10-K/A

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K/A

Amendment No. 1 to Annual Report of Form 10-K for the fiscal year ended May 29, 2005

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended May 29, 2005

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 001-07323

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:

Title of each class	Name of each Exchange 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 if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ¨    No  x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  ¨    No  x

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  ¨.

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

Large accelerated filer  ¨    Accelerated filer  x    Non-accelerated filer  ¨

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

The aggregate market value of voting common equity held by non-affiliates on December 12, 2004 (the last business day of the Registrant’s most recently completed second fiscal quarter) was approximately $67,979,000, based upon the closing price of the shares on the American Stock Exchange on that date. The registrant does not have any non-voting common equity.

As of August 4, 2005, there were 5,056,401 shares of common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant’s definitive proxy for its Annual Meeting of Shareholders to be held October 3, 2005 are incorporated by reference into Part III.

TABLE OF CONTENTS

			Page
Explanatory Note			03
PART II
Item 6.	Selected Financial Data		04
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operation		05 - 14
Item 8.	Financial Statements and Supplementary Data		15 - 44
PART IV
Item 15.	Exhibits and Financial Statement Schedules
Ex. 23		Consent of Grant Thornton LLP	45
Ex. 31.1		Certification of Chief Executive Officer pursuant to rule 13a - 14(a)	45
Ex. 31.2		Certification of Chief Financial officer pursuant to rule 13a – 14(a)	45
Ex. 32.1		Section 1350 Certification of Chief Executive Officer	45
Ex. 32.2		Section 1350 Certification of Chief Financial Officer	45
SIGNATURES			46

2

Explanatory Note

As described in the Form 8-K filed by the Company on January 19, 2006, in early December 2005, the Company’s actuarial consulting firm informed the Company of a formula error in the software program it created in 1995, which caused the software program to not properly pro-rate the benefit for service for plan participants in the Company’s defined benefit pension plan for managers, office employees and commissary employees with less than 28 years of service before normal retirement. This actuarial formula error caused the Company’s net periodic pension cost (and related accounts in the consolidated balance sheet and the consolidated statement of earnings) to be overstated. The purpose of this Form 10-K/A is to restate the Company’s previously issued financial statements contained in its Form 10-K for the fiscal year ended May 29, 2005 to correct the net periodic pension cost (and related accounts in the consolidated balance sheet and the consolidated statement of earnings).

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Item 6. Selected Financial Data

FRISCH’S RESTAURANTS, INC. AND SUBSIDIARIES

SUMMARY OF OPERATIONS

	(in thousands, except per share data)												(53 weeks)
	2005 (restated)			2004 (restated)			2003 (restated)			2002 (restated)			2001 (restated)
Sales	$	279,247		$	259,701		$	233,679		$	210,434		$	187,465
Cost of sales
Food and paper		98,570			88,864			76,452			69,995			62,696
Payroll and related		92,352			87,818			80,815			73,633			64,662
Other operating costs		57,800			53,031			48,643			42,237			38,074
		248,722			229,713			205,910			185,865			165,432
Gross profit		30,525			29,988			27,769			24,569			22,033
Administrative and advertising		13,929			12,752			12,121			11,062			10,286
Franchise fees and other revenue		(1,352	)		(1,222	)		(1,232	)		(1,324	)		(1,335	)
Gains on sale of assets		(87	)		(41	)		(145	)		—			(1,230	)
Gain on early termination of lease		—			—			(665	)		—			—
Impairment of long-lived assets		—			—			—			—			1,549
Operating profit		18,035			18,499			17,690			14,831			12,763
Other Expense (income)
Interest expense		2,820			2,474			2,800			2,420			2,607
Life insurance benefits in excess of cash surrender value		(4,440	)		—			—			—			—
Earnings from continuing operations before income taxes		19,655			16,025			14,890			12,411			10,156
Income taxes
Current		4,199			3,687			3,047			3,557			2,857
Deferred		715			1,648			1,940			765			634
		4,914			5,335			4,987			4,322			3,491
Earnings from continuing operations		14,741			10,690			9,903			8,089			6,665
Income from discontinued operations (net of applicable tax)		—			—			—			—			430
Gain on disposal of discontinued operations (net of applicable tax)		—			—			—			—			699
Earnings from discontinued operations		—			—			—			—			1,129
NET EARNINGS	$	14,741		$	10,690		$	9,903		$	8,089		$	7,794
Diluted net earnings per share of common stock
Continuing operations	$	2.86		$	2.08		$	1.97		$	1.61		$	1.29
Discontinued operations		—			—			—			—			.22
	$	2.86		$	2.08		$	1.97		$	1.61		$	1.51
Cash dividends per share	$	.44		$	.42		$	.36		$	.35		$	.32
Other financial statistics
Working capital (deficit)	$	(20,911	)	$	(20,115	)	$	(14,069	)	$	(14,198	)	$	(10,967	)
Capital expenditures		24,123			30,026			21,544			28,931			24,729
Total assets		167,465			158,437			139,982			130,491			109,288
Long-term obligations		43,102			47,817			45,582			46,147			34,265
Cost to repurchase common stock		—			—			—			1,792			3,802
Shareholders’ equity		93,402			80,516			70,654			61,993			57,092
Book value per share at year end	$	18.47		$	16.00		$	14.27		$	12.62		$	11.39
Return on average shareholders’ equity		17.0	%		14.1	%		14.9	%		13.6	%		13.9	%
Weighted average number of diluted shares outstanding		5,157			5,136			5,023			5,013			5,144
Number of shares outstanding at year end		5,056			5,033			4,951			4,911			5,012
Percentage increase in sales		7.5	%		11.1	%		11.0	%		12.3	%		13.0	%
Earnings as a percentage of sales
Operating profit		6.5	%		7.1	%		7.6	%		7.0	%		6.8	%
Earnings from continuing operations before income taxes		7.0	%		6.2	%		6.4	%		5.9	%		5.4	%
Net earnings		5.3	%		4.1	%		4.2	%		3.8	%		4.2	%

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation

Statements included in this Management’s Discussion and Analysis of Financial Condition and Results of Operation (MD&A) that are not historical facts are “forward-looking statements” as that item is 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. Factors that could cause such differences to occur include, but are not limited to, those discussed in this Form 10-K under “Item 1. Business - Risk Factors.” The Company undertakes no obligation to update any of the forward-looking statements that may be contained in this MD&A.

Management’s Discussion and Analysis of Financial Condition and Results of Operation (MD & A) should be read in conjunction with the consolidated financial statements. The presentation of the consolidated statement of earnings was substantially revised beginning with the filing of the Form 10-Q for the Third Quarter of Fiscal 2005. Corresponding reclassifications to last year’s results have been made to conform to the current year presentation. The Company believes the revisions enhance the presentation by adding the measures of “gross profit” and “operating profit.”

RESTATEMENT

In early December 2005, the Company’s actuarial consulting firm informed the Company of a formula error in the software program it created in 1995, which caused the software program to not properly pro-rate the benefit for service for plan participants in the Company’s defined benefit pension plan for managers, office employees and commissary employees with less than 28 years of service before normal retirement. This actuarial formula error caused the Company’s net periodic pension cost (and related accounts in the consolidated balance sheet and the consolidated statement of earnings) to be overstated. The cumulative effect of the error on total assets was $1,866,000 and $1,589,000 respectively, as of May 29, 2005 and May 30, 2004.

CORPORATE OVERVIEW

Fiscal 2005 consists of the 52 weeks ended May 29, 2005. It compares with the 52 weeks ended May 30, 2004, which constituted Fiscal 2004, and the 52 weeks ended June 1, 2003, which constituted Fiscal 2003.

In July 2004, the Company agreed to develop 21 additional Golden Corral restaurants (subsequently expanded to 22) by December 31, 2011. The terms of the Company’s prior agreements with Golden Corral Franchising Systems, Inc. called for 41 restaurants to be open by December 31, 2007. The new agreement brings the total to 63 restaurants to be open by December 31, 2011. With 30 restaurants in operation as of May 29, 2005, the Company is approximately at the half way point toward meeting this objective. The new agreement expands the range of the Golden Corral network, including entry into the states of Pennsylvania, West Virginia and Michigan.

The Company continued to deliver consistent growth in Fiscal 2005. Record revenue of $279,247,000, $259,701,000, and $233,678,000 was achieved in Fiscal 2005, Fiscal 2004 and Fiscal 2003, respectively. Fiscal 2005’s revenue represented a 7.5 percent increase over Fiscal 2004 and a 19.5 percent increase over Fiscal 2003.

Record net earnings for Fiscal 2005 were $14,741,000 (as restated), or diluted earnings per share (EPS) of $2.86 (as restated). However, the results for Fiscal 2005 profited significantly from a $4,440,000 non-taxable life insurance benefit amounting to $.86 diluted EPS. Without the effect of the life insurance benefit, net earnings and diluted EPS for Fiscal 2005 were $10,301,000 (as restated) and $2.00 (as restated), respectively. Record net earnings for Fiscal 2004 were $10,690,000 (as restated), or diluted EPS of $2.08 (as restated), and net earnings in Fiscal 2003 were $9,903,000 (as restated), or $1.97 (as restated) diluted EPS.

The life insurance benefit resulted from filing death claims on several life insurance policies owned by the Company that insured the life of Jack C. Maier, Chairman of the Board and formerly President and Chief Executive Officer, who died in February 2005. The non-taxable $4,440,000 benefit, which is net of $500,000 that was paid to another beneficiary, was derived from subtracting the cash surrender value of the policies that was previously recorded in the balance sheet as “Net cash surrender value – life insurance policies,” from the aggregate proceeds of $9,659,000. The proceeds were used to reduce outstanding debt by $9,000,000.

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Other events that had a noteworthy effect on the results for the Fiscal 2005 were:

• Big Boy same store sales increased 1.3 percent in Fiscal 2005, marking the eighth consecutive year of achieving same store sales increases.

• Golden Corral same store sales declined 6.0 percent in Fiscal 2005.

• Higher Golden Corral food costs were experienced in Fiscal 2005 (see operating percentage table under “Results of Operations”).

• $293,000 in lower costs to open new restaurants in Fiscal 2005 - $.04 higher diluted EPS compared with Fiscal 2004.

• $346,000 in higher interest expense in Fiscal 2005 - $.05 lower diluted EPS compared with Fiscal 2004.

• $433,000 was charged against operating profit in Fiscal 2005 to correct the Company’s accounting for leases to conform the recognition of rent expense to a straight-line basis over the term of lease, including applicable option periods and any “rent holidays.” The charge reduced diluted EPS by $.06.

• $316,000 was charged against operating profit reflecting a change in timing for the recognition of payroll taxes and employee benefits. The charge reduced diluted EPS by $.04.

• $334,000 in higher favorable self-insurance reserve adjustments in Fiscal 2005 - $.04 higher diluted EPS compared with Fiscal 2004.

• $280,000 in incremental costs to comply with the Sarbanes-Oxley Act of 2002, reducing diluted EPS by $.04.

All of the above items are discussed in greater detail in the discussion of Results of Operation that follows. The Company does not have any “off-balance sheet” arrangements or “special purpose entities.”

RESULTS OF OPERATION

Sales

The Company’s sales are primarily generated through the operation of Big Boy restaurants and Golden Corral restaurants. Big Boy sales also include wholesale sales from the Company’s commissary to restaurants licensed to other Big Boy operators and the sale of certain products to grocery stores. Changes in sales occur when new restaurants are opened and older restaurants are closed. Same store sales comparisons are a key metric that management uses in the operation of the business. Same store sales are affected by changes in customer counts and menu price increases. Sales reached record heights during each of fiscal years 2005, 2004 and 2003:

	Fiscal 2005		Fiscal 2004		Fiscal 2003
	(in thousands)
Big Boy restaurants	$	175,892	$	171,255	$	162,043
Wholesale sales to licensees		8,664		6,208		5,420
Other wholesale sales		820		890		849
Total Big Boy sales		185,376		178,353		168,312
Golden Corral sales		93,871		81,348		65,366
Consolidated restaurant sales	$	279,247	$	259,701	$	233,678

A breakdown of changes in Big Boy same store sales by quarter follows:

Big Boy	1st Qtr.		2nd Qtr.		3rd Qtr.		4th Qtr.		Year
Fiscal 2005	0.6	%	3.2	%	1.4	%	(0.1	)%	1.3	%
Fiscal 2004	4.8	%	5.1	%	7.3	%	1.5	%	4.7	%

Fiscal 2005 marked the eighth consecutive year that Big Boy same store sales increases have been achieved, which includes 29 of the last 31 quarters. Customer counts were lower throughout Fiscal 2005, with the largest decline of 2.0 percent occurring in the fourth quarter. For the year, customer counts were 1.4 percent lower than the prior year. Higher average guest checks driven by menu price increases were enough to offset the lower customer counts. The same store sales comparisons include average menu price increases of 1.0 percent, 1.6 percent, and 1.1 percent, respectively, during the third quarters of Fiscal 2005, Fiscal 2004 and Fiscal 2003. The first quarters of Fiscal 2005, Fiscal 2004 and Fiscal 2003 included average menu price increases of 1.5 percent, 1.1 percent, and 1 percent,

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respectively. Another price increase will be implemented in late summer 2005. Continued high gasoline prices throughout 2005 are believed to be one cause of the lower customer count, as the higher cost to fill up a tank leaves less money to spend on a restaurant meal.

The remainder of the Big Boy sales increases was achieved on the combination of more restaurants in operation and higher wholesale sales. Wholesale sales increased significantly in Fiscal 2005. The higher wholesale sales are attributed to a licensed operator of sixteen Big Boy restaurants in the Toledo, Ohio market that began purchasing food from the Company’s commissary.

The Company operated 88 Big Boy restaurants as of May 29, 2005, including one that opened in August 2004 and another that re-opened in September 2004 that had been closed for rebuilding since May 2004. One older, low volume Big Boy restaurant was closed in November 2004, and another store was temporarily closed for rebuilding in April 2005. Over the next twelve months one new store is planned, the rebuilding of the store closed in April will be completed, and another building will be constructed to relocate an existing operation caused by an eminent domain proceeding.

Golden Corral sales increases are the result of additional restaurants in operation:

	Fiscal 2005	Fiscal 2004	Fiscal 2003
In operation at beginning of year	26	20	16
Opened during the year	4	6	4
In operation at end of year	30	26	20
Total sales weeks during year	1,466	1,202	975

Three Golden Corral restaurants were under construction as of May 29, 2005 and a fourth was started in early fiscal 2006. Scheduled openings for these stores are in June, August, October and November 2005. The June opening marked the Company’s first store in the state of Pennsylvania, and in November the first store in West Virginia will open. Two additional restaurants will begin construction during Fiscal 2006.

Golden Corral same store sales decreased 6.0 percent during Fiscal 2005. There have been seven consecutive quarters of Golden Corral same store sales declines. Higher average guest checks have not overcome the effect of the continuing decline in customer counts, which were down 10.0 percent for Fiscal 2005. While some of the declines can be traced to the “sister-store” effect of building additional restaurants in existing markets to achieve market penetration, management is actively seeking to identify and solve other factors that are apparently contributing to the decline. The last menu price increases were 1.8 percent in May 2005, 2.3 percent in May 2004, and 3.3 percent in November 2003. Customer count decreases by quarter in Fiscal 2005 were 10.9 percent in the First Quarter, and then 9.6 percent, 8.5 percent and 10.5 percent in the succeeding quarters. This pattern has not been halted in the first quarter of fiscal 2006.

A breakdown of Golden Corral same store sales by quarter follows:

Golden Corral	1st Qtr.		2nd Qtr.		3rd Qtr.		4th Qtr.		Year
Fiscal 2005	(4.5	)%	(5.9	)%	(7.3	)%	(10.6	)%	(6.0	)%
Fiscal 2004	6.6	%	(2.4	)%	(.8	)%	(2.9	)%	.3	%

Following general industry practice, the same store sales comparisons include only those restaurants that were open for five full fiscal quarters prior to the start of the comparison periods. This removes possible misleading numbers that can be caused by the great influx of customers during the first several months of operation, sometimes called the “honeymoon” period of a new restaurant. Using this formula, twenty of the 30 restaurants were included in the annualized Fiscal 2005 same store sales calculation. The quarterly calculations for Fiscal 2005 included 20, 21, 22 and 24 stores, respectively, in the first, second, third and fourth quarters.

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Gross Profit

Gross profit for the Big Boy segment includes commissary operations. Gross profit differs from restaurant level profit disclosed in Note H (Segment Information) as advertising expense is charged against restaurant level profit. Gross profit for both operating segments is highlighted below.

	(restated) Fiscal 2005		(restated) Fiscal 2004		(restated) Fiscal 2003
	(in thousands)
Big Boy gross profit	$	25,673	$	25,269	$	23,198
Golden Corral gross profit		4,852		4,720		4,571
Total gross profit by segment	$	30,525	$	29,989	$	27,769

The percentages shown in the following table are percentages of total sales, including Big Boy wholesale sales. The table supplements the discussion that follows concerning cost of sales for both the Big Boy and Golden Corral reporting segments, including food cost, payroll and other operating costs.

	(restated) 2005			(restated) 2004			(restated) 2003
	Total	BB	GC	Total	BB	GC	Total	BB	GC
Sales	100.0	100.0	100.0	100.0	100.0	100.0	100.0	100.0	100.0
Food and paper	35.3	33.1	39.7	34.2	31.9	39.2	32.7	30.6	38.2
Payroll and related	33.1	34.3	30.6	33.8	35.1	31.0	34.6	35.8	31.5
Other operating costs (including opening costs)	20.7	18.8	24.5	20.4	18.8	23.9	20.8	19.9	23.3
Gross profit	10.9	13.8	5.2	11.6	14.2	5.9	11.9	13.7	7.0

The higher food and paper cost percentages shown in the table for both Big Boy and Golden Corral for both Fiscal 2005 and Fiscal 2004 are the result of escalating commodity costs, especially beef, dairy and pork. Beef, in particular, continues to be a highly volatile market. Import and export restrictions can cause wide fluctuations in cost. The food and paper cost percentages for the Golden Corral segment are much higher than the Big Boy segment because of the all-you-can-eat nature of the Golden Corral concept, as well as its use of steak as a featured item on the buffet.

The Company believes commodity prices will continue to rise for the foreseeable future and management is resolved to manage the business around that fact. Menu price hikes have helped to counter the effects of the higher cost of food to a certain degree, however, menu prices can not be raised high enough at once to offset the significant increases that have been seen on a wide range of products. The effect of commodity price increases is actively managed with changes to the Big Boy menu mix and effective selection of items served on the Golden Corral food bar.

The Company historically reviewed self-insured claims experience each quarter, with a comprehensive review performed during the first quarter of each year. At that time the reserves were usually reduced to more closely reflect claims experience. The Company has been able to significantly reduce its reserves in recent years because the combination of active management of claims and post accident drug testing has produced improved claims experience by lowering both the number of claims and the average cost per claim.

Because of these trends, the Company undertook a comprehensive review of claims experience during the Third Quarter of Fiscal 2005 and determined a favorable adjustment to the reserves of $349,000 was warranted. Comprehensive reviews are now conducted each quarter with adjustments to the reserves recorded as needed. An adjustment in the Fourth Quarter of Fiscal 2005 brought total favorable adjustments recorded in Fiscal 2005 to $1,044,000. Favorable adjustments included in Fiscal 2004 were $710,000 and in Fiscal 2003 they totaled $334,000.

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Vigorous concentration by management to contain payroll costs resulted in a decline in payroll and related cost percentages in Fiscal 2005 for both the Big Boy and Golden Corral operating segment. When the benefit of the self-insured workers’ compensation reserve adjustments (discussed in the preceding paragraph) that were apportioned to payroll and related costs is excluded, all percentages still moved lower. These reductions were achieved in spite of higher costs for medical insurance and the continuing high charges for pension related costs. The Big Boy same store sales increases helped the Big Boy payroll percentages while average pay rates remained level with no appreciable change in hours worked during Fiscal 2005. Golden Corral’s percentages moved downward during Fiscal 2005 despite the decline in same store sales. The lower Golden Corral percentages were achieved with a significant reduction in the number of hours worked while pay rates were roughly even with last year. Increases in Big Boy revenues, control of labor hours at the Golden Corrals, and relatively flat labor rates were also primary causes of the reduction in labor costs between Fiscal 2004 and Fiscal 2003.

Although congressional efforts continually mount to raise the federal minimum wage, the Company believes that it is unlikely that Federal legislation to do so will be enacted in the near term. However, if such legislation were enacted, the Company would counter the effects with higher menu prices, together with tighter payroll standards and a reduction in the number of hours that employees would be permitted to work. New overtime rules initiated by the U.S. Department of Labor went into effect in August 2004. The new rules had a negligible impact on the Company.

Escalating pension costs have been experienced the past three years, as a result of poor returns during the first part of the current decade on equity investments held by the Company’s defined benefit pension plans. Net periodic pension cost (computed under Statement of Financial Accounting Standards No. 87, “Employers’ Accounting for Pensions) was $1,674,000 (as restated), $1,789,000 (as restated) and $1,127,000 (as restated) respectively, in Fiscal 2005, Fiscal 2004 and Fiscal 2003. The expected long term rate of return on plan assets used to compute pension cost has remained at 8.5 percent despite poor returns cited above, as the return assumptions are based on long term objectives. The weighted average discount rate used in the actuarial assumptions for projected benefit obligations was reduced to 6.0 percent for Fiscal 2005, and the rate of compensation increase for projected benefit obligations was reduced to 4.5 percent. Company contributions to these plans were $1,829,000, $2,185,000, and $785,000 respectively, during Fiscal 2005, Fiscal 2004 and Fiscal 2003. Contributions in Fiscal 2005 include $304,000 from the previous year and do not include certain amounts that will be contributed to the plans after May 29, 2005. The Company anticipates making contributions to the defined benefit pension plans that it sponsors that will satisfy legal funding requirements for the year ending May 28, 2006 plus additional tax-deductible amounts that may be deemed advisable.

Other operating costs include occupancy costs such as maintenance, rent, depreciation, property tax, insurance and utilities; field supervision; accounting and payroll preparation costs; franchise fees for Golden Corral restaurants; opening costs and many other restaurant operating expenses. Most of these expenses tend to be more fixed in nature, and same store sales increases cause these costs to be a lower percentage of sales, as reflected in the above table for Big Boy. The Big Boy percentages for Fiscal 2004 and Fiscal 2005 were lower than Fiscal 2003 due to the same store sales increase in both years, combined with certain write-offs recorded in Fiscal 2003 for the cost of abandoning design plans for an earlier Big Boy prototype building. Opening costs had a significant impact on the percentages as well. Charges for Big Boy restaurants for fiscal years 2005, 2004 and 2003 were $265,000, $368,000, and $85,000 respectively. Golden Corral opening costs for fiscal years 2005, 2004 and 2003 were $1,222,000, $1,412,000, and $864,000 respectively.

Operating expense in Fiscal 2005 was also adversely impacted by a $433,000 charge to correct the Company’s accounting for leases to conform the recognition of rent expense on a straight-line basis over the term of the lease, including any option periods considered to be part of the lease term, as lease terms are defined by Statement of Financial Accounting Standards No. 13 (SFAS 13), “Accounting for Leases,” as amended. SFAS 13 also defines the term of the lease as including the period of time when no rent is paid to the landlord, often referred to as a “rent holiday,” that generally occurs while a restaurant is being built on leased land. A total of $182,000 in under accrued “rent holidays” was capitalized during Fiscal 2005 in conforming the recognition of rent to SFAS 13. A number of restaurant chains, retailers, and similar companies utilizing leased facilities have recently recorded similar charges for lease accounting issues. This charge reduced diluted EPS by $.06.

Operating Profit

To arrive at the measure of operating profit, administrative and advertising expense is subtracted from gross profit, while franchise fees and other revenue is added to it. Gains and losses on sale of assets are then respectively added or subtracted.

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Administrative and advertising expense increased $1,176,000 during Fiscal 2005, or 9.2 percent compared to Fiscal 2004. These costs increased $631,000 or 5.2 percent between Fiscal 2004 and Fiscal 2003. The largest component of the increase in all three years is higher spending for advertising and marketing programs that is proportionate with higher sales levels, reflecting the Company’s long standing policy to spend a constant percentage of Big Boy and Golden Corral sales on advertising and marketing. Advertising expense was $6,443,000, $6,065,000, and $5,377,000 in Fiscal 2005, Fiscal 2004 and Fiscal 2003, respectively. Also having an impact on administrative and advertising expense for Fiscal 2005 are $280,000 in costs to comply with Section 404 of the Sarbanes Oxley Act, principally related to higher external auditing fees. Other factors contributing to the higher expense for Fiscal 2005 included increased litigation costs and a one time charge to recognize an obligation to an environmental remediation plan on a piece of property the Company no longer owns.

Revenue from franchise fees is based on sales of Big Boy restaurants that are franchised to other operators. The fees are based principally on percentages of sales generated by the licensed restaurants. As of May 29, 2005, 28 Big Boy restaurants had been franchised to others. Other revenue also includes certain other fees from franchisees along with miscellaneous rent and investment income.

Gains and losses on sale of assets consist of transactions involving real property and sometimes may include restaurant equipment that is sold together with real property as a package when closed restaurants are sold. Gains and losses reported on this line do not include abandonment losses that often arise when certain equipment is replaced before it reaches the end of its expected life. Abandonment losses are instead reported in other operating costs. Amounts reported for Fiscal 2005 and Fiscal 2004 primarily represent gains from the sale of undeveloped land. The $145,000 gain recorded in Fiscal 2003 was from the sale of a Big Boy restaurant that was permanently closed in fiscal 2001.

Results for Fiscal 2003 were favorably affected by a gain on the early termination of a lease amounting to $666,000 that resulted from the disposition of a former Big Boy restaurant. The credit reflected the over estimation of lease charges recorded when the restaurant was permanently closed in fiscal 2001.

No impairments of assets were recorded in during any of the three years ended May 29, 2005.

Other Expense (Income)

Interest expense increased $346,000 in Fiscal 2005, or 14.0 percent higher than Fiscal 2004. The increase was caused by the combination of higher debt levels for most of the year, higher interest rates and lower levels of capitalized interest. Life insurance proceeds were used to retire $9,000,000 of outstanding debt in March 2005, providing some relief in interest expense in the fourth quarter of the year. Interest expense in Fiscal 2004 decreased $326,000 or 11.6 percent from Fiscal 2003. Accounting for much of the change is the effect of interest required to be capitalized, which was $294,000 in Fiscal 2004 and $117,000 in Fiscal 2003. Capitalized interest in Fiscal 2005 was $133,000. Reduction in the weighted average fixed interest rate also caused a portion of the decrease between Fiscal 2004 and Fiscal 2003.

In addition to interest expense, the $4,440,000 non-taxable life insurance benefit is classified as other expense (income), and is not included in the determination of operating profit.

Income tax expense as a percentage of pre-tax earnings was 25.0 percent (as restated) in Fiscal 2005, 33.3 percent in Fiscal 2004, and 33.5 percent in Fiscal 2003. The Fiscal 2005 income tax expense percentage was favorably affected by the $4,440,000 gain from non taxable life insurance benefit. The effective rate for Fiscal 2005 would have been 32.3 percent without the advantage of the non taxable life insurance benefit. The effective rates have been kept consistently low through the Company’s use of available tax credits, principally the federal credit allowed for Employer Social Security and Medicare Taxes Paid on Certain Employee Tips. To a lesser degree, the Company also uses the federal Work Opportunity Tax Credit (WOTC).

LIQUIDITY AND CAPITAL RESOURCES

Sources of Funds

Sales to restaurant customers provide the Company’s principal source of cash. The funds from sales are immediately available for the Company’s use, as substantially all sales to restaurant customers are received in cash or are settled by credit cards. Net earnings plus depreciation provide the primary source of cash provided by operating activities. Other sources of cash may include borrowing against the Company’s credit lines, proceeds from

10

employees’ exercising of stock options and occasional sales of real estate. In addition to servicing debt, these cash flows are utilized for discretionary objectives, including capital projects (principally restaurant expansion) and dividends.

Working Capital Practices

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

Aggregated Information about Contractual Obligations and Commercial Commitments

As of May 29, 2005

		Payments due by period (in thousands)						more than 5 years
		Total	year 1	year 2	year 3	year 4	year 5
	Long-term debt	37,168	7,598	9,363	9,726	5,161	2,780	2,540
	Rent due under capital lease obligations	4,532	883	657	2,601	119	97	175
1.	Rent due under operating leases	25,355	1,757	1,728	1,725	1,673	1,534	16,938
2.	Unconditional purchase obligations	10,299	10,299	—	—	—	—	—
3.	Other long-term obligations	2,204	214	217	220	223	226	1,104
	Total contractual cash obligations	79,558	20,751	11,965	14,272	7,176	4,637	20,757

1. Not included in the table is a contingent liability for the performance of a ground lease that has been assigned to a third party. The annual obligation of the lease approximates $48,000 through 2020. Should the third party default, the Company has the right to re-assign the lease.

Operating leases include option periods considered to be part of the lease term under SFAS 13, as amended.

2. Primarily consists of commitments for capital projects plus certain food and beverage items.

3. Deferred compensation liability.

The working capital deficit was $20,911,000 (as restated) as of May 29, 2005. The deficit was $20,115,000 (as restated) as of May 30, 2004. The working capital deficit is likely to continue increasing over the next few years at a modest, manageable pace as construction debt is prudently increased to supplement the use of internally generated cash to finance expansion plans. Including draws since May 30, 2005, $5,500,000 remains available to be drawn upon a Construction Draw Credit Facility before it is scheduled to expire on September 1, 2006, unless extended. Additionally, a $5,000,000 working capital revolving line of credit (currently unused) is readily available if needed.

Operating Activities

Operating cash flows were $21,713,000 in Fiscal 2005, $5,846,000 lower than Fiscal 2004 and $911,000 below Fiscal 2003. The fiscal 2005 decrease is attributable to normal changes in assets and liabilities. However, management believes a better, more reliable gauge to measure cash flows from the operation of the business is to use the simple method of net earnings plus depreciation. Eliminating the life insurance benefit, this method yielded $22,429,000 (as restated) in cash flows for Fiscal 2005, an increase of $424,000 (as restated) above Fiscal 2004 and $1,521,000 (as restated) higher than Fiscal 2003.

11

Investing Activities

Capital spending is the principal component of investing activities. Capital spending was $24,123,000 during Fiscal 2005, a decrease of $5,903,000 from Fiscal 2004. This year’s capital spending includes $14,447,000 for Golden Corral restaurants, principally for new restaurant construction and site acquisitions, plus the costs to remodel five of the original restaurants constructed in 1999 and 2000. Big Boy capital expenditures were $9,676,000 in Fiscal 2005, consisting of new restaurant construction, remodeling existing restaurants, routine equipment replacements and other capital outlays.

Claims for life insurance benefits totaling $9,659,000 (less $500,000 paid to another beneficiary) associated with the death of the Company’s Chairman of the Board were settled in full during Fiscal 2005. Proceeds from the sale of property amounting to $225,000 are also included in investing activities for Fiscal 2005.

Investing activities for Fiscal 2004 includes the recovery of $1,700,000 received in settlement of certain litigation relating to defective construction of a Golden Corral restaurant. The settlement was with the architect and the architect’s structural engineering consultant. Receipt of the settlement funds was sufficient to recover all construction costs incurred, including the cost to raze the defective building. The Company continues to vigorously prosecute its claim exceeding $1,000,000 against the general contractor that built the building.

Financing Activities

Borrowing against credit lines amounted to $11,500,000 during Fiscal 2005. Another $1,500,000 was borrowed shortly after the year ended. Scheduled and other payments of long-term debt and capital lease obligations amounted to $16,339,000 during Fiscal 2005, including $9,000,000 that was paid with life insurance proceeds. Regular quarterly cash dividends paid to shareholders totaled $2,220,000. As the Company expects to continue its 45 year practice of paying regular quarterly cash dividends, the Board of Directors declared another $.11 per share dividend on June 7, 2005.

Proceeds of $312,000 were received from employees and directors who acquired 21,500 shares of the Company’s common stock through exercise of stock options. As of May 29, 2005, 370,000 shares remain outstanding under the 1993 Stock Option Plan, including 284,000 fully vested shares at a weighted average price per share of $17.04, and 6,200 shares were available to be optioned. Shareholders approved the 2003 Stock Option and Incentive Plan in October 2003. The maximum number of shares that the new Plan may issue is 800,000. As of May 29, 2005, 7,000 shares had been granted under the 2003 Stock Option and Incentive Plan, none of which has yet to vest.

The Company’s stock repurchase program expired October 7, 2004. It had authorized the repurchase of up to 500,000 shares of the Company’s common stock. No shares were acquired during the two-year life of the program, as the price at which shares of the Company’s common stock had been traded did not warrant utilization of the program.

Other Information

The Company reached a new development agreement with Golden Corral Franchising Systems, Inc. in July 2004. The new agreement added 21 Golden Corrals (subsequently expanded to 22) to the development schedule, bringing the total to 63 restaurants to be in operation by December 31, 2011. The development agreement, which had called for five restaurants to be opened each calendar year through December 2010 with the final four scheduled for 2011, was modified in June 2005 to permit the opening of only three restaurants in 2006. The Company asked for the modification in order to use cash flow and credit facilities in a debt neutral manner. In no way does the modification change the Company’s intention to complete the build out schedule by December 31, 2011.

As of May 29, 2005, 30 Golden Corral restaurants were in operation with three restaurants under construction. Costs remaining to complete construction of these three restaurants were estimated at $3,823,000 as of May 29, 2005. Construction of a fourth restaurant was started in June. On average, the cost to build and equip each Golden Corral restaurant is approximately $3,300,000, including land.

One Big Boy restaurant was under construction as of May 29, 2005 and is planned to open in August 2005. As of May 29, 2005, the estimated cost remaining to complete the project was $1,746,000. This building is a replacement building on a same site as the prior building. Two additional buildings are likely to be constructed during the next twelve months. One of the new buildings involves a relocation caused by a state highway project in Indiana, while the other involves a new restaurant. The approximate cost to build and equip a new Big Boy restaurant ranges from $2,300,000 to $2,800,000, depending on land cost. Approximately one-fifth of the Company’s Big Boy restaurants

12

are routinely renovated or decoratively updated each year at an average cost of $75,000 per restaurant. In addition, certain high-volume Big Boy restaurants are regularly evaluated to determine whether their kitchens should be redesigned for increased efficiencies. A typical kitchen redesign costs approximately $125,000.

It is the Company’s policy to own the land on which it builds new restaurants; however, it is sometimes necessary to enter ground leases to obtain desirable land on which to build. Five of the 30 Golden Corral restaurants now in operation have been built on leased land. Three more Golden Corral ground leases have been entered into for restaurants to open respectively in June, October and November 2005. All of these leases have been accounted for as operating leases pursuant to Statement of Financial Accounting Standards No. 13 (SFAS 13), “Accounting for Leases” as amended. As of May 29, 2005 the Company occupied 29 restaurants pursuant to leases, ten of which are capital leases pursuant to SFAS 13 “Accounting for Leases,” as amended.

In September 2004 the Company completed its plan to replace its headquarters legacy information system with an integrated enterprise system. The capitalized cost for this project was approximately $5,315,000, including approximately $763,000 for the capitalized value of employees’ time and capitalized interest.

APPLICATION OF CRITICAL ACCOUNTING POLICIES

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

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

Self Insurance

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

Pension Plans

Pension plan accounting requires rate assumptions for future compensation increases and the long term return on plan assets. A discount rate is also applied to the calculations of net periodic pension cost and projected benefit obligations. An informal committee consisting of executives from the Finance Department and the Human Resources Department, with guidance provided by the Company’s actuarial consulting firm, develops these assumptions each year. The consulting firm also provides services in calculating estimated future obligations and net periodic pension cost. The plan assets are targeted to be invested 70 percent in equity securities, as these investments have historically provided the greatest long-term returns. The Company has used an 8.5 percent expected long-term rate of return on plan assets for many years, and will likely continue with that rate for the foreseeable future. Management believes that 8.5 percent is a fair rate over the long term, despite poor market performance in the early years of the current decade which has adversely impacted net periodic pension cost in recent years, after many years of steady, low costs. Management’s application of these assumptions in no way caused the error in the calculation of net periodic pension cost described in detail in Note B to the consolidated financial statements.

13

Long-Lived Assets

Long-lived assets include property and equipment, goodwill and other intangible assets. Property and equipment typically approximate 85 percent of the Company’s total assets. Judgments and estimates are used to determine the carrying value of long-lived assets. This includes the assignment of appropriate useful lives, which affect depreciation and amortization expense. Capitalization policies are continually monitored to assure they remain appropriate.

In addition, carrying values of property and equipment are tested for impairment each quarter using historical cash flow losses on a restaurant-by-restaurant basis. Carrying values are also reviewed whenever events or circumstances indicate the carrying value may be impaired. When undiscounted expected future cash flows are less than carrying values, an impairment loss is recognized for the amount by which carrying values exceed estimated realizable values. Future cash flows can be difficult to predict. Changing neighborhood demographics and economic conditions, and many other factors may impact operating performance, which affect cash flow. Estimated realizable values are provided by real estate brokers and/or the Company’s past experience in disposing of property.

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

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

14

Item 8. Financial Statements and Supplementary Data

	Page
Index to Consolidated Financial Statements
Report of Management on Internal Control over Financial Reporting	16
Report of Independent Registered Public Accounting Firm (on Financial Statements)	17
Report of Independent Registered Public Accounting Firm (on Management’s Assessment of Internal Control over Financial Reporting)	18
Consolidated Balance Sheet (Restated) – May 29, 2005 and May 30, 2004	19-20
Consolidated Statement of Earnings (Restated) – Three fiscal years ended May 29, 2005	21
Consolidated Statement of Cash Flows (Restated) – Three fiscal years ended May 29, 2005	22
Consolidated Statement of Shareholders’ Equity (Restated) – Three fiscal years ended May 29, 2005	23
Notes to Consolidated Financial Statements (Restated) – Three fiscal years ended May 29, 2005	24-44
(Restated) Quarterly Results (Unaudited)	44

15

REPORT OF MANAGEMENT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Management of the Company is responsible for establishing and maintaining adequate internal control over the Company’s financial reporting, and for performing an assessment of the effectiveness of internal control over financial reporting as of May 29, 2005. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. The Company’s system of internal control over financial reporting includes those policies and procedure that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.

Management performed an assessment of the effectiveness of the Company’s internal control over financial reporting as of May 29, 2005 based upon criteria in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on our assessment, management determined that the Company’s internal control over financial reporting was effective as of May 29, 2005 based on the criteria in Internal Control - Integrated Framework issued by the COSO.

Management’s assessment of the effectiveness of the Company’s internal control over financial reporting as of May 29, 2005 has been audited by Grant Thornton LLP, an independent registered public accounting firm, as stated in their report which appears herein.

July 22, 2005

/s/ Craig F. Maier

Craig F. Maier

President and Chief Executive Officer

/s/ Donald H. Walker

Donald H. Walker

Vice President and Chief Financial Officer

16

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Shareholders of

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 29, 2005 and May 30, 2004 and the related consolidated statements of earnings, shareholders’ equity, and cash flows for each of the three years in the period ended May 29, 2005. 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 the standards of the Public Company Accounting Oversight Board (United States). 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.

As discussed in Note B, the consolidated financial statements have been restated.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Frisch’s Restaurants, Inc. and Subsidiaries as of May 29, 2005 and May 30, 2004, and the results of its operations and its cash flows for each of the three years in the period ended May 29, 2005, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Frisch’s Restaurants, Inc’s internal control over financial reporting as of May 29, 2005, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated July 22, 2005, expressed an unqualified opinion therein.

GRANT THORNTON LLP

Cincinnati, Ohio

July 22, 2005 (except for Note B, as to which the date is February 17, 2006)

17

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Shareholders of

Frisch’s Restaurants, Inc.

We have audited management’s assessment, included in the accompanying Report of Management on Internal Control over Financial Reporting, that Frisch’s Restaurants, Inc. (an Ohio Corporation) maintained effective internal control over financial reporting as of May 29, 2005, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Frisch’s Restaurants, Inc. management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, management’s assessment that Frisch’s Restaurants, Inc. maintained effective internal control over financial reporting as of May 29, 2005, is fairly stated, in all material respects, based on the COSO criteria. Also, in our opinion, Frisch’s Restaurants, Inc. maintained, in all material respects, effective internal control over financial reporting as of May 29,2005 based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Frisch’s Restaurants, Inc. as of May 29, 2005 and May 30, 2004, and the related consolidated statements of income and comprehensive income, shareholders’ equity, and cash flows for each of the three years in the period ended May 29, 2005 and our report dated July 22, 2005 expressed an unqualified opinion on those financial statements.

GRANT THORNTON LLP

Cincinnati, Ohio

July 22, 2005

18

FRISCH’S RESTAURANTS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET

May 29, 2005 and May 30, 2004

ASSETS

	(restated) 2005		(restated) 2004
Current Assets
Cash	$	306,300	$	294,410
Receivables
Trade		1,220,320		1,384,798
Other		169,655		381,090
Inventories		4,592,093		4,381,814
Prepaid expenses and sundry deposits		2,819,762		2,522,319
Prepaid and deferred income taxes		942,611		1,024,427
Total current assets		10,050,741		9,988,858
Property and Equipment
Land and improvements		56,830,344		50,250,328
Buildings		81,434,781		75,040,561
Equipment and fixtures		84,240,573		77,673,937
Leasehold improvements and buildings on leased land		21,590,570		19,751,361
Capitalized leases		7,131,603		7,388,580
Construction in progress		6,435,214		6,918,091
		257,663,085		237,022,858
Less accumulated depreciation and amortization		109,461,135		101,302,386
Net property and equipment		148,201,950		135,720,472
Other Assets
Goodwill		740,644		740,644
Other intangible assets		1,400,659		1,122,982
Investments in land		974,370		1,148,293
Property held for sale		1,857,244		1,160,785
Net cash surrender value-life insurance policies		—		4,600,873
Other		4,239,974		3,954,189
Total other assets		9,212,891		12,727,766
Total assets	$	167,465,582	$	158,437,096

The accompanying notes are an integral part of these statements.

19

FRISCH’S RESTAURANTS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET

May 29, 2005 and May 30, 2004

LIABILITIES AND SHAREHOLDERS’ EQUITY

	(restated) 2005		(restated) 2004
Current Liabilities
Long-term obligations due within one year
Long-term debt	$	7,598,182	$	6,230,801
Obligations under capitalized leases		533,016		508,520
Self insurance		851,737		1,310,191
Accounts payable		12,799,147		13,380,257
Accrued expenses		8,763,971		8,238,293
Income taxes		416,125		436,265
Total current liabilities		30,962,178		30,104,327
Long-Term Obligations
Long-term debt		29,570,481		35,226,734
Obligations under capitalized leases		3,136,836		3,221,384
Self insurance		1,981,342		2,384,893
Deferred income taxes		4,830,375		4,080,390
Deferred compensation and other		3,583,120		2,903,974
Total long-term obligations		43,102,154		47,817,375
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 7,505,176 and 7,490,845 shares - stated value - $1		7,505,176		7,490,845
Additional contributed capital		62,226,047		61,976,027
		69,731,223		69,466,872
Retained earnings		56,490,185		43,969,077
		126,221,408		113,435,949
Less cost of treasury stock (2,449,394 and 2,458,022 shares)		32,820,158		32,920,555
Total shareholders’ equity		93,401,250		80,515,394
Total liabilities and shareholders’ equity	$	167,465,582	$	158,437,096

20

FRISCH’S RESTAURANTS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF EARNINGS

Three years ended May 29, 2005

	(restated) 2005			(restated) 2004			(restated) 2003
Sales	$	279,247,122		$	259,701,417		$	233,678,454
Cost of sales
Food and paper		98,569,774			88,864,369			76,451,811
Payroll and related		92,351,759			87,817,014			80,814,371
Other operating costs		57,800,494			53,030,885			48,643,339
		248,722,027			229,712,268			205,909,521
Gross profit		30,525,095			29,989,149			27,768,933
Administrative and advertising		13,928,712			12,752,511			12,121,321
Franchise fees and other revenue		(1,351,967	)		(1,222,103	)		(1,232,391	)
Gains on sale of assets		(86,921	)		(40,964	)		(144,858	)
Gain on early termination of lease		—			—			(665,728	)
Operating profit		18,035,271			18,499,705			17,690,589
Other expense (income)
Interest expense		2,820,449			2,474,449			2,799,959
Life insurance benefits in excess of cash surrender value		(4,440,000	)		—			—
Earnings before income taxes		19,654,822			16,025,256			14,890,630
Income taxes
Current
Federal		4,226,844			3,562,572			2,984,895
Less tax credits		(785,855	)		(642,146	)		(486,258	)
State and municipal		757,698			766,785			548,481
Deferred		715,310			1,648,343			1,940,922
Total income taxes		4,913,997			5,335,554			4,988,040
NET EARNINGS	$	14,740,825		$	10,689,702		$	9,902,590
Earnings per share (EPS) of common stock:
Basic net earnings per share	$	2.92		$	2.14		$	2.01
Diluted net earnings per share	$	2.86		$	2.08		$	1.97

The accompanying notes are an integral part of these statements.

21

FRISCH’S RESTAURANTS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS

Three years ended May 29, 2005

	(restated) 2005			(restated) 2004			(restated) 2003
Cash flows provided by (used in) operating activities:
Net earnings	$	14,740,825		$	10,689,702		$	9,902,590
Adjustments to reconcile net earnings to net cash from operating activities:
Life insurance benefit		(4,440,000	)		—			—
Depreciation and amortization		12,115,649			10,967,456			10,973,014
Net loss on disposition of assets, including abandonments		12,380			347,513			698,403
(Gain) on early termination of lease		—			—			(665,728	)
		22,428,854			22,004,671			20,908,279
Changes in assets and liabilities:
Accounts receivable		375,913			(489,132	)		(108,509	)
Inventories		(210,279	)		(556,555	)		(240,020	)
Prepaid expenses and sundry deposits		(297,444	)		(34,121	)		(829,055	)
Other assets		(1,231,460	)		(503,592	)		(13,741	)
Prepaid, accrued and deferred income taxes		831,801			1,652,303			2,166,991
Accrued income taxes		(20,140	)		80,583			21,126
Tax benefit from stock options exercised		74,499			366,469			109,379
Accounts payable		(581,110	)		3,906,430			116,243
Accrued expenses		525,678			830,861			732,690
Self insured obligations		(862,005	)		(186,048	)		(414,320	)
Other liabilities		679,146			487,093			175,296
		(715,401	)		5,554,291			1,716,080
Net cash provided by operating activities		21,713,453			27,558,962			22,624,359
Cash flows (used in) provided by investing activities:
Additions to property and equipment		(24,123,183	)		(30,026,204	)		(21,544,202	)
Proceeds from disposition of property		225,328			300,788			1,265,095
Proceeds from sale of franchise rights		168,981			156,464			144,874
Proceeds from life insurance benefits		9,159,173			—			—
Proceeds from construction litigation		—			1,700,000			—
Proceeds from surrender of life insurance policies		—			—			811,483
Change in other assets		(363,750	)		(1,086,356	)		(206,840	)
Net cash (used in) investing activities		(14,933,451	)		(28,955,308	)		(19,529,590	)
Cash flows provided by (used in) financing activities:
Proceeds from borrowings		11,500,000			7,500,000			4,000,000
Payment of long-term debt and capital lease obligations		(16,338,644	)		(5,748,042	)		(5,280,876	)
Cash dividends paid		(2,219,717	)		(2,099,541	)		(1,774,417	)
Proceeds from stock options exercised - new shares issued		219,436			824,465			392,017
Proceeds from stock options exercised - treasury shares re-issued		92,844			98,035			20,435
Other treasury shares re-issued		74,900			62,675			59,234
Treasury shares acquired		(30,491	)		—			—
Employee stock purchase plan		(66,440	)		(80,279	)		(48,445	)
Net cash (used in) provided by financing activities		(6,768,112	)		557,313			(2,632,052	)
Net (decrease) increase in cash and equivalents		11,890			(839,033	)		462,717
Cash and equivalents at beginning of year		294,410			1,133,443			670,726
Cash and equivalents at end of year	$	306,300		$	294,410		$	1,133,443
Supplemental disclosures:
Interest paid	$	2,984,217		$	2,853,865		$	2,808,984
Income taxes paid		4,028,266			3,236,202			2,727,820
Income tax refunds received		429			—			33,291
Lease transactions capitalized		489,722			—			—

The accompanying notes are an integral part of these statements.

22

FRISCH’S RESTAURANTS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY

Three years ended May 29, 2005

	Common stock at $1 per share - Shares and amount		Additional contributed capital			Retained earnings			Treasury shares			Total
Balance at June 2, 2002 (as originally reported)	$	7,385,107	$	60,496,396		$	26,487,596		$	(33,139,171	)	$	61,229,928
Pension actuarial correction							763,147						763,147
Balance at June 2, 2002 (restated)		7,385,107		60,496,396			27,250,743			(33,139,171	)		61,993,075
Net earnings for the year (restated)		—		—			9,902,590			—			9,902,590
Stock options exercised - new shares issued		35,656		356,361			—			—			392,017
Stock options exercised - treasury shares re-issued		—		(6,351	)		—			26,786			20,435
Tax benefit from stock options exercised		—		109,379			—			—			109,379
Other treasury shares re-issued		—		19,037			—			40,197			59,234
Employee stock purchase plan		—		(48,445	)		—			—			(48,445	)
Cash dividends paid - $.36 per share		—		—			(1,774,417	)		—			(1,774,417	)
Balance at June 1, 2003 (restated)		7,420,763		60,926,377			35,378,916			(33,072,188	)		70,653,868
Net earnings for the year (restated)		—		—			10,689,702			—			10,689,702
Stock options exercised - new shares issued		70,082		754,383			—			—			824,465
Stock options exercised - treasury shares re-issued		—		(9,103	)		—			107,138			98,035
Tax benefit from stock options exercised		—		366,469			—			—			366,469
Other treasury shares re-issued		—		18,180			—			44,495			62,675
Employee stock purchase plan		—		(80,279	)		—			—			(80,279	)
Cash dividends paid - $.42 per share		—		—			(2,099,541	)		—			(2,099,541	)
Balance at May 30, 2004 (restated)		7,490,845		61,976,027			43,969,077			(32,920,555	)		80,515,394
Net earnings for the year (restated)		—		—			14,740,825			—			14,740,825
Stock options exercised - new shares issued		14,331		205,105			—			—			219,436
Stock options exercised - treasury shares re-issued		—		(3,109	)		—			95,953			92,844
Tax benefit from stock options exercised		—		74,499			—			—			74,499
Other treasury shares re-issued		—		39,965			—			34,935			74,900
Treasury shares acquired		—		—			—			(30,491	)		(30,491	)
Employee stock purchase plan				(66,440	)								(66,440	)
Cash dividends paid - $.44 per share		—		—			(2,219,717	)					(2,219,717	)
Balance at May 29, 2005 (restated)	$	7,505,176	$	62,226,047		$	56,490,185		$	(32,820,158	)	$	93,401,250

The accompanying notes are an integral part of these statements.

23

Frisch’s Restaurants, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Restated)

Three years ended May 29,2005

NOTE A – ACCOUNTING POLICIES

A summary of the Company’s significant accounting policies consistently applied in the preparation of the accompanying consolidated financial statements follows:

Description of the Business

Frisch’s Restaurants, Inc. (The Company) is a regional company that operates full service family-style restaurants under the name “Frisch’s Big Boy.” The Company also operates grill buffet style restaurants under the name “Golden Corral” pursuant to certain licensing agreements. All restaurants operated by the Company during the three years ended May 29, 2005 were located in various regions of Ohio, Kentucky and Indiana. Plans are in place to expand Golden Corral operations into certain parts of Pennsylvania (including one that opened in June 2005), West Virginia and Michigan.

The Company owns the trademark “Frisch’s” and has exclusive, irrevocable ownership of the rights to the “Big Boy” trademark, trade name and service mark in the states of Kentucky and Indiana, and in most of Ohio and Tennessee. All of the Frisch’s Big Boy restaurants also offer “drive-thru” service. The Company also licenses Big Boy restaurants to other operators, currently in certain parts of Ohio, Kentucky and Indiana. In addition, the Company operates a commissary and food manufacturing plant near its headquarters in Cincinnati, Ohio that services all Big Boy restaurants operated by the Company, and is available to supply restaurants licensed to others.

Restatement of Financial Statements

In early December 2005, the Company’s actuarial consulting firm informed the Company of a formula error in the software program it created in 1995, which caused the software program to not properly pro-rate the benefit for service for plan participants in the Company’s defined benefit pension plan for managers, office employees and commissary employees with less than 28 years of service before normal retirement. This actuarial formula error caused the Company’s net periodic pension cost (and related accounts in the consolidated balance sheet and the consolidated statement of earnings) to be overstated. The cumulative effect of the error on total assets was $1,866,000 and $1,589,000 respectively, as of May 29, 2005 and May 30, 2004. (See Note B – Restatement.)

Consolidation Practices

The accompanying consolidated financial statements include the accounts of Frisch’s Restaurants, Inc. and all of its subsidiaries. Significant inter-company accounts and transactions have been eliminated in consolidation. Certain reclassifications have been made to prior years’ statements to conform to the current year presentation.

Fiscal Year

The Company’s fiscal year is the 52 or 53 week period ending on the Sunday nearest to the last day of May. The first quarter of each fiscal year contains sixteen weeks, while the last three quarters each normally contain twelve weeks. Every fifth or sixth year, an additional week is added to the fourth quarter, which results in a 53 week fiscal year. Each of the three years in the period ended May 29, 2005 was a 52 week year.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to use estimates and assumptions to measure certain items that affect the amounts reported. These judgments are based on knowledge and experience about past and current events, and assumptions about future events. Although management believes its estimates are reasonable and adequate, future events affecting them may differ markedly from current judgment.

Significant estimates and assumptions are used to measure self insurance liabilities, deferred executive compensation obligations, net periodic pension cost and future pension obligations, the carrying values of property held for sale and for long-lived assets including property and equipment, goodwill and other intangible assets. The Company believes the application of estimates to its policies regarding the measurement of self insurance liabilities, net periodic pension cost and future pension obligations, and the carrying values of long-lived assets are critical accounting policies that require management’s most difficult, subjective or complex judgments.

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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 amounts of $933,000 and $704,000 were included in accounts payable as of May 29, 2005 and May 30, 2004, respectively.

The Company values its trade notes and accounts receivable on the reserve method. The reserve balance was $30,000 at May 29, 2005 and May 30, 2004. The reserve is monitored for adequacy based on historical collection patterns and write-offs, and current credit risks.

Inventories

Inventories, comprised principally of food items, are valued at the lower of cost, determined by the first-in, first-out method, or market.

Accounting for Rebates

Cash consideration received from certain food vendors is treated as a reduction of cost of sales and is recognized in the same period the Company sells the food.

Property and Equipment

Property and equipment are stated at cost. Depreciation is provided principally on the straight-line method over the estimated service lives, which range from ten to 25 years for buildings or components thereof and five to ten years for equipment. Leasehold improvements are depreciated over the shorter of the useful life of the asset or the lease term as lease terms are defined in Statement of Financial Standards No. 13 (SFAS 13), “Accounting for Leases,” as amended. Interest on borrowings is capitalized during active construction periods of new restaurants. Capitalized interest for fiscal years 2005, 2004 and 2003 was $118,000, $199,000 and $112,000, respectively. Property betterments are capitalized while the cost of maintenance and repairs is expensed as incurred.

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. Estimated remaining expenditures for new restaurant construction that was in progress as of May 29, 2005 totaled approximately $5,569,000, consisting of $3,823,000 for three Golden Corral restaurants and $1,746,000 for one Big Boy restaurant. The cost of land on which construction is not likely within the next twelve months is classified as “Investments in land” in the consolidated balance sheet.

Certain surplus property is currently held for sale. All of the surplus property is stated at the lower of cost or market and is classified as “Property held for sale” in the consolidated balance sheet. Market values are generally determined by real estate brokers and/or the Company’s judgment.

Capitalized computer software is depreciated on the straight-line method over the estimated service lives, which range from three to ten years. The Company’s cost capitalization policy with respect to computer software complies with the American Institute of Certified Public Accountants’ Statement of Position 98-1 (SOP 98-1), “Accounting for the Costs of Computer Software Developed or Obtained for Internal Use.” The installation of an enterprise information system was completed in September 2004. Preliminary project stage costs were expensed as incurred in fiscal years 2002 and 2003. Software acquisition costs, installation, configuration, implementation and testing costs were capitalized during the application development stage. Included in the capitalization of the project were interest costs together with payroll and payroll related costs for certain employees who worked on the implementation. Capitalized interest for fiscal years 2005, 2004 and 2003 was $15,000, $95,000 and $5,000, respectively. The capitalized payroll and payroll related costs for fiscal years 2005, 2004 and 2003 were $96,000, $518,000 and $34,000 respectively. Net of accumulated depreciation, the capitalized cost of the enterprise information system was $4,608,000 as of May 29, 2005.

Impairment of Assets

Under Statement of Financial Accounting Standards No. 144 (SFAS 144), “Accounting for the Impairment or Disposal of Long-Lived Assets,” the Company considers a history of cash flow losses on a restaurant-by-restaurant

25

basis to be its primary indicator of potential impairment. 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. Net realizable values are generally determined by estimates provided by real estate brokers and/or the Company’s past experience in disposing of unprofitable restaurant properties.

No impairment losses were recorded during any of the periods presented in the accompanying consolidated financial statements.

Two Big Boy restaurants were closed during fiscal 2001 because of cash flow losses, at which time non-cash pretax impairment charges of $1,575,000 were recorded, which included a write-off of future long-term lease obligations on one of the restaurants. Because the lease was terminated early in fiscal 2003, the remainder of the lease accrual was reversed resulting in $666,000 being credited to earnings. The other restaurant was sold for cash in fiscal 2003, which resulted in a $145,000 gain on the sale of assets.

Leases

Minimum scheduled payments on operating leases, including escalating rental payments, are recognized as rent expense on a straight-line basis over the term of the lease, including option periods considered to be part of the lease term, as defined by SFAS 13, as amended. The term of the lease also includes the period of time when no rent is paid to the landlord, often referred to as a “rent holiday,” that generally occurs while the restaurant is being constructed on leased land. Rent is capitalized during construction of a restaurant. Contingent rentals, typically based on a percentage of restaurant sales in excess of a fixed amount, are expensed as incurred. The Company has not received leasehold incentives from landlords.

Restaurant Closing Costs

Any liabilities associated with exit or disposal activities initiated after December 31, 2002 are recorded in accordance with Statement of Financial Accounting Standards No. 146 (SFAS 146) “Accounting for Obligations Associated with Disposal Activities.” SFAS 146 requires that liabilities be recognized for exit and disposal costs only when the liabilities are incurred, rather than upon the commitment to an exit or disposal plan. No significant disposal costs were incurred for the two restaurants that have been permanently closed since December 31, 2002, as the leases for both locations expired upon closing or shortly thereafter.

Statement of Financial Accounting Standards No. 143 (SFAS 143) “Accounting for Asset Retirement Obligations” is applicable to legal obligations associated with the retirement of certain tangible long-lived assets. The adoption of SFAS 143 on June 2, 2003 did not materially impact the Company’s financial statements.

Goodwill and Other Intangible Assets, Including Licensing Agreements

Acquired goodwill is tested annually for impairment and also whenever an impairment indicator arises. Impairment losses are recorded when impairment is determined to have occurred. As of May 29, 2005 and May 30, 2004, the carrying amount of goodwill acquired in prior years was $741,000, which is net of $308,000 amortized in prior years.

Intangible assets having a finite useful life are subject to amortization, and are tested annually for impairment. The Company’s other intangible assets consist principally of initial franchise fees paid for each new Golden Corral restaurant the Company opens. Amortization of the $40,000 initial fee begins when the restaurant opens and is computed using the straight-line method over the 15-year term of each individual restaurant’s franchise agreement. The fees are ratably amortized at $2,667 per year per restaurant, or approximately $80,000 per year in each of the next five years for the 30 Golden Corral restaurants in operation as of May 29, 2005. Amortization for fiscal years 2005, 2004 and 2003 was $75,000, $61,000 and $49,000, respectively. The remaining balance of other intangible assets, including fees paid for future Golden Corral restaurants, is not currently being amortized because these assets have indefinite or as yet to be determined useful lives.

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An analysis of other intangible assets follows:

	2005			2004
	(in thousands)
Golden Corral initial franchise fees subject to amortization	$	1,200		$	1,040
Less accumulated amortization		(249	)		(174	)
Carrying amount of Golden Corral initial franchise fees subject to amortization		951			866
Current portion of Golden Corral initial franchise fees subject to amortization		(83	)		(69	)
Golden Corral fees not yet subject to amortization		365			180
Other		168			146
Total other intangible assets	$	1,401		$	1,123

The franchise agreements with Golden Corral Franchising Systems, Inc. also require the Company to pay fees based on defined gross sales. These costs are charged to operations as incurred.

Revenue Recognition

Revenue from restaurant operations is recognized upon receipt of payment from customers. Revenue from the sale of gift cards is deferred for recognition until redeemed by the customer. Revenue from the sale of commissary products to Big Boy restaurants licensed to other operators is recognized upon shipment of product. Revenue from franchise fees, based on sales of Big Boy restaurants licensed to other operators, is recorded on the accrual method as earned. Initial franchise fees are recognized as revenue when the fees are deemed fully earned and non-refundable, ordinarily upon the execution of the license agreement, in consideration of the Company’s services to that time.

Advertising

Advertising costs are charged to expense as incurred. Advertising expense for fiscal years 2005, 2004 and 2003 was $6,443,000, $6,065,000 and $5,377,000, respectively.

New Store Opening Costs

New store opening costs consist of new employee training costs, the cost of a team to coordinate the opening and the cost of certain replaceable items such as uniforms and china. New store opening costs are charged to expense as incurred. Opening costs for Golden Corral restaurants for fiscal years 2005, 2004 and 2003 were $1,222,000, $1,412,000 and $864,000, respectively. Opening costs for Big Boy restaurants for fiscal years 2005, 2004 and 2003 were $265,000, $368,000 and $85,000, respectively.

Benefit Plans

The Company has two qualified defined benefit pension plans covering all of its eligible employees. Qualified defined benefit pension plan benefits are based on years-of-service and other factors. The Company’s funding policy is to contribute at least annually amounts sufficient to satisfy legal funding requirements plus such additional tax-deductible amounts deemed advisable under the circumstances. Contributions are intended to provide not only for benefits attributed to service-to-date, but also for those expected to be earned in the future. (See Note G – Pension Plans). Hourly restaurant employees hired after December 31, 1998 are ineligible to enter the qualified defined benefit pension plans. Instead, these employees are offered participation in a 401(k) savings plan (the hourly plan) with a matching 40 percent employer cash contribution.

The executive officers and certain other “highly compensated employees” (HCE’s) have been disqualified from participation in the Company’s 401(k) savings plan (the salaried plan – 10 percent matching employer cash contribution). The non-qualified Frisch’s Executive Savings Plan (FESP) was established to provide a means by which the HCE’s may continue to defer a portion of their compensation. FESP allows deferrals of up to 25 percent of a participant’s salary into a choice of mutual funds or common stock of the Company. Matching contributions

27

are added to the first ten percent of salary deferred at a rate of ten percent for deferrals into mutual funds, while a fifteen percent match is added to the common stock option. Although the Company owns the mutual funds until the retirement of the participants, the funds are invested at the employees’ direction. The common stock is a “phantom investment,” which may be paid in actual shares or in cash upon retirement of the participants. The FESP liability to the participants is included in “Deferred compensation and other” long term obligations in the balance sheet.

The Company also has an unfunded non-qualified Supplemental Executive Retirement Plan (SERP) that was originally intended to provide a supplemental retirement benefit to the HCE’s whose benefits under the qualified defined benefit pension plans were reduced when their compensation exceeded Internal Revenue Code imposed limitations or when elective salary deferrals were made to FESP. Beginning in 2000, HCE’s became ineligible to be credited with additional benefits for service under the qualified defined benefit pension plans and the SERP (interest continues to accrue), as they began receiving comparable pension benefits through a non-qualified Non Deferred Cash Balance Plan (Also see Note G – Pension Plans.)

Prepaid pension benefit costs (see Note G – Pension Plans) and FESP assets are the principal components of “Other long-term assets” in the balance sheet. Also see Note B – Restatement.

Self Insurance

The Company self-insures its Ohio workers’ compensation claims up to $300,000 per claim. Initial self-insurance liabilities are accrued based on prior claims history, including an amount developed for incurred but unreported claims. The Company has historically reviewed claims experience each quarter, with a more comprehensive review performed during the first quarter of each year that would typically result in adjustments to the self-insurance liabilities to more closely reflect annual claims experience. During the quarter ended March 6, 2005, the Company determined that a comprehensive review should be performed every quarter with the self-insurance liabilities being adjusted as needed based on claims experience.

Self-insurance reserves were lowered by $614,000, $710,000 and $334,000 respectively, during the first quarters of fiscal years 2005, 2004 and 2003. Insurance reserves were lowered further by $349,000 and $81,000, respectively, during the third and fourth quarters of fiscal 2005, bringing the total adjustment for fiscal year 2005 to $1,044,000.

A lower rate will be used in fiscal 2006 to accrue the initial self-insurance liability. The lower rate will be designed to reduce any adjustments that may be needed in future years by lowering the amount to which the reserve is initially built, reflecting the vast improvements in claims experience that has been achieved in recent years through active claims management and post accident drug testing.

Fair Value of Financial Instruments

With the exception of long-term debt (see Note C – Long-Term Debt), the carrying values of the Company’s financial instruments approximate fair value.

Income Taxes

Taxes are provided on all items included in the statement of earnings regardless of when such items are reported for tax purposes (see Note E – Income Taxes and Note J– Life Insurance Benefit).

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), “Accounting for Stock Issued to Employees,” as permitted by Statement of Financial Accounting Standards No. 123 (SFAS 123), “Accounting for Stock Based Compensation.” No stock based employee compensation cost is included in net income, as all options granted during the fiscal years 2005, 2004 and 2003 had an exercise price equal to the market value of the stock on the date of the grant. In accordance with Statement of Financial Standards No. 148 (SFAS 148), “Accounting for Stock Based Compensation – Transition and Disclosure,” the following table presents the effect on net income and earnings per share had the Company accounted for stock options using the fair value recognition provisions of SFAS 123:

28

	(restated) 2005		(restated) 2004		(restated) 2003
	(in thousands, except per share data)
Net earnings, as reported	$	14,741	$	10,690	$	9,903
Deduct: total stock-based employee compensation expense determined under fair value based method for all grants (a), net of tax effects		368		251		252
Pro forma net earnings	$	14,373	$	10,439	$	9,651
Earnings per share
Basic – as reported	$	2.92	$	2.14	$	2.01
Basic – pro forma	$	2.85	$	2.09	$	1.96
Diluted – as reported	$	2.86	$	2.08	$	1.97
Diluted – pro forma	$	2.79	$	2.03	$	1.92

(a) For a summary of options granted, refer to the stock option section of Note F – Capital Stock.

The estimated total stock-based employee compensation expense was determined using the modified Black-Scholes option pricing model with the following weighted average assumptions:

	2005			2004			2003
Dividend yield		1.61	%		1.87	%		1.87	%
Expected volatility		29	%		27	%		28	%
Risk free interest rate		3.82	%		2.57	%		3.67	%
Expected lives		5 years			5 years			5 years
Weighted average fair value of options granted	$	8.13		$	4.32		$	4.95

New Accounting Pronouncements

In December 2004, the Financial Accounting Standards Board revised Statement of Financial Accounting Standards No. 123 (SFAS 123), “Accounting for Stock Based Compensation.” The revised SFAS 123 (SFAS 123(R)), “Share-Based Payment,” supersedes Accounting Principles Board Opinion No. 25 (APB 25), “Accounting for Stock Issued to Employees.” SFAS 123(R) requires the fair value of stock options issued to be expensed. It is effective as of the beginning of the first annual reporting period that begins after June 15, 2005, which will be the Company’s fiscal year 2007 that begins May 29, 2006. The impact upon adoption should be similar to the pro forma information required by SFAS 148 that is disclosed in Note A – Accounting Policies.

Statement of Financial Accounting Standards No. 151 (SFAS 151), “Inventory Costs,” clarifies accounting for abnormal amounts of idle facility expense, freight, handling costs and spoilage. SFAS 151 is effective for inventory costs incurred during fiscal years that begin after June 15, 2005. Earlier application is permitted. Its adoption is not expected to have any material impact on the Company’s earnings.

The Company reviewed all significant newly issued accounting pronouncements, including Statements of Financial Accounting Standards Nos. 152 “Accounting for Real Estate Time Sharing Transactions” and 153 “Exchanges of Nonmonetary Assets,” and concluded that, other than those disclosed herein, no material impact is anticipated on the financial statements as a result of future adoption. Statement of Accounting Standards No. 154 “Accounting Changes and Error Corrections – a replacement of APB Opinion No. 20 and FASB Statement No. 3” was issued in May 2005, effective for fiscal years beginning after December 15, 2005. No immediate material impact is presently anticipated on the financial statements as a result its adoption.

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NOTE B – RESTATEMENT (for error in actuarial calculations relating to defined benefit pension plan)

In early December 2005, the Company’s actuarial consulting firm informed the Company of an error in the software program created by the consultant in June 1995, to calculate certain items in connection with the Company’s defined benefit pension plan for managers, office employees and commissary employees. The error was in a formula the consultant used to calculate the pro-ration of an individual’s benefits between pre- and post- 1993 accounts. According to the actuarial consultant, its formula failed to properly prorate the benefit for service for plan participants with less than 28 years of service before normal retirement. Given the nature of the error, the Company could not have identified this error through its review of the actuarial information provided by the actuarial consultant.

The actuarial consultant has confirmed to the Company that the error has had no effect on any benefits paid to plan participants.

The formula error has impacted the calculation (computed under Statement of Financial Accounting Standards No. 87, “Employers’ Accounting for Pensions”) of the Company’s net periodic pension cost (and related accounts in the consolidated balance sheet and the consolidated statement of earnings) for that defined benefit pension plan, resulting in a series of annual overstatements of the net periodic pension cost for each of the previous ten fiscal years. The overstatement in each period is deemed by the Company to be immaterial for that period. The cumulative balance sheet effect of these errors as of May 30, 2005 is an understatement of prepaid assets of approximately $1,866,000, of which $268,000 was understated in “Prepaid expenses and sundry deposits” and $1,598,000 was understated in “Other long-term assets.”

The table below shows the financial statement effects of the error on the Company’s consolidated balance sheet:

	(in thousands)
	May 29, 2005		May 30, 2004
Prepaid expenses and sundry deposits – as reported	$	2,551	$	2,076
Prepaid expenses and sundry deposits – as restated		2,820		2,522
Other long-term assets – as reported		2,642		2,811
Other long-term assets – as restated		4,240		3,954
Total assets – as reported		165,599		156,848
Total assets – as restated		167,465		158,437
Deferred income taxes – as reported		4,196		3,540
Deferred income taxes – as restated		4,830		4,080
Retained earnings – as reported		55,258		42,920
Retained earnings – as restated		56,490		43,969
Total shareholders’ equity – as reported		92,170		79,467
Total shareholders’ equity – as restated		93,402		80,516
Total liabilities and shareholders’ equity – as reported		165,599		156,848
Total liabilities and shareholders’ equity – as restated		167,465		158,437

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The table below shows the financial statement effects of the error on the Company’s consolidated statement of earnings for the three years ended May 29, 2005 (in thousands, except per share amounts):

	May 29, 2005		May 30, 2004		June 1, 2003
Payroll and related expense – as reported	$	92,629	$	88,061	$	81,004
Payroll and related expense – as restated		92,352		87,818		80,815
Gross profit – as reported		30,248		29,746		27,580
Gross profit – as restated		30,525		29,989		27,769
Operating profit – as reported		17,758		18,256		17,501
Operating profit – as restated		18,035		18,499		17,690
Earnings before income taxes – as reported		19,378		15,782		14,701
Earnings before income taxes – as restated		19,655		16,025		14,890
Income taxes – as reported		4,820		5,253		4,923
Income taxes – as restated		4,914		5,336		4,987
Net earnings – as reported		14,558		10,529		9,778
Net earnings – as restated		14,741		10,689		9,903
Diluted EPS – as reported		2.82		2.05		1.95
Diluted EPS – as restated		2.86		2.08		1.97

The table below shows the financial statement effects of the error on the Company’s consolidated statement of cash flows for the three years ended May 29, 2005 (in thousands):

	May 29, 2005			May 30, 2004			June 1, 2003
Net earnings – as reported	$	14,558		$	10,529		$	9,778
Net earnings – as restated		14,741			10,689			9,903
Changes in assets and liabilities:
Prepaid expenses and sundry deposits – as reported		(475	)		543			(1,626	)
Prepaid expenses and sundry deposits – as restated		(297	)		(34	)		(829	)
Other assets – as reported		(778	)		(837	)		973
Other assets – as restated		(1,231	)		(504	)		(14	)
Prepaid, accrued and deferred income taxes – as reported		738			1,570			2,103
Prepaid, accrued and deferred income taxes – as restated		832			1,652			2,167
Cash and equivalents at end of year – as reported		306			294			1,133
Cash and equivalents at end of year – as restated		306			294			1,133

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NOTE C - LONG-TERM DEBT

	2005				2004
	Payable within one year		Payable after one year		Payable within one year		Payable after one year
	(in thousands)
Construction Draw Facility - Construction Phase Loans	$	—	$	2,000	$	—	$	—
Term Loans		7,598		24,570		6,231		25,227
Revolving Credit Loan		—		—		—		—
Bullet Loan		—		3,000		—		10,000
		$7,598	$	29,570	$	6,231	$	35,227

The portion payable after one year matures as follows:

	2005		2004
	(in thousands)
Period ending in 2006	$	—	$	6,664
2007		9,363		6,376
2008		9,726		15,684
2009		5,161		4,059
2010		2,780		1,616
2011		2,058		828
Subsequent to 2011		482		—
	$	29,570	$	35,227

The Construction Draw Facility is an unsecured draw credit line that provides for borrowing of up to $61,500,000 to construct and open Golden Corral restaurants. As of May 29, 2005, $7,000,000 remained available to be borrowed before the Facility expires on September 1, 2006, unless extended. It is subject to a .25 percent unused commitment fee. Under the terms of the Facility, funds borrowed are initially governed as a Construction Phase Loan, with interest determined by a pricing matrix that uses changeable basis points, determined by certain of the Company’s financial ratios. The basis points are added to or subtracted from one of various indices chosen by the Company. Interest is payable at the end of each specific rate period selected by the Company, which may be monthly, bi-monthly or quarterly. Within six months of the completion and opening of each restaurant, the balance outstanding under each Construction Phase Loan must be converted to a Term Loan amortized over a period not to exceed seven years. Upon conversion, the Company may select a fixed interest rate over the chosen term or may choose among various adjustable rate options.

Of $54,500,000 borrowed under the Facility as of May 29, 2005, $52,500,000 had been converted to Term Loans. Fixed interest rates have been chosen for all of the Term Loans, the weighted average of which is 6.11 percent. All of the Term Loans are being repaid in 84 equal monthly installments of principal and interest aggregating $780,000, expiring in various periods ranging from May 2006 through January 2012. Prepayments of the Term Loans are permissible upon payment of sizeable prepayment fees and other amounts. As of May 29, 2005, the variable rate of interest on the $2,000,000 balance in the Construction Phase was 4.61 percent. Shortly after May 29, 2005, the Company borrowed an additional $1,500,000 under the Facility, leaving $5,500,000 available to be borrowed. Any outstanding Construction Phase Loan that has not been converted into a Term Loan shall mature and be payable in full on September 1, 2006, unless extended.

The Company prepaid $7,000,000 on the Bullet Loan in the fourth quarter of fiscal 2005, reducing the balance to $3,000,000, which matures and is payable in one installment on December 31, 2007. The loan was converted during fiscal 2005 from variable rated interest to a fixed rate of 5.57 percent for the remainder of the term. The real property of six Golden Corral restaurants having an approximate book value of $12,975,000 as of May 29, 2005 is pledged as collateral for the loan.

A $5,000,000 unsecured Revolving Credit Loan is in place that is intended to fund temporary working capital needs. The loan, none of which was outstanding as of May 29, 2005, is subject to an out-of-debt period of 30 consecutive days each year. It matures on September 1, 2006, unless extended. Interest is determined by the same pricing

32

matrix used for Construction Phase Loans under the Construction Draw Facility, the basis points from which are added to or subtracted from one of various indices chosen by the Company. The loan is subject to a .25 percent unused commitment fee. Interest is payable at the end of each specific rate period selected by the Company, which may be monthly, bi-monthly or quarterly. During fiscal 2005, the Company borrowed and repaid $2,000,000 under the Revolving Credit Loan.

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 as of May 29, 2005. Compensating balances are not required by these loan agreements.

The fair values of any outstanding balances in the Construction Phase of the Construction Draw Facility or the Revolving Credit Loan approximate carrying value as of May 29, 2005 and May 30, 2004, as the current provisions of the loans call for variable rated interest. The fair value of the Bullet Loan also approximates fair value. The fair values of the fixed rate Term Loans shown in the following table are based on fixed rates that would be available for loans with identical terms and maturities, if borrowed at May 29, 2005 and May 30, 2004.

	2005		2004
	Carrying value	Fair value	Carrying value	Fair value
	(in thousands)
Construction Draw Facility
Term Loans	32,169	31,715	31,458	31,822

NOTE D - LEASED PROPERTY

Although it is the Company’s policy to own its restaurant locations whenever possible, the Company occupies certain of its restaurants pursuant to lease agreements. The majority of the leases are for fifteen or twenty years and contain renewal options for ten to fifteen years, and/or have favorable purchase options. As of May 29, 2005, 29 restaurants were in operation on leased premises, ten of which are capital leases. Delivery equipment is also held under capitalized leases expiring during various periods through fiscal year 2013. Amortization of capitalized lease assets is computed on the straight-line method over the primary terms of the leases. An analysis of the capitalized leased property follows:

	Asset balances at
	2005			2004
	(in thousands)
Restaurant facilities	$	5,967		$	6,306
Equipment		1,165			1,083
		7,132			7,389
Less accumulated amortization		(5,841	)		(6,116	)
	$	1,291		$	1,273

As of May 29,2005, nineteen of the Company’s restaurant properties are occupied pursuant to operating leases, five of which are ground leases for Golden Corral restaurants. The Company is also obligated to three other Golden Corral ground leases for restaurants to open respectively in June, October and November 2005. In addition, the Company occupies office space under an operating lease that expires during 2013, with renewal options available through 2023. The Company has an option to purchase the office property in 2023.

The Company undertook a comprehensive review of its accounting for operating leases during fiscal 2005. The review determined that the Company had erred by not accounting for escalating rental payments on a straight-line basis over the terms of the applicable leases, including option periods considered to be part of the lease term under SFAS 13, as amended. In addition, rent had not been recognized for “rent holiday” periods that often occur during construction of buildings on leased land, when no rent is payable. As a result, the Company determined that its balance sheet had a $615,000 understatement for accrued rent, comprised of $433,000 of under accrued escalating rental payments and $182,000 for “rent holidays.” The impact on the Company’s financial statements was evaluated and it was determined that the errors were not material to any of the applicable prior periods. Thus, $433,000 was charged against earnings ($293,000 after tax) for the under accrued escalating rentals and $182,000 for under accrued “rent holidays” was capitalized (see Note A – Accounting Policies).

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Rent expense under operating leases consists of:

	2005		2004		2003
	(in thousands)
Minimum rentals	$	1,565	$	1,423	$	1,477
Contingent payments		55		47		38
Cumulative rent adjustment (discussed above)		433		—		—
	$	2,053	$	1,470	$	1,515

Future minimum lease payments under capitalized leases and operating leases having an initial or remaining term of one year or more follow. Certain of the capitalized leases include residual value guarantees. Operating leases have been adjusted to include option periods considered to be part of the lease term under SFAS 13, as amended.

Fiscal year ending in:	Capitalized leases			Operating leases
	(in thousands)
2006	$	883		$	1,757
2007		657			1,728
2008		2,601			1,725
2009		119			1,673
2010		97			1,534
2011 to 2025		175			16,938
Total		4,532		$	25,355
Amount representing interest		(862	)
Present value of obligations		3,670
Portion due within one-year		(533	)
Long-term obligations	$	3,137

NOTE E – INCOME TAXES

The variations between the statutory Federal rate and the effective rate are summarized as follows:

	Percent of pretax earnings
	(restated) 2005		2004		2003
Statutory U.S. Federal income tax	34.0		34.0		34.0
Tax credits	(4.1	)	(4.1	)	(3.3	)
State and municipal income taxes - Current and deferred (net of Federal tax benefit)	2.6		3.2		3.1
Life Insurance Benefit	(7.8	)	—		—
Other	.3		.2		(.3	)
Effective rate	25.0		33.3		33.5

The effective tax rate for 2005 would have been 32.3 percent without the advantage of the non taxable life insurance benefit.

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Deferred tax assets and liabilities result from timing differences in the recognition of revenue and expense between financial reporting and tax statutes. The components of the deferred tax asset (liability) were as follows:

	(restated) 2005			(restated) 2004
	(in thousands)
Deferred compensation	$	935		$	861
Compensated absences		808			780
Self insurance		932			1,153
Impairment of assets/property write-downs		130			143
Lease transactions		232			—
Other		15			18
Total deferred tax assets		3,052			2,955
Depreciation		(4,590	)		(3,925	)
Pension		(1,838	)		(1,649	)
Other		(636	)		(670	)
Total deferred tax liabilities		(7,064	)		(6,244	)
Net deferred tax liability	$	(4,012	)	$	(3,289	)

NOTE F - CAPITAL STOCK

2003 Stock Option and Incentive Plan

Shareholders approved the 2003 Stock Option and Incentive Plan (the “2003 Incentive Plan” or “Plan”) on October 6, 2003. The 2003 Incentive Plan provides for several forms of awards including stock options, stock appreciation rights, stock awards including restricted and unrestricted awards of stock, and performance awards. The Plan will continue in effect until terminated by the Board of Directors. Subject to adjustment for changes in capitalization, the maximum number of shares of common stock that the Plan may issue is 800,000. The Plan provides that the total number of shares of common stock covered by options plus the number of stock appreciation rights granted to any one individual may not exceed 80,000 during any fiscal year. Additionally, no more than 80,000 shares of common stock may be issued in payment of performance awards denominated in shares, and no more than $1,000,000 in cash (or fair market value, if paid in shares) may be paid pursuant to performance awards denominated in dollars, granted to any one individual during any fiscal year if the awards are intended to qualify as performance based compensation. Employees of the Company and non-employee directors of the Company are eligible to be selected to participate in the Plan. Participation is based on selection by the Compensation Committee (the Committee) of the Board of Directors. Although there is no limit to the number of participants in the Plan, there are approximately 40 persons currently participating in the Plan.

Options to purchase shares of the Company’s common stock permit the holder to purchase a fixed number of shares at a fixed price. When options are granted, the Committee determines the number of shares subject to the option, the term of the option which may not exceed ten years, the time or times when the option will become exercisable and the price per share that a participant must pay to exercise the option. No option will be granted with an exercise price that is less than 100 percent of fair market value on the date of the grant.

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

Stock awards are grants of shares of common stock that may be restricted (subject to a holding period or other conditions) or unrestricted. The Committee determines the amounts, vesting, if any, terms and conditions of the awards, including the price to be paid, if any, for restricted awards and any contingencies related to the attainment of specified performance goals or continued employment or service. The Committee may also grant performance awards to participants. Performance awards are the right to receive cash, common stock or both, at the end of a specified performance period, subject to satisfaction of the performance criteria and any vesting conditions established for the award.

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Options to purchase 7,000 shares were granted in October 2004. As of May 29, 2005, no other awards (meaning any form of stock option, stock appreciation right, restricted stock award, unrestricted stock award or performance award) had been granted under the 2003 Stock Option and Incentive Plan.

Other Stock Option Plans

The 1993 Stock Option Plan was not affected by the adoption of the 2003 Stock Option and Incentive Plan. The 1993 Stock Option Plan originally authorized the grant of stock options for up to 562,432 shares (as adjusted for changes in capitalization in earlier years) of the common stock of the Company for a ten-year period beginning May 9, 1994. Shareholders approved the Amended and Restated 1993 Stock Option Plan (Amended Plan) in October 1998, which extended the availability of options to be granted to October 4, 2008. As of May 29, 2005, 6,204 shares remained available to be optioned. Of the 556,224 cumulative shares optioned to date, 369,577 remain outstanding as of May 29, 2005, 211,478 of which belong to the President and Chief Executive Officer.

Shares may be optioned to employees at not less than 75% of fair market value on the date granted. The Amended Plan added a provision 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 percent of fair market value on the date of grant. The Amended Plan also added 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. All outstanding options under the 1993 Plan were granted at fair market value and expire 10 years from the date of grant. Outstanding options to the President and Chief Executive Officer generally vest in six months, while options granted to non-employee directors vest after one year. Outstanding options granted to other key employees vest in three equal annual installments.

The 1984 Stock Option Plan expired May 8, 1994. The final 14,090 outstanding options expired in June 2003, ten years from the date originally granted.

The changes in outstanding and exercisable options involving all Plans are summarized below:

	2005				2004				2003
	No. of shares		Weighted avg. price per share		No. of shares		Weighted avg. price per share		No. of shares		Weighted avg. price per share
Outstanding at beginning of year	319,993		$	15.97	321,665		$	13.96	284,220		$	12.08
Granted during the year	81,000		$	29.37	91,000		$	19.28	90,500		$	19.16
Exercised during the year	(21,497	)	$	14.53	(78,082	)	$	11.73	(37,656	)	$	11.06
Expired during the year	—			—	(14,090	)	$	14.38	(14,398	)	$	17.05
Forfeited during the year	(2,919	)	$	20.83	(500	)	$	17.17	(1,001	)	$	15.65
Outstanding at end of year	376,577		$	18.90	319,993		$	15.97	321,665		$	13.96
Exercisable at beginning of year	227,314		$	14.94	233,156		$	13.21	209,131		$	12.14
Exercisable at end of year	283,903		$	17.04	227,314		$	14.94	233,156		$	13.21

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Stock options outstanding and exercisable as of May 29, 2005 for all Plans:

Range of Exercise Prices per Share	No. of shares	Weighted average price per share		Weighted average remaining life in years
Outstanding:
$ 8.31 to $13.00	72,647	$	10.62	4.86 years
$13.01 to $18.00	59,920	$	13.73	6.05 years
$18.01 to $24.20	164,010	$	19.36	7.55 years
$24.21 to $30.13	80,000	$	29.36	9.04 years
$ 8.31 to $30.13	376,577	$	18.90	7.11 years
Exercisable:
$ 8.31 to $13.00	72,647	$	10.62	—
$13.01 to $18.00	59,920	$	13.73	—
$18.01 to $24.20	121,336	$	19.53	—
$24.21 to $30.13	30,000	$	29.18	—
$ 8.31 to $30.13	283,903	$	17.04	—

Shareholders approved the Employee Stock Option Plan (elsewhere referred to as Employee Stock Purchase Plan) in October 1998. The Plan provides employees who have completed 90 days of continuous service with an opportunity to purchase shares of the Company’s common stock through payroll deduction. Immediately following the end of each semi-annual offering period, participant account balances are used to purchase shares of stock at the lesser of 85 percent of the fair market value of shares at the beginning of the offering period or at the end of the offering period. The Plan authorizes a maximum of 1,000,000 shares that may be purchased on the open market or from the Company’s treasury. Through April 30, 2005, (latest available data), 104,744 shares had been purchased through the Plan. Shares purchased through the Plan are held by the Plan’s custodian until withdrawn or distributed. As of April 30, 2005, the custodian held 40,676 shares on behalf of employees.

A total of 58,492 common shares (as adjusted for changes in capitalization in earlier years) were reserved for issuance under the non-qualified Executive Savings Plan (see Note A – Accounting Policies) when it was established in 1993. As of May 29, 2005, 49,374 shares remained in the reserve, including 8,325 shares allocated but not issued to participants.

There are no other outstanding options, warrants or rights.

Treasury Stock

As of May 29, 2005, the Company’s treasury held 2,449,394 shares of the Company’s common stock. From September 1998 through January 2002, 1,135,286 shares of the Company’s common stock were repurchased at a cost of $12,162,000 pursuant to repurchase programs authorized by the Company’s Board of Directors. No shares were repurchased under the two-year authorization that expired October 7, 2004.

Most of the remaining shares held in the treasury were acquired in August 1997 pursuant to the terms of a modified “Dutch Auction” self-tender offer.

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Earnings Per Share

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

	Basic earnings per share			Stock equivalents	Diluted earnings per share
	Weighted average shares outstanding	EPS			Weighted average shares outstanding	EPS
May 29, 2005 (restated)	5,044,600	$	2.92	112,251	5,156,851	$	2.86
May 30, 2004 (restated)	4,998,819		2.14	136,892	5,135,711		2.08
June 1, 2003 (restated)	4,930,171		2.01	92,922	5,023,093		1.97

Stock options to purchase 80,000 shares in the year ended May 29, 2005 and 83,000 shares in the year ended June 1, 2003 were excluded from the calculation of diluted EPS because the effect was anti-dilutive. There was no anti-dilutive effect for the year ended May 30, 2004.

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NOTE G - PENSION PLANS

As discussed more fully in Note A – Accounting Policies, the Company sponsors two qualified defined benefit plans plus an unfunded non-qualified Supplemental Executive Retirement Plan (SERP) for “highly compensated employees” (HCE’s). Also, see Note B – Restatement. The Company does not sponsor post retirement health care benefits. All three retirement plans are summarized in the following tables that show change in benefit obligations, change in plan assets, reconciliation of funded status, amounts recognized in the Company’s balance sheet, net periodic pension cost components and weighted average assumptions.

	(in thousands)
Change in benefit obligation	(restated) 2005			(restated) 2004
Projected benefit obligation at beginning of year	$	21,357		$	19,376
Service cost		1,503			1,426
Interest cost		1,364			1,250
Actuarial loss		1,542			94
Benefits paid		(911	)		(789	)
Projected benefit obligation at end of year	$	24,855		$	21,357

	(in thousands)
Change in the plans’ assets	2005			2004
Fair value of plan assets at beginning of year	$	21,655		$	18,628
Actual return on plan assets		1,434			1,823
Employer contributions (a)		1,829			2,185
Benefits paid, plus expenses		(1,093	)		(981	)
Fair value of plan assets at end of year	$	23,825		$	21,655

(a) Employer contributions shown for 2005 include $304,000 from the previous year and do not include certain amounts that will be contributed to the plans after May 29, 2005. Employer contributions shown for 2004 include $185,000 from the previous year and do not include $304,000 that was contributed to the plans after May 30, 2004.

	(in thousands)
Reconciliation of funded status	(restated) 2005			(restated) 2004
Funded status	$	(1,030	)	$	298
Unrecognized net actuarial loss		5,554			4,000
Unrecognized prior service cost		178			248
Net prepaid retirement plan cost recognized at end of year	$	4,702		$	4,546
	(in thousands)
Amounts recognized in the Company’s balance sheet	(restated) 2005			(restated) 2004
Prepaid benefit cost	$	4,805		$	4,623
Accrued benefit cost		(211	)		(171	)
Intangible asset		108			94
Net prepaid retirement plan cost recognized at end of year	$	4,702		$	4,546

	(in thousands)
Net periodic pension cost components	(restated) 2005			(restated) 2004			(restated) 2003
Service cost	$	1,503		$	1,426		$	1,144
Interest cost		1,364			1,250			1,101
Expected return on plan assets		(1,863	)		(1,580	)		(1,476	)
Amortization of prior service cost		70			70			70
Recognized net actuarial loss		600			623			288
Net periodic pension cost	$	1,674		$	1,789		$	1,127

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The projected benefit obligation, accumulated benefit obligation and the fair value of plan assets are summarized for all three retirement plans in the following table:

	(in thousands)
	(restated) 2005		(restated) 2004
Projected benefit obligation at end of year	$	24,855	$	21,357
Accumulated benefit obligation at end of year		20,304		16,755
Fair value of plan assets at end of year		23,825		21,655

Weighted average assumptions	2005		2004		2003
Discount rate - net periodic pension cost	6.50	%	6.50	%	6.50	%
Discount rate - projected benefit obligation	6.00	%	6.50	%	6.50	%
Rate of compensation increase - net periodic pension cost	5.00	%	5.00	%	5.00	%
Rate of compensation increase - projected benefit obligation	4.50	%	5.00	%	5.00	%
Expected long-term rate of return on plan assets	8.50	%	8.50	%	8.50	%

The expected long term rate of return on plan assets is based on the target asset allocation for plan assets, long term capital market forecasts and historical long term return patterns. Despite poor market performance in the early years of the current decade, the target asset mix for the plans has historically returned in excess of 8.5 percent.

The objectives of the committee that sets investment policy for pension assets include holding, protecting and investing the assets prudently. The committee determined that plan assets should be invested using long-term objectives, since the plan is intended to fund current and future benefits for participants and beneficiaries. Equity securities have provided the highest historical return to investors over extended time horizons. Thus, the bulk of the plans’ assets are held in equity securities. Prudent investment strategies also call for a certain portion of the plan assets to be held in fixed return instruments. Although not prohibited from doing so, the committee has chosen not to invest the plan assets in the common stock of the Company.

Target and actual pension plan assets are summarized as follows:

			Actual Allocations
Asset Category	Target		2005		2004
Equity securities	70	%	68	%	65	%
Fixed income	25	%	31	%	33	%
Cash equivalents	5	%	1	%	2	%
Total	100	%	100	%	100	%

The Company anticipates making contributions to the defined benefit pension plans that it sponsors that will satisfy legal funding requirements for the year ending May 28, 2006 plus additional tax-deductible amounts that may be deemed advisable. For the SERP, contributions are made as participants retire in the amount of the participants’ actual benefit payment.

The following estimated future benefit payments for all three plans, which reflect expected future service, as appropriate, are expected to be paid in the years indicated:

	(in thousands)
2006	$	552
2007		1,420
2008		795
2009		873
2010		1,111
2011-2015		7,141

Compensation expense (not included in the above tables) relating to the Non Deferred Cash Balance Plan (see Note A – Accounting Policies) is equal to the amounts contributed to the Plan - $521,000 in fiscal 2005, $489,000 in fiscal 2004 and $415,000 in fiscal 2003.

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The Company also sponsors two 401(k) plans and a non-qualified Executive Savings Plan for certain HCE’s who have been disqualified from participation in the 401(k) plans (see Note A – Accounting Policies). In fiscal years 2005, 2004 and 2003, matching contributions to the 401(k) plans amounted to $163,000, $157,000 and $157,000, respectively, while matching contributions to the Executive Savings Plan were $20,000, $15,000 and $14,000, respectively over the same fiscal years.

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NOTE H – SEGMENT INFORMATION

The Company has two reportable segments within the food service industry: Big Boy restaurants and Golden Corral restaurants. Financial information by operating segment is as follows:

	(restated)			(restated)			(restated)
	2005			2004			2003
	(in thousands)
Sales
Big Boy	$	185,377		$	178,353		$	168,312
Golden Corral		93,870			81,348			65,366
	$	279,247		$	259,701		$	233,678
Earnings before income taxes
Big Boy	$	21,532		$	21,329		$	19,181
Opening expense		(265	)		(368	)		(85	)
Total Big Boy		21,267			20,961			19,096
Golden Corral		4,037			4,375			4,160
Opening expense		(1,222	)		(1,412	)		(864	)
Total Golden Corral		2,815			2,963			3,296
Total restaurant level profit		24,082			23,924			22,392
Administrative expense		(7,486	)		(6,687	)		(6,744	)
Franchise fees and other revenue		1,352			1,222			1,232
Gains on asset sales		87			41			145
Gain on early lease termination		—			—			666
Operating Profit		18,035			18,500			17,691
Interest expense		(2,820	)		(2,475	)		(2,800	)
Life insurance benefit		4,440			—			—
Total other (expense) income		1,620			(2,475	)		(2,800	)
	$	19,655		$	16,025		$	14,891
Depreciation and amortization
Big Boy	$	7,514		$	7,206		$	8,040
Golden Corral		4,602			3,761			2,933
	$	12,116		$	10,967		$	10,973
Capital expenditures
Big Boy	$	9,676		$	12,146		$	7,813
Golden Corral		14,447			17,880			13,731
	$	24,123		$	30,026		$	21,544
Identifiable assets
Big Boy	$	84,943		$	86,269
Golden Corral		82,523			72,168
	$	167,466		$	158,437

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NOTE I – CONTINGENCIES

Litigation

The construction of a Golden Corral restaurant in Canton, Ohio was halted in August 2001 in order to assess structural concerns. In March 2002, a final assessment of the defects resulted in the Company’s decision to construct a new building on another part of the lot. (The restaurant finally opened for business in January 2003.) On July 30, 2002, the general contractor that built the defective building filed a demand for arbitration against the Company seeking $294,000 plus interest, fees, and costs it claims is owed by the Company under the construction contract. The Company denies the claim and has filed a counterclaim against the general contractor alleging defective construction and claiming damages, lost profits, interest and costs, in an amount exceeding $1,000,000. The Company is vigorously prosecuting this claim and believes that it will ultimately prevail.

On August 29, 2002, the Company filed a separate lawsuit against the architect that designed the defective building alleging negligent design and claiming damages, lost profits, interest and costs exceeding $2,500,000. In July 2003, the Company resolved all claims, counterclaims and cross claims against the trial court defendants, including the architect and the architect’s structural engineering consultant. The defendants agreed to pay the Company the sum of $1,700,000 in full and final settlement of all claims. The Company received the settlement funds in full and the case was dismissed.

The Company is also subject to various claims 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, cash flows or financial position.

Other

The Company is contingently liable for the performance of a ground lease that has been assigned to a third party. The annual obligation of the lease approximates $48,000 through 2020. Should the third party default, the Company has the right to re-assign the lease.

As of May 29,2005, the Company has two outstanding letters of credit totaling $164,000 in support of its self-insurance program. (See Note A – Accounting Policies.) The Company also has an outstanding letter of credit for $162,000 in support of an environmental remediation plan on land the Company no longer owns. There are no other outstanding letters of credit issued by the Company.

NOTE J – LIFE INSURANCE BENEFIT

The Company held life insurance policies on the Chairman of the Board of Directors (formerly President and Chief Executive Officer of the Company), who died on February 2, 2005. As the primary beneficiary of the policies, the Company filed claims for death benefits that amounted to $9,659,000. Estimates of the cash surrender value of these policies totaling $4,719,000 were previously recorded in the balance sheet as “Net cash surrender value-life insurance policies.” The excess of the proceeds over the cash surrender value amounted to $4,440,000, which is net of $500,000 that was paid to another beneficiary (See Note K – Related Party Transactions), was recorded in earnings as a non-taxable benefit during the third quarter of fiscal 2005. All of the death benefit proceeds aggregating $9,659,000 have been collected in full.

NOTE K - RELATED PARTY TRANSACTIONS

A Big Boy licensed restaurant owned by an officer and director of the Company and two Big Boy licensed restaurants owned by children and other family members of another director of the Company pay to the Company franchise and advertising fees, employee leasing and other fees, and make purchases from the Company’s commissary.

43

The total paid to the Company by these three restaurants amounted to $4,896,000, $4,459,000 and $4,204,000 respectively, in fiscal years 2005, 2004 and 2003. The amount owed to the Company from these restaurants was $106,000 and $116,000 respectively, as of May 29, 2005 and May 30, 2004. Amounts due are always settled within 28 days of billing.

All related party transactions described above were effected on substantially similar terms as transactions with persons having no relationship with the Company.

One of the life insurance policies that the Company held on the Chairman of the Board (see Note J – Life Insurance Benefit) was a split dollar policy providing for the sum of $500,000 to be paid to the Chairman’s widow, who is also a director of the Company.

The Chairman of the Board had an employment agreement that had a provision for deferred compensation. The agreement provided that upon its expiration or upon the Chairman’s retirement, disability, death or other termination of employment, the Company would become obligated to pay the Chairman or his survivors for each of the next ten years the amount of $214,050, which is to be adjusted annually to reflect 50 percent of the annual percentage change in the Consumer Price Index. The present value of the obligation has been historically reflected in the balance sheet as a long term obligation under the caption “Deferred compensation and other.” As of May 29, 2005, the current portion of the obligation was included in current liabilities, as monthly payments of $17,838 to the Chairman’s widow commenced on March 1, 2005.

QUARTERLY EARNINGS

	(restated) Year Ended May 29, 2005								(restated) Year Ended May 30, 2004
	(in thousands, except per share data)						Diluted net earnings per share		(in thousands, except per share data)						Diluted net earnings per share
	Sales		Operating profit		Net earnings				Sales		Operating profit		Net earnings
1st Quarter	$	84,062	$	5,284	$	2,956	$	.57	$	77,037	$	5,868	$	3,338	$	.66
2nd Quarter		66,747		5,129		2,786		.54		60,091		4,415		2,448		.48
3rd Quarter		62,799		3,274		6,185		1.20		59,362		4,050		2,253		.44
4th Quarter		65,639		4,348		2,814		.55		63,211		4,167		2,651		.51
Total	$	279,247	$	18,035	$	14,741	$	2.86	$	259,701	$	18,500	$	10,690	$	2.08

The first quarter of each year contained sixteen weeks, while the last three quarters each contained twelve weeks.

Net earnings for the third quarter of fiscal 2005 included a non taxable life insurance benefit of $4,400,000.

Favorable adjustments resulting from lower than anticipated claims in the Company’s self insured casualty insurance program were included in net earnings as shown below:

Net earnings for the first quarters of fiscal 2005 and fiscal 2004 included favorable adjustments of $406,000 and $460,000 respectively, resulting from lower than anticipated claims in the Company’s self insured insurance program. Beginning in the third quarter of fiscal 2005, a policy was initiated to adjust insurance reserves each quarter, as warranted.

The fourth quarters of fiscal 2005 and fiscal 2004 include credits to income tax expense of $300,000 and $270,000 respectively, to reflect the actual effective tax rate for the years.

Quarterly earnings per share amounts for fiscal 2004 do not sum to the earnings per share for the year due to changes throughout the year in the diluted weighted average shares outstanding.

44

PART IV

Item 15. Exhibits and Financial Statement Schedules

List of documents filed as part of this report.

3. Exhibits

23 Consent of Grant Thornton LLP is filed herewith.

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

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

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

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

45

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	2/17/2006
	Donald H. Walker	Date
	Vice President and
	Chief Financial Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated:

Signature	Title	Date
/s/ Daniel W. Geeding	Chairman of the Board Director	2/21/2006
Daniel W. Geeding
/s/ Craig F. Maier	President and Chief Executive Officer Director	2/21/2006
Craig F. Maier
/s/ Dale P. Brown	Director	2/20/2006
Dale P. Brown
	Director
R J Dourney
/s/ Lorrence T. Kellar	Director	2/20/2006
Lorrence T. Kellar
	Director
Blanche F. Maier
/s/ Karen F. Maier	Director	2/20/2006
Karen F. Maier
/s/ Jerome P. Montopoli	Director	2/20/2006
Jerome P. Montopoli
/s/ William J. Reik, Jr.	Director	2/21/2006
William J. Reik, Jr.

46

EX-23

EXHIBIT 23

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We have issued our report dated July 22, 2005 (except for Note B, as to which the date is February 17, 2006), accompanying the consolidated financial statements and our report dated July 22, 2005 on management’s assessment of the effectiveness of internal control over financial reporting both of which are included in the Annual Report of Frisch’s Restaurants, Inc. on Form 10-K/A for the year ended May 29, 2005. We hereby consent to the incorporation by reference of said reports in the Registration Statements of Frisch’s Restaurants, Inc. on Forms S-8 (Nos. 33-48321, 33-77988, 33-77990 and 333-63149).

GRANT THORNTON LLP

Cincinnati, Ohio

February 23, 2006

EX-31.1

EXHIBIT 31.1

CERTIFICATIONS

I, Craig F. Maier, President and Chief Executive Officer of Frisch’s Restaurants, Inc., certify that:

1. I have reviewed this report on Form 10-K of Frisch’s Restaurants, Inc. (the “registrant”);

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

DATE 02/21/2006

/s/ Craig F. Maier

Craig F. Maier, President and Chief

Executive Officer

EX-31.2

EXHIBIT 31.2

CERTIFICATIONS

I, Donald H. Walker, Vice President-Finance, Chief Financial Officer and Treasurer of Frisch’s Restaurants, Inc., certify that:

1. I have reviewed this report on Form 10-K of Frisch’s Restaurants, Inc. (the “registrant”);

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

DATE 02/17/2006

/s/ Donald H. Walker

Donald H. Walker, Vice President-Finance

Chief Financial Officer and Treasurer

EX-32.1

EXHIBIT 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the filing with the Securities and Exchange Commission of the Annual Report of Frisch’s Restaurants, Inc. (the “Company”) on Form 10-K for the fiscal year ended May 29, 2005 (the “Report”), the undersigned officer of the Company certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of his knowledge:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

02/21/2006	By:	/s/ Craig F. Maier
		Craig F. Maier
		Chief Executive Officer

EX-32.2

EXHIBIT 32.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the filing with the Securities and Exchange Commission of the Annual Report of Frisch’s Restaurants, Inc. (the “Company”) on Form 10-K for the fiscal year ended May 29, 2005 (the “Report”), the undersigned officer of the Company certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of his knowledge:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

02/17/2006	By:	/s/ Donald H. Walker
		Donald H. Walker
		Vice President, Treasurer and Chief
		Financial Officer