CEC Entertainment Reports Third Quarter Earnings; Announces $250 Million Increase in Borrowing Capacity and a $200 Million Increase in Share Repurchas
IRVING, Texas--(BUSINESS WIRE)--Oct. 23, 2007--CEC Entertainment, Inc. (NYSE:CEC) today announced earnings for the third quarter ended September 30, 2007.
Revenues for the third quarter of 2007 increased to $197.5 million from $194.7 million in the third quarter of 2006 primarily due to new store development. Comparable store sales declined 2.5% during the third quarter of 2007. Net income in the third quarter of 2007 decreased to $15.9 million from $17.2 million in the same period of 2006. Diluted earnings per share in the third quarter of 2007 decreased to $0.50 per share from $0.53 per share in the third quarter of 2006.
Revenues for the first nine months of 2007 increased to $610.2 million from $597.8 million in the first nine months of 2006. Comparable store sales declined 1.1% during the first three quarters of 2007. Net income was $56.5 million in the first nine months of 2007 and $56.2 million in the same period of 2006. Diluted earnings per share in the first nine months of 2007 were $1.72 per share compared to $1.67 per share in the first nine months of 2006.
Amended Credit Facility and Increased Share Repurchase Authorization:
On October 19, 2007, the Company successfully amended its revolving credit facility agreement to provide for borrowings of up to $550 million for a term of five years. This represents a $250 million increase in maximum available borrowings from the Company's previous borrowing arrangement.
Separately, the Company announced that its Board of Directors has authorized an additional $200 million under the Company's share repurchase authorization. This increase brings the total amount available for share repurchases to $346.8 million representing more than 40% of the Company's current market capitalization.
The amended credit agreement and increase in share repurchase authorization are the end result of an extensive review of the Company's capital structure. The Company currently intends to increase its debt position to reflect a debt-to-EBITDA ratio of 2:1. Further, the Company currently anticipates that it will complete the revised share repurchase authorization within the next three years.
Richard M. Frank, Chairman and Chief Executive Officer, stated that, "Although challenged by the current external environment, we believe the continued execution of our long-term strategies of enhancing our value and experience for our guests, implementing effective advertising, disciplined new store development, building on operational execution and strategically repurchasing company stock will drive long-term shareholder value.
"Based on our confidence in the strength of the Company's business model and our commitment to enhancing shareholder value, our Board of Directors has approved a substantial increase in our share repurchase authorization. Given our strong balance sheet and cash flow, we believe the Company has the financial strength to successfully achieve its targeted leverage ratio and complete the $347 million remaining on the share repurchase authorization within the next three years, while continuing to reinvest in our existing store base with a sharp focus on growing comparable store sales."
Business Outlook:
Based on current estimates, the Company expects diluted earnings per share to range from $1.98 to $2.02 per share for the 2007 fiscal year. Incorporated into this guidance are the following assumptions:
* An average cheese price per lb for the fourth quarter of approximately $1.85;
* An increase in average wage rates increasing labor costs by 0.5% in the fourth quarter of 2007;
* 10 new unit openings for the year, including 3 relocations; and
* Total capital expenditures for the year of approximately $105 million.
For fiscal year 2008, the Company currently expects diluted earnings per share to range from $ 2.10 to $2.20 per share. Incorporated into this guidance are the following assumptions:
* Comparable store sales growth of flat to positive 1% for the year;
* The average cheese price per lb for fiscal year 2008 to be approximately $0.10 below the average price in fiscal year 2007;
* An increase in average wage rates increasing labor costs as a percent of revenue by 0.2% to 0.3% for the year;
* 6 to 7 new unit openings during the year;
* Total capital expenditures for the year of $77 to $85 million; and
* An effective tax rate of 38% for the year.
Third Quarter Conference Call:
The Company will host a conference call today, October 23, 2007, at 3:30 p.m. Central Time to discuss its third quarter 2007 financial results. 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 for a minimum of ninety days on the website.
Access to Non-GAAP Performance Measures and Other Supplemental Financial Data:
The Company reports and discusses its operating results using financial measures consistent with generally accepted accounting principles ("GAAP"). From time to time in the course of financial presentations, earnings conference calls or otherwise, the Company may disclose certain non-GAAP performance measures such as Earnings Before Interest, Taxes, Depreciation and Amortization ("EBITDA") and Free Cash Flow. The Company believes that the presentation of non-GAAP measures provide useful information to investors and other interested parties regarding the Company's operating performance, its capacity to incur and service debt, fund capital expenditures and other corporate uses. Non-GAAP performance measures should not be viewed as alternatives or substitutes for the Company's reported GAAP results. The Company has made available reconciliations of its most directly comparable GAAP financial measure to EBITDA and Free Cash Flow on the Company's website www.chuckecheese.com under Company Info - Investor Relations - Non-GAAP Reporting.
A reconciliation of the Company's historical EBITDA to net income, the most directly comparable GAAP financial measure, and certain other supplemental financial data is set forth in an attachment accompanying this release.
About CEC Entertainment, Inc.:
Celebrating 30 years of success as a place Where a Kid can be a Kid(R), CEC Entertainment, Inc. is a leading innovator in the family restaurant/entertainment industry. The Company and its franchisees operate a system of 532 Chuck E. Cheese's restaurants located throughout the United States (excluding Wyoming and Vermont), Canada and abroad. Currently, 488 locations in the United States and Canada are owned and operated by the Company. For more information, see the Company's website at www.chuckecheese.com.
Chuck E. Cheese's offers families with kids a one-of-a-kind total entertainment experience that includes the coolest games and rides, chances to win tickets for fun prizes, entertainment and great food for the family. Today, more than ever, kids need a safe, wholesome environment in which they can laugh, play and simply enjoy being a kid.
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. 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; health epidemics or pandemics; acts of God; terrorists acts; litigation; demographic trends; fluctuations in quarterly results of operations, including seasonality; government regulations; weather; school holidays; increased commodity, utility, insurance, advertising and labor costs.
CEC ENTERTAINMENT, INC.
CONDENSED CONSOLIDATED RESULTS OF OPERATIONS
(Thousands, except per share data)
Quarter Ended Year to Date
Ended
09/30/07 10/01/06 09/30/07 10/01/06
-------- -------- -------- --------
Revenues:
Food and beverage $120,207 $120,088 $375,153 $378,971
Games and merchandise 76,531 73,903 232,801 216,547
Franchise fees and royalties 728 670 2,229 2,301
Interest income 13 10 19 23
-------- -------- -------- --------
197,479 194,671 610,202 597,842
-------- -------- -------- --------
Costs and expenses:
Cost of sales:
Food, beverage and related
supplies 23,683 21,961 71,513 69,916
Games and merchandise 8,644 8,176 26,254 26,113
Labor 53,942 52,074 163,650 162,566
Selling, general and
administrative expenses 25,258 27,265 80,819 81,477
Depreciation and amortization 18,026 16,308 52,733 48,372
Interest expense 3,071 2,686 8,693 6,819
Other operating expenses 39,740 38,151 116,249 110,876
-------- -------- -------- --------
172,364 166,621 519,911 506,139
-------- -------- -------- --------
Income before income taxes 25,115 28,050 90,291 91,703
Income taxes 9,198 10,858 33,805 35,499
-------- -------- -------- --------
Net income $15,917 $17,192 $56,486 $56,204
======== ======== ======== ========
Earnings per share:
Basic $.51 $.54 $1.78 $1.71
Diluted $.50 $.53 $1.72 $1.67
Weighted average shares
outstanding:
Basic 31,247 31,975 31,816 32,779
Diluted 31,615 32,614 32,769 33,581
CEC ENTERTAINMENT, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Thousands, except share amounts)
September 30, December 31,
2007 2006
------------- -------------
ASSETS
Current assets:
Cash and cash equivalents $15,568 $18,308
Accounts receivable, net 27,895 17,556
Inventories 14,325 18,296
Prepaid expenses 9,226 8,210
Deferred tax asset 2,394 2,394
------------- -------------
Total current assets 69,408 64,764
------------- -------------
Property and equipment, net 672,335 637,560
------------- -------------
Other assets 1,328 1,861
------------- -------------
$743,071 $704,185
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $741 $693
Accounts payable 30,407 33,430
Accrued liabilities 53,010 40,680
------------- -------------
Total current liabilities 84,158 74,803
------------- -------------
Long-term debt, less current portion 227,483 181,088
------------- -------------
Deferred rent 71,865 68,449
------------- -------------
Deferred tax liability 22,341 12,056
------------- -------------
Accrued insurance 7,121 8,583
------------- -------------
Other liabilities 4,854 0
------------- -------------
Shareholders' equity:
Common stock, $.10 par value; authorized
100,000,000 shares; 58,541,716 and
56,619,300 shares issued, respectively 5,854 5,662
Capital in excess of par value 368,139 325,212
Retained earnings 585,291 531,435
Accumulated other comprehensive income 5,355 2,368
Less treasury shares of 28,262,111 and
24,359,450, respectively, at cost (639,390) (505,471)
------------- -------------
325,249 359,206
------------- -------------
$743,071 $704,185
============= =============
CEC ENTERTAINMENT, INC.
SUPPLEMENTAL FINANCIAL INFORMATION
Quarter Ended Year to Date Ended
09/30/07 10/01/06 09/30/07 10/01/06
-------- --------- --------- ---------
Number of Company-owned stores:
Beginning of period 487 476 484 475
New 1 3 8 6
Closed (2) (4) (4)
-------- --------- --------- ---------
End of period 488 477 488 477
Number of franchise stores:
Beginning of period 44 45 45 44
New 1
Closed (1)
-------- --------- --------- ---------
End of period 44 45 44 45
CEC ENTERTAINMENT, INC.
Reconciliation of Historical GAAP Results to Non-GAAP Financial
Measures and Other Supplemental Financial Data
The following table sets forth a reconciliation of net income to
EBITDA and certain other supplemental financial data for the periods
shown:
2006 2005 2004 2003 2002
--------- --------- --------- --------- ---------
($ amounts in thousands)
Revenues $ 774,154 $ 726,163 $ 728,079 $ 654,598 $ 602,201
========= ========= ========= ========= =========
Net Income $ 68,257 $ 69,671 $ 76,978 $ 60,584 $ 56,748
Add:
Income taxes 43,120 43,110 47,683 39,425 38,138
Interest 9,532 4,608 2,544 2,194 1,680
Depreciation and
Amortization 65,392 61,310 55,771 49,502 43,951
Asset Write-Offs 10,254 2,389 1,576 1,964 688
Equity Based
Compensation 5,601 7,962 8,858 10,388 12,686
--------- --------- --------- --------- ---------
EBITDA (Non-GAAP) $ 202,156 $ 189,050 $ 193,410 $ 164,057 $ 153,891
========= ========= ========= ========= =========
EBITDA Margin 26.1% 26.0% 26.6% 25.1% 25.6%
EBITDA, a non-GAAP measure, is defined by the Company as net income excluding income tax expense, interest expense, depreciation, amortization, provision for asset write-offs and equity based compensation.
EBITDA Margin represents EBITDA divided by revenues expressed as a percentage.
The Company believes that the presentation of non-GAAP measures provide useful information to investors and other interested parties regarding the Company's operating performance, its capacity to incur and service debt, fund capital expenditures and other corporate uses.
The non-GAAP performance measure presented in this schedule should not be viewed as an alternative or substitute for the Company's reported GAAP results. EBITDA as defined here in may differ from similarly title measures presented by other companies.
CONTACT: CEC Entertainment, Inc.
Chris Morris, 972-258-4525
Executive Vice President
Chief Financial Officer
SOURCE: CEC Entertainment, Inc.
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