<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
For Quarter Ended February 19, 1995 Commission file number O-11514
----------------- -------
Max & Erma's Restaurants, Inc.
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(Exact name of registrant as specified in its charter)
Delaware No. 31-1041397
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(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4849 Evanswood Dr., Columbus, Ohio 43229
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (614) 431-5800
--------------
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, and (2) has been subject to the filing
requirements for at least the past 90 days.
YES X NO
---- ----
As of the close of the period covered by this report, the registrant had
outstanding 3,714,041 common shares.
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<PAGE> 2
PART I FINANCIAL INFORMATION
ITEM 1. - FINANCIAL STATEMENTS
MAX & ERMA'S RESTAURANTS, INC.
BALANCE SHEETS (UNAUDITED)
<TABLE>
ASSETS
<CAPTION> ------
February 19, October 30,
1995 1994
------------ -----------
<S> <C> <C>
Current Assets:
Cash $ 415,754 $ 993,349
Receivables 376,068 83,065
Inventories 474,408 439,478
Supplies 111,369 109,442
Prepaid Expenses 475,309 409,007
----------- -----------
Total Current Assets 1,852,908 2,034,341
Property - At Cost: 42,703,762 39,743,141
Less Accumulated Depreciation
and Amortization 13,163,240 12,214,390
----------- -----------
Property - Net 29,540,522 27,528,751
Other Assets:
Goodwill - Net 370,891 386,365
Other Assets - Net 2,205,977 2,433,607
----------- -----------
Total Other Assets 2,576,868 2,819,972
----------- -----------
Total $33,970,298 $32,383,064
=========== ===========
</TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<S> <C> <C>
Current Liabilities:
Current Maturities of Long-Term
Obligations $ 605,465 $ 484,661
Accounts Payable 1,251,520 2,030,551
Accrued Liabilities 2,282,864 2,340,682
----------- -----------
Total Current Liabilities 4,139,849 4,855,894
Long-Term Obligations -
Less Current Maturities 15,685,179 13,638,885
Minority Interests in
Affiliated Partnerships 184,002 176,737
Stockholders' Equity:
Preferred Stock - $.10 Par Value;
Authorized 500,000 Shares
none outstanding
Common Stock - $.10 Par Value;
Authorized 10,000,000 Shares,
Issued and Outstanding 3,714,041 Shares
At February 19, 1995 and 3,768,189
Shares at October 30, 1994 371,399 376,819
Additional Capital 8,303,317 8,657,770
Retained Earnings 5,286,552 4,676,959
----------- -----------
Total Stockholders' Equity 13,961,268 13,711,548
----------- -----------
Total $33,970,298 $32,383,064
=========== ===========
See Notes to Financial Statements
</TABLE>
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<PAGE> 3
MAX & ERMA'S RESTAURANTS, INC.
STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
Sixteen Weeks Ended
-------------------
February 19, February 20,
1995 1994
-------------- ------------
<S> <C> <C>
REVENUES:
Net Sales $19,251,431 $16,521,309
Games and Other 77,663 79,250
----------- -----------
Total Revenues 19,329,094 16,600,559
COSTS AND EXPENSES:
Cost of Goods Sold 5,083,046 4,280,330
Payroll and Benefits 5,782,971 5,035,459
Other Operating Expenses 5,737,028 4,950,315
Administrative Expenses 1,419,327 1,329,559
Interest Expense 356,110 188,150
Minority Interest In Income
of Affiliated Partnerships 65,019 54,729
----------- -----------
Total Costs and Expenses 18,443,501 15,838,542
----------- -----------
INCOME BEFORE TAXES 885,593 762,017
INCOME TAXES 276,000 245,000
----------- -----------
NET INCOME $ 609,593 $ 517,017
----------- -----------
NET INCOME PER COMMON SHARE $ .14 $ .13
=========== ===========
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING 4,277,589 4,100,547
=========== ===========
See Notes To Financial Statements.
</TABLE>
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<PAGE> 4
MAX & ERMA'S RESTAURANTS, INC.
STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Sixteen Weeks Ended
-------------------
February 19, February 20,
1995 1994
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 609,593 $ 517,017
Depreciation and amortization 1,232,319 1,001,610
Minority interest in income of
Affiliated Partnerships 65,020 54,729
Changes in other assets and liabilities (123,282) 619,321
----------- -----------
Net cash provided (used) by
operating activities 1,783,650 2,192,677
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property additions (3,218,471) (3,503,649)
Construction cost reimbursement (275,000)
Decrease (increase) in other assets 243,028 (222,694)
Proceeds from sale of assets 4,150
----------- -----------
Net cash used by investing activities (3,250,443) (3,722,193)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments under
long-term obligations (4,032,287) (4,238,143)
Proceeds from long-term obligations 5,429,289 6,047,729
Repurchase of common stock (455,674)
Proceeds from sale of common stock 5,625 182,631
Distributions to minority interests
in Affiliated Partnership (57,755) (57,755)
----------- -----------
Net cash provided (used) by
financing activities 889,198 1,934,462
----------- -----------
NET INCREASE (DECREASE) IN
CASH AND EQUIVALENTS (577,595) 404,946
CASH AND EQUIVALENTS
BEGINNING OF THE PERIOD 993,349 442,163
----------- -----------
CASH AND EQUIVALENTS AT
END OF THE PERIOD $ 415,754 $ 847,109
=========== ===========
SUPPLEMENTAL DISCLOSURES:
Cash paid during the period for:
Interest $ 490,501 $ 112,570
Income taxes $ 223,861 $ 137,937
Noncash activities:
Property additions financed by
capital leases $ 634,043 265,913
Property additions
financed by accounts payable $ 251,291 $ 512,208
See Notes to Financial Statements.
</TABLE>
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<PAGE> 5
MAX & ERMA'S RESTAURANTS, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
1. Presentation
------------
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions to Form 10-Q and include all
of the information and disclosures required by generally accepted
accounting principles for interim reporting, which are less than those
required for annual reporting. In the opinion of management, all
adjustments, consisting of only normal recurring accruals, considered
necessary for a fair presentation have been included.
The Company's year consists of one sixteen-week and three twelve-week
quarters.
2. Stock Dividend
--------------
Earnings per share and weighted average common and common equivalent
shares outstanding have been adjusted for the effect of a 10% stock
dividend payable April 21, 1995, to stockholders of record March 31, 1995.
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<PAGE> 6
Item 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
REVENUE
- -------
Net sales for the first quarter of 1995 rose $2,730,000 or 17% from the
first quarter of 1994. The increase was a result of i) the opening of three
restaurants during 1994, ii) the opening of three restaurants during the first
quarter of 1995 and iii) a 1.4% increase in same-store sales from $13,379,000
to $13,573,000 at restaurants opened for at least eighteen months.
Same-store sales have been positive for seven consecutive quarters and
eleven of the last twelve quarters. Management believes the continuation of
positive sales trends is a result of consistent operations, effective
marketing, the introduction of several higher priced entrees and baked potatoes
to the menu and price increases of approximately 1% annually.
COSTS AND EXPENSES
- ------------------
Cost of goods sold, as a percentage of net sales, increased from 25.9% for
the first quarter of 1994 to 26.4% for the first quarter of 1995. The increase
was due to sharply higher produce prices during the first quarter of 1995 and
the introduction of new entrees referred to above. Higher priced entrees
typically sell at a lower mark-up but generate more gross margin dollars due to
the higher selling price. By the end of the quarter, produce prices began to
decline and certain spec changes were made which should reduce costs of goods
sold, as a percentage of net sales, during the remaining quarters of 1995.
Payroll and benefits, as a percentage of net sales, declined from 30.5%
for the first quarter of 1994 to 30.0% for the first quarter of 1995. The
decline was a result of reduced benefit costs due to the implementation of a
self-funded health insurance plan and lower workers' compensation insurance
costs. Higher payroll costs at the three restaurants opened during the quarter
were offset by slightly lower payroll at the 26 restaurants in operation at the
start of the quarter.
Other operating expenses, as a percentage of net sales, decreased from 30.0%
for the first quarter of 1994 to 29.8% for the first quarter of 1995.
Generally, higher fixed costs and operational inefficiencies at the three
restaurants opened during the quarter were offset by improvements at older
restaurants, resulting in the slight overall decline.
-6-
<PAGE> 7
ADMINISTRATIVE EXPENSES
- -----------------------
Administrative expenses increased 7% from the first quarter of 1994 to the
first quarter of 1995. Management expects only modest increases in
administrative expenses during 1995, as it believes the personnel are generally
in place to achieve the Company's growth plan for the current year.
Administrative expenses, as a percentage of net sales, declined from 8.0% for
the first quarter of 1994 to 7.4% for the first quarter of 1995 as sales gains
exceeded the rate of increase in administrative expenses. With the addition of
five restaurants during the remainder of 1995, management expects the decline,
as a percentage of net sales, to continue.
INTEREST EXPENSE
- ----------------
Interest expense increased 89% from the first quarter of 1994 to the first
quarter of 1995. The increase reflects a 28% increase in the balance of long-
term obligations since February 20, 1994 and an increase in average interest
rates from 6.5% at February 20, 1994 to approximately 9.0% at February 19,
1995. Almost an identical amount of construction period interest was
capitalized in both the first quarter of 1994 and 1995.
INCOME TAXES
- ------------
The Company's effective tax rate declined from 32% for the first quarter
of 1994 to 31% for the first quarter of 1995. The Company over-accrued for
taxes in the first quarter of 1994, as it underestimated the amount of tax
credits equal to FICA taxes paid on declared tips in excess of minimum wages
first available to it January 1, 1994. Ultimately, the effective tax rate for
all of 1994 was 29%. Management believes taxes are more accurately accrued at
February 19, 1995 and does not expect the effective rate to change
significantly during the remainder of 1995.
The increase in the effective tax rate from fiscal 1994 to the first
quarter of 1995 is the result of the expiration of the targeted jobs tax credit
on December 31, 1994. However, tax credits are still available on qualified
employees hired on or before that date. The Company expects to utilize all
available credits during 1995.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Company's working capital ratio was .4 to 1 at both October 30, 1994
and February 19, 1995. Historically, the Company has been able to operate with
a working capital deficiency because 1) restaurant operations are primarily
conducted on a cash basis, 2) high turnover (about once every 10 days) permits
a limited investment in inventory, and 3) trade payables for food purchases
usually become due after receipt of cash from the related sales.
-7-
<PAGE> 8
During the first quarter of 1995, the Company expended approximately
$3,493,000 for property additions of which $275,000 will be reimbursed by a
landlord, $4,032,000 to reduce long-term obligations and $456,000 to repurchase
57,500 shares of its common stock and distributed $58,000 to minority interests
in the affiliated partnerships. Funds for such expenditures were provided
primarily by $5,429,000 from proceeds of long-term obligations, $1,784,000 from
operations, $243,000 from a decrease in other assets and $578,000 from cash on
hand. The Company routinely draws down and repays balances under its revolving
credit agreement, the gross amounts of which are included in the above numbers.
At February 19, 1995 the Company was committed to the opening of five
additional restaurants during 1995 and eight restaurants during 1996. In
addition to two restaurants in Chicago, Illinois which were under construction
at February 19, 1995, the Company has entered into five contracts for either
the purchase or lease of ground in Columbus, Cleveland and Dayton, Ohio;
Pittsburgh, Pennsylvania; and Chicago, Illinois.
Funding for new restaurants will be provided primarily by cash flow from
operations, equipment leasing and, to the extent necessary, the Company's
revolving credit line. At February 19, 1995, the Company had approximately
$10.5 million available under its $12.0 million revolving credit line and
approximately $850,000 under an equipment lease commitment.
PART II
Item 5 - OTHER EVENTS
------------
On March 16, 1995, the Board of Directors elected Michael D. Murphy as a
Class II director of the Company to serve for a remaining term of two years
until the Company's 1997 annual meeting of stockholders.
Item 6 - EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) Exhibits
The exhibits listed in the accompanying index to exhibits on page 10
are filed as part of this report.
(b) Reports on Form 8-K
A Form 8-K was filed by the Company on December 16, 1994 - Item 5 -
Other Events
-8-
<PAGE> 9
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MAX & ERMA'S RESTAURANTS, INC.
------------------------------
Registrant
Todd B. Barnum
------------------------------
Todd B. Barnum
Chairman of the Board
(Chief Executive Officer)
William C. Niegsch, Jr.
------------------------------
William C. Niegsch, Jr.
Executive Vice President &
Chief Financial Officer
March 17, 1995
- --------------------
Date
-9-
<PAGE> 10
MAX & ERMA'S RESTAURANTS INC.
EXHIBIT INDEX
Exhibit No. Exhibit
- ----------- -------
Page No.
- --------
2 Not applicable
4 (a) Form of Common Stock Certificate
(incorporated by reference to
Registration Statement on
Form S-1, No. 2-85585)
4 (b) Form of Common Stock Purchase
Warrant (incorporated by
reference to Registration
Statement on Form S-1,
No. 2-85585)
10 Not applicable
11 Not applicable
15 Not applicable
18 Not applicable
19 Not applicable
22 Not applicable
23 Not applicable
24 Not applicable
27 Financial Data Schedule
-10-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-30-1994
<PERIOD-START> OCT-31-1994
<PERIOD-END> FEB-19-1995
<EXCHANGE-RATE> 1
<CASH> 415,754
<SECURITIES> 0
<RECEIVABLES> 376,068
<ALLOWANCES> 0
<INVENTORY> 474,408
<CURRENT-ASSETS> 1,852,908
<PP&E> 42,703,762
<DEPRECIATION> 13,163,240
<TOTAL-ASSETS> 33,970,298
<CURRENT-LIABILITIES> 4,139,849
<BONDS> 15,685,179
<COMMON> 371,399
0
0
<OTHER-SE> 13,589,869
<TOTAL-LIABILITY-AND-EQUITY> 33,970,298
<SALES> 19,251,431
<TOTAL-REVENUES> 19,329,094
<CGS> 5,083,046
<TOTAL-COSTS> 16,603,045
<OTHER-EXPENSES> 1,484,346
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 356,110
<INCOME-PRETAX> 885,593
<INCOME-TAX> 276,000
<INCOME-CONTINUING> 609,593
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 609,593
<EPS-PRIMARY> .14
<EPS-DILUTED> .14
</TABLE>
