FOR RELEASE CONTACT: Chris Morris
March 2, 2005 Senior Vice President
3:05 p.m. Central Time Chief Financial Officer
(972) 258-4525
CEC ENTERTAINMENT, INC. REPORTS 2004 EARNINGS;
REPORTS RESTATEMENT
IRVING, TEXAS - CEC Entertainment, Inc. (NYSE:"CEC") today announced earnings
for the fourth quarter of 2004 and year ended January 2, 2005. These and all
other amounts in the press release have been presented on a basis consistent
with a restatement that the Company previously announced and is described below.
Revenues for 2004 increased to $728.1 million from $654.6 million in 2003.
Fiscal year 2004 consisted of 53 weeks compared to 52 weeks in fiscal year 2003.
Net income in 2004 increased to $82.5 million from $67.4 million in 2003.
Diluted earnings per share in 2004 were $2.15 per share compared to $1.66 per
share in 2003.
Revenues for the fourth quarter of 2004, which consisted of 14 weeks, increased
to $172.1 million from $147.4 million in the fourth quarter of 2003, which
consisted of 13 weeks. Net income in the fourth quarter of 2004 increased to
$15.6 million from $10.9 million in the same period of 2003. Diluted earnings
per share in the fourth quarter of 2004 were $0.41 per share compared to $0.28
in the fourth quarter of 2003.
Chris Morris, Senior Vice President and Chief Financial Officer stated that,
"Comparable store sales in the fourth quarter increased 3.1% primarily
attributable to the seasonally strong 53rd week. After excluding the benefit of
the extra week, considering Christmas fell on Saturday in 2004 and the
significant competition from kids movies, quarterly sales were relatively
strong. We estimate that the extra week in the fourth quarter increased diluted
earnings per share by approximately $0.11. Our fourth quarter pre-tax margin
improved 260 basis points to 14.7%. Comparable store sales for the year
increased 2.0%. Diluted earnings per share for 2004, after adjusting for the
extra week and a $4.3 million legal settlement charge taken in the third quarter
of 2003, increased approximately 17%. We achieved this significant increase in
earnings per share despite a $3.4 million increase in food costs associated with
higher cheese prices in 2004 compared to 2003. During 2004, the Company
generated operating cash flow of $166 million, invested $81 million primarily in
new and existing stores and repurchased $114 million of treasury stock while
increasing borrowings on our credit facility by only $12 million."
Mr. Morris further added, "Based on current estimates, we expect diluted
earnings per share to range from $2.33 to $2.38 per share for the 2005 fiscal
year and $0.82 to $0.84, $0.44 to $0.46, $0.62 to $0.64 and $0.42 to $0.44 in
the first, second, third and fourth quarter of 2005, respectively. The 2005
estimate assumes an increase of 1% to 2% in comparable store sales and is
exclusive of the effects of expensing stock options beginning in the third
quarter of 2005."
Richard M. Frank, Chairman and Chief Executive Officer stated that, "We believe
our results reflect the continued success of our long-term strategies of
reinvesting in our core stores, continued new store development and building on
operational execution. Because of our financial strength, the strong market
position of our concept and belief in our ability to continue the execution of a
solid strategic plan, we remain confident in our ability to create long-term
value for our shareholders."
Restatement of Historical Financial Statements:
Following a review of its lease-related accounting policies, the Company has
corrected its computation of depreciation, lease classification, straight-line
rent expense and the related deferred rent liability. Prior to this review, the
Company believed the policies it used when accounting for leases and the related
depreciation were consistent with industry practice and in accordance with
generally accepted accounting principles. The application of these policies will
not have any affect on cash balances or the timing or amounts of lease payments.
Historically, when accounting for leases, the Company has depreciated its
leasehold improvements over a period equal to the lesser of the initial
non-cancelable lease term plus periods of expected renewal, or the useful life
of the assets. The periods of expected renewal included option periods provided
for in the lease and any additional periods that the Company considered
reasonably assured of exercising or acquiring. When determining whether each of
its leases was an operating lease or a capital lease and when calculating
straight-line rent expense, the Company used the initial non-cancelable lease
term commencing when the obligation to make current rent payments began. Funds
received from the lessor intended to reimburse the Company for the cost of
leasehold improvements were netted against the amount recorded for the leasehold
improvement.
Following an extensive analysis of its lease and related accounting policies and
in consultation with its independent registered public accounting firm, Deloitte
& Touche LLP, the Company has now determined to use a consistent lease period
(generally, the initial non-cancelable lease term plus option periods provided
for in the lease that can be reasonably assured) when calculating depreciation
of leasehold improvements and in determining straight-line rent expense and
classification of its leases as either an operating lease or a capital lease.
The lease term and straight-line rent expense will commence on the date when the
Company takes possession and has the right to control use of the leased
premises. Funds received from the lessor intended to reimburse the Company for
the cost of leasehold improvements will be recorded as a deferred credit
resulting from a lease incentive and amortized over the lease term as a
reduction to rent expense.
The cumulative effect of the restatement adjustments through fiscal year 2003 is
to increase property and equipment $2.6 million, increase deferred rent
liability $37.7 million, increase debt related to capital leases $11.0 million,
decrease deferred tax liability $17.9 million and decrease retained earnings
$28.2 million. Increases in rent expense, depreciation expense and interest
expense, net of the related tax effects, resulted in decreases in diluted
earnings per share for fiscal years 2003 and 2004 of $0.09, in both years, and
ranged from $0.02 to $0.03 for each quarter of fiscal years 2003 and 2004.
The Company will amend the appropriate filings with the Securities and Exchange
Commission to include restated financial statements for the three-year periods
ended December 28, 2003 and for the first three quarters of fiscal 2004 to
reflect these matters. As a result of the restatement and as stated in our
Current Report on Form 8-K filed on February 1, 2005, the financial statements
contained in the Company's prior filings with the SEC should no longer be relied
upon.
The Company's management will discuss the restatement and the results for the
fourth quarter and fiscal year 2004 on a conference call and simultaneous
webcast on March 2, 2005. The webcast can be accessed through the Company's
website at www.chuckecheese.com.
Certain statements in this press release, other than historical information, may
be considered forward-looking statements, within the meaning of the "safe
harbor" provisions of the Private Securities Litigation Reform Act of 1995, and
is subject to various risks, uncertainties and assumptions. Should one or more
of these risks or uncertainties materialize, or should underlying assumptions
prove incorrect, actual results may differ from those anticipated, estimated or
expected. Among the key factors that may have a direct bearing on CEC's
operating results, performance or financial condition are its ability to
implement its growth strategies, national, regional and local economic
conditions affecting the restaurant/entertainment industry, competition within
each of the restaurant and entertainment industries, success of its franchise
operations, negative publicity, fluctuations in quarterly results of operations,
including seasonality, government regulations, weather, school holidays,
commodity and labor costs.
CEC Entertainment, Inc. operates a system of 498 Chuck E. Cheese's restaurants
in 48 states, of which 452 are owned and operated by the Company. # # #
CEC ENTERTAINMENT, INC.
CONDENSED CONSOLIDATED RESULTS OF OPERATIONS
(Thousands, except per share date)
Quarter Ended Year Ended
01/02/05 12/28/03 01/02/05 12/28/03
--------- --------- --------- ---------
(as restated) (as restated)
Revenues:
Food and beverage $ 114,247 $ 99,589 $ 479,741 $ 433,952
Games and merchandise 57,127 47,111 245,088 217,261
Franchise fees and royalties 700 715 3,220 3,335
Interest income 11 34 30 50
--------- --------- --------- ---------
172,085 147,449 728,079 654,598
Costs and expenses:
Cost of sales
Food, beverage and related supplies 21,291 18,545 89,228 79,982
Games and merchandise 6,613 6,262 30,395 28,234
Labor 49,699 43,779 200,554 181,789
--------- --------- --------- ---------
77,603 68,586 320,177 290,005
Selling, general and
administrative expenses 21,182 18,159 86,471 83,024
Depreciation and amortization 14,294 12,869 55,771 49,502
Interest expense 919 668 2,486 2,194
Other operating expenses 32,852 29,302 129,409 119,775
--------- --------- --------- ---------
146,850 129,584 594,314 544,500
Income before income taxes 25,235 17,865 133,765 110,098
Income taxes 9,666 6,931 51,233 42,717
--------- --------- --------- ---------
Net income $ 15,569 $ 10,934 $ 82,532 $ 67,381
========= ========= ========= =========
Earnings per share:
Basic $ .43 $ .28 $ 2.22 $ 1.70
Diluted $ .41 $ .28 $ 2.15 $ 1.66
Weighted average shares outstanding:
Basic 36,416 38,436 37,251 39,654
Diluted 37,734 39,669 38,472 40,389
CEC ENTERTAINMENT, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Thousands, except share amounts)
January 2, December 28,
2005 2003
---------- ------------
(as restated)
ASSETS
Current assets:
Cash and cash equivalents...................................... $ 11,798 $ 8,067
Accounts receivable............................................ 13,482 13,103
Inventories.................................................... 12,171 12,491
Prepaid expenses............................................... 7,444 7,608
Deferred tax asset............................................. 1,763 1,487
--------- ---------
Total current assets......................................... 46,658 42,756
--------- ---------
Property and equipment, net....................................... 563,081 538,756
--------- ---------
Other assets ..................................................... 2,278 1,471
--------- ---------
$ 612,017 $ 582,983
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt.............................. $ 79,270 $ 1,158
Accounts payable and accrued liabilities....................... 60,623 58,736
--------- ---------
Total current liabilities................................. 139,893 59,894
--------- ---------
Long-term debt, less current portion.............................. 10,682 74,601
--------- ---------
Deferred rent..................................................... 53,427 42,816
--------- ---------
Deferred tax liability............................................ 36,429 32,849
--------- ---------
Accrued insurance ................................................ 10,856 8,500
--------- ---------
Shareholders' equity:
Common stock, $.10 par value; authorized 100,000,000 shares;
55,556,857 and 54,481,913 shares issued, respectively ........ 5,556 5,448
Capital in excess of par value................................. 245,991 219,071
Retained earnings ............................................. 433,267 350,735
Accumulated other comprehensive income ........................ 1,476 695
Less treasury shares of 19,210,568
and 16,042,418, respectively, at cost....................... (325,560) (211,626)
--------- ---------
360,730 364,323
--------- ---------
$ 612,017 $ 582,983
========= =========
CEC ENTERTAINMENT, INC.
SUPPLEMENTAL FINANCIAL INFORMATION
(Thousands)
Quarter Ended Year Ended
01/02/05 12/28/03 01/02/05 12/28/03
-------- -------- -------- --------
Number of Company-owned stores:
Beginning of period 440 401 418 384
New 9 14 29 32
Acquired from franchisees 1 3 3 3
Closed (1) (1) (1)
---- ---- ---- ----
End of period 449 418 449 418
==== ==== ==== ====
Number of Franchised stores:
Beginning of period 47 51 48 50
New 1 1 2
Acquired from franchisees (1) (3) (3) (3)
Closed (1) (1)
---- ---- ---- ----
End of period 46 48 46 48
==== ==== ==== ===
CEC ENTERTAINMENT, INC.
CONDENSED CONSOLIDATED RESULTS OF OPERATIONS
SUMMARY OF RESTATEMENT IMPACTS
QUARTER ENDED DECEMBER 28, 2003
(Thousands, except per share date)
As Reported Adjustment As Restated
----------- ---------- -----------
Revenues:
Food and beverage $ 99,589 $ 99,589
Games and merchandise 47,111 47,111
Franchise fees and royalties 715 715
Interest income 34 34
--------- ---------
147,449 147,449
Costs and expenses:
Cost of sales
Food, beverage and related supplies 18,545 18,545
Games and merchandise 6,262 6,262
Labor 43,779 43,779
--------- ---------
68,586 68,586
Selling, general and
administrative expenses 18,159 18,159
Depreciation and amortization 11,771 $ 1,098 12,869
Interest expense 482 186 668
Other operating expenses 29,192 110 29,302
--------- --------- ---------
128,190 1,394 129,584
Income before income taxes 19,259 (1,394) 17,865
Income taxes 7,472 (541) 6,931
--------- --------- ---------
Net income $ 11,787 $ (853) $ 10,934
========= ========= =========
Earnings per share:
Basic $ .31 $ (.03) $ .28
Diluted $ .30 $ (.02) $ .28
Weighted average shares outstanding:
Basic 38,436 38,436
Diluted 39,669 39,669
CEC ENTERTAINMENT, INC.
CONDENSED CONSOLIDATED RESULTS OF OPERATIONS
SUMMARY OF RESTATEMENT IMPACTS
YEAR ENDED DECEMBER 28, 2003
(Thousands, except per share date)
As Reported Adjustment As Restated
----------- ---------- -----------
Revenues:
Food and beverage $ 433,952 $ 433,952
Games and merchandise 217,261 217,261
Franchise fees and royalties 3,335 3,335
Interest income 50 50
--------- ---------
654,598 654,598
Costs and expenses:
Cost of sales
Food, beverage and related supplies 79,982 79,982
Games and merchandise 28,234 28,234
Labor 181,789 181,789
--------- ---------
290,005 290,005
Selling, general and
administrative expenses 83,024 83,024
Depreciation and amortization 45,109 $ 4,393 49,502
Interest expense 1,449 745 2,194
Other operating expenses 119,334 441 119,775
--------- --------- ---------
538,921 5,579 544,500
Income before income taxes 115,677 (5,579) 110,098
Income taxes 44,882 (2,165) 42,717
--------- --------- ---------
Net income $ 70,795 $ (3,414) $ 67,381
========= ========= =========
Earnings per share:
Basic $ 1.78 $ (.09) $ 1.70
Diluted $ 1.75 $ (.08) $ 1.66
Weighted average shares outstanding:
Basic 39,654 39,654
Diluted 40,389 40,389
CEC ENTERTAINMENT, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
SUMMARY OF RESTATEMENT IMPACTS
(Thousands, except share amounts)
December 28, December 28,
2003 Adjustment 2003
------------ ---------- ------------
(as reported) (as restated)
ASSETS
Current assets:
Cash and cash equivalents....................... $ 8,067 $ 8,067
Accounts receivable............................. 13,103 13,103
Inventories..................................... 12,491 12,491
Prepaid expenses................................ 7,608 7,608
Deferred tax asset.............................. 1,487 1,487
--------- ---------
Total current assets......................... 42,756 42,756
--------- ---------
Property and equipment, net........................ 536,124 $ 2,632 538,756
--------- --------- ---------
Other assets ...................................... 1,471 1,471
--------- --------- ---------
$ 580,351 $ 2,632 $ 582,983
========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt............. $ 168 $ 990 $ 1,158
Accounts payable and accrued liabilities...... 58,736 58,736
--------- --------- ---------
Total current liabilities................. 58,904 990 59,894
--------- --------- ---------
Long-term debt, less current portion............... 64,581 10,020 74,601
--------- --------- ---------
Deferred rent...................................... 5,153 37,663 42,816
--------- --------- ---------
Deferred tax liability............................. 50,714 (17,865) 32,849
--------- --------- ---------
Accrued insurance ................................. 8,500 8,500
--------- ---------
Shareholders' equity:
Common stock ................................... 5,448 5,448
Capital in excess of par value.................. 219,071 219,071
Retained earnings .............................. 378,911 (28,176) 350,735
Accumulated other comprehensive income ......... 695 695
Less treasury shares ........................... (211,626) (211,626)
--------- --------- ---------
392,499 (28,176) 364,323
--------- --------- ---------
$ 580,351 $ 2,632 $ 582,983
========= ========= =========