SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
/ X / Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarter ended October 8, 1995 Commission File
Number 1-8881
SBARRO, INC.
(Exact Name of Registrant as Specified in its Charter)
NEW YORK 11-2501939
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
763 Larkfield Road, Commack, New York 11725
(Address of principal executive offices) (Zip Code)
Registrant's telephone number,
including area code: (516)864-0200
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 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.
Class Outstanding at November 17, 1995
Common Stock, $.01 par value 20,342,233<PAGE>
SBARRO, INC.
FORM 10-Q INDEX
PART I. FINANCIAL INFORMATION PAGES
Consolidated Financial Statements:
Balance Sheets - October 8, 1995 (unaudited)
and January 1, 1995 . . . . . . . . . . . . . . . 3-4
Statements of Income (unaudited) - Forty Weeks
ended October 8, 1995 and October 9, 1994
and Twelve Weeks ended October 8, 1995 and
October 9, 1994. . . . . . . . . . . . . . . . . .5-6
Statements of Cash Flows (unaudited) - Forty Weeks
ended October 8, 1995 and October 9, 1994. . . . .7-8
Notes to Unaudited Consolidated Financial
Statements - October 8, 1995 . . . . . . . . . . . 9
Management's Discussion and Analysis of Financial
Condition and Results of Operations. . . . . . . .10-13
PART II. OTHER INFORMATION . . . . . . . . . . . . . . 14
Pg. 2<PAGE>
SBARRO, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
(In thousands)
October 8, January 1,
1995 1995
(unaudited)
Current assets:
Cash and cash equivalents $61,369 $42,362
Marketable securities 7,043 27,033
Receivables:
Franchisees 516 445
Other 980 2,270
1,496 2,715
Inventories 2,411 2,792
Prepaid expenses 5,242 1,570
Total current assets 77,561 76,472
Marketable securities 10,000 11,585
Property and equipment, net 138,067 140,709
Other assets:
Deferred charges, net of accumulated
amortization of $2,627,000 at
October 8, 1995 and $1,548,000 at
January 1, 1995 1,891 1,874
Other 3,305 1,411
5,196 3,285
$230,824 $232,051
(continued)
Pg. 3<PAGE>
SBARRO, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
LIABILITIES AND SHAREHOLDERS' EQUITY
(In thousands)
October 8, January 1,
1995 1995
(unaudited)
Current liabilities:
Accounts payable $5,433 $6,375
Accrued expenses 17,271 18,711
Dividend payable - 3,253
Income taxes 1,755 4,862
Total current liabilities 24,459 33,201
Deferred income taxes 19,943 19,270
Shareholders' equity:
Preferred stock, $1 par value;
authorized 1,000,000 shares;
none issued
Common stock, $.01 par value;
authorized 40,000,000 shares;
issued and outstanding
20,342,233 shares at October 8,
1995 and 20,328,981 shares at
January 1, 1995 203 203
Additional paid-in capital 30,280 30,066
Retained earnings 155,939 149,311
186,422 179,580
$230,824 $232,051
See notes to unaudited consolidated financial statements
Pg. 4<PAGE>
SBARRO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(In thousands, except per share data)
For the forty weeks ended:
October 8, October 9,
1995 1994
Revenues:
Restaurant sales $222,632 $204,823
Franchise related income 4,328 3,982
Interest income 2,200 1,392
Total revenues 229,160 210,197
Costs and expenses:
Cost of food and paper products 48,673 44,179
Restaurant operating expenses:
Payroll and other employee
benefits 57,738 51,589
Occupancy and other 64,084 57,142
Depreciation and amortization 17,815 16,023
General and administrative 12,469 9,850
Other income (1,054) (1,080)
Total costs and expenses 199,725 177,703
Income before income taxes 29,435 32,494
Income taxes 11,215 12,426
Net income $18,220 $20,068
Per share data:
Earnings per common and common
equivalent share $0.90 $0.99
Weighted average number of
shares used in the
computation 20,334,921 20,305,727
See notes to unaudited consolidated financial statements
Pg. 5<PAGE>
SBARRO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(In thousands, except per share data)
For the twelve weeks ended:
October 8, October 9,
1995 1994
Revenues:
Restaurant sales $73,553 $67,910
Franchise related income 1,494 1,393
Interest income 742 473
Total revenues 75,789 69,776
Costs and expenses:
Cost of food and paper products 16,017 14,545
Restaurant operating expenses:
Payroll and other employee
benefits 17,784 16,400
Occupancy and other 20,080 18,352
Depreciation and amortization 5,507 4,986
General and administrative 3,607 2,770
Other income (311) (279)
Total costs and expenses 62,684 56,774
Income before income taxes 13,105 13,002
Income taxes 4,980 4,941
Net income $8,125 $8,061
Per share data:
Earnings per common and common
equivalent share $0.40 $0.40
Weighted average number of
shares used in the
computation 20,339,284 20,316,587
See notes to unaudited consolidated financial statements
Pg. 6<PAGE>
SBARRO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)
For the forty weeks ended:
October 8, October 9,
1995 1994
Operating activities:
Net income $18,220 $20,068
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and amortization 17,815 16,023
Provision for deferred income
taxes 673 490
Changes in operating assets
and liabilities:
Decrease (increase) in
receivables 1,219 (429)
Decrease in inventories 381 359
Increase in prepaid expenses (3,672) (3,118)
Increase in deferred charges (1,087) (1,144)
Increase in other assets (2,076) (222)
Decrease in accounts payable
and accrued expenses (2,382) (3,837)
Decrease in income taxes
payable (3,107) (902)
Net cash provided by operating
activities 25,984 27,288
Investing activities:
Proceeds from maturities of
marketable securities 21,575 -
Proceeds from sales of
marketable securities - 525,980
Purchases of marketable securities - (527,555)
Purchases of property and equipment (13,921) (25,002)
Net cash provided by (used in)
investing activities 7,654 (26,577)
(continued)
Pg. 7<PAGE>
SBARRO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(UNAUDITED)
(In thousands)
For the forty weeks ended:
October 8, October 9,
1995 1994
Financing activities:
Proceeds from exercise of stock
options 214 453
Cash dividends paid (14,845) (9,204)
Net cash used in financing
activities (14,631) (8,751)
Increase (decrease) in cash and
cash equivalents 19,007 (8,040)
Cash and cash equivalents
at beginning of period 42,362 33,305
Cash and cash equivalents
at end of period $61,369 $25,265
Supplemental disclosure of cash
flow information:
Cash paid during the period
for income taxes $13,355 $12,701
See notes to unaudited consolidated financial statements
Pg. 8<PAGE>
SBARRO, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
1. The accompanying unaudited consolidated financial
statements have been prepared in accordance with the
instructions for Form 10-Q and Regulation S-X related
to interim period financial statements and, therefore,
do not include all information and footnotes required
by generally accepted accounting principles. However,
in the opinion of management, all adjustments
(consisting of normal recurring adjustments and
accruals) considered necessary for a fair presentation
of the consolidated financial position of the Company
and its subsidiaries at October 8, 1995 and their
consolidated results of operations for the forty and
twelve weeks ended October 8, 1995 and October 9, 1994
have been included. The results of operations for the
interim periods are not necessarily indicative of the
results that may be expected for the entire year.
Reference should be made to the annual financial
statements, including footnotes thereto, included in
the Company's Annual Report on Form 10-K for the fiscal
year ended January 1, 1995.
Pg. 9<PAGE>
SBARRO, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Results of Operations
The Company's business is subject to seasonal
fluctuations, the effects of weather and economic
conditions. Earnings have been highest in its fourth
quarter due primarily to increased traffic in shopping malls
during the holiday shopping season. Normally, the fourth
fiscal quarter accounts for approximately 40% of net income
for the year. In each of 1993 and 1994, the fourth quarter
accounted for approximately 39% of the full year's net
income. The length of the holiday shopping period between
Thanksgiving and Christmas and the number of weeks in the
fourth quarter can produce changes in the fourth quarter
earnings relationship from year to year.
The following table provides information
concerning the number of Company-owned and franchised
restaurants in operation during each indicated period:
40 40 12 12
Weeks Weeks Weeks Weeks
Ended Ended Ended Ended Fiscal Year
Company-owned 10/8/95 10/9/94 10/8/95 10/9/94 1994 1993
restaurants:
Opened during period 37 27 10 14 53 59
Acquired from (sold
to) franchisees
during period-net - 1 - - 2 7
Closed during period (6) (3) - - (3) (7)
Open at end of period 598 540 598 540 567 515
Franchised restaurants:
Opened during period 30 35 10 18 38 24
Purchased from (sold
to) Company during
period-net - (1) - - (2) (7)
Closed or terminated
during period (2) (8) - (1) (8) (14)
Open at end of period 190 160 190 160 162 134
All restaurants:
Opened during period 67 62 20 32 91 83
Closed or terminated
during period (8) (11) - (1) (11) (21)
Open at end of period 788 700 788 700 729 649
In addition, during the 1995 twelve week period, a
franchisee opened a kiosk/cart unit bringing the total to
eight units.
Pg. 10<PAGE>
Restaurant sales from Company-owned units increased 8.7% to
$222,632,000 for the forty weeks ended October 8, 1995 from
$204,823,000 for the forty weeks ended October 9, 1994.
Restaurant sales from Company-owned units increased 8.3% to
$73,553,000 for the twelve weeks ended October 8, 1995 from
$67,910,000 for the twelve weeks ended October 9, 1994.
These increases resulted primarily from an increase in the
number of units in operation during both periods of the
current fiscal year (see table on page 10) and an increase
in comparable unit sales of approximately .5% for both the
forty and twelve week periods. The 1995 comparable unit
sales for the forty week period were $200,853,000 and for
the twelve week period were $65,462,000. In March 1995, the
Company selectively increased menu prices which affected
sales by less than 1% in each of the reported periods.
Comparable restaurant sales are made up of sales at
locations that were open during the entire current year and
entire prior fiscal year.
Franchise related income increased 8.7% to $4,328,000 for
the forty weeks ended October 8, 1995 from $3,982,000 for
the forty weeks ended October 9, 1994. Franchise related
income increased 7.3% to $1,494,000 for the twelve weeks
ended October 8, 1995 from $1,393,000 for the twelve weeks
ended October 9, 1994. These increases resulted from higher
royalties due to a larger number of franchise units in
operation in the current period than in the comparable
period in 1994 (see table on page 10).
Interest income increased to $2,200,000 for the forty weeks
ended October 8, 1995 from $1,392,000 for the comparable
period last year. Interest income increased to $742,000 for
the twelve weeks ended October 8, 1995 from $473,000 for the
comparable period of the prior year. These increases were
due to larger amounts of cash invested and higher investment
yields on invested cash and marketable securities in the
current periods.
Cost of food and paper products as a percentage of
restaurant sales increased to 21.9% for the forty weeks
ended October 8, 1995 from 21.6% for the forty weeks ended
October 9, 1994. Cost of food and paper products as a
percentage of restaurant sales increased to 21.8% for the
twelve weeks ended October 8, 1995 from 21.4% for the twelve
weeks ended October 9, 1994. The increases are primarily a
result of higher prices of paper products.
Pg. 11<PAGE>
Restaurant operating expenses - payroll and other employee
benefits increased to 25.9% of restaurant sales for the
forty weeks ended October 8, 1995 from 25.2% for the forty
weeks ended October 9, 1994. This percentage increase is
attributable to the higher costs of providing benefits to
employees and a slower growth in comparable unit sales in
1995. Restaurant operating expenses - payroll and other
employee benefits for the twelve weeks ended October 8, 1995
and October 9, 1994 were 24.2% in each period. Restaurant
operating expenses - occupancy and other expenses increased
to 28.8% for the forty weeks ended October 8, 1995 from
27.9% for the forty weeks ended October 9, 1994 and
increased to 27.3% for the twelve weeks ended October 8,
1995 from 27.0% for the twelve weeks ended October 9, 1994.
These percentage increases are principally attributable to
rent and lease related charges increasing at a faster rate
than sales.
Depreciation and amortization expenses increased to
$17,815,000 for the forty weeks ended October 8, 1995 from
$16,023,000 for the forty weeks ended October 9, 1994.
Depreciation and amortization expenses increased to
$5,507,000 for the twelve weeks ended October 8, 1995 from
$4,986,000 for the twelve weeks ended October 9, 1994.
These increases are a result of the number of additional
Company-owned units in operation during the forty and twelve
weeks ended October 8, 1995 over the comparable periods in
fiscal 1994.
General and administrative expenses were $12,469,000 or 5.4%
of total revenues for the forty weeks ended October 8, 1995
compared to $9,850,000 or 4.7% of total revenues for the
forty weeks ended October 9, 1994. These increases were the
result of a provision of $235,000 for the closing of
restaurants, increased costs associated with supervising and
administering the additional restaurants in operation and
adding management level personnel. General and
administrative expenses were $3,607,000 or 4.8% of total
revenues for the twelve weeks ended October 8, 1995 compared
to $2,770,000 or 4.0% for the twelve weeks ended October 9,
1994. These increases were principally a result of
increased costs associated with supervising and
administering the additional restaurants in operation.
The effective income tax rate for the forty weeks ended
October 8, 1995 was 38.1% and for October 9, 1994 was 38.2%.
Pg. 12<PAGE>
Liquidity and Capital Resources
At October 8, 1995, the Company had cash and cash
equivalents and marketable securities of approximately
$78,412,000 and its working capital was approximately
$53,102,000. Cash provided by operations for the forty
weeks ended October 8, 1995 of $25,984,000 and a portion of
the available working capital was used to purchase
restaurant property and equipment of $13,921,000 and to pay
four quarterly dividends aggregating $14,845,000. The
Company believes, based on current projections, that its
liquid assets presently on hand, together with cash
generated from operations, should be sufficient for its
presently contemplated operations, dividends and the
purchase of property and equipment relating to its
development of restaurants, as well as renovating and
equipping the Company's new headquarters building.
Dividends
On February 23, 1995, the Company increased its quarterly
cash dividend to $.19 per share, or an aggregate annual rate
of $.76 per share. This dividend was paid on April 5, 1995
to shareholders of record on March 21, 1995, and amounted to
$3,863,361.
On May 25, 1995, the Company declared a quarterly cash
dividend of $.19 per share. The cash dividend was paid on
July 6, 1995 to shareholders of record on June 21, 1995, and
amounted to $3,863,457.
On August 23, 1995, the Company declared a quarterly cash
dividend of $.19 per share. The cash dividend was paid on
October 5, 1995 to shareholders of record on September 21,
1995, and amounted to $3,865,024.
On November 21, 1995, the Company declared a quarterly cash
dividend of $.19 per share. The cash dividend will be paid
on January 5, 1996 to shareholders of record on December 21,
1995.
Pg. 13<PAGE>
PART II. OTHER INFORMATION
Item 5. Other Information
In September 1995, the joint venture formed for the
purpose of developing a steakhouse restaurant concept (as
reflected in the Company's Report on Form 10-Q for the
quarter ended April 23, 1995) opened its first location,
under the name Boulder Creek, in Syosset, New York. A
second Boulder Creek restaurant is expected to open in early
1996.
During the third quarter of fiscal 1995, the Company
entered into a joint venture arrangement with two
unaffiliated third parties for the purpose of developing a
moderately priced casual Italian-style restaurant concept.
The Company may use the name ``Bice'' in certain locations
under a license obtained as part of the formation of the
joint venture. The Company has a 70% interest in this
venture. The first restaurant was opened in New York City
on November 16, 1995.
Pg. 14<PAGE>
SIGNATURE
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.
SBARRO, INC.
Registrant
Date: November 21, 1995 By: /s/ Mario Sbarro
Mario Sbarro
Chairman of the Board
Date: November 21, 1995 By: /s/ Robert S. Koebele
Robert S. Koebele
Vice President-Finance
Pg. 15<PAGE>
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<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> OCT-8-1995
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<INVENTORY> 2,411
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<PP&E> 248,647
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0
0
<OTHER-SE> 186,219
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