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(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 152077
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)
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 _
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will
not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. _
At March 15, 1996, an aggregate of 12,233,240 shares of the
registrant's Common Stock, par value of $.10 each (being the
registrant's only class of common stock), were outstanding, and
the aggregate market value thereof (based upon the last reported
sale price on March 15, 1996) held by non-affiliates of the
registrant was $160,899,925.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive Proxy Statement, to be
filed pursuant to Section 14(a) of the Act in connection with the
registrant's 1995 annual meeting of shareholders, have been
incorporated by reference in Part III of this report.
PAGE 1
P A R T I
Item 1. Business
General
ShowBiz Pizza Time, Inc. (the "Company"), was incorporated in
the State of Kansas in 1980 and is engaged in the family
restaurant/entertainment center business. The Company considers
this to be its sole industry segment.
The Company operated, as of March 15, 1996, 226 Chuck E.
Cheese's Pizza - ("Chuck E. Cheese's") restaurants (including four
restaurants managed by the Company for others). In addition, as of
March 15, 1996, franchisees of the Company operated 93 Chuck E.
Cheese's restaurants.
Chuck E. Cheese's Restaurants
Business Development
Chuck E. Cheese's restaurants offer a variety of pizza, a
salad bar, and selected sandwiches and desserts and feature musical
and comic entertainment by life-size, computer-controlled robotic
characters, family oriented games, rides and arcade-style
activities. The restaurants are intended to appeal to families
with children between the ages of 2 and 12. The Company opened its
first restaurant in March 1980.
The Company and its franchisees operate in a total of 44
states and the Company has concentrated its ownership and operation
of Chuck E. Cheese's restaurants within a 27-state area. See "Item
2. Properties."
The following table sets forth certain information with
respect to the Chuck E. Cheese's restaurants owned by the Company
(excludes restaurants managed by the Company for others and
franchised restaurants):
1995 1994 1993
----- ---- -----
Average annual revenues
per restaurant (1) $1,178,000 $1,206,000 $1,259,000
Number of restaurants open at end
of period 222 220 209
Percent of total restaurant revenues:
Food and beverage sales 70.2% 71.0% 71.6%
Game sales 26.6% 25.8% 25.3%
Merchandise sales 3.2% 3.2% 3.1%
_______
(1) In computing these averages, only restaurants which were open
for a period greater than one year at the beginning of each
respective year were included (190, 159 and 139 restaurants in
1995, 1994 and 1993, respectively).
The revenues from Chuck E. Cheese's restaurants are seasonal in
nature. The restaurants tend to generate more revenues during the
first and third fiscal quarters as compared to the second and
fourth fiscal quarters.
PAGE 2
Each Chuck E. Cheese's restaurant generally employs a general
manager, one or two managers, an electronic specialist who is
responsible for repair and maintenance of the robotic characters
and games, and 45 to 75 food preparation and service employees,
most of whom work only part-time.
To maintain a unique and exciting environment in the restaurants,
the Company believes it is essential to reinvest capital through
the evolution of its games, rides and entertainment packages and
continuing enhancement of the facilities. The Company initiated a
remodel program in 1986 under which all Company-operated
restaurants were remodeled by the end of 1992. In 1994, the
Company initiated a "repositioning" program to evolve and expand
its efforts to significantly enhance its Chuck E. Cheese's
restaurants. The Company completed 21 restaurants under this
program in 1994 and 76 restaurants in 1995 which is approximately
43% of all Company-operated restaurants. The Company currently
intends to reposition substantially all Company-operated
restaurants by the end of 1996.
The Company opened 1 and 12 new Chuck E. Cheese's restaurants in
1995 and 1994, respectively. The Company is currently evaluating
the development of new Chuck E. Cheese's restaurants while
balancing the commitment of capital and human resources between
existing restaurants and new development.
In the event certain site characteristics considered essential
for the success of a restaurant deteriorate, the Company will
consider relocating the restaurant to a more desirable site.
The Company believes its ownership of trademarks to the names and
character likenesses featured in the robotic animation stage show
(and other in-store entertainment) in its restaurants to be an
important competitive advantage.
Restaurant Design and Entertainment
Chuck E. Cheese's restaurants are typically located in shopping
centers or in free-standing buildings and are generally 7,500 to
14,000 square feet in area. Depending primarily on the demographic
characteristics of a specific site, the building design of new
restaurants developed by the Company range from 8,000 to 10,000
square feet in area.
The dining area of each Chuck E. Cheese's restaurant features a
variety of comic and musical entertainment by computer-controlled
robotic characters, together with various animated props, located
on various stage type settings. The Company is currently
developing a new stage setting that will be evaluated in 1996. The
dining area typically provides table and chair seating for 250 to
375 customers.
Each Chuck E. Cheese's restaurant typically contains a separate
family oriented playroom area offering approximately 40 coin- and
token-operated attractions, including arcade-style games, kiddie
rides, video games, skill oriented games and other similar
entertainment. Certain games dispense tickets that can be redeemed
by the guests for prizes. Also included in the playroom area is an
expanded free ball-crawl with tubes and tunnels suspended from or
reaching to the ceiling or other free attraction for young
children. The playroom area normally occupies approximately 40% of
the restaurant's public area and contributes significantly to its
revenues. A limited number of free tokens are furnished with food
orders. Additional tokens may be purchased.
Food and Beverage Products
Each Chuck E. Cheese's restaurant offers varieties of pizza, a
salad bar and selected sandwiches and desserts. Standard beverages
are also served, along with beer and wine where permitted by local
laws. The Company believes that the quality of its food compares
favorably with that of its competitors.
The majority of food, beverages and other supplies used in the
Company-operated restaurants is currently distributed under a
system-wide agreement with a major food distributor. The Company
believes that this distribution system creates certain cost and
operational efficiencies for the Company.
PAGE 3
Marketing
The primary customer base for the Company's restaurants consists
of families having children between 2 and 12 years old. The
Company runs advertising campaigns which target families with young
children and features the family entertainment experiences
available at Chuck E. Cheese's restaurants, and is primarily aimed
at increasing the frequency of return visits. The primary
advertising medium continues to be television, due to its broad
access to family audiences and its ability to communicate the Chuck
E. Cheese's experience. The television advertising campaigns are
supplemented by promotional offers in newspapers and direct mail
advertisements.
Franchising
The Company began franchising its restaurants in October 1981 and
the first franchised restaurant opened in June 1982. At March 15,
1996, 93 Chuck E. Cheese's restaurants were operated by a total of
58 different franchisees, as compared to 101 of such restaurants at
March 17, 1995. The Company sold two franchises in 1995.
The Company opened a franchise restaurant in Chile during the
third quarter of 1994. Opportunities for further international
franchise development are being reviewed by the Company.
The Chuck E. Cheese's standard franchise agreements grant to the
franchisee the right to develop and operate a restaurant and use
the associated trademarks within the standards and guidelines
established by the Company. The franchise agreement presently
offered by the Company has an initial term of 15 years and includes
a 15-year renewal option. The earliest expiration dates of
outstanding Chuck E. Cheese's franchises are in 1997.
The franchise agreements governing existing franchised Chuck E.
Cheese's restaurants currently require each franchisee to pay: (i)
to the Company, in addition to an initial franchise fee of $50,000,
a continuing monthly royalty fee equal to 3.8% of gross sales;
(ii) to the Advertising Fund [an independent fund established and
managed by an association of the Company and its franchisees to pay
costs of system-wide advertising (the "Association")] an amount
equal to 0.9% of gross sales; and (iii) to the Entertainment Fund
(an independent fund established and managed by such Association to
further develop and improve entertainment attractions) an amount
equal to 0.4% of gross sales. The Chuck E. Cheese's franchise
agreements also require franchisees to expend at least 3% of gross
sales for local advertising. Under the Chuck E. Cheese's franchise
agreements, the Company is required, with respect to Company-
operated restaurants, to spend for local advertising and to
contribute to the Advertising Fund and the Entertainment Fund at
the same rates as franchisees.
Competition
The restaurant and entertainment industries are highly
competitive, with a number of major national and regional chains
being engaged in the pizza restaurant or entertainment business.
Although there are few other restaurant chains presently utilizing
the concept of combining robotic characters and restaurant
operations, there are several competitors presently combining
family entertainment and restaurant operations.
The Company believes that it will continue to encounter
competition in the future. Major national and regional chains,
some of which have capital resources as great or greater than the
Company, are expanding into the family restaurant and entertainment
markets. The Company believes that the principal competitive
factors affecting Chuck E. Cheese's restaurants are the relative
quality of food and service, quality and variety of offered
entertainment, and location and attractiveness of the restaurants
as compared to its competitors in the restaurant or entertainment
industries.
PAGE 4
Monterey's Tex-Mex Cafe Restaurants
The Company, through its wholly owned subsidiary BHC Acquisition
Corporation ("BAC"), operated 27 Monterey's Tex-Mex Cafe
restaurants. 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.
Trademarks
The Company owns various trademarks, including "Chuck E. Cheese"
and "ShowBiz Pizza" that are used in connection with the
restaurants and have been registered with the United States Patent
and Trademark Office. The duration of such trademarks is
unlimited, subject to continued use. The Company believes that it
holds the necessary rights for protection of the marks essential to
the conduct of their present restaurant operations.
Government Regulation
The development and operation of Chuck E. Cheese's restaurants
are subject to various federal, state and local laws and
regulations, including but not limited to those that impose
restrictions, levy a fee or tax, or require a permit or license on
the service of alcoholic beverages and the operation of games and
rides. The Company is subject to the Fair Labor Standards Act, the
Americans With Disabilities Act, and family leave mandates. A
significant portion of the Company's restaurant personnel are paid
at rates related to the minimum wage established by federal and
state law. Increases in such minimum wage result in higher labor
costs to the Company, which may be partially offset by price
increases and operational efficiencies.
Working Capital Practices
The Company attempts to maintain only sufficient inventory of
supplies in the restaurants which it operates to satisfy current
operational needs. The Company's accounts receivable consist
primarily of credit card receivables, franchise royalties,
management fees and advances to managed properties.
Employees
The number of persons employed by the Company varies seasonally,
with the greatest number being employed during the summer months.
On March 15, 1996, the Company had approximately 11,290 employees,
including 11,100 in the operation of Chuck E. Cheese's restaurants
and 190 employed by the Company in the Company's executive offices.
None of the Company's employees is a member of any union or
collective bargaining group. The Company considers its employee
relations to be good.
PAGE 5
Item 2. Properties
The following table sets forth certain information regarding the
Chuck E. Cheese's restaurants operated by the Company (excluding
four restaurants managed by the Company for others) as of March 15,
1996.
Chuck E.
State Cheese's
----- -------
Alabama 5
Arkansas 2
California 47
Colorado 4
Connecticut 5
Florida 15
Georgia 7
Illinois 14
Indiana 7
Kansas 1
Louisiana 4
Maryland 10
Massachusetts 10
Michigan 11
Missouri 7
Nevada 1
Nebraska 2
New Hampshire 2
New Jersey 9
New York 5
North Carolina 2
Ohio 11
Pennsylvania 7
Tennessee 2
Texas 26
Virginia 3
Wisconsin 3
----
222
====
Of the 226 Chuck E. Cheese's restaurants operated by the Company
as of March 15, 1996, 212 were leased by the Company and 14 were
owned by the Company. The leases of these restaurants will expire
at various times from 1996 to 2009, as described in the table
below.
Year of Number of Range of Renewal
Expiration Restaurants Options (Years)
---------- ------------- ----------------
1996 14 None to 10
1997 23 None to 10
1998 23 None to 15
1999 20 None to 15
2000 and thereafter 132 None to 20
PAGE 6
The leases of Chuck E. Cheese's restaurants contain terms which
vary from lease to lease, although a typical lease provides for a
primary term of 10 years, with two additional five-year options to
renew, and provides for annual minimum rent payments of
approximately $6.00 to $22.00 per square foot, subject to periodic
adjustment. Most of the restaurant leases require the Company to
pay the cost of repairs, insurance and real estate taxes and, in
most instances, provide for additional rent equal to the amount by
which a percentage (typically 6%) of gross revenues exceeds the
minimum rent.
Item 3. Legal Proceedings.
In June 1993, the Company was named as a nominal defendant in a
shareholders' derivative action in the 68th Judicial District Court
in Dallas County, Texas in which three of the Company's executive
officers, four of the Company's outside directors and The Hallwood
Group Incorporated ("Hallwood") were named defendants. The
plaintiffs in this lawsuit had alleged the individual defendants
(i) breached their fiduciary duties to stockholders, (ii) committed
constructive fraud and (iii) unjustly enriched themselves as a
result of alleged violations of federal securities laws and illegal
insider trading between July 13, 1992 and June 11, 1993. Although
the Company believes that the claims made were without merit, the
Company has settled the lawsuit. On November 27, 1995, the Court
issued an order for final judgement that approved the settlement of
the suit and dismissed it with prejudice.
In January 1994, the Company was named a defendant in a lawsuit
brought in the Supreme Court of the state of New York, County of
Queens, by Big Six Towers, Inc., in its purported capacity as a
landlord to the Company with regard to a restaurant/entertainment
center location in Queens County, New York, which the Company had
contracted to lease from the plaintiff. The plaintiff alleged that
the Company had breached the lease and was seeking total damages in
excess of $4.0 million against the Company. Although the Company
believes the claims made against it were without merit, the Company
has settled the lawsuit. On December 29, 1995, the parties filed
a stipulation of dismissal that accepted the settlement of the suit
and dismissed it with prejudice.
Certain other pending legal proceedings exist against the Company
which the Company believes are not material in amount or have
arisen in the ordinary course of its business.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of security holders during
the fourth quarter of 1995.
PAGE 7
P A R T I I
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters.
As of March 15, 1996, there were an aggregate of 12,233,240
shares of the Company's Common Stock outstanding and approximately
4,364 stockholders of record.
The Company's Common Stock is listed on the National Market
System of the National Association of Securities Dealers Automated
Quotation ("NASDAQ") system under the symbol "SHBZ". The following
table sets forth the highest and lowest prices per share of the
Common Stock during each quarterly period within the two most
recent years, as reported on the National Market System of NASDAQ:
High Low
------ ------
1995 - 1st quarter $ 10 3/4 $ 7 5/8
- 2nd quarter 12 1/4 8 3/4
- 3rd quarter 13 5/8 11
- 4th quarter 13 3/8 10 7/8
1994 - 1st quarter $15 1/4 $ 11 3/4
- 2nd quarter 14 9 1/4
- 3rd quarter 11 1/4 7 1/4
- 4th quarter 9 1/8 7 1/4
The Company may not pay any dividends to holders of its Common
Stock (except in shares of Common Stock) unless an amount equal to
all dividends then accrued on its Class A Preferred Stock par value
$60.00 per share ("the Preferred Stock") has been paid or set aside
to be paid. A dividend to holders of record of Preferred Stock as
of December 31, 1995 in the amount of $1.20 per share will be paid
on March 31, 1996.
The Company has not paid any dividends on its Common Stock and
has no present intention of paying cash dividends thereon in the
future. The Company plans to retain any earnings to finance
anticipated capital expenditures and reduce its long-term debt.
Future dividend policy with respect to the Common Stock will be
determined by the Board of Directors of the Company, taking into
consideration factors such as future earnings, capital
requirements, potential loan agreement restrictions and the
financial condition of the Company.
PAGE 8
Item 6. Selected Financial Data.
1995 1994 1993 1992 1991
------ ------ ------ ------ ------
(Thousands, except per share data)
Operating results (1)(2):
Revenues . . . . . . $ 263,783 $268,515 $272,344 $253,444 $208,389
Costs and expenses. . 263,408 265,402 254,097 228,194 189,456
-------- -------- -------- -------- -------
Income before
income taxes . . . . 375 3,113 18,247 25,250 18,933
Income taxes:
Current expense. . . . 701 869 1,751 1,161 1,050
Deferred expense
(benefit) . . . . . . (389) 1,568 4,605 8,586 6,285
------ ------ ------ ------- ------
312 2,437 6,356 9,747 7,335
------ ------ ------ ------ ------
Net income . . . . $ 63 $ 676 $ 11,891 $ 15,503 $ 11,598
====== ====== ====== ====== ======
Per Share (3):
Primary:
Net income
(loss) . . . . . . $ (.02) $ .03 $ .86 $ 1.11 $ .82
Weighted average
shares outstanding. 12,065 12,127 13,455 13,662 13,700
Fully diluted:
Net income (loss) . $ (.02) $ .03 $ .86 $ 1.11 $ .82
Weighted average
shares outstanding. 12,065 12,127 13,464 13,713 13,728
Cash flow data:
Cash provided by
operations . . . . $ 27,810 $ 30,819 $ 44,905 $ 44,246 $ 36,097
Cash used in
investing
activities . . . . (30,548) (22,576) (45,909) (35,872) (29,104)
Cash provided by
(used in) financing
activities . . . . 5,946 (10,373) 2,053 (7,631) (6,303)
Balance sheet data:
Total assets . . . .$ 199,010 $ 188,308 $193,649 $173,217 $158,563
Long-term obligations
(including current
portion and redeemable
preferred stock) . . 39,244 33,223 29,816 17,743 21,360
Shareholders' equity 126,487 125,515 136,647 132,167 115,500
Number of restaurants at year end:
Chuck E. Cheese's:
Company operated. . . 226 226 215 182 159
Franchise . . . . . . 93 106 110 113 113
------ ------ ------ ------ ------
319 332 325 295 272
Monterey's Tex-Mex
Cafe's 27 28 27
------ ------ ------ ------ ------
319 332 352 323 299
====== ====== ====== ====== ======
- ----------------------
(1) Fiscal year 1992 was 53 weeks in length while fiscal years
1995, 1994, 1993, and 1991 were 52 weeks in length.
(2) Certain reclassifications of 1994, 1993, 1992 and 1991 amounts
have been made to conform to the 1995 presentation.
(3) No cash dividends on common stock were paid in any of the
years presented.
PAGE 9
Item 7. Management's Discussion and Analysis of Financial
Condition and Results Of Operations.
Results of Operations
1995 Compared to 1994
- ---------------------
Revenues declined 1.8% to $263.8 million in 1995 from $268.5
million in 1994 due to the sale of the Company's Monterey's Tex-
Mex Cafe restaurants effective May 5, 1994. Revenue generated by
the Company's Chuck E. Cheese's restaurants increased to $263.3
million in 1995 from $262.0 million in 1994 due to the net
additions of 11 Company restaurants in 1994 and two Company
restaurants in 1995. Sales from the Company's Chuck E. Cheese's
restaurants which were open during all of 1995 and 1994
("comparable store sales") declined 1.4% between the years.
Revenues from the Company's Monterey's Tex-Mex Cafe restaurants
were $6.5 million in 1994.
Income before income taxes decreased to $375,000 in 1995 from
$3.1 million in 1994. Included in income before taxes in 1994 is
a gain of $5.5 million related to the sale of the Company's
Monterey's Tex-Mex Cafe restaurants and a $2.3 million loss
associated with the impairment in fair value of certain Chuck E.
Cheese's restaurants. Income before income taxes in 1994 was also
reduced by approximately $900,000 due to a write-off of all
unamortized preopening expenses resulting from a change in the
estimated future benefit of such expenses. A material portion of
operating costs are fixed resulting in an erosion of operating
margins at lower sales levels. Net income declined to $63,000 in
1995 from $676,000 in 1994.
A summary of the results of operations of the Company as a
percentage of revenues for the last three fiscal years is shown
below.
1995 1994 1993
------ ------ ------
Revenues . . . . . . . . . . . . . . 100.0% 100.0% 100.0%
------ ------ ------
Costs and expenses:
Cost of sales. . . . . . . . . . . . 51.8% 51.3% 50.4%
Selling, general and administrative 17.0% 17.6% 15.5%
Depreciation and amortization 8.8% 9.7% 8.5%
Interest expense . . . . . . . . . . 1.2% .7% .3%
(Gain) loss on property transactions .1% (1.0%) .2%
Other operating expenses . . . . . . 21.0% 20.5% 18.4%
------ ------ ------
99.9% 98.8% 93.3%
------ ------ ------
Income before income taxes. . . . . . . . .1% 1.2% 6.7%
====== ====== ======
Revenues
--------
Revenues decreased to $263.8 million in 1995 from $268.5 million
in 1994 due to the sale of the Company's Monterey's Tex-Mex Cafe
restaurants effective May 4, 1994. Comparable store sales of Chuck
E. Cheese's restaurants which were open during all of both 1995 and
1994 declined by 1.4% between the years. Average annual sales per
restaurant decreased to approximately $1,178,000 in 1995. Menu
prices were comparable between the two years. The increasing number
of completed repositioned restaurants resulted in a 2.3% increase
in comparable store sales in the fourth quarter of 1995 compared to
the same period of the prior year. This is the first quarter since
1992 that comparable store sales has increased from the prior year.
Revenues from franchise fees and royalties decreased by 15.1% in
1995 compared to 1994 primarily due to a 6.2% decline in comparable
franchise store sales for restaurants open all of 1995 and 1994,
and a decline in the number of restaurants operated each year.
During 1995, one new franchise restaurant opened and 14 franchise
restaurants closed.
PAGE 10
Costs and Expenses
------------------
Costs and expenses as a percentage of revenues increased to 99.9%
in 1995 from 98.8% in 1994.
Cost of sales increased as a percentage of revenues to 51.8% in
1995 from 51.3% in 1994. Cost of food, beverage, prize and
merchandise items for Chuck E. Cheese's restaurants as a percentage
of restaurant sales decreased to 17.9% in 1995 from 18.2% in 1994
primarily due to an increase in game sales as a percentage of total
restaurant sales. Labor expenses for Chuck E. Cheese's restaurants
as a percentage of restaurant sales increased to 30.9% in 1995 from
30.0% in 1994 primarily due to increased labor rates, reduced
management turnover and the decline in comparable store sales.
Selling, general and administrative expenses as a percentage of
revenues decreased to 17.0% in 1995 from 17.6% in 1994 due
primarily to a reduction in corporate overhead expenses.
Depreciation and amortization expense as a percentage of revenues
decreased to 8.8% in 1995 from 9.7% in 1994. Preopening expense
declined due to the write-off of all unamortized preopening expense
in the fourth quarter of 1994 resulting from a change in the
estimated useful future benefit of such expenses. Depreciation
expense declined due to the sale of Monterey's Tex-Mex Cafe
restaurants in May 1994 and a change effected in the first quarter
of 1995 in the estimated useful lives of certain fixed assets
based on a review of historical asset utilization. As a result of
this change, depreciation expense decreased approximately $2.3
million in 1995.
Interest expense increased to $3.1 million in 1995 from $1.9
million in 1994 primarily due to an increase in interest rates and
the Company's average outstanding debt between the periods.
The Company had a net loss on property transactions of $136,000
in 1995 compared to a net gain on property transactions of $2.6
million in 1994. In 1994, the Company recognized a gain of $5.5
million from the sale of substantially all of the assets of its
Monterey's Tex-Mex Cafe restaurants on May 5, 1994. The gain was
partially offset by a loss of approximately $2.3 million in 1994.
The loss was 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 due to the
Company's decision not to renew the leases as a result of the
deterioration of site characteristics. The Company will consider
possible relocation of some of the restaurants.
Other operating expenses increased as a percentage of revenues
to 21.0% in 1995 from 20.5% in 1994 primarily due to increased rent
expense and the decline in comparable store sales.
Net Income
----------
In 1994, the Company established an allowance of approximately
$1.1 million related to deferred tax credit carryforwards which are
estimated to expire in 1997. Income tax expense was increased by
approximately $1.1 million as a result of this allowance. The
Company's net income decreased to $63,000 in 1995 from $676,000 in
1994 due to the changes in revenues and expenses as discussed
above. The Company's primary and fully diluted earnings per share
decreased to a loss per share of $.02 in 1995 from earnings per
share of $.03 in 1994.
1994 Compared to 1993
- ---------------------
Revenues declined 1.4% to $268.5 million in 1994 from $272.3
million in 1993 due to the sale of the Company's Monterey's Tex-
Mex Cafe restaurants effective May 5, 1994. Revenue generated by
the Company's Chuck E. Cheese's restaurants increased to $262.0
million in 1994 from $253.3 million in 1993 due to the net addition
of 11 Company restaurants in 1994 and 33 Company restaurants in
1993. Sales from the Company's Chuck E. Cheese's restaurants which
were open during all of 1994 and 1993 ("comparable store sales")
declined 5.8% between the years. Revenues from the Company's
Monterey's Tex-Mex Cafe restaurants declined to $6.5 million in
1994 from $19.0 million in 1993 due to the sale of the Monterey's
restaurants mentioned above.
PAGE 11
Income before income taxes decreased to $3.1 million in 1994 from
$18.2 million in 1993. Included in income before income taxes for
1994 is a gain of $5.5 million related to the sale of the Company's
Monterey's Tex-Mex Cafe restaurants and a $2.3 million loss
associated with the impairment in fair value of certain Chuck E.
Cheese's restaurants. Income before income taxes in 1994 was also
reduced by approximately $900,000 due to a write-off of all
unamortized preopening expenses resulting from a change in the
estimated future benefit of such expenses. The decline in income
is primarily due to the decline in comparable store sales and
operating margins in the Company's Chuck E. Cheese's restaurants.
A material portion of operating costs are fixed resulting in an
erosion of operating margins at lower sales levels.
Revenues
--------
Revenues from the Company's Chuck E. Cheese's restaurants
increased by 3.4% to $262.0 million in 1994 from $253.3 million in
1993 due to sales from new restaurants opened throughout 1994 and
1993. Comparable store sales of Chuck E. Cheese's restaurants
which were open during all of both 1994 and 1993 declined by 5.8%
between the years. Average annual sales per restaurant decreased
to approximately $1,206,000 in 1994. Menu prices were comparable
between the two years.
Management believes that several factors may have contributed to
the comparable store sales decline, including increased competition
and to a lesser extent, a decrease in the number of restaurants
remodeled since 1992 and the impact of newly opened restaurants on
comparable store sales of existing restaurants in certain markets.
Some of the factors impacting comparable store sales are believed
to be negatively impacting sales volumes of newer restaurants
opened since 1990. During 1994, the average sales volume of the 70
new Chuck E. Cheese's restaurants opened in 1991 through 1993 was
3.0% lower than the average sales volume of existing restaurants
during the same period.
Revenues from franchise fees and royalties decreased by 5.6% in
1994 compared to 1993 primarily due to a 6.4% decline in comparable
franchise store sales for restaurants open all of 1994 and 1993,
and a decline in the number of restaurants operated each year.
During 1994, two new franchise restaurants opened and six franchise
restaurants closed.
Revenues from Monterey's Tex-Mex Cafe restaurants declined to
$6.5 million in 1994 compared to $19.0 million in 1993 due to the
sale of the Company's Monterey's Tex-Mex Cafe restaurants effective
May 5, 1994.
Costs and Expenses
------------------
Costs and expenses as a percentage of revenues increased to 98.8%
in 1994 from 93.3% in 1993.
Cost of sales increased as a percentage of revenues to 51.3% in
1994 from 50.4% in 1993. Cost of food, beverage, prize and
merchandise items for Chuck E. Cheese's restaurants as a percentage
of restaurant sales increased to 18.2% in 1994 from 18.0% in 1993
primarily due to increases in cheese costs and in costs relating to
the enhancement of certain prize and merchandise items. Labor
expenses for Chuck E. Cheese's restaurants as a percentage of
restaurant sales increased to 30.0% in 1994 from 29.0% in 1993
primarily due to the decline in comparable store sales and
enhancements in services provided to guests, including child
security.
Selling, general and administrative expenses as a percentage of
revenues increased to 17.6% in 1994 from 15.5% in 1993 due
primarily to increased advertising expense as a percentage of
revenues. Corporate overhead costs were impacted by an increase of
approximately $1.2 million primarily during the first three
quarters of 1994 as a result of increasing the number of
operational regional and district managers. Overhead costs were
also impacted in 1994 by an allowance for potential legal
settlements.
Depreciation and amortization expense as a percentage of revenues
increased to 9.7% in 1994 from 8.5% in 1993 primarily due to a
write-off of all unamortized preopening expenses of approximately
$900,000 resulting from a change in the estimated future benefit of
such expenses, the higher depreciation and amortization expense of
new restaurants relative to older restaurants and the decline in
comparable store sales.
PAGE 12
Interest expense increased to $1.9 million in 1994 from $797,000
in 1993 due primarily to an increase in long-term debt of $18.5
million since the third quarter of 1993 primarily to fund the
Company's repurchase of its common stock and an increase in
interest rates.
The Company had a net gain on property transactions of $2.6
million in 1994 compared to a loss on property transactions of
$675,000 in 1993. The Company recognized a gain of $5.5 million
from the sale of its Monterey's Tex-Mex Cafe restaurants effective
May 5, 1994. The gain was partially offset by a loss of
approximately $2.3 million in 1994. The loss was 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 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. The
Company will consider possible relocation of some of the
restaurants. The Company provided for an additional loss on
property transactions of approximately $597,000 in 1994 compared to
$675,000 in 1993 due to the replacement of certain assets in
conjunction with the enhancement of facilities and entertainment
packages of restaurants.
Other operating expenses increased as a percentage of revenues
to 20.5% in 1994 from 18.4% in 1993 primarily due to increased
rent, utility and property tax expenses as a percentage of revenues
and the decline in comparable store sales.
Net Income
----------
In 1994, the Company established an allowance of approximately
$1.1 million related to deferred tax credit carryforwards which are
estimated to expire in 1997. Income tax expense was increased by
approximately $1.1 million as a result of this allowance. In 1993,
income tax expense was reduced approximately $971,000 primarily due
to a non-recurring tax gain resulting from the increased valuation
of the Company's deferred tax asset due to an increase in federal
corporate income tax rates enacted in 1993. The Company's net
income decreased to $676,000 in 1994 from $11.9 million in 1993 due
to the changes in revenues and expenses as discussed above. The
Company's primary and fully diluted earnings per share decreased to
$.03 per share in 1994 from $.86 per share in 1993.
Inflation
The Company's costs of operations, including but not limited to,
labor, supplies, utilities, financing and rental costs, are
significantly affected by inflationary factors. The Company pays
most of its part-time employees rates that are related to federal
and state mandated minimum wage requirements. Increases in any
such costs would result in higher costs to the Company, which the
Company expects would be partially offset by menu price increases
and increased efficiencies in operations.
Financial Condition, Liquidity and Capital Resources
Cash provided by operations declined to $27.8 million in 1995
from $30.8 million in 1994. Cash outflow from investing activities
for 1995 was $30.5 million. Cash inflow from financing activities
in 1995 was $5.9 million. 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 funds available under its line of credit
or additional borrowings.
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 $18 million with annual interest of 10.02% maturing
in 2001, term notes totalling $10 million with annual interest
equal to the London Interbank Offered Rate ("LIBOR") plus 3.5%
maturing in 2000, term loans of $5.0 million with annual interest
equal to LIBOR plus 3.5% maturing in 1997 and a $5 million line of
credit due June 1997 with interest provided at prime plus 1/2%, or
at the Company's option, LIBOR plus 3%. The Company is required to
comply with certain financial ratio tests during the terms of the
loan agreements.
PAGE 13
The Company believes that the success of its facility and
enhancement program in addition to new restaurant development will
continue to be significant factors in its ability to generate
increased revenues over the foreseeable future. The Company
continues to evolve and expand its efforts to significantly enhance
its Chuck E. Cheese's locations. This "repositioning" program is
being carried out on a market by market basis and involves: an
improved exterior identity, a facility upgrade, an expanded free
ball-crawl with tubes and tunnels suspended from or reaching to the
ceiling, and an enhancement of the variety and number of games and
rides offered to its guests. The Company completed 21 restaurants
under this program in 1994 and 76 restaurants in 1995 which is
approximately 43% of all Company operated restaurants. The Company
currently plans to reposition substantially all Company-operated
restaurants by the end of 1996. The Company anticipates that the
repositioning of the remaining restaurants will cost on the average
approximately $300,000 per restaurant. However, this amount can
vary significantly at a particular restaurant depending on several
factors, including the restaurant's square footage, date of the
most recent remodel and the existing assets at the restaurant. In
the event certain site characteristics considered essential to the
success of a restaurant deteriorate, the Company will consider
closing the restaurant or relocating the restaurant to a more
desirable site.
The Company is implementing several strategies designed to
strengthen the sales vitality of its existing restaurant base in
what management believes is a competitive market. The Company is
refining its marketing plan; the Company has accelerated its
commitment of capital to existing stores; and the Company is
limiting its new restaurant development to ensure that the sales
vitality of the Company's existing restaurant base and new
restaurant growth are both given appropriate priority. As a result
of these strategies, comparable store sales increased 2.3% in the
fourth quarter of 1995. The Company continues to experience
increases in comparable store sales in 1996.
The Company believes it will realize substantial benefit from
utilization of approximately $67 million in net operating loss
carryforwards to reduce its future federal income tax liability.
Such net operating loss carryforwards expire from years 1999
through 2001. Although the use of such carryforwards could, under
certain circumstances, be limited, the Company is presently unaware
of the occurrence of any event which would result in the imposition
of such limitation. The Company has adopted an amendment to its
Restated Articles of Incorporation which is intended to prevent
changes in ownership of its common stock that would cause such
limitation. In addition, the Company has investment tax credit,
job tax credit and alternative minimum tax credit carryforwards of
approximately $7 million. The investment tax credit and the job
tax credit carryforwards expire in years 1997 through 2010. Tax
credit carryforwards can be utilized by the Company only after all
net operating loss carryforwards have been realized. If the
Company's results of operations do not improve, a portion of the
net operating loss and tax credit carryforwards could expire prior
to utilization, resulting in a charge against income. Taxable
income for the five years ending December 30, 1994 was $53 million.
Based on current results of the repositioned restaurants and the
Company's current plans to reposition substantially all of its
Company-owned restaurants by the end of 1996, the Company currently
projects future taxable income levels sufficient to realize its net
operating loss and tax credit carryforwards prior to their
expiration after considering an allowance of $1.1 million for the
estimated expiration of tax credit carryforwards in 1997.
PAGE 14
Item 8. Financial Statements and Supplementary Data
SHOWBIZ PIZZA TIME, INC.
YEARS ENDED DECEMBER 29, 1995, DECEMBER 30, 1994
AND DECEMBER 31, 1993
CONTENTS
Page
-----
Independent auditors' report. . . . . . . . . . . . . . . . . . . . . 16
Consolidated financial statements:
Consolidated balance sheets. . . . . . . . . . . . . . . . . . . 17
Consolidated statements of earnings. . . . . . . . . . . . . . . 18
Consolidated statements of shareholders' equity. . . . . . . . . 19
Consolidated statements of cash flows. . . . . . . . . . . . . . 20
Notes to consolidated financial statements . . . . . . . . . . . 21
PAGE 15
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
PAGE 16
SHOWBIZ PIZZA TIME, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 29, 1995 AND DECEMBER 30, 1994
(Thousands, except share data)
ASSETS
December 29, December 30,
1995 1994
------------- -------------
Current assets:
Cash and cash equivalents . . . . . . . . $ 5,589 $ 2,381
Accounts receivable, including receivables
from related parties of $415 and $416,
respectively. . . . . . . . . . . . . . . 3,327 3,361
Current portion of notes receivable,
including receivables from
related parties of $327 and $300,
respectively . . . . . . . . . . . . . . 608 529
Inventories . . . . . . . . . . . . . . . . 3,589 3,107
Prepaid expenses. . . . . . . . . . . . . . 2,781 2,900
Current portion of deferred tax asset . . . 4,147 3,583
------- -------
Total current assets . . . . . . . . . . . . . 20,041 15,861
-------- -------
Investments in related parties. . . . . . . . 761 699
-------- -------
Property and equipment. . . . . . . . . . . . 137,181 130,190
-------- ---------
Deferred tax asset. . . . . . . . . . . . . . 28,582 29,414
-------- ---------
Other assets:
Notes receivable, less current portion,
including receivables from
related parties of $1,983 and $1,708,
respectively . . . . . . . . . . . . . . 7,072 6,705
Deferred charges, less amortization . . . . 2,599 2,083
Other . . . . . . . . . . . . . . . . . . . 2,774 3,356
------- -------
12,445 12,144
------- -------
$ 199,010 $ 188,308
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt . . . . $ 95 $ 10,060
Accounts payable and
accrued liabilities . . . . . . . . . . 29,836 26,545
-------- --------
Total current liabilities. . . . . . . 29,931 36,605
-------- --------
Long-term debt, less current portion. . . . . 35,753 19,947
-------- --------
Deferred credits. . . . . . . . . . . . . . . 3,443 3,025
-------- --------
Other liabilities . . . . . . . . . . . . . . 1,391 1,314
-------- --------
Commitments and contingencies
Redeemable preferred stock, $60 par
value, redeemable for
$2,974 in 2005. . . . . . . . . . . . . . 2,005 1,902
-------- --------
Shareholders' equity:
Common stock, $.10 par value;
authorized 30,000,000 shares;
14,290,061 and 14,337,235 shares
issued, respectively . . . . . . . . . 1,429 1,434
Capital in excess of par value. . . . . . 154,230 156,532
Retained earnings . . . . . . . . . . . . 4,733 5,012
Deferred compensation . . . . . . . . . . (3,642) (7,200)
Less treasury shares of 2,072,784
at both dates, at cost . . . . . . . . (30,263) (30,263)
-------- --------
126,487 125,515
-------- --------
$ 199,010 $ 188,308
======== ========
See notes to consolidated financial statements.
PAGE 17
SHOWBIZ PIZZA TIME, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
YEARS ENDED DECEMBER 29, 1995,
DECEMBER 30, 1994 AND DECEMBER 31, 1993
(Thousands, except per share data)
1995 1994 1993
---- ----- -----
Food and beverage revenues. . . . . . $182,376 $189,257 $197,090
Games and merchandise revenues. . . . . 76,969 74,331 70,242
Franchise fees and royalties. . . . . . 3,464 4,078 4,321
Interest income, including related
party income of $222, $209,
and $177, respectively. . . . . . . 872 688 346
Joint venture income. . . . . . . . . . 102 161 345
------- -------- -------
263,783 268,515 272,344
--------- -------- --------
Costs and expenses:
Cost of sales . . . . . . . . . . 136,700 137,729 137,343
Selling, general and administrative
expenses, including related party expenses
of $125 in each year . . . . . . 44,794 47,263 42,129
Depreciation and amortization 23,184 26,032 23,058
Interest expense, including related party
expense of $99 in 1993 . . . . . 3,118 1,861 797
(Gain) loss on property
transactions . . . . . . . . . . 136 (2,597) 675
Other operating expenses. . . . . . 55,476 55,114 50,095
------- ------- -------
263,408 265,402 254,097
-------- ------- -------
Income before income taxes. . . . . . . 375 3,113 18,247
Income taxes:
Current expense . . . . . . . . . . . 701 869 1,751
Deferred (benefit) expense. . . . . . (389) 1,568 4,605
------- ------- -------
312 2,437 6,356
------- -------- -------
Net income. . . . . . . . . . . . . . $ 63 $ 676 $ 11,891
======= ======= =======
Earnings per common and common equivalent share:
Primary:
Net income (loss). . . . . . . $ (.02) $ .03 $ .86
======= ======= =======
Weighted average shares
outstanding. . . . . . . . . 12,065 12,127 13,455
======= ======== =======
Fully diluted:
Net income (loss). . . . . . . $ (.02) $ .03 $ .86
======= ======= =======
Weighted average shares
outstanding. . . . . . . . . 12,065 12,127 13,464
======= ======= =======
See notes to consolidated financial statements.
PAGE 18
SHOWBIZ PIZZA TIME, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 29, 1995,
DECEMBER 30, 1994 AND DECEMBER 31, 1993
(Thousands, except per share data)
Common Capital in Retained Deferred Treasury
Stock Excess of Earnings Compen- Stock
Shares Par Value Par Value (Deficit) sation Shares Cost
------- -------- --------- ------- -------- ------ ------
Balances, Jan 1, 1993 . .
12,965 $1,297 $143,219 $ (6,872) $ (666) 212 $(4,811)
Net income . . . . .
11,891
Redeemable preferred stock
accretion . . . . (104)
Redeemable preferred
stock dividends,
$4.80 per share . . . . . . . . . (238)
Stock options exercised. . . . . . .
48 5 573
Warrants exercised . . . . . . . . .
855 85 1,435
Stock grant plan . . . . . . . . . .
414 41 12,000 (12,000)
Tax expense from exercise
of stock options
and stock grants . . . . . . . . .
(37)
Treasury stock acquired. . . . . . .
834 (11,939)
Amortization of deferred
compensation. . . . . . . . . . .
2,732
Stock issued under
401(k) plan . . . . . . . . . . .
1 36
- ------ ----- ------- ------ ------ ----- ------
Balances, Dec. 31, 1993 . . . . . . . . .
14,283 1,428 157,226 4,677 (9,934) 1,046 (16,750)
Net income . . . . . . . . . . . . . 676
Redeemable preferred
stock accretion . . . . . . . . .(103)
Redeemable preferred
stock dividends,
$4.80 per share . . . . . . . . .(238)
Stock options exercised. . . . . . .
54 6 234
Tax expense from exercise
of stock options
and stock grants. . . . . . . . . .
(928)
Treasury stock acquired. . . . . . . .
1,027 (13,513)
Amortization of deferred
compensation. . . . . . . . . . . . . 2,734
- ------ ----- ------- ------ ------- ------ -------
Balances, Dec. 30, 1994 . . . . . . . . . . .
14,337 1,434 156,532 5,012 (7,200) 2,073 (30,263)
Net income . . . . . . . . . . . . 63
Redeemable preferred
stock accretion . . . . . . . . (104)
Redeemable preferred
stock dividends,
$4.80 per share . . . . . . . . (238)
Stock options exercised. . . . . .
13 1 89
Stock grant shares forfeited . . .
(60) (6) (1,737) 1,737
Tax expense from exercise
of stock options
and stock grants. . . . . . . . .
(654)
Amortization of deferred
compensation. . . . . . . . . . . 1,821
- ------ ------ ------- ------ ------ ----- ------
Balances, Dec. 29, 1995 . . . . . . . . .
14,290 $1,429 $154,230 $ 4,733 $(3,642) 2,073 $(30,263)
====== ====== ======== ======= ======= ===== =======
See notes to consolidated financial statements.
PAGE 19
SHOWBIZ PIZZA TIME, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 29, 1995,
DECEMBER 30, 1994 AND DECEMBER 31, 1993
(Thousands)
1995 1994 1993
------ ------ ------
Operating activities:
Net income. . . . . . . . . . . . . $ 63 $ 676 $11,891
Adjustments to reconcile
net income to cash provided by
operations:
Depreciation and amortization . . 23,184 26,032 23,058
Deferred income tax
expense (benefit) . . . . . . . (389) 1,568 4,605
(Gain) loss on property
transactions. . . . . . . . . . 136 (2,597) 675
Compensation expense under
stock grant plan. . . . . . . . 1,821 2,734 2,756
Other . . . . . . . . . . . . . . 418 619 399
Net change in receivables,
inventories, prepaids,
payables and accrued
liabilities . . . . . . . . . . 2,577 1,787 1,521
------- ------ -------
Cash provided by operations 27,810 30,819 44,905
------- ------- -------
Investing activities:
Purchases of property
and equipment . . . . . . . . . . (28,277) (29,421) (44,600)
Proceeds from disposition
of property and equipment . . . . 20 6,725 250
Payments received on
notes receivable. . . . . . . . . 2,503 2,992 978
Additions to notes
receivable. . . . . . . . . . . . (3,047) (2,169) (724)
Change in deferred charges,
investments and other assets. . . (1,747) (703) (1,813)
------- ------- -------
Cash used in investing
activities. . . . . . . . . . (30,548) (22,576) (45,909)
------- ------- -------
Financing activities:
Proceeds from line of credit. . . . 38,895 8,535 24,050
Payments on line of credit. . . . . (32,995) (5,235) (10,550)
Reduction of debt and capital
lease obligations, including
payments to related parties
of $1,658 in 1993 . . . . . . . . (59) (47) (1,692)
Redeemable preferred
stock dividends . . . . . . . . . (238) (238) (238)
Acquisition of treasury
stock . . . . . . . . . . . . . . (13,513) (11,939)
Exercise of stock options
and warrants, including
exercise by a related party
of $1,488 in 1993 . . . . . . . . 90 240 2,098
Other . . . . . . . . . . . . . . . 253 (115) 324
------ ------- -------
Cash provided by (used in)
financing activities. . . . . 5,946 (10,373) 2,053
------- ------- -------
Increase (decrease) in
cash and cash equivalents . . . . . 3,208 (2,130) 1,049
Cash and cash equivalents,
beginning of year . . . . . . . . . 2,381 4,511 3,462
------- ------- -------
Cash and cash equivalents,
end of year . . . . . . . . . . . . $ 5,589 $ 2,381 $ 4,511
======= ======= =======
See notes to consolidated financial statements.
PAGE 20
SHOWBIZ PIZZA TIME, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 29, 1995,
DECEMBER 30, 1994 AND DECEMBER 31, 1993
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 1995, 1994 and 1993
are for the fiscal years ended December 29, 1995, December 30,
1994 and December 31, 1993, respectively. Fiscal years 1995,
1994 and 1993 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 $.12 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.
PAGE 21
SHOWBIZ PIZZA TIME, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
YEARS ENDED DECEMBER 29, 1995,
DECEMBER 30, 1994 AND DECEMBER 31, 1993
1. Summary of significant accounting policies (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 1994 and 1993 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.
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 $2.3 million
in 1994 as a result of the Company's decision to close one Chuck
E. Cheese's restaurant and the impairment in fair value of the
fixed assets of ten Chuck E. Cheese's restaurants. The
impairment in fair value of the ten restaurants is due to the
Company's decision not to renew the leases as a result of the
deterioration of site characteristics or the inability to renew
the leases at acceptable rental terms.
PAGE 22
3. Accounts receivable:
1995 1994
------- ------
(thousands)
Trade. . . . . . . . . . . . . . . . . . . .$ 516 $ 382
Other. . . . . . . . . . . . . . . . . . . . 2,886 3,454
------- -------
3,402 3,836
Less allowance for
doubtful collection. . . . . . . . . . . . (75) (475)
------- -------
$ 3,327 $ 3,361
======= =======
SHOWBIZ PIZZA TIME, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
YEARS ENDED DECEMBER 29, 1995,
DECEMBER 30, 1994 AND DECEMBER 31, 1993
4. Notes receivable:
The Company's notes receivable at December 29, 1995 and
December 30, 1994 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 $354,000 and $139,000 at December 29, 1995 and
December 30, 1994, respectively.
5. Property and equipment:
In 1995, the Company changed its estimate of the useful lives of
certain fixed assets.
Previous New
Lives Lives 1995 1994
------ ------ ----- ------
(in years) (thousands)
Land and improvements. . . . . 0 - 10 0 - 20 $ 4,630 $ 4,650
Leasehold improvements . . . . 4 - 15 4 - 20 118,041 107,928
Buildings and improvements . . 4 - 25 4 - 25 8,789 8,789
Furniture, fixtures
and equipment. . . . . . . . 2 - 10 2 - 15 97,703 87,756
Property leased under
capital leases (Note 8). 10 - 15 10 - 15 1,328 1,328
------- -------
230,491 210,451
Less accumulated depreciation
and amortization . . . . . . . . . . . . . . . . . . (94,781) (81,805)
-------- -------
135,710 128,646
Construction in progress . . . . . . . . . . . . . . 1,471 1,544
------- -------
$ 137,181 $ 130,190
======== =======
PAGE 23
6. Deferred charges:
1995 1994
------ ------
(thousands)
Franchise rights . . . . . . . . . . . . $ 5,000 $ 5,000
Loan costs . . . . . . . . . . . . . . . 1,223 434
Other. . . . . . . . . . . . . . . . . . 579 557
------ ------
6,802 5,991
Less accumulated amortization. . . . . . (4,203) (3,908)
------ ------
$ 2,599 $ 2,083
====== ======
7. Accounts payable and accrued liabilities:
1995 1994
----- -----
(thousands)
Accounts payable . . . . . . . . . . . . . . $ 12,851 $ 10,819
Salaries and wages . . . . . . . . . . . . . 4,215 3,990
Insurance. . . . . . . . . . . . . . . . . . 8,805 7,670
Taxes, other than income . . . . . . . . . . 2,561 2,528
Other. . . . . . . . . . . . . . . . . . . . 1,404 1,538
------ ------
$ 29,836 $ 26,545
====== ======
SHOWBIZ PIZZA TIME, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
YEARS ENDED DECEMBER 29, 1995,
DECEMBER 30, 1994 AND DECEMBER 31, 1993
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 1994
----- -----
(thousands)
Buildings and improvements. . . . . . . $ 1,328 $ 1,328
Less accumulated depreciation . . . . . (877) (771)
------ -----
$ 451 $ 557
====== =====
PAGE 25
Scheduled annual maturities of the obligations for capital and
operating leases as of December 29, 1995, are:
Years Capital Operating
------ -------- ---------
(thousands)
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
=======
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.
The Company's rent expense is comprised of the following:
1995 1994 1993
----- ----- -----
(thousands)
Minimum. . . . . . . . . . . . $28,730 $28,003 $25,305
Contingent . . . . . . . . . . 146 216 185
------ ------ ------
$28,876 $28,219 $25,490
====== ======= =======
PAGE 24
SHOWBIZ PIZZA TIME, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
YEARS ENDED DECEMBER 29, 1995
DECEMBER 30, 1994 AND DECEMBER 31, 1993
9. Long-term debt:
1995 1994
----- -----
(thousands)
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) . . . . . . . . . . . . . . . . . . . . 1,148 1,207
------ -------
35,848 30,007
Less current portion. . . . . . . . . . . . . . . . . . (95) (10,060)
------- -------
$ 35,753 $19,947
======= ======
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 obligationsd 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 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.
PAGE 25
SHOWBIZ PIZZA TIME, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
YEARS ENDED DECEMBER 29, 1995,
DECEMBER 30, 1994 AND DECEMBER 31, 1993
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):
1995 1994 1993
------ ------ ------
Net income . . . . . . . . . . . $ 63 $ 676 $11,891
Accretion of redeemable
preferred stock. . . . . . . . (104) (103) (104)
Redeemable preferred
stock dividends. . . . . . . . (238) (238) (238)
------ ------ -----
Adjusted income (loss)
applicable to common shares. . . $ (279) $ 335 $11,549
====== ====== ======
Primary:
Weighted average common
shares outstanding . . . . . 12,065 12,078 12,816
Common stock equivalents:
Stock purchase warrants. . . . 426
Other. . . . . . . . . . . . . 49 213
------- ------- -------
Weighted average shares
outstanding. . . . . . . . . 12,065 12,127 13,455
======= ======= =======
Earnings (loss) per common
and common equivalent share.$ (.02) $ .03 $ .86
======= ======= =======
Fully Diluted:
Weighted average common
shares outstanding . . . . . 12,065 12,078 12,816
Common stock equivalents:
Stock purchase warrants. . . . 426
Other. . . . . . . . . . . . . 49 222
------- ------- -------
Weighted average shares
outstanding. . . . . . . . . 12,065 12,127 13,464
======= ======= =======
Earnings (loss) per common
and common equivalent share. $ (.02) $ .03 $ .86
======= ======= =======
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 $98,000,
$315,000 and $82,500 in 1995, 1994 and 1993, respectively.
15. Cost of sales:
1995 1994 1993
------ ------ ------
(thousands)
Food, beverage and
related supplies . . . . . . $ 43,412 $ 46,328 $ 48,435
Games and merchandise. . . . . 13,285 12,369 11,375
Labor . . . . . . . . 80,003 79,032 77,533
------- ------- -------
$136,700 $137,729 $137,343
======= ======= =======
PAGE 26
SHOWBIZ PIZZA TIME, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
YEARS ENDED DECEMBER 29, 1995,
DECEMBER 30, 1994 AND DECEMBER 31, 1993
16. Income taxes:
The significant components of income tax expense are as follows:
1995 1994 1993
------ ------ ------
(thousands)
Current expense. . . . . . . . . . $ 701 $ 869 $ 1,751
Deferred expense:
Utilization of operating
loss carryforwards . . . . . . 1,138 2,204 6,078
Net tax benefits from
exercise of stock
options and stock grants . . . . (654) (928) (37)
Increase in valuation of
deferred tax asset . . . . . . . (971)
Allowance for tax credit
carryforwards expiring in 1997 . 1,104
Tax credits. . . . . . . . . . . . (127) (237) (465)
Other (primarily temporary
differences related to
depreciation) . . . . . . . . . (746) (575)
------- ------- -------
$ 312 $ 2,437 $ 6,356
======= ======= =======
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 in the same amount.
A schedule of expiring NOL's and tax credits by fiscal year
are as follows:
Amount
---------------------
Years NOL's Tax Credits
- ---------- -------- ----------
(thousands)
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
======= =======
The Company's alternative minimum tax credits have no
expiration date.
PAGE 27
SHOWBIZ PIZZA TIME, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
YEARS ENDED DECEMBER 29, 1995,
DECEMBER 30, 1994 AND DECEMBER 31, 1993
16. Income taxes (continued):
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:
1995 1994 1993
------ ----- -----
(thousands)
Statutory rate . . . . . . . . . . . . 34.0% 34.0% 35.0%
State income taxes . . . . . . . . . . 106.1% 14.8% 5.1%
Increase in valuation
of deferred tax asset . . . . . . . (5.3%)
Allowance for tax credit carryforwards . 35.5%
Tax credits earned . . . . . . . . . . (33.9%) (6.9%) (2.6%)
Other. . . . . . . . . . . . . . . . . (23.0%) .9% 2.6%
------- ------ -------
Income taxes provided. . . . . . . . . 83.2% 78.3% 34.8%
======= ====== =======
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.
18. Supplemental cash flow information:
1995 1994 1993
------ ------ ------
(thousands)
Cash paid during the year for:
Interest. . . . . . . . . . . . . $ 3,055 $ 1,781 $ 912
Income taxes . . . . . . . . . . 801 1,389 1,769
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
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").
PAGE 28
SHOWBIZ PIZZA TIME, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
YEARS ENDED DECEMBER 29, 1995,
DECEMBER 30, 1994 AND DECEMBER 31, 1993
19. Related party transactions (continued):
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 1995, 1994, and 1993. 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 $1.78 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 $410,000 and $393,000 at December 29, 1995 and
December 30, 1994, 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 $5,000 and $22,000 at December 29, 1995
and December 30, 1994, respectively.
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 500,000 shares to an aggregate of 1,848,025
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
100,000 shares. Options are granted at the fair market value of
the Company's common stock at the date of grant.
PAGE 29
SHOWBIZ PIZZA TIME, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
YEARS ENDED DECEMBER 29, 1995,
DECEMBER 30, 1994 AND DECEMBER 31, 1993
20. Employee benefit plans (continued):
1995 1994 1993
------ ------ ------
Options outstanding,
beginning of year. . . . 506,635 372,662 276,297
Granted . . . . . . . 261,240 341,500 158,800
Exercised . . . . . . (12,826) (51,714) (47,885)
Terminated. . . . . . (189,088) (155,813) (14,550)
------- ------- -------
Options outstanding,
end of year
($2.45-$33.50 per share). 565,961 506,635 372,662
======= ======= =======
Options:
Exercisable . . . . . 135,349 175,317 261,490
Available for grant . 699,719 171,871 357,558
The options granted in 1995 are at exercise prices ranging
from $8.50 to $11.88 per share. In January 1996, the Company
granted 180,661 additional options at an exercise price of
$12.43 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 1,145,758 shares. An aggregate of 414,508 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 $1,821,000, $2,734,000 and $2,756,000
in 1995, 1994 and 1993, 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 60,000 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 1994 and
1993 plan year. The Company plans to contribute $23,000 in
common stock for the 1995 plan year 1995.
PAGE 30
SHOWBIZ PIZZA TIME, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
YEARS ENDED DECEMBER 29, 1995,
DECEMBER 30, 1994 AND DECEMBER 31, 1993
21. Quarterly results of operations (unaudited):
The following summarizes the unaudited quarterly results of
operations for the years ended December 29, 1995 and December
30, 1994 (thousands, except per share data).
Fiscal year ended December 29, 1995
-----------------------------------------------
March 31 June 30 Sept. 29 Dec. 29
------- ------- ------- -------
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). . .$ .21 $ (.10) $ .00 $ (.12)
Fiscal year ended December 30, 1994
-------------------------------------------------
April 1 July 1 Sept. 30 Dec. 30
------- ------- ------- -------
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). .$ .27 $ .10 $ .08 $ (.42)
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 preopening 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.
PAGE 31
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; 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.
DELOITTE & TOUCHE LLP
Dallas, Texas
February 23, 1996
PAGE 32
SCHEDULE II
SHOWBIZ PIZZA TIME, INC.
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
Column A Column B Column C Column D Column E
- -------------------------------------------------------------------------
Additions
charged
Balance at to costs Balance at
beginning of and end of
Description of period expenses Deductions period
===========================================================================
(Thousands)
Allowance for doubtful accounts:
Years ended:
Dec. 29, 1995. . . . $ 475 $ 400 (A) $ 75
===== ====== =====
Dec. 30, 1994. . . . $ 266 $ 209 $ 475
===== ===== =====
Dec. 31, 1993. . . . $ 150 $ 116 $ 266
===== ===== =====
Accumulated amortization -- deferred charges:
Years ended:
Dec. 29, 1995. . . $ 3,909 $ 1,781 $ 1,487 (B) $ 4,203
======= ====== ===== ======
Dec. 30, 1994. . . $ 6,307 $ 2,854 $ 5,252 (B) $ 3,909
====== ====== ===== ======
Dec. 31, 1993. . . $ 7,789 $ 2,110 $ 3,592 (B) $ 6,307
====== ====== ===== ======
Reserve for uncollectible notes receivable:
Years ended:
Dec. 29, 1995. . . $ 139 $ 215 $ 354
===== ====== ======
Dec. 30, 1994 . . $ 139 $ 139
====== =====
Dec. 31, 1993 . . $ 320 320(C)
===== ======
__________
(A) Settlement of previously reserved accounts.
(B) Write-off of deferred charges.
(C) Adjustment to notes receivable reserve.
PAGE 33
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.
None.
P A R T I I I
Item 10. Directors and Executive Officers of the Registrant.
The information required by this Item regarding the directors and
executive officers of the Company shall be included in the
Company's definitive Proxy Statement to be filed pursuant to
Regulation 14A in connection with the Company's 1996 annual meeting
of stockholders and is incorporated herein by reference thereto.
Item 11. Executive Compensation.
The information required by this Item regarding the directors
and executive officers of the Company shall be included in the
Company's definitive Proxy Statement to be filed pursuant to
Regulation 14A in connection with the Company's 1996 annual meeting
of stockholders and is incorporated herein by reference thereto.
Item 12. Security Ownership of Certain Beneficial Owners and
Management.
The information required by this Item shall be included in the
Company's definitive Proxy Statement to be filed pursuant to
Regulation 14A in connection with Company's 1996 annual meeting of
stockholders and is incorporated herein by reference thereto.
Item 13. Certain Relationships and Related Transactions.
The information required by this Item shall be included in the
Company's definitive Proxy Statement to be filed pursuant to
Regulation 14A in connection with the Company's 1996 annual meeting
of stockholders and is incorporated herein by reference thereto.
PAGE 34
P A R T I V
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K.
(a) The following documents are filed as a part of this
report:
(1) Financial Statements and Supplementary Data:
Independent auditors' report.
ShowBiz Pizza Time, Inc. consolidated financial
statements:
Consolidated balance sheets as of December 29, 1995 and
December 30, 1994.
Consolidated statements of earnings for the years
ended December 29, 1995, December 30, 1994, and
December 31, 1993.
Consolidated statements of shareholders' equity for the
years ended December 29, 1995, December 30, 1994, and
December 31, 1993.
Consolidated statements of cash flows for the years
ended December 29, 1995, December 30, 1994, and December
31, 1993.
Notes to consolidated financial statements.
(2) Financial Statement Schedules:
ShowBiz Pizza Time, Inc.
------------------------
II --- Valuation and qualifying accounts and reserves.
PAGE 35
(3) Exhibits:
- --------
EXHIBITS
- --------
Exhibit
Number Description
3(a) Restated Articles of Incorporation of the Company, dated May
29, 1992 (filed as Exhibit 3(a) to the Company's Annual
Report on Form 10-K for the year ended January 1, 1993, and
incorporated herein by reference).
3(b) Restated Bylaws of the Company, dated August 16, 1994 (filed
as Exhibit 3 to the Company's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1994, and incorporated
herein by reference).
3(c) Amendment to the Bylaws, dated May 5, 1995 (filed as Exhibit
3 to the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30,1995, and incorporated herein by
reference).
4(a) Specimen form of certificate representing $.10 par value
Common Stock (filed as Exhibit 4(a) to the Company's Annual
Report on Form 10-K for the year ended December 28, 1990, and
incorporated herein by reference).
4(b) Specimen form of certificate representing $60 par value Class
A Preferred Stock (filed as Exhibit 4(b) to the Company's
Annual Report on Form 10-K for the year ended December 28,
1990, and incorporated herein by reference).
10(a)(1)
Amended and Restated Employment Agreement dated April 14,
1993, between the Company and Richard M. Frank (filed as
Exhibit 10(a)(8) to the Company's Quarterly Report on Form
10-Q for the quarter ended April 2, 1993, and incorporated
herein by reference).
10(a)(2)
Consulting Agreement dated January 5, 1989 between the Company
and Richard M. Frank (filed as Exhibit 10(a)(5) to the
Company's Annual Report on Form 10-K for the year ended
December 27, 1991, and incorporated herein by reference).
PAGE 37
10(a)(3)
Amendment to Consulting Agreement dated January 29, 1992,
amending the Consulting Agreement dated January 5, 1989
between the Company and Richard M. Frank (filed as Exhibit
10(a)(6) to the Company's Annual Report on Form 10-K for the
year ended December 27, 1991, and incorporated herein by
reference).
10(a)(4)
Stock Grant Trust Agreement dated January 29, 1992, among the
Company,Richard M. Frank, Ronald F. Saupe and Kevin J.
Shepherd (filed as Exhibit 10(a)(7) to the Company's Annual
Report on Form 10-K for the year ended December 27, 1991, and
incorporated herein by reference).
10(b)
Employment Agreement dated January 4, 1994, between the
Company and Michael H. Magusiak (filed as Exhibit 10(b) to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1993, and incorporated herein by reference).
10(c)(1)
Non-Statutory Stock Option Plan of the Company, as amended to
date (filed as Exhibit 10(a)(1) to Company's Quarterly Report
on Form 10-Q for the quarter ended September 30, 1994, and
incorporated herein by reference).
10(c)(2)
Specimen form of Contract under the Non-Statutory Stock Option
Plan of the Company, as amended to date (filed as Exhibit
10(a)(2) to the Company's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1994, and incorporated herein
by reference).
10(d)(1)
Stock Grant Plan of the Company, as amended to date (filed as
Exhibit 10(d)(1) to the Company's Annual Report on Form 10-K
for the year ended December 31, 1993, and incorporated herein
by reference).
10(d)(2)
Specimen form of Certificate of Participation to certain
participants under the Stock Grant Plan of the Company (filed
as Exhibit 10(e)(3) to the Company's Annual Report on Form 10-K for the
year ended December 29, 1989, and incorporated herein by reference).
10(e)
Financial and Management Consulting Services Agreement between
the Company and The Hallwood Group Incorporated (filed as
Exhibit 10(i) to the Company's Annual Report on Form 10-K for
the year ended December 30,1988, and incorporated herein by
reference).
10(f)
Stock Purchase and Registration Agreement dated as of May 5,
1992, among the Company, The Hallwood Group Incorporated and
certain shareholders of the Company (filed as Exhibit 28 to
the Company's Registration Statement on Form S-3 (No. 33-48307)
and incorporated herein by reference).
PAGE 38
10(g)
Note Purchase Agreement dated June 15, 1995, between Allstate
Life Insurance Company, Connecticut Mutual Life Insurance
Company, C M Life Insurance Company, MassMutual Corporate
Value Partners Limited,Massachusetts Mutual Life Insurance
Company, Modern Woodmen of America, and the Company (filed as
Exhibit 10 (a)(1) to the Company's Quarterly Report on Form
10-Q for the quarter ended June 30, 1995, and incorporated
herein by reference).
10(h)
10.02% Series A Senior Note Due 2001, in the stated
amount of $10,000,000.00, dated June 15, 1995, between Allstate
Life Insurance Company and the Company (filed as Exhibit 10 (b)(1)
to the Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1995, and incorporated herein by reference).
10(i)(1)
10.02% Series A Senior Note Due 2001, in the stated amount
of$1,000,000.00, dated June 15, 1995, between Connecticut
Mutual Life Insurance Company and the Company (filed as
Exhibit 10 (c)(1) to the Company's Quarterly Report on Form
10-Q for the quarter ended June 30,1995, and incorporated
herein by reference).
10(i)(2)
10.02% Series A Senior Note Due 2001, in the stated amount
of$1,000,000.00, dated June 15, 1995, between Connecticut
Mutual Life Insurance Company and the Company (filed as
Exhibit 10 (c)(2) to the Company's Quarterly Report on Form
10-Q for the quarter ended June 30,1995, and incorporated
herein by reference).
10(i)(3)
10.02% Series A Senior Note Due 2001, in the stated amount of
$1,000,000.00, dated June 15, 1995, between Connecticut Mutual
LifeInsurance Company and the Company (filed as Exhibit 10
(c)(3) to the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30,1995, and incorporated herein by
reference).
10(j)(1)
10.02% Series A Senior Note Due 2001, in the stated amount of
$1,000,000.00, dated June 15, 1995, between C M Life Insurance
Company and the Company (filed as Exhibit 10 (d)(1) to the
Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1995, and incorporated herein by reference).
10(j)(2)
10.02% Series A Senior Note Due 2001, in the stated amount of
$1,000,000.00, dated June 15, 1995, between C M Life Insurance
Company and the Company (filed as Exhibit 10 (d)(2) to the
Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1995, and incorporated herein by reference).
PAGE 39
10(k)(1)
Floating Rate Series B Senior Note Due 2000, in the stated
amount of $2,000,000.00, dated June 15, 1995, between
Massachusetts Mutual Life Insurance Company and the Company
(filed as Exhibit 10 (e)(1) to the Company's Quarterly Report
on Form 10-Q for the quarter ended June 30,1995, and
incorporated herein by reference).
10(k)(2)
Floating Rate Series B Senior Note Due 2000, in the stated
amount of $2,000,000.00, dated June 15, 1995, between
Massachusetts Mutual Life Insurance Company and the Company
(filed as Exhibit 10 (e)(2) to the Company's Quarterly Report
on Form 10-Q for the quarter ended June 30,1995, and
incorporated herein by reference).
10(k)(3)
Floating Rate Series B Senior Note Due 2000, in the stated
amount of $2,000,000.00, dated June 15, 1995, between
Massachusetts Mutual Life Insurance Company and the
Company (filed as Exhibit 10 (e)(3) to the Company's
Quarterly Report on Form 10-Q for the quarter ended June
30,1995, and incorporated herein by reference).
10(l)
Floating Rate Series B Senior Note Due 2000, in the stated
amount of $4,000,000.00, dated June 15, 1995, between
MassMutual Corporate Value Partners Limited (I/N/O Webell &
Co.) and the Company (filed as Exhibit 10(f)(1) to the
Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1995, and incorporated herein by reference).
10(m)
Floating Rate Series A Senior Note Due 2001, in the stated
amount of $3,000,000.00, dated June 15, 1995, between Modern
Woodmen of America and the Company (filed as Exhibit 10
(g)(1) to the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1995, and incorporated herein by
reference).
10(n)(1)
Loan Agreement in the stated amount of $5,000,000.00, dated
June 27, 1995, between Bank One, Texas, N.A. and the Company
(filed as Exhibit 10 (h)(1)to the Company's Quarterly Report
on Form 10-Q for the quarter ended June 30, 1995, and
incorporated herein by reference).
10(n)(2)
Revolving Credit Note in the stated amount of $5,000,000.00,
dated June 27,1995, between Bank One, Texas, N.A. and the
Company (filed as Exhibit 10(h)(2) to the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1995, and
incorporated herein by reference).
10(o)
Non-Statutory Stock Option Plan (filed as Exhibit A to the
Company's Proxy Statement for Annual Meeting of Stockholders
to be held on June 8, 1995, and incorporated herein by
reference).
10(p)
Non-Employee Directors Stock Option Plan (filed as Exhibit B
to the Company's Proxy Statement for Annual Meeting of
Stockholders to be held on June 8, 1995, and incorporated
herein by reference).
PAGE 40
10(q)(1)
Specimen form of the Company's current Franchise Agreement
(filed as Exhibit10(d)(1) to the Company's Annual Report on
Form 10-K for the year ended December 27, 1991, and
incorporated herein by reference).
10(q)(2)
Specimen form of the Company's current Development
Agreement (filed as Exhibit 10(d)(2) to the Company's Annual
Report on Form 10-K for the year ended December 31, 1993, and
incorporated herein by reference).
10(r)(1)
Note Purchase Agreement dated October 10, 1995, between BFC
Bank (Cayman) Ltd. and the Company.
10(r)(2)
Modification and Waiver to Note Purchase Agreement, in the
stated amount of $2,500,000.00, dated October 12, 1995,
between BFC Bank (Cayman) Ltd.and the Company.
10(r)(3)
Floating Rate Series C Senior Note Due 1997, in the stated
amount of $2,500,000.00, dated October 12, 1995, between BFC
Bank (Cayman) Ltd.and the Company.
10(s)(1)
Note Purchase Agreement dated October 10, 1995, between Neue
Bank, AG and the Company.
10(s)(2)
Modification and Waiver to Note Purchase Agreement, in the
stated amount of $2,500,000.00, dated October 24, 1995,
between Neue Bank, AG and the Company.
10(s)(3)
Floating Rate Series C Senior Note Due 1997, in the stated
amount of $2,500,000.00, dated November 2, 1995, between Neue
Bank, AG and the Company.
10(t)(1)
Entertainment Operating Fund Line of Credit, in the stated
amount of $1,000,000.00, dated November 15, 1995, between
International Association of ShowBiz Pizza Time Restaurants,
Inc. and the Company.
10(t)(2)
Entertainment Operating Fund Promissory Note, in the stated
amount of $1,000,000.00, dated November 15, 1995, between
International Association of ShowBiz Pizza Time Restaurants,
Inc. and the Company.
10(u)(1)
National Advertising Production Line of Credit, in the stated
amount of $750,000.00, dated November 15, 1995, between
International Association of ShowBiz Pizza Time Restaurants,
Inc. and the Company.
10(u)(2)
National Advertising Production Promissory Note, in the stated
amount of $750,000.00, dated November 15, 1995, between
International Association of ShowBiz Pizza Time Restaurants,
Inc. and the Company.
PAGE 41
10(v)(1)
National Media Fund Line of Credit, in the stated amount of
$2,000,000.00,dated November 15, 1995, between International
Association of ShowBizPizza Time Restaurants, Inc. and the
Company.
10(v)(2)
National Media Fund Promissory Note, in the stated amount of
$2,000,000.00, dated November 15, 1995, between International
Association of ShowBiz Pizza Time Restaurants, Inc. and the
Company.
21 -- List of Shareholders
23 -- Independent Auditor's Consent
- --------------
(b) Reports on Form 8-k:
No reports on Form 8-k were fied in the fourth quarter of 1995.
(c) Exhibits pursuant to Item 601 of Regulation S-K:
Pursuant to Item 601(b)(4) of Regulation S-K, there have been excluded
from the exhibits filed pursuant to this report instruments defining the
rights of holders of long-term debt of the Company where the total amount
of the securities authorized under each instrument does not exceed 10% of
the total assets of the Company. The Company hereby agrees to gurnish a
copy of any such instruments to the Commission upon request.
(d) Financial Statements excluded from the annual report to shaerholders
by Rule 14a-3(b):
No financial statements are excluded from the annual report to the Company's
shareholders by Rule 14a-3(b).
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) 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.
Dated: March 27, 1996 SHOWBIZ PIZZA TIME, INC.
By:------------------------
Richard M. Frank
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the registrant and in the capacities and on the dates
indicated.
Signature Title Date
--------- ----- ----
Chairman of the Board, March 27, 1996
Richard M. Frank Chief Executive Officer,
and Director (Principal
Executive Officer)
President and Director March 27, 1996
Michael H. Magusiak
Executive Vice President, March 27, 1996
Larry G. Page Treasurer, (Principal Financial
Officer and Principal Accounting
Officer)
Director March 27, 1996
Charles A. Crocco, Jr.
Director March 27, 1996
Anthony J. Gumbiner
Director March 27, 1996
Robert L. Lynch
Director March 27, 1996
J. Thomas Talbot
Director March 27, 1996
Louis P. Neeb
Director March 27, 1996
Cynthia I. Pharr
PAGE