<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
For Quarter Ended May 14, 1995 Commission file number O-11514
---------------------- -------------
Max & Erma's Restaurants, Inc.
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware No. 31-1041397
- -------------------------------------------------------------------------------
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4849 Evanswood Dr., Columbus, Ohio 43229
- -------------------------------------------------------------------------------
(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 4,085,879 common shares.
-1-
<PAGE> 2
PART I FINANCIAL INFORMATION
ITEM 1. - FINANCIAL STATEMENTS
MAX & ERMA'S RESTAURANTS, INC.
BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
ASSETS
------
May 14, October 30,
Current Assets: 1995 1994
----------- ------------
<S> <C> <C>
Cash $ 759,809 $ 993,349
Receivables 314,102 83,065
Inventories 480,560 439,478
Supplies 133,658 109,442
Prepaid Expenses 466,156 409,007
----------- -----------
Total Current Assets 2,154,285 2,034,341
Property - At Cost: 45,423,825 39,743,141
Less Accumulated Depreciation
and Amortization 13,773,012 12,214,390
----------- -----------
Property - Net 31,650,813 27,528,751
Other Assets:
Goodwill - Net 359,287 386,365
Other Assets - Net 2,734,279 2,433,607
----------- -----------
Total Other Assets 3,093,566 2,819,972
----------- -----------
Total $36,898,664 $32,383,064
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Current Liabilities:
Current Maturities of Long-Term
Obligations $ 616,437 $ 484,661
Accounts Payable - Trade 1,966,290 2,030,551
Accrued Liabilities 2,445,816 2,340,682
----------- -----------
Total Current Liabilities 5,028,543 4,855,894
Long-Term Obligations -
Less Current Maturities 17,252,601 13,638,885
Minority Interests in
Affiliated Partnerships 169,325 176,737
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 4,085,879 Shares
At May 14, 1995 and 3,768,189
Shares at October 30, 1994 408,582 376,819
Additional Capital 11,184,984 8,657,770
Retained Earnings 2,854,629 4,676,959
----------- -----------
Total Stockholders' Equity 14,448,195 13,711,548
----------- -----------
Total $36,898,664 $32,383,064
=========== ===========
</TABLE>
See Notes to Financial Statements
-2-
<PAGE> 3
MAX & ERMA'S RESTAURANTS, INC.
STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
Twelve Weeks Ended Twenty-eight Weeks Ended
------------------------ -------------------------
May 14, May 15, May 14, May 15,
1995 1994 1995 1994
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUES:
Net Sales $14,295,272 $13,217,425 $33,546,703 $29,738,734
Games and Other 36,467 58,564 114,130 137,814
----------- ----------- ----------- -----------
Total Revenues $14,331,739 $13,275,989 $33,660,833 $29,876,548
COSTS AND EXPENSES:
Cost of Goods Sold 3,729,348 3,430,616 8,812,394 7,710,946
Payroll and Benefits 4,270,260 4,033,082 10,053,231 9,068,541
Other Operating Expenses 4,191,000 3,967,218 9,928,028 8,917,533
Administrative Expenses 1,106,408 1,014,318 2,525,735 2,343,877
Interest Expense 271,196 225,923 627,306 414,073
Minority Interest In
Income of Affiliated
Partnerships 43,077 11,427 108,096 66,156
----------- ----------- ----------- -----------
Total Costs and Expenses 13,611,289 12,682,584 32,054,790 28,521,126
----------- ----------- ----------- -----------
INCOME BEFORE TAXES 720,450 593,405 1,606,043 1,355,422
INCOME TAXES 228,000 165,000 504,000 410,000
----------- ---------- ----------- -----------
NET INCOME $ 492,450 $ 428,405 $ 1,102,043 $ 945,422
=========== ========== =========== ===========
NET INCOME PER
COMMON SHARE $ .12 $ .10 $ .26 $ .23
=========== ========== =========== ===========
WEIGHTED AVERAGE COMMON
AND COMMON EQUIVALENT
SHARES OUTSTANDING 4,252,153 4,230,138 4,266,687 4,156,086
========= ========= ========= =========
</TABLE>
See Notes To Financial Statements.
-3-
<PAGE> 4
MAX & ERMA'S RESTAURANTS, INC.
STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Twenty-Eight Weeks Ended
------------------------
May 14, May 15,
1995 1994
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $1,102,043 $ 945,422
Depreciation and Amortization 2,150,541 1,851,700
Minority interest in income of
affiliated partnerships 108,096 66,156
Changes in other assets and liabilities (166,679) 840,166
---------- ----------
Net cash provided by
operating activities 3,194,001 3,703,444
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property Additions (5,729,939) (4,995,656)
Construction cost reimbursement 275,000 200,000
Increase in other assets (278,044) (15,493)
Proceeds from sale of assets 3,424 4,150
---------- ----------
Net cash used by investing activities (5,729,559) (4,806,999)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments under
long-term obligations (7,960,740) (8,464,802)
Proceeds from long-term obligations 10,845,899 9,970,272
Proceeds from sale of common stock 14,644 233,507
Cash paid for Purchase of Common Stock (480,049)
Distributions to minority interests
in Affiliated Partnership (115,508) (77,006)
Cash paid in lieu of fractional shares
upon stock dividend (2,228)
---------- ----------
Net cash provided by
financing activities 2,302,018 1,661,971
---------- ----------
NET INCREASE (DECREASE) IN
CASH AND EQUIVALENTS (233,540) 558,416
CASH AND EQUIVALENTS
BEGINNING OF THE PERIOD 993,349 442,163
---------- ----------
CASH AND EQUIVALENTS AT
END OF THE PERIOD $ 759,809 $1,000,579
========== ==========
SUPPLEMENTAL DISCLOSURES:
Cash paid during the period for:
Interest $ 539,105 $ 164,999
Income taxes $ 439,843 $ 437,902
Noncash activities:
Property additions financed by
capital leases $ 634,043 $ 538,037
Property additions
financed by accounts payable $ 930,497 $ 189,388
Property additions
financed by the issuance of common stock $1,189,000
Gain recorded for stock exercised and sold
within one year $ 72,640
Stock issued as a dividend $2,992,145
</TABLE>
See Notes to Financial Statements.
-4-
<PAGE> 5
MAX & ERMA'S RESTAURANTS, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
1. Presentation
------------
The accompanying unaudited 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 the 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 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.
-5-
<PAGE> 6
Item 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
- ------ -------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
REVENUE
- -------
Net sales for the second quarter of 1995 rose $1,078,000 or 8% from the
second quarter of 1994. The increase was a result of i) the opening of one
restaurant during the second quarter of 1994, ii) the opening of three
restaurants during the first quarter of 1995, and iii) an approximately 1.5%
menu price increase from last year to this year.
Year-to-date net sales increased $3,808,000 or 13% from 1994 to 1995. The
increase was a result of i) the openings referred to above, ii) the opening of
two restaurants during the first quarter of 1994, and iii) an .8% increase in
same-store sales at restaurants opened for at least eighteen months from
$23,559,000 to $23,750,000.
During the second quarter of 1995, same-store sales were flat. This,
along with the modest year-to-date increase of .8%, is primarily a result of
the current level of competition in the casual dining segment of the restaurant
industry. This high level of competition is further evidenced by the pattern
of sales at newer restaurants. Newer restaurants, not included in same-store
sales comparisons, currently generate average weekly sales approximately 10%
above the average of older restaurants. However, this represents a reduction
of approximately 20% from peak "honeymoon" sales volumes. The decline is due
in part to an expected drop off in sales subsequent to opening; but also, in
most cases, to a significant number of additional restaurants opened in the
immediate area around the various restaurants. The five restaurants open
during the second quarter of both years, but not yet included in same-store
sales, had an average of four new competitors open within the last twelve
months in the immediate area around each restaurant. In light of the intense
competition, management is pleased with the above average sales still being
generated at new restaurants.
COSTS AND EXPENSES
- ------------------
Cost of goods sold, as a percentage of net sales, rose slightly from 26.0%
for the second quarter of 1994 to 26.1% for the second quarter of 1995. Higher
produce prices during the second quarter of 1995, due to flooding in
California, increased cost of sales by approximately $100,000 or .7%, as a
percentage of net sales. Year-to-date cost of goods sold, as a percentage of
net sales, increased from 25.9% for 1994 to 26.2% for 1995. This increase was
due to higher produce prices during the first half of 1995 and a decrease in
chicken prices in 1994. Early in the third quarter of 1995 produce prices
began to decline.
Payroll and benefits, as a percentage of net sales, declined from 30.5%
for the second quarter of 1994 to 29.9% for the second quarter of 1995.
Year-to-date payroll and benefits, as a percentage of net sales, declined from
30.5% for 1994 to 30.0% for 1995. The decreases were primarily a result of
reduced benefit costs due to implementation of a self-funded health insurance
plan and lower workers' compensation insurance costs and increased efficiency
at newer restaurants.
-6-
<PAGE> 7
Other operating expenses, as a percentage of net sales, decreased from
30.0% for the second quarter of 1994 to 29.3% for the second quarter of 1995.
Year-to-date other operating expenses, as a percentage of net sales, decreased
from 30.0% for 1994 to 29.6% for 1995. These declines were a result of higher
amortization of pre-opening expenses in 1994 and the shift of certain
advertising expenditures from the second quarter to the third quarter of 1995.
ADMINISTRATIVE EXPENSES
- -----------------------
Administrative expenses increased 9% and 8%, respectively, from the second
quarter of 1994 to the second quarter of 1995 and for the year-to-date periods
of 1994 to 1995. Management expects growth in administrative expenses to
remain modest through the balance of 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, remained constant at
7.7% for the second quarter of 1995 and 1994 and declined from 7.9% to 7.5% for
the year-to-date periods. With the planned addition of ten restaurants over
the next four quarters, management expects a further decline in administrative
expenses, as a percentage of net sales.
INTEREST EXPENSE
- ----------------
Interest expenses increased 20% and 51%, respectively, from the second
quarter of 1994 to the second quarter of 1995 and for the year-to-date periods
of 1994 to 1995. The increase reflects an increase in the balance of long-term
obligations from the 1994 periods to the 1995 periods and an increase in
average interest rates from 7.7% at May 15, 1994 to 9.2% at May 14, 1995. The
Company capitalized approximately $99,000 of construction period interest
through the first 28 weeks of 1995 as compared to $51,000 capitalized during
the comparable 1994 period.
INCOME TAXES
- ------------
The Company's effective tax rate for the comparable 28 week periods
increased from 30% in 1994 to 31% in 1995. The Company over-accrued for
taxes during the first half 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
May 14, 1995 and does not expect the effective rate to change significantly
during the remainder of 1995.
The increase in the effective tax rate from 1994 to 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.
-7-
<PAGE> 8
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Company's working capital ratio remained constant at .4 to 1 at May
14, 1995 and October 30, 1994. 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.
Through the second quarter of 1995, the Company expended approximately
$5,730,000 for property additions of which $275,000 was reimbursed by a
landlord, $7,961,000 to reduce long-term obligations, $480,000 to repurchase
66,550 shares of its common stock and $278,000 to increase other assets and
distributed $116,000 to minority interests in the affiliated partnerships.
Funds for such expenditures were provided primarily by $10,846,000 from
proceeds of long-term obligations, $3,194,000 from operations, and $234,000
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 May 14, 1995, the Company was committed to the opening of four
additional restaurants during 1995, one of which opened May 29, 1995 in
Woodridge, Illinois, a suburb of Chicago. At May 14, 1995, five restaurants
were under construction. Including Woodridge, Illinois, four of the five are
scheduled to open through the end of 1995. A total of eight restaurants are
planned for 1996. In addition to one currently under construction, five are
under contract with construction expected to commence during the second half of
1995. The Company is in the final stages of negotiations for the two remaining
1996 locations.
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 May 14, 1995, the Company had approximately $8.8
million available under its $12.0 million revolving credit line and
approximately $600,000 under an equipment lease commitment.
PART II OTHER INFORMATION
Item 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
----------------------------------------------------
The Company held its Annual Meeting of Stockholders on March 17, 1995 for
the purpose of electing two Class III directors for three-year terms expiring in
1998 and ratifying Deloitte & Touche LLP as the Company's independent auditors
for the 1995 fiscal year.
Each nominee to the Company's Board of Directors was elected by the
following vote:
VOTES FOR VOTES WITHHELD
--------- --------------
William E. Arthur 2,914,084 6,874
Todd B. Barnum 2,914,624 6,334
Additionally, Deloitte & Touche LLP was ratified as the Company's
independent auditors for the 1995 fiscal year by a vote of 2,892,964 shares
for, 16,184 shares against, and 11,810 shares abstained.
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
None
-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
June 8, 1995
- ---------------------
-9-
<PAGE> 10
MAX & ERMA'S RESTAURANTS INC.
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Exhibit Page No.
- ----------- ------- --------
<S> <C>
2 Not applicable
3 Not applicable
4 Not applicable
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
</TABLE>
-10-
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-30-1994
<PERIOD-START> OCT-31-1994
<PERIOD-END> MAY-14-1995
<CASH> 759,809
<SECURITIES> 0
<RECEIVABLES> 314,102
<ALLOWANCES> 0
<INVENTORY> 480,560
<CURRENT-ASSETS> 2,154,285
<PP&E> 45,423,825
<DEPRECIATION> 13,773,012
<TOTAL-ASSETS> 36,898,664
<CURRENT-LIABILITIES> 5,028,543
<BONDS> 17,252,601
<COMMON> 408,582
0
0
<OTHER-SE> 14,039,613
<TOTAL-LIABILITY-AND-EQUITY> 36,898,664
<SALES> 33,546,703
<TOTAL-REVENUES> 33,660,833
<CGS> 8,812,394
<TOTAL-COSTS> 28,793,653
<OTHER-EXPENSES> 2,633,831
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 627,306
<INCOME-PRETAX> 1,606,043
<INCOME-TAX> 504,000
<INCOME-CONTINUING> 1,102,043
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,102,043
<EPS-PRIMARY> .26
<EPS-DILUTED> .26
</TABLE>
