FORM 10-K
(Mark One)
X Annual report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the fiscal year
ended January 3, 1999.
- 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 jurisdiction of (I.R.S. Employer
incorporation or organization) Identification
No.)
4441 West Airport Freeway
P.O. Box 152077
Irving, Texas 75015
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (972) 258-8507
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, par value $.10 each
(Title of Class)
Class A Preferred Stock, par value $60.00 each
(Title of Class)
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 -
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. -
At March 12, 1999, an aggregate of 18,082,817 shares of the
registrant's Common Stock, par value of $.10 each (being the
registrant's only class of common stock), were outstanding, and
the aggregate market value thereof (based upon the last reported
sale price on March 12, 1999) held by non-affiliates of the
registrant was $510,288,737.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive Proxy Statement, to be
filed pursuant to Section 14(a) of the Act in connection with the
registrant's 1998 annual meeting of shareholders, have been
incorporated by reference in Part III of this report.
P A R T I
Item 1. Business
General
CEC Entertainment, Inc. (the "Company")(formerly ShowBiz Pizza
Time, Inc.), was incorporated in the State of Kansas in 1980 and is
engaged in the family restaurant/entertainment center business.
The Company considers this to be its sole industry segment.
The Company operated, as of March 12, 1999, 276 Chuck E. Cheese's
Pizza ("Chuck E. Cheese's") restaurants. In addition, as of March
12, 1999, franchisees of the Company operated 54 Chuck E. Cheese's
restaurants.
Chuck E. Cheese's Restaurants
Business Development
Chuck E. Cheese's restaurants offer a variety of pizza, a salad
bar, sandwiches and desserts and feature musical and comic
entertainment by life-size, computer-controlled robotic characters,
family oriented games, rides and arcade-style activities. The
restaurants are intended to appeal to families with children
between the ages of 2 and 12. The Company opened its first
restaurant in March 1980.
The Company and its franchisees operate in a total of 44 states
and the Company has concentrated its ownership and operation of
Chuck E. Cheese's restaurants within a 34-state area. See "Item 2.
Properties."
The following table sets forth certain information with respect
to the Chuck E. Cheese's restaurants owned by the Company (excludes
restaurants managed by the Company for others and franchised
restaurants):
1998 1997 1996
---- ----- ----
Average annual revenues
per restaurant (1) $1,452,000 $1,437,000 $1,286,000
Number of restaurants open at end
of period 271 246 240
Percent of total restaurant revenues:
Food and beverage sales 66.2% 68.2% 70.1%
Game sales 30.9% 28.6% 26.6%
Merchandise sales 2.9% 3.2% 3.3%
- --------
(1) In computing these averages, only restaurants which were open
for a period greater than one year at the beginning of each
respective year were included (240, 225 and 213 restaurants in
1998, 1997 and 1996, respectively). Fiscal years 1998 and 1996
consisted of 52 weeks while 1997 consisted of 53 weeks.
The revenues from Chuck E. Cheese's restaurants are seasonal in
nature. The restaurants tend to generate more revenues during the
first and third fiscal quarters as compared to the second and
fourth fiscal quarters.
Each Chuck E. Cheese's restaurant generally employs a general
manager, one or two managers, an electronic specialist who is
responsible for repair and maintenance of the robotic characters
and games, and 45 to 75 food preparation and service employees,
most of whom work only part-time.
Page 2
To maintain a unique and exciting environment in the restaurants,
the Company believes it is essential to reinvest capital through
the evolution of its games, rides and entertainment packages and
continuing enhancement of the facilities. In 1994, the Company
initiated a "repositioning" program to evolve and expand its
efforts to significantly enhance its Chuck E. Cheese's restaurants.
Between March 1994 and September 1997, all Company operated
restaurants were remodeled under this program. In 1997, the
Company initiated a Phase II upgrade program that generally
includes a new game package, enhanced prize and merchandise
offerings and improved product presentation and service. The
Company completed Phase II upgrades in 107 restaurants in 1997,
117 restaurants in 1998 and plans to upgrade the remaining 25
restaurants under this program by the end of the second quarter of
1999.
The Company expanded the customer areas of three, seven, seven
and 20 existing stores in 1995, 1996, 1997, and 1998, respectively.
The Company plans to continue its strategy of expanding the
customer areas of existing restaurants in 1999. The customer area
is typically increased by an average of 1,000 to 4,000 square feet
per store.
The Company opened one, two and 14 new Chuck E. Cheese's
restaurants in 1995, 1997 and 1998, respectively. This does not include
restaurants acquired from franchisees. The Company anticipates adding
approximately 25 new restaurants in 1999 through a combination of new
restaurants and the acquisition of existing restaurants. The Company
periodically reevaluates the site characteristics of its restaurants.
In the event certain site characteristics considered essential for the
success of a restaurant deteriorate, the Company will consider relocating
the restaurant to a more desirable site.
The Company believes its ownership of trademarks to the names and
character likenesses featured in the robotic animation stage show
(and other in-store entertainment) in its restaurants to be an
important competitive advantage.
Restaurant Design and Entertainment
Chuck E. Cheese's restaurants are typically located in shopping
centers or in free-standing buildings near shopping centers and
generally occupy 8,000 to 14,000 square feet in area. Chuck E.
Cheese's restaurants are typically divided into three areas: a
kitchen and related area (cashier and prize area, salad bar,
manager's office, technician's office, restrooms, etc.) occupies
approximately 35% of the space, a dining area occupies
approximately 25% of the space and an playroom area occupies
approximately 40% of the space.
The dining area of each Chuck E. Cheese's restaurant features a
variety of comic and musical entertainment by computer-controlled
robotic characters, together with video monitors and animated
props, located on various stage type settings. The dining area
typically provides table and chair seating for 250 to 375
customers.
Each Chuck E. Cheese's restaurant typically contains a family
oriented playroom area offering approximately 40 coin- and token-
operated attractions, including arcade-style games, kiddie rides,
video games, skill oriented games and other similar entertainment.
Most games dispense tickets that can be redeemed by guests for
prize merchandise such as toys and dolls. Also included in the
playroom area are tubes and tunnels suspended from or reaching to
the ceiling (Sky-Tubes) or other free attractions for young
children, with booth and table seating for the entire family. The
playroom area normally occupies approximately 60% of the
restaurant's customer area and contributes significantly to its
revenues. A limited number of free tokens are furnished with food
orders. Additional tokens may be purchased. These tokens are used
to play the games and rides in the playroom.
Food and Beverage Products
Each Chuck E. Cheese's restaurant offers varieties of pizza, a
salad bar, sandwiches and desserts. Soft drinks, coffee and tea
are also served, along with beer and wine where permitted by local
laws. The Company believes that the quality of its food compares
favorably with that of its competitors.
The majority of food, beverages and other supplies used in the
Company-operated restaurants is currently distributed under a
system-wide agreement with a major food distributor. The Company
believes that this distribution system creates certain cost and
operational efficiencies for the Company.
Page 3
Marketing
The primary customer base for the Company's restaurants consists
of families having children between 2 and 12 years old. The
Company conducts advertising campaigns targeted at families with
young children that feature the family entertainment experiences
available at Chuck E. Cheese's restaurants and are primarily aimed
at increasing the frequency of customer visits. The primary
advertising medium continues to be television, due to its broad
access to family audiences and its ability to communicate the Chuck
E. Cheese's experience. The television advertising campaigns are
supplemented by promotional offers in newspapers.
Franchising
The Company began franchising its restaurants in October 1981 and
the first franchised restaurant opened in June 1982. At March
12, 1999, 54 Chuck E. Cheese's restaurants were operated by a total
of 37 different franchisees, as compared to 61 of such restaurants
at March 13, 1998. In September 1996 and December 1998, the
Company purchased 19 and six Chuck E. Cheese's restaurants,
respectively, owned by its then largest franchisees. In 1998, the
Company sold franchise rights to open up to 10 international
franchise restaurants in the future. Opportunities for further
international franchise development are being reviewed by the
Company.
The Chuck E. Cheese's standard franchise agreements grant to the
franchisee the right to develop and operate a restaurant and use
the associated trademarks within the standards and guidelines
established by the Company. The franchise agreement presently
offered by the Company has an initial term of 15 years and includes
a 10-year renewal option. The standard agreement provides the
Company with a right of first refusal should a franchisee decide to
sell a restaurant. The earliest expiration dates of outstanding
Chuck E. Cheese's franchises are in 1999.
The franchise agreements governing existing franchised Chuck E.
Cheese's restaurants currently require each franchisee to pay: (i)
to the Company, in addition to an initial franchise fee of $50,000,
a continuing monthly royalty fee equal to 3.8% of gross sales;
(ii) to the Advertising Fund [an independent fund established and
managed by an association of the Company and its franchisees to pay
costs of system-wide advertising (the "Association")] an amount
equal to 2.4% of gross sales; and (iii) to the Entertainment Fund
(an independent fund established and managed by such Association to
further develop and improve entertainment attractions) an amount
equal to 0.2% of gross sales. The Chuck E. Cheese's franchise
agreements also require franchisees to expend at least 1% of gross
sales for local advertising. Under the Chuck E. Cheese's franchise
agreements, the Company is required, with respect to Company-
operated restaurants, to spend for local advertising and to
contribute to the Advertising Fund and the Entertainment Fund at
the same rates as franchisees.
Competition
The restaurant and entertainment industries are highly
competitive, with a number of major national and regional chains
operating in the restaurant or family entertainment business.
Although other restaurant chains presently utilize the combined
family restaurant / entertainment concept, these competitors
primarily operate on a regional, market-by-market basis.
The Company believes that it will continue to encounter
competition in the future. Major national and regional chains,
some of which may have capital resources as great or greater than
the Company, are competitors of the Company. The Company believes
that the principal competitive factors affecting Chuck E. Cheese's
restaurants are the relative quality of food and service, quality
and variety of offered entertainment, and location and
attractiveness of the restaurants as compared to its competitors in
the restaurant or entertainment industries.
Page 4
Monterey's Tex-Mex Cafe Restaurants
The Company, through its wholly owned subsidiary BHC Acquisition
Corporation ("BAC"), operated 27 Monterey's Tex-Mex Cafe
restaurants which were sold in May 1994.
Trademarks
The Company, through a wholly owned subsidiary, owns various trademarks,
including "Chuck E. Cheese" and "ShowBiz" that are used in connection with
the restaurants and have been registered with the United States Patent and
Trademark Office. The duration of such trademarks is unlimited, subject to
continued use. The Company believes that it holds the necessary
rights for protection of the marks considered essential to conduct
its present restaurant operations.
Government Regulation
The development and operation of Chuck E. Cheese's restaurants
are subject to various federal, state and local laws and
regulations, including but not limited to those that impose
restrictions, levy a fee or tax, or require a permit or license on
the service of alcoholic beverages and the operation of games and
rides. The Company is subject to the Fair Labor Standards Act, the
Americans With Disabilities Act, and Family Medical Leave Act
mandates. A significant portion of the Company's restaurant
personnel are paid at rates related to the minimum wage established
by federal and state law. Increases in such minimum wage result in
higher labor costs to the Company, which may be partially offset by
price increases and operational efficiencies.
Working Capital Practices
The Company attempts to maintain only sufficient inventory of
supplies in the restaurants which it operates to satisfy current
operational needs. The Company's accounts receivable consist
primarily of credit card receivables, franchise royalties,
management fees and advances to managed properties.
Employees
The Company's employment varies seasonally, with the greatest
number being employed during the summer months. On March 12, 1999,
the Company employed approximately 13,800 employees, including
13,600 in the operation of Chuck E. Cheese's restaurants and 200
employed by the Company in the Company's executive offices. None
of the Company's employees are members of any union or collective
bargaining group. The Company considers its employee relations to
be good.
Page 5
Item 2. Properties
The following table sets forth certain information regarding the
Chuck E. Cheese's restaurants operated by the Company as of March
12, 1999.
Chuck E.
Domestic Cheese's
-------- --------
Alabama 5
Arkansas 4
California 51
Colorado 4
Connecticut 5
Delaware 1
Florida 17
Georgia 7
Idaho 1
Illinois 16
Indiana 7
Iowa 4
Kansas 3
Kentucky 1
Louisiana 5
Maryland 10
Massachusetts 10
Michigan 11
Minnesota 1
Missouri 7
Nevada 2
Nebraska 2
New Hampshire 2
New Jersey 9
New York 7
North Carolina 3
Ohio 14
Oklahoma 3
Pennsylvania 9
South Carolina 4
Tennessee 6
Texas 29
Virginia 7
Wisconsin 7
-----
274
-----
International
Canada 2
-----
276
======
Page 6
Of the 276 Chuck E. Cheese's restaurants owned by the Company as
of March 12, 1999, 253 occupy leased premises and 23 occupy owned
premises. The leases of these restaurants will expire at various
times from 1999 to 2016, as described in the table below.
Year of Number of Range of Renewal
Expiration Restaurants Options (Years)
---------- ----------- ---------------
1999 10 5 to 10
2000 23 None to 15
2001 38 None to 15
2002 60 None to 15
2003 and thereafter 122 None to 15
The leases of Chuck E. Cheese's restaurants contain terms which
vary from lease to lease, although a typical lease provides for a
primary term of 10 years, with two additional five-year options to
renew, and provides for annual minimum rent payments of
approximately $6.00 to $25.00 per square foot, subject to periodic
adjustment. The restaurant leases require the Company to pay the
cost of repairs, insurance and real estate taxes and, in many
instances, provide for additional rent equal to the amount by which
a percentage (typically 6%) of gross revenues exceeds the minimum
rent.
Item 3. Legal Proceedings.
From time to time the Company is involved in litigation, most of
which is incidental to its business. In the Company's opinion, no
litigation in which the Company currently is a party is likely to
have a material adverse effect on the Company's results of
operations, financial condition or cash flows.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of security holders during
the fourth quarter of 1998.
Page 7
P A R T I I
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters.
As of March 12, 1999, there were an aggregate of 18,082,817
shares of the Company's Common Stock outstanding and approximately
2,661 stockholders of record.
The Company's Common Stock is listed on the New York Stock
Exchange under the symbol "CEC". Prior to July 9, 1998, the
Company's Common Stock was listed on the National Market System of
the National Association of Securities Dealers Automated Quotation
(NASDAQ) system under the symbol SHBZ. The following table sets
forth the highest and lowest prices per share of the Common Stock
during each quarterly period within the two most recent years, as
reported on the New York Stock Exchange and National Market System
of NASDAQ:
<TABLE>
High Low
------ ------
<S> <C> <C>
1998
- 1st quarter $ 33 15/16 $ 19 7/8
- 2nd quarter 40 5/16 32 7/8
- 3rd quarter 39 15/16 17 7/8
- 4th quarter 30 19 1/4
1997
- 1st quarter $ 25 $ 16 1/2
- 2nd quarter 27 3/8 17 1/4
- 3rd quarter 26 3/4 20 1/2
- 4th quarter 24 15/16 17 3/8
</TABLE>
The Company may not pay any dividends to holders of its Common
Stock (except in shares of Common Stock) unless an amount equal to
all dividends then accrued on its Class A Preferred Stock par value
$60.00 per share ("the Preferred Stock") has been paid or set aside
to be paid. A dividend to holders of record of Preferred Stock as
of January 3, 1999 in the amount of $1.20 per share will be paid on
April 5, 1999.
The Company has not paid any cash dividends on its Common Stock
and has no present intention of paying cash dividends thereon in
the future. The Company plans to retain any earnings to finance
anticipated capital expenditures and reduce its long-term debt.
Future dividend policy with respect to the Common Stock will be
determined by the Board of Directors of the Company, taking into
consideration factors such as future earnings, capital
requirements, potential loan agreement restrictions and the
financial condition of the Company.
Page 8
Item 6. Selected Financial Data.
<TABLE>
1998 1997 1996 1995 1994
----- ---- ---- ---- ----
(Thousands, except per share and store data)
<S> <C> <C> <C> <C> <C>
Operating results (1):
Revenues . . . . . . . . . . . $379,427 $350,267 $293,990 $263,783 $268,515
Costs and expenses . . . . . . 324,395 307,558 271,769 263,408 265,402
------- ------- ------- ------- --------
Income before income taxes . . 55,032 42,709 22,221 375 3,113
Income taxes:
Current expense. . . . . . 9,160 3,417 2,855 701 869
Deferred expense (benefit). 12,142 13,795 6,145 (389) 1,568
------ ------ ------ ----- ------
21,302 17,212 9,000 312 2,437
------ ------ ------ ----- ------
Net income . . . . . . . . . . $33,730 $25,497 $13,221 $ 63 $ 676
====== ====== ====== ===== =====
Per Share (2):
Basic:
Net income (loss) . . . . . $ 1.85 $ 1.37 $ .71 $ (.02) $ .02
Weighted average shares
outstanding . . . . . . . 18,062 18,402 18,206 18,098 18,115
Diluted:
Net income (loss) . . . . . $ 1.80 $ 1.34 $ .70 $ (.02) $ .02
Weighted average shares
outstanding . . . . . . . 18,540 18,817 18,477 18,098 18,191
Cash flow data:
Cash provided by operations. $68,614 $69,478 $48,362 $27,810 $30,819
Cash used in investing
activities . . . . . . . . (65,622) (43,805) (51,868) (30,548) (22,576)
Cash provided by (used in)
financing activities . . . (7,057) (21,800) 1,319 5,946 (10,373)
Balance sheet data:
Total assets . . . . . . . $252,228 $226,368 $216,580 $ 199,010 $ 188,308
Long-term obligations (including
current portion and redeemable
preferred stock) . . . . . 31,911 30,713 39,571 39,244 33,223
Shareholders' equity . . . . 183,949 155,938 141,476 126,487 125,515
Number of restaurants at year end:
Chuck E. Cheese's:
Company operated. . . . . . . 271 249 244 226 226
Franchise . . . . . . . . . . 54 63 70 93 106
----- ----- ----- ----- -----
325 312 314 319 332
===== ===== ===== ===== =====
</TABLE>
- ----------------------
(1) Fiscal year 1997 was 53 weeks in length while all other fiscal
years presented were 52 weeks in length.
(2) No cash dividends on common stock were paid in any of the
years presented.
page 9
Item 7. Management's Discussion and Analysis of Financial
Condition and Results Of Operations.
Results of Operations
A summary of the results of operations of the Company as a
percentage of revenues for the last three fiscal years is shown
below.
<TABLE>
1998 1997 1996
----- ----- -----
<S> <C> <C> <C>
Revenues . . . . . . . . . . . . 100.0% 100.0% 100.0%
------ ------ ------
Costs and expenses:
Cost of sales. . . . . . . . . 45.9% 46.8% 48.7%
Selling, general and
administrative. . . . . . . 14.9% 15.1% 14.8%
Depreciation and amortization. 7.3% 7.3% 8.5%
Interest expense . . . . . . . .7% .8% 1.2%
Other operating expenses . . . 16.7% 17.8% 19.2%
------ ------ ------
85.5% 87.8% 92.4%
------ ------ ------
Income before income taxes . . . 14.5% 12.2% 7.6%
====== ====== ======
</TABLE>
1998 Compared to 1997
- ---------------------
Revenues increased 8.3% to $379.4 million in 1998 from $350.3
million in 1997 primarily due to an increase of 4.1% in sales of
the Company's Chuck E. Cheese's restaurants which were open during
all of 1998 and 1997 ("comparable store sales"). In addition, the
Company opened 14 new restaurants, purchased eight restaurants
from franchisees and three restaurants from joint venture partners
in 1998. Fiscal years 1998 and 1997 consisted of 52 and 53 weeks,
respectively.
Income before income taxes increased to $55.0 million in 1998
from $42.7 million in 1997. A material portion of operating costs
are fixed resulting in an improvement of operating margins at
higher sales levels. Net income increased to $33.7 million in 1998
from $25.5 million in 1997. The Company's diluted earnings per
share increased to $1.80 per share in 1998 compared to $1.34 per
share in 1997.
Revenues
--------
Revenues increased to $379.4 million in 1998 from $350.3 million
in 1997. Comparable store sales of Chuck E. Cheese's restaurants
increased by 4.1% in 1998. In addition, the Company opened 14 new
restaurants, acquired eight restaurants from franchisees and three
restaurants from joint venture partners in 1998. Average annual
revenues per restaurant increased to approximately $1,452,000 in
1998 from approximately $1,437,000 in 1997. Fiscal years 1998 and
1997 consisted of 52 and 53 weeks, respectively. Management
believes that several factors contributed to the comparable store
sales increase with the primary factor being sales increases at
Phase II upgraded restaurants. Menu prices increased 1.8% between
the two years.
Revenues from franchise fees and royalties were $3.3 million in
1998, an increase of 2.4% from 1997, primarily due to an increase
in comparable franchise store sales of 0.7% in 1998 and higher sales
volumes in new franchise restaurants. During 1998, three new
franchise restaurants opened, four franchise restaurants closed and
eight franchise restaurants were purchased by the Company.
Costs and Expenses
------------------
Costs and expenses as a percentage of revenues decreased to 85.5%
in 1998 from 87.8% in 1997.
Cost of sales as a percentage of revenues decreased to 45.9% in
1998 from 46.8% in 1997. Cost of food, beverage, prize and
merchandise items as a percentage of restaurant sales decreased to
16.0% in 1998 from 16.5% in 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 declined to 26.9% in 1998 from 27.5% in 1997 primarily due an
increase in comparable store sales and more effective utilization
of hourly employees.
Page 10
Selling, general and administrative expenses as a percentage of
revenues decreased to 14.9% in 1998 from 15.1% in 1997 primarily
due to a reduction in corporate overhead costs and advertising expense
as a percentage of revenues partially offset by an increase in preopening
costs.
Depreciation and amortization expense as a percentage of revenues
remained constant at 7.3% in both 1998 and 1997.
Other operating expenses decreased as a percentage of revenues
to 16.7% in 1998 from 17.8% in 1997 primarily due to a decrease in
insurance costs including a reduction in prior year reserves and a
decrease in rent expense as a percentage of revenues.
Net Income
----------
The Company had net income of $33.7 million in 1998 compared to
$25.5 million in 1997 due to the changes in revenues and expenses
discussed above. The Company's diluted earnings per share
increased to $1.80 per share in 1998 compared $1.34 per share in
1997.
1997 Compared to 1996
- ---------------------
Revenues increased 19.1% to $350.3 million in 1997 from $294.0
million in 1996 primarily due to an increase of 10.7% in comparable
store sales. In addition, the Company purchased 19 restaurants
from its largest franchisee in September 1996. Fiscal years 1997
and 1996 consisted of 53 and 52 weeks, respectively.
Income before income taxes increased to $42.7 million in 1997
from $22.2 million in 1996. A material portion of operating costs
are fixed resulting in an improvement of operating margins at
higher sales levels. Net income increased to $25.5 million in 1997
from $13.2 million in 1996. The Company's diluted earnings per
share increased to $1.34 per share in 1997 compared to $.70 per
share in 1996.
Revenues
--------
Revenues increased to $350.3 million in 1997 from $294.0 million
in 1996. Comparable store sales of Chuck E. Cheese's restaurants
increased by 10.7% in 1997. In addition, the Company purchased 19
restaurants from its largest franchisee in September 1996. Average
annual sales per restaurant increased to approximately $1,437,000
in 1997 from approximately $1,286,000 in 1996. Fiscal years 1997
and 1996 consisted of 53 and 52 weeks, respectively. Management
believes that several factors contributed to the comparable store
sales increase with the primary factor being sales increases at
repositioned restaurants. Menu prices increased 2.4% between the
two years.
Revenues from franchise fees and royalties were $3.2 million in
1997, a decrease of 12.2% from 1996, primarily due to the Company's
purchase of 19 franchise restaurants in September 1996. Comparable
franchise store sales increased 9.1% in 1997. During 1997, one
new franchise restaurant opened, six franchise restaurants closed
and two franchise restaurants were purchased by the Company.
Costs and Expenses
------------------
Costs and expenses as a percentage of revenues decreased to 87.8%
in 1997 from 92.4% in 1996.
Cost of sales as a percentage of revenues decreased to 46.8% in
1997 from 48.7% in 1996. Cost of food, beverage, prize and
merchandise items as a percentage of restaurant sales decreased to
16.5% in 1997 from 17.4% in 1996 primarily due to a 2.4% increase
in menu prices and lower cheese costs in 1997. Restaurant labor
expenses as a percentage of restaurant sales declined to 27.5% in
1997 from 28.7% in 1996 primarily due to labor efficiencies
achieved at higher sales volumes.
Page 11
Selling, general and administrative expenses as a percentage of
revenues increased to 15.1% in 1997 from 14.8% in 1996 primarily
due to start-up costs related to the outsourcing and evaluation of
a toll-free birthday reservation system, management development
expenses and stock offering costs incurred in 1997 for a secondary
offering by the Company's largest shareholder.
Depreciation and amortization expense as a percentage of revenues
decreased to 7.3% in 1997 from 8.5% in 1996 primarily due to the
increase in comparable store sales, a change effected in the first
quarter of 1997 in the estimated useful lives of certain fixed
assets and the acquisition of restaurants in 1996 with lower
depreciation expense than existing restaurants. Depreciation
expense was reduced approximately $2.2 million in 1997 due to the
change in the estimated useful lives of certain fixed assets based
on a review of historical asset utilization.
Interest expense decreased to $2.9 million in 1997 from $3.5
million in 1996 primarily due to a decrease in the Company's
outstanding debt between the two periods.
Other operating expenses decreased as a percentage of revenues
to 17.8% in 1997 from 19.2% in 1996 primarily due to the increase
in comparable store sales and the fact that a significant portion
of operating costs such as rent, property taxes and insurance are
fixed.
Net Income
----------
The Company had net income of $25.5 million in 1997 compared to
$13.2 million in 1996 due to the changes in revenues and expenses
discussed above. The Company's diluted earnings per share
increased to $1.34 per share in 1997 compared $.70 per share in
1996.
Inflation
- ---------
The Company's cost of operations, including but not limited to
labor, supplies, utilities, financing and rental costs, are
significantly affected by inflationary factors. The Company pays
most of its part-time employees rates that are related to federal
and state mandated minimum wage requirements. Management
anticipates that any increases in federally mandated minimum
wage would result in higher costs to the Company, which the Company
expects would be partially offset by menu price increases and
increased efficiencies in operations.
Financial Condition, Liquidity and Capital Resources
- -----------------------------------------------------
Cash provided by operations decreased slightly to $68.6 million
in 1998 from $69.5 million in 1997 primarily due to changes in
working capital. Cash outflow from investing activities for 1998
was $65.6 million. Cash outflow from financing activities in 1998
was $7.1 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.
In 1999, the Company plans to add approximately 25 stores
including new stores and acquisitions of existing stores from
franchisees. The Company currently anticipates its cost of opening
new stores to average approximately $1.5 million per store which
will vary depending upon many factors including the size of the
store and whether the store is an in-line or free-standing
building. In addition to such new store openings, the Company
plans to continue its strategy of expanding the customer area of
stores. The Company also plans to complete Phase II upgrades in 25
stores in the first and second quarter of 1999 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
1998, the Company opened 14 new restaurants, acquired eight
restaurants from franchisees and three restaurants from joint
venture partners, expanded the customer area of 20 restaurants and
completed Phase II upgrades in 117 restaurants.
Page 12
The Company currently estimates that capital expenditures in 1999,
including expenditures for remodeling existing stores, new store
openings, existing store expansions and equipment investments, will
be approximately $65 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 planned 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 January 3, 1999 the Company has purchased shares of its
common stock under the $15 million plan at an aggregate purchase
price of approximately $5.8 million.
In 1998, the Company's line of credit agreement was amended to
provide borrowings of up to $30 million and extend the maturity
date to June 2000. The Company's total credit facility of $53
million at January 3, 1999 consists of $23 million in term notes
and the $30 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 million with quarterly principal payments of $833,000
and annual interest equal to LIBOR plus 3.5% mature in 2000.
Interest under the $30 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 the prime rate minus 0.5% or LIBOR plus 1%. As of March 12,
1999, there were no borrowings under this line of credit. The
Company is required to comply with certain financial ratio tests
during the terms of the loan agreements.
In 1998, the Company purchased computer software and hardware
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 and hardware has been recorded as an asset and is
being 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 year to have a material effect on its financial
position or 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 Year 2000 issues.
Certain statements in this report may constitute -
looking statements'-looking statements.
Item 7A: Quantitative and Qualitative Disclosures About Market Risk
- -----------------------------------------------------------------
The Company is subject to market risk in the form of interest
rate risk and foreign currency risk. Both interest rate risk and
foreign currency risk are immaterial to the Company.
Page 13
Item 8. Financial Statements and Supplementary Data
CEC ENTERTAINMENT, INC.
YEARS ENDED JANUARY 3, 1999, JANUARY 2, 1998
AND DECEMBER 27, 1996
CONTENTS
Page
----
Independent auditors' report . . . . . . . . . . . . . . . 15
Consolidated financial statements:
Consolidated balance sheets. . . . . . . . . . . . . . . 16
Consolidated statements of earnings and
comprehensive income . . . . . . . . . . . . . . . . 17
Consolidated statements of shareholders' equity. . . . . 18
Consolidated statements of cash flows. . . . . . . . . . 19
Notes to consolidated financial statements . . . . . . . 20
Page 14
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
CEC Entertainment, Inc.
Irving, Texas
We have audited the accompanying consolidated balance sheets of CEC
Entertainment, Inc. (formerly ShowBiz Pizza Time, Inc.) and subsidiaries as of
January 3, 1999 and January 2, 1998, and the related consolidated statements of
earnings and comprehensive income, shareholders' equity, and cash flows for each
of the three years in the period ended January 3, 1999. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of CEC Entertainment, Inc. and
subsidiaries as of January 3, 1999 and January 2, 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
January 3, 1999, in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Dallas, Texas
March 8, 1999
Page 15
CEC ENTERTAINMENT, INC.
CONSOLIDATED BALANCE SHEETS
JANUARY 3, 1999 AND JANUARY 2, 1998
(Thousands, except share data)
ASSETS
<TABLE>
January 3, January 2,
1999 1998
------- -------
<S> <C> <C>
Current assets:
Cash and cash equivalents . . . . . . . . . $ 3,210 $ 7,275
Accounts receivable, including receivables from
related parties of $240 in 1997. . . . . . 4,299 2,996
Current portion of notes receivable, including
receivables from related parties of $199 in 1997 . 52 259
Inventories . . . . . . . . . . . . . . . . 5,842 3,975
Prepaid expenses. . . . . . . . . . . . . . 3,643 3,550
Current portion of deferred tax asset . . . 720 7,237
------ ------
Total current assets . . . . . . . . . . . 17,766 25,292
------ ------
Investments in related parties . . . . . . . 668
------ ------
Property and equipment, net. . . . . . . . . 228,531 187,433
------ ------
Deferred tax asset . . . . . . . . . . . . . 1,036 5,988
------ ------
Notes receivable, less current portion, including
receivables from related parties of $361 and
$2,516, respectively . . . . . . . . . . . 363 2,579
------ ------
Other assets . . . . . . . . . . . . . . . . 4,532 4,408
------ -----
$252,228 $226,368
====== ======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt . . . . . $ 9,383 $ 3,376
Accounts payable and accrued liabilities. . 32,453 35,665
------- ------
Total current liabilities. . . . . . . . . 41,836 39,041
------- -------
Long-term debt, less current portion . . . . 18,922 23,826
------ ------
Deferred rent. . . . . . . . . . . . . . . . 3,915 4,052
------ ------
Other liabilities. . . . . . . . . . . . . . 1,300 1,300
------ ------
Commitments and contingencies
Redeemable preferred stock, $60 par value, redeemable for
$2,974 in 2005 . . . . . . . . . . . . . . 2,306 2,211
------ ------
Shareholders' equity:
Common stock, $.10 par value; authorized
50,000,000 shares; 22,265,303 and 21,912,277
shares issued, respectively . . . . . . . 2,227 2,191
Capital in excess of par value. . . . . . . 163,105 158,696
Retained earnings . . . . . . . . . . . . . 76,157 42,768
Deferred compensation . . . . . . . . . . . (1,520) (2,280)
Accumulated other comprehensive income . . 6
Less treasury shares of 4,234,676 and 3,827,676,
respectively, at cost . . . . . . . . . . (56,026) (45,437)
------- ------
183,949 155,938
------ ------
$ 252,228 $ 226,368
======= =======
</TABLE>
See notes to consolidated financial statements.
Page 16
CEC ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
AND COMPREHENSIVE INCOME
YEARS ENDED JANUARY 3, 1999,
JANUARY 2, 1998 AND DECEMBER 27, 1996
(Thousands, except per share data)
<TABLE>
1998 1997 1996
----- ----- -----
<S> <C> <C> <C>
Food and beverage revenues . . . . . . . . . $ 248,948 $ 235,898 $ 202,624
Games and merchandise revenues . . . . . . . 126,612 109,518 86,444
Franchise fees and royalties . . . . . . . . 3,304 3,227 3,675
Interest income, including related party
income of $65, $244 and
$246, respectively. . . . . . . . . . . . . 543 1,095 1,051
Joint venture income . . . . . . . . . . . . 20 529 196
------- ------- -------
379,427 350,267 293,990
------- ------- -------
Costs and expenses:
Cost of sales . . . . . . . . . . . . . . . . 173,890 163,713 143,381
Selling, general and administrative expenses,
including related party expenses of $31 and
$125 in 1997 and 1996, respectively. . . . . 56,690 53,037 43,534
Depreciation and amortization. . . . . . . . 27,620 25,524 25,057
Interest expense. . . . . . . . . . . . . . . . 2,694 2,866 3,476
Other operating expenses. . . . . . . . . . . . 63,501 62,418 56,321
------- ------- -------
324,395 307,558 271,769
------- ------- -------
Income before income taxes . . . . . . . . . . . 55,032 42,709 22,221
Income taxes:
Current expense. . . . . . . . . . . . . . . . 9,160 3,417 2,855
Deferred expense . . . . . . . . . . . . . . . 12,142 13,795 6,145
------- ------- -------
21,302 17,212 9,000
------- ------- -------
Net income. . . .. . . . . . . . . . . . . . . . 33,730 25,497 13,221
Other comprehensive income, net of tax:
Foreign currency translation . . . . . . . . . . 6
------- ------- -------
Comprehensive income . . . . . . . . . . . . . . $ 33,736 $ 25,497 $ 13,221
Earnings per share:
Basic:
Net income . . . . . . . . . . . . . . . . . . $ 1.85 $ 1.37 $ .71
======= ======= =======
Weighted average shares outstanding. . . . . . 18,062 18,402 18,206
======= ======= =======
Diluted:
Net income . . . . . . . . . . . . . . . . . . $ 1.80 $ 1.34 $ .70
======= ======= =======
Weighted average shares outstanding. . . . . . 18,540 18,817 18,477
======= ======= =======
</TABLE>
See notes to consolidated financial statements.
PAGE 17
CEC ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED JANUARY 3, 1999,
JANUARY 2, 1998 AND DECEMBER 27, 1996
(THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
AMOUNTS SHARES
------------------------------ ----------------------
1998 1997 1996 1998 1997 1996
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Common stock and capital in
excess of par value:
Balance, beginning of year.. $160,887 $155,947 $155,659 21,912 21,519 21,435
Stock options exercised ... 2,573 2,592 937 349 262 77
Tax benefit (expense)
from exercise of stock
options and stock grants.. 1,775 (14) (655)
Stock issued under 401(k)
plan ..................... 97 59 52 4 3 8
Stock grant plan............ 2,293 128
Stock split costs .......... 10 (30)
Cancellation of fractional
shares.................. (16) (1)
------- ------- ------- ------ ----- -----
Balance, end of year........ 165,332 160,887 155,947 22,265 21,912 21,519
------- ------- ------- ====== ====== ======
Retained earnings:
Balance, beginning of
year................... 42,768 17,613 4,733
Net Income............... 33,730 25,497 13,221
Redeemable preferred
stock accretion........ (103) (104) (103)
Redeemable preferred stock
dividend, $4.80 per share. (238) (238) (238)
------ ------- -------
Balance, end of year...... 76,157 42,768 17,613
------- ------- -------
Deferred compensation:
Balance, beginning of year. (2,280) (1,821) (3,642)
Amortization of deferred
compensation............ 760 1,821 1,821
Stock grant plan.......... (2,280)
------- ------- -------
Balance, end of year....... (1,520) (2,280) (1,821)
------- ------- -------
Accumulated other comprehensive income:
Foreign currency
translation............. 6
-------
Balance, end of year...... 6
-------
Treasury shares:
Balance, beginning of year.. (45,437) (30,263) (30,263) 3,828 3,109 3,109
Treasury stock acquired..... (10,589) (15,174) 407 719
------- ------- ------ ------ ----- ------
Balance, end of year........ (56,026) (45,437) (30,263) 4,235 3,828 3,109
------- ------- ------ ====== ===== =====
Total shareholders' equity...$183,949 $155,938 $141,476
======= ======= =======
</TABLE>
See notes to consolidated financial statements.
pAGE 18
CEC ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JANUARY 3, 1999,
JANUARY 2, 1998 AND DECEMBER 27, 1996
(THOUSANDS)
<TABLE>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Operating activities:
Net income . . . . . . . . . . . . . . . $ 33,730 $ 25,497 $ 13,221
Adjustments to reconcile net income to
cash provided by operations:
Depreciation and amortization . . . . . 27,620 25,524 25,057
Deferred income tax expense . . . . . . 12,142 13,795 6,145
Compensation expense under stock grant plan . 760 1,821 1,821
Other . . . . . . . . . . . . . . . . . (44) 153 615
Net change in receivables, inventories,
prepaids, payables and
accrued liabilities. . . . . . . . . . (5,594) 2,688 1,503
------- ------- -------
Cash provided by operations. . . . . . 68,614 69,478 48,362
------- ------- -------
Investing activities:
Purchases of property and equipment. . . (66,704) (48,451) (51,719)
Payments received on notes receivable. . 2,503 7,376 3,534
Additions to notes receivable. . . . . . (690) (2,500) (3,568)
Change in investments and other assets . (731) (230) (115)
------- ------- -------
Cash used in investing activities. (65,622) (43,805) (51,868)
------- ------- -------
Financing activities:
Proceeds from debt and line of credit. . 4,479 7,600
Payments on debt and line of credit. . . (3,376) (9,142) (6,995)
Redeemable preferred stock dividends . . (238) (238) (238)
Acquisition of treasury stock. . . . . . (10,589) (15,174)
Exercise of stock options. . . . . . . . 2,573 2,592 937
Other. . . . . . . . . . . . . . . . . . 94 162 15
------- ------- -------
Cash provided by (used in) financing
activities. . . . . . . . . . . . . (7,057) (21,800) 1,319
------- ------- -------
Increase (decrease) in cash and cash
equivalents . . . . . . . . . . . . . (4,065) 3,873 (2,187)
Cash and cash equivalents, beginning of year . 7,275 3,402 5,589
------- ------- -------
Cash and cash equivalents, end of year . . $ 3,210 $ 7,275 $ 3,402
======= ======= =======
</TABLE>
See notes to consolidated financial statements.
page 19
CEC ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 3, 1999,
JANUARY 2, 1998 AND DECEMBER 27, 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Operations:
CEC Entertainment, Inc. (the "Company") operates and franchises family
restaurant/entertainment centers as Chuck E. Cheese's restaurants.
Fiscal year:
The Company's fiscal year is 52 or 53 weeks and ends on the Sunday nearest
December 31. References to 1998, 1997 and 1996 are for the fiscal years
ended January 3, 1999, January 2, 1998 and December 27, 1996, respectively.
Fiscal years 1998 and 1996 were each 52 weeks in length, while fiscal year
1997 was 53 weeks in length.
Basis of consolidation:
The consolidated financial statements include the accounts of the Company
and its subsidiaries. All significant intercompany accounts and transactions
have been eliminated.
Foreign currency translation:
The consolidated financial statements are presented in U.S. dollars. The
assets and liabilities of theCompany's Canadian subsidiary are translated to
U.S. dollars at year-end exchange rates, while revenues and expenses are
translated at average exchange rates during the year. Adjustments that result
from translating amounts are reported as a component of other comprehensive
income.
Cash and cash equivalents:
Cash and cash equivalents of the Company are composed of demand deposits
with banks and short-term cash investments with remaining maturities of three
months or less from the date of purchase by the Company.
Inventories:
Inventories of food, paper products and supplies are stated at the lower of
cost or market on a first-in, first-out basis.
Property and equipment, depreciation and amortization:
Property and equipment are stated at cost. Depreciation and amortization
are provided by charges to operations over the estimated useful lives of the
assets, or the lease term if less, by the straight-line method. All
preopening costs are expensed as incurred.
Page 20
CEC ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JANUARY 3, 1999,
JANUARY 2, 1998 AND DECEMBER 27, 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(CONTINUED):
Deferred charges and related amortization:
Deferred charges are amortized over various periods of up to 16 years. All
amortization is provided by the straight-line method, which approximates the
interest method.
Franchise fees and royalties:
The Company recognizes initial franchise fees upon fulfillment of all
significant obligations to the franchisee.Royalties from franchisees are
accrued as earned.
Impairment of intangibles and long-lived assets:
Impairment losses are recognized if the future cash flows expected to be
generated by the operations applicable to the intangibles and long-lived assets
are less than the carrying value of the assets. The impairment
loss is equal to the amount by which the carrying value of the assets
exceeds the fair value of the assets.
Use of estimates and assumptions:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Accounting for stock-based compensation:
As permitted by Statement of Financial Accounting Standards No. 123 ("SFAS
123") "Accounting for Stock- Based compensation," the Company applies the
recognition and measurement provisions of Accounting Principles Board Opinion
No. 25 ("APB 25"), "Accounting for Stock Issued to Employees"
and has disclosed the proforma effects of SFAS 123 (Note 17).
Recent accounting pronouncements:
The Company has adopted Statement of Financial Accounting Standards No. 130
("SFAS 130") "Reporting Comprehensive Income" which became effective for years
beginning after December 15, 1997. Comprehensive income includes changes in
equity from transactions and events from nonowner sources.
Statement of Financial Accounting Standards No. 131 ("SFAS 131")
"Disclosures about Segments of an Enterprise and Related Information" became
effective for years beginning after December 15, 1997. The Company is not
engaged in multiple business or geographic segments requiring separate
disclosure under SFAS 131.
Page 21
CEC ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JANUARY 3, 1999,
JANUARY 2, 1998 AND DECEMBER 27, 1996
2. ACCOUNTS RECEIVABLE:
<TABLE>
1998 1997
-----------------------
(THOUSANDS)
<S> <C> <C>
Trade. . . . . . . . . . . . . . . . . . . . . . $ 1,358 $ 1,112
Other. . . . . . . . . . . . . . . . . . . . . . 2,954 1,908
------- -------
4,312 3,020
Less allowance for doubtful collection . . . . . (13) (24)
------- ------
$ 4,299 $ 2,996
======= =======
</TABLE>
3. NOTES RECEIVABLE:
The Company's notes receivable at January 3, 1999 and January 2, 1998 arose
principally as a result of lines of credit established with the International
Association of CEC Entertainment, Inc., a related party (Note 16),
and advances to franchisees, joint ventures and managed properties. All
obligors under the notes receivable are principally engaged in the restaurant
industry. The notes have various terms, but most are payable in monthly
installments of principal and interest through 2001, with interest rates
ranging from 7.5% to 12.0%. The notes are generally collateralized by the
related property and equipment. Balances of notes receivable are net of an
allowance for doubtful collection of $84,000 at both January 3, 1999 and
January 2, 1998.
4. PROPERTY AND EQUIPMENT:
<TABLE>
ESTIMATED
LIVES 1998 1997
---------------- ------ ------
(IN YEARS) (THOUSANDS)
<S> <C> <C> <C>
Land . . . . . . . . . . . . . . - $ 8,285 $ 7,515
Leasehold improvements . . . . . 4 - 20 164,380 150,565
Buildings . . . . . . . . . . . 4 - 25 10,788 10,348
Furniture, fixtures and equipment. . . 2 - 15 172,028 140,612
Property leased under capital leases(Note 6). 10 - 15 449 1,271
------- -------
355,930 310,311
Less accumulated depreciation and amortization . . (132,432) (124,640)
------- -------
223,498 185,671
Construction in progress . . . . . . . . . . . . . 5,033 1,762
------- -------
$228,531 $187,433
======== ========
</TABLE>
5. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES:
<TABLE>
1998 1997
------ -------
(THOUSANDS)
<S> <C> <C>
Accounts payable . . . . . . . . . . . . . . $ 13,810 $ 13,162
Salaries and wages . . . . . . . . . . . . . 7,030 6,591
Insurance. . . . . . . . . . . . . . . . . . 4,167 8,532
Taxes, other than income . . . . . . . . . . 4,370 4,096
Other. . . . . . . . . . . . . . . . . . . . 3,076 3,284
------- -------
$ 32,453 $ 35,665
======= =======
</TABLE>
Page 22
CEC ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JANUARY 3, 1999,
JANUARY 2, 1998 AND DECEMBER 27, 1996
6. LEASES:
The Company leases certain restaurants and related property and equipment
under operating and capital leases. All leases require the Company to pay
property taxes, insurance and maintenance of the leased assets. The leases
generally have initial terms of 7 to 30 years with various renewal options.
Following is a summary of property leased under capital leases:
<TABLE>
1998 1997
------ ------
(THOUSANDS)
<S> <C> <C>
Buildings and improvements. . . . . . . . $ 449 $ 1,271
Less accumulated depreciation . . . . . . (239) (1,031)
------- -------
$ 210 $ 240
======= =======
</TABLE>
Scheduled annual maturities of the obligations for capital and operating
leases as of January 3, 1999, are as follows:
<TABLE>
YEARS CAPITAL OPERATING
------- --------- -----------
(THOUSANDS)
<S> <C> <C>
1999 . . . . . . . . . . . . . . . . . . . . . . $ 184 $ 34,241
2000 . . . . . . . . . . . . . . . . . . . . . . 187 33,091
2001 . . . . . . . . . . . . . . . . . . . . . . 214 30,078
2002 . . . . . . . . . . . . . . . . . . . . . . 214 22,447
2003 . . . . . . . . . . . . . . . . . . . . . . 214 13,613
2004-2009 (aggregate payments) . . . . . . . . . 409 30,947
----- -------
Minimum future lease payments . . . . . . . . . 1,422 $164,417
Less amounts representing interest . . . . . . . (595) ========
-----
Present value of future minimum lease payments . 827
Less current portion . . . . . . . . . . . . . . (50)
-----
$ 777
=====
</TABLE>
Certain of the Company's real estate leases, both capital and operating,
require payment of contingent rent in the event defined revenues exceed
specified levels.
The Company's rent expense is comprised of the following:
1998 1997 1996
----- ------ ------
(THOUSANDS)
Minimum. . . . . . . . . . . . . . . . $ 34,276 $ 32,694 $ 30,484
Contingent. . . . . . . . . . . . . . . 365 276 195
------- -------- --------
$ 34,641 $ 32,970 $ 30,679
======= ======= =======
Page 23
CEC ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JANUARY 3, 1999,
JANUARY 2, 1998 AND DECEMBER 27, 1996
7. LONG-TERM DEBT:
<TABLE>
1998 1997
------- ------
(THOUSANDS)
<S> <C> <C>
Term loans, 10.02%, due June 2001. . . . . . . . $ 18,000 $ 18,000
Term loans, LIBOR plus 3.5%, due June 2000 . . . 5,000 8,332
Revolving bank loan, prime minus 0.5% to plus
0.5% or LIBOR plus 1% to 2.5%, due June 2000. . 4,478
Obligations under capital leases (Note 6). . . . 827 870
------- -------
28,305 27,202
Less current portion . . . . . . . . . . . . . . (9,383) (3,376)
------- -------
$ 18,922 $ 23,826
======= =======
</TABLE>
In 1998, the Company's line of credit agreement was amended to provide the
Company with available borrowings of up to $30 million expiring in June 2000.
As of January 3,1999, the Company's credit facility totals $53 million, which
consists of $23 million in term notes and the $30 million line of credit.
Interest on the term notes is payable quarterly. Interest under the line of
credit is payable quarterly and dependent on earnings and debt levels of the
Company. Currently, any borrowings under this line of credit would be at
prime (7.25% at January 3, 1999) minus 0.5% or, at the Company's option, LIBOR
(5.066% at January 3, 1999) plus 1%.
At January 3, 1999, there was $4.5 million outstanding under the line of
credit. A 3/8% commitment fee is payable on any unused credit line. The
Company is required to comply with certain financial ratio tests during
the terms of the loan agreements. The weighted average interest rate on
long-term debt was 9.62% and 9.73% in 1998 and 1997, respectively.
As of January 3, 1999, scheduled annual maturities of all long-term debt
(exclusive of obligations under capital leases) are as follows (thousands):
<TABLE>
<S> <C>
YEARS AMOUNT
--------- ---------
1999 ..................................... $ 9,333
2000 ..................................... 12,145
2001 ..................................... 6,000
-------
$27,478
=======
</TABLE>
8. LITIGATION:
From time to time the Company is involved in litigation, most of which is
incidental to its business. In the Company's opinion, no litigation to which
the Company currently is a party is likely to have a material adverse
effect on the Company's results of operations, financial condition or cash
flows.
9. REDEEMABLE PREFERRED STOCK:
As of January 3, 1999 and January 2, 1998, the Company had 49,441 and
49,570 shares, respectively, of its redeemable preferred stock authorized
and outstanding. The stock pays dividends at $4.80 per year, subject to
a minimum cash flow test. As of January 3, 1999, one quarterly dividend,
totaling $59,329 or $1.20 per share, was accrued but not yet paid. The
redeemable preferred stock has been recorded at the net present value of the
redemption price and is being accreted on the straight-line basis. The
Company's restated articles of incorporation provide for the redemption of
such shares at $60 per share in 2005. During the continuation of
any event of default by the Company, the preferred shareholders will be able
to elect a majority of the directors of the Company.
Page 24
CEC ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JANUARY 3, 1999,
JANUARY 2, 1998 AND DECEMBER 27, 1996
10. EARNINGS PER COMMON SHARE:
Earnings per common share ("EPS") are computed in accordance with SFAS 128.
Under SFAS 128, basic and diluted EPS replaces primary and fully diluted EPS.
Basic EPS is calculated by dividing earnings applicable to common shares by
the weighted average number of common shares outstanding. Diluted EPS adjusts
for the effect of potential common shares. Net income available per common
share has been adjusted for the items indicated.
Earnings per common and potential common shares were computed as follows
(thousands, except per share data):
<TABLE>
1998 1997 1996
-------- -------- -------
<S> <C> <C> <C>
Net income . . . . . . . . . . . . . . . . . $ 33,730 $ 25,497 $ 13,221
Accretion of redeemable preferred stock. . . (103) (104) (103)
Redeemable preferred stock dividends . . . . (238) (238) (238)
------- ------- -------
Net income applicable to common shares . . . $ 33,389 $ 25,155 $ 12,880
======= ======= =======
Basic:
Weighted average common shares outstanding. . 18,062 18,402 18,206
======= ======== =======
Earnings per common share . . . . . . . . . $ 1.85 $ 1.37 $ .71
======= ======= =======
Diluted:
Weighted average common shares outstanding. . 18,062 18,402 18,206
Potential common shares for stock options
and stock grants. . . . . . . . . . . . . 478 415 271
------ ------ ------
Weighted average shares outstanding. . . . . 18,540 18,817 18,477
====== ====== =======
Earnings per common and potential
common shares . . . . . . . . . . . . . . $ 1.80 $ 1.34 $ .70
======= ======= =======
</TABLE>
11. FRANCHISE FEES AND ROYALTIES:
At January 3, 1999, 54 Chuck E. Cheese's restaurants were operated by a
total of 37 different franchisees. The standard franchise agreements grant to
the franchisee the right to develop and operate a restaurant and use
the associated trade names, trademarks and service marks within the
standards and guidelines established by the Company.
Initial franchise fees included in revenues were $373,000, $172,000 and
$274,000 in 1998, 1997 and 1996, respectively.
12. COST OF SALES:
<TABLE>
1998 1997 1996
------ ------ -------
(THOUSANDS)
<S> <C> <C> <C>
Food, beverage and related supplies. . . . . $ 52,958 $ 50,355 $ 45,681
Games and merchandise. . . . . . . . . . . . 19,625 18,339 14,816
Labor. . . . . . . . . . . . . . . . . . . . 101,307 95,019 82,884
------- ------- -------
$173,890 $163,713 $143,381
======= ======= =======
</TABLE>
Page 25
CEC ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JANUARY 3, 1999,
JANUARY 2, 1998 AND DECEMBER 27, 1996
13. INCOME TAXES:
The significant components of income tax expense are as follows:
<TABLE>
1998 1997 1996
------ ------ ------
(THOUSANDS)
<S> <C> <C> <C>
Current expense. . . . . . . . . . . . . . . . . $ 9,160 $ 3,417 $ 2,855
Deferred expense:
Utilization of operating loss carryforwards . . 16,693 8,664
Utilization of tax credit carryforwards . . . . 6,595 (475)
Other . . . . . . . . . . . . . . . . . . . . . 5,547 (2,898) (2,044)
------- ------- ------
$ 21,302 $ 17,212 $ 9,000
======= ======= ======
</TABLE>
Deferred income taxes and benefits are provided for differences between
financial statement carrying amounts of assets and liabilities and their
respective tax bases. Temporary differences and the resulting deferred tax
assets and liabilities at January 3, 1999 and January 2, 1998 are as follows:
<TABLE>
1998 1997
---------- ----------
(THOUSANDS)
<C> <S> <S>
Deferred Tax Asset:
Current:
Deferred tax assets:
Tax credit carryforwards. . . . . . . . . . . $ 6,595
Accrued vacation. . . . . . . . . . . . . . . $ 404 358
Unearned gift certificates . . . . . . . . . 115 72
Other . . . . . . . . . . . . . . . . . . . . 201 212
------ ------
Net current deferred tax asset . . . . . . . . 720 7,237
------ ------
Non-Current:
Deferred tax assets:
Deferred gain . . . . . . . . . . . . . . . . 3,605
Deferred rent . . . . . . . . . . . . . . . . 1,365 1,411
Asset impairments . . . . . . . . . . . . . . 412 412
Unearned franchise fees . . . . . . . . . . . 165 219
Other . . . . . . . . . . . . . . . . . . . . 250 705
------- ------
2,192 6,352
------- ------
Deferred tax liabilities:
Depreciation . . . . . . . . . . . . . . . . (1,156) (364)
------- -------
Net non-current deferred tax asset . . . . . . 1,036 5,988
------- -------
Net deferred tax asset . . . . . . . . . . . . . $ 1,756 $ 13,225
======= =======
</TABLE>
PAGE 26
CEC ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JANUARY 3, 1999,
JANUARY 2, 1998 AND DECEMBER 27, 1996
13. INCOME TAXES (CONTINUED):
A reconciliation of the statutory rate to taxes provided is as follows:
<TABLE>
1998 1997 1996
------ ------ ------
(THOUSANDS)
<S> <C> <C> <C>
Statutory rate . . . . . . . . . . . . . . 35.0% 35.0% 35.0%
State income taxes . . . . . . . . . . . . 6.2% 8.1% 9.0%
Tax credits earned . . . . . . . . . . . . (2.1%)
Other . . . . . . . . . . . . . . . . . . (2.5%) (2.8%) (1.4%)
------ ------ ------
Income taxes provided. . . . . . . . . . . 38.7% 40.3% 40.5%
====== ====== ======
</TABLE>
14. FAIR VALUE OF FINANCIAL INSTRUMENTS:
The Company has certain financial instruments consisting primarily of cash
equivalents, notes receivable, notes payable and redeemable preferred stock.
The carrying amount of cash equivalents approximates fair value because of
the short maturity of those instruments. The carrying amount of the Company's
notes receivable and long-term debt approximates fair value based on the
interest rates charged on instruments with similar terms and risks. The
estimated fair value of the Company's redeemable preferred stock is $3.0
million.
15. SUPPLEMENTAL CASH FLOW INFORMATION:
<TABLE>
1998 1997 1996
------ ------ ------
(THOUSANDS)
<S> <C> <C> <C>
Cash paid during the year for:
Interest. . . . . . . . . . . . . . . . . . $2,681 $2,961 $3,429
Income taxes . . . . . . . . . . . . . . . 9,924 2,753 2,222
Supplemental schedule of noncash investing
and financing activities:
Notes and accounts receivable canceled in
connection with the acquisition of
property and equipment. . . . . . . . . . 834
Investment canceled in connection with
the acquisition of
property and equipment . . . . . . . . . 668
</TABLE>
16. RELATED PARTY TRANSACTIONS:
The Hallwood Group, Incorporated ("Hallwood") was the beneficial owner of
approximately 2.6 million shares or 14.2% of the outstanding common stock of the
Company prior to a secondary public offering in March 1997 in which Hallwood
and certain of its affiliates sold all shares held. The directors of Hallwood
had served as a majority of the directors of the Company, but resigned after
the public offering. The Company did not receive any proceeds from the sale
of shares by the selling stockholders.However, the Company paid $305,000 in
expenses for the offering.
The Company made payments to Hallwood of $31,000 in 1997 and $125,000 in
1996 for consulting services. The consulting agreement terminated upon the
closing of the public offering.In consideration for rent reductions
resulting from Hallwood's negotiation of the Company's home office lease
agreement in December 1990, the Company had assigned to Hallwood its sublease
interest in the home office building with a fair value of approximately
$120,000 per year.
page 27
CEC ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JANUARY 3, 1999,
JANUARY 2, 1998 AND DECEMBER 27, 1996
16. RELATED PARTY TRANSACTIONS (CONTINUED):
The Company had advanced amounts to a joint venture in which the Company
had a 50% interest or less. At January 2, 1998 approximately $610,000 was
outstanding under this note. Principal and interest were payable
in monthly installments, with interest at prime. The Company also had
miscellaneous accounts receivable from the joint venture of approximately
$229,000 at January 2, 1998. In January 1998, the Company acquired the
interest of its joint venture partner for cash plus forgiveness of all
receivables.
The Company has granted three separate operating lines of credit to the
International Association of CEC Entertainment, Inc. (the "Association").
In December 1998, the lines were renewed to provide the Association
with available borrowings of $1.7 million at 10.5% interest and are due
December 31, 1999. The Association develops entertainment attractions and
produces system wide advertising. Five officers of the Association are
also officers of the Company. At January 3, 1999 and January 2, 1998,
approximately $361,000 and $2,105,000, respectively, was outstanding under
these lines of credit. The Company also had miscellaneous accounts
receivable from the Association of $11,000 at January 2, 1998.
17. EMPLOYEE BENEFIT PLANS:
The Company has employee benefit plans that include: a) executive bonus
compensation plans based on the performance of the Company; b) non-statutory
stock option plans for its employees and non-employee directors; c) a stock
grant plan and d) a retirement and savings plan.
The Company's common stock which could be issued under its initial
employee stock option plan was 2,772,038 shares. Any shares granted under
this plan had to be granted before December 31, 1998. In 1997, the Company
adopted a new employee stock option plan under which an additional 925,000
shares may be granted before July 31, 2007. The exercise price for options
granted under both plans may not be less than the fair market value of the
Company's common stock at date of grant. Options may not be exercised until
the employee has been continuously employed at least one year after the date
of grant. Options which expire or terminate may be re-granted under the plan.
In 1995, the Company adopted a stock option plan for its non-employee
directors. The number of shares of the Company's common stock that may be
issued under this plan cannot exceed 150,000 shares and the exercise
price for options granted may not be less than the fair market value of the
Company's common stock at the date of grant.
Page 28
CEC ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JANUARY 3, 1999,
JANUARY 2, 1998 AND DECEMBER 27, 1996
17. EMPLOYEE BENEFIT PLANS (CONTINUED):
At January 3, 1999, there were 562,623 shares available for grant. Stock
option transactions are summarized
as follows for all plans:
<TABLE>
WEIGHTED AVERAGE
NUMBER OF SHARES EXERCISE PRICE PER SHARE
-------------------------- -------------------------
1998 1997 1996 1998 1997 1996
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Options outstanding,
beginning of year. 1,586,298 1,010,511 848,942 $13.70 $8.58 $9.08
Granted . . . . . 344,612 944,715 276,734 21.91 17.87 8.39
Exercised. . . . . (348,836) (261,445) (77,495) 7.37 9.92 12.10
Terminated . . . . (47,758) (107,483) (37,670) 20.11 11.36 11.01
-------- --------- --------
Options outstanding,
end of year . . . 1,534,316 1,586,298 1,010,511 16.79 13.70 8.58
========= ========= =========
</TABLE>
All stock options are granted at no less than fair market value of the
common stock at the grant date. The estimated fair value of options granted
was $7.54, $6.12 and $3.08 per share in 1998, 1997 and 1996, respectively.
The fair value of each stock option grant is estimated on the date of grant
using the Black-Scholes option pricing model with the following weighted
average assumptions used for grants in 1998: risk free interest
rate of 4.6%, 5.9% and 6.5% in 1998, 1997 and 1996, respectively; no
dividend yield; expected lives of four years; and expected volatility of 30%
in 1998 and 40% in 1997 and 1996. Stock options expire five and seven years
from the grant date. Stock options vest over various periods ranging from one
to four years. The number of stock option shares exercisable at January 3, 1999
was 504,564. These stock options have exercise prices ranging from $5.29 to
$20.50 per share and have a weighted average exercise price of $12.84 per
share. In January 1999, the Company granted 493,926 additional options at
an exercise price of $26.25 per share.
The number of shares of the Company's common stock which may have been
awarded to senior executives of the Company under the Stock Grant Plan was
1,718,637 shares. No further shares may be awarded under this plan after
December 1998. In 1997, 128,500 shares were awarded in connection with an
employment agreement effective January 1998. No grants were awarded in 1998
or 1996. Compensation expense recognized by the Company pursuant to this
plan was $760,000 in 1998 and $1,821,000 per yearin 1997 and 1996.
All shares vest over periods ranging from 3 years to 6 years and are subject
to forfeiture upon termination of the participant's employment by the Company.
The shares are nontransferable during the vesting periods.
As a result of shares awarded to the Company's Chairman of the Board and
Chief Executive Officer, the Company recognized deferred compensation of
$12.0 million in 1993 and $2.3 million in 1997. The deferred compensation
is amortized over the compensated periods of service.
The Company applies the provisions of APB Opinion 25 and related
Interpretations in accounting for its employee benefit plans. Accordingly,
no compensation cost has been recognized for its stock option plans. Had
compensation cost for the Company's stock option plans been determined based
on the fair value at the grant date for awards under those plans consistent
with the method prescribed by SFAS 123, the Company's proforma net
income would have been $31.6 million, $23.1 million and $12.8 million in
1998, 1997 and 1996, respectively. Proforma earnings per share assuming
dilution would have been $1.71, $1.23 and $.67 per share in 1998, 1997 and
1996, respectively.
Page 29
CEC ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JANUARY 3, 1999,
JANUARY 2, 1998 AND DECEMBER 27, 1996
17. EMPLOYEE BENEFIT PLANS (CONTINUED):
The Company has adopted the CEC 401(k) Retirement and Savings Plan, to
which it may at its discretion make an annual contribution out of its current
or accumulated earnings. Contributions by the Company may be made in the
form of its common stock or in cash. The Company made contributions of
approximately $97,000 and $59,000 in common stock for the 1997 and 1996
plan years, respectively. The Company plans to contribute $138,000 in common
stock for the 1998 plan year.
18. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED):
The following summarizes the unaudited quarterly results of operations for
the years ended January 3, 1999 and January 2, 1998 (thousands, except per
share data).
<TABLE>
Fiscal year ended January 3, 1999
--------------------------------------
April 5 July 5 Oct. 4 Jan. 3
------- ------ ------ ------
<S> <C> <C> <C> <C>
Revenues . . . . . . . . . . $105,049 $ 88,901 $ 98,106 $ 87,371
Income before income taxes . 19,215 11,813 14,264 9,740
Net income . . . . . . . . . 11,683 7,341 8,673 6,033
Earnings Per Share:
Basic . . . . . . . . . . $ .64 $ .40 $ .48 $ .33
Diluted . . . . . . . . . .63 .39 .47 .33
</TABLE>
<TABLE>
Fiscal year ended January 2, 1998
----------------------------------------
March 28 June 27 Sept. 26 Jan. 2
-------- ------- -------- ------
<S> <C> <C> <C> <C>
Revenues . . . . . . . . . . $ 91,594 $ 84,031 $ 85,602 $ 89,040
Income before income taxes . 13,333 9,924 10,141 9,311
Net income . . . . . . . . . 7,933 5,905 6,101 5,558
Earnings Per Share:
Basic . . . . . . . . . . . $ .43 $ .32 $ .32 $ .30
Diluted . . . . . . . . . . .42 .31 .32 .30
</TABLE>
Page 30
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None
P A R T I I I
Item 10. Directors and Executive Officers of the Registrant
The information required by this item regarding the directors and
executive officers of the Company shall be included in the Company's
definitive Proxy Statement to be filed pursuant to Regulation 14A in
connection with the Company's 1998 annual meeting of stockholders and
incorporated herein by reference thereto.
Item 11. Executive Compensation
The information required by this item regarding the directors and
executive officers of the Company shall be included in the Company's
definitive Proxy Statement to be filed pursuant to Regulation 14A in
connection with the Company's 1998 annual meeting of stockholders and
incorporated herein by reference thereto.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by this Item shall be included in the Company's
definitive Proxy Statement to be filed pursuant to Regulation 14A in
connection with Company's 1998 annual meeting of stockholders and is
incorporated herein by reference thereto.
Item 13. Certain Relationships and Related Transactions
The information required by this Item regarding the directors and
executive officers of the Company shall be included in the Company's
definitive Proxy Statement to be filed pursuant to Regulation 14A in
connection with the Company's 1998 annual meeting of stockholders and is
incorporated herein by reference thereto.
P A R T I V
Item 13. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(A) THE FOLLOWING DOCUMENTS ARE FILED AS A PART OF THIS REPORT:
(1) Financial Statements and Supplementary Data:
Independent auditors' report.
CEC Entertainment, Inc. consolidated financial statements:
Consolidated balance sheets as of January 3, 1999 and January 2, 1998.
Consolidated statements of earnings for the years ended January 3,
1999, January 2, 1998, and December 27, 1996.
Consolidated statements of shareholders' equity for the years ended
January 3, 1999, January 2, 1998,
and December 27, 1996.
Consolidated statements of cash flows for the years ended January 3,
1999, January 2, 1998, and December 27, 1996.
Notes to consolidated financial statements.
Page 31
(2) Exhibits:
Number Description
3(a)(1) Restated Articles of Incorporation of the Company, dated November
26,1996 (filed as Exhibit 3.1 to the Company's Registration
Statement on Form S-3 (No.333-22229)and incorporated herein by
reference).
3(a)(2) Amendment to the Restated Articles of Incorporation of the
Company,dated June 25,1998 (filed as Exhibit 3(a) to the
Company's Quarterly Report on Form 10-Q for the
quarter ended July 5, 1998, and incorporated herein by
reference).
3(b)(1) Restated Bylaws of the Company, dated August 16, 1994 (filed as
Exhibit 3 to the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1994, and incorporated herein by
reference).
3(b)(2) Amendment to the Bylaws, dated May 5, 1995 (filed as Exhibit 3
to the Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1995, and incorporated herein by reference).
4(a) Specimen form of certificate representing $.10 par value Common
Stock (filed as Exhibit 4(a) to the Company's Annual Report on
Form 10-K for the year ended December 28, 1990, and
incorporated herein by reference).
4(b) Specimen form of certificate representing $60 par value Class A
Preferred Stock (filed as Exhibit 4(b) to the Company's Annual
Report on Form 10-K for the year ended December 28, 1990, and
incorporated herein by reference).
10(a)(1) Amended and Restated Employment Agreement dated April 14, 1993,
between the Company and Richard M. Frank (filed as Exhibit 10(a)
(8) to the Company's Quarterly Report on Form 10-Q for the
quarter ended April 2, 1993, and incorporated herein by
reference).
10(a)(2) Amendment No. 1 to the Amended and Restated Employment Agreement
dated July 19, 1996, between the Company and Richard M. Frank
(filed as Exhibit 10(i) to the Company's Quarterly Report on
Form 10-Q for the quarter ended September 27, 1996,
and incorporated herein by reference).
10(a)(3) Amendment No. 2 to the Amended and Restated Employment Agreement
dated March 3, 1997, between the Company and Richard M. Frank
(filed as Exhibit 10(a) to the Company's Quarterly Report on
Form 10-Q for the quarter ended March 28, 1997, and
incorporated herein by reference).
10(b) Stock Grant Trust Agreement dated January 29, 1992, among the
Company, Richard M. Frank, Ronald F. Saupe and Kevin J. Shepherd
(filed as Exhibit 10(a)(7) to the Company's Annual Report on
Form 10-K for the year ended December 27, 1991,and
incorporated herein by reference).
10(c)(1) Employment Agreement dated January 4, 1994, between the Company
and Michael H. Magusiak (filed as Exhibit 10(b) to the Company's
Annual Report on Form 10-K for the year ended December 31,
1993, and incorporated herein by reference).
10(c)(2) Amendment to the Employment Agreement dated December 11, 1997,
between the Company and Michael H. Magusiak (filed as Exhibit
10(c)(2) to the Company's Annual Report on Form 10-K for the
year ended January 2, 1998, and incorporated
herein by reference).
Page 32
10(d) Note Purchase Agreement dated June 15, 1995, between Allstate
Life Insurance Company, Connecticut Mutual Life Insurance
Company, C M Life Insurance Company, MassMutual Corporate
Value Partners Limited, Massachusetts Mutual Life
Insurance Company, Modern Woodmen of America, and the Company
(filed as Exhibit 10 (a)(1) to the Company's Quarterly Report
on Form 10-Q for the quarter ended June 30, 1995, and
incorporated herein by reference).
10(e) 10.02% Series A Senior Note Due 2001, in the stated amount of
$10,000,000.00, dated June 15, 1995, between Allstate Life
Insurance Company and the Company (filed as Exhibit 10 (b)(1)
to the Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1995, and incorporated herein by reference).
10(f)(1) 10.02% Series A Senior Note Due 2001, in the stated amount of
$1,000,000.00, dated June 15, 1995, between Connecticut Mutual
Life Insurance Company and the Company (filed as Exhibit 10
(c)(1) to the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1995, and incorporated
herein by reference).
10(f)(2) 10.02% Series A Senior Note Due 2001, in the stated amount of
$1,000,000.00, dated June 15, 1995, between Connecticut Mutual
Life Insurance Company and the Company (filed as Exhibit 10(c)
(2) to the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1995, and incorporated herein by
reference).
10(f)(3) 10.02% Series A Senior Note Due 2001, in the stated amount of
$1,000,000.00, dated June 15, 1995, between Connecticut Mutual
Life Insurance Company and the Company (filed as Exhibit 10
(c)(3) to the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1995, and incorporated
herein by reference).
10(g)(1) 10.02% Series A Senior Note Due 2001, in the stated amount of
$1,000,000.00, dated June 15, 1995, between C M Life Insurance
Company and the Company (filed as Exhibit 10 (d)(1) to the
Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1995, and incorporated herein by reference).
10(g)(2) 10.02% Series A Senior Note Due 2001, in the stated amount of
$1,000,000.00, dated June 15, 1995, between C M Life Insurance
Company and the Company (filed as Exhibit 10 (d)(2) to the
Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1995, and incorporated herein by reference).
10(h)(1) Floating Rate Series B Senior Note Due 2000, in the stated
amount of $2,000,000.00, dated June 15, 1995, between
Massachusetts Mutual Life Insurance Company and the Company
(filed as Exhibit 10 (e)(1) to the Company's Quarterly Report
on Form 10-Q for the quarter ended June 30, 1995, and
incorporated herein by reference).
10(h)(2) Floating Rate Series B Senior Note Due 2000, in the stated
amount of $2,000,000.00, dated June 15, 1995, between
Massachusetts Mutual Life Insurance Company and the Company
(filed as Exhibit 10 (e)(2) to the Company's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1995, and incorporated
herein by reference).
10(h)(3) Floating Rate Series B Senior Note Due 2000, in the stated amount
of $2,000,000.00, dated June 15, 1995, between Massachusetts
Mutual Life Insurance Company and the Company(filed as Exhibit
10(e)(3) to the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1995, and incorporated herein by reference).
10(i) Floating Rate Series B Senior Note Due 2000, in the stated
amount of $4,000,000.00, dated June 15, 1995, between MassMutual
Corporate Value Partners Limited (I/N/O Webell & Co.) and the
Company (filed as Exhibit 10 (f)(1) to the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1995,
and incorporated herein by reference).
Page 33
10(j) Floating Rate Series A Senior Note Due 2001, in the stated amount
of $3,000,000.00, dated June 15, 1995, between Modern Woodmen of
America and the Company (filed as Exhibit 10 (g)(1) to the
Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1995, and incorporated herein by reference).
10(k)(1) Loan Agreement in the stated amount of $5,000,000.00, dated June
27, 1995, between Bank One, Texas, N.A. and the Company (filed
as Exhibit 10(h)(1)to the Company's Quarterly Report on Form
10-Q for the quarter ended June 30, 1995, and incorporated
herein by reference).
10(k)(2) Revolving Credit Note in the stated amount of $5,000,000, dated
June 27, 1995, between Bank One, Texas, N.A. and the Company
(filed as Exhibit 10(h)(2) to the Company's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1995, and incorporated
herein by reference).
10(l)(1) Modification and Extension Agreement (to the Loan Agreement dated
June 27, 1995) in the stated amount of $15,000,000.00, dated
August 1, 1996, between Bank One, Texas, N.A. and the Company
(filed as Exhibit 10 (h)(1) to the Company's Quarterly Report
on Form 10-Q for the quarter ended September 27, 1996, and
incorporated herein by reference).
10(l)(2) Restated Revolving Credit Note in the stated amount of
$15,000,000, dated August 1, 1996, between Bank One, Texas,
N.A. and the Company (filed as Exhibit 10(h)(2) to the Company's
Quarterly Report on Form 10-Q for the quarter ended September 27,
1996, and incorporated herein by reference).
10(m)(1) Second Modification And Extension Agreement, in the stated
amount of $15,000,000.00, dated June 14, 1998, between Bank One,
Texas, N.A. and the Company (filed as Exhibit 10(a)(1) to the
Company's Quarterly Report on Form 10-Q for the quarter ended
July 5, 1998, and incorporated herein by reference).
10(m)(2) Second Restated Revolving Credit Note, in the stated amount of
$15,000,000.00, dated June 14, 1998, between Bank One, Texas,
N.A. and the Company (filed as Exhibit 10 (a)(2) to the
Company's Quarterly Report on Form 10-Q for the quarter
ended July 5, 1998, and incorporated herein by reference).
10(n)(1) Third Modification Agreement, in the stated amount of
$30,000,000.00, dated December 4,1998, between Bank One,
Texas, N.A. and the Company (filed as Exhibit 10(a)(1)
to the Company's Quarterly Report on Form 10-Q for the
quarter ended July 5,1998, and incorporated herein by
reference).
10(n)(2) Third Restated Revolving Credit Note, in the stated amount of
$30,000,000.00, dated December 4, 1998, between Bank One,
Texas, N.A. and the Company (filed as Exhibit 10(a)(2) to the
Company's Quarterly Report on Form 10-Q for the quarterended
July 5, 1998, and incorporated herein by reference).
10(o)(1) Supplemental Agreement, dated as of September 29, 1997,
relating to the Note Purchase Agreements dated as of June 15,
1995, between Allstate Life Insurance Company, Massachusetts
Mutual Life Insurance Company, MassMutual Corporate Value Partners
Limited, CM Life Insurance Company, Modern Woodmen of America and
the Company (filed as Exhibit 10(m)(1) to the Company's Annual
Report on Form 10-K for the year ended January 2, 1998, and
incorporated herein by reference).
10(o)(2) Supplemental Agreement, dated as of September 29, 1997, relating
to the Note Purchase Agreements dated as of June 15, 1995,
between Bank One, Texas, N.A. and the Company (filed as Exhibit
10(m)(2) to the Company's Annual Report on Form 10-K for the
year ended January 2, 1998, and incorporated herein by reference).
Page 34
10(p)(1) 1988 Non-Statutory Stock Option Plan (filed as Exhibit A to the
Company's Proxy Statement for Annual Meeting of Stockholders to
be held on June 8, 1995, and incorporated herein by reference).
10(p)(2) Specimen form of Contract under the 1988 Non-Statutory Stock Option
Plan of the Company, as amended to date (filed as Exhibit 10(d)
to the Company's Quarterly Report on Form 10-Q for the quarter
ended June 28, 1996, and incorporated herein by reference).
10(q)(1) 1997 Non-Statutory Stock Option Plan (filed as Exhibit 4.1 to
Form S-8 (No. 333-41039),and incorporated herein by reference).
10(q)(2) Specimen form of Contract under the 1997 Non-Statutory Stock
Option Plan of the Company, as amended to date (filed as
Exhibit 10(o)(2) to the Company's Annual Report on
Form 10-K for the year ended January 2, 1998, and incorporated
herein by reference).
10(r)(1) Stock Grant Plan of the Company, as amended to date (filed as
Exhibit 10(d)(1) to the Company's Annual Report on Form 10-K
for the year ended December 31,1993, and incorporated herein
by reference).
10(r)(2) Specimen form of Certificate of Participation to certain
participants under the Stock Grant Plan of the Company (filed
as Exhibit 10(e)(3) to the Company's Annual Report
on Form 10-K for the year ended December 29, 1989, and
incorporated herein by reference).
10(s)(1) Non-Employee Directors Stock Option Plan (filed as Exhibit B to
the Company's Proxy Statement for Annual Meeting of Stockholders
to be held on June 8, 1995, and incorporated herein by reference).
10(s)(2) Specimen form of Contract under the Non-Employee Directors Stock
Option Plan of the Company, as amended to date (filed as Exhibit
10(s)(2) to the Company's Annual Report on Form 10-K for the
year ended December 27, 1996, and incorporated herein by
reference).
10(t)(1) Specimen form of the Company's current Franchise Agreement (filed
as Exhibit 10(r)(1) to the Company's Annual Report on Form 10-K
for the year ended January 2, 1998, and incorporated herein by
reference).
10(t)(2) Specimen form of the Company's current Development Agreement
(filed as Exhibit10(r)(2) to the Company's Annual Report on
Form 10-K for the year ended January 2, 1998, and incorporated
herein by reference).
10(u)(1) Rights Agreement, dated as on November 19, 1997, by and between the
Company and the Rights Agent (filed as Exhibit A to Exhibit 1 of
the Company's Registration Statement on Form 8-A (No. 001-13687)
and incorporated herein by reference).
10(u)(2) Form of Certificate of Designation of the Preferred Shares under
the Rights Agreement, dated as on November 19, 1997, by and
between the Company and the Rights Agent (filed as Exhibit B to
Exhibit 1 of the Company's Registration Statement on Form 8-A
(No. 001-13687) and incorporated herein by reference).
10(u)(3) Form of Right Certificate under the Rights Agreement, dated as on
November 19,1997, by and between the Company and the Rights Agent
(filed as Exhibit C to Exhibit 1 of the Company's Registration
Statement on Form 8-A (No. 001-13687) and incorporated herein
by reference).
23 Independent Auditors Consent of Deloitte & Touche LLP
Page 35
(b) REPORTS ON FORM 8-K:
No reports on Form 8-K were filed in the fourth quarter of 1998.
(c) EXHIBITS PURSUANT TO ITEM 601 OF REGULATION S-K:
Pursuant to Item 601(b)(4) of Regulation S-K, there have been excluded
from the exhibits filed pursuant to this report instruments defining the
right of holders of long-term debt of the Company where the total amount
of the securities authorized under each such instrument does not exceed
10% of the total assets of the Company. The Company hereby agrees to
furnish a copy of any such instruments to the Commission upon request.
(c) FINANCIAL STATEMENTS EXCLUDED FROM THE ANNUAL REPORT TO SHAREHOLDERS BY
RULE 14A-3(B):
No financial statements are excluded from the annual report to the
Company's shareholders by Rule 14a-3(b).
Page 36
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) 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.
Dated: March 31, 1999 CEC Entertainment, Inc.
By: /s/ Richard M. Frank
------------------------------
Richard M. Frank
Chairman of the Board and
Chief Executive Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
Signature Title Date
--------- ------- --------
/s/ Richard M. Frank Chairman of the Board, March 31, 1999
- ---------------------
Richard M. Frank Chief Executive Officer,
and Director (Principal
Executive Officer)
/s/ Michael H. Magusiak President and Director March 31, 1999
- ------------------------
Michael H. Magusiak
/s/ Larry G. Page Executive Vice President, March 31, 1999
- ------------------------
Larry G. Page Treasurer, (Principal
Financial Officer and
Principal Accounting
Officer)
/s/Raymond E. Wooldridge Director March 31, 1999
- -------------------------
Ray Wooldridge
/s/ Tim T. Morris Director March 31, 1999
- -------------------------
Tim T. Morris
/s/ Walter Tyree Director March 31, 1999
- -------------------------
Walter Tyree
/s/ Louis P. Neeb Director March 31, 1999
- -------------------------
Louis P. Neeb
/s/ Cynthia I. Pharr Director March 31, 1999
- -------------------------
Cynthia I. Pharr
Page 37
EXHIBIT INDEX
Exhibit No. Description
- ---------- -----------
10(n)(1) Third Modification agreement, in the stated amount of
$30,000,000.00, dated December 4, 1998, between Bank One,
Texas, N.A. and the Company (filed as Exhibit 10(a)(1) to
the Company's Quarterly report on Form 10-Q for the quarter
ended July 5, 1998, and incorporated herein by reference.
10(n)(2) Third Restated Revolving Credit Note, in the stated amount
of $30,000,000.00, dated December 4, 1998, between Bank One
Texas, N.A. and the Company (filed as Exhibit 10(a)(2) to the
Company's Quarterly Report on Form 10-Q for the quarter ended
July 5,1998, and incorporated herein.
23 Independent Auditor's Consent of Deloitte & Touche LLP
Page 38
Exhibit 10 (n)(1)
THIRD MODIFICATION AGREEMENT
----------------------------
Date: Effective December 4, 1998
Bank One: BANK ONE,
TEXAS, NATIONAL
ASSOCIATION, a
national banking
association
Bank One's Address:
1717 Main Street,
3rd Floor
Dallas, Texas 75201
Company: CEC ENTERTAINMENT, INC.
(f/k/a ShowBizPizza Time,
Inc.), a Kansas corporation
Company's Address: 4441 W. Airport Freeway
Irving, Texas 75062
R E C I T A L S:
A. Bank One and Company entered into a loan
evidenced, inter alia, by the following documents:
1. Loan Agreement dated as of June 27,
1995 by and between Company and Bank One for an aggregate
loan in the amount of $5,000,000.
2. Revolving Credit Note dated June 27,
1995 in the original principal amount of $5,000,000
signed by Company and payable to Bank One.
B. Bank One and Company modified the Loan to
increase its principal balance to $15,000,000, extend the
maturity date to June 15, 1998 and make certain other
changes in the terms and conditions of the Loan
evidenced, inter alia, by the following documents:
1. Modification and Extension Agreement
dated August 1, 1996 by and between Company and Bank One
for an aggregate loan in the amount of $15,000,000.
2. Restated Revolving Credit Note dated
August 1, 1996 in the original principal amount of
$15,000,000 signed by Company and payable to Bank One.
C. Bank One and Company modified the Loan to allow
for transfer of certain assets and make certain other
changes in the terms and conditions of the Loan
evidenced, inter alia, by the following documents:
1. Supplemental Agreement ("Supplemental
Agreement") dated as of September 29, 1997 by and between
Company and Bank One.
2. Guarantee Agreement - ShowBiz Nevada,
Inc. dated as of September 29, 1997 made by ShowBiz
Nevada, Inc. in favor of Bank One.
3. Guarantee Agreement - ShowBiz
Merchandising, Inc. dated as of September 29, 1997 made
by ShowBiz Merchandising, Inc. in favor of Bank One.
4. Guarantee Agreement - SPT Properties
Company, Inc. dated as of September 29, 1997 made by SPT
Properties Company, Inc. in favor of Bank One.
5. Guarantee Agreement - ShowBiz Cayman
Islands, Inc. dated as of September 29, 1997 made by
ShowBiz Cayman Islands, Inc. in favor of Bank One.
D. Bank One and Company modified the Loan to
extend the maturity date to June 1, 2000 and make certain
other changes in the terms and conditions of the Loan
evidenced, inter alia, by the following documents:
1. Second Modification and Extension
Agreement dated effective June 14, 1998 by and between
Company and Bank One for an aggregate loan in the amount
of $15,000,000.00.
2. Second Restated Revolving Credit Note
dated effective June 14, 1998 in the original principal
amount of $15,000,000.00 signed by Company and payable to
Bank One.
E. Bank One is the owner and holder of the Note,
Loan Agreement, and other Loan Documents.
F. Company has requested that Bank One (i) modify
all Loan Documents to evidence Company's new name "CEC
Entertainment, Inc.", (ii) increase the principal amount
of the Note to $30,000,000.00 and (iii) modify certain
other terms of the Note or Loan Documents regarding
financial reporting or covenants, and Bank One is willing
to do so on the terms set out in this Agreement.
IT IS AGREED:
1. Definitions. The definition of terms
used in the Loan Agreement and Supplemental Agreement
shall have the same meanings in this Agreement unless
otherwise defined. The term "Loan Documents" in Section
1.1 of the Loan Agreement shall be amended to include all
the documents described above and this Agreement.
2. Principal Balance. Bank One and
Company acknowledge that as of the date hereof the
outstanding principal balance of the Note is Zero Dollars
($-0-).
3.Change of Name. The definition of
Company in all Loan Documents shall be changed from
"ShowBiz Pizza Time, Inc." to "CEC Entertainment, Inc."
to reflect the change of name of the Company adopted by
the Company through the action of its shareholders and
board of directors on or about June 25, 1998 as filed
with the Secretary of State of Kansas by a Certificate of
Amendment to the Restated Articles of Incorporation of
Company on June 25, 1998.
4. Revolving Credit Commitment. The
definition of "Revolving Credit Commitment" in Section
1.1. Defined Terms of the Loan Agreement shall be amended
as follows:
"Revolving Credit Commitment" shall mean an
amount equal to Thirty Million and No/100 Dollars
($30,000,000.00) less the Unsecured LC Exposure Amount,
as the same may be reduced from time to time or
terminated pursuant to Sections 2.4, 2.11 or 9.1 hereof.
5. Restated Note. The Note shall be
restated in a form entitled "Third Restated Revolving
Credit Note" which shall state its original principal
amount as being Thirty Million and No/100 Dollars
($30,000,000.00) to conform to the amended definition of
"Revolving Credit Commitment" stated in this Agreement,
a copy of the form is attached as Exhibit "A". The terms
"Note(s)" or "Revolving Credit Note(s)" shall include the
Third Restated Revolving Credit Note for all purposes and
in all Loan Documents. Bank One shall retain the written
instrument evidencing the original Revolving Credit Note
dated June 27, 1995 in the original principal amount of
$5,000,000, the original Restated Revolving Credit Note
dated August 1, 1996 in the original principal amount of
$15,000,000, and the original Second Restated Revolving
Credit Note dated effective June 14, 1988 in the original
principal amount of $15,000,000, all of which shall be
deemed to be superseded by the written instrument
evidencing the Third Restated Revolving Credit Note dated
on even date with this Agreement in the original
principal amount of $30,000,000. Each such superseded
note shall be maked "SUPERSEDED BY THE WRITTEN INSTRUMENT
EVIDENCING THE THIRD RESTATED REVOLVING CREDIT NOTE DATED
EFFECTIVE DECEMBER 4, 1998" and copies of such notes will
be delivered to Company contemporaneously with the
execution of this Agreement.
6. Guaranties. Section 5.2. Conditions
to All Revolving Credit Loans of the Loan Agreement shall
be amended by adding the following paragraph and an
additional Section 6.13. Guaranty shall be added to the
Loan Agreement as follows:
Section 5.2. Conditions to All Revolving Credit
Loans. (d) If a Guaranty from one or more Subsidiary of
the Company is reasonably deemed necessary by Bank One,
those Subsidiaries of the Company shall have executed and
delivered an unconditional Guaranty of payment and
performance, in a form reasonably satisfactory to Bank
One, of all of the Indebtedness or other obligations of
the Company arising or incurred by reason of this
Agreement.
Section 6.13. Guaranty. If (i) the Company or
any Subsidiary at any time after the Effective Date and
prior to the Termination Date shall create or acquire any
Subsidiary in any manner whatsoever, and (ii) a Guaranty
from any such Subsidiary is reasonably deemed necessary
by Bank One, such Subsidiary shall promptly execute a
form of Guaranty, in a form reasonably satisfactory to
Bank One, guaranteeing the payment and performance of all
of the Indebtedness or other obligations of the Company
arising or incurred by reason of this Agreement.
The Company and each Subsidiary and any
Subsidiary created or acquired in the future, acknowledge
that there is adequate consideration for the execution of
a Guaranty, including but not limited to the continuing
availability of the Commitment, and that the foregoing
affirmative covenant is a material inducement to Bank One
to make the Commitment during the Commitment Period.
7. Financial Statements and Other
Information. Section 6.1. Financial Statements and Other
Information of the Loan Agreement shall be amended by
adding the following paragraph as follows:
(i) Contingent Liabilities - promptly,
and in any event within thirty (30) days after a
Responsible Officer of the Company becomes aware of any
Material actual or contingent liability affecting the
Company or any of its Subsidiaries and which, is required
to be disclosed in accordance with GAAP, a written
statement of a Responsible Officer describing the nature,
amount and status of such matters and what action the
Company or a Subsidiary has taken, is taking, or proposes
to take with respect thereto.
8. Lease-Backs. Section 8.7. Lease-
Backs of the Loan Agreement shall be amended and restated
as follows:
SECTION 8.7.Lease-Backs. Notwithstanding the provisions of
Section 8.2 hereof, the Company will not and will not
permit any Subsidiary to enter into any arrangements,
directly or indirectly, with any Person, whereby the
Company or any of its Subsidiaries shall sell or
transfer any property, whether now owned or hereafter
acquired, used or useful in their respective businesses
in connection with the rental or lease of the property
so sold or transferred or of other property which the
Company or any of its Subsidiaries intends to use for
substantially for the same purpose or purposes as the
property so sold or transferred. Notwithstanding the
foregoing prohibition, the Company or its Subsidiaries
may enter into an arrangement commonly referred to as a
"Sale and Lease-Back ", directly or indirectly, with
any Person, whereby the Company or any of its
Subsidiaries shall sell or transfer real or personal
property used for a restaurant location or operation
for a restaurant utilizing the "Chuck E. Cheese"
restaurant theme or another restaurant theme or concept
developed or utilized by the Company or any of its
Subsidiaries, provided, however that (i) the aggregate
amount, value or obligations of or related to such "Sales
and Lease-Backs" shall not exceed $10,000,000 at any one
time, and (ii) such "Sales and Lease-Backs" shall be used
only for real or personal property acquired or
constructed by the Company or any of its Subsidiaries on
or after December 4, 1998.
9. Loans. An additional Section 8.9.
Company Indebtedness shall be added to the Loan Agreement
as follows:
SECTION 8.9. Company Indebtedness. Except for
(i) loans among the Company and its Subsidiaries and
Affiliates and (ii) as stated below in this section, on
or after October 1, 1998, the Company shall not, and
shall not permit any Subsidiary or Affiliate to directly
or indirectly, make any loans, otherwise extend credit or
make financial accommodations to or for the benefit of
any unrelated Person or Persons. The Company or its
Subsidiaries or Affiliates may make loans, otherwise
extend credit or make financial accommodations to or for
the benefit of any unrelated Person or Persons in the
ordinary course of business of the Company, Subsidiaries
or Affiliates provided that the aggregate of such loans,
credit or accommodations to all such Persons shall not
exceed $5,000,000 at any one time without the prior
written approval of Bank One, which approval may be
granted or withheld in the sole discretion of Bank One.
10. Acknowledgment of Indebtedness.
Company acknowledges that as of the date of this
Agreement, it is well and truly indebted to Bank One
pursuant to the terms of the Note, as modified hereby.
Company hereby promises to pay to Bank One the
indebtedness evidenced by the Note in accordance with the
terms thereof, as modified hereby, and shall observe,
comply with, and perform all of the obligations, terms,
and conditions under or in connection with the Note and
all other Loan Documents.
11. Ratification of Loan Documents.
Except as provided herein, the terms and provisions of
the Note and the other Loan Documents shall remain
unchanged and shall remain in full force and effect. Any
modification herein of the Note, Loan Agreement and the
other Loan Documents shall in no way impair the security
of the Loan Documents for the payment of the Note. The
promissory notes defined herein and in all other Loan
Documents as the "Note" or "Revolving Credit Note(s)"
shall hereafter mean the Note as modified by this
Agreement. The Loan Agreement, the Note and the other
Loan Documents as modified and amended hereby are hereby
ratified and confirmed in all respects.
12. Ratification by Guarantors. Each of
ShowBiz Nevada, Inc., a Nevada corporation, ShowBiz
Merchandising, Inc., a Nevada corporation, SPT Properties
Company, Inc., a Nevada corporation, and ShowBiz Cayman
Islands, Inc., a Cayman Islands corporation, ratifies and
confirms its respective Guarantee Agreements dated as of
September 29, 1997, as being binding and continuing and
consent to the terms of this Agreement.
13. No Waiver. Company acknowledges that
the execution of this Agreement by Bank One is not
intended nor shall it be construed as (I) an actual or
implied waiver of any default under the Note or any other
Loan Document or (ii) an actual or implied waiver of any
condition or obligation imposed upon Company pursuant to
the Note or any other Loan Document, except to the extent
expressly set forth herein.
14. Expenses. Contemporaneously with the
execution and delivery hereof, Company shall pay, or
cause to be paid, all reasonable costs and expenses
incident to the preparation hereof and the consummation
of the transactions specified herein, including without
limitation fees and expenses of legal counsel to Bank
One.
15. Counterparts. This Agreement may be
executed in any number of counterparts with the same
effect as if all parties hereto had signed the same
document. All such counterparts shall be construed
together and shall constitute one instrument; but in
making proof hereof it shall only be necessary to produce
one such counterpart.
16. Benefit. The terms and provisions
hereof shall be binding upon and inure to the benefit of
the parties hereto, their heirs, representatives,
successors and permitted assigns.
17. Release and Waiver of Usury Claim.
Company hereby releases Bank One, its successors and
assigns, from all claims, demands, liabilities and causes
of action which Company may be entitled to assert
(although no such claims are known to exist) against Bank
One by reason of Bank One's contracting, charging or
receiving for the use, forbearance or detention of money,
interest on the Loan evidenced by the Note prior to the
execution of this Agreement in excess of that permitted
to be charged to Company under applicable law.
18. Release and Waiver of Other Claims.
In consideration of the terms, conditions and provisions
of this Agreement and the other benefits received by
Company hereunder, Company further hereby releases,
relinquishes and forever discharges Bank One, as well as
its parent and subsidiary corporations, predecessors,
successors, assigns, agents, officers, directors,
employees, representatives, attorneys and accountants of
and from any and all claims, demands, actions, causes of
action of any and every kind or character, whether known
or unknown, which Company may have against Bank One and
its parent and subsidiary corporations, predecessors,
successors, assigns, agents, officers, directors,
employees, representatives, attorneys or accountants
arising out of or with respect to any and all
transactions solely relating to the Note or any renewal
thereof, and/or the Loan Documents, but excluding any
other transactions between the parties, occurring prior
to the date hereof, including any other loss, expense
and/or detriment, of any kind or character, growing out
of or in any way connected with or in any way resulting
from the acts, actions or omissions of Bank One and its
parent and subsidiary corporations, predecessors,
successors, assigns, agents, officers, directors,
employees, representatives, attorneys, or accountants,
and including any loss, cost or damage in connection with
any breach of fiduciary duty, breach of any duty of fair
dealing, breach of confidence, breach of funding
commitment, undue influence, duress, economic coercion,
conflict of interest, negligence, bad faith, malpractice,
violations of the racketeer influenced and corrupt
organizations act, intentional or negligent infliction of
mental duress, tortuous interference with contractual
relations, tortuous interference with corporate
governance or prospective business advantage, breach of
contract, deceptive trade practices, libel, slander or
conspiracy.
19. Construction. The parties
acknowledge that the parties and their counsel have
reviewed and had the opportunity to revise this Agreement
and that the normal rule of construction to the effect
that any ambiguities are to be resolved against the
drafting party shall not be employed in the
interpretation of this Agreement or any amendments or
exhibits hereto.
20. Entire Agreement. THIS AGREEMENT,
THE NOTE AND THE WRITTEN LOAN DOCUMENTS REPRESENT THE
FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR
SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
IN WITNESS WHEREOF, this Agreement is executed
effective as of the date first above written.
BANK ONE, TEXAS, National Association
By:
Name: Paul C. Koch
Title: Vice President
CEC ENTERTAINMENT, INC.
By:
Name: Larry G. Page
Title: Executive Vice President, Chief
Financial Officer and Treasurer
SHOWBIZ NEVADA, INC.
By:
Name: Don McKechnie
Title: Director and President
SHOWBIZ MERCHANDISING, INC.
By:
Name: Don McKechnie
Title: Director and President
SPT PROPERTIES COMPANY, INC.
By:
Name: Don McKechnie
Title: Director and President
SHOWBIZ CAYMAN ISLANDS, INC.
By:
Name: Don McKechnie
Title: Director and President
STATE OF TEXAS &
&
COUNTY OF DALLAS &
This instrument was acknowledged before me on
December 10, 1998, by Paul C. Koch, Vice President of
BANK ONE, TEXAS, NATIONAL ASSOCIATION, a national banking
association, on behalf of said national association.
Notary Public, State of Texas
(SEAL)
(Please Print Name of Notary)
My Commission expires:
STATE OF TEXAS &
&
COUNTY OF DALLAS &
This instrument was acknowledged before me on
December 10, 1998, by Larry G. Page, Executive Vice
President, Chief Financial Officer and Treasurer of CEC
ENTERTAINMENT, INC., a Kansas corporation, on behalf of
said corporation.
Notary Public, State of Texas
(SEAL)
(Please Print Name of Notary)
My Commission expires:
STATE OF TEXAS &
&
COUNTY OF DALLAS &
This instrument was acknowledged before me on
December 10, 1998, by Don McKechnie, Director and
President of SHOWBIZ NEVADA, INC. a Nevada corporation,
on behalf of said corporation.
Notary Public, State of Texas
(SEAL)
(Please Print Name of Notary)
My Commission expires:
STATE OF TEXAS &
&
COUNTY OF DALLAS &
This instrument was acknowledged before me on
December 10, 1998, by Don McKechnie, Director and
President of SHOWBIZ MERCHANDISING, INC. a Nevada
corporation, on behalf of said corporation.
Notary Public, State of Texas
(SEAL)
(Please Print Name of Notary)
My Commission expires:
STATE OF TEXAS &
&
COUNTY OF DALLAS &
This instrument was acknowledged before me on
December 10, 1998, by Don McKechnie, Director and
President of SPT PROPERTIES COMPANY, INC. a Nevada
corporation, on behalf of said corporation.
Notary Public, State of Texas
(SEAL)
(Please Print Name of Notary)
My Commission expires:
STATE OF TEXAS &
&
COUNTY OF DALLAS &
This instrument was acknowledged before me on
December 10, 1998, by Don McKechnie, Director and
President of SHOWBIZ CAYMAN ISLANDS, INC. a Cayman
Islands corporation, on behalf of said corporation.
Notary Public, State of Texas
(SEAL)
(Please Print Name of Notary)
My Commission expires:
Exhibit 10 (n)(2)
THIRD RESTATED REVOLVING CREDIT NOTE
$30,000,000.00 Dallas, Texas - December 4, 1998
FOR VALUE RECEIVED, the undersigned, CEC
ENTERTAINMENT, INC. (f/k/a SHOWBIZ PIZZA TIME, INC.), a
Kansas corporation ("Company"), hereby unconditionally
promises to pay to the order of BANK ONE, TEXAS, N.A.
("Bank One") at the office of Bank One or any successor,
currently located at 1717 Main Street, Dallas, Texas
75201, on June 1, 2000 (or on any annual anniversary
thereof agreed to in writing by Bank One and the
Company), in lawful money of the United States of America
and immediately available funds, an amount equal to the
lesser of (a) THIRTY MILLION AND NO/100 DOLLARS
($30,000,000.00), or (b) the aggregate unpaid principal
amount of all Revolving Credit Loans made by Bank One to
the Company pursuant to Section 2.1 of the Loan
Agreement, dated as of June 27, 1995, between Bank One
and the Company (as amended, modified or supplemented
from time to time in accordance with its terms, the "Loan
Agreement").
The Company further promises to pay interest
(computed on the basis of a 365-day year for the actual
days elapsed) in like money on the unpaid principal
balance of this Note from time to time outstanding at the
annual rates provided in the Loan Agreement. Interest
shall be payable at the times and in the manner provided
in the Loan Agreement.
All Revolving Credit Loans made by Bank One
pursuant to Section 2.1 of the Loan Agreement and all
payments of the principal thereof shall be endorsed by
the holder of this Note on the schedule annexed hereto
(including any additional pages such holder may add to
such schedule), which endorsement shall constitute prima
facie evidence of the accuracy of the information so
endorsed; provided, however, that the failure of the
holder of this Note to insert any date or amount or other
information on such schedule shall not in any manner
affect the obligation of the Company to repay any
Revolving Credit Loans in accordance with the terms of
the Loan Agreement.
On and after the stated or any accelerated
maturity hereof, this Note shall bear interest until paid
in full (whether before or after the occurrence of any
Event of Default described in Sections 9.1(g) and 9.1(h)
of the Loan Agreement) at a rate of 2.5% per annum in
excess of the Prime Rate, payable on demand, but in no
event in excess of the maximum rate of interest permitted
under applicable law. Such interest rate shall change
when and as the Prime Rate changes.
This Note is a Revolving Credit Note referred
to in the Loan Agreement, is entitled to the benefits
thereof and is subject to optional and mandatory
prepayment, in whole or in part, as provided therein.
Reference is herein made to the Loan Agreement for the
rights of the holder to accelerate the unpaid balance
hereof prior to maturity.
The Company hereby waives diligence, demand,
presentment, protest and notice of any kind, release,
surrender or substitution of security, or forbearance or
other indulgence, without notice.
This Note and all of the other Loan Documents
are intended to be performed in accordance with, and only
to the extent permitted by, all applicable usury laws.
If any provision hereof or of any of the other Loan
Documents or the application thereof to any person or
circumstance shall, for any reason and to any extent, be
invalid or unenforceable, neither the application of such
provision to any other person or circumstance nor the
remainder of the instrument in which such provision is
contained shall be affected thereby and shall be enforced
to the greatest extent permitted by law. It is expressly
stipulated and agreed to be the intent of Bank One at all
times to comply with the usury and other applicable laws
now or hereafter governing the interest payable on the
Indebtedness evidenced by this Note. If the applicable
law is ever revised, repealed or interpreted so as to
render usurious any amount called for under this Note or
any of the other Loan Documents, or contracted for,
charged, taken, reserved or received with respect to the
Indebtedness evidenced by this Note, or if Bank One's
exercise of the option to accelerate the maturity of this
Note, or if any prepayment by the Company results in the
Company's having paid any interest in excess of that
permitted by law, then it is the express intent of the
Company and Bank One that all excess amounts theretofore
collected by Bank One be credited on the principal
balance of this Note (or, if this Note and all other
Indebtedness arising under or pursuant to the other Loan
Documents have been paid in full, refunded to the
Company), and the provisions of this Note and the other
Loan Documents immediately be deemed reformed and the
amounts thereafter collectable hereunder and thereunder
reduced, without the necessity of the execution of any
new document, so as to comply with the then applicable
law, but so as to permit the recovery of the fullest
amount otherwise called for hereunder or thereunder. All
sums paid, or agreed to be paid, by the Company for the
use, forbearance, detention, taking, charging, receiving
or reserving of the Indebtedness of the Company to Bank
One under this Note or arising under of pursuant to the
other Loan Documents shall, to the maximum extent
permitted by applicable law, be amortized, prorated,
allocated and spread throughout the full term of such
Indebtedness until payment in full so that the rate or
amount of interest on account of such Indebtedness does
not exceed the usury ceiling from time to time in effect
and applicable to such Indebtedness for so long as such
Indebtedness is outstanding. To the extent federal law
permits Bank One to contract for, charge, or receive a
greater amount of interest, Bank One will rely upon
federal law instead of Texas Finance Code, as
supplemented by Texas Credit Title, for the purpose of
determining the maximum rate or amount. Additionally, to
the maximum extent permitted by applicable law now or
hereafter in effect, Bank One may, at its option and from
time to time, implement any other method of computing the
maximum rate under such Texas Finance Code, as
supplemented by Texas Credit Title, or under other
applicable law by giving notice, if required, to the
Company as provided by applicable law now or hereafter in
effect. Notwithstanding anything to the contrary
contained herein or in any of the other Loan Documents,
it is not the intention of Bank One to accelerate the
maturity of any interest that has accrued at the time of
such acceleration or to collect unearned interest at the
time of such acceleration.
Capitalized terms used herein and not otherwise
defined shall have the meaning ascribed to them in the
Loan Agreement.
This Note may not be changed, modified, or
terminated orally, but only by an agreement in writing
signed by the party to be charged.
IN THE EVENT OF ANY LITIGATION WITH RESPECT TO
THIS REVOLVING CREDIT NOTE, COMPANY WAIVES (TO THE EXTENT
PERMITTED BY LAW) THE RIGHT TO A TRIAL BY JURY, ALL
RIGHTS OF SETOFF AND RIGHTS TO INTERPOSE COUNTERCLAIMS
AND CROSS-CLAIMS (UNLESS SUCH SETOFF, COUNTERCLAIM OR
CROSS-CLAIM COULD NOT, BY REASON OF ANY APPLICABLE
FEDERAL OR STATE PROCEDURAL LAWS, BE INTERPOSED, PLEADED
OR ALLEGED IN ANY OTHER ACTION) AND THE DEFENSES OF FORUM
NON CONVENIENS AND IMPROPER VENUE. COMPANY HEREBY
IRREVOCABLY CONSENTS TO THE NON-EXCLUSIVE JURISDICTION OF
THE COURTS OF THE STATE OF TEXAS AND OF ANY FEDERAL COURT
LOCATED IN DALLAS, TEXAS, IN CONNECTION WITH ANY ACTION
OR PROCEEDING ARISING OUT OF OR RELATING TO THIS
REVOLVING CREDIT NOTE. THIS NOTE SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
TEXAS WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW
AND SHALL BE BINDING UPON THE SUCCESSORS AND ASSIGNS OF
COMPANY AND INURE TO THE BENEFIT OF BANK ONE AND ITS
SUCCESSORS AND ASSIGNS.
If any term or provision of this Revolving
Credit Note shall be held invalid, illegal or
unenforceable, the validity of all other terms and
provisions herein shall in no way be affected thereby.
This Note is restated in accordance with the
terms of that certain Third Modification dated on even
date herewith by and between Company and Bank One to
conform the terms of this Note to the amended definition
of "Revolving Credit Commitment" contained in the Third
Modification Agreement.
IN WITNESS WHEREOF, the Company has executed
and delivered this Note as of the date first written
above.
CEC ENTERTAINMENT, INC.
By:
Name: Larry G. Page
Title: Executive Vice President, Chief
Financial Officer and Treasurer
STATE OF TEXAS &
&
COUNTY OF DALLAS &
This instrument was acknowledged before me on
December 10, 1998, by Larry G. Page, Executive Vice
President, Chief Financial Officer and Treasurer of CEC
ENTERTAINMENT, INC., a Kansas corporation, on behalf of
said corporation.
Notary Public, State of Texas (SEAL)
(Please Print Name of Notary)
My Commission expires:
INDEPENDENT AUDITOR'S CONSENT
We consent to the incorporation by reference in Registration Statement
No. 333-41039 of ShowBiz Pizza Time, Inc. on Form S-8 of our report dated
March 8, 1999, appearing in the Annual Report on Form 10-K of CEC Entertainment,
Inc. for the year ended January 3, 1999.
DELOITTE & TOUCHE LLP
Dallas, Texas
April 1, 1999
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> 01/03/99
<PERIOD-END> 01/03/99
<CASH> 3,210
<SECURITIES> 0
<RECEIVABLES> 4,312
<ALLOWANCES> 13
<INVENTORY> 5,842
<CURRENT-ASSETS> 17,766
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2,306
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<OTHER-SE> 181,722
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<SALES> 375,560
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