<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
---------------------------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE THIRTEEN WEEK PERIOD
----------------------------
ENDED AUGUST 30, 1995
---------------------
Commission File Number 0-2849
AMERICAN RECREATION CENTERS, INC.
Incorporated in California Federal Employer No. 94-1441151
11171 Sun Center Drive, Suite 120, Rancho Cordova, CA 95670
Mail Address: P.O. Box 580, Rancho Cordova, CA 95741
-------------------------------------------------------
Telephone: Area Code (916) 852-8005
------------------------------------
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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Capital Stock Outstanding as of August 30, 1995 - 5,055,592 shares
<PAGE>
AMERICAN RECREATION CENTERS, INC.
INDEX TO FORM 10-Q
FOR THE THIRTEEN WEEK PERIOD
ENDED AUGUST 30, 1995
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (all of which are unaudited)
Condensed Consolidated Balance Sheet 3
Consolidated Statement of Income and Retained Earnings 4
Condensed Consolidated Statement of Cash Flows 5
Notes To Condensed Consolidated Financial Statements 6-7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-9
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 10
Item 6. Exhibits and Reports on Form 8-K
Form 8-K, dated August 4, 1995, is herein incorporated by
reference
SIGNATURES 11
2
<PAGE>
CONDENSED CONSOLIDATED BALANCE SHEET
(in thousands)
<TABLE>
<CAPTION>
August 30, May 31,
1995 1995
(Unaudited) (Audited)
----------- ---------
<S> <C> <C>
ASSETS
------
Current assets:
Cash and equivalents $ 11,433 $ 4,508
Other current assets 2,175 2,294
Net investment in discontinued operations -- 6,683
-------- --------
Total current assets 13,608 13,485
-------- --------
Property, equipment and leaseholds, at cost
Land and buildings 40,486 40,466
Machinery and equipment 35,648 34,922
Leaseholds and leasehold improvements 7,331 7,201
Construction in progress 1,700 892
-------- --------
85,165 83,481
Less - accumulated depreciation and amortization (26,835) (26,018)
-------- --------
58,330 57,463
-------- --------
Property held for sale 2,545 2,545
Notes receivable 2,259 2,267
Other assets 1,092 1,165
-------- --------
$ 77,834 $ 76,925
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable and accrued expenses $ 6,197 $ 5,593
Income taxes payable 3,421 2,311
Current maturities of long-term debt 1,643 1,638
-------- --------
Total current liabilities 11,261 9,542
-------- --------
Long-term debt and capital leases 26,673 28,747
-------- --------
Deferred taxes and other liabilities 7,233 7,233
-------- --------
Minority interests in consolidated partnerships 1,653 1,732
-------- --------
Shareholders' equity
Common stock:
Authorized - 21,484,375 shares
Issued and outstanding - 1995 and 1994,
5,055,592 and 5,013,532 shares 12,781 12,773
Preferred stock:
Authorized - 5,000,000 shares
Issued and outstanding - none -- --
Retained earnings 18,233 16,898
-------- --------
Total shareholders' equity 31,014 29,671
-------- --------
Commitments and contingencies
$ 77,834 $ 76,925
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
CONSOLIDATED STATEMENT OF INCOME AND RETAINED EARNINGS
(in thousands except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Thirteen Weeks Ended
------------------------
August 30, August 24,
1995 1994
----------- -----------
<S> <C> <C>
Operating revenue:
Bowling $ 8,571 $ 8,022
Other 254 288
------- -------
8,825 8,310
------- -------
Operating, general and administrative expense:
Bowling 8,945 8,236
Other 170 161
Corporate 242 249
------- -------
9,357 8,646
------- -------
Operating income (loss):
Bowling (374) (214)
Other 84 127
Corporate (242) (249)
------- -------
Operating loss (532) (336)
------- -------
Interest expense (749) (669)
Interest and other income 126 58
Gain on property transactions -- 1,939
------- -------
Income (Loss) before provision for income
taxes and minority interests (1,155) 992
(Provision for) benefit from income taxes 422 (309)
Minority interests 79 (187)
------- -------
Income (Loss) from continuing operations (654) 496
Discontinued operations:
Gain from sale of investment in The Right Start,
Inc., net of applicable income taxes of $1,568 2,251 --
Income from operations of The Right Start, Inc.,
net of applicable income taxes of $49 and $35 54 34
------- -------
Net income 1,651 530
Retained earnings, beginning of period 16,898 16,494
Cash dividends ($.0625 and $.06 per share) (316) (301)
------- -------
Retained earnings, end of period $18,233 $16,723
======= =======
Earnings per share
Continuing operations ($0.13) $0.10
Discontinued operations 0.46 0.01
------- -------
$0.33 $0.11
======= =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Thirteen Weeks Ended
------------------------
August 30, August 24,
1995 1994
----------- -----------
<S> <C> <C>
Cash Flows from (used in) Operating Activities:
Net income $ 1,651 $ 530
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 908 778
Gain on sale of The Right Start, Inc. (2,251) --
Gain on property transactions -- (1,939)
Results attributed to minority interests (79) 187
Income from discontinued operations (54) (35)
(Increase) Decrease in other current assets 119 (1,610)
Increase (Decrease) in income taxes payable (458) 591
Increase in accounts payable and accrued expenses (651) (159)
------- -------
Net cash used in operations ( 815) (1,657)
------- -------
Cash Flows from (used in) Investing Activities:
Expenditures for property, equipment and property
held for development (1,707) (647)
Proceeds from property transactions (net of
minority interest) - 3,333
Proceeds from sale of The Right Start, Inc. 11,811 -
Payments received on loan to ESOP - 54
Other 13 121
------- -------
Net cash from investing activities 10,117 2,861
------- -------
Cash Flows from (used in) Financing Activities:
Repayment of long-term debt (2,879) (3,008)
Issuance of long-term debt 810 -
Dividends to shareholders (316) (301)
Issuance of common stock, net 8 47
------- -------
Net cash used in financing activities (2,377) (3,262)
------- -------
Net increase (decrease) in cash and equivalents 6,925 (2,058)
Cash and equivalents at beginning of period 4,508 3,513
------- -------
Cash and equivalents at end of period $11,433 $ 1,455
======= =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - Description of Business and Significant Accounting Policies:
--------------------------------------------------------------------
American Recreation Centers, Inc. and its subsidiaries (the Company) operate
bowling centers in California, Texas, Wisconsin, Oklahoma, Kentucky and
Missouri.
There have been no changes in the Company's significant accounting policies as
set forth in the Company's annual report. These unaudited financial statements
as of August 30, 1995 and for the three month periods ended August 30, 1995 and
August 24, 1994 have been prepared in accordance with generally accepted
accounting principles for interim financial information. Accordingly, they do
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included.
Reflecting the sale of The Right Start, Inc. on August 4, 1995, its revenues
and expenses are no longer consolidated in ARC's operating income and expenses.
Right Start's profit or loss is now shown as "Discontinued Operations" in ARC's
statement of income. Prior year statements have been restated to reflect this
change.
NOTE 2 - Long-term Debt:
-----------------------
Long-term debt is comprised of the following (in thousands):
<TABLE>
<CAPTION>
August 30, May 31,
1995 1995
---------- -------
<S> <C> <C>
Long-term notes:
Secured notes payable in monthly
installments with a weighted
average interest rate of 9.36%
at August 30, 1995 $27,543 $29,554
Other 773 831
------- -------
28,316 30,385
Less-amounts due within one year 1,643 1,638
------- -------
$26,673 $28,747
======= =======
</TABLE>
6
<PAGE>
NOTE 3 - Operations:
-------------------
The results of operations for this thirteen week period is not necessarily
indicative of the results to be expected for the entire year. Bowling is
highly seasonal with revenues during the first quarter normally not exceeding
20% to 22% of those for a full year.
NOTE 4 - Earnings Per Share of Common Stock:
-------------------------------------------
Earnings per share is computed on the weighted average number of shares of
common stock and common stock equivalents outstanding during each period.
Common stock equivalents include the Company's stock options. The weighted
average number of common shares and common stock equivalents outstanding were
5,054,924 and 5,003,741 for the thirteen week periods ended August 30, 1995 and
August 24, 1994.
NOTE 5 - Acquisitions and Dispositions:
--------------------------------------
In July 1994, the Company's 90 percent-owned partnership sold its Budget Mini-
Storage facility in Milpitas, California for $3,600,000. Proceeds were used to
retire $2,500,000 in long-term debt and to acquire bowling centers in
Milwaukee, Wisconsin. The Company recorded an after-tax gain of approximately
$1,000,000, or $.22 per share.
On September 16, 1994, the Company's 85 percent-owned joint venture, American
Red Carpet, completed the acquisition of substantially all of the Red Carpet
bowling chain in Milwaukee, Wisconsin. The $8,000,000 purchase price included
the land, building and equipment of six bowling centers totaling 316 lanes.
The sale of the Budget Mini-Storage and the acquisition of the Milwaukee
centers was accounted for as a like-kind exchange for income tax purposes.
NOTE 6 - Gain on Sale of Right Start, Inc.:
------------------------------------------
On August 4, 1995, the Company sold its 62.5 percent ownership in The Right
Start, Inc. for $11,811,000 in cash and recorded a $2,251,000 after-tax gain,
equal to $.45 per share, in the first quarter of fiscal 1996. Also, the
Company received an option to reacquire up to 400,000 shares of Right Start
common stock at exercise prices ranging from $3.30 to $6.00 over a seven year
period. In connection with the transaction, the Company has agreed to
reimburse Right Start up to $680,000 should it be unable to sustain ordinary
loss treatment for its deferred loss tax carry-forward and it have sufficient
taxable income in or before its fiscal year 2000.
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Continuing Operations
--------------------------------
Revenue for the first quarter of fiscal 1996 increased 6% from $8.3 million to
$8.8 million while income (loss) from continuing operations declined from
$496,000, or $.10 per share last year to a net loss of ($654,000) or ($.13) per
share this year. However, last year's results included an after-tax gain on
property transactions of $1.9 million, or $.21 per share.
First quarter bowling revenue increased 7% from $8.0 million to $8.6 million
due to the acquisition in the second quarter of last year of six centers in
Milwaukee, Wisconsin. Revenue for comparable centers was off almost 1%.
Revenue from bowling lineage, which comprises approximately 53% of total
revenue was off 10% for the quarter as a combination of a 13% volume decline
was partially offset by a 3% increase in the average price per game. Revenue
from all other ancillary sources which includes beverage, food, vending,
billiards, video games, darts and other recreational activities advanced an
aggregate 9%. This increase was due the expansion of these non-bowling
activities, particularly vending, billiards and darts, to provide a wider
variety of entertainment attractions.
The first quarter operating loss for bowling widened from a $214,000 loss last
year to a $374,000 loss this year, again due to the acquisition of the six
Milwaukee centers. We anticipate the results for these centers in the second
quarter and beyond should more than offset the first quarter losses they
contributed this year. Operating results for comparable centers improved
$170,000 over last year due to improved cost controls, particularly in staffing
costs.
Late in 1995, the Company embarked upon a plan to test the concept of
broadening the Company's operations from one that offers primarily bowling as
family entertainment into one that offers a broader menu of recreation options,
with bowling being only one alternative. Two test locations are currently
underway and expected to be in operation by the end of the second quarter of
1996. Ten bowling lanes of a 60-lane center in San Jose, California are being
converted to space that provides for other forms of entertainment and expanded
food and beverage operations targeted primarily to families with young
children. Secondly, a 49,000 square foot family entertainment center in
Addison, Texas is under construction. This facility will blend bowling with
other recreation formats designed to attract young adult customers. Both
concepts are designed to create a broader base of entertainment revenue in our
facilities. Future expansion of these concepts will be based on the results of
these two tests.
Results of Discontinued Operations
----------------------------------
Discontinued operations includes the gain on sale of the Company's investment
in The
8
<PAGE>
Right Start, Inc. on August 4, 1995 and the Company's share of that entity's
operations through the date of sale. The purchase price for the 3,937,000
shares was $11,811,000 cash plus an option to reacquire up to 400,000 shares of
Right Start's common stock at exercise prices ranging from $3.30 to $6.00 over
a seven year period.
Corporate and Other
-------------------
Other operating activities include the Company's non-bowling real estate
activities. The decline in the first quarter revenue for other activities and
for operating income from other activities was due to the sale of the Budget
Mini-Storage in Milpitas, California (see Gain on Property Transactions below).
Corporate expense includes the costs of the corporate office and staff,
shareholder relations, directors' fees, professional and consulting fees, and
other costs not allocable to bowling. First quarter corporate expenses were
down 3% over last year.
Gain on Property Transactions
-----------------------------
During the first quarter of last year, the Company's 90% owned partnership sold
its Budget Mini-Storage facility in Milpitas, California for $3,600,000.
Proceeds were used to retire $2,500,000 in long-term debt and to acquire the
six Red Carpet bowling centers in Milwaukee, Wisconsin.
Liquidity and Capital Resources
-------------------------------
At August 30, 1995, the Company had $10,100,000 available under an unused bank
commitment. Advances can be used to acquire, construct or refurbish bowling
centers or to acquire other compatible recreation businesses and would bear
interest at the prime rate plus .75%. An 85% owned joint venture has
$2,700,000 available under a separate bank commitment that can be used for the
acquisition of bowling centers. Advances under this facility would bear
interest at the prime rate plus 1%.
The Company also maintains various line-of-credit arrangements to augment
seasonal shortfalls in working capital. At August 30, 1995 and August 24,
1994, there were no borrowings outstanding under the Company's $2,000,000 line-
of-credit. Advances under this line would bear interest at the prime rate plus
.5%. There was $415,000 and $445,000 outstanding at August 30, 1995 and August
24, 1994 under a $1,000,000 line-of-credit which is designated for use by one
of the Company's wholly-owned subsidiaries. This line bears interest at the
prime rate plus 1%. The line was repaid in full subsequent to August 30, 1995.
The Company has paid quarterly cash dividends for over 27 consecutive years.
The first quarter dividend of $.0625 per share represents a 4% increase over
last year when the quarterly dividend was $.06 per share.
9
<PAGE>
PART II
Item 4. Submission of Matters to a Vote of Security Holders
On September 26, 1995 the Company held its annual meeting of shareholders. The
shareholders voted upon the following matters: (1) the election of directors:
the number of directors who stood for re-election was reduced from seven to
five, which comprises the entire Board of Directors; and (2) the ratification
of the appointment of Price Waterhouse as independent auditors for the fiscal
year ended May 31, 1995.
Each matter was approved. The results of the vote were as follows:
(1) Board of Directors:
<TABLE>
<CAPTION>
WITHHOLD
FOR AUTHORITY
--- ---------
<S> <C> <C>
Stewart Bloom 4,165,730 32,384
Stephen R. Chanecka 4,165,850 32,264
Robert A. Crist 4,158,023 40,091
Robert Feuchter 4,170,938 27,176
Stanley B. Schneider 4,169,260 28,854
</TABLE>
(2) Ratification of Price Waterhouse as auditors for fiscal year 1995:
WITHHOLD
FOR AUTHORITY
--- ---------
4,155,904 42,210
10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
AMERICAN RECREATION CENTERS, INC.
Date 10-13-95 Robert A. Crist
-------------------- -----------------------------------------
Robert A. Crist, President
Date 10-13-95 Karen B. Wagner
-------------------- -----------------------------------------
Karen B. Wagner, Vice President/Treasurer
11
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
=======================================
FORM 8-K
CURRENT REPORT
=======================================
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): August 4, 1995
AMERICAN RECREATION CENTERS, INC.
(Exact name of Registrant as specified in charter)
California 0-2849 94-1441151
(State of other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification No.)
11171 Sun Center Drive, Suite 120, Rancho Cordova, CA 95741
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (916) 852-8005
Not Applicable
(Former name or former address, if changed, since last report)
<PAGE>
Item 2. Acquisition of Disposition of Assets
On August 4, 1995, the Registrant sold 3,937,000 shares of Common Stock of
The Right Start, Inc. to Kayne, Anderson Investment Management and affiliated
partnerships and persons (collectively, the "Purchasers") pursuant to a Stock
Purchase Agreement dated August 3, 1995 among the Registrant and the Purchasers
(the "Stock Purchase Agreement"), at a purchase price of $3.00 per share, for
an aggregate cash purchase price of $11,811,000. A copy of the Stock Purchase
Agreement is attached hereto as Exhibit 2.1 and incorporated by reference.
Pursuant to the Stock Purchase Agreement, the Registrant acquired options to
purchase up to 400,000 shares of Common Stock of The Right Start, Inc. from the
Purchasers pursuant to Option Certificates substantially in the form attached
hereto as Exhibit 4.1 and incorporated by reference.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
(b) Pro Forma Financial Information.
Pro Forma Financial Information is not included. As a result of
the sale of The Right Start, Inc. Common Stock, the Company's
investment in the stock, and the results of operations of The
Right Start, Inc. have been fully reflected as discontinued
operations in the historical financial statements filed in the
Registrant's May 31, 1995 Form 10-K.
(c) Exhibits.
Exhibit Number
2.1 Stock Purchase Agreement, dated August 3, 1995 between the
Registrant and Kayne, Anderson Investment Management and
certain of its affiliates.
4.1 Form of Option Certificate for options granted to the
Registrant by the Purchasers for the purchase by the
Registrant of an aggregate of 400,000 shares of Common Stock
of The Right Start, Inc.
10.5 Contract, dated December 20, 1994 for financial advisory
services relative to The Right Start, Inc. between the
Company and Cruttenden & Company.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
AMERICAN RECREATION CENTERS, INC.
Date: August 4, 1995 By: Robert A. Crist
---------------------------------
Robert A. Crist, President
<PAGE>
EXHIBIT INDEX
The following exhibit is attached hereto and incorporated by reference:
Exhibit
Number
2.1 Stock Purchase Agreement, dated August 3, 1995 between the
Registrant and Kayne, Anderson Investment Management and certain of
its affiliates.
4.1 Form of Option Certificate for options granted to the Registrant by
the Purchasers for the purchase by the Registrant of an aggregate
of 400,000 shares of Common Stock of The Right Start, Inc.
10.5 Contract, dated December 20, 1994 for financial advisory services
relative to The Right Start, Inc. between the Company and
Cruttenden & Company.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10Q AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAY-29-1996
<PERIOD-START> JUN-01-1995
<PERIOD-END> AUG-30-1995
<CASH> 11,433
<SECURITIES> 0
<RECEIVABLES> 490
<ALLOWANCES> 16
<INVENTORY> 530
<CURRENT-ASSETS> 13,608
<PP&E> 85,165
<DEPRECIATION> 26,835
<TOTAL-ASSETS> 77,834
<CURRENT-LIABILITIES> 11,261
<BONDS> 28,316
<COMMON> 12,781
0
0
<OTHER-SE> 18,223
<TOTAL-LIABILITY-AND-EQUITY> 77,834
<SALES> 8,825
<TOTAL-REVENUES> 8,951
<CGS> 924
<TOTAL-COSTS> 9,357
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 749
<INCOME-PRETAX> (1,076)
<INCOME-TAX> (422)
<INCOME-CONTINUING> (654)
<DISCONTINUED> 2,305
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,651
<EPS-PRIMARY> .33
<EPS-DILUTED> .33
</TABLE>
