SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999 or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________________ to
_________________
Commission file number 0-14837
ELMER'S RESTAURANTS, INC.
(Exact name of registrant as specified in its charter)
OREGON ___________ 93-0836824
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
11802 S.E. Stark St. 97216 (503) 252-1485
Portland, Oregon (Zip Code) (Registrant's telephone
(Address of principal number, including area
executive offices) code)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, no par value
___________
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 [ ]
Number of shares of Common Stock outstanding at August 5, 1999:
1,586,229
ELMER'S RESTAURANTS, INC.
INDEX
Page
Number
- ------
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements 3
Condensed Consolidated Balance Sheets,
September 30, 1999 (Unaudited) and
March 31, 1999
Condensed Consolidated Statements of Income, 5
Six months and three months ended
September 30, 1999 and 1998 (Unaudited)
Condensed Consolidated Statements of Cash 8
Flows, Six months ended September 30,
1999 and 1998 (Unaudited)
Notes to Condensed Consolidated Financial 10
Statements (Unaudited)
Item 2. Management's Discussion and Analysis of 13-20
Financial Statements (Unaudited)
Item 3. Quantitative and Qualitative Disclosures 20
about Market Risk
PART II: OTHER INFORMATION AND SIGNATURES
Item 4. Submission of Matters to a Vote of Security 22
Holders
Item 6. Exhibits and Reports on Form 8-K 23
Signatures 23
<TABLE>
ELMER'S RESTAURANTS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<CAPTION>
September 30, 1999 March 31, 1999
(unaudited)
ASSETS
Current Assets:
<S> <C> <C>
Cash and cash equivalents $ 1,386,629 $ 603,572
Accounts receivable 174,999 280,979
Inventories 310,473 372,584
Prepaid expenses and other 156,898 167,177
Income taxes receivable - 107,232
-------------- ------------
Total current assets 2,028,999 1,531,544
Property, buildings and
equipment-net 6,729,648 6,882,822
Intangible assets - net 4,442,009 4,503,417
Other assets 125,273 128,901
------------- ------------
Total assets $ 13,325,929 $ 13,046,684
============= =============
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
<S> <C> <C>
Notes payable, current portion $ 577,499 $ 572,399
Accounts payable 705,680 839,781
Accrued expenses 258,354 165,140
Accrued payroll and related taxes 366,428 294,170
Accrued income taxes 100,078 -
------------- -------------
Total current liabilities 2,008,039 1,871,490
Notes payable, net of current
portion 5,415,466 5,703,539
Deferred income taxes 773,000 773,000
------------- -------------
Total liabilities 8,196,505 8,348,029
------------- -------------
Common stock 4,746,520 4,746,520
Retained earnings (accumulated
deficit) 382,904 (47,865)
------------- -------------
Total shareholders' equity 5,129,424 4,698,655
------------- -------------
Total liabilities and
shareholders' equity $ 13,325,929 $ 13,046,684
============= =============
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
ELMER'S RESTAURANTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
September 30, September 30,
--------------------- -----------------------
1999 1998 1999 1998
--------------------- -----------------------
REVENUES:
<S> <C> <C> <C> <C>
$ 11,036,751 $2,417,968 $5,600,727 $1,863,232
------------- ---------- ---------- ---------
<CAPTION>
COSTS AND EXPENSES:
Cost of restaurant
sales
<S> <C> <C> <C> <C>
Food and beverage 3,237,506 834,253 1,638,683 574,602
Labor and related 3,537,243 708,121 1,762,122 589,910
Occupancy costs 632,870 157,250 317,663 120,717
Depreciation and
amortization 335,552 65,433 170,490 61,837
General and adminis-
trative expenses 2,373,045 420,179 1,223,204 341,381
---------- --------- --------- ---------
10,116,216 2,185,236 5,112,162 1,688,447
---------- --------- --------- ---------
<CAPTION>
INCOME FROM OPERATIONS
BEFORE OTHER INCOME
(EXPENSE)
<S> <C> <C> <C> <C>
920,535 232,732 488,565 174,785
<CAPTION>
OTHER INCOME (EXPENSE):
<S> <C> <C> <C> <C>
Other income 15,901 6,536 12,450 6,536
Interest expense (284,357) (80,145) (140,906) (77,019)
Gain on disposition
of assets - 9,952 - 9,952
---------- --------- --------- ---------
Income before provision
for income taxes 652,079 169,075 360,109 114,254
Provision for income taxes (221,310) (26,575) (122,810) (26,575)
---------- --------- --------- ---------
Income before minority
interest 430,769 142,500 237,299 87,679
Minority interest - (23,987) - (23,987)
---------- -------- --------- --------
Net income $ 430,769 $118,513 $ 237,299 $ 63,692
========== ========= ========= ========
<CAPTION>PER SHARE DATA:
<S> <C> <C> <C> <C>
Net income per
share - Basic $ 0.27 $ 0.15 $ 0.15 $ 0.08
========== ========= ========= ========
Weighted average number
of common shares
outstanding - Basic 1,586,229 770,500 1,586,229 770,500
========== ========= ========= ========
Net income per
share - Diluted $ 0.26 $ 0.15 $ 0.14 $ 0.08
---------- --------- --------- --------
Weighted average number
of common shares
outstanding - Diluted 1,639,785 770,500 1,654,677 770,500
========== ========= ========= ========
(Unaudited Pro forma Information)
Income before income taxes $ 652,079 $ 169,075 $ 360,109 $114,254
Provision for income taxes (221,310) (57,486) (122,810) (38,846)
Minority interest - (23,987) - (23,987)
---------- --------- --------- --------
Pro forma net income $ 430,769 $ 87,602 $ 237,299 $ 51,421
========== ========= ========= ========
Pro forma net income
per share - Basic $ 0.27 $ 0.11 $ 0.15 $ 0.07
========== ========= ========= ========
Weighted average number
of common shares
outstanding - Basic 1,586,229 770,500 1,586,229 770,500
========== ========= ========= ========
Pro forma net income
per share - Diluted $ 0.26 $ 0.11 $ 0.14 $ 0.07
========== ========= ========= ========
Weighted average number
of common shares
outstanding - Diluted 1,639,785 770,500 1,654,677 770,500
========== ========= ========= ========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
ELMER'S RESTAURANTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
For the six months ended
September 30,
1999 1998
------------ ------------
<S> <C> <C>
Cash flows from operating activities
Net income $ 430,769 $ 118,513
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 335,552 65,433
Minority Interest - 23,987
Changes in assets and liabilities:
Receivables 105,980 147,160
Inventories 62,111 27,015
Prepaid expenses and other 10,279 (15,803)
Other assets 3,628 15,705
Accounts payable and accrued expenses 31,371 (140,619)
Income taxes 207,310 26,590
---------- ----------
Net cash provided by operating activities 1,187,000 267,981
---------- ----------
Cash flows from investing activities:
Additions to property, buildings, equipment
and intangible assets (120,970) (190,179)
Business acquisition, net of cash acquired (3,165,570)
---------- ----------
Net cash used in investing activities (120,970) (3,355,749)
---------- ----------
Cash flows from financing activities:
Proceeds from issuance of notes payable - 4,000,000
Proceeds from sale of CBW, Inc. common stock - 600,000
Payments on notes payable (282,973) (40,283)
Distributions - (45,282)
---------- ----------
Net cash provided by (used in)
financing activities (282,973) 4,514,435
---------- ----------
Net increase in cash
and cash equivalents 783,057 1,426,667
Cash and cash equivalents, beginning of period 603,572 42,189
---------- ----------
Cash and cash equivalents, end of period $1,386,629 $1,468,856
========== ==========
Supplemental disclosures of cash flow
information:
Cash paid during the period for:
Interest $ 284,357 $ 80,145
========= ==========
Income taxes $ 12,000 $ -
========= ==========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
ELMER'S RESTAURANTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Basis of Presentation
The accompanying unaudited financial statements have been
prepared by Elmer's Restaurants, Inc., ("Elmers" or the
"Company") in accordance with the rules and regulations of the
Securities and Exchange Commission. Certain information and
footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting
principles have been condensed or omitted in accordance with such
rules and regulations. The March 31, 1999 balance sheet was
derived from audited financial statements, but does not include
all of the disclosures required by generally accepted accounting
principles. In the opinion of management, the accompanying
unaudited financial statements reflect all adjustments,
consisting only of normal recurring adjustments, necessary to
present fairly the financial position of the Company, and its
results of operations and cash flows. These financial statements
should be read in conjunction with the audited financial
statements and notes thereto for the years ended March 31, 1999,
1998, and 1997, respectively, included in the Company's Annual
Report on Form 10-K for the year ended March 31, 1999.
The consolidated financial statements as of September 30,
1999 and March 31, 1999 and for the six months ended September
30, 1999 respectively, include the accounts of Elmer's
Restaurants, Inc., CBW Inc. ("CBW"), and Grass Valley Ltd., Inc.
("GVL"). The consolidated financial statements for the three
months and six months ended September 30, 1998 include the
accounts of CBW and the accounts of Elmer's from August 25, 1998.
Prior to the merger with Elmer's, CBW was taxed for federal
and state income tax purposes as a limited liability company or
as an S corporation from inception. The unaudited pro forma
information reflects benefits (provision) for income taxes that
would have been recorded had CBW been a taxable C corporation for
all periods presented.
The following table represents the unaudited pro forma
results of operations for the three months and six months ended
September 30, 1998 as if the acquisition of 53.8% of the
outstanding common stock of Elmer's, the merger of CBW with and
into Elmer's and the acquisition of GVL had occurred at the
beginning of the periods. These pro forma results have been
prepared for comparative purposes only and are not necessarily
indicative of what would have occurred had the acquisitions been
made at the beginning of the respective periods or of results
which may occur in the future.
<TABLE>
<CAPTION>
Three Months Ended
September 30, 1998
------------------
<S> <C>
Total revenue $ 5,308,000
Income from operations $ 395,000
Income before provision for income taxes $ 292,000
Net income $ 194,000
Net income per share of common stock $ .12
Weighted average number of shares outstanding 1,586,229
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended
September 30, 1998
------------------
<S> <C>
Total revenue $ 10,504,000
Income from operations $ 773,000
Income before provision for income taxes $ 531,000
Net income $ 350,000
Net income per share of common stock $ .22
Weighted average number of shares 1,586,229
</TABLE>
The results of operations for the three months and six
months ended September 30, 1999, are not necessarily indicative
of the results that may be expected for the year ending March 31,
2000, or any other future interim report.
2. Reconciliation of Earnings per Share
On April 1, 1997, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 128, "Earnings Per Share." In
accordance with SFAS No. 128, basic earnings per share is
computed using the weighted average number of common shares
outstanding during the period. Diluted earnings per share is
computed using the weighted average number of common and dilutive
common equivalent shares outstanding during the period. Dilutive
common equivalent shares consist of common stock issuable upon
exercise of stock options using the treasury stock method. The
following provides a reconciliation of the numerators and
denominators of the basic and diluted per share computations:
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
September 30, September 30,
-------------------- ------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Numerator:
Net income $ 430,769 $118,513 $237,299 $63,692
========= ======== ======== =======
Denominator:
Denominator for basic
earnings per share
weighted average number
of common shares 1,586,229 770,500 1,586,229 770,500
Effect of dilutive
securities:
Employee stock options 53,556 - 68,448 -
--------- ------- --------- -------
Denominator for diluted
earnings per share 1,639,785 770,500 1,654,677 770,500
Earnings per share - basic $ 0.27 $ 0.15 $ 0.15 $ 0.08
Earnings per share - diluted $ 0.26 $ 0.15 $ 0.14 $ 0.08
</TABLE>
PART I - Financial Information
Item 1. Financial Statements
Unaudited Interim Financial Statements
In the opinion of management, the accompanying unaudited
financial statements contain all adjustments (consisting solely
of normal recurring adjustments) necessary to present fairly the
financial position of Elmer's Restaurants, Inc. and subsidiaries
(the "Company" or "Elmer's") and their results of operations and
cash flows.
This report on Form 10-Q for the fiscal quarter ended September
30, 1999 should be read in conjunction with the Company's Annual
Report to Shareholders on Form 10-K for the fiscal year ended
March 31, 1999.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Elmer's Restaurants, Inc., located in Portland, Oregon, is a
franchisor and operator of full-service, family oriented
restaurants under the name "Elmer's Breakfast. Lunch. Dinner."
and an operator of delicatessen restaurants under the names
"Ashley's" and "Richard's Deli and Pub." The Company is an
Oregon corporation and was incorporated in 1983. Walter Elmer
opened the first Elmer's restaurant in Portland, Oregon in 1960,
and the first franchised restaurant opened in 1966. The Company
acquired the Elmer's franchising operation in January 1984 from
the Elmer family. The Company now owns and operates 11 Elmer's
restaurants and franchises 18 Elmer's restaurants in six western
states. The Company reports on a fiscal year commencing April 1
and ending March 31 of the following year.
On August 25, 1998, CBW, Inc. ("CBW"), a closely held Oregon
corporation, acquired a controlling interest in the then
outstanding common stock of Elmer's. On February 18, 1999, CBW
merged with and into Elmer's. For reasons set out below, these
transactions have been accounted for as a purchase of Elmer's by
CBW and, accordingly a new basis of accounting, based on fair
values, was established for the assets and liabilities of
Elmer's. Subsequent to the acquisition on August 25, 1998, the
Company's financial statements reflect the combined results of
operations and financial position of CBW and Elmer's based on the
new basis of accounting for Elmer's and the historical cost basis
of CBW. Prior to August 25, 1998, the financial statements of
the Company include only the results of operations, financial
position and cash flows of CBW, which began operations on June
16, 1995.
Effective February 18, 1999, the Company merged with its majority
shareholder, CBW, in a transaction in which the Company was the
surviving corporation. The Company acquired all of the stock and
assets of CBW including five Ashley's delicatessen restaurants.
Effective March 31, 1999, the Company executed a stock exchange
agreement with Grass Valley Ltd., Inc. ("GVL"), a closely held
Oregon corporation, in a transaction in which the Company
acquired 100% of the outstanding stock of GVL. As a wholly owned
subsidiary of the Company, GVL is the owner and operator of four
restaurants in Hillsboro, Aloha, and Tigard, Oregon operating
under the trade name of "Richard's Deli and Pub. "
The acquisition of a controlling interest in Elmer's by CBW and
the GVL acquisition were accounted for under the purchase method.
Elmer's merger transaction with CBW was accounted for as a
reverse acquisition. In accordance with generally accepted
accounting principles, the latter transaction has been accounted
for as a purchase of Elmer's by CBW and accordingly a new basis
of accounting, based on fair values, was established for the
assets and liabilities of Elmer's. (For more information, see
the Notes to Consolidated Financial Statements included as part
of the Company's Annual Report on Form 10-K for the year ended
March 31, 1999). For reasons related to purchase accounting
treatment, the consolidated financial statements for the three
months and six months ended September 30, 1998 only include the
accounts of CBW (rather than the previously reported results of
Elmer's) and the accounts of Elmer's from August 25, 1998.
Because of the significance of these transactions, the Company
believes that a discussion and analysis of the Company's results
of operations on a pro forma basis, which include consolidated
results of operations of Elmer's, CBW, and GVL, provides a more
meaningful comparison than the discussion and analysis of actual
results of operations which, prior to these transactions, only
includes the results of operations of CBW and supplements the
following highlights of historical results.
Highlights of Historical Results. The Company reported net
income of approximately $237,000 and $431,000, or $.15 and $.27
per share for the three and six month period ended September 30,
1999, respectively. These results are compared to reported net
income of approximately $51,000 and $88,000, net of pro forma
income tax provision, or $.07 and $.11 per share for the three
and six month period ended September 30, 1998, respectively. The
approximately $186,000 and $343,000 increases in net income for
the three and six months ended September 30, 1999, respectively,
are attributable to the addition of earnings from Elmer's and
GVL, and an improvement in comparable same store operating
performance. The Company's total assets at September 30, 1999
were $13.3 million which is an increase of $279,245 over total
assets as at March 31, 1999. In the six months ended September
30, 1999, working capital increased $360,906 while notes payable
decreased $282,973. Cash provided by operating activities
totaled $1,187,000 for the six months ended September 30, 1999
compared to $267,981 for the six months ended September 30, 1998.
The increase in cash provided from operations is attributable to
the addition of operations from Elmer's and GVL for the six
months ended September 30, 1999.
Comparison to Pro Forma Results of Operations. As discussed
above, the Company believes that a discussion and analysis of the
Company's results of operations (which include those of CBW and
GVL) compared on a pro forma basis, provides a more meaningful
comparison than the discussion and analysis of reported actual
results of operations. The following discussion and analysis
presents the Company's results of operations for the three months
ended September 30, 1999 and 1998 respectively, as if the merger
of CBW and the acquisition of GVL had occurred on April 1, 1998
after giving effect to pro forma adjustments, including
amortization of goodwill, depreciation, interest expense, and
related income tax effects. The 1998 pro forma information is
provided for illustrative purposes and is not necessarily
indicative of the combined results of operations that would have
actually occurred for such periods nor does it represent a
forecast of future results.
The Company's net income and basic earnings per share increased
22% and 23% over pro forma net income and basic earnings per
share for the three and six month comparable period in 1998,
respectively. Net income as a percentage of total revenue
increased from 3.7% and 3.3%, based on pro forma results for the
three and six months ended September 30, 1998, respectively, to
4.2% and 3.9% for the three and six month period ended September
30, 1999, respectively.
<TABLE>
<CAPTION>
Dollar amounts in thousands except per share data
Pro Forma
Results of Operations Results of Operations
For six months ended For the six months ended
September 30, 1999 September 30, 1998
--------------------- ---------------------
Percent of Percent of
Amount Revenues Amount Revenues
------ ---------- ------ ----------
<S> <C> <C> <C> <C>
Revenue $ 11,037 100.0% $10,504 100.0%
Restaurant costs and expenses 7,743 70.2 7,285 69.4
General and administrative
expenses 2,373 21.5 2,446 23.3
Operating income 921 8.3 773 7.4
Non operating income (expense) (268) (2.4) (242) (2.3)
Net income 431 3.9 350 3.3
Earnings per share - Basic $0.27 $0.22
Weighted average number of
common shares outstanding 1,586,229 1,586,229
</TABLE>
<TABLE>
<CAPTION>
Dollar amounts in thousands
Pro Forma
Results of Operations Results of Operations
For the quarter ended For the quarter ended
September 30, 1999 September 30, 1998
--------------------- ---------------------
Percent of Percent of
Amount Revenues Amount Revenues
------ ---------- ------ ----------
<S> <C> <C> <C> <C>
Revenue $5,601 100.0% $5,308 100.0%
Restaurant costs and
expenses 3,889 69.4 3,710 69.9
General and administrative
expenses 1,223 21.8 1,203 22.7
Operating income 489 8.7 395 7.4
Non operating income
(expense) (128) (2.3) (103) (1.9)
Net income 237 4.2 194 3.7
Earnings per share - Basic $0.15 $0.12
Weighted average number
of common shares
outstanding 1,586,229 1,586,229
</TABLE>
Revenues. Revenues for the three and six months ended September
30, 1999 were 5.5% and 5.1% greater, respectively, than pro forma
revenues for the comparable period in 1998. Revenues from same
store restaurant operations showed an increase of 6.0% and 5.3%
for the three and six months ended September 30, 1999 over the
comparable period in 1998. The Company anticipates further
improvement in same store sales as it rolls out a new menu in the
third quarter of fiscal 2000 and an ongoing "outsert" menu
program throughout fiscal 2000.
Restaurant Costs and Expenses. Restaurant costs and expenses,
which consists of four categories including food, beverage and
supply costs, labor and labor related costs, occupancy costs, and
depreciation and amortization, decreased to 69.4% and increased
to 70.2% of revenue for the three and six months ended September
30, 1999, respectively, compared to pro forma 69.9% and 69.4% for
the three and six months ended September 30, 1998, respectively.
Food, beverage and supply costs as a percentage of total revenues
were 29.2% and 29.5% for the three and six months ended
September, 30, 1999, respectively, compared to a pro forma 29.6%
and 29.3% for the comparable period in 1998. Labor expenses
totaled 31.5% and 32.0% of revenues for three and six months
ended September 30, 1999, respectively, compared to 31.0% and
30.9% of pro forma revenues for the three and six months ended
September 30, 1998, respectively. The increase in labor as a
percentage of revenues for the three months and six months ended
September 30, 1999 over the pro forma comparable period in 1998
is driven by an 8.3% increase in Oregon's minimum wage rate in
1999 and a 10.7% increase in Washington's minimum wage rate in
1999. Occupancy costs as a percentage of revenues dropped from a
pro forma 6.2% and 6.1% for the three and six months ended
September 30, 1998 to 5.7% for the three and six months ended
September 30, 1999. Depreciation and amortization expense as a
percentage of revenues dropped from a pro forma 3.1% for both the
three and six months ended September 30, 1998 to 3.0% for both
the three and six months ended September 30, 1999. Both
decreases are principally attributable to increases in revenues.
General and Administrative Expenses. General and administrative
("G&A") expenses were 21.8% and 21.5% of total revenue for the
three and six months ended September 30, 1999, respectively,
compared to 22.7% and 23.3% of pro forma revenues in the
comparable period in 1998. Increased revenues and management
attention towards overhead cost minimization are responsible for
the reduction in the amount of G&A expenses as a percentage of
total revenues.
Non Operating Income (Expenses). Net operating income (expense)
was (2.3%) and (2.4%) of total revenues for the three and six
months ended September 30, 1999 compared to (1.9%) and (2.3%) of
pro forma total revenues in the comparable period in 1998. Non-
operating income totaling 5.3% and 4.1% of revenues for the three
and six months ended September 30, 1998 from the sale of non-
operating assets did not reoccur in 1999.
Liquidity and Capital Resources. As of September 30, 1999, the
Company had cash and equivalents of approximately $1,387,000
representing an increase of approximately $783,000 for the six
months ended September 30, 1999. The increase resulted from cash
provided by operations totaling approximately $1,187,000, cash
used in investing activities of approximately $121,000 and cash
used in financing activities of approximately $283,000. Cash
used by financing activities was payments on notes payable of
$283,000. Cash used in investing activities was for additions to
property, buildings and equipment, and tenant improvements.
The Company's primary liquidity needs arise from debt service on
indebtedness, operating lease requirements and the funding of
capital expenditures. As of September 30, 1999, the Company had
outstanding indebtedness for borrowed money of $2.36 million
under a term loan facility and $2.32 million real estate loan
facilities with Wells Fargo Bank and $1.25 million under a term
loan facility with Eagle's View Management Company, Inc. ("EVM"),
assumed at the time of the merger with CBW. The Wells Fargo
loans have a weighted-average maturity of 7.25 years, bear
interest at an average of 8.1%, require monthly payments of
principal and interest, are collateralized by substantially all
of the assets owned by Elmer's Restaurants, Inc. and impose
certain financial restrictions and covenants, the most
restrictive of which, require the Company to maintain a maximum
of total liabilities, excluding subordinated debt, to tangible
net worth plus subordinated debt of 5.5 to 1.0. In addition,
effective September 30, 1999, and thereafter on a trailing four
quarter basis as of the end of each fiscal quarter, the Company
is also required to maintain a ratio of cash generation to total
interest expense plus the prior period current maturities of
long-term debt of at least 2.25 to 1.0. The Company was in
compliance with these covenants at September 30, 1999. The
Company also has available a $250,000 line of credit with Wells
Fargo Bank through September 1, 2000. The EVM loan has a
maturity of approximately five years, an interest rate of 12%,
requires monthly payments of interest only, is collateralized by
a second position on substantially all the assets owned by
Elmer's Restaurants, Inc. and does not impose financial covenants
upon the Company.
The Company's primary source of liquidity during the year was the
operation of the restaurants, franchise fees earned from its
franchisees, internal cash and borrowings as discussed above.
In the future, the Company's liquidity and capital resources will
primarily depend on the operations of Elmer's Restaurants, Inc.,
CBW, Inc. and Grass Valley Ltd., Inc. which, under the provisions
of the Company's loan agreements, would permit, under certain
conditions, distributions and dividends to the Company's
shareholders and early reduction of the EVM indebtedness.
Elmer's Restaurants, Inc., CBW, Inc. and Grass Valley Ltd., Inc.,
like most restaurant businesses, are able to operate with nominal
or deficit working capital because sales are for cash and
inventory turnover is rapid. Renovation and/or remodeling of
existing restaurants is either funded directly from available
cash or, in some instances, is financed through outside lenders.
Construction or acquisition of new restaurants is generally,
although not always, financed by outside lenders.
The Company believes that it will continue to be able to obtain
adequate financing on acceptable terms for new restaurant
construction and acquisitions and that cash generated from
operations will be adequate to meet its financial needs and to
pay operating expenses for the foreseeable future, although no
assurances can be given.
Effects of Year 2000. The Company has completed its assessment
of internal systems and has concluded that its hardware and
software are Year 2000 compliant. The Company has concluded that
it will not be necessary to replace its retail point of sale
hardware and that, based on information available at this time,
the remaining costs to implement the Year 2000 readiness program
will not be material.
Communication with respect to Year 2000 issues with the Company's
suppliers is ongoing. While not expected, the Company may
experience delays in receipt of product, which could adversely
affect sales and earnings. The Company cannot currently estimate
to what extent future operating results might be adversely
affected by the possible failure of these third parties to
successfully address their Year 2000 issues. However, the
Company's program includes actions designed to identify and
minimize where possible, any third party exposure. The
distribution centers that deliver products to the restaurants
maintain an adequate inventory to supply items for approximately
four weeks. If suppliers are unable to deliver product to the
distribution centers due to Year 2000 or other plant
malfunctions, alternative suppliers are currently being
identified that could deliver product that matches the Company's
specifications.
There can be no assurance that additional costs will not be
incurred, or that the objective of the program will be achieved.
However, the Company continues to monitor activities related to
the program designed to ensure Year 2000 readiness.
Item 3. Quantitative and Qualitative Disclosures about Market
Risk
Special Note Regarding Forward-Looking Statements:
CERTAIN STATEMENTS IN THIS FORM 10-Q UNDER "ITEM 2. MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS" CONSTITUTE "FORWARD-LOOKING STATEMENTS" WHICH WE
BELIEVE ARE REASONABLE AND WITHIN THE MEANING OF THE SECURITIES
ACT OF 1933, AS AMENDED AND THE SECURITIES EXCHANGE ACT OF 1934,
AS AMENDED. SUCH FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND
UNKNOWN RISKS, UNCERTAINTIES, AND OTHER FACTORS RELATING TO THE
COMPANY'S BUSINESS, FINANCIAL CONDITION, AND OPERATIONS WHICH MAY
CAUSE THE ACTUAL RESULTS, PERFORMANCE, OR ACHIEVEMENTS OF ELMER'S
RESTAURANTS, INC. (INDIVIDUALLY AND COLLECTIVELY WITH ITS
SUBSIDIARIES, HEREIN THE "COMPANY") TO BE MATERIALLY DIFFERENT
FROM ANY FUTURE RESULTS, PERFORMANCE, OR ACHIEVEMENTS EXPRESSED
OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. SUCH FACTORS
INCLUDE, AMONG OTHERS, THE FOLLOWING: GENERAL ECONOMIC AND
BUSINESS CONDITIONS; THE ABILITY TO ACCOMPLISH STATED GOALS AND
OBJECTIVES; SUCCESSFUL INTEGRATION OF ACQUISITIONS; THE IMPACT OF
COMPETITIVE PRODUCTS AND PRICING; SUCCESS OF OPERATING
INITIATIVES; DEVELOPMENT AND OPERATING COSTS; ADVERTISING AND
PROMOTIONAL EFFORTS; ADVERSE PUBLICITY; ACCEPTANCE OF NEW PRODUCT
OFFERINGS; CONSUMER TRIAL AND FREQUENCY; AVAILABILITY, LOCATIONS,
AND TERMS OF SITES FOR RESTAURANT DEVELOPMENT; CHANGES IN
BUSINESS STRATEGY OR DEVELOPMENT PLANS; CHANGES IN REGULATIONS
EFFECTING LOTTERY COMMISSIONS; QUALITY OF MANAGEMENT;
AVAILABILITY, TERMS AND DEPLOYMENT OF CAPITAL; THE RESULTS OF
FINANCING EFFORTS; BUSINESS ABILITIES AND JUDGMENT OF PERSONNEL;
AVAILABILITY OF QUALIFIED PERSONNEL; FOOD, LABOR AND EMPLOYEE
BENEFIT COSTS; CHANGES IN, OR THE FAILURE TO COMPLY WITH,
GOVERNMENT REGULATIONS; IMPACT OF YEAR 2000; CONTINUED NASDAQ
LISTING; WEATHER CONDITIONS; CONSTRUCTION SCHEDULES; AND OTHER
FACTORS REFERENCED IN THIS FORM 10-Q.
The Company holds no financial instruments of any kind for
trading purposes. Certain of the Company's outstanding financial
instruments are subject to market risks, including interest rate
risk. Such financial instruments are not currently subject to
foreign currency risk or commodity price risk. The Company's
major market risk exposure is potential loss arising from
changing interest rates and the impact of such changes on its
long-term debt. Of the Company's long-term debt outstanding as at
September 30, 1999, $1.18 million principal amount was accruing
interest at a variable rate of LIBOR plus 2.25%. A rise in
prevailing interest rates could have adverse effects on the
Company's financial condition and results of operations.
Principal Amount by Expected Maturity
(In thousands)
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fair
Fiscal Year: There- Value
(dollars in thousands) 2000 2001 2002 2003 2004 after Total 6/30/99
- ------------------------------------------------------------------------------------------
Variable rate debt 118.2 236.4 236.4 236.4 236.4 118.2 1,182.0 1,182.0
Average Interest Rate -
<S> <C> <C> <C> <C> <C> <C> <C> <C>
2.25% above LIBOR 8.0% 8.0% 8.0% 8.0% 8.0% 8.0%
</TABLE>
Part II - Other Information
Item 4. Submission of Matters to a Vote of Security Holders
On August 5, 1999, at the Company's Annual Meeting, the holders
of the Company's outstanding Common Stock took the actions
described below. As of the record date, 1,586,229 shares of
Common Stock were issued and outstanding and eligible to vote at
the Annual Meeting.
Proposal I: Election of Directors.
The shareholders elected William W. Service and Paul Welch to the
Company's Board of Directors for a one year term expiring at the
year 2000 annual meeting of Shareholder by the votes indicated
below.
William W. Service 1,228,144 shares in favor
800 shares against or withheld
Paul Welch 1,227,144 shares in favor
1,800 shares against or withheld
The shareholders elected Corydon H. Jensen and Thomas C. Connor
to the Company's Board of Directors for a two-year term expiring
at the year 2001 annual meeting of Shareholder by the votes
indicated below.
Corydon H. Jensen 1,228,144 shares in favor
800 shares against or withheld
Thomas C. Connor 1,228,144 shares in favor
800 shares against or withheld
The shareholders elected Bruce Davis, Richard Williams, and
Donald W. Woolley to the Company's Board of Directors each for a
three-year term expiring at the year 2002 annual meeting of
Shareholder by the votes indicated below.
Bruce Davis 1,228,144 shares in favor
800 shares against or withheld
Richard Williams 1,228,144 shares in favor
800 shares against or withheld
Donald W. Woolley 1,228,144 shares in favor
800 shares against or withheld
The Board of Directors as previously reported to the Securities &
Exchange Commission has re-elected in its entirety.
Proposal II: Adoption of the Company's Employee Stock
Purchase Plan.
1,226,669 shares in favor
900 shares against or withheld
Proposal III: Approval of 1999 Stock Option Plan
1,153,569 shares in favor
74,000 shares against or withheld
Proposal IV: Ratification and Approval of Indemnification
Agreements
1,129,569 shares in favor
90,800 shares against or withheld
Proposal V: Ratification and Approval of Appointment of
PricewaterhouseCoopers, LLP as Independent Public Accountants for
the fiscal year ended March 31, 1999
1,094,907 shares in favor
134,037 shares against or withheld
Item 6. Exhibits and Reports of Form 8-K
a) Exhibits:
Exhibits required to be attached by Item 601 of
Regulation S-K are listed in the Index to Exhibits of this Form
10-Q, and are incorporated herein by this reference.
b) Reports on Form 8-K:
None.
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities
Exchange Act of 1934, Elmer's Restaurants, Inc. has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Elmer's Restaurants, Inc.
By: /s/ WILLIAM W. SERVICE
----------------------
William W. Service
Chief Executive Officer
By: /s/ JUANITA NELSON
----------------------
Juanita Nelson,
Secretary/Controller
Dated: November 12, 1999
EXHIBIT INDEX
Exhibit Sequential
No. Description Page No.
3 (i) * Restated Articles of Incorporation of the Company
(Incorporated herein by reference from Exhibit No. 3.1 to the
Company's Annual Report on Form 10-K for the year ended March 31,
1988.)
3 (ii) * By-Laws of the Company, as amended. (Incorporated
herein by reference from Exhibit 3.2 of the Company's Annual
Report on Form 10-K for the year ended March 31, 1990.)
27 Financial Data Schedule 25
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE COMPANY'S FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30,
1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
ELMER'S RESTAURANT'S, INC.
10-Q DATA
Financial Data Schedule
PERIOD TYPE: SIX MONTHS
Quarter End SEP-30-99
Period Start APR-01-99
Period End SEP-30-99
Cash 1,386,629
Securities -
Receivables 179,999
Allowances (5,000)
Inventory 310,473
Current Assets 2,028,999
FF&E 15,013,208
Depreciation (8,283,560)
Total Assets 13,325,929
Current Liabilities 2,008,039
Bonds, MTGS 5,415,466
Common 4,746,520
Preferred Mandatory -
Preferred -
Other SE 382,904
Total Liability and Equity 13,325,929
Sales 9,257,021
Total Revenues 11,036,751
CGS 6,774,749
Total Costs 10,116,216
Other Expenses -
Loss Provision -
Interest Expense 284,357
Income Pretax 652,079
Income Tax 221,310
Income Continuing 430,769
Discontinued -
Extraordinary -
Changes -
Net Income 430,769
EPS Basic 0.27
EPS Diluted 0.26
<TABLE> <S> <C>
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<CIK> 0000771214
<NAME> ELMER'S RESTAURANTS, INC.
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> APR-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 1,386,629
<SECURITIES> 0
<RECEIVABLES> 179,999
<ALLOWANCES> (5,000)
<INVENTORY> 310,473
<CURRENT-ASSETS> 2,028,999
<PP&E> 15,013,208
<DEPRECIATION> (8,283,560)
<TOTAL-ASSETS> 13,325,929
<CURRENT-LIABILITIES> 2,008,039
<BONDS> 5,415,466
0
0
<COMMON> 4,746,520
<OTHER-SE> 382,904
<TOTAL-LIABILITY-AND-EQUITY> 13,325,929
<SALES> 9,257,021
<TOTAL-REVENUES> 11,036,751
<CGS> 6,774,749
<TOTAL-COSTS> 10,116,216
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 284,357
<INCOME-PRETAX> 652,079
<INCOME-TAX> 221,310
<INCOME-CONTINUING> 430,769
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 430,769
<EPS-BASIC> 0.27
<EPS-DILUTED> 0.26
</TABLE>
