-----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, Aod0ebi0WlLZIFPFLU71R+A1+5poCP4afmLkXvcIoe5eCUYTL059eVu9dz5iRdrC pv3OlV36vZA/2mfymgQdDQ== 0000813920-02-000007.txt : 20020514 0000813920-02-000007.hdr.sgml : 20020514 ACCESSION NUMBER: 0000813920-02-000007 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20020331 FILED AS OF DATE: 20020514 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CEC ENTERTAINMENT INC CENTRAL INDEX KEY: 0000813920 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-EATING PLACES [5812] IRS NUMBER: 480905805 STATE OF INCORPORATION: KS FISCAL YEAR END: 1230 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-13687 FILM NUMBER: 02646411 BUSINESS ADDRESS: STREET 1: PO BOX 152077 CITY: IRVING STATE: TX ZIP: 75015 BUSINESS PHONE: 9722585403 MAIL ADDRESS: STREET 1: PO BOX 152077 CITY: IRVING STATE: TX ZIP: 75015 FORMER COMPANY: FORMER CONFORMED NAME: SHOWBIZ PIZZA TIME INC DATE OF NAME CHANGE: 19920703 10-Q 1 q1st2002.txt 1ST QTR 2002 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-Q (Mark One) |X| Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended March 31, 2002. --------------- |_| Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from _____________ to _______________. Commission File Number 0-15782 CEC ENTERTAINMENT, INC. (Exact name of registrant as specified in its charter) Kansas 48-0905805 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 4441 West Airport Freeway Irving, Texas 75062 (Address of principal executive offices, including zip code) (972) 258-8507 (Registrant's telephone number, including area code) 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 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 |_| At March 31, 2002, an aggregate of 27,969,333 shares of the registrant's Common Stock, par value of $.10 each (being the registrant's only class of common stock), were outstanding. PART I - FINANCIAL INFORMATION Item 1. Financial Statements CEC ENTERTAINMENT, INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page ------ Consolidated balance sheets...................................... 2 Consolidated statements of earnings and comprehensive income..... 3 Consolidated statement of shareholders' equity................... 4 Consolidated statements of cash flows ........................... 5 Notes to consolidated financial statements....................... 6
CEC ENTERTAINMENT, INC. CONSOLIDATED BALANCE SHEETS (Thousands, except share data) ASSETS March 31, December 31, 2002 2001 ----------- ------------ (unaudited) Current assets: Cash and cash equivalents.................................................. $ 12,465 $ 3,682 Accounts receivable........................................................ 6,734 11,603 Inventories................................................................ 8,293 9,556 Prepaid expenses........................................................... 5,003 4,794 Current portion of deferred tax asset...................................... 1,234 1,234 --------- --------- Total current assets..................................................... 33,729 30,869 --------- --------- Property and equipment, net................................................... 436,488 423,267 --------- --------- Other assets: Assets held for resale...................................................... 2,323 2,231 Notes receivable from related parties, less current portion ................ 3,380 2,055 Other ...................................................................... 1,055 1,063 --------- --------- 6,758 5,349 --------- --------- $ 476,975 $ 459,485 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current portion of long-term debt.......................................... $ 126 $ 121 Accounts payable and accrued liabilities................................... 49,383 39,738 --------- --------- Total current liabilities............................................. 49,509 39,859 --------- --------- Long-term debt, less current portion.......................................... 21,458 51,942 --------- --------- Deferred rent................................................................. 3,549 3,401 --------- --------- Deferred tax liability........................................................ 24,823 19,825 --------- --------- Other accrued liabilities..................................................... 4,750 4,750 --------- --------- Commitments and contingencies Redeemable preferred stock, $60 par value, redeemable for $2,822 in 2005...... 2,493 2,472 --------- --------- Shareholders' equity: Common stock, $.10 par value; authorized 100,000,000 shares; 35,587,939 and 35,325,273 shares issued, respectively ........................... 3,559 3,533 Capital in excess of par value............................................. 199,925 192,041 Retained earnings ......................................................... 265,788 239,070 Accumulated other comprehensive loss ...................................... (178) (178) Less treasury shares of 7,618,606 and 7,586,106, respectively, at cost..... (98,701) (97,230) --------- --------- 370,393 337,236 --------- --------- $ 476,975 $ 459,485 ========= ========= See notes to consolidated financial statements.
CEC ENTERTAINMENT, INC. CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME (Unaudited) (Thousands, except per share data) Three Months Ended ------------------------------- March 31, 2002 April 1, 2001 -------------- ------------- Food and beverage revenues................................................ $ 114,841 $ 110,822 Games and merchandise revenues............................................ 56,950 51,377 Franchise fees and royalties.............................................. 926 926 Interest income, including related party income of $74 and $42, respectively........................................................... 76 83 --------- --------- 172,793 163,208 --------- --------- Costs and expenses: Cost of sales.......................................................... 73,691 68,467 Selling, general and administrative expenses........................... 19,836 21,298 Depreciation and amortization.......................................... 9,153 8,286 Interest expense....................................................... 293 710 Other operating expenses............................................... 25,966 23,161 --------- --------- 128,939 121,922 --------- --------- Income before income taxes................................................ 43,854 41,286 Income taxes.............................................................. 17,058 16,102 --------- --------- Net income ............................................................... 26,796 25,184 Other comprehensive income, net of tax: Foreign currency translation........................................... 0 (79) --------- --------- Comprehensive income...................................................... $ 26,796 $ 25,105 ========= ========= Earnings per share: Basic: Net income .......................................................... $ .96 $ .90 ========= ========= Weighted average shares outstanding.................................. 27,862 27,745 ========= ========= Diluted: Net income ......................................................... $ .94 $ .88 ========= ========= Weighted average shares outstanding.................................. 28,555 28,521 ========= ========= See notes to consolidated financial statements.
CEC ENTERTAINMENT, INC. CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (Unaudited) (Thousands, except per share data) Amounts Shares --------- ------- Common stock and capital in excess of par value: Balance, beginning of year..................................... $ 195,574 35,325 Stock options exercised........................................ 5,135 263 Net tax benefit from exercise of options ...................... 2,775 --------- ------- Balance, March 31, 2002........................................ 203,484 35,588 --------- ======= Retained earnings: Balance, beginning of year..................................... 239,070 Net income..................................................... 26,796 Redeemable preferred stock accretion........................... (22) Redeemable preferred stock dividend, $1.20 per share........... (56) --------- Balance, March 31, 2002........................................ 265,788 --------- Accumulated other comprehensive income: Balance, beginning of year..................................... (178) Foreign currency translation................................... 0 --------- Balance, March 31, 2002........................................ (178) --------- Treasury shares: Balance, beginning of year..................................... (97,230) 7,586 Treasury stock acquired........................................ (1,471) 33 --------- ------- Balance, March 31, 2002........................................ (98,701) 7,619 --------- ======= Total shareholders' equity........................................ $ 370,393 ========= See notes to consolidated financial statements.
CEC ENTERTAINMENT, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Thousands) Three Months Ended ----------------------------- March 31, 2002 April 1, 2001 -------------- ------------- Operating activities: Net income ............................................................... $ 26,796 $ 25,184 Adjustments to reconcile net income to cash provided by operations: Depreciation and amortization............................................. 9,153 8,286 Deferred income tax expense............................................... 4,998 1,693 Tax benefit from exercise of stock options ............................... 2,775 2,571 Other .................................................................... 204 242 Net change in receivables, inventory, prepaids, payables and accrued liabilities..................................................... 15,568 20,450 -------- -------- Cash provided by operations......................................... 59,494 58,426 -------- -------- Investing activities: Purchases of property and equipment....................................... (22,416) (26,203) Additions to notes receivable............................................. (1,707) (1,100) Payments received on notes receivable..................................... 382 733 (Increase)/decrease in assets held for resale and other assets............ (98) (1,068) -------- -------- Cash used in investing activities................................... (23,839) (27,638) -------- -------- Financing activities: Payments on debt ........................................................ (30,479) (26,442) Exercise of stock options ................................................ 5,135 4,813 Redeemable preferred stock dividends ..................................... (56) (59) Purchase of treasury stock ............................................... (1,471) (7,881) Other ................................................................... (1) 97 -------- -------- Cash used in financing activities................................... (26,872) (29,472) -------- -------- Increase in cash and cash equivalents ....................................... 8,783 1,316 Cash and cash equivalents, beginning of period............................... 3,682 7,300 -------- -------- Cash and cash equivalents, end of period..................................... $ 12,465 $ 8,616 ======== ======== See notes to consolidated financial statements.
CEC ENTERTAINMENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. Interim financial statements: In the opinion of management, the accompanying financial statements for the periods ended March 31, 2002 and April 1, 2001 reflect all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the Company's financial condition, results of operations and cash flows in accordance with generally accepted accounting principles. Certain information and footnote disclosures normally included in the consolidated financial statements prepared in accordance with generally accepted accounting principles have been omitted. The unaudited consolidated financial statements referred to above should be read in conjunction with the financial statements and notes thereto included in the Company's Form 10-K filed with the Securities and Exchange Commission for the year ended December 30, 2001. Results of operations for the periods ended March 31, 2002 and April 1, 2001 are not necessarily indicative of the results for the year. 2. Earnings per common share: Earnings per common share were computed based on the weighted average number of common and potential common shares outstanding during the period. Net income available per common share has been adjusted for the items indicated below, and earnings per common and potential common share were computed as follows (thousands, except per share data): Three Months Ended -------------------- March 31, April 1, 2002 2001 --------- -------- Net income .............................................. $ 26,796 $ 25,184 Accretion of redeemable preferred stock.................. (22) (26) Redeemable preferred stock dividends..................... (56) (59) -------- -------- Adjusted income applicable to common shares.............. $ 26,718 $ 25,099 ======== ======== Basic: Weighted average common shares outstanding........... 27,862 27,745 ======== ======== Earnings per common share............................ $ .96 $ .90 ======== ======== Diluted: Weighted average common shares outstanding........... 27,862 27,745 Potential common shares for stock options and stock grants................................. 693 776 -------- -------- Weighted average shares outstanding.................. 28,555 28,521 ======== ======== Earnings per common and potential common share..................................... $ .94 $ .88 ======== ======== Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations First Quarter 2002 Compared to First Quarter 2001 - ------------------------------------------------- A summary of the results of operations of the Company as a percentage of revenues for the first quarters of 2002 and 2001 is shown below. Three Months Ended ---------------------------- March 31,2002 April 1, 2001 ------------- ------------- Revenues....................................... 100.0% 100.0% ----- ----- Costs and expenses: Cost of sales............................... 42.6 42.0 Selling, general and administrative......... 11.5 13.0 Depreciation and amortization............... 5.3 5.1 Interest expense............................ .2 .4 Other operating expenses.................... 15.0 14.2 ----- ----- 74.6 74.7 ----- ----- Income before income taxes..................... 25.4 25.3 Income taxes .................................. 9.9 9.9 ----- ----- Net income .................................... 15.5% 15.4% ===== ===== Revenues -------- Revenues increased to $172.8 million in the first quarter of 2002 from $163.2 million in the first quarter of 2001 due to an increase in the number of Company-operated restaurants. During 2001, the Company opened 28 new restaurants, acquired two restaurants from a franchisee and closed four restaurants. During the first three months of 2002, the Company opened five new stores. Comparable store sales of the Company's Chuck E. Cheese's restaurants which were open during all of the first quarters of both 2002 and 2001 declined 2.2%. Due to the shift in Easter into the first quarter of 2002, comparable store sales were negatively impacted 1.2% or $2.1 million. Other external factors that contributed to the comparable store sales decline included mild weather and higher kids' movie attendance. Menu prices increased approximately ...9% between the periods. Costs and Expenses ------------------ Costs and expenses as a percentage of revenues decreased to 74.6% in the first quarter of 2002 from 74.7% in the first quarter of 2001. Cost of sales increased as a percentage of revenues to 42.6% in the first quarter of 2002 from 42.0% in the comparable period of 2001. Cost of food, beverage, and related supplies as a percentage of revenues increased slightly to 12.5% in the first quarter of 2002 from 12.4% in the first quarter of 2001 primarily due to a slight increase in cheese costs which was partially offset by the increase in menu prices. Cost of games and merchandise decreased to 4.1% in the first quarter of 2002 from 4.5% in the first quarter of 2001 due to buying efficiencies. Store labor expenses as a percentage of store sales increased to 26.0% in the first quarter of 2002 from 25.1% in the first quarter of 2001 primarily due to the enactment of higher minimum wage rates in certain states, overall increases in wage rates and the decline in comparable store sales. Selling, general and administrative expenses as a percentage of revenues decreased to 11.5% in the first quarter of 2002 from 13.0% in the first quarter of 2001 due primarily to a decrease in advertising and overhead expenses. Depreciation and amortization expenses as a percentage of revenues increased to 5.3% in the first quarter of 2002 from 5.1% in the first quarter of 2001 primarily due to the decline in comparable store sales. Interest expense as a percentage of revenues decreased to .2% in the first quarter of 2002 from .4% in the first quarter of 2001 primarily due to a reduction in interest rates and outstanding debt. Other operating expenses increased as a percentage of revenues to 15.0% in the first quarter of 2002 from 14.2% in the first quarter of 2001 due primarily to higher insurance costs. Insurance expense increased approximately $2.2 million in the first quarter of 2002 compared to the first quarter of 2001 due to several factors including higher premiums, claim loss experience and medical costs. The Company's effective income tax rate was 38.9% in the first quarter of 2002 compared to a rate of 39.0% in the first quarter of 2001. Net Income ---------- The Company had net income of $26.8 million in the first quarter of 2002 compared to $25.2 million in the first quarter of 2001 due to the changes in revenues and expenses discussed above. The Company's diluted earnings per share increased to $.94 per share in the first quarter of 2002 from $.88 per share in the first quarter of 2001. Financial Condition, Liquidity and Capital Resources Cash provided by operations increased to $59.5 million in the first three months of 2002 from $58.4 million in the comparable period of 2001. Cash outflows from investing activities for the first three months of 2002 were $23.8 million primarily related to capital expenditures. Cash outflows from financing activities for the first three months of 2002 were $26.9 million primarily related to the repayment of borrowings on the Company's line of credit and the repurchase of the Company's common stock. The Company's primary requirements for cash relate to planned capital expenditures, the repurchase of the Company's common stock and debt service. The Company expects that it will satisfy such requirements from cash provided by operations and, if necessary, funds available under its line of credit. In 2002, the Company plans to add 32 to 36 stores including new stores and acquisitions of existing stores from franchisees. The Company currently anticipates its cost of opening such new stores to average approximately $2.0 million per store which will vary depending upon many factors including the size of the stores and whether the Company acquires land or the store is an in-line or freestanding building. In addition to such new store openings, the Company plans to expand the seating capacity of two to four high sales volume stores in 2002. The Company also plans to complete Phase III upgrades in approximately 120 stores this year at an average cost of approximately $200,000 per store. A Phase III upgrade generally includes a new toddler play area, skill games and rides, kiddie games and rides, sky-tube enhancements, prize area enhancements and kid check enhancements. The Company plans to initiate a Phase IV upgrade plan in the last half of 2002 in approximately 20 to 30 stores. The primary components of a Phase IV upgrade include additional games and rides and a games rotation program between stores. The capital cost of a Phase IV upgrade is expected to average approximately $60,000 per store. During the first three months of 2002, the Company opened five new restaurants and completed Phase III upgrades in 32 restaurants. The Company currently estimates that capital expenditures in 2002, including expenditures for new store openings, existing store expansions and equipment investments, will be $105 to $110 million. The Company plans to finance these expenditures through cash flow from operations and borrowings under the Company's line of credit. In July 2001, the Company announced a plan to purchase shares of the Company's common stock at an aggregate purchase price of up to $25 million. As of March 31, 2002, the Company has purchased shares of its common stock under the $25 million plan at an aggregate purchase price of approximately $9.1 million. Beginning in 1993 through March 2002, the Company has repurchased shares of the Company's common stock on the open market at an aggregate purchase price of approximately $94 million. The Company's credit facility consists of a $75 million revolving line of credit which matures in 2003. Interest under the line of credit is dependent on earnings and debt levels of the Company and ranges from prime or, at the Company's option, LIBOR plus 1% to 1.75%. Currently, any borrowings under this line of credit would be at the prime rate or LIBOR plus 1%. As of March 31, 2002, there was $21.0 million in borrowings under this line of credit. The Company is required to comply with certain financial ratio tests during the term of the loan agreement. Certain statements in this report, 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. 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. Among the key factors that may have a direct bearing on the Company's operating results, performance or financial condition are its ability to implement its growth strategies, national, regional and local economic conditions affecting the restaurant/entertainment industry, competition within each of the restaurant and entertainment industries, success of its franchise operations, negative publicity, fluctuations in quarterly results of operations, including seasonality, government regulations, weather, school holidays, commodity, insurance and labor costs. Item 3. Quantitative and Qualitative Disclosures about Market Risk The Company is subject to market risk in the form of interest risk and foreign currency risk. Both interest risk and foreign currency risk are immaterial to the Company. PART II - OTHER INFORMATION Item 1. Legal Proceedings. On June 2, 2000, a purported class action lawsuit against the Company, entitled Freddy Gavarrete, et al. v. CEC Entertainment, Inc., dba Chuck E. Cheese's , et. al., Cause No. 00-08132 FMC (RZx) ("Gavarrete"), was filed in the Superior Court of the State of California in the County of Los Angeles. On July 27, 2000, the lawsuit was removed to the United States District Court for the Central District of California. The lawsuit was filed by one former restaurant manager purporting to represent restaurant managers of the Company in California from 1996 to the present. The lawsuit alleges violations of the state wage and hour laws involving unpaid overtime wages and seeks an unspecified amount in damages. On July 31, 2001, the Court denied the Plaintiff's motion for class certification. On October 15, 2001, Plaintiff filed a motion to amend the complaint requesting the addition of a second party to the lawsuit. On November 2, 2001, the Court granted Plaintiff's motion to amend. The Company believes the lawsuit is without merit and intends to vigorously defend against it and that based on currently available information the lawsuit is not likely to have a material adverse impact on the Company's financial position. Item 2. Changes in Securities. None to report during quarter for which this report is filed. Item 3. Defaults Upon Senior Securities. None to report during quarter for which this report is filed. Item 4. Other Information. None to report during quarter for which this report is filed. Item 5. Exhibits and Reports on Form 8-K. a) Exhibits None. b) Reports on Form 8-K None filed during the quarter for which this report is filed. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CEC ENTERTAINMENT, INC. Dated: May 14, 2002 By: /s/ Rodney Carter ------------------------------------------------- Rodney Carter Executive Vice President, Chief Financial Officer and Treasurer -----END PRIVACY-ENHANCED MESSAGE-----