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 October 4, 1998
- 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 October 4, 1998, an aggregate of 18,021,890 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
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
CEC Entertainment, Inc.:
Page
----
Consolidated balance sheets as of October 4, 1998 (unaudited)
and January 2, 1998 . . . . . . . . . . . . . . . . . . . . 2
Unaudited consolidated statements of earnings for the three months
ended October 4, 1998 and September 26, 1997. . . . . . . . . 3
Unaudited consolidated statements of earnings for the nine months
ended October 4, 1998 and September 26, 1997. . . . . . . . . 4
Unaudited consolidated statement of shareholders' equity for the
nine months ended October 4, 1998 . . . . . . . . . . . . . . 5
Unaudited consolidated statements of cash flows for the nine months
ended October 4, 1998 and September 26, 1997. . . . . . . . . 6
Notes to consolidated financial statements . . . . . . . . . . . . 7
CEC ENTERTAINMENT, INC.
CONSOLIDATED BALANCE SHEETS
OCTOBER 4, 1998 AND JANUARY 2, 1998
(Thousands, except share data)
ASSETS
<TABLE>
October 4, January 2,
1998 1998
---------- ----------
(unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents. . . . . . . . . . . $ 10,271 $ 7,275
Accounts receivable, including receivables
from related parties
of $240 in 1997 . . . . . . . . . . . . . . . . 5,939 2,996
Current portion of notes receivable, including
receivables from related parties of $199
in 1997 . . . . . . . . . . . . . . . . . . . 51 259
Inventories. . . . . . . . . . . . . . . . . . . 5,351 3,975
Prepaid expenses . . . . . . . . . . . . . . . . 3,524 3,550
Current portion of deferred tax asset. . . . . . 2,721 7,237
-------- -------
Total current assets. . . . . . . . . . . . . . 27,857 25,292
-------- -------
Investments in related parties . . . . . . . . . . 668
-------
Property and equipment . . . . . . . . . . . . . . 210,868 187,433
-------- --------
Deferred tax asset . . . . . . . . . . . . . . . . 5,988
--------
Other assets:
Notes receivable, less current portion,
including receivables from related
parties of $156 and $2,516, respectively . . . . 176 2,579
Other. . . . . . . . . . . . . . . . . . . . . . . 5,527 4,408
-------- --------
5,703 6,987
-------- --------
$ 244,428 $ 226,368
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt. . . . . . . . $ 9,381 $ 3,376
Accounts payable and accrued liabilities . . . . 33,370 35,665
-------- --------
Total current liabilities . . . . . . . . . . . 42,751 39,041
-------- --------
Long-term debt, less current portion . . . . . . . 15,289 23,826
-------- --------
Deferred credits . . . . . . . . . . . . . . . . . 4,064 4,052
-------- --------
Other liabilities. . . . . . . . . . . . . . . . . 1,300 1,300
-------- --------
Redeemable preferred stock, $60 par value,
redeemable for $2,974 in 2005. . . . . . . . . . 2,287 2,211
-------- --------
Shareholders' equity:
Common stock, $.10 par value;
authorized 100,000,000 shares; 22,256,566
and 21,912,277 shares issued, respectively . . . 2,226 2,191
Capital in excess of par value . . . . . . . . . . 164,038 158,696
Retained earnings . . . . . . . . . . . . . . . . 70,209 42,768
Deferred compensation. . . . . . . . . . . . . . . (1,710) (2,280)
Less treasury shares of 4,234,676 and 3,827,676,
respectively, at cost . . . . . . . . . . . . . (56,026) (45,437)
------- -------
178,737 155,938
-------- --------
$ 244,428 $ 226,368
======== ========
</TABLE>
See notes to consolidated financial statements.
Page 2
CEC ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(Thousands, except per share data)
<TABLE>
Three Months Ended
------------------------------------
October 4, 1998 September 26. 1997
--------------- ------------------
<S> <C> <C>
Food and beverage revenues . . . . . . . . $ 63,403 $ 56,649
Games and merchandise revenues . . . . . . 33,807 27,732
Franchise fees and royalties . . . . . . . 780 811
Interest income, including related party
income of $10 and $49, respectively . . . 116 294
Joint venture income . . . . . . . . . . . . 116
-------- --------
98,106 85,602
-------- --------
Costs and expenses:
Cost of sales. . . . . . . . . . . . . . . 44,842 39,803
Selling, general and administrative
expenses. . . . . . . . . . . . . . . . 13,990 12,896
Depreciation and amortization. . . . . . . . 7,036 6,412
Interest expense. . . . . . . . . . . . . . 640 731
Other operating expenses . . . . . . . . . . 17,334 15,619
------- -------
83,842 75,461
------- -------
Income before income taxes . . . . . . . . . . 14,264 10,141
Income taxes:
Current expense . . . . . . . . . . . . . . 1,280 781
Deferred expense. . . . . . . . . . . . . . 4,311 3,259
------- -------
5,591 4,040
------- -------
Net Income . . . . . . . . . . . . . . . . . $ 8,673 $ 6,101
======= =======
Net income applicable to common shares . . . $ 8,588 $ 6,015
======= =======
Earnings per share:
Basic:
Net income . . . . . . . . . . . . . . . . $ .48 $ .32
======= =======
Weighted average shares outstanding. . . . 18,032 18,584
======= =======
Diluted:
Net income . . . . . . . . . . . . . . . . $ .47 $ .32
======= =======
Weighted average shares outstanding. . . . . 18,417 19,016
======= =======
</TABLE>
See notes to consolidated financial statements.
page 3
CEC ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(Thousands, except per share data)
<TABLE>
Nine Months Ended
-------------------------------------
October 4, 1998 September 26, 1997
--------------- ------------------
<S> <C> <C>
Food and beverage revenues . . . . . . . $ 191,310 $ 175,688
Games and merchandise revenues . . . . . 97,782 81,819
Franchise fees and royalties . . . . . . 2,459 2,509
Interest income, including related
party income of $70 and $156,
respectively. . . . . . . . . . . . 485 818
Joint venture income . . . . . . . . . . . 20 393
-------- --------
292,056 261,227
-------- --------
Costs and expenses:
Cost of sales. . . . . . . . . . . . . . 133,090 121,385
Selling, general and administrative
expenses, including related party
expense of $31 in 1997 . . . . . . . . 42,101 38,938
Depreciation and amortization. . . . . . . 20,448 19,056
Interest expense. . . . . . . . . . . . . . 2,019 2,148
Other operating expenses . . . . . . . . . . 49,107 46,302
-------- --------
246,765 227,829
-------- --------
Income before income taxes . . . . . . . . . 45,291 33,398
-------- --------
Income taxes:
Current expense. . . . . . . . . . . . . . 8,194 3,340
Deferred expense . . . . . . . . . . . . . 9,400 10,119
------- -------
17,594 13,459
------- -------
Net income . . . . . . . . . . . . . . . . . $ 27,697 $ 19,939
======= =======
Net income applicable to common shares . . . $ 27,441 $ 19,683
======= =======
Earnings per share:
Basic:
Net income . . . . . . . . . . . . . . . . $ 1.52 $ 1.06
======= =======
Weighted average shares outstanding. . . . 18,104 18,491
======= =======
Diluted:
Net income . . . . . . . . . . . . . . . . $ 1.48 $ 1.04
======= =======
Weighted average shares outstanding. . . . 18,591 18,885
======= =======
See notes to consolidated financial statements.
</TABLE>
page 4
CEC ENTERTAINMENT, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(Unaudited)
(Thousands, except per share data)
<TABLE>
Common Capital in Deferred Treasury
Stock Excess of Retained Compen- Stock
Shares Par Value Par Value Earnings sation Shares Cost
------ --------- ----------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, January 2, 1998 . .
21,912 $ 2,191 $158,696 $ 42,768 $(2,280) 3,828 $(45,437)
Net income . . . . . . . . . 27,697
Redeemable preferred stock accretion . . (77)
Redeemable preferred stock dividends,
$3.60 per share. . . . . . (179)
Stock options exercised. . .
341 34 2,477
Tax benefit from the exercise of stock
options and stock grants . . .
2,769
Acquisition of treasury stock . . . 407 (10,589)
Stock issued under 401(k) plan . . .
4 1 96
Amortization of deferred compensation . . . 570
Balances, October 4, 1998. . . . .
------ ------ -------- ------- ------- ----- --------
22,257 $2,226 $164,038 $70,209 $(1,710) 4,235 $(56,026)
====== ====== ======== ======= ======== ===== ========
</TABLE>
See notes to consolidated financial statements.
Page 5
CEC ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Thousands)
<TABLE>
Nine Months Ended
-----------------------------------
October 4, 1998 September 26,1997
--------------- -----------------
<S> <C> <C>
Operating activities:
Net income . . . . . . . . . . . . . . $27,697 $19,939
Adjustments to reconcile net income to cash
provided by operations:
Depreciation and amortization. . . . . . . . 20,448 19,056
Deferred tax expense . . . . . . . . . . . . 9,400 10,119
Compensation expense under stock grant plan. . 570 1,365
Other. . . . . . . . . . . . . . . . . . . . . 71 149
Net change in receivables, inventory, prepaids,
payables and accrued liabilities. . . . . (2,939) (986)
------ ------
Cash provided by operations. . . . . . . . . . 55,247 49,642
Investing activities:
Purchases of property and equipment. . . . . . (41,985) (29,146)
Additions to notes receivable. . . . . . . . . . (235) (1,622)
Payments received on notes receivable. . . . . . 2,236 6,874
Increase in investments, deferred
charges and other assets. . . . . . . . . . . (1,574) (370)
------- -------
Cash used in investing activities . . . . . (41,558) (24,264)
------- -------
Financing activities:
Payments on debt and line of credit. . . . . . . (2,532) (8,298)
Exercise of stock options . . . . . . . . . . . 2,511 2,421
Redeemable preferred stock dividends . . . . . . (179) (179)
Acquisition of treasury stock. . . . . . . . . . (10,589) (1,786)
Other . . . . . . . . . . . . . . . . . . . . 96 160
------- -------
Cash used in financing activities . . . . . (10,693) (7,682)
------- -------
Increase in cash and cash equivalents . . . . . . 2,996 17,696
Cash and cash equivalents, beginning of period . . 7,275 3,402
-------- --------
Cash and cash equivalents, end of period . . . . . $ 10,271 $ 21,098
======== ========
</TABLE>
See notes to consolidated financial statements.
Page 6
CEC ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED OCTOBER 4,1998 AND SEPTEMBER 26, 1997
(Unaudited)
1. Interim financial statements:
In the opinion of management, the accompanying financial statements
for the periods ended October 4, 1998 and September 26, 1997 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 January 2, 1998. Results of operations for the periods
ended October 4, 1998 and September 26,1997 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. The Company has adopted Statement of Financial Accounting
Standards No. 128 Earnings Per Share. The earnings per share data for
1997 has been restated to reflect this adoption. 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):
<TABLE>
Three Months Ended Nine Months Ended
-------------------- -------------------
Oct. 4, Sept. 26, Oct. 4, Sept. 26,
1998 1997 1998 1997
------- -------- ------- ---------
<S> <C> <C> <C> <C>
Net income . . . . . . . . . . $ 8,673 $ 6,101 $ 27,697 $ 19,939
Accretion of redeemable preferred
stock . . . . . . . . . . . . (25) (26) (77) (77)
Redeemable preferred stock
dividends . . . . . . . . . . (60) (60) (179) (179)
------ ------ ------ ------
Adjusted income applicable to common
and potential common shares. .
$ 8,588 $ 6,015 $27,441 $19,683
======= ======= ======= =======
Basic:
Weighted average common shares
outstanding . . . . . . . . . 18,032 18,584 18,104 18,491
======= ======= ======= =======
Earnings per common share. . . . $ .48 $ .32 $ 1.52 $ 1.06
======= ======= ======= =======
Diluted:
Weighted average common shares
outstanding . . . . . . . . . 18,032 18,584 18,104 18,491
Potential common shares for stock
options and stock grants . . . 385 432 487 394
------- ------- ------- -------
Weighted average shares outstanding .
18,417 19,016 18,591 18,885
======= ======= ======= =======
Earnings per common and potential
common share . . . . . . . . $ .47 $ .32 $ 1.48 $ 1.04
======= ======= ======= =======
</TABLE>
3. Recent Accounting Pronouncements
Effective for fiscal years beginning after December 15, 1997, the
Financial Accounting Standards Board has issued Statements No. 130
Reporting Comprehensive Income and No. 131 Disclosure about Segments of
an Enterprise and Related Information. The adoption of these
pronouncements does not have a significant impact on the Company's
consolidated financial position, results operations or cash flows.
page 7
Item 2: Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
Third Quarter 1998 Compared to Third Quarter 1997
- -------------------------------------------------
A summary of the results of operations of the Company as a percentage
of revenues for the third quarters of 1998 and 1997 is shown below.
<TABLE>
Three Months Ended
--------------------------------
Oct. 4, 1998 Sept. 26, 1997
-------------- ----------------
<S> <C> <C>
Revenue . . . . . . . . . . . . . . . 100.0% 100.0%
------ ------
Costs and expenses:
Cost of sales . . . . . . . . . . . . 45.7 46.5
Selling, general and administrative . 14.3 15.1
Depreciation and amortization . . . . 7.2 7.5
Interest expense . . . . . . . . . . .7 .9
Other operating expenses . . . . . . 17.6 18.2
------ ------
85.5 88.2
------ ------
Income before income taxes . . . . . . . 14.5 11.8
Income tax expense . . . . . . . . . 5.7 4.7
------ ------
Net income . . . . . . . . . . . . . . . 8.8% 7.1%
====== ======
</TABLE>
Revenues
--------
Revenues increased to $98.1 million in the third quarter of 1998 from
$85.6 million in the third quarter of 1997 due to an increase of 7.7% in
comparable store sales of the Company's Chuck E. Cheese's restaurants which
were open during all of the third quarters of both 1998 and 1997.In addition,
the Company opened nine new restaurants and acquired seven restaurants from
franchisees or joint venture partners between the periods. Management believes
that several factors contributed to the comparable store sales increase
with the primary factor being sales increases at stores upgraded with new
game packages. Menu prices increased approximately 2.7% between the
periods.
Costs and Expenses
------------------
Costs and expenses as a percentage of revenues decreased to 85.5% in
the third quarter of 1998 from 88.2% in the third quarter of 1997.
Cost of sales decreased as a percentage of revenues to 45.7% in the
third quarter of 1998 from 46.5% in the comparable period of 1997. Cost
of food, beverage, prize and merchandise items as a percentage of
restaurant sales decreased to 16.1% in the third quarter of 1998 from
16.6% in the third quarter of 1997 primarily due to an increase in game
sales, reduced costs of certain food and beverage products and an increase
in menu prices, partially offset by higher cheese costs. Restaurant labor
expenses as a percentage of restaurant sales decreased to 26.7% during
the third quarter of 1998 compared to 27.3% in the third quarter of 1997
primarily due to the increase in comparable store sales and more effective
utilization of hourly employees.
Selling, general and administrative expenses as a percentage of
revenues decreased to 14.3% in the third quarter of 1998 from 15.1% in the
third quarter of 1997 due primarily to a decrease in advertising expenses
as a percentage of revenues.
Depreciation and amortization expenses as a percentage of revenues
declined to 7.2% in the third quarter of 1998 from 7.5% in the third
quarter of 1997 primarily due to the increase in comparable store sales.
Other operating expenses decreased as a percentage of revenues to
17.6% in the third quarter of 1998 from 18.2% in the third quarter of 1997
primarily due to a decline in rent expense as a percentage of revenues,
the increase in comparable store sales and the fact that a significant
portion of operating costs are fixed.
page 8
Net Income
----------
The Company had net income of $8.7 million in the third quarter of
1998 compared to $6.1 million in the third quarter of 1997 due to the
changes in revenues and expenses discussed above. The Company's diluted
earnings per share was $.47 per share in the third quarter of 1998
compared to $.32 per share in the third quarter of 1997.
First Nine Months of 1998 Compared to First Nine Months of 1997
- ---------------------------------------------------------------
A summary of the results of operations of the Company as a percentage
of revenues for the first nine months of 1998 and 1997 is shown below.
<TABLE>
Nine Months Ended
------------------------------------
Oct. 4, 1998 Sept. 26, 1997
------------ --------------
<S> <C> <C>
Revenue . . . . . . . . . . . . . 100.0% 100.0%
Costs and expenses:
Cost of sales . . . . . . . . . 45.6 46.5
Selling, general and administrative . 14.4 14.9
Depreciation and amortization 7.0 7.3
Interest expense . . . . . . . . .7 .8
Other operating expenses . . . . 16.8 17.7
------- -------
84.5 87.2
------- -------
Income before income taxes . . . . 15.5 12.8
Income tax expense . . . . . . 6.0 5.2
------- -------
Net income . . . . . . . . . . . . 9.5% 7.6%
======= =======
</TABLE>
Revenues
--------
Revenues increased to $292.1 million in the first nine months of 1998
from $261.2 million in the first nine months of 1997 primarily due to an
increase of 5.9% in comparable store sales of the Company's Chuck E.
Cheese's restaurants which were open during all of the first nine months
of both 1998 and 1997. In addition, the Company opened nine new
restaurants and acquired seven restaurants from franchisees or joint
venture partners between the periods. Management believes that several
factors contributed to the comparable store sales increase with the
primary factor being sales increases at stores upgraded with new game
packages. Menu prices increased approximately 2.2% between the periods.
Costs and Expenses
-----------------
Costs and expenses as a percentage of revenues decreased to 84.5% in
the first nine months of 1998 from 87.2% in the first nine months of 1997.
Cost of sales decreased as a percentage of revenues to 45.6% in the
first nine months of 1998 from 46.5% in the comparable period of 1997.
Cost of food, beverage, prize and merchandise items as a percentage of
restaurant sales decreased to 16.0% in the first nine months of 1998 from
16.5% in the first nine months of 1997 primarily due to an increase in
game sales, reduced costs of certain food and beverage products and an
increase in menu prices, partially offset by higher cheese costs.
Restaurant labor expenses as a percentage of restaurant sales decreased
to 26.6% during the first nine months of 1998 from 27.2% in the first nine
months of 1997 primarily due to an increase in comparable store sales and
more effective utilization of hourly employees.
Selling, general and administrative expenses as a percentage of
revenues decreased to 14.4% in the first nine months of 1998 from 14.9%
in the comparable period of 1997 primarily due to a reduction in corporate
overhead costs as a percentage of revenues.
Depreciation and amortization expenses as a percentage of revenues
declined to 7.0% in the first nine months of 1998 from 7.3% in the first
nine months of 1997 primarily due to the increase in comparable store
sales.
Page 9
Other operating expenses decreased as a percentage of revenues to
16.8% in the first nine months of 1998 from 17.7% in the first nine months
of 1997 primarily due to a decrease in insurance costs, a decrease in rent
expense as a percentage of revenues, the increase in comparable store
sales and the fact that a significant portion of operating costs are
fixed.
Net Income
----------
The Company had net income of $27.7 million in the first nine months
of 1998 compared to $19.9 million in the first nine months of 1997 due to
the changes in revenues and expenses discussed above. The Company's
diluted earnings per share was $1.48 per share in the first nine months
of 1998 compared to $1.04 per share in the first nine months of 1997.
Financial Condition, Liquidity and Capital Resources
Cash provided by operations increased to $55.2 million in the first
nine months of 1998 from $49.6 million in the comparable period of 1997.
Cash outflows from investing activities for the first nine months of 1998
were $41.6 million. Cash outflows from financing activities for the first
nine months of 1998 were $10.7 million primarily related to the purchase
of treasury 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.
The Company plans to add an additional 18 to 22 stores in 1998
including new stores and acquisitions of existing stores from franchisees
or joint venture partners. The Company currently anticipates its cost of
opening such new stores to average approximately $1.5 million per store
which will vary depending upon many factors including the size of the
stores and whether the store is an in-line or freestanding building. In
addition to such new store openings, the Company plans to expand 15 to 20
existing stores in 1998 by an average of 1,000 to 4,000 square feet per
store. The Company also plans to complete Phase II upgrades in
approximately 110 stores in 1998 at an average cost of $150,000 to
$160,000 per store. A Phase II upgrade generally includes a new game
package, enhanced prize and merchandise offerings, and improved product
presentation and service. During the first nine months of 1998, the
Company opened eight new restaurants, acquired five restaurants from
franchisees or joint venture partners, expanded ten restaurants and
completed Phase II upgrades in 75 restaurants. The Company currently
estimates that capital expenditures in 1998, including expenditures for
upgrading existing stores, new store openings, existing store expansions
and equipment investments, will be approximately $55 to $60 million. The
Company plans to finance these expenditures through cash flow from
operations and, if necessary, borrowings under the Company's line of
credit.
In 1997, the Company announced that it plans to purchase shares of the
Company's common stock at an aggregate purchase price of up to $20
million. In July 1998, the Company completed this plan and announced an
additional plan to purchase shares of the Company's common stock at an
aggregate purchase price of up to $15 million. As of October 4, 1998, the
Company has purchased shares of its common stock under the $15 million
plan at an aggregate purchase price of approximately $5.8 million.
The Company's total credit facility of $38.8 million consists of
$23.8 million in term notes and a $15 million line of credit. Term notes
totaling $18 million with annual principal payments of $6 million
beginning in June 1999 and annual interest of 10.02% mature in 2001. Term
notes totaling $5.8 million with quarterly principal payments of $833,000
and annual interest equal to LIBOR plus 3.5% mature in 2000. Interest
under the $15 million line of credit is dependent on earnings and debt
levels of the Company and ranges from prime minus 0.5% to plus 0.5% or,
at the Company's option, LIBOR plus 1% to 2.5%. Currently, any borrowings
under this line of credit would be at prime rate minus 0.5% or LIBOR plus
1%. In June 1998, the Company's line of credit agreement was amended to
extend the maturity date to June 2000. As of October 4, 1998, there were
no borrowings under the line of credit. The Company is required to comply
with certain financial ratio tests during the terms of the loan
agreements.
page 10
In 1998, the Company purchased computer software which is Year 2000
compliant. The Year 2000 issue is the result of computer programs being
written using two digits rather than four to define the applicable year.
Current systems may be unable to accurately process certain date-based
information. The cost of the new software will be recorded as an asset
and amortized over its estimated useful life. Other maintenance or
modification costs will be expensed as incurred. Accordingly, the Company
does not expect the amounts required to be expensed over the next two
years to have a material effect on its financial position, results of
operations or cash flows. The Company expects its Year 2000 date
conversion project to be completed in 1999. The Company has initiated
formal communication with significant vendors and suppliers to determine
their efforts to remediate the Year 2000 issues.
Certain statements may constitute "forward-looking statements" which
are subject to known and unknown risks and uncertainties including, among
other things, certain economic conditions, competition, development
factors and operating costs that may cause the actual results to differ
materially from results implied by such forward-looking statements.
Page 11
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
There are no material pending legal proceedings, other than ordinary
routine litigation incidental to the business, to which the Company or any
of its subsidiaries is a party or of which any of their property is the
subject.
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. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the
third quarter of 1998.
Item 5. Other Information.
None to report during quarter for which this report is filed.
Item 6. Exhibits and Reports on Form 8-K.
a) Exhibits
EX-27 Financial Data Schedule
b) Reports on Form 8-K
None filed during the quarter for which this report is filed.
Page 12
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: November 16, 1998 By: /s/ Larry G. Page
------------------------
Larry G. Page
Executive Vice President
and Chief Financial Officer
page 13
[ARTICLE] 5
<TABLE>
<S> <C>
[PERIOD-TYPE] 3-MOS
[FISCAL-YEAR-END] JAN-03-1999
[PERIOD-END] OCT-04-1998
[CASH] 10,271
[SECURITIES] 0
[RECEIVABLES] 6,002
[ALLOWANCES] 63
[INVENTORY] 5,351
[CURRENT-ASSETS] 27,857
[PP&E] 336,531
[DEPRECIATION] 125,663
[TOTAL-ASSETS] 244,428
[CURRENT-LIABILITIES] 42,751
[BONDS] 15,289
[COMMON] 2,226
[PREFERRED-MANDATORY] 2,287
[PREFERRED] 0
[OTHER-SE] 176,511
[TOTAL-LIABILITY-AND-EQUITY] 244,428
[SALES] 289,092
[TOTAL-REVENUES] 292,056
[CGS] 133,090
[TOTAL-COSTS] 246,765
[OTHER-EXPENSES] 0
[LOSS-PROVISION] 0
[INTEREST-EXPENSE] 2,019
[INCOME-PRETAX] 45,291
[INCOME-TAX] 17,594
[INCOME-CONTINUING] 27,697
[DISCONTINUED] 0
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] 27,697
[EPS-PRIMARY] 1.52
[EPS-DILUTED] 1.48
</TABLE>
