UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

________________________________ 

FORM 10-Q

Quarterly Report Pursuant to Section 13 or 15 (d) of

the Securities Exchange Act of 1934

FOR QUARTERLY PERIOD ENDED MARCH 5, 2013

COMMISSION FILE NUMBER 001-7323

________________________________ 

FRISCH’S RESTAURANTS, INC.

(Exact name of registrant as specified in its charter)

OHIO	31-0523213
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer 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  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or such shorter period that the registrant was required to submit and post such files).    YES  x    NO  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer  ¨	Accelerated filer  x
Non-accelerated filer  ¨	Smaller reporting company  ¨
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES  ¨ NO  x

There were 5,062,455 shares outstanding of the issuer’s no par common stock, as of March 27, 2013

TABLE OF CONTENTS

		Page
PART I - FINANCIAL INFORMATION
Item 1.	Financial Statements:
	Consolidated Statement of Earnings	3
	Consolidated Statement of Comprehensive Income	4
	Consolidated Balance Sheet	5
	Consolidated Statement of Shareholders’ Equity	7
	Consolidated Statement of Cash Flows	8
	Notes to Consolidated Financial Statements	10
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	26
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	36
Item 4.	Controls and Procedures	37
PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	37
Item 1A.	Risk Factors	37
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	38
Item 3.	Defaults Upon Senior Securities	38
Item 4.	Mine Safety Disclosures	38
Item 5.	Other Information	38
Item 6.	Exhibits	38
SIGNATURE		39

Frisch’s Restaurants, Inc. and Subsidiaries

Consolidated Statement of Earnings

(Unaudited)

	40 weeks ended						12 weeks ended
	March 5, 2013			March 6, 2012			March 5, 2013			March 6, 2012
Sales	$	154,919,802		$	157,583,464		$	45,771,994		$	46,284,545
Cost of sales
Food and paper	51,856,704			53,225,389			15,421,892			15,615,215
Payroll and related	54,367,184			55,751,416			16,280,732			16,514,130
Other operating costs	31,961,402			32,683,308			9,102,201			9,213,973
	138,185,290			141,660,113			40,804,825			41,343,318
Gross profit	16,734,512			15,923,351			4,967,169			4,941,227
Administrative and advertising	10,109,258			10,330,220			2,695,131			2,748,305
Franchise fees and other revenue	(1,056,627		)	(993,769		)	(305,710		)	(300,169		)
Loss (Gain) on sale of assets	13,550			(190,972		)	—			(190,972		)
Impairment of long-lived assets	70,500			327,734			—			327,734
Operating profit	7,597,831			6,450,138			2,577,748			2,356,329
Interest expense	758,605			1,136,068			208,899			328,112
Earnings from continuing operations before income taxes	6,839,226			5,314,070			2,368,849			2,028,217
Income taxes	2,133,000			1,080,000			621,000			313,000
Earnings from continuing operations	$	4,706,226		$	4,234,070		$	1,747,849		$	1,715,217
(Loss) earnings from discontinued operations, net of tax	$	(157,705	)	$	(907,527	)	$	—		$	1,097,503
NET EARNINGS	$	4,548,521		$	3,326,543		$	1,747,849		$	2,812,720
Basic net earnings per share:
Earnings from continuing operations	$	0.94		$	0.86		$	0.35		$	0.35
(Loss) earnings from discontinued operations	$	(0.03	)	$	(0.19	)	$	—		$	0.22
Basic net earnings per share	$	0.91		$	0.67		$	0.35		$	0.57
Diluted net earnings per share:
Earnings from continuing operations	$	0.93		$	0.86		$	0.34		$	0.35
(Loss) earnings from discontinued operations	$	(0.03	)	$	(0.19	)	$	—		$	0.22
Diluted net earnings per share	$	0.90		$	0.67		$	0.34		$	0.57

The accompanying notes are an integral part of the consolidated financial statements.

3

Frisch’s Restaurants, Inc. and Subsidiaries

Consolidated Statement of Comprehensive Income

(Unaudited)

	40 weeks ended						12 weeks ended
	March 5, 2013			March 6, 2012			March 5, 2013			March 6, 2012
Net earnings	$	4,548,521		$	3,326,543		$	1,747,849		$	2,812,720
Other comprehensive income (1)
Amortization of amounts included in net periodic pension expense	1,311,520			789,100			393,456			236,730
Tax effect	(445,917		)	(268,294		)	(133,775		)	(80,488		)
	865,603			520,806			259,681			156,242
Comprehensive income	$	5,414,124		$	3,847,349		$	2,007,530		$	2,968,962

(1) Approximately $87,000 and $26,000 respectively, of the other comprehensive income was attributable to Golden Corral during the 40 and 12 week periods ended March 6, 2012.

The accompanying notes are an integral part of the consolidated financial statements.

4

Frisch’s Restaurants, Inc. and Subsidiaries

Consolidated Balance Sheet

ASSETS

	March 5, 2013		May 29, 2012
	(unaudited)
Current Assets
Cash and equivalents	$	3,010,528	$	45,962,546
Restricted cash	—		3,492,803
Trade and other accounts receivable	1,512,408		1,683,123
Inventories	6,530,707		5,589,553
Prepaid expenses, sundry deposits and property held for sale	1,229,616		708,440
Prepaid and deferred income taxes	1,110,911		2,300,995
Current assets of discontinued operations	—		190,120
Total current assets	13,394,170		59,927,580
Property and Equipment
Land and improvements	45,717,892		44,473,068
Buildings	73,895,399		72,218,910
Equipment and fixtures	81,025,791		77,935,903
Leasehold improvements and buildings on leased land	18,235,161		16,609,854
Capitalized leases	2,602,971		2,311,565
Construction in progress	106,660		1,414,514
	221,583,874		214,963,814
Less accumulated depreciation and amortization	118,629,223		112,825,024
Net property and equipment	102,954,651		102,138,790
Other Assets
Goodwill and other intangible assets	775,653		777,420
Investments in land	3,168,528		3,390,886
Property held for sale	5,799,899		8,093,084
Deferred income taxes	2,785,346		3,149,367
Other long term assets	2,780,974		2,491,654
Total other assets	15,310,400		17,902,411
Total assets	$	131,659,221	$	179,968,781

The accompanying notes are an integral part of the consolidated financial statements.

5

LIABILITIES AND SHAREHOLDERS’ EQUITY

	March 5, 2013			May 29, 2012
	(unaudited)
Current Liabilities
Long-term obligations due within one year
Long-term debt	$	5,128,985		$	6,592,637
Obligations under capitalized leases	222,212			162,683
Self insurance	566,075			972,915
Accounts payable	7,423,701			6,293,007
Accrued expenses	7,567,751			7,341,718
Income taxes	—			128,490
Current liabilities of discontinued operations	—			683,336
Total current liabilities	20,908,724			22,174,786
Long-Term Obligations
Long-term debt	10,337,703			14,445,869
Obligations under capitalized leases	2,120,845			1,526,244
Self insurance	1,333,005			1,268,667
Underfunded pension obligation	14,427,302			14,785,312
Deferred compensation and other	4,298,707			4,043,068
Total long-term obligations	32,517,562			36,069,160
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, 7,586,764 and 7,586,764 shares - stated value - $1.00	7,586,764			7,586,764
Additional contributed capital	69,260,255			65,909,780
	76,847,019			73,496,544
Accumulated other comprehensive loss	(8,140,599		)	(9,006,202		)
Retained earnings	49,467,102			95,289,648
	41,326,503			86,283,446
Less cost of treasury stock (2,524,309 and 2,648,158 shares)	39,940,587			38,055,155
Total shareholders’ equity	78,232,935			121,724,835
Total liabilities and shareholders’ equity	$	131,659,221		$	179,968,781

The accompanying notes are an integral part of the consolidated financial statements.

6

Frisch’s Restaurants, Inc. and Subsidiaries

Consolidated Statement of Shareholders’ Equity

40 weeks ended March 5, 2013 and March 6, 2012

(Unaudited)

	Common stock at $1 per share - Shares and amount		Additional contributed capital			Accumulated other comprehensive income (loss)			Retained earnings			Treasury shares			Total
Balance at May 31, 2011	$	7,586,764	$	65,535,634		$	(5,726,555	)	$	96,249,483		$	(38,117,434	)	$	125,527,892
Net earnings for 40 weeks	—		—			—			3,326,543			—			3,326,543
Other comprehensive income, net of tax	—		—			520,806			—			—			520,806
Stock options exercised	—		22,286			—			—			88,526			110,812
Excess tax benefit from stock options exercised	—		3,800			—			—			—			3,800
Issuance of restricted stock	—		(334,903		)	—			—			334,903			—
Stock based compensation cost	—		569,679			—			—			248,132			817,811
Treasury shares acquired	—		—			—			—			(640,140		)	(640,140		)
Other treasury shares re-issued	—		8,886			—			—			21,247			30,133
Employee stock purchase plan	—		7,978			—			—			—			7,978
Cash dividends - $0.47 per share	—		—			—			(2,317,988		)	—			(2,317,988		)
Balance at March 6, 2012	7,586,764		65,813,360			(5,205,749		)	97,258,038			(38,064,766		)	127,387,647
Net (loss) earnings for 12 weeks	—		—			—			(1,178,332		)	—			(1,178,332		)
Other comprehensive (loss) income, net of tax	—		—			(3,800,453		)	—			—			(3,800,453		)
Stock options exercised	—		8,319			—			—			11,985			20,304
Stock-based compensation cost	—		120,694			—			—			—			120,694
Treasury shares acquired	—		—			—			—			(2,374		)	(2,374		)
Employee stock purchase plan	—		(32,593		)	—			—			—			(32,593		)
Cash dividends - $0.16 per share	—		—			—			(790,058		)	—			(790,058		)
Balance at May 29, 2012	7,586,764		65,909,780			(9,006,202		)	95,289,648			(38,055,155		)	121,724,835
Net earnings for 40 weeks	—		—			—			4,548,521			—			4,548,521
Other comprehensive income, net of tax	—		—			865,603			—			—			865,603
Stock options exercised	—		2,859,881			—			—			4,607,582			7,467,463
Issuance of restricted stock	—		(257,550		)	—			—			257,550			—
Excess tax benefit from stock options exercised	—		364,165			—			—			—			364,165
Stock-based compensation cost	—		345,445			—			—			69,694			415,139
Treasury shares acquired	—		—			—			—			(6,826,858		)	(6,826,858		)
Other treasury shares re-issued	—		5,793			—			—			6,600			12,393
Employee stock purchase plan	—		32,741			—			—			—			32,741
Special cash dividend - $9.50 per share	—		—			—			(47,962,754		)	—			(47,962,754		)
Cash dividends - $0.48 per share	—		—			—			(2,408,313		)	—			(2,408,313		)
Balance at March 5, 2013	$	7,586,764	$	69,260,255		$	(8,140,599	)	$	49,467,102		$	(39,940,587	)	$	78,232,935

The accompanying notes are an integral part of the consolidated financial statements.

7

Frisch’s Restaurants, Inc. and Subsidiaries

Consolidated Statement of Cash Flows

40 weeks ended March 5, 2013 and March 6, 2012

(unaudited)

	40 weeks ended
	March 5, 2013			March 6, 2012
Cash flows provided by (used in) operating activities:
Net earnings	$	4,548,521		$	3,326,543
Less: loss from discontinued operations	(157,705		)	(907,527		)
Earnings from continuing operations	4,706,226			4,234,070
Adjustments to reconcile net earnings to net cash from operating activities:
Depreciation and amortization	7,935,612			7,848,728
Loss (Gain) on disposition of assets, including abandonment losses	54,819			(92,914		)
Impairment of long-lived assets	70,500			327,734
Stock-based compensation expense	415,139			817,811
Net periodic pension cost	2,497,510			1,757,865
Contributions to pension plans	(1,544,000		)	(1,250,000		)
	14,135,806			13,643,294
Changes in assets and liabilities:
Trade and other receivables	170,715			(101,732		)
Inventories	(941,154		)	(1,218,227		)
Prepaid expenses, sundry deposits and other	(521,176		)	142,500
Other assets	2,594			(58,536		)
Prepaid, accrued and deferred income taxes	1,343,864			922,926
Excess tax benefit from stock options exercised	(364,165		)	(3,800		)
Accounts payable	1,130,694			911,560
Accrued expenses	217,569			(229,982		)
Self insured obligations	(342,502		)	483,471
Deferred compensation and other liabilities	255,639			192,559
	952,078			1,040,739
Net cash provided by continuing operations	15,087,884			14,684,033
Net cash (used in) provided by discontinued operations	(650,921		)	6,347,256
Net cash provided by operating activities	14,436,963			21,031,289
Cash flows provided by (used in) investing activities:
Additions to property and equipment	(8,054,420		)	(8,714,231		)
Proceeds from disposition of property	2,481,720			1,592,413
Change in restricted cash	3,492,803			—
Change in other assets	(289,105		)	(107,997		)
Net cash used in continuing investing activities	(2,369,002		)	(7,229,815		)
Net cash used in discontinued investing activities	—			(2,625,888		)
Net cash used in investing activities	(2,369,002		)	(9,855,703		)
Cash flows provided by (used in) financing activities:
Proceeds from borrowings	—			2,000,000
Payment of long-term debt and capital lease obligations	(5,698,816		)	(7,616,284		)
Cash dividends paid	(2,408,313		)	(2,317,988		)
Special cash dividend paid	(47,962,754		)	—
Proceeds from stock options exercised	7,467,463			110,811
Excess tax benefit from stock options exercised	364,165			3,800
Treasury shares acquired	(6,826,858		)	(640,140		)
Treasury shares re-issued	12,393			30,133
Employee stock purchase plan	32,741			7,978
Net cash used in financing activities	(55,019,979		)	(8,421,690		)

The accompanying notes are an integral part of the consolidated financial statements.

8

Net (decrease) increase in cash and equivalents	(42,952,018		)	2,753,896
Cash and equivalents at beginning of year	45,962,546			2,315,948
Cash and equivalents at end of quarter	$	3,010,528		$	5,069,844
Supplemental disclosures:
Interest paid	$	841,275		$	1,254,475
Income taxes paid	948,306			576,095
Lease transactions capitalized (non-cash)	781,128			—

The accompanying notes are an integral part of the consolidated financial statements.

9

Frisch’s Restaurants, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

Third Quarter Fiscal 2013, Ended March 5, 2013

NOTE A - ACCOUNTING POLICIES AND BASIS OF PRESENTATION

Description of the Business

Frisch’s Restaurants, Inc. and Subsidiaries (Company) is a regional company that operates full service family-style restaurants under the name “Frisch’s Big Boy.”All 95 Frisch's Big Boy restaurants operated by the Company as of March 5, 2013 are located in various regions of Ohio, Kentucky and Indiana. The Company owns the trademark “Frisch’s” and has exclusive, irrevocable ownership of the rights to the “Big Boy” trademark, trade name and service marks in the states of Kentucky and Indiana, and in most of Ohio and Tennessee. All of the Frisch’s Big Boy restaurants also offer “drive-thru” service. The Company also licenses 25 Frisch's Big Boy restaurants to other operators, which are located in certain parts of Ohio, Kentucky and Indiana. In addition, the Company operates a commissary and food manufacturing plant near its headquarters in Cincinnati, Ohio that services all Frisch's Big Boy restaurants operated by the Company, and is available to supply restaurants licensed to others.

Interim Financial Statements and Principles of Consolidation

The accompanying interim Consolidated Financial Statements (unaudited) include the accounts of the Company, prepared in accordance with the rules and regulations of the Securities and Exchange Commission (SEC). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (US GAAP) have been condensed or omitted as permitted under such rules and regulations. However, management believes that the disclosures made are adequate to make the information not misleading when read in conjunction with the Consolidated Financial Statements and the notes thereto that were included in the Company's Annual Report on Form 10-K for the year ended May 29, 2012.

Significant inter-company accounts and transactions have been eliminated in consolidation. In the opinion of management, these interim Consolidated Financial Statements include all adjustments (all of which were normal and recurring) necessary for a fair presentation of the Company's: Consolidated Balance Sheet as of March 5, 2013; Consolidated Statement of Earnings for the 40 weeks ended March 5, 2013 and the 40 weeks ended March 6, 2012, the 12 weeks ended March 5, 2013 (Third Quarter Fiscal 2013) and the 12 weeks ended March 6, 2012 (Third Quarter Fiscal 2012); and Consolidated Statement of Cash Flows for the 40 weeks ended March 5, 2013 and the 40 weeks ended March 6, 2012.

Reclassifications

Certain amounts reported in prior years have been reclassified to conform to the current year presentation.

At the beginning of Fiscal Year 2012 (defined below), the Company operated a second business segment, which consisted of 35 Golden Corral restaurants (Golden Corral) that were licensed to the Company by Golden Corral Corporation (GCC). Six of the Golden Corrals were closed in August 2011 due to under performance. In May 2012, the remaining 29 Golden Corrals were sold to GCC. Results of Golden Corral for the 40 weeks ended March 6, 2012 and the 12 weeks ended March 6, 2012 (Third Quarter Fiscal 2012) are presented as discontinued operations (see NOTE B - DISCONTINUED OPERATIONS).

Fiscal Year

The Company’s fiscal year is the 52 week (364 days) or 53 week (371 days) period ending on the Tuesday nearest to the last day of May. The first quarter of each fiscal year contains 16 weeks. Each of the last three quarters normally contains 12 weeks. As it becomes necessary every fifth or sixth year, an additional week is added to the fiscal calendar, which results in a 53 week year that contains a 13 week fourth quarter. The current fiscal year will end on Tuesday, May 28, 2013 (Fiscal Year 2013), a period of 52 weeks. The year that ended May 29, 2012 (Fiscal Year 2012) was also a 52 week year.

Use of Estimates and Critical Accounting Policies

The preparation of financial statements in conformity with US GAAP requires management to use estimates and assumptions to measure certain items 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. Significant estimates and assumptions are used to measure self-insurance liabilities, deferred executive compensation obligations, net periodic pension cost and future pension obligations, income taxes, the carrying values of property held for sale and for long-lived assets including property and equipment, goodwill and other intangible assets. Management considers the following accounting policies to be critical accounting policiesbecause the application of estimates to these policies requires management’s most difficult, subjective or complex judgments:

10

Frisch’s Restaurants, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

Third Quarter Fiscal 2013, Ended March 5, 2013

NOTE A — ACCOUNTING POLICIES AND BASIS OF PRESENTATION (CONTINUED)

self-insurance liabilities, net periodic pension cost and future pension obligations, income taxes and the carrying values of long-lived assets.

Impairment of Long-Lived Assets

Non-cash pretax impairment charges totaling $70,000 were recorded during the 40 weeks ended March 5, 2013 (all in the First Quarter) to lower previous estimates of the fair values of two former Frisch's Big Boy restaurants. One of the two impaired restaurant properties ($47,000 of the $70,000 total impairment charge) was sold for its approximate fair value in October 2012 (in the Second Quarter).

The remaining portion of the charge for impairment of long-lived assets ($23,000) that was recorded in the First Quarter Fiscal 2013 was for the other former Frisch's Big Boy restaurant described above, which was based on a sales contract that was accepted in August 2012 that was subsequently withdrawn by the purchaser. It was recorded as an observable input (Level 2 under the fair value hierarchy), which is summarized below:

	Fair Value Measurements Using
	(in thousands)
40 weeks ended March 5, 2013	Level 1		Level 2		Level 3		Gains (Losses)
One former Frisch's Big Boy restaurant	$	—	$	259	$	—	$	(23	)

Impairment losses from continuing operations totaling $328,000 were recorded during the 40 weeks ended March 6, 2012 and the 12 weeks ended March 6, 2012 (Fiscal Year 2012) (also see NOTE B - DISCONTINUED OPERATIONS). The $328,000 was the aggregate impairment charge of two former Frisch's Big Boy restaurants, both of which continue to be held for sale as of March 5, 2013.

Property Held for Sale

Surplus property that is no longer needed by the Company and for which the Company is committed to a plan to sell the property is classified as “Property held for sale” in the Consolidated Balance Sheet. As of March 5, 2013, “Property held for sale” consisted of two former Frisch's Big Boy restaurants ($541,000), three former Golden Corral restaurants ($3,055,000) and eight other surplus pieces of land ($2,204,000). All of the surplus property is stated at the lower of its cost or fair value, less cost to sell. The stated value of any property for which a viable sales contract is pending at the balance sheet date - zero at March 5, 2013 - is reclassified to current assets.

Goodwill and Other Intangible Assets

An analysis of Goodwill and Other Intangible Assets follows:

	March 5, 2013		May 29, 2012
	(in thousands)
Goodwill	$	741	$	741
Other intangible assets not subject to amortization	22		22
Other intangible assets subject to amortization - net	13		14
Total goodwill and other intangible assets	$	776	$	777

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 as incurred to “Other operating costs” in theConsolidated Statement of Earnings. New store opening costs for the 40 week periods ended March 5, 2013 and March 6, 2012 were $461,000 and $398,000 respectively. New store opening costs for the 12 week periods ended March 5, 2013 (Third Quarter Fiscal 2013) and March 6, 2012 (Third Quarter Fiscal 2012) were $184,000 and zero respectively.

11

Frisch’s Restaurants, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

Third Quarter Fiscal 2013, Ended March 5, 2013

NOTE A — ACCOUNTING POLICIES AND BASIS OF PRESENTATION (CONTINUED)

Benefit Plans

The executive officers of the Company and certain other “highly compensated employees” (HCE’s) are disqualified from participation in the Company's Employee 401(k) Savings Plan (the Salaried Savings Plan (defined contribution plan)). A non-qualified savings plan - Frisch’s Executive Savings Plan (FESP) - provides a means by which the HCE’s may continue to defer a portion of their compensation. FESP allows deferrals of up to 25 percent of a participant’s compensation into a choice of mutual funds or common stock of the Company.

Although the Company owns the mutual funds of the FESP until the retirement of the participants, the funds are invested at the direction of the participants. FESP assets are the principal component of “Other long-term assets” in the Consolidated Balance Sheet. The common stock is a “phantom investment” that may be paid in actual shares or in cash upon retirement of the participant. The FESP liability to the participants is included in “Deferred compensation and other” long term obligations in the Consolidated Balance Sheet.

The mutual funds and the corresponding liability to FESP participants were increased $289,000 (due to market gains) during the 40 week period ended March 5, 2013, and were decreased $54,000 (due to market losses) during the 40 week period ended March 6, 2012. The mutual funds and the corresponding liability to participants were increased $131,000 (due to market gains) during the 12 weeks ended March 5, 2013 (Third Quarter Fiscal 2013) and were increased $231,000 (due to market gains) during the 12 weeks ended March 6, 2012 (Third Quarter Fiscal 2012). All of these changes were effected through offsetting investment income or loss and charges (market gains) or credits (market losses) to deferred compensation expense, which is included within administrative and advertising expense in the Consolidated Statement of Earnings.

Self-Insurance

The Company self-insures its Ohio workers’ compensation claims up to $300,000 per claim. Initial self-insurance liabilities are accrued based on prior claims history, including an amount developed for incurred but unreported claims. Management performs a comprehensive review each fiscal quarter and adjusts the self-insurance liabilities as deemed appropriate based on claims experience, which continues to benefit from active claims management and post accident drug testing. Below is a summary of decreases (increases) to the self-insurance liabilities that were credited to or (charged against) earnings:

40 weeks ended					12 weeks ended
March 5, 2013		March 6, 2012			March 5, 2013		March 6, 2012
		(in thousands)
$	200	$	(224	)	$	69	$	(191	)

Income Taxes

The effective tax rate was 31.2 percent for the 40 weeks ended March 5, 2013 and 26.2 percent for the 12 weeks ended March 5, 2013 (Third Quarter Fiscal 2013). The rate was approximately 20 percent for the 40 weeks ended March 6, 2012 and 15 percent for the 12 weeks ended March 6, 2012 (Third Quarter Fiscal 2012). This year's higher rates are primarily due to changes in tax credits. In addition, a valuation allowance (VA) was placed on certain state deferred taxes amounting to $81,000 in the Second Quarter Fiscal 2013. Excluding the VA, the estimated annual effective tax rate was lowered from 32 percent to 30 percent for the 40 weeks ended March 5, 2013, which had the effect of lowering the effective tax rate to 26.2 percent for the 12 weeks ended March 5, 2013 (Third Quarter Fiscal 2013).

Management periodically assesses the realization of net deferred tax assets based on historical, current and future (expected) operating results. A VA is recorded if management believes the Company's net deferred tax assets will not be realized. In addition, management monitors the realization of the VA and may consider its release in the future based on any positive evidence that may become available.

The Internal Revenue Service is currently examining the Company's tax return for Fiscal Year 2011, which was filed in February 2012.

12

Frisch’s Restaurants, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

Third Quarter Fiscal 2013, Ended March 5, 2013

NOTE A — ACCOUNTING POLICIES AND BASIS OF PRESENTATION (CONTINUED)

New Accounting Pronouncements

In June 2011, the Financial Accounting Standards Board issued Accounting Standards Update (ASU) 2011-05, “Presentation of Comprehensive Income.” ASU 2011-05 was issued to amend Accounting Standards Codification Topic 220, “Comprehensive Income.” Under ASU 2011-05, an entity has the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In both choices, the presentation must show each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income. ASU 2011-05 eliminated the option to present the components of other comprehensive income as part of the statement of changes in shareholders’ equity, which had been the Company’s historical presentation. The amendment did not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income.

ASU 2011-12, “Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05” was issued in December 2011 to defer the effective date of the guidance in ASU 2011-05 relating to the presentation of reclassification adjustments. All other requirements of ASU 2011-05 were not affected by the issuance of ASU 2011-12, including the requirement to report income either in a single continuous financial statement or in two separate but consecutive financial statements, which is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. The Company adopted the provisions of ASU 2011-05 on May 30, 2012 (the first day of the fiscal year that will end May 28, 2013). See the Consolidated Statement of Comprehensive Income that immediately follows the Consolidated Statement of Earnings in the Consolidated Financial Statements.

ASU 2013-02, "Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income" was issued in February 2013 to amend Accounting Standards Codification Topic 220, "Comprehensive Income". The amendments do not change the current requirements for reporting net income or other comprehensive income in financial statements. The amendments require information to be provided about the amounts reclassified out of other comprehensive income by component. Entities are also required to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income but only if the amount reclassified is required under US GAAP to be reclassified to net income in its entirety in the same reporting period. For other amounts that are not required under US GAAP to be reclassified in their entirety to net income, an entity is required to cross reference to other disclosures required under US GAAP that provide additional details about those amounts.

ASU 2013-02 is effective prospectively for fiscal years, and interim periods within those years, beginning after December 15, 2012. Management will adopt the provisions of ASU 2013-02 on May 29, 2013 (the first day of the fiscal year that will end June 3, 2014) and will begin reporting the information required by the new pronouncement for the interim period that will end on September 17, 2013.

Management reviewed all other significant newly issued accounting pronouncements and concluded that they are either not applicable to the Company’s business or that no material effect is expected on the financial statements as a result of future adoption.

NOTE B - DISCONTINUED OPERATIONS

On May 16, 2012, the Company closed on the sale of its Golden Corral restaurant operations to Golden Corral Corporation, from which the Company had previously been granted licenses to operate the 29 restaurants that comprised the assets that were sold in the transaction. A pretax loss on the sale of $5,590,000 was recorded in Fiscal Year 2012.

The Company had previously closed six under performing Golden Corral restaurants in August 2011. As a result, a non-cash pretax asset impairment charge (with related closing costs) of $4,094,000 was recorded during the 40 weeks ended March 6, 2012, $4,000,000 of which was recorded in the First Quarter Fiscal 2012 to lower the carrying values of the six restaurant properties (all owned in fee simple title) to their estimated fair values, which in the aggregate amounted to approximately $6,909,000. The total impairment charge included $69,000 for impaired intangible assets and $180,000 for certain other costs.

During the 12 weeks ended March 6, 2012 (Third Quarter Fiscal 2012), one of the former Golden Corral restaurants was sold for its approximate fair value in December 2011 and an additional impairment charge of $94,000 was recorded to further lower the fair value of one of the five remaining former Golden Corral restaurants, based on a sales contract that was accepted for less than its original estimated fair value.

13

Frisch’s Restaurants, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

Third Quarter Fiscal 2013, Ended March 5, 2013

NOTE B - DISCONTINUED OPERATIONS (CONTINUED)

The impairments of long lived assets for the five remaining Golden Corral properties as of March 6, 2012 are summarized in the table below, with four of the properties recorded as significant unobservable inputs (level 3 under the fair value hierarchy) and the fifth one (based on the accepted sales contract described above) recorded as an observable input (level 2 under the fair value hierarchy):

	Fair Value Measurements Using
	(in thousands)
40 weeks ended March 6, 2012	Level 1		Level 2		Level 3		Gains (Losses)
Five former Golden Corral restaurants	$	—	$	1,081	$	4,559	$	(3,315	)

Additional non-cash pretax impairment charges of $294,000 were subsequently recorded during the Fourth Quarter Fiscal 2012 to reflect revised opinions of value from real estate brokers.

Results of Golden Corral for the 40 and 12 weeks ended March 6, 2012 are presented as discontinued operations in the Consolidated Financial Statements. Income tax expense presented in discontinued operations in the 40 weeks ended the March 5, 2013 represents adjustments to tax related balance sheet accounts recorded in the First Quarter Fiscal 2013.

	40 weeks ended						12 weeks ended
	March 5, 2013			March 6, 2012			March 5, 2013		March 6, 2012
	(in thousands)
Sales	$	—		$	73,293		$	—	$	22,122
Food and paper	—			28,098			—		8,485
Payroll and related	—			21,170			—		6,247
Other operating costs	—			19,058			—		5,334
	—			68,326			—		20,066
Gross profit	—			4,967			—		2,056
Administrative and advertising	—			2,393			—		808
Loss on sale of assets	—			13			—		13
Impairment of long-lived assets	—			4,094			—		94
(Loss) earnings from discontinued operations before income taxes	—			(1,533		)	—		1,141
Income tax expense (benefit)	158			(625		)	—		44
(Loss) earnings from discontinued operations, net of tax	$	(158	)	$	(908	)	$	—	$	1,097

14

Frisch’s Restaurants, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

Third Quarter Fiscal 2013, Ended March 5, 2013

NOTE B - DISCONTINUED OPERATIONS (CONTINUED)

Assets and liabilities related to discontinued operations consisted of:

	March 5, 2013		May 29, 2012
	(in thousands)
Assets
Cash and equivalents	$	—	$	—
Trade and other receivables	—		190
Inventories	—		—
Prepaid expenses and sundry deposits	—		—
Prepaid and deferred income taxes	—		—
Total current assets	—		190
Net property and equipment	—		—
Other intangible assets	—		—
Assets of discontinued operations	$	—	$	190
Liabilities
Accounts payable	$	—	$	47
Accrued expenses	—		636
Total current liabilities	—		683
Deferred other	—		—
Deferred income taxes	—		—
Liabilities of discontinued operations	$	—	$	683

In addition, three of the six Golden Corral restaurants that closed in August 2011 had yet to be sold as of March 5, 2013. The aggregate fair value of the three restaurants ($3,055,000) is carried in the Consolidated Balance Sheet as "Property held for sale" as of March 5, 2013 (four restaurants - $4,136,000 at May 29, 2012). (See "Property Held for Sale" in NOTE A - ACCOUNTING POLICIES AND BASIS OF PRESENTATION.)

NOTE C — LONG-TERM DEBT

	March 5, 2013				May 29, 2012
	Payable within one year		Payable after one  year		Payable within one year		Payable after one  year
	(in thousands)
Construction Loan —
Construction Phase	$	—	$	—	$	—	$	—
Term Loans	4,287		9,689		5,423		13,241
Revolving Loan	—		—		—		—
Stock Repurchase Loan	136		649		132		762
2009 Term Loan	706		—		1,038		443
	$	5,129	$	10,338	$	6,593	$	14,446

15

Frisch’s Restaurants, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

Third Quarter Fiscal 2013, Ended March 5, 2013

NOTE C — LONG-TERM DEBT (CONTINUED)

The portion payable after one year matures as follows:

	March 5, 2013		May 29, 2012
	(in thousands)
Annual period ending in 2014	$	—	$	4,846
2015	3,843		3,652
2016	2,948		2,721
2017	1,701		1,654
2018	1,335		1,235
2019	511		338
Subsequent to 2019	—		—
	$	10,338	$	14,446

The Company has four unsecured loans in place, all with the same lending institution. The Second Amended and Restated Loan Agreement (2012 Loan Agreement), under which the Company may not assume or permit to exist any other indebtedness, governs the four loans. The 2012 Loan Agreement (effective April 10, 2012) amended and restated the prior loan agreement (2010 Loan Agreement). The 2012 Loan Agreement renewed credit facilities for the Construction Loan and the Revolving Loan, permitting additional borrowing through October 15, 2013. The 2012 Loan Agreement did not renew borrowing capacity under the Stock Repurchase Loan, but it continues to govern the prior amount borrowed to finance stock that was repurchased, as well as a separate 2009 Term Loan. Management expects to encounter no difficulties in extending the 2012 Loan Agreement before its scheduled expiration in October 2013.

Construction Loan

The Construction Loan is an unsecured draw credit line intended to finance construction and opening and/or the refurbishing of restaurant operations. The 2012 Loan Agreement made $15,000,000 available to be borrowed for its intended purpose when it went into effect in April 2012. No funds have been borrowed since the 2012 Loan Agreement went into effect.

As of March 5, 2013, the aggregate outstanding balance under the Construction Loan was $13,976,000, which consisted entirely of Term Loans; no balance was in the Construction Phase awaiting conversion. All of the outstanding Term Loans are subject to fixed interest rates, the weighted average of which is 4.78 percent, all of which are being repaid in 84 equal monthly installments of principal and interest aggregating $423,000, expiring in various periods ranging from January 2013 through February 2019.

Any outstanding amount in the Construction Phase that has not been converted into a Term Loan shall mature and be payable in full on October 15, 2013, unless the 2012 Loan Agreement is renewed sooner.

Revolving Loan

The Revolving Loan provides an unsecured credit line that allows for borrowing of up to $5,000,000 to fund temporary working capital needs. Amounts repaid may be re-borrowed so long as the amount outstanding does not exceed $5,000,000 at any time. The Revolving Loan, none of which was outstanding as of March 5, 2013, will mature and be payable in full on October 15, 2013, unless the 2012 Loan Agreement is renewed sooner. It is subject to a 30 consecutive day out-of-debt period each fiscal year.

Stock Repurchase Loan

The unsecured Stock Repurchase Loan originated in July 2011 when $1,000,000 that had been borrowed earlier (to finance repurchases of the Company's stock) was converted to a Term Loan. The Stock Repurchase Loan, the outstanding balance of which was $785,000 as of March 5, 2013, requires 84 equal installments of $13,000 including principal and interest at a fixed 3.56 percent interest rate, which matures in July 2018.

2009 Term Loan

The unsecured 2009 Term Loan originated in September 2009 when $4,000,000 was borrowed to fund the acquisition of five Frisch's Big Boy restaurants from the landlord of the facilities. The 2009 Term Loan, the outstanding balance of which was $706,000

16

Frisch’s Restaurants, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

Third Quarter Fiscal 2013, Ended March 5, 2013

NOTE C — LONG-TERM DEBT (CONTINUED)

as of March 5, 2013, requires 48 monthly installments of $89,000 including principal and interest at a fixed 3.47% percent interest rate. The final payment of the loan is due October 21, 2013.

Loan Covenants

The 2012 Loan Agreement contains covenants relating to cash flows, debt levels, lease expense, asset dispositions, investments and restrictions on pledging certain restaurant operating assets. The Company was in compliance with all loan covenants as of March 5, 2013. Compensating balances are not required under the terms of the 2012 Loan Agreement.

Fair Values

The fair values of the fixed rate Term Loans within the Construction Loan as shown in the following table are based on fixed rates that would have been available at March 5, 2013 if the loans could have been refinanced with terms similar to the remaining terms under the present Term Loans. The carrying value of substantially all other long-term debt approximates its fair value.

	Carrying Value		Fair Value
	(in thousands)
Term Loans under the Construction Loan	$	13,976	$	14,533

NOTE D - ACCRUED EXPENSES

Accrued expenses in the Consolidated Balance Sheet consisted of the following:

	March 5, 2013		May 29, 2012
	(in thousands)
Salaries, wages and related expenses	$	5,582	$	4,976
Accrued property taxes	1,499		1,787
Other accrued expenses	487		579
Total accrued expenses	$	7,568	$	7,342

NOTE E — SHAREHOLDERS' EQUITY/ CAPITAL STOCK

The Company has three equity compensation plans adopted respectively in 1993, 2003 and 2012.

2003 and 2012 Stock Option and Incentive Plans

Shareholders approved the 2012 Stock Option and Incentive Plan (2012 Plan) in October 2012. The 2012 Plan made material, substantive changes to the 2003 Stock Option and Incentive Plan (as amended) (collectively the 2003 Plan), as reflected in the 2012 Plan.

Under the 2003 Plan, up to 800,000 shares were originally authorized for awards. Shareholder approval of the 2012 Plan canceled 483,410 shares that remained available to be awarded under the 2003 Plan. The authorization under the 2012 Plan has been set at 500,000 shares that may be awarded (subject, however, to proportionate and equitable adjustments determined by the Compensation Committee of the Board of Directors (the Committee) as deemed necessary following the event of any equity restructuring that may occur). The 2003 Plan limited the amount that can be awarded to an individual during a fiscal year to 80,000 shares. The 2012 Plan reduced the annual limit to 50,000 shares, but retained the maximum annual dollar limit of $1,000,000 for awards denominated in dollars, granted to any one individual during any fiscal year if the awards are intended to qualify as performance based compensation. No awards were permitted to be granted under the 2003 Plan after the tenth anniversary of its approval (October 6, 2013). The 2012 Plan will remain in effect until all shares subject to the Plan have been awarded or issued according to the Plan's provisions, unless terminated earlier by the Board of Directors.

17

Frisch’s Restaurants, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

Third Quarter Fiscal 2013, Ended March 5, 2013

NOTE E — SHAREHOLDERS' EQUITY/CAPITAL STOCK (CONTINUED)

All other provisions of the 2012 Plan mirror those of the 2003 Plan, including continuance to provide for several forms of awards including stock options, stock appreciation rights, stock awards including restricted and unrestricted awards of stock, and performance awards. Employees of the Company and non-employee members of the Board of Directors are eligible to be selected to participate in the 2012 Plan. Participation is based on selection by the Committee.

Options to purchase shares of the Company’s common stock (stock options) permit the holder to purchase a fixed number of shares at a fixed price. When options are granted, the Committee determines the number of shares subject to the option, the term of the option, which may not exceed 10 years, the time or times when the option will become exercisable and the price per share that a participant must pay to exercise the option. No option will be granted with an exercise price that is less than 100 percent of fair market value on the date of the grant. The option price and obligatory withholding taxes may be paid pursuant to a “cashless” exercise/sale procedure involving the simultaneous sale by a broker of shares covered by the option.

Stock appreciation rights (SAR’s) are rights to receive payment, in cash, shares of common stock or a combination of the two, equal to the excess of (1) the fair market value of a share of common stock on the date of exercise over (2) the price per share of common stock established in connection with the grant of the SAR (the reference price). The reference price must be at least 100 percent of the common stock’s fair market value on the date the SAR is granted. SAR’s may be granted by the Committee in its discretion to any participant, and may have terms no longer than 10 years.

Stock awards are grants of shares of common stock that may be restricted (subject to a holding period or other conditions) or unrestricted. The Committee determines the amounts, vesting, if any, terms and conditions of the awards, including the price to be paid, if any, for restricted awards and any contingencies related to the attainment of specified performance goals or continued employment or service.

The Committee may also grant performance awards to participants. Performance awards are the right to receive cash, common stock or both, at the end of a specified performance period, subject to satisfaction of the performance criteria and any vesting conditions established for the award.

Restricted Stock Awards under the 2012 Plan

On October 3, 2012, each non-employee member of the Board of Directors was granted a restricted stock award under the 2012 Plan equivalent to $40,000 in shares of the Company's common stock. The aggregate award amounted to 14,245 shares granted, which resulted in 2,035 shares being issued to each non-employee director, based on the October 3, 2012 market value of the Company's stock. Pursuant to the terms of his employment contract, on October 3, 2012, the CEO was granted a restricted stock award in the same amount (2,035 shares) and subject to the same conditions as the restricted stock granted to non-employee directors on that same day.

These restricted stock awards were re-issued from the Company’s treasury and vest in full on the first anniversary of the grant date. Full voting and dividend rights are provided prior to vesting. Vested shares must be held until board service ends, except that enough shares may be sold to satisfy tax obligations attributable to the grant.

No other awards — stock options, stock appreciation rights, stock awards including unrestricted awards of stock, or performance awards — have been granted under the 2012 Plan.

Unrestricted Stock Awards under the 2003 Plan

On June 13, 2012, the Committee granted unrestricted stock awards to the executive officers (excluding the CEO) and other key employees. Pursuant to the awards, 4,850 shares of the Company's common stock were re-issued from the Company's treasury. The total value of the awards amounted to $127,000, for which the Company recorded a pretax charge against administrative and advertising expense in the Consolidated Statement of Earnings during the 40 week period ended March 5, 2013 (during the First Quarter Fiscal 2013). In connection with the awards, 1,349 shares were immediately surrendered to the Company's treasury to cover the withholding tax obligation on the compensation.

On June 15, 2011, the Committee granted an unrestricted stock award to the CEO. Pursuant to the award, 17,364 shares of the Company’s common stock were re-issued to the CEO from the Company’s treasury. The total value of the award amounted to $371,000, for which the Company recorded a pretax charge against administrative and advertising expense in the Consolidated Statement of Earnings during the 40 week period ended March 6, 2012 (during the First Quarter Fiscal 2012). In connection with the award, the CEO immediately surrendered 7,998 shares to the Company’s treasury to cover the withholding tax obligation on the compensation. Also on June 15, 2011, an option to purchase 40,000 shares of the Company’s common stock that belonged to the CEO was terminated. The option was originally granted to the CEO on July 11, 2001 at a strike price of $13.70 per share.

18

Frisch’s Restaurants, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

Third Quarter Fiscal 2013, Ended March 5, 2013

NOTE E — SHAREHOLDERS' EQUITY/CAPITAL STOCK (CONTINUED)

Restricted Stock Awards under the 2003 Plan

Each non-employee member of the Board of Directors was granted a restricted stock award on October 5, 2011 equivalent to $40,000 in shares of the Company’s common stock. The aggregate award amounted to 14,560 shares granted, which resulted in 2,080 shares being issued to each non-employee director, based upon the October 5, 2011 market value of the Company’s common stock. Pursuant to the terms of his employment contract, the CEO was granted a restricted stock award on October 5, 2011 in the same amount (2,080 shares) and subject to the same conditions as the restricted stock granted to non-employee directors on that day. In connection with these awards, certain members of the Board of Directors surrendered a total of 1,456 shares to the Company's treasury on the October 5, 2012 vesting date to satisfy their tax obligations.

On June 15, 2011, the Committee granted restricted stock awards to the executive officers (excluding the CEO) and other key employees. Pursuant to the awards, 7,141 shares were re-issued from the Company's treasury. The aggregate award amounted to $150,000, based on the June 15, 2011 market value of the Company's stock. In connection with these awards, a total of 1,342 shares were surrendered to the Company's treasury on the June 15, 2012 vesting date to cover withholding tax obligations.

All restricted stock awards under the 2003 Plan were re-issued from the Company’s treasury and vested in full on the first anniversary of the grant date. Full voting and dividend rights were provided prior to vesting. Vested shares must be held until board service or employment ends, except that enough shares may be sold to satisfy tax obligations attributable to the grant.

Performance Awards under the 2003 Plan

Under the CEO's three year employment agreement that was effective May 30, 2012 (the first day of Fiscal Year 2013), the Committee will consider the CEO for the grant of a Performance Award as permitted by the 2003 Plan. The Committee granted a Performance Award to the CEO on May 30, 2012, which is intended to govern the CEO's incentive compensation for Fiscal Year 2013, if any, based on the achievement of certain goals.

Stock Option Awards under the 2003 Plan

As of March 5, 2013, options to purchase 333,250 shares had been cumulatively granted under the Plan. No stock options were awarded during the 40 week period ended March 5, 2013. There were 68,169 options outstanding as of March 5, 2013.

Final Reconciliation of Shares Awarded under the 2003 Plan

	No. of shares
Original authorization	800,000
Stock options cumulatively granted	(333,250	)
Options cumulatively forfeited	74,253
	541,003
Unrestricted stock awarded	(22,214	)
Restricted stock cumulatively awarded	(35,817	)
Restricted stock cumulatively forfeited	438
Authorization canceled	483,410

1993 Stock Option Plan

Approved by the shareholders in October 1993, the 1993 Stock Option Plan (1993 Plan) authorized the grant of stock options for up to 562,432 shares (as adjusted for subsequent changes in capitalization from the original authorization of 500,000 shares) of the common stock of the Company for a 10 year period beginning in May 1994.

Options to purchase 556,228 shares were cumulatively granted under the 1993 Plan before granting authority expired on October 4, 2008. As of March 5, 2013, 7,834 shares granted remained outstanding. All outstanding options under the 1993 Plan were granted at fair market value and expire 10 years from the date of grant. Final expirations will occur in June 2014.

19

Frisch’s Restaurants, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

Third Quarter Fiscal 2013, Ended March 5, 2013

NOTE E — SHAREHOLDERS' EQUITY/CAPITAL STOCK (CONTINUED)

Outstanding and Exercisable Options

The changes in outstanding and exercisable options under both the 1993 Plan and the 2003 Plan are shown below as of March 5, 2013:

	No. of shares		Weighted avg. price per share		Weighted avg. Remaining Contractual Term		Aggregate Intrinsic Value (in thousands)
Outstanding at beginning of year	399,586		$	23.96
Granted	—		$	—
Exercised	(320,417	)	$	23.31
Forfeited or expired	(3,166	)	$	22.94
Outstanding at end of quarter	76,003		$	18.25	4.41	years	$	211
Exercisable at end of quarter	67,834		$	19.11	4.07	years	$	143

The intrinsic value of stock options exercised during the 40 weeks ended March 5, 2013 and March 6, 2012 was $2,779,000 and $18,000, respectively. Options exercised during the 40 weeks ended March 5, 2013 included 136,000 by the CEO, the intrinsic value of which amounted to $1,278,000. Excess tax benefits of $364,000 were recorded in additional paid in capital from the exercise of stock options during the 40 weeks ended March 5, 2013. All shares exercised during the 40 weeks ended March 5, 2013 were re-issued from the Company's treasury.

Stock options outstanding and exercisable as of March 5, 2013 for the 1993 Plan and the 2003 Plan are shown below:

Range of Exercise Prices per Share	No. of shares	Weighted average price per share		Weighted average remaining life in years
Outstanding:
$10.05 to $15.90	27,669	$	13.19	4.45
$15.91 to $24.20	41,500	$	19.66	4.91
$24.21 to $30.13	6,834	$	30.13	1.25
$10.05 to $30.13	76,003	$	18.25	4.41
Exercisable:
$10.05 to $15.90	19,500	$	14.08	3.28
$15.91 to $24.20	41,500	$	19.66	4.91
$24.21 to $30.13	6,834	$	30.13	1.25
$10.05 to $30.13	67,834	$	19.11	4.07

As a result of a change in the capitalization of the Company resulting from a special $9.50 per share dividend (see Dividends described elsewhere in NOTE E — SHAREHOLDERS' EQUITY/ CAPITAL STOCK), the Compensation Committee of the Board of Directors took action on August 22, 2012 to adjust downward the strike prices for outstanding options granted under the 2003 Plan (as provided for in the 2003 Plan) by $9.50 for each option, effective September 17, 2012. Outstanding options granted under the 1993 Plan were not affected by this action, as the 1993 Plan does not require or provide for such an action. No additional compensation cost was required to be recognized as a result of the modification.

Restricted Stock Awards

The changes in restricted stock awards are shown below as of March 5, 2013:

20

Frisch’s Restaurants, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

Third Quarter Fiscal 2013, Ended March 5, 2013

NOTE E — SHAREHOLDERS' EQUITY/CAPITAL STOCK (CONTINUED)

	No. of shares		Weighted average price per share
Non-vested at beginning of year	22,277		$	19.69
Awarded	16,280		$	19.65
Vested	(22,277	)	$	19.69
Forfeited	—		$	—
Non-vested at end of quarter	16,280		$	19.65

Employee Stock Purchase Plan

Shareholders approved the Employee Stock Option Plan (elsewhere referred to as Employee Stock Purchase Plan) in October 1998. The Plan provides employees who have completed 90 days of continuous service with 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 measured at 85 percent of the fair market value of shares at the beginning of the offering period or at the end of the offering period, whichever is lower. The Plan authorizes a maximum of 1,000,000 shares that may be purchased on the open market or from the Company’s treasury. As of October 31, 2012 (latest available data), 190,589 shares had been cumulatively purchased through the Plan. Shares purchased through the Plan are held by the Plan’s custodian until withdrawn or distributed. As of October 31, 2012, the custodian held 50,443 shares on behalf of employees.

Frisch’s Executive Savings Plan

Common shares totaling 58,492 (as adjusted for subsequent changes in capitalization from the original authorization of 50,000 shares) were reserved for issuance under the non-qualified Frisch’s Executive Savings Plan (FESP) (see Benefit Plans in NOTE A - ACCOUNTING POLICIES AND BASIS OF PRESENTATION) when it was established in 1993. As of March 5, 2013, 38,553 shares remained in the FESP reserve, including 20,582 shares allocated but not issued to participants.

Other Outstanding Options, Warrants or Rights

There are no other outstanding options, warrants or rights.

Treasury Stock

On July 25, 2012, the Board of Directors authorized the Company to purchase over a three year period, on the open market and in privately negotiated transactions, up to 450,000 shares of its common stock representing approximately 9 percent of the Company's total outstanding shares. During the 40 week period ended March 5, 2013 (all in the First Quarter Fiscal 2013), the Company acquired 212,929 shares under the program at a cost of $6,708,000, which includes 32,000 shares that were beneficially owned by the Chief Executive Officer and 180,929 shares re-acquired in connection with the exercise of "cashless" stock options that normally settle through a broker on the open market.

Separate from the repurchase program, the Company’s treasury acquired 5,227 (zero in the 12 weeks ended March 5, 2013 ) shares of its common stock during the 40 week period ended March 5, 2013 at a cost of $119,000 (zero in the 12 weeks ended March 5, 2013) to cover the withholding tax obligations in connection with restricted and unrestricted stock awards.

Dividends

Regular quarterly cash dividends paid to shareholders during the 40 week period ended March 5, 2013 amounted to $2,408,000 or $0.48 per share. In addition, a $0.16 per share dividend was declared on March 13, 2013. Its payment of approximately $810,000 on April 10, 2013 (not included in accounts payable at March 5, 2013) was the 209th consecutive quarterly cash dividend (a period of 52 years) paid by the Company.

On July 25, 2012, the Board of Directors declared a special one-time cash dividend of $9.50 per share. The total for the special dividend that was paid on September 14, 2012 amounted to $47,963,000, which was based on 5,048,711 shares outstanding on August 31, 2012.

21

Frisch’s Restaurants, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

Third Quarter Fiscal 2013, Ended March 5, 2013

NOTE E — SHAREHOLDERS' EQUITY/CAPITAL STOCK (CONTINUED)

Earnings Per Share

Basic earnings per share (EPS) calculations are based on the weighted average number of outstanding common shares during the period presented. Diluted EPS includes the effect of common stock equivalents, which assumes the exercise and conversion of dilutive stock options.

	Used to Calculate Basic EPS	Stock equivalents	Used to Calculate Diluted EPS
	Weighted average shares outstanding		Weighted average shares outstanding
40 weeks ended
March 5, 2013	5,021,517	17,832	5,039,349
March 6, 2012	4,932,817	8,683	4,941,500
12 weeks ended
March 5, 2013	5,062,455	10,092	5,072,547
March 6, 2012	4,936,699	11,476	4,948,175

Excluded from the calculations above (because the effect was anti-dilutive), were stock options to purchase 8,000 shares during the 40 week period ended March 5, 2013 and 246,000 during the 40 week period ended March 6, 2012. Stock options to purchase 36,000 shares during the 12 week period ended March 5, 2013 and 246,000 the 12 weeks ended March 6, 2012 were also excluded from the calculations above because the effect was anti-dilutive.

Share-Based Payment (Compensation Cost)

The fair value of restricted stock issued and stock options granted is recognized as compensation cost on a straight-line basis over the vesting periods of the awards. The fair value of unrestricted stock is recognized entirely during the period granted. Compensation costs arising from all share-based payments are charged to administrative and advertising expense in the Consolidated Statement of Earnings.

	40 weeks ended						12 weeks ended
	March 5, 2013			March 6, 2012			March 5, 2013			March 6, 2012
Stock options granted	$	42		$	120		$	14		$	30
Restricted stock issued	246			327			74			103
Unrestricted stock issued	127			371			—			—
Share-based compensation cost, pretax	415			818			88			133
Tax benefit	(141		)	(278		)	(30		)	(45		)
Share-based compensation cost, net of tax	$	274		$	540		$	58		$	88
Effect on basic earnings per share	$	0.05		$	0.11		$	0.01		$	0.02
Effect on diluted earnings per share	$	0.05		$	0.11		$	0.01		$	0.02

As of March 5, 2013, there was $13,000 of total unrecognized pretax compensation cost related to non-vested stock options, which is expected to be recognized over a weighted average period of 0.25 years. Unrecognized pretax compensation cost related to restricted stock awards amounted to $198,000 as of March 5, 2013, which is expected to be recognized over a weighted average period of 0.62 years.

Compensation cost is also recognized in connection with the Company’s Employee Stock Purchase Plan (described elsewhere in NOTE E — SHAREHOLDERS' EQUITY/ CAPITAL STOCK). Compensation costs related to the Employee Stock Purchase Plan are determined at the end of each semi-annual offering period – October 31 and April 30, which amounted to $122,000 and $24,000 respectively, during the 40 week periods ended March 5, 2013 and March 6, 2012.

22

Frisch’s Restaurants, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

Third Quarter Fiscal 2013, Ended March 5, 2013

NOTE F — PENSION PLANS

The Company has historically sponsored two qualified defined benefit pension plans (DB Plans) plus an unfunded non-qualified Supplemental Executive Retirement Plan (SERP) for “highly compensated employees” (HCE’s). A merger of the DB Plans was completed on May 29, 2012. Net periodic pension cost for the retirement plans is shown in the table that follows:

	40 weeks ended						12 weeks ended
Net periodic pension cost components	March 5, 2013			March 6, 2012			March 5, 2013			March 6, 2012
	(in thousands)
Service cost	$	1,387		$	1,478		$	416		$	444
Interest cost	1,334			1,441			400			432
Expected return on plan assets	(1,535		)	(1,589		)	(460		)	(477		)
Amortization of prior service (credit) cost	(6		)	1			(2		)	—
Recognized net actuarial loss	1,317			673			395			202
Settlement loss	—			115			—			35
Net periodic pension cost (a)	$	2,497		$	2,119		$	749		$	636
(a) Amount for Golden Corral included in discontinued operations	—			$	361		—			$	111
Weighted average discount rate	4.25		%	5.25		%	4.25		%	5.25		%
Weighted average rate of compensation increase	4.00		%	4.00		%	4.00		%	4.00		%
Weighted average expected long-term rate of return on plan assets	7.50		%	7.50		%	7.50		%	7.50		%

Net periodic pension cost for fiscal year 2013 is currently expected in the range of $3,200,000 to $3,300,000. Net periodic pension cost for fiscal year 2012 was $2,746,000. Most of the anticipated increase in net periodic pension cost is due to the reduction of 100 basis points in the discount rate. Approximately $135,000 is added to annualized net periodic pension cost for each decrement of 25 basis points in the discount rate.

The minimum required contribution to the merged DB Plan for the plan year ending May 31, 2013 is $1,776,000. The Company currently anticipates contributing up to $2,394,000 over the course of fiscal year 2013, including $1,544,000 that was contributed during 40 weeks ended March 5, 2013. Obligations to participants in the SERP are satisfied in the form of a lump sum distribution upon retirement of the participants. No lump sums were paid from the SERP during the 40 weeks ended March 5, 2013.

Future funding of the DB Plan largely depends upon the performance of investments that are held in trusts that have been established for the plan. Equity securities comprise 70 percent of the target allocation of plan assets. Although the market for equity securities has made significant rebounds, the market declines experienced in fiscal year 2009 continue to adversely affect funding requirements, and combined with low bond rates will likely require the continued recognition of significantly higher net periodic pension costs than had been incurred prior to 2009.

The “Underfunded pension obligation” included in “Long-Term Obligations” in the Consolidated Balance Sheet represents projected benefit obligations in excess of the fair value of plan assets. The change in underfunded status is re-measured at the end of each fiscal year, effected through an increase or decrease in “Accumulated other comprehensive loss” in the equity section of the Consolidated Balance Sheet. The projected benefit obligation, which includes a projection of future salary increases, was measured at the end of the fiscal year 2012 using a weighted average discount rate of 4.25 percent, which was a reduction of 100 basis points from the end of the prior year. The projected benefit obligation increases approximately $1,250,000 for each decrease of 25 basis points in the discount rate.

A Non Deferred Cash Balance Plan (NDCBP) has been in place since 2000. The NDCBP provides comparable retirement type benefits to the HCE’s in lieu of future accruals under the DB Plan and the SERP. The comparable benefit amount is determined each year and converted to a lump sum (reported as W-2 compensation) from which taxes are withheld and the net amount is

23

Frisch’s Restaurants, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

Third Quarter Fiscal 2013, Ended March 5, 2013

NOTE F — PENSION PLANS (CONTINUED)

deposited into the HCE’s individual trust account. Compensation expense (not included in the net periodic pension cost described above) relating to the NDCBP is equal to amounts contributed, or expected to be contributed, to the trusts established for the benefits of certain HCE's - $574,000 and $543,000 respectively, for the 40 weeks ended March 5, 2013 and March 6, 2012, and was $209,000 and $266,000 respectively, for the 12 weeks ended March 5, 2013 and March 6, 2012. No NDCBP expense was associated with Golden Corral in the prior year. The total NDCBP expense as described above also includes accruals for additional required contributions that are due when the present value of lost benefits under the DB Plan and the SERP exceeds the value of the assets in the HCE's trust accounts when a participating HCE retires or is otherwise separated from service with the Company.

In addition, the incentive compensation provisions of the President and Chief Executive Officer's (CEO) employment agreement calls for additional annual contributions to be made to the trust established for the benefit of the CEO under the NDCBP when certain levels of annual pretax earnings are achieved.

The Company sponsors two 401(k) defined contribution plans. In the 40 week periods ended March 5, 2013 and March 6, 2012, matching contributions to the 401(k) plans amounted to $192,000 and $221,000 (including $35,000 for Golden Corral reported in discontinued operations) respectively, and were $59,000 and $68,000 (including $11,000 for Golden Corral reported in discontinued operations) respectively, in the 12 week periods ended March 5, 2013 and March 6, 2012.

A non-qualified Executive Savings Plan (FESP) is in place for certain HCE’s who have been disqualified from participation in the 401(k) plans (see Benefit Plans in NOTE A - ACCOUNTING POLICIES AND BASIS OF PRESENTATION). In the 40 weeks ended March 5, 2013 and March 6, 2012, matching contributions to FESP were $25,000 and $26,000 respectively, and were $7,000 and $7,000 respectively, during the 12 week periods ended March 5, 2013 and March 6, 2012.

The Company does not sponsor post retirement health care plans.

NOTE G — LITIGATION AND CONTINGENCIES

Litigation

Employees, customers and other parties bring various claims and suits against the Company from time to time in the ordinary course of business. Claims from customers are covered by general liability insurance, but subject to coverage limits. Exposure to loss contingencies from pending or threatened litigation is continually evaluated by management, which presently believes that the resolution of claims currently outstanding, whether or not covered by insurance, will not result in a material adverse effect upon the Company's earnings, cash flows or financial position. Management presently believes that adequate provisions for expected losses not covered by insurance are already included in the Consolidated Financial Statements.

On September 18, 2012, a former employee (plaintiff) filed a collective action under the Fair Labor Standards Act and class action under the Ohio Minimum Fair Wage Standards Act for allegations of off-the-clock work, unpaid overtime, and minimum wage violations as a result of alleged improper application of the Tip Credit. As part of the collective action, the plaintiff seeks recovery for all individuals who worked as a server at any Frisch's Big Boy restaurant operated by the Company during the three year period, September 18, 2009 through September 18, 2012. The class action is limited to servers who worked for the Company at Frisch's Big Boy restaurants located in Ohio during the last three years. On December 4, 2012, the Company filed a motion to dismiss and compel arbitration, which motion was granted on April 10, 2013. The Company intends to continue defending the matter vigorously, including efforts to pursue a class or collective action in arbitration.

Other Contingencies

The Company self-insures a significant portion of expected losses under its workers’ compensation program in the state of Ohio. Insurance coverage is purchased from an insurance company for individual claims that may exceed $300,000 (see Self Insurance in NOTE A - ACCOUNTING POLICIES AND BASIS OF PRESENTATION). Insurance coverage is maintained for various levels of casualty and general and product liability.

Outstanding letters of credit maintained by the Company totaled $100,000 as of March 5, 2013.

As of March 5, 2013, the Company operated 15 restaurants on non-owned properties, including one lease that provides for contingent rental payments based on a percentage of the leased restaurant’s sales that exceed a fixed amount.

The Company remains contingently liable under certain ground lease agreements relating to land on which seven of the Company's former Golden Corral restaurant operations are situated. The seven restaurant operations were sold to Golden Corral Corporation (GCC) in May 2012 (See NOTE B - DISCONTINUED OPERATIONS), at which time the seven operating leases were simultaneously assigned to GCC, with the Company contingently liable in the event of default by GCC. The amount remaining

24

Frisch’s Restaurants, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

Third Quarter Fiscal 2013, Ended March 5, 2013

NOTE G — LITIGATION AND CONTINGENCIES (CONTINUED)

under contingent lease obligations totaled $7,071,000 as of March 5, 2013, for which the aggregate average annual lease payments approximate $650,000 in each of the next five years. The Company is also contingently liable for the performance of a certain ground lease that was assigned to a third party in 2000; the annual obligation of the lease approximates $48,000 through 2020.

Since there is no reason to believe that either of these third party assignees are likely to default, no provision has been made in the Consolidated Financial Statements for amounts that would be payable by the Company. In addition, the Company generally has the right to re-assign the leases in the event of the third party’s default.

NOTE H — RELATED PARTY TRANSACTIONS

In a private transaction that occurred on August 30, 2012, the Company's treasury repurchased a total of 32,000 shares of the Company's common stock that were beneficially owned by the Chief Executive Officer (Craig F. Maier) either as the Trustee of four separate Trusts or in his capacity as the Executor of the Estate of Blanche F. Maier. The total cost of the 32,000 shares amounted to $1,034,000 ($759,000 was paid to the four Trusts for 23,500 shares and $275,000 was paid to the Estate for 8,500 shares).

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ITEM 2. MANAGEMENT’S DISCUSSION and ANALYSIS of FINANCIAL CONDITION and RESULTS of OPERATIONS

SAFE HARBOR STATEMENT under the PRIVATE SECURITIES LITIGATION REFORM ACT of 1995

Forward-looking statements are contained in this Form 10-Q, including this Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A). Such statements may generally express management’s expectations with respect to its plans, or its assumptions and beliefs concerning future developments and their potential effect on the Company. There can be no assurances that such expectations will be met or that future developments will not conflict with management’s current beliefs and assumptions, which are inherently subject to risks and other uncertainties. Factors that could cause actual results and performance to differ materially from anticipated results that may be expressed or implied in forward-looking statements are included in, but not limited to, the discussion in "Risk Factors" found in this Form 10-Q under Part II, Item 1A. and as set forth in Part I, Item 1A. of the Company's Annual Report on Form 10-K for the fiscal year ended May 29, 2012.

Sentences that contain words such as “should,” “would,” “could,” “may,” “plan(s),” “anticipate(s),” “project(s),” “believe(s),” “will,” “expect(s),” “estimate(s),” “intend(s),” “continue(s),” “assumption(s),” “goal(s),” “target(s)” and similar words (or derivatives thereof) are generally used to distinguish “forward-looking statements” from historical or present facts.

All forward-looking information in this MD&A is provided by the Company pursuant to the safe harbor established under the Private Securities Litigation Reform Act of 1995 and should be evaluated in the context of all risk factors. Except as may be required by law, the Company disclaims any obligation to update any of the forward-looking statements that may be contained in this MD&A.

This MD&A should be read in conjunction with the Consolidated Financial Statements and accompanying notes included elsewhere in this Form 10-Q and in the Company's Annual Report on Form 10-K for the year ended May 29, 2012. The Company has no off-balance sheet arrangements other than operating leases that are entered from time to time in the ordinary course of business. The Company does not use special purpose entities.

CORPORATE OVERVIEW

Frisch’s Restaurants, Inc. and Subsidiaries (Company) is a regional company that operates full service family-style restaurants under the name "Frisch's Big Boy." As of March 5, 2013, 95 Frisch's Big Boy restaurants were owned and operated by the Company, located in various regions of Ohio, Kentucky and Indiana. The Company also licenses 25 Frisch's Big Boy restaurants to other operators who pay franchise and other fees to the Company.

The Company’s Third Quarter of Fiscal 2013 consists of the 12 weeks ended March 5, 2013. It compares with the 12 weeks ended March 6, 2012, which constituted the Third Quarter of Fiscal 2012. The First Three Quarters of Fiscal 2013 consists of the 40 week period that ended March 5, 2013. It compares with the 40 week period that ended March 6, 2012, which constituted the First Three Quarters of Fiscal 2012. The 12 week third quarter of each fiscal year is usually a disproportionately smaller share (than other quarters) of annual revenue and net earnings because it spans most of the winter season from mid-December through early March. References to Fiscal Year 2013 refer to the 52 week year that will end on May 28, 2013. References to Fiscal Year 2012 refer to the 52 week year that ended May 29, 2012.

At the beginning of Fiscal Year 2012, the Company operated a second business segment, which consisted of 35 grill buffet style "Golden Corral" restaurants, which had been licensed to the Company by Golden Corral Corporation (GCC). The Company closed six of the Golden Corral restaurants in August 2011 due to issues with under performance, which resulted in a non-cash pretax charge of $4,000,000 for impairment of long-lived assets that was recorded in the First Quarter of Fiscal 2012. Additional non-cash pretax impairment charges associated with the six restaurant closings in August 2011 were subsequently recorded during Fiscal Year 2012: a) $94,000 in the Third Quarter of Fiscal 2012 (based on a contract that was accepted on one of the properties that was for less than the original estimate of its fair value) and b) $294,000 was recorded in the Fourth Quarter of Fiscal 2012 to reflect revised opinions of value on the remaining properties, which had been received from real estate brokers.

In May 2012, the remaining 29 Golden Corrals were sold to GCC. Results for the Golden Corral segment for the Third Quarter and First Three Quarters of Fiscal 2012 are presented as discontinued operations.

The following table recaps the earnings or loss components of the Company's Consolidated Statements of Earnings.

26

	Third Quarter				First Three Quarters
	2013		2012		2013			2012
	(in thousands, except per share data)				(in thousands, except per share data)
Earnings from continuing operations before income taxes	$	2,369	$	2,028	$	6,839		$	5,314
Earnings from continuing operations	$	1,748	$	1,715	$	4,706		$	4,234
Diluted EPS from continuing operations	$	0.34	$	0.35	$	0.93		$	0.86
Earnings (loss) from discontinued operations, net of tax	$	—	$	1,098	$	(158	)	$	(908	)
Diluted EPS (loss) from discontinued operations	$	—	$	0.22	$	(0.03	)	$	(0.19	)
Net earnings	$	1,748	$	2,813	$	4,549		$	3,327
Diluted net EPS	$	0.34	$	0.57	$	0.90		$	0.67
Weighted average diluted shares outstanding	5,073		4,948		5,039			4,942

Factors having a notable effect on earnings from continuing operations before income taxes when comparing the Third Quarter of Fiscal 2013 with the Third Quarter of Fiscal 2012:

• Consolidated restaurant sales were $45,772,000 in the Third Quarter of Fiscal 2013 versus $46,285,000 in the Third Quarter of Fiscal 2012. The decrease is due to the effect of the permanent closure of certain restaurants and a same store sales decrease of 0.9 percent.

• Gross profit was flat, increasing modestly by $26,000, or 0.5 percent, to $4,967,000 in the Third Quarter of Fiscal 2013 from $4,941,000 in the Third Quarter of Fiscal 2012.

As a percentage of sales:

- Food and Paper Costs were 33.7 percent in both the Third Quarter of Fiscal 2013 and Third Quarter of Fiscal 2012.

- Payroll and Related Costs were 35.6 percent in the Third Quarter of Fiscal 2013, down from 35.7 percent in the Third Quarter of Fiscal 2012.

- Other Operating Costs were 19.9 percent in both the Third Quarter of Fiscal 2013 and the Third Quarter of Fiscal 2012.

• The Third Quarter of Fiscal 2012 posted a gain of $191,000 on the sale of a former Frisch's Big Boy restaurant that had ceased operations in October 2011.

• The Third Quarter of Fiscal 2012 posted an impairment of long-lived assets charge amounting to $328,000 that was for two former Frisch's Big Boy restaurants that have been held for sale for several years.

• Reflecting a lower level of debt, interest expense was $209,000 in the Third Quarter of Fiscal 2013 versus $328,000 in the Third Quarter of Fiscal 2012.

Factors having a notable effect on earnings from continuing operations before income taxes when comparing the First Three Quarters of Fiscal 2013 with the First Three Quarters of Fiscal 2012:

• Consolidated restaurant sales were $154,920,000 in the First Three Quarters of Fiscal 2013 versus $157,583,000 in the First Three Quarters of Fiscal 2012. The decrease is due to the effect of the permanent closure of certain restaurants and a same store sales decrease of 0.8 percent.    

• Gross profit increased $811,000, or 5.1 percent, to $16,735,000 in the First Three Quarters of Fiscal 2013 from $15,923,000 in the First Three Quarters of Fiscal 2012.

As a percentage of sales:

- Food and Paper Costs were 33.5 percent in the First Three Quarters of Fiscal 2013, down from 33.8 percent in the First Three Quarters of Fiscal 2012.

- Payroll and Related Costs were 35.1 percent in the First Three Quarters of Fiscal 2013, down from 35.4 percent in the First Three Quarters of Fiscal 2012.

- Other Operating Costs were 20.6 percent in the First Three Quarters of Fiscal 2013, down from 20.7 percent in the First Three Quarters of Fiscal 2012.

27

• Share based compensation costs were $415,000 in the First Three Quarters of Fiscal 2013 versus $818,000 in the First Three Quarters of Fiscal 2012.

• The First Three Quarters of Fiscal 2012 posted a gain of $191,000 on the sale of a former Frisch's Big Boy restaurant that had ceased operations in October 2011.

• The First Three Quarters of Fiscal 2013 posted an impairment of long-lived assets charge amounting to $70,000 that was to lower previous estimates of the fair values of two former Frisch's Big Boy restaurants. Included in the $70,000 impairment charge was $47,000 for a restaurant that closed in June 2012 that was sold in October 2012. The First Three Quarters of Fiscal 2012 posted an impairment of long-lived assets charge amounting to $328,000 for two former Frisch's Big Boy restaurants that have been held for sale for several years.

• Interest expense was $759,000 in the First Three Quarters of Fiscal 2013 versus $1,136,000 in the First Three Quarters of Fiscal 2012.

RESULTS of OPERATIONS

Except as where noted, the discussion of Results of Operations presented in this MD&A excludes the results from discontinued operations.

Sales

The Company’s sales are primarily generated through the operation of Frisch's Big Boy restaurants. Sales also include wholesale sales from the Company’s commissary to Frisch's Big Boy restaurants that are licensed to other operators and the sale of Frisch's signature brand tartar sauce to grocery stores. Same store sales comparisons are a key metric that management uses in the operation of the business. Same store sales are affected by changes in customer counts and menu price increases. Changes in sales also occur as new restaurants are opened and older restaurants are closed. Below is the detail of consolidated restaurant sales:

	Third Quarter				First Three Quarters
	2013		2012		2013		2012
	(in thousands)				(in thousands)
Frisch's Big Boy restaurants operated by the Company	$	43,135	$	43,715	$	146,639	$	149,322
Wholesale sales to licensees	2,104		2,089		7,214		7,232
Wholesale sales to groceries	533		481		1,067		1,029
Total sales	$	45,772	$	46,285	$	154,920	$	157,583

Frisch's Big Boy restaurant sales shown in the above table include a same store sales decrease of 0.9 percent in the Third Quarter of Fiscal 2013 (on a customer count decrease of 3.2 percent) and a decrease of 0.8 percent in the First Three Quarters of Fiscal 2013 (on a 3.2 percent decrease in customer counts). The same store sales comparisons include the effect of four separate menu price increases, implemented respectively in September 2011 (1.5 percent), February 2012 (1.2 percent), September 2012 (0.9 percent) and February 2013 (1.1 percent).

The Company operated 95 Frisch's Big Boy restaurants as of March 5, 2013. Four new Frisch's Big Boy restaurants have been opened and four have closed since the beginning of Fiscal 2012 (June 2011):

• July 2011 — opened restaurant near Cincinnati, Ohio

• October 2011 — opened restaurant in Highland Heights, Kentucky (Cincinnati market)

• October 2011 — closed restaurant in Ft. Thomas, Kentucky (Cincinnati market)

• December 2011 — closed restaurant in Columbus, Ohio

• May 2012 — closed restaurant in Cincinnati, Ohio

• May 2012 — closed restaurant in Elizabethtown, Kentucky (Louisville market)

• August 2012 — opened restaurant near Cincinnati, Ohio

• March 2013 — opened restaurant in Sidney, Ohio (Dayton market)

No Frisch's Big Boy restaurants are currently under construction.

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Gross Profit

The determination of gross profit is shown with operating percentages in the following table. The table is intended to supplement the cost of sales discussion that follows. Cost of sales is comprised of food and paper costs, payroll and related costs, and other operating costs.

	Third Quarter		First Three Quarters
	2013	2012	2013	2012
Sales	100.0%	100.0%	100.0%	100.0%
Food and Paper	33.7%	33.7%	33.5%	33.8%
Payroll and Related	35.6%	35.7%	35.1%	35.4%
Other Operating Costs	19.9%	19.9%	20.6%	20.7%
Gross Profit	10.8%	10.7%	10.8%	10.1%

The cost of food began inching higher in the Third Quarter of Fiscal 2013, after experiencing a slight moderation through the first half of Fiscal 2013. Beef prices had moderated somewhat after hitting record high price levels in the early part of the summer of 2012, but are now on a track to continue rising during the first half of calendar year 2013. The food and paper costs shown (as a percentage of sales) in the above table are also aided by menu price increases.

Although the Company does not use financial instruments as a hedge against changes in commodity prices, purchase contracts for some commodities may contain provisions that limit the price the Company will pay. In addition, the effect of commodity price increases is actively managed with changes to the menu mix, together with periodic increases in menu prices.

Food safety poses a major risk to the Company. Management rigorously emphasizes and enforces established food safety policies in all of the Company’s restaurants and in its commissary and food manufacturing plant. These policies are designed to work cooperatively with programs established by health agencies at all levels of governmental authority, including the federal Hazard Analysis of Critical Control Points (HACCP) program. In addition, the Company makes use of ServSafe Training, a nationally recognized program developed by the National Restaurant Association. The ServSafe program provides accurate, up-to-date science-based information to all levels of restaurant workers on all aspects of food handling, from receiving and storing to preparing and serving. All restaurant managers are required to be certified in ServSafe Training and are required to be re-certified every five years.

The decrease in payroll and related costs shown (as a percentage of sales) in the above table was driven primarily by the combination of higher menu prices charged to customers and the continuation of reductions in scheduled labor hours. The labor hour reductions are commensurate with lower customer counts and are also initiated to offset mandated increases in the minimum wage:

• In Ohio, where roughly two-thirds of the Company’s payroll costs are incurred, the minimum wage for non-tipped employees was increased 33 percent from $5.15 per hour to $6.85 per hour beginning January 1, 2007. It was subsequently increased to $7.00 per hour on January 1, 2008, to $7.30 per hour on January 1, 2009 (there was no increase on January 1, 2010), to $7.40 per hour on January 1, 2011 and to $7.70 per hour on January 1, 2012. On January 1, 2013, the rate increased to $7.85 per hour, which represents a 52 percent increase since 2007.

• The Ohio minimum wage for tipped employees increased 61 percent from $2.13 per hour to $3.43 per hour beginning January 1, 2007. It was subsequently increased to $3.50 per hour on January 1, 2008, to $3.65 per hour on January 1, 2009 (there was no increase on January 1, 2010), to $3.70 per hour on January 1, 2011 and to $3.85 per hour on January 1, 2012. On January 1, 2013, the rate increased to $3.93 per hour, which represents an 85 percent increase since 2007.

• Federal minimum wage statutes currently apply to substantially all other (non-Ohio) employees. The federal minimum wage for non-tipped employees increased from $5.15 per hour to $5.85 per hour in July 2007. It was subsequently increased to $6.55 per hour in July 2008 and to $7.25 per hour in July 2009. The rate for tipped employees (non-Ohio) was not affected by the federal legislation, remaining at $2.13 per hour.

Without the benefit of reductions in labor hours, the Ohio minimum wage increase on January 1, 2012 would have added an estimated $420,000 to annual payroll costs in Ohio restaurant operations. It is currently estimated that the increase on January 1, 2013 would add $320,000 to annual Ohio payrolls if there were to be no further scheduled reductions in labor hours.

Other factors also continue to have an adverse effect on payroll and related costs. These factors include higher costs associated with benefit programs sponsored by the Company, including medical insurance premiums and pension related costs.

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Management continues to analyze and evaluate health care reform legislation (the federal Patient Protection and Affordable Care Act, enacted March 2010) to determine the future short and long term effects upon the Company while developing various strategies to mitigate the expected financial burden of compliance with the mandate when it becomes fully effective on January 1, 2014. The Company has typically absorbed 80 percent of the cost for medical premiums, with employees contributing the remaining 20 percent. Among other responses to mitigate medical insurance costs, it is likely that employees will be contributing more than 20 percent of premium cost, benefit design changes will likely be implemented and the level of full time hourly employment may potentially be decreased in favor of increased part time employment.

Net periodic pension cost was $749,000 and $636,000 respectively, in the Third Quarter of Fiscal 2013 and the Third Quarter of Fiscal 2012 (pension cost in the Third Quarter of Fiscal 2012 included $111,000 charged to discontinued operations). Net periodic pension cost was $2,497,000 and $2,119,000 respectively, in the First Three Quarters of Fiscal 2013 and the First Three Quarters of Fiscal 2012 (pension cost in the First Three Quarters of Fiscal 2012 included $361,000 charged to discontinued operations). Net periodic pension cost for Fiscal Year 2013 is currently expected to be in the range of $3,200,000 to $3,300,000. Net periodic pension cost for Fiscal Year 2012 was $2,746,000 ($487,000 charged to discontinued operations). Most of the anticipated increase in net periodic pension costs for Fiscal Year 2013 is due to the reduction of 100 basis points in the discount rate. Approximately $135,000 is added to annualized net periodic pension cost for each decrement of 25 basis points in the discount rate.

Other operating costs include occupancy costs such as maintenance, rent, depreciation, abandonment losses, property tax, insurance and utilities, plus costs relating to field supervision, accounting and payroll preparation costs, new restaurant opening costs and many other restaurant operating costs. As expenses charged to other operating costs tend to be more fixed in nature, the percentages shown in the above table can be greatly affected by changes in same store sales levels. In other words, percentages will generally rise when sales decrease and percentages will generally decrease when sales increase.

Operating Profit

To arrive at the measure of operating profit, administrative and advertising expense is subtracted from gross profit, while the line item for franchise fees and other revenue is added to it. Gains and losses from the sale of real property (if any) are then respectively added or subtracted. Charges for impairment of assets (if any) are also subtracted from gross profit to arrive at the measure of operating profit.

Administrative and advertising expense decreased $53,000 in the Third Quarter of Fiscal 2013 and $221,000 in the First Three Quarters of Fiscal 2013 when compared with the comparable periods a year ago. Stock based compensation expense included in administrative and advertising expense was $88,000 during the Third Quarter of Fiscal 2013 versus $133,000 during the Third Quarter of Fiscal 2012. Stock based compensation was $415,000 in the First Three Quarters of Fiscal 2013 versus $818,000 in the First Three Quarters of Fiscal 2012. An unrestricted stock award in June 2011 to the Chief Executive Officer that amounted to $371,000 was included in stock based compensation expense in the First Three Quarters of Fiscal 2012 (see further discussion of stock based compensation expenses in the Financing Activities section of Liquidity and Capital Resources that appears elsewhere in this MD&A). Administrative and advertising expense in the First Three Quarters of Fiscal 2013 also includes higher charges for the cost of employee separations, offset by savings from a reduction in corporate work force.

Revenue from franchise fees is based upon sales volumes generated by Frisch's Big Boy restaurants that are licensed to other operators. The fees are based principally on percentages of sales and are recorded on the accrual method as earned. As of March 5, 2013, 25 Frisch's Big Boy restaurants were licensed to other operators and were paying franchise fees to the Company. No licensed Frisch's Big Boy restaurants opened or closed during any of the periods presented in this MD&A. Other revenue also includes certain other fees earned from Frisch's Big Boy restaurants licensed to others along with minor amounts of rent and investment income.

Gains and losses from the sale of assets consist of transactions involving real property and sometimes may include restaurant equipment that is sold together with real property as a package when closed restaurants are sold. Gains and losses reported on this line do not include abandonment losses that routinely arise when certain equipment is replaced before it reaches the end of its expected life; abandonment losses are instead reported in other operating costs. The gain of $191,000 recorded in the Third Quarter of Fiscal 2012 was from the February 2012 sale of a former Frisch's Big Boy restaurant that had closed in October 2011.

Non-cash pretax impairment charges totaling $70,000 were recorded during the First Three Quarters of Fiscal 2013 (all in the First Quarter of Fiscal 2013) to lower previous estimates of the fair values of two former Frisch's Big Boy restaurants. The impairment charges were based on sales contracts that had been accepted by the Company. One of the two impaired former restaurants was sold for its approximate fair value in October 2012 (in the Second Quarter of Fiscal 2013) while the sales contract for the second former restaurant property was subsequently withdrawn. Impairment charges totaled $328,000 in the Third Quarter of Fiscal 2012, which were recorded to lower fair value of estimates of two former Frisch's Big Boy restaurants (based on revised broker quotes due to soft market conditions), both of which continue to be held for sale as of March 5, 2013.

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Interest Expense

Interest expense decreased $119,000 and $377,000 respectively, in the Third Quarter of Fiscal 2013 and the First Three Quarters of Fiscal 2013 when compared with comparable periods a year ago. The decreases are mostly the result of lower debt levels than a year ago.

Income Tax Expense

Income tax expense as a percentage of pretax earnings was estimated at 26.2 percent for the Third Quarter Fiscal 2013 and 31.2 percent for the First Three Quarters of Fiscal 2013. The rate was approximately 15 percent in the Third Quarter of Fiscal 2012 and was approximately 20 percent for the First Three Quarters of Fiscal 2012. The higher rates in Fiscal Year 2013 are primarily due to changes in tax credits. In addition, a valuation allowance (VA) was placed on certain deferred state taxes amounting to $81,000 in the Second Quarter of Fiscal 2013. Excluding the VA, the estimated annual effective tax rate was lowered from 32 percent to 30 percent for the Three Quarters ended March 5, 2013, which had the effect of lowering the effective tax rate to 26.2 percent for the Third Quarter of Fiscal 2013.

Management periodically assesses the realization of net deferred tax assets based on historical, current and future (expected) operating results. A VA is recorded if management believes the Company's net deferred tax assets will not be realized. In addition, management monitors the realization of the VA and may consider its release in the future based on any positive evidence that may become available.

The Internal Revenue Service is currently examining the Company's tax return for Fiscal Year 2011, which was filed in February 2012.

DISCONTINUED OPERATIONS

At the beginning of Fiscal Year 2012, the Company operated a second business segment, which consisted of 35 Golden Corral restaurants (Golden Corral) that had been licensed to the Company by Golden Corral Corporation (GCC). Six of the Golden Corrals were closed in August 2011 (First Quarter of Fiscal 2012) due to issues with under performance, which resulted in a non-cash pretax asset impairment charge of $4,000,000. In May 2012, the remaining 29 Golden Corrals were sold to GCC. Results for Golden Corral for the Third Quarter and First Three Quarters of Fiscal 2012 are shown in the following table. Income tax expense as shown in the table in the First Three Quarters of Fiscal 2013 represents adjustments to tax related balance sheet accounts that were recorded during the First Quarter of Fiscal 2013.

	Third Quarter				First Three Quarters
	2013		2012		2013			2012
	(in thousands)				(in thousands)
Sales	$	—	$	22,122	$	—		$	73,293
Food and paper	—		8,485		—			28,098
Payroll and related	—		6,247		—			21,170
Other operating costs	—		5,334		—			19,058
	—		20,066		—			68,326
Gross profit	—		2,056		—			4,967
Administrative and advertising	—		808		—			2,393
Loss on sale of assets	—		13		—			13
Impairment of long-lived assets	—		94		—			4,094
Earnings (loss) from discontinued operations before income tax	—		1,141		—			(1,533		)
Income tax expense (benefit)	—		44		158			(625		)
Earnings (loss) from discontinued operations, net of taxes	$	—	$	1,097	$	(158	)	$	(908	)

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LIQUIDITY and CAPITAL RESOURCES

Sources of Funds

Food sales to restaurant customers provide the Company’s principal source of cash. The funds from sales are immediately available for the Company’s use, as substantially all sales to restaurant customers are received in currency or are settled by debit or credit cards. The primary source of cash provided by operating activities is net earnings plus depreciation and impairment of assets, if any. Other sources of cash may include borrowing against credit lines, proceeds received when stock options are exercised and occasional sales of real estate. In addition to servicing debt, these cash flows are utilized for discretionary objectives, including capital projects (principally restaurant expansion and renovation), capital stock repurchases and dividends.

As of May 29, 2012, $42,000,000 of the proceeds from the May 2012 sale of 29 Golden Corral restaurants was invested in commercial paper. These funds were converted to cash on September 14, 2012 to fund a special dividend of $9.50 per share (see Financing Activities below). Also as of May 29, 2012, the sum of $3,493,000 (restricted cash - principally from the Golden Corral sale proceeds) was being held by a third party intermediary in anticipation of completing qualifying like kind exchanges in order to defer taxable gains pursuant to Section 1031 of the Internal Revenue Code. In July and August 2012, all of the restricted cash was returned to the Company's treasury from the third party intermediary because suitable like kind exchanges could not be identified.

Working Capital Practices

The Company has historically maintained a strategic negative working capital position, which is a common practice in the restaurant industry. As significant cash flows are consistently provided by operations and credit lines remain readily available, this practice should not hinder the Company’s ability to satisfactorily retire any of its obligations when due, including the aggregated contractual obligations and commercial commitments shown in the following table.

Aggregated Information about Contractual Obligations and Commercial Commitments as of March 5, 2013:

		Payments due by period (in thousands)
		Total		year 1		year 2		year 3		year 4		year 5		more than 5 years
	Long-Term Debt	$	15,467	$	5,129	$	3,843	$	2,948	$	1,701	$	1,335	$	511
	Interest on Long-Term Debt (estimated)	1,315		604		367		198		99		41		6
	Rent due under Capital Lease Obligations	2,343		222		229		240		250		119		1,283
1	Rent due under Operating Leases	14,014		1,068		1,003		831		852		866		9,394
2	Purchase Obligations	10,129		9,724		339		66		—		—		—
3	Other Long-Term Obligations	454		236		218		—		—		—		—
	Total Contractual Cash Obligations	$	43,722	$	16,983	$	5,999	$	4,283	$	2,902	$	2,361	$	11,194

1 Operating leases may include option periods yet to be exercised, when exercise is determined to be reasonably assured.

2 Primarily consists of commitments for certain food and beverage items, plus capital projects including commitments to purchase real property, if any. Does not include agreements that can be canceled without penalty.

3 Deferred compensation liability (undiscounted).

The working capital deficit was $7,515,000 as of March 5, 2013. Working capital at May 29, 2012 was $37,753,000, which included $42,000,000 in commercial paper (see Sources of Funds elsewhere in the Liquidity and Capital Resources section of this MD&A).

A financing package of unsecured credit facilities has been in place for many years with the same lending institution, currently styled (since April 2012) as the 2012 Loan Agreement. The following amounts are readily available to be borrowed through October 15, 2013:

• Construction Loan - $15,000,000 currently available

• Revolving Loan - $5,000,000 currently available to fund temporary working capital

The Company expects to encounter no difficulties in extending the 2012 Loan Agreement before it expires on October 15, 2013. The Company is in full compliance with the covenants contained in the 2012 Loan Agreement.

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Operating Activities

Net cash provided by continuing operations was $15,088,000 during the First Three Quarters of Fiscal 2013, which compares with $14,684,000 in the First Three Quarters of Fiscal 2012. Management measures cash flows from continuing operations by simply adding back certain non-cash expenses to earnings from continuing operations, which has the effect of excluding normal changes in assets and liabilities such as prepaid expenses, inventories, accounts payable and accrued, prepaid and deferred income taxes, all of which can and often do fluctuate widely from quarter to quarter. These non-cash expenses include items such as depreciation, losses (net of any gains) on dispositions of assets, charges for impairment of assets (if any), stock based compensation costs and pension costs in excess of plan contributions. The result of this approach is shown as a sub-total in the Consolidated Statement of Cash Flows: $14,136,000 in the First Three Quarters of Fiscal 2013 and $13,643,000 in the First Three Quarters of Fiscal 2012.

Contributions to the defined benefit pension plan that is sponsored by the Company are currently projected to be $2,394,000 (minimum required contributions are approximately $1,776,000) in Fiscal Year 2013, $1,544,000 of which was contributed during the First Three Quarters of Fiscal 2013.

An automatic Change in Accounting Method was filed with the Internal Revenue Service (IRS) in Fiscal Year 2011, to allow immediate deduction of certain repairs and maintenance costs, replacing the previous treatment that had capitalized these costs. In December 2011, the IRS issued new temporary and proposed regulations on tangible property that significantly departs from the prior proposed regulations on which the Company’s Change in Accounting Method was based. In November 2012, the IRS issued notice alerting taxpayers that final regulations regarding repairs would be released in 2013. The final regulations will be effective for the Company's Fiscal Year 2015 (June 4, 2014 to June 2, 2015). The Company will comply with the final regulations once issued by the IRS.

Investing Activities

Capital spending is the principal component of investing activities. Capital spending was $8,054,000 during the First Three Quarters of Fiscal 2013, a decrease of $660,000 from the First Three Quarters of Fiscal 2012. These capital expenditures typically consist of site acquisitions for expansion, new restaurant construction, plus on-going reinvestments in existing restaurants including remodeling jobs, routine equipment replacements and other maintenance capital outlays.

Proceeds from the disposition of property amounted to $2,482,000 during the First Three Quarters of Fiscal 2013, consisting of $2,439,000 in real property and $43,000 from transactions to sell used equipment and / or other operating assets. The proceeds from dispositions of real property was from the August 2012 sale of one of the six Golden Corral properties that had closed in August 2011, and from the October 2012 sale of a Frisch's Big Boy restaurant that had closed in May 2012.

Proceeds from the disposition of property amounted to $1,592,000 during the First Three Quarters of Fiscal 2012, consisting of $1,547,000 in real property and $45,000 from transactions to sell used equipment and / or other operating assets. The proceeds from disposition of real property was from the February 2012 sale of a former Frisch's Big Boy restaurant ($375,000) and the December 2011 sale ($1,172,000) of one of the six Golden Corral properties that had ceased operating in August 2011. The proceeds from the December 2011 sale of Golden Corral property are included in discontinued investing activities on the Consolidated Statement of Cash Flows.

Two former Frisch's Big Boy restaurants, three former Golden Corral restaurants (permanently closed August 2011) and eight other pieces of surplus land were held for sale as of March 5, 2013 at an aggregate asking price of approximately $7,200,000.

Financing Activities

No new borrowing against credit lines was necessary during the First Three Quarters of Fiscal 2013. Scheduled and other payments of long-term debt and capital lease obligations amounted to $5,699,000 during the First Three Quarters of Fiscal 2013.

Regular quarterly cash dividends paid to shareholders during the First Three Quarters of Fiscal 2013 amounted to $2,408,000 or $0.48 per share. In addition, a $0.16 per share dividend was declared on March 12, 2013 (not included in accounts payable as of March 5, 2013). Its payment of $810,000 on April 10, 2013 was the 209th consecutive quarterly dividend (a period of 52 years) paid by the Company. The Company expects to continue its practice of paying regular quarterly cash dividends for the foreseeable future.

On July 25, 2012, the Board of Directors declared a special one-time cash dividend of $9.50 per share payable September 14, 2012 to shareholders of record on August 31, 2012. The total for the special dividend that was paid on September 14, 2012 amounted to $47,963,000, which was based on 5,048,711 shares outstanding on August 31, 2012.

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During the First Three Quarters of Fiscal 2013, 320,416 shares of the Company’s common stock were re-issued from the Company’s treasury pursuant to the exercise of stock options. The aggregate strike price for the options was $7,467,000, of which $2,398,000 was received in cash and $5,069,000 was charged to the treasury stock account to record shares re-acquired in connection with the exercise of "cashless" stock options that would normally be settled through a broker on the open market. As of March 5, 2013, 76,003 shares granted under the Company’s stock option plans remained outstanding, including 67,834 fully vested shares at a weighted average exercise price of $19.11 per share. The closing price of the Company’s stock on March 5, 2013 was $19.30. The intrinsic value of 32,000 fully vested “In The Money” options was $143,000, which, if exercised, would yield $474,000 in proceeds to the Company.

Shareholders approved the 2012 Stock Option and Incentive Plan (2012 Plan) in October 2012, which authorizes 500,000 shares to be awarded. The 2012 Plan canceled all remaining shares that had been available to be awarded under the 2003 Stock Option and Incentive Plan. On October 3, 2012, 14,245 shares of restricted stock were granted to non-employee members of the Board of Directors and an award of 2,035 restricted shares was granted to the CEO pursuant to the terms of his employment contract. All restricted shares issued on October 3, 2012 were awarded under the 2012 Plan, the total value of which amounted to $320,000, which is being expensed ratably (which began in the Second Quarter of Fiscal 2013) over a one year vesting period ($123,000 during the First Three Quarters of Fiscal 2013, including $74,000 during the Third Quarter of Fiscal 2013). The total value of restricted shares issued to non-employee members of the Board of Directors and the CEO in October 2011 (awarded under the 2003 Plan) also amounted to $320,000, of which $123,000 was expensed during the First Three Quarters of Fiscal 2013 (none during the Third Quarter of Fiscal 2013).

In June 2012, a group of executive officers (excluding the CEO) and other key employees was granted an aggregate award of 4,850 unrestricted shares of the Company's common stock, the total value of which amounted to $127,000. In June 2011, the Chief Executive Officer (CEO) was granted an unrestricted stock award of 17,364 common shares and a group of executive officers and other key employees were granted an aggregate award of 7,141 restricted shares of common stock. The total value of the unrestricted award to the CEO amounted to $371,000. The total value of the restricted awards to executive officers and other key employees amounted to $150,000.

The fair value of stock options granted and restricted stock issued is recognized as compensation cost on a straight-line basis over the vesting periods of the awards. Although no stock options have been granted since Fiscal Year 2011, compensation cost continues from the run–out of options granted in previous years. The fair value of unrestricted stock issued is recognized entirely during the quarter in which the grant of the award occurs. Compensation costs arising from all share-based payments are charged to administrative and advertising expense in the Consolidated Statement of Earnings:

	Third Quarter				First Three Quarters
Share based compensation cost	2013		2012		2013		2012
	(in thousands)				(in thousands)
Stock options granted	$	14	$	30	$	42	$	120
Restricted stock issued	74		103		246		327
Unrestricted stock issued	—		—		127		371
Share-based compensation cost, pretax	$	88	$	133	$	415	$	818

On July 25, 2012, the Board of Directors authorized the Company to purchase over a three year period, on the open market and in privately negotiated transactions, up to 450,000 shares of its common stock representing approximately 9 percent of the Company's total outstanding shares. During the First Three Quarters of Fiscal 2013, the Company re-acquired 212,929 shares under the program at a cost of $6,708,000, which includes 32,000 shares that were beneficially owned by the Chief Executive Officer and 180,929 shares re-acquired in connection with the exercise of "cashless" stock options that normally settle through a broker on the open market.

Separate from the repurchase program, the Company’s treasury acquired 5,227 shares of its common stock in the First Three Quarters of Fiscal 2013 at a cost of $119,000 to cover withholding tax obligations in connection with restricted and unrestricted stock awards.

Other Information

Two new Frisch's Big Boy restaurants opened for business during the First Three Quarters of Fiscal 2013. The first one opened in August 2012 on land that was acquired in fee simple title in April 2010. The other new Frisch's Big Boy restaurant opened on March 4, 2013 on leased land.

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Including land and land improvements, the cost required to build and equip each new Frisch's Big Boy restaurant currently ranges from $2,500,000 to $3,400,000. The actual cost depends greatly on the price paid for the land and the cost of land improvements, both of which can vary widely from location to location, and whether the land is purchased or leased. Costs also depend on whether new restaurants are constructed using plans for the original 2001 building prototype (5,700 square feet with seating for 172 guests) or its smaller adaptation, the 2010 building prototype (5,000 square feet with seating for 148 guests), which is used in smaller trade areas. The smaller 2010 building prototype plan was used to construct both of the new Frisch's Big Boy restaurants that have been opened during the First Three Quarters of Fiscal 2013.

Approximately one-fifth of the Frisch's Big Boy restaurants are routinely renovated or decoratively updated each year. The renovations not only refresh and upgrade interior finishes, but are also designed to synchronize the interiors and exteriors of older restaurants with those of newly constructed restaurants. The current average cost to renovate a Frisch's Big Boy restaurant ranges from $100,000 to $185,000. The Fiscal Year 2013 remodeling budget is $1,740,000 for 12 planned remodel jobs, seven of which were completed during the First Three Quarters of Fiscal 2013.

Part of the Company’s strategic plan entails owning the land on which it builds new restaurants. However, it is sometimes necessary to enter ground leases to obtain desirable land on which to build. As of March 5, 2013, 15 Frisch's Big Boy restaurants were in operation on non-owned premises – one capital lease and 14 operating leases. The count of 15 restaurants on non-owned premises includes one new Frisch's Big Boy restaurant that opened on March 4, 2013 on land that is leased (operating lease) to the Company.

The Company remains contingently liable under certain ground lease agreements relating to land on which seven of the Company's former Golden Corral restaurants are situated. The seven leases were assigned to Golden Corral Corporation (GCC) as part of the May 2012 transaction to sell the Company's Golden Corral restaurants to GCC. The amount remaining under contingent lease obligations totaled $7,071,000 as of March 5, 2013, for which the aggregate average annual lease payments approximate $650,000 in each of the next five years. Since there is no reason to believe that GCC (the owner and franchisor of the Golden Corral brand) is likely to default, no provision has been made in the consolidated financial statements for amounts that would be payable by the Company.

APPLICATION of CRITICAL ACCOUNTING POLICIES

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to use estimates and assumptions to measure certain items that affect the amounts reported in the financial statements and accompanying footnotes. These judgments are based on knowledge and experience about past and current events, and assumptions about future events. Accounting estimates can and do change as new events occur and additional information becomes available. Actual results may differ markedly from current judgment.

Two factors are required for an accounting policy to be deemed critical. The policy must be significant to the fair presentation of a company’s financial condition and its results of operations, and the policy must require management’s most difficult, subjective or complex judgments. Management believes the following to be the Company’s critical accounting policies.

Self Insurance

The Company self-insures a significant portion of expected losses from its workers’ compensation program in the state of Ohio. The Company purchases coverage from an insurance company for individual claims in excess of $300,000. Reserves for claims expense include a provision for incurred but not reported claims. Each quarter, management reviews claims valued by the third party administrator (TPA) of the program and then applies experience and judgment to determine the most probable future value of incurred claims. As the TPA submits additional new information, management reviews it in light of historical claims for similar injuries, probability of settlement, and any other facts that might provide guidance in determining ultimate value of individual claims. Unexpected changes in any of these or other factors could result in actual costs differing materially from initial projections or values presently carried in the self-insurance reserves.

Pension Plans

Pension plan accounting requires rate assumptions for future compensation increases and the long-term investment return on plan assets. A discount rate is also applied to the calculations of net periodic pension cost and projected benefit obligations. A committee consisting of executives from the Finance Department and the Human Resources Department, with guidance provided by the Company’s actuarial consulting firm, develops these assumptions each year. The consulting firm also provides services in calculating estimated future obligations and net periodic pension cost.

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To determine the long-term rate of return on plan assets, the committee considers a weighted average of the historical broad market return and the forward looking expected return. The historical broad market return assumes a wide period of data available for each asset class. Domestic equity securities are allocated equally between large cap and small cap funds, with fixed income securities allocated equally between long-term corporate/government bonds and intermediate-term government bonds. The model for the forward looking expected return uses a range of expected outcomes over a number of years based on the mix of the plan assets and assumptions about the return, variance, and co-variance for each asset class. The weighted average of the historical broad market return and the forward looking expected return is rounded to the nearest 25 basis points to determine the overall expected rate of return on plan assets.

The discount rate is selected by matching the cash flows of the pension plan to that of a yield curve that provides the equivalent yields on zero-coupon bonds for each maturity. Benefit cash flows due in a particular year can be "settled" theoretically by "investing" them in the zero-coupon bond that matures in the same year. The discount rate is the single rate that produces the same present value of cash flows. The selection of the discount rate represents the equivalent single rate under a broad market AA yield curve. The yield curve is used to set the discount rate assumption using cash flows on an aggregate basis, which is then rounded to the nearest 25 basis points.

Pension plan assets are targeted to be invested 70 percent in equity securities, as these investments have historically provided the greatest long-term returns. Poor performance in equity securities markets can significantly lower the market values of the investment portfolios, which, in turn, can result in a) material increases in future funding requirements, b) much higher net periodic pension costs to be recognized in future years, and c) increases in underfunded plan status, requiring the Company’s equity to be reduced.

Long-Lived Assets

Long-lived assets include property and equipment, goodwill and other intangible assets. Judgments and estimates are used to determine the carrying value of long-lived assets. This includes the assignment of appropriate useful lives, which affect depreciation and amortization expense. Capitalization policies are continually monitored to assure they remain appropriate.

Management considers a history of cash flow losses on a restaurant-by-restaurant basis to be the primary indicator of potential impairment. Carrying values of property and equipment are tested for impairment at least annually, and whenever events or circumstances indicate that the carrying values of the assets may not be recoverable from the estimated future cash flows expected to result from the use and eventual disposition of the property. When undiscounted expected future cash flows are less than carrying values, an impairment loss is recognized equal to the amount by which carrying values exceed fair value, which is determined as either 1) the greater of the net present value of the future cash flow stream, or 2) by opinions of value provided by real estate brokers and/or management's judgment as developed through its experience in disposing of unprofitable restaurant operations. Broker opinions of value and the judgment of management consider various factors in their fair value estimates such as the sales of comparable area properties, general economic conditions in the area, physical condition and location of the subject property, and general real estate activity in the local market. Future cash flows can be difficult to predict. Changing neighborhood demographics and economic conditions, and many other factors may influence operating performance, which affect cash flows.

Sometimes it becomes necessary to cease operating a certain restaurant due to poor operating performance. The ultimate loss can be significantly different from the original impairment charge, particularly if the eventual market price received from the disposition of the property differs materially from initial estimates of fair values.

Acquired goodwill and other intangible assets are tested for impairment annually or whenever an impairment indicator arises.

Income Taxes

The provision for income taxes is based on management's estimate of federal, state and local tax liabilities. These estimates include, but are not limited to, the application of statutory federal, state and local rates to estimated taxable income, and the effect of tax credits such as the federal credits allowed for Employer Social Security and Medicare Taxes Paid on Certain Employee Tips and the Work Opportunity Tax Credit (WOTC). All tax returns are timely filed and are subject to audit by all levels of taxing authority. Audits can result in a different interpretation of tax laws from that of management.

Deferred tax assets and liabilities result from timing differences in the recognition of revenue and expense between financial reporting and tax statutes. Deferred tax accounting requires management to evaluate deferred tax assets, including net operating loss carry forwards, to determine whether these assets will more likely than not be realized on a future tax return. These evaluations entail projections that require considerable judgment and are ultimately subject to future changes in tax laws including changes in tax rates.

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ITEM 3. QUANTITATIVE and QUALITATIVE DISCLOSURES about MARKET RISKS

Forward-looking statements are included in the following discussion of disclosures about market risks. Conditions in the financial and commodity markets are subject to change at any time, which could cause actual results and performance to differ materially from anticipated results that may be expressed or implied in forward-looking statements.

The Company has no significant market risk exposure to interest rate changes as substantially all of its debt is currently financed with fixed interest rates, or will be converted to fixed rate term loans in the next six months. The Company does not currently use derivative financial instruments to manage its exposure to changes in interest rates. Any cash equivalents maintained by the Company have original maturities of 90 days or less. Cash may be in excess of FDIC limits. The Company does not use any foreign currency in its operations.

Operations are vertically integrated, using centralized purchasing and food preparation, provided through the Company’s commissary and food manufacturing plant. Management believes the commissary operation ensures uniform product quality and safety, timeliness of distribution to restaurants and creates efficiencies that ultimately result in lower food and supply costs.

Commodity pricing affects the cost of many of the Company’s food products. Commodity pricing can be extremely volatile, affected by many factors outside of management’s control, including import and export restrictions, the influence of currency markets relative to the U.S dollar, the effects of supply versus demand, production levels and the impact that adverse weather conditions may have on crop yields. Certain commodities purchased by the commissary, principally beef, chicken, pork, dairy products, fresh produce, 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. These contracts are normally for periods of one year or less but may have longer terms if favorable long-term pricing becomes available. Food supplies are generally plentiful and may be obtained from any number of suppliers, which mitigates the Company’s overall commodity cost risk. Quality, timeliness of deliveries and price are the principal determinants of source. Management does not use financial instruments as a hedge against changes in commodity pricing.

ITEM 4. CONTROLS and PROCEDURES

a)Effectiveness of Disclosure Controls and Procedures. The Company’s Chief Executive Officer (CEO) and Chief Financial Officer (CFO) reviewed and evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)) as of March 5, 2013, the end of the period covered by this Quarterly Report on Form 10-Q. Based on that evaluation, the CEO and CFO concluded that the Company’s disclosure controls and procedures were effective as of such date to ensure that information that would be required to be disclosed in the Company’s Exchange Act reports is (i) recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms, and (ii) would be accumulated and communicated to the Company’s management, including the CEO and CFO, as appropriate to allow timely decisions regarding required disclosures.

b)Changes in Internal Control over Financial Reporting. As part of their review and evaluation of the Company's disclosure controls and procedures, the Company's CEO and the CFO concluded that there were no changes in the Company’s internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) or 15d-15(f)) during the fiscal quarter ended March 5, 2013 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II — OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Reference is made to the discussion under "Part II, Item 1 - Legal Proceedings" in the Company's Quarterly Report on Form 10-Q for the quarterly period ended September 18, 2012 regarding the collective and class action filing related to allegations of off- the-clock work, unpaid overtime, and minimum wage violations as a result of alleged improper application of the Tip Credit. On December 4, 2012, the Company filed a motion to dismiss and compel arbitration, which motion was granted on April 10, 2013. The Company intends to continue defending the matter vigorously, including efforts to pursue a class or collective action in arbitration.

ITEM 1A. RISK FACTORS

Operational and other risks and uncertainties that face the Company were set forth in Part I Item 1A of the Company's Annual Report on Form 10-K for the fiscal year ended May 29, 2012. There have been no material changes in the risks from those that were disclosed in that Form 10-K.

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The materialization of events associated with risks disclosed in the Form 10-K for the fiscal year ended May 29, 2012 together with those risks that were not specifically listed or those that are presently unforeseen, could result in significant adverse effects on the Company’s financial position, results of operations and cash flows, which could include the permanent closure of any affected restaurant(s) with an impairment of assets charge taken against earnings, and could adversely affect the price at which shares of the Company’s common stock trade.

ITEM 2. UNREGISTERED SALES of EQUITY SECURITIES and USE of PROCEEDS

(c) Issuer Purchases of Equity Securities

On July 25, 2012, the Board of Directors authorized the Company to purchase, on the open market and in privately negotiated transactions, up to 450,000 shares of its common stock, representing approximately 9 percent of the Company's total outstanding shares, over a three year period that will end on July 25, 2015. The following table shows information pertaining to the Company’s repurchases of its common stock during the Third Quarter Fiscal 2013, which ended March 5, 2013:

Period	Total Number Of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
December 12, 2012 to January 8, 2013	—	$	—	—	237,071
January 9, 2012 to February 5, 2013	—	$	—	—	237,071
February 6, 2013 to March 5, 2013	—	$	—	—	237,071
Total	—	$	—	—	237,071

ITEM 3. DEFAULTS upon SENIOR SECURITIES

Not applicable

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable

ITEM 5. OTHER INFORMATION

Not applicable

ITEM 6. EXHIBITS

Other Exhibits

31.1 Certification of Chief Executive Officer pursuant to rule 13a-14(a)/15d-14(a), is filed herewith.

31.2 Certification of Chief Financial Officer pursuant to rule 13a-14(a)/15d-14(a), is filed herewith.

32.1 Section 1350 Certification of Chief Executive Officer is filed herewith.

32.2 Section 1350 Certification of Chief Financial Officer is filed herewith.

101.INS    XBRL Instance Document                        *

101.SCH     XBRL Taxonomy Extension Schema Document            *

101.CAL     XBRL Taxonomy Extension Calculation Linkbase Document        *

101.LAB    XBRL Taxonomy Extension Label Linkbase Document        *

101.PRE    XBRL Taxonomy Presentation Linkbase Document            *

101.DEF    XBRL Taxonomy Extension Definition Linkbase Document        *

*    Pursuant to Rule 405 of Regulation S-T, the XBRL Interactive data files in Exhibit 101 to this Quarterly Report on Form 10-Q shall be deemed to be furnished but not filed herewith.

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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 April 12, 2013
	BY      /s/ Mark R. Lanning
	Mark R. Lanning
	Vice President and Chief Financial Officer,
	Principal Financial Officer
	Principal Accounting Officer

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