<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (date of earliest event reported): September 3, 1998
MAX & ERMA'S RESTAURANTS, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware 0-11514 31-1041397
(State or other (Commission File (IRS Employer
jurisdiction of Number) Identification No.)
incorporation)
4849 Evanswood Drive
Columbus, OH 43229
(Address of principal executive offices)
Registrant's telephone number, including area code: 614/431-5800
<PAGE> 2
ITEM 5. - OTHER EVENTS.
On September 3, 1998, Max & Erma's Restaurants, Inc., a Delaware
corporation (the "Company"), issued a press release announcing that the
Company's Board of Directors has authorized the Company, effective to August 11,
1999, to repurchase up to 500,000 shares of its outstanding common stock. The
press release is included as Exhibit 99 to this Form 8-K and is incorporated
herein by this reference.
ITEM 7. EXHIBITS.
(C) EXHIBITS.
Exhibit No. Description
99 Max & Erma's Restaurants, Inc. Press Release, dated
September 3, 1998.
-2-
<PAGE> 3
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 hereunto duly authorized.
Max & Erma's Restaurants, Inc.
Date: September 10, 1998 By: /s/ Todd B. Barnum
-----------------------------
Todd B. Barnum, Chairman and
Chief Executive Officer
-3-
<PAGE> 4
EXHIBITS INDEX
Exhibit No. Description
99 Max & Erma's Restaurants, Inc. Press Release, dated September 3,
1998.
-4-
<PAGE> 1
Exhibit 99
- --------------------------------------------------------------------------------
COLUMBUS, Ohio, Sept. 3 /PRNewswire/ -- Max & Erma's Restaurants, Inc. (Nasdaq:
MAXE - news) today reported record third quarter revenues, net income, and
earnings per share for the fiscal third quarter ended August 2, 1998.
Revenues for the third quarter rose six percent to $23.7 million from $22.3
million in the same period of 1997. Net income increased 21 percent in the
quarter to $758,915 compared to $628,328 in the third quarter of 1997. Basic and
diluted earnings per share totaled $0.18 compared to $0.15 reported in the same
period of 1997. A planned reduction in discounting and couponing during the
quarter led to a 3.2 percent decline in same-store sales.
"In compiling our results for the third quarter, we were struck by how closely
our same-store sales decline matched last year's coupon redemptions," said Todd
Barnum, chairman and chief executive officer. "When reduced advertising
expenditures, cost of sales savings and other variable operating expenses are
considered, it is clear to us that these simply were not profitable sales. We
believe our decision to invest future marketing dollars in more brand-building
programs is the right course of action."
Revenues for the 40 weeks ended August 2, 1998 increased 10 percent to $76.9
million compared to $69.9 million in the year-ago period. Diluted net income
increased 26 percent to $2.2 million, or $0.51 per share, compared to $1.7
million, or $0.41 per share in 1997. Year-to-date same-store sales decreased 0.6
percent.
"Our fiscal 1998 third quarter, which is historically our heaviest quarter for
couponing, reflected the results of our strategic shift away from
discount-related promotions," added Barnum. "As expected, customer counts and
same-store sales declined slightly while margins held steady. Reduced cost of
goods sold and advertising expenses offset continued high labor costs and
increased rent expense related to our sale-leaseback agreement. While decreased
same-store sales are not the ideal situation, we feel it is a worthy short-term
sacrifice as we appeal to a loyal, less price-oriented customer base."
Menu changes at the start of 1998, which deleted certain higher-cost items,
yielded continued improvement in cost of goods sold. The decrease was also
helped by favorable comparisons to last year's third quarter, which was
characterized by unusually high beef prices. Cost of goods sold fell to 26.2
percent of third quarter revenues compared to 27.3 percent last year.
The Company's test of Ironwood Cafe continues to progress, with check averages
remaining in the $14 range, compared to $10 for Max & Erma's restaurants.
Management expects to execute its plan to build and open five more Ironwood
Cafes next year to complete its test of the concept, signing leases for two
additional Ironwood Cafes in Cleveland and Columbus, Ohio.
The promotion of one of the Company's veteran regional managers to the post of
Director of Franchising during the quarter highlights management's plan to
aggressively pursue growth through franchising. Its franchised locations in
airports in Columbus and Cleveland continue to exceed expectations.
Year-to-date franchise fees and royalty payments totaled $148,000.
Complementing the Company's progress on its second concept and franchising
opportunities, a Max & Erma's restaurant opened in suburban Chicago early in the
fourth quarter, with another slated to open later in the fourth quarter in
Lexington, Kentucky. In a related move, the Company elected not to renew its
lease of a nearby Lexington Max and Erma's and will close it during the fourth
quarter. Management
<PAGE> 2
cited proximity to the new site, as well as enhanced profitability potential for
the new location as reasons for the closing. A loss on closing recorded during
the third quarter did not have a material effect on operating results. Barnum
reiterated plans to open eight Max & Erma's restaurants in fiscal 1999,
primarily in existing markets.
Share Repurchase Plan
The Company also announced today that its board of directors has approved a
share repurchase program, effective to August 11, 1999, for up to 500,000
shares. The buybacks will occur selectively at the board's discretion through
market purchases or privately negotiated transactions. The Company's stock has
traded in a range of $5-7/8 to $8-1/8 over the last 52 weeks.
"Despite being on track to report our eighth consecutive year of record
earnings, in addition to our steadily strengthening cash flow, our stock price
has remained near the $7 range," continued Barnum. "At these levels, our board
agreed unanimously that buying back shares was a prudent investment for the
company. While many of our peers continue to encounter difficulties, our growing
brand awareness and strong earnings growth make us confident of our long-term
success in the casual dining restaurant business."
Max & Erma's Restaurants, Inc. currently owns and operates 49 casual dining
full-service restaurants under the Max & Erma's and Ironwood Cafe names in
Akron, Columbus, Cleveland, Cincinnati, Toledo and Dayton, Ohio; Indianapolis,
Ind.; Detroit, Ann Arbor and Grand Rapids, Mich.; Pittsburgh, Pa.; Lexington,
Ky.; Chicago, Ill.; Charlotte, N.C.; Greenville, S.C. and Atlanta, Ga. Max &
Erma's has one location under construction in Lexington, Ky. The Company also
franchises two restaurants in Cleveland and Columbus, Ohio. The Company's common
shares are traded on the Nasdaq National Market System under the symbol MAXE.
This press release contains forward-looking statements within the meaning of
Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A
of the Securities Act of 1933, as amended. These forward-looking statements
include statements regarding the investment of marketing dollars, the opening of
additional Max & Erma's and Ironwood restaurants, growth in franchising, and
share repurchases. The words "plan," "anticipate," "believe," "expect,"
"estimate," and "project" and similar words and expressions identify
forward-looking statements which speak only as of the date hereof. Investors are
cautioned that such statements involve risks and uncertainties that could cause
actual results to differ materially from historical or anticipated results due
to many factors, including but not limited to, the company's ability to open or
franchise new restaurants as planned, changes in competition in markets where
the company operates restaurants, the level of market acceptance of the
company's new restaurant concept (Ironwood Cafe), changes in the cost of
produce, meat, and other food items, the availability of restaurant employees at
reasonable costs, and other risks, uncertainties and factors described in the
Company's most recent Annual Report on Form 10-K and other filings from time to
time with the Securities and Exchange Commission. The Company undertakes no
obligation to publicly update or revise any forward-looking statements.
<PAGE> 3
MAX & ERMA'S RESTAURANTS, INC.
STATEMENTS OF INCOME (UNAUDITED)
Twelve Weeks Ended Forty Weeks Ended
August 2, August 3, August 2, August 3,
1998 1997 1998 1997
REVENUES: $23,692,064 $22,252,057 $76,865,083 $69,860,993
COST AND EXPENSES:
Costs of Goods Sold 6,211,248 6,091,006 20,335,209 18,899,945
Payroll and Benefits 7,451,070 6,902,708 23,875,514 21,670,092
Other Operating
Expenses 7,034,887 6,428,451 22,835,834 20,338,614
Administrative
Expenses 1,555,846 1,273,814 5,127,770 4,291,329
Total Operating
Expense 22,253,051 20,695,979 72,174,326 65,199,980
Operating Income 1,439,013 1,556,078 4,690,756 4,661,013
Interest Expense 361,732 663,165 1,508,816 2,104,077
Minority Interest
in Income (Loss)
of Affiliated
Partnerships (4,634) (5,415) 37,737 74,263
INCOME BEFORE
INCOME TAXES 1,081,915 898,328 3,144,203 2,482,673
INCOME TAXES 323,000 270,000 960,000 750,000
NET INCOME $758,915 $628,328 $2,184,204 $1,732,673
BASIC NET INCOME
PER COMMON SHARE $0.18 $0.15 $0.51 $0.42
DILUTED NET INCOME
PER COMMON SHARE $0.18 $0.15 $0.51 $0.41
BASIC SHARES
OUTSTANDING 4,264,932 4,160,157 4,256,337 4,163,689
DILUTED SHARES
OUTSTANDING 4,304,176 4,196,069 4,270,914 4,201,332
<PAGE> 4
MAX & ERMA'S RESTAURANTS, INC.
BALANCE SHEETS (UNAUDITED)
ASSETS
August 2, October 26,
CURRENT ASSETS: 1998 1997
Cash $1,011,916 $1,149,482
Inventories 853,785 738,124
Other Current Assets 1,587,424 1,449,833
Total Current Assets 3,453,125 3,337,439
Property - At Cost: 69,167,100 79,222,149
Less Accumulated
Depreciation and
Amortization 23,372,114 21,138,547
Property - Net 45,794,986 58,083,602
Other Assets 3,034,577 2,534,918
Total $52,282,688 $63,955,959
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current Maturities of
Long-Term Obligations $1,400,287 $1,460,128
Accounts Payable 2,276,656 2,874,559
Accrued Liabilities 3,928,044 3,272,603
Total Current Liabilities 7,604,987 7,607,290
Long-Term Obligations -
Less Current Maturities 22,276,040 36,358,966
Minority Interests in
Affiliated Partnerships -- 20,225
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
4,264,932 Shares
at 8/2/98 and 4,231,113
Shares at 10/26/97 426,493 423,111
Additional Capital 11,513,428 11,268,830
Retained Earnings 10,461,740 8,277,537
Total Stockholders' Equity 22,401,661 19,969,478
Total $52,282,688 $63,955,959
