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FORM 10-Q
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended May 12, 2003 Commission file number 0-11514
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Max & Erma's Restaurants, Inc.
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(Exact name of registrant as specified in its charter)
Delaware No. 31-1041397
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4849 Evanswood Drive, Columbus, Ohio 43229
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (614) 431-5800
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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, and (2) has been subject to the filing
requirements for at least the past 90 days.
YES X NO
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Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act).
YES NO X
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As of the close of the period covered by this report, the registrant had
outstanding 2,471,506 common shares, $0.10 par value.
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
MAX & ERMA'S RESTAURANTS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
May 11,
2003 October 27,
(Unaudited) 2002
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ASSETS
Current Assets:
Cash $ 2,843,723 $ 3,406,702
Inventories 1,177,032 1,096,228
Other Current Assets 2,246,187 1,146,941
------------ ------------
Total Current Assets 6,266,942 5,649,871
Property - At Cost: 80,666,419 80,116,750
Less Accumulated Depreciation and Amortization 34,985,490 32,423,502
------------ ------------
Property - Net 45,680,929 47,693,248
Other Assets 8,569,807 8,628,311
------------ ------------
Total $ 60,517,678 $ 61,971,430
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current Maturities of Long-Term Obligations $ 2,624,970 $ 2,548,008
Accounts Payable 4,822,756 4,596,833
Accrued Payroll and Related Taxes 2,852,977 2,877,095
Accrued Liabilities 3,024,444 3,729,604
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Total Current Liabilities 13,325,147 13,751,540
Long-Term Obligations - Less Current Maturities 33,933,720 36,862,008
Stockholders' Equity:
Preferred Stock - $.10 Par Value;
Authorized 500,000 Shares - none outstanding
Common Stock - $.10 Par Value;
Authorized 5,000,000 Shares,
Issued and Outstanding 2,471,506 Shares
at 5/11/03 and 2,346,798 Shares at 10/27/02 247,151 234,680
Additional Capital 307,578 --
Accumulated Other Comprehensive Loss (761,831) (794,290)
Retained Earnings 13,465,913 11,917,492
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Total Stockholders' Equity 13,258,811 11,357,882
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Total $ 60,517,678 $ 61,971,430
============ ============
(See notes to interim unaudited condensed consolidated financial statements)
1
MAX & ERMA'S RESTAURANTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Twelve Weeks Ended Twenty-eight Weeks Ended
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May 11, May 12, May 11, May 12,
2003 2002 2003 2002
----------- ----------- ----------- -----------
REVENUES: $38,801,416 $35,785,061 $88,009,019 $80,279,643
COSTS AND EXPENSES:
Costs of Goods Sold 9,667,975 8,870,623 21,579,993 19,904,162
Payroll and Benefits 12,892,380 11,589,189 28,764,049 25,878,722
Other Operating Expenses 12,040,253 10,485,564 27,487,274 24,290,139
Pre-Opening Expenses 166,361 68,494 367,498 255,928
Administrative Expenses 2,809,986 3,000,185 6,862,181 6,415,267
----------- ----------- ----------- -----------
Total Operating Expenses 37,576,955 34,014,055 85,060,995 76,744,218
----------- ----------- ----------- -----------
Operating Income 1,224,461 1,771,006 2,948,024 3,535,425
Interest Expense 398,379 535,213 886,098 1,169,858
Minority Interest in Income
of Affiliated Partnerships 19,251 19,252 19,251 38,503
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAXES 806,831 1,216,541 2,042,675 2,327,064
INCOME TAXES 157,000 353,000 485,000 645,000
----------- ----------- ----------- -----------
NET INCOME $ 649,831 $ 863,541 $ 1,557,675 $ 1,682,064
=========== =========== =========== ===========
NET INCOME PER SHARE:
Basic $ 0.26 $ 0.37 $ 0.64 $ 0.72
=========== =========== =========== ===========
Diluted $ 0.25 $ 0.34 $ 0.59 $ 0.65
=========== =========== =========== ===========
SHARES OUTSTANDING:
Basic 2,470,907 2,310,402 2,421,500 2,344,552
=========== =========== =========== ===========
Diluted 2,609,337 2,569,453 2,662,551 2,603,646
=========== =========== =========== ===========
(See notes to interim condensed consolidated financial statements)
2
MAX & ERMA'S RESTAURANTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Twenty-eight Weeks Ended
------------------------
May 11, May 12,
2003 2002
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,557,675 $ 1,682,064
Depreciation and amortization 3,320,454 2,950,823
Loss on Disposition of Assets 60,513 53,249
Minority interest in income of Affiliated Partnerships 19,251 38,503
Changes in other assets and liabilities (1,430,818) (516,274)
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Net cash provided by operating activities 3,527,075 4,208,365
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CASH FLOWS FROM INVESTING ACTIVITIES:
Property additions (9,435,827) (6,951,340)
Proceeds from sale of assets 7,754,757 2,300
Decrease (increase) in other assets 173,376 (80,297)
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Net cash used by investing activities (1,507,694) (7,029,337)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments under long-term obligations (34,526,057) (29,352,280)
Proceeds from long-term obligations 31,774,200 34,081,021
Proceeds from sale of stock 198,748 144,681
Purchase of common stock -- (1,716,515)
Debt issue costs (10,000) (91,539)
Distributions to minority interests in Affiliated Partnerships (19,251) (38,503)
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Net cash (used by) provided by financing activities (2,582,360) 3,026,865
------------ ------------
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS (562,979) 205,893
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD 3,406,702 2,350,828
------------ ------------
CASH AND EQUIVALENTS AT END OF PERIOD $ 2,843,723 $ 2,556,721
============ ============
SUPPLEMENTAL DISCLOSURES:
Cash paid during the period for:
Interest $ 1,381,867 $ 1,157,318
Income taxes $ 709,624 $ 991,587
Non-cash activities:
Property additions financed by accounts payable $ 1,281,093 $ 626,224
(See notes to interim unaudited condensed consolidated financial statements)
3
MAX & ERMA'S RESTAURANTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Presentation
The accompanying unaudited condensed financial statements have been
prepared in accordance with the instructions to Form 10-Q and include
all of the information and disclosures required by accounting
principles generally accepted in the United States of America for
interim reporting, which are less than those required for annual
reporting. In the opinion of management, all adjustments, consisting of
only normal recurring accruals, considered necessary for a fair
presentation have been included.
The Company and its Affiliated Partnership each have a 52-53 week
fiscal year, which ends on the last Sunday in October. Fiscal 2002 and
2003 each consist of 52 weeks and include one sixteen-week and three
twelve-week quarters.
2. Recently Issued Financial Accounting Standards
In April 2002, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 145,
"Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB No.
13, and Technical Corrections" ("SFAS 145"). SFAS 145 will require
gains and losses on extinguishments of debt to be classified as income
or loss from continuing operations rather than as extraordinary items
as previously required under SFAS No. 4, "Reporting Gains and Losses
from Extinguishment of Debt," ("SFAS 4"). SFAS 145 will be effective
for fiscal years beginning after May 15, 2002 (fiscal 2003 for the
Company). Losses on extinguishment of debt previously classified as
extraordinary charges will be reclassified to conform to the provisions
of SFAS 145.
In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities" ("SFAS 146") which
requires companies to recognize costs associated with exit or disposal
activities when they are incurred rather than at the date of a
commitment to exit or disposal plan. SFAS 146 is to be applied
prospectively to exit or disposal activities initiated after December
31, 2002.
In December 2002, the FASB issued SFAS No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure," ("SFAS 148").
SFAS 148 amends FASB Statement No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123") to provide alternative methods for an entity
that voluntarily changes to the fair value based method of accounting
for stock-based compensation, amends the disclosure provisions of SFAS
123 and amends APB Opinion No. 28, "Interim Financial Reporting," to
require disclosure about those effects in interim financial
information. The transition guidance and annual disclosure provisions
of SFAS 148 are effective for fiscal years ending after December 15,
2002. In addition, this Statement amends the disclosure requirements of
SFAS 123 to require prominent disclosures in both annual and interim
financial
4
statements. Certain of the disclosure modifications are required for
fiscal years ending after December 15, 2002 and are included in the
notes to these consolidated financial statements.
In November 2002, the FASB issued FASB Interpretation No. 45 ("FIN
45"), "Guarantor's Accounting and Disclosure Requirements for
Gurantees, Including Indirect Guarantees of Indebtedness of Others, an
interpretation of FASB Statements No. 5, 57 and 107 and Rescission of
FASB Interpretation No. 34." FIN 45 clarifies the requirements of SFAS
No. 5, "Accounting for Contingencies," relating to the guarantor's
accounting for, and disclosure of, the issuance of certain types of
guarantees. The disclosure provisions of FIN 45 are effective for the
current fiscal year. However, the provisions for initial recognition
and measurement are effective on a prospective basis for guarantees
that are issued or modified after December 31, 2002, irrespective of a
guarantor's year-end. The adoption of the initial recognition and
measurement provisions of FIN 45 did not have a material impact on the
Company's financial condition or results of operations.
In January 2003, the FASB issued FIN 46, Consolidation of Variable
Interest Entities. FIN 46 clarifies the application of Accounting
Research Bulletin No. 51, Consolidated Financial Statements, to certain
entities in which equity investors do not have the characteristics of a
controlling financial interest or do not have sufficient equity at risk
for the entity to finance its activities without additional
subordinated financial support from other parties. FIN 46 requires a
variable interest entity to be consolidated by a company, if that
company is subject to a majority of the risk of loss from the variable
interest entity's activities or entitled to receive a majority of the
entity's residual returns or both. FIN 46 also requires disclosures
about variable interest entities that a company is not required to
consolidate but in which it has a significant variable interest. The
consolidation requirements of FIN 46 apply immediately to variable
interest entities created after January 31, 2003 and to existing
entities in the first fiscal year or interim period beginning after
June 15, 2003. Certain of the disclosure requirements apply to all
financial statements issued after January 31, 2003, regardless of when
the variable interest entity was established. The initial adoption of
this accounting pronouncement did not have a material impact on the
Company's consolidated financial statements.
3. Stock Options
The Company accounts for employee and director stock options using the
intrinsic value method. Under this method, no compensation expense was
recorded in all years presented because all stock options were granted
at an exercise price equal to the fair market value of the Company's
stock on the date of the grant. If compensation expense for the
Company's stock option grants had been determined based on their
estimated fair value at the grant dates, the Company's net income and
earnings per share for the 28 weeks ending May 11, 2003 would have been
as follows:
5
Net income, as reported $1,557,675
Deduct: total stock-based compensation expense
determined under the fair value method for all awards,
net of related tax benefits
(96,748)
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Pro forma net income $1,460,927
==========
Earnings per common share, basic:
As reported $ 0.64
=========
Pro forma $ 0.60
=========
Earnings per common share, diluted:
As reported $ 0.59
=========
Pro forma $ 0.55
=========
The fair value of options granted was estimated on the date of the grant using
the Black-Scholes option-pricing model.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
REVENUES
Revenues for the second quarter of 2003 increased $3,016,000 or 8.4%
from the second quarter of 2002. The increase was a result of i) the opening of
three restaurants during the second half of 2002, ii) the opening of three
restaurants during the first half of 2003 and iii) increased franchise fees and
royalties. The increases in revenues from new restaurants and franchising offset
an 0.8% or $278,000 decline in same-store sales for restaurants opened at least
18 months.
Year-to-date revenues increased $7,729,000 or 9.6% from 2002 to 2003.
The increase was a result of i) the opening of six restaurants during 2002, ii)
the opening of three restaurants during the first half of 2003, and iii)
increased franchise fees and royalties, offset by a $721,000 or 0.9% decline in
same-store sales.
The declines in same-store sales were a result of i) harsh winter
weather during the first quarter of 2003, ii) a winter snow storm which hit the
mid-west on Valentine's Day weekend and negatively affected both the first and
second quarter's same-store sales by a total of $350,000 and iii) a general
decline in the overall economy. The decline in same-store sales reflects a 1.5
to 2.0 percent decline in customer counts which was partially offset by an
approximately 1.0% increase in the average per person guest check. The increase
in the average per person guest check of 1.0% is approximately equal to the menu
price increase from 2002 to 2003.
The Company expects to open three additional restaurants during the
remainder of 2003. All three were under construction at the end of the second
quarter. The Company expects to open seven restaurants during 2004. At the end
of the second quarter of 2003 one additional site was under contract to purchase
and the Company was negotiating the purchase or lease of nine additional
locations.
6
The Company expects the continued increase in franchise fees and
royalties through the remainder of 2003. Year-to-date franchise fees and
royalties have increased 92% from $332,000 for the first half of 2002 to
$638,000 for the first half of 2003. The number of franchised restaurants
increased from eleven at the end of the second quarter of 2002 to fourteen at
the end of the second quarter 2003. Two franchised restaurants opened during the
first half of 2003 in Dowingtown, Pennsylvania and Edinburgh, Indiana. Two
additional franchised restaurants were under construction in the Cleveland and
Cincinnati, Ohio airports. Including the two restaurants under construction, the
Company anticipates the opening of three or four additional franchised
restaurants during the second half of 2003.
COSTS AND EXPENSES
Cost of goods sold, as a percentage of revenues, remained almost
constant at 24.8% for the second quarter of 2002 and 24.9% for the second
quarter of 2003. Year-to-date cost of goods sold, as a percentage of revenues,
decreased from 24.8% for 2002 to 24.5% for 2003. The decrease was primarily a
result of an approximate 1.5% menu price increase over last year, as most
inventory costs remained relatively stable on a year-to-date basis. Cost of
goods sold, as a percentage of revenues, increased 70 basis points from the
first to second quarters of 2003 due to sharply higher produce and chicken
prices.
Payroll and benefits, as a percentage of revenues, increased from 32.4%
for the second quarter of 2002 to 33.2% for the second quarter of 2003.
Year-to-date payroll and benefits, as a percentage of revenues, increased from
32.2% for 2002 to 32.7% for 2003. The year-to-date increase was a result of
higher benefit costs and the same-store sales decline, which tends to increase
payroll and benefits, as a percentage of revenues due, to the somewhat fixed
nature of restaurant payroll. The increase in payroll and benefits, as a
percentage of revenues, was even higher for the second quarter of 2003 due to
the opening of three restaurants during the quarter as compared to two openings
during the second quarter of 2002. Typically, new restaurants operate with a
higher payroll for 60 to 90 days subsequent to opening when they gain
efficiency.
Other operating expenses, as a percentage of revenues, increased from
29.3% for the second quarter of 2002 to 31.0% for the second quarter of 2003.
Year-to-date other operating expenses, as a percentage of revenues, increased
from 30.3% for 2002 to 31.2% for 2003. The increase was a result of higher
utilities and occupancy costs.
Pre-opening expenses, as a percentage of revenues, increased from 0.2%
for the second quarter of 2002 to 0.4% for the second quarter of 2003.
Year-to-date pre-opening expenses, as a percentage of revenues, increased from
0.3% for 2002 to 0.4% for 2003. The increases were a result of a shift in the
timing of restaurant openings during the year. Pre-opening expenses for two
restaurants that opened early in 2002 were to a great extent incurred and
expensed in 2001. Restaurant openings in 2003 occurred later in the year with
the related pre-opening expenses incurred and expensed in 2003.
ADMINISTRATIVE EXPENSES
Administrative expenses, as a percentage of revenues, decreased from
8.3% for the second quarter of 2002 to 7.2% for the second quarter of 2003.
Year-to-date administrative expenses, as a percentage of revenues, decreased
from 8.0% for 2002 to 7.8% for 2003. In dollar terms, administrative expenses
decreased 6% for the second quarter of 2002 to the second quarter of 2003 and on
a year-to-date basis increased 7% from 2002 to 2003. The decrease in both
dollars and as a percentage of revenues for the second quarter of 2002 to 2003
was a
7
result of significantly lower performance based bonus expense in 2003. The
increase in dollars for the year-to-date period was a result of raises for
corporate personnel and additional personnel to support additional company-owned
and franchised restaurants, which was partially offset by the reduction in bonus
expense.
INTEREST EXPENSE
Interest expense decreased 26% and 24%, respectively, for the second
quarter and year-to-date periods of 2002 to 2003 due to declining interest rates
and a reduction in interest bearing debt. At May 11, 2003 the interest rate
under the Company's revolving credit line was 4% versus 5.0% at May 12, 2002.
Through the use of an interest rate swap, the interest rate on approximately 65%
of the Company's term note was essentially fixed at 9.0% at May 11, 2003 and
9.5% at May 12, 2002. The interest rate on the balance of the term note also
declined from 5.0% at May 12, 2002 to 4.0% at May 11, 2003. The decline in
interest rates was due to a reduction in the prime interest rate and reduced
pricing under the Company's credit agreement resulting from improved financial
performance of the Company. Total interest bearing debt (term note and revolving
credit line) decreased from $32.9 million at May 12, 2002 to $26.2 million at
May 11, 2003. The Company capitalized $293,000 and $197,000 of construction
period interest during the first 28 weeks of 2003 and 2002, respectively.
INCOME TAXES
The Company's effective tax rate decreased from 27.7% for the first 28
weeks of 2002 to 23.7% for the first 28 weeks of 2003. The decline was due to an
increase in the amount of FICA tax on tips credit earned by the Company coupled
with a reduction in pre-tax income. At lower levels of pre-tax income the
credits have a greater affect on reducing the Company's effective tax rate.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital ratio increased from .4 to 1 at October
27, 2002 to .5 to 1 at May 11, 2003. Historically, the Company has been able to
operate with a working capital deficiency because 1) restaurant operations are
primarily conducted on a cash basis, 2) high turnover (above once every 10 days)
permits a limited investment in inventory, and 3) trade payables for food
purchases usually become due after receipt of cash from the related sales.
During the first 28 weeks of 2003, the Company expended approximately
$9,436,000 for property additions and $34,526,000 to reduce long-term
obligations. Funds for such expenditures were provided primarily by $31,774,000
from proceeds of long-term obligations, $7,755,000 from the sale of and
leaseback of three restaurant properties, $3,527,000 from operations and
$563,000 from cash on hand. The Company routinely draws down and repays balances
under its revolving credit agreement, the gross amounts of which are included in
the above numbers.
The Company intends to open three additional Max & Erma's restaurants
during the remainder of 2003 and seven restaurants during fiscal 2004. At May
11, 2003, the Company was contractually committed to the purchase or lease of
four sites, three of which were under construction. Nine additional sites had
been approved and were in some stage of negotiations.
8
The estimated cost to complete the four restaurants that the Company is
contractually committed to is approximately $7.4 million as of May 11, 2003.
Funding for new restaurants is expected to be provided by cash flow from
operations, the sale-leaseback of real estate, a landlord construction
allowance, equipment leasing and the Company's revolving credit line. At May 11,
2003, the Company had approximately $8.8 million available under its $15.0
million revolving credit line, approximately $10.0 million available under
sale-leaseback commitments for four properties, a $1.0 million landlord
construction allowance and approximately $1.9 million available under equipment
lease commitments.
Since October 27, 2002, there has been no material change in our
commitments with respect to our noncancellable operating leases.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Management's Discussion and Analysis of Operations and Financial
Condition discusses the Company's consolidated financial statements, which have
been prepared in accordance with accounting principles generally accepted in the
United States. The preparation of these consolidated financial statements
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the consolidated financial statements and the
reported amounts of revenues and expenses during the reporting period. On an
ongoing basis, management evaluates its estimates and judgments. We believe that
of our significant accounting policies, the following may involve a higher
degree of judgment and complexity.
Derivative Instruments
The Company utilizes interest rate swap agreements to manage interest rate
exposure on floating-rate obligations. It does not use derivative instruments
unless there is an underlying exposure and, therefore, does not use derivative
instruments for trading or speculative purposes. The evaluation of hedge
effectiveness is subject to assumptions based on the terms and timing of the
underlying exposures. All derivative instruments are recognized in the
Consolidated Balance Sheet at estimated fair value.
Asset Impairments
The Company reviews each restaurant to ascertain whether property and equipment
have been impaired based on the sum of expected future undiscounted cash flows
from operating activities. If the estimated net cash flows are less than the
carrying amount of such assets, the Company will recognize an impairment loss in
an amount necessary to write down the assets to a fair value as determined from
expected future discounted cash flows. The Company evaluates the recoverability
of its goodwill and other intangibles based on the estimated fair value of the
Company's operations.
Same-Store Sales
The Company discloses certain information regarding the performance of certain
restaurants in operation at least 18 consecutive months in its management's
discussion and analysis. Management excludes restaurants from this calculation
that do not meet this definition. In addition, restaurants are excluded when
unusual events or circumstances outside the Company's control significantly
change the business of the restaurant.
SAFE HARBOR STATEMENT UNDER THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
This Management's Discussion and Analysis of Financial Condition and
Results of Operations ("MD&A") contains forward-looking statements within the
meaning of Section 21E of the Securities Exchange
9
Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as
amended. The words "plan," "anticipate," "believe," "expect," "estimate," and
"project" and similar words and expressions identify forward-looking statements
which speak only as of the date hereof. Forward-looking statements in this MD&A
include statements regarding the expected opening of new Company-owned
restaurants (paragraphs 4 and 15), the continued increase in franchise fees and
royalties (paragraph 5), the opening of franchised Max & Erma's restaurants
(paragraph 5), the estimated cost to complete restaurants currently committed to
(paragraph 16) and the expected source of funds for new restaurants (paragraph
16).
Investors are cautioned that forward-looking statements involve risks
and uncertainties that could cause actual results to differ materially from
historical or anticipated results due to many factors, including, but not
limited to, the Company's ability to open or franchise new restaurants as
planned, changes in competition in markets where the Company operates
restaurants, the availability of restaurant workers, the Company's ability to
control administrative expenses, changes in interest rates, changes in cash
flows from operations, the availability of real estate for purchase or lease,
and other risks, uncertainties and factors described in the Company's most
recent Annual Report on Form 10-K and other filings from time to time with the
Securities and Exchange Commission. The Company undertakes no obligation to
publicly update or revise any forward-looking statements.
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's primary market risk results from fluctuations in interest
rates. The Company is exposed to interest rate risk through borrowings under its
revolving credit agreement, which permits borrowings up to $35.0 million. To
minimize the effect of interest rate fluctuations, the Company has entered into
an interest rate swap arrangement. Under this agreement, the Company pays a
fixed rate of interest on a portion of the outstanding balance.
ITEM 4 - CONTROLS AND PROCEDURES
As of a date within 90 days of the date of this report, the Company's
Chief Executive Officer and Chief Financial Officer evaluated the effectiveness
of the design and operation of the Company's disclosure controls and procedures.
Based upon this evaluation, the Chief Executive Officer and Chief Financial
Officer concluded that the disclosure controls and procedures are effective in
ensuring that information required to be disclosed by the Company in the reports
that it files or submits under the Securities and Exchange Act of 1934, as
amended, is recorded, processed, summarized and reported within the time period
specified by the Securities and Exchange Commission's rules and forms.
Additionally, there were no significant changes in the Company's
internal controls that could significantly affect the Company's disclosure
controls and procedures subsequent to the date of their evaluation, nor were
there any significant deficiencies or material weaknesses in the Company's
internal controls. As a result, no corrective actions were required or
undertaken.
10
PART II - OTHER INFORMATION
Item 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its Annual Meeting of Stockholders on April 11, 2003
for the purpose of electing three Class II directors for three-year terms
expiring in 2006 and ratifying Deloitte & Touche LLP as the Company's
independent auditors for the 2003 fiscal year.
Each nominee to the Company's Board of Directors was elected by the
following vote:
VOTES FOR VOTES WITHHELD
Roger D. Blackwell 2,283,076 48,923
William C. Niegsch, Jr. 2,250,306 81,693
Robert A. Rothman 2,329,791 2,208
Additionally, Deloitte & Touche LLP was ratified as the Company's
independent auditors for the 2003 fiscal year by a vote of 2,322,354 shares for,
9,330 against and 315 shares abstained.
Item 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The exhibits listed in the accompanying index to exhibits on page 12
are filed as part of this report.
(b) Reports on Form 8-K
8-K filed March 20, 2003 regarding first quarter 2003 financial
results.
11
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MAX & ERMA'S RESTAURANTS, INC.
-----------------------------------------
Registrant
/s/ Todd B. Barnum
-----------------------------------------
Todd. B. Barnum
Chairman of the Board
(Chief Executive Officer)
/s/ William C. Niegsch, Jr.
-----------------------------------------
William C. Niegsch, Jr.
Executive Vice President &
Chief Financial Officer
June 12, 2003
- ------------------------------
Date
12
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Todd Barnum, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Max & Erma's
Restaurants, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material aspects the financial condition, results of operations and cash
flows of the registrant as of, and for, the period presented in this
quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a)
designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared; b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing of
this quarterly report (the "Evaluation Date"); and c) presented in this
quarterly report our conclusions about the effectiveness of the disclosure
controls and procedures based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function): a) all significant deficiencies in the design or
operation of internal controls which could adversely affect the
registrant's ability to record, process, summarize and report financial
data and have identified for the registrant's auditors any material
weaknesses in internal controls; and b) any fraud, whether or not material,
that involves management or other employees who have a significant role in
the registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
control and in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: June 12, 2003
/s/ Todd B. Barnum
---------------------------------------
Todd B. Barnum, Chief Executive Officer
Max & Erma's Restaurants, Inc.
13
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, William Niegsch, Jr., certify that:
1. I have reviewed this quarterly report on Form 10-Q of Max & Erma's
Restaurants, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material aspects the financial condition, results of operations and cash
flows of the registrant as of, and for, the period presented in this
quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a)
designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared; b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing of
this quarterly report (the "Evaluation Date"); and c) presented in this
quarterly report our conclusions about the effectiveness of the disclosure
controls and procedures based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function): a) all significant deficiencies in the design or
operation of internal controls which could adversely affect the
registrant's ability to record, process, summarize and report financial
data and have identified for the registrant's auditors any material
weaknesses in internal controls; and b) any fraud, whether or not material,
that involves management or other employees who have a significant role in
the registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
control and in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: June 12, 2003
/s/ William C. Niegsch, Jr.
-------------------------------------------------
William C. Niegsch, Jr., Executive Vice President
& Chief Financial Officer
Max & Erma's Restaurants, Inc.
14
MAX & ERMA'S RESTAURANTS INC.
EXHIBIT INDEX
Exhibit No. Exhibit Page No.
- ----------- ------- --------
2 Not applicable
3 Not applicable
4 Not applicable
11 Not applicable
15 Not applicable
18 Not applicable
19 Not applicable
22 Not applicable
23 Not applicable
24 Not applicable
99.1 Chief Executive Officer Certification Statement 16
99.2 Chief Financial Officer Certification Statement 17
15