-----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, HSQfce4+h9gAOlmgqAxQWxeseslAhVy8nS89F3qwya/dd4nBvWXQe75C9YQ46W/W ldJvYBK2jrvk7YaId3mH7Q== 0000929624-97-000414.txt : 19970414 0000929624-97-000414.hdr.sgml : 19970414 ACCESSION NUMBER: 0000929624-97-000414 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970226 FILED AS OF DATE: 19970411 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: 97578892 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 QUARTERLY REPORT 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 AND THIRTY-NINE WEEK PERIODS --------------------------------------------- ENDED FEBRUARY 26, 1997 ----------------------- 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 February 26, 1997 - 4,613,037 shares Page 1 of 13 Exhibit Index on Page 2 AMERICAN RECREATION CENTERS, INC. INDEX TO FORM 10-Q FOR THE THIRTEEN AND THIRTY-NINE WEEK PERIODS ENDED FEBRUARY 26, 1997
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 6-8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9-12 PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K Form 8-K, dated January 17, 1997, is herein incorporated by reference. The following exhibit of the Company is included or incorporated herein. (Note: The exhibit number corresponds to the specific number within Item 601 of Regulation S-K) Exhibit Number ------ 27.1 Financial Data Schedule SIGNATURES 13
2 CONDENSED CONSOLIDATED BALANCE SHEET (in thousands)
February 26, May 29, 1997 1996 (Unaudited) (Audited) ------------- --------- ASSETS ------ Current assets: Cash and equivalents $ 5,682 $ 3,489 Other current assets 3,087 3,266 -------- -------- Total current assets 8,769 6,755 -------- -------- Property, equipment and leaseholds, at cost Land and buildings 42,131 41,965 Machinery and equipment 40,509 37,777 Leaseholds and leasehold improvements 8,959 8,532 -------- -------- 91,599 88,274 Less - accumulated depreciation and amortization (31,146) (28,572) -------- -------- 60,453 59,702 -------- -------- Other assets 5,771 5,674 -------- -------- $74,993 $ 72,131 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY ------------------------------------ Current liabilities: Accounts payable and accrued expenses $ 7,600 $ 6,134 Short-term borrowings 300 - Current maturities of long-term debt 3,858 1,796 -------- -------- Total current liabilities 11,758 7,930 -------- -------- Long-term debt and capital leases 24,667 26,194 -------- -------- Income taxes deferred to future years 7,688 7,209 -------- -------- Minority interests 2,091 2,060 -------- -------- Shareholders' equity Common stock: Authorized - 21,484,375 shares Issued and outstanding - 4,613,037 and 5,047,619 shares 9,594 9,845 Preferred stock: Authorized - 5,000,000 shares Issued and outstanding - none - - Retained earnings 19,195 18,893 -------- -------- Total shareholders' equity 28,789 28,738 -------- -------- Commitments and contingencies -------- -------- $74,993 $ 72,131 ======== ========
See accompanying notes to condensed consolidated financial statements. CONSOLIDATED STATEMENT OF INCOME AND RETAINED EARNINGS (in thousands except per share amounts) (Unaudited)
Thirteen Weeks Ended Thirty-nine Weeks Ended -------------------- ----------------------- Feb. 26, Feb. 28, Feb. 26, Feb. 28, 1997 1996 1997 1996 --------- --------- --------- --------- Operating revenue: Bowling and entertainment activities $ 9,808 $ 9,254 $24,479 $23,237 Beverage and food 3,956 3,790 9,802 9,461 Other 266 313 792 959 ------- ------- ------- ------- 14,030 13,357 35,073 33,657 ------- ------- ------- ------- Operating, general and administrative expenses: Salaries, wages and employee benefits 4,939 4,886 13,888 13,439 Operating costs 3,527 3,892 10,402 10,481 Cost of beverage and food sales 1,268 1,219 3,213 2,967 Selling, general and administrative 553 537 1,621 1,524 Depreciation and amortization 1,010 953 2,917 2,768 Expenses of merger with AMF 443 - 443 - ------- ------- ------- ------- 11,740 11,487 32,484 31,179 ------- ------- ------- ------- Operating income 2,290 1,870 2,589 2,478 Interest expense (650) (650) (1,945) (2,025) Interest and other income 35 147 208 466 Gain on sale of stock option - - 800 - ------- ------- ------- ------- Income from continuing operations before provision for income taxes and minority interests 1,675 1,367 1,652 919 Provision for income taxes (633) (505) (635) (326) Minority interests (190) (134) (176) (136) ------- ------- ------- ------- Income from continuing operations 852 728 841 457 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 $ 852 $ 728 1,201 2,762 ======= ======= Retained earnings, beginning of period 18,893 16,898 Cash dividends ($.195 and $.1875) (899) (933) ------- ------- Retained earnings, end of period $19,195 $18,727 ======= ======= Earnings per share: Continuing operations $.18 $.14 $.18 $.09 Discontinued operations .00 .00 .08 .46 ------- ------- ------- ------- $.18 $.14 $.26 $.55 ======= ======= ======= =======
See accompanying notes to condensed consolidated financial statements. 4 CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (in thousands) (Unaudited)
Thirty-nine Weeks Ended -------------------------- February 26, February 28, 1997 1996 ------------ ------------ Cash Flows from (used in) Operating Activities: Net income $ 1,201 $ 2,762 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 2,917 2,768 Income from discontinued operations (360) (2,305) Gain on sale of stock option (800) - Results attributed to minority interests 176 136 Decrease in other current assets 179 88 Increase (Decrease) in accounts payable and accrued expenses 2,305 (2,778) ------- ------- Net cash from operations 5,618 671 ------- ------- 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 (3,582) (5,837) Other (328) (83) ------- ------- Net cash from (used in) investing activities (3,110) 5,891 ------- ------- Cash Flows from (used in) Financing Activities: Short-term borrowings 300 (415) Issuance of long-term debt 1,779 2,934 Repayment of long-term debt (1,244) (5,349) Dividends to shareholders (899) (933) Retirement of common stock (251) (1,249) ------- ------- Net cash used in financing activities (315) (5,012) ------- ------- Net increase in cash and equivalents 2,193 1,550 Cash and equivalents at beginning of year 3,489 4,508 ------- ------- Cash and equivalents at end of year $ 5,682 $ 6,058 ======= =======
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 1996 annual report. These unaudited financial statements as of February 26, 1997 and for the three and nine month periods ended February 26, 1997 and February 28, 1996 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 - Merger with AMF Bowling Centers Inc.: - ---------------------------------------------- On January 17, 1997, AMF Bowling Centers, Inc. (AMF) and the Company entered into a merger agreement pursuant to which AMF will acquire the Company for $8.50 per share in cash. The purchase price, after reflecting the assumption of the Company's outstanding debt and the purchase of certain joint venture interests, represents a transaction with a total value of approximately $70 million. The boards of directors of both companies unanimously approved the merger. The transaction is subject to approval of the Company's shareholders. Proxy materials have been mailed to shareholders of record as of March 3, 1997 to solicit their approval of the merger at a special meeting of shareholders on April 24, 1997. Pending shareholder approval, the transaction is expected to close shortly after the special meeting. 6 NOTE 3 - Long-term Debt: - ----------------------- Long-term debt is comprised of the following (in thousands):
February 26, May 29, 1997 1996 ---- ---- Long-term notes: Secured notes payable in monthly installments with a weighted average interest rate of 9.01% at February 26, 1997 $27,872 $27,095 Other 653 895 ------- ------- 28,525 27,990 Less-amounts due within one year 3,858 1,796 ------- ------- $24,667 $26,194 ======= =======
NOTE 4 - 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. Second quarter revenue typically represents between 25% to 27% of revenue for the full year and third quarter revenue ranges between 28% and 30% of revenue for a full year. NOTE 5 - 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 4,611,556 and 4,937,719 for the thirteen week periods ended February 26, 1997 and February 28, 1996; and 4,614,973 and 5,017,400 for the thirty-nine week periods then ended. NOTE 6 - 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. 7 NOTE 7 - 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. NOTE 8 - Acquisitions: - --------------------- On December 20, 1996 the Company's 85% owned joint venture, Triangle Bowl Associates (TBA), completed the acquisition of two bowling centers, comprising 56 lanes, in the Dallas, Texas area. The purchase price for the businesses, equipment, liquor licenses and suppliers for both centers and the land and building for one of the centers totaled $1.62 million. TBA entered into a long- term lease for the land and building of the second center. $1.325 million of the purchase price was financed under a long-term bank loan. 8 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Introductory Note - ----------------- This Quarterly Report on Form 10-Q contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 and the Company intends that such forward-looking statements be subject to the safe harbors created thereby. These forward-looking statements include (I) the pending merger of the Company with AMF Bowling Centers, Inc., which is subject to shareholder approval at a special meeting of the Company's shareholders on April 24, 1997, (ii) the success of the Company's operations, particularly its new Fun Fest and family entertainment center (FEC) concepts, (iii) anticipated competition, (iv) potential future revenue and income, and (v) potential future decreases in costs. The forward-looking statements included herein are based on current expectations that involve a number of risks and uncertainties. Such factors include, among others, the following: required shareholder approval for the pending merger with AMF Bowling Centers, Inc.; general economic and business conditions; advertising, marketing and sales efforts; success of the Company's efforts to restage certain bowling centers as family entertainment centers; acceptance of new programs and entertainment offerings; business abilities and judgement of personnel; availability of qualified management personnel; changes in, or the failure to comply with, government regulations; weather conditions; operating cost containment efforts; uncertainties surrounding consolidation of the industry, including the pending merger of the Company with AMF Bowling Centers, Inc.; the historically cyclical nature of the bowling industry; and other factors referenced in this Form 10-Q. Although the Company believes that the assumptions underlying the forward- looking statements are reasonable, any of the assumptions could prove inaccurate and therefore, there can be no assurance that the results contemplated in the forward-looking statements will be realized. In addition, the business and operations of the Company are subject to substantial risks, as discussed above, which increase the uncertainty inherent in such forward-looking statements. In light of the significant uncertainties inherent in the forward-looking information included herein, the inclusion of such information should not be regarded as a representation by the Company or any other person that the objectives or plans of the Company will be achieved. The following is managements' discussion and analysis of certain significant factors which have affected the earnings and financial position of the Company during the period included in the accompanying financial statements. This discussion compares the thirteen and thirty-nine week periods ended February 26, 1997 with the thirteen and thirty-nine week period ended February 28, 1996. This discussion should be read in conjunction with the financial statements and notes thereto. 9 Results of Continuing Operations - -------------------------------- Third quarter Revenue for the third quarter of fiscal 1997 increased 5% to $14.0 million from $13.4 million while income from continuing operations increased 17% to $852,000, or $.18 per share from $729,000, or $.14 per share. The overall increase in revenue for the quarter was attributable to acquisitions and new revenue attractions. The Company's three newly acquired centers in Beloit, Wisconsin and Dallas, Texas, the new Fun Fest family entertainment center in Addison, Texas and other "FEC-type" attractions installed at existing locations produced a total of over $1.7 million in revenue and contributed $330,000 in incremental operating income. Revenue for comparable centers and comparable bowling operations declined $719,000, or 5%. $147,000 of the decline was attributable to the Company's Arlington, Texas center where 24 bowling lanes were removed during the first quarter and construction completed late in the third quarter which converted it to a Fun Fest FEC. The balance of the decrease was due to a decline in bowler traffic which contributed to a 4% drop in the volume of games bowled which led to a similar decrease in bowling lineage revenue. Ancillary revenue sources such as beverage and food declined 7% and 11%, respectively from the decrease in bowler traffic. Operating income for the third quarter of fiscal 1997 increased 22% to $2.289 million from $1.870 million. This was due primarily to the incremental operating income generated by new locations and new revenue attractions as discussed above. Operating income from comparable centers also increased in spite of the decline in revenue due to an aggressive reduction in operating costs for comparable center operations. Nine months year-to-date Revenue for the nine months ended February 26, 1997 rose almost 5% to $34.3 million from $32.7 million. Net income from continuing operations for the same period improved to $1.652 million, or $.18 per share from $920,000, or $.09 per share. However, during this year's nine month period 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 per share. The option had been retained after last year's first quarter sale of Right Start and contained exercise prices ranging from $3.60 to $6.00 over a seven year period. The option was sold when Right Start's common stock was trading at $6 3/8. 10 As was the case with the results for the quarter, the overall increase in revenue was attributable to acquisitions and new revenue attractions. These new revenue sources contributed over $3.8 million in new revenue and $576,000 in incremental operating income. Revenue for comparable centers was off almost 6% for the period due to the decline in bowler traffic. Ancillary revenue sources were down correspondingly. Beverage sales were down 5% and food sales were down slightly less than 7%. Operating income for the nine month period increased nearly 5% to $2.589 million from $2.478 million last year. The increase in operating income was due primarily to new revenue sources. This increase was offset slightly by a decline in comparable center, comparable operations operating income which was impacted by the decline in revenue discussed above. However, some of the comparable center revenue decline was offset by cost reductions. Results of Discontinued Operations - ---------------------------------- During the first quarter of fiscal 1996, the Company sold its 62.5% ownership in Right Start for $11.811 million in cash and recorded a $2.251 million 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, or $.08 per share, increase in the gain on sale which has been reported in discontinued operations. Liquidity and Capital Resources - ------------------------------- At February 26, 1997, the Company had $10.184 million 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 February 26, 1997 and February 28, 1996, there were no advances outstanding under the Company's $2 million line-of- credit. Advances under this line would bear interest at the prime rate plus 1/2%. There was $300,000 outstanding at February 28, 1997 under a $1 million 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%. 11 The Company's Board of Directors approved a stock repurchase plan in October 1995 that authorized repurchase of up to 20% of the Company's outstanding stock. Through December 31, 1996, when the plan expired, the Company had repurchased 499,530 shares, representing nearly 10% of its common stock outstanding when the plan was approved. The total cost of the reacquired shares was $3.337 million. The repurchased shares were retired by the Company and not held as treasury shares. The Company has paid quarterly cash dividends for over 28 consecutive years. The third quarter dividend of $.065 per share represents a 4% increase over last year when the quarterly dividend was $.0625 per share. On January 17, 1997, AMF Bowling Centers, Inc. and the Company entered into a merger agreement pursuant to which AMF will acquire the Company for $8.50 per share in cash. The purchase price, after reflecting the assumption of the Company's outstanding debt and the purchase of certain joint venture interests, represents a transaction with a total value of approximately $70 million. The boards of directors of both companies unanimously approved the merger. The transaction is subject to approval by the Company's shareholders. Proxy materials have been mailed to shareholders of record as of March 3, 1997 to solicit their approval of the merger at a special meeting of shareholders on April 24, 1997. Pending shareholder approval, the transaction is expected to close shortly after the special meeting. 12 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 April 10, 1997 /s/Robert A. Crist -------------------- ------------------------------------- Robert A. Crist, President Date April 10, 1997 /s/Karen B. Wagner -------------------- ----------------------------------- Karen B. Wagner, Vice President/Treasurer 13 EX-27 2 FINANCIAL DATA SCHEDULE
5 1,000 9-MOS MAY-28-1997 MAY-30-1996 FEB-26-1997 5,682 0 857 50 655 8,769 91,599 31,146 74,993 11,758 24,667 9,594 0 0 19,195 74,993 35,073 36,081 3,213 32,484 0 0 1,945 1,476 635 841 360 0 0 1,201 0.26 0.26
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