UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
|X| Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended September 29,
2002.
|_| Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from _____________ to
_______________.
Commission File Number 0-15782
CEC ENTERTAINMENT, INC.
(Exact name of registrant as specified in its charter)
Kansas 48-0905805
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4441 West Airport Freeway
Irving, Texas 75062
(Address of principal executive offices,
including zip code)
(972) 258-8507
(Registrant's telephone number,
including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes |X| No |_|
At September 29, 2002, an aggregate of 27,525,247 shares of the
registrant's Common Stock, par value of $.10 each (being the registrant's only
class of common stock), were outstanding.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CEC ENTERTAINMENT, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Consolidated balance sheets......................................... 3
Consolidated statements of earnings and comprehensive income........ 4
Consolidated statement of shareholders' equity...................... 6
Consolidated statements of cash flows .............................. 7
Notes to consolidated financial statements.......................... 8
CEC ENTERTAINMENT, INC.
CONSOLIDATED BALANCE SHEETS
(Thousands, except share amounts)
September 29, December 30,
2002 2001
------------- ------------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents.................................................. $ 7,669 $ 3,682
Accounts receivable........................................................ 8,301 11,603
Inventories................................................................ 9,500 9,556
Prepaid expenses........................................................... 4,919 4,794
Deferred tax asset......................................................... 1,234 1,234
--------- ---------
Total current assets..................................................... 31,623 30,869
--------- ---------
Property and equipment, net................................................... 477,657 423,267
--------- ---------
Other assets:
Assets held for resale..................................................... 2,333 2,231
Notes receivable from related parties, less current portion ............... 5,058 2,055
Other ..................................................................... 1,152 1,063
--------- ---------
8,543 5,349
--------- ---------
$ 517,823 $ 459,485
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt.......................................... $ 41,197 $ 121
Accounts payable and accrued liabilities................................... 47,615 39,738
--------- ---------
Total current liabilities............................................. 88,812 39,859
--------- ---------
Long-term debt, less current portion.......................................... 387 51,942
--------- ---------
Deferred rent................................................................. 3,903 3,401
--------- ---------
Deferred tax liability........................................................ 35,187 19,825
--------- ---------
Other accrued liabilities..................................................... 4,750 4,750
--------- ---------
Commitments and contingencies
Redeemable preferred stock, $60 par value, redeemable for $2,822 in 2005...... 2,539 2,472
--------- ---------
Shareholders' equity:
Common stock, $.10 par value; authorized 100,000,000 shares; 35,620,966
and 35,325,273 shares issued, respectively ........................... 3,562 3,533
Capital in excess of par value............................................. 201,000 192,041
Retained earnings ......................................................... 297,494 239,070
Accumulated other comprehensive loss ...................................... (137) (178)
Less treasury shares of 8,095,719 and 7,586,106, respectively, at cost..... (119,674) (97,230)
--------- ---------
382,245 337,236
--------- ---------
$ 517,823 $ 459,485
========= =========
See notes to consolidated financial statements.
CEC ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
AND COMPREHENSIVE INCOME
(Unaudited)
(Thousands, except per share amounts)
Three Months Ended
----------------------------
Sep. 29, 2002 Sep. 30, 2001
------------- -------------
Food and beverage revenues................................................... $ 97,561 $ 94,466
Games and merchandise revenues............................................... 50,518 46,535
Franchise fees and royalties................................................. 731 747
Interest income, including related party income of $108 and $37,
respectively.............................................................. 111 73
--------- ---------
148,921 141,821
--------- ---------
Costs and expenses:
Cost of sales............................................................. 65,598 62,855
Selling, general and administrative expenses.............................. 18,105 18,497
Depreciation and amortization............................................. 9,978 8,745
Interest expense.......................................................... 332 410
Other operating expenses.................................................. 27,837 24,736
--------- ---------
121,850 115,243
--------- ---------
Income before income taxes................................................... 27,071 26,578
Income taxes................................................................. 10,532 10,365
--------- ---------
Net income .................................................................. 16,539 16,213
Other comprehensive income (loss), net of tax:
Foreign currency translation................................................. (98) (63)
--------- ---------
Comprehensive income......................................................... $ 16,441 $ 16,150
========= =========
Earnings per share:
Basic:
Net income ............................................................. $ .60 $ .58
========= =========
Weighted average shares outstanding..................................... 27,564 27,878
========= =========
Diluted:
Net income ............................................................ $ .59 $ .57
========= =========
Weighted average shares outstanding..................................... 27,987 28,466
========= =========
See notes to consolidated financial statements.
CEC ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
AND COMPREHENSIVE INCOME
(Unaudited)
(Thousands, except per share amounts)
Nine Months Ended
----------------------------
Sep. 29, 2002 Sep. 30, 2001
------------- -------------
Food and beverage revenues................................................... $ 307,680 $ 290,981
Games and merchandise revenues............................................... 153,723 138,891
Franchise fees and royalties................................................. 2,434 2,367
Interest income, including related party income of $282 and $120,
respectively.............................................................. 293 207
--------- ---------
464,130 432,446
--------- ---------
Costs and expenses:
Cost of sales............................................................. 203,301 189,537
Selling, general and administrative expenses.............................. 56,530 56,982
Depreciation and amortization............................................. 28,651 25,334
Interest expense.......................................................... 881 1,717
Other operating expenses.................................................. 78,762 70,798
--------- ---------
368,125 344,368
--------- ---------
Income before income taxes................................................... 96,005 88,078
Income taxes................................................................. 37,346 34,350
--------- ---------
Net income .................................................................. 58,659 53,728
Other comprehensive income (loss), net of tax:
Foreign currency translation................................................. 41 (117)
--------- ---------
Comprehensive income......................................................... $ 58,700 $ 53,611
========= =========
Earnings per share:
Basic:
Net income ............................................................. $ 2.11 $ 1.92
========= =========
Weighted average shares outstanding..................................... 27,742 27,826
========= =========
Diluted:
Net income ............................................................ $ 2.06 $ 1.87
========= =========
Weighted average shares outstanding..................................... 28,322 28,570
========= =========
See notes to consolidated financial statements.
CEC ENTERTAINMENT, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(Unaudited)
(Thousands, except per share amounts)
Amounts Shares
--------- ---------
Common stock and capital in excess of par value:
Balance, beginning of year.............................................. $ 195,574 35,325
Stock options exercised................................................. 5,676 289
Net tax benefit from exercise of stock options.......................... 3,015
Stock issued under 401(k) plan.......................................... 297 7
--------- ---------
Balance, September 29, 2002............................................. 204,562 35,621
--------- =========
Retained earnings:
Balance, beginning of year.............................................. 239,070
Net income.............................................................. 58,659
Redeemable preferred stock accretion.................................... (67)
Redeemable preferred stock
dividends, $3.60 per share............................................. (168)
---------
Balance, September 29, 2002............................................. 297,494
---------
Accumulated other comprehensive income (loss):
Balance, beginning of year.............................................. (178)
Foreign currency translation............................................ 41
---------
Balance, September 29, 2002............................................. (137)
---------
Treasury shares:
Balance, beginning of year.............................................. (97,230) 7,586
Treasury stock acquired................................................. (22,444) 510
--------- ---------
Balance, September 29, 2002............................................. (119,674) 8,096
--------- =========
Total shareholders' equity................................................. $ 382,245
=========
See notes to consolidated financial statements.
CEC ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Thousands)
Nine Months Ended
----------------------------
Sep. 29, 2002 Sep. 30, 2001
------------- -------------
Operating activities:
Net income ............................................................... $ 58,659 $ 53,728
Adjustments to reconcile net income to cash
provided by operations:
Depreciation and amortization............................................. 28,651 25,334
Deferred income tax expense............................................... 15,362 9,239
Tax benefit from exercise of stock options................................ 3,015 3,891
Other ................................................................... 863 527
Net change in receivables, inventories, prepaids, payables and
accrued liabilities..................................................... 11,109 7,272
--------- ---------
Cash provided by operations......................................... 117,659 99,991
--------- ---------
Investing activities:
Purchases of property and equipment....................................... (83,326) (79,492)
Additions to notes receivable............................................. (3,921) (2,561)
Payments received on notes receivable..................................... 918 1,175
(Purchase) sale of assets held for resale................................. (102) 2,056
Other..................................................................... (164) 486
--------- ---------
Cash used in investing activities................................... (86,595) (78,336)
--------- ---------
Financing activities:
Payments on debt and line of credit....................................... (10,479) (8,793)
Exercise of stock options ................................................ 5,676 9,804
Redeemable preferred stock dividends...................................... (168) (173)
Acquisition of treasury stock ............................................ (22,444) (16,571)
Other .................................................................... 338 12
--------- ---------
Cash used in financing activities................................... (27,077) (15,721)
--------- ---------
Increase in cash and cash equivalents ....................................... 3,987 5,934
Cash and cash equivalents, beginning of period............................... 3,682 7,300
--------- ---------
Cash and cash equivalents, end of period..................................... $ 7,669 $ 13,234
========= =========
See notes to consolidated financial statements.
CEC ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Interim financial statements:
In the opinion of management, the accompanying financial statements for the
periods ended September 29, 2002 and September 30, 2001 reflect all adjustments
(consisting only of normal recurring adjustments) necessary to present fairly
the Company's financial condition, results of operations and cash flows in
accordance with accounting principles generally accepted in the United States of
America.
Certain information and footnote disclosures normally included in the
consolidated financial statements prepared in accordance with generally accepted
accounting principles have been omitted. The unaudited consolidated financial
statements referred to above should be read in conjunction with the financial
statements and notes thereto included in the Company's Form 10-K filed with the
Securities and Exchange Commission for the year ended December 30, 2001. Results
of operations for the periods ended September 29, 2002 and September 30, 2001
are not necessarily indicative of the results for the year.
2. Earnings per common share:
Earnings per common share were computed based on the weighted average
number of common and potential common shares outstanding during the period. Net
income available per common share has been adjusted for the items indicated
below, and earnings per common and potential common share were computed as
follows (thousands, except per share data):
Three Months Ended Nine Months Ended
--------------------- ---------------------
Sep. 29, Sep. 30, Sep. 29, Sep. 30,
2002 2001 2002 2001
-------- -------- -------- --------
Net income ....................................... $ 16,539 $ 16,213 $ 58,659 $ 53,728
Accretion of redeemable preferred stock........... (22) (26) (67) (77)
Redeemable preferred stock dividends.............. (55) (57) (168) (173)
-------- -------- -------- --------
Adjusted income applicable to common shares....... $ 16,462 $ 16,130 $ 58,424 $ 53,478
======== ======== ======== ========
Basic:
Weighted average common shares outstanding.... 27,564 27,878 27,742 27,826
======== ======== ======== ========
Earnings per common share..................... $ .60 $ .58 $ 2.11 $ 1.92
======== ======== ======== ========
Diluted:
Weighted average common shares outstanding.... 27,564 27,878 27,742 27,826
Potential common shares for stock options
and stock grants.......................... 423 588 580 744
-------- -------- -------- --------
Weighted average shares outstanding........... 27,987 28,466 28,322 28,570
======== ======== ======== ========
Earnings per common and potential
common share.............................. $ .59 $ .57 $ 2.06 $ 1.87
======== ======== ======== ========
Item 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
Third Quarter 2002 Compared to Third Quarter 2001
A summary of the results of operations of the Company as a percentage of
revenues for the third quarters of 2002 and 2001 is shown below.
Three Months Ended
----------------------------
Sep. 29, 2002 Sep. 30, 2001
------------- -------------
Revenues.................................... 100.0% 100.0%
----- -----
Costs and expenses:
Cost of sales............................ 44.0 44.3
Selling, general and administrative...... 12.2 13.0
Depreciation and amortization............ 6.7 6.3
Interest expense......................... .2 .3
Other operating expenses................. 18.7 17.4
----- -----
81.8 81.3
----- -----
Income before income taxes.................. 18.2 18.7
Income tax expense ......................... 7.1 7.3
----- -----
Net income ................................. 11.1% 11.4%
===== =====
Revenues
Revenues increased 5.0% to $148.9 million in the third quarter of 2002 from
$141.8 million in the third quarter of 2001 due primarily to an increase in the
number of Company-operated restaurants. A decrease of 2.7% occurred in
comparable store sales of the Company's Chuck E. Cheese's restaurants which were
open during all of the third quarters of 2002 and 2001. During 2001, the Company
opened 28 new restaurants, acquired two restaurants from a franchisee and closed
four restaurants. During the first nine months of 2002, the Company opened 19
new stores, acquired three restaurants from a franchisee and closed one
restaurant. Management believes that the primary factors impacting the
comparable store sales decrease were a soft economic environment, and to a
lesser degree, a significant increase in competition from kids' movies. Menu
prices did not increase between the periods.
Costs and Expenses
Costs and expenses as a percentage of revenues increased to 81.8% in the
third quarter of 2002 from 81.3% in the third quarter of 2001.
Cost of sales decreased as a percentage of revenues to 44.0% in the third
quarter of 2002 from 44.3% in the comparable period of 2001. Cost of food,
beverage and related supplies as a percentage of revenues decreased to 11.9% in
the third quarter of 2002 from 13.0% in the third quarter of 2001 primarily due
to lower cheese costs. Cost of games and merchandise as a percentage of revenues
was 4.4% in both the third quarter of 2002 and the third quarter of 2001. Store
labor expenses as a percentage of revenues increased to 27.7% in the third
quarter of 2002 from 26.9% in the third quarter of 2001 primarily due to the
enactment of higher minimum wage rate standards in certain states and overall
increases in wage rates.
Selling, general and administrative expenses as a percentage of revenues
decreased to 12.2% in the third quarter of 2002 from 13.0% in the third quarter
of 2001 due primarily to a decrease in advertising expense.
Depreciation and amortization expenses as a percentage of revenues
increased to 6.7% in the third quarter of 2002 from 6.3% in the third quarter of
2001 primarily due to increased capital expenditures.
Interest expense as a percentage of revenues decreased to .2% in the third
quarter of 2002 from .3% in the third quarter of 2001 due to a reduction in
outstanding debt and reduced interest rates.
Other operating expenses increased as a percentage of revenues to 18.7% in
the third quarter of 2002 from 17.4% in the third quarter of 2001 primarily due
to the decline in comparable store sales and higher insurance costs.
The Company's effective income tax rate was 38.9% in the third quarter of
2002 compared to 39.0% in the third quarter of 2001.
Net Income
The Company had net income of $16.5 million in the third quarter of 2002
compared to $16.2 million in the third quarter of 2001 due to the changes in
revenues and expenses discussed above. The Company's diluted earnings per share
increased to $.59 per share in the third quarter of 2002 from $.57 per share in
the third quarter of 2001.
First Nine Months of 2002 Compared to First Nine Months of 2001
A summary of the results of operations of the Company as a percentage of
revenues for the first nine months of 2002 and 2001 is shown below.
Nine Months Ended
----------------------------
Sep. 29, 2002 Sep. 30, 2001
------------- -------------
Revenues.................................... 100.0% 100.0%
----- -----
Costs and expenses:
Cost of sales........................... 43.7 43.7
Selling, general and administrative..... 12.2 13.2
Depreciation and amortization........... 6.2 5.9
Interest expense........................ .2 .4
Other operating expenses................ 17.0 16.4
----- -----
79.3 79.6
----- -----
Income before income taxes.................. 20.7 20.4
Income tax expense ......................... 8.0 7.9
----- -----
Net income ................................. 12.7% 12.5%
===== =====
Revenues
Revenues increased 7.3% to $464.1 million in the first nine months of 2002
from $432.4 million in the first nine months of 2001 primarily due to an
increase in the number of Company-operated restaurants. Comparable store sales
of the Company's Chuck E. Cheese's restaurants which were open during all of the
first nine months of both 2002 and 2001 decreased 0.6%. During 2001, the Company
opened 28 new restaurants, acquired two restaurants from a franchisee and closed
four restaurants. During the first nine months of 2002, the Company opened 19
new restaurants, acquired three restaurants from a franchisee and closed one
restaurant. Menu prices increased approximately 0.5% between the periods.
Costs and Expenses
Costs and expenses as a percentage of revenues decreased to 79.3% in the
first nine months of 2002 from 79.6%in the first nine months of 2001.
Cost of sales as a percentage of revenues was 43.7% in both the first nine
months of 2002 and 2001. Cost of food, beverage and related supplies as a
percentage of revenues decreased to 12.3% in the first nine months of 2002
compared to 12.8% in the first nine months of 2001 due to lower cheese costs.
Cost of games and merchandise decreased to 4.2% in the first nine months of 2002
from 4.4% in the first nine months of 2001 due to buying efficiencies. Store
labor expenses as a percentage of revenues increased to 27.2% in the first nine
months of 2002 from 26.5% in the first nine months of 2001 due to enactment of
higher minimum wage rate standards in certain states and overall increases in
wage rates.
Selling, general and administrative expenses as a percentage of revenues
decreased to 12.2% in the first nine months of 2002 from 13.2% in the first nine
months of 2001 due to a decrease in advertising expense and corporate overhead
costs.
Depreciation and amortization expenses as a percentage of revenues
increased to 6.2% in the first nine months of 2002 from 5.9% in the first nine
months of 2001 primarily due to increased capital expenditures.
Interest expense as a percentage of revenues was .2% in the first nine
months of 2002 compared to .4% in the first nine months of 2001 primarily due to
a reduction in debt outstanding and reduced interest rates.
Other operating expenses increased as a percentage of revenues to 17.0% in
the first nine months of 2002 from 16.4% in the first nine months of 2001
primarily due to higher insurance costs. Insurance expense increased
approximately $4.9 million in the first nine months of 2002 compared to the
first nine months of 2001 due to several factors including higher premiums,
claim loss experience and medical costs.
The Company's effective income tax rate was 38.9% in the first nine months
of 2002 compared to 39.0% in the first nine months of 2001.
Net Income
The Company had net income of $58.7 million in the first nine months of
2002 compared to $53.7 million in the first nine months of 2001 due to the
changes in revenues and expenses discussed above. The Company's diluted earnings
per share increased 10.2% to $2.06 per share in the first nine months of 2002
compared to $1.87 per share in the first nine months of 2001.
Financial Condition, Liquidity and Capital Resources
Cash provided by operations increased to $117.7 million in the first nine
months of 2002 from $100.0 million in the comparable period of 2001. Cash
outflows from investing activities for the first nine months of 2002 were $86.6
million primarily related to capital expenditures. Cash outflows from financing
activities for the first nine months of 2002 were $27.1 million primarily
related to repayment of borrowings on the Company's line of credit and the
repurchase of the Company's common 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 2002, the Company plans to add 32 to 36 stores including new stores and
acquisitions of existing stores from franchisees. The Company currently
anticipates its cost of opening such new stores to average approximately $2.1
million per store, which will vary depending upon many factors including the
size of the stores and whether the Company acquires land or the store is an
in-line or freestanding building. The Company has identified approximately 150
additional sites for traditional stores. In smaller demographic markets, the
Company plans to open stores with less retail space and lower capital costs than
traditional stores. The Company believes its smaller market strategy increases
potential development opportunities by approximately 225 stores, resulting in an
identified development potential of 375 locations. In June 2002, the Company
opened its first smaller market store with approximately 6,100 square feet in
Waco, Texas at a capital cost of approximately $770,000. During the first nine
months of 2002, the Company opened 19 new stores and acquired three restaurants
from a franchisee.
The Company plans to complete Phase III upgrades in approximately 125 to
130 stores this year at an average cost of approximately $200,000 per store. A
Phase III upgrade generally includes a new toddler play area, skill games and
rides, kiddie games and rides, Sky-Tube (R) enhancements, prize area
enhancements and Kid Check (R) enhancements. During the first nine months of
2002, the Company completed Phase III upgrades in 99 Company-operated stores. By
the end of this year, approximately 80% of Company-operated stores will be
upgraded with the remaining 64 stores to be completed in the first half of next
year. The Company plans to continue to reinvest in existing stores, including a
new games rotation program with additional games and rides. In addition, the
Company is considering a new menu board, guest order counter improvements and
salad bar and decor enhancements. The Company currently estimates that capital
expenditures in 2002, including expenditures for new store openings, existing
store expansions and equipment investments, will be $105 to $110 million. The
Company plans to finance these expenditures through cash flow from operations
and borrowings under the Company's line of credit.
In July 2002, the Company announced it had completed a $25 million plan to
repurchase shares of the Company's common stock approved in July 2001 and
announced a new plan to repurchase shares of the Company's common stock on the
open market at an aggregate purchase price of up to $25 million. As of September
29, 2002, the Company has purchased shares of its common stock under the new
plan at an aggregate purchase price of $5.0 million. Beginning in 1993 through
September 2002, the Company has repurchased 7.5 million shares of the Company's
common stock at an aggregate purchase price of approximately $114.9 million.
The Company's credit facility consists of a $75 million revolving line of
credit that matures in July 2003. Interest under the line of credit is dependent
on earnings and debt levels of the Company and ranges from prime or, at the
Company's option, LIBOR plus 1% to 1.75%. Currently, any borrowings under this
line of credit would be at the prime rate or LIBOR plus 1%. The Company is
required to comply with certain financial ratio tests during the term of the
loan agreement and is in compliance with such tests. As of September 29, 2002,
there was $41.1 million in borrowings under this line of credit. The Company is
currently negotiating the terms of a new three-year line of credit agreement to
replace the existing agreement that matures in 2003.
Certain statements in this report, 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 the Company'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 and government regulations, weather, school days and
commodity, insurance and labor costs.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The Company is subject to market risk in the form of interest risk and
foreign currency risk. Both interest risk and foreign currency risk are
immaterial to the Company.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
On June 2, 2000, a purported class action lawsuit against the Company,
entitled Freddy Gavarrete, et al. v. CEC Entertainment, Inc., dba Chuck E.
Cheese's et al., Cause No., 00-08132 FMC (RZx) ("Gavarrete"), was filed in the
Superior Court of the State of California of the county of Los Angeles. On July
27, 2000, the lawsuit was removed to the United States District Court for the
Central District of California. The lawsuit was filed by one former restaurant
manager purporting to represent restaurant managers of the Company in California
from 1996 to the present. The lawsuit alleges violations of state wage and hour
laws involving unpaid overtime wages and seeks an unspecified amount in damages.
On July 31, 2001, the Court denied the Plaintiff's motion for class
certification. The Court subsequently granted Plaintiff's motion to amend the
complaint by adding a second party to the lawsuit. On June 5, 2002, the Court
denied Plaintiff's motion for class certification based upon the amended
complaint. On June 25, 2002, Plaintiff filed a motion for reconsideration of the
Court's two orders denying class certification. On August 15, 2002, the Court
denied Plaintiff's motion to reconsider the two prior orders denying class
certification. On September 24, 2002, Plaintiff filed a motion to remand the
case back to the Superior Court of the State of California of the County of Los
Angeles. On October 28, 2002, the Court granted Plaintiff's motion to remand the
case back to state court. The Company believes the lawsuit is without merit and
intends to vigorously defend against it and that based on currently available
information the lawsuit is not likely to have a material adverse impact on the
Company's financial position.
On June 24, 2002, a purported class action lawsuit against the Company,
entitled Michelle Sajetowski v. CEC Entertainment, Inc., et al., Case No.
CV02473781 ("Sajetowski"), was filed in the Court of Common Pleas, Cayahoga
County, Ohio. On August 2, 2002, the lawsuit was removed to the United Sates
District Court for the Northern District of Ohio, Eastern Division. (Case No.
1:02BV1510). On August 26, 2002, Plaintiff filed an amended complaint adding
allegations of violations of the Federal Fair Labor Standards Act. The lawsuit
was filed by one former restaurant manager purporting to represent restaurant
managers of the Company in Ohio. The lawsuit alleges violations of state and
federal wage and hour laws involving unpaid overtime wages and seeks an
unspecified amount in damages. The Company believes the lawsuit is without merit
and intends to vigorously defend against it and that based on currently
available information the lawsuit is not likely to have a material adverse
impact on the Company's financial position.
Item 2. Changes in Securities.
None to report during the quarter for which this report is filed.
Item 3. Defaults Upon Senior Securities.
None to report during the quarter for which this report is filed.
Item 4. Other Information.
Evaluation of Disclosure Controls and Procedures
Within the 90 day period prior to the date of filing this report, an
evaluation was performed under the supervision and with the participation of the
Company's management, including the Chief Executive Officer and Chief Financial
Officer, of the effectiveness of the design and operation of the Company's
disclosure controls and procedures. Based on that evaluation, the Company's
management, including the Chief Executive Officer and Chief Financial Officer,
concluded that the Company's disclosure controls and procedures were effective
as of the time of such evaluation. There have been no significant changes in the
Company's internal controls or in other factors that could significantly affect
internal controls subsequent to the time of such evaluation.
Item 5. Exhibits and Reports on Form 8-K.
a) Exhibits
99.1 Certification of Chief Executive Officer and Chief Financial Officer
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002
b) Reports on Form 8-K
None filed during the quarter for which this report is filed.
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 thereunto duly authorized.
CEC ENTERTAINMENT, INC.
Dated: November 12, 2002 By: /s/ Rodney Carter
-------------------------------------
Rodney Carter
Executive Vice President,
Chief Financial Officer and Treasurer
CERTIFICATION BY CHIEF EXECUTIVE OFFICER
I, Richard M. Frank, certify that:
1. I have reviewed this quarterly report on Form 10-Q of CEC Entertainment,
Inc.:
2. Based on my knowledge, this report does not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the period presented in this quarterly
report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors:
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
November 12, 2002 /s/ Richard M. Frank
-------------------------------------
Richard M. Frank
Chief Executive Officer
CERTIFICATION BY CHIEF FINANCIAL OFFICER
I, Rodney Carter, certify that:
1. I have reviewed this quarterly report on Form 10-Q of CEC Entertainment,
Inc.:
2. Based on my knowledge, this report does not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the period presented in this quarterly
report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors:
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
November 12, 2002 /s/ Rodney Carter
-------------------------------------
Rodney Carter
Chief Financial Officer