<PAGE> 1
- -------------------------------------------------------------------------------
FORM 10-K/A
(Mark One)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 29, 1995.
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ___ TO ____.
Commission File Number 0-15782
SHOWBIZ PIZZA TIME, INC.
(Exact name of registrant as specified in its charter)
KANSAS 48-0905805
(State or jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
4441 West Airport Freeway
P.O. Box 150277
Irving, Texas 75015
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (214) 258-8507
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, par value $.10 each
(Title of Class)
Class A Preferred Stock, par value $60.00 each
(Title of Class)
- -------------------------------------------------------------------------------
<PAGE> 2
This Form 10-K/A amends and restates in its entirety Item 8 of
the registrant's Annual Report on Form 10-K for the fiscal year ended
December 29, 1995.
Item 8. Financial Statements and Supplementary Data
SHOWBIZ PIZZA TIME, INC.
YEARS ENDED DECEMBER 29, 1995, DECEMBER 30, 1994
AND DECEMBER 31, 1993
CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent auditors' report . . . . . . . . . . . . . . . . . . 3
Consolidated financial statements:
Consolidated balance sheets . . . . . . . . . . . . . . . . . 4
Consolidated statements of earnings . . . . . . . . . . . . . 5
Consolidated statements of shareholders' equity . . . . . . . 6
Consolidated statements of cash flows . . . . . . . . . . . . 7
Notes to consolidated financial statements . . . . . . . . . 8
</TABLE>
<PAGE> 3
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
ShowBiz Pizza Time, Inc.
Irving, Texas
We have audited the accompanying consolidated balance sheets of ShowBiz
Pizza Time, Inc. and subsidiary as of December 29, 1995 and December 30, 1994
and the related consolidated statements of earnings, shareholders' equity, and
cash flows for each of the three years in the period ended December 29, 1995.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of ShowBiz Pizza Time, Inc. and
subsidiary as of December 29, 1995 and December 30, 1994 and the results of
their operations and their cash flows for each of the three years in the period
ended December 29, 1995, in conformity with generally accepted accounting
principles.
As discussed in Note 1 to the consolidated financial statements, the
Company changed its method of accounting for preopening costs in 1994.
DELOITTE & TOUCHE LLP
Dallas, Texas
February 23, 1996
(May 22, 1996
as to the last paragraph
in Note 1)
3
<PAGE> 4
SHOWBIZ PIZZA TIME, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 30, 1994 AND DECEMBER 29, 1995
(THOUSANDS, EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 30, DECEMBER 29,
1994 1995
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 2,381 $ 5,589
Accounts receivable, including receivables from related
parties of $416 and $415, respectively................. 3,361 3,327
Current portion of notes receivable, including receivables
from related parties of $300 and $327, respectively.... 529 608
Inventories............................................... 3,107 3,589
Prepaid expenses.......................................... 2,900 2,781
Current portion of deferred tax asset..................... 3,583 4,147
-------- --------
Total current assets.............................. 15,861 20,041
-------- --------
Investments in related parties.............................. 699 761
-------- --------
Property and equipment...................................... 130,190 137,181
-------- --------
Deferred tax asset.......................................... 29,414 28,582
-------- --------
Other assets:
Notes receivable, less current portion, including
receivables from related parties of $1,708 and $1,983,
respectively........................................... 6,705 7,072
Deferred charges, less amortization....................... 2,083 2,599
Other..................................................... 3,356 2,774
-------- --------
12,144 12,445
-------- --------
$188,308 $199,010
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt......................... $ 10,060 $ 95
Accounts payable and accrued liabilities.................. 26,545 29,836
-------- --------
Total current liabilities.............................. 36,605 29,931
-------- --------
Long-term debt, less current portion........................ 19,947 35,753
-------- --------
Deferred credits............................................ 3,025 3,443
-------- --------
Other liabilities........................................... 1,314 1,391
-------- --------
Commitments and contingencies
Redeemable preferred stock, $60 par value, redeemable for
$2,974 in 2005............................................ 1,902 2,005
-------- --------
Shareholders' equity:
Common stock, $.10 par value; authorized 30,000,000
shares; 21,505,853 and 21,435,092 shares issued,
respectively........................................... 2,151 2,144
Capital in excess of par value............................ 155,815 153,515
Retained earnings......................................... 5,012 4,733
Deferred compensation..................................... (7,200) (3,642)
Less treasury shares of 3,109,176 at both dates, at
cost................................................... (30,263) (30,263)
-------- --------
125,515 126,487
-------- --------
$188,308 $199,010
======== ========
</TABLE>
See notes to consolidated financial statements.
4
<PAGE> 5
SHOWBIZ PIZZA TIME, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
YEARS ENDED DECEMBER 31, 1993,
DECEMBER 30, 1994 AND DECEMBER 29, 1995
(THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1993 1994 1995
-------- -------- --------
<S> <C> <C> <C>
Food and beverage revenues.................................. $197,090 $189,257 $182,376
Games and merchandise revenues.............................. 70,242 74,331 76,969
Franchise fees and royalties................................ 4,321 4,078 3,464
Interest income, including related party income of $177,
$209, and $222, respectively.............................. 346 688 872
Joint venture income........................................ 345 161 102
-------- -------- --------
272,344 268,515 263,783
-------- -------- --------
Costs and expenses:
Cost of sales............................................. 137,343 137,729 136,700
Selling, general and administrative expenses, including
related party expenses of $125 in each year............ 42,129 47,263 44,794
Depreciation and amortization............................. 23,058 26,032 23,184
Interest expense, including related party expense of $99
in 1993................................................ 797 1,861 3,118
(Gain) loss on property transactions...................... 675 (2,597) 136
Other operating expenses.................................. 50,095 55,114 55,476
-------- -------- --------
254,097 265,402 263,408
-------- -------- --------
Income before income taxes.................................. 18,247 3,113 375
Income taxes:
Current expense........................................... 1,751 869 701
Deferred (benefit) expense................................ 4,605 1,568 (389)
-------- -------- --------
6,356 2,437 312
-------- -------- --------
Net income.................................................. $ 11,891 $ 676 $ 63
======== ======== ========
Earnings per common and common equivalent share:
Primary:
Net income (loss)...................................... $ .57 $ .02 $ (.02)
======== ======== ========
Weighted average shares outstanding.................... 20,183 18,191 18,098
======== ======== ========
Fully diluted:
Net income (loss)...................................... $ .57 $ .02 $ (.02)
======== ======== ========
Weighted average shares outstanding.................... 20,196 18,191 18,098
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
5
<PAGE> 6
SHOWBIZ PIZZA TIME, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1993,
DECEMBER 30, 1994 AND DECEMBER 29, 1995
(THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
COMMON TREASURY
STOCK CAPITAL IN RETAINED DEFERRED STOCK
------------------- EXCESS OF EARNINGS COMPEN- ------------------
SHARES PAR VALUE PAR VALUE (DEFICIT) SATION SHARES COST
------ --------- ---------- --------- -------- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, January 1, 1993...................... 19,448 $1,946 $142,570 $(6,872) $ (666) 318 $ (4,811)
Net income................................... 11,891
Redeemable preferred stock accretion......... (104)
Redeemable preferred stock dividends, $4.80
per share.................................. (238)
Stock options exercised...................... 72 8 570
Warrants exercised........................... 1,282 127 1,393
Stock grant plan............................. 621 62 11,979 (12,000)
Tax expense from exercise of stock options
and stock grants........................... (37)
Treasury stock acquired...................... 1,251 (11,939)
Amortization of deferred compensation........ 2,732
Stock issued under 401(k) plan............... 2 36
------ ------ -------- ------- -------- ----- --------
Balances, December 31, 1993.................... 21,425 2,143 156,511 4,677 (9,934) 1,569 (16,750)
Net income................................... 676
Redeemable preferred stock accretion......... (103)
Redeemable preferred stock dividends, $4.80
per share.................................. (238)
Stock options exercised...................... 81 8 232
Tax expense from exercise of stock options
and stock grants........................... (928)
Treasury stock acquired...................... 1,540 (13,513)
Amortization of deferred compensation........ 2,734
------ ------ -------- ------- -------- ----- --------
Balances, December 30, 1994.................... 21,506 2,151 155,815 5,012 (7,200) 3,109 (30,263)
Net income................................... 63
Redeemable preferred stock accretion......... (104)
Redeemable preferred stock dividends, $4.80
per share.................................. (238)
Stock options exercised...................... 19 2 88
Stock grant shares forfeited................. (90) (9) (1,734) 1,737
Tax expense from exercise of stock options
and stock grants........................... (654)
Amortization of deferred compensation........ 1,821
------ ------ -------- ------- -------- ----- --------
Balances, December 29, 1995.................... 21,435 $2,144 $153,515 $ 4,733 $(3,642) 3,109 $(30,263)
====== ====== ======== ======= ======== ===== ========
</TABLE>
See notes to consolidated financial statements.
6
<PAGE> 7
SHOWBIZ PIZZA TIME, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1993,
DECEMBER 30, 1994 AND DECEMBER 29, 1995
(THOUSANDS)
<TABLE>
<CAPTION>
1993 1994 1995
-------- -------- --------
<S> <C> <C> <C>
Operating activities:
Net income................................................ $ 11,891 $ 676 $ 63
Adjustments to reconcile net income to cash provided by
operations:
Depreciation and amortization.......................... 23,058 26,032 23,184
Deferred income tax expense (benefit).................. 4,605 1,568 (389)
(Gain) loss on property transactions................... 675 (2,597) 136
Compensation expense under stock grant plan............ 2,756 2,734 1,821
Other.................................................. 399 619 418
Net change in receivables, inventories, prepaids,
payables and accrued liabilities..................... 1,521 1,787 2,577
-------- -------- --------
Cash provided by operations.......................... 44,905 30,819 27,810
-------- -------- --------
Investing activities:
Purchases of property and equipment....................... (44,600) (29,421) (28,277)
Proceeds from disposition of property and equipment....... 250 6,725 20
Payments received on notes receivable..................... 978 2,992 2,503
Additions to notes receivable............................. (724) (2,169) (3,047)
Change in deferred charges, investments and other
assets................................................. (1,813) (703) (1,747)
-------- -------- --------
Cash used in investing activities...................... (45,909) (22,576) (30,548)
-------- -------- --------
Financing activities:
Proceeds from line of credit.............................. 24,050 8,535 38,895
Payments on line of credit................................ (10,550) (5,235) (32,995)
Reduction of debt and capital lease obligations, including
payments to related parties of $1,658 in 1993.......... (1,692) (47) (59)
Redeemable preferred stock dividends...................... (238) (238) (238)
Acquisition of treasury stock............................. (11,939) (13,513)
Exercise of stock options and warrants, including exercise
by a related party of $1,488 in 1993................... 2,098 240 90
Other..................................................... 324 (115) 253
-------- -------- --------
Cash provided by (used in) financing activities........ 2,053 (10,373) 5,946
-------- -------- --------
Increase (decrease) in cash and cash equivalents............ 1,049 (2,130) 3,208
Cash and cash equivalents, beginning of year................ 3,462 4,511 2,381
-------- -------- --------
Cash and cash equivalents, end of year...................... $ 4,511 $ 2,381 $ 5,589
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
7
<PAGE> 8
SHOWBIZ PIZZA TIME, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1993,
DECEMBER 30, 1994 AND DECEMBER 29, 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Operations:
ShowBiz Pizza Time, Inc. (the "Company") operates and franchises family
restaurant entertainment centers as Chuck E. Cheese's restaurants, and through
BHC Acquisition Corporation ("BAC"), its wholly owned subsidiary, also operated
Monterey's Tex-Mex Cafe restaurants. The Monterey's Tex-Mex Cafe restaurants
were sold effective May 5, 1994.
Fiscal year:
The Company's fiscal year is 52 or 53 weeks and ends on the Friday nearest
December 31. References to 1993, 1994 and 1995 are for the fiscal years ended
December 31, 1993, December 30, 1994 and December 29, 1995, respectively. Fiscal
years 1993, 1994 and 1995 were each 52 weeks in length.
Basis of consolidation:
The consolidated financial statements include the accounts of the Company
and BAC. All significant intercompany accounts and transactions have been
eliminated.
Cash and cash equivalents:
Cash and cash equivalents of the Company are composed of demand deposits
with banks and short-term cash investments with remaining maturities of three
months or less from the date of purchase by the Company.
Inventories:
Inventories of food, paper products and supplies are stated at the lower of
cost or market on a first-in, first-out basis.
Property and equipment, depreciation and amortization:
Property and equipment are stated at cost. Depreciation and amortization
are provided by charges to operations over the estimated useful lives of the
assets, or the lease term if less, by the straight-line method. During the first
quarter of 1995, the Company changed its estimate of the useful lives of certain
fixed assets (Note 5). As a result of this change, income before income taxes
increased approximately $2.3 million, net income increased approximately $1.4
million and earnings per share increased approximately $.08 in 1995.
Deferred charges and related amortization:
Loan costs are deferred and amortized over the term of the respective
agreements. Franchise rights are amortized over the remaining life of the
franchise agreements. In the fourth quarter of 1994, the Company revised its
estimate of the future benefit for preopening expenses. As a result, the Company
expensed all unamortized preopening expenses of approximately $900,000. The
Company now expenses all preopening expenses as incurred. Previously, preopening
expenses were amortized over a two year period. Other deferred charges are
amortized over various periods of up to five years. All amortization is provided
by the straight-line method.
8
<PAGE> 9
SHOWBIZ PIZZA TIME, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Franchise fees and royalties:
The Company recognizes initial franchise fees upon fulfillment of all
significant obligations to the franchisee. Royalties from franchisees are
accrued as earned.
Impairment of intangibles and long-lived assets:
Impairment losses are recognized if the future cash flows expected to be
generated by intangibles and long-lived assets are less than the carrying value
of the assets. The impairment loss is equal to the amount by which the carrying
value of the assets exceeds the fair value of the assets.
Reclassifications:
In 1995, the Company adopted the single step format for presenting its
Consolidated Statements of Earnings. Certain reclassifications of 1993 and 1994
amounts have been made to conform to the 1995 presentation.
Use of estimates and assumptions:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Significant estimates are used in determining the realization
of the deferred tax asset, the liability for self-insured reserves and the
collectibility of receivables. Actual results could differ from those estimates.
Accounting for stock-based compensation:
The Company has elected to not apply the accounting provisions of the
Statement of Financial Accounting Standards No. 123 "Accounting for Stock-Based
Compensation" issued by the Financial Accounting Standards Board.
Stock Split:
All share and per share amounts have been adjusted to reflect a
three-for-two stock split in the form of a 50% stock dividend of the Company's
Common Stock effected on May 22, 1996.
2. SIGNIFICANT TRANSACTIONS:
Effective May 5, 1994, the Company sold its Monterey's Tex-Mex Cafe
restaurants for an aggregate purchase price consisting of approximately $6.7
million in cash, $4.7 million in subordinated promissory notes and the retention
of a 12 1/2% equity interest in the acquiring company. Due to the Company's
substantial equity interest, the acquiring company is a related party subsequent
to the transaction. Revenues from the Company's Monterey's Tex-Mex Cafe
restaurants were $6.5 million in 1994. Income before income taxes was $6.3
million in 1994 including a gain of $5.5 million from the sale.
The Company provided for a loss of approximately $2.3 million in 1994 as a
result of the Company's decision to close one Chuck E. Cheese's restaurant and
the impairment in fair value of the fixed assets of ten Chuck E. Cheese's
restaurants. The impairment in fair value of the ten restaurants is due to the
Company's decision not to renew the leases as a result of the deterioration of
site characteristics or the inability to renew the leases at acceptable rental
terms.
9
<PAGE> 10
SHOWBIZ PIZZA TIME, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. ACCOUNTS RECEIVABLE:
<TABLE>
<CAPTION>
1994 1995
------ ------
(THOUSANDS)
<S> <C> <C>
Trade....................................................... $ 382 $ 516
Other....................................................... 3,454 2,886
------ ------
3,836 3,402
Less allowance for doubtful collection...................... (475) (75)
------ ------
$3,361 $3,327
====== ======
</TABLE>
4. NOTES RECEIVABLE:
The Company's notes receivable at December 30, 1994 and December 29, 1995
arose principally as a result of the sale of restaurants, lines of credit
established with the International Association of ShowBiz Pizza Time
Restaurants, Inc., a related party (Note 19), and advances to franchisees, joint
ventures and managed properties. All obligors under the notes receivable are
principally engaged in the restaurant industry. The notes have various terms,
but most are payable in monthly installments of principal and interest through
2000, with interest rates ranging from 7.5% to 12.0%. The notes are generally
collateralized by the related property and equipment. Balances of notes
receivable are net of an allowance for doubtful collection of $139,000 and
$354,000 at December 30, 1994 and December 29, 1995, respectively.
5. PROPERTY AND EQUIPMENT:
In 1995, the Company changed its estimate of the useful lives of certain
fixed assets.
<TABLE>
<CAPTION>
PREVIOUS NEW
LIVES LIVES 1994 1995
-------- ------- -------- --------
(IN YEARS) (THOUSANDS)
<S> <C> <C> <C> <C>
Land and improvements........................ 0-10 0-20 $ 4,650 $ 4,630
Leasehold improvements....................... 4-15 4-20 107,928 118,041
Buildings and improvements................... 4-15 4-25 8,789 8,789
Furniture, fixtures and equipment............ 2-10 2-15 87,756 97,703
Property leased under capital leases (Note
8)......................................... 10-15 10-15 1,328 1,328
-------- --------
210,451 230,491
Less accumulated depreciation and
amortization............................... (81,805) (94,781)
-------- --------
128,646 135,710
Construction in progress..................... 1,544 1,471
-------- --------
$130,190 $137,181
======== ========
</TABLE>
6. DEFERRED CHARGES:
<TABLE>
<CAPTION>
1994 1995
------- -------
(THOUSANDS)
<S> <C> <C>
Franchise rights............................................ $ 5,000 $ 5,000
Loan costs.................................................. 434 1,223
Other....................................................... 557 579
------- -------
5,991 6,802
Less accumulated amortization............................... (3,908) (4,203)
------- -------
$ 2,083 $ 2,599
======= =======
</TABLE>
10
<PAGE> 11
SHOWBIZ PIZZA TIME, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES:
<TABLE>
<CAPTION>
1994 1995
------- -------
(THOUSANDS)
<S> <C> <C>
Accounts payable............................................ $10,819 $12,851
Salaries and wages.......................................... 3,990 4,215
Insurance................................................... 7,670 8,805
Taxes, other than income.................................... 2,528 2,561
Other....................................................... 1,538 1,404
------- -------
$26,545 $29,836
======= =======
</TABLE>
8. LEASES:
The Company leases certain restaurants and related property and equipment
under operating and capital leases. All leases require the Company to pay
property taxes, insurance and maintenance of the leased assets. The leases
generally have initial terms of seven to 30 years with various renewal options.
Following is a summary of property leased under capital leases: 1995 and
1994
<TABLE>
<CAPTION>
1994 1995
------ ------
(THOUSANDS)
<S> <C> <C>
Buildings and improvements.................................. $1,328 $1,328
Less accumulated depreciation............................... (771) (877)
------ ------
$ 557 $ 451
====== ======
</TABLE>
Scheduled annual maturities of the obligations for capital and operating
leases as of December 29, 1995, are:
<TABLE>
<CAPTION>
YEARS CAPITAL OPERATING
----- ------- ---------
(THOUSANDS)
<S> <C> <C>
1996........................................................ $ 292 $ 26,755
1997........................................................ 292 24,182
1998........................................................ 256 21,271
1999........................................................ 184 19,087
2000........................................................ 184 17,223
2001-2009 (aggregate payments).............................. 1,055 39,317
------ --------
Minimum future lease payments............................... 2,263 $147,835
========
Less amounts representing interest.......................... (1,115)
------
Present value of future minimum lease payments.............. 1,148
Less current portion........................................ (95)
------
$1,053
======
</TABLE>
Certain of the Company's real estate leases, both capital and operating,
require payment of contingent rent in the event defined revenues exceed
specified levels.
11
<PAGE> 12
SHOWBIZ PIZZA TIME, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company's rent expense is comprised of the following:
<TABLE>
<CAPTION>
1993 1994 1995
------- ------- -------
(THOUSANDS)
<S> <C> <C> <C>
Minimum............................................... $25,305 $28,003 $28,730
Contingent.......................................... 185 216 146
------- ------- -------
$25,490 $28,219 $28,876
======= ======= =======
</TABLE>
9. LONG-TERM DEBT:
<TABLE>
<CAPTION>
1994 1995
-------- -------
(THOUSANDS)
<S> <C> <C>
Term loan, 10.02%, due June 2001............................ $18,000
Term loan, LIBOR plus 3.5%, due June 2000................... 10,000
Term loans, LIBOR plus 3.5%, due October 1997............... 5,000
Revolving bank loan, prime plus 1/2% or LIBOR plus 3%,
due June 1997............................................. 1,700
Revolving bank loan, prime plus 1% to 2.75%, due January
1996...................................................... $ 28,800
Obligations under capital leases (Note 8)................... 1,207 1,148
-------- -------
30,007 35,848
Less current portion........................................ (10,060) (95)
-------- -------
$ 19,947 $35,753
======== =======
</TABLE>
In 1995, the Company refinanced its previous credit facility of $30.8
million expiring in January 1996 with an increased facility of $38 million. The
new credit facility consists of certain term notes totalling $33 million and a
$5 million revolving loan agreement. A 3/8% annual commitment fee is payable on
any unused credit line. The Company is required to comply with certain financial
ratio tests during the terms of the loan agreements.
As of December 29, 1995, scheduled annual maturities of all long-term debt
(exclusive of obligations under capital leases) are $6.7 million in 1997, $10
million in 2000 and $18 million in 2001.
10. COMMITMENTS AND CONTINGENCIES:
The Company has guaranteed certain obligations related to restaurant
building and equipment leases. The underlying assets are collateral for the
leases and the makers or assignees of all of the obligations are required to
perform thereunder before the Company is required to fulfill its guarantee. In
the event of default by the maker or assignee, the Company, in almost all cases,
may make payment under the guarantees in accordance with the original payment
schedule and has the right to locate potential buyers or subtenants for the
assets. As of December 29, 1995, such guarantees aggregated approximately
$586,000.
11. LITIGATION:
The Company is involved in litigation arising in the normal course of its
business. Based on information presently available, the Company believes there
will be no material effects on the Company's financial position, results of
operations or cash flows as a result of such litigation.
12. REDEEMABLE PREFERRED STOCK:
As of December 29, 1995, the Company had 49,570 shares of its redeemable
preferred stock authorized and outstanding. The stock pays dividends at $4.80
per year, subject to a minimum cash flow test. As of
12
<PAGE> 13
SHOWBIZ PIZZA TIME, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
December 29, 1995, one quarterly dividend, totaling $59,484 or $1.20 per share,
was accrued but not yet paid. The redeemable preferred stock has been recorded
at the net present value and is being accreted on the straight-line basis. The
Company's restated articles of incorporation provide for the redemption of such
shares at $60 per share in 2005. During the continuation of any event of default
by the Company, the preferred shareholders shall be able to elect a majority of
the directors of the Company.
13. EARNINGS PER COMMON SHARE:
Earnings per common and common equivalent share were computed based on the
weighted average number of common and common equivalent shares outstanding
during the period. Net income available per common share has been adjusted for
the items indicated.
Earnings per common and common equivalent share were computed as follows
(thousands, except per share data):
<TABLE>
<CAPTION>
1993 1994 1995
------- ------- -------
<S> <C> <C> <C>
Net income.............................................. $11,891 $ 676 $ 63
Accretion of redeemable preferred stock................. (104) (103) (104)
Redeemable preferred stock dividends.................... (238) (238) (238)
------- ------- -------
Adjusted income (loss) applicable to common shares...... $11,549 $ 335 $ (279)
======= ======= =======
Primary:
Weighted average common shares outstanding............ 19,224 18,117 18,098
Common stock equivalents:
Stock purchase warrants............................... 639
Other................................................. 320 74
------- ------- -------
Weighted average shares outstanding................... 20,183 18,191 18,098
======= ======= =======
Earnings (loss) per common and common equivalent
share.............................................. $ .57 $ .02 $ (.02)
======= ======= =======
Fully Diluted:
Weighted average common shares outstanding............ 19,224 18,117 18,098
Common stock equivalents:
Stock purchase warrants............................... 639
Other................................................. 333 74
------- ------- -------
Weighted average shares outstanding................... 20,196 18,191 18,098
======= ======= =======
Earnings (loss) per common and common equivalent
share.............................................. $ .57 $ .02 $ (.02)
======= ======= =======
</TABLE>
14. FRANCHISE FEES AND ROYALTIES:
At December 29, 1995, 93 Chuck E. Cheese's restaurants were operated by a
total of 57 different franchisees. The standard franchise agreements grant to
the franchisee the right to develop and operate a restaurant and use the
associated trade names, trademarks and service marks within the standards and
guidelines established by the Company.
Initial franchise fees included in revenues were $82,500, $315,000 and
$98,000 in 1993, 1994 and 1995, respectively.
13
<PAGE> 14
SHOWBIZ PIZZA TIME, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
15. COST OF SALES:
<TABLE>
<CAPTION>
1993 1994 1995
-------- -------- --------
(THOUSANDS)
<S> <C> <C> <C>
Food, beverage and related supplies................ $ 48,435 $ 46,328 $ 43,412
Games and merchandise.............................. 11,375 12,369 13,285
Labor.............................................. 77,533 79,032 80,003
-------- -------- --------
$137,343 $137,729 $136,700
======== ======== ========
</TABLE>
16. INCOME TAXES:
The significant components of income tax expense are as follows:
<TABLE>
<CAPTION>
1993 1994 1995
------ ------ ------
(THOUSANDS)
<S> <C> <C> <C>
Current expense.......................................... $1,751 $ 869 $ 701
Deferred expense:
Utilization of operating loss carryforwards............ 6,078 2,204 1,138
Net tax benefits from exercise of stock options and
stock
grants.............................................. (37) (928) (654)
Increase in valuation of deferred tax asset............ (971)
Allowance for tax credit carryforwards expiring in
1997................................................ 1,104
Tax credits............................................ (465) (237) (127)
Other (primarily temporary differences related to
depreciation)....................................... (575) (746)
------ ------ ------
$6,356 $2,437 $ 312
====== ====== ======
</TABLE>
At December 29, 1995, the Company has recorded a deferred tax asset of
approximately $33.0 million reflecting the $24.7 million tax effect of $67.0
million in net operating loss carryforwards, $7.3 million in tax credit
carryforwards and tax effected net taxable deductions of $796,000. Realization
of the deferred tax asset is dependent on generating sufficient taxable income
prior to expiration of these carryforwards. Tax credit carryforwards can be
utilized only after all net operating loss carryforwards have been realized. In
1994, the Company recorded a valuation allowance of $1.1 million for tax credit
carryforwards which are estimated to expire in 1997. Although realization is not
assured, the Company believes it is more likely than not that the deferred tax
asset will be realized. The amount of the deferred tax asset considered
realizable could be reduced in the near term if estimates of future taxable
income are reduced.
As of December 29, 1995, the Company has investment tax credit and jobs tax
credit carryforwards totaling $5,258,000 and $548,000, respectively, and
alternative minimum tax credits of $1,513,000.
In August 1993, new federal tax legislation was enacted that increased the
Company's federal tax rate to 35% effective December 31, 1993. As a result, the
Company's deferred tax asset and net income were increased by approximately
$971,000 and deferred tax expense decreased by the same amount.
14
<PAGE> 15
SHOWBIZ PIZZA TIME, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A schedule of expiring NOL's and tax credits by fiscal year are as follows:
<TABLE>
<CAPTION>
TAX
NOL'S CREDITS
------- -----------
(THOUSANDS)
<S> <C> <C>
1997........................................................ $1,104
1998........................................................ 4,007
1999........................................................ $34,000 395
2000........................................................ 19,000 149
2001........................................................ 14,000 19
2002 -- 2010................................................ 132
------- ------
$67,000 $5,806
======= ======
</TABLE>
The Company's alternative minimum tax credits have no expiration date.
Current tax laws and regulations relating to substantial changes in control
may limit the utilization of net operating loss and tax credit carryforwards in
any one year. As of December 29, 1995, no limitation of such carryforwards has
occurred.
A reconciliation of the statutory rate to taxes provided is as follows:
<TABLE>
<CAPTION>
1993 1994 1995
----- ----- ------
<S> <C> <C> <C>
Statutory rate........................................... 35.0% 34.0% 34.0%
State income taxes....................................... 5.1% 14.8% 106.1%
Increase in valuation of deferred tax asset.............. (5.3%)
Allowance for tax credit carryforwards................... 35.5%
Tax credits earned....................................... (2.6%) (6.9%) (33.9%)
Other.................................................... 2.6% .9% (23.0%)
----- ----- ------
Income taxes provided.................................... 34.8% 78.3% 83.2%
===== ===== ======
</TABLE>
17. FAIR VALUE OF FINANCIAL INSTRUMENTS:
The Company has certain financial instruments consisting primarily of cash,
cash equivalents, notes receivable, notes payable and redeemable preferred
stock. The carrying amount of cash and cash equivalents approximates fair value
because of the short maturity of those instruments. The carrying amount of the
Company's notes receivable, notes payable and redeemable preferred stock
approximates fair value based on the interest rates charged on instruments with
similar terms and risks. The estimated fair value of the Company's redeemable
preferred stock is $3.0 million.
15
<PAGE> 16
SHOWBIZ PIZZA TIME, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
18. SUPPLEMENTAL CASH FLOW INFORMATION:
<TABLE>
<CAPTION>
1993 1994 1995
------ ------ ------
(THOUSANDS)
<S> <C> <C> <C>
Cash paid during the year for:
Interest............................................... $ 912 $1,781 $3,055
Income taxes........................................... 1,769 1,389 801
Supplemental schedule of noncash investing and financing
activities:
Notes received in connection with the disposition of
property and equipment.............................. 4,650
Investment received in connection with the disposition
of property and equipment........................... 438
Notes and accounts receivable canceled in connection
with the acquisition of property and equipment...... 483
</TABLE>
19. RELATED PARTY TRANSACTIONS:
The Hallwood Group, Incorporated ("Hallwood") is the beneficial owner of
approximately 14.6% of the outstanding common stock of the Company. The
directors of Hallwood serve as a majority of the directors of the Company and
Integra -- A Hotel and Restaurant Company ("Integra").
In December 1993, the Company fully repaid approximately $1.7 million in a
term loan payable to a third party assigned by Integra. The Company made annual
payments to Hallwood of $125,000 for consulting services in 1993, 1994, and
1995. In consideration for rent reductions resulting from Hallwood's negotiation
of the Company's home office lease agreement in December 1990, the Company
assigned to Hallwood its sublease interest in the home office building subleased
to Integra with a fair value of approximately $120,000 per year. Integra vacated
this space in 1995.
The Company paid $99,000 in interest to Integra for 1993.
In 1993, Hallwood and its affiliate exercised warrants to purchase 835,873
shares of common stock. The exercise price of the warrants was $1.19 per share.
During 1993, the Company advanced $30,000 to joint ventures in which the
Company has a 50% interest or less. Principal and interest are payable in
monthly installments, with interest at various rates from prime to 12%. The
Company also has miscellaneous accounts receivable from joint ventures of
approximately $393,000 and $410,000 at December 30, 1994 and December 29, 1995,
respectively.
In September 1990, the Company entered into an agreement to grant the
International Association of ShowBiz Pizza Time Restaurants, Inc. (the
"Association") a $2.0 million line of credit, at prime. In December 1993, the
Company granted the Association a $1.0 million line of credit, at prime, for
advertising production. In November 1994, available borrowings under the lines
of credit were reduced to a total of $2.4 million at an annual interest rate of
prime plus 1/2%. In December 1995, the lines were renegotiated to provide the
Association with available borrowings of $3,750,000 at 10.5% which expire
December 31, 1996. The Association was established to develop and improve
entertainment attractions and produce system wide advertising. Two officers of
the Association are also officers of the Company. At December 29, 1995,
approximately $1,869,000 was outstanding under these lines of credit. The
Company also had a miscellaneous account receivable from the Association of
$22,000 and $5,000 at December 30, 1994 and December 29, 1995, respectively.
16
<PAGE> 17
SHOWBIZ PIZZA TIME, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
20. EMPLOYEE BENEFIT PLANS:
The Company has employee benefit plans that include: a) executive bonus
compensation plans based on the performance of the Company; b) non-statutory
stock option plans for its employees and non-employee directors and c) a stock
grant plan.
In 1995, the Company increased the number of shares of the Company's common
stock which may be issued under its employee stock option plan by 750,000 shares
to an aggregate of 2,772,038 shares. All shares must be granted before December
31, 1998. The exercise price for options granted under the plan may not be less
than the fair market value of the Company's common stock at date of grant.
Options may not be exercised until the employee has been continuously employed
at least one year after the date of grant. Options which expire or terminate may
be re-granted under the plan.
In 1995, the Company adopted a stock option plan for its non-employee
directors. The number of shares of the Company's common stock that may be issued
under this plan cannot exceed 150,000 shares. Options are granted at the fair
market value of the Company's common stock at the date of grant.
<TABLE>
<CAPTION>
1993 1994 1995
------- -------- ---------
<S> <C> <C> <C>
Options outstanding, beginning of year................ 414,446 558,993 759,953
Granted............................................. 238,200 512,250 391,860
Exercised........................................... (71,828) (77,570) (19,239)
Terminated.......................................... (21,825) (233,720) (283,632)
------- -------- ---------
Options outstanding, end of year ($1.63-$22.33 per
share).............................................. 558,993 759,953 848,942
======= ======== =========
Options:
Exercisable......................................... 392,235 262,976 203,024
Available for grant................................. 536,337 257,807 1,049,579
</TABLE>
The options granted in 1995 are at exercise prices ranging from $5.67 to
$7.92 per share. In January 1996, the Company granted 270,992 additional options
at an exercise price of $8.29 per share.
The number of shares of the Company's common stock which may be awarded to
senior executives of the Company under the Stock Grant Plan is 1,718,637 shares.
An aggregate of 621,762 shares were awarded pursuant to the plan in 1993. None
were awarded in 1995 and 1994. Compensation expense recognized by the Company
pursuant to this plan was $2,756,000, $2,734,000 and $1,821,000 in 1993, 1994
and 1995, respectively. All shares are subject to forfeiture upon termination of
the participant's employment by the Company over vesting periods ranging from 2
years to 6 years. The shares are nontransferable during the vesting periods.
As a result of shares awarded to the Company's Chairman of the Board and
Chief Executive Officer, the Company recognized deferred compensation of $12.0
million in 1993. In 1995, the Company's Chairman of the Board and Chief
Executive Officer forfeited 90,000 shares of unvested common stock of the
Company previously awarded to him under the Company's stock grant plan. As a
result of this forfeiture, deferred compensation and capital in excess of par
value were reduced by approximately $1.7 million. The deferred compensation is
amortized over the compensated periods of service through 1997.
The Company has adopted the ShowBiz 401(k) Retirement and Savings Plan, to
which it may at its discretion make an annual contribution out of its current or
accumulated earnings. Contributions by the Company may be made in the form of
its common stock or in cash. In 1993, the Company made a contribution of
approximately $36,000 in common stock for the 1992 plan year. No contributions
were made for the 1993 and 1994 plan years. The Company plans to contribute
$23,000 in common stock for the 1995 plan year.
17
<PAGE> 18
SHOWBIZ PIZZA TIME, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
21. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED):
The following summarizes the unaudited quarterly results of operations for
the years ended December 30, 1994 and December 29, 1995 (thousands, except per
share data).
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 30, 1994
---------------------------------------
APRIL 1 JULY 1 SEPT. 30 DEC. 30
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Revenues...................................... $76,469 $64,175 $68,502 $59,369
Income (loss) before income taxes............. 5,481 2,255 1,696 (6,319)
Net income (loss)............................. 3,425 1,248 1,024 (5,021)
Per Share:
Primary and fully diluted:
Net income (loss)........................ $ .18 $ .07 $ .05 $ (.28)
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 29, 1995
---------------------------------------
MARCH 31 JUNE 30 SEPT. 29 DEC. 29
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Revenues..................................... $72,751 $62,643 $66,976 $61,413
Income (loss) before income taxes............ 4,266 (1,963) 287 (2,215)
Net income (loss)............................ 2,565 (1,180) 61 (1,383)
Per Share:
Primary and fully diluted:
Net income (loss)....................... $ .14 $ (.07) $ .00 $ (.08)
</TABLE>
In the second quarter of 1994, the Company recognized a gain of $5.5
million from the sale of its Monterey's Tex-Mex Cafe restaurants. This was
partially offset by a $2.0 million loss associated with the impairment in fair
value of certain Chuck E. Cheese's restaurants.
The fourth quarter of 1994 includes a $1.1 million increase in income tax
expense due to a reduction in deferred tax credit carryforwards which are
estimated to expire in 1997, a write-off of approximately $900,000 for
pre-opening expenses due to a change in the estimated future benefit of such
expenses and a reserve of approximately $400,000 for the impairment in fair
value of certain Chuck E. Cheese's restaurants.
18
<PAGE> 19
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
ShowBiz Pizza Time, Inc.
Irving, Texas
We have audited the consolidated financial statements of ShowBiz Pizza Time,
Inc. and subsidiary as of December 29, 1995, and December 30, 1994, and for
each of the three years in the period ended December 29, 1995, and have issued
our report thereon dated February 23, 1996 (May 22, 1996 as to the last
paragraph of Note 1); such report, which discloses a change in the method of
accounting for preopening expenses in 1994, is included elsewhere in this Form
10-K. Our audits also included the consolidated financial statement schedule
of ShowBiz Pizza Time, Inc. and subsidiary, listed in Item 14. This
consolidated financial statement schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion based on our
audits. In our opinion, such consolidated financial statement schedule, when
considered in relation to the basic consolidated financial statements taken
as a whole, presents fairly in all material respects the information set forth
therein.
/s/ DELOITTE & TOUCHE LLP
Dallas, Texas
February 23, 1996
(May 22, 1996
as to the last
paragraph of Note 1)
19
<PAGE> 20
SCHEDULE II
SHOWBIZ PIZZA TIME, INC.
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E
- --------------------------------------------------------------------------------------------
Additions
charged
Balance at to costs Balance at
beginning of and end of
Description period expenses Deductions period
============================================================================================
(Thousands)
<S> <C> <C> <C> <C>
Allowance for doubtful accounts:
Years ended:
December 29, 1995........... $ 475 $ 400(A) $ 75
====== ====== ======
December 30, 1994........... $ 266 $ 209 $ 475
====== ====== ======
December 31, 1993........... $ 150 $ 116 $ 266
====== ====== ======
Accumulated amortization --
deferred charges:
Years ended:
December 29, 1995........... $3,909 $1,781 $1,487(B) $4,203
====== ====== ====== ======
December 30, 1994........... $6,307 $2,854 $5,252(B) $3,909
====== ====== ====== ======
December 31, 1993........... $7,789 $2,110 $3,592(B) $6,307
====== ====== ====== ======
Reserve for uncollectible notes
receivable:
December 29, 1995........... $ 139 $ 215 $ 354
====== ====== ======
December 30, 1994........... $ 139 $ 139
====== ======
December 31, 1993........... $ 320 $ 320(C)
====== ======
</TABLE>
- ----------
(A) Settlement of previously reserved accounts.
(B) Write-off of deferred charges.
(C) Adjustment to notes receivable reserve.
20
<PAGE> 21
SIGNATURES
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.
SHOWBIZ PIZZA TIME, INC.
Dated: February 21, 1997 By: /s/ LARRY G. PAGE
-----------------------------------
Larry G. Page
Executive Vice President and Chief
Financial Officer
<PAGE> 22
INDEX TO EXHIBITS
-----------------
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
23.1 Consent of Deloitte & Touche LLP
</TABLE>
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement
Nos. 33-29495, 33-36075 and 33-39650 on Form S-8 of ShowBiz Pizza Time, Inc. of
our reports dated February 23, 1996 (May 22, 1996 as to the last paragraph of
Note 1) appearing in this Annual Report on Form 10-K, as amended by Form 10-K/A
filed with the Securities and Exchange Commission on February 21, 1997, of
ShowBiz Pizza Time, Inc. for the year ended December 29, 1995.
DELOITTE & TOUCHE LLP
Dallas, Texas
February 21, 1997
