<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Quarterly Report Under Section 13 or 15 (d)
of the Securities Exchange Act of 1934
FOR QUARTER ENDED SEPTEMBER 17, 2000 COMMISSION FILE NUMBER 1-7323
FRISCH'S RESTAURANTS, INC.
-------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
OHIO 31-0523213
------------------------------------- --------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2800 GILBERT AVENUE, CINCINNATI, OHIO 45206
--------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 513-961-2660
------------
Not Applicable
--------------------------------------------------------------------------------
Former name, former address and former fiscal year, if changed since last
report
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
---------- ------------
The total number of shares outstanding of the issuer's no par common stock, as
of September 26, 2000 was:
5,143,914
<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 - 18
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS .....................19 - 22
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK ..............................................22
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION ON MATTERS TO A VOTE OF SECURITY HOLDERS ......23
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K ........................23 - 25
SIGNATURE ...............................................................25
<PAGE> 3
<TABLE>
<CAPTION>
FRISCH'S RESTAURANTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF EARNINGS
SIXTEEN WEEKS ENDED SEPTEMBER 17, 2000 AND SEPTEMBER 19, 1999
(UNAUDITED)
2000 1999
----------- -----------
<S> <C> <C>
REVENUE
Sales $53,888,371 $48,522,690
Other 418,487 399,621
----------- -----------
Total revenue 54,306,858 48,922,311
COSTS AND EXPENSES
Cost of sales
Food and paper 17,785,693 15,819,885
Payroll and related 18,490,050 16,663,553
Other operating costs 11,211,510 10,488,625
----------- -----------
47,487,253 42,972,063
Administrative and advertising 2,894,775 2,840,590
Interest 848,510 642,955
----------- -----------
Total costs and expenses 51,230,538 46,455,608
----------- -----------
Earnings from continuing operations
before income tax 3,076,320 2,466,703
Income taxes 1,107,000 839,000
----------- -----------
EARNINGS FROM CONTINUING OPERATIONS 1,969,320 1,627,703
INCOME FROM DISCONTINUED OPERATIONS
(NET OF APPLICABLE TAX) 386,326 123,030
----------- -----------
NET EARNINGS $ 2,355,646 $ 1,750,733
Basic and diluted net earnings
per share of common stock:
Continuing operations $ .38 $ .27
Discontinued operations .07 .03
----------- -----------
$ .45 $ .30
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE> 4
<TABLE>
<CAPTION>
FRISCH'S RESTAURANTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
ASSETS
September 17, May 28,
2000 2000
(unaudited)
------------ ------------
<S> <C> <C>
CURRENT ASSETS
Cash $ 223,025 $ 565,089
Receivables
Trade 1,341,242 1,051,129
Other 251,860 183,053
Inventories 3,720,326 3,736,857
Prepaid expenses and sundry deposits 1,172,505 818,591
Hotel assets held for sale - net 13,758,776 13,737,251
Prepaid and deferred income taxes 690,000 686,371
------------ ------------
Total current assets 21,157,734 20,778,341
PROPERTY AND EQUIPMENT
Land and improvements 25,566,760 24,058,978
Buildings 50,083,539 49,249,644
Equipment and fixtures 53,853,611 53,198,304
Leasehold improvements and buildings on leased land 15,068,001 14,885,289
Capitalized leases 7,317,687 7,282,687
Construction in progress 3,648,057 1,472,138
------------ ------------
155,537,655 150,147,040
Less accumulated depreciation and amortization 77,909,436 76,246,478
------------ ------------
Net property and equipment 77,628,219 73,900,562
OTHER ASSETS
Intangible assets 743,466 744,719
Investments in land 918,441 1,268,912
Property held for sale 2,676,547 2,823,309
Net cash surrender value-life insurance policies 4,280,923 4,210,900
Deferred income taxes 1,540,000 1,536,701
Other 2,541,994 2,515,884
------------ ------------
Total other assets 12,701,371 13,100,425
------------ ------------
$111,487,324 $107,779,328
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE> 5
<TABLE>
<CAPTION>
LIABILITIES
September 17, May 28,
2000 2000
(unaudited)
------------ ------------
<S> <C> <C>
CURRENT LIABILITIES
Long-term obligations due within one year
Long-term debt $ 2,449,269 $ 2,424,211
Obligations under capitalized leases 394,460 354,755
Self insurance 816,178 851,096
Accounts payable 9,576,561 7,377,357
Accrued expenses 5,293,049 6,277,932
Income Taxes 573,283 436,715
------------ ------------
Total current liabilities 19,102,800 17,722,066
LONG-TERM OBLIGATIONS
Long-term debt 29,011,391 26,330,582
Obligations under capitalized leases 4,793,549 4,511,312
Self insurance 2,676,896 2,924,433
Other 2,162,519 2,124,272
------------ ------------
Total long-term obligations 38,644,355 35,890,599
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 60,314,442 60,345,436
------------ ------------
67,676,721 67,707,715
Retained earnings 15,724,515 14,196,749
------------ ------------
83,401,236 81,904,464
Less cost of treasury stock (2,204,865 and 2,017,526 shares) 29,661,067 27,737,801
------------ ------------
Total shareholders' equity 53,740,169 54,166,663
------------ ------------
$111,487,324 $107,779,328
============ ============
</TABLE>
5
<PAGE> 6
<TABLE>
<CAPTION>
FRISCH'S RESTAURANTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
SIXTEEN WEEKS ENDED SEPTEMBER 17, 2000 AND SEPTEMBER 19, 1999
(UNAUDITED)
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 30, 1999 $ 7,362,279 $ 60,401,456 $ 9,804,637 $(22,280,869) $ 55,287,503
Net earnings for sixteen weeks -- -- 1,750,733 -- 1,750,733
Treasury shares reissued -- (14,947) -- 45,022 30,075
Treasury shares acquired -- -- -- (822,825) (822,825)
Cash dividends - $.15 per share -- -- (878,469) -- (878,469)
------------ ------------ ------------ ------------ ------------
Balance at September 19, 1999 7,362,279 60,386,509 10,676,901 (23,058,672) 55,367,017
Net earnings for thirty-six weeks -- -- 4,394,808 -- 4,394,808
Treasury shares reissued -- (396) -- 1,089 693
Treasury shares acquired -- -- -- (4,680,218) (4,680,218)
Employee Stock Ownership Plan -- (40,677) -- -- (40,677)
Cash dividends - $.16 per share -- -- (874,960) -- (874,960)
------------ ------------ ------------ ------------ ------------
Balance at May 28, 2000 7,362,279 60,345,436 14,196,749 (27,737,801) 54,166,663
Net earnings for sixteen weeks -- -- 2,355,646 -- 2,355,646
Treasury shares reissued -- (30,994) -- 121,564 90,570
Treasury shares acquired -- -- -- (2,044,830) (2,044,830)
Cash dividends - $.16 per share -- -- (827,880) -- (827,880)
------------ ------------ ------------ ------------ ------------
Balance at September 17, 2000 $ 7,362,279 $ 60,314,442 $ 15,724,515 $(29,661,067) $ 53,740,169
============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
6
<PAGE> 7
<TABLE>
<CAPTION>
FRISCH'S RESTAURANTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
SIXTEEN WEEKS ENDED SEPTEMBER 17, 2000 AND SEPTEMBER 19, 1999
(UNAUDITED)
2000 1999
------------- ------------
<S> <C> <C>
CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Net income $ 2,355,646 $ 1,750,733
Adjustments to reconcile net income
to net cash from operating activities:
Depreciation and amortization 2,684,088 3,026,417
(Gain) loss on disposition of assets (143,295) 90,404
Changes in assets and liabilities:
Increase in receivables (358,920) (42,974)
Decrease (Increase) in inventories 16,531 (371,493)
Increase in prepaid expenses and sundry deposits (353,914) (990,164)
Increase in accounts payable 1,786,611 1,166,336
Decrease in accrued expenses (984,883) (279,902)
Increase (decrease) in accrued income taxes 132,939 (53,778)
Increase in other assets (144,811) (34,484)
Decrease in self insured obligations (282,455) (345,949)
Increase (decrease) in other liabilities 38,247 (63,213)
----------- -----------
Net cash provided by operating activities 4,745,784 3,851,933
CASH FLOWS (USED IN) PROVIDED BY INVESTING ACTIVITIES:
Additions to property and equipment (6,192,363) (6,517,483)
Proceeds from disposition of property 826,396 5,490
Decrease (increase) in other assets 44,857 (12,621)
----------- -----------
Net cash (used in) investing activities (5,321,110) (6,524,614)
CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES:
Proceeds from borrowings 3,500,000 4,500,000
Payment of long-term obligations (897,191) (750,217)
Cash dividends paid (415,287) (412,527)
Treasury share transactions (1,954,260) (792,750)
----------- -----------
Net cash provided by financing activities 233,262 2,544,506
----------- -----------
Net decrease in cash and equivalents (342,064) (128,175)
Cash and equivalents at beginning of year 565,089 200,200
----------- -----------
Cash and equivalents at end of quarter $ 223,025 $ 72,025
=========== ===========
Supplemental disclosures:
Interest paid $ 1,044,912 $ 590,660
Income taxes paid 1,195,360 971,565
Income tax refunds received -- 15,789
Dividends declared but not paid 412,593 465,942
</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
First Quarter ended September 17, 2000
NOTE A - DESCRIPTION OF THE BUSINESS
Frisch's Restaurants, Inc., headquartered in Cincinnati, Ohio, operates and
sub-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, which are accounted for as
discontinued operations (see note C). Trademarks which the Company has the right
to use include "Frisch's," "Big Boy," "Golden Corral," "Clarion Hotel," and
"Quality Hotel."
NOTE B - ACCOUNTING POLICIES
A summary of the Company's significant accounting policies consistently applied
in the preparation of the accompanying consolidated financial statements
follows:
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. Certain
reclassifications have been made to prior year information to conform to the
current year presentation.
Fiscal Year
-----------
The Company's fiscal year is the 52 or 53 week period ending the Sunday nearest
to the last day of May. The first quarter of each fiscal year contains sixteen
weeks, while the last three quarters each normally contain twelve weeks. Every
fifth year, the additional week needed to make a 53-week year is added to the
fourth quarter, resulting in a thirteen-week fourth quarter. The current fiscal
year will have a thirteen-week fourth quarter.
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 intangible assets, 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 $655,000
were included in accounts payable as of September 17, 2000.
Receivables
-----------
The Company values its trade notes and accounts receivable on the reserve
method. The reserve balance was immaterial at September 17, 2000 and May 28,
2000.
Inventories
-----------
Inventories, comprised principally of food items, are valued at the lower of
cost, determined by the first-in, first-out method, or market.
8
<PAGE> 9
Frisch's Restaurants, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE B - 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 ranging from 10 to
25 years for buildings or components thereof and 5 to 10 years for equipment.
Leasehold improvements are depreciated over 10 to 25 years or the remaining
lease term, whichever is shorter. Interest on borrowings is capitalized during
active construction periods of major capital projects. The cost of land not yet
in service is included in "construction in progress" if construction has begun
or if construction is likely within the next twelve months. The cost of land on
which construction is not likely within the next twelve months is included in
other assets under the caption "investments in land".
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." Carrying values
are reviewed for impairment when events or changes in circumstances indicate
that the assets' carrying values may not be recoverable from the estimated
future cash flows expected to result from the properties' use and eventual
disposition. When undiscounted expected future cash flows are less than carrying
values, an impairment loss is recognized equal to the amount by which the
carrying values exceed the net realizable values of the assets.
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. All
but two of the properties closed at the end of fiscal 1997 have been disposed of
through September 17, 2000. The two properties are listed for sale with a
broker, and are carried at a net realizable value of approximately $1,037,000 on
the Company's balance sheet at September 17, 2000 as a component of the
long-term asset caption "Property held for sale." Certain surplus land is also
currently held for sale and is stated at the lower of cost or market.
Intangible Assets and Other Assets
----------------------------------
The excess of cost over equity in net assets of subsidiaries acquired prior to
November 1, 1970, approximating $710,000, 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 of the initial fee begins when the
restaurant opens and is computed using the straight-line method over the 15-year
term of the individual restaurant franchise agreement.
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 replaceable items such as
uniforms and china. New store opening costs are charged to expense as incurred.
Opening costs for Golden Corral restaurants for the sixteen weeks ended
September 17, 2000 and September 19, 1999 were $386,000 and $455,000
respectively. No opening costs were incurred for Big Boy restaurants.
Benefit Plans
-------------
The Company has two qualified defined benefit pension plans covering
substantially all of its eligible employees. Plan benefits are based on
years-of-service and other factors. However, beginning January 1, 2000, benefit
accruals have been limited under these plans for "highly compensated employees".
The Company's funding policy is to contribute at least annually 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 two
non-qualified supplemental retirement plans for "highly compensated employees"
to make them whole for plan imposed and Internal Revenue Code imposed
limitations on their benefit accruals under the Company's qualified plans.
9
<PAGE> 10
Frisch's Restaurants, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE B - ACCOUNTING POLICIES (CONTINUED)
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
--------------------
The agreement under which the Company has the right to operate and sub-license
others to operate Big Boy restaurants calls for no license fees to be paid by
the Company. Revenue from franchise fees, based on sales of Big Boy restaurants
sub-licensed to other operators, is recorded on the accrual method as earned.
Initial license fees are recognized as revenue when the sub-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.
Income Taxes
------------
Taxes are provided on all items included in the statement of earnings regardless
of when such items are reported for tax purposes. The provision for income taxes
in all periods has been computed based on management's estimate of the tax rate
for the entire year.
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." Pro forma disclosures
of net income and earnings per share based on options granted and stock issued
are reflected in Note F - Capital Stock.
10
<PAGE> 11
Frisch's Restaurants, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE C - DISCONTINUED OPERATIONS
In March 2000, the Board of Directors authorized management to develop a plan to
divest the Company's hotel operations, consisting of two high rise hotels - the
Clarion Riverview Hotel and the Quality Central Hotel. The Company plans to
operate the hotels until buyers are found, which is anticipated to take up to
one year. The services of a broker have been engaged for this purpose. Hotel
operations are accounted for as a discontinued operation, and accordingly,
amounts in the financial statements for all periods shown have been restated to
reflect discontinued operations accounting. The investment in the hotels is
comprised of the hotels' real property, leasehold improvements, equipment,
furnishings and fixtures, and is carried as a current asset under the caption
"Hotel assets held for sale - net". The sale proceeds, which are expected to
exceed the carrying values, will be used in the short-term to repay debt and
ultimately will be reinvested in Big Boy and Golden Corral restaurant expansion.
Certain information with respect to discontinued hotel operations is summarized
below:
<TABLE>
<CAPTION>
Sixteen weeks ended
September 17, September 19,
2000 1999
------------- -------------
(in thousands)
<S> <C> <C> <C> <C>
Total revenue $ 3,709 $ 3,917
Cost of sales $ 2,974 $ 3,627
Administrative and advertising 131 104
-------- --------
Total costs and expenses 3,105 3,731
-------- --------
Earnings before income tax 604 186
Income tax 218 63
-------- --------
Earnings from discontinued operations $ 386 $ 123
======== ========
</TABLE>
NOTE D - LONG-TERM DEBT
<TABLE>
<CAPTION>
September 17, 2000 May 28, 2000
----------------------- -------------------
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 $ -- $ 18,500 $ -- $ 17,000
Term loan 1,500 1,200 1,500 1,700
Golden Corral facility -
Construction loan -- 3,000 -- 1,000
Term loans 949 6,311 924 6,631
--------- ---------- --------- ---------
$ 2,449 $ 29,011 $ 2,424 $ 26,331
========= ========== ========= =========
</TABLE>
The portion payable after one year matures as follows:
<TABLE>
<CAPTION>
September 17, May 28,
2000 2000
--------- -------
(in thousands)
<S> <C> <C>
Period ending in 2002 $ 23,728 $ 20,501
2003 1,113 1,283
2004 1,204 1,172
2005 1,304 1,270
2006 1,291 1,372
Subsequent to 2006 371 733
--------- ---------
$ 29,011 $ 26,331
========= =========
</TABLE>
11
<PAGE> 12
Frisch's Restaurants, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE D - LONG-TERM DEBT (CONTINUED)
The revolving credit loan is a $20,000,000 unsecured line of credit, $18,500,000
of which is outstanding at September 17, 2000. In September 2000, the maturation
of this credit loan was extended to September 1, 2002. Interest rates, ranging
from 7.60% to 7.65% as of September 17, 2000, 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 July 31, 2002. Interest is also payable monthly at a rate equal
to the prime rate, but not to exceed 8.5%. The rate in effect as of September
17, 2000 was 8.5%.
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 September 17, 2000, the
Company had cumulatively borrowed $11,000,000 of which $3,000,000 was a
Construction Loan and $8,000,000 had been converted to Term Loans. In September
2000, the availability of draws was extended to August 31, 2002. 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. Monthly CD based rates ranging from 7.58% to 7.61% were in effect as
of September 17, 2000. 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. Five Term Loans totaling $8,000,000 have fixed
interest rates, the weighted average of which is 7.88%, and are being repaid in
84 equal monthly installments of principal and interest aggregating $124,684
through periods expiring in 2007. Any outstanding construction loan that has not
been converted into a Term Loan shall mature and be payable in full on September
1, 2002.
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 September 17, 2000.
Compensating balances are not required by any of these loan agreements.
As of September 17, 2000, the Company had three outstanding letters of credit
totaling $598,000 in support of its self insurance program.
NOTE E - LEASED PROPERTY
The Company has capitalized the leased property of 35% 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 2005. The Company also
occupies office space under an operating lease that expires during 2003, with a
renewal option available through 2013.
12
<PAGE> 13
Frisch's Restaurants, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE E - LEASED PROPERTY (CONTINUED)
An analysis of the capitalized leased property follows:
Asset balances at
----------------------
September 17, May 28,
2000 2000
--------- ------
(in thousands)
Restaurant facilities $ 6,306 $ 6,306
Equipment 1,012 977
--------- --------
7,318 7,283
Less accumulated amortization (4,564) (4,839)
--------- --------
$ 2,754 $ 2,444
========= ========
Total rental expense of operating leases for continuing operations was $495,000
at September 17, 2000 and $437,000 at September 19, 1999.
Future minimum lease payments under capitalized leases and operating leases for
continuing operations having an initial or remaining term of one year or more
follow:
Capitalized Operating
Period ending September 19, leases leases
--------------------------- ----------- ----------
(in thousands)
2001 $ 932 $ 1,223
2002 907 1,154
2003 902 893
2004 896 678
2005 821 465
2006 to 2018 3,586 1,184
------- --------
Total 8,044 $ 5,597
========
Amount representing interest (2,856)
-------
Present value of obligations 5,188
Portion due within one-year (394)
-------
Long-term obligations $ 4,794
=======
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 have been 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 September 17, 2000, 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 (the
latest of which was declared and paid in fiscal year 1997) in accordance with
the anti-dilution provisions of the Plan.
13
<PAGE> 14
Frisch's Restaurants, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE F - CAPITAL STOCK (CONTINUED)
Transactions involving both the 1993 and the 1984 Plans are summarized below:
<TABLE>
<CAPTION>
Sixteen weeks ended Sixteen weeks ended
September 17, 2000 September 19, 1999
---------------------------- -----------------------
No. of Option No. of Option
Shares Price Shares Price
------ ----- ------ -----
<S> <C> <C> <C> <C>
Outstanding at
beginning of year 118,738 $8.31 to $17.05 169,163 $8.31 to $20.83
Exercisable at
beginning of year 69,987 $8.31 to $17.05 108,580 $12.38 to $20.83
Granted during the sixteen weeks 100,478 $9.94 to $12.06 20,750 $10.25
Exercised during the sixteen weeks 0 0
Expired during the sixteen weeks 0 0
Forfeited during the sixteen weeks 0 0
Outstanding at end of quarter 219,216 $8.31 to $17.05 189,913 $8.31 to $20.83
Exercisable at end of quarter 83,155 $8.31 to $17.05 121,830 $11.25 to 20.83
</TABLE>
Using the fair value on the grant date under the methodology prescribed by SFAS
123, the respective pro forma effect on net income for options granted in fiscal
years 2000 and 1999 would have amounted to annual charges of approximately
$14,000 and $16,000, respectively, with no effect on basic and diluted net
earnings per share. These estimates were determined using the modified Black
Scholes option pricing model with the following weighted average assumptions:
2000 1999
---- ----
Dividend yield 3.18% 2.75%
Expected volatility 24% 30%
Risk free interest rate 5.82% 5.08%
Expected lives 5 years 5 years
Weighted average fair value of options granted $2.32 $2.94
Pro forma disclosures of net income and basic and diluted net earnings per share
for the sixteen weeks ended September 17, 2000 and September 19, 1999 were
similarly not materially different from reported results.
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's Executive Savings Plan. Shares reserved under all plans have been
adjusted for stock dividends. There are no other outstanding options, warrants
or rights.
14
<PAGE> 15
Frisch's Restaurants, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE F - CAPITAL STOCK (CONTINUED)
Stock Repurchase Program
------------------------
The Company has a stock repurchase program under which the Board of Directors
authorized the repurchase of up to 1,000,000 shares of the Company's common
stock on the open market during a two-year time frame that expired October 5,
2000. During the sixteen weeks ended September 17, 2000, the Company repurchased
196,180 shares at a cost of $2,045,000, bringing total repurchases since the
inception of the program to 860,486 shares at a cost of $8,612,000. On October
2, 2000, the Board of Directors authorized a program to repurchase up to 500,000
additional shares to replace the program that expired October 5, 2000. Purchases
will be made from time to time in the open market or through block trades during
a two year time frame.
Earnings Per Share
------------------
Basic earnings per share is based on the weighted average number of outstanding
common shares during the period presented. Diluted earnings per share includes
the effect of common stock equivalents, which assumes the exercise and
conversion of employee stock options.
<TABLE>
<CAPTION>
Weighted Average
Common Shares Outstanding Stock Total
(used for Basic EPS) Equivalents (used for Diluted EPS)
-------------------- ----------- ----------------------
<S> <C> <C> <C>
Quarter ending September 17, 2000 5,201,080 10,798 5,211,878
Quarter ending September 19, 1999 5,866,919 1,540 5,868,459
</TABLE>
NOTE G - PENSION PLANS
The Company sponsors two qualified defined benefit pension plans covering
substantially all of its eligible employees, plus two non-qualified supplemental
retirement plans for "highly compensated employees." The changes in the
Company's benefit obligation are computed as follows for the years ended May 28,
2000 and May 30, 1999 (latest available data):
<TABLE>
<CAPTION>
(in thousands)
2000 1999
---- ----
<S> <C> <C>
Projected benefit obligation at beginning of year $ 15,768 $14,765
Service cost 1,306 1,264
Interest cost 1,114 1,018
Actuarial gain (176) (289)
Benefits paid (2,120) (990)
--------- --------
Projected benefit obligation at end of year $ 15,892 $ 15,768
========== ========
</TABLE>
The changes in the plans' assets are computed as follows for the years ended May
28, 2000 and May 30, 1999 (latest available data):
<TABLE>
<CAPTION>
(in thousands)
2000 1999
---- ----
<S> <C> <C>
Fair value of plan assets at beginning of year $ 23,726 $23,189
Actual return on plan assets 1,615 1,317
Employer contributions 421 402
Benefits paid (2,284) (1,182)
--------- --------
Fair value of plan assets at end of year $ 23,478 $ 23,726
========== ========
</TABLE>
15
<PAGE> 16
Frisch's Restaurants, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE G - PENSION PLANS (CONTINUED)
The following table sets forth the plans' funded status and amounts recognized
on the Company's balance sheet at May 28, 2000 and May 30, 1999 (latest
available data):
<TABLE>
<CAPTION>
(in thousands)
2000 1999
---- ----
<S> <C> <C>
Funded status $ 7,585 $7,958
Unrecognized net actuarial gain (6,277) (6,865)
Unrecognized prior service cost 529 599
Unrecognized net transition (asset) (474) (711)
-------- -------
Prepaid benefit cost $ 1,363 $ 981
========= =======
</TABLE>
The weighted - average actuarial assumptions used were:
<TABLE>
<CAPTION>
As of
May 28, May 30,
2000 1999
---- ----
<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 for the sixteen weeks ended September 17, 2000 and
September 19, 1999 was $49,000 and $37,000 respectively.
16
<PAGE> 17
Frisch's Restaurants, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE H - SEGMENT INFORMATION
The Company has historically had food service and lodging operations. In March
2000, the Board of Directors authorized management to develop plans to divest
the lodging operation (see note C - Discontinued Operations). Under Statement of
Financial Accounting Standards No. 131 (SFAS 131) "Disclosures about Segments of
an Enterprise and Related Information." the Company now has two reportable
segments within the food service industry: Big Boy restaurants and Golden Corral
restaurants. Financial information by operating segment is as follows:
Sixteen weeks ended
September 17, September 19,
2000 1999
---- ----
(in thousands)
Revenue
Big Boy $ 48,171 $ 46,385
Franchise & other fees from sub-licenses 379 369
---------- ----------
Total Big Boy 48,550 46,754
Golden Corral 5,757 2,168
---------- ----------
$ 54,307 $ 48,922
========== ==========
Operating profit (loss)
Big Boy $ 5,088 $ 4,694
Opening expense -- --
---------- ----------
Total Big Boy 5,088 4,694
Golden Corral 445 167
Opening expense (386) (455)
---------- ----------
Total Golden Corral 59 (288)
$ 5,147 $ 4,406
=========== ==========
Depreciation and amortization
Big Boy $ 2,473 $ 2,441
Golden Corral 211 51
Discontinued operations & other - 534
---------- ----------
$ 2,684 $ 3,026
=========== ==========
Capital Expenditures
Big Boy $ 1,202 $ 1,065
Golden Corral 4,970 5,214
Discontinued operations 20 238
---------- ----------
$ 6,192 $ 6,517
=========== ==========
As of
September 17, May 28,
2000 2000
---- ----
Identifiable assets
Big Boy $ 77,061 $ 78,289
Golden Corral 20,027 15,096
Discontinued operations 14,399 14,394
---------- ----------
$ 111,487 $ 107,779
=========== ==========
17
<PAGE> 18
Frisch's Restaurants, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE I - RELATED PARTY TRANSACTIONS
During the sixteen weeks ended September 17, 2000 and September 19, 1999, a Big
Boy sub-licensed restaurant owned by an officer and director of the Company and
two Big Boy sub-licensed restaurants owned by children and other family members
of an officer and directors of the Company paid the Company franchise and
advertising fees, employee leasing and other fees, and made purchases from the
Company's commissary.
During the fiscal year ended May 30, 1999, three unprofitable Big Boy
restaurants that closed at the end of 1997 were sold and sub-licensed to a Big
Boy franchise operator, a minority shareholder and the president of which was an
officer of the Company prior to May 31, 2000. Another unprofitable Big Boy
restaurant that closed in 1997 is currently leased and sub-licensed to this Big
Boy franchise operator. In addition, this Big Boy franchise operator has
acquired three other Big Boy sub-licensed restaurants from other sub-licensees
of the Company. During the sixteen weeks ended September 17, 2000 and September
19, 1999, certain of these restaurants paid the Company rent, franchise and
advertising fees and other fees and made purchases from the Company's
commissary.
These transactions were effected on substantially similar terms as transactions
with persons having no relationship with the Company.
18
<PAGE> 19
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITON AND RESULTS
------------------------------------------------------------------------------
OF OPERATIONS
-------------
Overview
--------
Earnings from continuing operations for the first quarter ended September 17,
2000 were $1,969,000, or $.38 per share, compared to $1,628,000 or $.27 per
share in last year's first quarter. Total revenue from continuing operations for
the first quarter ended September 17, 2000 was $54,307,000, an increase of
$5,385,000 or 11 percent from the comparable period last year.
In March 2000, the Board of Directors authorized management to develop a plan to
divest the Company's hotel operations. Proceeds from the sale are expected to
result in a gain on disposal sufficient to cover any operating losses that may
be incurred during the phase-out period. The Company's net earnings for the
first quarter ended September 17, 2000 included hotel earnings of $386,000 or
$.07 per share, while net earnings for the first quarter ended September 19,
1999 included net income from hotel operations of $123,000 or $.03 per share.
The quarter ended September 17, 2000 does not include a provision for hotel
depreciation, as results from hotel operations are accounted for as discontinued
operations in the accompanying financial statements. Depreciation expense of
$534,000 is reflected in discontinued hotel operations for last year's first
quarter. The discussion of results of operations has been adjusted to exclude
comparisons of the hotel summary information shown in the table below:
Sept. 17, 2000 Sept. 19, 1999
-------------- --------------
(in thousands)
Total revenue $ 3,709 $ 3,917
Cost of sales $ 2,974 $ 3,627
Administrative and advertising 131 104
-------- --------
Total costs and expenses 3,105 3,731
-------- --------
Earnings before income tax 604 186
Income tax 218 63
-------- ---------
Earnings from discontinued operations $ 386 $ 123
========= =========
Results of Operations
---------------------
Same store sales in Big Boy restaurants improved by 4.2 percent during the first
quarter ended September 17, 2000, marking the twelfth consecutive quarter that
Big Boy same store sales gains have been achieved. While introductions of new
menu items with higher price points helped to produce higher dining room sales,
strong sales from carryout and drive-thru trade continued to drive the majority
of the sales increase. In addition, menu prices were increased 1.5 percent
shortly before last year's first quarter ended and were raised just under 2
percent near the end of the third quarter of fiscal 2000. Another menu price
increase of 1.5 percent was implemented in September, 2000. The Company did not
open or close any Big Boy restaurants during the last twelve months. One new Big
Boy restaurant is expected to open in April 2001.
Sales from Golden Corral restaurants were $5,757,000 during the first quarter
ended September 17, 2000, an increase of $3,589,000 from last year's first
quarter. Five Golden Corral restaurants were in operation for the entire first
quarter this year, and a sixth one opened at the end of July, 2000. Only one
Golden Corral was in operation for the entire first quarter last year, while two
more were opened during the quarter. The Company plans to build a total of 40
Golden Corrals through 2007, including the seventh one that opened in late
September, 2000, plus four more before the end of the fiscal year in May, 2001.
Cost of sales in the first quarter ended September 17, 2000 increased $4,515,000
or 10.5 percent higher than last year's first quarter, roughly proportionate to
the 11 percent revenue increase. As a percentage of revenue, cost of sales was
87.4 percent and 87.8 percent, respectively, in the first quarters of fiscal
years 2001 and 2000. 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 31.6 percent and 31.1 of revenue, respectively, during the first quarters
of fiscal years 2001 and 2000. Food cost for Big Boy restaurants continues to
benefit from higher sales of carryout and drive-thru meals, which usually have
lower food cost
19
<PAGE> 20
percentages than typical dining room meals. However, higher prices paid for
certain commodities, especially pork and beef, continue to drive food and paper
costs higher. The impact of food cost in Golden Corral restaurants, which as a
percentage of sales is much higher than in Big Boy restaurants, resulted in
consolidated food and paper costs of 32.8 percent and 32.3 percent of revenue,
respectively, during the first quarters of fiscal years 2001 and 2000.
Payroll and related expenses were 34 percent and 34.1 percent of revenue,
respectively, during the first quarters of fiscal years 2001 and 2000. Payroll
and related expenses benefited from favorable claims experience in the Company's
self-insurance programs, as reserve estimates were lowered in the first quarters
of both fiscal years. Without these adjustments, payroll and related expenses
would have been 34.6 percent and 34.9 percent of revenue, respectively, in the
first quarters of fiscal years 2001 and 2000. Higher pay rates driven by tight
labor conditions continue to adversely affect these percentages. In addition,
the first quarter ended September 17, 2000 included higher expense for the
Company's variable compensation program for restaurant management. However, two
factors kept this year's first quarter payroll percentage below last year's
first quarter percentage. First, the costs of certain employee benefits are
fixed and do not rise with higher levels of pay or higher sales levels. Second,
payroll and related expense percentages for Golden Corral restaurants are lower
than for Big Boy restaurants. Therefore, more Golden Corral restaurants in
operation during this year's first quarter resulted in lower consolidated
percentages when compared against last year.
It is increasingly likely that the federal minimum wage will soon be increased
by a dollar per hour to be phased in over a two year period. Based on current
labor conditions, such an increase would not be expected to have an immediate,
material effect on the Company's payroll costs, especially if the final
legislation does not change the cash wage for tipped employees.
Other operating expenses decreased to 20.6 percent of revenue during the quarter
ended September 17, 2000 from 21.4 percent in last year's first quarter. As
these expenses tend to be more fixed in nature, the sales increases cause these
costs to be a lower percentage of revenue. Other operating costs in this year's
first quarter include opening costs of approximately $386,000 for the Company's
Golden Corral restaurants (including $227,000 for future restaurants). Last
year's first quarter included opening costs of $455,000 (including $76,000 for
restaurants that were not yet in operation). Excluding all opening expenses,
pretax operating earnings for Golden Corral restaurants would have been $445,000
in this year's first quarter compared with $167,000 in last year's first
quarter.
Administrative and advertising expense in the first quarter ended September 17,
2000 increased $54,000 or 1.9 percent higher than last year's first quarter.
This year's increase is principally due to higher spending for Big Boy
advertising proportionate with the higher sales levels, reflecting the Company's
policy of spending a constant percentage of sales dollars, and higher corporate
bonus accruals commensurate with the earnings improvement, less a gain from the
disposition of certain property.
Interest expense in the first quarter ended September 17, 2000, increased
$206,000 or 32 percent higher than last year's first quarter. The increase
resulted from the impact of borrowing $11,000,000 over the course of fiscal 2000
together with $3,500,000 borrowed in this year's first quarter. Proceeds that
are expected later in fiscal year 2001 from the sale of the hotel properties
will be used to repay debt which should result in substantial, albeit temporary
interest savings, as continued borrowing is likely for the foreseeable future to
fund construction of Golden Corral restaurants and Big Boy restaurant expansion.
The estimated effective tax rate as a percentage of pre-tax earnings was 36
percent in the first quarter ended September 17, 2000, compared with 34 percent
last year's first quarter. This year's tax rate is higher for two reasons.
Higher earnings expectations in fiscal 2001 causes federal tax credits to be a
lower percentage of pretax earnings which in turn results in a higher effective
tax rate. This year's estimated tax rate also contains higher provisions for
state income taxes principally associated with expected gains from the sale of
the hotel properties.
20
<PAGE> 21
Liquidity and Capital Resources
-------------------------------
The Company has historically maintained a strategic negative working capital
position, which is not uncommon in the restaurant industry. The deficit is often
substantial, but management believes that such position does not hinder the
Company's ability to satisfactorily retire its obligations when due, as
substantially all the Company's retail sales are cash or credit card sales, and
the Company's revolving credit line is readily available when needed. A positive
working capital position has been established since the third quarter of fiscal
2000, reflecting the classification of the assets of the Company's discontinued
hotel operations as current assets, in anticipation of their sale.
Cash provided by operating activities during the first quarter of fiscal 2001
was $4,746,000, an increase of $894,000 over last year's first quarter. These
cash flows were generated principally from net income and depreciation. Together
with funds from external borrowing, these cash flows were utilized for
discretionary capital projects (principally Golden Corral expansion), dividends,
repurchases of the Company's common stock, and to service debt.
Investing activities during the first quarter of fiscal 2001 included $6,192,000
in capital costs, a decrease of $325,000 from last year's first quarter. This
year's first quarter's capital spending included $4,970,000 for Golden Corral,
$540,000 to remodel seven Big Boy restaurants, and $682,000 in routine equipment
replacements and other capital outlays. Proceeds from property sales were
$826,000 in this year's first quarter. No property sales were transacted during
last year's first quarter. The Company expects to receive at least $14,000,000,
net of expenses, from the sale of its hotel properties. The sale proceeds will
be used in the short term to repay debt on a revolving credit line, and
ultimately will be reinvested in Big Boy and Golden Corral restaurant expansion.
The Company is also expecting sale proceeds of at least $1,500,000 from closed
restaurants and certain excess property during the next two quarters.
Financing activities in the first quarter of fiscal 2001 included $2,000,000 of
new debt borrowed against the Golden Corral credit facility. In addition,
$1,500,000 of new debt was borrowed on the $20,000,000 revolving line of credit.
Scheduled long-term debt payments of $897,000 were also made. A regular
quarterly $.08 per share cash dividend to shareholders totaling $415,000 was
paid during the quarter ended September 17, 2000. Another $.08 per share cash
dividend was paid October 10, 2000. The Company has a stock repurchase program
that expired October 5, 2000. During the quarter ended September 17, 2000, the
Company repurchased 196,180 of its common shares at a cost of $2,045,000,
bringing the total repurchases since the inception of the program to 860,486
shares at a cost of $8,612,000. On October 2, 2000, the Board of Directors
authorized a program to repurchase up to 500,000 additional shares to replace
the program that expired. Repurchases will be made from time to time on the open
market or through block trades during a two-year time frame.
Current Big Boy restaurant expansion plans call for construction of the first
Big Boy restaurant in over three years to begin in November, 2000. Its grand
opening is set for April, 2001. Construction of two additional Big Boy
restaurants should be underway by the end of the fiscal year in May, 2001,
including the replacement of an older Big Boy restaurant on its existing site.
The estimated cash outlay to build and equip each of these restaurants is
$1,550,000, excluding land. Several new sites for Big Boy expansion will likely
also be acquired during the year. Costs to remodel eleven Big Boy restaurants
scheduled over the remainder of fiscal 2001 are expected to be approximately
$625,000.
The Company's development agreements with Golden Corral Franchising Systems,
Inc. call for the Company to open 40 Golden Corral restaurants through December
31, 2007. Six restaurants were in operation as of September 17, 2000. The
seventh Golden Corral restaurant opened in Louisville, Kentucky shortly after
the end of the first quarter. In addition, four more Golden Corrals are
scheduled to be open by the end of the fiscal year in May 2001. On average, the
approximate cost to build and equip each Golden Corral restaurant is $2,650,000,
including land.
Expansion costs are being funded through a combination of cash flow, an
exclusive credit facility for Golden Corral construction and a revolving credit
loan. The Company's Golden Corral credit facility provides for unsecured
borrowing of up to $20,000,000 for Golden Corral construction through August 31,
2002, of which $9,000,000 remained available to be borrowed as of September 17,
2000. The revolving loan is a $20,000,000 unsecured line of credit, of which
$1,500,000 remained available for borrowing as of September 17, 2000. Expected
proceeds of at least $14,000,000 from the sale of the Company's hotel properties
will be used to pay down the revolving debt, substantially restoring the
availability of credit to be drawn upon as needed to fund expansion or if needed
for working capital.
21
<PAGE> 22
Risk Factors and 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
-------------------------------------------------------------------
The Company has market risk exposure to interest rate changes primarily relating
to the $20,000,000 revolving credit loan, the outstanding balance of which was
$18,500,000 as of September 17, 2000. Interest rates are determined by various
indices for periods of one, two or three months as selected by the Company. The
indices include the London Interbank Offered Rate (LIBOR) and the average rate
being offered by top quality banks in the national secondary market for
certificates of deposit (CD), plus the then applicable LIBOR/CD spread as
periodically adjusted, ranging from a minimum of 87.5 basis points to a maximum
of 150 basis points. Any portion of the note with respect to which a LIBOR or CD
based rate is not in effect bears interest equal to the prime rate. The Company
does not currently use derivative financial instruments to manage its exposure
to changes in interest rates.
Food supplies for Big Boy restaurants are generally plentiful and may be
obtained from any number of suppliers. Quality and price are the principal
determinants of source. Centralized purchasing and food preparation through the
Company's commissary ensures uniform product quality and safety, timeliness of
distribution to restaurants and results in lower food and supply costs. Certain
commodities, principally beef, chicken, pork, dairy products, fish, french fries
and coffee, are generally purchased based upon market prices established with
vendors. Purchase contracts for some of these items may contain contractual
provisions that limit the price to be paid. The Company does not use financial
instruments as a hedge against changes in commodity pricing.
22
<PAGE> 23
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 2, 2000.
b) Directors elected on October 2, 2000 to serve until the 2002
annual meeting of shareholders:
Jack C. Maier William J. Reik, Jr.
William A. Mauch Lorrence T. Kellar
Directors whose terms continued after the meeting (serving until
the 2001 annual meeting of shareholders):
Craig F. Maier Daniel W. Geeding
Malcolm M. Knapp Blanche F. Maier
Dale P. Brown
c) The following matters were voted upon:
1) Election of Directors to serve until the 2002 annual meeting
of shareholders:
Withheld
Name For Authority
---- --- ---------
Jack C. Maier 4,735,325 132,900
William A. Mauch 4,710,337 157,888
William J. Reik, Jr. 4,719,048 149,177
Lorrence T. Kellar 4,709,048 159,177
2) 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
--- ------- -------
4,802,891 61,565 3,749
d) Not applicable
Item 6. Exhibits and reports on Form 8-K.
a) Exhibits
(3) Articles of Incorporation and By-Laws
--- -------------------------------------
(3) (a) Exhibit (3) (a) to the Registrant's Form 10-K Annual
Report for 1993, being the Third Amended Articles of
Incorporation, is incorporated herein by reference.
(3) (b) Exhibit (3) (a) to the Registrant's Form 10-Q
Quarterly Report for December 15, 1996, being the Code of
Regulations, is incorporated herein by reference.
(3) (c) Exhibit (3) (b) to the Registrant's Form 10-Q
Quarterly Report for December 15, 1996, being Amendments to
Regulations adopted October 1, 1984, is incorporated herein by
reference.
(3) (d) Exhibit (3) (c) to the Registrant's Form 10-Q
Quarterly Report for December 15, 1996, being Amendments to
Regulations adopted October 24, 1996, is incorporated herein
by reference.
23
<PAGE> 24
(10) Material Contracts
-----------------------
(10)(a) Exhibit 10(a) to the Registrant's Form 10-K Annual
Report for 2000, being the Area Development Agreement and
Addendum effective July 25, 2000 between the Registrant and
Golden Corral Franchising Systems, Inc., is incorporated
herein by reference.
(10)(b) Exhibit (10) (a) to the Registrant's Form 10-Q
Quarterly Report for December 14, 1997, being Area Development
Agreement and Addendum between the Registrant and Golden
Corral Franchising Systems, Inc. effective January 6, 1998, is
incorporated herein by reference.
(10)(c) Exhibit (10) (a) to the Registrant's Form 10-Q
Quarterly Report for December 12, 1999, being Second Amendment
dated October 6, 1999 to Area Development Agreement between
the Registrant and Golden Corral Franchising Systems, Inc.
effective January 6, 1998, is incorporated herein by
reference.
(10)(d) Employment agreement between the Registrant and Jack
C. Maier effective May 29, 2000 is filed herewith.*
(10)(e) Exhibit (10) (a) to the Registrant's Form 10-K Annual
Report for 1997, being employment agreement between the
Registrant and Jack C. Maier effective June 2, 1997, is
incorporated herein by reference.*
(10)(f) Employment agreement and Amendment between the
Registrant and Craig F. Maier effective June 4, 2000 is filed
herewith.*
(10)(g) Exhibit (10) (b) to the Registrant's Form 10-K Annual
Report for 1995, being employment contract between the
Registrant and Craig F. Maier effective May 29, 1995, is
incorporated herein by reference.*
(10)(h) Exhibit (10) (a) to the Registrant's Form 10-Q
Quarterly Report for December 13, 1998, being amendment dated
November 24, 1998 to employment contract between the
Registrant and Craig F. Maier dated May 29, 1995, is
incorporated herein by reference.*
(10)(i) Exhibit (10) (a) to the Registrant's Form 10-Q
Quarterly Report for September 17, 1995, being the Frisch's
Executive Savings Plan effective November 15, 1993, is
incorporated herein by reference.*
(10)(j) Exhibit (10) (b) to the Registrant's Form 10-Q
Quarterly Report for September 17, 1995, being the Frisch's
Executive Retirement Plan effective June 1, 1994, is
incorporated herein by reference.*
(10)(k) Exhibit A to the Registrant's Proxy Statement dated
September 9, 1998, being the Amended and Restated 1993 Stock
Option Plan, is incorporated herein by reference.*
(10)(l) Exhibit B to the Registrant's Proxy Statement dated
September 9, 1998, being the Employee Stock Option Plan, is
incorporated herein by reference.*
(10)(m) Exhibit (10) (e) to the Registrant's Form 10-K Annual
Report for 1985, being the 1984 Stock Option Plan, is
incorporated herein by reference.*
(10)(n) Exhibit (10) (f) to the Registrant's Form 10-K Annual
Report for 1990, being First Amendment to the 1984 Stock
Option Plan, is incorporated herein by reference.*
(10)(o) Exhibit (10) (g) to the Registrant's Form 10-K Annual
Report for 1990, being the Agreement between the Registrant
and Craig F. Maier dated November 21, 1989, is incorporated
herein by reference.*
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<PAGE> 25
(10)(p) Exhibit (10) (f) to the Registrant's amended Form 10-K
Annual Report for 1988, being the Restated and Amended Area
Franchise Agreement between Elias Brothers Restaurants, Inc.
and the Registrant dated November 2, 1987, is incorporated
herein by reference.
(10)(q) Exhibit 10 (q) to the Registrant's Form 10-K Annual
Report for 2000, being the Agreement dated June 15, 2000
between the Registrant and Elias Brothers Restaurants, Inc.
modifying the Restated and Amended Area Franchise Agreement
between the Registrant and Elias Brothers Restaurants, Inc.
dated November 2, 1987, is incorporated herein by reference.
*denotes compensatory plan or agreement.
(15) Letter re unaudited interim financial information
(27) Financial Data Schedule
b) Reports on Form 8-K.
On June 9, 2000 under Item 5, to report that on June 6, 2000
the Company's Board of Directors authorized an additional
repurchase of up to 300,000 shares of the Company's common
stock on the open market. This supplements the Board's
previous authorizations to purchase up to 700,000 shares.
Financial statements were not required to be filed.
On July 12, 2000 under Item 5, to report quarterly financial
data for the Company's fiscal year that ended May 28, 2000
that will be presented as prior year data in Forms 10-Q
during the Company's fiscal year that ends June 3, 2001.
On July 27, 2000 under Item 5, to report that the Company
has signed an area development agreement with Golden Corral
Franchising Systems, Inc. whereby the Company will open and
operate fifteen additional Golden Corral restaurants during
the next seven years in the Cleveland and Toledo, Ohio
market areas.
On October 4, 2000 under Item 5, to report that on October
2, 2000 the Company's Board of Directors approved a program
to repurchase up to 500,000 shares of the Company's common
stock to replace a similar expiring program. Purchases will
be made from time to time within a two year time frame.
SIGNATURE
---------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FRISCH'S RESTAURANTS, INC.
-------------------------
(registrant)
DATE October 17, 2000
----------------------
BY /s/ Donald H. Walker
-------------------------
Donald H. Walker
Vice President - Finance, Treasurer and
Principal Financial and Accounting Officer
25
