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 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 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 13, 2000, an aggregate of 26,770,790 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 13, 2000) held by non-affiliates of the
registrant was $597,581,303.
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 2000 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"), 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 13, 2000, 302 Chuck E. Cheese's
("Chuck E. Cheese's") restaurants. In addition, as of March 13, 2000,
franchisees of the Company operated 55 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 45 states.
The Company owns and operates Chuck E. Cheese's restaurants in 37
states and Canada. 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):
<TABLE>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Average annual revenues
per restaurant (1) $1,531,000 $1,452,000 $1,437,000
Number of restaurants open at end
of period 294 271 246
Percent of total restaurant revenues:
Food and beverage sales 64.8% 66.2% 68.2%
Game sales 32.4% 30.9% 28.6%
Merchandise sales 2.8% 2.9% 3.2%
</TABLE>
- - ------
(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 (243, 240 and 225 restaurants in
1999, 1998 and 1997, respectively). Fiscal years 1999 and 1998
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 26 restaurants in 1999.
The Company has expanded the customer areas of 56 existing stores
since 1995, including 19 stores in 1999. The Company plans to
continue its strategy of expanding the customer areas of existing
restaurants in 2000. The customer area is typically increased by
an average of 1,000 to 4,000 square feet per store.
The Company opened 23, 14 and two new Chuck E. Cheese's
restaurants in 1999, 1998 and 1997, respectively. This does not
include restaurants acquired from franchisees. The Company
anticipates adding approximately 27 to 32 new restaurants in 2000
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 ("SkyTubes") 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
13, 2000, 55 Chuck E. Cheese's restaurants were operated by a total
of 35 different franchisees, as compared to 54 of such restaurants
at March 12, 1999. In September 1996 and December 1998, the
Company purchased 19 and six Chuck E. Cheese's restaurants,
respectively, owned by its then largest franchisees.
The Chuck E. Cheese's standard franchise related 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 2000.
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 2.65% 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
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 and franchise royalties.
Employees
The Company's employment varies seasonally, with the greatest
number being employed during the summer months. On March 13, 2000,
the Company employed approximately 15,648 employees, including
15,323 in the operation of Chuck E. Cheese's restaurants and 325
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
13, 2000.
Chuck E.
Domestic Cheese's
-------- --------
Alabama 5
Arkansas 4
California 54
Colorado 6
Connecticut 5
Delaware 1
Florida 18
Georgia 8
Idaho 1
Illinois 17
Indiana 8
Iowa 4
Kansas 3
Kentucky 2
Louisiana 5
Maryland 10
Massachusetts 10
Michigan 12
Minnesota 4
Mississippi 1
Missouri 7
Nebraska 2
Nevada 3
New Hampshire 2
New Jersey 10
New Mexico 1
New York 9
North Carolina 4
Ohio 15
Oklahoma 3
Pennsylvania 10
Rhode Island 1
South Carolina 4
Tennessee 6
Texas 30
Virginia 8
Wisconsin 7
---
300
International
-------------
Canada 2
---
302
===
Page 6
Of the 302 Chuck E. Cheese's restaurants owned by the Company as
of March 13, 2000, 274 occupy leased premises and 28 occupy owned
premises. The leases of these restaurants will expire at various
times from 2000 to 2028, as described in the table below.
Year of Number of Range of Renewal
Expiration Restaurants Options (Years)
---------- ----------- ---------------
2000 19 None to 15
2001 34 None to 15
2002 60 None to 20
2003 and thereafter 161 None to 20
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 1999.
Page 7
P A R T I I
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters.
As of March 13, 2000, there were an aggregate of 26,770,798
shares of the Company's Common Stock outstanding and approximately
3,461 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 (adjusted for a three-for-two stock split
in the form of a 50% stock dividend of the Company's common stock
on July 23, 1999):
<TABLE>
High Low
------- -------
<S> <C> <C>
1999
- 1st quarter $ 24 1/8 $ 15
- 2nd quarter 29 7/8 21 11/16
- 3rd quarter 36 9/16 25 3/4
- 4th quarter 35 1/4 23 1/2
1998
- 1st quarter $ 22 5/8 $ 13 1/4
- 2nd quarter 26 7/8 21 29/32
- 3rd quarter 26 5/8 11 29/32
- 4th quarter 20 12 13/16
</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 2, 2000 in the amount of $1.20 per share will be paid on
April 2, 2000.
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, repurchase the Company's common stock
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>
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(Thousands, except per share and store data)
<S> <C> <C> <C> <C> <C>
Operating results (1):
Revenues . . . . . . . . . $440,904 $379,427 $350,267 $ 293,990 $ 263,783
Costs and expenses . . . . 368,578 324,395 307,558 271,769 263,408
------- ------- ------- ------- -------
Income before income
taxes . . . . . . . . 72,326 55,032 42,709 22,221 375
Income taxes:
Current expense. . . . 24,807 9,160 3,417 2,855 701
Deferred expense
(benefit) . . . . . 3,147 12,142 13,795 6,145 (389)
------- ------- ------- ------- -------
27,954 21,302 17,212 9,000 312
------- ------- ------- ------- -------
Net income . . . . . . . . $44,372 $33,730 $ 25,497 $ 13,221 $ 63
======= ======= ======== ======== =======
Per Share (2)(3):
Basic:
Net income (loss) . . $ 1.63 $ 1.23 $ .91 $ .47 $ (.01)
Weighted average shares
outstanding. . . . . . 27,004 27,093 27,603 27,309 27,147
Diluted:
Net income (loss) . . . $ 1.58 $ 1.20 $ .89 $ .47 $ (.01)
Weighted average shares
outstanding . . . . . 27,922 27,810 28,226 27,716 27,147
Cash flow data:
Cash provided by
operations . . . . . $76,686 $68,614 $ 69,478 $ 48,362 $ 27,810
Cash used in investing
activities . . . . . (100,344) (65,622) (43,805) (51,868) (30,548)
Cash provided by (used in)
financing activities 23,179 (7,057) (21,800) 1,319 5,946
Balance sheet data:
Total assets. . . . . . .$325,168 $252,228 $226,368 $216,580 $ 199,010
Long-term obligations
(including current portion
and redeemable preferred
stock) . . . . . . . 63,369 31,911 30,713 39,571 39,244
Shareholders' equity. . . 221,228 183,949 155,938 141,476 126,487
Number of restaurants at year end:
Company operated. . . . 294 271 249 244 226
Franchise . . . . . . . 55 54 63 70 93
------ ------ ------ ------ ------
349 325 312 314 319
====== ====== ====== ====== ======
</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.
(3) All share and per share information has been adjusted to give
effect to three-for-two stock split in the form of a 50% stock
dividend of the Company's common stock on July 23, 1999.
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>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Revenues . . . . . . . . . . . 100.0% 100.0% 100.0%
----- ----- -----
Costs and expenses:
Cost of sales . . . . . . . . 45.1% 45.9% 46.8%
Selling, general and
administrative. . . . . . 14.9% 14.9% 15.1%
Depreciation and amortization 7.0% 7.3% 7.3%
Interest expense. . . . . . . .5% .7% .8%
Other operating expenses. . . 16.1% 16.7% 17.8%
------ ------- -------
83.6% 85.5% 87.8%
------ ------- -------
Income before income taxes . . 16.4% 14.5% 12.2%
====== ======= =======
</TABLE>
1999 Compared to 1998
- - ---------------------
Revenues increased 16.2% to $440.9 million in 1999 from $379.4
million in 1998 primarily due to an increase of 5.7% in sales of
the Company's Chuck E. Cheese's restaurants which were open during
all of 1999 and 1998 ("comparable store sales"). In addition, the
Company opened 23 new restaurants and purchased one restaurant from
a franchisee in 1999.
Income before income taxes increased to $72.3 million in 1999
from $55.0 million in 1998. A material portion of operating costs
are fixed resulting in an improvement of operating margins at
higher sales levels. Net income increased to $44.4 million in 1999
from $33.7 million in 1998. The Company's diluted earnings per
share increased to $1.58 per share in 1999 compared to $1.20 per
share in 1998.
Revenues
--------
Revenues increased to $440.9 million in 1999 from $379.4 million
in 1998. Comparable store sales of Chuck E. Cheese's restaurants
increased by 5.7% in 1999. In addition, the Company opened 23 new
restaurants and acquired one restaurant from a franchisee in 1999.
Average annual revenues per restaurant increased to approximately
$1,531,000 in 1999 from approximately $1,452,000 in 1998.
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
.4% between the two years.
Revenues from franchise fees and royalties were $3.2 million in
1999 compared to $3.3 million in 1998 primarily due to a reduction
in the number of franchise stores. Average annual revenue per
franchised restaurant increased due to a 3.7% increase in
comparable franchise store sales and higher sales volumes in new
franchise restaurants. During 1999, two new franchise restaurants
opened.
Costs and Expenses
------------------
Costs and expenses as a percentage of revenues decreased to 83.6%
in 1999 from 85.5% in 1998.
Cost of sales as a percentage of revenues decreased to 45.1% in
1999 from 45.9% in 1998. Cost of food, beverage, prize and
merchandise items as a percentage of restaurant sales decreased to
15.5% in 1999 from 16.0% in 1998 primarily due to an increase in
game sales and reduced costs of certain food and beverage products,
including cheese costs, and an increase in menu prices. Restaurant
labor expenses as a percentage of restaurant sales declined
slightly to 26.8% in 1999 from 26.9% in 1998 primarily due to the
increase in comparable store sales.
Page 10
Selling, general and administrative expenses as a percentage of
revenues was 14.9% in both 1999 and 1998. Efficiencies in advertising
and overhead costs were offset by higher preopening expenses and
recruiting and training costs in 1999 compared to 1998
due to the greater number of new stores opened in 1999.
Depreciation and amortization expense as a percentage of revenues
declined to 7.0% in 1999 from 7.3% in 1998 primarily due to the
increase in comparable store sales.
Interest expense as a percentage of revenues decreased to .5% in
1999 from .7% in 1998 due to the increase in revenues and lower
interest rates. Interest expense on the increase in debt incurred
to finance assets held for resale has been allocated to the cost
basis of such assets.
Other operating expenses decreased as a percentage of revenues
to 16.1% in 1999 from 16.7% in 1998 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 38.7% in both 1999
and 1998.
Net Income
----------
The Company had net income of $44.4 million in 1999 compared to
$33.7 million in 1998 due to the changes in revenues and expenses
discussed above. The Company's diluted earnings per share
increased to $1.58 per share in 1999 compared $1.20 per share in
1998.
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 $1.20 per share in 1998 compared to $.89 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.
Page 11
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.
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 pre-opening 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 $1.20 per share in 1998 compared $.89 per share in
1997.
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 federal or state 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 increased to $76.7 million in 1999
from $68.6 million in 1998. Cash outflow from investing activities
for 1999 was $100.3 million primarily related to capital
expenditures and the purchase of assets held for resale. Cash
inflow from financing activities in 1999 was $23.2 million
primarily related to borrowings on the Company's line of credit.
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 July 1999, the Company acquired for approximately $19 million,
13 owned properties, the rights to seven leased properties, two
parcels of undeveloped real estate, and substantially all furniture,
fixtures, equipment and intellectual properties owned by Discovery Zone,
Inc. The Company has converted 10 of the acquired properties to Chuck E.
Cheese's restaurants and plans to sell substantially all of the
remaining properties, furniture, fixtures and equipment.
Page 12
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 new stores to
average approximately $1.8 million per store which will vary
depending upon many factors including the size of the store and
whether the Company acquires land or the store is an in-line or
free-standing building. In addition to such new store openings,
the Company plans to expand the seating capacity of approximately
17 high sales volume stores in 2000 including 12 stores which will
receive an enhanced showroom package. The Company completed its
Phase II upgrade program in 1999 at an average cost of
approximately $160,000 per store. A Phase II upgrade consists
of a new game package, enhanced prize and merchandise offerings,
and improved product presentation and service. During 1999, the
Company opened 23 new restaurants, acquired one restaurant from
a franchisee, expanded the customer area of 19 restaurants and
completed Phase II upgrades in 26 restaurants. 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, if necessary, borrowings under the
Company's line of credit.
In July 1998, the Company announced that it planned to purchase
shares of the Company's common stock at an aggregate purchase price
of up to $15 million. In September 1999, 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 $25
million. As of March 13, 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.
In 2000, the Company's line of credit agreement was amended to
provide borrowings of up to $55 million with $10 million maturing
in 2000 and $45 million maturing in 2001. The Company's current
credit facility of $68.7 million consists of $13.7 million in term
notes and a $55 million line of credit. Term notes totaling $12
million with annual principal payments of $6 million and annual
interest of 10.02% mature in 2001. Term notes totaling $1.7
million with quarterly principal payments of $833,000 and annual
interest equal to LIBOR plus 3.5% mature in 2000. Interest under
the $55 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 13, 2000, there was $38
million in borrowings under this line of credit. The Company is
required to comply with certain financial ratio tests during the
terms of the loan agreements. The Company is currently considering
increasing the available borrowings under the line of credit
agreement and extending the maturity date.
Certain statements in this report 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 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 2, 2000, JANUARY 3, 1999
AND JANUARY 2, 1998
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. and subsidiaries as of January 2, 2000 and
January 3, 1999, 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 2,
2000. 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 auditing standards
generally accepted in the United States of America. 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 2, 2000 and
January 3, 1999, and the results of their operations and their cash
flows for each of the three years in the period ended January 2,
2000, in conformity with accounting principles generally accepted
in the United States of America.
DELOITTE & TOUCHE LLP
Dallas, Texas
March 6, 2000
Page 15
CEC ENTERTAINMENT, INC.
CONSOLIDATED BALANCE SHEETS
JANUARY 2, 2000 AND JANUARY 3, 1999
(Thousands, except share data)
ASSETS
<TABLE>
January 2, January 3,
2000 1999
-------- --------
<S> <C> <C>
Current assets:
Cash and cash equivalents . . . . . . . . . . $ 2,731 $ 3,210
Accounts receivable . . . . . . . . . . . . . 6,451 4,299
Current portion of notes receivable . . . . . 7 52
Inventories . . . . . . . . . . . . . . . . . 7,895 5,842
Prepaid expenses. . . . . . . . . . . . . . . 4,727 3,643
Current portion of deferred tax asset . . . . 776 720
Assets held for resale. . . . . . . . . . . . 13,070
------- -------
Total current assets . . . . . . . . . . . 35,657 17,766
------- -------
Property and equipment, net . . . . . . . . . . 280,624 228,531
------- -------
Deferred tax asset . . . . . . . . . . . . . . 1,036
------- -------
Notes receivable, less current portion,
including receivables from
related parties of $491 and $361,
respectively. . . . . . . . . . . . . . . . 491 363
------- -------
Other assets . . . . . . . . . . . . . . . . . 8,396 4,532
------- -------
$ 325,168 $ 252,228
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt . . . . .$ 7,729 $ 9,383
Accounts payable and accrued liabilities. . 34,294 32,453
------ ------
Total current liabilities . . . . . . . . . 42,023 41,836
------ ------
Long-term debt, less current portion . . . . . 51,567 18,922
------ ------
Deferred rent. . . . . . . . . . . . . . . . . 4,110 3,915
------ ------
Long-term deferred tax liability . . . . . . . 2,167
------
Other liabilities. . . . . . . . . . . . . . . 1,725 1,300
------ ------
Commitments and contingencies
Redeemable preferred stock, $60 par value,
redeemable for $2,911 in 2005 . . . . . . . . 2,348 2,306
------ ------
Shareholders' equity:
Common stock, $.10 par value; authorized
100,000,000 shares; 33,791,217 and
33,397,956 shares issued, respectively . . 3,379 3,340
Capital in excess of par value . . . . . . . 166,594 161,992
Retained earnings . . . . . . . . . . . . . 120,194 76,157
Deferred compensation . . . . . . . . . . . (759) (1,520)
Accumulated other comprehensive income . . . 42 6
Less treasury shares of 6,777,614 and
6,352,014, respectively, at cost . . . . . (68,222) (56,026)
------- -------
221,228 183,949
------- -------
$ 325,168 $ 252,228
======= =======
</TABLE>
See notes to consolidated financial statements.
Page 16
CEC ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
AND COMPREHENSIVE INCOME
YEARS ENDED JANUARY 2, 2000,
JANUARY 3, 1999 AND JANUARY 2, 1998
(Thousands, except per share data)
1999 1998 1997
---- ---- ----
Food and beverage revenues . . . . . . . . $ 283,951 $ 248,948 $ 235,898
Games and merchandise revenues . . . . . . 153,630 126,612 109,518
Franchise fees and royalties . . . . . . . 3,164 3,304 3,227
Interest income, including related
party income of $63, $65 and $244,
respectively . . . . . . . . . . . . . . 159 543 1,095
Joint venture income . . . . . . . . . . . 20 529
------- -------- -------
440,904 379,427 350,267
------- ------- -------
Costs and expenses:
Cost of sales . . . . . . . . . . . . . . 198,922 173,890 163,713
Selling, general and administrative
expenses . . . . . . . . . . . . . . 65,706 56,690 53,037
Depreciation and amortization. . . . . . 30,963 27,620 25,524
Interest expense. . . . . . . . . . . . . 2,195 2,694 2,866
Other operating expenses. . . . . . . . . 70,792 63,501 62,418
------- ------- -------
368,578 324,395 307,558
------- ------- -------
Income before income taxes . . . . . . . . 72,326 55,032 42,709
Income taxes:
Current expense . . . . . . . . . . . . . 24,807 9,160 3,417
Deferred expense. . . . . . . . . . . . . 3,147 12,142 13,795
------ ------ ------
27,954 21,302 17,212
------ ------ ------
Net income. . . . . . . . . . . . . . . . 44,372 33,730 25,497
Other comprehensive income, net of tax:
Foreign currency translation. . . . . . . 36 6
------ ------- -------
Comprehensive income. . . . . . . . . . . $ 44,408 $ 33,736 $ 25,497
======= ======= =======
Earnings per share:
Basic:
Net income . . . . . . . . . . . . . . . $ 1.63 $ 1.23 $ .91
Weighted average shares outstanding. . . 27,004 27,093 27,603
Diluted:
Net income . . . . . . . . . . . . . . . $ 1.58 $ 1.20 $ .89
Weighted average shares outstanding. . . 27,922 27,810 28,226
See notes to consolidated financial statements.
Page 17
CEC ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED JANUARY 2, 2000,
JANUARY 3, 1999 AND JANUARY 2, 1998
(Thousands, except per share data)
<TABLE>
Amounts Shares
1999 1998 1997 1999 1998 1997
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Common stock and capital in
excess of par value:
Balance, beginning of
year. . . . . . . $165,332 $160,887 $155,947 33,398 32,868 32,279
Stock options exercised 2,680 2,573 2,592 386 524 393
Tax benefit (expense)
from exercise
of stock options
and stock grants . . 1,842 1,775 (14)
Stock issued under 401(k)
plan . . . . . . . . 142 97 59 8 6 4
Stock grant plan . . . 2,293 192
Other. . . . . . . . . (23) 10 (1)
------- ------- ------- ------- ------- ------
Balance, end of year. .169,973 165,332 160,887 33,791 33,398 32,868
------- ------- ------- ------- ------- ------
Retained earnings:
Balance, beginning of
year . . . . . . . 76,157 42,768 17,613
Net income. . . . . . 44,372 33,730 25,497
Redeemable preferred
stock accretion . . (101) (103) (104)
Redeemable preferred stock
dividend, $4.80 per
share . . . . . . . (234) (238) (238)
------- ------- -------
Balance, end of year. 120,194 76,157 42,768
------- ------- -------
Deferred compensation:
Balance, beginning
of year . . . . . . (1,520) (2,280) (1,821)
Amortization of deferred
compensation . . . . 761 760 1,821
Stock grant plan. . . . (2,280)
------ ------ -------
Balance, end of year. . (759) (1,520) (2,280)
------ ------ -------
Accumulated other comprehensive income:
Balance, beginning
of year . . . . . . . 6
Foreign currency
translation . . . . . 36 6
------ ------
Balance, end of year. . 42 6
------ ------
Treasury shares:
Balance, beginning
of year . . . . . . (56,026) (45,437) (30,263) 6,352 5,742 4,664
Treasury stock acquired (12,196) (10,589) (15,174) 426 610 1,078
------- ------- ------- ------ ------ ------
Balance, end of year. . (68,222) (56,026) (45,437) 6,778 6,352 5,742
------- ------- ------- ------ ------ ------
Total shareholders'
equity . . . . . . . .$221,228 $183,949 $155,938
======= ======= =======
</TABLE>
See notes to consolidated financial statements.
Page 18
CEC ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JANUARY 2, 2000,
JANUARY 3, 1999 AND JANUARY 2, 1998
(Thousands)
<TABLE>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Operating activities:
Net income . . . . . . . . . . . $ 44,372 $ 33,730 $ 25,497
Adjustments to reconcile net
income to cash provided by
operations:
Depreciation and amortization. . 30,963 27,620 25,524
Deferred income tax expense. . . 3,147 12,142 13,795
Compensation expense under stock
grant plan . . . . . . . . . . 761 760 1,821
Other . . . . . . . . . . . . . 466 (44) 153
Net change in receivables,
inventories, prepaids, payables and
accrued liabilities . . . . . . (3,023) (5,594) 2,688
------- ------- -------
Cash provided by operations . . 76,686 68,614 69,478
------- ------- -------
Investing activities:
Purchases of property and
equipment. . . . . . . . . . . (82,819) (66,704) (48,451)
Payments received on notes
receivable. . . . . . . . . . 1,327 2,503 7,376
Additions to notes receivable. . (1,410) (690) (2,500)
Change in investments and other
assets . . . . . . . . . . . . (4,372) (731) (230)
Purchase of assets held for
resale . . . . . . . . . . . . (13,070)
------- ------- -------
Cash used in investing
activities. . . . . . . . . .(100,344) (65,622) (43,805)
-------- -------- -------
Financing activities:
Proceeds from debt and line
of credit. . . . . . . . . . 51,270 4,479
Payments on debt and line
of credit. . . . . . . . . . (20,279) (3,376) (9,142)
Redeemable preferred stock
dividends . . . . . . . . . (234) (238) (238)
Acquisition of treasury stock. (12,196) (10,589) (15,174)
Exercise of stock options. . . 2,680 2,573 2,592
Other. . . . . . . . . . . . . 1,938 94 162
------- ------- -------
Cash provided by (used in)
financing activities . . . 23,179 (7,057) (21,800)
------- ------- -------
Increase (decrease) in cash and cash
equivalents . . . . . . . . . (479) (4,065) 3,873
Cash and cash equivalents,
beginning of year . . . . . . 3,210 7,275 3,402
------- ------- --------
Cash and cash equivalents,
end of year . . . . . . . . . $ 2,731 $ 3,210 $ 7,275
======= ======= =======
</TABLE>
See notes to consolidated financial statements.
Page 19
CEC ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 2, 2000,
JANUARY 3, 1999 AND JANUARY 2, 1998
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 1999, 1998 and 1997
are for the fiscal years ended January 2, 2000, January 3, 1999
and January 2, 1998, respectively. Fiscal years 1999 and 1998
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 the Company'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 2, 2000,
JANUARY 3, 1999 AND JANUARY 2, 1998
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.
Earnings per share:
Earnings per common and potential common share have been adjusted
for a three-for-two stock split in the form of a 50% stock dividend
of the Company's common stock on July 23, 1999.
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 18).
Recent accounting pronouncements:
Statement of Financial Accounting Standards No. 133 ("SFAS
133") "Accounting for Derivative Instruments and Hedging
Activities" became effective for years beginning after June 15,
1999. The Company does not engage in activities requiring separate
disclosure under SFAS 133.
Page 21
CEC ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
YEARS ENDED JANUARY 2, 2000,
JANUARY 3, 1999 AND JANUARY 2, 1998
2. Accounts receivable:
<TABLE>
1999 1998
---- ----
(thousands)
<S> <C> <C>
Trade . . . . . . . . . . . . . . . . . . . $ 1,510 $ 1,358
Other . . . . . . . . . . . . . . . . . . . 4,941 2,954
------ ------
6,451 4,312
Less allowance for doubtful collection. . . (13)
------ ------
$ 6,451 $ 4,299
======= =======
</TABLE>
3. Notes receivable:
The Company's notes receivable at January 2, 2000 and January
3, 1999 arose principally as a result of lines of credit
established with the International Association of CEC
Entertainment, Inc., a related party (Note 17), and advances to
franchisees. 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 10.5%. Balances of
notes receivable are net of an allowance for doubtful collection
of $73,000 and $84,000 at January 2, 2000 and January 3, 1999,
respectively.
4. Assets held for resale:
In July 1999, the Company acquired for approximately $19
million in cash, 13 owned properties, the rights to seven leased
properties, two parcels of undeveloped real estate, and substantially
all furniture, fixtures, equipment and intellectual properties
owned by Discovery Zone, Inc. The Company has converted 10 of
the acquired properties to Chuck E. Cheese's restaurants and
plans to sell substantially all of the remaining properties,
furniture, fixtures and equipment. 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 $1.3 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.
5. Property and equipment:
<TABLE>
Estimated
Lives 1999 1998
--------- ---- ----
(in years) (thousands)
<S> <C> <C> <C>
Land . . . . . . . . . . $ 13,752 $ 8,285
Leasehold improvements . 4 - 20 186,067 164,380
Buildings . . . . . . . 4 - 25 12,689 10,788
Furniture, fixtures and
equipment . . . . . . 2 - 15 198,900 172,028
Property leased under capital
leases (Note 7) . . . 10 - 15 449 449
------- --------
411,857 355,930
Less accumulated depreciation and
amortization . . . . (145,052) (132,432)
-------- --------
266,805 223,498
Construction in progress . . . . . . . . 13,819 5,033
-------- --------
$280,624 $ 228,531
======== =========
</TABLE>
Page 22
CEC ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
YEARS ENDED JANUARY 2, 2000,
JANUARY 3, 1999 AND JANUARY 2, 1998
6. Accounts payable and accrued liabilities:
<TABLE>
1999 1998
------ ------
(thousands)
<S> <C> <C>
Accounts payable . . . . . . . . . . . . . $ 14,521 $ 13,810
Salaries and wages . . . . . . . . . . . 7,766 7,030
Insurance . . . . . . . . . . . . . . . . 3,525 4,167
Taxes, other than income . . . . . . . . . 4,258 4,370
Other . . . . . . . . . . . . . . . . . . 4,224 3,076
------- -------
$ 34,294 $ 32,453
======= =======
</TABLE>
7. 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.
Scheduled annual maturities of the obligations for capital and
operating leases as of January 2, 2000, are as follows:
<TABLE>
Years Capital Operating
----- ------- ---------
(thousands)
<S> <C> <C>
2000. . . . . . . . . . . . . . . . . . . . . $187 $39,137
2001. . . . . . . . . . . . . . . . . . . . . 214 37,496
2002. . . . . . . . . . . . . . . . . . . . . 214 30,245
2003. . . . . . . . . . . . . . . . . . . . . 214 21,065
2004-2009 (aggregate payments). . . . . . . . 412 80,865
----- --------
Minimum future lease payments . . . . . . . . 1,241 $208,808
========
Less amounts representing interest. . . . . . (462)
-----
Present value of future minimum lease payments. 779
Less current portion. . . . . . . . . . . . . . (62)
-----
$ 717
=====
</TABLE>
Page 23
CEC ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
YEARS ENDED JANUARY 2, 2000,
JANUARY 3, 1999 AND JANUARY 2, 1998
7. Leases (continued):
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:
<TABLE>
1999 1998 1997
------ ------ ------
(thousands)
<S> <C> <C> <C>
Minimum. . . . . . . . $38,339 $34,276 $32,694
Contingent. . . . . . . 464 365 276
------ ------ ------
$38,803 $34,641 $32,970
====== ====== ======
</TABLE>
8. Long-term debt:
<TABLE>
1999 1998
------ ------
(thousands)
<S> <C> <C>
Term loans, 10.02%, due June 2001 . . . . . . . $ 12,000 $ 18,000
Term loans, LIBOR plus 3.5%, due June 2000. . . 1,667 5,000
Revolving bank loan, prime minus 0.5%
to plus 0.5% or LIBOR plus
1% to 2.5%, due June 2001 . . . . . . . . . 44,850 4,478
Obligations under capital leases (Note 7) . . . 779 827
------- -------
59,296 28,305
Less current portion. . . . . . . . . . . . . . (7,729) (9,383)
------- -------
$ 51,567 $ 18,922
======= =======
</TABLE>
In 1999, the Company's line of credit agreement was amended to
provide the Company with available borrowings of up to $45
million expiring in June 2001. As of January 2, 2000, the
Company's credit facility totals $58.7 million, which consists
of $13.7 million in term notes and the $45 million line of
credit. Interest on the term notes is payable quarterly.
Interest under the line of credit is payable quarterly at rates
which are dependent on earnings and debt levels of the Company.
Currently, any borrowings under this line of credit would be at
prime (8.7% at January 2, 2000) minus 0.5% or, at the Company's
option, LIBOR (6.49% at January 2, 2000) plus 1%. At January 2,
2000, there was $44.9 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 8.44% and
9.62% in 1999 and 1998, respectively. The Company recognized
capitalized interest costs of $747,000, $35,000 and $8,400 in
1999, 1998 and 1997, respectively, related to construction
period debt and debt incurred to finance the acquisition of
assets held for resale .
As of January 2, 2000, scheduled annual maturities of all
long-term debt (exclusive of obligations under capital leases)
are as follows (thousands):
<TABLE>
<S> <C>
Years Amount
----- ------
2000. . . . . . $ 7,667
2001. . . . . . 50,850
--------
$58,517
========
</TABLE>
Page 24
CEC ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
YEARS ENDED JANUARY 2, 2000,
JANUARY 3, 1999 AND JANUARY 2, 1998
9. 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.
10. Redeemable preferred stock:
As of January 2, 2000 and January 3, 1999, the Company had
48,510 and 49,441 shares, respectively, of its redeemable
preferred stock issued and outstanding. The stock pays
dividends at $4.80 per year, subject to a minimum cash flow
test. As of January 2, 2000, one quarterly dividend, totaling
$58,212 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.
11. Earnings per common share:
Basic earnings per common share ("EPS") is computed 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
applicable 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>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Net income. . . . . . . . . . . . $ 44,372 $ 33,730 $ 25,497
Accretion of redeemable preferred
stock . . . . . . . . . . . . . (101) (103) (104)
Redeemable preferred stock dividends. (234) (238) (238)
------- ------- -------
Net income applicable to common
shares. . . . . . . . . . . . . $ 44,037 $ 33,389 $ 25,155
======= ======= =======
Basic:
Weighted average common shares
outstanding. . . . . . . . . 27,004 27,093 27,603
======= ======= =======
Earnings per common share . . . $ 1.63 $ 1.23 $ .91
======= ======= =======
Diluted:
Weighted average common shares
outstanding. . . . . . . . . 27,004 27,093 27,603
Potential common shares for stock
options and stock grants . . 918 717 623
------- ------- --------
Weighted average shares
outstanding . . . . . . . . 27,922 27,810 28,226
======= ======= =======
Earnings per common and potential
common shares. . . . . . . . $ 1.58 $ 1.20 $ .89
====== ====== ======
</TABLE>
CEC ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
YEARS ENDED JANUARY 2, 2000,
JANUARY 3, 1999 AND JANUARY 2, 1998
12. Franchise fees and royalties:
At January 2, 2000, 55 Chuck E. Cheese's restaurants were
operated by a total of 35 different franchisees. The standard
franchise related 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 $355,000,
$260,000 and $373,000 in 1999, 1998 and 1997, respectively.
13. Cost of sales:
<TABLE>
1999 1998 1997
------ ------ ------
(thousands)
<S> <C> <C> <C>
Food, beverage and related supplies . $ 58,108 $ 52,958 $ 50,355
Games and merchandise . . . . . . . . 23,250 19,625 18,339
Labor. . .. . . . . . . . . . . . . . 117,564 101,307 95,019
------- -------- -------
$198,922 $173,890 $163,713
======= ======= =======
</TABLE>
14. Income taxes:
The significant components of income tax expense are as follows:
<TABLE>
1999 1998 1997
------ ------ ------
(thousands)
<S> <S> <S> <S>
Current expense . . . . . . . . . . $ 24,807 $ 9,160 $ 3,417
Deferred expense:
Utilization of operating loss
carryforwards . . . . . . . . 16,693
Utilization of tax credit
carryforwards . . . . . . . . 6,595
Other . . . . . . . . . . . . . 3,147 5,547 (2,898)
------- ------- -------
$27,954 $21,302 $17,212
======= ======= =======
</TABLE>
Page 26
CEC ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
YEARS ENDED JANUARY 2, 2000,
JANUARY 3, 1999 AND JANUARY 2, 1998
14. Income taxes (continued):
Deferred income taxes and benefits are provided for temporary
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 2, 2000 and January 3, 1999 are as
follows:
<TABLE>
1999 1998
------ ------
(thousands)
<S> <C> <C>
Deferred Tax Asset (Liability):
Current:
Deferred tax assets:
Accrued vacation. . . . . . . . $ 412 $ 404
Unearned gift certificates . . 204 115
Other . . . . . . . . . . . . . 160 201
----- -----
Net current deferred tax asset. . $ 776 $ 720
===== =====
Non-Current:
Deferred tax assets (liabilities):
Deferred rent . . . . . . . . $ 1,435 $ 1,365
Asset impairments . . . . . . 353 412
Unearned franchise fees . . . 113 165
Depreciation. . . . . . . . . (4,068) (1,156)
Other . . . . . . . . . . . . 250
------ ------
Net non-current deferred tax
asset (liability) . . . . . . . $ (2,167) $ 1,036
======= ======
</TABLE>
A reconciliation of the statutory rate to taxes provided is as
follows:
<TABLE>
1999 1998 1997
------ ------ ------
(thousands)
<S> <C> <C> <C>
Statutory rate. . . . . . . . . . . . . . 35.0% 35.0% 35.0%
State income taxes. . . . . . . . . . . . 5.5% 6.2% 8.1%
Other . . . . . . . . . . . . . . . . . . (1.8%) (2.5%) (2.8%)
------ ------ ------
Income taxes provided . . . . . . . . . . 38.7% 38.7% 40.3%
====== ====== ======
</TABLE>
15. 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 $2.9 million.
Page 27
CEC ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
YEARS ENDED JANUARY 2, 2000,
JANUARY 3, 1999 AND JANUARY 2, 1998
16. Supplemental cash flow information:
<TABLE>
1999 1998 1997
------ ------ ------
(thousands)
<S> <C> <C> <C>
Cash paid during the year for:
Interest. . . . . . . . . $ 2,099 $ 2,681 $ 2,961
Income taxes . . . . . . . 24,511 9,924 2,753
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>
17. Related party transactions:
The Company has granted three separate operating lines of
credit to the International Association of CEC Entertainment,
Inc. (the "Association"). In December 1999, the lines were
renewed to provide the Association with available borrowings of
$2.6 million at 10.5% interest and are due December 31, 2000.
The Association develops entertainment attractions and produces
system-wide advertising. Five officers of the Association are
also officers of the Company. At January 2, 2000 and January 3,
1999, approximately $491,000 and $361,000, respectively, was
outstanding under these lines of credit.
18. 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 4,158,057 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 2,737,500 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
225,000 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 2, 2000,
JANUARY 3, 1999 AND JANUARY 2, 1998
18. Employee benefit plans (continued):
At January 2, 2000, there were 1,461,345 shares available for
grant. Stock option transactions are summarized as follows for
all plans:
<TABLE>
Weighted Average
Number of Shares Exercise Price Per Share
------------------------ --------------------------
1999 1998 1997 1999 1998 1997
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding,
beginning of year. 2,301,474 2,379,447 1,515,767 $11.19 $ 9.13 $ 5.72
Granted . . . . . 796,622 516,918 1,417,073 17.68 14.61 11.91
Exercised. . . . . (386,440) (523,254) (392,168) 6.94 4.91 6.61
Terminated . . . . (92,873) (71,637) (161,225) 15.28 13.41 7.57
-------- -------- --------
Options outstanding,
end of year . . 2,618,783 2,301,474 2,379,447 13.66 11.19 9.13
========= ========= =========
</TABLE>
The estimated fair value of options granted was $6.74, $7.54
and $6.12 per share in 1999, 1998 and 1997, 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 1999:
risk free interest rate of 6.5%, 4.6% and 5.9% in 1999, 1998
and 1997, respectively; no dividend yield; expected lives of
five years in 1999 and four years in 1998 and 1997; and expected
volatility of 30% in 1999 and 1998 and 40% in 1997. 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 2, 2000 was 1,215,570. These stock options have
exercise prices ranging from $3.78 to $15.75 per share,
a weighted average exercise price of $11.10 per share
and a weighted average remaining life of 2 years. In
January 2000, the Company granted 459,466 additional options
at an exercise price of $25.56 per share and 12,500
options at an exercise price of $26.05 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 2,577,956 shares. No further shares may be
awarded under this plan after December 1998. In 1997, 192,750
shares were awarded in connection with an employment agreement
effective January 1998. No grants were awarded in 1999 or 1998.
Compensation expense recognized by the Company pursuant to this
plan was $761,000, $760,000 and $1,821,000 per year in 1999,
1998 and 1997, respectively. 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 $2.3 million in 1997. The deferred
compensation is amortized over the compensated periods of
service of three years.
All stock options are granted at no less than fair market
value of the common stock at the grant date. 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 $41.9 million, $31.6 million and $23.1 million in
1998, 1997 and 1996, respectively. Proforma diluted earnings
per share would have been $1.50, $1.14 and $.82 per share in
1999, 1998 and 1997, respectively.
Page 29
CEC ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
YEARS ENDED JANUARY 2, 2000,
JANUARY 3, 1999 AND JANUARY 2, 1998
18. 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 $142,000 and $97,000 in common stock for the 1998
and 1997 plan years, respectively. The Company plans to
contribute $155,000 in common stock for the 1999 plan year.
19. Quarterly results of operations (unaudited):
The following summarizes the unaudited quarterly results of
operations for the years ended January 2, 2000 and January 3,
1999 (thousands, except per share data).
<TABLE>
Fiscal year ended January 2, 2000
---------------------------------------------------
April 14 July 4 Oct. 3 Jan. 2
-------- ------ ------- ------
<S> <C> <C> <C> <C>
Revenues. . . . . . . $118,396 $104,935 $115,583 $101,990
Income before income
taxes . . . . . . . 23,653 15,576 20,227 12,870
Net income. . . . . 14,381 9,471 12,297 8,223
Earnings Per Share:
Basic . . . . . . $ .53 $ .35 $ .45 $ .30
Diluted . . . . . .52 .34 .44 .29
Fiscal year ended January 3, 1999
--------------------------------------------------
April 5 July 5 Oct. 4 Jan. 3
------- ------ ------ -------
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 . . . . . . $ .43 $ .27 $ .32 $ .22
Diluted . . . . . .42 .26 .31 .22
</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 2000 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 shallbe
included in the Company's definitive Proxy Statement to be filed
pursuant to Regulation 14A in connection with the Company's 2000
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 2000 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 2000 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 2, 2000 and
January 3, 1999.
Consolidated statements of earnings for the years
ended January 2, 2000, January 3, 1999, and January 2,
1998.
Consolidated statements of shareholders' equity for the
years ended January 2, 2000, January 3, 1999, and
January 2, 1998.
Consolidated statements of cash flows for the years
ended January 2, 2000, January 3, 1999, and January 2,
1998.
Notes to consolidated financial statements.
Page 31
(2) Exhibits:
Exhibit No. 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(a)(3) Amended and Restated Articles of
Incorporation of the Company (filed as
Exhibit 3(a) to the Company's Quarterly
Report on Form 10-Q for the quarter ended
July 4, 1999, 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).
Page 32
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).
10(c)(3) Employment Agreement, dated April 28,
1999, between Michael H. Magusiak and the
Company (filed as Exhibit 10 (a) to the
Company's Quarterly Report on Form 10-Q
for the quarter ended April 4, 1999, and
incorporated herein by reference).
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).
Page 33
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).
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).
Page 34
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
quarter ended July 5, 1998, and
incorporated herein by reference).
10(o)(1) Fourth Modification and Extension
Agreement, in the stated amount of
$45,000,000.00, dated July 16, 1999,
between Bank One, Texas, N.A. and the
Company (filed as Exhibit 10 (b)(1) to
the Company's Quarterly Report on Form
10-Q for the quarter ended October 3,
1999, and incorporated herein by
reference).
10(o)(2) Fourth Restated Revolving Credit Note, in
the stated amount of $45,000,000.00,
dated July 16, 1999, between Bank One,
Texas, N.A. and the Company (filed as
Exhibit 10 (b)(2) to the Company's
Quarterly Report on Form 10-Q for the
quarter ended October 3, 1999, and
incorporated herein by reference).
10(p)(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(p)(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).
10(q)(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(q)(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(r)(1) 1997 Non-Statutory Stock Option Plan
(filed as Exhibit 4.1 to Form S-8 (No.
333-41039), and incorporated herein by
reference).
Page 35
10(r)(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(s)(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(s)(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(t)(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(t)(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(u)(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(u)(2) Specimen form of the Company's current
Development Agreement (filed as Exhibit
10(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(v)(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(v)(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(v)(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).
10(w)(1) Entertainment Operating Fund Line of
Credit, in the stated amount of
$200,000.00, dated December 31, 1999,
between International Association of CEC
Entertainment, Inc. and the Company.
10(w)(2) National Advertising Fund Line of Credit,
in the stated amount of $1,200,000.00,
dated December 31, 1999, between
International Association of CEC
Entertainment, Inc. and the Company.
10(w)(3) National Media Fund Line of Credit, in
the stated amount of $1,200,000.00, dated
December 31, 1999, between International
Association of CEC Entertainment, Inc.
and the Company.
Page 36
10(x) Asset Purchase Agreement, dated as of
June 23, 1999, by and among CEC
Entertainment, Inc. and Discovery Zone,
Inc., and Discovery Zone Licensing, Inc.,
as Sellers, and DZ Party, Inc., and
Discovery Zone (Puerto Rico), Inc., as
Consenting Parties (filed as Exhibit 10
(a)(2) to the Company's Quarterly Report
on Form 10-Q for the quarter ended July
4, 1999, and incorporated herein by
reference).
23 Independent Auditors Consent of Deloitte
& Touche LLP
27 Financial Data Schedule
(b) Reports on Form 8-K:
No reports on Form 8-K were filed in the fourth
quarter of 1999.
(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.
(d) 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 37
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
-----------------------
Michael H. Magusiak President and Director March 31, 1999
/s/ Larry G. Page
-----------------------
Larry G. Page Executive Vice President, March 31, 1999
Treasurer, (Principal Financial
Officer and Principal Accounting
Officer)
/s/ Raymond E. Wooldridge
- - ---------------------------
Ray Wooldridge Director March 31, 1999
/s/ Tim T. Morris
--------------------------
Tim T. Morris Director March 31, 1999
/s/ Walter Tyree
- - ---------------------------
Walter Tyree Director March 31, 1999
/s/ Louis P. Neeb
- - ---------------------------
Louis P. Neeb Director March 31, 1999
/s/ Cynthia I. Pharr
- - ---------------------------
Cynthia I. Pharr Director March 31, 1999
Page 38
EXHIBIT INDEX
Exhibit No. Description Page no.
- - ----------- ----------- --------
10(w)(1) Entertainment Operating Fund Line of
Credit, in the stated amount of $200,000,
dated December 31, 1999, between International
Association of CEC Entertainment, Inc.
and the Company. 41
10(w)(2) National Advertising Fund Line of Credit, in
the stated amount of$1,200,000.00, dated
December 31, 1999, between International
Association of CEC Entertainment, Inc. and
the Company. 45
10(w)(3) National Media Fund Line of Credit, in the
stated amount of $1,200,000.00, dated
December 31, 1999, betwen International
Association of CEC Entertainment, Inc. and
the Company. 49
23 Independent Auditor's Consent of Deloitte &
Touche LLP 53
Page 39
Exhibit 10 (w)(1)
ENTERTAINMENT OPERATING FUND LINE OF CREDIT
By this Agreement, dated as of December 31, 1999, CEC
ENTERTAINMENT, INC. ("Lender") and INTERNATIONAL ASSOCIATION OF CEC
ENTERTAINMENT, INC., ("Borrower") (hereinafter collectively
referred to as "Parties") hereby agree as follows:
1. Revolving Commitment. Subject to the terms and
conditions in this Agreement, Lender agrees to advance to
Borrower from time to time amounts not to exceed Two
Hundred Thousand and no/100 Dollars ($200,000.00) in the
aggregate outstanding at any one time. No new advance
shall be made under this Agreement after December 31,
2000. Subject to the foregoing limitations, Borrower may
borrow, repay, prepay and reborrow amounts under this
Agreement.
2. Note. Borrower's obligation to repay amounts borrowed
under this Agreement is further evidenced by an
Entertainment Operating Fund Promissory Note, (the
"Note") bearing the same date as this Agreement. Payment
of principal and interest, and accrual of interest, on
amounts borrowed under this Agreement shall be as
provided in the Note.
3. Use of Proceeds. Borrower shall use amounts borrowed
under this Agreement only to purchase goods and services
related to the development of entertainment software,
showtapes and other entertainment research and
development (collectively, the "Project"). Upon Lender's
reasonable request, Borrower shall provide copies of
invoices and other documents which evidence Borrower's
compliance with this Section 3.
4. Records and Reports. Upon Lender's reasonable request,
Borrower shall provide reports and copies of invoices,
canceled checks and other business records pertaining a
proposed advance, to the Project, this Agreement or the
Note.
5. Condition to Loans. The obligation of Lender to make
advances under this Agreement is subject to the
satisfaction of each of the following conditions:
(a) No default under this Agreement, and no event which
would constitute a default but for the giving of
notice or the passage of time thereafter, shall
have occurred and be continuing on the date of such
advance;
(b) The representations and warranties of Borrower set
forth in this Agreement shall be true as of the
date of such advance;
(c) Lender shall have received any document or
information previously requested from Borrower
pursuant to this Agreement; and
(d) No material adverse change has occurred, in
Lender's sole determination, in the businesses of
Lender's restaurants or in the financial condition
of Borrower.
6. Representation and Warranties. Borrower represents and
warrants that: (a) Borrower is a corporation duly
incorporated, validly existing and in good standing under
the laws of the State of Texas; (b) the execution,
delivery and performance of this Agreement and the Note
have been duly authorized by all necessary corporate
action; and (c) this Agreement and the Note constitute
the valid and binding obligations of Borrower and are
enforceable in accordance with their terms
7. Default. Borrower shall be in default under this
Agreement if one or more of the
following events shall have occurred and be continuing:
(a) The failure by Borrower to make any payment of
principal or interest on the Note within ten (10)
days after the same becomes due and payable;
(b) The failure by Borrower to perform any of its
obligations, except the payment of principal and
interest, arising under the Note, this Agreement or
any other agreement between Borrower and Lender
with in five (5) days after written notice of such
failure; or
(c) The filing by or against the Borrower of a
voluntary or involuntary proceeding seeking
liquidation, reorganization or other relief with
respect to Borrower or its debts under any
bankruptcy, insolvency or other similar law now or
hereafter in effect or seeking the appointment of a
trustee, receiver, liquidator, custodian or other
similar official for Borrower or any substantial
part of its property and, in the case of any
involuntary proceeding not consented to by
Borrower, such proceeding is not dismissed within
sixty (60) days.
8. Remedies. The following remedies are available to Lender
if Borrower is in default
under this Agreement: (a) the outstanding principal and accrued
interest under the Note shall mature and become automatically due
and payable, without notice or demand; (b) Lender may terminate its
commitment to advance monies under this Agreement; and (c) Lender
may exercise any other remedies permitted by law or equity.
9. Notices. Any notice under this Agreement shall be
effective upon actual receipt or upon delivery to the United States
Postal Service, with first class postage, addressed as follow (or
to such other address subsequently provided by the party hereto):
To Lender:
CEC Entertainment, Inc.
4441 West Airport Freeway
Irvine, Texas 75062
Attention: Counsel
To Borrower:
International Association of CEC Entertainment, Inc.
4441 West Airport Freeway
Irving, Texas 75062
Attention: Mike Hilton
10. Miscellaneous.
(a) No failure or delay by Lender in exercising any
right, power or privilege under this Agreement or
the Note shall operate as a waiver thereof, nor
shall any single or partial exercise thereof
preclude any further exercise thereof or the
exercise of any other right, power or privilege.
(b) The captions used in this Agreement are for convenience
only and shall not be deemed to amplify, modify or limit
the provisions hereof.
(c) Words of any gender used in the Agreement shall be
construed to include any other gender, and words in the
singular shall include the plural and vice versa, unless
the context otherwise requires.
(d) This Agreement shall be binding upon and shall inure to
the benefit of the parties hereto and their respective
heirs, legal representatives, successors and assigns.
(e) This Agreement, together with the Note, contains the
entire agreement of the parties hereto with respect to
the subject matter hereof and can be altered, amended or
modified only by written instrument executed by both
parties.
(f) This Agreement may be executed in multiple copies, each
of which shall be deemed an original, and all of such
copies shall together constitute one and the same
instrument.
(g) Time is of the essence in the performance of each
obligation, covenant and condition under this Agreement.
(h) This Agreement shall be governed by the laws of the
State of Texas.
11. Prior Agreements. This Agreement amends, supersedes, and
replaces all previous agreements related to the Project.
IN WITNESS HEREOF, the parties have caused this Agreement to be
executed by their duly authorized representatives as of the date
first appearing above.
CEC ENTERTAINMENT, INC.
By:________________________________
Name: _____________________________
Title: ____________________________
INTERNATIONAL ASSOCIATION OF CEC ENTERTAINMENT, INC.
By: _____________________________________
Michael A. Hilton
President
Exhibit 10 (w)(2)
NATIONAL ADVERTISING FUND LINE OF CREDIT
By this Agreement, dated as of December 31, 1999, CEC
ENTERTAINMENT, INC. ("Lender") and INTERNATIONAL ASSOCIATION OF CEC
ENTERTAINMENT, INC., ("Borrower") (hereinafter collectively
referred to as "Parties") hereby agree as follows:
1. Revolving Commitment. Subject to the terms and
conditions in this Agreement, Lender agrees to advance to Borrower
from time to time amounts not to exceed One Million Two Hundred
Thousand and no/100 Dollars ($1,200,000.00) in the aggregate
outstanding at any one time. No new advance shall be made under
this Agreement after December 31, 2000. Subject to the foregoing
limitations, Borrower may borrow, repay, prepay and reborrow
amounts under this Agreement.
2. Note. Borrower's obligation to repay amounts borrowed
under this Agreement is further evidenced by an National
Advertising Production Fund Promissory Note, (the "Note") bearing
the same date as this Agreement. Payment of principal and
interest, and accrual of interest, on amounts borrowed under this
Agreement shall be as provided in the Note.
3. Use of Proceeds. Borrower shall use amounts borrowed
under this Agreement only to purchase goods and services related to
the production of electronic and hardcopy advertising materials
(collectively, the "Project"). Upon Lender's reasonable request,
Borrower shall provide copies of invoices and other documents which
evidence Borrower's compliance with this Section 3.
4. Records and Reports. Upon Lender's reasonable request,
Borrower shall provide
reports and copies of invoices, canceled checks and other business
records pertaining a proposed advance, to the Project, this
Agreement or the Note.
5. Condition to Loans. The obligation of Lender to make
advances under this Agreement is subject to the satisfaction of
each of the following conditions:
(a) No default under this Agreement, and no event which
would constitute a default but for the giving of
notice or the passage of time thereafter, shall
have occurred and be continuing on the date of such
advance;
(b) The representations and warranties of Borrower set
forth in this Agreement shall be true as of the
date of such advance;
(c) Borrower pursuant to this Agreement; and
(d) No material adverse change has occurred, in
Lender's sole determination, in the businesses of
Lender's restaurants or in the financial condition
of Borrower.
6. Representation and Warranties. Borrower represents and
warrants that: (a) Borrower is a corporation duly incorporated,
validly existing and in good standing under the laws of the State
of Texas; (b) the execution delivery and performance of this
Agreement and the Note have been duly authorized by all necessary
corporate action; and (c) this Agreement and the Note constitute
the valid and binding obligations of Borrower and are enforceable
in accordance with their terms.
7. Default. Borrower shall be in default under this
Agreement if one or more of the
following events shall have occurred and be continuing:
(a) The failure by Borrower to make any payment of
principal or interest on the Note within ten (10)
days after the same becomes due and payable;
(b) The failure by Borrower to perform any of its
obligations, except the payment of principal and
interest, arising under the Note, this Agreement or
any other agreement between Borrower and Lender
with in five (5) days after written notice of such
failure; or
(c) The filing by or against the Borrower of a
voluntary or involuntary proceeding seeking
liquidation, reorganization or other relief with
respect to Borrower or its debts under any
bankruptcy, insolvency or other similar law now or
hereafter in effect or seeking the appointment of a
trustee, receiver, liquidator, custodian or other
similar official for Borrower or any substantial
part of its property and, in the case of any
involuntary proceeding not consented to by
Borrower, such proceeding is not dismissed within
sixty (60) days.
8. Remedies. The following remedies are available to Lender
if Borrower is in default under this Agreement: (a) the
outstanding principal and accrued interest under the Note
shall mature and become automatically due and payable,
without notice or demand; (b) Lender may terminate its
commitment to advance monies under this Agreement; and
(c) Lender may exercise any other remedies permitted by
law or equity.
9. Notices. Any notice under this Agreement shall be
effective upon actual receipt or upon delivery
to the United States Postal Service, with first class postage,
addressed as follow (or to such other address subsequently provided
by the party hereto):
To Lender:
CEC Entertainment, Inc.
4441 West Airport Freeway
Irving, Texas 75062
Attention: Counsel
To Borrower:
International Association of CEC Entertainment, Inc.
4441 West Airport Freeway
Irving, Texas 75062
Attention: Mike Hilton
10. Miscellaneous.
(a) No failure or delay by Lender in exercising any
right, power or privilege under this Agreement or
the Note shall operate as a waiver thereof, nor
shall any single or partial exercise thereof
preclude any further exercise thereof or the
exercise of any other right, power or privilege.
(b) The captions used in this Agreement are for
convenience only and shall not be deemed to
amplify, modify or limit the provisions hereof.
(c) Words of any gender used in the Agreement shall be
construed to include any other gender, and words in
the singular shall include the plural and vice
versa, unless the context otherwise requires.
(d) This Agreement shall be binding upon and shall
inure to the benefit of the parties hereto and
their respective heirs, legal representatives,
successors and assigns.
(e) This Agreement, together with the Note, contains
the entire agreement of the parties hereto with
respect to the subject matter hereof and can be
altered, amended or modified only by written
instrument executed by both parties.
(f) This Agreement may be executed in multiple copies,
each of which shall be deemed an original, and all
of such copies shall together constitute one and
the same instrument.
(g) Time is of the essence in the performance of each
obligation, covenant and condition under this
Agreement.
(h) This Agreement shall be governed by the laws of the
State of Texas.
11. Prior Agreements. This Agreement amends, supersedes, and
replaces all previous agreements related to the Project.
IN WITNESS HEREOF, the parties have caused this Agreement to
be executed by their duly authorized representatives as of the date
first appearing above.
CEC ENTERTAINMENT, INC.
By: _______________________________
Name: _____________________________
Title: _____________________________
INTERNATIONAL ASSOCIATION OF
CEC ENTERTAINMENT, INC.
By: ___________________________________
Michael A. Hilton
President
Exhibit 10 (w)(3)
NATIONAL MEDIA FUND LINE OF CREDIT
By this Agreement, dated as of December 31, 1999, CEC
ENTERTAINMENT, INC. ("Lender") and INTERNATIONAL ASSOCIATION OF CEC
ENTERTAINMENT, INC. ("Borrower") (hereinafter collectively referred
to as "Parties"), hereby agree as follows:
1. Revolving Commitment. Subject to the terms and
conditions in this Agreement, Lender agrees to advance to Borrower
from time to time amounts not to exceed One Million Two Hundred
Thousand and no/100 Dollars ($1,200,000.00) in the aggregate
outstanding at any one time. No new advance shall be made under
this Agreement after December 31, 2000. Subject to the foregoing
limitations, Borrower may borrow, repay, prepay and reborrow
amounts under this Agreement.
2. Note. Borrower's obligation to repay amounts borrowed
under this Agreement is further
evidenced by an National Media Fund Promissory Note, (the "Note")
bearing the same date as this Agreement. Payment of principal and
interest, and accrual of interest, on amounts borrowed under this
Agreement shall be as provided in the Note.
3. Use of Proceeds. Borrower shall use amounts borrowed
under this Agreement only to purchase goods and services related to
network media services (collectively, the "Project"). Upon
Lender's reasonable request, Borrower shall provide copies of
invoices and other documents which evidence Borrower's compliance
with this Section 3.
4. Records and Reports. Upon Lender's reasonable request,
Borrower shall provide reports and copies of invoices, canceled
checks and other business records pertaining a proposed advance, to
the Project, this Agreement or the Note.
5. Condition to Loans. The obligation of Lender to make
advances under this Agreement is subject to the satisfaction of
each of the following conditions:
(a) No default under this Agreement, and no event which
would constitute a default but for the giving of
notice or the passage of time thereafter, shall
have occurred and be continuing on the date of such
advance;
(b) The representations and warranties of Borrower set
forth in this Agreement shall be true as of the
date of such advance;
(c) Lender shall have received any document or
information previously requested from Borrower
pursuant to this Agreement; and
(d) No material adverse change has occurred, in
Lender's sole determination, in the businesses of
Lender's restaurants or in the financial condition
of Borrower.
6. Representation and Warranties. Borrower represents and
warrants that: (a) Borrower is a corporation duly incorporated,
validly existing and in good standing under the laws of the State
of Texas; (b) the execution, delivery and performance of this
Agreement and the Note have been duly authorized by all necessary
corporate action; and (c) this Agreement and the Note constitute
the valid and binding obligations of Borrower and are enforceable
in accordance with their terms.
7. Default. Borrower shall be in default under this
Agreement if one or more of the following events shall have
occurred and be continuing:
(a) The failure by Borrower to make any payment of
principal or interest on the Note within ten (10)
days after the same becomes due and payable;
(b) The failure by Borrower to perform any of its
obligations, except the payment of principal and
interest, arising under the Note, this Agreement or
any other agreement between Borrower and Lender
with in five (5) days after written notice of such
failure; or
(c) The filing by or against the Borrower of a
voluntary or involuntary proceeding seeking
liquidation, reorganization or other relief with
respect to Borrower or its debts under any
bankruptcy, insolvency or other similar law now or
hereafter in effect or seeking the appointment of a
trustee, receiver, liquidator, custodian or other
similar official for Borrower or any substantial
part of its property and, in the case of any
involuntary proceeding not consented to by
Borrower, such proceeding is not dismissed within
sixty (60) days.
8. Remedies. The following remedies are available to Lender
if Borrower is in default under this Agreement: (a) the outstanding
principal and accrued interest under the Note shall mature and
become automatically due and payable, without notice or demand; (b)
Lender may terminate its commitment to advance monies under this
Agreement; and (c) Lender may exercise any other remedies permitted
by law or equity.
9. Notices. Any notice under this Agreement shall be
effective upon actual receipt or upon delivery to the United States
Postal Service, with first class postage, addressed as follow (or
to such other address subsequently provided by the party hereto):
To Lender:
CEC Entertainment, Inc.
4441 West Airport Freeway
Irving, Texas 75062
Attention: Counsel
To Borrower:
International Association of CEC Entertainment,Inc.
4441 West Airport Freeway
Irving, Texas 75062
Attention: Mike Hilton
10. Miscellaneous.
(a) No failure or delay by Lender in exercising any
right, power or privilege under this Agreement or
the Note shall operate as a waiver thereof, nor
shall any single or partial exercise thereof
preclude any further exercise thereof or the
exercise of any other right, power or privilege.
(b) The captions used in this Agreement are for
convenience only and shall not be deemed to
amplify, modify or limit the provisions hereof
(c) Words of any gender used in the Agreement shall be
construed to include any other gender, and words in
the singular shall include the plural and vice
versa, unless the context otherwise requires.
(d) This Agreement shall be binding upon and shall
inure to the benefit of the parties hereto and
their respective heirs, legal representatives,
successors and assigns.
(e) This Agreement, together with the Note, contains
the entire agreement of the parties hereto with
respect to the subject matter hereof and can be
altered, amended or modified only by written
instrument executed by both parties.
(f) This Agreement may be executed in multiple copies,
each of which shall be deemed an original, and all
of such copies shall together constitute one and
the same instrument.
(g) Time is of the essence in the performance of each
obligation, covenant and condition under this
Agreement.
(h) This Agreement shall be governed by the laws of the
State of Texas.
11. Prior Agreements. This Agreement amends, supersedes, and
replaces all previous agreements related to the Project.
IN WITNESS HEREOF, the parties have caused this Agreement to
be executed by their duly authorized representatives as of the date
first appearing above.
CEC ENTERTAINMENT, INC.
By: ______________________________
Name: ___________________________
Title: ___________________________
INTERNATIONAL ASSOCIATION OF CEC
ENTERTAINMENT, INC.
By: ______________________________
Michael A. Hilton
President
INDEPENDENT AUDITOR'S CONSENT
We consent to the incorporation by refrence in Registration Satement
No. 333-41039 of CEC Entertainment, Inc. on Form S-8 of our report
dated March 6, 2000, appearing in the Annual Report on Form 10-K of
ShowBiz Pizza Time, Inc. for the year ended January 2, 2000.
Dallas, Texas
March 29, 2000
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<ARTICLE> 5
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<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-02-2000
<PERIOD-END> JAN-02-2000
<CASH> 2,731
<SECURITIES> 0
<RECEIVABLES> 6,458
<ALLOWANCES> 0
<INVENTORY> 7,895
<CURRENT-ASSETS> 35,657
<PP&E> 425,676
<DEPRECIATION> 145,052
<TOTAL-ASSETS> 325,168
<CURRENT-LIABILITIES> 42,023
<BONDS> 51,567
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2,348
0
<OTHER-SE> 217,849
<TOTAL-LIABILITY-AND-EQUITY> 325,168
<SALES> 437,581
<TOTAL-REVENUES> 440,904
<CGS> 198,922
<TOTAL-COSTS> 368,578
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,195
<INCOME-PRETAX> 72,326
<INCOME-TAX> 27,954
<INCOME-CONTINUING> 44,372
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 44,372
<EPS-BASIC> 1.63
<EPS-DILUTED> 1.58
</TABLE>
