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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTER ENDED JULY 13, 2003 COMMISSION FILE NUMBER 333-90817
SBARRO, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
NEW YORK 11-2501939
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER I.D. NO.)
INCORPORATION OR ORGANIZATION)
401 BROAD HOLLOW ROAD, MELVILLE, NEW YORK 11747
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (631) 715-4100
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, AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS.
YES NO
--------------- ------------
INDICATE BY CHECK MARK WHETHER THE REGISTRANT IS AN ACCELERATED TITLE (AS
DEFINED IN RULE 12B-2 OF THE EXCHANGE ACT).
YES NO X
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THE NUMBER OF SHARES OF COMMON STOCK OF THE REGISTRANT OUTSTANDING AS OF AUGUST
22, 2003 WAS 7,064,328.
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Page 1
SBARRO, INC.
FORM 10-Q INDEX
---------------
PART I. FINANCIAL INFORMATION PAGES
--------------------- -----
Consolidated Financial Statements:
Balance Sheets - July 13, 2003 (unaudited) and December 29, 2002.........3-4
Statements of Operations (unaudited) - Twenty-eight Weeks and Twelve
Weeks ended July 13, 2003 and July 14, 2002..........................5-6
Statements of Cash Flows (unaudited) - Twenty-eight Weeks ended
July 13, 2003 and July 14, 2002......................................7-8
Notes to Unaudited Consolidated Financial Statements - July 13, 2003....9-26
Management's Discussion and Analysis of Financial Condition and Results
of Operations..........................................................27-36
Qualitative and Quantitative Disclosures of Market Risk.......................36
Controls and Procedures ......................................................37
PART II. OTHER INFORMATION....................................................38
-----------------
Page 2
PART I - FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
SBARRO, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
(In thousands except share data)
--------------------------------
July 13, 2003 December 29, 2002
------------- -----------------
(unaudited)
Current assets:
Cash and cash equivalents $ 42,505 $ 55,150
Restricted cash for untendered shares 21 21
Receivables, net of allowance for doubtful accounts of $250
in 2003 and $491 in 2002:
Franchisee 1,857 2,059
Other 1,583 1,244
-------- --------
3,440 3,303
Inventories 2,280 3,285
Prepaid expenses 8,331 2,362
Current portion of loans receivable from shareholders 68 3,232
-------- --------
Total current assets 56,645 67,353
Property and equipment, net 107,079 115,081
Intangible assets:
Trademarks, net 195,916 195,916
Goodwill, net 9,204 9,204
Deferred financing costs and other, net 6,055 6,632
Loans receivable from shareholders, less current portion 6,094 2,800
Other assets 8,318 7,787
-------- --------
$389,311 $404,773
======== ========
See notes to unaudited consolidated financial statements
Page 3
SBARRO, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
LIABILITIES AND SHAREHOLDERS' EQUITY
(In thousands except share data)
--------------------------------
July 13, 2003 December 29, 2002
------------- -----------------
(unaudited)
Current liabilities:
Amounts due for untendered shares $ 21 $ 21
Accounts payable 14,503 10,279
Accrued expenses 17,098 21,623
Accrued interest payable 9,260 8,181
Current portion of mortgage payable 162 154
-------- --------
Total current liabilities 41,044 40,258
Deferred rent 8,920 8,474
Long-term debt, net of original issue
discount, less current portion 268,049 267,941
Contingencies
Shareholders' equity:
Preferred stock, $1 par value; authorized 1,000,000 shares;
none issued -- --
Common stock, $.01 par value; authorized 40,000,000 shares;
issued and outstanding 7,064,328 shares at July 13,
2003 and December 29, 2002 71 71
Additional paid-in capital 10 10
Retained earnings 71,217 88,019
-------- --------
71,298 88,100
-------- --------
$389,311 $404,773
======== ========
See notes to unaudited consolidated financial statements
Page 4
SBARRO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(In thousands)
--------------
For the twenty-eight weeks ended:
---------------------------------
July 13, 2003 July 14, 2002
------------- -------------
Revenues:
Restaurant sales $ 156,754 $ 176,448
Franchise related income 5,330 5,075
Real estate and other 3,074 3,015
--------- ---------
Total revenues 165,158 184,538
--------- ---------
Costs and expenses:
Restaurant operating expenses:
Cost of food and paper products 33,547 34,854
Payroll and other employee benefits 45,827 50,056
Other operating costs 59,529 62,377
Depreciation and amortization 10,409 11,912
General and administrative 14,066 12,699
Provision for restaurant closings 1,057 2,229
--------- ---------
Total costs and expenses 164,435 174,127
--------- ---------
Operating income before minority interest 723 10,411
Minority interest (10) (33)
--------- ---------
Operating income 713 10,378
--------- ---------
Other income (expense):
Interest expense (16,763) (16,740)
Interest income 411 260
Equity in net income of unconsolidated affiliates 511 545
--------- ---------
Net other expense (15,841) (15,935)
--------- ---------
Loss before income taxes (15,128) (5,557)
Income taxes 574 201
--------- ---------
Net loss $ (15,702) $ (5,758)
========= =========
See notes to unaudited consolidated financial statements
Page 5
SBARRO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
(UNAUDITED)
(In thousands)
--------------
For the twelve weeks ended:
---------------------------
July 13, 2003 July 14, 2002
------------- -------------
Revenues:
Restaurant sales $ 68,245 $ 75,679
Franchise related income 2,391 2,332
Real estate and other 1,407 1,321
-------- --------
Total revenues 72,043 79,332
-------- --------
Costs and expenses:
Restaurant operating expenses:
Cost of food and paper products 14,243 14,846
Payroll and other employee benefits 19,816 21,567
Other operating costs 25,797 26,660
Depreciation and amortization 4,513 5,088
General and administrative 5,347 5,544
Provision for restaurant closings 528 2,105
-------- --------
Total costs and expenses 70,244 75,810
-------- --------
Operating income before minority interest 1,799 3,522
Minority interest (5) (14)
-------- --------
Operating income 1,794 3,508
-------- --------
Other income (expense):
Interest expense (7,180) (7,166)
Interest income 197 106
Equity in net income of unconsolidated affiliates 230 284
-------- --------
Net other expense (6,753) (6,776)
-------- --------
Loss before income taxes (4,959) (3,268)
Income taxes 253 69
-------- --------
Net loss $ (5,212) $ (3,337)
======== ========
See notes to unaudited consolidated financial statements
Page 6
SBARRO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)
--------------
For the twenty-eight weeks ended:
---------------------------------
July 13, 2003 July 14, 2002
------------- -------------
Operating activities:
Net loss $(15,702) $ (5,758)
Adjustments to reconcile net loss to net cash (used in) provided
by operating activities:
Depreciation and amortization 11,192 12,695
Provision for restaurant closings 71 1,729
Increase in deferred rent, net 212 354
Gain on sale of other concept unit (200) --
Loss on sale of other concept unit included in prior year
asset impairment costs 250 --
Minority interest 10 33
Equity in net income of unconsolidated affiliates (511) (545)
Dividends received from unconsolidated affiliate 119 311
Changes in operating assets and liabilities:
Decrease in receivables 422 903
Decrease in inventories 1,005 647
Increase in prepaid expenses (5,694) (6,965)
Increase in other assets (130) (150)
Increase (decrease) in accounts payable and accrued
expenses 1,160 (3,345)
Increase in accrued interest payable 1,079 1,079
-------- --------
Net cash (used in) provided by operating activities (6,717) 988
-------- --------
See notes to unaudited consolidated financial statements
Page 7
SBARRO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(UNAUDITED)
(In thousands)
--------------
For the twenty-eight weeks ended:
---------------------------------
July 13, 2003 July 14, 2002
------------- -------------
Investing activities:
Purchases of property and equipment $ (4,739) $ (4,053)
-------- --------
Net cash used in investing activities (4,739) (4,053)
-------- --------
Financing activities:
Mortgage principal repayments (88) (81)
Tax distributions related to the prior fiscal year (1,101) (3,125)
-------- --------
Net cash used in financing activities (1,189) (3,206)
-------- --------
Decrease in cash and cash equivalents (12,645) (6,271)
Cash and cash equivalents at beginning of period 55,150 36,952
-------- --------
Cash and cash equivalents at end of period $ 42,505 $ 30,681
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for income taxes $ 330 $ 483
======== ========
Cash paid during the period for interest $ 14,867 $ 14,892
======== ========
See notes to unaudited consolidated financial statements
Page 8
SBARRO, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION:
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions for Form 10-Q and
Regulation S-X related to interim period financial statements and,
therefore, do not include all information and footnotes required by
generally accepted accounting principles. However, in the opinion of
our management, all adjustments (consisting of normal recurring
adjustments and accruals) considered necessary for a fair presentation
of our consolidated financial position at July 13, 2003 and our
consolidated results of operations and cash flows for the twenty-eight
and twelve week periods ended July 13, 2003 and July 14, 2002 have been
included. The results of operations for interim periods are not
necessarily indicative of the results that may be expected for the
entire year. Reference should be made to the annual financial
statements, including footnotes thereto, included in our Annual Report
on Form 10-K for the fiscal year ended December 29, 2002.
2. NEW ACCOUNTING PRONOUNCEMENTS:
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB
Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13 and
Technical Corrections." This statement eliminates the prior requirement
that gains and losses on debt extinguishment must be classified as
extraordinary items in the income statement and contains other
nonsubstantive corrections to authoritative accounting literature in
SFAS No. 4, 44 and 64. The changes in SFAS No. 145 related to debt
extinguishment were effective for us at the beginning of our 2003
fiscal year and the other changes were effective for us beginning with
transactions after May 15, 2002. Adoption of this standard has not
impacted our financial position and results of operations.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities," which addresses
accounting for restructuring and similar costs. SFAS No. 146 supersedes
previous accounting guidance, principally EITF Issue No. 94-3
"Liability Recognition for Certain Employee Termination Benefits and
Other Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring)." SFAS No. 146 requires that the liability for costs
associated with an exit or disposal activity be recognized when the
liability is incurred. Under EITF No. 94-3, a liability for an exit
cost was recognized at the date of a company's commitment for an exit
plan. SFAS No. 146 also establishes that the liability should initially
be measured and recorded at fair value. SFAS 146 changes the timing of
expense recognition for certain costs we incur while closing
restaurants or undertaking other exit or disposal activities; however,
the timing difference is not typically significant in length. Adoption
of SFAS 146 did not have a material impact on our financial statements
for the quarter and year to date ended July 13, 2003.
Page 9
SBARRO, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In November 2002, the FASB issued FIN No. 45, "Guarantor's Accounting
and Disclosure Requirements for Guarantees including Indirect
Guarantees of Indebtedness of Others" which addresses the accounting
for and disclosure by guarantors regarding obligations relating to the
issuance of certain guarantees. FIN No. 45 requires that, for all
guarantees issued or modified after December 31, 2002, a liability for
the fair value of the obligation undertaken be recorded at the
inception of a guarantee. No revision of or restatement of accounting
for guarantees issued or modified prior to December 31, 2002 is
allowed. The disclosure requirements of Interpretation No. 45 were
effective with our 2002 financial statements. As described in the Notes
to the Consolidated Financial Statements included in our Annual Report
on Form 10-K for the year ended December 29, 2002, we have provided
certain guarantees that would require recognition upon issuance or
modification under the provisions of FIN 45. While the nature of our
business will likely result in the issuance of certain guarantees in
the future, we do not anticipate that FIN 45 will have a material
impact on our financial position or results of operations.
FIN 46, "Consolidation of Variable Interest Entities," is effective
immediately for all enterprises with variable interests in variable
interest entities created after January 31, 2003. The provisions of FIN
46 must be applied to variable interests in variable interest entities
created before February 1, 2003 from the beginning of the third quarter
of 2003. If an entity is determined to be a variable interest entity,
it must be consolidated by the enterprise that absorbs the majority of
the entity's expected losses if they occur, receives a majority of the
entity's expected residual returns if they occur, or both. Where it is
reasonably possible that the enterprise will consolidate or disclose
information about a variable interest entity, the enterprise must
disclose the nature, purpose, size and activity of the variable
interest entity and the enterprise's maximum exposure to loss as a
result of its involvement with the variable interest entity in all
financial statements issued after January 31, 2003. We are currently
reviewing the potential impact of FIN 46 on our financial statements.
We expect any disclosure or consolidation requirements arising from the
adoption will be immaterial.
In May 2003, the FASB issued SFAS No. 150, Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and
Equity. SFAS No. 150 establishes standards for how a company classifies
and measures in its statement of financial position certain financial
instruments with characteristics of both liabilities and equity. In
accordance with the standard, financial instruments that embody
obligations for the issuer are required to be classified as
liabilities. This Statement is effective for financial instruments
entered into or modified after May 31, 2003, and otherwise is effective
at the beginning of the first interim period beginning after June 15,
2003. We have not entered into any financial instruments within the
scope of SFAS No. 150 since May 31, 2003, nor do we currently hold any
financial instruments within its scope.
Page 10
SBARRO, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. LONG-TERM DEBT:
We have received a waiver of compliance for the second quarter of
fiscal 2003 from certain ratios required to be maintained under our
bank credit agreement, as amended. Our credit agreement requires that
we maintain a minimum ratio of consolidated EBITDA to consolidated
interest expense (in each case together with our subsidiaries that
guarantee our obligations under the bank agreement, which are the same
entities as our Restricted Subsidiaries under the indenture under which
our senior notes are issued) of at least 1.4 to 1.0 beginning December
30, 2002 and 1.5 to 1.0 beginning December 28, 2003. For the four
quarters ended July 13, 2003, this ratio was 1.27 to 1. We are also
required to maintain a maximum ratio of consolidated senior debt to
consolidated EBITDA (in each case with the guaranteeing subsidiaries)
of 6.5 to 1.0 beginning December 30, 2002 and 6.0 to 1.0 beginning
December 28, 2003. For the four quarters ended July 13, 2003, this
ratio was 7.1 to 1.
We are subject to various covenants under the indenture under which our
senior notes are issued and under our bank credit agreement. One of the
covenants limits our ability to borrow funds (except under specifically
permitted arrangements, such as up to $75.0 million of revolving credit
loans) unless our consolidated interest ratio coverage (as defined),
after giving pro forma effect to the interest on the new borrowing, for
the four most recently ended fiscal quarters is at least 2.5 to 1.
Another covenant limits our ability to make "restricted payments,"
including, among other things, dividend payments (other than as
distributions pursuant to our tax payment agreement with our
shareholders related to Subchapter S distributions) and investments in,
among other things, unrestricted subsidiaries, to specified amounts
determined under a formula contained in the indenture provided (except
with respect to certain permitted investments and tax distributions)
that our interest coverage ratio is at least 2.0 to 1 after giving pro
forma effect to the restricted payment. For the four fiscal quarters
ended July 13, 2003, our consolidated interest coverage ratio was 1.5
to 1. As a result, we are not presently able to borrow funds (other
than the specifically permitted indebtedness). Additionally, under the
formula contained in the indenture, we cannot make restricted payments
other than certain permitted investments and tax distributions until we
increase the restricted payment availability by approximately $16
million, and then only to the extent of any excess over that amount.
We were in compliance with the various covenants in the indenture for
our senior notes, and our mortgage as of July 13, 2003.
4. INCOME TAXES:
During the twenty-eight weeks ended July 13, 2003, we made a Subchapter
S tax distribution to our shareholders, based on our tax basis income
for fiscal 2002, that totaled $1.1 million compared to a $3.1 million
Subchapter S tax distribution made during the twenty-eight weeks ended
July 14, 2002, based on our tax basis income for fiscal 2001.
Page 11
SBARRO, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. RELATED PARTY TRANSACTIONS:
On April 6, 2003, loans of $3.23 million to certain of our shareholders
were extended to April 6, 2005. The notes bear interest at 4.63% per
annum.
In March 2003, we extended a loan of $40,000 to Gennaro A. Sbarro,
Corporate Vice President and President of our Franchising and Licensing
Division, to March 28, 2004. The note bears interest at 2.69% per
annum.
Anthony Missano, Corporate Vice President and President of our Quick
Service Division, entered into a note in our favor in the amount of
$89,687, plus interest at 2.96%, that is repayable over five years,
with respect to the payment of royalties due us for 2001 and 2000 from
a company, that is a franchisee of ours, that is owned by the daughter
of Joseph Sbarro who is Mr. Missano's wife.
On March 3, 2003, a company in which Gennaro J. Sbarro, Corporate Vice
President and President of our Casual and Fine Dining Division, has a
50% interest, signed a franchise agreement with us for a new location.
The terms of the franchise agreement are similar to those in agreements
entered into by us with unrelated franchisees. The lease for the
location was entered into in September 2002 by one of our subsidiaries.
Subsequent to that date, we determined that the economics of the
location would be better suited for a franchise operator and, as such,
it was subsequently subleased to this franchisee. Payments under the
sublease will be made directly to the landlord by the franchisee.
Future minimum rental payments under the lease for this location over
the term of the lease, which expires in 2018, are approximately $2.6
million. The location is expected to open in the third quarter of
fiscal 2003.
6. LITIGATION:
On December 20, 1999, fourteen current and former general managers of
Sbarro restaurants in California amended a complaint against us filed
in the Superior Court of California for Orange County. The complaint
alleges that the plaintiffs were improperly classified as exempt
employees under the California wage and hour law. The plaintiffs are
seeking actual damages, punitive damages and costs of the lawsuit,
including reasonable attorney's fees, each in unspecified amounts.
Plaintiffs filed a motion to certify the lawsuit as a class action, but
the Court denied the motion. The trial was concluded in April 2003, and
the parties have submitted post-trial briefs. The Court has not yet
issued a judgment.
On September 6, 2000, eight other current and former general managers
of Sbarro restaurants in California filed a complaint against us in the
Superior Court of California for Orange County alleging that the
plaintiffs were improperly classified as exempt employees under
California wage and hour law. The plaintiffs are seeking actual
damages, punitive
Page 12
SBARRO, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
damages and costs of the lawsuit, including reasonable attorney's fees,
each in unspecified amounts. Plaintiffs are represented by the same
counsel who is representing the plaintiffs in the case discussed in the
preceding paragraph. We have separately settled with four of the
plaintiffs in this action for immaterial amounts. The parties to this
case have agreed that it will be settled upon the same terms and
conditions that the court orders in connection with its decision in the
case discussed in the preceding paragraph.
On March 22, 2002, five former general managers of Sbarro restaurants
in California filed a complaint against us in the Superior Court of
California for Los Angeles County. The complaint alleges that the
plaintiffs were illegally required to perform labor services without
proper premium overtime compensation from at least May of 1999. The
plaintiffs are seeking actual damages, punitive damages and attorney's
fees and costs, each in unspecified amounts. In addition, plaintiffs
have requested class action status for all managerial employees who
worked overtime and/or were not otherwise paid regular wages due and
owing from May 1999 to present. This case is currently in the discovery
phase.
We believe that we have substantial defenses in each of the actions and
are vigorously defending these actions.
In addition to the above complaints, from time to time, we are a party
to certain claims and legal proceedings in the ordinary course of
business. In our opinion, the results of the complaints and other
claims and legal proceedings are not expected to have a material
adverse effect on our consolidated financial position or results of
operations.
7. GUARANTOR AND NON-GUARANTOR FINANCIAL STATEMENTS:
Certain subsidiaries have guaranteed amounts outstanding under our
senior notes and bank credit agreement. Each of the guaranteeing
subsidiaries is our direct or indirect wholly owned subsidiary and each
has fully and unconditionally guaranteed the senior notes and the
credit agreement on a joint and several basis.
The following condensed consolidating financial information presents:
(1) Condensed consolidating balance sheets as of July 13, 2003
(unaudited) and December 29, 2002 and statements of operations
for the twenty-eight and twelve weeks ended July 13, 2003
(unaudited) and July 14, 2002 (unaudited) and cash flows for the
twenty-eight weeks ended July 13, 2003 (unaudited) and July 14,
2002 (unaudited) of (a) Sbarro, Inc., the parent, (b) the
guarantor subsidiaries as a group, (c) the nonguarantor
subsidiaries as a group and (d) Sbarro on a consolidated basis.
Page 13
SBARRO, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(2) Elimination entries necessary to consolidate Sbarro, Inc., the
parent, with the guarantor and nonguarantor subsidiaries.
The principal elimination entries eliminate intercompany balances and
transactions. Investments in subsidiaries are accounted for by the
parent on the cost method.
Page 14
SBARRO, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CONSOLIDATING BALANCE SHEET
AS OF JULY 13, 2003
(IN THOUSANDS EXCEPT SHARE DATA)
(UNAUDITED)
ASSETS
Guarantor Nonguarantor Consolidated
Parent Subsidiaries Subsidiaries Eliminations Total
------ ------------ ------------ ------------ -----
Current assets:
Cash and cash equivalents $ 37,726 $ 4,014 $ 765 $ 42,505
Restricted cash for untendered 21 - - 21
shares
Receivables less allowance for
doubtful accounts of $250:
Franchise 1,857 - - 1,857
Other 142 733 708 1,583
--------- --------- --------- ---------
1,999 733 708 3,440
Inventories 964 1,179 137 2,280
Prepaid expenses 6,596 1,507 228 8,331
Current portion of loans receivable
from shareholders 68 - - - 68
--------- --------- --------- --------- ---------
Total current assets 47,374 7,433 1,838 56,645
Intercompany receivables 6,734 312,642 - $(319,376) -
Investment in subsidiaries 65,469 - - (65,469) -
Property and equipment, net 40,052 61,609 5,418 - 107,079
Intangible assets, net:
Trademarks, net 195,916 - - - 195,916
Goodwill, net 9,204 - - - 9,204
Deferred financing costs and other,
net 5,804 251 - - 6,055
Loans receivable from shareholders 6,094 - - - 6,094
Other assets 9,760 1,826 (791) (2,477) 8,318
--------- --------- --------- --------- ---------
$ 386,407 $ 383,761 $ 6,465 $(387,322) $ 389,311
========= ========= ========= ========= =========
Page 15
SBARRO, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CONSOLIDATING BALANCE SHEET
AS OF JULY 13, 2003
(IN THOUSANDS EXCEPT SHARE DATA)
(UNAUDITED)
LIABILITIES AND SHAREHOLDERS' EQUITY
Guarantor Nonguarantor Consolidated
Parent Subsidiaries Subsidiaries Eliminations Total
------ ------------ ------------ ------------ ------------
Current liabilities:
Amounts due for untendered shares $ 21 $ 21
Accounts payable 13,485 $ 254 $ 764 14,503
Accrued expenses 13,955 1,224 1,919 17,098
Accrued interest payable 9,260 - - 9,260
Current portion of mortgage payable - 162 - 162
--------- --------- --------- ---------
Total current liabilities 36,721 1,640 2,683 41,044
Intercompany payables 312,642 2,958 3,776 $(319,376) -
Deferred rent 8,216 - 704 - 8,920
Long-term debt, net of
original issue discount 252,653 15,396 - - 268,049
Shareholders' equity (deficit):
Preferred stock, $1 par value;
authorized 1,000,000 shares; none
issued - - - - -
Common stock, $.01 par value:
authorized 40,000,000 shares;
issued and outstanding 7,064,328
shares 71 - - - 71
Additional paid-in capital 10 65,469 2,477 (67,946) 10
Retained earnings (deficit) (3,175) (223,906) 298,298 - 71,217
--------- --------- --------- --------- ---------
(223,825) 363,767 (67,946) (698) 71,298
--------- --------- --------- --------- ---------
$ 386,407 $ 383,761 $ 6,465 $(387,322) $ 389,311
========= ========= ========= ========= =========
Page 16
SBARRO, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CONSOLIDATING BALANCE SHEET
AS OF DECEMBER 29, 2002
(IN THOUSANDS EXCEPT SHARE DATA)
ASSETS
Guarantor Nonguarantor Consolidated
Parent Subsidiaries Subsidiaries Eliminations Total
------ ------------ ------------ ------------ ------------
Current assets:
Cash and cash equivalents $ 47,636 $ 6,539 $ 975 $ 55,150
Restricted cash for untendered
shares 21 - - 21
Receivables less allowance for
doubtful accounts of $491:
Franchise 2,059 - 2,059
Other 69 1,088 87 1,244
-------- -------- ------ --------
2,128 1,088 87 3,303
Inventories 1,417 1,725 143 3,285
Prepaid expenses 2,677 (342) 27 2,362
Current portion of loans receivable
from shareholders 3,232 - - 3,232
-------- -------- ------ --------
Total current assets 57,111 9,010 1,232 67,353
Intercompany receivables 8,505 313,877 - $(322,382) -
Investment in subsidiaries 65,469 - - (65,469) -
Property and equipment, net 42,762 65,726 6,593 - 115,081
Intangible assets:
Trademarks, net 195,916 - - - 195,916
Goodwill, net 9,324 - - (120) 9,204
Deferred financing costs, net 6,361 271 - - 6,632
Loans receivable from shareholders,
less current portion 2,800 - - - 2,800
Other assets 8,742 1,705 (303) (2,357) 7,787
-------- -------- ------ --------- --------
$396,990 $390,589 $7,522 $(390,328) $404,773
======== ======== ====== ========= ========
Page 17
SBARRO, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CONSOLIDATING BALANCE SHEET
AS OF DECEMBER 29, 2002
(IN THOUSANDS EXCEPT SHARE DATA)
LIABILITIES AND SHAREHOLDERS' EQUITY
Guarantor Nonguarantor Consolidated
Parent Subsidiaries Subsidiaries Eliminations Total
------ ------------ ------------ ------------ ------------
Current liabilities:
Amounts due for untendered shares $ 21 $ 21
Accounts payable 9,503 $ 212 $ 564 10,279
Accrued expenses 17,887 1,560 2,176 21,623
Accrued interest payable 8,181 - - 8,181
Current portion of
mortgage payable - 154 - 154
---------- --------- ----------- --------
Total current liabilities 35,592 1,926 2,740 40,258
---------- --------- ----------- --------- --------
Intercompany payables 313,877 3,308 5,197 $(322,382) -
---------- --------- ----------- --------- --------
Deferred rent 7,793 - 681 - 8,474
---------- --------- ----------- --------- --------
Long-term debt, net of original issue
discount 252,449 15,492 - - 267,941
---------- --------- ----------- --------- --------
Shareholders' equity (deficit):
Preferred stock, $1 par value;
authorized 1,000,000 shares; None
issued - - - - -
Common stock, $.01 par value:
authorized 40,000,000 shares;
issued and outstanding 7,064,328
shares 71 - - - 71
Additional paid-in capital 10 65,469 2,477 (67,946) 10
Retained earnings (deficit) (212,802) 304,394 (3,573) - 88,019
---------- --------- ----------- --------- --------
(212,721) 369,863 (1,096) (67,946) 88,100
---------- --------- ----------- --------- --------
$ 396,990 $ 390,589 $ 7,522 $(390,328) $404,773
========== ========= =========== ========= ========
Page 18
SBARRO, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE TWENTY-EIGHT WEEKS ENDED JULY 13, 2003
(IN THOUSANDS)
(UNAUDITED)
Guarantor Nonguarantor Consolidated
Parent Subsidiaries Subsidiaries Eliminations Total
------ ------------ ------------ ------------ ------------
Revenues:
- ---------
Restaurant sales $ 66,633 $82,261 $ 7,860 $156,754
Franchise related income 5,330 - - 5,330
Real estate and other 1,489 1,551 34 3,074
Intercompany charges 5,492 - - $ (5,492) -
-------- ------- ------- --------- --------
Total revenues 78,944 83,812 7,894 (5,492) 165,158
-------- ------- ------- --------- --------
Cost and expenses:
Restaurant operating expenses:
Cost of food and paper products 13,578 17,914 2,055 - 33,547
Payroll and other employee
benefits 18,866 24,245 2,716 - 45,827
Other operating costs 27,024 30,378 2,127 - 59,529
Depreciation and amortization 4,697 5,173 539 - 10,409
General and administrative 8,454 5,706 (94) - 14,066
Provision for restaurant closings 900 - 157 - 1,057
Intercompany charges - 5,492 - (5,492) -
-------- ------- ------- --------- --------
Total costs and expenses 73,519 88,908 7,500 (5,492) 164,435
-------- ------- ------- --------- --------
Operating income (loss) before
minority interest 5,425 (5,096) 394 - 723
Minority interest - - (10) - (10)
-------- ------- ------- --------- --------
Operating income (loss) 5,425 (5,096) 384 - 713
-------- ------- ------- --------- --------
Other (expense) income:
Interest expense (15,978) (785) - - (16,763)
Interest income 411 - - - 411
Equity in net income of
unconsolidated affiliates 511 - - - 511
-------- ------- ------- --------- --------
Net other expense (15,056) (785) - - (15,841)
-------- ------- ------- --------- --------
(Loss) income before income taxes (9,631) (5,881) 384 - (15,128)
Income taxes 373 215 (14) - 574
-------- ------- ------- --------- --------
Net (loss) income $(10,004) $(6,096) $ 398 - $(15,702)
======== ======= ======= ========= ========
Page 19
SBARRO, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE TWENTY-EIGHT WEEKS ENDED JULY 14, 2002
(IN THOUSANDS)
(UNAUDITED)
Guarantor Nonguarantor Consolidated
Parent Subsidiaries Subsidiaries Eliminations Total
------ ------------ ------------ ------------ ------------
Revenues:
Restaurant sales $ 72,797 $ 90,905 $ 12,746 $176,448
Franchise related income 5,075 - - 5,075
Real estate and other 1,464 2,035 - $ (484) 3,015
Intercompany charges - 7,440 - (7,440) -
---------- --------- -------- --------- --------
Total revenues 79,336 100,380 12,746 (7,924) 184,538
---------- --------- -------- --------- --------
Cost and expenses:
Restaurant operating expenses:
Cost of food and paper products 12,828 18,686 3,340 - 34,854
Payroll and other employee
benefits 20,091 25,315 4,650 - 50,056
Other operating costs 24,996 33,232 4,149 - 62,377
Depreciation and amortization 5,117 6,157 638 - 11,912
General and administrative 6,697 6,285 201 (484) 12,699
Provision for restaurant closings 2,070 - 159 - 2,229
Intercompany charges 7,440 - - (7,440) -
---------- --------- -------- --------- --------
Total costs and expenses 79,239 89,675 13,137 (7,924) 174,127
---------- --------- -------- --------- --------
Operating income (loss) before minority
interest 97 10,705 (391) - 10,411
Minority interest - - (33) - (33)
---------- --------- -------- --------- --------
Operating income (loss) 97 10,705 (424) - 10,378
---------- --------- -------- --------- --------
Other (expense) income:
Interest expense (15,948) (792) - - (16,740)
Interest income 260 - - - 260
Equity in net income of
unconsolidated affiliates 545 - - - 545
---------- --------- -------- --------- --------
Net other expense (15,143) (792) - - (15,935)
---------- --------- -------- --------- --------
(Loss) income before income taxes (15,046) 9,913 (424) - (5,557)
Income (benefit) taxes (143) 359 (15) - 201
---------- --------- -------- --------- --------
Net (loss) income $ (14,903) $ 9,554 $ (409) $ - $ (5,758)
========== ========= ======== ========= ========
Page 20
SBARRO, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE TWELVE WEEKS ENDED JULY 13, 2003
(IN THOUSANDS)
(UNAUDITED)
Guarantor Nonguarantor Consolidated
Parent Subsidiaries Subsidiaries Eliminations Total
------ ------------ ------------ ------------ ------------
Revenues:
- ---------
Restaurant sales $ 29,217 $ 35,667 $ 3,361 $68,245
Franchise related income 2,391 - - 2,391
Real estate and other 709 664 34 1,407
Intercompany charges 2,333 - - $ (2,333) -
-------- --------- ------- ---------- -------
Total revenues 34,650 36,331 3,395 (2,333) 72,043
-------- --------- ------- ---------- -------
Cost and expenses:
Restaurant operating expenses:
Cost of food and paper products 5,780 7,590 873 - 14,243
Payroll and other employee
benefits 8,235 10,451 1,130 - 19,816
Other operating costs 11,886 13,041 870 - 25,797
Depreciation and amortization 2,053 2,233 227 - 4,513
General and administrative 3,455 2,081 (189) - 5,347
Provision for restaurant closings 500 - 28 - 528
Intercompany charges - 2,333 - (2,333) -
-------- --------- ------- ---------- -------
Total costs and expenses 31,909 37,729 2,939 (2,333) 70,244
-------- --------- ------- ---------- -------
Operating income (loss) before
minority interest 2,741 (1,398) 456 - 1,799
Minority interest - - (5) - (5)
-------- --------- ------- ---------- -------
Operating income (loss) 2,741 (1,398) 451 - 1,794
-------- --------- ------- ---------- -------
Other (expense) income:
Interest expense (6,847) (333) - - (7,180)
Interest income 197 - - - 197
Equity in net income of - -
unconsolidated affiliates 230 - - - 230
-------- --------- ------- ---------- -------
Net other expense (6,420) (333) - - (6,753)
-------- --------- ------- ---------- -------
Income (loss) before income taxes (3,679) (1,731) 451 - (4,959)
Income taxes (benefit) 186 83 (16) - 253
-------- --------- ------- ---------- -------
Net income (loss) $ (3,865) $ (1,814) $ 467 $ - $(5,212)
======== ========= ======= ========== =======
Page 21
SBARRO, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE TWELVE WEEKS ENDED JULY 14, 2002
(IN THOUSANDS)
(UNAUDITED)
Guarantor Nonguarantor Consolidated
Parent Subsidiaries Subsidiaries Eliminations Total
------ ------------ ------------ ------------ ------------
Revenues:
Restaurant sales $ 31,384 $ 38,702 $ 5,593 $75,679
Franchise related income 2,332 - - 2,332
Real estate and other 655 874 - $ (208) 1,321
Intercompany charges - 3,390 - (3,390) -
---------- ---------- -------- ---------- -------
Total revenues 34,371 42,966 5,593 (3,598) 79,332
---------- ---------- -------- ---------- -------
Cost and expenses:
Restaurant operating expenses:
Cost of food and paper products 5,450 7,932 1,464 - 14,846
Payroll and other employee
benefits 9,369 10,145 2,053 - 21,567
Other operating costs 10,215 14,815 1,630 - 26,660
Depreciation and amortization 2,190 2,625 273 - 5,088
General and administrative 3,097 2,557 98 (208) 5,544
Provision for restaurant closings 1,970 - 135 - 2,105
Intercompany charges 3,390 - - (3,390) -
---------- ---------- -------- ---------- -------
Total costs and expenses 35,681 38,074 5,653 (3,598) 75,810
---------- ---------- -------- ---------- -------
Operating (loss) income before
minority interest (1,310) 4,892 (60) - 3,522
Minority interest - - (14) - (14)
---------- ---------- -------- ---------- -------
Operating (loss) income (1,310) 4,892 (74) - 3,508
---------- ---------- -------- ---------- -------
Other (expense) income:
Interest expense (6,827) (339) - - (7,166)
Interest income 106 - - - 106
Equity in net income of
unconsolidated affiliates 284 - - - 284
---------- ---------- -------- ---------- -------
Net other expense (6,437) (339) - - (6,776)
---------- ---------- -------- ---------- -------
Income (loss) before income taxes (7,747) 4,553 (74) - (3,268)
Income taxes (benefit) 15 50 4 - 69
---------- ---------- -------- ---------- -------
Net (loss) income $ (7,762) $ 4,503 $ (78) $ - $(3,337)
========== ========== ======== ========== =======
Page 22
SBARRO, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE TWENTY-EIGHT WEEKS ENDED JULY 13, 2003
(IN THOUSANDS)
(UNAUDITED)
Guarantor Nonguarantor Consolidated
Parent Subsidiaries Subsidiaries Eliminations Total
------ ------------ ------------ ------------ ------------
Operating Activities:
- ---------------------
Net (loss) income $(10,004) $ (6,096) $ 398 - $(15,702)
Adjustments to reconcile net (loss)
income to net cash (used in)
provided by operating activities:
Depreciation and amortization 5,680 4,976 536 - 11,192
Provision for restaurant closing 71 - - - 71
Increase (decrease) in deferred rent 215 (27) 24 - 212
Gain on sale of other concept unit - - (200) - (200)
Loss on sale of other concept units
included in prior year asset
impairment costs - - 250 - 250
Minority interest - - 10 - 10
Equity in net income of
unconsolidated affiliates (511) - - - (511)
Dividends received from
unconsolidated affiliates 119 - - - 119
Changes in operating assets and
liabilities: -
Decrease (increase) in receivables 88 355 (21) - 422
Decrease in inventories 452 547 6 - 1,005
Increase in prepaid expenses (3,711) (1,782) (201) - (5,694)
(Increase) decrease in other assets (592) (27) 489 - (130)
Increase (decrease) in accounts
payable and accrued expenses 852 375 (67) - 1,160
Increase in accrued interest
payable 1,079 - - - 1,079
-------- -------- -------- ------- --------
Net cash (used in) provided by
operating activities (6,262) (1,679) 1,224 - (6,717)
-------- -------- -------- ------- --------
Investing activities:
Purchase of property and equipment (3,080) (1,508) (151) - (4,739)
-------- -------- -------- ------- --------
Net cash used in investing activities (3,080) (1,508) (151) - (4,739)
-------- -------- -------- ------- --------
Page 23
SBARRO, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE TWENTY-EIGHT WEEKS ENDED JULY 13, 2003
(IN THOUSANDS)
(UNAUDITED)
Guarantor Nonguarantor Consolidated
Parent Subsidiaries Subsidiaries Eliminations Total
------ ------------ ------------ ------------ ------------
Financing Activities:
- ---------------------
Mortgage principal repayments - (88) - (88)
Tax distribution (1,101) - - (1,101)
Intercompany balances 533 750 (1,283) -
------- ----- ------- -------
Net cash (used in) provided by
financing activities (568) 662 (1,283) (1,189)
------- ----- ------- -------
Decrease in cash and
cash equivalents (9,910) (2,525) (210) (12,645)
Cash and cash equivalents at
beginning of period 47,636 6,539 975 55,150
------- ----- ------- -------
Cash and cash equivalents at
end of period $37,726 $4,014 $ 765 $42,505
======= ====== ======= =======
Supplemental disclosure of cash
flow Information:
Cash paid during the period for
income taxes $ 244 $ 73 $ 13 $ - $330
======= ====== ======= ==== =======
Cash paid during the period for
Interest $14,102 $ 765 $ - $ - $14,867
======= ====== ======= ==== =======
Page 24
SBARRO, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE TWENTY-EIGHT WEEKS ENDED JULY 14, 2002
(IN THOUSANDS)
(UNAUDITED)
Guarantor Nonguarantor Consolidated
Operating Activities: Parent Subsidiaries Subsidiaries Eliminations Total
- --------------------- ------ ------------ ------------ ------------ ------------
Net (loss) income $(14,903) $ 9,554 $ (409) $(5,758)
Adjustments to reconcile net (loss)
income to net cash (used in)
provided by operating activities:
Depreciation and amortization 5,879 6,178 638 12,695
Provision for restaurant closings 1,729 - - 1,729
Increase (decrease) in deferred rent 372 (88) 70 354
Minority interest - - 33 33
Equity in income of
unconsolidated affiliates (545) - - (545)
Dividends received from
unconsolidated affiliates 311 - - 311
Changes in operating assets
and liabilities:
Decrease (increase) in receivables 1,298 (349) (46) 903
Decrease (increase) in inventories 278 401 (32) 647
Increase in prepaid assets (4,837) (1,866) (262) (6,965)
(Increase) decrease in other
assets (327) 262 35 $(120) (150)
(Decrease) increase in accounts
payable and accrued expenses (148) (1,722) (1,595) 120 (3,345)
Increase in accrued interest
payable 1,079 - - - 1,079
-------- ------- ------ ----- -------
Net cash (used in) provided by
operating activities (9,814) 12,370 (1,568) - 988
Investing activities:
Purchases of property and equipment (3,939) (33) (81) - (4,053)
-------- ------- ------ ----- -------
Net cash used in investing activities (3,939) (33) (81) - (4,053)
Page 25
SBARRO, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE TWENTY-EIGHT WEEKS ENDED JULY 14, 2002
(IN THOUSANDS)
(UNAUDITED)
Guarantor Nonguarantor Consolidated
Parent Subsidiaries Subsidiaries Eliminations Total
------ ------------ ------------ ------------ ------------
Financing activities:
- ---------------------
Mortgage principal repayments - (81) - - (81)
Distributions to shareholders (3,125) - - - (3,125)
Intercompany balances 12,477 (13,210) 733 - -
------- -------- -------- ------- -------
Net cash provided by (used in)
financing activities 9,352 (13,291) 733 - (3,206)
------- -------- -------- ------- -------
Decrease in cash and
cash equivalents (4,401) (954) (916) - (6,271)
Cash and cash equivalents at
beginning of period 29,673 5,437 1,842 - 36,952
------- -------- -------- ------- -------
Cash and cash equivalents at
end of period $25,272 $4,483 $926 $ - $30,681
======= ======== ======== ======= =======
Supplemental disclosure of cash
flow information:
Cash paid during the period for
income taxes $293 $190 $ - $ - $483
======= ======== ======== ======= =======
Cash paid during the period for
interest $14,120 $ 772 $ - $ - $14,892
======= ======== ======== ======= =======
Page 26
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
- ---------------------
The following table provides information concerning the number of Company-owned
and franchised restaurants in operation during each indicated period:
28 Weeks 28 Weeks 12 Weeks 12 Weeks Fiscal Year
Ended Ended Ended Ended -------------------
07/13/03 07/14/02 07/13/03 07/14/02 2002 2001
-------- -------- -------- -------- ---- ----
Company-owned restaurants:
Opened during period 1 3 1 1 13 9
Acquired from (sold to)
franchisees during period-net (6) (1) (2) (1) (6) -
Closed during period (16) (19) (7) (8) (51) (43)
---- ---- ---- ---- ---- ----
Open at end of period (1) 537 585 537 585 558 602
Franchised restaurants:
Opened during period 22 15 12 8 42 42
Purchased from (sold to)
Company during period-net 6 1 2 1 6 -
Closed or terminated during
period (13) (13) (5) (5) (20) (20)
---- ---- ---- ---- ---- ----
Open at end of period 368 328 68 328 353 325
All restaurants:
Opened during period 23 18 13 9 55 51
Closed or terminated during
period (29) 31 (12) (13) (71) (63)
---- ---- ---- ---- ---- ----
Open at end of period (1) 905 913 905 913 911 927
Kiosks (all franchised) open at
end of period 3 4 3 4 3 4
- ----------
(1) Excludes 31, 34, 32 and 37 other concept units as of July 13, 2003 and July
14, 2002, the end of fiscal 2002 and the end of fiscal 2001, respectively.
Page 27
Our business is subject to seasonal fluctuations, the effect of weather and
economic conditions. Earnings have been highest in our fourth fiscal quarter due
primarily to increased volume in shopping malls during the holiday shopping
season but fluctuates due to the length of the holiday shopping period between
Thanksgiving and New Year's Day and the number of weeks in our fourth quarter.
In recent years, our fourth quarter income has also fluctuated significantly due
to a number of additional factors, including the adverse effect of the general
economic downturn, the continuing effect of the events of September 11, 2001 and
significant year-end adjustments relating to asset impairment and store closing
costs. Due to the seasonality of our business, we perform the annual testing for
impairment on our trademarks and goodwill as required by SFAS 142 after our
fourth quarter is completed and more information is available to us. However,
the evaluation of impairment of long-lived assets as required by SFAS 144 is
made when events or circumstances indicate that the carrying amount of the
assets may not be recoverable and considers many factors, in addition to
seasonality. If impairment factors are present earlier than year-end, we record
any adjustments as determined necessary through interim testing at that time.
Our consolidated EBITDA for the twenty-eight weeks ended July 13, 2003 was $11.6
million compared to $22.8 million for the twenty-eight weeks ended July 14,
2002. Our consolidated EBITDA for the twelve weeks ended July 13, 2003 was $6.5
million compared to $8.9 million for the twelve weeks ended July 14, 2002.
EBITDA represents earnings before interest income, interest expense, taxes,
depreciation and amortization. EBITDA should not be considered in isolation
from, or as a substitute for, net income, cash flow from operations or other
cash flow statement data prepared in accordance with generally accepted
accounting principles ("GAAP") of the United States or as a measure of a
company's profitability or liquidity. Rather, we believe that EBITDA provides
relevant and useful information for analysts and investors in our senior notes
in that EBITDA is one of the factors in the calculation of our compliance with
the ratios in the indenture under which our senior notes are issued and our bank
credit agreement, and to determine the commitment fee we pay on the unused
portion of the credit facility under our bank credit agreement. We also
internally use EBITDA as one of the measures to determine whether to continue or
close restaurant units since it provides us with a measurement of whether we are
receiving an adequate cash return on our cash investment. Our calculation of
EBITDA may not be comparable to a similarly titled measure reported by other
companies, since all companies do not calculate this non-GAAP measure in the
same manner. Our EBITDA calculations are not intended to represent cash provided
by (used in) operating activities since they do not include interest and taxes
and changes in operating assets and liabilities, nor are they intended to
represent a net increase in cash since they do not include cash provided by
(used in) investing and financing activities. The following table reconciles
EBITDA to our net loss which we believe is the most direct comparable financial
measure to EBITDA, for each of the twenty-eight and twelve week periods
presented (in thousands):
Page 28
Twenty-eight weeks ended: Twelve weeks ended:
07/13/03 07/14/02 07/13/03 07/14/02
-------- -------- -------- --------
EBITDA $11,633 $22,835 $6,537 $8,880
Interest expense (16,763) (16,740) (7,180) (7,166)
Interest income 411 260 197 106
Income taxes (574) (201) (253) (69)
Depreciation and amortization (10,409) (11,912) (4,513) (5,088)
-------- -------- ------- -------
Net loss $(15,702) $(5,758) $(5,212) $(3,337)
========= ======== ======== ========
Restaurant sales by Sbarro-owned quick service units and consolidated other
concept units decreased 11.2% to $156.8 million for the twenty-eight weeks ended
July 13, 2003 from $176.4 million in the twenty-eight weeks ended July 14, 2002
and decreased 9.8% to $68.2 million for the twelve weeks ended July 13, 2003
from $75.7 million in the twelve weeks ended July 14, 2002. The decrease in
sales for the twenty-eight weeks ended July 13, 2003 reflects $14.9 million of
lower sales of Sbarro quick service units and $4.8 million of lower sales of
consolidated other concept units. Of the decline in Sbarro quick service unit
restaurant sales, approximately $8.6 million resulted from a 5.7% decrease in
comparable unit sales to $145.5 million. The decrease in sales for the twelve
weeks ended July 13, 2003 reflects $5.2 million of lower sales of Sbarro quick
service units and $2.2 million of lower sales of consolidated other concept
units. Of the decline in Sbarro quick service unit restaurant sales for the
twelve-week period, approximately $2.5 million resulted from a 3.9% decrease in
comparable unit sales to $63.9 million. We believe that these declines were
attributable to a reduction in shopping mall traffic related to the general
economic downturn in the United States, the continuing impact of the events of
September 11, 2001 and the effects of the threatened and then actual military
action in Iraq during the first quarter of fiscal 2003. Comparable restaurant
sales are made up of sales at locations that were open during the entire current
and prior fiscal years. Since the end of fiscal 2001, we closed 60 more units
than we opened (including twenty-two units closed during the first twenty-eight
weeks of fiscal 2003), causing the remaining $6.3 and $2.7 million net reduction
in Sbarro quick service unit sales. The units closed since the end of fiscal
2001 were generally low volume units that did not have a material impact on our
results of operations. Of the decline in consolidated other concept unit sales,
for the twenty-eight weeks ended July 13, 2003, approximately $0.4 million
resulted from a 6.2% decrease in comparable unit sales to $6.6 million. For the
twelve-week period ended July 13, 2003, there was a $0.2 million or 5.4%
decrease in comparable consolidated other concept unit sales to $2.9 million. We
believe that these declines were attributable to the same factors that affected
Sbarro quick service locations. In addition, since the end of fiscal 2001, eight
consolidated other concept units have been closed, resulting in a net sales
reduction of $4.4 million from sales at those locations for the twenty-eight
weeks ended July 13, 2003 and $2.0 million for the twelve weeks ended July 13,
2003.
Franchise related income increased 5.0% to $5.3 million for the twenty-eight
weeks ended July 13, 2003 from $5.1 million in the twenty-eight week period
ended July 14, 2002 and increased 2.5% to $2.4 million for the twelve weeks
ended July 13, 2003 from $2.3 million in the twelve
Page 29
weeks ended July 14, 2002. These increases were from royalties earned from
locations opened during fiscal 2003 and 2002 offset, in part, by 4.5% and 4.2%
reductions in comparable unit sales at both domestic and international locations
in the twenty-eight and twelve weeks periods ended July 13, 2003, respectively.
Real estate and other revenues were relatively unchanged for both the
twenty-eight and twelve weeks periods ended July 13, 2003 from the respective
periods ended July 14, 2002 in fiscal 2002.
Cost of food and paper products as a percentage of restaurant sales increased to
21.4% for the twenty-eight weeks ended July 13, 2003 from 19.8% for the
comparable 2002 fiscal period and increased to 20.9% for the twelve weeks ended
July 13, 2003 from 19.6% for the same twelve weeks in fiscal 2002. In early
fiscal 2003, we replaced our then national independent wholesale distributor,
which declared bankruptcy, with another national independent wholesale
distributor. There has not been a material impact on the cost of food and paper
products from this new distribution arrangement as the majority of the products
used in our restaurants are proprietary and we are involved in negotiating their
cost to the wholesaler. However, the cost of sales percentage in the first
quarter of 2003 (which was not a factor in the increase in cost of sales in the
second quarter of fiscal 2003) was impacted by the cost of purchases of product
from third parties until the new distribution contract was effective. In
addition, the cost of sales percentage in both the twenty-eight and twelve week
periods of fiscal 2003 were negatively impacted by the decrease in comparable
sales. In addition, without changing the effect on the final product, we
modified our pizza and pasta sauce recipes to utilize ready made sauce instead
of crushed tomatoes as the base raw material. We estimate that this has added
approximately .75% to our cost of food. The use of this product allows for more
effective use of our restaurant staff in enhancing the overall guest experience
at our quick-service locations. Changes in cheese prices did not have a
significant effect on the change in cost of sales in the twenty-eight or twelve
weeks of fiscal 2003. However, cheese prices to date in the third quarter to
date of fiscal 2003 have been approximately 30% higher than in the comparable
period in fiscal 2002.
Payroll and other employee benefits decreased by $4.2 million but as a
percentage of restaurant sales, increased to 29.2% in the twenty-eight weeks
ended July 13, 2003 from 28.4% of restaurant sales in the twenty-eight weeks
ended July 14, 2002. For the twelve week period ended July 13, 2003, these costs
decreased by $1.8 million but increased to 29.0% from 28.5% as a percentage of
restaurant sales when compared to the comparable twelve week period in fiscal
2002. Both effects were primarily due to the reduced level of sales.
Other operating expenses decreased by $2.8 million but increased to 38.0% of
restaurant sales in the twenty-eight weeks ended July 13, 2003 from 35.4% in the
twenty-eight weeks ended July 14, 2002. These expenses decreased $0.9 million
but increased to 37.8% from 35.2% of restaurant sales in the twelve weeks ended
July 13, 2003 and July 14, 2002, respectively. The increased percentages were
primarily due to increases in rent and other occupancy related expenses
resulting from the renewal of existing leases at the end of their terms at
higher rental rates, compounded by the reduced level of sales. In addition, we
are continuing to experience increases
Page 30
in our repair and maintenance costs due to the number of years that the majority
of our locations have been operating and the effects of the long-term
utilization on their equipment.
Depreciation and amortization expense decreased by $1.5 million and $0.6 million
for the twenty-eight and twelve weeks, respectively, of fiscal 2003 from the
comparable periods in fiscal 2002. The reductions were due to fewer numbers of
units in operation in fiscal 2003 ($0.5 million and $0.2 million, respectively),
locations that had been included in the provision for asset impairment in fiscal
2002 for which no depreciation was taken in fiscal 2003 and for locations that
became fully depreciated during fiscal 2002.
General and administrative expenses were $14.1 million, or 8.5% of total
revenues, for the twenty-eight weeks ended July 13, 2003, compared to $12.7
million, or 6.9% of total revenues, for the twenty-eight weeks ended July 14,
2002. Those costs were $5.3 million, or 7.4% of total revenues, for the twelve
weeks ended July 13, 2003, as compared to $5.5 million, or 7.0% of total
revenues, for the twelve weeks ended July 14, 2002. Factors contributing to the
increases in the twenty-eight week period were $0.2 million of legal fees
incurred in connection with a lawsuit tried in fiscal 2003, a $0.2 million
allowance for doubtful accounts receivable recorded with respect to our
franchisee in Spain that declared bankruptcy during the first quarter of fiscal
2003, bonuses of $0.7 million that were granted to certain executive officers in
the first fiscal quarter of 2003 and higher quick-service field management
travel and related costs relating to a number of regional field management
meetings that were held in the beginning of fiscal 2003.
During the twenty-eight weeks ended July 13, 2003, we recorded a provision for
restaurant closings of $1.1 million. For the same twenty-eight week period ended
July 14, 2002, we recorded a provision of $2.2 million. The provision for the
twelve-week periods ended July 13, 2003 and July 14, 2002 were $0.5 million and
$2.1 million, respectively. The provisions in fiscal 2002 related, for the most
part, to the planned closing of up to thirty low volume, unprofitable Sbarro
quick service locations during the third and fourth quarter of fiscal 2002 for
which the provision was recorded in the second quarter of fiscal 2002.
Minority interest represents the share of the minority holders' interests in the
earnings or loss of a joint venture in which we have a majority interest. In
early fiscal 2002, we closed one of the two locations owned by this joint
venture. The closed unit had a nominal operating loss in the first quarter of
fiscal 2002.
Interest expense of $16.8 million and $16.7 million for the twenty-eight weeks
ended July 13, 2003 and July 14, 2002, respectively, and of $7.2 million for
each of second fiscal quarter of both fiscal 2003 and 2002 relates to the 11%,
$255.0 million senior notes issued to finance our going private transaction in
September 1999 ($15.1 million and $6.5 million in both the twenty-eight and
twelve weeks of fiscal 2003 and 2002), the 8.4%, $16.0 million mortgage loan on
our corporate headquarters in 2001 ($0.8 million and $0.3 million in the
respective periods) and fees for unused borrowing capacity under our credit
agreement ($0.1 million in the respective periods). In addition, $0.7 million
and $0.4 million in each of the twenty-eight weeks and twelve weeks of fiscal
2003 and 2002, respectively, represents non-cash charges for the total of the
accretion of
Page 31
the original issue discount on our senior notes and the amortization of deferred
financing costs on the senior notes, credit agreement and the mortgage loan.
Interest income for the twenty-eight week period ended July 13, 2003 was $0.4
million versus $0.3 million for the twenty-eight week period ended July 14,
2002. Interest income was approximately $0.2 million and $0.1 million for the
second quarter of fiscal 2003 and 2002, respectively. Higher average cash
available for investment in each period presented in fiscal 2003 as compared to
the same periods in fiscal 2002 was offset by the lower prevailing interest
rates in effect. The indenture under which our senior notes are issued and our
credit agreement limit the types of investments which we may make. In addition,
we earned approximately $0.05 million of interest income that was included in an
income tax refund received in the second quarter of fiscal 2003 related to a
year in which we were a Subchapter "C" corporation.
Equity in the net income of unconsolidated affiliates represents our
proportionate share of earnings and losses in those other concepts in which we
have a 50% or less ownership interest. The increase in our share of the equity
in the net income of unconsolidated affiliates was primarily as a result of
improved performance of our steakhouse joint venture. We have determined that we
will continue, to the extent agreed with our joint venture partners, to develop
and expand the steakhouse joint venture locations but do not intend to expand
our other joint venture operations.
We have elected to be taxed under the provisions of Subchapter S of the Internal
Revenue Code and, where applicable and permitted, under similar state and local
income tax provisions beginning January 3, 2000. Under the provisions of
Subchapter S, substantially all taxes on our income are paid by our shareholders
rather than us. Our tax expense was $0.6 million and $0.2 million for the
twenty-eight week periods and $0.3 million and $0.1 million for the twelve-week
periods ended July 13, 2003 and July 14, 2002,, respectively. The expense was
for taxes owed by us (rather than our shareholders) to jurisdictions that do not
recognize S corporation status or that tax entities based on factors other than
income.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
We have historically not required significant working capital to fund our
existing operations and have financed our capital expenditures and investments
in our joint ventures through cash generated from operations. At July 13, 2003,
we had unrestricted cash and cash equivalents of $42.5 million and working
capital of $15.6 million compared to unrestricted cash and cash equivalents of
$30.7 million and working capital of $8.2 million at July 14, 2002.
Net cash used in operating activities was $6.7 million for the twenty-eight
weeks ended July 13, 2003 compared to $1.0 million generated during the
twenty-eight weeks ended July 14, 2002. The $7.7 million change in cash used
resulted primarily from an increase of approximately $9.9 million in our net
loss in the fiscal 2003 period over the fiscal 2002 period. This was compounded
by a reduction in non-cash expenses in the fiscal 2003 period from the fiscal
2002 period, primarily due to a $1.5 million reduction in depreciation and
amortization and a $1.7 million reduction in the provision for restaurant
closings. These increased uses of cash were offset, in
Page 32
part, by less cash being used during the fiscal 2003 period than the fiscal 2002
period to support changes in operating assets and liabilities, primarily as a
result of an increase of $1.2 million in fiscal 2003, compared to a $3.3 million
decrease in fiscal 2002, in accounts payable and a $1.3 million lower increase
in fiscal 2003 than in fiscal 2002 in prepaid expenses (the prepaid balances at
the end of the second fiscal quarters of both 2003 and 2002 being similar). Of
the increase in accounts payable, approximately $2.6 million relates to the
amount accrued for our bankrupt former national independent wholesale
distributor. We are in negotiations with its creditors' committee with regard to
the amount, if any, owed as we believe that significant additional costs were
incurred after the bankruptcy filing date due to the bankruptcy. In addition,
there was a decrease of $0.2 million in the dividend received from our
unconsolidated affiliate.
Net cash used in investing activities has historically been primarily for
capital expenditures, including investments made by our consolidated other
concepts. Net cash used in investing activities increased from $4.1 million for
the twenty-eight weeks ended July 14, 2002 to $4.7 million for the twenty-eight
weeks ended July 14, 2003 primarily due to an increase in company-owned quick
service restaurant renovation activity.
Net cash used in financing activities was $1.2 million for the twenty-eight
weeks ended July 13, 2003 compared to $3.2 million in the comparable 2002
period, due to a $2.0 million reduction in tax distributions to shareholders.
We incur annual cash interest expense of approximately $29.7 million under our
senior notes and mortgage loan and may incur additional interest expense for
borrowings under our credit agreement. In addition to debt service, we expect
that our other liquidity needs will relate to capital expenditures, working
capital, investments in other ventures, distributions to shareholders to the
extent permitted under the indenture for the senior notes and the credit
agreement and general corporate purposes. We believe that aggregate restaurant
capital expenditures and our investments in joint ventures during the next
twelve months will approximate the fiscal 2002 levels.
We expect our primary sources of liquidity to meet these needs will be cash flow
from operations. Also at August 20, 2003, we had $28.3 million of undrawn
availability under our bank credit agreement, net of outstanding letters of
credit and guarantees of reimbursement obligations aggregating approximately
$1.7 million.
We are subject to various covenants under the indenture under which our senior
notes are issued and under our bank credit agreement. One of the covenants
limits our ability to borrow funds (except under specifically permitted
arrangements, such as up to $75.0 million of revolving credit loans) unless our
consolidated interest ratio coverage (as defined), after giving pro forma effect
to the interest on the new borrowing, for the four most recently ended fiscal
quarters is at least 2.5 to 1. Another covenant limits our ability to make
"restricted payments," including, among other things, dividend payments (other
than as distributions pursuant to our tax payment agreement with our
shareholders related to Subchapter S distributions) and investments in, among
other things, unrestricted subsidiaries, to specified amounts determined under a
formula contained in the
Page 33
indenture provided (except with respect to certain permitted investments and tax
distributions) that our interest coverage ratio is at least 2.0 to 1 after
giving pro forma effect to the restricted payment. For the four fiscal quarters
ended July 13, 2003, our consolidated interest coverage ratio was 1.5 to 1. As a
result, we are not presently able to borrow funds (other than the specifically
permitted indebtedness). Additionally, under the formula contained in the
indenture, we cannot make restricted payments other than certain permitted
investments and tax distributions until we increase the restricted payment
availability by approximately $16 million, and then only to the extent of any
excess over that amount.
The tax payment agreement was entered into as part of our election that our
shareholders, rather than us, be taxed on our taxable income pursuant to
Subchapter S of the Internal Revenue Code and, where applicable and permitted,
under similar state and local tax provisions. The Tax Payment Agreement permits
us, regardless of whether we can make restricted payments, to make periodic tax
distributions to our shareholders in amounts intended to approximate the income
taxes, including estimated taxes, that would be payable by them if their only
income were their pro rata share of our taxable income and that income was taxed
at the highest applicable Federal and New York state marginal income tax rates.
Our contractual obligations and off balance sheet arrangements with respect to
both our Sbarro quick service and our other concepts (both those in which we
have a majority or minority interest) do not differ materially from the
information disclosed in Part II, Item 7 of our Annual Report on Form 10-K for
the fiscal year ended December 29, 2002.
We have received a waiver of compliance for the second quarter of fiscal 2003
from certain ratios required to be maintained under our bank credit agreement,
as amended in March 2003. Our credit agreement requires that we maintain a
minimum ratio of consolidated EBITDA to consolidated interest expense (in each
case with the guaranteeing subsidiaries, the same entities as our Restricted
Subsidiaries under the indenture) of at least 1.4 to 1.0 beginning December 30,
2002 and 1.5 to 1.0 beginning December 28, 2003 on the four quarters ended July
13, 2003, this ratio was 1.27 to 1. We are also required to maintain a maximum
ratio of consolidated senior debt to consolidated EBITDA (in each case with the
guaranteeing subsidiaries) of 6.5 to 1.0 beginning December 30, 2002 and 6.0 to
1.0 beginning December 28, 2003. For the four quarters ended July 13, 2003, this
ratio was 7.1 to 1.
CRITICAL ACCOUNTING POLICIES AND JUDGMENTS
- ------------------------------------------
Accounting policies are an integral part of the preparation of our financial
statements in accordance with accounting principles generally accepted in the
United States of America. Understanding these policies, therefore, is a key
factor in understanding our reported results of operations and financial
position. Certain critical accounting policies require us to make estimates and
assumptions that affect the amounts of assets, liabilities, revenues and
expenses reported in the financial statements. Due to their nature, estimates
involve judgments based upon available information. Therefore, actual results or
amounts could differ from estimates and the difference could have a material
impact on our consolidated financial statements. During the twenty-eight
Page 34
weeks ended July 13, 2003, there have been no material changes in the accounting
policies whose application may have a significant effect on our reported results
of operations and financial position and that can require judgments by
management that can affect their application from the matters discussed under
the heading "Critical Accounting Policies and Judgments" in Part II, Item 7 of
our Annual Report on Form 10-K for the fiscal year ended December 29, 2002.
FORWARD LOOKING STATEMENTS
- --------------------------
This report contains certain forward-looking statements about our financial
condition, results of operations, future prospects and business. These
statements appear in a number of places in the report and include statements
regarding our intent, belief, expectation, strategies or projections at that
time. These statements generally contain words such as "may," "should," "seeks,"
"believes," "in our opinion," "expects," "intends," "plans," "estimates,"
"projects," "strategy" and similar expressions or the negative of those words.
Forward-looking statements are subject to a number of known and unknown risks
and uncertainties that could cause actual results to differ materially from
those projected, expressed or implied in the forward-looking statements. These
risks and uncertainties, many of which are not within our control, include but
are not limited to:
o general economic, weather and business conditions;
o the availability of suitable restaurant sites in appropriate regional
shopping malls and other locations on reasonable rental terms;
o changes in consumer tastes;
o changes in population and traffic patterns, including the effect that
military action and terrorism or other events may have on the willingness
of consumers to frequent shopping malls, airports or downtown areas which
are the predominant areas in which our restaurants are located;
o our ability to continue to attract franchisees;
o the success of the our present, and any future, joint ventures and other
expansion opportunities;
o the availability of food (particularly cheese and tomatoes) and paper
products at current prices;
o our ability to pass along cost increases to our customers;
o no material increase occurring in the Federal minimum wage;
o the continuity of services of members of our senior management team;
o our ability to attract and retain competent restaurant and executive
managerial personnel;
o competition;
o the level of, and our ability to comply with, government regulations;
o our ability to generate sufficient cash flow to make interest payments and
principal under our senior notes and credit agreement;
Page 35
o our ability to comply with covenants contained in the indenture under which
the senior notes are issued and in our bank credit agreement, and the
effects which the restrictions imposed by those covenants may have on our
ability to operate our business; and
o our ability to repurchase senior notes to the extent required and make
repayments under our credit agreement to the extent required in the event
we make certain asset sales or experience a change of control.
You are cautioned not to place undue reliance on these statements, which speak
only as of the date of the report. We do not undertake any responsibility to
release publicly any revisions to these forward-looking statements to take into
account events or circumstances that occur after the date of this report.
Additionally, we do not undertake any responsibility to update you on the
occurrence of any unanticipated events which may cause actual results to differ
from those expressed or implied by the forward-looking statements contained in
this report.
ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURES OF MARKET RISK
We have historically invested our cash on hand in short term, fixed rate, highly
rated and highly liquid instruments which are reinvested when they mature
throughout the year. The indenture under which our senior notes are issued
limits the investments we may make. Although our existing investments are not
considered at risk with respect to changes in interest rates or markets for
these instruments, our rate of return on short-term investments could be
affected at the time of reinvestment as a result of intervening events.
Future borrowings under our credit facility (none are currently outstanding)
will be at rates that float with the market and, therefore, will be subject to
fluctuations in interest rates. Our $255.0 million senior notes bear a fixed
interest rate of 11.0%. We are not a party to, and do not expect to enter into
any interest rate swaps or other instruments to hedge interest rates.
We have not, and do not expect to, purchase future, forward, option or other
instruments to hedge against fluctuations in the prices of the commodities we
purchase. As a result, our future commodities purchases are subject to changes
in the prices of such commodities.
All of our transactions with foreign franchisees have been denominated in, and
all payments have been made in, United States dollars, reducing the risks
attendant in changes in the values of foreign currencies. As a result, we have
not purchased future contracts, options or other instruments to hedge against
changes in values of foreign currencies.
Page 36
ITEM 4. CONTROLS AND PROCEDURES
As of the end of the period covered by this report, our management, with the
participation of our Chairman of the Board, President and principal executive
officer and our Vice President, Controller and principal accounting officer (the
person presently performing the function of our principal financial officer),
evaluated the effectiveness of our "disclosure controls and
procedures," as defined in Rule 15d-15(e) under the securities Exchange Act of
1934. Based on that evaluation, these officers concluded that, as of the date of
their evaluation, our disclosure controls and procedures were effective to
provide reasonable assurance that information required to be disclosed in our
periodic filings under the Exchange Act is accumulated and communicated to our
management, including those officers, to allow timely decisions regarding
required disclosure.
During the period covered by this report, there were no changes in our internal
control over financial reporting that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.
Page 37
PART II. OTHER INFORMATION
--------------------------
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
a) Exhibits:
4.02(e) Letter agreement dated August 18, 2003 with respect to the Credit
Agreement dated as of September 23, 1999 between Sbarro, Inc. and
Citibank N.A. as successor to European American Bank, as agent.
31.01 Certification of Principal Executive Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
31.02 Certification of Vice President, Controller and Principal Accounting
Officer, the person performing the function of our principal financial
officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
32.01 Certification of Principal Executive Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
32.02 Certification of Vice President, Controller and Principal Accounting
Officer, the person performing the function of our principal financial
officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed by Sbarro during the quarter for
which this report is filed.
Page 38
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
SBARRO, INC.
-------------------------------------
Registrant
Date: August 25, 2003 By: /s/ MARIO SBARRO
--------------------- -------------------------------------
Mario Sbarro
Chairman of the Board and President
(Principal Executive Officer)
Date: August 25, 2003 By: /s/ STEVEN B. GRAHAM
--------------------- -------------------------------------
Steven B. Graham
Vice President and Controller
(Principal Accounting Officer)
Page 39
EXHIBIT INDEX
-------------
EXHIBIT NUMBER DESCRIPTION
- -------------- -----------
4.02(e) Letter agreement dated August 18, 2003 with respect to the Credit
Agreement dated as of September 23, 1999 between Sbarro, Inc. and
Citibank N.A. as successor to European American Bank, as agent.
31.01 Certification of Principal Executive Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
31.02 Certification of Vice President, Controller and Principal Accounting
Officer, the person performing the function of our principal financial
officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
32.01 Certification of Principal Executive Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
32.02 Certification of Vice President, Controller and Principal Accounting
Officer, the person performing the function of our principal financial
officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
Page 40