Item 1. Business
General
CEC Entertainment, Inc. (the "Company")(formerly ShowBiz Pizza Time, Inc.), was incorporated in the State of Kansas in 1980 and is engaged in the family restaurant/entertainment center business. The Company considers this to be its sole industry segment.
The Company operated, as of March 12, 1999, 276 Chuck E. Cheese's Pizza ("Chuck E. Cheese's") restaurants. In addition, as of March 12, 1999, franchisees of the Company operated 54 Chuck E. Cheese's restaurants.
Chuck E. Cheese's Restaurants
Business Development
Chuck E. Cheese's restaurants offer a variety of pizza, a salad bar, sandwiches and desserts and feature musical and comic entertainment by life-size, computer-controlled robotic characters, family oriented games, rides and arcade-style activities. The restaurants are intended to appeal to families with children between the ages of 2 and 12. The Company opened its first restaurant in March 1980.
The Company and its franchisees operate in a total of 44 states and the Company has concentrated its ownership and operation of Chuck E. Cheese's restaurants within a 34-state area. See "Item 2.
Item 2. Properties
The following table sets forth certain information regarding the Chuck E. Cheese's restaurants operated by the Company as of March 12, 1999.
Chuck E. Domestic Cheese's -------- -------- Alabama 5 Arkansas 4 California 51 Colorado 4 Connecticut 5 Delaware 1 Florida 17 Georgia 7 Idaho 1 Illinois 16 Indiana 7 Iowa 4 Kansas 3 Kentucky 1 Louisiana 5 Maryland 10 Massachusetts 10 Michigan 11 Minnesota 1 Missouri 7 Nevada 2 Nebraska 2 New Hampshire 2 New Jersey 9 New York 7 North Carolina 3 Ohio 14 Oklahoma 3 Pennsylvania 9 South Carolina 4 Tennessee 6 Texas 29 Virginia 7 Wisconsin 7 ----- -----
International
Canada 2 -----
======
Of the 276 Chuck E. Cheese's restaurants owned by the Company as of March 12, 1999, 253 occupy leased premises and 23 occupy owned premises. The leases of these restaurants will expire at various times from 1999 to 2016, as described in the table below.
Year of Number of Range of Renewal Expiration Restaurants Options (Years) ---------- ----------- --------------- 1999 10 5 to 10 2000 23 None to 15 2001 38 None to 15 2002 60 None to 15 2003 and thereafter 122 None to 15
The leases of Chuck E. Cheese's restaurants contain terms which vary from lease to lease, although a typical lease provides for a primary term of 10 years, with two additional five-year options to renew, and provides for annual minimum rent payments of approximately $6.00 to $25.00 per square foot, subject to periodic adjustment. The restaurant leases require the Company to pay the cost of repairs, insurance and real estate taxes and, in many instances, provide for additional rent equal to the amount by which a percentage (typically 6%) of gross revenues exceeds the minimum rent.
Item 3.
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.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of security holders during the fourth quarter of 1998.
PART I I
Item 5.
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
As of March 12, 1999, there were an aggregate of 18,082,817 shares of the Company's Common Stock outstanding and approximately 2,661 stockholders of record.
The Company's Common Stock is listed on the New York Stock Exchange under the symbol "CEC". Prior to July 9, 1998, the Company's Common Stock was listed on the National Market System of the National Association of Securities Dealers Automated Quotation (NASDAQ) system under the symbol SHBZ. The following table sets forth the highest and lowest prices per share of the Common Stock during each quarterly period within the two most recent years, as reported on the New York Stock Exchange and National Market System of NASDAQ:
The Company may not pay any dividends to holders of its Common Stock (except in shares of Common Stock) unless an amount equal to all dividends then accrued on its Class A Preferred Stock par value $60.00 per share ("the Preferred Stock") has been paid or set aside to be paid. A dividend to holders of record of Preferred Stock as of January 3, 1999 in the amount of $1.20 per share will be paid on April 5, 1999.
The Company has not paid any cash dividends on its Common Stock and has no present intention of paying cash dividends thereon in the future. The Company plans to retain any earnings to finance anticipated capital expenditures and reduce its long-term debt. Future dividend policy with respect to the Common Stock will be determined by the Board of Directors of the Company, taking into consideration factors such as future earnings, capital requirements, potential loan agreement restrictions and the financial condition of the Company.
Item 6.
Item 6. Selected Financial Data.
- ----------------------
(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.
Item 7.
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.
1998 Compared to 1997 - ---------------------
Revenues increased 8.3% to $379.4 million in 1998 from $350.3 million in 1997 primarily due to an increase of 4.1% in sales of the Company's Chuck E. Cheese's restaurants which were open during all of 1998 and 1997 ("comparable store sales"). In addition, the Company opened 14 new restaurants, purchased eight restaurants from franchisees and three restaurants from joint venture partners in 1998. Fiscal years 1998 and 1997 consisted of 52 and 53 weeks, respectively.
Income before income taxes increased to $55.0 million in 1998 from $42.7 million in 1997. A material portion of operating costs are fixed resulting in an improvement of operating margins at higher sales levels. Net income increased to $33.7 million in 1998 from $25.5 million in 1997. The Company's diluted earnings per share increased to $1.80 per share in 1998 compared to $1.34 per share in 1997.
Revenues --------
Revenues increased to $379.4 million in 1998 from $350.3 million in 1997. Comparable store sales of Chuck E. Cheese's restaurants increased by 4.1% in 1998. In addition, the Company opened 14 new restaurants, acquired eight restaurants from franchisees and three restaurants from joint venture partners in 1998. Average annual revenues per restaurant increased to approximately $1,452,000 in 1998 from approximately $1,437,000 in 1997. Fiscal years 1998 and 1997 consisted of 52 and 53 weeks, respectively. Management believes that several factors contributed to the comparable store sales increase with the primary factor being sales increases at Phase II upgraded restaurants. Menu prices increased 1.8% between the two years.
Revenues from franchise fees and royalties were $3.3 million in 1998, an increase of 2.4% from 1997, primarily due to an increase in comparable franchise store sales of 0.7% in 1998 and higher sales volumes in new franchise restaurants. During 1998, three new franchise restaurants opened, four franchise restaurants closed and eight franchise restaurants were purchased by the Company.
Costs and Expenses ------------------
Costs and expenses as a percentage of revenues decreased to 85.5% in 1998 from 87.8% in 1997.
Cost of sales as a percentage of revenues decreased to 45.9% in 1998 from 46.8% in 1997. Cost of food, beverage, prize and merchandise items as a percentage of restaurant sales decreased to 16.0% in 1998 from 16.5% in 1997 primarily due to an increase in game sales, reduced costs of certain food and beverage products and an increase in menu prices, partially offset by higher cheese costs. Restaurant labor expenses as a percentage of restaurant sales declined to 26.9% in 1998 from 27.5% in 1997 primarily due an increase in comparable store sales and more effective utilization of hourly employees.
Selling, general and administrative expenses as a percentage of revenues decreased to 14.9% in 1998 from 15.1% in 1997 primarily due to a reduction in corporate overhead costs and advertising expense as a percentage of revenues partially offset by an increase in preopening costs.
Depreciation and amortization expense as a percentage of revenues remained constant at 7.3% in both 1998 and 1997.
Other operating expenses decreased as a percentage of revenues to 16.7% in 1998 from 17.8% in 1997 primarily due to a decrease in insurance costs including a reduction in prior year reserves and a decrease in rent expense as a percentage of revenues.
Net Income ----------
The Company had net income of $33.7 million in 1998 compared to $25.5 million in 1997 due to the changes in revenues and expenses discussed above. The Company's diluted earnings per share increased to $1.80 per share in 1998 compared $1.34 per share in 1997.
1997 Compared to 1996 - ---------------------
Revenues increased 19.1% to $350.3 million in 1997 from $294.0 million in 1996 primarily due to an increase of 10.7% in comparable store sales. In addition, the Company purchased 19 restaurants from its largest franchisee in September 1996. Fiscal years 1997 and 1996 consisted of 53 and 52 weeks, respectively.
Income before income taxes increased to $42.7 million in 1997 from $22.2 million in 1996. A material portion of operating costs are fixed resulting in an improvement of operating margins at higher sales levels. Net income increased to $25.5 million in 1997 from $13.2 million in 1996. The Company's diluted earnings per share increased to $1.34 per share in 1997 compared to $.70 per share in 1996.
Revenues --------
Revenues increased to $350.3 million in 1997 from $294.0 million in 1996. Comparable store sales of Chuck E. Cheese's restaurants increased by 10.7% in 1997. In addition, the Company purchased 19 restaurants from its largest franchisee in September 1996. Average annual sales per restaurant increased to approximately $1,437,000 in 1997 from approximately $1,286,000 in 1996. Fiscal years 1997 and 1996 consisted of 53 and 52 weeks, respectively. Management believes that several factors contributed to the comparable store sales increase with the primary factor being sales increases at repositioned restaurants. Menu prices increased 2.4% between the two years.
Revenues from franchise fees and royalties were $3.2 million in 1997, a decrease of 12.2% from 1996, primarily due to the Company's purchase of 19 franchise restaurants in September 1996. Comparable franchise store sales increased 9.1% in 1997. During 1997, one new franchise restaurant opened, six franchise restaurants closed and two franchise restaurants were purchased by the Company.
Costs and Expenses ------------------
Costs and expenses as a percentage of revenues decreased to 87.8% in 1997 from 92.4% in 1996.
Cost of sales as a percentage of revenues decreased to 46.8% in 1997 from 48.7% in 1996. Cost of food, beverage, prize and merchandise items as a percentage of restaurant sales decreased to 16.5% in 1997 from 17.4% in 1996 primarily due to a 2.4% increase in menu prices and lower cheese costs in 1997. Restaurant labor expenses as a percentage of restaurant sales declined to 27.5% in 1997 from 28.7% in 1996 primarily due to labor efficiencies achieved at higher sales volumes.
Selling, general and administrative expenses as a percentage of revenues increased to 15.1% in 1997 from 14.8% in 1996 primarily due to start-up costs related to the outsourcing and evaluation of a toll-free birthday reservation system, management development expenses and stock offering costs incurred in 1997 for a secondary offering by the Company's largest shareholder.
Depreciation and amortization expense as a percentage of revenues decreased to 7.3% in 1997 from 8.5% in 1996 primarily due to the increase in comparable store sales, a change effected in the first quarter of 1997 in the estimated useful lives of certain fixed assets and the acquisition of restaurants in 1996 with lower depreciation expense than existing restaurants. Depreciation expense was reduced approximately $2.2 million in 1997 due to the change in the estimated useful lives of certain fixed assets based on a review of historical asset utilization.
Interest expense decreased to $2.9 million in 1997 from $3.5 million in 1996 primarily due to a decrease in the Company's outstanding debt between the two periods.
Other operating expenses decreased as a percentage of revenues to 17.8% in 1997 from 19.2% in 1996 primarily due to the increase in comparable store sales and the fact that a significant portion of operating costs such as rent, property taxes and insurance are fixed.
Net Income ----------
The Company had net income of $25.5 million in 1997 compared to $13.2 million in 1996 due to the changes in revenues and expenses discussed above. The Company's diluted earnings per share increased to $1.34 per share in 1997 compared $.70 per share in 1996.
Inflation - ---------
The Company's cost of operations, including but not limited to labor, supplies, utilities, financing and rental costs, are significantly affected by inflationary factors. The Company pays most of its part-time employees rates that are related to federal and state mandated minimum wage requirements. Management anticipates that any increases in federally mandated minimum wage would result in higher costs to the Company, which the Company expects would be partially offset by menu price increases and increased efficiencies in operations.
Financial Condition, Liquidity and Capital Resources - -----------------------------------------------------
Cash provided by operations decreased slightly to $68.6 million in 1998 from $69.5 million in 1997 primarily due to changes in working capital. Cash outflow from investing activities for 1998 was $65.6 million. Cash outflow from financing activities in 1998 was $7.1 million primarily related to the purchase of treasury stock. The Company's primary requirements for cash relate to planned capital expenditures, the repurchase of the Company's common stock and debt service. The Company expects that it will satisfy such requirements from cash provided by operations and, if necessary, funds available under its line of credit.
In 1999, the Company plans to add approximately 25 stores including new stores and acquisitions of existing stores from franchisees. The Company currently anticipates its cost of opening new stores to average approximately $1.5 million per store which will vary depending upon many factors including the size of the store and whether the store is an in-line or free-standing building. In addition to such new store openings, the Company plans to continue its strategy of expanding the customer area of stores. The Company also plans to complete Phase II upgrades in 25 stores in the first and second quarter of 1999 at an average cost of $150,000 to $160,000 per store. A Phase II upgrade generally includes a new game package, enhanced prize and merchandise offerings and improved product presentation and service. During 1998, the Company opened 14 new restaurants, acquired eight restaurants from franchisees and three restaurants from joint venture partners, expanded the customer area of 20 restaurants and completed Phase II upgrades in 117 restaurants.
The Company currently estimates that capital expenditures in 1999, including expenditures for remodeling existing stores, new store openings, existing store expansions and equipment investments, will be approximately $65 million. The Company plans to finance these expenditures through cash flow from operations and, if necessary, borrowings under the Company's line of credit.
In 1997, the Company announced that it planned to purchase shares of the Company's common stock at an aggregate purchase price of up to $20 million. In July 1998, the Company completed this plan and announced an additional plan to purchase shares of the Company's common stock at an aggregate purchase price of up to $15 million. As of January 3, 1999 the Company has purchased shares of its common stock under the $15 million plan at an aggregate purchase price of approximately $5.8 million.
In 1998, the Company's line of credit agreement was amended to provide borrowings of up to $30 million and extend the maturity date to June 2000. The Company's total credit facility of $53 million at January 3, 1999 consists of $23 million in term notes and the $30 million line of credit. Term notes totaling $18 million with annual principal payments of $6 million beginning in June 1999 and annual interest of 10.02% mature in 2001. Term notes totaling $5 million with quarterly principal payments of $833,000 and annual interest equal to LIBOR plus 3.5% mature in 2000. Interest under the $30 million line of credit is dependent on earnings and debt levels of the Company and ranges from prime minus 0.5% to plus 0.5% or, at the Company's option, LIBOR plus 1% to 2.5%. Currently, any borrowings under this line of credit would be at the prime rate minus 0.5% or LIBOR plus 1%. As of March 12, 1999, there were no borrowings under this line of credit. The Company is required to comply with certain financial ratio tests during the terms of the loan agreements.
In 1998, the Company purchased computer software and hardware which is Year 2000 compliant. The Year 2000 issue is the result of computer programs being written using two digits rather than four to define the applicable year. Current systems may be unable to accurately process certain date-based information. The cost of the new software and hardware has been recorded as an asset and is being amortized over its estimated useful life. Other maintenance or modification costs will be expensed as incurred. Accordingly, the Company does not expect the amounts required to be expensed over the next year to have a material effect on its financial position or results of operations or cash flows. The Company expects its Year 2000 date conversion project to be completed in 1999. The Company has initiated formal communication with significant vendors and suppliers to determine their efforts to remediate Year 2000 issues.
Certain statements in this report may constitute - looking statements'-looking statements.
Item 7A:
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.
Item 8.
Item 8. Financial Statements and Supplementary Data
CEC ENTERTAINMENT, INC. YEARS ENDED JANUARY 3, 1999, JANUARY 2, 1998 AND DECEMBER 27, 1996
CONTENTS
Page ----
Independent auditors' report . . . . . . . . . . . . . . . 15 Consolidated financial statements: Consolidated balance sheets. . . . . . . . . . . . . . . 16 Consolidated statements of earnings and comprehensive income . . . . . . . . . . . . . . . . 17 Consolidated statements of shareholders' equity. . . . . 18 Consolidated statements of cash flows. . . . . . . . . . 19 Notes to consolidated financial statements . . . . . . . 20
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders CEC Entertainment, Inc. Irving, Texas
We have audited the accompanying consolidated balance sheets of CEC Entertainment, Inc. (formerly ShowBiz Pizza Time, Inc.) and subsidiaries as of January 3, 1999 and January 2, 1998, and the related consolidated statements of earnings and comprehensive income, shareholders' equity, and cash flows for each of the three years in the period ended January 3, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of CEC Entertainment, Inc. and subsidiaries as of January 3, 1999 and January 2, 1998, and the results of their operations and their cash flows for each of the three years in the period ended January 3, 1999, in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP Dallas, Texas March 8, 1999
CEC ENTERTAINMENT, INC. CONSOLIDATED BALANCE SHEETS JANUARY 3, 1999 AND JANUARY 2, 1998 (Thousands, except share data)
ASSETS
See notes to consolidated financial statements.
CEC ENTERTAINMENT, INC. CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME YEARS ENDED JANUARY 3, 1999, JANUARY 2, 1998 AND DECEMBER 27, 1996 (Thousands, except per share data)
See notes to consolidated financial statements.
CEC ENTERTAINMENT, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY YEARS ENDED JANUARY 3, 1999, JANUARY 2, 1998 AND DECEMBER 27, 1996 (THOUSANDS, EXCEPT PER SHARE DATA)
See notes to consolidated financial statements.
CEC ENTERTAINMENT, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED JANUARY 3, 1999, JANUARY 2, 1998 AND DECEMBER 27, 1996 (THOUSANDS)
See notes to consolidated financial statements.
CEC ENTERTAINMENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED JANUARY 3, 1999, JANUARY 2, 1998 AND DECEMBER 27, 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Operations:
CEC Entertainment, Inc. (the "Company") operates and franchises family restaurant/entertainment centers as Chuck E. Cheese's restaurants.
Fiscal year:
The Company's fiscal year is 52 or 53 weeks and ends on the Sunday nearest December 31. References to 1998, 1997 and 1996 are for the fiscal years ended January 3, 1999, January 2, 1998 and December 27, 1996, respectively. Fiscal years 1998 and 1996 were each 52 weeks in length, while fiscal year 1997 was 53 weeks in length.
Basis of consolidation:
The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany accounts and transactions have been eliminated.
Foreign currency translation:
The consolidated financial statements are presented in U.S. dollars. The assets and liabilities of theCompany's Canadian subsidiary are translated to U.S. dollars at year-end exchange rates, while revenues and expenses are translated at average exchange rates during the year. Adjustments that result from translating amounts are reported as a component of other comprehensive income.
Cash and cash equivalents:
Cash and cash equivalents of the Company are composed of demand deposits with banks and short-term cash investments with remaining maturities of three months or less from the date of purchase by the Company.
Inventories:
Inventories of food, paper products and supplies are stated at the lower of cost or market on a first-in, first-out basis.
Property and equipment, depreciation and amortization:
Property and equipment are stated at cost. Depreciation and amortization are provided by charges to operations over the estimated useful lives of the assets, or the lease term if less, by the straight-line method. All preopening costs are expensed as incurred.
CEC ENTERTAINMENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED JANUARY 3, 1999, JANUARY 2, 1998 AND DECEMBER 27, 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(CONTINUED):
Deferred charges and related amortization:
Deferred charges are amortized over various periods of up to 16 years. All amortization is provided by the straight-line method, which approximates the interest method.
Franchise fees and royalties:
The Company recognizes initial franchise fees upon fulfillment of all significant obligations to the franchisee.Royalties from franchisees are accrued as earned.
Impairment of intangibles and long-lived assets:
Impairment losses are recognized if the future cash flows expected to be generated by the operations applicable to the intangibles and long-lived assets are less than the carrying value of the assets. The impairment loss is equal to the amount by which the carrying value of the assets exceeds the fair value of the assets.
Use of estimates and assumptions:
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Accounting for stock-based compensation:
As permitted by Statement of Financial Accounting Standards No. 123 ("SFAS 123") "Accounting for Stock- Based compensation," the Company applies the recognition and measurement provisions of Accounting Principles Board Opinion No. 25 ("APB 25"), "Accounting for Stock Issued to Employees" and has disclosed the proforma effects of SFAS 123 (Note 17).
Recent accounting pronouncements:
The Company has adopted Statement of Financial Accounting Standards No. 130 ("SFAS 130") "Reporting Comprehensive Income" which became effective for years beginning after December 15, 1997. Comprehensive income includes changes in equity from transactions and events from nonowner sources.
Statement of Financial Accounting Standards No. 131 ("SFAS 131") "Disclosures about Segments of an Enterprise and Related Information" became effective for years beginning after December 15, 1997. The Company is not engaged in multiple business or geographic segments requiring separate disclosure under SFAS 131.
CEC ENTERTAINMENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED JANUARY 3, 1999, JANUARY 2, 1998 AND DECEMBER 27, 1996
2. ACCOUNTS RECEIVABLE:
3. NOTES RECEIVABLE:
The Company's notes receivable at January 3, 1999 and January 2, 1998 arose principally as a result of lines of credit established with the International Association of CEC Entertainment, Inc., a related party (Note 16), and advances to franchisees, joint ventures and managed properties. All obligors under the notes receivable are principally engaged in the restaurant industry. The notes have various terms, but most are payable in monthly installments of principal and interest through 2001, with interest rates ranging from 7.5% to 12.0%. The notes are generally collateralized by the related property and equipment. Balances of notes receivable are net of an allowance for doubtful collection of $84,000 at both January 3, 1999 and January 2, 1998.
4. PROPERTY AND EQUIPMENT:
5. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES:
CEC ENTERTAINMENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED JANUARY 3, 1999, JANUARY 2, 1998 AND DECEMBER 27, 1996
6. LEASES:
The Company leases certain restaurants and related property and equipment under operating and capital leases. All leases require the Company to pay property taxes, insurance and maintenance of the leased assets. The leases generally have initial terms of 7 to 30 years with various renewal options.
Following is a summary of property leased under capital leases:
Scheduled annual maturities of the obligations for capital and operating leases as of January 3, 1999, are as follows:
Certain of the Company's real estate leases, both capital and operating, require payment of contingent rent in the event defined revenues exceed specified levels.
The Company's rent expense is comprised of the following:
1998 1997 1996 ----- ------ ------ (THOUSANDS)
Minimum. . . . . . . . . . . . . . . . $ 34,276 $ 32,694 $ 30,484 Contingent. . . . . . . . . . . . . . . 365 276 195 ------- -------- -------- $ 34,641 $ 32,970 $ 30,679 ======= ======= =======
CEC ENTERTAINMENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED JANUARY 3, 1999, JANUARY 2, 1998 AND DECEMBER 27, 1996
7. LONG-TERM DEBT:
In 1998, the Company's line of credit agreement was amended to provide the Company with available borrowings of up to $30 million expiring in June 2000. As of January 3,1999, the Company's credit facility totals $53 million, which consists of $23 million in term notes and the $30 million line of credit. Interest on the term notes is payable quarterly. Interest under the line of credit is payable quarterly and dependent on earnings and debt levels of the Company. Currently, any borrowings under this line of credit would be at prime (7.25% at January 3, 1999) minus 0.5% or, at the Company's option, LIBOR (5.066% at January 3, 1999) plus 1%.
At January 3, 1999, there was $4.5 million outstanding under the line of credit. A 3/8% commitment fee is payable on any unused credit line. The Company is required to comply with certain financial ratio tests during the terms of the loan agreements. The weighted average interest rate on long-term debt was 9.62% and 9.73% in 1998 and 1997, respectively.
As of January 3, 1999, scheduled annual maturities of all long-term debt (exclusive of obligations under capital leases) are as follows (thousands):
8. LITIGATION:
From time to time the Company is involved in litigation, most of which is incidental to its business. In the Company's opinion, no litigation to which the Company currently is a party is likely to have a material adverse effect on the Company's results of operations, financial condition or cash flows.
9. REDEEMABLE PREFERRED STOCK:
As of January 3, 1999 and January 2, 1998, the Company had 49,441 and 49,570 shares, respectively, of its redeemable preferred stock authorized and outstanding. The stock pays dividends at $4.80 per year, subject to a minimum cash flow test. As of January 3, 1999, one quarterly dividend, totaling $59,329 or $1.20 per share, was accrued but not yet paid. The redeemable preferred stock has been recorded at the net present value of the redemption price and is being accreted on the straight-line basis. The Company's restated articles of incorporation provide for the redemption of such shares at $60 per share in 2005. During the continuation of any event of default by the Company, the preferred shareholders will be able to elect a majority of the directors of the Company.
CEC ENTERTAINMENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED JANUARY 3, 1999, JANUARY 2, 1998 AND DECEMBER 27, 1996
10. EARNINGS PER COMMON SHARE:
Earnings per common share ("EPS") are computed in accordance with SFAS 128. Under SFAS 128, basic and diluted EPS replaces primary and fully diluted EPS. Basic EPS is calculated by dividing earnings applicable to common shares by the weighted average number of common shares outstanding. Diluted EPS adjusts for the effect of potential common shares. Net income available per common share has been adjusted for the items indicated.
Earnings per common and potential common shares were computed as follows (thousands, except per share data):
11. FRANCHISE FEES AND ROYALTIES:
At January 3, 1999, 54 Chuck E. Cheese's restaurants were operated by a total of 37 different franchisees. The standard franchise agreements grant to the franchisee the right to develop and operate a restaurant and use the associated trade names, trademarks and service marks within the standards and guidelines established by the Company.
Initial franchise fees included in revenues were $373,000, $172,000 and $274,000 in 1998, 1997 and 1996, respectively.
12. COST OF SALES:
CEC ENTERTAINMENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED JANUARY 3, 1999, JANUARY 2, 1998 AND DECEMBER 27, 1996
13. INCOME TAXES:
The significant components of income tax expense are as follows:
Deferred income taxes and benefits are provided for differences between financial statement carrying amounts of assets and liabilities and their respective tax bases. Temporary differences and the resulting deferred tax assets and liabilities at January 3, 1999 and January 2, 1998 are as follows:
CEC ENTERTAINMENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED JANUARY 3, 1999, JANUARY 2, 1998 AND DECEMBER 27, 1996
13. INCOME TAXES (CONTINUED):
A reconciliation of the statutory rate to taxes provided is as follows:
14. FAIR VALUE OF FINANCIAL INSTRUMENTS:
The Company has certain financial instruments consisting primarily of cash equivalents, notes receivable, notes payable and redeemable preferred stock. The carrying amount of cash equivalents approximates fair value because of the short maturity of those instruments. The carrying amount of the Company's notes receivable and long-term debt approximates fair value based on the interest rates charged on instruments with similar terms and risks. The estimated fair value of the Company's redeemable preferred stock is $3.0 million.
15. SUPPLEMENTAL CASH FLOW INFORMATION:
16. RELATED PARTY TRANSACTIONS:
The Hallwood Group, Incorporated ("Hallwood") was the beneficial owner of approximately 2.6 million shares or 14.2% of the outstanding common stock of the Company prior to a secondary public offering in March 1997 in which Hallwood and certain of its affiliates sold all shares held. The directors of Hallwood had served as a majority of the directors of the Company, but resigned after the public offering. The Company did not receive any proceeds from the sale of shares by the selling stockholders.However, the Company paid $305,000 in expenses for the offering.
The Company made payments to Hallwood of $31,000 in 1997 and $125,000 in 1996 for consulting services. The consulting agreement terminated upon the closing of the public offering.In consideration for rent reductions resulting from Hallwood's negotiation of the Company's home office lease agreement in December 1990, the Company had assigned to Hallwood its sublease interest in the home office building with a fair value of approximately $120,000 per year.
CEC ENTERTAINMENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED JANUARY 3, 1999, JANUARY 2, 1998 AND DECEMBER 27, 1996
16. RELATED PARTY TRANSACTIONS (CONTINUED):
The Company had advanced amounts to a joint venture in which the Company had a 50% interest or less. At January 2, 1998 approximately $610,000 was outstanding under this note. Principal and interest were payable in monthly installments, with interest at prime. The Company also had miscellaneous accounts receivable from the joint venture of approximately $229,000 at January 2, 1998. In January 1998, the Company acquired the interest of its joint venture partner for cash plus forgiveness of all receivables.
The Company has granted three separate operating lines of credit to the International Association of CEC Entertainment, Inc. (the "Association"). In December 1998, the lines were renewed to provide the Association with available borrowings of $1.7 million at 10.5% interest and are due December 31, 1999. The Association develops entertainment attractions and produces system wide advertising. Five officers of the Association are also officers of the Company. At January 3, 1999 and January 2, 1998, approximately $361,000 and $2,105,000, respectively, was outstanding under these lines of credit. The Company also had miscellaneous accounts receivable from the Association of $11,000 at January 2, 1998.
17. EMPLOYEE BENEFIT PLANS:
The Company has employee benefit plans that include: a) executive bonus compensation plans based on the performance of the Company; b) non-statutory stock option plans for its employees and non-employee directors; c) a stock grant plan and d) a retirement and savings plan.
The Company's common stock which could be issued under its initial employee stock option plan was 2,772,038 shares. Any shares granted under this plan had to be granted before December 31, 1998. In 1997, the Company adopted a new employee stock option plan under which an additional 925,000 shares may be granted before July 31, 2007. The exercise price for options granted under both plans may not be less than the fair market value of the Company's common stock at date of grant. Options may not be exercised until the employee has been continuously employed at least one year after the date of grant. Options which expire or terminate may be re-granted under the plan.
In 1995, the Company adopted a stock option plan for its non-employee directors. The number of shares of the Company's common stock that may be issued under this plan cannot exceed 150,000 shares and the exercise price for options granted may not be less than the fair market value of the Company's common stock at the date of grant.
CEC ENTERTAINMENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED JANUARY 3, 1999, JANUARY 2, 1998 AND DECEMBER 27, 1996
17. EMPLOYEE BENEFIT PLANS (CONTINUED):
At January 3, 1999, there were 562,623 shares available for grant. Stock option transactions are summarized as follows for all plans:
All stock options are granted at no less than fair market value of the common stock at the grant date. The estimated fair value of options granted was $7.54, $6.12 and $3.08 per share in 1998, 1997 and 1996, respectively. The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions used for grants in 1998: risk free interest rate of 4.6%, 5.9% and 6.5% in 1998, 1997 and 1996, respectively; no dividend yield; expected lives of four years; and expected volatility of 30% in 1998 and 40% in 1997 and 1996. Stock options expire five and seven years from the grant date. Stock options vest over various periods ranging from one to four years. The number of stock option shares exercisable at January 3, 1999 was 504,564. These stock options have exercise prices ranging from $5.29 to $20.50 per share and have a weighted average exercise price of $12.84 per share. In January 1999, the Company granted 493,926 additional options at an exercise price of $26.25 per share.
The number of shares of the Company's common stock which may have been awarded to senior executives of the Company under the Stock Grant Plan was 1,718,637 shares. No further shares may be awarded under this plan after December 1998. In 1997, 128,500 shares were awarded in connection with an employment agreement effective January 1998. No grants were awarded in 1998 or 1996. Compensation expense recognized by the Company pursuant to this plan was $760,000 in 1998 and $1,821,000 per yearin 1997 and 1996. All shares vest over periods ranging from 3 years to 6 years and are subject to forfeiture upon termination of the participant's employment by the Company. The shares are nontransferable during the vesting periods.
As a result of shares awarded to the Company's Chairman of the Board and Chief Executive Officer, the Company recognized deferred compensation of $12.0 million in 1993 and $2.3 million in 1997. The deferred compensation is amortized over the compensated periods of service.
The Company applies the provisions of APB Opinion 25 and related Interpretations in accounting for its employee benefit plans. Accordingly, no compensation cost has been recognized for its stock option plans. Had compensation cost for the Company's stock option plans been determined based on the fair value at the grant date for awards under those plans consistent with the method prescribed by SFAS 123, the Company's proforma net income would have been $31.6 million, $23.1 million and $12.8 million in 1998, 1997 and 1996, respectively. Proforma earnings per share assuming dilution would have been $1.71, $1.23 and $.67 per share in 1998, 1997 and 1996, respectively.
CEC ENTERTAINMENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED JANUARY 3, 1999, JANUARY 2, 1998 AND DECEMBER 27, 1996
17. EMPLOYEE BENEFIT PLANS (CONTINUED):
The Company has adopted the CEC 401(k) Retirement and Savings Plan, to which it may at its discretion make an annual contribution out of its current or accumulated earnings. Contributions by the Company may be made in the form of its common stock or in cash. The Company made contributions of approximately $97,000 and $59,000 in common stock for the 1997 and 1996 plan years, respectively. The Company plans to contribute $138,000 in common stock for the 1998 plan year.
18. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED):
The following summarizes the unaudited quarterly results of operations for the years ended January 3, 1999 and January 2, 1998 (thousands, except per share data).
Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None
PART I I I
Item 10.
Item 10. Directors and Executive Officers of the Registrant
The information required by this item regarding the directors and executive officers of the Company shall be included in the Company's definitive Proxy Statement to be filed pursuant to Regulation 14A in connection with the Company's 1998 annual meeting of stockholders and incorporated herein by reference thereto.
Item 11.
Item 11. Executive Compensation
The information required by this item regarding the directors and executive officers of the Company shall be included in the Company's definitive Proxy Statement to be filed pursuant to Regulation 14A in connection with the Company's 1998 annual meeting of stockholders and incorporated herein by reference thereto.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by this Item shall be included in the Company's definitive Proxy Statement to be filed pursuant to Regulation 14A in connection with Company's 1998 annual meeting of stockholders and is incorporated herein by reference thereto.
Item 13.
Item 13. Certain Relationships and Related Transactions
The information required by this Item regarding the directors and executive officers of the Company shall be included in the Company's definitive Proxy Statement to be filed pursuant to Regulation 14A in connection with the Company's 1998 annual meeting of stockholders and is incorporated herein by reference thereto.
PART I V
Item 13. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(A) THE FOLLOWING DOCUMENTS ARE FILED AS A PART OF THIS REPORT:
(1) Financial Statements and Supplementary Data:
Independent auditors' report. CEC Entertainment, Inc. consolidated financial statements: Consolidated balance sheets as of January 3, 1999 and January 2, 1998. Consolidated statements of earnings for the years ended January 3, 1999, January 2, 1998, and December 27, 1996. Consolidated statements of shareholders' equity for the years ended January 3, 1999, January 2, 1998, and December 27, 1996. Consolidated statements of cash flows for the years ended January 3, 1999, January 2, 1998, and December 27, 1996. Notes to consolidated financial statements.
(2) Exhibits:
Number Description
3(a)(1) Restated Articles of Incorporation of the Company, dated November 26,1996 (filed as Exhibit 3.1 to the Company's Registration Statement on Form S-3 (No.333-22229)and incorporated herein by reference).
3(a)(2) Amendment to the Restated Articles of Incorporation of the Company,dated June 25,1998 (filed as Exhibit 3(a) to the Company's Quarterly Report on Form 10-Q for the quarter ended July 5, 1998, and incorporated herein by reference).
3(b)(1) Restated Bylaws of the Company, dated August 16, 1994 (filed as Exhibit 3 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1994, and incorporated herein by reference).
3(b)(2) Amendment to the Bylaws, dated May 5, 1995 (filed as Exhibit 3 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1995, and incorporated herein by reference).
4(a) Specimen form of certificate representing $.10 par value Common Stock (filed as Exhibit 4(a) to the Company's Annual Report on Form 10-K for the year ended December 28, 1990, and incorporated herein by reference).
4(b) Specimen form of certificate representing $60 par value Class A Preferred Stock (filed as Exhibit 4(b) to the Company's Annual Report on Form 10-K for the year ended December 28, 1990, and incorporated herein by reference).
10(a)(1) Amended and Restated Employment Agreement dated April 14, 1993, between the Company and Richard M. Frank (filed as Exhibit 10(a) (8) to the Company's Quarterly Report on Form 10-Q for the quarter ended April 2, 1993, and incorporated herein by reference).
10(a)(2) Amendment No. 1 to the Amended and Restated Employment Agreement dated July 19, 1996, between the Company and Richard M. Frank (filed as Exhibit 10(i) to the Company's Quarterly Report on Form 10-Q for the quarter ended September 27, 1996, and incorporated herein by reference).
10(a)(3) Amendment No. 2 to the Amended and Restated Employment Agreement dated March 3, 1997, between the Company and Richard M. Frank (filed as Exhibit 10(a) to the Company's Quarterly Report on Form 10-Q for the quarter ended March 28, 1997, and incorporated herein by reference).
10(b) Stock Grant Trust Agreement dated January 29, 1992, among the Company, Richard M. Frank, Ronald F. Saupe and Kevin J. Shepherd (filed as Exhibit 10(a)(7) to the Company's Annual Report on Form 10-K for the year ended December 27, 1991,and incorporated herein by reference).
10(c)(1) Employment Agreement dated January 4, 1994, between the Company and Michael H. Magusiak (filed as Exhibit 10(b) to the Company's Annual Report on Form 10-K for the year ended December 31, 1993, and incorporated herein by reference).
10(c)(2) Amendment to the Employment Agreement dated December 11, 1997, between the Company and Michael H. Magusiak (filed as Exhibit 10(c)(2) to the Company's Annual Report on Form 10-K for the year ended January 2, 1998, and incorporated herein by reference).
10(d) Note Purchase Agreement dated June 15, 1995, between Allstate Life Insurance Company, Connecticut Mutual Life Insurance Company, C M Life Insurance Company, MassMutual Corporate Value Partners Limited, Massachusetts Mutual Life Insurance Company, Modern Woodmen of America, and the Company (filed as Exhibit 10 (a)(1) to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1995, and incorporated herein by reference).
10(e) 10.02% Series A Senior Note Due 2001, in the stated amount of $10,000,000.00, dated June 15, 1995, between Allstate Life Insurance Company and the Company (filed as Exhibit 10 (b)(1) to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1995, and incorporated herein by reference).
10(f)(1) 10.02% Series A Senior Note Due 2001, in the stated amount of $1,000,000.00, dated June 15, 1995, between Connecticut Mutual Life Insurance Company and the Company (filed as Exhibit 10 (c)(1) to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1995, and incorporated herein by reference).
10(f)(2) 10.02% Series A Senior Note Due 2001, in the stated amount of $1,000,000.00, dated June 15, 1995, between Connecticut Mutual Life Insurance Company and the Company (filed as Exhibit 10(c) (2) to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1995, and incorporated herein by reference).
10(f)(3) 10.02% Series A Senior Note Due 2001, in the stated amount of $1,000,000.00, dated June 15, 1995, between Connecticut Mutual Life Insurance Company and the Company (filed as Exhibit 10 (c)(3) to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1995, and incorporated herein by reference).
10(g)(1) 10.02% Series A Senior Note Due 2001, in the stated amount of $1,000,000.00, dated June 15, 1995, between C M Life Insurance Company and the Company (filed as Exhibit 10 (d)(1) to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1995, and incorporated herein by reference).
10(g)(2) 10.02% Series A Senior Note Due 2001, in the stated amount of $1,000,000.00, dated June 15, 1995, between C M Life Insurance Company and the Company (filed as Exhibit 10 (d)(2) to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1995, and incorporated herein by reference).
10(h)(1) Floating Rate Series B Senior Note Due 2000, in the stated amount of $2,000,000.00, dated June 15, 1995, between Massachusetts Mutual Life Insurance Company and the Company (filed as Exhibit 10 (e)(1) to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1995, and incorporated herein by reference).
10(h)(2) Floating Rate Series B Senior Note Due 2000, in the stated amount of $2,000,000.00, dated June 15, 1995, between Massachusetts Mutual Life Insurance Company and the Company (filed as Exhibit 10 (e)(2) to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1995, and incorporated herein by reference).
10(h)(3) Floating Rate Series B Senior Note Due 2000, in the stated amount of $2,000,000.00, dated June 15, 1995, between Massachusetts Mutual Life Insurance Company and the Company(filed as Exhibit 10(e)(3) to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1995, and incorporated herein by reference).
10(i) Floating Rate Series B Senior Note Due 2000, in the stated amount of $4,000,000.00, dated June 15, 1995, between MassMutual Corporate Value Partners Limited (I/N/O Webell & Co.) and the Company (filed as Exhibit 10 (f)(1) to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1995, and incorporated herein by reference).
10(j) Floating Rate Series A Senior Note Due 2001, in the stated amount of $3,000,000.00, dated June 15, 1995, between Modern Woodmen of America and the Company (filed as Exhibit 10 (g)(1) to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1995, and incorporated herein by reference).
10(k)(1) Loan Agreement in the stated amount of $5,000,000.00, dated June 27, 1995, between Bank One, Texas, N.A. and the Company (filed as Exhibit 10(h)(1)to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1995, and incorporated herein by reference).
10(k)(2) Revolving Credit Note in the stated amount of $5,000,000, dated June 27, 1995, between Bank One, Texas, N.A. and the Company (filed as Exhibit 10(h)(2) to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1995, and incorporated herein by reference).
10(l)(1) Modification and Extension Agreement (to the Loan Agreement dated June 27, 1995) in the stated amount of $15,000,000.00, dated August 1, 1996, between Bank One, Texas, N.A. and the Company (filed as Exhibit 10 (h)(1) to the Company's Quarterly Report on Form 10-Q for the quarter ended September 27, 1996, and incorporated herein by reference).
10(l)(2) Restated Revolving Credit Note in the stated amount of $15,000,000, dated August 1, 1996, between Bank One, Texas, N.A. and the Company (filed as Exhibit 10(h)(2) to the Company's Quarterly Report on Form 10-Q for the quarter ended September 27, 1996, and incorporated herein by reference).
10(m)(1) Second Modification And Extension Agreement, in the stated amount of $15,000,000.00, dated June 14, 1998, between Bank One, Texas, N.A. and the Company (filed as Exhibit 10(a)(1) to the Company's Quarterly Report on Form 10-Q for the quarter ended July 5, 1998, and incorporated herein by reference).
10(m)(2) Second Restated Revolving Credit Note, in the stated amount of $15,000,000.00, dated June 14, 1998, between Bank One, Texas, N.A. and the Company (filed as Exhibit 10 (a)(2) to the Company's Quarterly Report on Form 10-Q for the quarter ended July 5, 1998, and incorporated herein by reference).
10(n)(1) Third Modification Agreement, in the stated amount of $30,000,000.00, dated December 4,1998, between Bank One, Texas, N.A. and the Company (filed as Exhibit 10(a)(1) to the Company's Quarterly Report on Form 10-Q for the quarter ended July 5,1998, and incorporated herein by reference).
10(n)(2) Third Restated Revolving Credit Note, in the stated amount of $30,000,000.00, dated December 4, 1998, between Bank One, Texas, N.A. and the Company (filed as Exhibit 10(a)(2) to the Company's Quarterly Report on Form 10-Q for the quarterended July 5, 1998, and incorporated herein by reference).
10(o)(1) Supplemental Agreement, dated as of September 29, 1997, relating to the Note Purchase Agreements dated as of June 15, 1995, between Allstate Life Insurance Company, Massachusetts Mutual Life Insurance Company, MassMutual Corporate Value Partners Limited, CM Life Insurance Company, Modern Woodmen of America and the Company (filed as Exhibit 10(m)(1) to the Company's Annual Report on Form 10-K for the year ended January 2, 1998, and incorporated herein by reference).
10(o)(2) Supplemental Agreement, dated as of September 29, 1997, relating to the Note Purchase Agreements dated as of June 15, 1995, between Bank One, Texas, N.A. and the Company (filed as Exhibit 10(m)(2) to the Company's Annual Report on Form 10-K for the year ended January 2, 1998, and incorporated herein by reference).
10(p)(1) 1988 Non-Statutory Stock Option Plan (filed as Exhibit A to the Company's Proxy Statement for Annual Meeting of Stockholders to be held on June 8, 1995, and incorporated herein by reference).
10(p)(2) Specimen form of Contract under the 1988 Non-Statutory Stock Option Plan of the Company, as amended to date (filed as Exhibit 10(d) to the Company's Quarterly Report on Form 10-Q for the quarter ended June 28, 1996, and incorporated herein by reference).
10(q)(1) 1997 Non-Statutory Stock Option Plan (filed as Exhibit 4.1 to Form S-8 (No. 333-41039),and incorporated herein by reference).
10(q)(2) Specimen form of Contract under the 1997 Non-Statutory Stock Option Plan of the Company, as amended to date (filed as Exhibit 10(o)(2) to the Company's Annual Report on Form 10-K for the year ended January 2, 1998, and incorporated herein by reference).
10(r)(1) Stock Grant Plan of the Company, as amended to date (filed as Exhibit 10(d)(1) to the Company's Annual Report on Form 10-K for the year ended December 31,1993, and incorporated herein by reference).
10(r)(2) Specimen form of Certificate of Participation to certain participants under the Stock Grant Plan of the Company (filed as Exhibit 10(e)(3) to the Company's Annual Report on Form 10-K for the year ended December 29, 1989, and incorporated herein by reference).
10(s)(1) Non-Employee Directors Stock Option Plan (filed as Exhibit B to the Company's Proxy Statement for Annual Meeting of Stockholders to be held on June 8, 1995, and incorporated herein by reference).
10(s)(2) Specimen form of Contract under the Non-Employee Directors Stock Option Plan of the Company, as amended to date (filed as Exhibit 10(s)(2) to the Company's Annual Report on Form 10-K for the year ended December 27, 1996, and incorporated herein by reference).
10(t)(1) Specimen form of the Company's current Franchise Agreement (filed as Exhibit 10(r)(1) to the Company's Annual Report on Form 10-K for the year ended January 2, 1998, and incorporated herein by reference).
10(t)(2) Specimen form of the Company's current Development Agreement (filed as Exhibit10(r)(2) to the Company's Annual Report on Form 10-K for the year ended January 2, 1998, and incorporated herein by reference).
10(u)(1) Rights Agreement, dated as on November 19, 1997, by and between the Company and the Rights Agent (filed as Exhibit A to Exhibit 1 of the Company's Registration Statement on Form 8-A (No. 001-13687) and incorporated herein by reference).
10(u)(2) Form of Certificate of Designation of the Preferred Shares under the Rights Agreement, dated as on November 19, 1997, by and between the Company and the Rights Agent (filed as Exhibit B to Exhibit 1 of the Company's Registration Statement on Form 8-A (No. 001-13687) and incorporated herein by reference).
10(u)(3) Form of Right Certificate under the Rights Agreement, dated as on November 19,1997, by and between the Company and the Rights Agent (filed as Exhibit C to Exhibit 1 of the Company's Registration Statement on Form 8-A (No. 001-13687) and incorporated herein by reference).
23 Independent Auditors Consent of Deloitte & Touche LLP
(b) REPORTS ON FORM 8-K:
No reports on Form 8-K were filed in the fourth quarter of 1998.
(c) EXHIBITS PURSUANT TO ITEM 601 OF REGULATION S-K:
Pursuant to Item 601(b)(4) of Regulation S-K, there have been excluded from the exhibits filed pursuant to this report instruments defining the right of holders of long-term debt of the Company where the total amount of the securities authorized under each such instrument does not exceed 10% of the total assets of the Company. The Company hereby agrees to furnish a copy of any such instruments to the Commission upon request.
(c) FINANCIAL STATEMENTS EXCLUDED FROM THE ANNUAL REPORT TO SHAREHOLDERS BY RULE 14A-3(B):
No financial statements are excluded from the annual report to the Company's shareholders by Rule 14a-3(b).
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED,THEREUNTO DULY AUTHORIZED.
Dated: March 31, 1999 CEC Entertainment, Inc.
By: /s/ Richard M. Frank ------------------------------ Richard M. Frank Chairman of the Board and Chief Executive Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
Signature Title Date --------- ------- --------
/s/ Richard M. Frank Chairman of the Board, March 31, 1999 - --------------------- Richard M. Frank Chief Executive Officer, and Director (Principal Executive Officer)
/s/ Michael H. Magusiak President and Director March 31, 1999 - ------------------------ Michael H. Magusiak
/s/ Larry G. Page Executive Vice President, March 31, 1999 - ------------------------ Larry G. Page Treasurer, (Principal Financial Officer and Principal Accounting Officer)
/s/Raymond E. Wooldridge Director March 31, 1999 - ------------------------- Ray Wooldridge
/s/ Tim T. Morris Director March 31, 1999 - ------------------------- Tim T. Morris
/s/ Walter Tyree Director March 31, 1999 - ------------------------- Walter Tyree
/s/ Louis P. Neeb Director March 31, 1999 - ------------------------- Louis P. Neeb
/s/ Cynthia I. Pharr Director March 31, 1999 - ------------------------- Cynthia I. Pharr
EXHIBIT INDEX
Exhibit No. Description - ---------- -----------
10(n)(1) Third Modification agreement, in the stated amount of $30,000,000.00, dated December 4, 1998, between Bank One, Texas, N.A. and the Company (filed as Exhibit 10(a)(1) to the Company's Quarterly report on Form 10-Q for the quarter ended July 5, 1998, and incorporated herein by reference.
10(n)(2) Third Restated Revolving Credit Note, in the stated amount of $30,000,000.00, dated December 4, 1998, between Bank One Texas, N.A. and the Company (filed as Exhibit 10(a)(2) to the Company's Quarterly Report on Form 10-Q for the quarter ended July 5,1998, and incorporated herein.
23 Independent Auditor's Consent of Deloitte & Touche LLP