-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Ral54oOcdBBp8i77h+d7c9WlJE0C/Pp5nREN5g3bsBAC1S3zMqiZG35APsfXcqCV OHvjk0vGCYzunQdp79boVA== 0000898430-96-004712.txt : 19961010 0000898430-96-004712.hdr.sgml : 19961010 ACCESSION NUMBER: 0000898430-96-004712 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960828 FILED AS OF DATE: 19961009 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN RECREATION CENTERS INC CENTRAL INDEX KEY: 0000005719 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-AMUSEMENT & RECREATION SERVICES [7900] IRS NUMBER: 941441151 STATE OF INCORPORATION: CA FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-02849 FILM NUMBER: 96641114 BUSINESS ADDRESS: STREET 1: 11171 SUN CENTER DR SUITE 120 CITY: RANCHO COROVA STATE: CA ZIP: 95670 BUSINESS PHONE: 9168528005 MAIL ADDRESS: STREET 1: PO BOX 580 CITY: RANCHO COROVA STATE: CA ZIP: 95741 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON D.C. 20549 ---------------------------------- FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE THIRTEEN WEEK PERIOD ---------------------------- ENDED AUGUST 28, 1996 --------------------- Commission File Number 0-2849 AMERICAN RECREATION CENTERS, INC. Incorporated in California Federal Employer No. 94-1441151 11171 Sun Center Drive, Suite 120, Rancho Cordova, CA 95670 Mail Address: P.O. Box 580, Rancho Cordova, CA 95741 ------------------------------------------------------- Telephone: Area Code (916) 852-8005 ------------------------------------ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: Capital Stock Outstanding as of August 28, 1996 - 4,611,287 shares AMERICAN RECREATION CENTERS, INC. INDEX TO FORM 10-Q FOR THE THIRTEEN WEEK PERIOD ENDED AUGUST 28, 1996 PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (all of which are unaudited) Condensed Consolidated Balance Sheet 3 Consolidated Statement of Income and Retained Earnings 4 Condensed Consolidated Statement of Cash Flows 5 Notes To Condensed Consolidated Financial Statements 6-7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8-9 PART II - OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders 10 SIGNATURES 11
2 CONDENSED CONSOLIDATED BALANCE SHEET (in thousands)
August 28, May 29, 1996 1996 (Unaudited) (Audited) ----------- --------- ASSETS ------ Current assets: Cash and equivalents $ 2,481 $ 3,489 Other current assets 3,267 3,266 ------- -------- Total current assets 5,748 6,755 ------- -------- Property, equipment and leaseholds, at cost Land and buildings 41,962 41,965 Machinery and equipment 38,191 37,777 Leaseholds and leasehold improvements 8,752 8,532 ------- -------- 88,905 88,274 Less - accumulated depreciation and amortization (29,479) (28,572) ------- -------- 59,426 59,702 ------- -------- Property held for sale 2,558 2,557 Notes receivable 1,688 1,741 Other assets 1,383 1,376 ------- -------- $70,803 $ 72,131 ======= ======== LIABILITIES AND SHAREHOLDERS' EQUITY ------------------------------------ Current liabilities: Accounts payable and accrued expenses $ 5,628 $ 6,134 Short-term borrowings 300 - Current maturities of long-term debt 1,821 1,796 ------- -------- Total current liabilities 7,749 7,930 ------- -------- Long-term debt and capital leases 25,754 26,194 ------- -------- Deferred taxes and other liabilities 7,209 7,209 ------- -------- Minority interests in consolidated partnerships 1,872 2,060 ------- -------- Shareholders' equity Common stock: Authorized - 21,484,375 shares Issued and outstanding - 1996 and 1995, 4,611,287 and 5,055,592 shares 9,584 9,845 Preferred stock: Authorized - 5,000,000 shares Issued and outstanding - none - - Retained earnings 18,635 18,893 ------- -------- Total shareholders' equity 28,219 28,738 ------- -------- Commitments and contingencies $70,803 $ 72,131 ======= ========
See accompanying notes to condensed consolidated financial statements. 3 CONSOLIDATED STATEMENT OF INCOME AND RETAINED EARNINGS (in thousands except per share amounts) (Unaudited)
Thirteen Weeks Ended ------------------------ August 28, August 30, 1996 1995 ---------- ---------- Operating revenue: Bowling and entertainment activities $ 6,337 $ 6,111 Beverage and food 2,402 2,359 Other 268 355 ------- ------- 9,007 8,825 ------- ------- Operating, general and administrative expenses: Salaries, wages and employee benefits 4,254 4,027 Operating costs 3,380 3,262 Cost of beverage and food sales 816 728 Selling, general and administrative 476 428 Depreciation and amortization 936 912 ------- ------- 9,862 9,357 ------- ------- Operating loss (855) (532) Interest expense (646) (749) Interest and other income 97 126 Gain on sale of stock option 800 -- ------- ------- Loss from continuing operations before provision for income taxes and minority interests (604) (1,155) Provision for income taxes 203 422 Minority interests 82 79 ------- ------- Loss from continuing operations (319) (654) Discontinued operations: Gain on sale of investment in The Right Start, Inc., net of applicable income taxes of $320 and $1,568 360 2,251 Income from operations of The Right Start, Inc., net of applicable income taxes of $49 - 54 ------- ------- Net income 41 1,651 Retained earnings, beginning of period 18,893 16,898 Cash dividends ($.065 and $.0625) (299) (316) ------- ------- Retained earnings, end of period $18,635 $18,233 ======= ======= Earnings (Loss) per share: Continuing operations ($0.07) ($0.13) Discontinued operations 0.08 0.43 ------- ------- $0.01 $0.30 ======= =======
See accompanying notes to condensed consolidated financial statements. 4 CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (in thousands) (Unaudited)
Thirteen Weeks Ended ------------------------ August 28, August 30, 1996 1995 ---------- ---------- Cash Flows from (used in) Operating Activities: Net income $ 41 $ 1,651 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 936 912 Income from discontinued operations (360) (2,305) Gain on sale of stock option (800) - Results attributed to minority interests (82) (79) (Increase) Decrease in other current assets (1) 119 Decrease in accounts payable and accrued expenses (146) (1,109) ------ ------- Net cash used in operations (412) (811) ------ ------- Cash Flows from (used in) Investing Activities: Proceeds from sale of subsidiary's stock - 11,811 Proceeds from sale of stock option 800 - Expenditures for property, equipment and leaseholds (633) (1,707) Other (88) 9 ------ ------- Net cash from investing activities 79 10,113 ------ ------- Cash Flows from (used in) Financing Activities: Short-term borrowings 300 - Issuance of long-term debt - 810 Repayment of long-term debt (415) (2,879) Dividends to shareholders (299) (316) Issuance (Retirement) of common stock (261) 8 ------ ------- Net cash used in financing activities (675) (2,377) ------ ------- Net increase (decrease) in cash and equivalents (1,008) 6,925 Cash and equivalents at beginning of period 3,489 4,508 ------ ------- Cash and equivalents at end of period $2,481 $11,433 ====== =======
See accompanying notes to condensed consolidated financial statements. 5 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE 1 - Description of Business and Significant Accounting Policies: -------------------------------------------------------------------- American Recreation Centers, Inc. and its subsidiaries (the Company) operate bowling centers in California, Texas, Wisconsin, Oklahoma, Kentucky and Missouri. There have been no changes in the Company's significant accounting policies as set forth in the Company's annual report. These unaudited financial statements as of August 28, 1996 and for the three month periods ended August 28, 1996 and August 30, 1995 have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. "Discontinued Operations" include the operations and gain on sale of the Company's majority interest in The Right Start, Inc. (Right Start), a catalog company and retailer of infants' and children's products. See Note 6. NOTE 2 - Long-term Debt: ----------------------- Long-term debt is comprised of the following (in thousands):
August 28, May 29, 1996 1996 ---------- ------- Long-term notes: Secured notes payable in monthly installments with a weighted average interest rate of 8.94% at August 28, 1996 $26,759 $27,095 Other 816 895 ------- ------- 27,575 27,990 Less-amounts due within one year 1,821 1,796 ------- ------- $25,754 $26,194 ======= =======
NOTE 3 - Operations: ------------------- The results of operations for this thirteen week period is not necessarily indicative of the results to be expected for the entire year. Bowling is highly seasonal with revenues during the first quarter normally not exceeding 19% to 22% of those for a full year. 6 NOTE 4 - Earnings Per Share of Common Stock: -------------------------------------------- Earnings per share is computed on the weighted average number of shares of common stock and common stock equivalents outstanding during each period. Common stock equivalents include the Company's stock options. The weighted average number of common shares and common stock equivalents outstanding were 4,627,163 and 5,054,924 for the thirteen week periods ended August 28, 1996 and August 30, 1995. NOTE 5 - Gain on Sale of Stock Option: ------------------------------------- During the first quarter of fiscal 1997 the Company sold its option to repurchase up to 400,000 shares of Right Start common stock for $800,000 cash, resulting in an after-tax gain of $480,000, equal to $.10 per share. NOTE 6 - Gain on Sale of The Right Start, Inc.: ---------------------------------------------- On August 4, 1995, the Company sold its 62.5 percent ownership in Right Start for $11,811,000 in cash and recorded a $2,251,000 after-tax gain, equal to $.45 per share, in the first quarter of fiscal 1996. In connection with the transaction, the Company had agreed to reimburse Right Start up to $680,000 should it be unable to sustain ordinary loss treatment for its deferred loss tax carry-forward and it have sufficient taxable income in or before its fiscal year 2000. During the first quarter of fiscal 1997 the Company received a favorable ruling from the IRS allowing ARC to reverse the reserve established for the agreement at the time of the sale. This resulted in a $360,000 increase in the gain on sale which has been reported in discontinued operations. 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Continuing Operations -------------------------------- Revenue for the first quarter of fiscal 1997 increased 2% from $8,825,000 to $9,007,000 while the loss from continuing operations improved from ($654,000), or ($.13) per share to ($319,000), or ($.07) per share. However, this year's results included a one-time after-tax gain on the sale of a stock option of $480,000, or $.10 per share. The overall increase in revenue for the quarter was attributable to acquisitions and new revenue attractions. The Company's new Bowl Aire center in Wisconsin, the new Fun Fest family entertainment center (FEC) in Texas and other "FEC-type" attractions installed at existing locations totaled almost $1 million for the quarter. These new revenue sources contributed nearly $130,000 to operating income even though the first quarter is typically the Company's slowest and least profitable. Revenue for comparable centers and comparable bowling operations declined nearly $700,000, or 8%. The decrease resulted primarily from a decline in bowler traffic as the volume of games bowled was down 9% in the quarter. This led to a 9% drop in bowling lineage revenue which comprises 64% of total revenue. Ancillary revenue sources such as beverage and food declined 7% and 5%, respectively from the decrease in bowler traffic. The Company's operating loss for the quarter worsened from ($532,000) last year to ($855,000) this year, in spite of the increase in revenue. This was due to the decline in same store, comparable operations revenue as discussed above. The impact of the decline in revenue on the operating loss was partially mitigated by a reduction in operating costs for comparable center operations and by the incremental operating income generated by new locations and new revenue attractions as discussed above. First quarter interest expense was reduced almost 14% from $749,000 to $646,000 due to last year's prepayment of approximately $2.5 million in debt using a portion of the proceeds from the sale of the Company's investment in Right Start. In addition, $2.6 million in debt was retired during last year's fourth quarter in connection with the sale of a commercial real estate project. During fiscal 1997's first quarter, an option to repurchase 400,000 shares of Right Start's common stock was sold for $800,000 in cash, resulting in an after-tax gain of $480,000, or $.10. The option had been retained after last year's first quarter sale of the Company's investment in Right Start and contained exercise prices ranging from $3.30 to $6.00 over a seven year period. The option was sold when Right Start's common stock was trading at $6 3/8. 8 Results of Discontinued Operations ---------------------------------- During the first quarter of fiscal 1996, the Company sold its 62.5% ownership in Right Start for $11,811,000 in cash and recorded a $2,251,000 after-tax gain, equal to $.45 per share. In connection with the transaction, the Company had agreed to reimburse Right Start up to $680,000 should it be unable to sustain ordinary loss treatment for its deferred loss tax carry-forward and it have sufficient taxable income in or before its fiscal 2000. During the first quarter of fiscal 1997, the Company received a favorable ruling from the IRS allowing it to reverse the reserve established for the reimbursement agreement at the time of the sale. This resulted in a $360,000 increase in the gain on sale which has been reported in discontinued operations. Liquidity and Capital Resources ------------------------------- At August 28, 1996, the Company had $10,155,000 available under an unused bank commitment. Advances can be used to acquire, construct or refurbish bowling centers or to acquire other compatible recreation businesses and would bear interest at the prime rate plus .75%. The Company also maintains various line-of-credit arrangements to augment seasonal shortfalls in working capital. At August 28, 1996 and August 30, 1995, there were no borrowings outstanding under the Company's $2,000,000 line- of-credit. Advances under this line would bear interest at the prime rate plus .5%. There was $300,000 outstanding at August 28, 1996 under a $1,000,000 line-of-credit which is designated for use by one of the Company's wholly-owned subsidiaries. This line bears interest at the prime rate plus 1%. The Company's Board of Directors approved a stock repurchase plan in October 1995 that authorizes repurchase of up to 20% of the Company's outstanding stock. Through August 28, 1996, the Company has repurchased 499,530 shares, representing nearly 10% of its common stock outstanding when the plan was approved. The total cost of the reacquired shares is $3,337,000. The repurchased shares are retired by the Company and not held as treasury shares. The Company has paid quarterly cash dividends for over 28 consecutive years. The first quarter dividend of $.065 per share represents a 4% increase over last year when the quarterly dividend was $.0625 per share. 9 PART II Item 4. Submission of Matters to a Vote of Security Holders On September 24, 1996 the Company held its annual meeting of shareholders. The shareholders voted upon the following matters: (1) the election of directors: the number of directors who stood for election was five, which comprises the entire Board of Directors; and (2) the ratification of the appointment of Price Waterhouse as independent auditors for the fiscal year ended May 29, 1996. Each matter was approved. The results of the vote were as follows: (1) Board of Directors:
WITHHOLD FOR AUTHORITY --- --------- Stewart Bloom 3,785,624 28,630 Stephen R. Chanecka 3,752,662 61,592 Robert A. Crist 3,779,479 34,775 Bruce Feuchter 3,744,328 69,926 Stanley B. Schneider 3,784,082 30,172
(2) Ratification of Price Waterhouse as auditors for fiscal year 1996: WITHHOLD FOR AUTHORITY --- --------- 3,779,522 34,731 10 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has caused this report to be signed on its behalf by the undersigned thereunto duly authorized. AMERICAN RECREATION CENTERS, INC. Date October 7, 1996 /s/ Robert A. Crist ----------------- ----------------------------------- Robert A. Crist, President Date October 7, 1996 /s/ Karen B. Wagner ----------------- ----------------------------------- Karen B. Wagner, Vice President/Treasurer EX-27 2 FINANCIAL DATA SCHEDULE
5 1,000 3-MOS MAY-28-1997 MAY-30-1996 AUG-28-1996 2,481 0 787 50 596 5,748 88,905 29,479 70,803 7,749 27,575 0 0 9,583 18,635 70,803 9,007 9,904 1,057 9,862 0 0 646 (522) (203) (319) 360 0 0 41 .01 .01
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