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FORM 10-K
----------
(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 27, 1996.
_ 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:
(972) 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 14,1997, an aggregate of 18,518,417 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 14,1997) held by non-affiliates of the
registrant was $ 13,722,126.
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 1996 annual meeting of shareholders, have been
incorporated by reference in Part III of this report.
- -------------------------------------------------------------------
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 14, 1997, 245 Chuck E.
Cheese's Pizza ("Chuck E. Cheese's") restaurants (including four
restaurants managed by the Company for others). In addition, as of
March 14, 1997, franchisees of the Company operated 69 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, 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 32-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):
1996 1995 1994
----- ---- ----
Average annual revenues
per restaurant (1) $1,286,000 $1,178,000 1,206,000
Number of restaurants open at end
of period 240 222 220
Percent of total restaurant revenues:
Food and beverage sales 70.1% 70.2% 71.0%
Game sales 26.6% 26.6% 25.8%
Merchandise sales 3.3% 3.2% 3.2%
- -----------
(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 (213, 190 and 159 restaurants in
1996, 1995 and 1994, 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.
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.
Page 2
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. In 1994, the Company
initiated a "repositioning" program to evolve and expand its
efforts to significantly enhance its Chuck E. Cheese's restaurants.
Between March 1994 and December 1996, the Company completed 223
restaurants under this program which is approximately 91% of all
Company-operated restaurants. The Company plans to reposition the
remaining restaurants by the end of the second quarter of 1997.
The Company opened one new Chuck E. Cheese's restaurant in 1995.
The Company anticipates opening approximately six to eight new
stores in 1997 and approximately 10 to 12 new stores in 1998. The
Company periodically reevaluates the site characteristics of its
restaurants. 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 near shopping centers and
generally occupy 8,000 to 14,000 square feet in area. Chuck E.
Cheese's restaurants are typically divided into three areas: a
kitchen and related area (cashier and prize area, salad bar,
manager's office, technician's office, restrooms, etc.) occupies
approximately 35% of the space, a dining area occupies
approximately 25% of the space and an activity area occupies
approximately 40% of the space.
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 video monitors and animated
props, located on various stage type settings. The dining area
typically provides table and chair seating for 250 to 375
customers.
Each Chuck E. Cheese's restaurant typically contains a 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.
Most games dispense tickets that can be redeemed by guests for
prize merchandise such as toys and dolls. Also included in the
playroom area are tubes and tunnels suspended from or reaching to
the ceiling ("SkyTubes") or other free attractions for young
children, with booth and table seating for the entire family. The
playroom area normally occupies approximately 60% 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. These tokens are used
to play the games in the playroom.
Food and Beverage Products
Each Chuck E. Cheese's restaurant offers varieties of pizza, a
salad bar, sandwiches and desserts. Soft drinks, coffee and tea
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 conducts advertising campaigns which target families with
young children and feature the family entertainment experiences
available at Chuck E. Cheese's restaurants, and is primarily aimed
at increasing the frequency of customer 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.
Franchising
The Company began franchising its restaurants in October 1981 and
the first franchised restaurant opened in June 1982. At March
14, 1997, 69 Chuck E. Cheese's restaurants were operated by a
total of 44 different franchisees, as compared to 93 of such
restaurants at March 15, 1996. In September 1996, the Company
purchased all of the 19 Chuck E. Cheese's restaurants owned by its
largest franchisee. The Company sold four franchises in 1996.
The Company opened a second franchise restaurant in Chile during
the fourth quarter of 1996. 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 10-year renewal option. The standard agreement provides the Company
with a right of first refusal should a franchisee decide to sell a
restaurant. 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. In 1997, the Advertising Fund will
increase assessments from .9% of gross sales to 1.4% 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
operating in the restaurant or family entertainment business.
Although tother restaurant chains presently utilize the combined
family restaurant / entertainment concept, these competitors
primarily operate on a regional, market-by-market basis.
The Company believes that it will continue to encounter
competition in the future. Major national and regional chains,
some of which may have capital resources as great or greater than
the Company, are competitors of the Company. 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 considered
essential to conduct its 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 Company's employment varies seasonally, with the greatest
number being employed during the summer months. On March 14, 1997,
the Company employed approximately 11,000 employees, including
10,800 in the operation of Chuck E. Cheese's restaurants and 185
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 14,
1997.
Chuck E.
State Cheese's
----- -------
Alabama 5
Arkansas 2
California 46
Colorado 4
Connecticut 5
Delaware 1
Florida 15
Georgia 7
Idaho 1
Illinois 15
Indiana 7
Iowa 4
Kansas 3
Kentucky 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 9
South Carolina 3
Tennessee 5
Texas 26
Virginia 5
Wisconsin 3
---
241
===
Of the 241 Chuck E. Cheese's restaurants owned by the Company as
of March 14, 1997, 226 occupy leased premises and 15 occupy owned
premises. The leases of these restaurants will expire at various
times from 1997 to 2009, as described in the table below.
Year of Number of Range of Renewal
Expiration Restaurants Options (Years)
---------- ----------- ---------------
1997 15 None to 10
1998 31 None to 15
1999 15 None to 15
2000 18 None to 15
2001 and thereafter 147 None to 15
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
many 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.
From time to time the Company is involved in litigation, most of
which is incidental to its business. In the Company's opinion, no
litigation in which the Company currently is a party is likely to
have a material adverse effect on the Company's results of
operations, financial condition or cash flows.
Item 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 1996.
Page 7
P A R T I I
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters.
As of March 14, 1997, there were an aggregate of 18,417,910
shares of the Company's Common Stock outstanding and approximately
4,171 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
------- -------
1996
- 1st quarter 12 13/16 8
- 2nd quarter 17 5/8 12 1/2
- 3rd quarter 19 1/4 12
- 4th quarter 20 14
1995
- 1st quarter $ 7 3/16 $ 4 7/8
- 2nd quarter 8 3/16 5 13/16
- 3rd quarter 9 1/16 7 5/16
- 4th quarter 8 15/16 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 27, 1996 in the amount of $1.20 per share will
be paid on March 27, 1997.
The Company has not paid any cash dividends on its Common Stock
and has no present intention of paying cash dividends thereon in
the future. The Company plans to retain any earnings to finance
anticipated capital expenditures and reduce its long-term debt.
Future dividend policy with respect to the Common Stock will be
determined by the Board of Directors of the Company, taking into
consideration factors such as future earnings, capital
requirements, potential loan agreement restrictions and the
financial condition of the Company.
Page 8
Item 6. Selected Financial Data.
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(Thousands, except per share and store data)
Operating results (1):
Revenues. . . .$ 293,990 $ 263,783 $268,515 $272,344 $253,444
Costs and expenses. . . . . . .
271,769 263,408 265,402 254,097 228,194
------- ------- ------- ------- -------
Income before income taxes . . . . .
22,221 375 3,113 18,247 25,250
Income taxes:
Current expense. . . . . . . . . . . .
2,855 701 869 1,751 1,161
Deferred expense (benefit) . . . . . .
6,145 (389) 1,568 4,605 8,586
------ ------ ------ ----- -----
9,000 312 2,437 6,356 9,747
------ ------ ------ ------ ------
Net income . . . .
$ 13,221 $ 63 $ 676 $11,891 $15,503
======== ===== ===== ======= =======
Per Share (2):
Primary:
Net income (loss) . . . . . .
$ .70 $ (.02) $ .02 $ .57 $ .74
Weighted average shares outstanding . . . . . . .
18,477 18,098 18,191 20,183 20,493
Fully diluted:
Net income (loss) . . . . . .
$ .70 $ (.02) $ .02 $ .57 $ .74
Weighted average shares outstanding . . . . . . .
18,532 218,098 18,191 20,196 20,570
Cash flow data:
Cash provided by operations . . . . . .
$ 48,362 $ 27,810 $ 30,819 $ 44,905 $ 44,246
Cash used in investing activities
(51,868) (30,548) (22,576) (45,909) (35,872)
Cash provided by (used in) financing activities
1,319 5,946 (10,373) 2,053 (7,631)
Balance sheet data:
Total assets. . . . . .
$216,580 $199,010 $188,308 $193,649 $173,217
Long-term obligations (including current portion
and redeemable preferred stock) . . . . .
39,571 39,244 33,223 29,816 17,743
Shareholders' equity. . . . . .
141,476 126,487 125,515 136,647 132,167
Number of restaurants at year end:
Chuck E. Cheese's:
Company operated. . . . . . .
244 226 226 215 182
Franchise . . . . . . . . . . . . . . .
70 93 106 110 113
----- ----- ------ ----- -----
314 319 332 325 295
Monterey's Tex-Mex Cafe's . . . . . . .
27 28
----- ----- ----- ----- ---
314 319 332 352 323
===== ===== ===== ==== ====
- ----------------------
(1) Fiscal year 1992 was 53 weeks in length while fiscal years
1996, 1995, 1994, and 1993 were 52 weeks in length.
(2) 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
1996 Compared to 1995
- ---------------------
Revenues increased 11.5% to $294.0 million in 1996 from $263.8
million in 1995 primarily due to an increase of 9.8% in sales of
the Company's Chuck E. Cheese's restaurants which were open during
all of 1996 and 1995 ("comparable store sales"). In addition, the
Company purchased 19 restaurants from its largest franchisee in
September 1996.
Income before income taxes increased to $22.2 million in 1996
from $375,000 in 1995. A material portion of operating costs are
fixed resulting in an improvement of operating margins at higher
sales levels. Net income increased to $13.2 million in 1996 from
$63,000 in 1995. The Company's primary and fully diluted earnings
per share increased to $.70 per share in 1996 compared to a loss of
$.02 per share in 1995.
A summary of the results of operations of the Company as a
percentage of revenues for the last three fiscal years is shown
below.
1996 1995 1994
---- ----- -----
Revenues . . . . . . . . . . . . . . . 100.0% 100.0% 100.0%
----- ----- -----
Costs and expenses:
Cost of sales . . . . . . . . . . . . . 48.7% 51.8% 51.3%
Selling, general and
administrative. . . . . . . . . . . . 14.8% 17.0% 17.6%
Depreciation and amortization 8.5% 8.8% 9.7%
Interest expense. . . . . . . . . . . . 1.2% 1.2% .7%
(Gain) loss on property
transactions. . . . . . . . . . . . .1% .1% (1.0%)
Other operating expenses. . . . . . . . 19.1% 21.0% 20.5%
---- ---- ----
92.4% 99.9% 98.8%
---- ---- ----
Income before income taxes . . . . . . . 7.6% .1% 1.2%
==== ==== ====
Revenues
--------
Revenues increased to $294.0 million in 1996 from $263.8 million
in 1995. Comparable store sales of Chuck E. Cheese's restaurants
increased by 9.8% in 1996. In addition, the Company purchased 19
restaurants from its largest franchisee in September 1996. Average
annual sales per restaurant increased to approximately $1,286,000
in 1996 from approximately $1,178,000 in 1995. Management
believes that several factors contributed to the comparable store
sales increase with the primary factor being sales increases at
repositioned stores. Menu prices increased 3.2% between the two
years.
Revenues from franchise fees and royalties were $3.7 million in
1996, an increase of 6.1% from 1995, primarily due to an increase
in franchise fee income in 1996 and an increase of 3.6% in
comparable franchise store sales for 1996. The increase in
comparable franchise store sales was partially offset by a decline
in the number of franchise restaurants operated each year. During
1996, four new franchise restaurants opened, eight franchise
restaurants closed and 19 franchise restaurants were purchased by
the Company.
Costs and Expenses
------------------
Costs and expenses as a percentage of revenues decreased to 92.4%
in 1996 from 99.9% in 1995.
Cost of sales as a percentage of revenues decreased to 48.7% in
1996 from 51.8% in 1995. Cost of food, beverage, prize and
merchandise items for Chuck E. Cheese's restaurants as a percentage
of restaurant sales decreased to 17.4% in 1996 from 17.9% in 1995
primarily due to a 3.2% increase in menu prices. Labor expenses
for Chuck E. Cheese's restaurants as a percentage of restaurant
sales declined to 28.7% in 1996 from 30.9% in 1995 primarily due to
an increase in comparable store sales and more effective
utilization of hourly employees.
Page 10
Selling, general and administrative expenses as a percentage of
revenues decreased to 14.8% in 1996 from 17.0% in 1995 primarily
due to comparable store sales increases and a reduction of
advertising costs between the two periods.
Depreciation and amortization expense as a percentage of revenues
decreased to 8.5% in 1996 from 8.8% in 1995 primarily due to the
full amortization of certain deferred charges.
Interest expense increased to $3.5 million in 1996 from $3.1
million in 1995 primarily due to an increase in the Company's
average outstanding debt between the two periods. Debt increased
as a result of capital expenditures in connection with the
repositioning of 126 and 87 restaurants in 1996 and 1995,
respectively.
The Company had a net loss on property transactions of $263,000
in 1996 and $136,000 in 1995 due to the replacement of assets
arising from the enhancement of facilities and entertainment
packages of restaurants. The loss in 1995 was net of a gain of
$100,000 from the sale of certain assets which had been held for
resale.
Other operating expenses decreased as a percentage of revenues
to 19.1% in 1996 from 21.0% in 1995 primarily due to a decrease in
insurance costs, the increase in comparable store sales and the
fact that a significant portion of operating costs are fixed.
Net Income
----------
The Company had net income of $13.2 million in 1996 compared to
$63,000 in 1995 due to the changes in revenues and expenses
discussed above. The Company's primary and fully diluted earnings
per share increased to $.70 per share in 1996 compared to a loss of
$.02 per share in 1995.
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 addition
of 11 Company restaurants in 1994 and two Company restaurants in
1995. Comparable store sales from the Company's Chuck E. Cheese's
restaurants declined by 1.4% from 1994 to 1995. 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 was
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.
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 declined by 1.4% from 1994 to 1995.
Average annual sales per restaurant decreased to approximately
$1,178,000 in 1995 from approximately $1,206,000 in 1994. 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 was the first quarter
since 1992 that comparable store sales had increased from the prior
year.
Page 11
Revenues from franchise fees and royalties were $3.5 million in
1995, a decrease of 15.1% from 1994, primarily due to a 6.2%
decline in comparable franchise store sales for 1995 and a
decline in the number of franchise restaurants operated each year.
During 1995, one new franchise restaurant opened and 14 franchise
restaurants closed.
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 as a percentage of revenues increased 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 primarily
due 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 and
amortization expense decreased by $2.8 million in 1995 primarily
due to 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 that resulted in approximately $2.3
million of such decrease and the sale of Monterey's Tex-Mex Cafe
restaurants in May 1994.
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 10 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.
Other operating expenses as a percentage of revenues increased
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 of $.02 per share in 1995 from earnings of $.02
per share in 1994.
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. Management
anticipates that recent increases in federally mandated minimum
wage will result in increased labor costs for the Company. Any
other increases in 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.
Page 12
Financial Condition, Liquidity and Capital Resources
Cash provided by operations increased to $48.4 million in 1996
from $27.8 million in 1995. Cash outflow from investing activities
for 1996 was $51.9 million. Cash inflow from financing activities
in 1996 was $1.3 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.
The Company repositioned 126, 87 and 10 restaurants in 1996, 1995
and 1994, respectively. Company expenditures relating to the
remodeling program averaged approximately $330,000 per restaurant
during 1996 representing total expenditures of approximately $41.6
million. The Company anticipates remodeling the remaining 21
restaurants in the first half of 1997 at an average cost of
approximately $350,000 per restaurant for a total of approximately
$7.4 million. However, this amount can vary significantly at a
particular restaurant depending on several factors, including the
restaurant's square footage, the date of the most recent remodel
and the existing assets at the restaurant. Expenditures relating
to the repositioning program have been financed primarily by cash
flow from operations and borrowings under the Company's line of
credit.
The Company plans to open approximately six to eight new stores
in 1997 and 10 to 12 new stores in 1998. The Company currently
anticipates the cost of opening such new stores to average
approximately $1.3 million per store. In addition to such new
store openings, the Company plans to expand 10 to 15 existing
stores in 1997 by an average of 1,000 to 4,000 square feet per
store. The Company also anticipates adding new game packages to as
many as 100 stores in 1997 at an average cost of approximately
$150,000 per store. The Company currently estimates that capital
expenditures in 1997, including expenditures for the remodeling of
existing stores, new store openings, existing store expansions and
equipment investments, will be approximately $40 to $50 million.
The Company plans to finance these expenditures through cash flow
from operations and, if necessary, borrowings under the Company's
line of credit.
In August 1996, the Company increased its line of credit to $15.0
million from $5.0 million and extended the maturity date from June
1997 to June 1998. Currently, any borrowings under this line of
credit would be at prime or at the London Interbank Offered Rate
("LIBOR") plus 2%. As of December 27, 1996, $7.4 million was
outstanding under the line of credit.
The Company believes it will realize substantial benefit in the
future from utilization of approximately $47 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 improvement in the Company's results of
operations do not continue, 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 27, 1996 was $66 million. Based on current
results of the repositioned restaurants, 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. However,
there can be no assurance that the levels of taxable income will be
sufficient to realize these benefits.
Page 13
Item 8. Financial Statements and Supplementary Data
SHOWBIZ PIZZA TIME, INC.
YEARS ENDED DECEMBER 27, 1996 DECEMBER 29, 1995
AND DECEMBER 30, 1994
CONTENTS
Page
-----
Independent auditors' report . . . . . . . . . . . . . . . . . . . . 15
Consolidated financial statements:
Consolidated balance sheets . . . . . . . . . . . . . . . . . . . . 16
Consolidated statements of earnings . . . . . . . . . . . . . . . . 17
Consolidated statements of shareholders' equity . . . . . . . . . . 18
Consolidated statements of cash flows . . . . . . . . . . . . . . . 19
Notes to consolidated financial statements. . . . . . . . . . . . . 20
Page 14
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 27, 1996 and
December 29, 1995, and the related consolidated statements of
earnings, shareholders' equity, and cash flows for each of the
three years in the period ended December 27, 1996. 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 27,1996 and December
29, 1995, and the results of their operations and their cash flows
for each of the three years in the period ended December 27,1996,
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 pre-opening costs
in 1994.
DELOITTE & TOUCHE LLP
Dallas, Texas
February 21, 1997
Page 15
SHOWBIZ PIZZA TIME, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 27, 1996 AND DECEMBER 29, 1995
(Thousands, except share data)
ASSETS
December 27, December 29,
1996 1995
----------- -------------
Current assets:
Cash and cash equivalents . . . . . . . . . . $ 3,402 $ 5,589
Accounts receivable, including
receivables from related parties
of $675 and $415, respectively. . . . 3,543 3,327
Current portion of notes receivable,
including receivables from
related parties of $221 and $327,
respectively . . . . . . . . . . . . . . . 457 608
Inventories . . . . . . . . . . . . . . . . . 3,368 3,589
Prepaid expenses. . . . . . . . . . . . . . . 3,185 2,781
Current portion of deferred tax asset . . . . 13,633 4,147
------ ------
Total current assets . . . . . . 27,588 20,041
------ ------
Investments in related parties . . . . . . . . 1,315 761
------ -----
Property and equipment . . . . . . . . . . . . 163,998 137,181
------- -------
Deferred tax asset . . . . . . . . . . . . . . 12,296 28,582
Other assets:
Notes receivable, less current portion,
including receivables from
related parties of $2,323 and $1,983,
respectively . . . . . . . . . . . . . . . . . 7,257 7,072
Other . . . . . . . . . . . . . . . . . 4,126 5,373
------ -------
11,383 12,445
------ -------
$216,580 $199,010
======= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt . . . . . . $ 1,785 $ 95
Accounts payable and accrued liabilities. . . 31,738 29,836
------ ------
Total current liabilities. . . . . . . . . 33,523 29,931
------ ------
Long-term debt, less current portion . . . . . . . 34,668 35,753
------ ------
Deferred credits . . . . . . . . . . . . . . . . . 3,795 3,443
------ ------
Other liabilities. . . . . . . . . . . . . . . . . 1,010 1,391
------ ------
Commitments and contingencies
Redeemable preferred stock, $60 par value,
redeemable for $2,974 in 2005 . . . . . . . . . . . 2,108 2,005
------ ------
Shareholders' equity:
Common stock, $.10 par value; authorized
50,000,000 shares; 21,519,075 and
21,435,092 shares issued, respectively . . . . . . 2,152 2,144
Capital in excess of par value. . . . . . . . 153,795 153,515
Retained earnings . . . . . . . . . . . . . . 17,613 4,733
Deferred compensation . . . . . . . . . . . . (1,821) (3,642)
Less treasury shares of 3,109,176
at both dates, at cost. . . . . . . . . . . . . . (30,263) (30,263)
------- --------
141,476 126,487
------- --------
$ 216,580 $ 199,010
========= =========
See notes to consolidated financial statements.
Page 16
SHOWBIZ PIZZA TIME, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
YEARS ENDED DECEMBER 27, 1996,
DECEMBER 29, 1995 AND DECEMBER 30, 1994
(Thousands, except per share data)
1996 1995 1994
---- ---- ----
Food and beverage revenues . . . . . . . . . . $202,624 $182,376 $189,257
Games and merchandise revenues . . . . . . . . 86,444 76,969 74,331
Franchise fees and royalties . . . . . . . . . 3,675 3,464 4,078
Interest income, including related
party income of $246, $222, and $209,
respectively. . . . . . . . . . . . . . . . 1,051 872 688
Joint venture income . . . . . . . . . . . . 196 102 161
------- ------- ------
293,990 263,783 268,515
------- ------- -------
Costs and expenses:
Cost of sales . . . . . . . . . . . . . . . 143,381 136,700 137,729
Selling, general and administrative expenses,
including relatedparty expenses of $125
in each year. . . . . . . . . . . 43,534 44,794 47,263
Depreciation and amortization . . . . . . . 25,057 23,184 26,032
Interest expense. . . . . . . . . . . . . . . 3,476 3,118 1,861
(Gain) loss on property transactions. . . . . 263 136 (2,597)
Other operating expenses. . . . . . . . . . . 56,058 55,476 55,114
------- -------- -------
271,769 263,408 265,402
------- ------- -------
Income before income taxes . . . . . . . . . . . 22,221 375 3,113
Income taxes:
Current expense. . . . . . . . . . . . . . . . 2,855 701 869
Deferred (benefit) expense . . . . . . . . . . 6,145 (389) 1,568
------ ------ -------
9,000 312 2,437
------ ------ -------
Net income. . . .. . . . . . . . . . . . . . $ 13,221 $ 63 $ 676
====== ==== =====
Earnings per common and common equivalent share:
Primary:
Net income (loss). . . . . . . . . . . . . . $ .70 $ (.02) $ .02
Weighted average shares outstanding. . . . . 18,477 18,098 18,191
Fully diluted:
Net income (loss). . . . . . . . . . . . . . . $ .70 $ (.02) $ .02
Weighted average shares outstanding. . . . . . 18,532 18,098 18,191
See notes to consolidated financial statements.
Page 17
SHOWBIZ PIZZA TIME, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 27, 1996,
DECEMBER 29, 1995 AND DECEMBER 30, 1994
(Thousands, except per share data)
Common Capital in Deferred Treasury
Stock Excess of Retained Compen- Stock
Shares Par Value Par Value Earnings sation Shares Cost
----- -------- -------- --------- -------- --------- --------
Balances, December 31, 1993. . . . .
21,425 $ 2,143 $156,511 $ 4,677 $ (9,934) 1,569 $(16,750)
Net income. . . . . . . . . . . . .
676
Redeemable preferred stock accretion
(103)
Redeemable preferred stock dividends,
$4.80 per share. . . . . . . . . .
(238)
Stock options exercised . . . . . .
81 8 232
Tax benefit from exercise of stock options
and stock grants . . . . . . . . .
(928)
Treasury stock acquired . . . . . . 1,540 (13,513)
Amortization of deferred compensation . . . . 2,734
------ ----- ------ ------- -------- ------- --------
Balances, December 30, 1994. . . . .
21,506 2,151 155,815 5,012 (7,200) 3,109 (30,263)
Net income. . . . . . . . . . . . .
63
Redeemable preferred stock accretion
(104)
Redeemable preferred stock dividends,
$4.80 per share. . . . . . . . . .
(238)
Stock options exercised . . . . . .
19 2 88
Stock grant shares forfeited. . . .
(90) (9) (1,734) 1,737
Tax benefit from exercise of stock options
and stock grants . . . . . . . . .
(654)
Amortization of deferred compensation . . . .
1,821
- ------ ----- ------- ------ -------- ------- ---------
Balances, December 29, 1995. . . . .
21,435 2,144 153,515 4,733 (3,642) 3,109 (30,263)
Net income. . . . . . . . . . . . .
13,221
Redeemable preferred stock accretion. . . . .
(103)
Redeemable preferred stock dividends,
$4.80 per share. . . . . . (238)
Stock options exercised . . . . . .
77 7 930
Tax benefit from exercise of stock options
and stock grants . . . . . . . . .
(655)
Amortization of deferred compensation
1,821
Stock issued under 401(k) plan. . .
8 1 51
Stock split costs . . . . . . . . .
(30)
Cancellation of fractional shares
(1) (16)
- ------- ----- ------- -------- ------- ------ ---------
Balances, December 27, 1996. . . . .
21,519 $ 2,152 $153,795 $ 17,613 $(1,821) 3,109 $(30,263)
====== ======= ======== ======== ======== ===== =========
See notes to consolidated financial statements.
Page 18
SHOWBIZ PIZZA TIME, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 27, 1996,
DECEMBER 29, 1995 AND DECEMBER 30, 1994
(Thousands)
1996 1995 1994
---- ---- ----
Operating activities:
Net income . . . . . . . . . . . . . $13,221 $ 63 $ 676
Adjustments to reconcile net income
to cash provided by
operations:
Depreciation and amortization . . . . 25,057 23,184 26,032
Deferred income tax expense
(benefit). . . . . . . . . . . . . . 6,145 (389) 1,568
(Gain) loss on property
transactions . . . . . . . . . . . . 263 136 (2,597)
Compensation expense under stock
grant plan . . . . . . . . . . . . . 1,821 1,821 2,734
Other . . . . . . . . . . . . . . . . 352 418 619
Net change in receivables, inventories,
prepaids, payables and
accrued liabilities . . . . . . . . 1,503 2,577 1,787
------ ------ ------
Cash provided by operations . . . . 48,362 27,810 30,819
------ ------ ------
Investing activities:
Purchases of property and
equipment . . . . . . . . . . . . . (51,719) (28,277) (29,421)
Proceeds from disposition of property
and equipment. . . . . . . . . . . . . 20 6,725
Payments received on notes
receivable. . . . . . . . . . . . . . 3,534 2,503 2,992
Additions to notes receivable. . . . . (3,568) (3,047) (2,169)
Change in investments and
other assets. . . . . . . . . . . . (115) (1,747) (703)
------- ------- -------
Cash used in investing activities . .(51,868) (30,548) (22,576)
------- ------- -------
Financing activities:
Proceeds from line of credit . . . . . 7,600 38,895 8,535
Payments on line of credit . . . . . . (6,900) (32,995) (5,235)
Reduction of debt and capital lease
obligations. . . . . . . . . . . . . . (95) (59) (47)
Redeemable preferred stock dividends . (238) (238) (238)
Acquisition of treasury stock. . . . . (13,513)
Exercise of stock options. . . . . . . 937 90 240
Other. . . . . . . . . . . . . . . . . 15 253 (115)
------- ------- -------
Cash provided by (used in) financing
activities . . . . . . . . . . . . . 1,319 5,946 (10,373)
------ ------ -------
Increase (decrease) in cash and cash
equivalents. . . . . . . . . . . . . . (2,187) 3,208 (2,130)
Cash and cash equivalents, beginning
of year . . . . . . . . . . . . . . . . 5,589 2,381 4,511
------- ------- -------
Cash and cash equivalents, end of year . .$ 3,402 $ 5,589 $ 2,381
======= ======= =======
See notes to consolidated financial statements.
Page 19
SHOWBIZ PIZZA TIME, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 27, 1996,
DECEMBER 29, 1995 AND DECEMBER 30, 1994
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 1996, 1995 and 1994
are for the fiscal years ended December 27, 1996, December 29,
1995 and December 30, 1994, respectively. Fiscal years 1996,
1995 and 1994 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. 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:
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, which
approximates the interest method.
Page 20
SHOWBIZ PIZZA TIME, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
YEARS ENDED DECEMBER 27, 1996,
DECEMBER 29, 1995 AND DECEMBER 30, 1994
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.
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. 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 ("SFAS 123") . In 1996,
the Company implemented the disclosure provisions of SFAS 123
(Note 19).
Earnings per share:
The Financial Accounting Standards Board has issued Statement
of Financial Accounting Standards No. 128 "Earnings per share"
effective for years ending after December 15, 1997. The Company
does not believe that adoption will have a material impact on earnings
per share.
2. Significant transactions:
In September 1996, the Company purchased from its largest
franchisee 19 restaurants plus the 49% minority interest of one
restaurant previously operated as a joint venture by the Company
and seller. In addition to the cash purchase price of $2.6
million, the Company reimbursed the seller for remodeling costs
for three restaurants which had been recently remodeled. The
Company assumed no liabilities under the asset purchase.
Results of operations for the assets purchased are included in
the Company's results from the date of this acquistion.
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 10 Chuck E. Cheese's restaurants. The
impairment in fair value of the 10 restaurants was 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 21
SHOWBIZ PIZZA TIME, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
YEARS ENDED DECEMBER 27, 1996,
DECEMBER 29, 1995 AND DECEMBER 30, 1994
3. Accounts receivable:
1996 1995
---- ----
(thousands)
Trade . . . . . . . . . . . . . . . . . . . . . . . . . $ 538 $ 516
Other . . . . . . . . . . . . . . . . . . . . . . . . . 3,025 2,886
------ ------
3,563 3,402
Less allowance for doubtful collection. . . . . . . . (20) (75)
------- -------
$ 3,543 $ 3,327
======= =======
4. Notes receivable:
The Company's notes receivable at December 27, 1996 and
December 29, 1995 arose principally as a result of the sale of
restaurants, lines of credit established with the International
Association of ShowBiz Pizza Time Restaurants, Inc., a related
party (Note 18), 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 2001, 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
$174,000 and $354,000 at December 27, 1996 and December 29,
1995, respectively.
5. Property and equipment:
Estimated
Lives 1996 1995
(in years) (thousands)
---------- ------- --------
Land and improvements. . . . 0 - 20 $ 5,208 $ 4,630
Leasehold improvements . . . . 4 - 20 135,201 118,041
Buildings and improvements . . 4 - 25 9,161 8,789
Furniture, fixtures and
equipment . . . . . . . . . . . 2 - 15 120,688 97,703
Property leased under capital
leases (Note 7) . . . . . . . .10 - 15 1,328 1,328
-------- --------
271,586 230,491
Less accumulated depreciation
and amortization. . . . . . . . . . . . . . (108,345) (94,781)
-------- --------
163,241 135,710
Construction in progress . . . . . . . . . . 757 1,471
-------- --------
$ 163,998 $ 137,181
========= =========
Page 22
SHOWBIZ PIZZA TIME, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
YEARS ENDED DECEMBER 27, 1996,
DECEMBER 29, 1995 AND DECEMBER 30, 1994
6. Accounts payable and accrued liabilities:
1996 1995
----- -----
(thousands)
Accounts payable. . . . . . . . . . . . . . $13,240 $ 12,851
Salaries and wages. . . . . . . . . . . . . 4,292 4,215
Insurance . . . . . . . . . . . . . . . . . 8,714 8,805
Taxes, other than income. . . . . . . . . . 3,037 2,561
Other . . . . . . . . . . . . . . . . . . . 2,455 1,404
----- -----
$ 31,738 $ 29,836
====== ======
7. 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 7 to 30 years with various renewal options.
Following is a summary of property leased under capital
leases:
1996 1995
------ -----
(thousands)
Buildings and improvements . . . . . . . . $ 1,328 $ 1,328
Less accumulated depreciation. . . . . . . (982) (877)
----- -----
$ 346 $ 451
===== =====
Scheduled annual maturities of the obligations for capital and
operating leases as of December 27, 1996, are as follows:
Years Capital Operating
--------- --------- ---------
(thousands)
1997. . . . . . . . . . . . . . . . . . . . . $ 292 $28,270
1998. . . . . . . . . . . . . . . . . . . . . 256 26,419
1999. . . . . . . . . . . . . . . . . . . . . 184 24,731
2000. . . . . . . . . . . . . . . . . . . . . 187 23,073
2001. . . . . . . . . . . . . . . . . . . . . 214 20,348
2002-2009 (aggregate payments). . . . . . . . 838 27,076
----- ------
Minimum future lease payments 1,971 $149,917
Less amounts representing interest. . . . . . (918)
-----
Present value of future minimum lease
payments. . . . . . . . . . . . 1,053
Less current portion. . . . . . . . . . (117)
-----
$ 936
=====
Page 23
SHOWBIZ PIZZA TIME, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
YEARS ENDED DECEMBER 27, 1996
DECEMBER 29, 1995 AND DECEMBER 30, 1994
7. Leases (continued):
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:
1996 1995 1994
---- ----- ----
(thousands)
Minimum . . . . . . . . . . . . . $30,484 $28,730 $28,003
Contingent . . . . . . . . . . . 195 146 216
-------- ------- -------
$30,679 $28,876 $28,219
====== ====== ========
8. Long-term debt:
1996 1995
---------- ----------
(thousands)
Term loans, 10.02%, due June 2001 . . . . . . . $ 18,000 $ 18,000
Term loans, LIBOR plus 3.5%, due
June 2000 . . . . . . . . . . . . . . . . . . . 10,000 10,000
Term loans, LIBOR plus 3.5%, due
October 1997. . . . . . . . . . . . . . . . . . . 5,000
Revolving bank loan, prime plus
0% to .5% or LIBOR plus 2% to 3%,
due June 1998 . . . . . . . . . . . . . . . . 7,400 1,700
Obligations under capital leases (Note 7). . . . . 1,053 1,148
------- -------
36,453 35,848
------ -------
Less current portion. . . . . . . . . . . (1,785) (95)
------ ------
$ 34,668 $ 35,753
======== =======
In August 1996, the Company's line of credit agreement was
amended to provide the Company with available borrowings of up
to $15 million expiring in June 1998. In September 1996, the
Company prepaid $5 million in term notes. The Company's credit
facility totals $43 million, which consists of $28 million in
term notes and the $15 million line of credit. Interest under
the line of credit is dependent on earnings and debt levels of
the Company. Currently, any borrowings under this line of
credit would be at prime (8.25% at December 27, 1996) plus 0%
or, at LIBOR (5.5% at December 27, 1996) plus 2%. At December 27,
1996, $7.4 million was outstanding under the line of credit. A
3/8% 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.
Page 24
SHOWBIZ PIZZA TIME, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
YEARS ENDED DECEMBER 27, 1996,
DECEMBER 29, 1995 AND DECEMBER 30, 1994
8. Long-term debt (continued):
As of December 27, 1996, scheduled annual maturities of all
long-term debt (exclusive of obligations under capital leases)
are as follows (thousands):
Years Amount
----- ------
1997. . . . . . . . . . . . $ 1,668
1998. . . . . . . . . . . . 10,732
1999. . . . . . . . . . . . 9,333
2000. . . . . . . . . . . . 7,667
2001. . . . . . . . . . . . 6,000
-------
$35,400
=======
9. 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
27, 1996, such guarantees aggregated approximately $142,000.
10. Litigation:
From time to time the Company is involved in litigation, most
of which is incidental to its business. In the Company's
opinion, no litigation to which the Company currently is a party
is likely to have a material adverse effect on the Company's
results of operations, financial condition or cash flows.
11. Redeemable preferred stock:
As of December 27, 1996, 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 27, 1996, 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 27, 1996,
DECEMBER 29, 1995 AND DECEMBER 30, 1994
12. Earnings per common share:
Earnings per common and common equivalent share were computed
based on the weighted average number of common and dilutive
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 (adjusted for
a three-for-two stock split effected May 22, 1996) were computed
as follows (thousands, except per share data):
1996 1995 1994
---- ---- ----
Net income. . . . . . . . . . . . . . . . $ 13,221 $ 63 $ 676
Accretion of redeemable preferred stock . (103) (104) (103)
Redeemable preferred stock dividends. . . (238) (238) (238)
---- ---- ----
Adjusted income (loss) applicable to
common shares. . . . . . . . . . . . . $ 12,880 $ (279) $ 335
======== ====== =====
Primary:
Weighted average common
shares outstanding . . . . . . . . . . 18,207 18,098 18,117
Common equivalent shares for
stock options . . . . . . . . . . . . 270 74
------ ------ ------
Weighted average shares outstanding . . . 18,477 18,098 18,191
====== ====== ======
Earnings (loss) per common and
common equivalent share . . . . . . . . $ .70 $ (.02) $ .02
====== ====== =====
Fully Diluted:
Weighted average common shares
outstanding . . . . . . . . . . . . . 18,207 18,098 18,117
Common equivalent shares for
stock options . . . . . . . . . . . . 325 74
------ ------ -----
Weighted average shares
outstanding . . . . . . . . . . . . . 18,532 18,098 18,191
====== ====== ======
Earnings (loss) per common and
common equivalent share . . . . . . . . $ .70 $(.02) $ .02
====== ====== =======
13. Franchise fees and royalties:
At December 27, 1996, 70 Chuck E. Cheese's restaurants were
operated by a total of 44 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 $274,000,
$98,000, and $315,000 in 1996, 1995 and 1994, respectively.
14. Cost of sales:
1996 1995 1994
---- ---- ----
(thousands)
Food, beverage and related
supplies. . . . . . . . . . . . . $45,681 $43,412 $46,328
Games and merchandise . . . . . . . 14,816 13,285 12,369
Labor. . . . . . . . . . . . . . . . 82,884 80,003 79,032
------ ------- -------
$ 143,381 $136,700 $137,729
======== ======= =======
Page 26
SHOWBIZ PIZZA TIME, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
YEARS ENDED DECEMBER 27, 1996,
DECEMBER 29, 1995 AND DECEMBER 30, 1994
15. Income taxes:
The significant components of income tax expense are as follows:
1996 1995 1994
---- ---- ----
(thousands)
Current expense . . . . . . . . . . . . $ 2,855 $ 701 $ 869
Deferred expense:
Utilization of operating
loss carryforwards. . . . . . . . . . 8,664 1,138 2,204
Net tax benefits from exercise
of stock options and
stock grants . . . . . . . . . . . . . (655) (654) (928)
Allowance for tax credit carryforwards
expiring in 1997 . . . . . . . . . . . 1,104
Tax credits . . . . . . . . . . . . . . (475) (127) (237)
Other (primarily temporary
differences related to
depreciation) . . . . . . . . . . . . .(1,389) (746) (575)
------ ----- -----
$ 9,000 $ 312 $2,437
======= ===== ======
At December 27, 1996, the Company has recorded a deferred tax
asset of approximately $26.0 million reflecting the $17.5
million tax effect of $47.0 million in net operating loss
carryforwards, $7.7 million in tax credit carryforwards and tax
effected net taxable deductions of $800,000. 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 27, 1996, 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
$1,928,000.
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. . . . . . . . . . . . . . . . . . . . . . $14,000 395
2000. . . . . . . . . . . . . . . . . . . . . . 19,000 149
2001. . . . . . . . . . . . . . . . . . . . . . 14,000 19
2002 - 2010 . . . . . . . . . . . . . . . . . . 132
------- ------
$47,000 $ 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 27, 1996,
DECEMBER 29, 1995 AND DECEMBER 30, 1994
15. 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 27, 1996, no limitation of such carryforwards has
occurred.
A reconciliation of the statutory rate to taxes provided is as
follows:
1996 1995 1994
---- ---- ----
(thousands)
Statutory rate. . . . . . . . . . . . . . 35.0% 34.0% 34.0%
State income taxes. . . . . . . . . . . . 9.0% 106.1% 14.8%
Allowance for tax credit carryforwards. . 35.5%
Tax credits earned . . . . . . . . . . . (2.1%) (33.9%) (6.9%)
Other . . . . . . . . . . . . . . . . . (1.4%) (23.0%) .9%
----- ----- ----
Income taxes provided . . . . . . . . . 40.5% 83.2% 78.3%
==== ==== ====
16. 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 and long-term debt 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.
17. Supplemental cash flow information:
1996 1995 1994
---- ---- ----
(thousands)
Cash paid during the year for:
Interest. . . . . . . $3,429 $3,055 $1,781
Income taxes . . . . . . . 2,222 801 1,389
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
Page 28
SHOWBIZ PIZZA TIME, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
YEARS ENDED DECEMBER 27, 1996,
DECEMBER 29, 1995 AND DECEMBER 30, 1994
18. Related party transactions:
The Hallwood Group, Incorporated ("Hallwood") is the
beneficial owner of approximately 2.6 million shares or 14.2% of
the outstanding common stock of the Company. The directors of
Hallwood serve as a majority of the directors of the Company.
In February 1997, the Company announced a public offering of 3.2
million shares of common stock to be sold by Hallwood and
certain of its affiliates. The selling stockholders have also
granted underwriters an option to purchase an additional 454,746
shares of common stock to cover over allotments, if any. All of
the 2.6 million shares owned by Hallwood is offered for sale in
the public offering and overallotment option. It is anticipated
that after the closing of the public offering, the directors of
Hallwood will resign as directors of the Company. The Company
will not receive any proceeds from the proposed sale of shares
by the selling stockholders.
The Company made annual payments to Hallwood of $125,000 for
consulting services in 1996, 1995 and 1994. The consulting
agreement will be terminated upon the closing of the publlic
offering. 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 with a fair value
of approximately $120,000 per year.
The Company has advanced amounts to joint ventures in which
the Company has a 50% interest or less. At December 27, 1996,
approximately $757,000 was outstanding under these notes.
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 $669,000 and $410,000 at December 27, 1996 and
December 29, 1995, respectively.
The Company has granted three separate operating lines of
credit to the International Association of ShowBiz Pizza Time
Restaurants, Inc. (the "Association"). In December 1996, the
lines were renewed to provide the Association with available
borrowings of $2.5 million at 10.5% interest and are due
December 31, 1997. The Association develops entertainment
attractions and produces system wide advertising. Two officers
of the Association are also officers of the Company. At
December 27, 1996, approximately $1,787,000 was outstanding
under these lines of credit. The Company also had miscellaneous
accounts receivable from the Association of $6,000 and $5,000 at
December 27, 1996 and December 29, 1995, respectively.
19. 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; c) a stock grant plan and
d) a retirement and savings plan.
In 1995, the Company increased the number of shares of the
Company's common stock which may be issued under its employee
stock option plan by 750,000 shares to an aggregate of 2,772,038
shares. All shares must be granted before December 31, 1998.
The exercise price for options granted under the plan may not be
less than the fair market value of the Company's common stock at
date of grant. Options may not be exercised until the employee
has been continuously employed at least one year after the date
of grant. Options which expire or terminate may be re-granted
under the plan.
Page 29
SHOWBIZ PIZZA TIME, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
YEARS ENDED DECEMBER 27, 1996,
DECEMBER 29, 1995 AND DECEMBER 30, 1994
19. Employee benefit plans (continued):
In 1995, the Company adopted a stock option plan for its non-employee
directors. The number of shares of the Company's
common stock that may be issued under this plan cannot exceed
150,000 shares.
At December 27, 1996, there were 810,515 shares available for
grant. Stock option transactions are summarized as follows:
Weighted Average
Number of Shares Exercise Price Per Share
--------------------------------------- -------------------------
1996 1995 1994 1996 1995 1994
---- ---- ---- ---- ---- ----
Options outstanding, beginning of year . . . .
848,942 759,953 558,993 $9.08 $10.92 $15.08
Granted . . . . . . . . .
276,734 391,860 512,250 8.39 6.08 8.10
Exercised. . . . . . . . .
(77,495) (19,239) (77,570) 12.10 4.70 2.92
Terminated . . . . . . . .
(37,670) (283,632) (233,720) 11.01 10.17 17.60
Options outstanding, end of year . . . . . . .
1,010,511 848,942 759,953 8.58 9.08 10.92
All stock options are granted at fair market value of the
common stock at the grant date. The estimated fair value of
options granted during 1996 was $3.08 per share. The fair value
of each stock option grant is estimated on the date of grant
using the Black-Scholes option pricing model with the following
weighted average assumptions used for grants in 1996: risk free
interest rate of 6.5%; no dividend yield; expected lives of four
years; and expected volatility of 40%. Stock options expire
five years from the grant date. Stock options vest over various
periods ranging from one to four years. The number of
stock option shares exercisable at December 27, 1996 was
430,794. These stock options have exercise prices ranging from
$5.29 to $22.33 per share and have a weighed average exercise
price of $10.56 per share. In January 1997, the Company granted
789,933 additional options at exercise prices of $17.25 to
$17.65 per share.
The number of shares of the Company's common stock which may
be awarded to senior executives of the Company under the Stock
Grant Plan is 1,718,637 shares. No grants were awarded in 1996,
1995 or 1994. In connection with an employment agreement
effective January 1998, the Company granted 105,000 shares in
January 1997. Compensation expense recognized by the Company
pursuant to this plan was $1,821,000, $1,821,000 and $2,734,000
in 1996, 1995 and 1994, respectively. All shares vest over periods
ranging from 3 yeares to 6 years and are subject to
forfeiture upon termination of the participant's employment by
the Company. The shares are nontransferable during the vesting
periods.
As a result of shares awarded to the Company's Chairman of the
Board and Chief Executive Officer, the Company recognized
deferred compensation of $12.0 million in 1993. In 1995, the
Company's Chairman of the Board and Chief Executive Officer
forfeited 90,000 shares of unvested common stock of the Company
previously awarded to him under the Company's stock grant plan.
As a result of this forfeiture, deferred compensation and
capital in excess of par value were reduced by approximately
$1.7 million. The deferred compensation is amortized over the
compensated periods of service through 1997.
Page 30
SHOWBIZ PIZZA TIME, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
YEARS ENDED DECEMBER 27, 1996,
DECEMBER 29, 1995 AND DECEMBER 30, 1994
19. Employee benefit plans (continued):
The Company applies the provisions of APB Opinion 25 and
related Interpretationsin accounting for its employee benefit plans.
Accordingly, no compensation cost has been recognized for its stock
option plans. Had compensation cost for the Company's stock-based
compensation plans been determined based on the fair value at
the grant date for awards under those plans consistent with the
method prescribed by SFAS 123, the Company's proforma net income would
have been $12.8 million in 1996 and a net loss of $154,000 in
1995. Proforma earnings per share would have been $.67 per
share in 1996 and a loss of $.03 per share in 1995.
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 1996, the Company made
contributions of approximately $37,000 and $15,000 in common
stock for the 1995 and 1994 plan years, respectively. The
Company plans to contribute $59,000 in common stock for the 1996
plan year.
20. Quarterly results of operations (unaudited):
The following summarizes the unaudited quarterly results of
operations for the years ended December 27, 1996 and December
29, 1995 (thousands, except per share data).
Fiscal year ended December 27, 1996
March 29 June 28 Sept. 27 Dec. 27
-------- ------- ------- -------
Revenues. . . . . . . . . . $78,452 $69,848 $74,777 $70,913
Income before income taxes. . 8,771 3,840 5,993 3,617
Net income . . . . . . . . . 5,175 2,265 3,537 2,244
Per Share:
Primary and fully diluted:
Net income . . . . . . . . $ 0.28 $ 0.12 $ 0.19 $ 0.12
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). . . . . $ .14 $ (.07) $ .00 $(.08)
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 27, 1996, and
December 29, 1995, and for each of the three years in the period
ended December 27, 1996, and have issued our report thereon dated
February 21, 1997; 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 21, 1997
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
Description of period expenses Deductions period
----------- ---------- --------- ---------- --------
(Thousands)
Allowance for doubtful accounts:
Years ended:
December 27, 1996. . . . . . .
$ 75 $ 55 (A) $ 20
======== ======= =======
December 29, 1995. . . . . . .
$ 475 $ 400 (A) $ 75
======== ======= =======
December 30, 1994. . . . . . .
$ 266 $ 209 $ 475
======== ======= =======
Reserve for uncollectible notes receivable:
Years ended:
December 27, 1996. . . . . . .
$ 354 $ 180 (B) $ 174
======= ======= ======
December 29, 1995
$ 139 $ 215 $ 354
======= ======= ======
December 30, 1994 . . . . . . .
$ 139 $ 139
======= =======
------------------
(A) Settlement of previously reserved accounts.
(B) 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 1997 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 1997 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 1997 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 1997 annual meeting
of stockholders and is incorporated herein by reference thereto.
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 27, 1996
and December 29, 1995.
Consolidated statements of earnings for the years
ended December 27, 1996, December 29, 1995, and
December 30, 1994.
Consolidated statements of shareholders' equity for the
years ended December 27, 1996, December 29, 1995, and
December 30, 1994.
Consolidated statements of cash flows for the years
ended December 27, 1996, December 29, 1995, and December
30, 1994.
Notes to consolidated financial statements.
(2) Financial Statement Schedules:
ShowBiz Pizza Time, Inc.
II --- Valuation and qualifying accounts and reserves.
Page 34
(3) Exhibits:
Number Description
------ -----------
3(a) Restated Articles of Incorporation of the
Company, dated November 26, 1996 (filed as
Exhibit 3.1 to the Company's Registration
Statement on Form S-3 (No. 333-22229) 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) Amendment No. 1 to the Amended and Restated
Employment Agreement dated July 19, 1996,
between the Company and Richard M. Frank.
10(b)(1) 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).
10(b)(2) 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(c)(1) 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(d) 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(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 35
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 Life
Insurance 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).
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).
Page 36
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, 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)(1) Loan Agreement in the stated amount of
$2,000,000.00, dated January 18, 1996, between
Bank One, Texas, N.A. and the Company (filed
as Exhibit 10 (e)(1) to the Company's
Quarterly Report on Form 10-Q for the quarter
ended June 28, 1996, and incorporated herein
by reference).
10(o)(2) Promissory Note in the stated amount of
$2,000,000.00, dated January 18,1996, between
Bank One, Texas, N.A. and the Company (filed
as Exhibit 10 (e)(2) to the Company's
Quarterly Report on Form 10-Q for the quarter
ended June 28, 1996, and incorporated herein
by reference).
10(o)(3) Security Agreement in the stated amount of
$2,000,000.00, dated January 18,1996, between
Bank One, Texas, N.A. and the Company (filed
as Exhibit 10 (e)(3) to the Company's
Quarterly Report on Form 10-Q for the quarter
ended June 28, 1996, and incorporated herein
by reference).
10(p)(1) Modification and Extension Agreement (to the
Loan Agreement dated June 27, 1995) in the
stated amount of $15,000,000.00, dated August
1, 1996, 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 September 27, 1996, and
incorporated herein by reference).
10(p)(2) Restated Revolving Credit Note in the stated
amount of $15,000,000, dated August 1, 1996,
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 September 27, 1996, and incorporated
herein by reference).
10(q)(1) 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(q)(2) Specimen form of Contract under the Non-Statutory Stock
Option Plan of the Company, as
amended to date (filed as Exhibit 10 (d) to
the Company's Quarterly Report on Form 10-Q
for the quarter ended June 28, 1996, and
incorporated herein by reference).
10(r)(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(r)(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(s)(1) 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 37
10(s)(2) Specimen form of Contract under the Non-Employee
Directors Stock Option Plan of the
Company, as amended to date.
10(t)(1) Specimen form of the Company's current
Franchise Agreement (filed as Exhibit 10 (f)
to the Company's Quarterly Report on Form 10-Q
for the quarter ended June 28, 1996, and
incorporated herein by reference).
10(t)(2) Specimen form of the Company's current
Development Agreement (filed as Exhibit 10
(g) to the Company's Quarterly Report on Form
10-Q for the quarter ended June 28, 1996, and
incorporated herein by reference).
10(u)(1) Entertainment Operating Fund Line of Credit,
in the stated amount of $250,000.00, dated
December 16, 1996, between International
Association of ShowBiz Pizza Time Restaurants,
Inc. and the Company.
10(u)(2) Entertainment Operating Fund Promissory Note,
in the stated amount of $250,000.00, dated
December 16, 1996, between International
Association of ShowBiz Pizza Time Restaurants,
Inc. and the Company.
10(v)(1) National Advertising Production Line of
Credit, in the stated amount of $750,000.00,
dated December 16, 1996, between International
Association of ShowBiz Pizza Time Restaurants,
Inc. and the Company.
10(v)(2) National Advertising Production Promissory
Note, in the stated amount of $750,000.00,
dated December 16, 1996, between International
Association of ShowBiz Pizza Time Restaurants,
Inc. and the Company.
10(w)(1) National Media Fund Line of Credit, in the
stated amount of $1,500,000.00, dated December
16, 1996, between International Association of
ShowBiz Pizza Time Restaurants, Inc. and the
Company.
10(w)(2) National Media Fund Promissory Note, in the
stated amount of $1,500,000.00, dated
December 16, 1996, between International
Association of ShowBiz Pizza Time Restaurants,
Inc. and the Company.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed in the fourth quarter
of 1996.
(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 instruents defining the right of holders of long-term
debt of the Company where the total amount of the
securities authorized under each such instrument does not
exceed 10% of the total assets 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 furnish a copy of
any such instruments to the Commission upon request.
(d) Financial Statements excluded from the annual report
to shareholders by Rule 14A - 3(b):
No financial statements are excluded from the annual
report to the Company's sharehoders by Rule 14a - 3(b).
Page 38
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, 1997 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 14, 1997
Richard M. Frank Chief Executive Officer,
and Director (Principal
Executive Officer)
------------------- President and Director March 14, 1997
Michael H. Magusiak
------------------- Executive Vice President, March 14, 1997
Larry G. Page Treasurer, (Principal Financial
Officer and Principal Accounting
Officer)
- --------------------- Director March 14, 1997
Charles A. Crocco, Jr.
- ---------------------- Director March 14, 1997
Anthony J. Gumbiner
- ----------------------- Director March 14, 1997
Robert L. Lynch
- ----------------------- Director March 14, 1997
J. Thomas Talbot
- ----------------------- Director March 14, 1997
Brian M. Troup
- ----------------------- Director March 14, 1997
Louis P. Neeb
- ----------------------- Director March 14, 1997
Cynthia I. Pharr
Page 39