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 July 16, 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 August 18, 1995
Common Stock, $.01 par value 20,336,983<PAGE>
SBARRO, INC.
FORM 10-Q INDEX
PART I. FINANCIAL INFORMATION PAGES
Consolidated Financial Statements:
Balance Sheets - July 16, 1995 (unaudited)
and January 1, 1995 . . . . . . . . . . . . . . . 3-4
Statements of Income (unaudited) - Twenty-Eight
Weeks ended July 16, 1995 and July 17, 1994
and Twelve Weeks ended July 16, 1995 and
July 17, 1994. . . . . . . . . . . . . . . . . . .5-6
Statements of Cash Flows (unaudited) - Twenty-Eight
Weeks ended July 16, 1995 and July 17, 1994. . . .7-8
Notes to Unaudited Consolidated Financial
Statements - July 16, 1995 . . . . . . . . . . . . 9
Management's Discussion and Analysis of Financial
Condition and Results of Operations. . . . . . . .10-13
PART II. OTHER INFORMATION . . . . . . . . . . . . . . 13
Pg. 2<PAGE>
SBARRO, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
(In thousands)
July 16, January 1,
1995 1995
(unaudited)
Current assets:
Cash and cash equivalents $50,560 $42,362
Marketable securities 14,835 27,033
Receivables:
Franchisees 535 445
Other 1,077 2,270
1,612 2,715
Inventories 2,424 2,792
Prepaid expenses 4,214 1,570
Total current assets 73,645 76,472
Marketable securities 10,011 11,585
Property and equipment, net 139,640 140,709
Other assets:
Deferred charges, net of accumulated
amortization of $2,255,000 at
July 16, 1995 and $1,548,000 at
January 1, 1995 1,946 1,874
Other 1,972 1,411
3,918 3,285
$227,214 $232,051
(continued)
Pg. 3<PAGE>
SBARRO, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
LIABILITIES AND SHAREHOLDERS' EQUITY
(In thousands)
July 16, January 1,
1995 1995
(unaudited)
Current liabilities:
Accounts payable $7,946 $6,375
Accrued expenses 16,103 18,711
Dividend payable - 3,253
Income taxes 1,470 4,862
Total current liabilities 25,519 33,201
Deferred income taxes 19,644 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
20,335,482 shares at July 16,
1995 and 20,328,981 shares at
January 1, 1995 203 203
Additional paid-in capital 30,169 30,066
Retained earnings 151,679 149,311
182,051 179,580
$227,214 $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 twenty-eight weeks ended:
July 16, July 17,
1995 1994
Revenues:
Restaurant sales $149,079 $136,913
Franchise related income 2,834 2,589
Interest income 1,458 919
Total revenues 153,371 140,421
Costs and expenses:
Cost of food and paper products 32,656 29,634
Restaurant operating expenses:
Payroll and other employee
benefits 39,951 35,190
Occupancy and other 44,007 38,789
Depreciation and amortization 12,308 11,037
General and administrative 8,862 7,080
Other income (743) (801)
Total costs and expenses 137,041 120,929
Income before income taxes 16,330 19,492
Income taxes 6,235 7,485
Net income $10,095 $12,007
Per share data:
Earnings per common and common
equivalent share $0.50 $0.59
Weighted average number of
shares used in the
computation 20,333,048 20,300,864
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:
July 16, July 17,
1995 1994
Revenues:
Restaurant sales $66,794 $61,495
Franchise related income 1,324 1,137
Interest income 646 378
Total revenues 68,764 63,010
Costs and expenses:
Cost of food and paper products 14,623 13,287
Restaurant operating expenses:
Payroll and other employee
benefits 17,319 15,433
Occupancy and other 19,098 17,173
Depreciation and amortization 5,383 4,730
General and administrative 3,777 3,164
Other income (283) (238)
Total costs and expenses 59,917 53,549
Income before income taxes 8,847 9,461
Income taxes 3,362 3,623
Net income $5,485 $5,838
Per share data:
Earnings per common and common
equivalent share $0.27 $0.29
Weighted average number of
shares used in the
computation 20,333,975 20,304,116
See notes to unaudited consolidated financial statements
Pg. 6<PAGE>
SBARRO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)
For the twenty-eight weeks ended:
July 16, July 17,
1995 1994
Operating activities:
Net income $10,095 $12,007
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and amortization 12,308 11,037
Provision for deferred income
taxes 374 300
Changes in operating assets
and liabilities:
Decrease (increase) in
receivables 1,103 (22)
Decrease in inventories 368 321
Increase in prepaid expenses (2,644) (2,301)
Increase in deferred charges (779) (731)
Increase in other assets (681) (181)
Decrease in accounts payable
and accrued expenses (1,037) (3,259)
Decrease in income taxes
payable (3,392) (699)
Net cash decided by operating
activities 15,715 16,472
Investing activities:
Proceeds from maturities of
marketable securities 13,772 -
Proceeds from sales of
marketable securities - 525,497
Purchases of marketable securities - (527,407)
Purchases of property and equipment (10,413) (17,652)
Net cash provided by (used in)
investing activities 3,359 (19,562)
(continued)
Pg. 7<PAGE>
SBARRO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(UNAUDITED)
(In thousands)
For the twenty-eight weeks ended:
July 16, July 17,
1995 1994
Financing activities:
Proceeds from exercise of stock
options 103 212
Cash dividends paid (10,979) (9,204)
Net cash used in financing
activities (10,876) (8,992)
Increase (decrease) in cash and
cash equivalents 8,198 (12,082)
Cash and cash equivalents
at beginning of period 42,362 33,305
Cash and cash equivalents
at end of period $50,560 $21,223
Supplemental disclosure of cash
flow information:
Cash paid during the period
for income taxes $9,253 $7,852
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 July 16, 1995 and their
consolidated results of operations for the twenty-eight
and twelve weeks ended July 16, 1995 and July 17, 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.
2. All share and per share data have been adjusted to give
effect to a 3-for-2 stock split in the form of a 50%
stock dividend distributed on September 22, 1994.
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:
28 28 12 12
Weeks Weeks Weeks Weeks
Ended Ended Ended Ended Fiscal Year
Company-owned 7/16/95 7/17/94 7/16/95 7/17/94 1994 1993
restaurants:
Opened during period 27 13 13 5 53 59
Acquired from (sold
to) franchisees
during period-net - 1 - 1 2 7
Closed during period (6) (3) (4) (1) (3) (7)
Open at end of period 588 526 588 526 567 515
Franchised restaurants:
Opened during period 20 17 11 10 38 24
Purchased from (sold
to) Company during
period-net - (1) - (1) (2) (7)
Closed or terminated
during period (2) (7) (2) (1) (8) (14)
Open at end of period 180 143 180 143 162 134
All restaurants:
Opened during period 47 30 24 15 91 83
Closed or terminated
during period (8) (10) (6) (2) (11) (21)
Open at end of period 768 669 768 669 729 649
In addition, franchisees operate seven kiosk/cart units.
Pg. 10<PAGE>
Restaurant sales from Company-owned units increased 8.9% to
$149,079,000 for the twenty-eight weeks ended July 16, 1995
from $136,913,000 for the twenty-eight weeks ended July 17,
1994. Restaurant sales from Company-owned units increased
8.6% to $66,794,000 for the twelve weeks ended July 16, 1995
from $61,495,000 for the twelve weeks ended July 17, 1994.
These increases resulted primarily from an increase in the
number of units in operation during both periods of the
current fiscal year and an increase in comparable unit sales
of approximately .5% for the twenty-eight week period and
.2% for the twelve week period. The 1995 comparable unit
sales for the twenty-eight week period were $135,410,000 and
for the twelve week period were $60,155,000. In March 1995,
the Company selectively increased menu prices which effected
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 period
and entire prior fiscal year.
Franchise related income increased 9.5% to $2,834,000 for
the twenty-eight weeks ended July 16, 1995 from $2,589,000
for the twenty-eight weeks ended July 17, 1994. This
increase resulted from higher royalties, due principally to
a larger number of franchise units in operation in the
current period than in the comparable period in 1994.
Franchise related income increased 16.4% to $1,324,000 for
the twelve weeks ended July 16, 1995 from $1,137,000 for the
twelve weeks ended July 17, 1994. This increase 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, as well as an increase in the
number of new franchise units resulting in higher initial
franchise fees.
Interest income increased to $1,458,000 for the twenty-eight
weeks ended July 16, 1995 from $919,000 for the comparable
period last year. Interest income increased to $646,000 for
the twelve weeks ended July 16, 1995 from $378,000 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 twenty-eight
weeks ended July 16, 1995 from 21.6% for the twenty-eight
weeks ended July 17, 1994. Cost of food and paper products
as a percentage of restaurant sales increased to 21.9% for
the twelve weeks ended July 16, 1995 from 21.6% for the
twelve weeks ended July 17, 1994. The increases are
Pg. 11<PAGE>
primarily a result of higher prices of paper products and
certain food ingredients.
Restaurant operating expenses - payroll and other employee
benefits increased to 26.8% of restaurant sales for the
twenty-eight weeks ended July 16, 1995 from 25.7% for the
twenty-eight weeks ended July 17, 1994 and increased to
25.9% for the twelve weeks ended July 16, 1995 from 25.1%
for the twelve weeks ended July 17, 1994. These percentage
increases are attributable to the higher costs of providing
benefits to employees and a slower growth in comparable unit
sales in 1995. Restaurant operating expenses - occupancy
and other expenses increased to 29.5% for the twenty-eight
weeks ended July 16, 1995 from 28.3% for the twenty-eight
weeks ended July 17, 1994 and increased to 28.6% for the
twelve weeks ended July 16, 1995 from 27.9% for the twelve
weeks ended July 17, 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
$12,308,000 for the twenty-eight weeks ended July 16, 1995
from $11,037,000 for the twenty-eight weeks ended July 17,
1994. Depreciation and amortization expenses increased to
$5,383,000 for the twelve weeks ended July 16, 1995 from
$4,730,000 for the twelve weeks ended July 17, 1994. These
increases are a result of the number of additional Company-
owned units in operation during the twenty-eight and twelve
weeks ended July 16, 1995 over the comparable periods in
fiscal 1994.
General and administrative expenses were $8,862,000 or 5.8%
of total revenues for the twenty-eight weeks ended July 16,
1995 compared to $7,080,000 or 5% of total revenues for the
twenty-eight weeks ended July 17, 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 $3,777,000 or 5.5% of total
revenues for the twelve weeks ended July 16, 1995 compared
to $3,164,000 or 5% for the twelve weeks ended July 17,
1994. These increases were principally a result of
increased costs associated with supervising and
administering the additional restaurants in operation and
adding management level personnel.
The effective income tax rate for the twenty-eight weeks
ended July 16, 1995 was 38.2% and for July 17, 1994 was
38.4%.
Pg. 12<PAGE>
Liquidity and Capital Resources
At July 16, 1995, the Company had cash and cash equivalents
and marketable securities of approximately $75,406,000 and
its working capital was approximately $48,126,000. Cash
provided by operations for the twenty-eight weeks ended July
16, 1995 of $15,715,000 and a portion of the available
working capital was used to purchase restaurant property and
equipment of $10,413,000 and to pay three quarterly
dividends aggregating $10,979,000. 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 will be paid
on October 5, 1995 to shareholders of record on September
21, 1995.
PART II. OTHER INFORMATION
Not applicable.
Pg. 13<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: August 28, 1995 By: /s/ Mario Sbarro
Mario Sbarro
Chairman of the Board
Date: August 28, 1995 By: /s/ Robert S. Koebele
Robert S. Koebele
Vice President-Finance
Pg. 14<PAGE>
<PAGE>
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<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 7-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-02-1995
<PERIOD-END> JUL-16-1995
<CASH> $50,560
<SECURITIES> $14,835
<RECEIVABLES> $1,612
<ALLOWANCES> 0
<INVENTORY> $2,424
<CURRENT-ASSETS> $73,645
<PP&E> $245,155
<DEPRECIATION> $105,515
<TOTAL-ASSETS> $227,214
<CURRENT-LIABILITIES> $25,519
<BONDS> 0
<COMMON> 203
0
0
<OTHER-SE> $181,848
<TOTAL-LIABILITY-AND-EQUITY> $227,214
<SALES> $149,079
<TOTAL-REVENUES> $153,371
<CGS> $32,656
<TOTAL-COSTS> $83,958
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<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> $16,330
<INCOME-TAX> $6,235
<INCOME-CONTINUING> $10,095
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> $10,095
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