ------------
Balance at December 14, 1997 7,362,279 60,427,514 2,304,231 (21,228,484) 48,865,540
Net earnings for twenty-four weeks - - 1,463,637 - 1,463,637
Treasury shares reissued - (215) - 1,407 1,192
Dividends
Cash - $.07 per share - - (420,383) - (420,383)
---------- ----------- ----------- ------------ ------------
Balance at May 31, 1998 7,362,279 60,427,299 3,347,485 (21,227,077) 49,909,986
Net earnings for twenty-eight weeks - - 5,831,638 - 5,831,638
Treasury shares acquired - - (614,697) (614,697)
Treasury shares reissued - (3,481) - 13,693 10,212
Dividends
Cash - $.21 per share - - (1,257,050) - (1,257,050)
---------- ----------- ----------- ------------ ------------
Balance at December 13, 1998 $7,362,279 $60,423,818 $ 7,922,073 $(21,828,081) $ 53,880,089
========== =========== =========== ============ ============
</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
TWENTY-EIGHT WEEKS ENDED DECEMBER 13, 1998 AND DECEMBER 14, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Net income $ 5,831,638 $ 3,081,096
Adjustments to reconcile net income
to net cash from operating activities:
Depreciation and amortization 5,277,884 4,933,858
(Gain) loss on disposition of assets 279,447 (60,156)
Impairment of long-lived assets 1,125,000 -
Gain on sale of investment in Cincinnati Reds (3,712,000) -
Changes in assets and liabilities:
(Increase) decrease in receivables (106,860) 94,451
Increase in inventories (372,295) (92,180)
Increase in prepaid expenses and sundry deposits (746,105) (344,743)
Decrease in prepaid and deferred income taxes 152,822 220,418
Increase in accounts payable 1,741,992 600,561
Decrease in accrued expenses (560,732) (860,305)
(Decrease) increase in accrued income taxes (838,846) 373,646
Decrease (increase) in other assets 41,815 (516,573)
Decrease in self insured obligations (410,380) (432,866)
Decrease in other liabilities (270,624) (97,585)
----------- -----------
Net cash provided by operating activities 7,432,756 6,899,622
CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES:
Additions to property and equipment (7,090,139) (6,380,668)
Proceeds from disposition of property 1,739,962 4,200,471
Proceeds from sale of investment in Cincinnati Reds 7,000,000 -
Increase in other assets (170,351) (202,909)
----------- -----------
Net cash provided by (used in) investing activities 1,479,472 (2,383,106)
CASH FLOWS (USED IN) PROVIDED BY FINANCING ACTIVITIES:
Proceeds from borrowings 3,000,000 18,644,490
Payment of long-term obligations (9,929,746) (4,075,868)
Cash dividends paid (840,859) (789,221)
Treasury share transactions (604,485) (17,689,763)
----------- -----------
Net cash (used in) financing activities (8,375,090) (3,910,362)
----------- -----------
Net increase in cash and equivalents 537,138 606,154
Cash and equivalents at beginning of year 84,260 231,453
----------- -----------
Cash and equivalents at end of second quarter $ 621,398 $ 837,607
=========== ===========
Supplemental disclosures:
Interest paid $ 1,369,509 $ 1,390,060
Income taxes paid 1,878,023 978,199
Income tax refunds received - 122,263
Dividends declared but not paid 416,191 420,376
</TABLE>
The accompanying notes are an integral part of these statements.
7
<PAGE> 8
1
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 December 13, 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
twenty-eight weeks ended December 13, 1998 and $35,000 for the twenty-eight
weeks ended December 14, 1997. There were no unamortized new store opening costs
on the balance sheet at December 14, 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 $.62 per share has been 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 an 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. To further lower the net realizable
value of the properties remaining to be sold, the Company recorded additional
pretax charges of $375,000 in the fourth quarter of fiscal 1998 and $1,125,000
in the second quarter of fiscal 1999. The current quarter charge is partially
based upon contracts with a Big Boy franchise operator, a minority shareholder
of which is a related party.
NOTE B - PROPERTY HELD FOR SALE
Of the fifteen properties closed at the end of fiscal 1997 as described in note
A, eight have been disposed of through December 13, 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
seven properties are listed for sale with a broker, and are carried at a net
realizable value of approximately $4,530,000 on the Company's balance sheet at
December 13, 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 three to six months. Certain surplus land is also currently held for
sale and is stated at cost.
NOTE C - LONG-TERM DEBT
<TABLE>
<CAPTION>
December 13, 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 $ - $12,500 $ - $12,500
Term loan 1,500 4,625 1,500 5,500
Tender offer - 5,094 - 11,914
Golden Corral facility - 1,000 - -
------ ------- ------ -------
$1,500 $23,219 $1,500 $29,914
====== ======= ====== =======
</TABLE>
The portion payable after one year matures as follows:
<TABLE>
<CAPTION>
Dec. 13, May 31,
1998 1998
------- -------
(in thousands)
<S> <C> <C>
Period ending in 2000 $ 6,594 $25,914
2001 15,000 1,500
2002 1,500 1,500
2003 125 1,000
------- -------
$23,219 $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, $12,500,000
of which is outstanding at December 13, 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 6.25%.
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
currently 7.75%, 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, $12,050,000 had been repaid as of December 13, 1998
(see note B), reducing the balance outstanding to $5,094,000. 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 6.53% was in effect as of
December 13, 1998. The loan is collateralized by the real property and equipment
owned by the Company at the seven 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. The Company borrowed $1,000,000 against this
credit line during the quarter ended December 13, 1998. 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. The quarterly LIBOR adjusted rate of 6.25% is in effect until
March 1, 1999. 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 December 13, 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 40% 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:
Asset balances at
-------------------------
Dec. 13, May 31,
1998 1998
-------- -------
(in thousands)
Restaurant facilities $ 7,248 $ 7,705
Equipment 977 977
------- -------
8,225 8,682
Less accumulated amortization (4,867) (5,059)
------- -------
$ 3,358 $ 3,623
======= =======
Total rental expense of operating leases for the twenty-eight weeks was $794,000
at December 13, 1998 and $755,000 at December 14, 1997.
Future minimum lease payments under capitalized leases and operating leases
having an initial or remaining term of one year or more follow:
Capitalized Operating
Period ending December 13, leases leases
-------------------------- ----------- ---------
(in thousands)
1999 $ 1,062 $1,301
2000 974 1,242
2001 901 1,075
2002 873 922
2003 873 682
2004 to 2020 4,970 2,814
------- ------
Total 9,653 $8,036
======
Amount representing interest (3,832)
-------
Present value of obligations 5,821
Portion due within one year (459)
-------
Long-term obligations $ 5,362
-------
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 December 13, 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>
Twenty-eight weeks ended Twenty-eight weeks ended
December 13, 1998 December 14, 1997
--------------------------- ----------------------------
No. of Option No. of Option
Shares Price Shares Price
------- ---------------- ------- ----------------
<S> <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 twenty-eight weeks 35,500 $8.31 to $11.25 0
Exercised during the twenty-eight weeks 0 0
Expired during the twenty-eight weeks 750 $11.25 to $12.38 0
Outstanding at end of quarter 169,163 $8.31 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 authorized a program to repurchase up
to 500,000 shares of the Company's common stock on the open market. Purchases
may be made from time to time within a two-year time frame. Through December 13,
1998, 60,443 shares had been repurchased at a cost of $612,000.
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.
Weighted average
Common Shares Outstanding
-------------------------
Quarter ending December 13, 1998 5,982,506
Year-to-date December 13, 1998 5,995,938
Quarter ending December 14, 1997 6,005,368
Year-to-date December 14, 1997 6,436,896
Diluted EPS includes the effect of common stock equivalents, which assumes the
exercise of dilutive stock options. For the twenty-eight weeks ended December
13, 1998 and December 14, 1997, 495 and 120 shares of common stock equivalents,
respectively, were included in the computation of diluted EPS. The twelve weeks
ended December 13, 1998 included 1,156 shares in the diluted EPS computation.
Stock options outstanding for the twelve weeks ended December 14, 1997 were not
included in the computation of diluted EPS because their exercise prices
exceeded the average market price of the common shares.
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:
1998 1997
---- ----
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
Pension expense for the twenty-eight weeks ended December 13, 1998 and December
14, 1997 was a credit of $49,000 and a charge of $146,000 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 with the
exception of the $1,125,000 pretax impairment of assets charge) 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
Overview
- --------
Total revenue for the twelve-week second quarter ended December 13, 1998 was
$37,812,000, an increase of $1,885,000 or 5.2 percent from the comparable period
last year. Net earnings for the quarter were $4,454,000, or $.74 per share,
including an extraordinary gain from the sale of the Company's limited partner
interest in the Cincinnati Reds major league baseball team, compared to
$1,378,000, or $.23 per share last year. The second quarter also included an
impairment of assets charge of $1,125,000 ($720,000 net after income taxes)
relating to fifteen unprofitable Big Boy restaurants that closed in June 1997.
The Company has previously taken pretax impairment charges totaling $4,975,000
to absorb the estimated losses on the disposal of these closed restaurants (see
notes A and B to the consolidated financial statements). Exclusive of the
impairment charge and the extraordinary gain (which increased the Company's
effective income tax rate from 33 percent to 36 percent), earnings per share for
the second quarter would have been $.27 per share, a 17 percent increase over
last year's $.23 per share.
For the two quarters ended December 13, 1998, revenue increased 3.9 percent to
$85,694,000 from $82,456,000 a year ago. Net earnings, with the extraordinary
gain of $3,712,000, or $.62 per share, rose to $5,832,000, or $.97 per share,
from $3,081,000 or $.48 per share. Excluding the impairment charge and the
increased tax rate due to the extraordinary gain, operating earnings per share
would have been $.50, compared to $.48 last year.
Results of Operations
- ---------------------
Same store sales in Big Boy restaurants improved more than 5 percent during the
first two quarters of fiscal year 1999. The sales gains were especially strong
from carryout and drive-thru trade, which have been driven by an emphasis on
combo-meals. Menu prices were increased approximately 2 percent in the third
quarter of fiscal 1998 and an additional 2 percent at the end of the first
quarter of fiscal 1999. Another price increase is currently planned for February
1999. Revenue from hotel operations decreased 2.1 percent during the first half
of the year compared to the same period last year.
The Company believes sales gains have also resulted from achieving significant
improvements in lowering employee turnover, as more experienced employees
provide certain operating efficiencies and better responsiveness to customer
needs, generating repeat business. Restaurants with lower employee turnover show
a strong correlation with high same store sales improvements. The Company
attributes the improvement in turnover to its innovative software products, the
STAR employee selection program, the GROW interactive employee training system,
and CREWS, a telephone-processed program that provides information to restaurant
managers on employee job satisfaction.
The Company did not open or close any restaurants during the first two quarters
of the fiscal year and currently operates 88 Big Boy restaurants and two Quality
Hotels. The Company's first Golden Corral restaurant is expected to open in
January 1999. The Golden Corral restaurants are expected to produce average
annual sales volumes of $3,000,000. 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 $2,506,000 or 3.5 percent during the first two quarters
this year. However, as a percentage of revenue, cost of sales fell to 87.0
percent from 87.3 percent last year, reflecting an overall improvement in
restaurant margins, primarily from sales increases. An analysis of the
components of cost of sales follows.
Food and paper costs decreased during this year's first two quarters, falling to
30.3 percent of revenue from 30.9 percent in last year's first two quarters.
While commodity prices generally continue to inch upward, lower pork and beef
prices aided the improvement. In addition, the food cost of typical carryout and
drive-thru meals is usually lower than for dining room meals.
Payroll and related expenses rose during this year's first two quarters to 33.8
percent of revenue from 32.9 percent in last year's first two quarters. Higher
hourly pay rates, driven by tight labor conditions in all of the Company's
markets, were the principal cause. In addition, service hours in relation to
hours of operation were increased slightly 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
16
<PAGE> 17
program for restaurant managers was instituted at the beginning of fiscal 1999.
As had been expected, the program has resulted in higher payroll costs for
restaurant management. However, these higher payroll costs have been offset by
the elimination of service trainer management positions and through a 15 percent
reduction in field supervisors.
Other operating expenses decreased to 22.9 percent of revenue during this year's
first two quarters from 23.5 percent in last year's first two quarters. The
percentage improvement is largely due to the sales increase, as these expenses
tend to be more fixed in nature. Lower manager trainee expenses that resulted
from lower management turnover due to the new variable compensation plan are
reflected in the improvement, offset by higher utility costs and replacement of
wait-staff uniforms.
Total cost of sales was also negatively impacted by higher payroll and
depreciation charges for the hotels during this year's first two quarters.
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, reopened
during the second quarter of fiscal 1999 as "Highlands Bar and Grill." The theme
change is designed to turn around sagging sales and losses in the restaurant.
Sales improvements have been encouraging. The Company is currently exploring
avenues 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 two quarters of fiscal 1999
increased $804,000 or 33.7 percent over the first two quarters of fiscal 1998.
The increase is principally due to gains recorded last year from the disposition
of two properties unrelated to fifteen 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.
Results for the first two quarters of fiscal 1999 were adversely affected by a
$1,125,000 impairment of assets charge taken during the second quarter
associated with the closing of fifteen unprofitable restaurants at the end of
fiscal 1997. Eight of these former Big Boy restaurants have been disposed of as
of December 13, 1998, generally at prices above original estimates. However,
during the second quarter, it became apparent that the remaining seven
restaurants would ultimately have to be disposed of for values significantly
below the initial estimates that were used when the restaurants closed.
Contracts were accepted at prices lower than originally estimated on four of the
properties during the quarter, and the Company lowered expectations for the
remaining three. Three of the four accepted contracts are with a Big Boy
franchise operator, a minority shareholder of which is an officer of the
Company. The terms of these transactions are no less favorable than would be
agreed upon with persons having no relationship with the Company.
Interest expense during the 28 weeks ended December 13, 1998 decreased $69,000
or 4.4 percent lower than the comparable period a year ago. Interest
attributable to the tender offer loan (see notes C and F to the consolidated
financial statements) was $368,000 during this year's first two quarters,
compared with $360,000 last year. Last year included only seventeen weeks of
tender offer interest, as the $17,144,000 loan was drawn on August 15, 1997. For
the twelve-week second quarter ended December 13, 1998, tender offer interest
was $136,000 lower than last year. Interest on the tender offer loan will
continue to spiral downward as the current year progresses, as more of the
principal is repaid. The outstanding principal balance of the tender offer loan
was $5,094,000 as of December 13, 1998, a reduction of almost $9,000,000 in the
last twelve months. Savings from the reduction in tender offer interest will
likely be tempered by borrowing needed to construct Golden Corral restaurants
during the next three fiscal years.
Provision for income tax expense as a percentage of pre-tax earnings was
increased to 36 percent from 33 percent in the second quarter of fiscal 1999.
The retroactive effect of the change resulted in a 40.9 percent tax rate for the
twelve-week second quarter. In the comparable periods last year the effective
tax rate was 32 percent. The increased tax rate reflects higher state income
taxes associated with the extraordinary gain from the sale of the Company's
limited partner interest in the Cincinnati Reds major league baseball team.
Liquidity and Capital Resources
- -------------------------------
Cash provided by operating activities during the first two quarters of fiscal
1999 was $7,430,000, an increase of $530,000 from last year's first two
quarters. These funds were generated principally from net income and
depreciation, and were utilized for discretionary capital improvements,
dividends, and to service debt.
17
<PAGE> 18
Investing activities during the first two quarters of fiscal 1999 included
$7,090,000 in capital costs, an increase of $710,000 from last year's first two
quarters. This year's costs consisted of $1,620,000 for the new point-of-sale
system, $2,120,000 to renovate the hotel properties, $580,000 to remodel Big Boy
restaurants, $1,440,000 for Golden Corral, and $1,330,000 in routine equipment
replacements and other capital outlays. Proceeds from property sales were
$1,740,000, substantially all of which came from the disposal of two of the
fifteen restaurants closed at the end of fiscal 1997. The Company expects to
complete the disposal of the remaining seven closed restaurants over the next
three to six months. On September 30, 1998, the Company completed the sale of
its limited partner interest in the Cincinnati Reds major league baseball team
for $7,000,000 in cash.
Financing activities in the first two quarters of fiscal 1999 included
$2,000,000 of new debt borrowed against the Company's revolving line of credit
and $1,000,000 borrowed against the Company's Golden Corral credit facility.
Scheduled long-term debt payments of $1,110,000 were made and $1,920,000 was
paid against the tender offer loan principally with proceeds from the sale of
two of the fifteen closed restaurants. Anticipated sale proceeds from the
remaining seven 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 limited partner interest in the
Cincinnati Reds to repay $4,900,000 against the tender offer loan. The Company
used $2,000,000 from the Reds' sale proceeds to pay down its revolving line of
credit. Regular quarterly cash dividends to shareholders totaling $840,000 were
also paid during the two quarters ended December 13, 1998. The Company's 152nd
consecutive quarterly cash dividend approximating $420,000 was paid after the
quarter ended. On October 5, 1998, the Board of Directors authorized a program
to repurchase up to 500,000 shares of the Company's common stock on the open
market. Purchases may 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. Through December 13, 1998, the Company repurchased 60,443 shares at a
cost of $610,000.
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 marked the final year of a five
year plan to totally renovate the hotel properties, additional 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 Big Boy
restaurants scheduled over the remainder of the fiscal year are expected to be
approximately $850,000. Through December 13, 1998, the point-of-sale system has
been installed in 77 Big Boy restaurants. The remaining eleven 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. The first Golden Corral restaurant
will open January 25, 1999. The Company currently 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.
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.
All of the required date fields that need to be modified have been identified
for the Company's custom written software, and the programming necessary to
bring the systems into compliance has begun. 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
18
<PAGE> 19
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.
19
<PAGE> 20
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 November 24, 1998 to employment
agreement between the Registrant and Craig F. Maier
dated May 29, 1995.
(27) Financial Data Schedule
20
<PAGE> 21
b) Reports on Form 8-K.
The Company filed the following Form 8-K:
On October 6, 1998 under item 5, to report that the Company's
Board of Directors authorized 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 January 22, 1999
---------------------------
January 22, 1999
BY /s/ Donald H. Walker
----------------------------
Donald H. Walker
Vice President - Finance and
Principal Financial Officer
21
<PAGE> 1
Exhibit 10 (a)
FIRST AMENDMENT TO EMPLOYMENT AGREEMENT
---------------------------------------
THIS FIRST AMENDMENT TO EMPLOYMENT AGREEMENT (this "Amendment") is made
and entered into as of November 24, 1998 between Frisch's Restaurants, Inc., an
Ohio corporation (the "Corporation"), and Craig F. Maier ("Maier").
W I T N E S S E T H:
--------------------
WHEREAS, the Corporation and Maier are parties to that certain
Employment Agreement dated as of May 8, 1995 pursuant to which the Corporation
agrees to employ Maier and Maier agrees to serve the Corporation (the
"Agreement"); and
WHEREAS, the Corporation and Maier mutually desire to amend in part the
Agreement, as further specified in this Amendment;
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Corporation and Maier agree as follows:
A. Amendment. Paragraph 5(b) and Paragraph 5(c) of the Agreement are
----------
hereby amended, effective as of the date of this Amendment, to read in their
entirety as follows:
(b) Incentive Compensation. In addition to the compensation
-----------------------
provided in the foregoing subparagraph (a), the Corporation shall pay
Maier Incentive Compensation for each year in which the pre-tax
earnings of the Corporation equal or exceed four percent (4%) of the
Corporation's sales for such year. Pre-tax earnings and sales shall be
the amounts reported to shareholders in the Corporation's annual report
(exclusive of any amounts included in sales and/or earnings arising out
of the Corporation's investment in the Cincinnati Reds), but pre-tax
earnings shall be computed without taking this Incentive Compensation
into consideration. The amount of the Incentive Compensation shall be:
(i) one and one-half percent (1.5%) of the Corporation's pre-tax
earnings (as determined above) if such pre-tax earnings equal or exceed
four percent (4%) (but are less than five percent (5%)) of the
Corporation's sales for such year (provided however that the amount of
Incentive Compensation shall be reduced if necessary so that the
Corporation's pre-tax earnings, after reduction for Incentive
Compensation, shall not be less than four percent (4%) of the
Corporation's sales for such year); and (ii) three percent (3%) of the
Corporation's pre-tax earnings (as determined above) to the extent that
such pre-tax earnings equal or exceed five percent (5%) of the
Corporation's sales for such year (provided however that the amount of
Incentive Compensation shall be reduced if necessary to one and
one-half percent (1.5%) of such pre-tax earnings only to the extent
that payment the Incentive Compensation reduces the Corporation's
pre-tax earnings below five percent (5%) of the Corporation's sales for
such year and provided further that the amount of Incentive
Compensation shall be further reduced if necessary so that the
Corporation's pre-tax earnings, after reduction for Incentive
Compensation, shall not be less than four percent (4%) of the
Corporation's sales for such year). Eighty percent (80%) of such
Incentive Compensation shall be paid in cash and twenty percent (20%)
shall be paid in shares of the Corporation's common stock. The number
of shares allocated to Maier shall be determined by dividing the amount
of Incentive Compensation to be paid in shares by the "Average Value"
of the Corporation's common shares during the year for which the
Incentive Compensation has been earned. The "Average Value" of the
Corporation's shares for any year shall be the mean between the highest
price at which shares were traded during such year and the lowest
price. Example: In the fiscal year beginning May __, 1998, the
Corporation has sales of $160,000,000 and pre-tax earnings (before
calculation of Maier's Incentive Compensation) of $8,200,000. Since
earnings exceed four percent (4%) of sales, Maier has earned Incentive
Compensation, and since earnings
22
<PAGE> 2
Exhibit 10(a)
exceed five percent (5%) of sales, Maier has earned Incentive
Compensation on that portion of earnings exceeding five percent (5%) of
sales at the higher rate of three percent (3%) of the Corporation's
pre-tax earnings. Three percent (3%) of pre-tax earnings equals
$246,000. However, if Maier is paid $246,000 it will reduce pre-tax
earnings below five percent (5%) of sales. Maier's Incentive
Compensation at the higher three percent (3%) of the Corporation's
pre-tax earnings rate is limited to $200,000. The remaining balance of
$46,000 which would reduce the Corporation's pre-tax earnings below
five percent (5%) of sales is paid at one-half the higher rate (i.e.,
one and one-half percent (1.5%) rather than three percent (3%)) and
therefore reduces such remaining balance payable to Maier to $23,000.
As a result, Maier's Incentive Compensation totals $223,000 (the sum of
$200,000 and $23,000). Since payment of $223,000 to Maier does not
result in the Corporation's pre-tax earnings falling below four percent
(4%) of sales (i.e., $6,400,000), the full $223,000 is due to Maier.
Eighty percent (80%) or $178,400 is payable in cash. Twenty percent
(20%) or $44,600 is payable in the Corporation's shares. During the
fiscal year beginning May __, 1998 the Corporation's shares traded at a
high price of $20 and a low price of $10. The mean price is $15 per
share. Maier therefore receives an award of 2,973 shares ($44,600
divided by $15 per shares = 2,973 shares).
The shares granted as Incentive Compensation will not be
registered under the Securities Act of 1933, as amended, and each stock
certificate will bear the following legend or one similar thereto: "The
shares represented by this certificate have been acquired for
investment and have not been registered under the Securities Act of
1933. The shares may not be sold or transferred in the absence of such
registration or an exemption therefrom under said Act."
(c) Stock Options. In any year in which Maier earns Incentive
--------------
Compensation, the Corporation shall also grant stock options to him.
The number of options awarded shall be calculated as the total amount
of Maier's Incentive Compensation divided by the "Average Value" of the
Corporation's shares as determined in paragraph 5(b), multiplied by
two. The exercise price of the options shall be the market price of the
Corporation's shares on the date of the options are granted. The
options shall expire ten (10) years from the date of grant. All options
shall be granted under the Frisch's Restaurants, Inc. 1993 Stock Option
Plan or any successor plan and shall be subject to all the terms and
conditions contained therein. In the event that in any year the
Corporation does not have a stock option plan in force, no grant of
options shall be made under this provision. If in any year there are
insufficient authorized ungranted options under the then existing stock
option plan, the grant to Maier shall not exceed the number of
available ungranted options. Example: using the same facts as contained
in paragraph 5(b), the Corporation would grant Maier options to
purchase 29,732 shares (223,000 divided by $15 = 14,866 x 2 = 29,732).
The exercise price would be the market price of the Corporation's stock
on the date of grant.
B. Miscellaneous. As amended by this Amendment, the Agreement shall
--------------
remain in full force and effect, and all references to the Agreement shall mean
the Agreement, as amended hereby.
IN WITNESS WHEREOF, the Corporation has caused this Amendment to be
executed in its corporate name by Ronald E. Heineman, its Vice President, Human
Resources, thereunto duly authorized by its Board of Directors, and Craig F.
Maier has executed this Amendment, each as of the date first set forth above.
FRISCH'S RESTAURANTS, INC.
By: Frisch's Restaurants, Inc.
---------------------------------------
Name: /s/ Ronald E Heineman
-------------------------------------
Ronald E. Heineman
Title: Vice President - Human Resources
------------------------------------
/s/ Craig F. Maier
------------------------------------------
Craig F. Maier
23
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AND STATEMENT OF EARNINGS OF FRISCH'S RESTAURANTS, INC. AND SUBSIDIARIES
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAY-30-1999
<PERIOD-START> JUN-01-1998
<PERIOD-END> DEC-13-1998
<CASH> 621,398
<SECURITIES> 0
<RECEIVABLES> 1,125,631
<ALLOWANCES> 0
<INVENTORY> 4,011,035
<CURRENT-ASSETS> 8,118,007
<PP&E> 164,885,722
<DEPRECIATION> 81,191,143
<TOTAL-ASSETS> 105,929,681
<CURRENT-LIABILITIES> 18,261,026
<BONDS> 28,581,019
0
0
<COMMON> 7,362,279
<OTHER-SE> 46,517,810
<TOTAL-LIABILITY-AND-EQUITY> 105,929,681
<SALES> 85,046,039
<TOTAL-REVENUES> 85,693,861
<CGS> 74,511,825
<TOTAL-COSTS> 74,511,825
<OTHER-EXPENSES> 6,388,638
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,481,760
<INCOME-PRETAX> 3,311,638
<INCOME-TAX> 1,192,000
<INCOME-CONTINUING> 2,119,638
<DISCONTINUED> 0
<EXTRAORDINARY> 3,712,000
<CHANGES> 0
<NET-INCOME> 5,831,638
<EPS-PRIMARY> .97
<EPS-DILUTED> .97
</TABLE>
