Sbarro, Inc. Announces Results of Operations for the Second Quarter and Six Months Ended July 1, 2007
Melville, New York – August 15, 2007 - Sbarro, Inc. (the "Company") announced today results of operations for the second quarter and six months ended July 1, 2007. The Company's detailed results are included in its Quarterly Report on Form 10-Q, which was filed with the SEC on August 14, 2007.
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.
Second Quarter Financial Results
Revenues were $82.6 million for the quarter ended July 1, 2007 as compared to $74.3 million for the quarter ended July 16, 2006. The second quarter of 2007 consisted of thirteen weeks as compared to the second quarter of 2006 which consisted of twelve weeks. The one week difference generated revenues of approximately $6.3 million. Revenues related to our real estate operations, which were transferred to certain of our former shareholders in January 2007, were $.5 million for the second quarter 2006. After adjusting for these items, our revenues increased, driven by same-store sales growth of 3.0% in our company-owned stores, 4.6% in our domestic franchise stores and 3.7% in our international franchise stores.
EBITDA, as calculated in accordance with the terms of the Company's bank credit agreement, was $10.8 million for the second quarter ended July 1, 2007 as compared to $10.0 million for the second quarter ended July 16, 2006. The one week difference generated EBITDA of approximately $1.3 million. The decline in EBITDA resulted from an increased cost of products, in particular in the cost of cheese, of approximately $0.7 million in the period which offset improved profitability generated by increased sales.
As discussed in Exhibit A, EBITDA is a non-GAAP measure that management believes is an important metric for us to report to our investors concerning 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 its most comparable measure under U.S. Generally Accepted Accounting Principles ("GAAP"), which is net loss.
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 as those of the Predecessor Company and for all periods from and after January 31, 2007 as those of the Successor Company. The Company's operating results for the six months ended July 1, 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 U.S. Generally Accepted Accounting Principles; however, the Company's management believes that it is a meaningful way to present the results of operations for the six months ended July 1, 2007.
Combined revenues were $163.1 million for the six months ended July 1, 2007 as compared to $173.4 million for the six months ended July 16, 2006. The combined six months of 2007 consisted of twenty six weeks as compared to the six months of 2006 which consisted of twenty eight weeks. The two additional weeks in 2006 generated revenues of approximately $12.7 million. Revenues related to our real estate operations, which were transferred to certain of our former shareholders in January 2007, were $.3 million for 2007 and $1.4 million for 2006. After adjusting for these items, our revenues increased, driven by same-store sales growth of 2.9% in our company-owned stores, 4.5% in our domestic franchise stores and 5.3% in our international franchise stores.
Combined EBITDA for the six months of 2007, as calculated in accordance with the terms of the Company's bank credit agreement, was $20.7 million as compared to $22.6 million for the six months ended July 16, 2006. The two additional weeks in 2006 produced EBITDA of approximately $1.7 million. Our EBITDA was essentially flat as cost of product, in particular the cost of cheese, increased by $.8 million which offset improved profitability generated by increased sales.
Our last twelve months EBITDA as calculated in accordance with the Company's Bank Credit Agreement was $60.0 million.
Peter Beaudrault, Chairman of the Board, President and CEO of Sbarro commented, "We are pleased with the continuing growth in same store sales in both our company owned QSR stores and in our franchised stores. In addition, our company owned new store openings are ahead of our expectations while our franchise store openings continue to make progress. Our international pipeline of new stores now exceeds 1,000." Mr. Beaudrault further commented, "Our EBITDA for the first half was essentially flat as we absorbed approximately $.8 million in additional costs related to cheese which offset improved profitability generated by increased sales."
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 the special event bonuses.
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 interests in 401 Broadhollow Realty Corp. and 401 Broadhollow Fitness Center Corp., which own 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 997 restaurants in 39 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/.
This press release contains "forward-looking statements," as such term is used in the Securities Exchange Act of 1934, as amended. Forward-looking statements may be identified by the words "believe," "expect," "anticipate," "project," "plan," "estimate," "will," or "intend" and similar expressions. These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance, achievements or transactions of Sbarro and its affiliates or industry results to be materially different from any future results, performance, achievements or transactions expressed or implied by such forward-looking statements. (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) the availability of food (particularly cheese and tomatoes), beverage and paper products at current prices; (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 payments and principal under our senior notes and line of credit; (15) our ability to comply with covenants contained in the indenture under which the senior notes are issued and the effects which the restrictions imposed by those covenants may have on our ability to operate our business; (16) our ability to repurchase our senior notes to the extent required in the event we make certain asset sales or experience a change of control; 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.
[Financial schedules to follow]
Anthony J. Puglisi
Vice President – Finance
and Chief Financial Officer
(631) 715-4100
Sbarro, Inc.
EBITDA Reconciliation
Year to Date and Quarters Ended July 1, 2007 and July 16, 2006
(unaudited)
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 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 10.375% Notes in that EBITDA is one of the factors in the calculation of our compliance with the ratios in the indenture under which our 10.375% Notes are issued. 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 the Predecessor, Successor and Combined net 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 loss is the most directly comparable GAAP financial measure to EBITDA. All amounts below are in thousands.
(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 and travel and entertainment.
(3) Adjustment to exclude EBITDA relating to purchase accounting including occupancy adjustments related to the fair value of our leases.
(4) Year to date adjustment to exclude asset impairment charges and restaurant closing costs in 2007 of $282 thousand and pre-opening costs of $319 thousand. For the second quarter, adjustment to exclude asset impairment charges and restaurant closing costs in 2007 second of $125 thousand and pre-opening costs of $268 thousand.
(5) Year to date, the additional two weeks of operations in 2006 produced approximately $1.7 million in EBITDA. For the quarter, the additional week in 2007 produced approximately $1.3 million in EBITDA.