_______________________________________________________________________
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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 April 19, 1998 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
incorporation or organization I.D. 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 May 20, 1998
Common Stock, $.01 par value 20,525,477
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______________________________________________________________________<PAGE>
SBARRO, INC.
FORM 10-Q INDEX
PART I. FINANCIAL INFORMATION PAGES
Consolidated Financial Statements:
Balance Sheets - April 19, 1998 (unaudited) and
December 28, 1997 . . . . . . . . . . . . . . . . 3-4
Statements of Income (unaudited) - Sixteen Weeks
ended April 19, 1998 and April 20, 1997. . . . . .5-6
Statements of Cash Flows (unaudited) - Sixteen
Weeks ended April 19, 1998 and April 20, 1997 . . 7-8
Notes to Unaudited Consolidated Financial
Statements - April 19, 1998 . . . . . . . . . . . 9-10
Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . .
PART II. OTHER INFORMATION. . . . . . . . . . . . . . . . .16
Pg. 2<PAGE>
SBARRO, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
(In thousands)
April 19, 1998 December 28, 1997
(unaudited)
Current assets:
Cash and cash equivalents $109,150 $119,810
Marketable securities 7,500 7,500
Receivables:
Franchisees 784 810
Other 1,525 1,565
2,309 2,375
Inventories 2,719 2,962
Prepaid expenses 3,551 1,768
Total current assets 125,229 134,415
Property and equipment, net 139,667 136,798
Other assets 6,454 7,436
$271,350 $278,649
(continued)
Pg. 3<PAGE>
SBARRO, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
LIABILITIES AND SHAREHOLDERS' EQUITY
(In thousands)
April 19, 1998 December 28, 1997
(unaudited)
Current liabilities:
Accounts payable $ 5,883 $10,086
Accrued expenses 24,375 26,025
Dividend payable - 5,521
Income taxes 432 4,777
Total current liabilities 30,690 46,409
Deferred income taxes 11,092 11,801
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
20,524,977 shares at April 19,
1998 and 20,446,654 shares at
December 28, 1997 205 204
Additional paid-in capital 34,434 32,444
Retained earnings 194,929 187,791
229,568 220,439
$271,350 $278,649
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 sixteen weeks ended:
April 19, 1998 April 20, 1997
Revenues:
Restaurant sales $ 98,131 $92,259
Franchise related income 2,306 1,793
Interest income 1,446 1,312
Total revenues 101,883 95,364
Costs and expenses:
Cost of food and paper products 20,668 18,935
Restaurant operating expenses:
Payroll and other employee
benefits 26,551 24,255
Occupancy and other 29,892 27,807
Depreciation and amortization 6,670 7,037
General and administrative 5,964 5,142
Other income (700) (530)
Total costs and expenses 89,045 82,646
Income before income taxes and
cumulative effect of change in
method of accounting for
start-up costs 12,838 12,718
Income taxes 4,878 4,833
Income before cumulative effect
of accounting change 7,960 7,885
Cumulative effect of change in
method of accounting for start-up
costs, less income tax
benefit of $504 (822) -
Net income $7,138 $7,885
(continued)
Pg. 5<PAGE>
SBARRO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(In thousands, except per share data)
For the sixteen weeks ended:
April 19, 1998April 20, 1997
Per share information:
Net income per share:
Basic:
Income before accounting change $.39 $.39
Accounting change (.04) -
Net income $.35 $.39
Diluted:
Income before accounting change $.39 $.39
Accounting change (.04) -
Net income $.35 $.39
Shares used in computing net
income per share:
Basic 20,491,939 20,401,538
Diluted 20,665,846 20,454,534
See notes to unaudited consolidated financial statements
Pg. 6<PAGE>
SBARRO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)
For the sixteen weeks ended:
April 19, 1998 April 20, 1997
Operating activities:
Net income $7,138 $7,885
Adjustments to reconcile net
income to net cash provided by
operating activities:
Cumulative effect in change in
method of accounting for
start-up costs 822 -
Depreciation and amortization 6,670 7,037
Provision for deferred
income taxes (205) (99)
Changes in operating assets
and liabilities:
Decrease (increase) in
receivables 66 (111)
Decrease in inventories 243 262
Increase in prepaid expenses (1,783) (1,838)
Increase in deferred charges - (468)
Increase in other assets (523) (172)
Decrease in accounts payable
and accrued expenses (5,853) (3,580)
Decrease in income taxes
payable (4,345) (4,135)
Net cash provided by operating
activities 2,230 4,781
Investing activities: Purchases of property and
equipment (9,360) (9,955)
Net cash used in investing
activities (9,360) (9,955)
(continued)
Pg. 7 <PAGE>
SBARRO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(UNAUDITED)
(In thousands)
For the sixteen weeks ended:
April 19, 1998 April 20, 1997
Financing activities:
Proceeds from exercise of
stock options 1,991 462
Cash dividends paid (5,521) (10,201)
Net cash used in
financing activities (3,530) (9,739)
Decrease in cash and cash
equivalents (10,660) (14,913)
Cash and cash equivalents
at beginning of period 119,810 104,818
Cash and cash equivalents
at end of period $109,150 $89,905
Supplemental disclosure of cash
flow information:
Cash paid during the period
for income taxes $9,353 $8,991
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 April 19, 1998 and their
consolidated results of operations and cash flows for the sixteen
weeks ended April 19, 1998 and April 20, 1997 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 28, 1997.
2. The Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants has issued Statement of
Position (SOP) 98-5 which requires companies that 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.
In accordance with its early application provisions, the Company
has implemented the SOP as of the beginning of its 1998 fiscal
year.
3. The provisions of Statement of Financial Accounting Standards
('SFAS') No. 128,'Earnings Per Share' became effective as to
the Company for the quarter and year ended December 28, 1997.
SFAS No. 128 requires the presentation of both basic and diluted
earnings per share on the face of the income statement. The
number of shares of common stock subject to stock options
included in diluted earnings per share were 173,907 in the first
quarter of 1998 and 52,996 in the first quarter of 1997. As
required by SFAS 128, all prior period amounts have been restated
to conform to the new presentation.
4. In the first quarter of 1998, the Company adopted Statement of
Financial Accounting Standards No. 130, 'Reporting Comprehensive
Income' (SFAS 130) which establishes new rules for the reporting
of comprehensive income and its components. The adoption of this
statement had no impact on the Company's net income or
shareholders' equity. For 1997, and for the sixteen week
quarters ended April 19, 1998 and April 20, 1997, the Company's
operations did not give rise to items includible in comprehensive
income which were not already included in net income. Therefore,
the Company's comprehensive income is the same as its net income
for all periods presented.
Pg. 9 <PAGE>
SBARRO, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (continued)
5. Following the Company's announcement of a proposal for the merger
of the Company with a company to be owned by members of the
Sbarro Family, seven lawsuits were instituted against the
Company, certain directors and/or members of the Sbarro Family.
While each of the complaints varies, in general, they allege a
breach of fiduciary duties by the directors and members of the
Sbarro Family, that the proposed price per share to be paid to
public shareholders is inadequate and that the proposal serves no
legitimate business purpose of the Company. Although varying,
the complaints seek, generally, a declaration of class action
status, damages in unspecified amounts alleged to be caused to
the plaintiffs, and other relief (including injunctive relief,
rescission if the transaction is consummated, and rescissory
damages), costs and disbursements, including a reasonable
allowance for counsel fees and expenses. The actions, which are
presently pending in the Supreme Court in New York and Suffolk
counties, New York, are in the process of being consolidated into
one action. The defendants intend to vigorously defend these
actions.
On June 18, 1997, an action entitled Kenneth Hoffman and Gloria
Curtis, on behalf of themselves and all others 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 seek such further and
general legal and/or equitable relief to which they 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. On October 22, 1997, the Court
granted plaintiffs' request to send notices to determine whether
similarly situated past and present employees of the Company
wished to join the lawsuit. To date, 191 individuals have
elected to join the lawsuit. The Company intends to continue
vigorously defending this action.
Pg. 10<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 1997, the fourth fiscal quarter accounted for
approximately 38% of net income for the year before a provision for
unit closings. 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 Company's fiscal year ends on the Sunday nearest to
December 31, with fiscal quarters of sixteen weeks in the first
quarter and twelve weeks in each succeeding quarter (except in a 53
week year, which has a thirteen week fourth quarter). The Company's
1997, 1996 and 1995 fiscal years each contained 52 weeks. Fiscal 1998
contains 53 weeks.
The following table provides information concerning the
number of Company-owned and franchised restaurants in operation during
each indicated period:
16 Weeks 16 Weeks
Ended Ended Fiscal Year
04/19/98 04/20/97 1997 1996
Company-owned restaurants:
Opened during period 10 11 30 29
Acquired from (sold to)
franchisees during
period-net 1 - 4 1
Closed during period (6) (2) (8) (4)
Open at end of period * 628 606 623 597
Franchised restaurants:
Opened during period 9 7 47 36
Purchased from (sold to)
Company during period-net (1) - (4) (1)
Closed or terminated
during period (4) (12) (23) (16)
Open at end of period 243 214 239 219
All restaurants:
Opened during period 19 18 77 65
Closed or terminated
during period (10) (14) (31) (20)
Open at end of period 871 820 862 816
Pg. 11<PAGE>
Kiosks (all franchised) open
at end of period 9 7 7 7
* Includes five, five, five and three mall locations of a joint
venture which operates as Umberto of New Hyde Park open at the
end of the respective reported periods.
Restaurant sales from Company-owned and consolidated joint
ve22,000 for the one time
charge as a result of the change in the method of accounting for
start-up costs pursuant to the SOP offset, in large part, by an
increase in prepaid expenses of $1,783,000, a decrease of
$5,853,000 in accounts payable and accrued expenses from their
peak year end balances and a decrease in income taxes payable of
$4,345,000.. During the sixteen weeks ended April 19, 1998, the
Company expended approximately $9,360,000 for tthe acquisition of
property and equipment related primarily to the opening of ten
Company-owned restaurants, the Company's share of construction
costs related to consolidated joint venture operations and the
rrenovation of the Company's new headquarters building. In
addition, $5,521,000 was used to pay the quarterly cash dividend
declared in late 1997 to the Company's shareholders (see
Dividends). At April 19, 1998, the Company had cash, cash
equivalents and marketable securities of approximately
$116,650,000 and its working capital was approximately
$94,539,000. The Company believes, based on current projections,
that its liquid assets presently on hand, together with funds
expected to be generated from operations, should be sufficient
for its presently contemplated operations, the investment in
property and equipment for the opening of additional restaurant
locations, as well as the completion of the renovation and
equipping of the Company's new headquarters building.
Pg. 14<PAGE>
Dividends
The Company's Board of Directors has deferred consideration of
the Company's first two 1998 quarterly cash dividends pending
consideration of a transaction that has been proposed by members
of the Sbarro Family to merge the Company with a company owned by
them in which all of the shares of the Company not owned by such
members of the Sbarro Family would be exchanged for cash. The
proposal was conditioned upon, among other things, the suspension
of dividends by the Company and obtaining financing for the
transaction.
Year 2000
In July, 1996, the Emerging Issues Task Force of the FASB reached
a consensus on Issue 96-14, 'Accounting for the Costs Associated
with Modifying Computer Software for the Year 2000,'which
requires that costs associated with modifying computer software
for the Year 2000 be expensed as incurred. The Company does not
believe, based upon its internal reviews and other factors, that
future external and internal costs to be incurred relating to the
modification of internal-use software for the Year 2000 will have
a material effect on the Company's results of operations or
financial position. In addition, the Company has addressed the
Year 2000 issue with its principal suppliers and has been assured
that they will be timely Year 2000 compliant.
Forward Looking Statement
Certain statements contained in this Report are forward-looking
statements which are subject to a number of known and unknown
risks and uncertainties that could cause the Company's actual
results and performance to differ materially from those described
or implied in the forward-looking statements. These risks and
uncertainties, many of which are not within the Company's
control, include, but are not limited to, general economic,
weather and business conditions; the availability of suitable
restaurant sites in appropriate regional shopping malls and other
locations on reasonable rental terms; changes in consumer tastes;
changes in population and traffic patterns; the Company's ability
to continue to attract franchisees; the success of its present,
and any future, joint ventures and other expansion opportunities;
the availability of food (particularly cheese and tomatoes) and
paper products at reasonable prices; no material increase
occurring in the Federal minimum wage; and the Company's ability
to attract competent restaurant and executive managerial
personnel.
Pg. 15 <PAGE>
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.
The only Current Reports on Form 8-K filed by the Company
during the period covered by this report were reports dated (date
of earliest event reported): January 12, 1998, January 27, 1998
and February 11, 1998, each reporting under Item 5, Other Events,
and Item 7, Financial Statements, Pro Forma Financial Information
and Exhibits. No financial statements were filed with any of the
three reports. Subsequently, the Company filed a Current Report
on Form 8-K, dated (date of earliest event reported) May 28,
1998, reporting under Item 5, Other Events, and Item 7, Financial
Statements, Pro Forma Financial Information and Exhibits. No
financial statements were filed with that report.
Pg. 16<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: June 2, 1998 By: /s/ MARIO SBARRO
Mario Sbarro
Chairman of the Board and President
Date: June 2, 1998 By: /s/ ROBERT S. KOEBELE
Robert S. Koebele
Vice President-Finance
Pg. 17<PAGE>
EXHIBIT INDEX
Exhibit Number Description
27 Financial Data Schedule<PAGE>
EXHIBIT 27<PAGE>
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 4-MOS
<FISCAL-YEAR-END> JAN-03-1999
<PERIOD-END> APR-19-1998
<CASH> 109,150
<SECURITIES> 7,500
<RECEIVABLES> 2,309
<ALLOWANCES> 0
<INVENTORY> 2,719
<CURRENT-ASSETS> 125,229
<PP&E> 295,848
<DEPRECIATION> 156,181
<TOTAL-ASSETS> 271,350
<CURRENT-LIABILITIES> 30,690
<BONDS> 0
0
0
<COMMON> 205
<OTHER-SE> 229,363
<TOTAL-LIABILITY-AND-EQUITY> 271,350
<SALES> 98,131
<TOTAL-REVENUES> 101,883
<CGS> 20,668
<TOTAL-COSTS> 56,443
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 12,838
<INCOME-TAX> 4,878
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> (822)
<NET-INCOME> 7,138
<EPS-PRIMARY> $0.35
<EPS-DILUTED> $0.35
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