8-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
  
FORM 8-K
 
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of report (Date of earliest event reported): May 6, 2016
  
CEC ENTERTAINMENT, INC.
(Exact name of registrant as specified in charter)
 
 
 
 
 
Kansas
 
1-13687
 
48-0905805
(State or other jurisdiction
of incorporation)
 
(Commission
File Number)
 
(IRS Employer
Identification No.)
 
 
 
 
1707 Market Place Blvd, Suite 200
Irving, Texas
 
75063
(Address of principal executive offices)
 
(Zip Code)
(972) 258-8507
(Registrant’s telephone number, including area code)
Not applicable
(Former name or former address, if changed since last report)
 
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
 
¨
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
 
¨
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
 
¨
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
 
¨
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

1

Item 2.02. Results of Operations and Financial Condition.
On May 5, 2016, CEC Entertainment, Inc. (the “Company”) issued a press release announcing its financial results for the first quarter ended April 3, 2016. A copy of the press release is furnished as Exhibit 99.1 to this Current Report on Form 8-K.
The information furnished in this Current Report on Form 8-K and the press release attached hereto as Exhibit 99.1 shall not be deemed “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section, and will not be incorporated by reference into any registration statement or other document filed under the Securities Act of 1933, as amended, or the Exchange Act, except as expressly set forth by specific reference in that filing.
Item 9.01. Financial Statements and Exhibits.
(d)
Exhibits
 
 
Exhibit
Number
Description
 
 
99.1
Press Release of CEC Entertainment, Inc. dated May 5, 2016

2

SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
 
 
 
 
 
 
 
 
 
 
 
 
CEC ENTERTAINMENT, INC.
 
 
 
 
Date: May 5, 2016
 
 
 
By:
 
/s/ Dale R. Black
 
 
 
 
 
 
Dale R. Black
 
 
 
 
 
 
Executive Vice President and Chief Financial Officer 

3

EXHIBIT INDEX
 
 
 
 
Exhibit
Number
  
Description
 
 
99.1
  
Press Release of CEC Entertainment, Inc. dated May 5, 2016


4

Exhibit 99.1
News Release                                            


CEC Entertainment, Inc. Reports
Financial Results for the 2016 First Quarter

IRVING, Texas - May 5, 2016 - CEC Entertainment, Inc. (the “Company”) today announced financial results for its first quarter ended April 3, 2016.
•
First quarter same store sales for our Chuck E. Cheese’s and Peter Piper Pizza stores, on a same calendar week basis(1), increased 6.0% compared to the same period in the prior year
•
On a fiscal period basis first quarter same store sales for our Chuck E. Cheese’s and Peter Piper Pizza stores increased 3.2% over the 2015 fiscal first quarter
•
Total revenues increased 3.3% over the prior year fiscal first quarter to $274.3 million

“We are pleased to report our fourth consecutive quarter of positive same store sales growth at our Chuck E. Cheese’s stores” said Tom Leverton, Chief Executive Officer. “The same store sales increases reinforce our commitment to the food, entertainment and marketing initiatives we introduced throughout 2015. In addition, we are pleased to report that Peter Piper Pizza recorded its 23rd consecutive quarter of same store sales growth.”
First Quarter Results
Our fiscal calendar was negatively impacted by the effect of an additional week of operations in our 2015 fiscal year, which resulted in the seasonally strong week between Christmas and New Year’s Day shifting into the fourth quarter of 2015 instead of occurring in the first quarter of 2016. This impact was partially offset by a shift in the Easter holiday and the related timing of several spring breaks.
Total revenues for the first fiscal quarter of 2016 increased 3.3%, or $8.8 million, over the prior year to $274.3 million. The increase is primarily attributable to increased same store sales at both our Chuck E. Cheese’s and Peter Piper Pizza brands, despite the calendar shift. On a calendar week basis same store sales for our Chuck E. Cheese’s and Peter Piper Pizza stores increased 6.0% over the comparable weeks in 2015.
Adjusted EBITDA for the first quarter of 2016 increased $1.4 million over the prior year period to $82.1 million. The increase is driven by increased store revenues, offset by increased marketing expenses and approximately $0.4 million of incremental deferred revenue, primarily as a result of our PlayPass implementation. Our operating margins were, however, negatively affected by the impact of the operating leverage associated with the calendar shift of the New Year’s holiday week. Adjusted EBITDA represents net income (loss) adjusted to exclude interest expense, income taxes, depreciation and amortization, asset impairments, the effects of acquisition accounting adjustments, transaction and severance costs and certain other items.
The Company reported net income of $17.9 million for the first quarter of 2016, compared to net income of $14.7 million for the first quarter of 2015. In addition to the items mentioned above, the Company benefited from lower interest and income tax costs in the current year quarter.
________________
(1) 
Our fiscal year ending January 1, 2017 will consist of 52 weeks and our fiscal year ended January 3, 2016 consisted of 53 weeks. As a result of the 53 week fiscal year in 2015, our 2016 fiscal year began one calendar week later than our 2015 fiscal year. In order to provide useful information and to better analyze our business, we have provided same store sales presented on both a fiscal week basis and calendar week basis. Same store sales growth on a calendar week basis compares the results for the period from January 4, 2016 through April 3, 2016 (weeks 1 through 13 of our 2016 fiscal year) to the results for the period from January 5, 2015 through April 5, 2015 (weeks 2 through 14 of our 2015 fiscal year). We believe same store sales growth calculated on a same calendar week basis is more indicative of the operating trends in our business. However, we also recognize that same store sales growth calculated on a fiscal week basis is a useful measure when analyzing year-over-year changes in our financial results.

1

Balance Sheet and Liquidity
As of April 3, 2016, cash and cash equivalents were $70.0 million, and the principal outstanding on our debt was $1.0 billion, with net availability of $139.1 million on our undrawn revolving credit facility. During the first quarter of 2016, we had capital expenditures of $22.2 million, of which $4.3 million related to our PlayPass initiative and another $5.2 million were related to other growth initiatives. In addition, we had $4.4 million in capital expenditures related to IT initiatives.
As of April 3, 2016, the Company’s system-wide portfolio consisted of:
 
 
Chuck E. Cheese’s
 
Peter Piper Pizza
 
Total
Company operated
 
524

 
32

 
556

Domestic franchised
 
29

 
62

 
91

International franchised
 
41

 
47

 
88

Total
 
594

 
141

 
735

Conference Call Information:
The Company will host a conference call beginning at 9:00 a.m. Central Time on Friday, May 6, 2016. The call can be accessed by dialing (855) 743-8451 or (330) 968-0151 for international participants and conference code 1972828.
A replay of the call will be available from 12:00 p.m. Central Time on May 6, 2016 through midnight Central Time on May 13, 2016. The replay of the call can be accessed by dialing (800) 585-8367 or (404) 537-3406 for international participants and conference code 1972828.
About CEC Entertainment, Inc.
For nearly 40 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®. Chuck E. Cheese’s goal is to create positive, lifelong memories for families through fun, food, and play. Each Chuck E. Cheese’s features musical entertainment, games, rides, and play areas for kids of all ages, as well as a variety of freshly prepared dining options. Committed to providing a fun, safe environment, Chuck E. Cheese’s helps protect families through industry-leading programs such as Kid Check®. As a strong advocate for its local communities and childhood education, Chuck E. Cheese’s has donated more than $13 million to schools through its fundraising programs. As of April 3, 2016, the Company and its franchisees operated a system of 594 Chuck E. Cheese’s stores and 141 Peter Piper Pizza stores, with locations in 47 states and 12 foreign countries and territories. For more information, visit chuckecheese.com and peterpiperpizza.com.

Investor Inquiries:                            Media Inquiries:
Dale R. Black                                Alexis Linn
EVP & CFO                                PR Manager
CEC Entertainment, Inc.                            CEC Entertainment, Inc.
(972) 258-4525                             (469) 999-4975
dblack@cecentertainment.com                        alinn@cecentertainment.com
                    

2

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 Part I, Item 1A. “Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended January 3, 2016, filed with the Securities and Exchange Commission on March 2, 2016. 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. There are a number of important factors that could cause actual results or events to differ materially from those indicated by such forward-looking statements, including but not limited to:
•
Negative publicity concerning food quality, health, general safety and other issues, and changes in consumer preferences;
•
The success of our capital initiatives, including new store development and existing store evolution;
•
Our ability to successfully implement our marketing strategy;
•
Competition in both the restaurant and entertainment industries;
•
Economic uncertainty and changes in consumer discretionary spending in the United States and Canada;
•
Negative publicity concerning food quality, health, general safety and other issues, and changes in consumer preferences;
•
Expansion in international markets;
•
Our ability to generate sufficient cash flow to meet our debt service payments;
•
Increases in food, labor and other operating costs;
•
Disruptions of our information technology systems and technologies, including, but not limited to, data security breaches;
•
Any disruption of our commodity distribution system;
•
Our dependence on a limited number of suppliers for our games, rides, entertainment-related equipment, redemption prizes and merchandise;
•
Product liability claims and product recalls;
•
Government regulations;
•
Litigation risks;
•
Adverse effects of local conditions, natural disasters and other events;
•
Fluctuations in our quarterly results of operations due to seasonality;
•
Inadequate insurance coverage;
•
Loss of certain key personnel;
•
Our ability to adequately protect our trademarks or other proprietary rights;
•
Risks in connection with owning and leasing real estate; and
•
Our ability to successfully integrate the operations of companies we acquire.
The forward-looking statements made in this report relate only to events as of the date on which the statements were made. Except as may be required by law, we undertake no obligation to update our 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.

- financial tables follow -

3

CEC ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(in thousands)




 
Three Months Ended
 
April 3, 2016
 
March 29, 2015
REVENUES:
 
 
 
 
 
 
 
Food and beverage sales
$
122,202

 
44.5
%
 
$
116,537

 
43.9
%
Entertainment and merchandise sales
147,557

 
53.8
%
 
144,744

 
54.5
%
Total Company store sales
269,759

 
98.3
%
 
261,281

 
98.4
%
Franchise fees and royalties
4,559

 
1.7
%
 
4,227

 
1.6
%
Total revenues
274,318

 
100.0
%
 
265,508

 
100.0
%
OPERATING COSTS AND EXPENSES:

 
 
 
 
 
 
Company store operating costs:

 
 
 
 
 
 
Cost of food and beverage (exclusive of items shown separately below) (1)
30,521

 
25.0
%
 
29,225

 
25.1
%
Cost of entertainment and merchandise (exclusive of items shown separately below) (2)
8,750

 
5.9
%
 
8,522

 
5.9
%
Total cost of food, beverage, entertainment and merchandise (3)
39,271

 
14.6
%
 
37,747

 
14.4
%
Labor expenses (3)
69,043

 
25.6
%
 
67,173

 
25.7
%
Depreciation and amortization (3)
27,629

 
10.2
%
 
29,241

 
11.2
%
Rent expense (3)
24,150

 
9.0
%
 
24,458

 
9.4
%
Other store operating expenses (3)
36,010

 
13.3
%
 
33,519

 
12.8
%
Total Company store operating costs (3)
196,103

 
72.7
%
 
192,138

 
73.5
%
Other costs and expenses:
 
 
 
 
 
 
 
Advertising expense
13,100

 
4.8
%
 
11,452

 
4.3
%
General and administrative expenses
18,018

 
6.6
%
 
16,326

 
6.1
%
Transaction, severance and related litigation costs
749

 
0.3
%
 
905

 
0.3
%
Total operating costs and expenses
227,970

 
83.1
%
 
220,821

 
83.2
%
Operating income
46,348

 
16.9
%
 
44,687

 
16.8
%
Interest expense
17,061

 
6.2
%
 
17,499

 
6.6
%
Income before income taxes
29,287

 
10.7
%
 
27,188

 
10.2
%
Income tax expense
11,372

 
4.1
%
 
12,446

 
4.7
%
Net income
$
17,915

 
6.5
%
 
$
14,742

 
5.6
%
________________
Percentages are expressed as a percent of total revenues (except as otherwise noted).
(1)    Percentage amount expressed as a percentage of food and beverage sales.
(2)    Percentage amount expressed as a percentage of entertainment and merchandise sales.
(3)    Percentage amount expressed as a percentage of total Company store sales.
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.

4

CEC ENTERTAINMENT, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands)

 
 
April 3,
2016
 
January 3,
2016
ASSETS
 
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
69,998

 
$
50,654

Other current assets
 
69,055

 
67,434

Total current assets
 
139,053

 
118,088

Property and equipment, net
 
613,637

 
629,047

Goodwill
 
483,876

 
483,876

Intangible assets, net
 
487,068

 
488,095

Other noncurrent assets
 
20,276

 
13,929

Total assets
 
$
1,743,910

 
$
1,733,035

LIABILITIES AND STOCKHOLDER’S EQUITY
 
 
 
 
Current liabilities:
 
 
 
 
Bank indebtedness and other long-term debt
 
$
7,656

 
$
7,650

Other current liabilities
 
106,418

 
106,463

Total current liabilities
 
114,074

 
114,113

Capital lease obligations, less current portion
 
14,934

 
15,044

Bank indebtedness and other long term debt, net of deferred financing costs, less current portion
 
970,556

 
971,333

Deferred tax liability
 
193,584

 
201,734

Other noncurrent liabilities
 
223,375

 
222,265

Total liabilities
 
1,516,523

 
1,524,489

Stockholder’s equity:
 
 
 
 
Common stock, $0.01 par value; authorized 1,000 shares; 200 shares issued as of April 3, 2016 and January 3, 2016
 
—

 
—

Capital in excess of par value
 
356,632

 
356,460

Retained earnings (deficit)
 
(126,683
)
 
(144,598
)
Accumulated other comprehensive income (loss)
 
(2,562
)
 
(3,316
)
Total stockholder’s equity
 
227,387

 
208,546

Total liabilities and stockholder’s equity
 
$
1,743,910

 
$
1,733,035



5

CEC ENTERTAINMENT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)


 
 
Three Months Ended
 
 
April 3,
2016
 
March 29,
2015
CASH FLOWS FROM OPERATING ACTIVITIES:
 
Net income
 
$
17,915

 
$
14,742

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
  Depreciation and amortization
 
28,998

 
30,398

  Deferred income taxes
 
(8,287
)
 
(13,268
)
  Stock-based compensation expense
 
135

 
391

  Amortization of lease related liabilities
 
12

 
5

  Amortization of original issue discount and deferred debt financing costs
 
1,136

 
1,137

  Loss on asset disposals, net
 
2,177

 
1,244

  Non-cash rent expense
 
1,730

 
2,136

  Other adjustments
 
27

 
19

Changes in operating assets and liabilities:
 
 
 
 
Operating assets
 
(4,317
)
 
2,520

Operating liabilities
 
4,246

 
21,224

Net cash provided by operating activities
 
43,772

 
60,548

CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
 
Acquisition of Peter Piper Pizza
 
—

 
(663
)
Purchases of property and equipment
 
(18,823
)
 
(16,109
)
Proceeds from sale of property and equipment
 
79

 
97

Development of internal use software
 
(3,625
)
 
(185
)
Net cash used in investing activities
 
(22,369
)
 
(16,860
)
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
 
Repayments on senior term loan
 
(1,900
)
 
(1,900
)
Other financing activities
 
(578
)
 
(497
)
Net cash provided by (used in) financing activities
 
(2,478
)
 
(2,397
)
Effect of foreign exchange rate changes on cash
 
419

 
(661
)
Change in cash and cash equivalents
 
19,344

 
40,630

Cash and cash equivalents at beginning of period
 
50,654

 
110,994

Cash and cash equivalents at end of period
 
$
69,998

 
$
151,624


6

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



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 Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (“Adjusted EBITDA”). The Company believes Adjusted EBITDA is a measure that provides investors with additional information to measure our performance. We believe that the presentation of Adjusted EBITDA is appropriate to provide additional information to investors about certain material non-cash items and about unusual items that we do not expect to continue at the same level in the future, as well as other items. Further, we believe Adjusted EBITDA provides a meaningful measure of operating profitability because we use it for evaluating our business performance and understanding certain significant items. 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.
The following table sets forth a reconciliation of net income to Adjusted EBITDA and Adjusted EBITDA expressed as a percentage of total revenues for the periods shown:
 
Three Months Ended
 
April 3
2016
 
March 29
2015
 
 
Total revenues
$
274,318

 
$
265,508

Net income as reported
$
17,915

 
$
14,742

Interest expense
17,061

 
17,499

Income tax expense
11,372

 
12,446

Depreciation and amortization
28,998

 
30,398

Non-cash impairments, gain or loss on disposal
2,177

 
1,244

Non-cash stock-based compensation
135

 
391

Rent expense book to cash
2,160

 
2,211

Franchise revenue, net cash received
(109
)
 
(65
)
Impact of purchase accounting
199

 
232

Store pre-opening costs
221

 
244

One-time items
1,902

 
1,351

Cost savings initiatives
62

 
—

Adjusted EBITDA
$
82,093

 
$
80,693

Adjusted EBITDA as a percent of total revenues
29.9
%
 
30.4
%
Adjusted EBITDA, a measure used by management to assess operating performance, is defined as Net income (loss) plus interest expense, income taxes and depreciation and amortization, adjusted to exclude asset impairments, the effects of acquisition accounting adjustments, transaction and severance costs, and certain other items.

7

CEC ENTERTAINMENT, INC.
STORE COUNT INFORMATION
(Unaudited)

 
 
Three Months Ended
 
 
April 3,
2016
 
March 29,
2015
Number of Company-owned stores:
 
 
 
 
Beginning of period
 
556

 
559

New (1)
 
1

 
2

 Acquired from franchisee
 
—

 
—

Closed (1)
 
(1
)
 
(1
)
End of period
 
556

 
560

Number of franchised stores:
 

 
 
Beginning of period
 
176

 
172

New
 
4

 
3

 Acquired from franchisee
 
—

 
—

Closed
 
(1
)
 
—

End of period
 
179

 
175

Total number of stores:
 


 
 
Beginning of period
 
732

 
731

New
 
5

 
5

 Acquired from franchisee
 
—

 
—

Closed
 
(2
)
 
(1
)
End of period
 
735

 
735

________________
(1) 
During the three months ended March 29, 2015, the number of new and closed Company owned stores included one store that was relocated.


8