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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 January 2, 1998.
- Transition report pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934 for the
transition period from _____ to _____.
Commission File Number 0-15782
SHOWBIZ PIZZA TIME, INC.
(Exact name of registrant as specified in its charter)
Kansas 48-0905805
(State or 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 13, 1998, an aggregate of 18,221,235 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 13, 1998) held by non-affiliates of the
registrant was $ 412,456,474.
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 1997 annual meeting of shareholders, have been
incorporated by reference in Part III of this report.
page 1
P A R T I
Item 1. Business
General
ShowBiz Pizza Time, Inc. (the "Company"), was incorporated in the
State of Kansas in 1980 and is engaged in the family
restaurant/entertainment center business. The Company considers
this to be its sole industry segment.
The Company operated, as of March 13, 1998, 252 Chuck E.
Cheese's Pizza ("Chuck E. Cheese's") restaurants. In addition, as
of March 13, 1998, franchisees of the Company operated 61 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):
1997 1996 1995
---- ---- ----
Average annual revenues
per restaurant (1) $1,437,000 $1,286,000 $1,178,000
Number of restaurants open at end
of period 246 240 222
Percent of total restaurant revenues:
Food and beverage sales 68.2% 70.1% 70.2%
Game sales 28.6% 26.6% 26.6%
Merchandise sales 3.2% 3.3% 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 (225, 213 and 190 restaurants in
1997, 1996 and 1995, respectively). Fiscal year 1997 consisted
of 53 weeks while each of fiscal years 1996 and 1995 consisted
of 52 weeks.
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 September 1997, all Company operated
restaurants were remodeled under this program. In 1997, the
Company initiated a Phase II upgrade program that generally
includes a new game package, enhanced prize and merchandise
offerings and improved product presentation and service. The
Company completed Phase II upgrades in 107 restaurants in 1997 and
plans to upgrade an additional 100 to 120 restaurants in 1998.
The Company expanded the customer areas of three, seven and seven
existing stores in 1995, 1996 and 1997, respectively. The Company
plans to expand the customer areas of another 12 to 15 restaurants
in 1998. The customer area is typically increased by an average of
1,000 to 4,000 square feet per store.
The Company opened two new Chuck E. Cheese's restaurants in 1997
and one new restaurant in 1995. The Company anticipates adding
approximately 18 to 22 new restaurants in 1998 through a
combination of new restaurants and the acquisition of existing
restaurants. 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 playroom 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 targeted at families with
young children that feature the family entertainment experiences
available at Chuck E. Cheese's restaurants and are 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
13, 1998, 61 Chuck E. Cheese's restaurants were operated by a
total of 39 different franchisees, as compared to 69 of such
restaurants at March 14, 1997. In September 1996, the Company
purchased all of the 19 Chuck E. Cheese's restaurants owned by its
largest franchisee. The Company sold five franchises in 1997.
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 1998.
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 1.4% 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 1998, the Advertising Fund will
increase assessments from 1.4% of gross sales to 2.15% of gross
sales. The Chuck E. Cheese's franchise agreements also require
franchisees to expend at least 2.0% 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 other 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 which were sold in May 1994.
Trademarks
The Company owns various trademarks, including "Chuck E. Cheese"
and "ShowBiz" 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 13, 1998,
the Company employed approximately 13,600 employees, including
13,400 in the operation of Chuck E. Cheese's restaurants and 200
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 as of March
13, 1998.
Chuck E.
State Cheese's
------ --------
Alabama 5
Arkansas 4
California 48
Colorado 4
Connecticut 5
Delaware 1
Florida 15
Georgia 7
Idaho 1
Illinois 16
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 3
Ohio 12
Oklahoma 3
Pennsylvania 9
South Carolina 3
Tennessee 5
Texas 26
Virginia 6
Wisconsin 3
----
252
====
Of the 252 Chuck E. Cheese's restaurants owned by the Company as
of March 13, 1998, 233 occupy leased premises and 19 occupy owned
premises. The leases of these restaurants will expire at various
times from 1998 to 2009, as described in the table below.
Year of Number of Range of Renewal
Expiration Restaurants Options (Years)
---------- ----------- --------------
1998 27 None to 10
1999 17 None to 15
2000 22 None to 15
2001 37 None to 15
2002 and thereafter 130 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 $25.00 per square foot, subject to periodic
adjustment. 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 1997.
Page 7
P A R T I I
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters.
As of March 13, 1998, there were an aggregate of 18,221,235
shares of the Company's Common Stock outstanding and approximately
2,967 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
---- ----
1997
- 1st quarter $ 25 $ 16 1/2
- 2nd quarter 27 3/8 17 1/4
- 3rd quarter 26 3/4 20 1/2
- 4th quarter 24 15/16 17 3/8
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
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 January 2, 1998 in the amount of $1.20 per share will be paid on
April 5, 1998.
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.
1997 1996 1995 1994 1993
------ ------ ------ ------ ------
(Thousands, except per
share and store data)
Operating results (1):
Revenues . . . . . . . . . . $350,267 $293,990 $263,783 $268,515 272,344
Costs and expenses . . . . . 307,558 271,769 263,408 265,402 254,097
-------- -------- ------- -------- -------
Income before income taxes . . 42,709 22,221 375 3,113 18,247
Income taxes:
Current expense. . . . . . . 3,417 2,855 701 869 1,751
Deferred expense (benefit) . 13,795 6,145 (389) 1,568 4,605
------ ------ ----- ------ -----
17,212 9,000 312 2,437 6,356
------ ------ ----- ------ -----
Net income . . . . . . . . . $ 25,497 $ 13,221 $ 63 $ 676 $ 11,891
======= ======= ===== ====== =======
Per Share (2):
Basic:
Net income (loss) . . . . . $ 1.37 $ .71 $(.02) $ .02 $ .60
Weighted average shares
outstanding . . . . . . . 18,402 18,206 18,098 18,115 19,225
Diluted:
Net income (loss) . . . . $ 1.34 $ .70 $ (.02) $ .02 $ .57
Weighted average shares
outstanding . . . . . . 18,817 18,477 18,098 18,191 20,196
Cash flow data:
Cash provided by
operations . . . . . . $69,478 $48,362 $27,810 $ 30,819 $ 44,905
Cash used in investing
activities. . . . . . (43,805) (51,868) (30,548) (22,576) (45,909)
Cash provided by (used in)
financing activities . (21,800) 1,319 5,946 (10,373) 2,053
Balance sheet data:
Total assets. . . . . . $226,368 $216,580 $199,010 $188,308 $193,649
Long-term obligations
(including current
portion and redeemable
preferred stock) . . . . 30,713 39,571 39,244 33,223 29,816
Shareholders' equity. . . .155,938 141,476 126,487 125,515 136,647
Number of restaurants at year end:
Chuck E. Cheese's:
Company operated. . . . . 249 244 226 226 215
Franchise . . . . . . . . 63 70 93 106 110
---- ---- ---- ---- ----
312 314 319 332 325
Monterey's Tex-Mex Cafe's . . . 27
---- ---- ---- ---- ----
312 314 319 332 352
==== ==== ==== ==== ====
- ----------------------
(1) Fiscal year 1997 was 53 weeks in length while all other fiscal
years presented were 52 weeks in length.
(2) No cash dividends on common stock were paid in any of the
years presented.
(3) During 1997, the Company adopted Statement of Financial
Accounting Standards No. 128 "Earnings Per Share" and restated the
earnings per share data of prior years.
Page 9
Item 7. Management's Discussion and Analysis of Financial
Condition and Results Of Operations.
Results of Operations
1997 Compared to 1996
- ---------------------
Revenues increased 19.1% to $350.3 million in 1997 from $294.0
million in 1996 primarily due to an increase of 10.7% in sales of
the Company's Chuck E. Cheese's restaurants which were open during
all of 1997 and 1996 ("comparable store sales"). In addition, the
Company purchased 19 restaurants from its largest franchisee in
September 1996. Fiscal years 1997 and 1996 consisted of 53 and 52
weeks, respectively.
Income before income taxes increased to $42.7 million in 1997
from $22.2 million in 1996. A material portion of operating costs
are fixed resulting in an improvement of operating margins at
higher sales levels. Net income increased to $25.5 million in 1997
from $13.2 million in 1996. The Company's diluted earnings per
share increased to $1.34 per share in 1997 compared to $.70 per
share in 1996.
A summary of the results of operations of the Company as a
percentage of revenues for the last three fiscal years is shown
below.
1997 1996 1995
----- ---- ----
Revenues . . . . . . . . . . . . . . 100.0% 100.0% 100.0%
----- ----- -----
Costs and expenses:
Cost of sales . . . . . . . . . . . 46.8% 48.7% 51.8%
Selling, general and administrative . 15.1% 14.8% 17.0%
Depreciation and amortization . . . . 7.3% 8.5% 8.8%
Interest expense. . . . . . . . . . . .8% 1.2% 1.2%
(Gain) loss on property transactions. . .1% .1%
Other operating expenses. . . . . . . . 17.8% 19.1% 21.0%
----- ----- -----
87.8% 92.4% 99.9%
----- ----- -----
Income before income taxes . . . . . . 12.2% 7.6% .1%
===== ===== =====
Revenues
--------
Revenues increased to $350.3 million in 1997 from $294.0 million
in 1996. Comparable store sales of Chuck E. Cheese's restaurants
increased by 10.7% in 1997. In addition, the Company purchased 19
restaurants from its largest franchisee in September 1996. Average
annual sales per restaurant increased to approximately $1,437,000
in 1997 from approximately $1,286,000 in 1996. Fiscal years 1997
and 1996 consisted of 53 and 52 weeks, respectively. Management
believes that several factors contributed to the comparable store
sales increase with the primary factor being sales increases at
repositioned restaurants. Menu prices increased 2.4% between the
two years.
Revenues from franchise fees and royalties were $3.2 million in
1997, a decrease of 12.2% from 1996, primarily due to the Company's
purchase of 19 franchise restaurants in September 1996. Comparable
franchise store sales increased 9.1% in 1997. During 1997, one
new franchise restaurant opened, six franchise restaurants closed
and two franchise restaurants were purchased by the Company.
Costs and Expenses
------------------
Costs and expenses as a percentage of revenues decreased to 87.8%
in 1997 from 92.4% in 1996.
Cost of sales as a percentage of revenues decreased to 46.8% in
1997 from 48.7% in 1996. Cost of food, beverage, prize and
merchandise items as a percentage of restaurant sales decreased to
16.5% in 1997 from 17.4% in 1996 primarily due to a 2.4% increase
in menu prices and lower cheese costs in 1997. Restaurant labor
expenses as a percentage of restaurant sales declined to 27.5% in
1997 from 28.7% in 1996 primarily due to labor efficiencies
achieved at higher sales volumes.
Page 10
Selling, general and administrative expenses as a percentage of
revenues increased to 15.1% in 1997 from 14.8% in 1996 primarily
due to start-up costs related to the outsourcing and evaluation of
a toll-free birthday reservation system, management development
expenses and stock offering costs incurred in 1997 for a secondary
offering by the Company's largest shareholder.
Depreciation and amortization expense as a percentage of revenues
decreased to 7.3% in 1997 from 8.5% in 1996 primarily due to the
increase in comparable store sales, a change effected in the first
quarter of 1997 in the estimated useful lives of certain fixed
assets and the acquisition of restaurants in 1996 with lower
depreciation expense than existing restaurants. Depreciation
expense was reduced approximately $2.2 million in 1997 due to the
change in the estimated useful lives of certain fixed assets based
on a review of historical asset utilization.
Interest expense decreased to $2.9 million in 1997 from $3.5
million in 1996 primarily due to a decrease in the Company's
outstanding debt between the two periods.
Other operating expenses decreased as a percentage of revenues
to 17.8% in 1997 from 19.1% in 1996 primarily due to the increase
in comparable store sales and the fact that a significant portion
of operating costs such as rent, property taxes and insurance are
fixed.
Net Income
----------
The Company had net income of $25.5 million in 1997 compared to
$13.2 million in 1996 due to the changes in revenues and expenses
discussed above. The Company's diluted earnings per share
increased to $1.34 per share in 1997 compared $.70 per share in
1996.
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 comparable
stores 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 diluted earnings per share
increased to $.70 per share in 1996 compared to a loss of $.02 per
share in 1995.
Revenues
--------
Revenues increased to $294.0 million in 1996 from $263.8 million
in 1995. Comparable store sales 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 restaurants. 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.
Page 11
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 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. Restaurant labor expenses 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.
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 diluted earnings per share
increased to $.70 per share in 1996 compared to a loss of $.02 per
share in 1995.
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 $69.5 million in 1997
from $48.4 million in 1996. Cash outflow from investing activities
for 1997 was $43.8 million. Cash outflow from financing activities
in 1997 was $21.8 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, if necessary, funds available under its
line of credit.
In 1997, the Company announced that it plans to purchase shares
of the Company's common stock at an aggregate purchase price of up
to $20 million. As of March 13, 1998, the Company has purchased
718,500 shares of its common stock in the open market for an
aggregate purchase price of approximately $15.2 million. The funds
required for the stock purchase plan are provided primarily from
the Company's current cash balances and operating cash flow.
The Company completed its repositioning program by remodeling
22 restaurants in 1997. In 1996, 1995 and 1994, 126, 87 and 10
restaurants were remodeled, respectively.
In 1997, the Company opened two new stores, acquired three stores
from franchisees and acquired one store previously managed by the
Company. During 1998, the Company plans to add an additional 18 to
22 stores including new stores and acquisitions of existing stores
from franchisees or joint venture partners. The Company currently
anticipates its cost of opening new stores to average approximately
$1.5 million per store which will vary depending upon many factors
including the size of the store and whether the store is an in-line
or free-standing building. In 1997, the Company expanded seven
existing stores and plans to expand an additional 12 to 15 stores
by the end of 1998. These expansions typically increase the
customer area by an average of 1,000 to 4,000 square feet per
store. The Company completed 107 Phase II upgrades in 1997 and
plans to upgrade an additional 100 to 120 stores in 1998 at an
average cost of $150,000 to $160,000 per store. A Phase II upgrade
generally includes a new game package, enhanced prize and
merchandise offerings and improved product presentation and
service. The Company currently estimates that capital expenditures
in 1998, including expenditures for remodeling existing stores, new
store openings, existing store expansions and equipment
investments, will be approximately $55 million. The Company plans
to finance these expenditures through cash flow from operations
and, if necessary, borrowings under the Company's line of credit.
The Company's total credit facility of $41.3 million at January
2, 1998 consists of $26.3 million in term notes and a $15 million
line of credit which expires in June 1998. Term notes totaling
$18 million with annual interest of 10.02% mature in 2001. Term
notes totaling $8.3 million with quarterly principal payments of
$833,000 and annual interest equal to LIBOR plus 3.5% mature in
2000. Interest under the $15 million line of credit is dependent on
earnings and debt levels of the Company and ranges from prime plus
0% to .5% or, at the Company's option, LIBOR plus 2% to 3%.
Currently, any borrowings under this line of credit would be at the
prime rate or LIBOR plus 2%. As of March 13, 1998, there were no
borrowings under this line of credit. The Company is required to
comply with certain financial ratio tests during the terms of the
loan agreements. The Company plans to extend the maturity of its
current line of credit or enter into a new agreement prior to the
expiration date of the current agreement.
In 1998, the Company will purchase computer software which will
be Year 2000 compliant The Year 2000 issue is the result of
computer programs being written using two digits rather than four
to define the applicable year. Current systems may be unable to
accurately process certain date-based information. The cost of the
new software will be recorded as an asset and amortized over its
estimated useful life. Other maintenance or modification costs will
be expensed as incurred. Accordingly, the Company does not expect
the amounts required to be expensed over the next two years to have
a material effect on its financial position or results of
operations or cash flows. The Company expects its Year 2000 date
conversion project to be completed in 1999. The Company has
initiated formal communication with significant vendors and
suppliers to determine their efforts to remediate Year 2000 issues.
There can be no guarantee that such issues will be resolved and
could result in financial risk to the Company.
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 1998 through 2010. The Company
currently projects future taxable income levels sufficient to
realize its tax credit carryforwards prior to their expiration.
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 JANUARY 2, 1998, DECEMBER 27, 1996
AND DECEMBER 29, 1995
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 January 2, 1998 and
December 27, 1996, and the related consolidated statements of
earnings, shareholders' equity, and cash flows for each of the
three years in the period ended January 2, 1998. 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 January 2, 1998 and December
27, 1996, and the results of their operations and their cash flows
for each of the three years in the period ended January 2, 1998, in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Dallas, Texas
February 27, 1998
page 15
SHOWBIZ PIZZA TIME, INC.
CONSOLIDATED BALANCE SHEETS
JANUARY 2, 1998 AND DECEMBER 27, 1996
(Thousands, except share data)
ASSETS
January 2, December 27,
1998 1996
---------- -----------
Current assets:
Cash and cash equivalents . . . . . . . . . $ 7,275 $ 3,402
Accounts receivable, including receivables
from related parties of $240 and $675,
respectively . . . . . . . . . . . 2,996 3,543
Current portion of notes receivable,
including receivables from
related parties of $199 and $221,
respectively . . . . . . . . . . . . . 259 457
Inventories . . . . . . . . . . . . . . . 3,975 3,368
Prepaid expenses. . . . . . . . . . . . . 3,550 3,185
Current portion of deferred tax asset . . 7,237 13,633
------- -------
Total current assets . . . . . . . . . . 25,292 27,588
------- -------
Investments in related parties . . . . . . . . 668 1,315
------- -------
Property and equipment, net. . . . . . . . . . 187,433 163,998
-------- -------
Deferred tax asset . . . . . . . . . . . . . . 5,988 12,296
-------- -------
Other assets:
Notes receivable, less current portion,
including receivables from related parties
of $2,516 and $2,323, respectively . . . . 2,579 7,257
Other . . . . . . . . . . . . . . . . . . . . 4,408 4,126
------- -------
6,987 11,383
------- --------
$ 226,368 $ 216,580
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt . . . . . .$ 3,376 $ 1,785
Accounts payable and accrued liabilities. . . 35,665 31,738
------- -------
Total current liabilities. . . . . . . . . 39,041 33,523
------- -------
Long-term debt, less current portion . . . . . 23,826 34,668
------- -------
Deferred credits . . . . . . . . . . . . . . . 4,052 3,795
------- -------
Other liabilities. . . . . . . . . . . . . . . 1,300 1,010
------- -------
Commitments and contingencies
Redeemable preferred stock, $60 par value,
redeemable for $2,974 in 2005 . . . . . . . 2,211 2,108
------- -------
Shareholders' equity:
Common stock, $.10 par value; authorized
50,000,000 shares; 21,912,277 and 21,519,075
shares issued, respectively . . . . . . . 2,191 2,152
Capital in excess of par value. . . . . . . 158,696 153,795
Retained earnings . . . . . . . . . . . . . 42,768 17,613
Deferred compensation . . . . . . . . . . . . (2,280) (1,821)
Less treasury shares of 3,827,676 and 3,109,176,
respectively, at cost . . . . . . . (45,437) (30,263)
-------- -------
155,938 141,476
-------- --------
$ 226,368 $ 216,580
======== ========
See notes to consolidated financial statements.
page 16
SHOWBIZ PIZZA TIME, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
YEARS ENDED JANUARY 2, 1998,
DECEMBER 27, 1996 AND DECEMBER 29, 1995
(Thousands, except per share data)
1997 1996 1995
-------- ------- --------
Food and beverage revenues . . . . . . . . $ 235,898 $202,624 $182,376
Games and merchandise revenues . . . . . . 109,518 86,444 76,969
Franchise fees and royalties . . . . . . . 3,227 3,675 3,464
Interest income, including related party
income of $244, $246 and
$222, respectively. . . . . . . . . . . . 1,095 1,051 872
Joint venture income . . . . . . . . . . . . 529 196 102
------- ------- -------
350,267 293,990 263,783
------- ------- -------
Costs and expenses:
Cost of sales . . . . . . . . . . . . . . . 163,713 143,381 136,700
Selling, general and administrative
expenses, including related
party expenses of $31, $125 and $125,
respectively. . . . . . . . . . . . . . . 53,037 43,534 44,794
Depreciation and amortization. . . . . . . 25,524 25,057 23,184
Interest expense. . . . . . . . . . . . . . 2,866 3,476 3,118
(Gain) loss on property transactions. . . . . (104) 263 136
Other operating expenses. . . . . . . . . . 62,522 56,058 55,476
------- ------- -------
307,558 271,769 263,408
------- ------- -------
Income before income taxes . . . . . . . . . 42,709 22,221 375
Income taxes:
Current expense. . . . . . . . . . . . . . 3,417 2,855 701
Deferred (benefit) expense . . . . . . . . 13,795 6,145 (389)
------- ------ ------
17,212 9,000 312
------- ------- ------
Net income. . . .. . . . . . . . . . . . . .$ 25,497 $ 13,221 $ 63
======= ======= ======
Net income (loss) applicable to
common shares (Note 11) . . . . . . . . .$ 25,155 $ 12,880 $ (279)
======= ======= ======
Earnings per share:
Basic:
Net income (loss). . . . . . . . . . . . . $ 1.37 $ .71 $ (.02)
====== ===== ======
Weighted average shares outstanding. . . . 18,402 18,206 18,098
====== ====== ======
Diluted:
Net income (loss). . . . . . . . . . . . . $ 1.34 $ .70 $ (.02)
====== ====== ======
Weighted average shares outstanding. . . . 18,817 18,477 18,098
====== ====== ======
See notes to consolidated financial statements.
Page 17
SHOWBIZ PIZZA TIME, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED JANUARY 2, 1998,
DECEMBER 27, 1996 AND DECEMBER 29, 1995
(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 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)
Net income. . . . . . . . . . . . . 25,497
Redeemable preferred stock accretion. . . . .
(104)
Redeemable preferred stock dividends,
$4.80 per share. . . . . . . . . . (238)
Stock options exercised . . . . . .
262 26 2,566
Stock grant plan . . . . . . . . . .
128 13 2,280 (2,280)
Tax benefit from exercise of stock options
and stock grants . . . . (14)
Treasury stock acquired. . . . . . 719 (15,174)
Amortization of deferred compensation 1,821
Stock issued under 401(k) plan. . .
3 59
Stock split costs. . . . . 10
------ ------ ------- ------ ------- ------ -------
Balances, January 2, 1998 . . . .
21,912 $ 2,191 $158,696 $ 42,768 $(2,280) 3,828 $(45,437)
======= ======= ======== ======== ======= ===== ========
See notes to consolidated financial statements.
page 18
SHOWBIZ PIZZA TIME, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JANUARY 2, 1998,
DECEMBER 27, 1996 AND DECEMBER 29, 1995
(Thousands)
1997 1996 1995
---- ----- ----
Operating activities:
Net income . . . . . . . . . . . . . . . . . . $25,497 $13,221 $ 63
Adjustments to reconcile net income
to cash provided by operations:
Depreciation and amortization . . . . . . . . 25,524 25,057 23,184
Deferred income tax expense (benefit) . . . . 13,795 6,145 (389)
(Gain) loss on property transactions. . . . . (104) 263 136
Compensation expense under stock grant plan . 1,821 1,821 1,821
Other . . . . . . . . . . . . . . . . . . . . 257 352 418
Net change in receivables, inventories, prepaids,
payables and accrued liabilities . . . . . . 2,688 1,503 2,577
----- ----- -----
Cash provided by operations . . . . . . . . 69,478 48,362 27,810
------ ------ ------
Investing activities:
Purchases of property and equipment. . . . . . (48,451) (51,719) (28,277)
Proceeds from disposition of property
and equipment . . . . . . . . . . . . . . . 20
Payments received on notes receivable. . . . . 7,376 3,534 2,503
Additions to notes receivable . . . . . . . . . (2,500) (3,568) (3,047)
Change in investments and other assets . . . . (230) (115) (1,747)
------ ------ ------
Cash used in investing activities. . . . . . (43,805) (51,868) (30,548)
Financing activities:
Proceeds from debt and line of credit. . . . . 7,600 38,895
Payments on debt and line of credit. . . . . . (9,142) (6,995) (33,054)
Redeemable preferred stock dividends . . . . . (238) (238) (238)
Acquisition of treasury stock. . . . . . . . . (15,174)
Exercise of stock options. . . . . . . . . . . 2,592 937 90
Other. . . . . . . . . . . . . . . . . . . . . 162 15 253
------ ------ ------
Cash provided by (used in) financing
activities . . . . . . . . . . . . . . . . . (21,800) 1,319 5,946
------ ------ ------
Increase (decrease) in cash and
cash equivalents. . . . . . . . . . . . . . . 3,873 (2,187) 3,208
Cash and cash equivalents, beginning
of year. . . . . . . . . . . . . . . . . . . 3,402 5,589 2,381
------ ------ ------
Cash and cash equivalents, end of year . . . . . $ 7,275 $ 3,402 $ 5,589
====== ====== ======
See notes to consolidated financial statements.
page 19
SHOWBIZ PIZZA TIME, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 2, 1998,
DECEMBER 27, 1996 AND DECEMBER 29, 1995
1. Summary of significant accounting policies:
Operations:
ShowBiz Pizza Time, Inc. (the "Company") operates and
franchises family restaurant entertainment centers as Chuck E.
Cheese's restaurants.
Fiscal year:
The Company's fiscal year is 52 or 53 weeks and ends on the
Friday nearest December 31. References to 1997, 1996 and 1995
are for the fiscal years ended January 2, 1998, December 27,
1996 and December 29, 1995, respectively. Fiscal year 1997 was
53 weeks in length, while 1996 and 1995 were each 52 weeks in
length.
Basis of consolidation:
The consolidated financial statements include the accounts of
the Company and its subsidiaries. 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 1997,
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 $2.2 million, net income increased
approximately $1.3 million and basic and diluted earnings per
share increased approximately $.07 in 1997.
Deferred charges and related amortization:
Deferred charges are amortized over various periods of up to
16 years. All amortization is provided by the straight-line
method, which approximates the interest method.
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.
Page 20
SHOWBIZ PIZZA TIME, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
YEARS ENDED JANUARY 2, 1998,
DECEMBER 27, 1996 AND DECEMBER 29, 1995
1. Summary of significant accounting policies (continued):
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.
Earnings Per Share
The Financial Accounting Standards Board has issued Statement
of Accounting Standards No. 128 ("SFAS 128") "Earnings Per
Share" effective for years ending after December 15, 1997.
SFAS 128 replaced the presentation of primary and fully
diluted earnings per common share with basic and diluted
earnings per common share (Note 11). The Company has restated
the earnings per share data of prior years to reflect this
adoption.
Accounting for stock-based compensation:
Statement of Financial Accounting Standards No. 123 ("SFAS 123")
"Accounting for Stock-Based Compensation" became effective for years
beginning after December 15, 1995. As permitted by SFAS 123, the
Company will continue to apply the recognition and measurement
provisions of Accounting Principles Board Opinion No. 25 ("APB 25"),
"Accounting for Stock Issued to Employees" and has adopted only the
disclosure requirements of SFAS 123 beginning in fiscal 1996.
Accordingly, no compensation costs have been recognized in connection
with the Company's stock option plans (Note 18).
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 $2.6
million, the Company reimbursed the seller for remodeling costs
for three restaurants which had been recently remodeled. The
Company assumed no liabilities under the asset purchase.
Results of operations for the assets purchased are included in
the Company's results from the date of this acquisition.
page 21
SHOWBIZ PIZZA TIME, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
YEARS ENDED JANUARY 2, 1998,
DECEMBER 27, 1996 AND DECEMBER 29, 1995
3. Accounts receivable:
1997 1996
---- -----
(thousands)
Trade . . . . . . . . . . . . . . . . . . . . . .$ 1,112 $ 538
Other . . . . . . . . . . . . . . . . . . . . . . 1,908 3,025
------ ------
3,020 3,563
Less allowance for doubtful collection. . . . . . (24) (20)
------ ------
$ 2,996 $ 3,543
====== ======
4. Notes receivable:
The Company's notes receivable at January 2, 1998 and December
27, 1996 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 17), 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
$59,000 and $174,000 at January 2, 1998 and December 27, 1996,
respectively.
5. Property and equipment:
Estimated
Lives 1997 1996
(in years) (thousands)
---------- ---------------
Land and improvements. . . . . . . 0 - 20 $ 7,515 $ 5,208
Leasehold improvements . . . . . . 4 - 20 150,565 135,201
Buildings and improvements . . . . 4 - 25 10,348 9,161
Furniture, fixtures and equipment. 2 - 15 140,612 120,688
Property leased under capital
leases (Note 7). . . . . . . . . 10 - 15 1,271 1,328
------- ------
310,311 271,586
Less accumulated depreciation and
amortization (124,640) (108,345)
------- -------
185,671 163,241
Construction in progress . . . . . . . . 1,762 757
-------- --------
$ 187,433 $ 163,998
======== ========
6. Accounts payable and accrued liabilities:
1997 1996
-------- -------
(thousands)
Accounts payable. . . . . . . . . . . . . . . . . $ 13,162 $ 13,240
Salaries and wages. . . . . . . . . . . . . . . . 6,591 4,292
Insurance . . . . . . . . . . . . . . . . . . . . 8,532 8,714
Taxes, other than income. . . . . . . . . . . . . 4,096 3,037
Other . . . . . . . . . . . . . . . . . . . . . . 3,284 2,455
------- -------
$ 35,665 $31,738
======= =======
Page 22
SHOWBIZ PIZZA TIME, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
YEARS ENDED JANUARY 2, 1998,
DECEMBER 27, 1996 AND DECEMBER 29, 1995
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:
1997 1996
----- -----
(thousands)
Buildings and improvements . . . . . . . . . . $ 1,271 $1,328
Less accumulated depreciation. . . . . . . . . (1,031) (982)
----- ----
$ 240 $ 346
==== ====
Scheduled annual maturities of the obligations for capital and
operating leases as of January 2, 1998, are as follows:
Years Capital Operating
----- ------- ---------
(thousands)
1998. . . . . . . . . . . . . . . . . . . . . . . $184 $26,141
1999. . . . . . . . . . . . . . . . . . . . . . . 184 24,521
2000. . . . . . . . . . . . . . . . . . . . . . . 184 22,905
2001. . . . . . . . . . . . . . . . . . . . . . . 214 20,373
2002. . . . . . . . . . . . . . . . . . . . . . . 214 17,980
2003-2009 (aggregate payments). . . . . . . . . . 627 26,084
---- ------
Minimum future lease payments . . . . . . . . . . 1,607 $138,004
=======
Less amounts representing interest. . . . . . . . (737)
-----
Present value of future minimum lease payments. . 870
Less current portion. . . . . . . . . . . . . . . (43)
-----
$ 827
=====
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:
1997 1996 1995
----- ----- ----
(thousands)
Minimum . . . . . . . . . . . . . . . . . $32,694 $30,484 $28,730
Contingent. . . . . . . . . . . . . . . . 276 195 146
------- ------- -------
$32,970 $30,679 $28,876
======= ======= =======
page 23
SHOWBIZ PIZZA TIME, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
YEARS ENDED JANUARY 2, 1998,
DECEMBER 27, 1996 AND DECEMBER 29, 1995
8. Long-term debt:
1997 1996
---- ----
(thousands)
Term loans, 10.02%, due June 2001 . . . . . . . . $ 18,000 $ 18,000
Term loans, LIBOR plus 3.5%, due June 2000. . . . 8,332 10,000
Revolving bank loan, prime plus 0% to .5% or
LIBOR plus 2% to 3%,
due June 1998 . . . . . . . . . . . . . . . . 7,400
Obligations under capital leases (Note 7). . . . 870 1,053
------ ------
27,202 36,453
Less current portion. . . . . . . . . . . . . . . (3,376) (1,785)
------ ------
$ 23,826 $ 34,668
======= =======
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. As of January 2,
1998, the Company's credit facility totals $41.3 million, which
consists of $26.3 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 (8.5% at
January 2, 1998) plus 0% or, at LIBOR (5.9% at January 2, 1998)
plus 2%. At January 2, 1998, there was no outstanding balance
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.
As of January 2, 1998, scheduled annual maturities of all
long-term debt (exclusive of obligations under capital leases)
are as follows (thousands):
Years Amount
----- ------
1998. . . . . . . . . . . $ 3,333
1999. . . . . . . . . . . 9,332
2000. . . . . . . . . . . 7,667
2001. . . . . . . . . . . 6,000
-------
$26,332
9. 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.
10. Redeemable preferred stock:
As of January 2, 1998, 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 January 2, 1998, 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 24
SHOWBIZ PIZZA TIME, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
YEARS ENDED JANUARY 2, 1998,
DECEMBER 27, 1996 AND DECEMBER 29, 1995
11. Earnings per common share:
Earnings per common share ("EPS") are computed in accordance
with SFAS 128. Under SFAS 128, basic and diluted EPS replaces
primary and fully diluted EPS. Basic EPS is calculated by
dividing earnings applicable to common shares by the weighted
average number of common shares outstanding. Diluted EPS
adjusts for the effect of potential common shares. 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):
1997 1996 1995
------ ------ ------
Net income. . . . . . . . . . . . . $ 25,497 $ 13,221 $ 63
Accretion of redeemable preferred
stock. . . . . . . . . . . . . . . (104) (103) (104)
Redeemable preferred stock
dividends. . . . . . . . . . . . . (238) (238) (238)
------- ------- ------
Net income (loss) applicable to
common shares. . . . . . . . . . . $ 25,155 $ 12,880 $ (279)
======= ======= =====
Basic:
Weighted average common shares
outstanding . . . . . . . . . . 18,402 18,206 18,098
======= ======= =======
Earnings (loss) per common shares . $ 1.37 $ .71 $ (.02)
======= ======= =======
Diluted:
Weighted average common shares
outstanding. . . . . . . . . . 18,402 18,206 18,098
Potential common shares for stock
options and stock grants . . . 415 271
------ ------ ------
Weighted average shares
outstanding. . . . . . . . . . .18,817 18,477 18,098
====== ====== ======
Earnings (loss) per common and
potential common shares. . . . . . $ 1.34 $ .70 $ (.02)
====== ======= =======
12. Franchise fees and royalties:
At January 2, 1998, 63 Chuck E. Cheese's restaurants were
operated by a total of 40 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 $172,000,
$274,000, and $98,000 in 1997, 1996 and 1995, respectively.
13. Cost of sales:
1997 1996 1995
---- ---- ----
(thousands)
Food, beverage and related
supplies . . . . . . . . . . . . . . . $ 50,355 $ 45,681 $ 43,412
Games and merchandise. . . . . . . . . . 18,339 14,816 13,285
Labor. . . . . . . . . . . . . . . . . . 95,019 82,884 80,003
------- ------- -------
$163,713 $143,381 $136,700
======= ======= =======
page 25
SHOWBIZ PIZZA TIME, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
YEARS ENDED JANUARY 2, 1998,
DECEMBER 27, 1996 AND DECEMBER 29, 1995
14. Income taxes:
The significant components of income tax expense are as follows:
1997 1996 1995
------ ------ ------
(thousands)
Current expense . . . . . . . . . . . . .$ 3,417 $ 2,855 $ 701
Deferred expense:
Utilization of operating
loss carryforwards . . . . . . . . . . 16,693 8,664 1,138
Net tax benefits from exercise
of stockoptions and stock grants . . . (14) (655) (654)
Tax credits . . . . . . . . (475) (127)
Other (primarily temporary
differences) . . . . . . . . . . . . . (2,884) (1,389) (746)
------- ------ -----
$ 17,212 $ 9,000 $ 312
======= ====== =====
At January 2, 1998, the Company has recorded a deferred tax
asset of approximately $13.2 million reflecting $6.6 million in
tax credit carryforwards and tax effected net taxable deductions
of $6.6 million. The temporary timing differences primarily
relate to depreciation differences. Realization of tax credits
and tax deductions is dependent on generating sufficient taxable
income prior to expiration of these carryforwards. Although
realization is not assured, the Company believes it is more
likely than not that the deferred tax asset will be realized.
As of January 2, 1998, the Company has investment tax credit
and jobs tax credit carryforwards totaling $4,154,000 and
$548,000, respectively, and alternative minimum tax credits of
$1,893,000.
A schedule of expiring tax credits by fiscal year are as
follows:
Years Tax Credits
----- -----------
(Thousands)
1998. . . . . . . . . . . . . . . . . . . . . . . . $ 4,007
1999. . . . . . . . . . . . . . . . . . . . . . . . 395
2000. . . . . . . . . . . . . . . . . . . . . . . . 149
2001. . . . . . . . . . . . . . . . . . . . . . . . 19
2002. . . . . . . . . . . . . . . . . . . . . . . . 0
2003 - 2010 . . . . . . . . . . . . . . . . . . . . 132
-------
$ 4,702
=======
The Company's alternative minimum tax credits have no
expiration date.
Page 26
SHOWBIZ PIZZA TIME, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
YEARS ENDED JANUARY 2, 1998,
DECEMBER 27, 1996 AND DECEMBER 29, 1995
14. Income taxes (continued):
A reconciliation of the statutory rate to taxes provided is as
follows:
1997 1996 1995
----- ----- -----
(thousands)
Statutory rate. . . . . . . . . . . . . 35.0% 35.0% 34.0%
State income taxes. . . . . . . . . . . 8.1% 9.0% 106.1%
Tax credits earned. . . . . . . . . . . (2.1%) (33.9%)
Other . . . . . . . . . . . . . . . . . (2.8%) (1.4%) (23.0%)
------ ----- ------
Income taxes provided . . . . . . . . . 40.3% 40.5% 83.2%
====== ===== ======
15. 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.
16. Supplemental cash flow information:
1997 1996 1995
---- ---- ----
(thousands)
Cash paid during the year for:
Interest. . . . . . . . . . . $2,961 $ 3,429 $ 3,055
Income taxes . . . . . . . . 2,753 2,222 801
Supplemental schedule of noncash
investing and financing activities:
Notes and accounts receivable canceled
in connection with the
acquisition of property and
equipment. . . . . . . . . . . . 483
page 27
SHOWBIZ PIZZA TIME, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
YEARS ENDED JANUARY 2, 1998,
DECEMBER 27, 1996 AND DECEMBER 29, 1995
17. Related party transactions:
The Hallwood Group, Incorporated ("Hallwood") was the
beneficial owner of approximately 2.6 million shares or 14.2% of
the outstanding common stock of the Company prior to a secondary
public offering in March 1997 in which Hallwood and certain of
its affiliates sold all shares held. The directors of Hallwood
had served as a majority of the directors of the Company, but
resigned after the public offering. The Company did not receive
any proceeds from the sale of shares by the selling
stockholders. However, the Company paid $305,000 in expenses for
the offering.
The Company made payments to Hallwood of $31,000 in 1997 and
$125,000 in 1996 and 1995 for consulting services. The
consulting agreement terminated upon the closing of the public
offering. In consideration for rent reductions resulting from
Hallwood's negotiation of the Company's home office lease
agreement in December 1990, the Company had 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 January 2, 1998,
approximately $610,000 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 $229,000 and $669,000 at January 2, 1998 and
December 27, 1996, respectively. In January 1998, the Company
acquired the interest of its joint venture partner for cash plus
forgiveness of all receivables.
The Company has granted three separate operating lines of
credit to the International Association of ShowBiz Pizza Time
Restaurants, Inc. (the "Association"). In December 1997, the
lines were renewed to provide the Association with available
borrowings of $2.6 million at 10.5% interest and are due
December 31, 1998. The Association develops entertainment
attractions and produces system wide advertising. Five officers
of the Association are also officers of the Company. At January
2, 1998, approximately $2,105,000 was outstanding under these
lines of credit. The Company also had miscellaneous accounts
receivable from the Association of $11,000 and $6,000 at January
2, 1998 and December 27, 1996, respectively.
18. 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. Any shares granted under this plan must be granted
before December 31, 1998. In 1997, the Company adopted a new
employee stock option plan under which an additional 925,000
shares may be granted before July 31, 2007. The exercise price
for options granted under both plans 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 28
SHOWBIZ PIZZA TIME, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
YEARS ENDED JANUARY 2, 1998,
DECEMBER 27, 1996 AND DECEMBER 29, 1995
18. 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 and the exercise price for options granted may
not be less than the fair market value of the Company's common
stock at the date of grant.
At January 2, 1998, there were 898,283 shares available for
grant. Stock option transactions are summarized as follows for
all plans:
Weighted Average
Number of Shares Exercise Price Per Share
-------------------------- -------------------------
1997 1996 1995 1997 1996 1995
---- ---- ---- ---- ---- ----
Options outstanding,
beginning of year. 1,010,511 848,942 759,953 $8.58 $9.08 $10.92
Granted . . . . . 944,715 276,734 391,860 17.87 8.39 6.08
Exercised. . . . . (261,445) (77,495) (19,239) 9.92 12.10 4.70
Terminated . . . . . (107,483) (37,670) (283,632) 11.36 11.01 10.17
------- ------- -------
Options outstanding,
end of year . . . .1,586,298 1,010,511 848,942 13.70 8.58 9.08
========= ========= =======
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 1997 was $6.12 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 1997:
risk free interest rate of 5.9%; 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 January 2, 1998 was
565,289. These stock options have exercise prices ranging from
$5.29 to $24.50 per share and have a weighted average exercise
price of $ 7.96 per share. In January 1998, the Company granted
328,744 additional options at an exercise price of $21.81 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. In 1997, 128,500 grants were
awarded in connection with an employment agreement effective
January 1998. No grants were awarded in 1996 or 1995.
Compensation expense recognized by the Company pursuant to this
plan was $1,821,000 per year in 1997, 1996 and 1995. All shares
vest over periods ranging from 3 years 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 and $2.3 million
in 1997. 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 in 1993. 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.
page 29
SHOWBIZ PIZZA TIME, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
YEARS ENDED JANUARY 2, 1998,
DECEMBER 27, 1996 AND DECEMBER 29, 1995
18. Employee benefit plans (continued):
The Company applies the provisions of APB Opinion 25 and
related Interpretations in 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 $23.1 million and $12.8
million in 1997 and 1996, respectively, and a net loss of
$154,000 in 1995. Proforma earnings per share assuming dilution
would have been $1.23 and $.67 per share in 1997 and 1996,
respectively, 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 1997, the Company made
contributions of approximately $59,000 and $37,000 in common
stock for the 1996 and 1995 plan years, respectively. The
Company plans to contribute $76,000 in common stock for the 1997
plan year.
20. Quarterly results of operations (unaudited):
The following summarizes the unaudited quarterly results of
operations for the years ended January 2, 1998 and December 27,
1996 (thousands, except per share data).
Fiscal year ended January 2, 1998
March 28 June 27 Sept. 26 Jan. 2
-------- ------- -------- --------
Revenues. . . . . . . . . . . $ 91,594 $ 84,031 $ 85,602 $ 89,040
Income before income taxes. . 13,333 9,924 10,141 9,311
Net income. . . . . . . . . . 7,933 5,905 6,101 5,558
Earnings Per Share:
Basic . . . . . . $ .43 $ .32 $ .32 $ .30
Diluted . . . . . . . . . .42 .31 .32 .30
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
Earnings Per Share:
Basic . . . . . . . . . . $ .28 $ .12 $ .19 $ .12
Diluted . . . . . . . . . .28 .12 .19 .12
page 30
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 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 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. 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.
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 January 2, 1998 and
December 27, 1996.
Consolidated statements of earnings for the years
ended January 2, 1998, December 27, 1996, and December
29, 1995.
Consolidated statements of shareholders' equity for the
years ended January 2, 1998, December 27, 1996, and
December 29, 1995.
Consolidated statements of cash flows for the years
ended January 2, 1998, December 27, 1996, and December
29, 1995.
Notes to consolidated financial statements.
Page 31
(2) Financial Statement Schedules:
ShowBiz Pizza Time, Inc.
------------------------
II --- Valuation and qualifying accounts and reserves.
(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
(filed as Exhibit 10(I) to the Company's
Quarterly Report on Form 10-Q for the quarter
ended September 27, 1996, and incorporated
herein by reference).
10(a)(3) Amendment No. 2 to the Amended and Restated
Employment Agreement dated March 3, 1997,
between the Company and Richard M. Frank
(filed as Exhibit 10(a) to the Company's
Quarterly Report on Form 10-Q for the quarter
ended March 28, 1997, and incorporated herein
by reference).
10(b) 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(c)(1) 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).
Page 32
10(c)(2) Amendment to the Employment Agreement dated
December 11, 1997, between the Company and
Michael H. Magusiak.
10(d) 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(e) 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(f)(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(f)(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(f)(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(g)(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(g)(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(h)(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(h)(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(h)(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).
Page 33
10(i) Floating Rate Series B Senior Note Due 2000,
in the stated amount of $4,000,000.00, dated
June 15, 1995, between MassMutual Corporate
Value Partners Limited (I/N/O Webell & Co.)
and the Company (filed as Exhibit 10 (f)(1)
to the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1995, and
incorporated herein by reference).
10(j) 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(k)(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(k)(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(l)(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(l)(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(m)(1) Supplemental Agreement, dated as of September
29, 1997, relating to the Note Purchase
Agreements dated as of June 15, 1995, between
Allstate Life Insurance Company, Massachusetts
Mutual Life Insurance Company, MassMutual
Corporate Value Partners Limited, CM Life
Insurance Company, Modern Woodmen of America
and the Company.
10(m)(2) Supplemental Agreement, dated as of September
29, 1997, relating to the Note Purchase
Agreements dated as of June 15, 1995, between
Bank One, Texas, N.A. and the Company.
10(n)(1) 1988 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(n)(2) Specimen form of Contract under the 1988 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(o)(1) 1997 Non-Statutory Stock Option Plan (filed as
Exhibit 4.1 to Form S-8 (No. 333-41039), and
incorporated herein by reference).
10(o)(2) Specimen form of Contract under the 1997 Non-Statutory
Stock Option Plan of the Company, as
amended to date.
Page 34
10(p)(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(p)(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(q)(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).
10(q)(2) Specimen form of Contract under the Non-Employee Directors
Stock Option Plan of the
Company, as amended to date (filed as Exhibit
10(s)(2) to the Company's Annual Report on
Form 10-K for the year ended December 27,
1996, and incorporated herein by reference).
10(r)(1) Specimen form of the Company's current
Franchise Agreement.
10(r)(2) Specimen form of the Company's current
Development Agreement.
10(s)(1) Rights Agreement, dated as on November 19,
1997, by and between the Company and the
Rights Agent (filed as Exhibit A to Exhibit
1 of the Company's Registration Statement on
Form 8-A (No. 001-13687) and incorporated
herein by reference).
10(s)(2) Form of Certificate of Designation of the
Preferred Shares under the Rights Agreement,
dated as on November 19, 1997, by and between
the Company and the Rights Agent (filed as
Exhibit B to Exhibit 1 of the Company's
Registration Statement on Form 8-A (No. 001-13687)
and incorporated herein by reference).
10(s)(3) Form of Right Certificate under the Rights
Agreement, dated as on November 19, 1997, by
and between the Company and the Rights Agent
(filed as Exhibit C to Exhibit 1 of the
Company's Registration Statement on Form 8-A
(No. 001-13687) and incorporated herein by
reference).
10(t)(1) National Advertising Fund Line of Credit, in
the stated amount of $800,000.00, dated
December 22, 1997, between International
Association of ShowBiz Pizza Time
Restaurants, Inc. and the Company.
10(t)(2) National Advertising Fund Promissory Note, in
the stated amount of $800,000.00, dated
December 22, 1997, between International
Association of ShowBiz Pizza Time
Restaurants, Inc. and the Company.
10(u)(1) National Media Fund Line of Credit, in the
stated amount of $1,800,000.00, dated
December 22, 1997, between International
Association of ShowBiz Pizza Time
Restaurants, Inc. and the Company.
10(v)(2) National Media Fund Promissory Note, in the
stated amount of $1,800,000.00, dated
December 22, 1997, between International
Association of ShowBiz Pizza Time
Restaurants, Inc. and the Company.
23 Independent Auditors Consent of Deloitte &
Touche LLP
page 35
(b) Reports on Form 8-K:
No reports on Form 8-K were filed in the fourth quarter
of 1997.
(c) Exhibits pursuant to Item 601 of Regulation S-K:
Pursuant to Item 601(b)(4) of Regulation S-K, there have
been excluded from the exhibits filed pursuant to this
report instruments defining the 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. 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 shareholders by Rule 14a - 3(b).
page 36
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 31, 1998 SHOWBIZ PIZZA TIME, INC.
By: /s/ Richard M. Frank
-----------------------------
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
/s/ Richard M. Frank Chairman of the Board, March 31, 1998
- ---------------------
Richard M. Frank Chief Executive Officer,
and Director (Principal
Executive Officer)
/s/ Michael H. Magusiak President and Director March 31, 1998
- ------------------------
Michael H. Magusiak
/s/ Larry G. Page Executive Vice President, March 31, 1998
- -------------------
Larry G. Page Treasurer, (Principal Financial
Officer and Principal Accounting
Officer)
/s/ Raymond E. Wooldridge Director March 31, 1998
- ---------------------------
Ray Wooldridge
/s/ Tim T. Morris Director March 31, 1998
- ---------------------------
Tim T. Morris
/s/ Walter Tyree Director March 31, 1998
- ---------------------------
Walter Tyree
/s/ Louis P. Neeb Director March 31, 1998
- ----------------------
Louis P. Neeb
/s/ Cynthia I. Pharr Director March 31, 1998
- ----------------------
Cynthia I. Pharr
page 37
EXHIBIT INDEX
-------------
Exhibit No. Description Page No.
- ---------- -----------
10(c)(2) Amendment to the Employment 39
Agreement dated December 11, 1997,
between the Company and Michael H.
Magusiak.
10(m)(1) Supplemental Agreement, dated as of 42
September 29, 1997, relating to the
Note Purchase Agreements dated as of
June 15, 1995, between Allstate Life
Insurance Company, Massachusetts
Mutual Life Insurance Company,
MassMutual Corporate Value Partners
Limited, CM Life Insurance Company,
Modern Woodmen of America and the
Company.
10(m)(2) Supplemental Agreement, dated as of 62
September 29, 1997, relating to the
Note Purchase Agreements dated as of
June 15, 1995, between Bank One,
Texas, N.A. and the Company.
10(o)(2) Specimen form of Contract under the 75
1997 Non-Statutory Stock Option Plan
of the Company, as amended to date.
10(r)(1) Specimen form of the Company's 80
current Franchise Agreement.
10(r)(2) Specimen form of the Company's 131
current Development Agreement.
10(t)(1) National Advertising Fund Line of 161
Credit, in the stated amount of
$800,000.00, dated December 22,
1997, between International
Association of ShowBiz Pizza Time
Restaurants, Inc. and the Company.
10(t)(2) National Advertising Fund Promissory 166
Note, in the stated amount of
$800,000.00, dated December 22,
1997, between International
Association of ShowBiz Pizza Time
Restaurants, Inc. and the Company.
10(u)(1) National Media Fund Line of Credit, 171
in the stated amount of
$1,800,000.00, dated December 22,
1997, between International
Association of ShowBiz Pizza Time
Restaurants, Inc. and the Company.
10(v)(2) National Media Fund Promissory Note, 176
in the stated amount of
$1,800,000.00, dated December 22,
1997, between International
Association of ShowBiz Pizza Time
Restaurants, Inc. and the Company.
23 Independent Auditors Consent of
Deloitte & Touche LLP 181
27.1 Financial Data Schedule - Fiscal 1997
27.2 Financial Data Schedule - Fiscal 1996 and
1995, Quarters 1-3, 1996
27.3 Financial Data Schedule - Quarters 1-3, 1997
Page 42