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Sbarro, Inc. Announces Results of Operations for the Fourth Quarter and Year Ended December 30, 2007
MELVILLE, N.Y., March 31 /PRNewswire/ -- Sbarro, Inc. (the "Company") announced today results of operations for the fourth quarter and year ended December 30, 2007. The Company's detailed results are included in its Annual Report on Form 10-K, which was filed with the SEC today. 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. Fourth Quarter Financial Results Revenues were $104.7 million for the quarter ended December 30, 2007 as compared to $97.3 million for the quarter ended December 31, 2006. The fourth quarter of 2007 consisted of thirteen weeks as compared to twelve weeks in the fourth quarter of 2006. The one week difference in 2007 generated revenues of approximately $6.5 million. During the quarter we had a same store sales decrease of 1.8% as consumers reacted to economic headwinds. This decline in same store sales was offset in part by revenue generated from new company owned stores opened in 2007 as well as an increase in revenues from our franchised restaurants. Our franchised restaurants experienced same store sales growth of 2.1% for our domestic franchised stores and 12.8% for our international franchised stores as well as increased revenue generated from new franchised stores opened in 2007. Net income for the quarter ended December 30, 2007 was $5.1 million as compared to $11.5 million for the quarter ended December 31, 2006. The decline in net income resulted from the negative comp store sales in the quarter as well as higher commodity cost. EBITDA, as calculated in accordance with the terms of the Company's bank credit agreement, was $23.9 million for the fourth quarter ended December 30, 2007 as compared to $24.7 million for the fourth quarter ended December 31, 2006. The one week difference in 2007 generated EBITDA of approximately $0.9 million. EBITDA decreased in the quarter as a result of both the decline in comp store sales and the increased commodity cost offset in part by a reversal of corporate bonuses which had been accrued in prior quarters and was reversed as a result of not meeting the EBITDA thresholds contained in the plan. 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 income (loss), which is the most directly comparable financial measure under U.S. Generally Accepted Accounting Principles ("GAAP"). Exhibit A also identifies adjustments to EBITDA that are provided for under our bank credit agreement. Year to Date Financial Results The Company has reported operating results and its financial position for all periods presented as of and prior to January 30, 2007 (prior to completion of the Merger) as those of the Predecessor Company and for all periods from and after January 31, 2007 (from completion of the Merger) as those of the Successor Company. The Company's operating results for the year ended December 30, 2007 are presented as the combined results of the Predecessor and Successor companies. The presentations of "Combined" results is not consistent with the requirements of GAAP; however, the Company's management believes that it is a meaningful way to present the results of operations for the year ended December 30, 2007. Combined revenues were $358.8 million for the year ended December 30, 2007 as compared to $349.8 million for the year ended December 31, 2006. Our revenue increase was primarily driven by same-store sales growth of 1.5% in our company-owned stores, 4.3% in our domestic franchise stores and 6.7% in our international franchise stores as well as revenue from new stores opened in 2007 in both our company owned and franchised restaurants. Revenues related to our real estate operations, which were transferred to certain of our former shareholders in connection with the Merger, were $0.3 million for 2007 compared to $2.1 million for 2006. Combined net loss for the year ended December 30, 2007 was $30.0 million as compared to $9.9 million net income for the year ended December 31, 2006. Included in the combined net loss or the year ended December 30, 2007 was $31.4 million attributable to special event bonuses in connection with the Merger, as well as higher depreciation and interest cost resulting from the Merger. Combined EBITDA for the year ended December 30, 2007, as calculated in accordance with the terms of the Company's bank credit agreement, was $58.2 million as compared to $60.3 million for the year ended December 31, 2006. The decline in EBITDA was attributable to higher commodity cost in 2007 in particular cheese which rose $.51 per pound or $4.1 million. These higher commodity costs were offset in part by a decline in corporate bonuses as the EBITDA thresholds in the plan were not met. Peter Beaudrault, Chairman of the Board, President and CEO of Sbarro, commented, "We faced unprecedented headwinds in our fourth quarter as comp store sales declined by 1.8% and commodity costs rose at the same time. Our team managed through these headwinds and delivered results for the year that were lower than our expectations, but respectable. We opened 33 company owned restaurants and 81 franchised restaurants. Our international franchised store pipeline grew to in excess of 1,100 at year end 2007. Our EBITDA, as calculated in accordance with our credit agreement, while lower than last year by $2.1 million, was respectable in light of increased cheese cost of $4.1 million." Mr. Beaudrault further commented, "We have taken the necessary steps to operate in this new paradigm of higher commodity costs. We expect to continue our new store opening program in 2008 in both our company owned restaurants and our franchised restaurants while we manage our way through the current economic and commodity headwinds." 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 Cafe 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 1,030 restaurants in 41 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 the Federal 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; and (16) 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)
For the thirteen For the twelve
weeks ended weeks ended
December 30, 2007 December 31, 2006
SUCCESSOR PREDECESSOR
(In thousands)
Revenues:
Restaurant sales $100,244 $93,410
Franchise related income 4,476 3,515
Real estate - 331
Total revenues 104,720 97,256
Costs and expenses:
Cost of food and paper products 21,415 17,903
Payroll and other employee benefits 25,471 22,875
Other operating costs 30,325 26,564
Other income, net (936) (1,231)
Depreciation and amortization 5,060 4,190
General and administrative 5,436 9,102
Asset impairment, restaurant
closings/remodels 1,024 409
Total costs and expenses, net 87,795 79,812
Operating income 16,925 17,444
Other (expense) income:
Interest expense (7,843) (7,001)
Interest income 24 732
Equity in net income of
unconsolidated affiliates - 420
Net other expense (7,819) (5,849)
Income before income taxes 9,106 11,595
Income tax expense 3,988 64
Net income $5,118 $11,531
SBARRO, INC. AND SUBSIDIARIES
COMBINED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
GAAP "Combined" GAAP
For the For the Fifty two Fifty two
period period weeks weeks
January 31 January 1 ended ended
through through December December
December 30, January 30, 30, 2007 * 31, 2006
2007 2007
SUCCESSOR PREDECESSOR PREDECESSOR
(In thousands)
Revenues:
Restaurant sales $319,342 $23,594 $342,936 $333,538
Franchise related income 14,543 993 15,536 14,193
Real estate - 323 323 2,072
Total revenues 333,885 24,910 358,795 349,803
Costs and expenses:
Cost of food and
paper products 66,036 4,308 70,344 64,331
Payroll and other
employee benefits 85,563 6,762 92,325 88,611
Other operating costs 109,526 8,839 118,365 113,695
Other income, net (2,860) (497) (3,357) (4,553)
Depreciation and
amortization 17,349 1,272 18,621 16,561
General and
administrative 23,842 2,843 26,685 32,296
Special event bonuses - 31,395 31,395 -
Asset impairment
and restaurant
closings/remodels 1,358 74 1,432 883
Total costs and
expenses, net 300,814 54,996 355,810 311,824
Operating income (loss) 33,071 (30,086) 2,985 37,979
Other (expense) income:
Interest expense (28,879) (2,570) (31,449) (30,783)
Interest income 485 108 593 2,733
Equity in net income of
unconsolidated affiliates - 12 12 573
Net other expense (28,394) (2,450) (30,844) (27,477)
Income (loss) before
income taxes 4,677 (32,536) (27,859) 10,502
Income tax expense 2,048 44 2,092 644
Net income (loss) $2,629 $(32,580) $(29,951) $9,858
* 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.
Sbarro, Inc.
EBITDA Reconciliation
Year to Date and Quarters Ended December 30, 2007 and December 31, 2006
(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
income (loss) for the following periods in 2007 and 2006, respectively, to
EBITDA as defined in the Company's 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 Period
January 31- January 1- Year Ended Year Ended
December 30, January 30, December 30, December 31,
2007 2007 2007 2006
(Successor) (Predecessor)
Net income (loss) $2,629 $(32,580) $(29,951) $9,858
Interest expense 28,879 2,570 31,449 30,783
Interest income (485) (108) (593) (2,733)
Income tax expense 2,048 44 2,092 644
Depreciation and
amortization 17,349 1,272 18,621 16,561
EBITDA 50,420 (28,802) 21,618 55,113
Special event bonuses (1) - 31,395 31,395 -
EBITDA relating to withdrawn
assets or eliminated
expenses (2) (230) 183 (47) 3,734
EBITDA relating to non
cash adjustments (3) 1,576 (96) 1,480 -
Management fee 928 - 928 -
Asset impairment,
restaurant closings
and store pre-opening
costs (4) 1,978 96 2,074 1,428
Non cash charges (5) 100 - 100 -
Severance 609 - 609 -
EBITDA in accordance
with the bank
credit agreement (6) $55,381 $2,776 $58,157 $60,275
Thirteen Weeks Twelve Weeks
Ended Ended
December 30, December 31,
2007 (6) 2006
Net income $5,118 $11,531
Interest expense 7,843 7,001
Interest income (24) (732)
Income tax expense 3,988 64
Depreciation and amortization 5,060 4,190
EBITDA 21,985 22,054
EBITDA relating to withdrawn assets
or eliminated expenses (2) - 2,008
EBITDA relating to non cash adjustments (3) 490 -
Management fee 261 -
Asset impairment, restaurant closings
and store pre-opening costs (4) 1,197 602
Non cash charges (5) (50) -
Severance 4 -
EBITDA in accordance with the bank
credit agreement (6) $23,887 $24,664
(1) Adjustment to exclude the payment of the special event bonuses and
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 an accrual for a long-
term incentive award that was cancelled in connection with the Merger
(and was not paid).
(3) Non cash adjustments relating to purchase accounting in connection
with the Merger.
(4) The year to date adjustment related to asset impairment charges and
restaurant closing costs in 2007 of $1.4 million and pre-opening
costs of $642 thousand. The fourth quarter of 2007 adjustment
related to asset impairment charges and restaurant closing costs of
$1.0 million and pre-opening costs of $172 thousand.
(5) The non cash charge is for a net litigation reserve established in
2007.
(6) The additional week for the fourth quarter in 2007 produced
approximately $.9 million in EBITDA.
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