A taste for business.

Richard Herzer dishes out profits as IHOP chairman, president and CEO 

He believes the minimum wage should be abolished and is against mandatory health insurance for all workers.

"I basically believe in the free enterprise system, period, end of story, and I'm a capitalist from the word go," he says.

He is Richard (Kim) Herzer, chairman, chief executive and president of Glendale-based IHOP Corp., the national restaurant chain best known for its hearty pancakes and waffles but which, in recent years, has been broadening its image to emphasize lunch and dinner.

IHOP's profits and revenues have soared since Herzer took the helm in 1979. Annual net profits have gone from $1 million to $7.9 million as revenues jumped from $16.2 million to $114.1 million.

"I like pancakes. I don't eat them as much as I probably would like to because I would probably weigh a ton," says the 5-foot-11-inch, 200-pound executive who has a slight pancake paunch.

IHOP operates 548 restaurants in 35 states, 482 of which are franchisee-operated, 65 of which are company-owned and one that is a JB restaurant. IHOP bought several outlets last year that were part of the still-existing, Utah-based JB chain, and all but one have been converted to IHOPs.

Herzer says he has found himself in his present post because he has always liked to run things. He was president of his class in high school and of his pledge class at his college fraternity.

He also says he likes making money. He started out as a pre-med student at UCLA, but found he would rather spend his time making money than being a "reincarnated Albert Schweitzer."

Herzer says he likes the idea of making a "fair and honest profit" and "competing in a highly competitive environment where you get joy out of being good."

But he adds that he isn't particularly big on actually spending the money he makes. Well, except on the charcoal gray, 500 SEL Mercedes Benz he drives.

And he admits to liking the luxury of his spacious office, with a large bathroom attached. Bottles of cologne, hair brushes (he has a full head of silver hair) and an electric razor are lined up in an orderly fashion along the bathroom counter top.

"I have yet to use the shower," he says, but does catch a shave in the bathroom before heading out to evening functions.

Herzer also has a stereo in his office and says he likes to work while classical music plays in the background, perhaps a Tchaikovsky cassette, a Chopin or one of the other masters' tapes sitting by his stereo.

He has been working for IHOP or its predecessor company since 1967. Not always in his present, roomy office with the stereo and deluxe bathroom, though.

He came on board in 1967 as vice president and controller of United Rent-All Inc., which was a subsidiary of International Industries Inc., the former name of IHOP Corp.

For the next 12 years, Herzer held various financial positions in the company. He was appointed president in 1979 and added the titles of chairman and CEO in 1983.

Herzer says he has seen the company at the bottom. "There was a time when we didn't know whether we would make it or not," he says. "You can't understand management until you have to scratch for a payroll."

Those tough times were during the early and mid-1970s, when the then-public company was still called International Industries Inc. It had 22 subsidiaries at the time, including the International House of Pancakes. And those far-flung operations were a clear indication that then-Chief Executive Al Lapin, the company's founder, had "overextended" the business, Herzer says.

Lapin's spending was outpacing the company's capacity to borrow, Herzer explains. So by 1970, the company had about $94 million in debt on its balance sheet.

As a result, the company went through a major reorganization during the 1970s, in which all but three subsidiaries were divested. Those remaining were Love's Wood Pit Barbecue Restaurants, Copper Penny Restaurants and the International House of Pancakes.

International Industries continued to struggle during the late 1970s and early 1980s. It was bought in 1979 by a Swiss company called Wienerwald, owned by Friedrich Jahn, who then took International Industries private in 1981.

Jahn and Wienerwald both filed for bankruptcy protection a year later. The Swiss banks that were Jahn's lenders ultimately took over International Industries.

In true lender fashion, these banks were more concerned with being repaid their loans than in running the company, Herzer says.

The bankers sold off the Love's chain in 1983 and either sold or closed down all the Copper Penny restaurants during the 1980s.

So by the end of 1986, the company's 1970 debt load of $90 million had been whittled down to just $17.3 million.

The bank was using all its money to pay down debt instead of using it to make the company grow and remain competitive, Herzer says. From 1979 to 1986, the company's net profits only increased from $1 million to $1.6 million.

Herzer says he knew money needed to be injected into the company to make it grow. He also believes members of management would perform better if they had an equity stake in the company.

So in 1987, Herzer, who was by that time chairman and chief executive, found investors and spearheaded a management-led leveraged buyout to inject $5 million in new equity and refinance the debt.

Newport Beach-based Kelso & Co., an investment banking company, injected 52 percent of the new equity, 22 members of IHOP's management kicked in 36 percent and New York Life Insurance Co. put in 12 percent.

As a result of the refinancing, the amount of debt on the company's balance sheet was increased by the end of 1987 to $40 million, but annual debt service was substantially lowered, says Chief Financial Officer Frederick Silny.

After the LBO, the name of International Industries was changed to IHOP Corp.

Since the LBO, Herzer and his team have helped give IHOP a facelift. Most people equate IHOP with a 2,500-square-foot chateau building with between 85 and 100 seats and specializing in breakfast, he says.

But Herzer and his management team had other ideas. Even before the LBO, the team -- Herzer makes it clear that he doesn't make decisions alone but is part of a team -- was already opening prototypes of the new IHOP concept.

The team built four new restaurants during 1985, only one of which was successful. But the team kept trying, opening two or three new restaurants in each of the following two years, after which the LBO was launched. Then the company expansion went full speed ahead.

Today there are nearly 270 restaurants open that sport IHOP's new concept.

The new restaurants are 4,500 square feet in size, have flat roofs and about 160 seats. They also place more emphasis on lunch and dinner than the pre-existing outlets did.

"Everybody told me it was impossible to sell lunch and dinner with pancakes in our name," Herzer says.

But instead of changing the actual restaurants' names to IHOP, Herzer wanted to keep the International House of Pancakes name because people "have a warm feeling" for it, he says.

Herzer also says he is the type of person who likes to prove he can do something people tell him is impossible.

When the company was foundering back in the late 1970s and he was offered the position of president, Herzer recalls, a number of people told him he couldn't turn the restaurant around.

"Of course I had to prove them wrong. But that's just my German stubbornness," he says.

Herzer can be described as an opinionated man, especially when it comes to the issue of mandatory health insurance for all workers. During a recent interview, he expounded on the issue for about 10 minutes.

"The problem isn't (a lack of) wanting to provide health care coverage for everyone," he says. "The problem is the cost. Until you can contain the cost and make it realistic, forget it."

He also has his own views about the minimum wage.

"Eliminate the minimum wage and more people can be employed," he declares. "If they (workers) are any good, they won't be at minimum wage very long."

Waitresses should works for tips only. Some waitresses are making $300 to $400 per week in tips, he adds.

Nevertheless, Herzer describes himself as a "people person."

"Dealing with people is more fun. If you push a button on a computer, you know what's going to happen," he says. "Push a button with people, and you don't know what's going to happen."

Snapshot

Richard (Kim) Herzer

Native of: El Sereno, California

Resident of: La Canada-Flintridge

Age: 62

Education: B.S. in finance from UCLA