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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended March 31, 1996 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 SE Stark
Portland, Oregon 97216
(Address of principal executive offices) (Zip Code)
Registrant's telephone number,
including area code: (503) 252-1485
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
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of Registrant's knowledge, in definitive proxy or
information statement incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K.
Aggregate market value of Common Stock held by nonaffiliates of the
Registrant at June 25, 1996: $1,859,092. For purposes of this
calculation, officers and directors are considered affiliates.
Number of shares of Common Stock outstanding at June 25, 1996:
1,499,263.
Documents Incorporated by Reference
-----------------------------------
Part of Form 10-K into
Document which incorporated
- -------- ----------------------
Proxy Statement for 1996 Annual Meeting Part III
of Shareholders
TABLE OF CONTENTS
-----------------
Item of Form 10-K Page
- ----------------- ----
PART I 1
Item 1 - Business 1
Item 2 - Properties 5
Item 3 - Legal Proceedings 6
Item 4 - Submission of Matters to a Vote
of Security Holders 6
Item 4(a) - Executive Officers of the Registrant 6
PART II 7
Item 5 - Market for the Registrant's Common
Equity and Related Stockholder Matters 7
Item 6 - Selected Financial Data 7
Item 7 - Management's Discussion and Analysis
of Financial Condition and Results of 8
Operations
Item 8 - Financial Statements and Supplementary Data 10
Item 9 - Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 10
PART III 11
Item 10 - Directors and Executive Officers of
the Registrant 11
Item 11 - Executive Compensation 11
Item 12 - Security Ownership of Certain Beneficial
Owners and Management 11
Item 13 - Certain Relationships and Related
Transactions 11
PART IV 12
Item 14 - Exhibits, Financial Statement Schedules,
and Reports on Form 8-K 12
SIGNATURES 14
PART I
Item 1. Business
- ------- --------
General
- -------
The Company, located in Portland, Oregon, is a franchisor and operator
of full-service, family-oriented restaurants under the names "Elmer's
Pancake & Steak House" and "Elmer's Colonial Pancake & Steak House." The
Company is an Oregon corporation and was incorporated in 1983. The Company
owns and operates 11 restaurants and franchises 18 restaurants.
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 franchises 18 restaurants in six Western states. Until
August 1986 the Company owned and operated only one restaurant, at the
Delta Park location in Portland, Oregon. Since that time the Company has
constructed two restaurants and has acquired eight other restaurants
formerly operated by franchisees. See "Company-Owned Restaurants."
Company-owned restaurants are located in the Delta Park section of
Portland, Oregon; Beaverton, Gresham, Hillsboro, Medford, Albany and Grants
Pass, Oregon; Palm Springs, California; Boise, Idaho; and Tacoma and
Lynnwood, Washington.
Elmer's Pancake & Steak House
- -----------------------------
Restaurant Format and Menu 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 colonial style with fireplaces in the dining rooms. They are
free standing buildings, ranging in size from 4,600 to 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. Thirteen of the
restaurants have a lounge with a seating capacity ranging from 15 to 75.
The normal hours of operation are from 6 a.m. to 10 or 11 p.m. and to 12
midnight on weekends in restaurants with lounges.
Each restaurant offers full service, with a host or hostess to seat
guests and handle payments, wait staff to take and serve orders, and
additional personnel to clear and reset tables.
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, omelettes, crepes, and other popular breakfast items. Each Elmer's
restaurant makes all its breakfast batters and compotes from scratch and
prepares its fruit sauces with fresh fruits when in season. The lunch menu
includes soups made from scratch, french dips, hamburgers, and sandwiches.
Customers at dinner may choose among steak, seafood, chicken, and, in most
restaurants, filet mignon and prime rib. While most menu selections are
standard to all Elmer's restaurants, restaurants in different areas include
on their menus selections that appeal to local preferences. Breakfast and
lunch selections generally range in price from $1.85 to $7.25; dinner
selections generally range in price from $5.50 to $11.75. A special
children's menu is offered in most restaurants.
Franchise Operations
- --------------------
Under a franchise agreement a franchisor grants to a franchisee the
right to operate a business in a manner developed by the franchisor. The
franchisee owns the franchised operation independently from the franchisor
and, in effect, buys the right to use the franchisor's name,
1
format, and operational procedures. Franchisees benefit from a common
identification, standardized products, and the business reputation and
services that a franchisor may provide, such as group advertising,
management services, product enhancements, and group buying programs. The
franchisor is able to capitalize on its business concept without, in many
cases, having to invest substantial capital for expanded operations.
Existing Franchisees The existing franchise agreements grant to
--------------------
franchisees the right to operate an Elmer's restaurant in one specific
location for 25 years, renewable generally for an additional 25-year
period. When they entered into franchising agreements, the existing
franchisees paid initial franchise fees of up to $25,000 plus additional
fees of up to $10,000 if the restaurant had a lounge serving alcoholic
beverages. They pay monthly franchise royalty fees ranging from one to four
percent of the gross revenues of their restaurants. All but two restaurants
must contribute one percent of gross revenues to a common advertising pool
if required to do so by the Company.
Prospective Franchisees Prospective new franchisees will pay an
-----------------------
initial franchise fee of $35,000. Initial franchise fees are payable in
cash at the execution of the franchise agreement. Existing franchisees
opening new franchised restaurants may pay a lower initial franchise fee
than new franchisees. For new franchisees, the monthly franchise royalty
fee is expected to be four percent of the gross revenues of the restaurant,
with a minimum monthly fee of $500. A monthly advertising contribution
equal to one percent of the gross revenues of the restaurant will be
assessed. It has been the practice of the Company in recent years to permit
existing franchisees to open new franchises under the royalty rate that
applied to the existing franchises owned by that franchise. See "Services
to Franchisees."
A prospective franchisee who assumes operation of a previously
unsuccessful franchised restaurant may be offered a reduced initial
franchise fee, deferred payment of the franchise fee, or other concessions.
Pursuant to certain area franchise agreements, the Company will receive
reduced initial franchise fees and monthly royalty fees from additional
restaurants that may be opened in the areas covered by those agreements.
See "Area Franchise Agreements." In connection with the acquisition of the
Elmer's franchising operation in 1984, the Company also granted Dale Elmer,
a former director of the Company, and members of the Elmer family the right
to operate a total of three additional restaurants at a franchise royalty
fee of two percent; no restaurants are being operated on this basis.
The Company estimates that construction costs for the standard
free-standing building range from approximately $860,000 to $1,060,000,
with actual costs dependent upon local building requirements and
construction conditions, and further based on configuration and parking
requirements. The cost of the land may vary considerably depending upon the
quality and size of the site, surrounding population density and other
factors. The cost of leasehold improvements and restaurant equipment,
including kitchen equipment, furniture, and trade fixtures, is estimated by
the Company to range from approximately $375,000 to $500,000. Inventory and
miscellaneous items such as paper goods, food, janitorial supplies, and
other small wares are estimated initially to cost between approximately
$68,300 and $107,500.
There is no typical elapsed time from the signing of a franchise
agreement until a restaurant is open for business, although it normally
takes 120 days from the receipt of the building permits to construct a new
restaurant facility. Most restaurants have opened within 12 months of the
date of signing the franchise agreement. Franchisees bear all costs
associated with the development and construction of their restaurants.
2
The Company has added three franchises since August 1987. The last
currently operating franchise was added in [November 1994].
Area Franchise Agreements Under previous management, the Elmer's
-------------------------
franchising operation granted exclusive area franchise agreements, whereby
independent entities obtained the exclusive rights to develop Elmer's
restaurants within their respective areas. Areas covered by these
agreements are Clackamas County, Oregon; Vancouver, Washington; Idaho; and
Montana. The area franchise agreements require the area franchisee to share
with the Company the initial fees and the franchise royalty fees for each
new restaurant in the area. The Company's share of the initial fees ranges
from $2,500 to $12,500 per restaurant, and its share of the franchise
royalty fees ranges from one to two percent of gross revenues per
restaurant. There are two restaurants covered by area franchise agreements.
Under the area franchise agreements, the Company reserves the right to
approve each new restaurant franchisee. The area franchise agreements
hinder or preclude the Company from opening Company-owned or franchised
restaurants in the areas covered by the agreements. The Company does not
intend to enter into similar agreements in the future.
Services to Franchisees The Company makes available to its franchisees
-----------------------
various programs and materials. The Company provides several manuals to
assist franchisees in ongoing operations, including a comprehensive
operations manual describing kitchen operations, floor operations,
personnel management, job descriptions, and other matters. The Company has
prepared a recipe book for franchisees and maintains a complete file of
menus from all franchised restaurants. The Company has also prepared a
personnel handbook for its Company-owned restaurants. The Company has
developed and maintains a menu cost-control program and a labor
cost-control program at each of its Company-owned restaurants and has
developed and implemented a training manual and programs for all positions
within the restaurant.
The Company provides both formal and informal ongoing training. At
least one two-day seminar is scheduled each year. At the seminars,
franchisees attend lectures by Company personnel and guest speakers from
the industry as well as participate in group workshops discussing such
topics as cost control, promotion and food presentation.
The Company provides each franchisee with specifications for menu
items selected by the franchisee for inclusion on restaurant menus. The
Company, however, sells no food items or like products to the franchisees,
except for certain minor supplies such as guest checks, gift certificates,
and children's menus. The Company does not require franchisees to purchase
products from designated or approved sources, other than requiring that
Boyd's Blend Coffee be served in each restaurant. The Company, however,
coordinates franchisees' purchases to obtain volume discounts. Franchisees
bear all costs involved in the operation of their restaurants.
Periodic on-site inspections and audits are conducted to ensure
compliance with Company standards and to aid franchisees in improving their
sales and profitability.
Company-Owned Restaurants
- -------------------------
The Company owns and operates 11 Elmer's restaurants, which it has
acquired or built over the last several years. The Company has owned and
operated a restaurant located in the Delta Park section of Portland,
Oregon since January 1984. In August 1986, the Company opened a restaurant
in Tacoma, Washington. In January 1987, the Company began operation of a
restaurant in Lynnwood, Washington and assumed operation of an Elmer's
restaurant in Grants Pass, Oregon that was in bank foreclosure. In fiscal
1988, the Company acquired from former franchisees restaurants in Gresham,
3
Albany, and Medford, Oregon; and Boise, Idaho. In fiscal 1989, the Company
purchased the land and buildings for the Boise and Gresham restaurants and
also purchased, from a former franchisee, an additional restaurant in
Hillsboro, Oregon. In May 1989 the Company acquired a franchised Elmer's
restaurant in Palm Springs, California. In July 1991, the Company acquired
a franchised Elmer's restaurant in Beaverton, Oregon.
Employees
- ---------
As of March 31, 1996, the Company employed 227 persons on a
full-time basis, of whom 11 were corporate office personnel and 216 were
restaurant personnel. At that date, the Company also employed 321
part-time restaurant personnel. Employees of franchised Elmer's restaurants
are not included in these figures. None of the Company's employees is
covered by collective bargaining agreements. The Company believes that its
employee relations are satisfactory.
Trademarks and Service Marks
- ----------------------------
The Company has registered the trademarks and service marks "Elmer's
Pancake & Steak House" and "Elmer's Colonial Pancake & Steak House" and the
Elmer's logo with the U.S. Patent and Trademark Office. The service mark
"Elmer's Colonial Pancake & Steak House" has also been registered in
certain states.
The Company grants to each of its Elmer's restaurant franchisees a
nonexclusive right to use the trademarks and service marks in connection
with and at each franchise location.
Advertising and Marketing
- -------------------------
Word-of-mouth advertising, new restaurant openings, and the on-premise
sale of promotional products have historically been the primary methods of
restaurant advertising. The Company employs an advertising con sultant to
assist in projecting the Elmer's restaurant concept to the general public
in the Western states, primarily through magazines, newspapers, and radio
and television commercials. The Company maintains a common advertising pool
with its franchisees. After production costs for the advertising campaign
have been paid out of the common pool, the remaining money is used for
advertising in the various local areas of the franchised restaurants. The
Company-owned restaurants and 16 of the 18 franchised restaurants are
required to participate by contributing one percent of monthly gross
revenues.
Competition
- -----------
The restaurant industry is highly competitive and is often affected by
changes in the tastes and eating habits of the public, by local and
national economic conditions affecting spending habits, and by population
and traffic patterns. The Company competes for potential franchisees with
restaurant franchisors, company-owned restaurants, chains and others. The
Company-owned Elmer's restaurants and the franchised Elmer's restaurants
compete for customers with restaurants from national and regional chains to
local establishments. Some of the Company's competitors are much larger
than the Company, having at their disposal greater capital resources and
greater abilities to withstand adverse business trends. The Company
believes that the principal competitive factors in its favor for attracting
both restaurant franchisees and restaurant customers are Elmer's extensive
menu, quality of food, service, and reasonable prices.
4
Government Regulations
- ----------------------
The Company is subject to various federal, state, and local laws
affecting its business. Its restaurants and those of its franchisees are
subject to various health, sanitation, and safety standards; federal and
state labor laws; zoning restrictions; and state and local licensing of the
sale of alcoholic beverages, in some cases. Federal and state environmental
regulations have not had a major effect on the Company's operations to
date.
The Company is subject to a number of state laws regulating franchise
operations and sales. For the most part, those laws impose registration and
disclosure requirements on the Company in the offer and sale of franchises
but, in certain cases, also apply substantive standards to the relationship
between the Company and the franchisees. The Company is also subject to
Federal Trade Commission regulations covering disclosure requirements and
sales of franchises.
Item 2. Properties
- ------- ----------
Headquarters
- ------------
The Company's corporate offices are located in Portland, Oregon and
consist of an office facility of approximately 5,000 square feet. Lease
payments totaled $33,636 for fiscal 1996. The lease expires November 30,
1998.
Company-Owned Restaurants
- -------------------------
Company-Owned Properties The Company owns the real property upon which
------------------------
the following four Company-owned restaurants are located. All of the
properties are subject to encumbrances in favor of lending institutions.
Approximate Area
----------------
Location Site Restaurant
- -------- ---- ----------
Tacoma, Washington 1.3 acres 6,660 sq. ft.
Lynnwood, Washington 1 acre 6,500 sq. ft.
Gresham, Oregon 1 acre 5,670 sq. ft.
Boise, Idaho 1.3 acres 5,430 sq. ft.
Leased Properties The Company leases the property upon which the
-----------------
following seven Company-owned restaurants are located. Each lease contains
specific terms relating to calculation of lease payment, renewal, purchase
options, if any, and other matters.
5
Approximate Area
----------------
Location Site Restaurant Expiration
- -------- ---- ---------- ----------
Grants Pass, Oregon 1 acre 6,350 sq. ft. December 31, 2001
Hillsboro, Oregon 1.2 acres 6,350 sq. ft. January 1, 2002
Medford, Oregon 1.25 acres 6,300 sq. ft. February 1, 1998
Albany, Oregon -- 5,460 sq. ft. February 28, 1998
Palm Springs,
California 1.3 acres 5,500 sq. ft. April 30, 2007
Portland, Oregon
(Delta Park) 1.2 acres 6,350 sq. ft. July 31, 2006
Beaverton, Oregon -- 5,322 sq. ft. August 31, 2006
Item 3. Legal Proceedings
- ------- -----------------
On July 14, 1995, a former director and employee of the Company filed
a complaint in the Circuit Court of the State of Oregon for the County of
Multnomah against the Company for sex discrimination, breach of contract,
fraud, unpaid wages, retaliation and intentional infliction of emotional
distress. On June 7, 1996, the court indicated that it would grant the
Company's motion for summary judgment on all claims but one breach of
contract claim: whether the Company automobile that the former director and
employee used while an employee of the Company was given to her as a gift.
This claim is scheduled for trial on July 8, 1996. At trial, the Company
could be found liable to the former director and employee for up to
approximately $25,000, which is the estimated value of the automobile at
the time of termination of employment of such former director and employee
plus assumed rental costs for loss of use. The Company intends to defend
the complaint vigorously.
Item 4. Submission of Matters to a Vote of Security Holders
- ------- ---------------------------------------------------
Not applicable.
Item 4(a). Executive Officers of the Registrant
- ---------- ------------------------------------
As of June 25, 1996, the executive officers and other key personnel of
the Company were as set forth below.
Name Age Position
---- --- --------
Anita Goldberg 67 President
Juanita Nelson 60 Controller
The executive officers of the Company are appointed annually for one
year and hold office until their successors are appointed.
Anita Goldberg was appointed President and elected to the Board of
Directors in June 1996 and has served as Director of Franchising for the
Company since September 1984. Before joining the Company, Ms. Goldberg was
a self-employed life insurance salesperson.
Juanita Nelson has served as Controller since March 1985. For more
than five years prior to joining the Company, Mrs. Nelson was the Office
Manager of the Red Lion Inns and Thunderbird Motor Inns corporate office.
6
PART II
Item 5. Market for the Registrant's Common Equity and Related
- ------- Stockholder Matters
-----------------------------------------------------
The Company's Common Stock is traded on the Nasdaq SmallCap System.
The following table sets forth the high and low reported sales prices
of the Common Stock on the Nasdaq SmallCap Market for the calendar quarters
indicated.
YEARS ENDED MARCH 31,
-----------------------------------------------------------
1996 1995
--------------------------- -------------------------
HIGH LOW HIGH LOW
------------- ------------- ------------ ------------
1st Quarter $1 5/8 $1 1/2 $1 3/4 $1 1/2
2nd Quarter 1 5/8 1 1/2 1 3/4 1 3/4
3rd Quarter 3 3/8 1 1/2 2 1/8 1 3/4
4th Quarter 2 9/32 1 7/8 2 1/8 1 5/8
The Company has not paid cash dividends on its Common Stock. The
Company intends to retain any future earnings to finance growth and does
not presently intend to pay dividends to the holders of Common Stock.
Additionally, under certain loan agreement covenants, the Company must
obtain written approval prior to payment of any dividends.
As of May 17, 1996, the Company had 309 shareholders of record.
Item 6. Selected Financial Data
- ------- -----------------------
Elmer's Restaurants, Inc. and Subsidiaries
Selected Financial Data
for the year ended March 31
1996 1995 1994 1993 1992
Revenues $15,712,033 $15,223,087 $14,276,483 $13,961,841 $12,780,372
Net Income 350,622 377,771 159,922 98,737 112,293
Per share data:
Net income 0.23 0.21 0.08 0.05 0.06
Total assets 8,028,521 8,137,008 8,285,506 8,566,826 9,245,393
Long-term notes
payable, less
current portion 3,687,808 3,573,613 3,822,338 4,080,657 4,716,164
Total
liabilities 5,099,689 5,180,012 5,507,048 5,807,731 6,539,088
Total
shareholders'
equity 2,928,832 2,956,996 2,778,458 2,759,095 2,706,305
7
Item 7. Management's Discussion and Analysis of Financial
- ------- Condition and Results of Operations
-------------------------------------------------
RESULTS OF OPERATIONS
REVENUES
Revenues increased $488,946 (3.2%) for the fiscal year ended March 31,
1996 ("1996") compared to the fiscal year ended March 31, 1995 ("1995") due
primarily to the operations of the Company-owned restaurants. Revenues
increased $946,604 (6.6%) for 1995 compared to the fiscal year ended March
31, 1994 ("1994") due primarily to the operations of the Company-owned
restaurants. Revenues from operations were $15,712,033, $15,223,087 and
$14,276,483 for 1996, 1995 and 1994, respectively. There were eleven
Company-owned restaurants at March 31, 1996.
Revenues from franchise operations increased $74,749 for 1996 and
$59,701 for 1995, due primarily to the two new franchised restaurants that
opened during 1995 and increased sales by franchisees. Franchise operation
revenues totaled $680,604, $605,855 and $546,154 for 1996, 1995 and 1994,
respectively, after elimination of intercompany transactions (see Note 7 of
the Notes to Consolidated Financial Statements).
No initial license fees were recorded in 1996. During 1995 initial
license fees of $25,000 were recorded for a new franchised restaurant in
Twin Falls, Idaho that opened in November 1994. During 1994 license fees of
$500 were recorded for options for future franchised restaurants by a
current franchisee.
The low inflation rate over the last three years has not been a
significant factor in the Company's operations.
OPERATING COSTS AND EXPENSES
Cost of restaurant sales increased $333,293 for 1996 compared to 1995
and $593,837 for 1995 compared to 1994 primarily as a result of increased
sales. Cost of restaurant sales (and as a percentage of restaurant sales)
amounted to $9,293,575 (61.8%), $8,960,282 (61.4%) and $8,366,445 (60.9%)
for 1996, 1995 and 1994, respectively. Depreciation and amortization
totaled $719,711 for 1996, a decrease of $3,064 from 1995, and $722,775 for
1995, a decrease of $192,682 from 1994, each decrease due primarily to
certain assets becoming fully depreciated.
General and administrative expenses increased $167,285 in 1996 over
1995 and $241,594 in 1995 over 1994, due primarily to the increased cost of
managing Company-owned restaurants. General and administrative expenses as
percentage of revenues were 24.9% for 1996, 24.6% for 1995 and 24.5% for
1994. Occupancy costs as a percentage of revenues were 5.9% for 1996, 5.9%
for 1995 and 6.1% for 1994.
INCOME FROM OPERATIONS
Income from operations for 1996 totaled $852,842, a decrease of
$40,532 (4.5%) from 1995. The decrease was due primarily to the increased
costs of operating the Company-owned restaurants. Income from operations
for 1995 totaled $893,374, an increase of $277,117 (45.0%) from 1994. The
increase was due primarily to the decrease in depreciation and amortization
of $192,682 (21.0%) from 1994 and increased revenues from franchise
operations and license fees of $84,201 (15.4%) from 1994.
8
OTHER INCOME AND EXPENSES
Interest income for 1996 increased $11,611 compared to 1995, due
primarily to the increased rates of the certificates of deposit and U.S.
Treasury bills held by the Company. Interest income was $60,780, $49,169
and $35,590 for 1996, 1995 and 1994, respectively.
Interest expense increased $6,641 to $387,033 for 1996 and $20,251 to
$380,392 for 1995 due primarily to an increase in the interest rates on
certain long-term debt which are tied to the prime and other market
interest rates.
INCOME TAXES
The tax rate on income for 1996 was 33.9% compared to 33.2% in 1995
and 47.0% in 1994. The rate fluctuations are primarily the result of
depreciation differences related to assets with different book and tax
bases and the utilization of alternative minimum tax credits.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital at March 31, 1996 totaled $521,406, an
increase of $340,914 from working capital of $180,492 at March 31, 1995.
The increase in working capital resulted primarily from the refinancing of
certain short-term notes payable with long-term debt and cash generated
from operations.
Principal sources of funds for the Company's operations and its growth
in recent years have included long-term and short-term debt financing and
cash flow from operations. Funds obtained from debt financing amounted to
approximately $2,670,000, $518,000 and $691,000 for 1996, 1995 and 1994,
respectively. The long-term debt incurred in 1996 was primarily for the
refinancing of two mortgages and the refinancing of certain short-term and
long-term notes payable into two long-term notes payable. The long-term
debt incurred in 1995 and 1994 was due primarily to the acquisition of
equipment and refurbishing of existing restaurants.
Certain of the Company's loan agreements contain restrictive covenants
pertaining to financial ratios, minimum cash flow coverage, dividends and
repurchase of common stock. The most restrictive of these covenants
requires the Company to maintain a ratio of cash generation (defined as the
sum of net income, depreciation and amortization) to current maturities of
long-term debt of at least 1.3 to 1.0, and restricts the amount of capital
expenditures which the Company may make in any fiscal year.
Funds provided by operating activities totaled approximately
$1,130,000, $1,183,000 and $910,000 in 1996, 1995 and 1994, respectively.
As of March 31, 1996, the Company had approximately $1,371,000 in cash
and cash equivalents. The Company believes that cash and cash equivalents
on hand at March 31, 1996, together with funds to be provided from
operations, will be sufficient to fund its operations for the ensuing year.
Capital expenditures of approximately $450,000 for 1996, $633,000 for
1995 and $783,000 for 1994 were primarily for the acquisition of equipment
for and improvements to the Company's existing restaurants.
The Company anticipates that capital expenditures for the fiscal year
ending March 31, 1997 will be approximately the same as in 1996.
9
Item 8. Financial Statements and Supplementary Data
- ------- -------------------------------------------
The information required by this item is included on pages F-1 to F-13
of this Report.
Item 9. Changes in and Disagreements with Accountants
- ------- on Accounting and Financial Disclosure
---------------------------------------------
Not applicable.
10
PART III
Item 10. Directors and Executive Officers of the Registrant
- -------- --------------------------------------------------
Information with respect to directors of the Company is included under
"Election of Directors" in the Company's definitive proxy statement for its
1996 Annual Meeting of Shareholders filed or to be filed not later than 120
days after the end of the fiscal year covered by this Report and is
incorporated herein by reference. Information with respect to executive
officers of the Company is included under Item 4(a) of Part I of this
Report. Information with respect to compliance with Section 16(a) of the
Securities Exchange Act is included under "Compliance with Section 16(a) of
the Exchange Act" in the Company's definitive proxy statement for its 1996
Annual Meeting of Shareholders filed or to be filed not later than 120 days
after the end of the fiscal year covered by this Report and is incorporated
herein by reference.
Item 11. Executive Compensation
- -------- ----------------------
Information with respect to executive compensation is included under
"Compensation" in the Company's definitive proxy statement for its 1996
Annual Meeting of Shareholders filed or to be filed not later than 120 days
after the end of the fiscal year covered by this Report and is incorporated
herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
- -------- --------------------------------------------------------------
Information with respect to security ownership of certain beneficial
owners and management is included under "Voting Securities and Principal
Shareholders" and "Election of Directors" in the Company's definitive proxy
statement for its 1996 Annual Meeting of Shareholders filed or to be filed
not later than 120 days after the end of the fiscal year covered by this
Report and is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
- -------- ----------------------------------------------
Information with respect to certain relationships and related
transactions with management is included under "Certain Transactions" in
the Company's definitive proxy statement for its 1996 Annual Meeting of
Shareholders filed or to be filed not later than 120 days after the end of
the fiscal year covered by this Report and is incorporated herein by
reference.
11
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
- -------- ----------------------------------------------------------------
(a)(1) Financial Statements and Schedules Page in
---------------------------------- this Report
---------------
Report of Independent Accountants...................................... F-1
Consolidated Balance Sheets at
March 31, 1996 and 1995.............................................. F-2
Consolidated Statements of Income
for years ended March 31, 1996, 1995
and 1994............................................................. F-3
Consolidated Statements of Cash Flows
for years ended March 31, 1996,
1995 and 1994........................................................ F-4
Consolidated Statements of Changes in Shareholders'
Equity for years ended March 31, 1996,
1995 and 1994........................................................ F-5
Notes to Consolidated Financial Statements............................. F-6
No other schedules are included because the required information is
inapplicable or is presented in the financial statements or related notes
thereto.
(a)(2) Exhibits
--------
3.1 Restated Articles of Incorporation of the Company.
Incorporated by reference to Exhibit 3.1 of the Company's
Annual Report on Form 10-K for the fiscal year ended
March 31, 1988 (the "1988 Form 10-K").
3.2 Bylaws of the Company, as amended. Incorporated by
reference to Exhibit 3.2 of the Company's Annual Report
on Form 10-K for the fiscal year ended March 31, 1990.
10.1 Area Franchisee - Unit Franchisee Agreement dated
July 10, 1978 by and between Elmer's Colonial Pancake &
Steak House, Inc. and Paul H. and Jacqueline M. Welch,
Dale M. and Sandra Lee Elmer. Incorporated by reference
to Exhibit 10.30 of the Company's Registration Statement
on Form S-18, Registration No. 2-98298-S (the "Form S-18
Registration").
10.2 Lease Agreement dated June 18, 1987 by and between
Dale M. Elmer and Sandra Lee Elmer and Elmer's Pancake &
Steak House, Inc., and addenda thereto. Incorporated by
reference to Exhibit 10.5 of the Company's Annual Report
on Form 10-K for the fiscal year ended March 31, 1989
(the "1989 Form 10-K") and Exhibit 10.3 of the December
31, 1991 Form 10-Q.
10.3 Amended and Restated Loan Agreement, dated as of June 7,
1991, between the Company and First Interstate Bank of
12
Oregon, N.A. and Seventh Amendment thereto,
dated as of May 17, 1995, and Promissory Note,
dated as of May 17, 1995, issued by the Company
to First Interstate Bank of Oregon, N.A. in
connection with the Seventh Amendment.
Incorporated by reference to Exhibit 10.5 of the
Company's Annual Report on Form 10-K for the
fiscal year ended March 31, 1995 (the "1995 Form
10-K").
10.4 Franchise Agreement between the Company and Paul H. Welch
and Jacqueline M. Welch dated March 23, 1993.
Incorporated by reference to Exhibit 10.9 of the
Company's Annual Report on Form 10-K for the fiscal year
ended March 31, 1993 (the "1993 Form 10-K").
10.5 Franchise Development Option Agreement between the
Company and Paul H. Welch and Jacqueline M. Welch dated
May 3, 1993. Incorporated by reference to Exhibit 10.10
of the 1993 Form 10-K.
10.6 Commercial Loan Note, dated May 18, 1995, issued by the
Company to The Bank of California, N.A. and addendum
thereto. Incorporated by reference to Exhibit 10.9 of the
1995 Form 10-K.
22.1 List of Subsidiaries.
27.1 Financial Data Schedule.
(b) Reports on Form 8-K No reports on Form 8-K were
-------------------
filed by the Company during the last quarter of
the fiscal year ended March 31, 1996.
13
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
Elmer's Restaurants, Inc.
We have audited the accompanying consolidated balance sheets of Elmer's
Restaurants, Inc. and Subsidiaries as of March 31, 1996 and 1995, and the
related consolidated statements of income, changes in shareholders' equity,
and cash flows for each of the three years in the period ended March 31,
1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Elmer's
Restaurants, Inc. and Subsidiaries as of March 31, 1996 and 1995, and the
consolidated results of their operations and their cash flows for each of
the three years in the period ended March 31, 1996 in conformity with
generally accepted accounting principles.
Portland, Oregon COOPERS & LYBRAND L.L.P
May 3, 1996
F-1
ELMER'S RESTAURANTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, 1996 and 1995
1996 1995
ASSETS
Current assets:
Cash and cash equivalents (Note 5) $1,370,829 $1,269,267
Accounts receivable, less allowance for 115,857 108,401
doubtful accounts of $5,000 in 1996 and 1995
Inventories 192,028 212,037
Prepaid expenses 149,573 113,686
----------- ----------
Total current assets 1,828,287 1,703,391
Property, buildings and equipment, net (Notes 4,941,410 5,101,679
2 and 5)
Intangible assets, net (Notes 3 and 5) 1,159,533 1,269,332
Other assets 99,291 62,606
----------- ----------
Total assets $8,028,521 $8,137,008
----------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable - current portion (Note 5) $ 412,831 $ 696,355
Accounts payable 643,905 593,779
Accrued payroll and related taxes 217,830 144,103
Accrued expenses 32,315 68,087
Accrued income taxes (Note 4) 20,575
----------- ----------
Total current liabilities 1,306,881 1,522,899
Notes payable - long-term portion (Note 5) 3,687,808 3,573,613
Deferred income taxes (Note 4) 105,000 83,500
----------- ----------
Total liabilities 5,099,689 5,180,012
----------- ----------
Commitments and contingencies (Notes 6 and 8)
Shareholders' equity:
Preferred stock, no par value; 500,000 shares
authorized; none issued Common stock, no par
value; 10,000,000 shares authorized;
1,499,263 shares in 1996 and 1,727,445 shares
in 1995 issued and outstanding 1,620,240 1,866,676
Retained earnings 1,308,592 1,090,320
---------- ----------
Total shareholders' equity 2,928,832 2,956,996
---------- ----------
Total liabilities and shareholders' equity $8,028,521 $8,137,008
---------- ----------
The accompanying notes are an integral part of the consolidated financial
statements.
F-2
ELMER'S RESTAURANTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
for the years ended March 31, 1996, 1995 and 1994
1996 1995 1994
Revenues:
Restaurant sales $ 15,031,429 $ 14,592,232 $ 13,729,829
Franchise operations 680,604 605,855 546,154
Initial license fees 25,000 500
------------ ------------ ------------
15,712,033 15,223,087 14,276,483
------------ ------------ ------------
Costs and expenses:
Cost of restaurant
sales:
Food and beverage 4,191,161 4,070,030 3,850,384
Labor and related 5,102,414 4,890,252 4,516,061
Occupancy costs 934,518 902,554 875,816
Depreciation and 719,711 722,775 915,457
amortization
General and 3,911,387 3,744,102 3,502,508
administrative expenses
------------ ------------ ------------
14,859,191 14,329,713 13,660,226
------------ ------------ ------------
Income from operations 852,842 893,374 616,257
Other income (expense):
Interest income 60,780 49,169 35,590
Interest expense (Note (387,033) (380,392) (360,141)
5)
Gain on disposition of
assets 3,533 3,620 10,216
------------ ------------ ------------
Income before provision
for income taxes 530,122 565,771 301,922
Provision for income
taxes (Note 4) (179,500) (188,000) (142,000)
------------ ------------ ------------
Net income $ 350,622 $ 377,771 $ 159,922
------------ ------------ ------------
Net income per share $ 0.23 $ 0.21 $ 0.08
------------ ------------ ------------
Weighted average number
of shares outstanding 1,538,253 1,781,892 1,895,319
------------ ------------ ------------
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
ELMER'S RESTAURANTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
for the years ended March 31, 1996, 1995 and 1994
Common Stock
-------------------------- Retained
Shares Amount Earnings
--------- ---------- ----------
Balance, March 31, 1993 1,943,398 $2,099,906 $ 659,189
Repurchase and retirement
of common stock (96,180) (103,875) (36,684)
Net income 159,922
--------- ---------- ----------
Balance, March 31, 1994 1,847,218 1,996,031 782,427
Repurchase and retirement
of common stock (119,773) (129,355) (69,878)
Net income 377,771
--------- ---------- ----------
Balance, March 31, 1995 1,727,445 1,866,676 1,090,320
Repurchase and retirement
of common stock (228,182) (246,436) (132,350)
Net income 350,622
--------- ---------- ----------
Balance, March 31, 1996 1,499,263 $1,620,240 $1,308,592
--------- ---------- ----------
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
ELMER'S RESTAURANTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the years ended March 31, 1996, 1995 and 1994
1996 1995 1994
Cash flows from operating activities:
Net income $ 350,622 $ 377,771 $ 159,922
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation 609,912 611,680 805,026
Amortization 109,799 111,095 110,431
Deferred income taxes 21,500 25,000
Gain on disposition of assets (3,533) (3,620) (10,216)
Changes in assets and liabilities:
Accounts receivable (7,456) 5,327 (2,795)
Inventories 20,009 (36,736) 5,767
Prepaid expenses (35,887) 15,106 15,269
Other assets (2,330) 30,017 (31,820)
Accounts payable and accrued 88,081 26,397 (98,396)
expenses
Accrued income taxes (20,575) 20,575 (43,201)
----------- ---------- ----------
Net cash provided by operating
activities 1,130,142 1,182,612 909,987
----------- ---------- ----------
Cash flows from investing activities:
Additions to property, buildings and
equipment (450,047) (632,814) (754,578)
Proceeds from sale of assets 3,937 3,620 37,431
Additions to intangible assets (530)
----------- ---------- ----------
Net cash used in investing
activities (446,110) (629,194) (717,677)
----------- ---------- ----------
Cash flows from financing activities:
Net change in other non-current
assets (34,355) (4,900)
Proceeds from notes payable 2,670,000 517,950 663,723
Payments on notes payable (2,839,329) (916,958) (850,387)
Repurchase of common stock (378,786) (199,233) (140,559)
----------- ---------- ----------
Net cash used in financing
activities (582,470) (598,241) (332,123)
----------- ---------- ----------
Net increase (decrease) in cash and
cash equivalents 101,562 (44,823) (139,813)
Cash and cash equivalents, beginning
of year 1,269,267 1,314,090 1,453,903
----------- ---------- ----------
Cash and cash equivalents, end of
year $ 1,370,829 $1,269,267 $1,314,090
----------- ---------- ----------
Supplemental schedule of noncash
investing and financing activities:
The Company purchased the following
in exchange for assumption of
certain liabilities:
F-5
Property, buildings and equipment,
net of cash paid $ - $ - $ 27,578
----------- ---------- ----------
Supplemental disclosures of cash flow information:
Cash paid for:
Interest $ 387,033 $ 390,127 $ 350,406
----------- ---------- ----------
Income taxes $ 188,766 $ 134,596 $ 188,295
----------- ---------- ----------
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
ELMER'S RESTAURANTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
THE COMPANY
Elmer's Restaurants, Inc. (the Company), an Oregon corporation, owns
and operates eleven Elmer's Pancake & Steak House restaurants and sells
franchises that give franchisees the right to operate under the name
Elmer's Pancake & Steak House for a specific restaurant or region.
Franchises and Company owned stores are located throughout the western
United States.
The consolidated financial statements include the accounts of the
Company and its subsidiaries. All material intercompany accounts and
transactions have been eliminated.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
DISCLOSURE OF FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of financial instruments including cash and cash
equivalents and accounts receivable approximated fair value as of March 31,
1996 because of the relatively short maturity of these instruments. The
carrying value of notes payable approximated fair value as of March 31,
1996, based upon interest rates available for the same or similar loans.
CASH AND CASH EQUIVALENTS
The Company considers all short-term, highly-liquid investments with a
maturity of three months or less when purchased to be cash equivalents.
The Company invests its excess cash in interest bearing deposits with
major banks and in U.S. Treasury securities. These investments generally
mature within 90 days and are therefore subject to minimal risk. Management
routinely reviews these investments in order to limit the amount of credit
exposure to any one financial institution.
INVENTORIES
Inventories of food, beverages and restaurant supplies are stated at
the lower of first-in, first-out cost or market.
PROPERTY, BUILDINGS AND EQUIPMENT
Property, buildings and equipment are stated at cost. Depreciation is
computed using the straight-line method over the estimated useful lives of
the related assets. Lives used for calculating depreciation and
amortization rates for the principal asset classifications are as follows:
buildings - 35 years; automobiles, furniture, fixtures and equipment - 3-7
years; leasehold improvements - life of lease or applicable shorter period.
Maintenance and repairs are expensed as incurred; renewals
F-7
ELMER'S RESTAURANTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
and improvements are capitalized. Upon disposal of assets subject to
depreciation, the related costs and accumulated depreciation are removed
and resulting gains and losses are reflected in the consolidated statements
of income.
INTANGIBLE ASSETS
The cost over fair value of net tangible assets of acquired companies
(goodwill) is amortized on a straight-line basis over periods not exceeding
25 years. The Company periodically reviews goodwill to assess
recoverability, and impairments would be recognized in operating results if
a permanent decline in value were to occur.
Other intangible assets are stated at cost and amortized using the
straight-line method over the shorter of the actual life or the period
estimated to be benefited of 3-40 years.
FRANCHISE OPERATIONS
Initial license fees from individual and area franchise sales are
recognized as revenue when substantially all of the terms and conditions of
the franchise agreement are met. The Company has sold area franchises to
several restaurant operators in various western states. The terms of the
agreements entered into with each franchisee protect the territory for the
operator and provide standard building blueprints, recipes, formulas and
methods of food preparation. The term of the franchise is twenty-five
years. Continuing franchise fees (based on a percentage of sales) are
recognized as income when earned.
INCOME TAXES
The Company files consolidated income tax returns with its
subsidiaries. Deferred income taxes have been recorded for the tax
consequences in future years of differences between the tax bases of assets
and liabilities and their financial reporting amounts based on enacted tax
laws and statutory tax rates applicable to the periods in which the
differences are expected to affect taxable income. Income tax expense is
the tax payable for the year and the change during the year in deferred tax
assets and liabilities. Investment tax credits are accounted for using the
flow-through method, whereby the credits are reflected as a reduction of
federal income tax expense in the year in which the credit is recognized
for tax purposes.
NET INCOME PER SHARE
Net income per share is computed on the basis of the weighted average
number of shares of common stock outstanding during the respective periods.
RECENT ACCOUNTING PRONOUNCEMENTS
In March 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 121, Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of, that establishes criteria for and requires recognition of
impairment losses on long-lived assets. SFAS 121 also prescribes the
accounting for long-lived assets that are expected to be disposed of in
future periods. The Company will adopt SFAS 121 in the first quarter of
1996 and, based on estimates as of March 31, 1996, believes the effect of
adoption, if any, will not have a material effect on the financial
statements of the Company.
F-8
ELMER'S RESTAURANTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
In October 1995, the Financial Accounting Standards Board issued SFAS
123, Accounting for Stock-Based Compensation, which is effective for fiscal
years beginning after December 15, 1995. This Standard encourages employers
to adopt a fair value-based method of accounting to recognize compensation
expense for employee stock compensation plans. However, it does not require
the fair value-based method to be adopted and provides that employers may
continue to account for those plans using the accounting prescribed by APB
Opinion No. 25, Accounting for Stock Issued to Employees. Companies that
elect not to adopt the fair value-based method must disclose pro forma net
income and earnings per share, as if the fair value-based method has been
applied. The Company does not currently intend to adopt the fair
value-based method of recognition under SFAS 123. There is currently no
impact on pro forma net income and earnings per share of the Company under
the fair value-based method of accounting for stock compensation plans.
2. PROPERTY, BUILDINGS AND EQUIPMENT:
1996 1995
Land $ 1,258,439 $ 1,258,439
Buildings 2,397,411 2,377,270
Furniture, fixtures and 6,225,143 5,899,577
equipment
Automobiles 57,028 57,028
Leasehold improvements 1,131,256 1,046,522
------------ -----------
11,069,277 10,638,836
Less accumulated depreciation (6,127,867) (5,537,157)
------------ -----------
$ 4,941,410 $ 5,101,679
------------ -----------
3. INTANGIBLE ASSETS:
Intangible assets, net of accumulated amortization of $1,059,614 at
March 31, 1996 and $949,815 at March 31, 1995, are comprised of:
1996 1995
Trademark and franchise registrations
and agreements $ 730,134 $ 779,970
Cost over fair value of net tangible
assets acquired 382,497 417,488
Other 46,902 71,874
----------- ----------
$ 1,159,533 $1,269,332
----------- ----------
4. INCOME TAXES:
The Company's provision for income taxes is comprised of the
following:
1996 1995 1994
Currently payable:
Federal $ 120,000 $ 127,000 $116,000
State 38,000 36,000 26,000
---------- --------- --------
158,000 163,000 142,000
F-9
ELMER'S RESTAURANTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
Deferred income taxes 21,500 25,000
---------- --------- --------
$ 179,500 $ 188,000 $142,000
---------- --------- --------
Deferred tax assets and liabilities are recorded for both the expected
future tax impact of differences between the financial statement and tax
basis of assets and liabilities, and for the expected future tax benefit to
be derived from tax loss and tax credit carryforwards. A valuation
allowance is established, when necessary, to reflect the likelihood of
realization of deferred tax assets. No valuation allowance was deemed
necessary as a result of management's evaluation that it is more likely
than not that all of the deferred tax assets will be realized. The Company
has recorded a net deferred tax liability of $105,000 and $83,500 at March
31, 1996 and 1995, respectively, which is comprised of the following:
1996 1995
Excess of Financial Statement Fixed $ (196,000) $ (217,000)
Assets over tax basis
Federal alternative minimum tax 91,000 133,500
credit carryforwards
------------ -----------
$ (105,000) $ (83,500)
------------ -----------
Income taxes are provided at a rate different from the expected federal tax
rate on income before income taxes for the following reasons:
1996 1995 1994
Expected tax $ 180,000 $ 192,000 $ 103,000
Amortization not deductible for
income taxes 12,000 12,000 12,000
Depreciation of assets
with different tax and
book bases 7,000 (13,000) 16,000
State taxes, net of federal tax
benefits 25,000 24,000 17,000
Alternative minimum tax credits
utilized (42,500) (26,000)
Other (2,000) (1,000) (6,000)
------------ ------------ ------------
$ 179,500 $ 188,000 $ 142,000
------------ ------------ ------------
5. NOTES PAYABLE:
1996 1995
Notes payable to financial institutions,
collateralized by all assets excluding real
estate, due at various dates through June
2000, monthly principal installments total
approximately $30,000 plus interest at rates
as follows:
F-10
ELMER'S RESTAURANTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
Prime rate plus 0.5% - 1.0% (prime was
8.25% at March 31, 1996)
$2,098,022 $2,141,854
Fixed rates ranging from 7% to 10% 5,353
Notes payable to financial institutions,
collateralized by real estate, due at various
dates through February 2006, monthly
installments total $16,204 including interest
at rates as follows: FHLB 11th district rate
plus 2.75% (applicable district rates were
4.367% and 4.187% at March 31, 1995) 1,442,193
Average 2 year U.S. Treasury note rate plus
1.75% and 2% (applicable treasury note rates
were 5.55% and 6.73% at March 31, 1996) 526,751 538,975
Fixed rate of 8.18% 1,367,562
Notes payable to others, collateralized by
equipment and the stock of a subsidiary, due
at various dates through August 2001,
interest from 6% to 10% 108,304 141,593
---------- ----------
4,100,639 4,269,968
Less current portion (412,831) (696,355)
---------- ----------
Long-term portion $3,687,808 $3,573,613
---------- ----------
Certain notes payable contain restrictive covenants pertaining to
capital expenditures, financial ratios, minimum cash flow coverage,
dividends and repurchase of Company common stock. The most restrictive
covenants require the Company to maintain a ratio of cash generation
(defined as the sum of net income, depreciation and amortization) to
current maturities of long-term debt of at least 1.3 to 1.0 and restrict
the amount of capital expenditures which the Company may make in any one
fiscal year. The company was in compliance with these covenants at March
31, 1996.
Future maturities of notes payable for years ending March 31 are as
follows:
1997 $ 412,831
1998 461,735
1999 882,676
2000 384,339
2001 735,519
Thereafter 1,223,539
------------
$ 4,100,639
------------
All interest costs incurred have been expensed.
6. LEASES:
Minimum fiscal year rental commitments for the years ending March 31
under operating leases with noncancelable terms of more than one year, are
as follows:
F-11
ELMER'S RESTAURANTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
1997 $ 492,518
1998 468,071
1999 340,346
2000 317,922
2001 301,722
Thereafter 988,117
---------------
$ 2,908,696
---------------
The leases generally provide for additional rentals based upon a
specified percentage of sales and require the Company to pay certain other
costs. Rental expense on operating leases amounted to $649,295 (including
$156,777 of additional rentals) for the year ended March 31, 1996, $625,156
(including $133,438 of additional rentals) for the year ended March 31,
1995, and $592,341 (including $96,865 of additional rentals) for the year
ended March 31, 1994.
Total lease payments were $33,636 for the year ended March 31, 1996,
$32,836 for the year ended March 31, 1995 and $32,436 for the year ended
March 31, 1994 for the lease of the corporate offices from a stockholder of
the Company.
7. RESTAURANT AND FRANCHISE OPERATIONS:
Summary results of operations and other selected financial information
from restaurant operations and franchise operations are presented after
elimination of intercompany transactions:
YEARS ENDED MARCH 31,
--------------------------------------------------
1996 1995 1994
Revenues:
Restaurant operations $15,031,429 $14,592,232 $13,729,829
Franchise operations 1,360,729 1,297,546 1,184,817
Intercompany (680,125) (666,691) (638,163)
eliminations
----------- ----------- -----------
Consolidated $15,712,033 $15,223,087 $14,276,483
----------- ----------- -----------
Income from Operations:
Restaurant operations $ 424,480 $ 519,999 $ 281,144
Franchise operations 428,362 373,375 335,113
----------- ----------- -----------
Consolidated $ 852,842 $ 893,374 $ 616,257
----------- ----------- -----------
Capital and Intangible
Expenditures:
Restaurant operations $ 361,545 $ 625,677 $ 733,264
Franchise operations 88,502 7,137 49,422
----------- ----------- -----------
Consolidated $ 450,047 $ 632,814 $ 782,686
----------- ----------- -----------
Depreciation and
Amortization:
Restaurant operations $ 642,031 $ 648,115 $ 836,249
Franchise operations 77,680 74,660 79,208
----------- ----------- -----------
Consolidated $ 719,711 $ 722,775 $ 915,457
----------- ----------- -----------
F-12
ELMER'S RESTAURANTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
1996 1995
Assets:
Restaurant operations $ 7,022,734 $ 7,149,621
Franchise operations 1,005,787 987,387
---------------- ---------------
Consolidated $ 8,028,521 $ 8,137,008
---------------- ---------------
The number of Company owned stores and operating franchises at March 31 is
as follows:
1996 1995 1994
Company owned stores 11 11 11
Operating franchises 18 18 16
8. COMMITMENTS AND CONTINGENCIES:
The Company has employment agreements with its Chief Executive Officer
and the founders of the original Elmer's Pancake & Steak House. The
agreements provide the following minimum compensation commitments: Chief
Executive Officer - $120,000 per year expiring May 1999; Founders - $15,000
per year for life.
The Company has authorized incentive compensation for the Company's
Chief Executive Officer equal to 10 percent of the Company's annual
earnings (before income taxes and the incentive payment) in excess of
$200,000 for each fiscal year. Incentive compensation expense for the years
ended March 31, 1996, 1995 and 1994 was $36,680, $40,641 and $11,325,
respectively.
From time to time, the Company is involved in litigation relating to
claims out of its operations in the normal course of its business. The
Company maintains insurance coverage against potential claims in amounts
which Management believes to be adequate. Management believes that the
Company is not presently a party to any litigation, the outcome of which
would have a material adverse effect on the Company's business or
operations.
F-13
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
ELMER'S RESTAURANTS, INC.
Date: June 28, 1996 By ANITA GOLDBERG
-------------------------------------
Anita Goldberg, President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on June 28, 1996.
Signature Title
--------- -----
(1) Principal Executive and
Financial Officer
ANITA GOLDBERG President and Director
- ----------------------------------
Anita Goldberg
(2) Principal Accounting
Officer
JUANITA NELSON Controller
- ----------------------------------
Juanita Nelson
(3) Directors
ANITA GOLDBERG Director
- ----------------------------------
Anita Goldberg
PAUL WELCH Director
- ----------------------------------
Paul Welch
ZADOC (ZED) MERRILL Director
- ----------------------------------
Zadoc (Zed) Merrill
14
EXHIBIT INDEX
EXHIBIT SEQUENTIAL
NO. DESCRIPTION PAGE NOS.
--- ----------- ---------
3.1 Restated Articles of Incorporation of the Company.
Incorporated by reference to Exhibit 3.1 of the
Company's Annual Report on Form 10-K for the fiscal
year ended March 31, 1988 (the "1988 Form
10-K").
3.2 Bylaws of the Company, as amended. Incorporated by
reference to Exhibit 3.2 of the Company's Annual
Report on Form 10-K for the fiscal year ended March
31, 1990.
10.1 Area Franchisee - Unit Franchisee Agreement dated
July 10, 1978 by and between Elmer's Colonial Pancake
& Steak House, Inc. and Paul H. and Jacqueline M.
Welch, Dale M. and Sandra Lee Elmer. Incorporated by
reference to Exhibit 10.30 of the Company's
Registration Statement on Form S-18, Registration No.
2-98298-S (the "Form S-18 Registration").
10.2 Lease Agreement dated June 18, 1987 by and between
Dale M. Elmer and Sandra Lee Elmer and Elmer's
Pancake & Steak House, Inc., and addenda thereto.
Incorporated by reference to Exhibit 10.5 of
the Company's Annual Report on Form 10-K for
the fiscal year ended March 31, 1989 (the "1989 Form
10-K") and Exhibit 10.3 of the December 31, 1991 Form
10-Q.
10.3 Amended and Restated Loan Agreement, dated as of June
7, 1991, between the Company and First Interstate Bank
of Oregon, N.A. and Seventh Amendment thereto, dated
as of May 17, 1995, and Promissory Note dated as of
May 17, 1995 issued by the Company to First Interstate
Bank of Oregon, N.A. in connection with the Seventh
Amendment. Incorporated by reference to Exhibit 10.5
of the Company's Annual Report on Form 10-K for the
fiscal year ended March 31, 1995 (the "1995 Form 10-
K").
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EXHIBIT SEQUENTIAL
NO. DESCRIPTION PAGE NOS.
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10.4 Franchise Agreement between the Company and Paul H.
Welch and Jacqueline M. Welch dated March 23, 1993.
Incorporated by reference to Exhibit 10.9 of the
Company's Annual Report on Form 10-K for the fiscal
year ended March 31, 1993 (the "1993 Form 10-K").
10.5 Franchise Development Option Agreement between the
Company and Paul H. Welch and Jacqueline M. Welch
dated May 3, 1993. Incorporated by reference to
Exhibit 10.10 of the 1993 Form 10-K.
10.6 Commercial Loan Note, dated May 18, 1995, issued by
the Company to The Bank of California, N.A. and
addendum thereto. Incorporated by reference to Exhibit
10.9 of the 1995 Form 10-K.
22.1 List of Subsidiaries.
27.1 Financial Data Schedule.