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CEC Entertainment Reports Financial Results for the Fourth Quarter and Fiscal Year-End 2011

IRVING, Texas--(BUSINESS WIRE)--Feb. 23, 2012-- CEC Entertainment, Inc. (NYSE: CEC) today announced its financial results for its fourth quarter ended January 1, 2012. Total revenues for the fourth quarter of 2011 decreased 2.3%, or $4.2 million, to $178.6 million from $182.8 million for the fourth quarter of 2010. Comparable store sales decreased 3.6% for the fourth quarter of 2011 as compared to the fourth quarter of 2010.

Net income for the fourth quarter ended January 1, 2012 decreased to $2.7 million as compared to $2.8 million for the fourth quarter of 2010. Diluted earnings per share for the fourth quarter of 2011 were $0.15 per share as compared to diluted earnings per share of $0.14 per share for the fourth quarter of 2010. The increase in diluted earnings per share benefited from, among other things, our repurchase of approximately 2.5 million shares of our common stock since the beginning of the fourth quarter of 2010.

Total revenues for fiscal year 2011 increased 0.5%, or $4.0 million, to $821.2 million as compared to $817.2 million for fiscal 2010. Comparable store sales decreased 2.0% for the full fiscal year 2011 as compared to fiscal 2010. The increase in total revenues was primarily related to a weighted average net increase of six stores, which was offset by lower comparable store sales.

Net income for fiscal year 2011 increased to $55.0 million as compared to $54.0 million in fiscal 2010. Diluted earnings per share were $2.88 per share for fiscal 2011 as compared to diluted earnings per share of $2.55 per share for fiscal 2010. The increase in diluted earnings per share benefited from, among other things, the unfavorable tax related adjustments recorded in fiscal 2010 and our repurchase of approximately 4.5 million shares of our common stock since the beginning of fiscal year 2010.

On February 21, 2012, the Company’s Board of Directors declared a cash dividend of $0.22 per share. This cash dividend is scheduled to be paid on April 19, 2012 to stockholders of record as of March 22, 2012.

Michael Magusiak, President and Chief Executive Officer, stated that, “In fiscal 2011, we increased operating cash flow by $20.3 million to $177.2 million, while investing $94.7 million in opening 4 new stores and completing store expansions, major remodels, and game enhancements in 181 of our existing stores. In addition, during fiscal 2011, we paid approximately $11.5 million in cash dividends and repurchased approximately $79.8 million of our common stock. For 2012, we anticipate that our cash flow from operations will exceed capital expenditures and dividend payments by over $40 million. We intend to continue to return this capital to shareholders through cash dividends and opportunistic share repurchases.”

Mr. Magusiak continued, “While the decline in comparable store sales in the second half of 2011 was disappointing, we are optimistic that in executing on our 2012 strategic plan - including an enhanced marketing plan, the addition of 12-15 new and relocated stores, the continued capital investment in our U.S. store base and increased international expansion - we will strengthen our financial performance.”

Business Outlook:

At this time, we are projecting comparable store sales for fiscal year 2012 to increase 1% to 2% and fiscal year 2012 diluted earnings per share to be in a range of $3.10 to $3.20. This guidance incorporates the following assumptions:

  • 12-15 new Company-owned stores, including approximately three relocations and one franchise acquisition;
  • average cheddar cheese block prices in a range of $1.60 to $1.80 per pound;
  • depreciation and amortization expense will decrease approximately 1% from the prior year;
  • rent expense will increase approximately 2.0% from the prior year;
  • advertising expense as a percentage of total revenue will remain relatively flat;
  • annual effective income tax rate of approximately 39.3%;
  • capital expenditures to range from $94 to $96 million for fiscal year 2012;
  • our intent to repurchase Company common stock on an opportunistic basis; and
  • payment of four quarterly dividends totaling approximately $16.0 million.

This guidance considers impacting approximately 160 stores with store expansions, major remodels, and game enhancements.

Fourth Quarter 2011 Conference Call:

The Company will host a conference call Thursday, February 23, 2012, at 3:30 p.m. Central Time to discuss its fourth quarter financial results and outlook for fiscal year 2012. A live webcast of the call (listen only) can be accessed through the Company's website, www.chuckecheese.com. Shortly after its conclusion, a replay of the call will be available on the website through Friday, March 30, 2012.

Non-GAAP Financial Measures:

The Company reports and discusses its operating results using financial measures consistent with accounting principles generally accepted in the United States ("GAAP"). From time to time in the course of financial presentations, earnings conference calls or otherwise, the Company may disclose certain non-GAAP financial measures such as Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”) and Free Cash Flow. The non-GAAP financial measures presented in this earnings release should not be viewed as alternatives or substitutes for the Company's reported GAAP results. A reconciliation of the most directly comparable GAAP financial measure to EBITDA and Free Cash Flow is set forth in a table accompanying this release.

About CEC Entertainment, Inc.:

For more than 30 years, CEC Entertainment has served as the nationally recognized leader in family dining and entertainment and the place Where a Kid can be a Kid®. The Company and its franchisees operate a system of 556 Chuck E. Cheese’s stores located in 48 states and seven foreign countries or territories. Currently, 507 locations in the United States and Canada are owned and operated by the Company. CEC Entertainment, Inc. and its franchises have the common goal of creating lifelong memories for families through fun, food, and play. Each Chuck E. Cheese’s features musical and comic robotic entertainment, games, rides, and play areas, as well as a variety of dining options including pizza, sandwiches, a salad bar, and desserts. Committed to providing a fun, safe environment, Chuck E. Cheese’s helps protect families through industry-leading programs such as Kid Check®.

Chuck E. Cheese’s aims to promote positive, lifelong memories inside and outside of its stores. In addition to providing a fun entertainment experience for millions of families across the world, Chuck E. Cheese’s has donated more than $7.7 million to schools and non-profit institutions through its fundraising programs. For more information, see the Company's website at www.chuckecheese.com.

Cautionary Statement Regarding Forward-Looking Statements:

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 are subject to various risks, uncertainties and assumptions. Statements that are not historical in nature, and which may be identified by the use of words such as “may,” “should,” “could,” “believe,” “predict,” “potential,” “continue,” “plan,” “intend,” “expect,” “anticipate,” “future,” “project,” “estimate,” and similar expressions (or the negative of such expressions) are forward-looking statements. Forward-looking statements are made based on management’s current expectations and beliefs concerning future events and, therefore, involve a number of assumptions, risks and uncertainties, including the risk factors described in Item 1A “Risk Factors” of the Company’s Annual Report on Form 10-K for the fiscal year ended January 1, 2012, filed on February 23, 2012. 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.

Factors that could cause actual results to differ materially from those contemplated by forward-looking statements include, but are not limited to:

  • Our ability to successfully implement our business development strategies;
  • Unanticipated costs and delays in implementing our business development strategies;
  • Changes in consumer discretionary spending and general economic conditions;
  • Competition in both the restaurant and entertainment industries;
  • Increases in food, labor and other operating costs;
  • Changes in consumers’ health, nutrition and dietary preferences;
  • Negative publicity concerning food quality, health, safety and other issues;
  • Continued existence or occurrence of certain public health issues;
  • Loss of certain key personnel;
  • Disruptions in the financial markets affecting the availability and cost of credit and our ability to maintain adequate insurance coverage;
  • Disruption of our commodity distribution system;
  • Our dependence on a few global providers for the procurement of games and rides;
  • Government regulations, litigation, product liability claims and product recalls;
  • Adverse effects of local conditions, natural disasters and other events;
  • Fluctuations in our quarterly results of operations due to seasonality;
  • Disruptions of our information technology systems;
  • Risks in connection with owning and leasing real estate;
  • Our ability to adequately protect our trademarks or other proprietary rights; and
  • Conditions in foreign markets.

The forward-looking statements made in this press release relate only to events as of the date on which the statements were made. Except as may be required by law, the Company undertakes no obligation to update its forward-looking statements to reflect events and circumstances after the date on which the statements were made or to reflect the occurrence of unanticipated events.

 
 
CEC ENTERTAINMENT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(in thousands, except per share information)
 
    Quarter Ended     Fiscal Year Ended
January 1,     January 2, January 1,     January 2,
2012 2011 2012 2011
   
REVENUES:    

Food and beverage sales

$ 84,378 47.3 % $ 88,709

48.5

%

$ 388,908 47.4 % $ 398,241 48.7 %
Entertainment and merchandise sales   93,241 52.2 %   92,896 50.8 %   426,986 52.0 %   414,892 50.8 %
 
Total Company store sales 177,619 99.5 % 181,605 99.4 % 815,894 99.4 % 813,133 99.5 %
Franchise fees and royalties   944 0.5 %   1,186 0.6 %   5,284 0.6 %   4,115 0.5 %
 
Total revenues   178,563 100.0 %   182,791 100.0 %   821,178 100.0 %   817,248 100.0 %
 
OPERATING COSTS AND EXPENSES:

Company store operating costs:

Cost of food and beverage (exclusive of items shown separately below) (1) 21,803

25.8

%

20,920

23.6

%

95,989

24.7

%

90,649

22.8

%

Cost of entertainment and merchandise (exclusive of items shown separately below) (2)   6,847

 

7.3

 

%

  7,541

 

8.1

 

%

  32,362

 

7.6

 

%

  34,233

 

8.3

 

%

Total cost of food, beverage, entertainment and merchandise(3) 28,650

16.1

%

28,461

15.7

%

128,351

15.7

%

124,882

15.4

%

 
Labor expenses (3) 53,300 30.0 % 54,225 29.9 % 222,596 27.3 % 222,337 27.3 %
Depreciation and amortization (3) 19,229 10.8 % 20,371 11.2 % 80,826 9.9 % 79,716 9.8 %
Rent expense (3) 18,506 10.4 % 17,780 9.8 % 74,992 9.2 % 70,425 8.7 %
Other store operating expenses (3)   30,057 16.9 %   31,318 17.2 %   126,847 15.5 %   128,075 15.8 %
Total Company store operating costs (3) 149,742

84.3

%

152,155

83.8

%

633,612

77.7

%

625,435

76.9

%

 

Other costs and expenses:

Advertising expense 7,498 4.2 % 7,990 4.4 % 34,989 4.3 % 35,282 4.3 %
General and administrative expenses 13,781 7.7 % 13,396 7.3 % 51,859 6.3 % 50,693 6.2 %
Asset impairments   1,479 0.8 %   - -     2,739 0.3 %   936 0.1 %
Total operating costs and expenses   172,500

96.6

%

  173,541

94.9

%

  723,199

88.1

%

  712,346

87.2

%

Operating income 6,063 3.4 % 9,250 5.1 % 97,979 11.9 % 104,902 12.8 %
 
Interest expense   2,254 1.3 %   3,079 1.7 %   8,875 1.1 %   12,142 1.5 %
Income before income taxes 3,809 2.1 % 6,171 3.4 % 89,104 10.9 % 92,760 11.4 %
 
Income taxes   1,081 0.6 %   3,358 1.8 %   34,142 4.2 %   38,726 4.7 %
Net income $ 2,728 1.5 % $ 2,813 1.5 % $ 54,962 6.7 % $ 54,034 6.6 %
 

Earnings per share:

Basic $ 0.15 $ 0.14 $ 2.88 $ 2.55
Diluted $ 0.15 $ 0.14 $ 2.88 $ 2.55
 

Weighted average common shares outstanding:

Basic 18,280 20,190 19,072 21,163
Diluted 18,363 20,241 19,121 21,204

___________________

Percentages are expressed as a percent of total revenues (except as otherwise noted).

(1) Percent amount expressed as a percentage of food and beverage sales.

(2) Percent amount expressed as a percentage of entertainment and merchandise sales.

(3) Percentage amount expressed as a percentage of Company store sales.

(Note - Due to rounding, percentages presented in the table above may not sum to total. The percentage amounts for the components of cost of food and beverage and the cost of entertainment and merchandise may not sum to total due to the fact that cost of food and beverage and cost of entertainment and merchandise are expressed as a percentage of related food and beverage sales and entertainment and merchandise sales, as opposed to total Company store sales.)

 
 
CEC ENTERTAINMENT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(in thousands)
 
    Fiscal Year
  2011       2010  
 
Net income $ 54,962 $ 54,034

 

Components of other comprehensive income, net of tax:

 
Change in fair value of cash flow hedge, net of income taxes of ($5) and ($510), respectively

(10

)

(835 )
Hedging loss realized in earnings, net of income taxes of $760 and $1,888, respectively

1,231

3,094
Foreign currency translation adjustments, net of income taxes of ($64) and $144, respectively  

(401

)

  1,123  
 
Total components of other comprehensive income, net of tax 820 3,382
   
Comprehensive income $ 55,782   $ 57,416  
 
 
CEC ENTERTAINMENT, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands)
 
    January 1,   January 2,
2012 2011
ASSETS
 
Current assets:
Cash and cash equivalents

$

18,673

$ 19,269
Other current assets   62,008   68,084
Total current assets 80,681 87,353
Property and equipment, net 683,390 683,192
Other noncurrent assets   8,400   7,484
 
Total assets $ 772,471 $ 778,029
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
 
Current liabilities:
Capital lease obligations, current portion $ 834 $ 936
Other current liabilities   82,854   88,138
Total current liabilities 83,688 89,074
Capital lease obligations, less current portion 10,075 10,326
Revolving credit facility borrowings 389,600 377,000
Other noncurrent liabilities   164,931   143,567
Total liabilities 648,294 619,967
 
Stockholders’ equity   124,177   158,062
 
Total liabilities and stockholders’ equity $ 772,471 $ 778,029
 
 
CEC ENTERTAINMENT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
 
    Fiscal Year Ended
January 1,   January 2,
  2012     2011  
 
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 54,962 $ 54,034
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 81,560 80,679
Deferred income taxes 20,292 7,210
Stock-based compensation expense 7,185 7,338
Other adjustments 4,534 2,503
Changes in operating assets and liabilities:
Operating assets 678 710
Operating liabilities   8,022     4,396  
Net cash provided by operating activities   177,233     156,870  
 
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (94,669 ) (99,844 )
Other investing activities   17     (3,025 )
Net cash used in investing activities   (94,652 )   (102,869 )
 
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from revolving credit facility 12,600 22,700
Proceeds from exercise of stock options 632 5,791
Dividends paid (11,487 ) -
Restricted stock returned for payment of taxes (2,762 ) (2,767 )
Purchases of treasury stock (79,781 ) (77,633 )
Other financing activities   (2,175 )   (254 )
Net cash used in financing activities   (82,973 )   (52,163 )
 
Effect of foreign exchange rate changes on cash   (204 )   70  
 
Change in cash and cash equivalents (596 ) 1,908
 
Cash and cash equivalents at beginning of period   19,269     17,361  
 
Cash and cash equivalents at end of period $ 18,673   $ 19,269  
 
 

CEC ENTERTAINMENT, INC.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(Unaudited)

Net Income to EBITDA:

The following tables set forth a reconciliation of net income to EBITDA and EBITDA expressed as a percentage of total revenues for the periods shown:

      2011       2010       2009       2008       2007  
(in thousands, except percentages)
 
Total revenues $ 821,178   $ 817,248   $ 818,346   $ 814,509   $ 785,322  
 
Net income $ 54,962 $ 54,034 $ 61,194 $ 56,494 $ 55,921
Add:
Income taxes 34,142 38,726 37,754 34,137 35,453
Interest expense 8,875 12,142 12,017 17,389 13,170
Depreciation and amortization   81,560     80,679     78,071     75,445     71,919  
EBITDA $ 179,539   $ 185,581   $ 189,036   $ 183,465   $ 176,463  
 
EBITDA as a percent of total revenues 21.9 % 22.7 % 23.1 % 22.5 % 22.5 %

The Company believes that EBITDA provides useful information to the Company, investors and other interested parties about the Company’s operating performance, its capacity to incur and service debt, fund capital expenditures, and other corporate uses.

EBITDA, a non-GAAP financial measure, is defined by the Company as net income before income taxes, interest expense, and depreciation and amortization. The non-GAAP financial measure presented in the table above should not be viewed as an alternative or substitute for the Company’s reported GAAP results. EBITDA as defined herein may differ from similarly titled measures presented by other companies.

Free Cash Flow:

The following table sets forth a reconciliation of cash provided by operating activities to Free Cash Flow for the periods shown:

    Quarter Ended   Fiscal Year Ended
January 1,   January 2, January 1,   January 2,
2012 2011 2012 2011
(Unaudited and in thousands)
 
Cash provided by operating activities $ 22,484 $ 19,080 $ 177,233 $ 156,870
Less:
Capital expenditures 26,503 29,159 94,669 99,844
Dividend payments   3,700     -     11,487   -
Free Cash Flow $ (7,719 ) $ (10,079 ) $ 71,077 $ 57,026

Free Cash Flow, a non-GAAP financial measure, is defined by the Company as cash provided by operating activities less capital expenditures and dividend payments.

The Company believes that Free Cash Flow provides useful information to the Company, investors and other interested parties about the amount of cash generated by the business that, after the acquisition of property and equipment and payment of dividends, can be used for other strategic opportunities, including servicing debt, funding additional capital expenditures and making investments in the business. It should not be inferred that the entire Free Cash Flow amount is available for discretionary expenditures. The non-GAAP financial measure presented in the table above should not be viewed as an alternative or substitute for the Company’s reported GAAP results. Free Cash Flow as defined herein may differ from similarly titled measures presented by other companies.

 
 
CEC ENTERTAINMENT, INC.
Store Count Information
(Unaudited)
 
    Quarter Ended     Fiscal Year Ended
January 1,   January 2, January 1,   January 2,
2012 2011 2012 2011
 

Number of Company-owned stores:

Beginning of period 507 500 507 497
New(1) 2 6 4 7
Acquired from franchisees - 2 - 5
Closed (2 ) (1 ) (4 ) (2 )
End of period 507   507   507   507  
 

Number of franchised stores:

Beginning of period 49 46 47 48
New - 3 3 4
Acquired by the Company - (2 ) - (5 )
Closed -   -   (1 ) -  
End of period 49   47   49   47  

___________________

(1) The number of new Company-owned stores during 2011 and 2010 included the relocation of two stores.

Source: CEC Entertainment, Inc.

CEC Entertainment, Inc.
Tiffany B. Kice, 972-258-4525
Executive Vice President
Chief Financial Officer