UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
X Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended July 2, 2000.
- Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from ------ to -----.
Commission File Number 0-15782
CEC ENTERTAINMENT, INC.
(Exact name of registrant as specified in its charter)
Kansas 48-0905805
(State or other jurisdiction of(I.R.S. Employer
incorporation or organization)Identification No.)
4441 West Airport Freeway
Irving, Texas 75062
(Address of principal executive offices,
including zip code)
(972) 258-8507
(Registrant's telephone number,
including area code)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes x No -
At July 2, 2000, an aggregate of 26,852,389 shares of the
registrant's Common Stock, par value of $.10 each (being the
registrant's only class of common stock), were outstanding.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CEC ENTERTAINMENT, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Consolidated balance sheets. . . . . . . . . . . . . . . . 2
Consolidated statements of earnings and
comprehensive income . . . . . . . . . . . . . . . . . . . 3
Consolidated statement of shareholders' equity . . . . . . 5
Consolidated statements of cash flows . . . . . . . . . . 6
Notes to consolidated financial statements . . . . . . . . 7
Page 1
CEC ENTERTAINMENT, INC.
CONSOLIDATED BALANCE SHEETS
(Thousands, except share data)
<TABLE>
ASSETS
July 2, January 2,
2000 2000
------- ---------
(unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents . . . . . . . . . . . $ 4,138 $ 2,731
Accounts receivable . . . . . . . . . . . . . . 4,653 6,451
Current portion of notes receivable . . . . . . 7
Inventories . . . . . . . . . . . . . . . . . . 8,301 7,895
Prepaid expenses. . . . . . . . . . . . . . . . 5,416 4,727
Current portion of deferred tax asset . . . . . 776 776
Assets held for resale. . . . . . . . . . . . . 10,369 13,070
------- -------
Total current assets . . . . . . . . . . . . . 33,653 35,657
------- -------
Property and equipment, net. . . . . . . . . . . 306,948 280,624
------- -------
Notes receivable from related parties, less
current portion . . . . . . . . . . . . . . . . 1,073 491
-------- --------
Other assets . . . . . . . . . . . . . . . . . . 7,341 8,396
-------- --------
$ 349,015 $ 325,168
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt . . . . . . . $ 6,083 $ 7,729
Accounts payable and accrued liabilities. . . . 36,715 34,294
------- -------
Total current liabilities. . . . . . . . . . 42,798 42,023
------- -------
Long-term debt, less current portion . . . . . . 45,968 51,567
------- -------
Deferred rent. . . . . . . . . . . . . . . . . . 4,108 4,110
------- -------
Long-term deferred tax liability . . . . . . . . 4,031 2,167
------- -------
Other liabilities. . . . . . . . . . . . . . . . 1,725 1,725
------- -------
Redeemable preferred stock, $60 par value, redeemable
for $2,911 in 2005 . . . . . . . . . . . . . . . 2,387 2,348
------- -------
Shareholders' equity:
Common stock, $.10 par value; authorized
100,000,000 shares; 33,891,895 and 33,791,217
shares issued, respectively . . . . . . . . . 3,389 3,379
Capital in excess of par value. . . . . . . . . 168,342 166,594
Retained earnings . . . . . . . . . . . . . . . 150,869 120,194
Deferred compensation . . . . . . . . . . . . . (379) (759)
Accumulated other comprehensive income . . . . (21) 42
Less treasury shares of 7,039,506 and
6,777,614, respectively, at cost. . . . . . . (74,202) (68,222)
------- -------
247,998 221,228
------- -------
$ 349,015 $ 325,168
======= =======
See notes to consolidated financial statements.
</TABLE>
Page 2
CEC ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
AND COMPREHENSIVE INCOME
(Unaudited)
(Thousands, except per share data)
<TABLE>
Three Months Ended
--------------------------------
July 2, 2000 July 4,1999
------------ -----------
<S> <C> <C>
Food and beverage revenues . . . . . . . . . $ 78,654 $ 67,242
Games and merchandise revenues . . . . . . . 39,463 36,858
Franchise fees and royalties . . . . . . . . 862 775
Interest income, including related party
income of $26 and $10,respectively . . . . 54 60
------- -------
119,033 104,935
------- -------
Costs and expenses:
Cost of sales . . . . . . . . . . . . . . . 53,915 47,829
Selling, general and administrative
expenses . . . . . . . . . . . . . . . . 16,939 15,238
Depreciation and amortization . . . . . . . 8,122 7,851
Interest expense. . . . . . . . . . . . . . 880 600
Other operating expenses. . . . . . . . . . 19,404 17,841
------- -------
99,260 89,359
------- -------
Income before income taxes . . . . . . . . . 19,773 15,576
------- -------
Income taxes:
Current expense . . . . . . . . . . . . . . 6,940 5,824
Deferred expense. . . . . . . . . . . . . . 732 281
------- -------
7,672 6,105
------- -------
Net income . . . . . . . . . . . . . . . . . 12,101 9,471
Other comprehensive income, net of tax:
Foreign currency translation. . . . . . . . 29 37
------- -------
Comprehensive income . . . . . . . . . . . . $ 12,130 $ 9,508
======= =======
Earnings per share:
Basic:
Net income . . . . . . . . . . . . . . . . $ .45 $ .35
======= =======
Weighted average shares outstanding. . . . 26,768 27,056
======= =======
Diluted:
Net income . . . . . . . . . . . . . . . $ .44 $ .34
======= =======
Weighted average shares outstanding. . . . 27,612 27,797
======= =======
</TABLE>
See notes to consolidated financial statements.
Page 3
CEC ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
AND COMPREHENSIVE INCOME
(Unaudited)
(Thousands, except per share data)
<TABLE>
Six Months Ended
-----------------------------
July 2, 2000 July 4, 1999
------------ ------------
<S> <C> <C>
Food and beverage revenues . . . . . . . . . . $ 172,483 $ 143,785
Games and merchandise revenues . . . . . . . . 86,030 77,850
Franchise fees and royalties . . . . . . . . . 1,754 1,587
Interest income, including related
party income of $49 and $27,
respectively . . . . . . . . . . . . . . . . 113 109
------- -------
260,380 223,331
------- -------
Costs and expenses:
Cost of sales . . . . . . . . . . . . . . . . 115,465 99,439
Selling, general and administrative
expenses . . . . . . . . . . . . . . . . . 36,935 32,274
Depreciation and amortization . . . . . . . . 16,218 15,317
Interest expense. . . . . . . . . . . . . . . 1,641 1,295
Other operating expenses. . . . . . . . . . . 39,722 35,777
------- -------
209,981 184,102
------- -------
Income before income taxes . . . . . . . . . . 50,399 39,229
------- -------
Income taxes:
Current expense . . . . . . . . . . . . . . . 17,690 14,671
Deferred expense. . . . . . . . . . . . . . . 1,864 706
------- -------
19,554 15,377
------- -------
Net income . . . . . . . . . . . . . . . . . . 30,845 23,852
Other comprehensive income, net of tax:
Foreign currency translation. . . . . . . . . 63 40
------- -------
Comprehensive income . . . . . . . . . . . . . $ 30,908 $ 23,892
======= =======
Earnings per share:
Basic:
Net income . . . . . . . . . . . . . . . . . $ 1.14 $ .88
======= =======
Weighted average shares outstanding. . . . . 26,819 27,018
======= =======
Diluted:
Net income . . . . . . . . . . . . . . . . . $ 1.11 $ .85
======= =======
Weighted average shares outstanding. . . . . 27,618 27,837
======= =======
</TABLE>
See notes to consolidated financial statements.
Page 4
CEC ENTERTAINMENT, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(Unaudited)
(Thousands, except per share data)
<TABLE>
Amounts Shares
------- ------
<S> <C> <C>
Common stock and capital in excess of par value
Balance, beginning of year. . . . . . . . . . . $ 169,973 33,791
Stock options exercised . . . . . . . . . . . . 1,213 96
Net tax benefit from exercise of options and
stock grants . . . . . . . . . . . . . . . . 390
Stock issued under 401(k) plan. . . . . . . . . 155 5
------- -------
Balance, July 2, 2000 . . . . . . . . . . . . . 171,731 33,892
------- -------
Retained earnings:
Balance, beginning of year. . . . . . . . . . . 120,194
Net income. . . . . . . . . . . . . . . . . . . 30,845
Redeemable preferred stock accretion. . . . . . (51)
Redeemable preferred stock dividend, $2.40
per share . . . . . . . . . . . . . . . . . . (119)
-------
Balance, July 2, 2000 . . . . . . . . . . . . . 150,869
-------
Deferred compensation:
Balance, beginning of year. . . . . . . . . . . (759)
Amortization of deferred compensation . . . . . 380
-------
Balance, July 2, 2000 . . . . . . . . . . . . . (379)
-------
Accumulated other comprehensive income:
Balance, beginning of year. . . . . . . . . . . 42
Foreign currency translation. . . . . . . . . . (63)
-------
Balance, July 2, 2000 . . . . . . . . . . . . . (21)
-------
Treasury shares:
Balance, beginning of year. . . . . . . . . . . (68,222) 6,778
Treasury stock acquired . . . . . . . . . . . (5,980) 262
------- -------
Balance, July 2, 2000 . . . . . . . . . . . . . (74,202) 7,040
------- -------
Total shareholder's equity . . . . . . . . . . . $ 247,998
========
</TABLE>
See notes to consolidated financial statements.
Page 5
CEC ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Thousands)
<TABLE>
Six Months Ended
--------------------------------
July 2, 2000 July 4, 1999
------------ ------------
<S> <C> <C>
Operating activities:
Net income . . . . . . . . . . . . . . . $30,845 $23,852
Adjustments to reconcile net income to cash
provided by operations:
Depreciation and amortization . . . . . . 16,218 15,317
Deferred tax expense. . . . . . . . . . . 1,864 706
Compensation expense under stock grant plan 380 380
Other . . . . . . . . . . . . . . . . . . (117) 21
Net change in receivables, inventory,
prepaids, payables and accrued liabilities 3,124 1,991
------- -------
Cash provided by operations. . . . . . . 52,314 42,267
------- -------
Investing activities:
Purchases of property and equipment . . . . (43,224) (30,786)
Proceeds from disposition of property
and equipment . . . . . . . . . . . . . . 835
Additions to notes receivable . . . . . . . (834) (976)
Payments received on notes receivable . . . 259 754
Decrease in assets held for resale. . . . . 2,850
(Increase) decrease in other assets . . . . 868 (1,777)
------- -------
Cash used in investing activities. . . . . (39,246) (32,785)
------- -------
Financing activities:
Payments on debt . . . . . . . . . . . . . (20,840) (17,689)
Proceeds on debt. . . . . . . . . . . . . . 13,595 10,520
Exercise of stock options . . . . . . . . . 1,213 1,455
Redeemable preferred stock dividends. . . . (119) (119)
Treasury stock acquired . . . . . . . . . . (5,980) (1,659)
Other . . . . . . . . . . . . . . . . . . . 470 673
------- -------
Cash used in financing activities. . . . . (11,661) (6,819)
------- -------
Increase in cash and cash equivalents . . . 1,407 2,663
Cash and cash equivalents, beginning
of period . . . . . . . . . . . . . . . . 2,731 3,210
------- -------
Cash and cash equivalents, end of period . . $ 4,138 $ 5,873
======= =======
</TABLE>
See notes to consolidated financial statements.
Page 6
CEC ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Interim financial statements:
In the opinion of management, the accompanying financial
statements for the periods ended July 2, 2000 and July 4, 1999
reflect all adjustments (consisting only of normal recurring
adjustments) necessary to present fairly the Company's financial
condition, results of operations and cash flows in accordance with
generally accepted accounting principles.
Certain information and footnote disclosures normally included
in the consolidated financial statements prepared in accordance
with generally accepted accounting principles have been omitted.
The unaudited consolidated financial statements referred to above
should be read in conjunction with the financial statements and
notes thereto included in the Company's Form 10-K filed with the
Securities and Exchange Commission for the year ended January 2,
2000. Results of operations for the periods ended July 2, 2000 and
July 4, 1999 are not necessarily indicative of the results for the
year.
2. Earnings per common share:
Earnings per common share were computed based on the weighted
average number of common and potential common shares outstanding
during the period. Net income available per common share has been
adjusted for the items indicated below, and earnings per common and
potential common share were computed as follows (thousands, except
per share data):
<TABLE>
Three Months Ended Six Months Ended
-------------------- --------------------
July 2, July 4, July 2, July 4,
2000 1999 2000 1999
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net income . . . . . . . . . . . $ 12,101 $ 9,471 $ 30,845 $ 23,852
Accretion of redeemable
preferred stock. . . . . . . . (25) (26) (51) (51)
Redeemable preferred stock
dividends. . . . . . . . . . . (60) (59) (119) (119)
------- ------- ------- -------
Adjusted income applicable to
common and potential common
shares . . . . . . . . . . . . $ 12,016 $ 9,386 $ 30,675 $ 23,682
======= ======= ======= =======
Basic:
Weighted average common shares
outstanding. . . . . . . . 26,768 27,056 26,819 27,018
======= ======= ======= =======
Earnings per common share. . $ .45 $ .35 $ 1.14 $ .88
======= ======= ======= =======
Diluted:
Weighted average common shares
outstanding. . . . . . . . . 26,768 27,056 26,819 27,018
Potential common shares for
stock options
and stock grants . . . . . 844 741 799 819
------- ------- ------- -------
Weighted average shares
outstanding . . . . . . 27,612 27,797 27,618 27,837
======= ======= ======= =======
Earnings per common and
potential common share . $ .44 $ .34 $ 1.11 $ .85
======= ======= ======= =======
</TABLE>
Page 7
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
Second Quarter 2000 Compared to Second Quarter 1999
---------------------------------------------------
A summary of the results of operations of the Company as a
percentage of revenues for the second quarters of 2000 and 1999 is
shown below.
<TABLE>
Three Months Ended
----------------------------------
July 2, 2000 July 4, 1999
------------ ------------
<S> <C> <C>
Revenue. . . . . . . . . . . . . . 100.0% 100.0%
----- -----
Costs and expenses:
Cost of sales. . . . . . . . . . . 45.4 45.6
Selling, general and administrative 14.2 14.5
Depreciation and amortization 6.8 7.5
Interest expense .7 .6
Other operating expenses 16.3 17.0
------ -----
83.4 85.2
------ -----
Income before income taxes 16.6 14.8
Income tax expense . . . . . . 6.4 5.8
----- -----
Net income . . . . . . . . . . . . 10.2% 9.0%
===== =====
</TABLE>
Revenues
--------
Revenues increased 13.4% to $119.0 million in the second quarter
of 2000 from $104.9 million in the second quarter of 1999 due to an
increase in the number of Company-operated stores and an increase
of 1.8% in comparable store sales of the Company's Chuck E.
Cheese's stores which were open during all of the second quarters
of both 2000 and 1999. During 1999, the Company opened 23 new
restaurants and acquired one restaurant from a franchisee. During
the first six months of 2000, the Company opened 14 new
restaurants. Menu prices increased approximately 2.0% between the
periods.
Costs and Expenses
------------------
Costs and expenses as a percentage of revenues decreased to
83.4% in the second quarter of 2000 from 85.2% in the second
quarter of 1999.
Cost of sales decreased as a percentage of revenues to 45.4% in
the second quarter of 2000 from 45.6% in the comparable period of
1999. Cost of food, beverage, prize and merchandise items as a
percentage of restaurant sales decreased to 15.2% in the second
quarter of 2000 from 15.4% in the second quarter of 1999 primarily
due to a decrease in cheese costs and an increase in menu prices.
Store labor expenses as a percentage of store sales increased to
27.6% during the second quarter of 2000 compared to 27.3% in the
second quarter of 1999 primarily due to wage increases and new
store staffing.
Selling, general and administrative expenses as a percentage of
revenues decreased to 14.2% in the second quarter of 2000 from
14.5% in the second quarter of 1999 due primarily to a decrease in
advertising expense as a percentage of revenues.
Depreciation and amortization expenses as a percentage of
revenues decreased to 6.8% in the second quarter of 2000 from 7.5%
in the second quarter of 1999 primarily due to the increase in
comparable store sales and new restaurants with higher sales volumes.
Interest expense as a percentage of revenues increased to .7% in
the second quarter of 2000 from .6% in the second quarter of 1999
due primarily to an increase in the amount of long-term debt
outstanding. Interest expense on incremental debt incurred to
finance assets held for resale has been allocated to the basis of
such assets.
Page 8
Other operating expenses decreased as a percentage of revenues
to 16.3% in the second quarter of 2000 from 17.0% in the second
quarter of 1999 primarily due to the increase in comparable store
sales and the fact that a significant portion of operating costs
are fixed.
The Company's effective income tax rate was 38.8% in the second
quarter of 2000 compared to 39.2% in the second quarter of 1999
primarily due to lower estimated state tax rates.
Net Income
----------
The Company had net income of $12.1 million in the second
quarter of 2000 compared to $9.5 million in the second quarter of
1999 due to the changes in revenues and expenses discussed above.
The Company's diluted earnings per share increased 29.4% to $.44
per share in the second quarter of 2000 from $.34 per share in the
second quarter of 1999.
First Six Months of 2000 Compared to First Six Months of 1999
-------------------------------------------------------------
A summary of the results of operations of the Company as a
percentage of revenues for the first six months of 2000 and 1999 is
shown below.
<TABLE>
Six Months Ended
------------------------------
July 2, 2000 July 4, 1999
------------ ------------
<S> <C> <C>
Revenue. . . . . . . . . . . . . 100.0% 100.0%
------ -------
Costs and expenses:
Cost of sales . . . . . . . . . 44.3 44.5
Selling, general and administrative 14.2 14.4
Depreciation and amortization 6.2 6.9
Interest expense. . . . . . . . .6 .6
Other operating expenses 15.3 16.0
------ ------
80.6 82.4
------ ------
Income before income taxes 19.4 17.6
Income tax expense . . . . . . . 7.6 6.9
------ ------
Net income . . . . . . . . . . . 11.8% 10.7%
======= ======
</TABLE>
Revenues
--------
Revenues increased 16.6% to $260.4 million in the first six
months of 2000 from $223.3 million in the first six months of 1999
primarily due an increase in the number of Company-operated stores
and an increase of 4.9% in comparable store sales of the Company's
Chuck E. Cheese's restaurants which were open during all of the
first six months of both 2000 and 1999. During 1999, the Company
opened 23 new restaurants and acquired one restaurant from a
franchisee. During the first six months of 2000, the Company opened
14 new restaurants. Menu prices increased approximately 1.8%
between the periods.
Costs and Expenses
------------------
Costs and expenses as a percentage of revenues decreased to
80.6% in the first six months of 2000 from 82.4%in the first six
months of 1999.
Cost of sales decreased as a percentage of revenues to 44.3% in
the first six months of 2000 from 44.5% in the comparable period of
1999. Cost of food, beverage, prize and merchandise items as a
percentage of restaurant sales decreased to 15.0% in the first six
months of 2000 from 15.4% in the first six months of 1999 primarily
due to a decrease in cheese costs and an increase in menu prices.
Store labor expenses as a percentage of restaurant sales increased
to 26.6% during the first six months of 2000 from 26.3% in the
first six months of 1999 primarily due to wage increases and new
store staffing.
Selling, general and administrative expenses as a percentage of
revenues decreased to 14.2% in the first six months of 2000 from
14.4% in the first six months of 1999 due a reduction in
advertising expenses as a percentage of revenues.
Page 9
Depreciation and amortization expenses as a percentage of
revenues were 6.2% in the first six months of 2000 compared to 6.9%
in the first six months of 1999 primarily due to the increase in
comparable store sales and new restaurants with higher sales volumes.
Interest expense as a percentage of revenues remained constant
at .6% in both the first six months of 2000 and the first six
months of 1999. Interest expense on incremental debt incurred to
finance assets held for resale has been allocated to the basis of
such assets.
Other operating expenses decreased as a percentage of revenues
to 15.3% in the first six months of 2000 from 16.0% in the first
six months of 1999 primarily due to the increase in comparable
store sales and the fact that a significant portion of operating
costs are fixed.
The Company's effective income tax rate was 38.8% in the first
six months of 2000 compared to 39.2% in the first six months of
1999 primarily due to lower estimated state tax rates.
Net Income
----------
The Company had net income of $30.8 million in the first six
months of 2000 compared to $23.9 million in the first six months of
1999 due to the changes in revenues and expenses discussed above.
The Company's diluted earnings per share increased 30.6% to $1.11
per share in the first six months of 2000 compared to $.85 per
share in the first six months of 1999.
Financial Condition, Liquidity and Capital Resources
----------------------------------------------------
Cash provided by operations increased to $52.3 million in the
first six months of 2000 from $42.3 million in the comparable
period of 1999. Cash outflows from investing activities for the
first six months of 2000 were $39.2 million primarily related to
capital expenditures. Cash outflows from financing activities for
the first six months of 2000 were $11.7 million primarily related
to the repayment of long-term debt and the repurchase of the
Company's common stock. The Company's primary requirements for
cash relate to planned capital expenditures, the repurchase of the
Company's common stock and debt service. The Company expects that
it will satisfy such requirements from cash provided by operations
and, if necessary, funds available under its line of credit.
In 2000, the Company plans to add 27 to 32 stores including new
stores and acquisitions of existing stores from franchisees. The
Company currently anticipates its cost of opening such new stores
to average approximately $1.8 million per store which will vary
depending upon many factors including the size of the stores and
whether the store is an in-line or freestanding building. In
addition to such new store openings, the Company plans to expand
the seating capacity of 17 to 20 high sales volume stores in 2000
including stores which will receive an enhanced showroom package.
The Company also plans to complete Phase III upgrades in 25 stores
in the second half of the year at an average cost of approximately
$225,000 per store. A Phase III upgrade generally includes a new
toddler play area, skill games, kiddie games and rides, sky-tube
enhancements, ticket counters and potentially a ticket banking
system. During the first six months of 2000, the Company opened 14
new restaurants, expanded 13 restaurants and completed a Phase III
upgrade in one restaurant. The Company currently estimates that
capital expenditures in 2000, including expenditures for new store
openings, existing store expansions and equipment investments, will
be approximately $86 million. The Company plans to finance these
expenditures through cash flow from operations and borrowings under
the Company's line of credit.
In 1999, the Company purchased assets previously owned by
Discovery Zone, Inc. The preliminary allocation of the purchase
price was approximately $7.2 million to property and equipment and
$11.8 million to assets held for resale. Subsequent to the
purchase, the Company has incurred incremental holding costs of
approximately $2.9 million and realized sale proceeds of $4.3
million related to the assets held for resale. While the Company
has not yet finalized the purchase price allocation, it is not
expected that the final allocation will be materially different
from the results reflected herein.
In September 1999, the Company announced a plan to purchase
shares of the Company's common stock at an aggregate purchase price
of up to $25 million. As of August 14, 2000, the Company has
purchased shares of its common stock under the $25 million plan at
an aggregate purchase price of approximately $8.9 million.
Page 10
In July 2000, the Company entered into a bank agreement that
increases its revolving credit facility to $75 million from $55
million and extends the maturity date to 2003 from 2001. The
Company's total credit facility of $81 million consists of $6
million in term notes and a $75 million line of credit. Term notes
totaling $6 million with annual principal payments of $6 million
and annual interest of 10.02% mature in 2001. Interest under the
$75 million line of credit is dependent on earnings and debt levels
of the Company and ranges from prime or, at the Company's option,
LIBOR plus 1% to 1.75%. Currently, any borrowings under this line
of credit would be at prime rate or LIBOR plus 1/8%. As of July
2, 2000, $45.3 million was borrowed under the line of credit. The
Company is required to comply with certain financial ratio tests
during the terms of the loan agreements.
Forward-Looking Statements
--------------------------
Certain statements may constitute "forward-looking statements"
which are subject to known and unknown risks and uncertainties
including, among other things, certain economic conditions,
competition, development factors and operating costs that may cause
the actual results to differ materially from results implied by
such forward-looking statements.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The Company is subject to market risk in the form of interest
risk and foreign currency risk. Both interest risk and foreign
currency risk are immaterial to the Company.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
There are no material pending legal proceedings, other than
ordinary routine litigation incidental to the business, to which
the Company or any of its subsidiaries is a party or of which any
of their property is the subject.
Item 2. Changes in Securities.
None to report during quarter for which this report is filed.
Item 3. Defaults Upon Senior Securities.
None to report during quarter for which this report is filed.
Item 4. Submission of Matters to a Vote of Security Holders
On June 22, 2000, at the Company's annual meeting of
shareholders, the Company's shareholders re-elected Richard M.
Frank, Tim T. Morris and Louis P. Neeb to serve the Company as
directors. The following votes were cast with respect to the
election of these directors:
For Withheld
---------- --------
Richard M. Frank 25,159,755 156,916
Tim T. Morris 25,157,663 159,008
Louis P. Neeb 25,147,806 168,865
Richard T. Huston, Michael H. Magusiak, Cynthia I. Pharr,
Walter Tyree and Raymond E. Woolridge's terms of office as
directors of the Company continued after the meeting.
The shareholders also approved an amendment to the Non-Employee
Directors Stock Option Plan ("Director's Plan") extending the term
thereof for an additional ten (10) years. The votes cast with
respect to this proposal to authorize an amendment to the Directors
Plan were as follows:
For Against Abstain No Vote
---------- ------- ------- ---------
24,417,084 866,546 33,039 0
The shareholders also approved an amendment to the Directors
Plan allowing for an adjustment in shares distributable in the
event a dividend or stock split is declared. The votes cast with
respect to this proposal to authorize an amendment to the Directors
Plan were as follows:
For Against Abstain No Vote
---------- ------- ------- --------
24,584,190 697,775 34,706 0
page 12
The shareholders also approved an amendment to 1997 Non-
Statutory Employee Stock Option Plan ("Employee Plan") providing
that the number of shares of Common Stock which may be issued under
the Employee Plan would be increased from 2,737,500 to 3,087,500,
and requiring that any amendment to the Employee Plan must be
approved by the shareholders of the Company if the amendment would
(a) materially increase the aggregate number of shares of stock
which may be issued pursuant to options granted under the Employee
Plan, (b) materially modify the requirements as to eligibility for
participation in the Employee Plan, or materially increase the
benefits accruing to holders of options under the Employee Plan.
The votes cast with respect to this proposal to authorize an
amendment to the Employee Plan were as follows:
For Against Abstain No Vote
---------- --------- -------- -------
24,145,808 1,139,854 31,008 0
The shareholders also approved an incentive bonus program for
eligible employees of the Company (excluding Field Operators, and
Training and Recruiting managers) to receive a bonus as a
percentage of their gross base salary during a particular fiscal
year ranging from a high of one hundred percent (100%) for the
Chief Executive Officer to a low of two percent (2%) for new
management salaried and hourly employees with less than five (5)
years tenure with the Company. The incentive bonus program
provides that an employee is eligible to receive one hundred
percent (100%) of his or her bonus potential if the Company
achieves a thirty percent (30%) cash on cash return on capital
expenditures. The cash on cash return is equal to the fiscal
year's cash flow (income before taxes plus depreciation,
amortization, and pre-opening expenses) minus the prior fiscal
year's cash flow divided by the weighted average increase in
capital expenditures. The bonus potential for employees will
increase or decrease four percent (4%) for each one percent (1%)
change from a thirty percent (30%) cash on cash return. However,
no bonuses will be paid if the cash on cash return is less than
twenty percent (20%). The votes cast with respect to this proposal
to authorize an incentive bonus program for eligible employees of
the Company were as follows:
For Against Abstain No Vote
---------- ------- ------- -------
24,733,365 555,750 27,555 0
Item 5. Other Information.
None to report during quarter for which this report is filed.
Item 6. Exhibits and Reports on Form 8-K.
a) Exhibits
None.
b) Reports on Form 8-K
None filed during the quarter for which this report is filed.
Page 13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
CEC ENTERTAINMENT, INC.
Dated: August 11, 2000 By: /s/ Rodney Carter
------------------------
Rodney Carter
Executive Vice President
and Chief Financial Officer
Page 14
