Sbarro, Inc. Announces Results of Operations for the Quarter Ended March 30, 2008
MELVILLE, N.Y., May 13 // PRNewswire // -- Sbarro, Inc. (the "Company") announced today results of operations for the quarter ended March 30, 2008. The Company's detailed results are included in its Report on Form 10-Q, which was filed with the SEC on May 12, 2008.
First Quarter Financial Results
Revenues were $83.2 million for the quarter ended March 30, 2008 as compared to combined revenues $80.5 million for the quarter ended April 1, 2007. Revenues increased as a result of revenues generated by new company owned stores opened in 2007 and the first quarter of 2008 and same stores sales growth of .3% in our company owned stores.
Net loss for the quarter ended March 30, 2008 was $2.8 million as compared to a combined net loss of $33.2 million for the quarter ended April 1, 2007. Included in the combined net loss for the quarter ended April 1, 2007 was $31.4 attributable to special event bonuses in connection with the Merger. The increase in net loss after eliminating the special event bonus was $1.0 million.
EBITDA, as calculated in accordance with the terms of the Company's bank credit agreement, was $7.6 million for the quarter ended March 30, 2008 as compared to $9.9 million for the quarter ended April 1, 2007. The decline in EBITDA is primarily a result of increased costs, including commodity costs, while comparable store sales remained relatively flat.
As discussed in Exhibit A, EBITDA is a non-GAAP financial measure that management believes is an important metric for us to report to our investors, as we consider it a helpful additional indicator of our ability to meet future debt obligations and to comply with certain covenants in our borrowing agreements which are tied to this metric. Exhibit A includes a reconciliation of EBITDA to net loss, which is the most directly comparable financial measure under United States Generally Accepted Accounting Principles ("GAAP"). Exhibit A also identifies adjustments to EBITDA that are provided for under our bank credit agreement. The combined results of the Successor and Predecessor periods in 2007 do not comply with generally accepted accounting principles; however, we believe these results provide useful information to assess the relative performance of the businesses in all periods presented in the financial statements on an ongoing basis.
Peter Beaudrault, Chairman of the Board, President and CEO of Sbarro, commented, "Our first quarter results reflect the continuing economic pressures on consumer spending along with continuing commodity price increases as compared to the first quarter of 2007. Our team continues to drive new store openings even in these challenging times as we opened five company owned restaurants and 19 franchised restaurants in the quarter. Our international franchise store pipeline is in excess of 1,100 stores at the end of the quarter."
MidOcean Partners' Acquisition of Sbarro
On January 31, 2007, MidOcean SBR Acquisition Corp., an indirect subsidiary of MidOcean SBR Holdings, LLC ("Holdings"), an affiliate of MidOcean Partners III, L.P., and certain of its affiliates ("MidOcean") merged with and into the Company (the "Merger") in exchange for consideration of $450 million in cash, subject to certain adjustments. As a result of the Merger, the Company is now an indirect wholly owned subsidiary of Holdings.
In addition, the former shareholders received a distribution of the cash on hand in excess of (i) $11 million, plus (ii) all amounts required to be paid in connection with various special event bonuses paid in connection with completion of the Merger.
In connection with the Merger, the Company transferred interests in certain non-core assets to a newly formed company owned by certain of our former shareholders. There was no additional consideration given for the transfer of these assets as they were treated as a dividend. The assets and related costs that we transferred (the "Withdrawn Assets") were:
- the interests in Broadhollow Realty LLC. and Broadhollow Fitness Center LLC., which owned the corporate headquarters of the Company, the fitness center and the assets of the Sbarro Café located at the corporate headquarters;
- a parcel of undeveloped real property located in East Northport, New York;
- the interests in Boulder Creek Ventures, LLC and Boulder Creek Holdings, LLC, which own a 40% interest in a joint venture that operates 15 steakhouses under "Boulder Creek" and other names; and
- the interest in Two Mex-SS, LLC, which owns a 50% interest in a joint venture that operates two tex-mex restaurants under the "Baja Grill" name.
About the Company
Based in Melville, New York, we believe we are the world's leading Italian quick service restaurant concept and the largest shopping mall-focused restaurant concept in the world. We have approximately 1,040 restaurants in 43 countries. Sbarro restaurants feature a menu of popular Italian food, including pizza, a selection of pasta dishes and other hot and cold Italian entrees, salads, sandwiches, drinks and desserts. Additional information is available at http://www.sbarro.com/.
Forward-Looking Statement Disclosure
This press release contains "forward-looking statements," as such term is used in the Securities Exchange Act of 1934, as amended. Forward-looking statements include statements about non-historical matters and often are identified by the words "believe," "expect," "anticipate," "project," "plan," "estimate," "will," or "intend" and similar expressions. These forward- looking statements include statements about anticipated future store openings and growth and involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance, achievements or transactions of Sbarro and its affiliates to be materially different from any future results, performance, achievements or transactions expressed or implied by such forward-looking statements. Factors that could cause or contribute to such differences include: (1) general economic, inflation, national security, weather and business conditions; (2) the availability of suitable restaurant sites in appropriate regional shopping malls and other locations on reasonable rental terms; (3) changes in consumer tastes; (4) changes in population and traffic patterns, including the effects that military action and terrorism or other events may have on the willingness of consumers to frequent malls, airports or downtown areas which are the predominant areas in which our restaurants are located; (5) our ability to continue to attract franchisees; (6) the success of our present, and any future, joint ventures and other expansion opportunities; (7) changes in the prices of food (particularly cheese and tomatoes), beverage and paper products; (8) our ability to pass along cost increases to our customers; (9) increases in minimum wage; (10) the continuity of services of members of our senior management team; (11) our ability to attract and retain competent restaurant and executive managerial personnel; (12) competition; (13) the level of, and our ability to comply with, government regulations; (14) our ability to generate sufficient cash flow to make interest and principal payments under our borrowing agreements; (15) our ability to comply with financial covenants and ratios and the effects which the restrictions imposed by those financial covenants and ratios contained in our borrowing agreements may have on our ability to operate our business; (16) our ability to repurchase and/or repay amounts under our borrowing agreements to the extent required in the event of certain circumstances as defined in our borrowing agreements; and (17) other factors discussed in our filings with the Securities and Exchange Commission. The Company undertakes no obligation to update or revise any forward- looking statements, whether as a result of new information, future events or otherwise. The Company assumes no obligation to update or supplement forward- looking statements that become untrue because of subsequent events.
SBARRO, INC. AND SUBSIDIARIES
COMBINED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
GAAP GAAP "Combined"
For the For the
Three period period Three
months January 31 January 1 months
ended through through ended
March 30, April 1, January 30, April 1,
2008 2007 2007 2007*
SUCCESSOR SUCCESSOR PREDECESSOR
Revenues:
Restaurant sales $79,753 $53,092 $23,594 $76,686
Franchise related income 3,485 2,477 993 3,470
Real estate - - 323 323
Total revenues 83,238 55,569 24,910 80,479
Costs and expenses:
Cost of food and paper products 17,382 10,697 4,308 15,005
Payroll and other employee benefits 22,313 14,973 6,762 21,735
Other operating costs 30,009 18,999 8,839 27,838
Other income, net (1,219) (425) (497) (922)
Depreciation and amortization 4,118 2,916 1,272 4,188
General and administrative 7,235 4,423 2,843 7,266
Special event bonuses - - 31,395 31,395
Asset impairment and restaurant
closings/remodels 167 83 74 157
Total costs and expenses, net 80,005 51,666 54,996 106,662
Operating income (loss) 3,233 3,903 (30,086) (26,183)
Other (expense) income:
Interest expense (7,736) (5,304) (2,570) (7,874)
Interest income 73 332 108 440
Equity in net income (loss) of
unconsolidated affiliates (150) - 12 12
Net other expense (7,813) (4,972) (2,450) (7,422)
Loss before income taxes (4,580) (1,069) (32,536) (33,605)
Income tax (benefit) expense (1,829) (440) 44 (396)
Net (loss) income $(2,751) $(629) $(32,580)$(33,209)
* The combined results of the successor and predecessor for the periods
in 2007 do not comply with generally accepted accounting principles;
however, we believe these results provide useful information to assess
the relative performance of the businesses in all periods presented in
the financial statements on an ongoing basis.
Sbarro, Inc.
EBITDA Reconciliation
Quarters Ended March 30, 2008 and April 1, 2007
(unaudited)
EBITDA represents earnings before interest income, interest expense,
taxes, depreciation and amortization. EBITDA, as calculated under our bank
credit agreement, includes certain additional adjustments, as set forth in
the reconciliation that follows. EBITDA is a non-GAAP financial measure and
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 United States generally accepted accounting
principles ("GAAP") 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 due 2015
("Senior Notes") and our bank lenders, as EBITDA is one of the measures
used in calculating our compliance with certain financial ratios in the
indenture governing our Senior Notes and in determining compliance with
certain financial covenants under our bank credit agreement.
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 calculation of EBITDA under our bank agreement
and under the indenture governing our Senior Notes may differ, because of
differences in the definitions contained in those two documents. We provide
a calculation of EBITDA under our bank credit agreement because we are
required to satisfy a quarterly financial measurement that uses EBITDA as a
compliance metric. Our indenture does not include a similar quarterly
compliance covenant.
The following table reconciles the Predecessor, Successor and Combined net
loss for the quarter ended March 30, 2008 and the combined quarter ended April
1, 2007, respectively, to EBITDA as defined in the Company's Bank Credit
Agreement for the same periods. We believe that net income (loss) is the most
directly comparable GAAP financial measure to EBITDA. All amounts below are
in thousands.
For the
For the period
For the period January Combined
quarter January 1 31 Quarter
ended through through ended
March 30, January April 1, April 1,
2008 30, 2007 2007 2007
SUCCESSOR PREDECESSOR SUCCESSOR
Net loss $(2,751) $(32,580) $(629) $(33,209)
Interest expense 7,736 2,570 5,304 7,874
Interest income (73) (108) (332) (440)
Income tax expense (benefit) (1,829) 44 (440) (396)
Depreciation and amortization 4,118 1,272 2,916 4,188
EBITDA 7,201 (28,802) 6,819 (21,983)
Special event bonuses (1) - 31,395 - 31,395
Eliminated expenses (2) - 183 (230) (47)
Non-recurring income (3) (500) - - -
Non cash adjustments (4) 268 (96) 239 143
Management fee 258 - 167 167
Asset impairment, restaurant closings 468 96 112 208
and store pre-opening costs (5) -
Litigation charges, net (6) (100) - - -
Severance 2 - - -
EBITDA in accordance with the bank $7,597 $2,776 $7,107 $9,883
credit agreement
(1) Adjustment to exclude the payment of the special event bonuses net of
the reversal of an accrual for a long-term incentive award, all in
connection with the Merger.
(2) "Eliminated expenses" refers to certain costs and expenses related to
our former shareholders including salaries, bonuses, benefits,
payroll taxes, travel and entertainment and earnings from withdrawn
assets.
(3) Non-recurring income is compensation received from a landlord for a
lease on a location that was terminated involuntarily.
(4) Non cash adjustments include deferred rent and amortization relating
to purchase accounting in connection with the Merger.
(5) Adjustments related to restaurant closing costs of $167 thousand and
pre-opening costs of $301 thousand in 2008 and $157 thousand related
to restaurant closing cost and $51 thousand related to pre-opening
costs in 2007.
(6) Net cash paid for litigation settlements accrued in 2007.
SOURCE Sbarro, Inc.
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