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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 July 24, 2000 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.
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(Exact name of registrant as specified in its charter)
OREGON ___________ 93-0836824
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
11802 S.E. Stark St. 97216 (503) 252-1485
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(Address of principal (Zip Code) (Registrant's telephone number,
executive offices) including area 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
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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, 2000: 1,665,548
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ELMER'S RESTAURANTS, INC.
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INDEX
Page
Number
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PART I: FINANCIAL INFORMATION
Item 1. Financial Statements 3
Condensed Consolidated Balance Sheets,
July 24, 2000 (Unaudited) and
March 31, 2000
Condensed Consolidated Statements of Income, 4
Sixteen weeks ended July 24, 2000 and July 26, 1999
(Unaudited)
Condensed Consolidated Statements of Cash Flows, 5
Sixteen weeks ended July 24, 2000 and July 26, 1999
(Unaudited)
Notes to Condensed Consolidated Financial Statements 6
(Unaudited)
Item 2. Management's Discussion and Analysis of Financial 6
Statements (Unaudited)
Item 3. Quantitative and Qualitative Disclosures about Market 9
Risk
PART II: OTHER INFORMATION AND SIGNATURES
Item 2. Changes in Securities and Use of Proceeds 10
Item 5. Other Information 10
Item 6. Exhibits and Reports on Form 8-K 10
Signatures 11
2
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ELMER'S RESTAURANTS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
July 24, 2000 March 31, 2000
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(unaudited) (audited)
ASSETS
Current Assets:
Cash and cash equivalents $ 1,496,410 $ 1,640,210
Accounts receivable 159,969 199,466
Inventories 317,363 339,654
Prepaid expenses and other 285,390 276,604
Income taxes receivable 5,435 --
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Total current assets 2,264,567 2,455,934
Property, buildings and equipment-net 6,937,106 6,892,844
Intangible assets - net 4,377,165 4,390,471
Other assets 107,158 107,959
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Total assets $13,685,996 $13,847,208
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Notes payable, current portion $ 657,527 $ 572,399
Accounts payable 745,857 772,174
Accrued expenses 408,276 448,803
Accrued payroll and related taxes 208,651 218,728
Accrued income taxes -- 279,770
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Total current liabilities 2,020,311 2,291,874
Notes payable, net of current portion 4,926,364 5,124,130
Deferred income taxes 793,000 793,000
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Total liabilities 7,739,675 8,209,004
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Common stock 4,746,520 4,746,520
Retained earnings 1,199,801 891,684
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Total shareholders' equity 5,946,321 5,638,204
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Total liabilities and shareholders' equity $13,685,996 $13,847,208
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The accompanying notes are an integral part of the condensed
consolidated financial statements.
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ELMER'S RESTAURANTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Sixteen Weeks Ended
July 24, July, 26
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2000 1999
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REVENUES $ 7,231,139 $ 7,018,838
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COSTS AND EXPENSES:
Cost of restaurant sales
Food and beverage 2,043,186 2,061,929
Labor and related 2,293,991 2,273,112
Occupancy costs 398,304 404,981
Depreciation and amortization 199,237 213,244
General and administrative expenses 1,691,066 1,495,529
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6,625,784 6,448,795
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INCOME FROM OPERATIONS
BEFORE OTHER INCOME (EXPENSE) 605,355 570,043
OTHER INCOME (EXPENSE):
Other income 51,594 3,496
Interest expense (187,317) (183,272)
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Income before income taxes 469,632 390,267
Provision for income taxes (161,515) (133,208)
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Net Income $ 308,117 257,059
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PER SHARE DATA:
Net income per share - Basic $ 0.17 $ 0.14
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Weighted average number of
common shares outstanding - Basic 1,832,003 1,832,003
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Net income per share - Diluted $ 0.17 $ 0.14
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Weighted average number of
common shares outstanding - Diluted 1,863,781 1,891,525
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The accompanying notes are an integral part of the condensed
consolidated financial statements.
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ELMER'S RESTAURANTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE><CAPTION>
For the sixteen weeks ended
July, 24 July, 26
2000 1999
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Cash flows from operating activities
<S> <C> <C>
Net income $ 308,117 $ 257,059
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 199,237 213,244
Changes in assets and liabilities:
Other assets 53,803 85,305
Accounts payable and accrued expenses (76,921) 5,218
Income taxes (285,205) 127,816
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Net cash provided by operating activities 199,031 688,642
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Cash flows from investing activities:
Additions to property, buildings equipment and
intangible assets (230,193) (79,433)
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Net cash used in investing activities (230,193) (79,433)
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Cash flows from financing activities:
Payments on notes payable (112,638) (180,847)
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Net cash used in by financing activities (112,638) (180,847)
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Net increase (decrease) in cash and cash equivalents (143,800) 428,362
Cash and cash equivalents, beginning of period 1,640,210 603,572
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Cash and cash equivalents, end of period $ 1,496,410 $ 1,031,934
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Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 187,317 $ 183,272
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Income taxes $ 444,000 $ 2,000
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</TABLE>
The accompanying notes are an integral part of the condensed
consolidated financial statements.
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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., (the "Company" or "Elmer's") 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, 2000
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, 2000, 1999, and 1998, respectively, included in
the Company's Annual Report on Form 10-K for the year ended March 31, 2000.
All net income per share amounts and weighted average number of common shares
outstanding have been retroactively adjusted to reflect a 10% stock dividend,
which had a record date in August 2000.
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 the Company and its and
subsidiaries, and their results of operations and cash flows.
This report on Form 10-Q for the first fiscal quarter ended July 24, 2000 should
be read in conjunction with the Company's Annual Report to Shareholders on Form
10-K for the fiscal year ended March 31, 2000.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Elmer's (NASDAQ Small Cap Market symbol: ELMS), located in Portland, Oregon, is
a franchisor and operator of full-service, family oriented restaurants under the
names "Elmer's Breakfast. Lunch. Dinner." and "Elmer's Pancake & Steak House"
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 currently owns and operates 11 Elmer's restaurants and is a party to
franchise agreements for 18 Elmer's restaurants in six western states.
On August 1, 2000, the Company entered into an occupancy lease agreement with
Shilo Management Company ("Shilo") for the lease of restaurant space in Shilo's
hotel/motel in Springfield, Oregon, and is currently renovating the restaurant
space. The Company's will own and operate the Springfield, Oregon, restaurant,
which will be the Company's twelfth.
The Company franchises or operates a total of 29 full-service, family-oriented
restaurants, with a warm, friendly atmosphere and comfortable furnishings. Most
of the restaurants are decorated in a home style, with fireplaces in the dining
rooms. The restaurants are primarily free standing buildings, ranging in size
from 4,600 to
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approximately 8,000 square feet with seating capacities ranging from 120 to 220.
A portion of the dining room in most restaurants may also be used for private
group meetings by closing it off from the public dining areas.
The menu offers an extensive selection of items for breakfast, lunch and dinner.
The Elmer's breakfast menu, which is available all day, contains a wide variety
of selections with particular emphasis on pancakes, waffles, omelets, crepes,
country platters and other popular breakfast items.
Highlights of Historical Results. The Company reported net income of $308,117 or
$.17 per share for the quarter ended July 24, 2000, on sales of $7.231 million
as compared to reported net income of approximately $257,059 or $.14 per share
for the first quarter ended July 26, 1999. The $51,058 increase in net income is
attributable to continued increases in same store sales and operating and
improvements in comparable same store operating performance. The Company's total
assets as at July 24, 2000 were $13.7 million, which is a decrease of $161,212
over total assets as at March 31, 2000. In the sixteen weeks ended July 24,
2000, working capital increased $80,196 while notes payable (net of current
portion) decreased $197,766. Cash provided by operating activities totaled
$199,031 for the period ended July 24, 2000 compared to $688,642 for the period
ending July 26, 1999. The decrease in cash provided from operations is primarily
attributable to the reduction in accrued income taxes and accrued expenses by
$285,205 and $76,921 respectively, during the sixteen weeks ended July 24, 2000,
thereby reducing cash provided by operating activities by $362,126. During the
sixteen weeks ended July 26, 1999 accrued income taxes and accounts payable and
accrued expenses increased by $127,816 and $5,218 respectively thereby
increasing cash provided by operations by $133,034.
Comparison of Results of Operations. The following discussion and analysis
presents the Company's results of operations for the 115 days ended July 24,
2000 and the 117 days ending July 26, 1999 respectively.
For the period ended July 24, 2000, the Company's net income and earnings per
share increased 20% over net income and earnings per share for the comparable
period in 1999. Net income as a percentage of total revenue increased from 3.7%
for the period ended July 26, 1999, to 4.3% for the quarter ended July 24, 2000.
<TABLE><CAPTION>
Dollar amounts in thousands except per share Results of Operations Results of Operations
data For the quarter ended For the quarter ended
July 24, 2000 July 26, 1999
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Percent of Percent of
Amount Revenues Amount Revenues
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<S> <C> <C> <C> <C>
Revenue $7,231 100.0% $7,019 100.0%
Restaurant costs and expenses 4,935 68.2 4,953 70.6
General and administrative expenses 1,691 23.4 1,496 21.3
Operating income 605 8.4 570 8.1
Non operating income (expense) (136) (1.9) (180) (2.5)
Net income 308 4.3 257 3.7
Basic earnings per share $0.17 $0.14
Weighted average shares outstanding 1,832,003 1,832,003
</TABLE>
7
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<TABLE><CAPTION>
Dollar amounts in thousands Revenue Revenue
For the quarter ended For the quarter ended
July 24, 2000 July 26, 1999
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Percent of Percent of
Amount Revenues Amount Revenues
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<S> <C> <C> <C> <C>
Restaurant operations:
Restaurant sales $6,030 83.4% $5,917 84.3%
Lottery 920 12.7 889 12.7
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6,950 96.1 6,806 97.0
Franchise operations 281 3.9 213 3.0
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Total revenue $7,231 100.0% $7,019 100.0%
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</TABLE>
REVENUES. Revenues for the period ended July 24, 2000 were 3.0% greater than the
two-day longer comparable period in 1999. Revenues from same store restaurant
operations showed increases of 2.1% over the two-day longer comparable period
ended July 26, 1999. The Company anticipates further improvement in same store
sales as it rolls out its scheduled seasonal "outsert" menu program with a
corresponding advertising campaign emphasizing new contemporary menu items.
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
68.2% of revenue for the quarter ended July 24, 2000 compared to 70.6% for the
comparable period in 1999. Food, beverage and supply costs as a percentage of
total revenues were 28.3% for the sixteen weeks ended July 24, 2000 compared to
29.4% for the comparable period ended July 26, 1999. Labor expenses totaled
31.7% of revenues for the quarter ended July 24, 2000 compared to 32.4% of
revenues for the same period in 1999. The decrease in food, beverage and supply
cost as a percentage of revenue in the first quarter of fiscal 2001 over first
quarter of fiscal 2000 is principally a result of the of the full implementation
of the new regular and "outsert" menu programs. The decrease in labor as a
percentage of revenues in the first quarter of 2001 over first quarter 2000 is
driven by increases in guest check driven by the Company's new menu. Occupancy
costs as a percentage of revenues dropped from 5.8% for the sixteen weeks ended
July 26, 1999 to 5.5% for the same period ended July 24, 2000. Depreciation and
amortization expense as a percentage of revenues dropped from 3.0% for the
quarter ended July 26, 1999 to 2.8% for the quarter ended July 24, 2000. Both
decreases are principally attributable to the 3.0% increase in total revenues.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative ("G&A") expenses
were 23.4% of total revenue in the first quarter of 2001 compared to 21.3% of
revenues in the comparable period in fiscal year 2000. The increase in G&A
includes cash compensation paid to the Chief Executive Officer and President as
well as increased administrative wages and benefits. G&A expenses as a percent
of revenue for the year ended March 31, 2000 was 25.4%.
NON OPERATING INCOME (EXPENSES). Net other expenses were 1.9% of total revenues
in the first quarter of fiscal 2001 compared to 2.5% of total revenues in the
comparable period in fiscal 2000.
LIQUIDITY AND CAPITAL RESOURCES. As of July 24, 2000, the Company had cash and
equivalents of approximately $1.5 million representing a decrease from March 31,
2000 of approximately $144,000. The decrease resulted from cash used for
reduction in accrued income taxes of $285,205. Cash used by financing activities
was $112,638 primarily from payments on notes payable. Cash used in investing
activities was $230,193 for additions to property, buildings and equipment.
8
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The Company's primary liquidity needs arise from debt service on indebtedness,
operating lease requirements and the funding of capital expenditures. As of July
24, 2000, the Company had outstanding indebtedness of $1.97 million under a term
loan facility and $2.26 million under real estate loan facilities with Wells
Fargo Bank (the "Wells Fargo Loans") and $1.25 million under a term loan
facility with Eagle's View Management Company, Inc. (the "EVM Loan").
The Wells Fargo Loans have a weighted-average maturity of 9 years, bear interest
at an average of 8.2%, 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. Additionally, on a trailing four quarter basis
as of the end of each fiscal quarter, the Company will be 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. As of July 24, 2000, the
Company had fulfilled its obligations under the Wells Fargo Loans.
The Company also has available a $250,000 line of credit (of which approximately
$175,000 remains available at July 24, 2000) with Wells Fargo Bank through
September 1, 2000.
The EVM Loan has a maturity of approximately 5 years, an annual interest rate of
15%, requires monthly payments of interest only, and is collateralized by a
second position on substantially all the assets owned by the Company.
The Company's primary source of liquidity during the year was the operation of
its restaurants, franchise fees earned from its franchisees, cash on hand, and
borrowings, as discussed above.
Elmer's Restaurants, 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS:
CERTAIN STATEMENTS IN THIS FORM 10-Q 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
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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; CONTINUED NASDAQ LISTING; WEATHER
CONDITIONS; CONSTRUCTION AND REMODELING 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 at July 24, 2000, $984,800 principal amount
was accruing interest at a variable rate of LIBOR plus 2.25%. A rise in
prevailing interest rates could have adverse effects on the Company's financial
condition and results of operations.
<TABLE><CAPTION>
Principal amount by expected maturity
($ in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Fiscal Year 2001 2002 2003 2004 Thereafter Total Fair Value
Variable rate debt 157.4 236.4 236.4 236.4 118.2 984.8 984.8
Average interest rate 8.5% 8.5% 8.5% 8.5% 8.5%
2.25% above LIBOR
</TABLE>
PART II - OTHER INFORMATION
ITEM 5. OTHER INFORMATION
Effective April 1, 2000, the Company changed its quarterly reporting
periods from 3 month periods ending on the last day of the respective month of
the quarter, to a "4-3-3-3" accounting cycle whereby each quarter will end on
the last Monday of the respective quarter. The prior year quarter has been
restated to conform with the Company's new quarterly reporting period, which is
a two-day longer period, ending July 26, 1999.
On August 9, 2000, the board of directors approved a 10% stock dividend
payable to all shareholders of record as of August 18, 2000. The board directed
that the dividend be paid on September 15, 2000 and that no consideration for
fractional shares be issued or paid.
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.
10
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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
Dated: September 5, 2000
11
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EXHIBIT INDEX
Exhibit
No. Description
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27 Financial Data Schedule
12
