<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 12, 1999 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 30, 1999 was:
5,501,124
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF EARNINGS.................... 3
CONSOLIDATED BALANCE SHEET............................ 4 - 5
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY........ 6
CONSOLIDATED STATEMENT OF CASH FLOWS.................. 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS............ 8 - 16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS................... 17 - 19
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK........................................... 19
PART II - OTHER INFORMATION 20 - 21
</TABLE>
<PAGE> 3
FRISCH'S RESTAURANTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF EARNINGS
(UNAUDITED)
<TABLE>
<CAPTION>
Twenty-Eight Weeks Ended Twelve Weeks Ended
------------------------------- -------------------------------
December 12, December 13, December 12, December 13,
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUE
Sales $94,731,232 $85,046,039 $42,294,230 $37,527,113
Other 706,669 647,822 304,649 284,852
----------- ----------- ----------- -----------
Total revenue 95,437,901 85,693,861 42,598,879 37,811,965
COSTS AND EXPENSES
Cost of sales
Food and paper 29,655,208 25,923,680 13,338,957 11,433,295
Payroll and related 32,556,833 29,003,689 14,624,949 12,718,050
Other operating costs 22,157,279 19,584,456 9,806,182 8,431,370
----------- ----------- ----------- -----------
84,369,320 74,511,825 37,770,088 32,582,715
Administrative and Advertising 5,081,171 5,263,638 2,137,069 2,258,233
Impairment of long lived assets -- 1,125,000 -- 1,125,000
Interest 1,140,359 1,481,760 497,404 591,367
----------- ----------- ----------- -----------
Total costs and expenses 90,590,850 82,382,223 40,404,561 36,557,315
----------- ----------- ----------- -----------
Earnings before income taxes
and extraordinary item 4,847,051 3,311,638 2,194,318 1,254,650
INCOME TAXES 1,648,000 1,192,000 746,000 513,000
----------- ----------- ----------- -----------
Earnings before extraordinary item 3,199,051 2,119,638 1,448,318 741,650
EXTRAORDINARY ITEM (NET OF APPLICABLE TAX) -- 3,712,000 -- 3,712,000
----------- ----------- ----------- -----------
NET EARNINGS $ 3,199,051 $ 5,831,638 $ 1,448,318 $ 4,453,650
=========== =========== =========== ===========
Basic and diluted net earnings per share
of common stock:
Before extraordinary item $.55 $.35 $.25 $.12
Extraordinary item -- .62 -- .62
----------- ----------- ----------- -----------
$.55 $.97 $.25 $.74
=========== =========== =========== ===========
</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>
December 12, May 30,
1999 1999
------------ ------------
(unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash $ 216,700 $ 200,200
Receivables
Trade 1,278,566 1,117,431
Other 199,250 219,299
Inventories 3,975,879 3,732,458
Prepaid expenses and sundry deposits 1,032,179 910,193
Prepaid and deferred income taxes 740,000 744,097
------------ ------------
Total current assets 7,442,574 6,923,678
PROPERTY AND EQUIPMENT
Land and improvements 23,743,147 21,089,875
Buildings 54,977,081 51,362,095
Equipment and fixtures 59,439,745 57,947,430
Leasehold improvements and buildings on leased land 28,940,791 28,449,043
Capitalized leases 7,282,687 8,224,712
Construction in progress 2,704,747 2,305,822
------------ ------------
177,088,198 169,378,977
Less accumulated depreciation and amortization 88,367,042 85,010,213
------------ ------------
Net property and equipment 88,721,156 84,368,764
OTHER ASSETS
Intangible assets 746,600 748,794
Investments in land 1,380,279 1,960,781
Property held for sale 2,530,155 2,076,484
Net cash surrender value-life insurance policies 4,185,847 4,045,080
Deferred income taxes 1,270,000 1,272,286
Other 2,024,245 2,030,296
------------ ------------
Total other assets 12,137,126 12,133,721
------------ ------------
$108,300,856 $103,426,163
============ ============
</TABLE>
The accompanying notes are an integral part of these statements
4
<PAGE> 5
LIABILITIES
<TABLE>
<CAPTION>
December 12, May 30,
1999 1999
------------ ------------
(unaudited)
<S> <C> <C>
CURRENT LIABILITIES
Long-term obligations due within one year
Long-term debt $ 2,071,231 $ 1,730,964
Obligations under capitalized leases 384,107 451,024
Self insurance 952,211 1,092,733
Accounts payable 9,243,044 7,431,751
Accrued expenses 5,309,216 5,401,819
Income Taxes 234,066 425,383
------------ ------------
Total current liabilities 18,193,875 16,533,674
LONG-TERM OBLIGATIONS
Long-term debt 27,621,759 21,248,526
Obligations under capitalized leases 4,680,616 5,146,170
Self insurance 2,639,556 3,019,947
Other 2,001,228 2,190,343
------------ ------------
Total long-term obligations 36,943,159 31,604,986
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 60,365,664 60,401,456
------------ ------------
67,727,943 67,763,735
Retained earnings 11,684,643 9,804,637
------------ ------------
79,412,586 77,568,372
Less cost of treasury stock (1,854,615 and 1,461,054 shares) 26,248,764 22,280,869
------------ ------------
Total shareholders' equity 53,163,822 55,287,503
------------ ------------
$108,300,856 $103,426,163
============ ============
</TABLE>
5
<PAGE> 6
FRISCH'S RESTAURANTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
TWENTY-EIGHT WEEKS ENDED DECEMBER 12, 1999 AND DECEMBER 13, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Common stock
at $1 per share - Additional
Shares and contributed Retained Treasury
amount capital earnings shares Total
----------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance at May 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
Net earnings for twenty-four weeks -- -- 2,298,203 -- 2,298,203
Treasury shares acquired -- -- -- (452,788) (452,788)
Employee Stock Ownership Plan -- (22,362) -- -- (22,362)
Dividends
Cash - $.07 per share -- -- (415,639) -- (415,639)
---------- ----------- ----------- ------------ -----------
Balance at May 30, 1999 7,362,279 60,401,456 9,804,637 (22,280,869) 55,287,503
Net earnings for twenty-eight weeks -- -- 3,199,051 -- 3,199,051
Treasury shares acquired -- -- -- (4,012,917) (4,012,917)
Treasury shares reissued -- (14,947) -- 45,022 30,075
Employee Stock Ownership Plan -- (20,845) -- -- (20,845)
Dividends
Cash - $.23 per share -- -- (1,319,045) -- (1,319,045)
---------- ----------- ----------- ------------ -----------
Balance at December 12, 1999 $7,362,279 $60,365,664 $11,684,643 $(26,248,764) $53,163,822
========== =========== =========== ============ ===========
</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 12, 1999 and December 13, 1998
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Net income $ 3,199,051 $ 5,831,638
Adjustments to reconcile net income
to net cash from operating activities:
Depreciation and amortization 5,373,742 5,277,884
Loss on disposition of assets 242,360 279,447
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 in receivables (141,086) (106,860)
Increase in inventories (243,421) (372,295)
Increase in prepaid expenses and sundry deposits (121,986) (746,105)
Decrease in prepaid and deferred income taxes 4,097 152,822
Increase in accounts payable 1,370,680 1,741,992
Decrease in accrued expenses (92,604) (560,732)
Decrease in accrued income taxes (191,317) (838,846)
(Increase) decrease in other assets (133,887) 41,815
Decrease in self insured obligations (520,913) (410,380)
Decrease in other liabilities (189,115) (270,624)
----------- -----------
Net cash provided by operating activities 8,555,601 7,432,756
CASH FLOWS (USED IN) PROVIDED BY INVESTING ACTIVITIES:
Additions to property and equipment (9,965,051) (7,090,139)
Proceeds from disposition of property 170,214 1,739,962
Proceeds from sale of investment in Cincinnati Reds -- 7,000,000
Increase in other assets (43,174) (170,351)
----------- -----------
Net cash (used in) provided by investing activities (9,838,011) 1,479,472
CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES:
Proceeds from borrowings 9,500,000 3,000,000
Payment of long-term obligations (3,318,971) (9,929,746)
Cash dividends paid (878,432) (840,859)
Treasury share transactions (3,982,842) (604,485)
Other (20,845) --
----------- -----------
Net cash provided by (used in) financing activities 1,298,910 (8,375,090)
----------- -----------
Net increase in cash and equivalents 16,500 537,138
Cash and equivalents at beginning of year 200,200 84,260
----------- -----------
Cash and equivalents at end of second quarter $ 216,700 $ 621,398
=========== ===========
Supplemental disclosures:
Interest paid $ 1,255,533 $ 1,369,509
Income taxes paid 1,915,252 1,878,023
Income tax refunds received 82,318 --
Dividends declared but not paid 440,613 416,191
</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, and
the Company operates Golden Corral grill buffet restaurants. These operations
are located in various regions of Ohio, Kentucky and Indiana. Additionally, the
Company operates two high rise hotels with restaurants in metropolitan
Cincinnati, where it is headquartered. Trademarks which the Company has the
right to use include "Frisch's," "Big Boy," "Golden Corral," "Clarion Hotel,"
and "Quality Hotel."
Consolidation Practices
- -----------------------
The consolidated financial statements include the accounts of Frisch's
Restaurants, Inc. and all of its subsidiaries. Significant inter-company
accounts and transactions are eliminated in consolidation.
Reclassification
- ----------------
Certain reclassifications have been made to prior year information to conform to
the current year presentation.
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, 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. Outstanding checks in the amount of $488,000
and $691,000, respectively, were included in accounts payable at December 12,
1999 and May 30, 1999.
Receivables
- -----------
The Company values its trade notes and accounts receivable on the reserve
method. The reserve balance was immaterial at December 12, 1999 and May 30,
1999.
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.
8
<PAGE> 9
Frisch's Restaurants, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE A - ACCOUNTING POLICIES (CONTINUED)
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.
The Golden Corral license agreement requires the Company to pay initial license
fees for each new restaurant. Amortization begins when the restaurant opens and
is computed using the straight-line method over 15 years, the terms of the
individual restaurant franchise agreements.
New Store Opening Costs
- -----------------------
New store opening costs consist of new employee training costs, the cost of a
team to coordinate the opening and the cost of certain replacement items such as
uniforms and china. The Company accounts for these costs in accordance with 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 costs of $807,000 for Golden Corral restaurants were expensed as
incurred in the twenty-eight weeks ended December 12, 1999. Opening costs for
Golden Corral were $185,000 during the twenty-eight weeks ended December 13,
1998.
Benefit Plans
- -------------
The Company has two defined benefit pension plans covering substantially all of
its eligible employees. The benefits are based on years-of-service and other
factors. The Company's funding policy is to annually contribute amounts
sufficient to satisfy legal funding requirements plus such additional tax
deductible amounts deemed advisable under the circumstances. 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.
Licensing Agreements
- --------------------
Revenue from franchise fees, based on sales of Big Boy restaurants licensed to
other operators, is recorded on the accrual method as earned. Initial license
fees are recognized as revenue when the licensed restaurants begin operations.
Under the terms of the Golden Corral license agreement, the Company is obligated
to pay fees based on defined gross sales. These costs are charged to operations
as incurred.
Fair Value of Financial Instruments
- -----------------------------------
The carrying value of the Company's financial instruments approximates fair
value.
9
<PAGE> 10
Frisch's Restaurants, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE A - ACCOUNTING POLICIES (CONTINUED)
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 net gain of $3,712,000 or $.62 per share was reported as an
extraordinary gain in the Company's second quarter of fiscal 1999 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.
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 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." During the
fourth quarter of fiscal year 1997, the Company closed fifteen Big Boy
restaurants in certain markets in which cash flow losses had occurred. A
non-cash pretax impairment charge of $4,600,000 was recorded in the fourth
quarter of fiscal 1997. Additional non-cash pretax charges of $375,000 and
$1,125,000 were recorded respectively, during the fourth quarter of fiscal 1998
and the second quarter of fiscal 1999 to further lower the net realizable values
of the remaining properties to be sold. The fiscal 1999 charge was partially
based upon transactions with a Big Boy franchise operator, a minority
shareholder of which is an officer of the Company.
NOTE B - PROPERTY HELD FOR SALE
Of the fifteen properties closed at the end of fiscal 1997 as described in note
A, twelve have been disposed of through December 12, 1999. 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
three properties are listed for sale with a broker, and are carried at a net
realizable value of approximately $1,653,000 on the Company's balance sheet at
December 12, 1999 as a component of the caption "Property held for sale." The
Company expects to dispose of these restaurant properties within the next six to
twelve months, the proceeds of which will be used for general corporate
purposes. Certain surplus land is also currently held for sale and is stated at
cost.
NOTE C - LONG-TERM DEBT
<TABLE>
<CAPTION>
December 12, 1999 May 30, 1999
------------------------ --------------------------
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 $ -- $18,000 $ -- $13,500
Term loan 1,500 2,325 1,500 3,200
Tender offer -- -- -- 1,780
Golden Corral facility -
Construction loan -- 3,000 -- 1,000
Term loans 571 4,297 231 1,769
------- ------- ------ -------
$ 2,071 $27,622 $1,731 $21,249
======= ======= ====== =======
</TABLE>
10
<PAGE> 11
Frisch's Restaurants, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE C - LONG-TERM DEBT (CONTINUED)
The portion payable after one year matures as follows:
<TABLE>
<CAPTION>
Dec. 12, May 30,
1999 1999
-------- -------
(in thousands)
<S> <C> <C>
Period ending in 2001 $23,117 $ 3,527
2002 1,491 16,266
2003 719 485
2004 775 305
Subsequent to 2004 1,520 666
------- -------
$27,622 $21,249
======= =======
</TABLE>
The revolving credit loan is a $20,000,000 unsecured line of credit, $18,000,000
of which is outstanding at December 12, 1999. Unless extended, this credit loan
matures on September 1, 2001. Interest rates, currently ranging from 6.32% to
6.83%, are determined by various indices as selected by the Company. 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 8.5%, not to exceed 8.5%.
The tender offer loan was arranged in August 1997, under which the Company
borrowed $17,144,000 to finance the repurchase of 1,142,966 shares of the
Company's common stock (see note F). In October 1999 the Company converted the
$1,720,000 outstanding balance of the loan into the $20,000,000 revolving credit
loan.
The Golden Corral credit facility is an unsecured draw credit line under which
the Company may borrow up to $20,000,000 to construct and open Golden Corral
restaurants. No more than $8,000,000 may be advanced for new restaurants under
construction (Construction Loan) at any one time. As of December 12, 1999, the
Company had cumulatively borrowed $8,000,000, of which $3,000,000 was a
Construction Loan and $5,000,000 had been converted to Term Loans. Availability
of draws ceases on September 1, 2001. Payments on Construction Loans are on an
interest only basis. At the Company's option, interest on prime rate based
borrowings are 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 monthly CD based
rate of 6.98% is currently in effect. Within six months of the completion and
opening of each restaurant, the balance outstanding under each Construction Loan
is converted to a Term Loan amortized over a period not to exceed seven years.
Upon conversion, the Company has the option to fix the interest rate at the
lender's then cost of funds plus 150 basis points. Three Term Loans totaling
$5,000,000 have fixed interest rates at various levels ranging from 7.00% to
7.87% and are being repaid in 84 equal monthly installments of principal and
interest aggregating $77,043 through periods expiring in 2006.
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 loan covenants at December 12, 1999.
Compensating balances are not required by any of these loan agreements.
The Company also has three outstanding letters of credit totaling $1,296,000 is
support of its self insurance program.
11
<PAGE> 12
Frisch's Restaurants, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE D - LEASED PROPERTY
The Company has capitalized the leased property of 37% of its non-owned
restaurant locations. The majority of the leases are for fifteen or twenty years
and contain renewal options for ten to fifteen years. Delivery equipment is held
under capitalized leases expiring during periods to 2004. The Company also
occupies office space under an operating lease which expires during 2003, with a
renewal option available through 2013.
An analysis of the capitalized leased property follows:
<TABLE>
<CAPTION>
Asset balances at
------------------------
Dec. 12, May 30,
1999 1999
-------- -------
(in thousands)
<S> <C> <C>
Restaurant facilities $ 6,306 $ 7,248
Equipment 977 977
------- -------
7,283 8,225
Less accumulated amortization (4,608) (5,125)
------- -------
$ 2,675 $ 3,100
======= =======
</TABLE>
Total rental expense of operating leases for the twenty-eight weeks was $791,000
at December 12, 1999 and $794,000 at December 13, 1998.
Future minimum lease payments under capitalized leases and operating leases
having an initial or remaining term of one year or more follow:
<TABLE>
<CAPTION>
Capitalized Operating
Period ending December 12, leases leases
-------------------------- ----------- ------
(in thousands)
<S> <C> <C> <C>
2000 $ 909 $1,301
2001 835 1,155
2002 808 1,005
2003 808 771
2004 784 615
2005 to 2020 4,033 2,245
------- ------
Total 8,177 $7,092
======
Amount representing interest (3,112)
-------
Present value of obligations 5,065
Portion due within one year (384)
-------
Long-term obligations $ 4,681
=======
</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.
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
expire 10 years from the date of grant. Outstanding options to employees vest in
three equal annual installments, while outstanding options to non-employee
directors vest after one year.
The 1984 Stock Option Plan expired May 8, 1994. As of December 12, 1999, 28,488
options remain outstanding, which are exercisable within 10 years from the date
of grant, expiring during periods to 2003. 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 12, 1999 December 13, 1998
---------------------------- ---------------------------
No. of Option No. of Option
Shares Price Shares Price
------ ----- ------ -----
<S> <C> <C> <C> <C>
Outstanding at beginning of year 169,163 $8.31 to $20.83 134,413 $12.38 to $20.83
Exercisable at beginning of year 108,580 $12.38 to $20.83 96,913 $14.38 to $20.83
Granted during the twenty-eight weeks 27,750 $10.06 to $10.25 35,500 $8.31 to $11.25
Exercised during the twenty-eight weeks 0 0
Expired during the twenty-eight weeks 68,425 $20.83 0
Forfeited during the twenty-eight weeks 0 750 $11.25 to $12.38
Outstanding at end of quarter 128,488 $8.31 to $17.05 169,163 $8.31 to $20.83
Exercisable at end of quarter 60,404 $8.31 to $17.05 96,913 $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 immaterial.
Shareholders approved the Employee Stock Option Plan in October 1998. The Plan
was 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
- ------------------------------------------
In August 1997 the Company repurchased 1,142,966 shares of its common stock at
$15.00 per share, a total cost of approximately $17,690,000. The transaction
reduced the number of common shares outstanding from 7,148,334 to 6,005,368.
13
<PAGE> 14
Frisch's Restaurants, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE F - CAPITAL STOCK (CONTINUED)
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
are being made from time to time within a two-year time frame. On December 8,
1999, the Board of Directors authorized an additional repurchase of up to
200,000 shares. During the twenty-eight weeks ended December 12, 1999, the
Company repurchased 396,520 shares at a cost of $4,013,000, bringing total
repurchases since the inception of the program to 501,318 shares at a cost of
$5,077,000.
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.
<TABLE>
<CAPTION>
Weighted average
Common Shares Outstanding
-------------------------
<S> <C>
Quarter ending December 12, 1999 5,786,815
Year to date December 12, 1999 5,832,589
Quarter ending December 13, 1998 5,982,506
Year to date December 13, 1998 5,995,938
</TABLE>
Diluted EPS includes the effect of common stock equivalents which assumes the
exercise of dilutive stock options. For the twenty-eight weeks ended December
12, 1999 and December 13, 1998, 1,293 and 495 shares of common stock
equivalents, respectively, were included in the computation of diluted EPS. The
twelve weeks ended December 12, 1999 and December 13, 1998 included 1,147 and
1,156 shares, respectively, in the computation of diluted EPS.
NOTE G - PENSION PLANS
Effective June 1, 1998, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 132 (SFAS 132), "Employers' Disclosures about
Pensions and Other Postretirement Benefits," which revised employers'
disclosures about pensions and other post retirement benefit plans. As required,
disclosures for 1998 have been restated for comparative purposes.
The changes in the Company's benefit obligation are computed as follows for the
years ended May 30, 1999 and May 31, 1998 (latest available data):
<TABLE>
<CAPTION>
(in thousands)
1999 1998
---- ----
<S> <C> <C>
Projected benefit obligation at beginning of year $14,765 $13,792
Service cost 1,264 1,209
Interest cost 1,018 1,013
Actual (gain) loss (289) 203
Benefits paid (990) (1,452)
------- -------
Projected benefit obligation at end of year $15,768 $14,765
======= =======
</TABLE>
14
<PAGE> 15
Frisch's Restaurants, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE G - PENSION PLANS (CONTINUED)
The changes in the Plans' assets are computed as follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Fair value of plan assets at beginning of year $23,189 $19,782
Actual return on plan assets 1,317 4,449
Employer contribution 402 410
Benefits paid (1,182) (1,452)
------- -------
Fair value of plan assets at end of year $23,726 $23,189
======= =======
</TABLE>
The following table sets forth the Plans' funded status and amounts recognized
on the Company's balance sheet at May 30, 1999 and May 31, 1998 (latest
available data):
<TABLE>
<CAPTION>
(in thousands)
1999 1998
---- ----
<S> <C> <C>
Funded Status $ 7,958 $ 8,424
Unrecognized net actuarial (gain) loss (6,865) (7,761)
Unrecognized prior service cost 599 669
Unrecognized net transition (asset) (711) (948)
------- -------
Prepaid benefit cost $ 981 $ 384
======= =======
</TABLE>
The weighted - average actuarial assumptions used were:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Weighted average discount rate 7.25% 7.25%
Weighted average rate of compensation increase 5.50% 5.50%
Weighted average expected long-term rate of return on plan assets 8.50% 8.50%
</TABLE>
Net periodic pension cost (benefit) for the twenty-eight weeks ended
December 12, 1999 and December 13, 1998 was $33,000 and $(49,000) respectively.
15
<PAGE> 16
Frisch's Restaurants, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE H - SEGMENT INFORMATION
The Company operates in the food service and lodging industries. Inter-segment
sales are immaterial. On June 1, 1998, the Company adopted Statement of
Financial Accounting Standards No. 131 (SFAS 131) "Disclosures about Segments of
an Enterprise and Related Information." SFAS 131 establishes standards for
reporting information about operating segments and related disclosures about
products and services, geographic areas and major customers. An operating
segment is defined as components of an enterprise for which separate financial
information is available that is evaluated regularly by the chief operating
decision maker in deciding how to allocate resources and in assessing
performance. The statement allows aggregation of similar operating segments if
the businesses are considered similar under the criteria of the statement. The
Company believes its operations in the food service industry meet the
aggregation criteria as a single operating segment.
<TABLE>
<CAPTION>
Twenty-eight weeks ended
Dec.12, Dec. 13,
1999 1998
---- ----
(in thousands)
<S> <C> <C>
Revenue
Food Service $ 88,545 $ 79,249
Lodging 6,893 6,445
-------- --------
$ 95,438 $ 85,694
======== ========
Operating profit
Food Service $ 7,907 $ 7,152
Lodging 222 184
-------- --------
$ 8,129 $ 7,336
======== ========
Identifiable assets
Food Service $ 93,677 $ 90,491
Lodging 14,624 15,438
-------- --------
$108,301 $105,929
======== ========
Depreciation and amortization
Food Service $ 4,429 $ 4,335
Lodging 945 943
-------- --------
$ 5,374 $ 5,278
======== ========
Capital expenditures
Food Service $ 9,485 $ 4,970
Lodging 480 2,120
-------- --------
$ 9,965 $ 7,090
======== ========
</TABLE>
NOTE I - 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 last year's $1,125,000 pretax impairment of assets charge)
necessary for a fair presentation of results of operations for such periods.
16
<PAGE> 17
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview
- --------
Total revenue for the twelve-week second quarter ended December 12, 1999 was
$42,599,000, an increase of $4,787,000 or 12.7 percent from the comparable
period last year. Net earnings for the quarter were $1,448,000, or $.25 per
share, compared to $742,000 or $.12 per share before last year's extraordinary
gain of $3,712,000 or $.62 per share from the sale of the Company's limited
partner interest in the Cincinnati Reds major league baseball team. Last year's
second quarter also included an impairment of assets charge of $1,125,000
($720,000, net after income taxes, or $.12 per share) to lower the carrying
value of certain property held for sale.
For the twenty-eight weeks ended December 12, 1999, revenue increased 11.4
percent to $95,438,000 from $85,694,000 a year ago. Net earnings were $3,199,000
or $.55 per share versus $2,120,000 or $.35 per share before last year's
extraordinary gain of $.62 per share.
Results of Operations
- ---------------------
Same store sales in Big Boy restaurants improved by well over 4 percent during
the first two quarters, including nearly 4 percent for the twelve-week period
ending December 12, 1999, marking the ninth consecutive quarter that Big Boy
same store sales gains have been achieved. Improved dining room sales increases
complemented the continuing strong sales from carryout and drive-thru trade.
Menu prices were increased approximately 2 percent shortly before the end of
last year's first quarter, 2 percent in last year's third quarter, and
approximately 1.5 percent at the end of this year's first quarter. Another price
increase is currently being planned for February 2000. No Big Boy restaurants
have been opened or closed during the last twelve months as management has
continued to focus on building same store sales and margins in the 88 existing
Big Boy restaurants operated by the Company.
Sales of the four Golden Corral restaurants accounted for approximately one-half
of the total 11.4 percent increase in revenue during the first two quarters,
exceeding initial expectations. Menu prices have not been increased. One Golden
Corral restaurant was in operation for the entire two-quarter period, while two
more were opened during the first quarter, and the fourth one opened near the
end of the second quarter. The Company plans to build 21 more Golden Corrals
through 2005, one of which is expected to open by February 2000.
Hotel sales improved 7 percent compared to the first two quarters of fiscal
1999. The re-flagging of the Riverview Hotel to the upscale "Clarion" brand in
July 1999 was the prime driver behind the increase, as higher room rates were
charged and occupancy levels improved over last year. Increased sales levels
have improved operating results through the first two quarters. However, lower
sales volumes are normally generated over the coming winter and spring months
when compared to sales for the first half of the year.
Cost of sales increased $9,857,000 or 13.2 percent during this year's first two
quarters, roughly equivalent to the 11.4 percent revenue increase. An analysis
of the components of cost of sales follows.
As a percentage of Big Boy sales, food and paper costs in Big Boy restaurants
were equal for the twenty-eight week period for both this year and last year.
Increased sales of carryout and drive-thru meals, which usually have lower food
cost than typical dining room meals, caused a reduction in food cost. However,
this decrease was offset by higher prices paid for pork, beef and fish. On a
consolidated basis, food and paper costs increased as a percentage of revenue
during the first half of the year, reflecting the impact of cost of food in
Golden Corral restaurants. Food cost as a percentage of sales in Golden Corral
restaurants is higher than in Big Boy restaurants.
Favorable claims experience in the Company's self-insurance programs resulted in
significant credits to payroll and related expenses in the first quarters of
both fiscal years. Without these adjustments, payroll and related expenses would
have been 34.5 percent of revenue in each of the twenty-eight week periods of
fiscal years 2000 and 1999. Two factors kept the percentage constant in spite of
higher pay rates. The costs of certain employee benefits are fixed and do not
rise with higher pay rates or higher sales levels. Secondly, the payroll and
related expenses percentage for Golden Corral restaurants is lower than for Big
Boy restaurants.
Other operating expenses increased to 23.2 percent of revenue during this year's
first two quarters from 22.9 percent last year. As these expenses tend to be
more fixed in nature, the sales increase would normally cause these costs to be
17
<PAGE> 18
a lower percentage of revenue. However, opening costs of approximately $807,000
for the Company's Golden Corral restaurants caused the percentage in this year's
first two quarters to increase over the comparable period a year ago. These
opening costs, including $221,000 for Golden Corral restaurants not yet in
operation, resulted in the Golden Corrals having a negative impact on the
Company's earnings during the first two quarters. By the end of fiscal 2000,
Golden Corral operations are expected to be at or near break-even (including
opening costs).
Administrative and advertising expense during the first two quarters of fiscal
2000 decreased $182,000 or 3.5 percent lower than the first two quarters of
fiscal 1999. The decrease is principally due to costs incurred last year in
connection with rolling out the point-of-sale systems in Big Boy restaurants.
Results for the first two quarters of last year were adversely affected by a
$1,125,000 impairment of assets charge to lower the carrying value of certain
property held for sale.
Interest expense during the twenty-eight weeks ended December 12, 1999,
decreased $341,000 or 23 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 $38,000 during this year's first two
quarters, compared with $368,000 during last year's comparable period. In
October 1999, the outstanding balance of $1,779,000 on the tender offer loan was
refinanced into the Company's revolving line of credit. Savings from the
reduction in tender offer interest will be tempered by borrowing needed to
construct Golden Corral restaurants during the next three fiscal years, and by
recent borrowing to finance repurchases of the Company's common stock.
Provision for income tax expense as a percentage of pre-tax earnings was 34
percent in the first two quarters of fiscal 2000. During last year's second
quarter, the effective tax rate was increased to 36 percent from 33 percent. The
retroactive effect of the change resulted in a 40.9 percent tax rate for the
twelve-week second quarter last year. The tax rate for last year reflected
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 through the second quarter of fiscal 2000
was $8,556,000. These funds were generated principally from net income and
depreciation, and were utilized for discretionary capital improvements,
dividends, and to service debt.
Investing activities through the second quarter of fiscal 2000 included
$9,965,000 in capital costs, an increase of $2,875,000 from last year's first
two quarters. This year's capital spending included $7,818,000 for Golden
Corral, $525,000 to remodel Big Boy restaurants, $480,000 for improvements to
the hotel properties, and $1,142,000 in routine equipment replacements and other
capital outlays. Proceeds from property sales were $170,000.
Financing activities through the second quarter of fiscal 2000 included
$5,000,000 of new debt borrowed against the Golden Corral credit facility. In
addition, $4,500,000 of new debt was borrowed on the $20,000,000 revolving line
of credit, of which $1,779,000 was used to retire the tender offer loan.
Scheduled long-term debt payments of $1,539,000 were made. Regular quarterly
cash dividends to shareholders totaling $878,000 were also paid during the two
quarters ended December 12, 1999. In early December 1999, the Board of Directors
authorized an additional repurchase of up to 200,000 shares of the Company's
common stock. This approval supplemented the Board's authorization in October
1998 to purchase up to 500,000 shares. Purchases are being made from time to
time on the open market or through block trades during a two- year time frame
that expires October 5, 2000. During the two quarters ended December 12, 1999
the Company repurchased 396,520 shares at a cost of $4,013,000, bringing the
total repurchases since the inception of the program to 501,318 shares at a cost
of $5,077,000.
The Company expects funds from operations to be sufficient to cover near term
capital spending on Big Boy facilities, scheduled debt service and regular
quarterly cash dividends. If needed, the Company's revolving credit loan is
available to meet additional borrowing requirements. The Company currently plans
to build four new Big Boy restaurants in calendar year 2000, one of which will
replace an older existing restaurant. These new restaurants will introduce a new
building prototype designed to leverage the strengths of the existing concept to
better accommodate shifts in customer expectations. Including land, the cost to
build and equip each of these restaurants is expected to range from $1,600,000
to $1,800,000. Costs to remodel ten Big Boy restaurants scheduled over the
remainder of fiscal 2000 are expected to be approximately $550,000. There are no
current capital spending plans on the hotel properties during the rest of fiscal
2000.
18
<PAGE> 19
The terms of the Company's development agreement with Golden Corral Franchising
Systems, Inc. call for the Company to open 25 Golden Corral restaurants through
2005. Four restaurants are currently operating and a fifth will open in late
January 2000. In addition, current plans call for four more Golden Corrals to be
open by February 2001. Costs are being funded through cash flow and a credit
facility under which the Company may borrow up to $20,000,000 through September
1, 2001. The cost to build and equip each Golden Corral restaurant is expected
to average $2,500,000, including land.
Year 2000 Impact
- ----------------
The Company successfully completed its plan to insure that its information
systems are fully Year 2000 compliant, as no significant problems were
encountered during the rollover from 1999 to 2000, and the effect on customers
was uneventful. The Company utilized internal resources to convert and test its
custom written headquarters software without material incremental cost.
Point-of-sale systems required upgrade, the cost of which had no material
adverse effect on the Company's financial position, results of operations or
cash flows. Certain other systems that have embedded chip technology did not
pose any significant effect on the Company's operations. The Company's plan also
addressed the readiness of mission critical third party suppliers and service
providers. The Company did not experience any significant interruption of food
or other product delivery resulting from third-party non-compliance. The Company
will continue to monitor and validate that its systems are operating as expected
through the first calendar quarter of 2000.
Safe Harbor Statement
- ---------------------
Statements included in this Management's Discussion and Analysis of Financial
Condition and Results of Operations (MD&A) that are not historical facts are
forward-looking statements as defined in the Private Securities Litigation
Reform Act of 1995. Such forward-looking statements are subject to risks and
uncertainties that could cause actual results to differ materially from
anticipated results. Such risks and uncertainties include, but are not limited
to, the following: estimates used in preparing financial statements; seasonal
weather conditions, particularly in the third quarter; intense competition;
changes in business strategy and development plans; consumer perceptions of
value, food quality and food safety; changing demographics and consumer
preferences; changes in the supply and cost of food and labor; the effects of
inflation and variable interest rates; legal claims; and changes in governmental
regulations regarding the environment and changes in tax laws. The Company
undertakes no obligation to update the forward-looking statements that may be
contained in this MD&A.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
Not applicable.
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 4, 1999.
b) Directors elected on October 4, 1999:
Craig F. Maier Daniel W. Geeding
Malcolm M. Knapp Blanche F. Maier
Dale P. Brown
Directors whose terms continued after the meeting:
Jack C. Maier William J. Reik, Jr.
William A. Mauch Lorrence T. Kellar
c) The following matters were voted upon:
1) Election of Directors:
<TABLE>
<CAPTION>
Withheld
Name For Authority
---- --- ---------
<S> <C> <C> <C>
Blanche F. Maier 4,480,478 501,159
Craig F. Maier 4,484,427 497,210
Dale P. Brown 4,483,686 497,951
Daniel W. Geeding 4,495,374 486,263
Malcolm M. Knapp 4,310,033 671,604
</TABLE>
2) Management proposal to ratify and approve the appointment of
Grant Thornton LLP as independent auditors was approved. It
received the following votes:
<TABLE>
<CAPTION>
For Against Abstain
--- ------- -------
<S> <C> <C> <C>
4,592,933 346,504 42,200
</TABLE>
3) Shareholder proposal to retain an investment banking firm to
explore alternatives to enhance shareholder value was
defeated. It received the following votes:
<TABLE>
<CAPTION>
For Against Abstain
--- ------- -------
<S> <C> <C> <C>
700,320 3,453,845 14,788
</TABLE>
Item 6. Exhibits and reports on Form 8-K.
a) Exhibits
(10) Material Contracts
(10)(a) Second Amendment dated October 6, 1999 to Area
Development Agreement between the Registrant and
Golden Corral Franchising Systems, Inc. effective
January 6, 1998.
(15) Letter re unaudited interim financial information
(27) Financial Data Schedule
b) Reports on Form 8-K.
On December 21, 1999 under Item 5, to report that on December
8, 1999 the Company's Board of Directors authorized an
additional repurchase of up to 200,000 shares of the
Company's common stock on the open market. This supplements
the Board's authorization on October 5, 1998 to purchase up
to 500,000 shares. Financial statements were not required to
be filed.
20
<PAGE> 21
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 11, 2000
---------------------
BY /s/ Donald H. Walker
------------------------------------
Donald H. Walker
Vice President - Finance, Treasurer and
Principal Financial and Accounting Officer
21
<PAGE> 1
Exhibit (10) (a)
SECOND AMENDMENT TO AREA DEVELOPMENT AGREEMENT
THIS SECOND AMENDMENT TO AREA DEVELOPMENT AGREEMENT ("Second
Amendment") is entered into as of the 6th day of October, 1999, by and between
Golden Corral Franchising Systems, Inc., a Delaware corporation (hereinafter
"Franchisor"), and Frisch's Restaurants, Inc., an Ohio Corporation (hereinafter
"Area Developer").
RECITALS:
A. Area Developer has been granted the right to establish and operate
one (1) GC-11S building design restaurant, nineteen (19) GC-11M building design
restaurants and three (3) Metro Market building design restaurants pursuant to
The Golden Corral Franchising Systems, Inc. Area Development Agreement dated
December 30, 1997, with Franchisor (hereinafter, together with the December 30,
1997 Addendum to Area Development Agreement, the required Indiana Amendment to
Area Development Agreement and the March 20, 1998 Amendment to Area Development
Agreement, collectively referred to as the "Development Agreement").
B. Franchisor and Area Developer wish to amend the Development
Agreement to provide for the development of one (1) additional GC-11S building
design restaurant within the city limits of Lima, Ohio and one (1) additional
GC-11M building design restaurant within the city limits of Findlay, Ohio.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties agree as follows:
1. Section I.A. of the Development Agreement shall be amended by
deleting the following language "to establish and operate one (1) restaurant
using a GC-11S building design, nineteen (19) restaurants using a GC-11M
building design, and three (3) restaurants using a Metro Market building design
for a total of twenty-three (23) restaurants" from the third through eighth
lines thereof and substituting in lieu thereof the following language "to
establish and operate two (2) restaurants using a GC-11S building design, twenty
(20) restaurants using a GC-11M building design, and three (3) restaurants using
a Metro Market building design for a total of twenty-five (25) restaurants"
2. Section II.A. of the Development Agreement shall be deleted in its
entirety and substituting in lieu thereof the following new Section II.A.:
"A. In consideration of the development rights granted herein, Area
Developer shall pay to Franchisor upon execution of this Agreement a
development fee of Two Hundred Fifty Thousand Dollars ($250,000) which
is the sum of Ten Thousand Dollars ($10,000) multiplied by twenty-five
(25) restaurant locations to be developed hereunder, receipt of which
is hereby acknowledged by Franchisor, and which shall be deemed fully
earned and non-refundable upon execution of this Agreement in
consideration of administrative and other expenses incurred by
Franchisor and for the development opportunities lost or deferred as a
result of the rights granted Area Developer herein."
3. Section IV. of the Development Agreement shall be amended by
deleting the date "December 31, 2004" from the seventh line thereof and
substituting in lieu thereof the date "December 31, 2005".
4. Exhibits A and "AA" of the Development Agreement shall be deleted in
their entirety and substituting in lieu thereof the attached new replacement
Exhibits A and "AA".
5. Upon execution of this Second Amendment, Area Developer shall pay to
the Franchisor the additional sum of Twenty Thousand Dollars ($20,000.00) which
sum represents the additional portion of the development fee attributable to one
(1) additional GC-11S restaurant and one (1) additional GC-11M restaurant being
developed pursuant to the Development Agreement, as amended.
6. All references herein to the masculine, neuter or singular shall be
construed to include the masculine, feminine, neuter or plural, and vice versa,
where applicable.
<PAGE> 2
Exhibit (10) (a)
7. This Second Amendment constitutes an integral part of the
Development Agreement between the parties hereto, and the terms of this Second
Amendment shall be controlling with regard to the subject matter hereof. Except
as modified or supplemented by this Second Amendment, the terms of the
Development Agreement are hereby ratified and confirmed.
IN WITNESS WHEREOF, the parties have executed this Second Amendment to
Area Development Agreement under seal as of the day and year first above
written.
FRANCHISOR:
Golden Corral Franchising Systems, Inc.
ATTEST: /s/ Andrew W. Lilliston, Jr. By: /s/ Larry I. Tate
----------------------------- -------------------------
Its Assistant Secretary Its Vice President
Larry I. Tate
(Corporate Seal)
AREA DEVELOPER: FRISCH'S RESTAURANTS, INC.
ATTEST:
W. Gary King By: /s/ Donald H. Walker
- ------------------ --------------------------------------
Its Secretary Donald H. Walker, Vice President-Finance
(Corporate Seal)
<PAGE> 3
Exhibit (10) (a)
THE GOLDEN CORRAL FRANCHISING SYSTEMS, INC.
AREA DEVELOPMENT AGREEMENT
Replacement
EXHIBIT A
1. Development Area - Each restaurant developed under this Development
Agreement shall be located in the following area:
See attached Exhibit "AA" which is incorporated herein by reference
2. Development Schedule - Recognizing that time is of the essence, Area
Developer agrees to satisfy the Development Schedule set forth below:
<TABLE>
<CAPTION>
Cumulative Total Number
of Restaurants Which
Area Developer Shall Have
By (Date) Open and in Operation
--------- ---------------------
<S> <C>
12/31 , 19 98 Two (2)
-------- ---- -------------------------
12/31 , 19 99 Five (5)
-------- ---- -------------------------
12/31 , 20 00 Eight (8)
-------- ---- -------------------------
12/31 , 20 01 Eleven (11)
-------- ---- -------------------------
12/31 , 20 02 Fifteen (15)
-------- ---- -------------------------
12/31 , 20 03 Nineteen (19)
-------- ---- -------------------------
12/31 , 20 04 Twenty-three (23)
-------- ---- -------------------------
12/31 , 20 05 Twenty-five (25)
-------- ---- -------------------------
</TABLE>
L.I.T., D.H.W. initials
-----------------------
<PAGE> 4
Exhibit (10)(a)
Replacement
Exhibit "AA"
The Development Area in which three (3) Metro Market restaurants, twenty (20)
GC-11M restaurants and two (2) GC-11S restaurants are to be located is as
follows:
(A) One (1) Metro Market restaurant within one defined submarket of
Springdale/Sharonville, Ohio which submarket is more specifically described on
the attached segmentation map Exhibit A-1A as submarket numbered 8.
(B) One (1) Metro Market restaurant within one defined submarket of Louisville,
Kentucky which submarket is more specifically described on the attached
segmentation map Exhibit A-3 as submarket numbered 1.
(C) One (1) Metro Market restaurant within one defined submarket of Louisville,
Kentucky which submarket is more specifically described on the attached
segmentation map Exhibit A-3 as submarket numbered 3.
(D) One (1) GC-11M restaurant within one defined submarket of Cheviot, Ohio
which submarket is more specifically described on the attached segmentation map
Exhibit A-1A as submarket numbered 1.
(E) One (1) GC-11M restaurant within one defined submarket of Anderson Township,
Ohio which submarket is more specifically described on the attached segmentation
map Exhibit A-1A as submarket numbered 2.
(F) One (1) GC-11M restaurant within one defined submarket of Colerain
Township/Groesbeck, Ohio which submarket is more specifically described on the
attached segmentation map Exhibit A-1A as submarket numbered 6.
(G) One (1) GC-11M restaurant within one defined submarket of Hamilton/West
Hamilton, Ohio which submarket is more specifically described on the attached
segmentation map Exhibit A-2A as submarket numbered 3.
(H) One (1) GC-11M restaurant within one defined submarket of Symmes Township,
Ohio which submarket is more specifically described on the attached segmentation
map Exhibit A-2A as submarket numbered 4.
(I) One (1) GC-11M restaurant within one defined submarket of Forest
Park/Fairfield, Ohio which submarket is more specifically described on the
attached segmentation map Exhibit A-2A as submarket numbered 5.
(J) One (1) GC-11M restaurant within one defined submarket of Middletown, Ohio
which submarket is more specifically described on the attached segmentation map
Exhibit A-2A as submarket numbered 9.
(K) One (1) GC-11M restaurant within one defined submarket of Mason, Ohio which
submarket is more specifically described on the attached segmentation map
Exhibit A-2A as submarket numbered 10.
(L) One (1) GC-11M restaurant within one defined submarket of Louisville,
Kentucky which submarket is more specifically described on the attached
segmentation map Exhibit A-3 as submarket numbered 4.
<PAGE> 5
Exhibit (10)(a)
*(M) One (1) GC-11M restaurant within one defined submarket of Louisville,
Kentucky which submarket is more specifically described on the attached
segmentation map Exhibit A-3 as submarket numbered 5.
(N) One (1) GC-11M restaurant within one defined submarket of
Clarksville/Jeffersonville, Indiana which submarket is more specifically
described on the attached segmentation map Exhibit A-3 as submarket numbered 2.
(O) One (1) GC-11M restaurant within one defined submarket of Florence, Kentucky
which submarket is more specifically described on the attached segmentation map
Exhibit A-4A as submarket numbered 7.
(P)One (1) GC-11M restaurant within one defined submarket of Covington, Kentucky
which submarket is more specifically described on the attached segmentation map
Exhibit A-4A as submarket numbered 11.
(Q) One (1) GC-11M restaurant within one defined submarket of Newport, Kentucky
which submarket is more specifically described on the attached segmentation map
Exhibit A-4A as submarket numbered 12.
(R) One (1) GC-11M restaurant within one defined submarket of Miamisburg, Ohio
which submarket is more specifically described on the attached segmentation map
Exhibit A-5A as submarket numbered 1.
(S) One (1) GC-11M restaurant within one defined submarket of
Fairborn/Beavercreek, Ohio which submarket is more specifically described on the
attached segmentation map Exhibit A-5A as submarket numbered 2.
(T) One (1) GC-11M restaurant within one defined submarket of Huber
Heights/Trotwood/Taylorsville, Ohio which submarket is more specifically
described on the attached segmentation map Exhibit A-5A as submarket numbered 3.
(U) One (1) GC-11M restaurant within one defined submarket of Richmond, Indiana
which submarket is more specifically described and encircled on the attached
segmentation map Exhibit A-6A.
(V) One (1) GC-11M restaurant within one defined submarket of Springfield, Ohio
which submarket is more specifically described and encircled on the attached
segmentation map Exhibit A-7.
(W) One (1) GC-11M restaurant within the city limits of Findlay, Ohio.
(X) One (1) GC-11S restaurant within one defined submarket of Sidney, Ohio which
submarket is more specifically described and encircled on the attached
segmentation map Exhibit A-8.
(Y) One (1) GC-11S restaurant within the city limits of Lima, Ohio.
* This GC-11M restaurant must be the last restaurant developed pursuant to this
Area Development Agreement.
initials L.I.T., D.H.W.
-----------------------
<PAGE> 1
Exhibit 15
Independent Accountant's Report
Shareholders
Frisch's Restaurants, Inc.
We have reviewed the accompanying consolidated balance sheet of Frisch's
Restaurants, Inc. (an Ohio Corporation) and subsidiaries as of December 12,
1999, and the related consolidated statements of earnings, shareholders' equity
and cash flows for the twelve and twenty-eight week periods then ended. These
financial statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying financial statements for them to be in conformity
with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet as of May 30, 1999, and the related
consolidated statements of earnings, shareholders' equity and cash flows for the
year then ended and in our report dated July 7, 1999, we expressed an
unqualified opinion on those consolidated financial statements.
GRANT THORNTON LLP
Cincinnati, Ohio
January 7, 2000
<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-28-2000
<PERIOD-START> MAY-31-1999
<PERIOD-END> DEC-12-1999
<CASH> 216,700
<SECURITIES> 0
<RECEIVABLES> 1,477,816
<ALLOWANCES> 0
<INVENTORY> 3,975,879
<CURRENT-ASSETS> 7,442,574
<PP&E> 177,088,198
<DEPRECIATION> 88,367,042
<TOTAL-ASSETS> 108,300,856
<CURRENT-LIABILITIES> 18,193,875
<BONDS> 32,302,375
0
0
<COMMON> 7,362,279
<OTHER-SE> 45,801,543
<TOTAL-LIABILITY-AND-EQUITY> 108,300,856
<SALES> 94,731,232
<TOTAL-REVENUES> 95,437,901
<CGS> 84,369,320
<TOTAL-COSTS> 84,369,320
<OTHER-EXPENSES> 5,081,171
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,140,359
<INCOME-PRETAX> 4,847,051
<INCOME-TAX> 1,648,000
<INCOME-CONTINUING> 3,199,051
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,199,051
<EPS-BASIC> .55
<EPS-DILUTED> .55
</TABLE>
