______________________________________________________________________
______________________________________________________________________
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 13, 1997 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 15, 1997
Common Stock, $.01 par value 20,440,405
______________________________________________________________________
______________________________________________________________________<PAGE>
SBARRO, INC.
FORM 10-Q INDEX
PART I. FINANCIAL INFORMATION PAGES
Consolidated Financial Statements:
Balance Sheets - July 13, 1997 (unaudited) and
December 29, 1996 . . . . . . . . . . . . . . . . . . . . . 3-4
Statements of Income (unaudited) - Twenty-Eight
Weeks ended July 13, 1997 and July 14, 1996 and Twelve
Weeks ended July 13, 1997 and July 14, 1996 . . . . . . . .5-6
Statements of Cash Flows (unaudited) - Twenty-Eight
Weeks ended July 13, 1997 and July 14, 1996. . . . . . . . .7-8
Notes to Unaudited Consolidated Financial
Statements - July 13, 1997 . . . . . . . . . . . . . . . . . 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 13, December 29,
1997 1996
(unaudited)
Current assets:
Cash and cash equivalents $92,782 $104,818
Marketable securities - 2,500
Receivables:
Franchisees 694 743
Other 1,257 1,122
1,951 1,865
Inventories 2,685 2,841
Prepaid expenses 4,633 1,409
Total current assets 102,051 113,433
Marketable securities 7,500 7,500
Property and equipment, net 134,042 130,993
Other assets:
Deferred charges, net of
accumulated amortization of
$2,083,000 at July 13, 1997 and
$1,436,000 at December 29, 1996 1,712 1,633
Other 5,650 5,100
7,362 6,733
$250,955 $258,659
(continued)
Pg. 3<PAGE>
SBARRO, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
LIABILITIES AND SHAREHOLDERS' EQUITY
(In thousands)
July 13, December 29,
1997 1996
(unaudited)
Current liabilities:
Accounts payable $6,168 $7,173
Accrued expenses 20,869 22,663
Dividend payable - 4,691
Income taxes 591 5,287
Total current liabilities 27,628 39,814
Deferred income taxes 13,461 13,645
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
20,439,905 shares at
July 13, 1997 and
20,392,909 shares at
December 29, 1996 204 204
Additional paid-in capital 32,296 31,219
Retained earnings 177,366 173,777
209,866 205,200
$250,955 $258,659
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 13, 1997July 14, 1996
Revenues:
Restaurant sales $165,098 $154,131
Franchise related income 3,296 3,106
Interest income 2,271 1,948
Total revenues 170,665 159,185
Costs and expenses:
Cost of food and paper products 33,798 33,849
Restaurant operating expenses:
Payroll and other employee
benefits 43,099 39,758
Occupancy and other 49,347 44,164
Depreciation and amortization 12,418 11,915
General and administrative 9,261 8,062
Other income (835) (668)
Total costs and expenses 147,088 137,080
Income before income taxes 23,577 22,105
Income taxes 8,959 8,488
Net income $14,618 $13,617
Per share data:
Earnings per common and common
equivalent share $0.72 $0.67
Weighted average number of shares
used in the computation 20,413,183 20,354,791
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 13, 1997July 14, 1996
Revenues:
Restaurant sales $72,839 $68,848
Franchise related income 1,503 1,434
Interest income 959 846
Total revenues 75,301 71,128
Costs and expenses:
Cost of food and paper
products 14,863 15,288
Restaurant operating expenses:
Payroll and other employee
benefits 18,845 17,370
Occupancy and other 21,539 19,300
Depreciation and amortization 5,381 5,179
General and administrative 4,119 3,445
Other income (305) (236)
Total costs and expenses 64,442 60,346
Income before income taxes 10,859 10,782
Income taxes 4,126 4,140
Net income $6,733 $6,642
Per share data:
Earnings per common and common
equivalent share $0.33 $0.33
Weighted average number of shares
used in the computation 20,428,711 20,363,607
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 13, 1997July 14, 1996
Operating activities:
Net income $14,618 $13,617
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and amortization 12,418 11,915
Deferred income taxes (183) (1,103)
Changes in operating assets
and liabilities:
Increase in receivables (86) (828)
Decrease in inventories 156 410
Increase in prepaid expenses (3,223) (2,404)
Increase in deferred charges (788) (717)
Increase in other assets (693) (794)
Decrease in accounts payable
and accrued expenses (2,625) (5,620)
Decrease in income taxes
payable (4,696) (1,628)
Net cash provided by operating
activities 14,898 12,848
Investing activities:
Proceeds from maturities
of marketable securities 2,500 -
Purchases of property and
equipment (14,792) (10,702)
Net cash provided by
(used in) investing activities (12,292) (10,702)
(continued)
Pg. 7<PAGE>
SBARRO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(UNAUDITED)
(In thousands)
For the twenty-eight weeks ended:
July 13, 1997 July 14, 1996
Financing activities:
Proceeds from exercise
of stock options 1,077 492
Cash dividends paid (15,719) (13,231)
Net cash used in financing
activities (14,642) (12,739)
Decrease in cash
and cash equivalents (12,036) (10,593)
Cash and cash equivalents
at beginning of period 104,818 93,501
Cash and cash equivalents
at end of period $92,782 $82,908
Supplemental disclosure of
cash flow information:
Cash paid during the period
for income taxes $13,763 $11,219
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 13, 1997 and their
consolidated results of operations for the twenty-eight and
twelve weeks ended July 13, 1997 and July 14, 1996 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 29, 1996.
2. In February, 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards (SFAS)
No. 128, Earnings Per Share. SFAS No. 128 simplifies the
standards for computing earnings per share previously found
in APB Opinion No. 15, Earnings Per Share and is effective
for financial statements issued for periods ending after
December 15, 1997, including interim periods; earlier
adoption is not permitted. The Company does not expect the
adoption of SFAS No. 128 to have a significant impact to its
reported results.
3. The Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants has issued an
Exposure Draft Statement of Position (SOP) which, if adopted
in its current form, would require all companies which
capitalize pre-opening and similar costs to write off all
existing such costs, net of tax benefit, as a ``cumulative
effect of accounting change''and to expense all such costs
as incurred in the future. The exposure draft, if enacted,
would be effective beginning with the Company's 1998 fiscal
year. The Company does not expect such proposal, if
adopted, to materially affect future operating income except
that, in the first quarter in which such proposal is
effective, the Company would be required to write off such
accumulated costs ($1,197,000 at July 13, 1997) which would
be reflected as a cumulative effect of accounting change
($742,000 after tax at July 13, 1997).
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 1996, 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
7/13/97 7/14/96 7/13/97 7/14/96 1996 1995
Company-owned restaurants:
Opened during period 14 10 3 1 29 44
Acquired from (sold to)
franchisees during
period-net 1 - 1 - 1 -
Closed during period (5) (3) (3) - (4) (40)
Open at end of period 607 578 607 578 597 571
Franchised restaurants:
Opened during period 17 14 10 7 36 40
Purchased from (sold to)
Company during
period-net (1) - (1) - (1) -
Closed or terminated
during period (19) (6) (7) (1) (16) (2)
Open at end of period 216 208 216 208 219 200
All restaurants:
Opened during period 31 24 13 8 65 84
Closed or terminated
during period (24) (9) (10) (1) (20) (42)
Open at end of period 823 786 823 786 816 771
In addition, franchisees operate seven kiosk/cart units.
Pg. 10<PAGE>
Restaurant sales from Company-owned units increased by
$10,967,000 or 7.1% to $165,098,000 for the twenty-eight weeks
ended July 13, 1997 from $154,131,000 for the twenty-eight weeks
ended July 14, 1996, and increased by $3,991,000 or 5.8% to
$72,839,000 for the twelve weeks ended July 13, 1997 from
$68,848,000 for the twelve weeks ended July 14, 1996. These
increases resulted primarily from a higher number of units in
operation during both periods of the current fiscal year. An
increase of .2% in comparable restaurant sales also contributed
to the increase in restaurant sales for the twenty-eight week
period, while a .9% decrease in comparable restaurant sales
partially offset the increase in restaurant sales for the twelve-
week period. Comparable unit sales for the twenty-eight week
period were $151,111,000 and for the twelve week period were
$66,310,000. Selective menu price increases of approximately .5%
and 1% became effective in mid April 1996 and mid July 1996.
Comparable unit sales are made up of sales at locations that were
open during the entire current and prior fiscal year.
Franchise related income increased 6.1% to $3,296,000 for the
twenty-eight weeks ended July 13, 1997 from $3,106,000 for the
twenty-eight weeks ended July 14, 1996, and increased 4.8% to
$1,503,000 for the twelve weeks ended July 13, 1997 from
$1,434,000 for the twelve weeks ended July 14, 1996. These
increases resulted from higher continuing royalties, due to a
larger number of franchise units in operation in 1997 and an
increase in initial franchise and development fees due to opening
more franchise units in 1997 in the current periods than in the
comparable periods in 1996. During the twelve weeks ended July
13, 1997, 19 units were closed by franchisees and one franchised
unit was purchased by the Company. These units did not produce
material levels of sales and consequently did not generate
material amounts of royalty income to the Company.
Interest income increased to $2,271,000 for the twenty-eight
weeks ended July 13, 1997 from $1,948,000 for the comparable
period last year. Interest income increased to $959,000 for the
twelve weeks ended July 13, 1997 from $846,000 for the comparable
period of the prior year. These increases were due to larger
amounts of cash being invested in the current periods over the
comparable periods in 1996. Interest rates were similar in the
comparable periods of each year.
Cost of food and paper products as a percentage of restaurant
sales decreased to 20.5% for the twenty-eight weeks ended July
13, 1997 from 22.0% for the twenty-eight weeks ended July 14,
1996, and to 20.4% for the twelve weeks ended July 13, 1997 from
22.2% for the twelve weeks ended July 14, 1996. These
improvements resulted from lower food prices, primarily of
cheese, lower prices of various paper products and the effect of
the selective menu price increases implemented in 1996.
Pg. 11<PAGE>
Restaurant operating expenses - payroll and other employee
benefits increased to 26.1% of restaurant sales for the twenty-
eight weeks ended July 13, 1997 from 25.8% for the twenty-eight
weeks ended July 14, 1996 and increased to 25.9% for the twelve
weeks ended July 13, 1997 from 25.2% for the twelve weeks ended
July 14, 1996. These percentage increases are attributable to
the higher costs of providing benefits to employees and a slower
growth for the twenty-eight week period and a decrease for the
twelve week period in comparable unit sales in 1997. Restaurant
operating expenses - occupancy and other expenses increased to
29.9% of restaurant sales for the twenty-eight weeks ended July
13, 1997 from 28.7% for the twenty-eight weeks ended July 14,
1996 and increased to 29.6% for the twelve weeks ended July 13,
1997 from 28.0% for the twelve weeks ended July 14, 1996. These
percentage increases are primarily attributable to rent and rent
related charges which increased at a faster rate than sales.
Depreciation and amortization expenses increased to $12,418,000
for the twenty-eight weeks ended July 13, 1997 from $11,915,000
for the twenty-eight weeks ended July 14, 1996. Depreciation and
amortization expenses increased to $5,381,000 for the twelve
weeks ended July 13, 1997 from $5,179,000 for the twelve weeks
ended July 14, 1996. These increases were primarily the result
of the number of additional Company-owned units in operation
during the twenty-eight and twelve weeks ended July 13, 1997 over
the comparable periods in 1996.
General and administrative expenses were $9,261,000 or 5.4% of
total revenues for the twenty-eight weeks ended July 13, 1997
compared to $8,062,000 or 5.1% of total revenues for the twenty-
eight weeks ended July 14, 1996. General and administrative
expenses were $4,119,000 or 5.5% of total revenues for the twelve
weeks ended July 13, 1997 compared to $3,445,000 or 4.8% for the
twelve weeks ended July 14, 1996. These increases were incurred
in anticipation of the Company's growth plans for 1997.
The effective income tax rate for the twenty-eight weeks ended
July 13, 1997 was 38.0% and for July 14, 1996 was 38.4%.
Liquidity and Capital Resources
At July 13, 1997, the Company had cash and cash equivalents and
marketable securities of approximately $100,282,000 and its
working capital was approximately $74,423,000. Cash provided by
operations for the twenty-eight weeks ended July 13, 1997 of
$14,898,000 resulted from the Company's net income of $14,618,000
and depreciation of $12,418,000, offset, in part, by various uses
in increasing operating assets and reducing operating
liabilities. Funds from operations, together with a portion of
the available working capital, were used to purchase restaurant
property and equipment of $14,792,000 and to pay three quarterly
dividends aggregating $15,719,000. The Company believes, based
on current projections, that its liquid assets presently on hand,
Pg. 12<PAGE>
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.
Forwarding Looking Statements
Statements contained in this document concerning future results,
performance or expectations are forward-looking statements that
involve risks and uncertainties. Actual results, performance or
developments could differ materially from those expressed or
implied by those forward-looking statements as a result of known
or unknown risks, uncertainties and other factors as described
from time to time in the Company's filings with the Securities
and Exchange Commission, press releases and other communications.
Dividends
On February 20, 1997, the Company increased its quarterly cash
dividend to $.27 per share, or an aggregate annual rate of $1.08
per share. This dividend was paid on April 2, 1997 to
shareholders of record on March 18, 1997, and amounted to
$5,510,113.
On May 22, 1997, the Company declared a quarterly cash dividend
of $.27 per share. The cash dividend was paid on July 8, 1997 to
shareholders of record on June 18, 1997, and amounted to
$5,518,774.
On August 19, 1997, the Company declared a quarterly cash
dividend of $.27 per share. The cash dividend will be paid on
October 3, 1997 to shareholders of record on September 18, 1997.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
On June 18, 1997, an action entitled Kenneth Hoffman and Gloria
Curtis, on behalf of themselves and all other similarly situated
v. Sbarro, Inc. was filed in the United States District Court for
the Southern District of New York. The plaintiffs, former
restaurant level management employees, allege that the Company
required general managers and co-managers to reimburse the
Company for cash and certain other shortages sustained by the
Company and thereby lost their status as managerial employees
exempt from the overtime compensation provisions of the Fair
Labor Standards Act (the ``FLSA''). The plaintiffs seek unpaid
overtime compensation, as well as liquidated damages in an amount
equal to any overtime compensation awarded, reasonable attorney's
fees, costs and expenses. The plaintiffs further seek such
further and general legal and/or equitable relief to which they
Pg. 13<PAGE>
may be entitled. The action also seeks to join similarly
situated past and present employees in the lawsuit. The Company
believes that it has substantial defenses to the claims,
including that it has availed itself of a ``window of
correction''which, the Company believes, under applicable
regulations of the FLSA and court decisions, preserves employees'
exempt status and, thus, precludes any overtime liability. The
Company intends to vigorously defend this action.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
No. Description
27 Financial Data Schedule
(b) Reports on Form 8-K.
No Report on Form 8-K was filed during the quarter for which
this Report is filed. A Report on Form 8-K dated July 21,
1997 (date of earliest event reported), was filed after the
end of the quarter covered by this Report reporting under
Item 5. Other Events.
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, 1997 By: /s/ MARIO SBARRO
Mario Sbarro
Chairman of the Board and President
Date: August 26, 1997 By: /s/ ROBERT S. KOEBELE
Robert S. Koebele
Vice President-Finance
Pg. 14<PAGE>
EXHIBIT INDEX
Exhibit Number Description Page
27 Financial Data Schedule 15<PAGE>
EXHIBIT 27<PAGE>
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 7-MOS
<FISCAL-YEAR-END> DEC-28-1997
<PERIOD-END> JUL-13-1997
<CASH> 92,782
<SECURITIES> 0
<RECEIVABLES> 1,951
<ALLOWANCES> 0
<INVENTORY> 2,685
<CURRENT-ASSETS> 102,051
<PP&E> 274,400
<DEPRECIATION> 140,358
<TOTAL-ASSETS> 250,955
<CURRENT-LIABILITIES> 27,628
<BONDS> 0
0
0
<COMMON> 204
<OTHER-SE> 209,662
<TOTAL-LIABILITY-AND-EQUITY> 250,955
<SALES> 165,098
<TOTAL-REVENUES> 170,665
<CGS> 33,798
<TOTAL-COSTS> 92,446
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 23,577
<INCOME-TAX> 8,959
<INCOME-CONTINUING> 14,618
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,618
<EPS-PRIMARY> $.72
<EPS-DILUTED> $.72
</TABLE>
