EX-99.1 2 dex991.htm PRESS RELEASE Press Release

Exhibit 99.1

LOGO

 

FOR IMMEDIATE RELEASE    CONTACT: Tiffany B. Kice
August 4, 2011    Executive Vice President
3:05 p.m. Central Time    Chief Financial Officer
   (972) 258-4525

CEC ENTERTAINMENT REPORTS

FINANCIAL RESULTS FOR THE SECOND QUARTER OF 2011

IRVING, TEXAS - CEC Entertainment, Inc. (NYSE: CEC) today announced its financial results for its second quarter ended July 3, 2011. Total revenues for the second quarter of 2011 increased $5.2 million, or 2.9%, to $186.2 million from $181.0 million for the second quarter of 2010. The increase was primarily due to a weighted average net increase of approximately nine stores as compared to the second quarter of 2010, and a 0.3% increase in comparable store sales.

Net income for the second quarter ended July 3, 2011 increased to $6.5 million as compared to net income of $4.8 million for the second quarter of 2010. In addition, our diluted earnings per share for the second quarter of 2011 was $0.34 as compared to diluted earnings per share of $0.22 for the second quarter of 2010. An unfavorable tax adjustment was recorded in the prior year of approximately $2.8 million, net of taxes, in connection with an Internal Revenue Service (“IRS”) examination. In addition, diluted earnings per share benefitted from our repurchase of approximately 2.8 million shares of our common stock since the beginning of the second quarter of 2010.

For the first six months of 2011, total revenues increased $15.3 million, or 3.6%, to $442.6 million as compared to $427.3 million for the first six months of 2010. The increase was primarily due to a weighted average net increase of approximately eight stores and a 0.8% increase in comparable store sales.

Net income for the first six months of 2011 increased to $40.6 million as compared to $38.6 million for the first six months of 2010. In addition, our diluted earnings per share for the first six months of 2011 was $2.06 as compared to diluted earnings per share of $1.77 for the first six months of 2010. An unfavorable tax adjustment was recorded in the prior year of approximately $2.8 million, net of taxes, in connection with an IRS examination. In addition, diluted earnings per share benefitted from our repurchase of approximately 3.2 million shares of our common stock since the beginning of fiscal year 2010.

On May 3, 2011, the Company’s Board of Directors declared a cash dividend of $0.20 per share that was paid on July 7, 2011 to stockholders of record as of June 2, 2011. The Company’s Board of Directors declared a cash dividend of $0.20 per share on August 2, 2011 that will be paid on October 6, 2011 to stockholders of record as of September 8, 2011.

Michael Magusiak, President and Chief Executive Officer, stated that, “During the first six months of 2011, we generated $111.6 million of operating cash flow. We utilized this cash by investing $46.8 million primarily in new and existing stores, reducing our outstanding borrowings on our revolving credit facility by $20.5 million, paying out $3.9 million in cash dividends, and using $40.0 million to repurchase 1,049,224 shares of our common stock or approximately 5.3% of diluted shares outstanding at quarter-end.”

 

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Business Outlook:

Comparable store sales were up 0.8% during the first half of 2011 and were down 7.9% during the first four weeks of the third quarter of 2011. It is difficult to quantify factors that negatively impact sales over a four week period. We believe, however, that our sales were adversely impacted by declines in consumer confidence in July of this year in contrast to the more healthy economic indicators in the prior year. Additionally, we believe that July was negatively impacted by more difficult weather comparisons due to high rainfall totals during the same four weeks of the prior year and increased competition from certain PG-13 movies this year. It is very difficult to project comparable store sales over the short-term, however, considering our year-to-date results and our concerns relating to the current economic environment that we believe is creating uncertainties in consumer spending, we are lowering our projected fiscal year 2011 diluted earnings per share to now be in a range of $2.75 to $2.95. This guidance incorporates the following assumptions for the 2011 fiscal year:

 

   

comparable store sales down 2.0% to flat;

 

   

five additional Company-owned stores, inclusive of three relocations;

 

   

average cheddar block prices in a range of $1.80 to $1.90 per pound;

 

   

combined depreciation and rent expense will increase approximately 6% from the prior year;

 

   

advertising expense as a percentage of total revenue will decrease approximately 0.1 percentage points;

 

   

annual effective income tax rate of approximately 38.7%;

 

   

capital expenditures will range from $92.0 million to $93.0 million;

 

   

our intent to repurchase Company common stock on an opportunistic basis; and

 

   

payment of three quarterly dividends approximating $11.8 million.

Second Quarter 2011 Conference Call:

The Company will host a conference call Thursday, August 4, 2011, at 3:30 p.m. Central Time to discuss its second quarter financial results and outlook for fiscal year 2011. A live webcast of the call (listen only) can be accessed through the Company’s website, www.chuckecheese.com. Shortly after its conclusion, a replay of the call will be available on the website through Friday, September 23, 2011.

Non-GAAP Financial Measures:

The Company reports and discusses its operating results using financial measures consistent with accounting principles generally accepted in the United States (“GAAP”). From time to time in the course of financial presentations, earnings conference calls or otherwise, the Company may disclose certain non-GAAP financial measures such as Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”) and Free Cash Flow. The non-GAAP financial measures presented in this earnings release should not be viewed as alternatives or substitutes for the Company’s reported GAAP results. A reconciliation of the most directly comparable GAAP financial measure to EBITDA and Free Cash Flow is set forth in a table accompanying this release.

About CEC Entertainment, Inc.:

For more than 30 years, CEC Entertainment has served as the nationally recognized leader in family dining and entertainment and the place Where a Kid can be a Kid®. The Company and its franchisees operate a system of 555 Chuck E. Cheese’s stores located in 48 states and seven foreign countries or territories. Currently, 508 locations in the United States and Canada are owned and operated by the Company. CEC Entertainment, Inc. and its franchises have the common goal of creating lifelong memories for families through fun, food, and play. Each Chuck E. Cheese’s features musical and comic robotic entertainment, games, rides, and play areas, as well as a variety of dining options including pizza, sandwiches, a salad bar, and desserts. Committed to providing a fun, safe environment, Chuck E. Cheese’s helps protect families through industry-leading programs such as Kid Check®.

Chuck E. Cheese’s aims to promote positive, lifelong memories inside and outside of its stores. In addition to providing a fun entertainment experience for millions of families across the world, Chuck E. Cheese’s has donated more than $6 million to schools and non-profit institutions through its fundraising programs. For more information, see the Company’s website at www.chuckecheese.com.

 

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Forward-Looking Statements:

Certain statements in this press release, other than historical information, may be considered “forward-looking statements” within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, and are subject to various risks, uncertainties and assumptions. Statements that are not historical in nature, and which may be identified by the use of words such as “may,” “should,” “believe,” “predict,” “potential,” “continue,” “plan,” “intend,” “expect,” “anticipate,” “future,” “project,” “estimate,” and similar expressions (or the negative of such expressions) are forward-looking statements. Forward-looking statements are made based on management’s current expectations and beliefs concerning future events and, therefore, involve a number of assumptions, risks and uncertainties, including the risk factors described in Item 1A “Risk Factors” of the Company’s Annual Report on Form 10-K for the fiscal year ended January 2, 2011, filed on February 24, 2011. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may differ from those anticipated, estimated or expected.

Factors that could cause actual results to differ materially from those contemplated by forward-looking statements include, but are not limited to:

 

 

Changes in consumer discretionary spending and general economic conditions;

 

 

Our ability to successfully implement our business development strategies;

 

 

Costs incurred in connection with our business development strategies;

 

 

Negative publicity concerning food quality, health, safety and other issues;

 

 

Competition in both the restaurant and entertainment industries;

 

 

Disruptions in the financial markets affecting the availability and cost of credit and our ability to maintain adequate insurance coverage;

 

 

Loss of certain key personnel;

 

 

Increases in food, labor and other operating costs;

 

 

Changes in consumers’ health, nutrition and dietary preferences;

 

 

Continued existence or occurrence of certain public health issues;

 

 

Disruption of our commodity distribution system;

 

 

Our dependence on a few global providers for the procurement of games and rides;

 

 

Fluctuations in our quarterly results of operations due to seasonality;

 

 

Adverse effects of local conditions, natural disasters and other events;

 

 

Risks in connection with owning and leasing real estate;

 

 

Our ability to adequately protect our trademarks or other proprietary rights;

 

 

Government regulations, litigation, product liability claims and product recalls;

 

 

Disruptions of our information technology systems; and

 

 

Conditions in foreign markets.

The forward-looking statements made in this press release relate only to events as of the date on which the statements were made. Except as may be required by law, the Company undertakes no obligation to update its forward-looking statements to reflect events and circumstances after the date on which the statements were made or to reflect the occurrence of unanticipated events.

- financial tables follow -

 

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CEC ENTERTAINMENT, INC.

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

(Unaudited)

 

     Three Months Ended     Six Months Ended  
     July 3, 2011     July 4, 2010     July 3, 2011     July 4, 2010  
     (in thousands, except per share amounts)  

REVENUES

                    

Food and beverage sales

   $ 88,379         47.7   $ 89,064         49.4   $ 212,136         48.2   $ 210,080         49.4

Entertainment and merchandize sales

     96,825         52.3     91,065         50.6     228,284         51.8     215,249         50.6
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Company store sales

     185,204         99.5     180,129         99.5     440,420         99.5     425,329         99.5

Franchising fees and royalties

     1,012         0.5     857         0.5     2,198         0.5     1,984         0.5
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total revenues

     186,216         100.0     180,986         100.0     442,618         100.0     427,313         100.0
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

OPERATING COSTS AND EXPENSES

                    

Company store operating costs:

                    

Cost of food and beverage (1)

     22,087         25.0     19,967         22.4     50,990         24.0     47,586         22.7

Cost of entertainment and merchandise (2)

     7,351         7.6     7,736         8.5     17,511         7.7     17,786         8.3
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total cost of food, beverage, entertainment and merchandise (3)

     29,438         15.9     27,703         15.4     68,501         15.6     65,372         15.4

Labor expenses (3)

     52,242         28.2     51,777         28.7     115,879         26.3     112,372         26.4

Depreciation and amortization (3)

     20,906         11.3     19,836         11.0     41,658         9.5     39,442         9.3

Rent expense (3)

     18,334         9.9     17,440         9.7     36,819         8.4     34,926         8.2

Other store operating expenses (3)

     30,252         16.3     29,698         16.5     63,246         14.4     60,732         14.3
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total Company store operating costs (3)

     151,172         81.6     146,454         81.3     326,103         74.0     312,844         73.6

Other costs and expenses:

                    

Advertising expense

     8,849         4.8     8,385         4.6     17,916         4.0     17,422         4.1

General and administrative expenses

     13,224         7.1     11,436         6.3     27,279         6.2     25,121         5.9
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total operating costs and expenses

     173,245         93.0     166,275         91.9     371,298         83.9     355,387         83.2
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Operating income

     12,971         7.0     14,711         8.1     71,320         16.1     71,926         16.8

Interest expense

     2,286         1.2     3,442         1.9     5,040         1.1     6,112         1.4
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Income before income taxes

     10,685         5.7     11,269         6.2     66,280         15.0     65,814         15.4
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Income taxes

     4,183         2.2     6,491         3.6     25,696         5.8     27,174         6.4
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Net income

   $ 6,502         3.5   $ 4,778         2.6   $ 40,584         9.2   $ 38,640         9.0
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Earnings per share:

                    

Basic

   $ 0.34         $ 0.22         $ 2.07         $ 1.77      

Diluted

   $ 0.34         $ 0.22         $ 2.06         $ 1.77      

Weighted average shares outstanding:

                    

Basic

     19,323           21,544           19,630           21,810      

Diluted

     19,359           21,592           19,669           21,849      

 

(1) 

Percent amount expressed as a percentage of food and beverage sales.

(2) 

Percent amount expressed as a percentage of entertainment and merchandise sales.

(3) 

Percent amount expressed as a percentage of Company store sales.

Due to rounding, percentages presented in the table above may not add. The percentage amounts for the components of cost of food, beverage, entertainment and merchandise do not sum due to the fact that cost of food and beverage and cost of entertainment and merchandise are expressed as a percentage of related food and beverage and entertainment and merchandise sales, as opposed to total Company store sales.

 

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CEC ENTERTAINMENT, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

     July 3,      January 2,  
     2011      2011  
     (in thousands)  
ASSETS   

Current assets:

     

Cash and cash equivalents

   $ 17,376       $ 19,269   

Other current assets

     53,409         68,084   
  

 

 

    

 

 

 

Total current assets

     70,785         87,353   

Property and equipment, net

     680,430         683,192   

Other noncurrent assets

     8,028         7,484   
  

 

 

    

 

 

 

Total assets

   $ 759,243       $ 778,029   
  

 

 

    

 

 

 
LIABILITIES AND STOCKHOLDERS’ EQUITY      

Current liabilities:

     

Current portion of capital lease obligations

   $ 945       $ 936   

Other current liabilities

     83,562         88,138   
  

 

 

    

 

 

 

Total current liabilities

     84,507         89,074   

Capital lease obligations, less current portion

     10,409         10,326   

Debt, less current portion

     356,500         377,000   

Other noncurrent liabilities

     152,906         143,567   
  

 

 

    

 

 

 

Total liabilities

     604,322         619,967   
  

 

 

    

 

 

 

Total stockholders’ equity

     154,921         158,062   
  

 

 

    

 

 

 

Total liabilities and stockholders’ equity

   $ 759,243       $ 778,029   
  

 

 

    

 

 

 

 

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CEC ENTERTAINMENT, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

     Six Months Ended  
     July 3,     July 4,  
     2011     2010  
     (in thousands)  

CASH FLOWS FROM OPERATING ACTIVITIES:

  

Net income

   $ 40,584      $ 38,640   

Adjustments to reconcile net income to net cash provided by operating activities:

    

Depreciation and amortization

     41,978        39,868   

Deferred income taxes

     11,897        (7,793

Stock-based compensation costs

     3,779        3,653   

Other adjustments

     123        429   

Changes in operating assets and liabilities:

    

Operating assets

     936        5,715   

Operating liabilities

     12,260        20,406   
  

 

 

   

 

 

 

Net cash provided by operating activities

     111,557        100,918   
  

 

 

   

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

    

Purchases of property and equipment

     (46,787     (43,074

Other investing activities

     (502     (4,040
  

 

 

   

 

 

 

Net cash used in investing activities

     (47,289     (47,114
  

 

 

   

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

    

Net repayments on revolving credit facility

     (20,500     (22,900

Proceeds from exercise of stock options

     632        4,629   

Dividend payments

     (3,922     —     

Payment of taxes for returned restricted shares

     (2,728     (2,742

Treasury stock acquired

     (40,019     (35,555

Other financing activities

     275        134   
  

 

 

   

 

 

 

Net cash used in financing activities

     (66,262     (56,434
  

 

 

   

 

 

 

Effect of foreign exchange rate changes on cash

     101        (82
  

 

 

   

 

 

 

Change in cash and cash equivalents

     (1,893     (2,712

Cash and cash equivalents at beginning of period

     19,269        17,361   
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 17,376      $ 14,649   
  

 

 

   

 

 

 

 

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CEC ENTERTAINMENT, INC.

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES

(Unaudited)

Net Income to EBITDA:

The following tables set forth a reconciliation of net income to EBITDA and EBITDA expressed as a percentage of total revenues for the periods shown:

 

     2010     2009     2008     2007     2006  
     (in thousands)  

Revenues

   $ 817,248      $ 818,346      $ 814,509      $ 785,322      $ 772,553   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

   $ 54,034      $ 61,194      $ 56,494      $ 55,921      $ 68,257   

Add:

          

Income taxes

     38,726        37,754        34,137        35,453        43,120   

Interest expense

     12,142        12,017        17,389        13,170        9,508   

Depreciation and amortization

     80,679        78,071        75,445        71,919        65,392   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA

   $ 185,581      $ 189,036      $ 183,465      $ 176,463      $ 186,277   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA as a percent of revenues

     22.7     23.1     22.5     22.5     24.1

 

     Three Months Ended     Six Months Ended  
     July 3,     July 4,     July 3,     July 4,  
     2011     2010     2011     2010  
     (in thousands)  

Revenues

   $ 186,216      $ 180,986      $ 442,618      $ 427,313   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net Income

   $ 6,502      $ 4,778      $ 40,584      $ 38,640   

Add:

        

Income Taxes

     4,183        6,491        25,696        27,174   

Interest expense

     2,286        3,442        5,040        6,112   

Depreciation and amortization

     21,064        20,071        41,978        39,868   
  

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA

   $ 34,035      $ 34,782      $ 113,298      $ 111,794   
  

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA as a percent of revenues

     18.3     19.2     25.6     26.2

The Company believes that EBITDA provides useful information to the Company, investors and other interested parties about the Company’s operating performance, its capacity to incur and service debt, fund capital expenditures, and other corporate uses.

EBITDA, a non-GAAP financial measure, is defined by the Company as net income before income taxes, interest expense, and depreciation and amortization. The non-GAAP financial measure presented in the table above should not be viewed as an alternative or substitute for the Company’s reported GAAP results. EBITDA as defined herein may differ from similarly titled measures presented by other companies.

 

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Free Cash Flow:

The following table sets forth a reconciliation of cash provided by operating activities to Free Cash Flow for the periods shown:

 

     Six Months Ended  
     July 3,      July 4,  
     2011      2010  
     (in thousands)  

Cash provided by operating activities

   $ 111,557       $ 100,918   

Less:

     

Capital expenditures

     46,787         43,074   

Dividend payments

     3,922         —     
  

 

 

    

 

 

 

Free Cash Flow

   $ 60,848       $ 57,844   
  

 

 

    

 

 

 

Free Cash Flow, a non-GAAP financial measure, is defined by the Company as cash provided by operating activities less capital expenditures and payment of dividends.

The Company believes that Free Cash Flow provides useful information to the Company, investors and other interested parties about the amount of cash generated by the business that, after the acquisition of property and equipment, can be used for other strategic opportunities, including servicing debt, funding additional capital expenditures and making investments in the business. It should not be inferred that the entire Free Cash Flow amount is available for discretionary expenditures. The non-GAAP financial measure presented in the table above should not be viewed as an alternative or substitute for the Company’s reported GAAP results. Free Cash Flow as defined herein may differ from similarly titled measures presented by other companies.

Store Count Information:

 

     Three Months Ended      Six Months Ended  
     July 3,     July 4,      July 3,     July 4,  
     2011     2010      2011     2010  

Number of Company-owned stores:

         

Beginning of period

     507        498         507        497   

New(1)

     1        —           2        —     

Acquired from franchisees

     —          —           —          1   

Closed(1)

     (1     —           (2     —     
  

 

 

   

 

 

    

 

 

   

 

 

 

End of period

     507        498         507        498   
  

 

 

   

 

 

    

 

 

   

 

 

 

Number of franchised stores:

         

Beginning of period

     47        48         47        48   

New

     1        —           2        1   

Acquired by the Company

     —          —           —          (1

Closed

     —          —           (1     —     
  

 

 

   

 

 

    

 

 

   

 

 

 

End of period

     48        48         48        48   
  

 

 

   

 

 

    

 

 

   

 

 

 

 

(1) For the six months ended July 3, 2011, included the closing and opening of one relocated store.

 

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