UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
X Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the quarterly period
ended April 3, 1998
- 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 other jurisdiction of(I.R.S. Employer
incorporation or organization)Identification No.)
4441 West Airport Freeway
Irving, Texas 75062
(Address of principal executive offices,
including zip code)
(972) 258-8507
(Registrant's telephone number,
including area code)
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 (or
such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes X No -
At April 3, 1998, an aggregate of 18,280,914 shares of the
registrant's Common Stock, par value of $.10 each (being the
registrant's only class of common stock), were outstanding.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
ShowBiz Pizza Time, Inc.:
Page
Consolidated balance sheets as of April 3, 1998 (unaudited)
and January 2, 1998 . . . . . . . . . . . . . . . . . . . . 2
Consolidated statements of earnings for the three months ended
April 3, 1998 and March 28, 1997 (unaudited) . . . . . . . . . 3
Consolidated statement of shareholders' equity for the three months
ended April 3, 1998 (unaudited). . . . . . . . . . . . . . . . 4
Consolidated statements of cash flows for the three months ended
April 3, 1998,and March 28, 1997 (unaudited) . . . . . . . . . 5
Notes to consolidated financial statements . . . . . . . . . . 6
Page 1
SHOWBIZ PIZZA TIME, INC.
CONSOLIDATED BALANCE SHEETS
APRIL 3, 1998 AND JANUARY 2, 1998
(Thousands, except share data)
<TABLE>
ASSETS
April 3, January 2,
1998 1998
---------- -------------
(unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents . . . . . . . . . . . . $16,604 $ 7,275
Accounts receivable, including receivables
from related parties
of $240 in 1997 . . . . . . . . . . . . . . . . 2,380 2,996
Current portion of notes receivable,
including receivables from
related parties of $199 in 1997. . . . . . . . 47 259
Inventories . . . . . . . . . . . . . . . . . . . 4,448 3,975
Prepaid expenses. . . . . . . . . . . . . . . . . 3,518 3,550
Current portion of deferred tax asset . . . . . . 5,688 7,237
------ ------
Total current assets . . . . . . . . . . . . . . 32,685 25,292
------ ------
Investments in related parties . . . . . . . . . . 668
------
Property and equipment . . . . . . . . . . . . . . 195,792 187,433
------- -------
Deferred tax asset . . . . . . . . . . . . . . . . 4,697 5,988
------- -------
Other assets:
Notes receivable, less current portion,
including receivables from
related parties of $1,120 and $2,516,
respectively . . . . . . . . . . . . . . . . . . 1,171 2,579
Other . . . . . . . . . . . . . . . . . . . . . . 7,380 4,408
------ ------
8,551 6,987
------ ------
$241,725 $226,368
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt . . . . . . . . $ 3,378 $ 3,376
Accounts payable and accrued liabilities. . . . . 37,167 35,665
------- ------
Total current liabilities. . . . . . . . . . . 40,545 39,041
------ ------
Long-term debt, less current portion . . . . . . . 22,981 23,826
------ -------
Deferred credits . . . . . . . . . . . . . . . . . 4,097 4,052
------ ------
Other liabilities. . . . . . . . . . . . . . . . . 1,300 1,300
------ -----
Redeemable preferred stock, $60 par value,
redeemable for $2,974 in 2005. . . . . . . . . . . 2,236 2,211
----- -----
Shareholders' equity:
Common stock, $.10 par value; authorized
50,000,000 shares; 22,108,590
and 21,912,277 shares issued,
respectively . . . . . . . . . . . . . . . . . 2,211 2,191
Capital in excess of par value . . . . . . . . . . 161,517 158,696
Retained earnings . . . . . . . . . . . . . . . . 54,365 42,768
Deferred compensation . . . . . . . . . . . . . . (2,090) (2,280)
Less treasury shares of 3,827,676
at both dates, at cost . . . . . . . . . . . . (45,437) (45,437)
------- -------
170,566 155,938
------- -------
$241,725 $226,368
======== ========
</TABLE>
See notes to consolidated financial statements.
Page 2
SHOWBIZ PIZZA TIME, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(Thousands, except per share data)
<TABLE>
Three Months Ended
--------------------------------
April 3, 1998 March 28, 1997
------------- --------------
<S> <C> <C>
Food and beverage revenues . . . . . . . . . $ 70,286 $ 62,454
Games and merchandise revenues . . . . . . . 33,736 27,826
Franchise fees and royalties . . . . . . . . 870 921
Interest income, including related
party income of $47 and $57,
respectively. . . . . . . . . . . . . . . 137 228
Joint venture income . . . . . . . . . . . . 20 165
------- -------
105,049 91,594
------- -------
Costs and expenses:
Cost of sales . . . . . . . . . . . . . . . . 47,163 42,194
Selling, general and administrative
expenses, including related party
expenses of $31 in 1997 . . . . . . . . . . 14,975 13,721
Depreciation and amortization . . . . . . . . 6,643 6,317
Interest expense. . . . . . . . . . . . . . . 699 690
Other operating expenses. . . . . . . . . . . 16,354 15,339
------ ------
85,834 78,261
------ ------
Income before income taxes . . . . . . . . . . 19,215 13,333
Income taxes:
Current expense . . . . . . . . . . . . . . . 4,765 1,467
Deferred expense. . . . . . . . . . . . . . . 2,767 3,933
------ ------
7,532 5,400
------ ------
Net income . . . . . . . . . . . . . . . . . . $11,683 $ 7,933
======= ======
Net income applicable to common shares . . . . $11,597 $ 7,847
======= ======
Earnings per share:
Basic:
Net income. . . . . . . . . . . . . . . . . . $ .64 $ .43
======= =======
Weighted average shares outstanding . . . . . 18,046 18,408
======= ======
Diluted:
Net income . . . . . . . . . . . . . . . . . . $ .63 $ .42
======= ======
Weighted average shares outstanding . . . . . . 18,553 18,807
====== ======
</TABLE>
See notes to consolidated financial statements.
Page 3
SHOWBIZ PIZZA TIME, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(Unaudited)
(Thousands, except per share data)
<TABLE>
Common Capital in Deferred Treasury
Stock Excess of Retained Compen- Stock
Shares Par Value Par Value Earnings sation Shares Cost
- ------ --------- ---------- --------- ------- ------ -----
<S><C> <C> <C> <C> <C> <C> <C>
Balances, January 2, 1998
21,912 $ 2,191 $158,696 $ 42,768 $(2,280) 3,828 $(45,437)
Net income . . . . . . . 11,683
Redeemable preferred
stock accretion. . . . . (26)
Redeemable preferred stock dividends,
$1.20 per share. . . . . . (60)
Stock options exercised . . . .
197 20 1,263
Tax benefit from the exercise of stock
options and stock grants . . . . .
1,558
Amortization of deferred compensation . . .
190
------ ----- -------- ------ -------- ------ --------
Balances, April 3, 1997 . . . . .
22,109 $2,211 $161,517 $54,365 $(2,090) 3,828 $(45,437)
====== ====== ======== ======= ======= ===== ========
</TABLE>
See notes to consolidated financial statements.
Page 4
SHOWBIZ PIZZA TIME, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Thousands)
<TABLE>
Three Months Ended
April 3, 1998 March 28, 1997
------------- --------------
<S> <C> <C>
Operating activities:
Net income . . . . . . . . . . . . $11,683 $ 7,933
Adjustments to reconcile net income to cash
provided by operations:
Depreciation and amortization. . . . . 6,643 6,317
Deferred tax expense . . . . . . . . . 2,767 3,933
Compensation expense under
stock grant plan . . . . . . . . . . 190 455
Other. . . . . . . . . . . . . . . . . 46 97
Net change in receivables, inventory,
prepaids, payables and
accrued liabilities. . . . . . . . . . 3,084 4,860
------ ------
Cash provided by operations. . . . . 24,413 23,595
------- ------
Investing activities:
Purchases of property and equipment. . . (13,348) (10,732)
Additions to notes receivable. . . . . . (370)
Payments received on notes receivable. . . 1,010 913
(Increase) decrease in investments,
deferred charges and other assets. . . . (3,124) 135
------ ------
Cash used in investing activities . . .(15,462) (10,054)
------ ------
Financing activities:
Payments on debt and line of credit. . . . (843) (7,427)
Exercise of stock options . . . . . . . . 1,283 1,479
Redeemable preferred stock dividends . . . (60) (60)
Other. . . . . . . . . . . . . . . . . . . (2) 31
------ ------
Cash provided by (used in) financing
activities . . . . . . . . . . . . . . . 378 (5,977)
------ ------
Increase in cash and cash equivalents . . 9,329 7,564
Cash and cash equivalents, beginning
of period . . . . . . . . . . . . . . . 7,275 3,402
------ ------
Cash and cash equivalents,
end of period . . . . . . . . . . . . .$ 16,604 $ 10,966
====== ======
</TABLE>
Page 5
SHOWBIZ PIZZA TIME, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED APRIL 3, 1998 AND MARCH 28, 1997
(Unaudited)
1. Interim financial statements:
In the opinion of management, the accompanying financial
statements for the periods ended April 3, 1998 and March 28, 1997
reflect all adjustments (consisting only of normal recurring
adjustments) necessary to present fairly the Company's financial
condition, results of operations and cash flows.
Certain information and footnote disclosures normally included
in the consolidated financial statements prepared in accordance
with generally accepted accounting principles have been omitted.
The unaudited consolidated financial statements referred to above
should be read in conjunction with the financial statements and
notes thereto included in the Company's Form 10-K filed with the
Securities and Exchange Commission for the year ended January 2,
1998. Results of operations for the periods ended April 3, 1998 and
March 28, 1997 are not necessarily indicative of the results for
the year.
2. Earnings per common share:
Earnings per common share were computed based on the weighted
average number of common and potential common shares outstanding
during the period. The Company has adopted Statement of Financial
Accounting Standards No. 128 "Earnings Per Share". The earnings
per share data for 1997 has been restated to reflect this adoption.
Net income available per common share has been adjusted for the
items indicated below, and earnings per common and potential common
share were computed as follows (thousands, except per share data):
<TABLE>
Three Months Ended
-----------------------
April 3, March 28,
1998 1997
------ ------
<S> <C> <C>
Net income . . . . . . . . . . . . . $11,683 $ 7,933
Accretion of redeemable
preferred stock. . . . . . . . . . (26) (26)
Redeemable preferred stock
dividends . . . . . . . . . . . . . (60) (60)
------- ------
Adjusted income applicable
to common and potential
common shares. . . . . . . . . . . $11,597 $ 7,847
======= =======
Basic:
Weighted average common shares
outstanding . . . . . . . . . . 18,046 18,408
======= =======
Earnings per common share. . . . . $ .64 $ .43
======= ========
Diluted:
Weighted average common shares
outstanding . . . . . . . . . 18,046 18,408
Potential common shares for
stock options
and stock grants. . . . . . . . 507 399
-------- -------
Weighted average shares
outstanding. . . . . . . . . . 18,553 18,807
======== =======
Earnings per common and potential
common shares. . . . . . . . . $ .63 $ .42
======= ========
</TABLE>
Page 6
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
First Quarter 1998 Compared to First Quarter 1997
- -------------------------------------------------
A summary of the results of operations of the Company as a
percentage of revenues for the two quarters is shown below.
<TABLE>
Three Months Ended
-----------------------------------
April 3, 1998 March 28, 1997
------------- --------------
<S> <C> <C>
Revenue. . . . . . . . . . . . . 100.0% 100.0%
----- -----
Costs and expenses:
Cost of sales. . . . . . . . . 44.9 46.0
Selling, general and
administrative. . . . . . . . 14.3 15.0
Depreciation and amortization 6.3 6.9
Interest expense . . . . . . . .7 .8
Other operating expenses . . . 15.5 16.7
------ ------
81.7 85.4
------ ------
Income before income taxes 18.3 14.6
Income tax expense . . . . . . . 7.2 5.9
------ ------
Net income . . . . . . . . . . . 11.1% 8.7%
====== ======
</TABLE>
Revenues
--------
Revenues increased to $105.0 million in the first quarter of
1998 from $91.6 million in the first quarter of 1997 primarily due
to an increase of 10.3% in comparable store sales of the Company's
Chuck E. Cheese's restaurants which were open during all of the
first quarters of both 1998 and 1997. Management believes that
several factors contributed to the comparable store sales increase
with the primary factor being sales increases at remodeled stores.
In the first three months of 1998, the Company opened three new
restaurants, acquired two restaurants from a franchisee and
acquired the interest of a joint venture partner in three
restaurants. Menu prices increased approximately 1.7% between the
periods.
Costs and Expenses
------------------
Costs and expenses as a percentage of revenues decreased to
81.7% in the first quarter of 1998 from 85.4% in the first quarter
of 1997.
Cost of sales decreased as a percentage of revenues to 44.9%
in the first quarter of 1998 from 46.0% in the comparable period of
1997. Cost of food, beverage, prize and merchandise items as a
percentage of restaurant sales decreased to 16.1% in the first
quarter of 1998 from 16.5% in the first quarter of 1997 primarily
due to an increase in menu prices and an increase in game sales
relative to total sales, partially offset by higher cheese costs.
Restaurant labor expenses as a percentage of restaurant sales
decreased to 25.8% during the first quarter of 1998 from 26.8% in
the first quarter of 1997 primarily due to an increase in
comparable store sales and labor efficiencies achieved at higher
sales volumes, partially offset by higher hourly wage rates.
Selling, general and administrative expenses as a percentage
of revenues decreased to 14.3% in the first quarter of 1998 from
15.0% in the comparable period of 1997 primarily due to a decline
in advertising expenses and corporate overhead costs as a
percentage of revenues.
Depreciation and amortization expenses as a percentage of
revenues declined to 6.3% from 6.9% primarily due to the increase
in comparable store sales
Other operating expenses decreased as a percentage of
revenues to 15.5% in the first quarter of 1998 from 16.7% in the
first quarter of 1997 primarily due to the increase in comparable
store sales and the fact that a significant portion of operating
costs are fixed.
Page 7
Net Income
----------
The Company had net income of $11.7 million in the first
quarter of 1998 compared to $7.9 million in the first quarter of
1997 due to the changes in revenues and expenses discussed above.
The Company's diluted earnings per share was $.63 per share in the
first quarter of 1998 compared to $.42 per share in the first
quarter of 1997.
Financial Condition, Liquidity and Capital Resources
Cash provided by operations increased to $24.4 million in the
first three months of 1998 from $23.6 million in the comparable
period of 1997. Cash outflows from investing activities for the
first three months of 1998 were $15.5 million and cash inflows from
financing activities were $378,000 in the first three months of
1998. The Company's primary requirements for cash relate to
planned capital expenditures and debt service. The Company expects
that it will satisfy such requirements from cash provided by
operations and, if necessary, funds available under its line of
credit.
The Company plans to add an additional 18 to 22 stores in 1998
including new stores and acquisitions of existing stores from
franchisees or joint venture partners. The Company currently
anticipates its cost of opening such new stores to average
approximately $1.5 million per store which will vary depending upon
many factors including the size of the store and whether the store
is an in-line or freestanding building. In addition to such new
store openings, the Company plans to expand 15 to 20 existing
stores in 1998 by an average of 1,000 to 4,000 square feet per
store. The Company also plans to complete Phase II upgrades in 100
to 120 stores in 1998 at an average cost of $150,000 to $160,000
per store. A Phase II upgrade generally includes a new game
package, enhanced prize and merchandise offerings, and improved
product presentation and service. During the quarter ended April
3, 1998, the Company opened three new restaurants, acquired five
restaurants from franchisees or joint venture partners, expanded
four restaurants and completed Phase II upgrades in 10 restaurants.
The Company currently estimates that capital expenditures in 1998,
including expenditures for upgrading existing stores, new store
openings, existing store expansions and equipment investments, will
be approximately $55 million. The Company plans to finance these
expenditures through cash flow from operations and, if necessary,
borrowings under the Company's line of credit.
The Company's total credit facility of $40.5 million consists
of $25.5 million in term notes and a $15 million line of credit.
Term notes totaling $18 million with annual interest of 10.02%
mature in 2001. Term notes totaling $7.5 million with quarterly
principal payments of $833,000 and annual interest equal to LIBOR
plus 3.5 % mature in 2000. Interest under the $15 million line of
credit is dependent on earnings and debt levels of the Company and
ranges from prime plus 0% to .5% or, at the Company's option, LIBOR
plus 2%to 3%. Currently, any borrowings under this line of credit
would be at prime plus 0% or LIBOR plus 2%. As of April 3, 1998,
there were no borrowings under the line of credit. The Company is
required to comply with certain financial ratio tests during the
terms of the loan agreements. The Company plans to extend the
maturity of its current line of credit or enter into a new
agreement prior to the expiration date of the current agreement.
In 1997, the Company announced that it plans to purchase shares
of the Company's common stock at an aggregate purchase price of up
to $20 million. As of April 3, 1998, the Company has purchased
718,500 shares of its common stock in the open market for an
aggregate purchase price of approximately $15.2 million. The funds
required for the stock purchase plan are provided primarily from
the Company's current cash balances and operating cash flow.
In 1998, the Company will purchase computer software that will
be Year 2000 compliant. The Year 2000 issue is the result of
computer programs being written using two digits rather than four
to define the applicable year. Current systems may be unable to
accurately process certain date-based information. The cost of the
new software will be recorded as an asset and amortized over its
estimated useful life. Other maintenance or modification costs
will be expensed as incurred. Accordingly, the Company does not
expect the amounts required to be expensed over the next two years
to have a material effect on its financial position, results of
operations or cash flows. The Company expects its Year 2000 date
conversion project to be completed in 1999. The Company has
initiated formal communication with significant vendors and
suppliers to determine their efforts to remediate the Year 2000
issues. There can be no guarantee that such issues will be
resolved and could result in financial risk to the Company.
Page 8
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
From time to time the Company is involved in litigation, most
of which is incidental to its business. In the Company's opinion,
no litigation in which the Company currently is a party is likely
to have a material adverse effect on the Company's results of
operations, financial condition or cash flows.
Item 2. Changes in Securities.
None to report during quarter for which this report is filed.
Item 3. Defaults Upon Senior Securities.
None to report during quarter for which this report is filed.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during
the first quarter of 1998.
Item 5. Other Information.
None to report during quarter for which this report is filed.
Item 6. Exhibits and Reports on Form 8-K.
a) .Exhibits
None
(b) Reports on Form 8-K
None filed during the quarter for which this report is filed.
Page 9
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: May 18, 1998 By: /s/ Larry Page
---------------------------
Larry G. Page
Executive Vice President
and Chief Financial Officer
Page 10
[ARTICLE] 5
<TABLE>
<S> <C>
[PERIOD-TYPE] 3-MOS
[FISCAL-YEAR-END] DEC-29-1995
[PERIOD-END] MAR-31-1995
[CASH] 7,358
[SECURITIES] 0
[RECEIVABLES] 3,395
[ALLOWANCES] 364
[INVENTORY] 3,347
[CURRENT-ASSETS] 19,443
[PP&E] 208,877
[DEPRECIATION] 79,014
[TOTAL-ASSETS] 192,112
[CURRENT-LIABILITIES] 56,108
[BONDS] 1,125
[COMMON] 1,429
[PREFERRED-MANDATORY] 1,927
[PREFERRED] 0
[OTHER-SE] 126,915
[TOTAL-LIABILITY-AND-EQUITY] 192,112
[SALES] 71,416
[TOTAL-REVENUES] 72,522
[CGS] 37,401
[TOTAL-COSTS] 67,772
[OTHER-EXPENSES] 0
[LOSS-PROVISION] 0
[INTEREST-EXPENSE] 713
[INCOME-PRETAX] 4,266
[INCOME-TAX] 1,701
[INCOME-CONTINUING] 2,565
[DISCONTINUED] 0
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] 2,565
[EPS-PRIMARY] .21
[EPS-DILUTED] .21
</TABLE>
