10-K405 1 e10-k405.txt FRISCH'S RESTAURANTS, INC. 10-K405 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------- FORM 10-K [ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED MAY 28, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 COMMISSION FILE NUMBER 1-7323 ------------------- FRISCH'S RESTAURANTS, INC. INCORPORATED IN THE IRS EMPLOYER IDENTIFICATION NUMBER STATE OF OHIO 31-0523213 2800 GILBERT AVENUE CINCINNATI, OHIO 45206 513/961-2660 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NAME OF EACH EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED ------------------- ------------------- COMMON STOCK OF NO PAR VALUE AMERICAN STOCK EXCHANGE SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE 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 IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM 405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS FORM 10-K [X]. AS OF AUGUST 10, 2000, 5,191,214 COMMON SHARES WERE OUTSTANDING, AND THE AGGREGATE MARKET VALUE OF THE COMMON SHARES (BASED UPON THE AUGUST 10, 2000 CLOSING PRICE OF THESE SHARES ON THE AMERICAN STOCK EXCHANGE) OF FRISCH'S RESTAURANTS, INC. HELD BY NONAFFILIATES WAS APPROXIMATELY $36.5 MILLION. DOCUMENTS INCORPORATED BY REFERENCE PORTIONS OF THE REGISTRANT'S DEFINITIVE PROXY STATEMENT TO BE FILED WITH THE SECURITIES AND EXCHANGE COMMISSION WITHIN 120 DAYS AFTER MAY 28, 2000 ARE INCORPORATED BY REFERENCE INTO PART III. 2 PART I ------ (Items 1 through 4) ------------------- Item 1. - Business ------- -------- Frisch's Restaurants, Inc. (together with its wholly owned subsidiaries, the "Company") is an Ohio Corporation that was incorporated in 1947. The Company is headquartered in Cincinnati, Ohio and its stock has been publicly traded since 1960. The Company's operations include two (2) concepts within the mid-scale family sector of the restaurant industry. As of May 28, 2000, the Company operated eighty-eight (88) family restaurants using the "Big Boy" trade name and five (5) "Golden Corral" grill-buffet style family restaurants. Additionally, the Company had sub-licensed thirty-seven (37) "Big Boy" restaurants to other operators. All of these restaurants are located in various markets of Ohio, Kentucky and Indiana. Both the "Big Boy" and "Golden Corral" concepts are considered reportable operating segments for purposes of compliance with Statement of Financial Accounting Standards No. 131, "Disclosures About Segments of an Enterprise and Related Information." Financial information by operating segment as of and for the three fiscal years in the period ended May 28, 2000 appears in Note I - Segment Information - to the Consolidated Financial Statements included in Part II, Item 8 of this Form 10-K. Prior to 1996, the Company also operated "Hardee's" restaurants pursuant to a license from Hardee's Food Systems, Inc. of Rocky Mount, North Carolina. The Company also has operations in the lodging business. In March 2000, the Company's Board of Directors authorized management to divest lodging operations, which consist of two (2) high-rise hotels located in the greater Cincinnati area that are licensed through Choice Hotels International of Silver Spring, Maryland. One of the hotels uses the trade name "Quality Hotel"; the other uses the upscale "Clarion Hotel" brand. Prior to July 1999, the "Clarion" was also a "Quality Hotel". Extensive renovations from 1995 through 1999 qualified it for the change to "Clarion". The Company plans to operate both hotels until buyers are found, which is expected to take up to one year from the date of the decision by the Board of Directors. "BIG BOY" RESTAURANTS Big Boy restaurants are full service family restaurants offering quick, efficient service, which the Company operates under the name "Frisch's". Most of the restaurants also have "drive-thru" service to support and enhance non-dining room carryout trade. The restaurants are open seven (7) days a week, typically from 7:00 a.m. to 11:00 p. m. with extended weekend evening hours. Menus are generally standardized with a wide variety of items at moderate prices, featuring well-known signature items such as the original "Big Boy" double-deck hamburger sandwich, freshly made onion rings and hot fudge cake. Menu selections also include many other sandwiches, pasta, roast beef, chicken and seafood dinners, desserts and other items. In addition, a full breakfast menu is offered, and most of the restaurants contain breakfast bars, and soup and salad bars. Drive-thru and carryout menus emphasize combo meals that consist of a popular sandwich packaged with french fries and a beverage and sold at a lower price than if purchased separately. Although customers have not shown any significant preference for highly nutritional, low fat foods, such items are available on the menu and salad bars. Operations in the Big Boy operating segment are vertically integrated and include the manufacture and distribution of food products and supplies to the Company's Big Boy restaurants and to certain Big Boy sub-licensees for resale to the general public. Franchise fees are charged to sub-licensees for use of trademarks and trade names and sub-licensees are required to make contributions to the Company's general advertising account. These fees and contributions are calculated principally on percentages of sales. The Company has the right to use, and sub-license others to use, the registered trademark and trade name "Big Boy" pursuant to a license agreement with Elias Brothers Restaurants, Inc. of Warren, Michigan. Under this agreement, the Company has been granted the exclusive right to use, and sub-license others to use, the "Big Boy" trademark in the states of Ohio, Kentucky, Indiana, Florida, Oklahoma, Texas, parts of Kansas, the unfranchised areas of Tennessee and, under certain circumstances, in prescribed areas of certain states adjacent to Tennessee. The agreement provides for unlimited renewal rights and has no provision for license fees. System-wide Big Boy restaurant sales, which include sales made by restaurants sub-licensed to others, were approximately $187 million in fiscal 2000, $178 million in fiscal 1999 and $172 million in fiscal 1998. 2 3 The Company is currently in the process of redesigning its Big Boy restaurant building concept, a strategic move to strengthen the Company's position in the ever-changing market place. The redesign focuses on the shifts in customer expectations to differentiate the Big Boy concept from that of its competitors. Consumer research was used to identify the strengths of the existing concept, which became the cornerstone for the next generation of Frisch's Big Boy restaurant buildings. New architecture will signal to the customers that something new and exciting has taken place in the dining room. Construction using the new prototype is currently scheduled to begin in Autumn 2000. The Big Boy marketing strategy in place since Spring 1999 continues to emphasize the use of radio and cable TV to reach more consumers more cost effectively than commercials on network television had previously done. In 1997, the Company completed a restructuring of its Big Boy operations by closing fifteen (15) unprofitable restaurants, including all restaurants in the Indianapolis, Indiana area. Four of the closed restaurants were sold in 1999 to a Big Boy franchise operator, providing new revenue streams for the Company. The last new Big Boy restaurant to open was in 1997. This has allowed management to focus principally on building same store sales and margins in the eighty-eight (88) existing restaurants. The following tabulation sets forth Big Boy restaurant openings and closings for restaurants both operated by the Company and sub-licensed to others for the five years ended May 28, 2000:
Year ended 6/2/96 6/1/97 5/31/98 5/30/99 5/28/00 -------- -------- ------- ------- ------- Big Boy Restaurants Operated by the Company ------------------------------------------- Opened 4 3 - - - Replaced by new buildings (1) (2) - - - Closed (3) (16) - - - -------- -------- ------- ------- ------- Total Operated Big Boy Restaurants 103 88 88 88 88 Big Boy Restaurants Sub-Licensed to Others ------------------------------------------ Opened - 2 - 3 1 Closed (12) (5) (5) - (1) -------- -------- ------ ------ --- Total Sub-Licensed Big Boy Restaurants 42 39 34 37 37
The sub-license agreements with sub-licensees are not uniform, but most of the licenses for individual restaurants are covered by agreements containing the following provisions: 1. The Licensor grants to the Licensee the right to use the name "Frisch" and/or "Frisch's" and related trademarks and names in connection with the operation of a food and restaurant business, in return for which the Licensee pays a license fee equal to three and three-quarters percent (3 3/4%) of its gross sales. In addition, an initial fee of $30,000 is generally required. 2. The Licensor provides local and regional advertising through publications, radio, television, etc., in return for which the Licensee pays an amount equal to two and one-half percent (21/2%) of its gross sales. 3. The Licensee agrees to conduct its business on a high scale, in an efficient manner, with cleanliness and good service, all to the complete satisfaction of the Licensor, and to comply with all food, sanitary and other regulations, and to serve only quality foods. 4. The term of the license is for a period of five (5) years. The license can be renewed for two further periods of five (5) years each provided the terms are similar to those contained in license agreements given by the Licensor at such time. 3 4 Total franchise and other service fees earned by the Company from sub-licensees in fiscal 2000 were substantially less than 1% of consolidated revenue. In addition, four (4) of the Big Boy restaurants sub-licensed to others (11%) also purchase accounting and payroll services from the Company. To service its owned Big Boy restaurants and certain of the Big Boy restaurants sub-licensed to others, the Company operates a commissary at Cincinnati, Ohio, where it prepares foods, and stocks foods and beverages, forms, paper products and other supplies. Some companies in the restaurant industry operate commissaries, while others purchase from outside sources. Raw materials, principally consisting of food items, are generally plentiful and may be obtained from any number of reliable suppliers. Quality and price are the principal determinants of source. The Company believes that centralized purchasing and food preparation through the commissary operation ensures uniform product quality, timeliness of distribution (two to three deliveries per week) to restaurants and ultimately results in lower food and supply costs. Revenue from the sale of commissary products to Big Boy restaurants sub-licensed to others were 3.7% of consolidated revenue in fiscal 2000, as only eighteen (18) of the Big Boy restaurants sub-licensed to others (49%) currently purchase items from the commissary. Big Boy restaurants sub-licensed to other operators in northern Indiana and northwestern Ohio do not buy food and supplies from the commissary. The commissary does not supply the Company's Golden Corral restaurants. "GOLDEN CORRAL" RESTAURANTS In 1998 the Company entered into an area development agreement with Golden Corral Franchising Systems, Inc. of Raleigh, North Carolina ("Franchisor"), under which development rights were granted to the Company to establish and operate twenty-five (25) Golden Corral restaurants in certain markets in Ohio, Kentucky and Indiana, principally the greater metropolitan areas of Cincinnati and Dayton, Ohio and Louisville, Kentucky. The development schedule calls for the restaurants to be opened over a seven-year period. The Company opened its first Golden Corral restaurant in 1999. Five (5) Golden Corral restaurants were operating as of May 28,2000 with four (4) more to be open by February 2001. On average, the approximate cost to build and equip each Golden Corral restaurant is $2,500,000, including land. The Company is in compliance with the development schedule as required by its agreement with the Franchisor. The Company does not have the right to sub-license others to use the Golden Corral system or proprietary marks. In July 2000, the Company entered into a second area development agreement with the Franchisor, which grants development rights to the Company to establish and operate fifteen (15) additional Golden Corral restaurants in certain defined markets in the Cleveland and Toledo, Ohio Designated Market Areas. The development schedule calls for two (2) restaurants to be open by December 31, 2001, with all fifteen (15) restaurants to be open and in operation by December 31, 2007. Golden Corral is a grill-buffet style family restaurant concept featuring grilled to order steaks and a wide variety of buffet items including seafood, chicken, other buffet foods, salad bars, in-store display bakery and beverage items. The restaurants have distinctive exteriors and interior designs and trade dress, and are open seven (7) days a week for lunch and dinner, providing prompt, courteous service in a clean and wholesome family atmosphere. Typical operating hours are 11:00 a.m. to 10:00 p.m. Additionally, the restaurants open earlier on weekends to provide a breakfast buffet. The Company has sole discretion as to the prices charged to its customers. The Company may only sell such products, food, beverages and other menu items that meet the Franchisor's standards of quality and quantity, as expressly approved and have been prepared in accordance with the Franchisor's specifications. The Company currently purchases substantially all such menu items from the same vendor that the Franchisor uses for its operations. Deliveries are made two to three times per week. Other vendors are available to provide products meeting the Franchisor's specifications should the Company wish or need to make a change. Under the terms of the area development agreement, each Golden Corral restaurant operated by the Company is governed by an individual franchise agreement. The term of each franchise granted is for fifteen (15) years from the date the restaurant opens for business. Renewal privileges include two (2) additional consecutive five (5) year terms provided that the terms are the same as the then-current form of renewal required by the Franchisor. In consideration of the granting of each individual franchise agreement, an initial franchise fee of $40,000 is required. Additionally, a royalty fee is required in an amount equal to four percent (4%) of the restaurant's gross 4 5 sales, and the Company is required to expend or contribute on advertising an amount not less than two percent (2%) of its gross sales up to a maximum of six percent (6%) of its gross sales. Other Developments ------------------ Each of the Company's restaurants is managed through standardized operating and control systems. To enhance these controls, the installation of a point-of-sale (POS) system was completed in all Big Boy restaurants in February 1999. The system has eliminated many cumbersome tasks such as manual order entry and the errors associated with it. It has provided cost savings and administrative advantages allowing management to instantly accumulate and utilize data for more effective decision making, while allowing managers to spend more time in the dining room focusing on customer needs. The total investment exceeded $4.8 million. At the beginning of fiscal 1999, the Company initiated a new incentive-based compensation program for Big Boy restaurant managers. It replaced a bonus program that was paid on the basis of increases in sales and profit over the previous year, which sometimes had the adverse effect of penalizing better managers. The new program ties restaurant managers' compensation more directly to the cash flow of their restaurant, allowing bonus to be earned on a more consistent basis. In addition, the maximum amount that managers can earn was also increased to well above the average for competing concepts. As had been expected, a reduction in executive store management turnover was achieved. The Company believes the program has helped to build a strong management team that has focused on building same store sales and margins. The Company has comprehensive recruiting and training programs designed to maintain the food and service quality necessary to achieve its goals for operating results. The Company considers its investment in its people to be a strategic advantage. The Company maintains a management recruiting staff at its headquarters. Corporate training centers are operated in Cincinnati, Ohio and Covington, Kentucky for the purpose of conducting training programs for new managers. The training includes both classroom instruction and on-the-job training. For hourly employees, innovative software products were introduced in 1998 and 1999 such as the STAR employee selection program which helps lower turnover rates by ensuring a proper hiring selection; the GROW interactive employee training system; and CREWS, a telephone processed program that provides information to restaurant managers on employee job satisfaction. Additionally, all of the Company's training videos and quizzes were converted to CD ROM formats in 1998. Updates of these videos along with information on new products and training procedures are downloaded to each restaurant through the POS system. Information of test results is uploaded to the PC's of operations supervision and the human resources department. Trademarks and Service Marks ---------------------------- The Company has registered certain trade names and service marks on the Principal Register of the United States Patent and Trademark office, including "Frisch's", "Brawny Lad" and "Buddie Boy". These registrations are considered important to the Company's Big Boy operations, especially the trade name "Frisch's". The duration of each registration varies. The Company intends to renew all of its trade names and service marks when each comes up for renewal. The "Big Boy" trade name and service marks are registered trademarks of Elias Brothers, Inc. The "Golden Corral" trade name and service marks are registered trademarks of Golden Corral Corporation. The "Quality Hotel" and "Clarion Hotel" trade names and service marks are registered trademarks of Choice Hotels International. The Company is not aware of any infringements on its registered trade names and service marks, nor is the Company aware of any infringement on any of its territorial rights to use the proprietary marks licensed to the Company. Seasonality ----------- The Company's business is moderately seasonal, with the third quarter of the fiscal year (December through February) normally accounting for a smaller share of annual revenues. Additionally, severe winter weather can have a marked negative impact upon revenue during the third quarter. Occupancy and other fixed operating costs have a greater negative impact on operating results during any quarter that may experience lower sales. 5 6 Working Capital --------------- The Company has historically maintained a strategic negative working capital position, which is not uncommon in the restaurant industry. The deficit is often substantial, but management believes that such position does not hinder the Company's ability to satisfactorily retire its obligations when due, as substantially all the Company's retail sales are cash or credit card sales, and the Company's revolving credit lines are readily available when needed. A positive working capital position had been established as of May 28, 2000, reflecting the classification of the assets of the Company's discontinued hotel operations as current assets, in anticipation of their sale. Customers, Backlog and Government Contracts ------------------------------------------- Since most of the Company's revenue is derived from food sales to the general public, there is not any material dependence upon a single customer or any group of a few customers. No backlog of orders exists and no material portion of the Company's business is subject to renegotiation of profits or termination of contracts or subcontracts at the election of the government. Competition ----------- The restaurant business is highly competitive and many of the Company's competitors are substantially larger and possess greater financial resources than does the Company. The Company has numerous competitors, including national chains, regional and local chains, as well as independent operators, none of which, in the opinion of the Company, is dominant in the mid-scale family sector of the restaurant industry. Competition continues to increase from supermarkets and other non-traditional competitors, as home meal replacement continues to grow in popularity. The principal methods of competition in the restaurant industry are brand name recognition and advertising, menu selection and prices, food quality and customer perception of value, speed and quality of service, cleanliness and fresh, attractive facilities in convenient locations. Proper staffing levels and employee training have also become competitive factors in recent years. In addition to competition for customers, sharp competition exists for qualified restaurant managers and for hourly restaurant workers, and for quality sites on which to build new restaurants. Research and Development ------------------------ The Company's corporate staff includes a manager of research and development for its Big Boy restaurants whose responsibilities entail development of new menu selections and enhancing existing products. While these activities are important to the Company, these expenditures have not been and are not expected to be material to the Company's results. Government Regulation --------------------- The Company is subject to licensing and regulation by various federal, state and local agencies, including vendors' licenses, health, sanitation, safety, hiring and employment practices. All operations are believed to be in material compliance with all applicable laws and regulations. The Company's restaurants are constructed to meet local and state building and fire codes, and to meet the requirements of the Americans with Disabilities Act. All older restaurants have been remodeled or updated to also meet the requirements of the Americans with Disabilities Act. Although the Company has not experienced any significant obstacles to obtaining building permits, licenses or approvals from governmental bodies, increasingly rigorous requirements on the part of state, and in particular, local governments could delay or possibly prevent expansion in desired markets. Environmental Matters --------------------- The Company does not believe that various federal, state or local environmental regulations will have any material impact upon its capital expenditures, earnings or competitive position. However, the Company can not predict the effect of any future environmental legislation or regulations. 6 7 Employees --------- As of May 28, 2000, the Company and its subsidiaries employed approximately 5,800 persons, of whom 2,400 were part-time (those working less than 24 hours per week). Although there is no significant seasonal fluctuation in employment levels, hours worked may vary according to restaurant sales levels. None of the Company's employees is represented by a collective bargaining agreement, and management considers employee relations to be excellent. Item 2. - Properties ------- ---------- Substantially all of the Company's restaurants are free standing facilities that are well maintained. Most of the Big Boy restaurants have a "drive-thru" window. The following tabulation sets forth the range and average floor space and the range and average seating capacity by operating segment (similar information for Big Boy restaurants sub-licensed to others is not available):
Floor space - Sq. Ft. Seating capacity ----------------------------------- ---------------------------------- Range Range --------------------- -------------------- Smallest Largest Average Smallest Largest Average -------- ------- ------- -------- ------- ------- Big Boy 3,578 6,820 5,598 105 200 155 Golden Corral 9,952 9,952 9,952 348 348 348
Sites acquired for development of new Company operated restaurants are identified and evaluated for potential long-term sales and profits. A variety of factors are analyzed including demographics, traffic patterns, competition and other relevant information. Older Big Boy restaurants are generally located in urban or heavily populated suburban neighborhoods that cater to local trade rather than highway travel. Restaurants opened since the middle part of the 1980's have generally been located near interstate highways. The following table sets forth certain operating segment information with respect to the number and location of all restaurants as of May 28, 2000: Big Boy ------- Company Sub- Operated Licensed Golden Corral -------- -------- ------------- Ohio 65 26 3 Kentucky 19 3 2 Indiana 4 8 - ---- ---- -- Total 88 37 5 As control of property rights is important to the Company, it is the Company's policy to own its restaurant locations whenever possible. Many of the restaurants operated by the Company that opened prior to 1990 were financed with sale/leaseback transactions. The following table sets forth certain operating segment information regarding occupancy of Company-operated restaurants (similar information for Big Boy restaurants licensed to others is not available): Big Boy Golden Corral ------- ------------- Land and building owned 57 5 Land or land & building leased 31 - ---- -- Total 88 5 7 8 The thirty-one (31) leases in the above table generally require the Company to pay property taxes, insurance and maintenance, and provide for prime terms of fifteen (15) or twenty (20) years with options aggregating ten (10) or fifteen (15) years. Certain of these leases, all but two of which have options to renew for from five (5) to twenty-five (25) years and/or favorable purchase options, will expire during the next five (5) years as follows: Fiscal year ending in Number of leases expiring --------------------- ------------------------- 2001 4 2002 3 2003 3 2004 3 2005 5 As of May 28, 2000, the Company had two (2) Golden Corral restaurants under construction, one (1) of which is being built in Ohio on land owned by the Company, the other in Kentucky on leased land. An additional site in Ohio is owned by the Company on which a Big Boy restaurant will be constructed. The Company owns two hotels in greater Cincinnati, both of which are currently listed for sale with a broker. The "Quality Hotel" located in Norwood, Ohio contains 148 guest rooms, banquet facilities for 400 persons, a restaurant and a cocktail lounge. The "Clarion Hotel" in Covington, Kentucky contains 236 guest rooms, banquet facilities for 700, and two full-service restaurants with cocktail lounges. The Clarion Hotel is built on land leased through April 30, 2020, with assignable renewal options aggregating fifty (50) years. The lease contains an option to purchase this land for $1,000,000 at any time during the current term or any renewal thereof. None of the Company's property is currently encumbered by mortgages or otherwise pledged as collateral. With the exception of certain delivery equipment utilized under capital leases expiring during periods to 2004, the Company owns substantially all of the furnishings, fixtures and equipment used in the operation of the business. The Company owns the building that houses its commissary in Cincinnati, Ohio. The area of this building is approximately 79,000 square feet. The facility normally operates one shift daily so that additional productive capacity is available when needed. It is suitable and adequate to supply Company operated Big Boy restaurants and the needs of Big Boy restaurants licensed to others in all the Company's market areas for the foreseeable future. The Company maintains its headquarters in Cincinnati on a well-traveled street in a mid-town business district. This administrative office space approximates 49,000 square feet and is occupied under an operating lease expiring December 31, 2002, with a renewal option through December 31, 2012. The Company has assigned or sub-let certain leases of closed restaurants with average annual obligations approximating $169,000 over the next five (5) years, for which the Company remains contingently liable. In the event of default by the assignees or sub-lessees, the Company generally retains the right to re-assign or sub-let the properties. Three (3) former Big Boy restaurants (remaining of fifteen (15) closed at the end of fiscal 1997) were listed for sale with a broker as of May 28, 2000. Two (2) of the properties are located in Ohio and are owned by the Company. The third property is located on leased land in Indiana. Two (2) of these properties are currently under contract for disposal. Six (6) other surplus land locations were also held for sale as of May 28, 2000 and are listed with brokers. Three (3) of these sites are located in Ohio, with one (1) each being located in Kentucky, Indiana and Texas. Additionally, the Company owns three (3) other sites for which no specific plans have been made. Two (2) of these sites are located in Kentucky, the third is located in Ohio. During fiscal 1999, the Company disposed of its one-fifteenth (1/15) limited partner's interest in the Cincinnati Reds major league baseball team. The highly unusual and infrequent transaction was recorded as an extraordinary gain and is more fully described in Note J to the Consolidated Financial Statements included in Part II, Item 8 of this Form 10-K. 8 9 Item 3. - Legal Proceedings ------- ----------------- From time to time, the Company is subject to various claims and suits in the ordinary course of business. The Company does not believe that any ultimate liability for such claims will have a material impact on its earnings or financial condition. Item 4. - Submission of Matters to a Vote of Security Holders ------- --------------------------------------------------- During the fourth quarter of fiscal 2000, no matters were submitted to a vote of security holders. Executive Officers of the Registrant ------------------------------------- The executive officers are chosen at the annual meeting of the Board of Directors for a term of one year and until their successors are chosen and qualified. With the exception of Paul F. McFarland, each of the executive officers listed below has been continuously employed by the Company for at least the past five years:
Present Office Held Name Age Office Since ---- --- ------ ----- Jack C. Maier 75 Chairman of the Board 1970 Craig F. Maier 50 President and Chief Executive Officer 1989 Paul F. McFarland 54 Vice President - Chief Operating Officer 1998 Donald H. Walker 54 Vice President, Treasurer - Chief Financial Officer 1996 W. Gary King 63 Secretary - Counsel 1996
Prior to joining the Company in September 1998, Mr. McFarland was Executive Vice President of Operations and Chief Operating Officer for Long John Silvers from 1992 to 1997. 9 10 PART II ------- (Items 5 through 9) ------------------- Item 5. - Market for the Registrant's Common Equity and Related Stockholder ------- ----------------------------------------------------------------- Matters ------- The Company's common stock is traded on the American Stock Exchange under the symbol "FRS". The following table sets forth the high and low sales prices for the common stock for each quarter within the Company's two most recent fiscal years:
Year Ended May 28, 2000 Year Ended May 30, 1999 ----------------------------------------- ---------------------------------------- Stock Prices Stock Prices -------------------------- Dividend -------------------------- Dividend High Low per share High Low per share ------------ ----------- ------------ ----------- ------------ ----------- 1st Quarter 10 15/16 9 5/8 7 cents 12 8 11/16 7 cents 2nd Quarter 10 1/2 9 3/8 8 cents 11 3/8 8 1/4 7 cents 3rd Quarter 10 8 1/4 8 cents 11 1/4 10 1/4 7 cents 4th Quarter 9 3/4 8 1/2 8 cents 10 5/8 9 1/8 7 cents
Through July 10, 2000, the Company has paid 158 consecutive quarterly cash dividends during its forty year history as a public company. The closing price of the Company's common stock as reported by the American Stock Exchange on May 26, 2000 was $9.38. There were approximately 2,700 shareholders of record as of June 26, 2000. 10 11 Item 6. - Selected Financial Data ------- ----------------------- FRISCH'S RESTAURANTS, INC. AND SUBSIDIARIES SUMMARY OF OPERATIONS
(In thousands, except per share data) -------------------------------------------------------------- REVENUE 2000 1999 1998 1997 1996* ----------- ------------ ----------- ----------- ------------ Sales $ 165,847 $ 146,671 $ 139,474 $ 152,582 $ 153,779 Other 1,353 1,346 1,213 1,399 1,504 ----------- ------------ ----------- ----------- ------------ Total revenue 167,200 148,017 140,687 153,981 155,283 COSTS AND EXPENSES Cost of sales Food and paper 54,621 47,029 45,277 50,186 51,142 Payroll and related 57,287 50,559 46,895 51,493 54,516 Other operating costs 34,230 30,724 30,526 35,782 36,936 ----------- ------------ ----------- ----------- ------------ 146,138 128,312 122,698 137,461 142,594 Administrative and advertising 9,225 8,963 7,553 8,286 7,433 Impairment of long-lived assets - 1,125 375 4,600 - Interest 2,411 2,437 3,076 2,373 2,411 ----------- ------------ ----------- ----------- ------------ Total costs and expenses 157,774 140,837 133,702 152,720 152,438 ----------- ------------ ----------- ----------- ------------ Earnings from continuing operations before income tax and extraordinary item 9,426 7,180 6,985 1,261 2,845 INCOME TAXES Current 3,533 2,887 1,928 1,409 1,252 Deferred (182) (267) 397 (1,014) (330) ----------- ------------ ----------- ----------- ------------ 3,351 2,620 2,325 395 922 ----------- ------------ ----------- ----------- ------------ EARNINGS FROM CONTINUING OPERATIONS 6,075 4,560 4,660 866 1,923 Income (loss) from discontinued operations (net of applicable tax) 70 (142) (115) 321 387 Extraordinary item (net of applicable tax) - 3,712 - - - ----------- ------------ ----------- ----------- ------------ NET EARNINGS $ 6,145 $ 8,130 $ 4,545 $ 1,187 $ 2,310 =========== ============ =========== =========== ============ BASIC AND DILUTED NET EARNINGS PER SHARE OF COMMON STOCK Continuing operations $1.08 $ .76 $ .75 $ .12 $ .27 Discontinued operations .01 (.02) (.02) .05 .05 Extraordinary item - .62 - - - ----------- ------------ ----------- ----------- ------------ $1.09 $1.36 $ .73 $ .17 $ .32 =========== ============ =========== =========== ============ DIVIDENDS PER SHARE Cash $ .31 $ .28 $ .26 $ .24 $ .24 Stock - - - 4% 4% OTHER FINANCIAL STATISTICS Working capital (deficit) $ 3,056 $ (9,610) $ (8,450) $ (8,816) $ (9,894) Capital expenditures 13,837 12,709 11,235 10,221 15,362 Total assets 107,779 103,426 106,724 111,260 118,396 Long-term obligations 35,891 31,605 41,855 30,878 34,631 Repurchase of common stock $5,503 $1,067 $17,690 $111 - Shareholders' equity 54,167 55,288 49,910 64,684 65,307 Book value per share at year end $ 10.13 $ 9.37 $ 8.31 $ 9.05 $ 9.49 Return on average equity 11.2% 15.5% 7.9% 1.8% 3.6% Weighted average number of diluted shares outstanding 5,658 5,968 6,238 7,151 7,157 Number of shares outstanding at year end 5,345 5,901 6,005 7,148 6,883 Percentage increase (decrease) in total revenue 13.0% 5.2% (8.6%) (.8%) 2.2% Earnings as a percentage of total revenue Earnings from continuing operations before income tax and extraordinary item 5.6% 4.9% 5.0% .8% 1.8% Net earnings 3.7% 5.5% 3.2% .8% 1.5%
* Indicates 53 week period 11 12 Item 7. - Management's Discussion and Analysis of Financial Condition and ------- --------------------------------------------------------------- Results of Operations --------------------- OVERVIEW In March 2000, the Board of Directors authorized management to develop a plan to divest the Company's hotel operations. Proceeds from the sale are expected to result in a gain on disposal sufficient to cover any operating losses that may be incurred during the phase-out period. The Company's net earnings for the year ended May 28, 2000 included hotel earnings of $70,000 or $.01 per share, while net earnings for the years ended May 30, 1999 and May 31, 1998 included net losses from hotel operations of $142,000 or ($.02) per share and $115,000 or ($.02) per share, respectively. In the accompanying financial statements, results from hotel operations have been accounted for as discontinued operations. Therefore, provisions for depreciation were permanently stopped beginning in the fourth quarter of fiscal 2000. Total depreciation charged against discontinued hotel operations was $1,358,000, $1,761,000 and $1,428,000, respectively, in fiscal years 2000, 1999 and 1998. The discussion of results of operations has been adjusted to exclude comparisons of the hotel summary information shown in the table below:
May 28, 2000 May 30, 1999 May 31, 1998 ------------ ------------ ------------ (in thousands) Total revenue $11,594 $11,534 $11,535 Cost of sales $11,186 $11,425 $11,373 Administrative and advertising 299 333 334 -------- -------- -------- Total costs and expenses 11,485 11,758 11,707 -------- -------- -------- Earnings (Loss) before income tax 109 (224) (172) Income tax (benefit) 39 (82) (57) -------- -------- -------- Earnings (Loss) from disc. operations $ 70 $ (142) $ (115) ======== ======== ========
For continuing operations, TOTAL REVENUE for fiscal 2000 was $167,200,000, an increase of $19,183,000 or 13 percent from the comparable period last year, and an increase of $26,513,000 or 18.8 percent when compared to two years ago. Earnings from continuing operations for fiscal 2000 were $6,075,000, or $1.08 per share, compared to $4,560,000 or $.76 per share in fiscal 1999, and $4,660,000 or $.75 per share two years ago. Excluding pretax impairment of assets charges of $1,125,000 and $375,000 taken respectively in fiscal 1999 and fiscal 1998, earnings from continuing operations would have been $.88 per share in fiscal 1999 and $.79 per share in fiscal 1998. An extraordinary gain of $3,712,000 or $.62 per share was also recorded in fiscal 1999 from the sale of the Company's limited partnership interest in the Cincinnati Reds major league baseball team. RESULTS OF OPERATIONS Same store sales in Big Boy restaurants improved by 5 percent during fiscal 2000, including more than a 7 percent gain for the twelve-week fourth quarter, marking the eleventh consecutive quarter that Big Boy same store sales gains have been achieved. Big Boy same store sales gains of more than 4 percent were posted in fiscal 1999 on top of a moderate gain in fiscal 1998. Strong sales from carryout and drive-thru trade, driven by a marketing emphasis on combo meals, produced the majority of the sales increases in all three years. In addition, the introduction of new menu items with higher price points helped to produce higher dining room sales in fiscal 2000. Menu prices were increased approximately 2 percent in the first and third quarters of fiscal 1998, 2 percent in the first and third quarters of fiscal 1999, 1.5 percent at the end of the first quarter and just under 2 percent near the end of the third quarter of fiscal 2000. Another menu price increase is currently being planned for autumn 2000. The Company has not opened or closed any Big Boy restaurants during the last three years as management's focus has been on building same store sales and margins in the 88 existing Big Boy restaurants. Average annual sales volume of a Big Boy restaurant reached $1,656,000 in fiscal 2000, up from $1,577,000 in fiscal 1999 and $1,512,000 in fiscal 1998. Sales volume of Golden Corral restaurants accounted for well over half of the total 13 percent increase in consolidated revenue during fiscal 2000. Only one Golden Corral restaurant was in operation for all of fiscal 2000, having opened in January 1999. Two more were opened during the first quarter of fiscal 2000, a fourth one opened near the end of the second quarter and a fifth one opened in the third quarter, during January 2000. The sixth one opened in July of 2000. The Company plans to build a total of 40 Golden Corrals through 2007. 12 13 OTHER REVENUE in fiscal 2000 was comparable with fiscal 1999, both of which were approximately 10 percent higher when compared to fiscal 1998. There have not been any significant changes in revenue from fees earned from Big Boy restaurants sub-licensed to others. At the end of fiscal 2000, 37 sub-licensed restaurants were in operation compared with 39 such restaurants at the beginning of the three-year period. Fiscal 1999 included a final partnership distribution from the Company's investment in the Cincinnati Reds professional baseball team. Fiscal 2000 includes revenue from the Company's efforts to market its innovative employee training and selection software products. COST OF SALES increased $17,826,000 or 13.9 percent during fiscal 2000 as compared with fiscal 1999, roughly proportionate to the 13 percent revenue increase. As a percentage of revenue, cost of sales was 87.4 percent, 86.7 percent, and 87.2 percent, respectively, in fiscal years 2000, 1999 and 1998. An analysis of the components of cost of sales follows. As a percentage of Big Boy sales, FOOD AND PAPER COSTS in Big Boy restaurants were 31.6 percent, 31.5 percent and 32 percent of revenue, respectively, during fiscal years 2000, 1999 and 1998. Increased sales of carryout and drive-thru meals, which usually have lower food cost than typical dining room meals, resulted in food cost reductions in all three years. However, this decrease was offset in fiscal 2000 by higher prices paid for pork, beef and fish. On a consolidated basis, food and paper costs were 32.7 percent, 31.8 percent and 32.2 percent of revenue, respectively, in fiscal years 2000, 1999 and 1998. The higher percentage in fiscal 2000 reflects the impact of food cost in Golden Corral restaurants, which as a percentage of sales, is much higher than in Big Boy restaurants. PAYROLL AND RELATED EXPENSES were 34.3 percent, 34.2 percent and 33.3 percent of revenue, respectively, in fiscal years 2000, 1999 and 1998. Higher pay rates driven by tight labor conditions were experienced in all three years. To improve service quality, the allowance of a small increase in the number of hours worked added to the higher costs in fiscal 2000. A variable compensation program for restaurant management, based on cash flows generated at individual restaurants, was introduced in fiscal 1999. Restaurant managers earned higher variable compensation during fiscal 2000 than was earned in fiscal 1999. However, two factors kept the fiscal 2000 payroll percentage from rising more dramatically above the fiscal 1999 percentage. First, the costs of certain employee benefits are fixed and do not rise with higher levels of pay or higher sales levels. Second, the typical payroll and related expense percentage for a Golden Corral restaurant is slightly lower than for a Big Boy restaurant. Payroll and related expenses also benefited from favorable claims experience in the Company's self-insurance programs, as reserve estimates were lowered in the first quarters of all three fiscal years. Without these adjustments, payroll and related expenses would have been 34.5 percent, 34.5 percent and 33.7 percent of revenue, respectively, in fiscal years 2000, 1999 and 1998. It has become increasingly likely that the federal minimum wage will soon be increased by a dollar per hour to be phased in over a two to three year period. Based on current labor conditions, such an increase would not be expected to have an immediate material effect on the Company's payroll costs, especially if the final legislation does not change the cash wage for tipped employees. OTHER OPERATING EXPENSES decreased to 20.5 percent of revenue during fiscal 2000 from 20.8 percent in fiscal 1999 and 21.7 percent in fiscal 1998. As these expenses tend to be more fixed in nature, the sales increases cause these costs to be a lower percentage of revenue. In addition, the percentage for fiscal 2000 benefited from a gain from the sale of an older Big Boy restaurant. Offsetting the fiscal 2000 improvement were opening costs of approximately $984,000, for the Company's Golden Corral restaurants, compared with $404,000 in fiscal 1999. These opening costs, including $195,000 this year and $145,000 last year for Golden Corral restaurants not yet in operation, resulted in the Golden Corrals having a negative impact on the Company's earnings during fiscal years 2000 and 1999. Excluding all opening expenses, pretax operating earnings for Golden Corral restaurants would have been $669,000 in fiscal 2000 compared with approximately $85,000 in fiscal 1999, which included only eighteen weeks of results for the first restaurant that opened in January 1999. ADMINISTRATIVE AND ADVERTISING EXPENSE in fiscal 2000 increased $262,000 or 3 percent higher than fiscal 1999, and was $1,672,000 or 22.1 percent more than fiscal 1998. The fiscal 2000 increase over fiscal 1999 is principally due to higher spending for Big Boy advertising proportionate with the higher sales levels, reflecting the Company's policy of spending a constant percentage of sales dollars, and higher bonus accruals commensurate with the earnings improvement. Fiscal 1998 included costs associated with rolling out the point-of-sale systems in Big Boy 13 14 restaurants. Administrative and advertising costs for fiscal 1998 included gains from dispositions of certain property. Results for fiscal years 1999 and 1998 were adversely affected by impairment of assets charges of $1,125,000 and $375,000, respectively, to lower the carrying value of certain property held for sale relating to fifteen Big Boy restaurants that closed at the end of fiscal 1997. The fiscal 1999 charge of $1,125,000 was necessitated when it became apparent that the seven remaining restaurants then to be sold would have to be disposed of for values significantly below the initial estimates that were used when the restaurants closed. INTEREST EXPENSE during fiscal 2000 decreased $27,000 or 1.1 percent lower than the comparable period a year ago, and was $665,000 or 21.6 percent lower than two years ago. Interest attributable to the tender offer loan (see notes D and G to the consolidated financial statements) was $38,000 during fiscal 2000, compared with $462,000 during fiscal 1999 and $794,000 in fiscal 1998. Borrowing in fiscal 2000 to construct Golden Corral restaurants and to finance repurchases of the Company's common stock tempered the savings from the reduction in tender offer interest. Expected proceeds in fiscal year 2001 from the sale of the hotel properties will be used to repay debt, resulting in substantial interest savings. However, the savings will likely be offset by continued borrowing for construction of Golden Corral restaurants during the next three fiscal years. Provision for INCOME TAX EXPENSE as a percentage of pre-tax earnings was 35.5 percent in fiscal 2000, compared with 36.3 percent in fiscal 1999 and 33.3 percent in fiscal 1998. Fiscal 1999's 36.3 percent tax rate reflected higher state income taxes associated with the extraordinary gain from the sale of the Company's limited partnership interest in the Cincinnati Reds major league baseball team. The tax rate for fiscal 2000 is higher than 1998's tax rate due to much higher earnings in 2000, which causes federal tax credits to be a lower percentage of pretax earnings which in turn results in a higher effective tax rate. The tax rate for fiscal 2000 also contains much higher provisions for state and local taxes than fiscal 1998. LIQUIDITY AND CAPITAL RESOURCES The Company has historically maintained a strategic negative working capital position, which is not uncommon in the restaurant industry. The deficit is often substantial, but management believes that such position does not hinder the Company's ability to satisfactorily retire its obligations when due, as substantially all the Company's retail sales are cash or credit card sales, and the Company's revolving credit lines are readily available when needed. A positive working capital position has been established as of May 28, 2000, reflecting the classification of the assets of the Company's discontinued hotel operations as current assets, in anticipation of their sale. CASH PROVIDED BY OPERATING ACTIVITIES in fiscal 2000 was $15,507,000, an increase of $2,567,000 over last year and $3,043,000 higher than two years ago. These cash flows were generated principally from net income and depreciation. Together with funds from external borrowing, fiscal 2000's cash flows were utilized for discretionary capital projects (principally Golden Corral expansion), dividends, repurchases of the Company's common stock, and to service debt. INVESTING ACTIVITIES in fiscal 2000 included $13,837,000 in capital costs, an increase of $1,128,000 from the prior year and $2,602,000 higher than two years ago. Fiscal 2000's capital spending included $9,810,000 for Golden Corral, $1,070,000 to remodel Big Boy restaurants, $540,000 for improvements to the hotel properties, and $2,417,000 in routine equipment replacements and other capital outlays. Proceeds from property sales in fiscal 2000 were $1,072,000, a decrease of $3,781,000 and $5,727,000, respectively, from fiscal 1999 and fiscal 1998, both of which included property sales from certain of the fifteen Big Boy restaurants that closed at the end of fiscal 1997. The Company expects to receive at least $14,000,000, net of expenses, from the sale of its hotel properties. The sale proceeds will be used in the short term to repay debt and ultimately will be reinvested in Big Boy and Golden Corral restaurant expansion. The Company is also expecting sale proceeds of approximately $2,000,000 from closed restaurants and certain excess property in the first quarter of fiscal 2001. FINANCING ACTIVITIES in fiscal 2000 included $6,000,000 of new debt borrowed against the Golden Corral credit facility. In addition, $5,000,000 of new debt was borrowed on the $20,000,000 revolving line of credit, of which $1,720,000 was used to retire the tender offer loan, and $1,500,000 was repaid during the year. Scheduled long-term debt payments of $2,677,000 were also made. Regular quarterly cash dividends to shareholders totaling $1,753,000 were paid during the year ended May 28, 2000. In December 1999 and in early June 2000, the Board of Directors 14 15 authorized additional repurchases of up to 200,000 shares and 300,000 shares, respectively, of the Company's common stock. These approvals supplemented the Board's authorization in October 1998 to purchase up to 500,000 shares. Purchases are being made from time to time on the open market or through block trades during a two-year time frame that expires October 5, 2000. During the year ended May 28, 2000 the Company repurchased 559,508 shares at a cost of $5,503,000, bringing the total repurchases since the inception of the program to 664,306 shares at a cost of $6,567,000. The Company expects funds from operations to be sufficient to cover near term capital spending on Big Boy facilities, scheduled debt service, stock repurchases and regular quarterly cash dividends. If needed, the Company's revolving credit loan is available to meet additional borrowing requirements. Plans to build new Big Boys have been delayed while the design of the new building prototype is reworked. Construction of the first Big Boy to be built using the reworked prototype should begin by autumn 2000. Costs to remodel eighteen Big Boy restaurants scheduled for fiscal 2001 are expected to be approximately $1,050,000. The terms of the Company's original development agreement with Golden Corral Franchising Systems, Inc. call for the Company to open 25 Golden Corral restaurants through 2005. Five restaurants were in operation as of May 28, 2000. In addition, four more Golden Corrals are scheduled to be open by February 2001, including one that opened July 31, 2000. In July 2000, the Company entered into a second area development agreement to establish and operate fifteen additional Golden Corral restaurants in northern Ohio. The development schedule calls for two restaurants to be open by December 31, 2001, with all fifteen restaurants to be open by December 31, 2007. Costs are being funded through cash flow and a credit facility under which the Company may borrow up to $20,000,000 through September 1, 2001, of which $11,000,000 remains currently available. On average, the approximate cost to build and equip each Golden Corral restaurant is $2,500,000, including land. YEAR 2000 IMPACT The Company successfully completed its plan to insure that its information systems are fully Year 2000 compliant, as no significant problems were encountered during the rollover from 1999 to 2000. The Company utilized internal resources to convert and test its custom written headquarters software without material incremental cost. Point-of-sale systems required upgrade, the cost of which had no material adverse effect on the Company's financial position, results of operations or cash flows. Certain other systems that have embedded chip technology did not affect the Company's operations. The Company's plan also addressed the readiness of mission critical third party suppliers and service providers. The Company did not experience any significant interruption of food or other product delivery resulting from third-party non-compliance. All of the Company's information systems have continued to operate properly. SAFE HARBOR STATEMENT Statements included in this Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) that are not historical facts are forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from anticipated results. Such risks and uncertainties include, but are not limited to, the following: estimates used in preparing financial statements; seasonal weather conditions, particularly in the third quarter; intense competition; changes in business strategy and development plans; consumer perceptions of value, food quality and food safety; changing demographics and consumer preferences; changes in the supply and cost of food and labor; the effects of inflation and variable interest rates; legal claims; and changes in governmental regulations regarding the environment and changes in tax laws. The Company undertakes no obligation to update the forward-looking statements that may be contained in this MD&A. 15 16 Item 7A. - Quantitative and Qualitative Disclosures About Market Risk -------- ---------------------------------------------------------- The Company has market risk exposure to interest rate changes primarily relating to the $20,000,000 revolving credit loan, the outstanding balance of which was $17,000,000 as of May 28, 2000. Interest rates are determined by various indices for periods of one, two or three months as selected by the Company. The indices include the London Interbank Offered Rate (LIBOR) and the average rate being offered by top quality banks in the national secondary market for certificates of deposit (CD), plus the then applicable LIBOR/CD spread as periodically adjusted, ranging from a minimum of 87.5 basis points to a maximum of 150 basis points. Any portion of the note with respect to which a LIBOR or CD based rate is not in effect bears interest equal to the prime rate. The Company does not currently use derivative financial instruments to manage its exposure to changes in interest rates. Food supplies for Big Boy restaurants are generally plentiful and may be obtained from any number of suppliers. Quality and price are the principal determinants of source. Centralized purchasing and food preparation through the Company's commissary ensures uniform product quality and safety, timeliness of distribution to restaurants and results in lower food and supply costs. Certain commodities, principally beef, chicken, pork, dairy products, fish, french fries and coffee, are generally purchased based upon market prices established with vendors. Purchase contracts for some of these items may contain contractual provisions that limit the price to be paid. The Company does not use financial instruments as a hedge against changes in commodity pricing.
Item 8. - Financial Statements and Supplementary Data Page ------- ------------------------------------------- ---- Index to Consolidated Financial Statements Auditors' Report 17 Consolidated Balance Sheet - May 28, 2000 and May 30, 1999 18-19 Consolidated Statement of Earnings - Three years ended May 28, 2000 20 Consolidated Statement of Cash Flows - Three years ended May 28, 2000 21 Consolidated Statement of Shareholders' Equity - Three years ended May 28, 2000 22 Notes to Consolidated Financial Statements - Three years ended May 28, 2000 23-33 Quarterly Results (Unaudited) 33
16 17 AUDITORS' REPORT Shareholders Frisch's Restaurants, Inc. We have audited the accompanying consolidated balance sheets of Frisch's Restaurants, Inc. (an Ohio corporation) and Subsidiaries as of May 28, 2000 and May 30, 1999 and the related consolidated statements of earnings, cash flows, and shareholders' equity for each of the three years in the period ended May 28, 2000. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Frisch's Restaurants, Inc. and Subsidiaries as of May 28, 2000 and May 30, 1999, and the consolidated results of their operations and their cash flows for each of the three years in the period ended May 28, 2000, in conformity with generally accepted accounting principles. GRANT THORNTON LLP Cincinnati, Ohio July 6, 2000 17 18 FRISCH'S RESTAURANTS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET May 28, 2000 and May 30, 1999 ASSETS
2000 1999 ------------ ------------ CURRENT ASSETS Cash $ 565,089 $ 200,200 Receivables Trade 1,051,129 1,117,431 Other 183,053 219,299 Inventories 3,736,857 3,732,458 Prepaid expenses and sundry deposits 818,591 910,193 Hotel assets held for sale - net 13,737,251 - Prepaid and deferred income taxes 686,371 744,097 ------------ ------------ Total current assets 20,778,341 6,923,678 PROPERTY AND EQUIPMENT Land and improvements 24,058,978 21,089,875 Buildings 49,249,644 51,362,095 Equipment and fixtures 53,198,304 57,947,430 Leasehold improvements and buildings on leased land 14,885,289 28,449,043 Capitalized leases 7,282,687 8,224,712 Construction in progress 1,472,138 2,305,822 ------------ ------------ 150,147,040 169,378,977 Less accumulated depreciation and amortization 76,246,478 85,010,213 ------------ ------------ Net property and equipment 73,900,562 84,368,764 OTHER ASSETS Intangible assets 744,719 748,794 Investments in land 1,268,912 1,960,781 Property held for sale 2,823,309 2,076,484 Net cash surrender value-life insurance policies 4,210,900 4,045,080 Deferred income taxes 1,536,701 1,272,286 Other 2,515,884 2,030,296 ------------ ------------ Total other assets 13,100,425 12,133,721 ------------ ------------ $107,779,328 $103,426,163 ============ ============
The accompanying notes are an integral part of these statements 18 19 FRISCH'S RESTAURANTS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET May 28, 2000 and May 30, 1999 LIABILITIES
2000 1999 ------------ ------------ CURRENT LIABILITIES Long-term obligations due within one year Long-term debt $ 2,424,211 $ 1,730,964 Obligations under capitalized leases 354,755 451,024 Self insurance 851,096 1,092,733 Accounts payable 7,377,357 7,431,751 Accrued expenses 6,277,932 5,401,819 Income taxes 436,715 425,383 ------------ ------------ Total current liabilities 17,722,066 16,533,674 LONG-TERM OBLIGATIONS Long-term debt 26,330,582 21,248,526 Obligations under capitalized leases 4,511,312 5,146,170 Self insurance 2,924,433 3,019,947 Other 2,124,272 2,190,343 ------------ ------------ Total long-term obligations 35,890,599 31,604,986 COMMITMENTS - - SHAREHOLDERS' EQUITY Capital stock Preferred stock - authorized, 3,000,000 shares without par value; none issued - - Common stock - authorized, 12,000,000 shares without par value; issued, 7,362,279 shares - stated value - $1 7,362,279 7,362,279 Additional contributed capital 60,345,436 60,401,456 ------------ ------------ 67,707,715 67,763,735 Retained earnings 14,196,749 9,804,637 ------------ ------------ 81,904,464 77,568,372 Less cost of treasury stock (2,017,526 and 1,461,054 shares) 27,737,801 22,280,869 ------------ ------------ Total shareholders' equity 54,166,663 55,287,503 ------------ ------------ $107,779,328 $103,426,163 ============ ============
19 20 FRISCH'S RESTAURANTS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF EARNINGS Three years ended May 28, 2000
2000 1999 1998 ----------------- ----------------- ----------------- REVENUE Sales $ 165,846,505 $ 146,670,462 $ 139,473,555 Other 1,353,295 1,346,429 1,213,320 ----------------- ----------------- ----------------- Total revenue 167,199,800 148,016,891 140,686,875 COSTS AND EXPENSES Cost of sales Food and paper 54,621,455 47,029,072 45,277,165 Payroll and related 57,286,588 50,558,599 46,895,199 Other operating costs 34,230,261 30,724,162 30,525,368 ----------------- ----------------- ----------------- 146,138,304 128,311,833 122,697,732 Administrative and advertising 9,224,978 8,962,550 7,553,311 Impairment of long-lived assets - 1,125,000 375,000 Interest 2,410,443 2,437,117 3,075,615 ----------------- ----------------- ----------------- Total costs and expenses 157,773,725 140,836,500 133,701,658 ----------------- ----------------- ----------------- Earnings from continuing operations before income taxes and extraordinary item 9,426,075 7,180,391 6,985,217 INCOME TAXES Current Federal 3,194,952 2,644,314 1,914,034 Less tax credits (239,750) (217,325) (198,532) State and municipal 577,307 460,762 212,849 Deferred (181,580) (267,046) 397,033 ----------------- ----------------- ----------------- 3,350,929 2,620,705 2,325,384 ----------------- ----------------- ----------------- EARNINGS FROM CONTINUING OPERATIONS 6,075,146 4,559,686 4,659,833 Income (loss) from discontinued operations (net of applicable tax) 70,395 (141,845) (115,100) Extraordinary item (net of applicable tax) - 3,712,000 - ----------------- ----------------- ----------------- NET EARNINGS $ 6,145,541 $ 8,129,841 $ 4,544,733 ================= ================= ================= Basic and diluted net earnings per share of common stock Continuing operations $ 1.08 $ .76 $ .75 Discontinued operations .01 (.02) (.02) Extraordinary item - .62 - ----------------- ----------------- ----------------- $ 1.09 $ 1.36 $ .73 ================= ================= =================
The accompanying notes are an integral part of these statements. 20 21
FRISCH'S RESTAURANTS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS Three years ended May 28, 2000 2000 1999 1998 ------------ ------------ ------------ CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES: Net income $ 6,145,541 $ 8,129,841 $ 4,544,733 Adjustments to reconcile net income to net cash from operating activities: Depreciation and amortization 9,620,862 9,937,195 9,256,466 (Gain) loss on disposition of assets (129,439) 340,242 (896) Impairment of long-lived assets - 1,125,000 375,000 Gain on sale of investment in Cincinnati Reds - (3,712,000) - Changes in assets and liabilities: Decrease (increase) in receivables 102,548 (317,959) 208,542 (Increase) decrease in inventories (4,398) (93,718) 19,104 Decrease (increase) in prepaid expenses and sundry deposits 91,601 (82,622) 129,740 (Increase) decrease in prepaid and deferred income taxes (206,689) (186,051) 508,735 (Decrease) increase in accounts payable (54,394) 1,089,564 (14,990) Increase (decrease) in accrued expenses 876,113 (378,104) (271,081) Increase (decrease) in accrued income taxes 11,332 (1,662,617) - Increase in other assets (543,204) (330,243) (1,469,493) Decrease in self insured obligations (337,151) (388,321) (746,221) Decrease in other liabilities (66,071) (530,111) (75,235) ------------ ------------ ------------ Net cash provided by operating activities 15,506,651 12,940,096 12,464,404 CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES: Additions to property and equipment (13,837,269) (12,708,832) (11,235,376) Proceeds from disposition of property 1,071,836 4,852,765 6,798,563 Proceeds from sale of investment in Cincinnati Reds - 7,000,000 - Increase in other assets (154,124) (322,277) (201,336) ------------ ------------ ------------ Net cash (used in) investing activities (12,919,557) (1,178,344) (4,638,149) CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES: Proceeds from borrowings 11,000,000 6,000,000 18,644,490 Payment of long-term debt and capital lease obligations (5,955,824) (14,893,488) (7,299,387) Cash dividends paid (1,753,429) (1,672,689) (1,629,980) Treasury share transactions (5,472,275) (1,057,273) (17,688,571) Other (40,677) (22,362) - ------------ ------------ ------------ Net cash (used in) financing activities (2,222,205) (11,645,812) (7,973,448) ------------ ------------ ------------ Net increase (decrease) in cash and equivalents 364,889 115,940 (147,193) Cash and equivalents at beginning of year 200,200 84,260 231,453 ------------ ------------ ------------ Cash and equivalents at end of year $ 565,089 $ 200,200 $ 84,260 ============ ============ ============ Supplemental disclosures: Interest paid $ 2,288,527 $ 2,638,569 $ 2,700,697 Income taxes paid 3,667,348 4,388,158 1,984,439 Income tax refunds received 82,318 785 224,789
The accompanying notes are an integral part of these statements. 21 22
FRISCH'S RESTAURANTS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY Three years ended May 28, 2000 Common stock at $1 per share- Additional Shares and contributed Retained Treasury amount capital earnings shares Total ------------ ------------ ------------ ------------ ------------ Balance at June 1, 1997 $ 7,362,279 $ 60,427,514 $ 432,732 ($ 3,538,721) $ 64,683,804 Net earnings for the year - - 4,544,733 - 4,544,733 Treasury shares reissued - (215) - 1,407 1,192 Treasury shares acquired - - - (17,689,763) (17,689,763) Dividends Cash - $.26 per share - - (1,629,980) - (1,629,980) ------------ ------------ ------------ ------------ ------------ Balance at May 31, 1998 7,362,279 60,427,299 3,347,485 (21,227,077) 49,909,986 Net earnings for the year - - 8,129,841 - 8,129,841 Treasury shares reissued - (3,481) - 13,693 10,212 Treasury shares acquired - - - (1,067,485) (1,067,485) Employee stock ownership plan - (22,362) - - (22,362) Dividends Cash - $.28 per share - - (1,672,689) - (1,672,689) ------------ ------------ ------------ ------------ ------------ Balance at May 30, 1999 7,362,279 60,401,456 9,804,637 (22,280,869) 55,287,503 Net earnings for the year - - 6,145,541 - 6,145,541 Treasury shares reissued - (15,343) - 46,111 30,768 Treasury shares acquired - - - (5,503,043) (5,503,043) Employee stock ownership plan - (40,677) - - (40,677) Dividends Cash - $.31 per share - - (1,753,429) - (1,753,429) ------------ ------------ ------------ ------------ ------------ Balance at May 28, 2000 $ 7,362,279 $ 60,345,436 $ 14,196,749 ($27,737,801) $ 54,166,663 ============ ============ ============ ============ ============
The accompanying notes are an integral part of these statements. 22 23 Frisch's Restaurants, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Three years ended May 28, 2000 NOTE A - DESCRIPTION OF THE BUSINESS Frisch's Restaurants, Inc., headquartered in Cincinnati, Ohio, operates and sub-licenses family restaurants, most of which have "drive-thru" service, which use the trade name Frisch's Big Boy, and the Company operates Golden Corral grill buffet restaurants. These operations are located in various regions of Ohio, Kentucky and Indiana. Additionally, the Company operates two high rise hotels with restaurants in metropolitan Cincinnati, which are accounted for as discontinued operations (see note C). Trademarks which the Company has the right to use include "Frisch's," "Big Boy," "Golden Corral," "Clarion Hotel," and "Quality Hotel." NOTE B - ACCOUNTING POLICIES A summary of the Company's significant accounting policies consistently applied in the preparation of the accompanying consolidated financial statements follows: Consolidation Practices ----------------------- The consolidated financial statements include the accounts of Frisch's Restaurants, Inc. and all of its subsidiaries. Significant inter-company accounts and transactions are eliminated in consolidation. Fiscal Year ----------- The Company's fiscal year ends on the Sunday nearest to the last day of May. Fiscal years 2000, 1999 and 1998 were each comprised of 52 weeks. Reclassification ---------------- Certain reclassifications have been made to prior year information to conform to the current year presentation. Use of Estimates ---------------- The preparation of financial statements requires management to use estimates and assumptions in certain areas that affect the amounts reported. These judgments are based on knowledge and experience about past and current events, and assumptions about future events. Although management believes its estimates are reasonable and adequate, future events affecting them may differ markedly from current judgment. Some of the more significant areas requiring the use of estimates include self insurance liabilities, value of intangible assets, net realizable value of property held for sale, and deferred executive compensation. Cash and Cash Equivalents ------------------------- Highly liquid investments with original maturities of three months or less are considered to be cash equivalents. Outstanding checks in the amount of $691,000 were included in accounts payable at May 30, 1999. Receivables ----------- The Company values its trade notes and accounts receivable on the reserve method. The reserve balance was immaterial at May 28, 2000 and May 30, 1999. Inventories ----------- Inventories, comprised principally of food items, are valued at the lower of cost, determined by the first-in, first-out method, or market. 23 24 Property and Equipment ---------------------- Property and equipment are stated at cost. Depreciation is provided principally on the straight-line method over the estimated service lives ranging from 10 to 25 years for buildings or components thereof and 5 to 10 years for equipment. Leasehold improvements are depreciated over 10 to 25 years or the remaining lease term, whichever is shorter. Interest on borrowings is capitalized during active construction periods of major capital projects. The cost of land not yet in service is included in "construction in progress" if construction has begun or if construction is likely within the next twelve months. The cost of land on which construction is not likely within the next twelve months is included in other assets under the caption "investments in land". The Company considers a history of cash flow losses in established areas to be its primary indicator of potential impairment pursuant to Statement of Financial Accounting Standards No. 121 (SFAS 121), "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." Carrying values are reviewed for impairment when events or changes in circumstances indicate that the assets' carrying values may not be recoverable from the estimated future cash flows expected to result from the properties' use and eventual disposition. When undiscounted expected future cash flows are less than carrying values, an impairment loss is recognized equal to the amount by which the carrying values exceed the net realizable values of the assets. During the fourth quarter of fiscal year 1997, the Company closed fifteen Big Boy restaurants in certain markets in which cash flow losses had occurred. Accordingly, a $4,600,000 non-cash pretax impairment charge was recorded to reduce the carrying costs of the properties to net realizable value, as determined by estimates provided by real estate brokers and the Company's past experience in disposing of other unprofitable restaurant properties. Additional non-cash pretax charges of $375,000 and $1,125,000 were recorded respectively, during the fourth quarter of fiscal 1998 and the second quarter of fiscal 1999 to further lower the net realizable values of the remaining properties to be sold. The $1,125,000 charge recorded in the second quarter of 1999 was necessitated when it became apparent that the seven remaining restaurants to then be sold would ultimately have to be disposed of for values significantly below the initial estimates that were used when the restaurants closed. Contracts were accepted at prices lower than originally estimated on four of the properties during the second quarter of fiscal 1999, and expectations were lowered for the remaining three. Three of the four accepted contracts were with a Big Boy franchise operator, a minority shareholder and the president of which was an officer of the Company prior to May 31, 2000 (see note K). Twelve of the fifteen properties closed at the end of fiscal 1997 have been disposed of through May 28, 2000. The sale proceeds were used to repay borrowings under the loan agreement that funded the company's modified "Dutch Auction" self-tender offer (see notes D and G). The remaining three properties are listed for sale with a broker, and are carried at a net realizable value of approximately $1,653,000 on the Company's balance sheet at May 28, 2000 as a component of the long-term asset caption "Property held for sale." Disposition of these properties is expected within the next six to twelve months, the proceeds of which will be used for working capital. Certain surplus land is also currently held for sale and is stated at the lower of cost or market. Intangible Assets and Other Assets ---------------------------------- The excess of cost over equity in net assets of subsidiaries acquired prior to November 1, 1970, approximating $710,000, is not currently being amortized because, in the opinion of management, the value has not decreased. The Golden Corral license agreement requires the Company to pay initial license fees for each new restaurant. Amortization of the initial fee begins when the restaurant opens and is computed using the straight-line method over the 15 year term of the individual restaurant franchise agreement. Advertising ----------- Advertising costs are charged to expense as incurred. Advertising expense for continuing operations for fiscal years 2000, 1999 and 1998 was $3,864,000, $3,479,000 and $3,336,000, respectively. 24 25 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. Effective June 1, 1998, the Company accounts for these costs in accordance with The American Institute of Certified Public Accountants' Statement of Position 98-5 (SOP 98-5), "Reporting on the Costs of Start-Up Activities." SOP 98-5 requires new store opening costs to be expensed as incurred. Opening costs were $984,000 in fiscal 2000, $404,000 in fiscal 1999 and $35,000 in fiscal 1998. Opening costs in fiscal years 2000 and 1999 were exclusively for Golden Corral restaurants, while fiscal 1998 consisted of amortization of new Big Boy restaurant opening costs. Benefit Plans ------------- The Company has two defined benefit pension plans covering substantially all of its eligible employees. The benefits are based on years-of-service and other factors. The Company's funding policy is to annually contribute amounts sufficient to satisfy legal funding requirements plus such additional tax deductible amounts deemed advisable under the circumstances. Contributions are intended to provide not only for benefits attributed to service-to-date, but also for those expected to be earned in the future. The Company also has a non-qualified supplemental retirement plan for certain key employees. Self Insurance -------------- The Company self-insures its Ohio workers' compensation claims up to $250,000 per claim. Costs are accrued based on management's estimate for future claims. Licensing Agreements -------------------- The agreement under which the Company has the right to operate and sub-license others to operate Big Boy restaurants calls for no license fees to be paid by the Company. Revenue from franchise fees, based on sales of Big Boy restaurants sub-licensed to other operators, is recorded on the accrual method as earned. Initial license fees are recognized as revenue when the sub-licensed restaurants begin operations. Under the terms of the Golden Corral license agreement, the Company is obligated to pay fees based on defined gross sales. These costs are charged to operations as incurred. Fair Value of Financial Instruments ----------------------------------- The carrying value of the Company's financial instruments approximates fair value. Investment in Sports Franchise ------------------------------ On September 30, 1998, the Company completed the sale of its 1/15 limited partnership investment in the Cincinnati Reds professional baseball team for $7,000,000 cash (see note J). A final partnership distribution of $101,000 was recorded in earnings during the third quarter of fiscal 1999. No distributions were received in fiscal 1998. Income Taxes ------------ Taxes are provided on all items included in the statement of earnings regardless of when such items are reported for tax purposes. Stock Based Compensation ------------------------ The Company accounts for stock options using the intrinsic value method of measuring compensation expense prescribed by Accounting Principles Board Opinion No. 25 (APB 25), as permitted by Statement of Financial 25 26 Accounting Standards No. 123 (SFAS 123), "Accounting for Stock Based Compensation." Pro forma disclosures of net income and earnings per share based on options granted and stock issued are reflected in Note G - Capital Stock. NOTE C - DISCONTINUED OPERATIONS In March 2000, the Board of Directors authorized management to develop a plan to divest the Company's hotel operations, consisting of two high rise hotels - the Clarion Riverview Hotel and the Quality Central Hotel. The Company plans to operate the hotels until buyers are found, which is anticipated to take up to one year. The services of a broker have been engaged for this purpose. Hotel operations are accounted for as a discontinued operation, and accordingly, amounts in the financial statements for all periods shown have been restated to reflect discontinued operations accounting. The investment in the hotels is comprised of the hotels' real property, leasehold improvements, equipment, furnishings and fixtures, and is carried as a current asset under the caption "Hotel assets held for sale - net". The sale proceeds, which are expected to exceed the carrying values, will be used in the short-term to repay debt and ultimately will be reinvested in Big Boy and Golden Corral restaurant expansion. Certain information with respect to discontinued hotel operations is summarized below:
2000 1999 1998 ---------- ---------- ---------- (in thousands) Total revenue $ 11,594 $ 11,534 $ 11,535 Cost of sales $ 11,186 $ 11,425 $ 11,373 Administrative and advertising 299 333 334 -------- -------- -------- Total costs and expenses 11,485 11,758 11,707 -------- -------- -------- Earnings (Loss) before income tax 109 (224) (172) Income tax (benefit) 39 (82) (57) -------- -------- -------- Earnings (Loss) from discontinued operations $ 70 $ (142) $ (115) ======== ======== ========
NOTE D - LONG-TERM DEBT
2000 1999 --------------------------- ----------------------------- PAYABLE PAYABLE Payable Payable WITHIN AFTER within after ONE YEAR ONE YEAR one year one year -------- -------- -------- -------- (in thousands) Revolving credit loan $ - $17,000 $ - $13,500 Term loan 1,500 1,700 1,500 3,200 Tender offer - - - 1,780 Golden Corral facility - Construction loan - 1,000 - 1,000 Term loans 924 6,631 231 1,769 ------- ------- ------- ------- $ 2,424 $26,331 $ 1,731 $21,249 ======= ======= ======= =======
The portion payable after one year matures as follows:
2000 1999 --------- ------- (in thousands) Period ending in 2001 $ - $ 3,527 2002 20,501 16,266 2003 1,283 485 2004 1,172 305 2005 1,270 666 Subsequent to 2005 2,105 - --------- --------- $ 26,331 $ 21,249 ========= =========
The revolving credit loan is a $20,000,000 unsecured line of credit, $17,000,000 of which is outstanding at May 28, 2000. Unless extended, this credit loan matures on September 1, 2001. Interest rates, currently ranging from 6.94% 26 27 to 7.77%, are determined by various indices as selected by the Company. Interest is payable in arrears on the last day of the rate period chosen by the Company, which may be monthly, bi-monthly or quarterly. The term loan is also unsecured and is payable in monthly installments of $125,000 through July 31, 2002. Interest is also payable monthly at a rate, currently 8.5%, equal to the prime rate but not to exceed 8.5%. The tender offer loan was arranged in August 1997, under which the Company borrowed $17,144,000 to finance the repurchase of 1,142,966 shares of the Company's common stock (see note F). In October 1999 the Company converted the $1,720,000 outstanding balance of the loan into the $20,000,000 revolving credit loan. The Golden Corral credit facility is an unsecured draw credit line under which the Company may borrow up to $20,000,000 to construct and open Golden Corral restaurants. No more than $8,000,000 may be advanced for new restaurants under construction (Construction Loan) at any one time. As of May 28, 2000, the Company had cumulatively borrowed $9,000,000 of which $1,000,000 was a Construction Loan and $8,000,000 had been converted to Term Loans. Availability of draws ceases on September 1, 2001. Payments on Construction Loans are on an interest only basis. At the Company's option, interest on prime rate based borrowings are payable monthly, or in the case of LIBOR or CD based adjusted rate borrowings, payable at the end of each specific rate period selected by the Company, which may be monthly, bi-monthly or quarterly. The quarterly Libor based rate 7.62% is currently in effect. Within six months of the completion and opening of each restaurant, the balance outstanding under each Construction Loan is converted to a Term Loan amortized over a period not to exceed seven years. Upon conversion, the Company has the option to fix the interest rate at the lender's then cost of funds plus 150 basis points. Five Term Loans totaling $8,000,000 have fixed interest rates, the weighted average of which is 7.88%, and are being repaid in 84 equal monthly installments of principal and interest aggregating $124,684 through periods expiring in 2007. These loan agreements contain covenants relating to tangible net worth, interest expense, cash flow, debt levels, capitalization changes, asset dispositions, investments and restrictions on pledging certain restaurant operating assets. The Company was in compliance with all loan covenants at May 28, 2000. Compensating balances are not required by any of these loan agreements. As of May 28, 2000, the Company had three outstanding letters of credit totaling $1,296,000 in support of its self insurance program. NOTE E - LEASED PROPERTY The Company has capitalized the leased property of 35% of its non-owned restaurant locations. The majority of the leases are for fifteen or twenty years and contain renewal options for ten to fifteen years. Delivery equipment is held under capitalized leases expiring during periods to 2004. The Company also occupies office space under an operating lease which expires during 2003, with a renewal option available through 2013. An analysis of the capitalized leased property follows:
Asset balances at ---------------------------- 2000 1999 ------- ------- (in thousands) Restaurant facilities $ 6,306 $ 7,248 Equipment 977 977 ------- ------- 7,283 8,225 Less accumulated amortization (4,839) (5,125) ------- ------- $ 2,444 $ 3,100 ======= =======
Total rental expense of operating leases for continuing operations was $1,470,000 in 2000, $1,389,000 in 1999, and $1,344,000 in 1998. 27 28 Future minimum lease payments under capitalized leases and operating leases for continuing operations having an initial or remaining term of one year or more follow:
Capitalized Operating Year ending in: leases leases ---------------- ----------- --------- (in thousands) 2001 $ 862 $ 1,254 2002 820 1,190 2003 808 954 2004 808 717 2005 747 547 2006 to 2020 3,666 1,269 --------- --------- Total 7,711 $ 5,931 ========= Amount representing interest (2,845) -------- Present value of obligations 4,866 Portion due within one year (355) -------- Long-term obligations $ 4,511 ========
NOTE F - INCOME TAXES The variations between the statutory Federal rate and the effective rates are summarized as follows:
Percent of pretax earnings ----------------------------------- 2000 1999 1998 --------- --------- -------- Statutory U.S. Federal income tax 34.0 34.0 34.0 Tax credits (2.5) (1.7) (2.9) State and municipal income taxes (net of Federal tax benefit) 4.0 3.9 2.0 Other - .1 .2 --------- --------- ------- Effective Rate 35.5 36.3 33.3 ========= ========= =======
Deferred tax assets and liabilities result from timing differences in the recognition of revenue and expense between financial reporting and tax purposes. The components of the deferred tax asset (liability) were as follows (in thousands):
2000 1999 ------- ------- Deferred compensation $ 679 $ 681 Compensated absences 576 607 Self insurance 1,107 1,202 Impairment of assets 660 675 Other 590 450 ------- ------- Total deferred tax assets 3,612 3,615 Investment in tax benefits - (234) Depreciation (441) (651) Pension contributions (498) (368) Other (450) (346) ------- ------- Total deferred tax liabilities (1,389) (1,599) ------- ------- Net deferred tax asset $ 2,223 $ 2,016 ======= =======
28 29 NOTE G - CAPITAL STOCK Stock Options ------------- The 1993 Stock Option Plan authorizes the grant of stock options for up to 562,432 shares of the common stock of the Company for a ten-year period beginning May 9, 1994. Shares may be optioned to employees at not less than 75% of fair market value on the date granted. Shareholders approved the Amended and Restated 1993 Stock Option Plan (Amended Plan) in October 1998 which provides for automatic, annual stock option grants of 1,000 shares to each of the Company's non-employee directors. The per share exercise price for options granted to non-employee directors must equal 100% of fair market value on the date of grant. The Amended Plan adds a Company right to repurchase shares acquired on exercise of options if an optionee chooses to dispose of such shares. Stock appreciation rights are not provided for under the Amended Plan. Outstanding options under the 1993 Plan have been granted at fair market value and expire 10 years from the date of grant. Outstanding options to employees vest in three equal annual installments, while outstanding options to non-employee directors vest after one year. The 1984 Stock Option Plan expired May 8, 1994. As of May 28, 2000, 28,488 options remain outstanding, which are exercisable within 10 years from the date of grant, expiring during periods to 2003. The exercise price is the fair market value as of the date granted, subsequently adjusted for stock dividends in accordance with the anti-dilution provisions of the Plan. Transactions involving both the 1993 and the 1984 Plans are summarized below:
2000 1999 1998 ------------------------- -------------------------- ------------------------ NO. OF OPTION No. of Option No. of Option SHARES PRICE Shares Price Shares Price --------- ----------- ------- ------------ -------- -------- Outstanding at beginning of year 169,163 $8.31 TO $20.83 134,413 $12.38 to $20.83 259,835 $14.38 -$20.83 Exercisable at beginning of year 108,580 $12.38 TO $20.83 96,913 $14.38 to $20.83 259,835 $14.38 - $20.83 Granted during the year 27,750 $10.06 TO $10.25 38,000 $8.31 to $11.25 37,500 $12.38 Exercised during the year 0 0 0 Expired during the year 68,425 $20.83 0 162,922 $16.81 Forfeited during the year 9,750 $8.31 TO $12.38 3,250 $11.25 to $12.38 0 --------- ------- -------- Outstanding at end of year 118,738 $8.31 TO $17.05 169,163 $8.31 to $20.83 134,413 $12.38 - $20.83 ========= ======= ======== Exercisable at end of year 69,987 $8.31 TO $17.05 108,580 $12.38 to $20.83 96,913 $14.38 - $20.83 ========= ======= ========
Using the fair value on the grant date under the methodology prescribed by SFAS 123, the respective pro forma effect on net income for options granted in fiscal years 2000, 1999 and 1998 amounted to charges of approximately $14,000, $16,000 and $1,400, with no effect on basic and diluted net earnings per share. These estimates were determined using the modified Black Scholes option pricing model with the following weighted average assumptions:
2000 1999 1998 ---- ---- ---- Dividend yield 3.18% 2.75% 2.38% Expected volatility 24% 30% 22% Risk free interest rate 5.82% 5.08% 5.75% Expected lives 5 YEARS 5 years 5 years Weighted average fair value of options granted $2.32 $2.94 $2.93
Shareholders approved the Employee Stock Option Plan in October 1998. The Plan was effective November 1, 1998 and provides employees who have completed 90 days continuous service an opportunity to purchase shares of the Company's common stock through payroll deduction. Immediately following the end of each semi-annual offering period, participant account balances are used to purchase shares of stock at the lesser of 85% of the fair market value of shares at the beginning of the offering period or at the end of the offering period. The Plan 29 30 authorizes a maximum of 1,000,000 shares which may be purchased on the open market or from the Company's treasury. The Company also has reserved 58,492 common shares for issuance under the Frisch's Executive Savings Plan. Shares reserved under these plans have been adjusted for stock dividends. There are no other outstanding options, warrants or rights. Modified "Dutch Auction" Self-Tender Offer ------------------------------------------ In August 1997 the Company repurchased 1,142,966 shares of its common stock at $15.00 per share, a total cost of approximately $17,690,000. The transaction had the immediate effect of reducing the number of common shares outstanding from 7,148,334 to 6,005,368. Stock Repurchase Program ------------------------ On October 5, 1998, the Board of Directors approved a program to repurchase up to 500,000 shares of the Company's common stock on the open market. Purchases are being made from time to time within a two-year time frame. On December 8, 1999 and June 6, 2000, the Board of Directors authorized additional repurchases of up to 200,000 and 300,000 shares, respectively. During the year ended May 28, 2000, the Company repurchased 559,508 shares at a cost of $5,503,000, bringing total repurchases since the inception of the program to 664,306 shares at a cost of $6,567,000. Earnings Per Share ------------------ The Company adopted Statement of Financial Accounting Standards No. 128 (SFAS 128), "Earnings Per Share," on December 15, 1997. SFAS 128 simplifies established standards by requiring a presentation of basic earnings per share (EPS), and if applicable, diluted EPS, instead of primary and fully diluted EPS. The adoption of SFAS 128 had no impact on the recalculation of prior period earnings per share. Basic earnings per share is based on the weighted average number of outstanding common shares during the period. Diluted earnings per share includes the effect of common stock equivalents, which assumes the exercise of dilutive stock options.
Weighted Average Common Shares Outstanding Stock Total (used for Basic EPS) Equivalents (used for Diluted EPS) -------------------- ----------- ---------------------- May 28, 2000 5,657,479 924 5,658,403 May 30, 1999 5,966,672 916 5,967,588 May 31, 1998 6,237,761 0 6,237,761
NOTE H - PENSION PLANS Effective June 1, 1998, the Company adopted the provisions of Statement of Financial Accounting Standards No. 132 (SFAS 132), "Employers' Disclosures about Pensions and Other Postretirement Benefits," which revised employers' disclosures about pensions and other post retirement benefit plans. As required, disclosures for 1998 have been restated for comparative purposes. The changes in the Company's benefit obligation are computed as follows:
(in thousands) 2000 1999 1998 -------- -------- -------- Projected benefit obligation at beginning of year $ 15,768 $ 14,765 $ 13,792 Service cost 1,306 1,264 1,209 Interest cost 1,114 1,018 1,013 Actuarial (gain) loss (176) (289) 203 Benefits paid (2,120) (990) (1,452) -------- -------- -------- Projected benefit obligation at end of year $ 15,892 $ 15,768 $ 14,765 ======== ======== ========
30 31 The changes in the Plans' assets are computed as follows:
(in thousands) 2000 1999 1998 -------- -------- -------- Fair value of plan assets at beginning of year $ 23,726 $ 23,189 $ 19,782 Actual return on plan assets 1,615 1,317 4,449 Employer contributions 421 402 410 Benefits paid (2,284) (1,182) (1,452) -------- -------- -------- Fair value of plan assets at end of year $ 23,478 $ 23,726 $ 23,189 ======== ======== ========
The following table sets forth the Plans' funded status and amounts recognized on the Company's accompanying balance sheet:
(in thousands) 2000 1999 ------- ------- Funded Status $ 7,585 $ 7,958 Unrecognized net actuarial (gain) loss (6,277) (6,865) Unrecognized prior service cost 529 599 Unrecognized net transition (asset) (474) (711) ------- ------- Prepaid benefit cost $ 1,363 $ 981 ======= =======
The weighted - average actuarial assumptions used were:
As of MAY 28, May 30, May 31, 2000 1999 1998 ---- ---- ---- Weighted average discount rate 7.25% 7.25% 7.25% Weighted average rate of compensation increase 5.50% 5.50% 5.50% Weighted average expected long-term rate of return on plan assets 8.50% 8.50% 8.50%
Net periodic pension cost (benefit) includes the following components:
(in thousands) 2000 1999 1998 ------- ------- ------- Service cost $ 1,306 $ 1,264 $ 1,209 Interest cost 1,114 1,018 1,013 Expected return on plan assets (1,966) (1,907) (1,632) Amortization of prior service cost 70 70 70 Amortization of net transition asset (237) (237) (237) Recognized net actuarial (gain) loss (248) (316) (136) ------- ------- ------- Net periodic pension cost (benefit) $ 39 $ (108) $ 287 ======= ======= =======
NOTE I - SEGMENT INFORMATION On June 1, 1998, the Company adopted Statement of Financial Accounting Standards No. 131 (SFAS 131) "Disclosures about Segments of an Enterprise and Related Information." SFAS 131 established standards for reporting information about operating segments and related disclosures about products and services, geographic areas and major customers. An operating segment is defined as components of an enterprise for which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. 31 32 The Company has historically had food service and lodging operations. In March 2000, the Board of Directors authorized management to develop plans to divest the lodging segment (see note C - Discontinued Operations). The Company now has two reportable segments: Big Boy restaurants and Golden Corral restaurants. Financial information by operating segment as of and for the three fiscal years in the period ended May 28, 2000 is as follows:
(in thousands) -------------- 2000 1999 1998 --------- --------- --------- Revenue Big Boy $ 153,335 $ 145,335 $ 139,565 Franchise & other fees from sub-licenses 1,164 1,159 1,122 --------- --------- --------- Total Big Boy 154,499 146,494 140,687 Golden Corral 12,701 1,523 0 --------- --------- --------- $ 167,200 $ 148,017 $ 140,687 ========= ========= ========= Operating profit (loss) Big Boy $ 16,141 $ 14,074 $ 13,100 Opening expense 0 0 (35) --------- --------- --------- Total Big Boy 16,141 14,074 13,065 Golden Corral 669 85 0 Opening expense (984) (404) 0 --------- --------- --------- Total Golden Corral (315) (319) 0 --------- --------- --------- $ 15,826 $ 13,755 $ 13,065 ========= ========= ========= Identifiable assets Big Boy $ 78,289 $ 83,289 $ 92,463 Golden Corral 15,096 5,159 0 Discontinued operations & other 14,394 14,978 14,261 --------- --------- --------- $ 107,779 $ 103,426 $ 106,724 ========= ========= ========= Depreciation and amortization Big Boy $ 7,835 $ 8,136 $ 7,828 Golden Corral 428 40 0 Discontinued operations & other 1,358 1,761 1,428 --------- --------- --------- $ 9,621 $ 9,937 $ 9,256 ========= ========= ========= Capital expenditures Big Boy $ 3,487 $ 5,607 $ 7,141 Golden Corral 9,810 4,620 0 Discontinued operations & other 540 2,482 4,094 --------- --------- --------- $ 13,837 $ 12,709 $ 11,235 ========= ========= =========
Impairment losses of $1,125,000 and $375,000 respectively, were charged against Big Boy operating profit in 1999 and 1998. NOTE J - EXTRAORDINARY ITEM On September 30, 1998, the Company completed an unusual and infrequent transaction when it sold its 1/15 limited partnership interest in the Cincinnati Reds professional baseball team for $7,000,000 cash. The net gain of $3,712,000 resulted in basic and diluted net earnings per share of $.62. The investment, originally made in June 1985, had been carried at cost and was the Company's only passive non-operating asset. Prior to 1985, the Company had not owned any other such assets, and it is extremely unlikely that another investment of this nature will be made in the future. 32 33 NOTE K - RELATED PARTY TRANSACTIONS In each of the three years in the period ended May 28, 2000, a Big Boy sub-licensed restaurant owned by an officer and director of the Company and two Big Boy sub-licensed restaurants owned by children and other family members of an officer and directors of the Company paid the Company franchise and advertising fees, employee leasing and other fees, and made purchases from the Company's commissary. During the fiscal year ended May 30, 1999, three of the unprofitable Big Boy restaurants closed at the end of 1997 were sold and sub-licensed to a Big Boy franchise operator, a minority shareholder and the president of which was an officer of the Company prior to May 31, 2000. Another of the unprofitable Big Boy restaurants that closed in 1997 is currently leased and sub-licensed to this Big Boy franchise operator. In addition, this Big Boy franchise operator has acquired three other Big Boy sub-licensed restaurants from other sub-licensees of the Company. During the years ended May 28, 2000 and May 30, 1999, certain of these restaurants paid the Company rent, franchise and advertising fees and other fees and made purchases from the Company's commissary. These transactions were effected on substantially similar terms as transactions with persons having no relationship with the Company. QUARTERLY RESULTS (UNAUDITED)
Year Ended May 28, 2000 Year Ended May 30, 1999 ------------------------------------------------------ ----------------------------------------------------- (In Thousands) (In Thousands) ------------------------------------------- ------------------------------------------- Earnings Earnings from Net from Net Gross continuing Net Earnings Gross continuing Net Earnings Revenue profit operations earnings per share Revenue profit operations earnings per share ---------- ---------- ---------- --------- ---------- ----------- --------- ---------- -------- --------- 1st Quarter $48,922 $5,551 $1,628 $1,751 $.30 $44,178 $5,390 $1,315 $1,378 $.23 2nd Quarter 39,623 4,414 1,425 1,448 .25 35,070 4,924 780 4,454 .74 3rd Quarter 37,513 4,158 1,208 855 .16 33,171 3,771 1,159 968 .16 4th Quarter 41,142 5,585 1,814 2,092 .38 35,598 4,274 1,306 1,330 .23 ---------- ---------- ---------- --------- ---------- ----------- --------- ---------- -------- --------- Year's Total $167,200 $19,708 $6,075 $6,146 $1.09 $148,017 $18,359 $4,560 $8,130 $1.36 ========== ========== ========== ========= ========== =========== ========= ========== ======== =========
The first quarter of each year contained sixteen weeks, while the last three quarters each contained twelve weeks. Net earnings for the first quarters of 2000 and 1999 included favorable adjustments of $320,000 and $410,000 respectively, resulting from lower than anticipated claims in the Company's self insured casualty insurance program. The second quarter of fiscal 1999 included an impairment loss of $740,000, net of tax, resulting from the closing of fifteen underperforming restaurants in 1997. In addition, the fourth quarters of fiscal 2000 and 1999 include charges to income tax expense of $90,000 and $30,000, respectively, to reflect the actual effective tax rate for the years. During the second quarter of fiscal 1999, the Company completed the sale of its limited partnership investment in the Cincinnati Reds professional baseball team for $7,000,000 in cash. The net gain of $3,712,000 or approximately $.62 per share was reported as an extraordinary gain. Item 9. - Changes in and Disagreements with Accountants on Accounting and ------- --------------------------------------------------------------- Financial Disclosure -------------------- Not applicable. 33 34 PART III -------- (Items 10 through 13) --------------------- Item 10. - Directors and Executive Officers of the Registrant -------- -------------------------------------------------- Information regarding directors is incorporated by reference to the Registrant's proxy statement to be filed with the Securities and Exchange Commission within 120 days after May 28, 2000. Information regarding executive officers appears at the end of Part I. Item 11. - Executive Compensation -------- ---------------------- Incorporated by reference to the Registrant's proxy statement to be filed with the Securities and Exchange Commission within 120 days after May 28, 2000. Item 12. - Security Ownership of Certain Beneficial Owners and Management -------- -------------------------------------------------------------- Incorporated by reference to the Registrant's proxy statement to be filed with the Securities and Exchange Commission within 120 days after May 28, 2000. Item 13. - Certain Relationships and Related Transactions -------- ---------------------------------------------- Incorporated by reference to the Registrant's proxy statement to be filed with the Securities and Exchange Commission within 120 days after May 28, 2000. PART IV ------- Item 14. - Exhibits, Financial Statement Schedules, and Reports on Form 8-K -------- ---------------------------------------------------------------- a). List of documents filed as part of this report. 1. Financial Statements All financial statements of the Registrant as set forth under Part II, Item 8 2. Financial Statement Schedules All schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are not applicable and, therefore, have been omitted. 3. Exhibits (3) Articles of Incorporation and By-Laws ---- ------------------------------------- (3) (a) Exhibit (3) (a) to the Registrant's Form 10-K Annual Report for 1993, being the Third Amended Articles of Incorporation, is incorporated herein by reference. (3) (b) Exhibit (3) (a) to the Registrant's Form 10-Q Quarterly Report for December 15, 1996, being the Code of Regulations, is incorporated herein by reference. (3) (c) Exhibit (3) (b) to the Registrant's Form 10-Q Quarterly Report for December 15, 1996, being Amendments to Regulations adopted October 1, 1984, is incorporated herein by reference. (3) (d) Exhibit (3) (c) to the Registrant's Form 10-Q Quarterly Report for December 15, 1996, being Amendments to Regulations adopted October 24, 1996, is incorporated herein by reference. 34 35 (10) Material Contracts ---- ------------------- (10) (a) Area Development Agreement and Addendum effective July 25, 2000 between the Registrant and Golden Corral Franchising Systems, Inc. (10) (b) Exhibit (10) (a) to the Registrant's Form 10-Q Quarterly Report for December 14, 1997, being Area Development Agreement and Addendum between the Registrant and Golden Corral Franchising Systems, Inc. effective January 6, 1998, is incorporated herein by reference. (10) (c) Exhibit (10) (a) to the Registrant's Form 10-Q Quarterly Report for December 12, 1999, being Second Amendment dated October 6, 1999 to Area Development Agreement between the Registrant and Golden Corral Franchising Systems, Inc. effective January 6, 1998, is incorporated herein by reference. (10) (d) Exhibit (10) (a) to the Registrant's Form 10-K Annual Report for 1997, being employment agreement between the Registrant and Jack C. Maier effective June 2, 1997, is incorporated herein by reference. (10) (e) Exhibit (10) (a) to the Registrant's Form 10-K Annual Report for 1995, being employment contract between the Registrant and Jack C. Maier effective May 29, 1995, is incorporated herein by reference. (10) (f) Exhibit (10) (a) to the Registrant's Form 10-K Annual Report for 1990, being employment contract between the Registrant and Jack C. Maier dated July 20, 1990, is incorporated herein by reference. (10) (g) Exhibit (10) (b) to the Registrant's Form 10-K Annual Report for 1995, being employment contract between the Registrant and Craig F. Maier effective May 29, 1995, is incorporated herein by reference. (10) (h) Exhibit (10) (a) to the Registrant's Form 10-Q Quarterly Report for December 13, 1998, being amendment dated November 24, 1998 to employment contract between the Registrant and Craig F. Maier dated May 29, 1995, is incorporated herein by reference. (10) (i) Exhibit (10) (a) to the Registrant's Form 10-Q Quarterly Report for September 17, 1995, being the Frisch's Executive Savings Plan effective November 15, 1993, is incorporated herein by reference. (10) (j) Exhibit (10) (b) to the Registrant's Form 10-Q Quarterly Report for September 17, 1995, being the Frisch's Executive Retirement Plan effective June 1, 1994, is incorporated herein by reference. (10) (k) Exhibit A to the Registrant's Proxy Statement dated September 9, 1998, being the Amended and Restated 1993 Stock Option Plan, is incorporated herein by reference. (10)(l) Exhibit B to the Registrant's Proxy Statement dated September 9, 1998, being the Employee Stock Option Plan, is incorporated herein by reference. (10) (m) Exhibit (10) (e) to the Registrant's Form 10-K Annual Report for 1985, being the 1984 Stock Option Plan, is incorporated herein by reference. (10) (n) Exhibit (10) (f) to the Registrant's Form 10-K Annual Report for 1990, being First Amendment to the 1984 Stock Option Plan, is incorporated herein by reference. (10) (o) Exhibit (10) (g) to the Registrant's Form 10-K Annual Report for 1990, being Agreement between the Registrant and Craig F. Maier dated November 21, 1989, is incorporated herein by reference. 35 36 (10) (p) Exhibit (10) (f) to the Registrant's amended Form 10-K Annual Report for 1988, being the Restated and Amended Area Franchise Agreement between Elias Brothers Restaurants, Inc. and the Registrant dated November 2, 1987, is incorporated herein by reference. (10) (q) Agreement dated June 15, 2000 between the Registrant and Elias Brothers Restaurants, Inc. modifying the Restated and Amended Area Franchise Agreement between the Registrant and Elias Brothers Restaurants, Inc. dated November 2, 1987. (21) Subsidiaries of the Registrant (27) Financial Data Schedule b). Reports on Form 8-K: On March 20, 2000 under Item 5, to report that on March 14, 2000 the Company's Board of Directors authorized management to develop a plan to divest the Company's hotel operations. Financial statements were not required to be filed. On June 9, 2000 under Item 5, to report that on June 6, 2000 the Company's Board of Directors authorized an additional repurchase of up to 300,000 shares of the Company's common stock on the open market. This supplements the Board's previous authorizations to purchase up to 700,000 shares. Financial statements were not required to be filed. On July 12, 2000 under Item 5, to report quarterly financial data for the Company's fiscal year that ended May 28, 2000 that will be presented as prior year data in Forms 10-Q during the Company's fiscal year that ends June 3, 2001. On July 27, 2000 under Item 5, to report that the Company has signed an area development agreement with Golden Corral Franchising Systems, Inc. whereby the Company will open and operate fifteen additional Golden Corral restaurants during the next seven years in the Cleveland and Toledo, Ohio market areas. 36 37 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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) By /s/ Donald H. Walker August 4, 2000 ---------------------------- ------------------ Donald H. Walker Date Vice President, Treasurer Chief Financial Officer Pursuant to the requirement of the Securities Exchange Act of 1934, this has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated:
Signature Title Date --------- ----- ---- Chairman of the Board /s/ Jack C. Maier Director August 10, 2000 --------------------------- ------------------- Jack C. Maier President and Chief Executive Officer /s/ Craig F. Maier Director August 7, 2000 --------------------------- ------------------ Craig F. Maier /s/ Dale P. Brown Director August 8, 2000 --------------------------- ------------------ Dale P. Brown /s/ Daniel W. Geeding Director August 14, 2000 --------------------------- ------------------- Daniel W. Geeding /s/ Lorrence T. Kellar Director August 9, 2000 --------------------------- ------------------ Lorrence T. Kellar /s/ Malcolm M. Knapp Director August 8, 2000 --------------------------- ------------------ Malcolm M. Knapp /s/ Blanche F. Maier Director August 9, 2000 --------------------------- ------------------ Blanche F. Maier /s/ William A. Mauch Director August 10, 2000 --------------------------- ------------------- William A. Mauch /s/ William J. Reik, Jr. Director August 14, 2000 --------------------------- ------------------- William J. Reik, Jr.
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