-----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, TiGf4gounaR6WUW3ttk0a/le/EDp6Ayb8zTJ3z4bAn5GA+pFyS+azxTvIk2rNLak pyUgqmwhHPtwwonDrS2COQ== 0000813920-07-000022.txt : 20070306 0000813920-07-000022.hdr.sgml : 20070306 20070306165007 ACCESSION NUMBER: 0000813920-07-000022 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20061231 ITEM INFORMATION: Results of Operations and Financial Condition ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20070306 DATE AS OF CHANGE: 20070306 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: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-13687 FILM NUMBER: 07675382 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 8-K 1 k84th2006earnings.txt PRESS RELEASE UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ----------------------------- FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of Report: (Date of earliest event reported) March 6, 2007 ---------------------------- CEC ENTERTAINMENT, INC. (Exact name of registrant as specified in charter) Kansas 0-15782 48-0905805 (State or other jurisdiction of (Commission File Number) (IRS Employer incorporation or organization) Identification No.) 4441 West Airport Freeway Irving, Texas 75062 (Address of principal executive offices and zip code) (972) 258-8507 (Registrant's telephone number, including area code) N/A (Former name or former address, if changed since last report) Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the Registrant under any of the following provisions (see General Instruction A.2. below): |_| Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425). |_| Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12). |_| Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)). |_| Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)). Item 2.02: Results of Operations and Financial Condition The information furnished in this Current Report on Form 8-K and the Exhibit attached hereto shall not be deemed "filed" for the purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liabilities of such section. On March 6, 2007, CEC Entertainment, Inc. issued a press release announcing preliminary financial results for the fiscal fourth quarter and year ended December 31, 2006 and preliminary estimates of adjustments to its historical financial statements relating to a previously announced restatement. A copy of the press release is attached as Exhibit 99 to this Current Report on Form 8-K. Item 9.01: Financial Statments and Exhibits (c) Exhibits 99 Press Release of CEC Entertainment, Inc. dated March 6, 2007. 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 hereunto duly authorized. CEC ENTERTAINMENT, INC. Date: March 6, 2007 By: /s/ Christopher D. Morris ---------------------------------------------- Christopher D. Morris Executive Vice President, Chief Financial Officer EXHIBIT INDEX Exhibit Number Description - ------- ----------- 99 Press Release of CEC Entertainment, Inc. dated March 6, 2007. EX-99 2 k82006earnings.txt PRESS RELEASE FOR RELEASE CONTACT: Chris Morris March 6, 2007 Executive Vice President 3:05 p.m. Central Time Chief Financial Officer (972) 258-4525 CEC ENTERTAINMENT, INC. REPORTS STRONG PRELIMINARY FOURTH QUARTER AND 2006 EARNINGS AND PRELIMINARY RESTATEMENT IMPACT IRVING, TEXAS - CEC Entertainment, Inc. (NYSE:"CEC") today announced preliminary results for the fourth quarter and fiscal year ended December 31, 2006. These and all other amounts in this press release have been presented on a basis consistent with the previously announced restatement described below. These preliminary results are subject to adjustment for matters relating to the continued review of the Company's consolidated financial statements. Revenues for the fourth quarter of 2006 increased to $176.3 million from $164.1 million in the fourth quarter of 2005 primarily due to an increase in comparable store sales of 3.8% and new store development. Net income in the fourth quarter of 2006 increased to $12.1 million from $10.7 million in the same period of 2005. Diluted earnings per share in the fourth quarter of 2006 increased 19% to $0.37 per share from $0.31 per share in the fourth quarter of 2005. Revenues for 2006 increased to $774.2 million from $726.2 million in 2005 primarily due to an increase in comparable store sales of 2.7% and new store development. Net income in 2006 was $68.5 million compared to $69.8 million in 2005. Diluted earnings per share in 2006 increased to $2.05 per share from $1.93 per share in 2005. Richard M. Frank, Chairman and Chief Executive Officer, stated that, "We are pleased with the solid comparable store sales performance of our restaurants. We believe the operating results reflect the success of our strategic changes that allow us to tighten our operational focus on increasing sales in our existing restaurants while achieving a higher return on capital invested, lowering sales cannibalization of existing restaurants and increasing free cash flow. Our sales momentum has continued into the first quarter with year-to-date comparable store sales growth of 2.9% and we are optimistic about the continued long-term success of maintaining a narrow and targeted focus on delivering an excellent experience for our guests and solid performance for our shareholders." Based on current estimates, the Company expects diluted earnings per share to range from $2.30 to $2.35 per share for the 2007 fiscal year and $0.97 to $1.01 per share for the first quarter of 2007. Estimates for fiscal year 2007 assume an increase in comparable store sales of 2.5% to 3.0%, 10 new restaurant openings and capital expenditures of approximately $90 to $92 million. Preliminary Impact of Restatement of Historical Financial Statements: On July 25, 2006, the Company announced its Audit Committee, with the assistance of independent legal counsel and external forensic accountants, was conducting an independent review of the Company's stock option granting practices. On October 31, 2006, the Company reported the Audit Committee's findings of this review. The Audit Committee did not find any evidence of fraud or intentional misconduct in the Company's stock option granting practices, but did find that certain administrative errors, record-keeping deficiencies and other defects in the stock option granting process resulted in accounting errors. Subsequently, the Company and its Audit Committee concluded that the Company's consolidated financial statements for each of the fiscal years during the three year period ended January 1, 2006, as well as for certain prior periods not included in these consolidated financial statements, should be restated to record additional stock-based compensation and related tax effects resulting from stock options granted during fiscal years 1989 through 2005 that were incorrectly accounted for under generally accepted accounting principles. The decision was based on the determination that the revised measurement dates for determining the accounting treatment of certain stock option grants differed from the measurement dates originally used by the Company in preparing its consolidated financial statements. Based on the Company's evaluation of the Audit Committee's findings, the Company is providing the following preliminary estimates for adjustments to its historical financial statements and the financial performance data based on these adjustments in order to provide comparative prior year information relative to 2006 preliminary results. The preliminary estimates of restatement adjustments are subject to the continued review and audit by the Company's registered independent public accounting firm and its Audit Committee. Historical Granting Practices Historically, the Company has typically granted stock options to employees utilizing a process in which the Board of Directors or a special committee of the Board of Directors would approve stock option grants through unanimous written consents ("UWC"). Under APB 25, the measurement date is the first date on which both are known with finality (1) the number of shares an individual employee is entitled to receive and (2) the option or purchase price, if any. Further under APB 25, compensation cost is measured based on the difference between the exercise price and the market price on the measurement date. Previously, the Company relied on the date of the UWCs ("as of" date) as the accounting measurement date. As a result, the Company did not produce or retain adequate documentation of other events in the stock granting practice. Based on the Company's review of the granting process, the Company has determined that the definition of measurement date was not met on the "as of" date. Instead, the Company believes that upon obtaining the last signature on the UWC the granting process is complete and a measurement date is achieved. Determination of Measurement Date Consistent with the direction provided to the public by the Office of the Chief Accountant of the U.S Securities and Exchange Commission in a letter dated September 19, 2006, (the "OCA September Letter"), when the documentation of stock option granting activities was incomplete or could not be located, the Company reviewed all available relevant information, including historical approval patterns where evidence was available, and formed what the Company believes is a reasonable conclusion as to the most likely option granting actions that occurred and the dates which such actions occurred in determining the appropriate accounting. Based on the Company's interpretation of relevant accounting literature, as well as the guidance provided in the OCA September Letter, the appropriate accounting measurement date for a stock option grant is the date in which all required corporate granting actions have been completed and the persons empowered to make grants have determined, with finality, the terms and recipients of the stock option grant. For the few instances when approval was made in a meeting, the Company considered the date of the meeting to be the accounting measurement date if minutes of the meeting were recorded and provided sufficient specificity to determine the option price and the number of options to be allocated to individuals. For the instances when approval was made through unanimous written consent, the Company considered the measurement date to be the date when the last required signature was received by the Company from the Compensation Committee or Board of Directors on the UWC. However, in some instances, the Company was unable to locate definitive and complete documentation evidencing the date on which the last required approval of a UWC was received by the Company. For these instances, the Company formed a conclusion as to the most likely date that approval was received based on the timing of letters notifying employees of the stock option award (if available) and the approval pattern of past stock option grants approved through a UWC with evidence of the date on which the last required approval was received by the Company. More specifically, for these instances, the Company estimated the accounting measurement date to be the earlier of the date of the letter notifying the employee of the stock option award (if available) or the average number of days lapsing from the stated "as of" date of a UWC to the date on which the last required approval of a UWC was received by the Company for other stock option grants. For annual stock option grants (in which the largest number of stock options were granted to employees) and mid-year grants the average number of days lapsing from the "as of" date of the UWC to the date on which the last required approval of a UWC was received by the Company averaged 29 and 48 business days, respectively. The accounting measurement dates of stock option awards to non-employee members of the Company's Board of Directors were determined in accordance with the Company's Non-Employee Directors Stock Option Plan to be the date of initial election or appointment to the Board of Directors and the fifth business day in January for annual grants in each year thereafter. After comparing the revised measurement dates to the measurement dates previously used by the Company in preparing its consolidated financial statements, the Company determined that certain stock options were granted at an exercise price below the fair market value of the Company's common stock on the revised measurement date. As a result of this determination, the Company will record additional stock-based compensation pre-tax charges of $18.1 million for the fiscal years 1989 through 2005. Tax Items Certain tax issues have also arisen from the Company's determination that it had previously issued in the money stock options. Section 162(m) of the Internal Revenue Code ("Section 162(m)") prohibits tax deductions for non-performance based compensation paid to the chief executive officer and the four highest compensated officers in excess of $1 million in a taxable year. Compensation attributable to stock options issued under the Company's employee stock option plan meets the requirements for treatment as qualified performance-based compensation and is an exception from the deduction limit of Section 162(m) provided the exercise price is greater than or equal to the fair market value of the common stock of the Company on the date of grant. As a result of determining that certain stock options were granted at an exercise price below the fair market value of the common stock of the Company on the revised measurement date, the Company concluded that certain tax deductions related to stock options exercised by employees are not allowed under Section 162(m). Accordingly, the Company will reduce the additions to additional paid-in capital by $0.2 million, $3.0 million and $1.7 million from amounts previously reported in fiscal years 2005, 2004 and 2003, respectively, with corresponding increases in each fiscal year to income taxes payable. Other Items The restatement of prior year financial statements will include an adjustment to capital expenditures accrued at the end of fiscal year 2005 based on an estimate made by the Company at that time. As a result, the Company will increase property, plant and equipment by $5.7 million and construction accounts payable by $5.8 million at the end of fiscal year 2005. The Company will also increase depreciation expense by $97,000 for the fiscal year ended 2005. The Company had previously disclosed non-cash investing and financing transactions in the statement of cash flows totaling $251,000 related to the change in accrued construction accounts payable in fiscal 2005. In the restatement, the Company will amend this disclosure to reflect non-cash investing and financing transactions totaling $8.3 million related to the balance of accrued construction accounts payable at the end of fiscal 2005. The Company had previously recorded an income tax receivable of $4.2 million at the end of fiscal year 2005. As a result of the increases in income taxes payable, the Company will reduce accounts receivable in fiscal year 2005 by $4.2 million and increase income tax payable by $0.2 million. The restatement of prior year financial statements will also include the adjustments for other errors not recorded when the Company prepared its consolidated financial statements. These errors were not previously recorded because the Company believed the amounts of these errors, both individually and in the aggregate, were not material to the Company's consolidated financial statements. Based on the Company's analysis, the Company determined that its estimated insurance reserves at the end of fiscal year 2005 were overstated by $3.6 million. As a result, the Company will record a reduction of insurance expense of $3.6 million in fiscal year 2005 and increase insurance expense included in its previously announced preliminary results for the second quarter of 2006 by the same amount. The Company will also recognize additional pre-tax net charges of $297,000 in fiscal year 2005, pre-tax net charges of $188,000 in fiscal year 2004 and pre-tax net credits of $300,000 in fiscal year 2003 due to other errors related to unaccrued expenses and pricing errors. Related to the pricing errors, the Company will also increase property and equipment by $43,000 in fiscal year 2005 and decrease property and equipment by the same amount in fiscal year 2004. Additionally, the Company will reclassify $200,000 incurred for state franchise taxes to selling, general and administrative expenses from income taxes in fiscal year 2005 and reduce state income tax expense by approximately $50,000 in 2005 and $418,000 in 2004 due to a correction of its estimated reserve for state income taxes due. The following table reconciles previously reported net income to preliminary restated net income (thousands, except per share data):
Preliminary Net Income for Fiscal Year 2005 2004 2003 ----- ---- ---- Net income, as previously reported............................ $ 72,877 $ 82,532 $ 67,381 Increase (decrease) to net income and retained earnings Stock-based compensation expense........................... (328) (710) (1,201) Other corrections.......................................... 3,033 (188) 300 Income tax (expense) benefit............................... (732) 658 226 -------- -------- -------- Total......................................................... 1,973 (240) (675) -------- -------- -------- Net income, as restated....................................... $ 74,850 $ 82,292 $ 66,706 ======== ======== ======== Diluted earnings per share, as restated....................... $ 2.07 $ 2.14 $ 1.65 ======== ======== ========
Had compensation cost for the Company's stock option plans been determined based on the fair value method at the grant date for awards under those plans consistent with the method prescribed by Statement of Financial Accounting Standards No. 123, "Accounting for Stock Based Compensation", the Company's pro forma net income and earnings per share would have been as follows (thousands, except per share data):
Preliminary Proforma Net Income for Fiscal Year 2005 2004 2003 ----- ---- ---- Net income, as restated....................................... $ 74,850 $ 82,292 $ 66,706 Increase in stock-based compensation expense based on fair value based compensation expense, net of taxes........ (5,030) (5,278) (6,122) -------- -------- -------- Pro forma net income, as restated............................. $ 69,820 $ 77,014 $ 60,584 ======== ======== ======== Diluted earnings per share.................................... $ 1.93 $ 2.00 $ 1.50 ======== ======== ========
The Company's management will discuss the expected restatement results and the preliminary results for the fourth quarter and fiscal year 2006 on a conference call and simultaneous webcast on March 6, 2007 at 3:30 p.m. Central Time. The webcast can be accessed through the Company's website at www.chuckecheese.com. Other disclosures related to the restatement and the Company's financial results will be addressed in the Company's amended Annual Report on Form 10-K/A for the fiscal year ended January 1, 2006, amended Quarterly Report on Form 10-Q/A for the quarterly period ended April 2, 2006, Quarterly Reports on Form 10-Q for the quarterly periods ended July 2, 2006 and October 1, 2006 and the Annual Report on Form 10-K for the fiscal year ended December 31, 2006 which the Company plans to file as soon as possible. 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 is 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 CEC'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; health epidemics or pandemics; acts of God; terrorists acts; litigation; demographic trends; fluctuations in quarterly results of operations, including seasonality; government regulations; weather; school holidays; increased commodity, utility, insurance, advertising and labor costs; and the potential impact of the restatement of historical financial statements. CEC Entertainment, Inc. operates a system of 529 Chuck E. Cheese's restaurants in 48 states, of which 484 are owned and operated by the Company. # # #
CEC ENTERTAINMENT, INC. PRELIMINARY CONDENSED CONSOLIDATED RESULTS OF OPERATIONS (Thousands, except per share data) Quarter Ended Year to Date Ended 12/31/06 01/01/06 12/31/06 01/01/06 -------- -------- -------- -------- Restated Restated Revenues: Food and beverage $ 111,493 $ 105,977 $ 490,464 $ 468,760 Games and merchandise 64,222 57,400 280,770 254,422 Franchise fees and royalties 595 656 2,896 2,905 Interest income 1 54 24 76 --------- --------- --------- --------- 176,311 164,087 774,154 726,163 --------- --------- --------- --------- Costs and expenses: Cost of sales: Food, beverage and related supplies 19,732 19,991 89,648 86,867 Games and merchandise 7,137 7,091 33,250 29,997 Labor 49,216 49,311 211,782 201,646 Selling, general and administrative expenses 25,130 23,901 106,611 97,857 Depreciation and amortization 17,020 15,756 65,392 61,310 Interest expense 2,619 1,588 9,160 4,367 Other operating expenses 35,690 29,585 146,562 131,097 --------- --------- --------- --------- 156,544 147,223 662,405 613,141 --------- --------- --------- --------- Income before income taxes 19,767 16,864 111,749 113,022 Income taxes 7,658 6,177 43,264 43,202 --------- --------- --------- --------- Net income $ 12,109 $ 10,687 $ 68,485 $ 69,820 ========= ========= ========= ========= Earnings per share: Basic $ .38 $ .31 $ 2.10 $ 1.99 Diluted $ .37 $ .31 $ 2.05 $ 1.93 Weighted average shares outstanding: Basic 32,009 33,935 32,587 35,091 Diluted 33,032 34,825 33,465 36,188 Note: 2005 earnings have been adjusted for equity based compensation expense related to the Company's implementation of FAS 123R in the first quarter of 2006. These preliminary results are subject to adjustment for matters relating to the continued review of the Company's consolidated financial statements.
CEC ENTERTAINMENT, INC. SUPPLEMENTAL FINANCIAL INFORMATION Quarter Ended Year to Date Ended 12/31/06 01/01/06 12/31/06 01/01/06 -------- -------- -------- -------- Number of Company-owned stores: Beginning of period 477 462 475 449 New 8 13 14 25 Company purchased franchise stores 1 2 Closed (1) (1) (5) (1) ----- ----- ----- ----- End of period 484 475 484 475 Number of franchise stores: Beginning of period 45 44 44 46 New 1 1 1 Company purchased franchise stores (1) (2) Closed (1) ----- ----- ----- ----- End of period 45 44 45 44
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