| ý | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Kansas | ||
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| 75062 | |
| (Address of principal executive offices) | (Zip Code) | |
| Large accelerated filer | ý | Accelerated filer | ¨ | |||
| Non-accelerated filer | ¨ | Smaller reporting company | ¨ | |||
Current assets: Cash and cash equivalents Accounts receivable Inventories Prepaid expenses Deferred tax asset Total current assets Property and equipment, net Other noncurrent assets Total assets Current liabilities: Capital lease obligations, current portion Accounts payable Accrued expenses Unearned revenues Dividends payable Accrued interest Total current liabilities Capital lease obligations, less current portion Revolving credit facility borrowings Deferred rent liability Deferred landlord contributions Deferred tax liability Accrued insurance Other noncurrent liabilities Total liabilities Stockholders’ equity: Common stock, $0.10 par value; authorized 100,000,000 shares; 61,893,107 and 61,696,806 shares issued, respectively Capital in excess of par value Retained earnings Accumulated other comprehensive income Less treasury stock, at cost; 44,341,224 and 43,814,979 shares, respectively Total stockholders’ equity Total liabilities and stockholders’ equity REVENUES: Food and beverage sales Entertainment and merchandise sales Total Company store sales Franchise fees and royalties Total revenues OPERATING COSTS AND EXPENSES: Company store operating costs: Cost of food and beverage (exclusive of items shown separately below) Cost of entertainment and merchandise (exclusive of items shown separately below) Total cost of food, beverage, entertainment and merchandise Labor expenses Depreciation and amortization Rent expense Other store operating expenses Total Company store operating costs Other costs and expenses: Advertising expense General and administrative expenses Asset impairments Total operating costs and expenses Operating income Interest expense Income before income taxes Income taxes Net income Earnings per share: Basic Diluted Weighted average common shares outstanding: Basic Diluted Cash dividends declared per share Net income Components of other comprehensive income, net of tax: Foreign currency translation adjustments Total components of other comprehensive income (loss), net of tax Comprehensive income CASH FLOWS FROM OPERATING ACTIVITIES: Net income Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization Deferred income taxes Stock-based compensation expense Amortization of landlord contributions Amortization of deferred debt financing costs (Gain) loss on asset disposals, net Asset impairments Other adjustments Changes in operating assets and liabilities: Accounts receivable Inventories Prepaid expenses Accounts payable Accrued expenses Unearned revenues Accrued interest Income taxes payable Deferred rent liability Deferred landlord contributions Net cash provided by operating activities CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment Proceeds from sale of property and equipment Other investing activities Net cash used in investing activities CASH FLOWS FROM FINANCING ACTIVITIES: Net repayments on revolving credit facility Payments on capital lease obligations Dividends paid Excess tax benefit realized from stock-based compensation Restricted stock returned for payment of taxes Purchases of treasury stock Net cash used in financing activities Effect of foreign exchange rate changes on cash Change in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period SUPPLEMENTAL CASH FLOW INFORMATION: Interest paid Income taxes paid, net NON-CASH INVESTING AND FINANCING ACTIVITIES: Accrued construction costs Dividends payable Capital lease obligations assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of our unaudted Consolidated Financial Statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Level 1 – Level 2 – Level 3 –PagePage 3 4 5 6 7 13 27 27 28 28 28 29 30 June 30,
2013 December 30,
2012 ASSETS $ 20,195 $ 19,636 17,901 26,411 19,368 18,957 18,293 18,171 2,884 2,884 78,641 86,059 691,812 703,956 12,612 11,791 $ 783,065 $ 801,806 LIABILITIES AND STOCKHOLDERS’ EQUITY $ 1,003 $ 1,060 31,593 32,678 38,936 35,517 10,839 11,779 4,286 312 1,873 1,794 88,530 83,140 20,893 21,656 352,000 389,500 57,634 57,196 26,105 27,092 61,579 62,931 13,037 11,980 5,129 5,037 624,907 658,532 6,189 6,170 449,232 447,449 855,027 823,012 5,059 5,880 (1,157,349 ) (1,139,237 ) 158,158 143,274 $ 783,065 $ 801,806 September 29,
2013 December 30,
2012ASSETS Current assets: Cash and cash equivalents $ 21,384 $ 19,636 Accounts receivable 17,462 26,411 Inventories 20,595 18,957 Prepaid expenses 18,445 18,171 Deferred tax asset 2,884 2,884 Total current assets 80,770 86,059 Property and equipment, net 695,020 703,956 Other noncurrent assets 11,058 11,791 Total assets $ 786,848 $ 801,806 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Capital lease obligations, current portion $ 1,011 $ 1,060 Accounts payable 30,640 32,678 Accrued expenses 39,473 35,517 Unearned revenues 10,745 11,779 Dividends payable 4,340 312 Accrued interest 1,107 1,794 Total current liabilities 87,316 83,140 Capital lease obligations, less current portion 20,646 21,656 Revolving credit facility borrowings 348,500 389,500 Deferred rent liability 58,745 57,196 Deferred landlord contributions 26,218 27,092 Deferred tax liability 62,557 62,931 Accrued insurance 13,863 11,980 Other noncurrent liabilities 5,056 5,037 Total liabilities 622,901 658,532 Stockholders’ equity: Common stock, $0.10 par value; authorized 100,000,000 shares; 61,892,493 and 61,696,806 shares issued, respectively 6,189 6,170 Capital in excess of par value 451,570 447,449 Retained earnings 858,253 823,012 Accumulated other comprehensive income 5,284 5,880 Less treasury stock, at cost; 44,341,224 and 43,814,979 shares, respectively (1,157,349 ) (1,139,237 ) Total stockholders’ equity 163,947 143,274 Total liabilities and stockholders’ equity $ 786,848 $ 801,806 Three Months Ended Six Months Ended June 30, July 1, June 30, July 1, 2013 2012 2013 2012 $ 86,517 $ 84,882 $ 202,318 $ 200,784 103,926 96,274 242,328 225,798 190,443 181,156 444,646 426,582 1,501 1,259 2,601 2,591 191,944 182,415 447,247 429,173 20,926 21,025 48,965 49,236 6,948 7,170 16,280 16,145 27,874 28,195 65,245 65,381 55,085 53,385 117,940 115,053 19,207 19,091 39,063 38,830 19,217 18,957 38,976 37,915 31,872 30,702 64,374 62,266 153,255 150,330 325,598 319,445 10,618 8,106 22,316 16,981 14,380 13,062 29,421 26,704 226 2,374 226 2,723 178,479 173,872 377,561 365,853 13,465 8,543 69,686 63,320 2,039 2,083 4,231 4,054 11,426 6,460 65,455 59,266 4,187 2,381 24,959 22,883 $ 7,239 $ 4,079 $ 40,496 $ 36,383 $ 0.42 $ 0.23 $ 2.35 $ 2.06 $ 0.42 $ 0.23 $ 2.34 $ 2.05 17,057 17,599 17,211 17,692 17,138 17,640 17,295 17,745 $ 0.24 $ 0.22 $ 0.48 $ 0.44 Three Months Ended Nine Months Ended September 29,
2013 September 30,
2012 September 29,
2013 September 30,
2012REVENUES: Food and beverage sales $ 87,170 $ 90,406 $ 289,488 $ 291,190 Entertainment and merchandise sales 107,629 105,223 349,957 331,021 Total Company store sales 194,799 195,629 639,445 622,211 Franchise fees and royalties 1,107 921 3,708 3,512 Total revenues 195,906 196,550 643,153 625,723 OPERATING COSTS AND EXPENSES: Cost of food and beverage (exclusive of items shown separately below) 20,850 22,627 69,815 71,863 Cost of entertainment and merchandise (exclusive of items shown separately below) 6,976 7,703 23,256 23,848 Total cost of food, beverage, entertainment and merchandise 27,826 30,330 93,071 95,711 Labor expenses 56,469 55,139 174,409 170,192 Depreciation and amortization 19,603 19,872 58,666 58,702 Rent expense 19,672 19,526 58,648 57,441 Other store operating expenses 34,401 33,501 98,775 95,767 Total Company store operating costs 157,971 158,368 483,569 477,813 Advertising expense 10,644 9,966 32,960 26,947 General and administrative expenses 13,529 12,931 42,950 39,635 Asset impairments 537 818 763 3,541 Total operating costs and expenses 182,681 182,083 560,242 547,936 Operating income 13,225 14,467 82,911 77,787 Interest expense 1,278 2,031 5,509 6,085 Income before income taxes 11,947 12,436 77,402 71,702 Income taxes 4,508 4,642 29,467 27,525 Net income $ 7,439 $ 7,794 $ 47,935 $ 44,177 Basic $ 0.44 $ 0.45 $ 2.80 $ 2.51 Diluted $ 0.43 $ 0.45 $ 2.78 $ 2.50 Basic 16,958 17,397 17,128 17,595 Diluted 17,121 17,473 17,238 17,652 Cash dividends declared per share $ 0.24 $ 0.22 $ 0.72 $ 0.66 Three Months Ended Six Months Ended June 30, July 1, June 30, July 1, 2013 2012 2013 2012 $ 7,239 $ 4,079 $ 40,496 $ 36,383 (467 ) (492 ) (821 ) (55 ) (467 ) (492 ) (821 ) (55 ) $ 6,772 $ 3,587 $ 39,675 $ 36,328 Three Months Ended Nine Months Ended September 29,
2013 September 30,
2012 September 29,
2013 September 30,
2012Net income $ 7,439 $ 7,794 $ 47,935 $ 44,177 Foreign currency translation adjustments 225 767 (596 ) 712 Total components of other comprehensive income (loss), net of tax 225 767 (596 ) 712 Comprehensive income $ 7,664 $ 8,561 $ 47,339 $ 44,889 Six Months Ended June 30, July 1, 2013 2012 $ 40,496 $ 36,383 39,429 39,208 (1,552 ) (403 ) 4,225 3,705 (1,134 ) (1,069 ) 226 242 (325 ) 1,033 226 2,723 (29 ) 79 1,891 876 (337 ) 544 (379 ) (7,217 ) (1,207 ) (2,752 ) 4,127 3,255 (933 ) (270 ) 206 (635 ) 5,666 2,169 623 1,632 1,473 284 92,692 79,787 (32,080 ) (50,345 ) 2,167 — 563 270 (29,350 ) (50,075 ) (37,500 ) (6,200 ) (447 ) (390 ) (4,372 ) (8,016 ) 172 619 (2,163 ) (2,612 ) (18,112 ) (14,353 ) (62,422 ) (30,952 ) (361 ) 3 559 (1,237 ) 19,636 18,673 $ 20,195 $ 17,436 $ 3,842 $ 4,466 $ 20,559 $ 20,284 $ 3,134 $ 3,050 $ 4,764 $ 4,259 $ 740 $ 3,401 Nine Months Ended September 29,
2013 September 30,
2012CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 47,935 $ 44,177 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 59,269 59,257 Deferred income taxes (477 ) 4,551 Stock-based compensation expense 6,469 5,630 Amortization of landlord contributions (1,729 ) (1,653 ) Amortization of deferred debt financing costs 337 367 Loss on asset disposals, net 704 1,797 Asset impairments 763 3,541 Other adjustments 75 266 Changes in operating assets and liabilities: Accounts receivable 4,246 1,957 Inventories (1,665 ) 872 Prepaid expenses 55 (4,905 ) Accounts payable (2,928 ) (687 ) Accrued expenses 5,325 5,039 Unearned revenues (1,029 ) (656 ) Accrued interest (637 ) (623 ) Income taxes payable 4,105 (2,563 ) Deferred rent liability 1,468 2,550 Deferred landlord contributions 1,469 323 Net cash provided by operating activities 123,755 119,240 CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment (54,446 ) (75,831 ) Proceeds from sale of property and equipment 2,260 474 Other investing activities 678 — Net cash used in investing activities (51,508 ) (75,357 ) CASH FLOWS FROM FINANCING ACTIVITIES: Net repayments on revolving credit facility (41,000 ) (15,200 ) Payments on capital lease obligations (697 ) (590 ) Dividends paid (8,445 ) (11,829 ) Excess tax benefit realized from stock-based compensation 249 619 Restricted stock returned for payment of taxes (2,191 ) (2,629 ) Purchases of treasury stock (18,112 ) (14,353 ) Net cash used in financing activities (70,196 ) (43,982 ) Effect of foreign exchange rate changes on cash (303 ) 119 Change in cash and cash equivalents 1,748 20 Cash and cash equivalents at beginning of period 19,636 18,673 Cash and cash equivalents at end of period $ 21,384 $ 18,693 SUPPLEMENTAL CASH FLOW INFORMATION: Interest paid $ 5,713 $ 6,398 Income taxes paid, net $ 25,616 $ 24,812 NON-CASH INVESTING AND FINANCING ACTIVITIES: Accrued construction costs $ 3,904 $ 3,214 Dividends payable $ 4,904 $ 4,381 Capital lease obligations $ 740 $ 10,689 $0.6$0.6 million and $0.5$0.5 million for the three months ended JuneSeptember 29, 2013 and September 30, 2013 and July 1, 2012, respectively, and $1.4$2.0 million and $1.1$1.6 million for the sixnine months ended JuneSeptember 29, 2013 and September 30, 20132012, respectively.July 1, 2012, respectively.June 30,September 29, 2013 and for the three and sixnine months ended JuneSeptember 29, 2013 and September 30, 2013 and July 1, 2012 are unaudited and are presented in accordance with the requirements for quarterly reports on Form 10-Q and, consequently, do not include all of the information and footnote disclosures required by accounting principles generally accepted in the United States of America (“GAAP”). In the opinion of management, the Company’s Consolidated Financial Statements include all adjustments (consisting solely of normal recurring adjustments) necessary for the fair statement of its consolidated results of operations, financial position and cash flows as of the dates and for the periods presented in accordance with GAAP and the rules and regulations of the United States Securities and Exchange Commission (the “SEC”). inputs are quoted prices available for identical assets or liabilities in active markets. inputs are observable for the asset or liability, either directly or indirectly, including quoted prices for similar assets and liabilities in active markets; or other inputs that are observable or can be corroborated by observable market data. inputs are unobservable and reflect our own assumptions.
CEC ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
CEC ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
Discount rate based on our weighted average cost of capital and the risk-free rate of return;
Sales growth rates and cash flow margins;
Strategic plans, including projected capital spending and intent to exercise lease renewal options for the store;
Salvage values; and
Other risks and qualitative factors specific to the asset or market conditions in which the asset is located at the time the assessment was made.
| June 30, | December 30, | |||||||
| 2013 | 2012 | |||||||
| (in thousands) | ||||||||
Revolving credit facility borrowings | $ | 352,000 | $ | 389,500 | ||||
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| September 29, 2013 | December 30, 2012 | |||||||
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| Revolving credit facility borrowings | $ | 348,500 | $ | 389,500 | ||||
CEC ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
| Three Months Ended | Six Months Ended | |||||||||||||||
| June 30, | July 1, | June 30, | July 1, | |||||||||||||
| 2013 | 2012 | 2013 | 2012 | |||||||||||||
| (in thousands, except per share data) | ||||||||||||||||
Numerator: | ||||||||||||||||
Net income | $ | 7,239 | $ | 4,079 | $ | 40,496 | $ | 36,383 | ||||||||
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Denominator: | ||||||||||||||||
Basic weighted average common shares outstanding | 17,057 | 17,599 | 17,211 | 17,692 | ||||||||||||
Potential common shares for restricted stock | 81 | 41 | 84 | 53 | ||||||||||||
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Diluted weighted average common shares outstanding | 17,138 | 17,640 | 17,295 | 17,745 | ||||||||||||
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Earnings per share: | ||||||||||||||||
Basic | $ | 0.42 | $ | 0.23 | $ | 2.35 | $ | 2.06 | ||||||||
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Diluted | $ | 0.42 | $ | 0.23 | $ | 2.34 | $ | 2.05 | ||||||||
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| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 29, 2013 | September 30, 2012 | September 29, 2013 | September 30, 2012 | |||||||||||||
| (in thousands, except per share data) | ||||||||||||||||
Numerator: | ||||||||||||||||
| Net income | $ | 7,439 | $ | 7,794 | $ | 47,935 | $ | 44,177 | ||||||||
Denominator: | ||||||||||||||||
| Basic weighted average common shares outstanding | 16,958 | 17,397 | 17,128 | 17,595 | ||||||||||||
| Potential common shares for restricted stock | 163 | 76 | 110 | 57 | ||||||||||||
| Diluted weighted average common shares outstanding | 17,121 | 17,473 | 17,238 | 17,652 | ||||||||||||
Earnings per share: | ||||||||||||||||
| Basic | $ | 0.44 | $ | 0.45 | $ | 2.80 | $ | 2.51 | ||||||||
| Diluted | $ | 0.43 | $ | 0.45 | $ | 2.78 | $ | 2.50 | ||||||||
| Three Months Ended | Six Months Ended | |||||||||||||||
| June 30, 2013 | July 1, 2012 | June 30, 2013 | July 1, 2012 | |||||||||||||
| (in thousands) | ||||||||||||||||
Stock-based compensation costs | $ | 2,549 | $ | 1,988 | $ | 4,315 | $ | 3,767 | ||||||||
Portion capitalized as property and equipment(1) | (51 | ) | (32 | ) | (90 | ) | (62 | ) | ||||||||
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Stock-based compensation expense recognized | $ | 2,498 | $ | 1,956 | $ | 4,225 | $ | 3,705 | ||||||||
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Tax benefit recognized from stock-based compensation awards | $ | 143 | $ | — | $ | 172 | $ | 619 | ||||||||
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| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 29, 2013 | September 30, 2012 | September 29, 2013 | September 30, 2012 | |||||||||||||
| (in thousands) | ||||||||||||||||
| Stock-based compensation costs | $ | 2,288 | $ | 1,958 | $ | 6,603 | $ | 5,725 | ||||||||
Portion capitalized as property and equipment(1) | (44 | ) | (33 | ) | (134 | ) | (95 | ) | ||||||||
| Stock-based compensation expense recognized | $ | 2,244 | $ | 1,925 | $ | 6,469 | $ | 5,630 | ||||||||
| Tax benefit recognized from stock-based compensation awards | $ | 77 | $ | — | $ | 249 | $ | 619 | ||||||||
| (1) | We capitalize the portion of stock-based compensation costs related to our design, construction, facilities and legal departments that are directly attributable to our store development projects, such as the design and construction of a new store and the remodeling and expansion of our existing stores. Capitalized stock-based compensation cost attributable to our store development projects is included in “Property and equipment, net” in the Consolidated Balance Sheets. |
| Restricted Shares | Weighted Average Grant Date Fair Value | |||||||
Unvested restricted stock awards, December 30, 2012 | 547,077 | $ | 35.94 | |||||
Granted | 290,027 | $ | 30.90 | |||||
Vested | (219,771 | ) | $ | 33.72 | ||||
Forfeited | (22,934 | ) | $ | 35.89 | ||||
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Unvested restricted stock awards, June 30, 2013 | 594,399 | $ | 34.31 | |||||
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Restricted Shares | Weighted Average Grant Date Fair Value | ||||||
| Unvested restricted stock awards, December 30, 2012 | 547,077 | $ | 35.94 | ||||
| Granted | 291,245 | $ | 30.95 | ||||
| Vested | (221,751 | ) | $ | 33.69 | |||
| Forfeited | (24,093 | ) | $ | 35.73 | |||
| Unvested restricted stock awards, September 29, 2013 | 592,478 | $ | 34.34 | ||||
| Common Stock | Capital In Excess of | Retained | Accumulated Other Comprehensive | Treasury Stock | ||||||||||||||||||||||||||||
| Shares | Amount | Par Value | Earnings | Income | Shares | Amount | Total | |||||||||||||||||||||||||
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Balance at December 30, 2012 | 61,696,806 | $ | 6,170 | $ | 447,449 | $ | 823,012 | $ | 5,880 | 43,814,979 | $ | (1,139,237 | ) | $ | 143,274 | |||||||||||||||||
Net income | — | — | — | 40,496 | — | — | — | 40,496 | ||||||||||||||||||||||||
Other comprehensive income | — | — | — | — | (821 | ) | — | — | (821 | ) | ||||||||||||||||||||||
Stock-based compensation costs | — | — | 4,315 | — | — | — | — | 4,315 | ||||||||||||||||||||||||
Restricted stock issued, net of forfeitures | 267,093 | 27 | (27 | ) | — | — | — | — | — | |||||||||||||||||||||||
Tax shortfall from restricted stock, net | — | — | (350 | ) | — | — | — | — | (350 | ) | ||||||||||||||||||||||
Restricted stock returned for taxes | (70,792 | ) | (8 | ) | (2,155 | ) | — | — | — | — | (2,163 | ) | ||||||||||||||||||||
Repurchase of treasury shares | — | — | — | — | — | 526,245 | (18,112 | ) | (18,112 | ) | ||||||||||||||||||||||
Dividends declared | — | — | — | (8,481 | ) | — | — | — | (8,481 | ) | ||||||||||||||||||||||
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Balance at June 30, 2013 | 61,893,107 | $ | 6,189 | $ | 449,232 | $ | 855,027 | $ | 5,059 | 44,341,224 | $ | (1,157,349 | ) | $ | 158,158 | |||||||||||||||||
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| Common Stock | Capital In Excess of Par Value | Retained Earnings | Accumulated Other Comprehensive Income | Treasury Stock | ||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Total | ||||||||||||||||||||||||||
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| Balance at December 30, 2012 | 61,696,806 | $ | 6,170 | $ | 447,449 | $ | 823,012 | $ | 5,880 | 43,814,979 | $ | (1,139,237 | ) | $ | 143,274 | |||||||||||||||
| Net income | — | — | — | 47,935 | — | — | — | 47,935 | ||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | (596 | ) | — | — | (596 | ) | ||||||||||||||||||||
| Stock-based compensation costs | — | — | 6,603 | — | — | — | — | 6,603 | ||||||||||||||||||||||
| Restricted stock issued, net of forfeitures | 267,152 | 27 | (27 | ) | — | — | — | — | — | |||||||||||||||||||||
| Tax shortfall from restricted stock, net | — | — | (272 | ) | — | — | — | — | (272 | ) | ||||||||||||||||||||
| Restricted stock returned for taxes | (71,465 | ) | (8 | ) | (2,183 | ) | — | — | — | — | (2,191 | ) | ||||||||||||||||||
| Repurchase of treasury shares | — | — | — | — | — | 526,245 | (18,112 | ) | (18,112 | ) | ||||||||||||||||||||
| Dividends declared | — | — | — | (12,694 | ) | — | — | — | (12,694 | ) | ||||||||||||||||||||
| Balance at September 29, 2013 | 61,892,493 | $ | 6,189 | $ | 451,570 | $ | 858,253 | $ | 5,284 | 44,341,224 | $ | (1,157,349 | ) | $ | 163,947 | |||||||||||||||
2013
.Executive Summary;
Overview of Operations;
Results of Operations;
Financial Condition, Liquidity and Capital Resources;
Off-Balance Sheet Arrangements and Contractual Obligations;
Critical Accounting Policies and Estimates;
Recently Issued Accounting Guidance; and
Cautionary Statement Regarding Forward-Looking Statements.
During the Number of Company-owned stores: Beginning of period New(1) Acquired from franchisee Closed(1) End of period Number of franchised stores: Beginning of period New(2) Acquired by the Company Closed(2) End of period Cost of food and beverage includes all direct costs of food, beverages and costs of related paper and birthday supplies, less rebates from suppliers; Cost of entertainment and merchandise includes all direct costs of prizes provided and merchandise sold to our customers, as well as the cost of tickets dispensed to customers; Labor expenses consist of salaries and wages, bonuses, related payroll taxes and benefits for store personnel; Depreciation and amortization includes expenses that are directly related to our Company-owned stores’ property and equipment, including leasehold improvements, game and ride equipment, furniture, fixtures and other equipment; Rent expense includes lease costs for Company-owned stores, excluding common occupancy costs (e.g., common area maintenance (“CAM”) charges and property taxes); and Other store operating expenses primarily include utilities, repair and maintenance costs, liability and property insurance, CAM charges, property taxes, credit card processing fees, licenses, preopening expenses, store asset disposal gains and losses and all other costs directly related to the operation of a store. our store employees are trained to sell and attend to both our dining and entertainment operations. We believe it would be difficult and potentially misleading to allocate labor costs between “Food and beverage sales” and “Entertainment and merchandise sales”; and while certain assets are individually dedicated to either our food service operations or game activities, we also have significant capital investments in shared depreciating assets, such as leasehold improvements, point-of-sale systems, computer-controlled robotic characters and showroom fixtures. Therefore, we believe it would be difficult and potentially misleading to allocate depreciation and amortization expense or rent expense between “Food and beverage sales” and “Entertainment and merchandise sales.” Food and beverage sales Entertainment and merchandise sales Company store sales Company store sales Franchise fees and royalties Total revenues Company store operating costs: Cost of food and beverage(1) Cost of entertainment and Total cost of food, beverage, entertainment and Labor expenses(3) Depreciation and amortization(3) Rent expense(3) Other store operating expenses(3) Total Company store operating costs(3) Other costs and expenses: Advertising expense General and administrative expenses Asset impairments Total operating costs and expenses Operating income Interest expense Income before income taxes Company store sales economic uncertainties and increased competition from kids' movies. paper and birthday supplies. unfavorable development of certain general liability claims and an increase in preopening expenses to support new store development. expenses. Company store sales increased 20% of comparable store sales. In addition, we believe our comparable store sales have been impacted by overall political and economic uncertainties. campaign in property in the second quarter of 2013. The decrease in the effective tax rate was partially offset by an increase in liabilities for uncertain tax positions, net of decreases resulting from favorable audit settlements, and an increase in tax expense resulting from a law enacted during the current quarter that repealed the former California Enterprise Zone credit program and set a limit on the credit carryforward period. our store customers pay for their purchases in cash or credit cards at the time of the sale and the cash from these sales is typically received before our related accounts payable to suppliers and employee payroll becomes due; frequent inventory turnover results in a limited investment required in inventories; and our accounts payable are generally due within five to 30 days. Net cash provided by operating activities Net cash used in investing activities Net cash used in financing activities Effect of foreign exchange rate changes on cash Change in cash and cash equivalents Interest paid Income taxes paid, net Cash and cash equivalents Revolving credit facility borrowings Available unused commitments under revolving credit facility capital and the Dividends Investment in Company-owned stores: Game Enhancements Major Remodels Store Expansions Total completed Total capital spend on existing Company-owned stores (in millions) Company owned stores(1) Total capital spend on new Company-owned stores (in millions) Investment in Company-owned stores: Game Enhancements Major Remodels Store Expansions Total New Company store development(1) Our ability to successfully implement our strategic plan; Competition in both the restaurant and entertainment industries; Changes in consumer discretionary spending; Impacts on our business and financial results from economic uncertainty in the U.S. and Canada; Negative publicity concerning food quality, health, general safety and other issues; Increases in food, labor and other operating costs; Unanticipated costs and delays in implementing our strategic plan; Government regulations, including health care reform; Existence or occurrence of certain public health issues; Changes in consumers’ health, nutrition and dietary preferences; Any disruption of our commodity distribution system, which currently utilizes a single distributor for most of our products and supplies; Product liability claims and product recalls; Inadequate insurance coverage; Disruptions of our information technology systems and technologies; Litigation risks; Our dependence on a limited number of suppliers for our games, rides, redemption prizes and merchandise; Adverse effects of local conditions, natural disasters and other events; Increases in our leverage; Loss of certain key personnel; Fluctuations in our quarterly results of operations due to seasonality; Our ability to adequately protect our trademarks or other proprietary rights; Risks in connection with owning and leasing real estate; and Conditions in foreign markets. Issuer Purchases of Equity Securities Period April 1 – April 28, 2013 April 29 – May 26, 2013 May 27 – June 30, 2013 Total in 2012, we implemented an updated strategic plan with the primary objective of increasing customerguest traffic and ultimately improving our sales and operating results. As part of this plan, we began implementingimplemented a number of strategic changes duringover the second half of 2012.last twelve months. We introduced a new and updated Chuck E. Cheese character, launched a multi-faceted advertising campaign, launched our redesigned website, began implementing and communicating our value proposition to our customersguests and began providing a significantly improved and targeted operational plan focused on enhancing the service level and experience for all guests.Second Quarterincreaseddecreased to $7.2$7.4 million, or $0.42$0.43 per share, for the three months ended June 30,September 29, 2013 compared to $4.1$7.8 million, or $0.23$0.45 per share, for the three months ended July 1, 2012.September 30, 2012.increased $9.5decreased$0.7 million, or 5.2%0.4%, compared to the secondthird quarter of 2012, primarily due to a 2.9% increase2.1%decrease in comparable store sales, andpartially offset by additional revenuerevenues from fourseven net new stores opened since the secondend of the third quarter of 2012.2012.decreased 250increased10 basis points, as a percentage of Company store sales, primarily due to a 100an 80 basis point increase in labor costs and a 60 basis point increase in other store operating expenses, substantially offset by a 120 basis point decrease in the cost of food, beverage, entertainment and merchandise and a 60 basis point decrease in labor costs.merchandise. $1.7$1.0 million, primarily due to a $2.5$0.6 millionincrease in advertising costs and a $1.3$0.6 millionincrease in general and administrative expenses, partially offset by a $2.1$0.3 milliondecrease in asset impairments.$16.7$31.1 million in the secondthird quarter of 2013 compared to $2.1$39.4 million in the secondthird quarter of 2012, driven primarily by an increase in net income and changes in our working capital.We repurchased $8.1 million of our common stock in the second quarter of 2013.secondthird quarter of 2013, we completed 2568 capital initiatives consisting of 2158 game enhancements, three major remodels, two store expansions and twofive new store openings, as well as began construction on threefour new stores.secondthird quarter of 2013, we declared a cash dividend of $4.2$4.2 million, or $0.24$0.24 per share.nine10 foreign countries and territories. Additionally, we have development agreements focused on franchising our concept in four additional foreign countries. Our stores offer wholesome family dining, distinctive musical and comic entertainment bycomputer-controlled robotic characters, family-oriented arcade-style and skill-oriented games, video games, rides and other activities, which are intended to uniquely appeal to our primary customer base of families with children between two and 12 years of age. Our stores offer dining selections consisting of a variety of pizzas, sandwiches, wings, appetizers, a salad bar, beverages and desserts. Three Months
Ended Six Months Ended June 30, July 1, June 30, July 1, 2013 2012 2013 2012 515 508 514 507 2 5 3 5 — — — 1 (3 ) (3 ) (3 ) (3 ) 514 510 514 510 51 50 51 49 3 — 3 2 — — — (1 ) (1 ) — (1 ) — 53 50 53 50 Three Months Ended Nine Months Ended September 29,
2013 September 30,
2012 September 29,
2013 September 30,
2012Number of Company-owned stores: Beginning of period 514 510 514 507 5 2 8 7 Acquired from franchisee — — — 1 (1 ) (1 ) (4 ) (4 ) End of period 518 511 518 511 Number of franchised stores: Beginning of period 53 50 51 49 1 1 4 3 Acquired by the Company — — — (1 ) (1 ) — (2 ) — End of period 53 51 53 51 (1)(1) sixnine months ended July 1, 2012,September 29, 2013, the number of new and closed Company-owned stores included twoone store that was relocated. During the three months ended September 30, 2012, the number of new and closed Company-owned stores included one store that was relocated. During the nine months endedSeptember 30, 2012, the number of new and closed Company-owned stores included three stores that were relocated.(2)(2) three and sixnine months ended June 30,September 29, 2013, the number of new and closed franchised stores included one store that was relocated.are focusingcontinue to focus on growing our concept both domestically and internationally. We currently expect to open a total of 13 to 14 new domestic Company-owned stores, including one relocated store, in 2013 and a total of 12 to 15 new domestic Company-owned stores, including one to twothree relocated stores per yearand one franchise acquisition, in both 2013 and 2014.2014. We currently expect to close five Company-owned stores in 2013.2013. We are also targeting franchising our concept internationally in certain countries located in Asia, Latin America, the Middle East and Eastern Europe. We currently expect our franchisees to open a total of four to sixfive international franchise stores during 2013.2013. During the second quarterfirst nine months of 2013, our international franchisees opened twothree new stores located one each in Panama, Peru and Saudi Arabia.orand coupon offerings. We allocate the revenues recognized from the sale of our Package Deals and coupons between “Food and beverage sales” and “Entertainment and merchandise sales” based upon the price charged for each component when it is sold separately, or in limited circumstances, our best estimate of selling price if a component is not sold on a stand-alone basis, which we believe approximates each component’s fair value.rentdepreciation and amortization expense; (c) depreciation and amortizationrent expense; and (d) other direct store operating expenses associated with the operation of our Company-owned stores. We believe that presenting store-level labor costs, rent expense, depreciation and amortization expense, rent expense and other store operating expenses in the aggregate provides the most informative financial reporting presentation. Our rationale for excluding such costs is as follows:isare not expected to generate sufficient projected future cash flows to recover the current net book value of the long-lived assets within the store. We believe our assumptions in calculating the fair value of our long-lived assets are similar to those used by other marketplace participants. Three Months Ended Six Months Ended June 30, 2013 July 1, 2012 June 30, 2013 July 1, 2012 (in thousands, except percentages) $ 86,517 45.4 % $ 84,882 46.9 % $ 202,318 45.5 % $ 200,784 47.1 % 103,926 54.6 % 96,274 53.1 % 242,328 54.5 % 225,798 52.9 % $ 190,443 100.0 % $ 181,156 100.0 % $ 444,646 100.0 % $ 426,582 100.0 % Three Months Ended Nine Months Ended September 29,
2013 September 30,
2012 September 29,
2013 September 30,
2012 (in thousands, except percentages) Food and beverage sales $ 87,170 44.7 % $ 90,406 46.2 % $ 289,488 45.3 % $ 291,190 46.8 % Entertainment and merchandise sales 107,629 55.3 % 105,223 53.8 % 349,957 54.7 % 331,021 53.2 % Total Company store sales $ 194,799 100.0 % $ 195,629 100.0 % $ 639,445 100.0 % $ 622,211 100.0 % Three Months Ended Six Months Ended June 30, 2013 July 1, 2012 June 30, 2013 July 1, 2012 (in thousands, except percentages) $ 190,443 99.2 % $ 181,156 99.3 % $ 444,646 99.4 % $ 426,582 99.4 % 1,501 0.8 % 1,259 0.7 % 2,601 0.6 % 2,591 0.6 % 191,944 100.0 % 182,415 100.0 % 447,247 100.0 % 429,173 100.0 % 20,926 24.2 % 21,025 24.8 % 48,965 24.2 % 49,236 24.5 %
merchandise(2) 6,948 6.7 % 7,170 7.4 % 16,280 6.7 % 16,145 7.2 %
merchandise(3) 27,874 14.6 % 28,195 15.6 % 65,245 14.7 % 65,381 15.3 % 55,085 28.9 % 53,385 29.5 % 117,940 26.5 % 115,053 27.0 % 19,207 10.1 % 19,091 10.5 % 39,063 8.8 % 38,830 9.1 % 19,217 10.1 % 18,957 10.5 % 38,976 8.8 % 37,915 8.9 % 31,872 16.7 % 30,702 16.9 % 64,374 14.5 % 62,266 14.6 % 153,255 80.5 % 150,330 83.0 % 325,598 73.2 % 319,445 74.9 % 10,618 5.5 % 8,106 4.4 % 22,316 5.0 % 16,981 4.0 % 14,380 7.5 % 13,062 7.2 % 29,421 6.6 % 26,704 6.2 % 226 0.1 % 2,374 1.3 % 226 0.1 % 2,723 0.6 % 178,479 93.0 % 173,872 95.3 % 377,561 84.4 % 365,853 85.2 % 13,465 7.0 % 8,543 4.7 % 69,686 15.6 % 63,320 14.8 % 2,039 1.1 % 2,083 1.1 % 4,231 0.9 % 4,054 0.9 % $ 11,426 6.0 % $ 6,460 3.5 % $ 65,455 14.6 % $ 59,266 13.8 % Three Months Ended Nine Months Ended September 29, 2013 September 30, 2012 September 29, 2013 September 30, 2012 (in thousands, except percentages) Total Company store sales $ 194,799 99.4 % $ 195,629 99.5 % $ 639,445 99.4 % $ 622,211 99.4 % Franchise fees and royalties 1,107 0.6 % 921 0.5 % 3,708 0.6 % 3,512 0.6 % Total revenues 195,906 100.0 % 196,550 100.0 % 643,153 100.0 % 625,723 100.0 % Company store operating costs: 20,850 23.9 % 22,627 25.0 % 69,815 24.1 % 71,863 24.7 % 6,976 6.5 % 7,703 7.3 % 23,256 6.6 % 23,848 7.2 % 27,826 14.3 % 30,330 15.5 % 93,071 14.6 % 95,711 15.4 % 56,469 29.0 % 55,139 28.2 % 174,409 27.3 % 170,192 27.4 % 19,603 10.1 % 19,872 10.2 % 58,666 9.2 % 58,702 9.4 % 19,672 10.1 % 19,526 10.0 % 58,648 9.2 % 57,441 9.2 % 34,401 17.7 % 33,501 17.1 % 98,775 15.4 % 95,767 15.4 % 157,971 81.1 % 158,368 81.0 % 483,569 75.6 % 477,813 76.8 % Advertising expense 10,644 5.4 % 9,966 5.1 % 32,960 5.1 % 26,947 4.3 % General and administrative expenses 13,529 6.9 % 12,931 6.6 % 42,950 6.7 % 39,635 6.3 % Asset impairments 537 0.3 % 818 0.4 % 763 0.1 % 3,541 0.6 % Total operating costs and expenses 182,681 93.2 % 182,083 92.6 % 560,242 87.1 % 547,936 87.6 % Operating income 13,225 6.8 % 14,467 7.4 % 82,911 12.9 % 77,787 12.4 % Interest expense 1,278 0.7 % 2,031 1.0 % 5,509 0.9 % 6,085 1.0 % Income before income taxes $ 11,947 6.1 % $ 12,436 6.3 % $ 77,402 12.0 % $ 71,702 11.5 % (1)(1) Percent amount expressed as a percentage of Food and beverage sales. (2)(2) Percent amount expressed as a percentage of Entertainment and merchandise sales. (3)(3) Percent amount expressed as a percentage of Company store sales. totalTotal Company store sales.June 30,September 29, 2013 Compared to Three Months Ended July 1,September 30, 2012Revenuesincreased $9.2decreased$0.8 million, or 5.1%0.4%, to $190.4$194.8 million during the secondthird quarter of 2013 compared to $181.2$195.6 million during the same period in the prior year. The increasedecrease was primarily due to a 2.9% increase2.1%decrease in comparable store sales, as well as revenuepartially offset by revenues generated from fourseven net new stores opened since the secondend of the third quarter of 2012. We continue2012. The decrease in comparable store sales is primarily related to evaluatean approximate 11% decline in birthday party sales during the impactthird quarter of 2013 as compared to the same period in the prior year, which have historically generated approximately 15% to 20% of comparable store sales. In addition, we believe our strategic plan on our resultscomparable stores sales have been impacted by overall political and believe that certain components of our strategy are continuing to gain traction.45.4%44.7% and Entertainment and merchandise sales totaling 54.6%55.3% during the secondthird quarter of 2013 compared to 46.9%46.2% and 53.1%53.8%, respectively, during the secondthird quarter of 2012.2012. We believe the shift in our sales mix is primarily due to: (a) repricing of certain components of our offerings; (b) changing the mix of items included in Packaged Deals and coupons; and (c) modification of our various token offers. These changes were part of our continuing effort to rebalance our menu pricing between food and games. We believe that the rebalancing of our menu pricing and our ongoing investments in our games continues to result in more of our guests’ average check being allocated to games. 100120 basis points to 14.6%14.3% in the secondthird quarter of 2013 compared to 15.6%15.5% in the secondthird quarter of 2012.2012. We believe this decrease was partially attributable to the changes in our pricing strategy that were fully implemented in the fourth quarter of 2012 and our cost savings initiatives that were fully implemented in the second quarter of 2013. 60110 basis points to 24.2%23.9% in the secondthird quarter of 2013 from 24.8%25.0% in the secondthird quarter of 2012.2012. The percentage decrease primarily related to an approximate 20% reduction in dough usage as a result of our new thinner, more crispy pizza crust implemented in our stores in March 2013 partially offset by an increase of $0.25, or 16.3%,and a 40 basis point decrease relating to changes in the average cost per poundproduct mix of cheese. 7080 basis points to 6.7%6.5% in the secondthird quarter of 2013 from to 7.4%7.3% in the secondthird quarter of 2012.2012. The Cost of entertainment and merchandise, as a percentage of Entertainment and merchandise sales, was favorably impacted by the modification of our prize and merchandise categories, as well as the shift in the sales mix to entertainment and merchandise.decreased 60increased80 basis points to 28.9%29.0% in the secondthird quarter of 2013 compared to 29.5%28.2% in the secondthird quarter of 2012 as our. The increase was primarily related to an increase in labor costs were outpacedhours, the average hourly wage rate and higher performance bonuses, partially offset by our increase in sales. In addition, we experienced a decrease in workers’ compensation and health insurance costs during the secondthird quarter of 2013. These benefits were partially offset by an increase in sales and performance bonuses due to improved results.Depreciation and amortization and Rent expense,collectively decreased 80increased60 basis points to 20.2%17.7% in the secondthird quarter of 2013 compared to 21.0%17.1% in the secondthird quarter of 2012 primarily due to improved leverage of these costsan increase in self-insurance reserves associated with higher sales. $2.5$0.6 million to $10.6$10.6 million in the secondthird quarter of 2013 from $8.1$10.0 million in the secondthird quarter of 2012, or, as a percentage of Total revenues, increased 11030 basis points to 5.5%5.4% in the secondthird quarter of 2013 from 4.4%5.1% in the secondthird quarter of 2012. In accordance with our updated strategic plan, we increased our advertising expenditures for2012. The increase is primarily related to an increase in national television advertising, thepartially offset by a reduction in production of new commercials and a new digital advertising campaign. $1.3$0.6 million to $14.4$13.5 million in the secondthird quarter of 2013 from $13.1$12.9 million in the secondthird quarter of 2012 primarily due to increases in management bonuses related to improved sales and profit performance and other various corporate office overhead costs, partially offset by a gain ondecrease in management bonuses related to the salecurrent quarter's sales and profit performance.secondthird quarter of 2013, we recognized an asset impairment charge of $0.2$0.5 million for primarily related to one store, which was not previously impaired. During the secondthird quarter of 2012, we recognized an asset impairment charge of $2.4$0.8 million for ninetwo stores, of which six stores wereone store was previously impaired. We continue to operate all but one of these impaired stores. For additional information about this impairment charge, refer to Note 2 “Asset Impairments” to our Consolidated Financial Statements included in Part I, Item 1. “Financial Statements.”increased by 82.6%decreased $0.02, or 4.4%, to $0.42$0.43 per share in the secondthird quarter of 2013 from $0.23$0.45 per share in the secondthird quarter of 2012 primarily due to a 77.5% increasethe decrease in net income.SixNine Months Ended June 30,September 29, 2013 Compared to SixNine Months Ended July 1,September 30, 2012Revenues $18.0$17.2 million, or 4.2%2.8%, to $444.6$639.4 million in the first sixnine months of 2013 compared to $426.6$622.2 million in the first sixnine months of 2012.2012. The increase in Company store sales is primarily due to a 2.2% 0.8%increase in comparable store sales, as well as revenuerevenues generated from fourseven net new stores opened since the secondend of the third quarter of 2012. We believe the increase in comparable2012. Comparable store sales in 2013 was partially related towere favorably impacted by record warm weather in the Midwest and Northeast in March 2012, which negatively impacted our prior year results. We continue to evaluatealso believe the impactfirst nine months of our strategic plan on our results and believe that2013 benefited from certain components of our strategy are continuingstrategy; however, this benefit was partially offset by an approximate 7% decline in birthday party sales during this same period, which have historically generated 15% to gain traction.45.5%45.3% and Entertainment and merchandise sales totaling 54.5%54.7% for the first sixnine months of 2013 compared to 47.1%46.8% and 52.9%53.2%, respectively, for the first sixnine months of 2012.2012. We believe the shift in our sales mix is primarily due to: (a) repricing of certain components of our offerings; (b) changing the mix of items included in Packaged Deals and coupons; and (c) modification of our various token offers. These changes were part of our continuing effort to rebalance our menu pricing between food and games. We believe that the rebalancing of our menu pricing and our ongoing investments in our games continues to result in more of our guests’ average check being allocated to games.sixnine months of 2013, the Cost of food, beverage, entertainment and merchandise, as a percentage of Company store sales, decreased 6080 basis points to 14.7%14.6% as compared to 15.3%15.4% in the first sixnine months of 2012.2012. We believe this decrease was partially attributable to the changes in our pricing strategy that were fully implemented in the fourth quarter of 2012 and our cost savings initiatives that were fully implemented in the second quarter of 2013. 3060 basis points to 24.2%24.1% in the first sixnine months of 2013 compared to 24.5%24.7% in the first sixnine months of 2012.2012. The percentage decrease primarily related to an approximate 15% reduction in dough usage as a result of our new thinner, more crispy pizza crust implemented in stores in March 2013 and a 2030 basis point decrease relating to changes in the costproduct mix of paper and birthday supplies, partially offset by an increase of $0.19,$0.12, or 12.7%7.5%, in the average cost per pound of cheese. 5060 basis points to 6.7%6.6% in the sixfirst nine months ended June 30, of 2013 compared to 7.2% in the sixfirst nine months ended July 1, 2012. of 2012. The Cost of entertainment and merchandise, as a percentage of Entertainment and merchandise sales, was favorably impacted by the modification of our prize and merchandise categories, as well as the shift in the sales mix to entertainment and merchandise. by 5010 basis points to 26.5%27.3% in the first sixnine months of 2013 compared to 27.0%27.4% in the first sixnine months of 2012, as our increase in labor costs werewas outpaced by our increase in sales. In addition, we experienced a decrease in workers’ compensation and health insurance costs during the first sixnine months of 2013.2013. These benefits were partially offset by an increase in sales and performance bonuses due to improved results. $5.3$6.1 million to $22.3$33.0 million in the first sixnine months of 2013 from $17.0$26.9 million in the first sixnine months of 2012, or, as a percentage of Total revenues, increased 10080 basis points to 5.0%5.1% in the first sixnine months of 2013 from 4.0%4.3% in the first sixnine months of 2012.2012. In accordance with our updated strategic plan, we increased our advertising expenditures for national television advertising the production of new commercials and a newour digital advertising campaign. $2.7$3.4 million to $29.4$43.0 million in the first sixnine months of 2013 from $26.7$39.6 million in the first sixnine months of 2012, primarily due to an increase in management bonuses as a result of improved sales and profit performance and higher corporate overhead costs, including professional fees, partially related to the modernization of various information technology platforms,platforms. These increases were partially offset by a gain on the sale of a property.sixnine months of 2013, we recognized an asset impairment charge of $0.2$0.8 million for primarily related to two stores, of which one store which was not previously impaired. During the first sixnine months of 2012, we recognized an asset impairment charge of $2.7$3.5 million for tentwelve stores, of which sixseven stores were previously impaired. We continue to operate all but one of these impaired stores. For additional information about this impairment charge, refer to Note 2 “Asset Impairments” to our Consolidated Financial Statements included in Part I, Item 1. “Financial Statements.”sixnine months of 2013 compared to 38.6%38.4% for the first sixnine months of 2012.2012. The decrease in our effective income tax rate was primarily due to an increase in federal and state tax credits, including federal Work Opportunity Tax Credits relating to our 2012 and 2013 fiscal years. The increase in credits related to our 2012 fiscal tax year was accounted for in the first quarter of 2013 due to the retroactive reinstatement of certain aspects of the federal credit program enacted January 2, 2013. by 14.1% $0.28, or 11.2%, to $2.34$2.78 per share in the first sixnine months of 2013 from $2.05$2.50 per share in the first sixnine months of 2012, primarily due to an 11.3% the increase in net income and a 2.5% 2.3%decrease in the number of weighted average diluted shares outstanding between the two periods. The decrease in weighted average diluted shares outstanding between the two periods was impacted by our repurchase of 0.9 million shares of our common stock since the beginning of the first quarter of 2012 through the end of the secondthird quarter of 2013.2013. During the first sixnine months of 2013, we repurchased 526,245 shares of our common stock. We estimate that the decrease in the number of weighted average diluted shares outstanding between the two periods attributable solely to stock repurchases benefited our earnings per share in the first sixnine months of 2013 by $0.06.$0.07. Our estimate is based on the weighted average number of shares repurchased since the beginning of the first quarter of 2012 and includes consideration of the estimated additional interest expense attributable to increased borrowings under our revolving credit facility to finance the repurchases. Our computation does not include the effect of share repurchases prior to the 2012 fiscal year or the effect of the issuance of restricted stock subsequent to the beginning of the 2012 fiscal year. Six Months Ended June 30, July 1, 2013 2012 (in thousands) $ 92,692 $ 79,787 (29,350 ) (50,075 ) (62,422 ) (30,952 ) (361 ) 3 $ 559 $ (1,237 ) $ 3,842 $ 4,466 $ 20,559 $ 20,284 June 30, December 30, 2013 2012 (in thousands) $ 20,195 $ 19,636 $ 352,000 $ 389,500 $ 137,100 $ 100,100 Nine Months Ended September 29,
2013 September 30,
2012 (in thousands) Net cash provided by operating activities $ 123,755 $ 119,240 Net cash used in investing activities (51,508 ) (75,357 ) Net cash used in financing activities (70,196 ) (43,982 ) Effect of foreign exchange rate changes on cash (303 ) 119 Change in cash and cash equivalents $ 1,748 $ 20 Interest paid $ 5,713 $ 6,398 Income taxes paid, net $ 25,616 $ 24,812 September 29,
2013 December 30,
2012 (in thousands) Cash and cash equivalents $ 21,384 $ 19,636 Revolving credit facility borrowings $ 348,500 $ 389,500 Available unused commitments under revolving credit facility $ 140,600 $ 100,100 $20.2$21.4 million and $19.6$19.6 million as of June 30,September 29, 2013 and December 30, 2012, respectively. Cash and cash equivalents as of June 30,September 29, 2013 and December 30, 2012 includes $8.2$8.8 million and $7.8$7.8 million, respectively, of undistributed income from our Canadian subsidiary that we consider to be permanently invested.$12.9$4.6 million to $92.7$123.8 million in the first sixnine months of 2013 from $79.8$119.2 million in the first sixnine months of 2012.2012. The increase was primarily attributable to the 11.3% increase in net income, an increase in accrued income taxes for 2013 as compared to 2012, as a result of higher net income, and changes in working capital. $20.7$23.9 million to $29.4$51.5 million in the first sixnine months of 2013 from $50.1$75.4 million in the first sixnine months of 2012, primarily due to a reduction in the timingnumber of payments for variousstore expansions and other capital initiatives completed, as well as recognizing cash proceeds from the sale of a property. $31.4$26.2 million to $62.4$70.2 million in the first sixnine months of 2013 from $31.0$44.0 million in the first sixnine months of 2012.2012. The increase primarily related to increases in repayments on our revolving credit facility.$500.0$500.0 million revolving credit facility under a credit agreement dated October 28, 2011, with a syndicate of lenders. The revolving credit facility is a senior unsecured credit commitment, which matures in October 2016. The revolving credit facility includes an accordion feature allowing us, subject to meeting certain conditions and lender approval, to request an increase to the revolving commitment of up to $200.0$200.0 million in borrowings at any time. Based on the type of borrowing, the revolving credit facility bears interest at the one month London Interbank Offered Rate (“LIBOR”) plus an applicable margin of 0.875% to 1.625%, determined based on our financial performance and debt levels, or alternatively, the highest of (a) the Prime Rate; (b) the Federal Funds rate plus 0.50%; or (c) one-month LIBOR plus 1.0%; plus an applicable margin of up to 0.625%, determined based on our financial performance and debt levels. During the first sixnine months of 2013, the Prime Rate was 3.25% and the one-month LIBOR rate ranged from 0.19%0.18% to 0.21%0.24%. The revolving credit facility also requires us to pay a quarterly commitment fee ranging from 0.15% to 0.30%, depending on our financial performance and debt levels, on any unused portions of our revolving credit facility. All borrowings under our revolving credit facility are unsecured, but we agreed not to pledge any of our existing assets to secure any other future indebtedness. We have the unrestricted ability to pay dividends and repurchase shares of our common stock under our revolving credit facility, provided that our consolidated leverage ratio, as defined in the revolving credit facility, does not exceed 2.75 to 1.0 on a proforma basis, for the four fiscal quarters then most recently ended, immediately after giving effect to such payments or repurchases.June 30,September 29, 2013, we had $352.0$348.5 million of borrowings outstanding and $10.9$10.9 million of letters of credit, issued but undrawn under our revolving credit facility. The weighted average effective interest rate incurred on our borrowings under our credit facilities was 1.7% for the sixnine months ended June 30, 2013.September 29, 2013.June 30,September 29, 2013, we were in compliance with these covenant ratios, with a consolidated fixed charge coverage ratio of 2.04 to 1.0 and a consolidated leverage ratio of 2.162.15 to 1.0, and we expect to remain in compliance for the next twelve months.Dividendsixnine months ended JuneSeptember 29, 2013 and September 30, 2013 and July 1, 2012, we declared cash dividends to common stockholders of $8.5$12.7 million and $7.9$11.9 million, respectively. On JulyOctober 29, 2013, our Board of Directors ("Board") approved a 13% increase in the Company's quarterly cash dividend and declared a cash dividend of $0.24$0.27 per share, which will be paid on October 3,December 27, 2013 to stockholders of record on SeptemberDecember 5, 2013.2013. We currently expect to continue to pay quarterly cash dividends. However, we can give no assurance that future cash dividends will be declared or paid. The actual declaration and payment of future cash dividends, the amount of any such dividends and the establishment of record and payment dates, if any, is subject to final determination by our Board each quarter, after its review of our business strategy, applicable debt covenants and financial performance and position, among other things.one to twothree relocated stores per yearand one franchise acquisition, in both 2013 and 2014. During2014. We opened eight stores during the first sixnine months of 2013, and we opened three stores and have begun construction on sevenare currently constructing five new stores. We have funded and expect to continue to fund our capital expenditures through existing cash flows from operations and, if necessary, borrowings under our revolving credit facility. We currently estimate capital expenditures in 2013 will total approximately $75$75 million to $80$80 million, including (a) approximately $38$38 million related to new store development; (b) approximately $22$20 million related to capital initiatives for our existing stores; and (c) the remainder for other store initiatives, general store requirements and other corporate capital expenditures. This is a reductionIn 2014, we currently estimate capital expenditures will include approximately $32 million related to new store development and approximately $29 million related to capital initiatives for our existing stores. Three Months Ended Six Months Ended June 30, July 1, June 30, July 1, 2013 2012 2013 2012 21 20 32 38 — 2 — 3 2 4 2 9 23 26 34 50 $ 3 $ 8 $ 4 $ 16 2 5 3 6 $ 5 $ 13 $ 8 $ 16 Three Months Ended Nine Months Ended September 29,
2013 September 30,
2012 September 29,
2013 September 30,
2012Investment in Company-owned stores: Game Enhancements 58 13 90 51 Major Remodels 3 — 3 3 Store Expansions 2 9 4 18 Total completed 63 22 97 72 Total capital spend on existing Company-owned stores (in millions) $ 8 $ 10 $ 12 $ 26 5 2 8 7 Total capital spend on new Company-owned stores (in millions) $ 14 $ 5 $ 22 $ 19 (1)(1) In February 2012, we acquired a store from a franchisee. Actual
Completions
in
Fiscal Year
2012 Projected
Completions
in
Fiscal Year
2013 Estimated
Average
Cost Per
Project Projected
Total Cost
in
Fiscal Year
2013 (in millions, except actual and projected completions) 94 150 $ 0.06 $ 9 6 6 $ 0.70 4 25 9 $ 1.00 9 125 165 $ 22 13 14 $ 2.70 $ 38 (in millions, except actual and projected completions) Investment in Company-owned stores: Game Enhancements 94 150 $ 0.06 $ 9 Major Remodels 6 6 $ 0.65 4 Store Expansions 25 7 $ 1.00 7 Total 125 163 $ 20 13 14 $ 2.68 $ 38 (1)(1) Projected
Completions
in
Fiscal Year
2014 Estimated
Average
Cost Per
Project Projected
Total Cost
in
Fiscal Year
2014 (in millions, except projected completions) Investment in Company-owned stores: Game Enhancements 250 $ 0.06 $ 15 Major Remodels 8 $ 0.65 5 Store Expansions 5 $ 1.00 5 Major Attractions — — 4 Total 263 $ 29 13 $ 2.47 $ 32 revisionrevised plan will allow us to perform a game enhancement at a store, generally, every two years for approximately half the cost of our historical game enhancements. We are testing a number of major attractions that will be incorporated into game enhancements, which we expect will add approximately $3 million to $4 million to the total cost of game enhancements in 2014.playroomgameroom area of the store, increase the number of games and rides and modify or develop a new exterior and interior identity.maintainingmaintain and protectingprotect our existing sales and cash flows over the long-term. While we are hopeful that our major remodels and game enhancements will contribute to incremental sales growth, we believe that our capital spending with respect to expansions of existing stores will more directly lead to growth in our comparable store sales and cash flow. We typically invest in expansions when we believe there is a potential for sales growth and, in some instances, in order to maintain sales in stores that have competitors in their market. We believe that expanding the square footage and entertainment space of a store increases our customer traffic and enhances the overall customer experience, which we believe will contribute to the growth of our long-term comparable store sales. The objective of an expansion or remodel that increases space available for entertainment is not intended to exclusively improve our entertainment sales, but rather is focused on impacting overall Company store sales through increased customer traffic and satisfaction.theour Board authorized a $100$100 million increase to our existing Board approved stock repurchase program. During the sixnine months ended June 30,September 29, 2013, we repurchased 526,245 shares of our common stock at an average price of $34.42$34.42 per share for an aggregate purchase price of $18.1 million.$18.1 million. As of June 30,September 29, 2013 $128.9, $128.9 million remained available for us to repurchase shares of our common stock, in the future, under our stock repurchase program as most recently amended April 30, 2013.June 30,September 29, 2013, we had no off-balance sheet financing arrangements as described in Regulation S-K Item 303(a)(4)(ii).June 30,September 29, 2013, there have been no material changes outside the ordinary course of business to our contractual obligations since December 30, 2012. For information regarding our contractual obligations, refer to “Off Balance Sheet Arrangements and Contractual Obligations” in Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended December 30, 2012, filed with the SEC on February 21, 2013.June 30,September 29, 2013, there has been no material change to the information concerning our critical accounting policies and estimates.OurAll of our borrowings outstanding as of June 30,September 29, 2013 of $352.0$348.5 million is accrue interest at variable rate debt that is exposed to market risk.rates. A hypothetical increase of 100 basis points in variable interest rates, assuming no change in our outstanding debt balance, would have increased interest expense by $1.8$2.7 million for the sixnine months ended June 30, 2013.September 29, 2013.sixnine months ended June 30,September 29, 2013, the weighted average cost of a block of cheese was $1.72.$1.73. The estimated increase in our food costs from a hypothetical 10% increase in the average cost of a block of cheese would have been $0.7$1.0 million for the sixnine months ended June 30, 2013.September 29, 2013. For the sixnine months ended June 30,September 29, 2013, the weighted average cost of dough per pound was $0.42.$0.41. The estimated increase in our food costs from a hypothetical 10% increase in the average cost of dough per pound would have been $0.2$0.3 million for the sixnine months ended June 30, 2013.September 29, 2013.sixnine months ended June 30,September 29, 2013, our Canadian stores represented 0.9% of our consolidated operating income.sixnine months ended June 30,September 29, 2013 were $0.95$0.9445 and $1.0166,$1.0166, respectively. A hypothetical 10% devaluation in the average quoted U.S. dollar-equivalent of the Canadian dollar exchange rate during the sixnine months ended June 30,September 29, 2013 would have reduced our reported consolidated operating income by less than $0.1 million.$0.1 million.June 30,September 29, 2013 to ensure that information required to be disclosed by us in the reports we file or submit under the Securities Exchange Act of 1934, as amended, was (a) recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms; and (b) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.secondthird quarter of 2013 and the maximum dollar value of shares that may yet be purchased pursuant to our stock repurchase program: Total
Number
of Shares
Purchased(1) Average
Price Paid
Per Share(1) Total
Number of
Shares
Purchased
As Part of
Publicly
Announced
Plans or
Programs Maximum Dollar
Value of Shares
That May Yet Be
Purchased
Under the Plans
or Programs(2) — $ — — $ 37,022,565 214,517 $ 38.06 213,936 $ 128,880,167 93 $ 40.74 — $ 128,880,167 214,610 $ 38.06 213,936 $ 128,880,167 Issuer Purchases of Equity Securities Period Total Number
of Shares
Purchased(1) Average
Price Paid
Per Share(1) Total Number of Shares Purchased As Part of Publicly Announced Plans or Programs Maximum Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs(2) July 1 – July 28, 2013 — $ — — $ 128,880,167 July 29 – August 25, 2013 673 $ 42.85 — $ 128,880,167 August 26 – September 29, 2013 — $ — — $ 128,880,167 Total 673 $ 42.85 — $ 128,880,167 (1)(1) periodsperiod ended May 26 and June 30, August 25, 2013, the total number of shares purchased included 581 shares and 93 shares, respectively,were tendered by employees at an average price per share of $37.85 and $40.74, respectively, to satisfy tax withholding requirements on the vesting of restricted stock awards, which are not deducted from shares available to be purchased under our stock repurchase program. Shares tendered by employees to satisfy tax withholding requirements were considered purchased at the closing price of our common stock on the date of vesting.(2)(2) We may repurchase shares of our common stock under a plan authorized by our Board.Board of Directors. On April 30, 2013, the Board authorized a $100 million increase to our existing Board approved stock repurchase program. The stock repurchase program, which does not have a stated expiration date, authorizes us to make repurchases through open market purchases, accelerated share repurchases or in privately negotiated transactions.
Description Description 3.1 Second Restated Articles of Incorporation of CEC Entertainment, Inc. (the “Company”) dated May 4, 2010 (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K (File No. 001-13687) as filed with the Securities and Exchange Commission (the “Commission”) on May 6, 2010) 3.2 Amended and Restated Bylaws of the Company dated May 4, 2010 (incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K (File No. 001-13687) as filed with the Commission on May 6, 2010) 4.1 Specimen form of Certificate representing $0.10 par value Common Stock (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 10-Q (File No. 001-13687) as filed with the Commission on October 29, 2009) 31.1* Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 31.2* Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 32.1** Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 32.2** Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 101.INS XBRL Instance Document 101.SCH XBRL Taxonomy Extension Schema Document 101.CAL XBRL Taxonomy Extension Calculation Linkbase Document 101.DEF XBRL Taxonomy Extension Definition Linkbase Document 101.LAB XBRL Taxonomy Extension Label Linkbase Document 101.PRE XBRL Taxonomy Extension Presentation Linkbase Document *Filed herewith.**Furnished herewith. CEC ENTERTAINMENT, INC. August 1, 2013 October 31, 2013 By: /s/ Tiffany B. Kice Tiffany B. Kice (Principal Financial Officer) August 1,October 31, 2013 /s/ Laurie E. Priest Laurie E. Priest Vice President, Controller (Principal Accounting Officer) 3.1 Second Restated Articles of Incorporation of CEC Entertainment, Inc. (the “Company”) dated May 4, 2010 (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K (File No. 001-13687) as filed with the Securities and Exchange Commission (the “Commission”) on May 6, 2010) 3.2 Amended and Restated Bylaws of the Company dated May 4, 2010 (incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K (File No. 001-13687) as filed with the Commission on May 6, 2010) 4.1 Specimen form of Certificate representing $0.10 par value Common Stock (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 10-Q (File No. 001-13687) as filed with the Commission on October 29, 2009) 31.1* Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 31.2* Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 32.1** Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 32.2** Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 101.INS XBRL Instance Document 101.SCH XBRL Taxonomy Extension Schema Document 101.CAL XBRL Taxonomy Extension Calculation Linkbase Document 101.DEF XBRL Taxonomy Extension Definition Linkbase Document 101.LAB XBRL Taxonomy Extension Label Linkbase Document 101.PRE XBRL Taxonomy Extension Presentation Linkbase Document *Filed herewith.**Furnished herewith.