______________________________________________________________________
______________________________________________________________________
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 6, 1996 Commission File
Number 1-8881
SBARRO, INC.
(Exact Name of Registrant as Specified in its Charter)
NEW YORK 11-2501939
(State or other jurisdiction of incorporation (I.R.S. Employer
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 15, 1996
Common Stock, $.01 par value 20,392,243
______________________________________________________________________
______________________________________________________________________<PAGE>
SBARRO, INC.
FORM 10-Q INDEX
PART I. FINANCIAL INFORMATION PAGES
Consolidated Financial Statements:
Balance Sheets - October 6, 1996 (unaudited) and
December 31, 1995 . . . . . . . . . . . . . . . . . . 3-4
Statements of Income (unaudited) - Forty Weeks
ended October 6, 1996 and October 8, 1995
and Twelve Weeks ended October 6, 1996 and
October 8, 1995. . . . . . . . . . . . . . . . . . . .5-6
Statements of Cash Flows (unaudited) - Forty Weeks
ended October 6, 1996 and October 8, 1995 . . . . . .7-8
Notes to Unaudited Consolidated Financial
Statements - October 6, 1996 . . . . . . . . . . . . . .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)
October 6, December 31,
1996 1995
(unaudited)
Current assets:
Cash and cash equivalents $83,905 $93,501
Marketable securities 2,500 -
Receivables:
Franchisees 684 741
Other 1,198 1,863
1,882 2,604
Inventories 2,396 2,763
Prepaid expenses 5,476 1,754
Total current assets 96,159 100,622
Marketable securities 7,500 10,000
Property and equipment, net 129,637 126,757
Other assets:
Deferred charges, net of accumulated
amortization of $2,674,500 at
October 6, 1996 and $1,573,000 at
December 31, 1995 1,648 1,767
Other 4,769 3,584
6,417 5,351
$239,713 $242,730
(continued)
Pg. 3<PAGE>
SBARRO, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
LIABILITIES AND SHAREHOLDERS' EQUITY
(In thousands)
October 6, December 31,
1996 1995
(unaudited)
Current liabilities:
Accounts payable $7,080 $7,399
Accrued expenses 20,967 27,005
Dividend payable - 3,865
Income taxes 3,341 4,708
Total current liabilities 31,388 42,977
Deferred income taxes 13,095 14,087
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 20,389,742 shares at
October 6, 1996 and 20,345,483 shares
at December 31, 1995 204 203
Additional paid-in capital 31,144 30,330
Retained earnings 163,882 155,133
195,230 185,666
$239,713 $242,730
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 6, October 8,
1996 1995
Revenues:
Restaurant sales $230,047 $222,632
Franchise related income 4,698 4,328
Interest income 2,861 2,200
Total revenues 237,606 229,160
Costs and expenses:
Cost of food and paper products 50,481 48,673
Restaurant operating expenses:
Payroll and other employee
benefits 57,845 57,738
Occupancy and other 64,711 64,084
Depreciation and amortization 17,268 17,815
General and administrative 11,470 12,469
Other income (950) (1,054)
Total costs and expenses 200,825 199,725
Income before income taxes 36,781 29,435
Income taxes 13,976 11,215
Net income $22,805 $18,220
Per share data:
Earnings per common and common
equivalent share $1.12 $0.90
Weighted average number of shares
used in the computation 20,362,333 20,334,921
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 6, October 8,
1996 1995
Revenues:
Restaurant sales $75,916 $73,553
Franchise related income 1,592 1,494
Interest income 913 742
Total revenues 78,421 75,789
Costs and expenses:
Cost of food and paper products 16,632 16,017
Restaurant operating expenses:
Payroll and other employee
benefits 18,087 17,784
Occupancy and other 20 547 20,080
Depreciation and amortization 5,353 5,507
General and administrative 3,408 3,607
Other income (282) (311)
Total costs and expenses 63,745 62,684
Income before income taxes 14,676 13,105
Income taxes 5,488 4,980
Net income $ 9,188 $ 8,125
Per share data:
Earnings per common and common
equivalent share $0.45 $0.40
Weighted average number of shares
used in the computation 20,379,932 20,339,284
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 6, October 8,
1996 1995
Operating activities:
Net income $22,805 $18,220
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 17,268 17,815
Deferred income taxes (992) 673
Changes in operating assets
and liabilities:
Decrease in receivables 722 1,219
Decrease in inventories 367 381
Increase in prepaid expenses (3,645) (3,672)
Increase in deferred charges (1,021) (1,087)
Increase in other assets (1,369) (2,076)
Decrease in accounts payable
and accrued expenses (6,225) (2,382)
Decrease in income taxes payable(1,367) (3,107)
Net cash provided by operating
activities 26,543 25,984
Investing activities:
Proceeds from maturities of
marketable securities - 21,575
Purchases of property and equipment (19,033) (13,921)
Net cash provided by (used in)
investing activities (19,033) 7,654
(continued)
Pg. 7<PAGE>
SBARRO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(UNAUDITED)
(In thousands)
For the forty weeks ended:
October 6, October 8,
1996 1995
Financing activities:
Proceeds from exercise of
stock options 815 214
Cash dividends paid (17,921) (14,845)
Net cash used in financing
activities (17,106) (14,631)
Increase (decrease) in cash
and cash equivalents (9,596) 19,007
Cash and cash equivalents at
beginning of period 93,501 42,362
Cash and cash equivalents
at end of period $83,905 $61,369
Supplemental disclosure of cash flow information:
Cash paid during the period
for income taxes $16,321 $13,355
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 6, 1996 and their
consolidated results of operations for the forty and twelve
weeks ended October 6, 1996 and October 8, 1995 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 December 31, 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 1995, the
fourth fiscal quarter accounted for 42% of net income for the year (prior
to the provision in 1995 for unit closings). In 1994, the fourth fiscal
quarter accounted for 39% of net income for the year. 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 Weeks 40 Weeks 12 Weeks 12 Weeks
Ended Ended Ended Ended Fiscal Year
10/06/96 10/08/95 10/06/96 10/08/95 1995 1994
Company-owned restaurants:
Opened during period 20 37 10 10 44 53
Acquired from (sold to)
franchisees during
period-net 1 - 1 - - 2
Closed during period (3) (6) - - (40) (3)
Open at end of period 589 598 589 598 571 567
Franchised restaurants:
Opened during period 25 30 11 10 40 38
Purchased from (sold to)
Company during period-net (1) - (1) - - (2)
Closed or terminated
during period (13) (2) (7) - (2) (8)
Open at end of period 211 190 211 190 200 162
All restaurants:
Opened during period 45 67 21 20 84 91
Closed or terminated
during period (16) (8) (7) - (42) (11)
Open at end of period 800 788 800 788 771 729
In addition, franchisees operate eight kiosk/cart units.
Pg. 10<PAGE>
Restaurant sales from Company-owned units increased 3.3% to
$230,047,000 for the forty weeks ended October 6, 1996 from
$222,632,000 for the forty weeks ended October 8, 1995.
Restaurant sales from Company-owned units increased 3.2% to
$75,916,000 for the twelve weeks ended October 6, 1996 from
$73,553,000 for the twelve weeks ended October 8, 1995. These
increases resulted primarily from the opening of new units not
open for the full period in 1995, which are producing sales more
typical of the Company's existing units than the underperforming
units which the Company closed pursuant to the program announced
in late 1995, and an increase in comparable unit sales of
approximately .6% for the forty week period (comparable unit
sales remained relatively unchanged for the twelve week period).
The 1996 comparable unit sales for the forty week period were
$212,537,000 and for the twelve week period were $69,059,000.
The Company increased selective menu prices by less than .5% and
approximately 1% in mid April 1996 and mid July 1996,
respectively, which subsequent to the increase, affected sales by
less than .5% for the forty weeks ended October 6, 1996 and
approximately 1% for the twelve week period, respectively.
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 8.5% to $4,698,000 for the
forty weeks ended October 6, 1996 from $4,328,000 for the forty
weeks ended October 8, 1995. Franchise related income increased
6.6% to $1,592,000 for the twelve weeks ended October 6, 1996
from $1,494,000 for the twelve weeks ended October 8, 1995.
These increases resulted from higher royalties, due principally
to a larger number of franchise units in operation in the current
periods than in the comparable periods in 1995, offset somewhat
by lower franchise licensing fees due to less store openings.
Interest income increased to $2,861,000 for the forty weeks ended
October 6, 1996 from $2,200,000 for the comparable period last
year. Interest income increased to $913,000 for the twelve weeks
ended October 6, 1996 from $742,000 for the comparable period of
the prior year. These increases were due to larger amounts of
cash invested at comparable interest rates in the current periods
over the comparable periods in 1995.
Cost of food and paper products as a percentage of restaurant
sales were 21.9% for both the forty weeks ended October 6, 1996
and October 8, 1995. Cost of food and paper products as a
percentage of restaurant sales increased to 21.9% for the twelve
weeks ended October 6, 1996 from 21.8% for the twelve weeks ended
October 8, 1995. These percentages were affected primarily by
higher cheese prices, the effect of which increased food costs by
$1,778,000 and $802,000 for the forty and twelve weeks ended
October 6, 1996, respectively, offset somewhat by lower prices of
other items and by the benefits of the closing of underperforming
units in late 1995 which had higher food cost relationships and,
to a limited extent, the selective menu price increases. Towards
the end of the third quarter, cheese prices began to decline,
Pg. 11<PAGE>
which had a nominal impact on the third quarter. Current cheese
prices are slightly below cheese prices that were in effect at
this time in 1995.
Restaurant operating expenses - payroll and other employee
benefits decreased to 25.1% of restaurant sales for the forty
weeks ended October 6, 1996 from 25.9% for the forty weeks ended
October 8, 1995, and decreased to 23.8% for the twelve weeks
ended October 6, 1996 from 24.2% for the twelve weeks ended
October 8, 1995. Restaurant operating expenses - occupancy and
other expenses decreased to 28.1% for the forty weeks ended
October 6, 1996 from 28.8% for the forty weeks ended October 8,
1995 and decreased to 27.1% for the twelve weeks ended October 6,
1996 from 27.3% for the twelve weeks ended October 8, 1995.
These decreases are partially due to the increase in comparable
unit sales enabling the spreading of such costs over a larger
sales base and partially due to the Company's program of closing
underperforming units which had higher payroll and other
restaurant cost relationships.
Depreciation and amortization expenses decreased to $17,268,000
for the forty weeks ended October 6, 1996 from $17,815,000 for
the forty weeks ended October 8, 1995. Depreciation and
amortization expenses decreased to $5,353,000 for the twelve
weeks ended October 6, 1996 from $5,507,000 for the twelve weeks
ended October 8, 1995. These decreases are principally due to
the closing of underperforming units in late 1995 offset somewhat
from opening new units.
General and administrative expenses were $11,470,000 or 4.8% of
total revenues for the forty weeks ended October 6, 1996 compared
to $12,469,000 or 5.4% of total revenues for the forty weeks
ended October 8, 1995. This decrease was primarily the result of
a reduction in management level positions and a nonrecurring
$235,000 provision in 1995. General and administrative expenses
were $3,408,000 or 4.3% of total revenues for the twelve weeks
ended October 6, 1996 compared to $3,607,000 or 4.8% for the
twelve weeks ended October 8, 1995. This decrease was primarily
due to the reduction in management level personnel subsequent to
the second quarter of 1995.
The effective income tax rate for the forty weeks ended October
6, 1996 was 38.0% and for October 8, 1995 was 38.1%.
Liquidity and Capital Resources
At October 6, 1996, the Company had cash and cash equivalents and
marketable securities of approximately $93,905,000 and its
working capital was approximately $64,771,000. Cash provided by
operations for the forty weeks ended October 6, 1996 of
$26,543,000 and a portion of the available working capital was
used to purchase restaurant property and equipment and to
Pg. 12
renovate the Company's new headquarters building of $19,033,000
and to pay four quarterly dividends aggregating $17,921,000. The<PAGE>
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 22, 1996, the Company increased its quarterly cash
dividend to $.23 per share, or an aggregate annual rate of $.92
per share. This dividend was paid on April 3, 1996 to
shareholders of record on March 19, 1996, and amounted to
$4,680,554.
On May 23, 1996, the Company declared a quarterly cash dividend
of $.23 per share. The cash dividend was paid on July 8, 1996 to
shareholders of record on June 19, 1996, and amounted to
$4,685,443.
On August 21, 1996, the Company declared a quarterly cash
dividend of $.23 per share. The cash dividend was paid on
October 4, 1996 to shareholders of record on September 19, 1996,
and amounted to $4,689,641.
On November 20, 1996, the Company declared a quarterly cash
dividend of $.23 per share. The cash dividend will be paid on
January 3, 1997 to shareholders of record on December 19, 1996.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
No. Description
10.1 1985 Plan, as amended
10.2 1991 Plan, as amended
27 Financial Data Schedule
(b) Reports on Form 8-K.
No Reports on Form 8-K were filed by the Company during the
quarter for which this Report is filed.
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: November 20, 1996 By: MARIO SBARRO
Mario Sbarro
Chairman of the Board
and President
Date: November 20, 1996 By: ROBERT S. KOEBELE
Robert S. Koebele
Vice President-Finance
Pg. 14<PAGE>
EXHIBIT INDEX
Exhibit Number Description Page
10.1 1985 Plan, as amended
10.2 1991 Plan, as amended
27 Financial Data Schedule<PAGE>
SBARRO, INC.
1985 INCENTIVE STOCK OPTION PLAN
(As amended through August 20, 1996)
PLAN SUMMARY
This plan is designed to advance the growth and
prosperity of SBARRO, INC. and its subsidiaries by providing
key employees with an additional incentive to contribute to
the company's future prosperity. Without prejudice to the
other compensation programs established by the company, the
incentive provided herein is to be given key employees by
means of stock options and stock appreciation rights (SARS)
provided under this plan. With regard to SARS, the
Committee may grant such rights to option holders who by
reason of their position with the Corporation are subject to
restrictions .in the purchase and sale of the Corporation's
common stock. Each SAR shall only be granted in connection
with an option granted, or previously granted, under the
plan. Any option holder shall be required to exercise
options concurrently with any exercise of SARs and the
Committee may in its discretion, impose such other
conditions on the exercisability of SARs as it deems fit.
The plan will be administered by the Board of
Directors or a Committee established by the Board of
Directors. This Committee has the power to grant options
and/or SARS, and may make all other determinations in
connection with the granting of options and SARs under the
plan. The Committee has the authority to determine from<PAGE>
time to time those officers and key employees of the company
and its subsidiaries to whom options or SARs are to be
granted. The plan provides that an aggregate of 1,350,0001
shares of the company's common stock may be optioned to
officers and other key employees. The purchase price for
this optioned stock is to be established by the Committee
but in no event will it be less than 100 percent of the
common stock's fair market value on the date of option
grant.
Pursuant to IRC 422A, the aggregate fair market
value of the stock for which any employee may be granted
options in any calendar year is not to exceed $100,000 plus
any unused limit carryover (as defined in Plan S5(c)) to
such year from any prior calendar year beginning on or after
January 1, 1981. Under the plan, an SAR may be granted in
connection with an option, including an ISO granted pursuant
to the plan at the time of the option grant. Payment for
shares subject to options granted under the plan may be made
by the optionee in cash, other common stock of the company
owned by the optionee, or a combination of both.
PLAN TEXT
THE SBARRO, INC. 1985 STOCK OPTION PLAN (THE "PLAN") Adopted
by the Board of Directors March 29, 1985.
1. Purpose. The purpose of this Plan is to
advance the growth and prosperity of SBARRO, Inc. (the
1* Gives effect to stock splits effectuated between March
29, 1985 and March 28, 1995.<PAGE>
"Company") and its subsidiaries by providing key employees
with an additional incentive to contribute to the best
interests of the Company. Without prejudice to other
compensation programs approved from time to time by the
Board of Directors (the "Board") and/or shareholders of the
Company, such additional incentive is to be given key
employees by means of stock options and/or stock
appreciation rights provided for under this Plan. Such
options hall be Incentive Stock Options within the meaning
of Section 422A of the Internal Revenue Code of 1954.
2. Administration of the Plan. This Plan shall
be administered by the Board or such committee of directors
as the Board may establish or designate (the "Committee"),
such committee to consist of not less than two members, all
of whom must be "non-employee directors" within the meaning
of Rule 16b-3 of the rules and regulations of the Securities
and Exchange Commission promulgated under the Securities
Exchange Act of 1934, as amended. References in the Plan to
determinations or actions by the Compensation Committee or
the Committee shall be deemed to include determinations and
actions by the Committee or the Board of Directors. No
person while a member of the Committee shall be eligible to
be granted an option or stock appreciation right under this
Plan. Subject to the control of the Board, the Committee
shall have power to grant options and/or stock appreciation
rights under the Plan, to interpret the Plan, to make
regulations for carrying out its purpose, and to make all<PAGE>
other determinations in connection with the granting of
options and/or stock appreciation rights and the
administration of the Plan.
3. Eligible Employees. The Committee shall
determine from time to time those officers and key employees
of the Company and its subsidiaries to whom options or stock
appreciation rights shall be granted, the amount thereof and
the terms and conditions, including requirements as to
continued employment by the participant, upon which such
options or rights are granted and are exercisable.
4. The Stock. The Stock subject to the options,
stock appreciation rights and other provisions of the Plan
shall be shares of the Company's authorized and unissued
Common Stock, par value $.01 per share, or reacquired Common
Stock held in the Treasury. The total number of shares of
the Company's Common Stock that may be purchased pursuant to
stock options or transferred pursuant to the exercise of
stock appreciation rights under the Plan shall not exceed in
the aggregate 300,000 shares. Shares subject to options
which terminate or expire prior to exercise shall be
available for further option hereunder. Shares represented
by an unexercised stock option surrendered upon exercise of
stock appreciation rights including, without duplication,
any shares issued in payment of any stock appreciation
right, shall be deducted from the aggregate and shall not be
available for further options hereunder. Each option
granted under this Plan shall be subject to the requirement<PAGE>
that, if at any time the Board or the Committee shall
determine that the listing registration or qualification of
the shares subject thereto upon any securities exchange or
under any state or federal law, or the consent or approval
of any governmental regulatory body, or investment or other
representations, are necessary or desirable in connection
with the issue or purchase of shares subject thereto, no
such option may be exercised in whole or in part unless such
listing, registration, qualification, consent, approval or
representations shall have been effected or obtained free of
any conditions not acceptable to the Board or the Committee.
If required at any time by the Board or the Committee, an
option may not be exercised until the optionee has delivered
an investment letter to the Company.
5. Terms and Conditions of Options. All stock
options granted pursuant to the Plan shall be in such form
as the Committee shall from time to time determine and shall
be subject to the following terms and conditions:
6. Option Price. The price per share for
Common Stock under each option granted under the
Plan shall be determined and fixed by the
Committee but in no event be less than 100% of the
fair market value of the Common Stock on the date
of grant of such option. In the case of the grant
of an option to an individual who, at the time of
the grant, owns more than 10% of the total
combined voting power of all classes of stock of<PAGE>
the Company, such price per share shall not be
less than 110% of the fair market value of the
Common Stock on the date of grant of the option.
For purposes hereof "fair market value" shall be
the closing price of the common stock on the
American Stock Exchange on the date of grant, or
if there were no transactions in the Common Stock
on such day, then the last preceding day on which
a transaction took place, provided, however, that
in the event the date of grant precedes the
listing of the Common Stock on the American Stock
Exchange fair market value shall be determined by
the independent certified public accountants
regularly employed by the Company, or in such
manner as may be determined by the Committee.
7. Option Period. The period during which
an option may be exercised shall be determined by
the Committee, provided, however, that in no event
shall an option be exercisable after the
expiration of 10 years from the date such option
was granted, and provided further than in the case
of the grant of an option to an individual who, at
the time of the grant, owns more than 10 percent
of the total combined voting power of all classes
of stock of the Company, in no event shall such
option be exercisable more than 5 years from the
date of the grant. Options may be made<PAGE>
exercisable in installments, and such options or
installments thereof may be exercised in part from
time to time after they become exercisable. The
maturity of any installment or installments may be
accelerated at the discretion of the Committee.
No option may be exercised after the
termination of employment of a participant with
the Company or a parent or subsidiary of the
Company, except that: (a) if such termination of
employment is due to disability, any options held
by the optionee which are then exercisable by him,
or which by acceleration become exercisable, may
be exercised by him within one year after such
termination and in all other events the option may
be exercised by him within three months after such
termination; and (b) in the event of the death of
a participant (whether during or after the
termination of his employment) any options held by
the optionee which are then exercisable, or which
by acceleration become exercisable, may be
exercised within nine months after his death by
the person or persons to whom the optionee's
rights under such options are transferred by will
or the laws of descent and distribution.
During any authorized leave of absence from
employment, installments under any option shall
become exercisable but may not be exercised during<PAGE>
such period. After return to active employment
any unexpired options which have become
exercisable may be exercised. Termination of the
leave of absence by death or reasons other than
return to active employment shall constitute
termination of employment for the purposes of
clauses (a) and (b) above.
No option shall be exercisable while there is
"outstanding' (within the meaning of Section 422A
(c)(7) of the Code) any option previously granted
to such participant to purchase shares of stock of
the Company, a parent or subsidiary of the
Company, or a predecessor of any such
corporations.
Nothing contained in the Plan or in any
option granted pursuant to the Plan shall confer
on any participant any right to be continued in
the employ of the Company or one of its
subsidiaries.
8. Limitations on Grants. No option shall
be granted during any calendar year to any
participant under the Plan if the aggregate fair
market value (as of the time the option is
granted) of the Common Stock covered by all
options granted to such participant in such
calendar year under this Plan and any other plan
of the Company or any subsidiary exceeds the sum<PAGE>
of (a) $100,000 and (b) the optionee's unused
"limit carryover,' as described below. For any
calendar year (after 1980) in which such aggregate
fair market value is less than $100,000, one-half
of the excess of $100,000 over such aggregate fair
market value will be a limit carryover. A limit
carryover shall be reduced to the extent it is
used in any subsequent calendar year, and shall be
eliminated at the end of the third year subsequent
to the calendar year in which it arose. If a
participant has limit carryovers for two or more
years, the limit carryover arising earliest shall
be the first used. No limit carryover shall be
used until the aggregate fair market value of the
Common Stock granted pursuant to incentive stock
options in the calendar year exceeds $100,000.
The foregoing limitations shall be modified from
time to time to reflect any changes in Section
422A(b)(8) of the Code setting forth such limita-
tions.
9. Terms and Conditions of Stock Appreciation
Rights. Stock appreciation rights may be granted in
connection with an option granted pursuant to the Plan at
the time of the grant of the option. All stock
appreciation rights shall be in such form as the Committee
may from time to time determine and shall be subject to the
following terms and conditions:<PAGE>
10. Extent of Grant. The number of shares
of stock covered by a grant of stock appreciation
rights shall not exceed the number of shares of
stock which such holder may purchase upon the
exercise of the stock option with respect to which
the stock appreciation right is granted.
11. Limitations on Exercise. Stock
appreciation rights shall be exercisable at such
times and in such amounts as the stock option in
connection with which such rights are granted,
provided, however, that if a stock appreciation
right is granted to a person subject to Section
16(b) of the Securities Exchange Act of 1934, such
right and the option in connection with which it
was granted shall in no event be exercisable
during the first six months of its term (except
that the limitation provided under this clause
shall not apply in the event the holder dies or is
disabled prior to the expiration of the six-month
period). In addition, notice of exercise of a
stock appreciation right may be given only during
the period beginning on the third business day
following the release of the Company's quarterly
or annual summary of sales and earnings and ending
on the twelfth business day after such release.
(c) Entitlement. Stock appreciation rights
shall entitle the holder to surrender to the<PAGE>
Company the unexercised stock option in connection
with which the rights were granted or any portion
thereof, and to receive from the Company in
exchange therefor an amount equal to the amount,
if any, by which the aggregate fair market value
of the shares of Common Stock covered by the
surrendered option at the exercise date exceeds
the aggregate option exercise price of those
shares which would be payable if the option had
been exercised on such date. Upon the exercise of
a stock appreciation right, the Company shall pay
to the holder the appropriate amount (i) in shares
of the Company's Common Stock valued at fair
market value, or (ii) in cash, or (iii) partly in
shares and partly in cash, as shall be determined
by the Committee. For purposes hereof "fair
market value" shall be the closing price of the
Common Stock on the American Stock Exchange on the
date of exercise of the stock appreciation rights.
Stock appreciation rights may be exercised from
time to time upon actual receipt by the Company of
written notice stating the number of shares of
Common Stock with respect to which the stock
appreciation right is being exercised. No
fractional shares will be issued but instead cash
will be paid for a fraction or, if the Committee<PAGE>
should so determine, the number of shares shall be
rounded downward to the nearest whole share.
12. Payment for Stock. Payment for shares
subject to options granted under the Plan may be made by the
optionee in the form of cash, other Common Stock of the
Company owned by the optionee, or by a combination of Common
Stock and cash.
13. Non-Assignability. During a participant's
lifetime options or stock appreciation rights are not
transferable and are exercisable only by him.
14. Dilution or Other Adjustments. In the event
that the outstanding shares of the Common Stock of the
Company shall be increased or decreased or changed into or
exchanged for a different number or kind of shares of stock
or other securities of the Company, whether through stock
dividend, stock split, recapitalization, or otherwise, the
Committee shall make appropriate adjustment in the number or
kind of shares or securities available for options or stock
appreciation rights pursuant to this Plan and subject to any
option or right, and the purchase price therefor. The
determination of the Committee as to such adjustments shall
be conclusive.
15. Merger or Consolidation. In the event of any
merger, consolidation or other reorganization of the Company
in which the Company is not the surviving or continuing
corporation (as determined by the Committee), all options
and stock appreciation rights granted hereunder and<PAGE>
outstanding on the date of such event shall be assumed by
the surviving or continuing corporation.
16. Amendment. The Board may from time to time
amend this Plan, but, except as provided above with respect
to dilutions or other adjustments or mergers or
consolidations, or with the approval of the Company's
shareholders, may not (a) increase the aggregate number of
shares available for option or stock appreciation rights
hereunder, (b) change the price at which options or stock
appreciation rights may be granted, (c) extend the maximum
period during which an option or stock appreciation right
may be exercised, or (d) change the eligibility requirements
for options or stock appreciation rights hereunder.
17. Termination. The Plan shall terminate on the
date which is 10 years from the date the Plan is adopted by
the Board or the date the Plan is approved by the Company's
stockholders, whichever is earlier, unless sooner terminated
by action of the Board. No option or stock appreciation
right may be granted hereunder after termination of the
Plan, but such termination shall not affect the validity of
any option or stock appreciation right then outstanding.
18. Stockholder Approval. The Plan shall be sub-
mitted for the approval of the stockholders of the Company
at the first annual meeting of stockholders held subsequent
to the adoption of the Plan. If at said meeting or adjourn-
ment thereof the stockholders of the Company do not approve
the Plan, the Plan shall terminate.<PAGE>
<PAGE>
SBARRO, INC.
1991 STOCK INCENTIVE PLAN
(as amended through August 20, 1996)
1. Purpose of the Plan
The purpose of this 1991 Stock Incentive Plan (the
"Plan") of Sbarro, Inc., a New York corporation (the
"Corporation"), is to promote the interests of the
Corporation in attracting and retaining employees,
consultants and advisors by enabling them to acquire or
increase a proprietary interest in the Corporation, benefit
from appreciation in the value of the Corporation's Common
Stock, par value $.01 per share (the "Common Stock") and,
thus, participate in the long-term growth of the
Corporation. The Plan provides for the grant of "incentive
stock options" ("ISOs") within the meaning of Section 422
(formerly Section 422A) of the Internal Revenue Code of
1986, as amended (the "Code"), stock options which do not
qualify as ISOs ("NQSOs") and stock appreciation rights
("SARs"), which may be free-standing or granted in tandem
with an option. The words "Parent" and "Subsidiary", as
used in the Plan, shall mean a parent corporation or a
subsidiary corporation of the Corporation, respectively, as
defined in Section 424 of the Code. The word "disability",
as used in the Plan, shall mean a "permanent and total
disability" under Section 22(e)(3) of the Code. A
"Reporting Person" shall mean any holder of an option or SAR
who is subject to the reporting requirements under Section
16(a) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act").
2. Stock Subject to the Plan
Subject to the provisions of Article 11, the total
number of shares of Common Stock with respect to which
options or SARs may be granted under the Plan shall not
exceed 1,000,000. Shares issued under the Plan may consist
either in whole or in part of authorized but unissued
shares, or shares which shall have been purchased or
acquired by the Corporation for this or any other purpose
which are held in the treasury. In the event any option or
SAR granted under the Plan shall expire, be canceled or
terminate for any reason without it (and without any related
tandem SAR or option) having been exercised in full or shall
cease for any reason to be exercisable in whole or in part,
the shares relating to the expired, canceled or terminated
portion of the option or SAR shall again be available for
grant under the Plan. The number of shares of Common Stock
underlying that portion of an option or SAR which is
exercised shall not again become available for grant under
the Plan.
3. Administration of the Plan<PAGE>
(a) The Plan shall be administered by the Board
of Directors of the Corporation or such committee of
directors as the Board of Directors may establish or
designate (the "Committee"), such committee is to be
composed of not less than two members, each of whom must be
"non-employee directors" within the meaning of Rule 16b-3 of
the rules and regulations of the Securities and Exchange
Commission promulgated under the Exchange Act ("Rule 16b-
3"). References in the Plan to determinations or actions of
the Committee shall be deemed to include determinations and
actions by the Committee or the Board of Directors.
(b) The Committee shall determine, within the
limits of the Plan, (i) the individuals to whom, and the
time or times at which, options and SARs shall be granted,
(ii) the type of options (ISOs or NQSOs) and SARs
(free-standing or in tandem with ISOs or NQSOs) to be
granted and whether SARs are to be granted before,
simultaneously with or subsequent to the grant of an option,
(iii) the number of shares to be subject to each option or
SAR, (iv) the term of each option and SAR, (v) the exercise
price of each option and the base price of each SAR, (vi)
the time or times within which (during the term of the
option or SAR) and conditions, if any, under which all or
portions of each option or SAR may be exercised (including
whether and the conditions, if any, under which all or a
portion of an option or SAR exercisable in installments
which is not exercised in any one period may be exercised in
a subsequent period during the term of the term of the
option or SAR) and (vii) such other terms as are not
inconsistent with the Plan and as the Committee may deem
appropriate. In making such determinations, the Committee
may take into account the nature of the services rendered by
such individuals, their present and potential contributions
to the Corporation's success and such other factors as the
Committee in its discretion may deem relevant. Each
employee, consultant or advisor to whom an option or SAR is
granted shall enter into a written agreement with the
Corporation, dated as of the date the option or SAR is
granted, setting forth the terms and conditions of the
option or SAR granted, which agreement shall contain such
further terms and conditions, which shall not be
inconsistent with the Plan, as the Committee shall approve
or authorize.
(c) The Committee may (with the consent of the
holder of the option or SAR) cancel or modify an option or
SAR or grant an option and/or SAR in substitution for any
canceled option or SAR, provided that any substituted option
or SAR and any option or SAR as modified would be permitted
to be granted on such date under the terms of the Plan and
the Code and, in connection therewith, the Committee may
give credit toward any required vesting period for the<PAGE>
period during which the holder held the canceled option or
SAR.
(d) Subject to the express provisions of the
Plan, the Committee may interpret the Plan; correct any
defect, supply any omission or reconcile any inconsistency
in the Plan; prescribe, amend and rescind rules and
regulations relating to the Plan; determine the terms and
provisions of the respective option and SAR agreements
(which need not be identical); and make all other
determinations necessary or advisable for the administration
of the Plan.
(e) The determination of the Committee on the
matters referred to in this Article 3 shall be conclusive.
4. Eligibility
(a) Options and SARs may be granted only to
employees of, or consultants or advisors to, the Corporation
or of any Subsidiary. A director or officer of the
Corporation or of a Subsidiary who is not also serving the
Corporation or a Subsidiary as an employee, consultant or
advisor shall not be eligible to receive an option or an
SAR. Notwithstanding the foregoing, ISOs may only be
granted to employees (including directors and officers who
are employees) of the Corporation or of a Subsidiary.
(b) The aggregate fair market value (determined
at the time the option is granted) of stock with respect to
which ISOs may be granted under the Plan and any other plan
of the Corporation or of a Subsidiary or of a Parent which
are exercisable for the first time by such optionee during
any calendar year shall not exceed $100,000. Should it be
determined that any ISO granted under the Plan exceeds such
maximum, the excess shall be treated as a separate NQSO.
(c) The maximum number of shares of Common Stock
subject to options and SARs which may be granted to any
optionee under the Plan in any fiscal year of the
Corporation shall not exceed 100,000.
5. Exercise Price and Base Price
(a) The exercise price at which shares of the
Common Stock may be purchased pursuant to options granted
under the Plan and the base price for each SAR granted under
the Plan shall be as determined by the Committee, but shall
not be less than 100% of the fair market value of the Common
Stock on the date of grant; provided, however, that if, at
the time an ISO is granted, the optionee owns (or is deemed
to own under applicable provisions of the Code and
regulations promulgated thereunder) stock possessing more
than 10% of the total combined voting power of all classes<PAGE>
of stock of the Corporation or of a Subsidiary or of a
Parent, the exercise price with respect to such ISO shall
not be less than 110% of the fair market value of the Common
Stock on the date the option is granted.
(b) Unless otherwise required by the Code and the
applicable regulations promulgated thereunder, if the
principal market for the Common Stock is a national
securities exchange, the fair market value of the Common
Stock on any day shall be the closing price of the Common
Stock on such day (or last day of trade prior to such day,
if not traded on such day) as reported by such exchange or
on a consolidated tape reflecting transactions on such
exchange, or, if the principal market for the Common Stock
is not a national securities exchange, the fair market value
will be as determined by the Committee.
(c) The date on which the Committee approves the
granting of an option or SAR (or the later date specified in
such approval) shall be considered the date on which such
option or SAR is granted; provided, however, that any grant
of an option or SAR that is conditioned upon the occurrence
or non -occurrence of an event shall not be considered
granted until such occurrence or non-occurrence.
6. Term of Each Option and SAR
The term of each option and of each SAR shall be
for such period as the Committee shall determine; provided,
however, that the term of each ISO granted under the Plan
shall not be for a period exceeding ten years from the date
of the granting thereof; and further provided that if, at
the time an ISO is granted, the optionee owns (or is deemed
to own under applicable provisions of the Code and
regulations promulgated thereunder) stock possessing more
than 10% of the total combined voting power of all classes
of stock of the Corporation or of a Subsidiary or of a
Parent, the term of such ISO shall be no more than five
years. Options and SARs shall be subject to earlier
termination as provided in the Plan or in the agreement.
7. Exercise of Options and SARs
(a) No option or SAR shall be exercisable at any
time in an amount less than 100 shares (or the remaining
shares then covered by the option or SAR if less than 100
shares). No option or SAR may be exercised in respect of a
fraction of a share.
(b) Any option granted in tandem with an SAR
shall no longer be exercisable to the extent the SAR is
exercised and the exercise of the related option shall
cancel the SAR to the extent of such exercise.<PAGE>
(c) The Corporation shall not be required to
issue any shares pursuant to any such option or SAR exercise
until all required payments have been made by the holder. A
person entitled to receive Common Stock upon the exercise of
an option or SAR shall not have the rights of a shareholder
with respect to such shares until the date of issuance of a
stock certificate to him for such shares; provided, however,
that until such stock certificate is issued, any optionee
using previously acquired shares in payment of an option
exercise price shall continue to have the rights of a
shareholder with respect to such previously acquired shares.
8. Payment upon Exercise of an Option or SAR
(a) An option or SAR (or any part or installment
thereof) to the extent exercisable shall be exercised by
giving written notice to the Corporation at its principal
office (currently 763 Larkfield Road, Commack, New York
11725) Attention: Chief Financial Officer, stating which
ISO, NQSO or SAR is being exercised, specifying the number
of shares as to which such option or SAR is being exercised
and, in the case of an option, accompanied by payment in
full of the aggregate exercise price thereof (or the amount
due on exercise if the option permits installment payments).
The Committee may, however, in its discretion, permit
payment of the exercise price of options by delivery of a
properly executed exercise notice, together with a copy of
irrevocable instructions to a broker to deliver promptly to
the Company the amount of sale or loan proceeds to pay such
exercise price. To facilitate the foregoing, the Company
may enter into agreements for coordinated procedures with
one or more brokerage firms.
(b) The exercise price of an option may be paid
(i) in cash or by certified check, (ii) by transferring to
the Corporation previously acquired shares of Common Stock
having an aggregate fair market value on the date of
exercise equal to the aggregate exercise price of all
options being exercised, or (iii) any combination thereof,
as determined by the Committee. The fair market value of
the shares so transferred to the Corporation shall be
determined in accordance with Article 5, but shall be
determined as of the date of exercise of the option.
(c) Upon the exercise of an SAR, the holder shall
be entitled to receive an amount equal to the excess of the
fair market value on the date of exercise of the number of
shares of Common Stock as to which the SAR is exercised over
the base price of the portion of the SAR exercised. Such
amount shall be paid (i) in cash or by check, (ii) with
Common Stock having an aggregate fair market value on the
date of exercise equal to such amount, or (iii) any
combination thereof, as determined in the sole discretion of
the Committee. The fair market value of such shares shall<PAGE>
be determined in accordance with Article 5, but shall be
determined as of the date of exercise of the SAR.
(d) The Corporation may withhold cash and/or,
with the specific authorization of the Committee in the
written agreement granting the option or otherwise, shares
of Common Stock to be issued with respect thereto (the fair
market value of which shall be determined in accordance with
Article 5, but shall be determined as of the date of
exercise) in the amount which it determines is necessary to
satisfy the Corporation's obligation to withhold federal,
state or local income taxes or other taxes incurred by
reason of the grant or exercise of an option or SAR, the
disposition of an option or SAR or the disposition of the
underlying shares. Alternatively, the Corporation may
require the holder to pay to the Corporation such amount, in
cash, promptly upon demand.
9. Non-Transferability of Options and SARs
No option or SAR shall be transferable otherwise
than by will or the laws of descent and distribution, and an
option or SAR may be exercised, during the lifetime of the
holder thereof, only by such holder. Except to the extent
provided above, options and SARs may not be assigned,
transferred, pledged, hypothecated or disposed of in any way
(whether by operation of law or otherwise) and shall not be
subject to execution, attachment or similar process.
10. Termination of Relationship with Corporation
(a) Except as provided in the remaining
provisions of this Article 10, an option or SAR shall
terminate immediately if the holder is no longer an
employee, consultant or advisor of the Corporation, a
Subsidiary or a Parent.
(b) In the event that such relationship shall be
terminated by reason of the option or SAR holder's
disability, the remaining portion of such option or SAR (to
the extent exercisable on the date of termination) may be
exercised by the holder at any time within one year after
such termination, but not thereafter and in no event after
the expiration of the term of the option or SAR.
(c) In the event that such relationship shall be
terminated by the death of the holder or the holder dies
within one year after such relationship was terminated by
reason of his disability, the remaining portion of such
option or SAR (to the extent exercisable on the date of
termination) may be exercised by a legatee or legatees of
such option or such SAR under the holder's last will, or by
the holder's personal representatives or distributees, at
any time within one year after the earlier of the date of<PAGE>
termination by reason of disability or the date of such
holder's death, but not thereafter and in no event after the
expiration of the term of the option or SAR.
(d) Nothing in the Plan or in any option or SAR
granted under the Plan shall confer on any individual any
right to continue as an employee, consultant or advisor of
the Corporation or a Subsidiary or a Parent or a corporation
or a parent or subsidiary corporation of the corporation
issuing or assuming the option or SAR, or limit or restrict
in any way the right of any such corporation to terminate
the relationship with the holder of the option or SAR at any
time for any reason whatsoever.
11. Adjustment of and Changes in Common Stock
(a) Notwithstanding any other provisions of the
Plan, in the event of changes in the Common Stock by reason
of any stock dividend, stock split, stock combination,
recapitalization, merger, consolidation, reorganization or
the like, the aggregate number and kind of shares available
under the Plan and subject to each outstanding option and
SAR, and the exercise price and base price of such options
and SARs, respectively, and the limitation under Article
4(c) shall be appropriately adjusted by the Board of
Directors, whose determination shall be conclusive.
(b) In the event of: (1) a dissolution or
liquidation of the Corporation; (2) a merger or
consolidation in which the Corporation is not the surviving
corporation; or (3) other capital reorganization in which
more than 50% of the shares of the Corporation entitled to
vote are exchanged, any outstanding options and SARs
hereunder shall terminate, unless other provision is made
therefor in the transaction.
12. Compliance with Securities Laws
It is a condition to the exercise of any option or
SAR that either (a) a Registration Statement under the
Securities Act of 1933, as amended (the " Securities Act"),
with respect to such shares shall be effective at the time
of exercise or (b) there is an exemption from registration
under the Securities Act for the issuance of shares of
Common Stock upon such exercise. Nothing herein shall be
construed as requiring the Corporation to register the
shares subject to any option or SAR under the Securities
Act. Each option and SAR shall be subject to the further
requirement that, if at any time the Committee shall
determine, in its discretion, that the listing or
qualification of the shares subject to such option or SAR on
any securities exchange or under any applicable law, or the
consent or approval of any governmental regulatory body, is
necessary or desirable as a condition of, or in connection<PAGE>
with, the granting of such option or SAR, or the issue of
shares thereunder, such option or SAR may not be exercised
in whole or in part unless such listing, qualification,
consent or approval shall have been effected or obtained
free of any conditions not acceptable to the Committee.
13. Termination and Amendment
No options or SARs may be granted under the Plan
after February 12, 2001. The Board of Directors or the
Committee may amend, suspend or terminate the Plan or any
portion thereof at any time but may not, without the
requisite approval of the Corporation's shareholders make
any alteration or amendment thereof which (a) makes any
change in the class of eligible participants as described in
Article 4 hereof, (b) increases the total number of shares
of Common Stock subject to the Plan, except as provided in
Article 11 hereof or (c) materially increases the benefits
accruing to participants under the Plan. Rights and
obligations under any option or SAR granted prior to an
amendment, suspension or termination of the Plan or any
portion thereof shall not be altered or impaired by such
amendment, suspension or termination, except with the
consent of the holder of the option or SAR.
14. Shareholder Approval
The Plan was adopted by the Board of Directors on
February 12, 1991 and approved by shareholders at a meeting
held on May 30, 1991. An amendment to the Plan adopted by
the Board of Directors at a meeting held on February 25,
1993 to increase the number of shares subject to the Plan by
500,000 shares to 1,000,000 shares and to add Section 4(c)
of the Plan shall be subject to approval by the holders of a
majority of the outstanding shares of Common Stock of the
Corporation at the next meeting of its shareholders, and no
options or SARs granted thereunder pursuant to which options
covering in excess of an aggregate of 500,000 shares may be
exercised prior to such approval, provided that the date of
grant of any options or SARs granted thereunder shall be
determined as if the Plan had not been subject to such
approval.<PAGE>
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<ARTICLE> 5
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<S> <C>
<PERIOD-TYPE> 10-MOS
<FISCAL-YEAR-END> DEC-29-1996
<PERIOD-END> OCT-6-1996
<CASH> 83,905
<SECURITIES> 2,500
<RECEIVABLES> 1,882
<ALLOWANCES> 0
<INVENTORY> 2,396
<CURRENT-ASSETS> 96,159
<PP&E> 253,416
<DEPRECIATION> 123,779
<TOTAL-ASSETS> 239,713
<CURRENT-LIABILITIES> 31,388
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 204
<TOTAL-LIABILITY-AND-EQUITY> 195,026
<SALES> 230,047
<TOTAL-REVENUES> 237,606
<CGS> 50,481
<TOTAL-COSTS> 122,556
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 36,781
<INCOME-TAX> 13,976
<INCOME-CONTINUING> 22,805
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<CHANGES> 0
<NET-INCOME> 22,805
<EPS-PRIMARY> $1.12
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