______________________________________________________________________
______________________________________________________________________
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 14, 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 (I.R.S. Employer I.D. No.)
incorporation or organization)
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 16, 1996
Common Stock, $.01 par value 20,373,742
______________________________________________________________________
______________________________________________________________________<PAGE>
SBARRO, INC.
FORM 10-Q INDEX
PART I. FINANCIAL INFORMATION PAGES
Consolidated Financial Statements:
Balance Sheets - July 14, 1996 (unaudited) and
December 31, 1995. . . . . . . . . . . . . . . . . . . . . . 3-4
Statements of Income (unaudited) - Twenty-Eight Weeks
ended July 14, 1996 and July 16, 1995 and Twelve Weeks
ended July 14, 1996 and July 16, 1995 . . . . . . . . . . . .5-6
Statements of Cash Flows (unaudited) - Twenty-Eight
Weeks ended July 14, 1996 and July 16, 1995 . . . . . . . . .7-8
Notes to Unaudited Consolidated Financial
Statements - July 14, 1996. . . . . . . . . . . . . . . . . . 9
Management's Discussion and Analysis of Financial Condition
and Results of Operations. . . . . . . . . . . . . . . . . .10-12
PART II. OTHER INFORMATION . . . . . . . . . . . . . . . . 13
Pg. 2<PAGE>
SBARRO, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
(In thousands)
July 14, 1996 December 31, 1995
(unaudited)
Current assets:
Cash and cash equivalents $82,908 $93,501
Marketable securities 2,500 -
Receivables:
Franchisees 611 741
Other 2,821 1,863
3,432 2,604
Inventories 2,353 2,763
Prepaid expenses 4,235 1,754
Total current assets 95,428 100,622
Marketable securities 7,500 10,000
Property and equipment, net 125,751 126,757
Other assets:
Deferred charges, net of
accumulated amortization of
$2,393,000 at July 14, 1996 and
$1,573,000 at December 31, 1995 1,664 1,767
Other 4,244 3,584
5,908 5,351
$234,587 $242,730
(continued)
Pg. 3<PAGE>
SBARRO, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
LIABILITIES AND SHAREHOLDERS' EQUITY
(In thousands)
July 14, 1996 December 31, 1995
(unaudited)
Current liabilities:
Accounts payable $6,787 $7,399
Accrued expenses 21,321 27,005
Dividend payable - 3,865
Income taxes 3,080 4,708
Total current liabilities 31,188 42,977
Deferred income taxes 12,984 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 20,371,992
shares at July 14, 1996 and
20,345,483 shares at
December 31, 1995 203 203
Additional paid-in capital 30,822 30,330
Retained earnings 159,390 155,133
190,415 185,666
$234,587 $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 twenty-eight weeks ended:
July 14, 1996 July 16, 1995
Revenues:
Restaurant sales $154,131 $149,079
Franchise related income 3,106 2,834
Interest income 1,948 1,458
Total revenues 159,185 153,371
Costs and expenses:
Cost of food and paper products 33,849 32,656
Restaurant operating expenses:
Payroll and other employee
benefits 39,758 39,951
Occupancy and other 44,164 44,007
Depreciation and amortization 11,915 12,308
General and administrative 8,062 8,862
Other income (668) (743)
Total costs and expenses 137,080 137,041
Income before income taxes 22,105 16,330
Income taxes 8,488 6,235
Net income $13,617 $10,095
Per share data:
Earnings per common and common
equivalent share $0.67 $0.50
Weighted average number of shares
used in the computation 20,354,791 20,333,048
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 14, 1996 July 16, 1995
Revenues:
Restaurant sales $68,848 $66,794
Franchise related income 1,434 1,324
Interest income 846 646
Total revenues 71,128 68,764
Costs and expenses:
Cost of food and paper products 15,288 14,623
Restaurant operating expenses:
Payroll and other employee
benefits 17,370 17,319
Occupancy and other 19,300 19,098
Depreciation and amortization 5,179 5,383
General and administrative 3,445 3,777
Other income (236) (283)
Total costs and expenses 60,346 59,917
Income before income taxes 10,782 8,847
Income taxes 4,140 3,362
Net income $ 6,642 $ 5,485
Per share data:
Earnings per common and common
equivalent share $0.33 $0.27
Weighted average number of shares
used in the computation 20,363,607 20,333,975
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 14, 1996 July 16, 1995
Operating activities:
Net income $13,617 $10,095
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation and amortization 11,915 12,308
Deferred income taxes (1,103) 374
Changes in operating assets
and liabilities:
Increase (decrease) in
receivables (828) 1,103
Decrease in inventories 410 368
Increase in prepaid expenses (2,404) (2,644)
Increase in deferred charges (717) (779)
Increase in other assets (794) (681)
Decrease in accounts payable
and accrued expenses (5,620) (1,037)
Decrease in income taxes
payable (1,628) (3,392)
Net cash provided by operating
activities 12,848 15,715
Investing activities:
Proceeds from maturities of
marketable securities - 13,772
Purchases of property and
equipment (10,702) (10,413)
Net cash provided by (used in)
investing activities (10,702) 3,359
(continued)
Pg. 7<PAGE>
SBARRO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(UNAUDITED)
(In thousands)
For the twenty-eight weeks ended:
July 14, 1996 July 16, 1995
Financing activities:
Proceeds from exercise of
stock options 492 103
Cash dividends paid (13,231) (10,979)
Net cash used in financing
activities (12,739) (10,876)
Increase (decrease) in cash
and cash equivalents (10,593) 8,198
Cash and cash equivalents at
beginning of period 93,501 42,362
Cash and cash equivalents
at end of period $82,908 $50,560
Supplemental disclosure of cash flow information:
Cash paid during the period
for income taxes $11,219 $9,253
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 14, 1996 and their
consolidated results of operations for the twenty-eight and
twelve weeks ended July 14, 1996 and July 16, 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:
28 Weeks 28 Weeks 12 Weeks 12 Weeks
Ended Ended Ended Ended Fiscal Year
7/14/96 7/16/95 7/14/96 7/16/95 1995 1994
Company-owned restaurants:
Opened during period 10 27 1 13 44 53
Acquired from (sold to)
franchisees during
period-net - - - - - 2
Closed during period (3) (6) - (4) (40) (3)
Open at end of period 578 588 578 588 571 567
Franchised restaurants:
Opened during period 14 20 7 11 40 38
Purchased from (sold to)
Company during period-net - - - - - (2)
Closed or terminated
during period (6) (2) (1) (2) (2) (8)
Open at end of period 208 180 208 180 200 162
All restaurants:
Opened during period 24 47 8 24 84 91
Closed or terminated
during period (9) (8) (1) (6) (42) (11)
Open at end of period 786 768 786 768 771 729
In addition, franchisees operate eight kiosk/cart units.
Pg. 10<PAGE>
Restaurant sales from Company-owned units increased 3.4% to
$154,131,000 for the twenty-eight weeks ended July 14, 1996 from
$149,079,000 for the twenty-eight weeks ended July 16, 1995, and
increased 3.1% to $68,848,000 for the twelve weeks ended July 14,
1996 from $66,794,000 for the twelve weeks ended July 16, 1995.
These increases resulted primarily from the opening of new units,
subsequent to the first quarter of 1995, which produce 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 .8% for the twenty-eight week period and 1.0% for
the twelve week period. The 1996 comparable unit sales for the
twenty-eight week period were $143,624,000 and for the twelve
week period were $63,779,000. In mid April 1996, the Company
selectively increased menu prices which, subsequent to the
increase, affected sales by less than .5%. 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 9.6% to $3,106,000 for the
twenty-eight weeks ended July 14, 1996 from $2,834,000 for the
twenty-eight weeks ended July 16, 1995, and increased 8.3% to
$1,434,000 for the twelve weeks ended July 14, 1996 from
$1,324,000 for the twelve weeks ended July 16, 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.
Interest income increased to $1,948,000 for the twenty-eight
weeks ended July 14, 1996 from $1,458,000 for the comparable
period last year. Interest income increased to $846,000 for the
twelve weeks ended July 14, 1996 from $646,000 for the comparable
period of the prior year. These increases were due to larger
amounts of cash invested at similar interest rates in the current
periods over the comparable periods in 1995.
Cost of food and paper products as a percentage of restaurant
sales increased to 22.0% for the twenty-eight weeks ended July
14, 1996 from 21.9% for the twenty-eight weeks ended July 16,
1995, and increased to 22.2% for the twelve weeks ended July 14,
1996 from 21.9% for the twelve weeks ended July 16, 1995. These
increases resulted primarily from higher cheese prices, the
effect of which increased food costs by $976,000 and $590,000 for
the twenty-eight and twelve weeks ended July 14, 1996,
respectively, offset somewhat by lower prices for other items and
by the benefits of the closing of underperforming units in late
1995 which had higher food cost relationships.
Restaurant operating expenses - payroll and other employee
benefits decreased to 25.8% of restaurant sales for the twenty-
eight weeks ended July 14, 1996 from 26.8% for the twenty-eight
weeks ended July 16, 1995 and decreased to 25.2% for the twelve
weeks ended July 14, 1996 from 25.9% for the twelve weeks ended
Pg. 11<PAGE>
July 16, 1995. Restaurant operating expenses - occupancy and
other expenses decreased to 28.7% of restaurant sales for the
twenty-eight weeks ended July 14, 1996 from 29.5% for the twenty-
eight weeks ended July 16, 1995 and decreased to 28.0% for the
twelve weeks ended July 14, 1996 from 28.6% for the twelve weeks
ended July 16, 1995. These percentage decreases are partially
due to the increase in comparable unit sales enabling the
spreading of such costs over a larger sales base and the
Company's program of closing underperforming units which had
higher payroll and other restaurant cost relationships.
Depreciation and amortization expenses decreased to $11,915,000
for the twenty-eight weeks ended July 14, 1996 from $12,308,000
for the twenty-eight weeks ended July 16, 1995. Depreciation and
amortization expenses decreased to $5,179,000 for the twelve
weeks ended July 14, 1996 from $5,383,000 for the twelve weeks
ended July 16, 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 $8,062,000 or 5.1% of
total revenues for the twenty-eight weeks ended July 14, 1996
compared to $8,862,000 or 5.8% of total revenues for the twenty-
eight weeks ended July 16, 1995. This decrease was the result of
the absence in 1996 of a $235,000 provision in 1995 for the
closing of two stores and a reduction in management level
positions subsequent to the second quarter of 1995. General and
administrative expenses were $3,445,000 or 4.8% of total revenues
for the twelve weeks ended July 14, 1996 compared to $3,777,000
or 5.5% for the twelve weeks ended July 16, 1995. This decrease
was primarily due to the reduction in management level personnel
subsequent to the second quarter of 1995.
The recently enacted increase in the Federal minimum wage is not
expected to have a material impact on restaurant and general and
administration payroll expenses.
The effective income tax rate for the twenty-eight weeks ended
July 14, 1996 was 38.4% and for July 16, 1995 was 38.2%.
Liquidity and Capital Resources
At July 14, 1996, the Company had cash and cash equivalents and
marketable securities of approximately $92,908,000 and its
working capital was approximately $64,240,000. Cash provided by
operations for the twenty-eight weeks ended July 14, 1996 of
$12,848,000 and a portion of the available working capital was
used to purchase restaurant property and equipment of $10,702,000
and to pay three quarterly dividends aggregating $13,231,000.
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
Pg. 12
contemplated operations, dividends and the purchase of property
and equipment relating to its development of restaurants, as well<PAGE>
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 will be paid on
October 4, 1996 to shareholders of record on September 19, 1996.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
No. Description
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: August 26, 1996 /s/ MARIO SBARRO
Mario Sbarro
Chairman of the Board
Date: August 26, 1996 /s/ ROBERT S. KOEBELE
Robert S. Koebele
Vice President-Finance
Pg. 14
EXHIBIT INDEX<PAGE>
Exhibit Number Description Page
27 Financial Data Schedule 15<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 7-MOS
<FISCAL-YEAR-END> DEC-29-1996
<PERIOD-END> JUL-14-1996
<CASH> 82,908
<SECURITIES> 2,500
<RECEIVABLES> 3,432
<ALLOWANCES> 0
<INVENTORY> 2,353
<CURRENT-ASSETS> 95,428
<PP&E> 244,383
<DEPRECIATION> 118,635
<TOTAL-ASSETS> 234,587
<CURRENT-LIABILITIES> 31,188
<BONDS> 0
0
0
<COMMON> 203
<OTHER-SE> 190,212
<TOTAL-LIABILITY-AND-EQUITY> 234,587
<SALES> 154,131
<TOTAL-REVENUES> 159,185
<CGS> 33,849
<TOTAL-COSTS> 83,922
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 22,105
<INCOME-TAX> 8,488
<INCOME-CONTINUING> 13,617
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,617
<EPS-PRIMARY> $.67
<EPS-DILUTED> $.67
</TABLE>
