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EX-32.1 - EXHIBIT 32.1 - CEC ENTERTAINMENT INCcecfy2016q1321.htm
EX-31.2 - EXHIBIT 31.2 - CEC ENTERTAINMENT INCcecfy2016q1312.htm
EX-31.1 - EXHIBIT 31.1 - CEC ENTERTAINMENT INCcecfy2016q1311.htm
EX-32.2 - EXHIBIT 32.2 - CEC ENTERTAINMENT INCcecfy2016q1322.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549 
_______________________________________________________________________
FORM 10-Q 
______________________________________________________________________
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 3, 2016
OR 
¨
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: 001-13687 
____________________________________
CEC ENTERTAINMENT, INC.
(Exact name of registrant as specified in its charter)
____________________________________
Kansas
(State or other jurisdiction of
incorporation or organization)
  
48-0905805
(IRS Employer
Identification No.)
 
 
 
1707 Market Place Blvd
Irving, Texas
  
75063
(Address of principal executive offices)
  
(Zip Code)
(972) 258-8507
(Registrant’s telephone number, including area code)
Not applicable
(Former name, former address and former fiscal year, if changed since last report) 
____________________________________
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 for 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   ý     No   ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).     Yes   ý     No   ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:
Large accelerated filer
¨
Accelerated filer
¨
 
 
 
 
Non-accelerated filer
ý
Smaller reporting company
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  ý
As of May 2, 2016, an aggregate of 200 shares of the registrant’s common stock, par value $0.01 per share were outstanding.



CEC ENTERTAINMENT, INC.
TABLE OF CONTENTS
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

2


PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements.
CEC ENTERTAINMENT, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands, except share information)
 
 
April 3,
2016
 
January 3,
2016
ASSETS
 
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
69,998

 
$
50,654

Restricted cash
 
4,142

 

Accounts receivable
 
17,658

 
25,936

Inventories
 
26,425

 
23,275

Prepaid expenses
 
20,830

 
18,223

Total current assets
 
139,053

 
118,088

Property and equipment, net
 
613,637

 
629,047

Goodwill
 
483,876

 
483,876

Intangible assets, net
 
487,068

 
488,095

Other noncurrent assets
 
20,276

 
13,929

Total assets
 
$
1,743,910

 
$
1,733,035

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

 
$
7,650

Capital lease obligations
 
435

 
421

Accounts payable
 
35,580

 
44,090

Accrued expenses
 
52,156

 
38,284

Unearned revenues
 
10,555

 
10,233

Accrued interest
 
3,912

 
9,757

Other current liabilities
 
3,780

 
3,678

Total current liabilities
 
114,074

 
114,113

Capital lease obligations, less current portion
 
14,934

 
15,044

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

 
971,333

Deferred tax liability
 
193,584

 
201,734

Accrued insurance
 
9,485

 
9,737

Other noncurrent liabilities
 
213,890

 
212,528

Total liabilities
 
1,516,523

 
1,524,489

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

 

Capital in excess of par value
 
356,632

 
356,460

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

 
208,546

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

 
$
1,733,035


The accompanying notes are an integral part of these unaudited interim Consolidated Financial Statements.

3


CEC ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(in thousands)
 
 
Three Months Ended
 
April 3,
2016
 
March 29,
2015
REVENUES:
 
 
 
Food and beverage sales
$
122,202

 
$
116,537

Entertainment and merchandise sales
147,557

 
144,744

Total company store sales
269,759

 
261,281

Franchise fees and royalties
4,559

 
4,227

Total revenues
274,318

 
265,508

OPERATING COSTS AND EXPENSES:
 
 
 
Company store operating costs:
 
 
 
Cost of food and beverage (exclusive of items shown separately below)
30,521

 
29,225

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

 
8,522

Total cost of food, beverage, entertainment and merchandise
39,271

 
37,747

Labor expenses
69,043

 
67,173

Depreciation and amortization
27,629

 
29,241

Rent expense
24,150

 
24,458

Other store operating expenses
36,010

 
33,519

Total company store operating costs
196,103

 
192,138

Other costs and expenses:
 
 
 
Advertising expense
13,100

 
11,452

General and administrative expenses
18,018

 
16,326

Transaction, severance and related litigation costs
749

 
905

Total operating costs and expenses
227,970

 
220,821

Operating income (loss)
46,348

 
44,687

Interest expense
17,061

 
17,499

Income (loss) before income taxes
29,287

 
27,188

Income tax expense (benefit)
11,372

 
12,446

Net income (loss)
$
17,915

 
$
14,742

The accompanying notes are an integral part of these unaudited interim Consolidated Financial Statements.














4


CEC ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
(in thousands)
 

 
Three Months Ended
 
April 3,
2016
 
March 29,
2015
Net income (loss)
$
17,915

 
$
14,742

Components of other comprehensive income (loss), net of tax:
 
 
 
Foreign currency translation adjustments
754

 
(1,642
)
Comprehensive income (loss)
$
18,669

 
$
13,100


The accompanying notes are an integral part of these unaudited interim Consolidated Financial Statements.



5


CEC ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
 
Three Months Ended
 
April 3,
2016
 
March 29,
2015
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
Net income (loss)
$
17,915

 
$
14,742

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

 
30,398

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

 
391

  Amortization of lease related liabilities
12

 
5

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

 
1,137

  Loss on asset disposals, net
2,177

 
1,244

  Non-cash rent expense
1,730

 
2,136

  Other adjustments
27

 
19

  Changes in operating assets and liabilities:
 
 
 
        Restricted cash
(4,142
)
 

        Accounts receivable
5,011

 
2,392

        Inventories
(3,287
)
 
880

        Prepaid expenses
(1,899
)
 
(752
)
        Accounts payable
(7,551
)
 
(1,230
)
        Accrued expenses
165

 
1,512

        Unearned revenues
316

 
309

        Accrued interest
(5,951
)
 
(5,326
)
        Income taxes payable
16,717

 
25,551

        Deferred landlord contributions
550

 
408

Net cash provided by operating activities
43,772

 
60,548

CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
Acquisition of Peter Piper Pizza

 
(663
)
Purchases of property and equipment
(18,823
)
 
(16,109
)
Acquisition of franchisee

 

Development of internal use software
(3,625
)
 
(185
)
Proceeds from sale of property and equipment
79

 
97

Net cash used in investing activities
(22,369
)
 
(16,860
)
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
  Repayments on senior term loan
(1,900
)
 
(1,900
)
  Repayments on note payable
(7
)
 
(11
)
  Payments on capital lease obligations
(101
)
 
(100
)
  Payments on sale leaseback obligations
(474
)
 
(386
)
  Excess tax benefit realized from stock-based compensation
4

 


6

CEC ENTERTAINMENT, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS, CONT'D
(Unaudited)
(in thousands)

Net cash provided by (used in) financing activities
(2,478
)
 
(2,397
)
Effect of foreign exchange rate changes on cash
419

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

 
40,630

Cash and cash equivalents at beginning of period
50,654

 
110,994

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

 
$
151,624

 
 
 
 
 
 
 
 
 
Three Months Ended
 
April 3,
2016
 
March 29,
2015
SUPPLEMENTAL CASH FLOW INFORMATION:
 
 
 
Interest paid
$
21,994

 
$
21,734

Income taxes paid, net
$
2,949

 
$
183

NON-CASH INVESTING AND FINANCING ACTIVITIES:
 
 
 
Accrued construction costs
$
783

 
$
2,870

 
The accompanying notes are an integral part of these unaudited interim Consolidated Financial Statements.

7


CEC ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Description of Business and Summary of Significant Accounting Policies:
Description of Business
The use of the terms “CEC Entertainment,” the “Company,” “we,” “us” and “our” throughout these unaudited notes to the interim Consolidated Financial Statements refer to CEC Entertainment, Inc. and its subsidiaries.
We currently operate and franchise Chuck E. Cheese’s and Peter Piper Pizza family dining and entertainment centers (also referred to as “stores”) in a total of 47 states and 12 foreign countries and territories. Our stores provide our guests with a variety of family entertainment and dining alternatives. All of our stores utilize a consistent restaurant-entertainment format that features both family dining and entertainment areas with the same general mix of food, beverages, entertainment and merchandise. The economic characteristics, products and services, preparation processes, distribution methods and types of customers are substantially similar for each of our stores. Therefore, we aggregate each store’s operating performance into one reportable segment for financial reporting purposes.
Basis of Presentation
The Company has a controlling financial interest in International Association of CEC Entertainment, Inc. (the “Association”), a VIE. The Association primarily administers the collection and disbursement of funds (the “Association Funds”) used for advertising, entertainment and media programs that benefit both us and our Chuck E. Cheese’s franchisees. We and our franchisees are required to contribute a percentage of gross sales to these funds and could be required to make additional contributions to fund any deficits that may be incurred by the Association. We include the Association in our Consolidated Financial Statements, as we concluded that we are the primary beneficiary of its variable interests because we (a) have the power to direct the majority of its significant operating activities; (b) provide it unsecured lines of credit; and (c) own the majority of the stores that benefit from the Association’s advertising, entertainment and media expenditures. The assets, liabilities and operating results of the Association are not material to our Consolidated Financial Statements.
Because the Association Funds are required to be segregated and used for specified purposes, we do not reflect franchisee contributions to the Association Funds as revenue, but rather record franchisee contributions as an offset to reported advertising expenses. Our contributions to the Association Funds are eliminated in consolidation. Contributions to the advertising, entertainment and media funds from our franchisees were $0.6 million for both the three months ended April 3, 2016 and March 29, 2015. Cash balances held by the Association are restricted for use in our advertising, entertainment and media programs, and are recorded as “Restricted cash” on our Consolidated Balance Sheets at April 3, 2016.
The preparation of these unaudited Consolidated Financial Statements in conformity with accounting principles generally accepted in the United States (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of our unaudited Consolidated Financial Statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Interim Financial Statements
The accompanying Consolidated Financial Statements as of April 3, 2016 and for the three months ended April 3, 2016 and March 29, 2015 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 GAAP. In the opinion of management, the 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”). Our Consolidated Financial Statements include all necessary reclassification adjustments to conform prior year results to the current period presentation.
We reclassified $0.9 million of litigation costs related to the Merger (as defined in Note 7. “Commitments and Contingencies”) in our Consolidated Statement of Earnings for the three months ended March 29, 2015 from “General and administrative expenses” to “Transaction, severance and litigation related costs” to conform to the current period’s presentation.
Consolidated results of operations for interim periods are not necessarily indicative of results for the full year. The unaudited Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and

8

CEC ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)

related notes included in our Annual Report on Form 10-K for the fiscal year ended January 3, 2016, filed with the SEC on March 2, 2016.
Recently Issued Accounting Guidance
Accounting Guidance Not Yet Adopted:
In March 2016, The FASB issued ASU 2016-04, Liabilities - Extinguishments of Liabilities (Subtopic 405-20). This amendment provides a narrow scope exception to Liabilities - Extinguishment of Liabilities (Subtopic 405-20) that requires breakage for those liabilities to be accounted for in accordance with the breakage guidance in Revenue From Contracts With Customers (Topic 606). There is currently no guidance in GAAP, or pending guidance, regarding the derecognition of prepaid stored-value product liabilities within the scope of the amendments in this Update. Under the new guidance, if an entity expects to be entitled to a breakage amount for a liability resulting from the sale of a prepaid stored-value product, the entity shall derecognize the amount related to the expected breakage in proportion to the pattern of rights expected to be exercised by the product holder only to the extent that it is probable that a significant reversal of the recognized breakage amount will not subsequently occur. If an entity does not expect to be entitled to a breakage amount for a prepaid stored-value product, the entity shall derecognize the amount related to the breakage when the likelihood of the product holder exercising its remaining rights becomes remote. This change to an entity’s estimated breakage amount shall be accounted for as a change in accounting estimate. The amendments in this Update are effective for public business entities for financial statements issued for fiscal years beginning after December 15, 2017. Early adoption is permitted, including adoption in an interim period. We are currently assessing the impact of adopting this new guidance on our Consolidated Financial Statements.
In March 2016, the FASB issued ASU 2016-09, Compensation - Stock Compensation (Topic 718). This amendment will require that (i) all excess tax benefits and deficiencies (including tax benefits of dividends on share-based payment awards) should be recognized as income tax expense or benefit on the income statement, (ii) the tax effects of exercised or vested awards should now be treated as discrete items in the reporting period in which they occur, and (iii) an entity should recognize excess tax benefits regardless of whether the benefit reduces taxes payable in the current period or not. On the statement of cash flows excess tax benefits should be classified along with other income tax cash flows as an operating activity. This amendment allows an entity to make an entity-wide accounting policy election to either estimate the number of awards that are expected to vest (current GAAP) or account for forfeitures when they occur. The threshold for an award to qualify for equity classification permits withholding up to the maximum statutory tax rate in applicable jurisdictions, and the cash paid by an employer when directly withholding shares for tax-withholding purposes should be classified as a financing activity on the statement of cash flows. Nonpublic entities can make an accounting policy election to apply a practical expedient to estimate the expected term for all awards with performance or service conditions that meet certain conditions. For public entities, the amendments in this Update are effective for annual periods beginning after December 15, 2016 and interim periods within those annual periods. We are currently assessing the impact of adopting this new guidance on our Consolidated Financial Statements.
2. Property and Equipment:
Total depreciation and amortization expense was $29.0 million and $30.4 million for the three months ended April 3, 2016 and March 29, 2015, respectively, of which $1.4 million and $1.0 million, respectively, was included in “General and administrative expenses” in our Consolidated Statements of Earnings. Total depreciation and amortization expense for both the three months ended April 3, 2016 and March 29, 2015, includes approximately $0.5 million related to the amortization of franchise agreements (see Note 3. “Intangible Assets, Net”).
Asset Impairments
There were no impairment charges recognized during the three months ended April 3, 2016 and March 29, 2015, respectively.

9

CEC ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)

3. Intangible Assets, Net:
The following table presents our indefinite and definite-lived intangible assets at April 3, 2016:
 
Weighted Average Life (Years)
 
Gross Carrying Amount
 
Accumulated Amortization
 
Net Carrying Amount
 
 
 
(in thousands)
Chuck E. Cheese's tradename
Indefinite
 
$
400,000

 
$

 
$
400,000

Peter Piper Pizza tradename
Indefinite
 
26,700

 

 
26,700

Favorable lease agreements (1)
10
 
14,880

 
(4,200
)
 
10,680

Franchise agreements
25
 
53,300

 
(3,612
)
 
49,688

 
 
 
$
494,880

 
$
(7,812
)
 
$
487,068

__________________
(1)
In connection with the Merger and the acquisition of Peter Piper Pizza (“PPP”), we also recorded unfavorable lease liabilities of $10.2 million and $3.9 million, respectively, which are included in “Other current liabilities” and “Other noncurrent liabilities” in our Consolidated Balance Sheets. Such amounts are being amortized over a weighted average life of 10 years, and are included in “Rent expense” in our Consolidated Statements of Earnings.
Amortization expense related to favorable lease agreements was $0.5 million for both the three months ended April 3, 2016 and March 29, 2015, and is included in “Rent expense” in our Consolidated Statements of Earnings. Amortization expense related to franchise agreements was $0.5 million for both the three months ended April 3, 2016 and March 29, 2015, and is included in “General and administrative expenses” in our Consolidated Statements of Earnings.
Note 4. Accounts Payable:
Accounts payable consisted of the following as of the dates presented:
 
April 3, 2016
 
January 3, 2016
 
(in thousands)
Trade and other amounts payable
$
27,085

 
$
35,228

Book overdraft
8,495

 
8,862

       Accounts Payable
$
35,580

 
$
44,090


Trade and other amounts payable represents amounts payable to our vendors, legal fee accruals and settlements payable. The book overdraft balance represents checks issued but not yet presented to banks.
5. Indebtedness and Interest Expense:
 Our long-term debt consisted of the following for the periods presented:

10

CEC ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)

 
April 3,
2016
 
January 3,
2016
 
(in thousands)
Term loan facility
$
744,800

 
$
746,700

Senior notes
255,000

 
255,000

Note payable
56

 
63

     Total debt outstanding
999,856

 
1,001,763

Less:
 
 
 
    Unamortized original issue discount
(2,641
)
 
(2,776
)
    Deferred financing costs, net
(19,003
)
 
(20,004
)
    Current portion
(7,656
)
 
(7,650
)
Bank indebtedness and other long-term debt, net of deferred financing costs, less current portion
$
970,556

 
$
971,333

We were in compliance with the debt covenants in effect as of April 3, 2016 for both the Secured Credit Facilities and the senior notes. For further discussion regarding the debt covenants, see Secured Credit Facilities and Senior Unsecured Debt sections below.
Secured Credit Facilities
As of April 3, 2016, we had $744.8 million (excluding the original issue discount) outstanding under the Term loan facility, no borrowings outstanding under the revolving credit facility and $10.9 million of letters of credit issued but undrawn. The Secured Credit Facilities require scheduled quarterly payments on the term loan equal to 0.25% of the original principal amount of the Term loan from July 2014 to December 2020, with the remaining balance paid at maturity, February 14, 2021. Effective April 8, 2016, the balance of our letters of credit issued but undrawn was reduced to $9.9 million.
The term loan was issued net of $3.8 million of original issue discount. We also paid $17.8 million and $3.4 million in debt financing costs related to the term loan facility and revolving credit facility, respectively, which we capitalized in “Bank indebtedness and other long-term debt, net of deferred financing costs” on our Consolidated Balance Sheets. The original issue discount and deferred financing costs are amortized over the lives of the facilities and are included in “Interest expense” on our Consolidated Statements of Earnings.
Borrowings under the Secured Credit Facilities bear interest at a rate equal to, at our option, either (a) a London Interbank Offered Rate (“LIBOR”) determined by reference to the costs of funds for Eurodollar deposits for the interest period relevant to such borrowings, adjusted for certain additional costs, subject to a 1.00% floor in the case of term loans or (b) a base rate determined by reference to the highest of (i) the federal funds effective rate plus 0.50%; (ii) the prime rate of Deutsche Bank AG New York Branch; and (iii) the one-month adjusted LIBOR plus 1.00%, in each case plus an applicable margin. Effective March 4, 2016, the applicable margin for borrowings under the term loan facility stepped down from 3.25% to 3.00%, the applicable margin for borrowings under the revolving credit facility stepped down from 3.25% to 3.00%, and the applicable unused commitment fee rate stepped down from 0.5% to 0.375% based on our first lien senior secured leverage ratio. During the three months ended April 3, 2016, the federal funds rate ranged from 0.25% to 0.38%, the prime rate was 3.25% and the one-month LIBOR ranged from 0.42% to 0.44%.
The weighted average effective interest rate incurred on our borrowings under our Secured Credit Facilities was 4.7% and 4.6% for the three months ended April 3, 2016 and March 29, 2015, respectively, which includes amortization of debt issuance costs related to our Secured Credit Facilities, amortization of our term loan facility original issue discount and commitment and other fees related to our Secured Credit Facilities.
As of April 3, 2016, the borrowings under the revolving credit facility were less than 30% of the outstanding commitments; therefore, the springing financial maintenance covenant under our revolving credit facility was not in effect.
Senior Unsecured Debt
Our $255.0 million aggregate principal amount borrowings of 8.000% Senior Notes due 2022 (the “senior notes”) bear interest at a rate of 8.000% per year and mature on February 15, 2022.
Our obligations under the senior notes are fully and unconditionally guaranteed, jointly and severally, by our present and future direct and indirect wholly-owned material domestic subsidiaries that guarantee our Secured Credit Facilities.

11

CEC ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)

The weighted average effective interest rate incurred on borrowings under our senior notes was 8.3% for both the three months ended April 3, 2016 and the three months ended March 29, 2015, which included amortization of debt issuance costs and other fees related to our senior notes.

12

CEC ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)


Interest Expense
Interest expense consisted of the following for the periods presented:
 
Three Months Ended
 
April 3, 2016
 
March 29, 2015
 
(in thousands)
Term loan facility (1)
$
8,157

 
$
7,907

Senior notes
5,157

 
5,157

Capital lease obligations
440

 
455

Sale leaseback obligations
2,758

 
2,783

Amortization of debt issuance costs
1,001

 
1,001

Other
(452
)
 
196

Total interest expense
$
17,061

 
$
17,499

 __________________
(1)    Includes amortization of original issue discount.
The weighted average effective interest rate incurred on our combined borrowings under our Secured Credit Facilities and senior notes was 5.6% and 5.5% for the three months ended April 3, 2016, and March 29, 2015, respectively.

6. Fair Value of Financial Instruments:
The following table presents information on our financial instruments as of the periods presented:
 
 
April 3, 2016
 
 
January 3, 2016
 
 
Carrying Amount (1) 
 
Estimated Fair Value
 
 
Carrying Amount (1) 
 
Estimated Fair Value
 
 
(in thousands)
Financial Liabilities:
 
 
 
 
 
 
 
 
 
Bank indebtedness and other long-term debt, less current portion
 
$
989,559

 
$
920,101

 
 
$
991,337

 
$
962,600

 _________________
(1)    Excluding net deferred financing costs
Our financial instruments consist of cash and cash equivalents, restricted cash, accounts receivable, accounts payable, our Secured Credit Facilities and our senior notes. The carrying amount of cash and cash equivalents, accounts receivable and accounts payable approximates fair value because of their short maturities. The estimated fair value of our Secured Credit Facilities' term loan and senior notes was determined by using estimated market prices of our outstanding borrowings under our term loan facility and the senior notes, which are classified as Level 2 in the fair value hierarchy.
During the three months ended April 3, 2016 and March 29, 2015, there were no significant transfers among level 1, 2 or 3 fair value determinations.
7. Commitments and Contingencies:
Legal Proceedings
From time to time, we are involved in various inquiries, investigations, claims, lawsuits and other legal proceedings that are incidental to the conduct of our business. These matters typically involve claims from customers, employees or other

13

CEC ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)

third parties involved in operational issues common to the retail, restaurant and entertainment industries. Such matters typically represent actions with respect to contracts, intellectual property, taxation, employment, employee benefits, personal injuries and other matters. A number of such claims may exist at any given time, and there are currently a number of claims and legal proceedings pending against us.
In the opinion of our management, after consultation with legal counsel, the amount of liability with respect to claims or proceedings currently pending against us is not expected to have a material effect on our consolidated financial condition, results of operations or cash flows. All necessary loss accruals based on the probability and estimate of loss have been recorded.
Employment-Related Litigation: On January 27, 2014, former CEC employee Franchesca Ford filed a purported class action lawsuit against the Company in San Francisco County Superior Court, California (the “Ford Litigation”). The plaintiff claims to represent other similarly-situated hourly non-exempt employees and former employees of the Company in California who were employed from January 27, 2010 to the present, and she alleges violations of California state wage and hour laws. In March 2014, the Company removed the Ford Litigation to the U.S. District Court for the Northern District of California, San Francisco Division, and subsequently defeated the plaintiff’s motion to remand the case to California state court. In May 2015, the parties reached an agreement to settle the lawsuit on a class-wide basis. The settlement would result in the plaintiffs’ dismissal of all claims asserted in the action, as well as certain related but unasserted claims, and grant of complete releases, in exchange for the Company’s settlement payment. On March 24, 2016, the Court issued an order granting preliminary approval of the class settlement and setting a final approval hearing regarding the settlement for August 2016. The settlement of this action will not have a material adverse effect on our results of operations, financial position, liquidity or capital resources.
On October 10, 2014, former store General Manager Richard Sinohui filed a purported class action lawsuit against the Company in the Superior Court of California, Riverside County (the “Sinohui Litigation”), claiming to represent other similarly-situated current and former General Managers of the Company in California during the period October 10, 2010 to the present. The lawsuit alleges CEC wrongfully classified current and former California General Managers as exempt from overtime protections, that such General Managers worked more than 40 hours a week without overtime premium pay, paid rest periods and paid meal periods, and that the Company failed to provide accurate itemized wage statements or to pay timely wages upon separation from employment, in violation of the California Labor Code, California Business and Professions Code, and the applicable Wage Order issued by the California Industrial Welfare Commission. Additionally, the plaintiff alleged that the Company failed to reimburse General Managers for certain business expenses, including for personal cell phone usage and mileage, in violation of the California Labor Code; he also asserted a claim for civil penalties under the California Private Attorneys General Act (“PAGA”). The plaintiff seeks an unspecified amount in damages. On December 5, 2014, the Company removed the Sinohui Litigation to the U.S. District Court for the Central District of California, Southern Division. On March 16, 2016, the Court issued an order denying in part and granting in part Plaintiff’s Motion for Class Certification. Specifically, the Court denied Plaintiff’s motion to the extent that he sought to certify a class on Plaintiff’s misclassification and wage statement claims, but certified a class with respect to Plaintiff’s claims that the Company had wrongfully failed to reimburse him for cell phone expenses and/or mileage. The Sinohui Litigation is set for trial in August 2016. We believe the Company has meritorious defenses to this lawsuit and we intend to vigorously defend it. While no assurance can be given as to the ultimate outcome of this matter, we currently believe that the final resolution of this action will not have a material adverse effect on our results of operations, financial position, liquidity or capital resources.
Litigation Related to the Merger: Following the January 16, 2014 announcement that the Company had entered into a merger agreement (the “Merger Agreement”), pursuant to which an entity controlled by Apollo Global Management, LLC and its subsidiaries merged with and into CEC Entertainment Inc., with CEC Entertainment Inc. surviving the merger (the “Merger”), four putative shareholder class actions were filed in the District Court of Shawnee County, Kansas, on behalf of purported stockholders of the Company, against the Company, its directors, Apollo, Parent and Merger Sub, in connection with the Merger Agreement and the transactions contemplated thereby. These actions were consolidated into one action in March 2014.
On July 21, 2015, a consolidated class action petition was filed as the operative consolidated complaint, asserting claims against CEC and its former directors, adding The Goldman Sachs Group (“Goldman Sachs”) as a defendant, and removing all Apollo entities as defendants (“Consolidated Class Action Petition”). The Consolidated Class Action Petition alleges that the Company’s directors breached their fiduciary duties to the Company’s stockholders in connection with their consideration and approval of the Merger Agreement by, among other things, conducting a deficient sales process, agreeing to an inadequate tender price, agreeing to certain provisions in the Merger Agreement, and filing materially deficient disclosures regarding the transaction. The Consolidated Class Action Petition also alleges that two members of the Company’s board who also served as the senior managers of the Company had material conflicts of interest and that Goldman Sachs aided and abetted the board’s breaches as a result of various conflicts of interest facing the bank. The Consolidated Class Action Petition seeks,

14

CEC ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)

among other things, to recover damages, attorneys’ fees and costs. On March 23, 2016, the Court conducted a hearing on the defendants’ Motion to Dismiss the Consolidated Class Action Petition, and the parties are currently awaiting the Court’s ruling. The Court has not yet set this case for trial. The Company believes the Consolidated Class Action Petition is without merit and intends to defend it vigorously. While no assurance can be given as to the ultimate outcome of the consolidated matter, we currently believe that the final resolution of the action will not have a material adverse effect on our results of operations, financial position, liquidity or capital resources.
8. Income Taxes:
Our income tax expense consists of the following for the periods presented:
 
Three Months Ended
 
April 3, 2016
 
March 29, 2015
 
(in thousands, except %)
Federal and state income taxes
$
11,263

 
$
12,174

Foreign income taxes
109

 
272

      Income tax expense (1)
$
11,372

 
$
12,446

      Effective rate
38.8
%
 
45.8
%
_________________
(1)    Including foreign taxes withheld.
Our effective income tax rate of 38.8% for the three months ended April 3, 2016 differs from the statutory rate primarily due to the favorable impact of employment related federal income tax credits partially offset by the impact of non-deductible litigation costs related to the Merger. Our effective income tax rate of 45.8% for the three months ended March 29, 2015 differs from the statutory rate primarily due to the unfavorable impact of non-deductible litigation and settlement costs related to the Merger, partially offset by benefits stemming from employment related income tax credits. Our liability for uncertain tax positions (excluding interest and penalties) was $3.4 million and $3.3 million as of April 3, 2016 and January 3, 2016, respectively, and if recognized would decrease our provision for income taxes by $1.3 million. Within the next twelve months, we could settle or otherwise conclude income tax audits. As such, it is reasonably possible that the liability for uncertain tax positions could decrease by as much as $0.2 million as a result of settlements with certain taxing authorities and expiring statutes of limitations within the next twelve months.
Total accrued interest and penalties related to unrecognized tax benefits as of April 3, 2016 and January 3, 2016, was $0.8 million and $1.7 million, respectively. On the Consolidated Balance Sheets, we include current interest related to unrecognized tax benefits in “Accrued interest,” current penalties in “Accrued expenses” and noncurrent accrued interest and penalties in “Other noncurrent liabilities.”

15

CEC ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)

9. Stock-Based Compensation Arrangements:
A summary of the option activity under the equity incentive plan as of April 3, 2016 and the activity for the three months ended April 3, 2016 is presented below:
 
Stock Options
Weighted Average Exercise Price (1)
Weighted Average Remaining Contractual Term
Aggregate Intrinsic Value
 
 
($ per share)
 
($ in thousands)
Outstanding stock options, January 3, 2016
2,393,084

$8.59


     Options Granted
101,110

$12.51


     Options Exercised
(13,399
)
$8.86


     Options Forfeited
(11,185
)
$10.91


Outstanding stock options, April 3, 2016
2,469,610

$8.78
8.14
10,141

Stock options expected to vest, April 3, 2016
2,222,650

$8.78
8.14
9,127

Exercisable stock options, April 3, 2016
327,726

$8.32
7.92
2,861

 
 
 
 
 
__________________
(1)    The weighted average exercise price reflects the original grant date fair value per option as adjusted for the dividend payment made in August 2015.
As of April 3, 2016, we had $2.9 million of total unrecognized share-based compensation expense related to unvested options, net of expected forfeitures, which is expected to be amortized over the remaining weighted-average period of 3.2 years.
The following table summarizes stock-based compensation expense and the associated tax benefit recognized in the Consolidated Financial Statements for the periods presented:
 
Three Months Ended
 
April 3,
2016
 
March 29,
2015
 
(in thousands)
Stock-based compensation costs
$
168

 
$
395

Portion capitalized as property and equipment (1)
(33
)
 
(4
)
Stock-based compensation expense recognized
$
135

 
$
391

Excess tax benefit recognized from exercise of stock-based compensation awards
$
4

 
$

 __________________
(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.

16

CEC ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)

10. Stockholder’s Equity:
The following table summarizes the changes in stockholder’s equity during the three months ended April 3, 2016:
 
 
 
Common Stock
 
Capital In
Excess of
Par Value
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Income
 
 
 
 
Shares
 
Amount
 
 
 
 
Total
 
 
(in thousands, except share information)
Balance at January 3, 2016
 
200

 
$

 
$
356,460

 
$
(144,598
)
 
$
(3,316
)
 
$
208,546

Net income (loss)
 

 

 

 
17,915

 

 
17,915

Other comprehensive income (loss)
 

 

 

 

 
754

 
754

Stock-based compensation costs
 

 

 
168

 

 

 
168

Excess tax benefit realized from exercise of stock options
 

 

 
4

 

 

 
4

Balance at April 3, 2016
 
200

 
$

 
$
356,632

 
$
(126,683
)
 
$
(2,562
)
 
$
227,387

11. Consolidating Guarantor Financial Information:
The senior notes issued by CEC Entertainment, Inc. (the “Issuer”) in conjunction with the Merger are our unsecured obligations and are fully and unconditionally, jointly and severally guaranteed by all of our 100% wholly-owned U.S. subsidiaries (the “Guarantors”). Our wholly-owned foreign subsidiaries and our less-than-wholly-owned U.S. subsidiaries are not a party to the guarantees (the “Non-Guarantors”). The following schedules present the condensed consolidating financial statements of the Issuer, Guarantors and Non-Guarantors, as well as consolidated results, for the periods presented:

17

CEC ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)

CEC Entertainment, Inc.
Condensed Consolidating Balance Sheet
As of April 3, 2016
(in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
Issuer
 
Guarantors
 
Non-Guarantors
 
Eliminations
 
Consolidated
Current assets:
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
61,106

 
$
2,217

 
$
6,675

 
$

 
$
69,998

Restricted cash
 

 

 
4,142

 

 
4,142

Accounts receivable
 
14,416

 
2,811

 
8,944

 
(8,513
)
 
17,658

Inventories
 
23,031

 
3,087

 
307

 

 
26,425

Other current assets
 
14,608

 
4,219

 
2,003

 

 
20,830

Total current assets
 
113,161

 
12,334

 
22,071

 
(8,513
)
 
139,053

Property and equipment, net
 
570,343

 
34,587

 
8,707

 

 
613,637

Goodwill
 
432,462

 
51,414

 

 

 
483,876

Intangible assets, net
 
21,156

 
465,912

 

 

 
487,068

Intercompany
 
129,033

 
27,913

 

 
(156,946
)
 

Investment in subsidiaries
 
422,049

 

 

 
(422,049
)
 

Other noncurrent assets
 
7,692

 
11,965

 
619

 

 
20,276

Total assets
 
$
1,695,896

 
$
604,125

 
$
31,397

 
$
(587,508
)
 
$
1,743,910

Current liabilities:
 
 
 
 
 
 
 
 
 
 
Bank indebtedness and other long-term debt, current portion
 
$
7,600

 
$
56

 
$

 
$

 
$
7,656

Capital lease obligations, current portion
 
430

 

 
5

 

 
435

Accounts payable and accrued expenses
 
80,532

 
13,381

 
8,290

 

 
102,203

Other current liabilities
 
3,452

 
328

 

 

 
3,780

Total current liabilities
 
92,014

 
13,765

 
8,295

 

 
114,074

Capital lease obligations, less current portion
 
14,867

 

 
67

 

 
14,934

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

 

 

 

 
970,556

Deferred tax liability
 
178,014

 
16,991

 
(1,421
)
 

 
193,584

Intercompany
 
1,479

 
138,099

 
25,881

 
(165,459
)
 

Other noncurrent liabilities
 
211,579

 
11,538

 
258

 

 
223,375

Total liabilities
 
1,468,509

 
180,393

 
33,080

 
(165,459
)
 
1,516,523

Stockholder's equity:
 
 
 
 
 
 
 
 
 
 
Common stock
 

 

 

 

 

Capital in excess of par value
 
356,632

 
466,114

 
3,241

 
(469,355
)
 
356,632

Retained earnings (deficit)
 
(126,683
)
 
(42,382
)
 
(2,362
)
 
44,744

 
(126,683
)
Accumulated other comprehensive income (loss)
 
(2,562
)
 

 
(2,562
)
 
2,562

 
(2,562
)
Total stockholder's equity
 
227,387

 
423,732

 
(1,683
)
 
(422,049
)
 
227,387

Total liabilities and stockholder's equity
 
$
1,695,896

 
$
604,125

 
$
31,397

 
$
(587,508
)
 
$
1,743,910


18

CEC ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)

CEC Entertainment, Inc.
Condensed Consolidating Balance Sheet
As of January 3, 2016
(in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
Issuer
 
Guarantors
 
Non-Guarantors
 
Eliminations
 
Consolidated
Current assets:
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
42,235

 
$
1,797

 
$
6,622

 
$

 
$
50,654

Accounts receivable
 
21,595

 
3,944

 
9,468

 
(9,071
)
 
25,936

Inventories
 
19,959

 
3,021

 
295

 

 
23,275

Other current assets
 
13,562

 
3,561

 
1,100

 

 
18,223

Total current assets
 
97,351

 
12,323

 
17,485

 
(9,071
)
 
118,088

Property and equipment, net
 
585,915

 
34,539

 
8,593

 

 
629,047

Goodwill
 
432,462

 
51,414

 

 

 
483,876

Intangible assets, net
 
21,855

 
466,240

 

 

 
488,095

Intercompany
 
129,151

 
30,716

 

 
(159,867
)
 

Investment in subsidiaries
 
422,407

 

 

 
(422,407
)
 

Other noncurrent assets
 
4,318

 
8,940

 
671

 

 
13,929

Total assets
 
$
1,693,459

 
$
604,172

 
$
26,749

 
$
(591,345
)
 
$
1,733,035

Current liabilities:
 
 
 
 
 
 
 
 
 
 
Bank indebtedness and other long-term debt, current portion
 
$
7,600

 
$
50

 
$

 
$

 
$
7,650

Capital lease obligations, current portion
 
418

 

 
3

 

 
421

Accounts payable and accrued expenses
 
71,320

 
27,774

 
3,270

 

 
102,364

Other current liabilities
 
3,350

 
328

 

 

 
3,678

Total current liabilities
 
82,688

 
28,152

 
3,273

 

 
114,113

Capital lease obligations, less current portion
 
14,980

 

 
64

 

 
15,044

Bank indebtedness and other long-term debt, net of deferred financing costs, less current portion
 
971,320

 
13

 

 

 
971,333

Deferred tax liability
 
184,083

 
17,867

 
(216
)
 

 
201,734

Intercompany
 
20,580

 
121,850

 
26,508

 
(168,938
)
 

Other noncurrent liabilities
 
211,262

 
10,784

 
219

 

 
222,265

Total liabilities
 
1,484,913

 
178,666

 
29,848

 
(168,938
)
 
1,524,489

Stockholder's equity:
 
 
 
 
 
 
 
 
 
 
Common stock
 

 

 

 

 

Capital in excess of par value
 
356,460

 
466,114

 
3,241

 
(469,355
)
 
356,460

Retained earnings (deficit)
 
(144,598
)
 
(40,608
)
 
(3,024
)
 
43,632

 
(144,598
)
Accumulated other comprehensive income (loss)
 
(3,316
)
 

 
(3,316
)
 
3,316

 
(3,316
)
Total stockholder's equity
 
208,546

 
425,506

 
(3,099
)
 
(422,407
)
 
208,546

Total liabilities and stockholder's equity
 
$
1,693,459

 
$
604,172

 
$
26,749

 
$
(591,345
)
 
$
1,733,035



19

CEC ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)

CEC Entertainment, Inc.
Consolidating Statement of Comprehensive Income (Loss)
For the Three Months Ended April 3, 2016
(in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
Issuer
 
Guarantors
 
Non-Guarantors
 
Eliminations
 
Consolidated
Revenues:
 
 
 
 
 
 
 
 
 
 
Food and beverage sales
 
$
107,822

 
$
12,788

 
$
1,592

 
$

 
$
122,202

Entertainment and merchandise sales
 
139,208

 
5,598

 
2,751

 

 
147,557

Total company store sales
 
247,030

 
18,386

 
4,343

 

 
269,759

Franchise fees and royalties
 
598

 
3,961

 

 

 
4,559

International Association assessments and other fees
 
255

 
615

 
11,958

 
(12,828
)
 

Total revenues
 
247,883

 
22,962

 
16,301

 
(12,828
)
 
274,318

Operating Costs and Expenses:
 
 
 
 
 
 
 
 
 
 
Company store operating costs:
 
 
 
 
 
 
 
 
 
 
Cost of food and beverage
 
26,644

 
3,297

 
580

 

 
30,521

Cost of entertainment and merchandise
 
8,119

 
445

 
186

 

 
8,750

Total cost of food, beverage, entertainment and merchandise
 
34,763

 
3,742

 
766

 

 
39,271

Labor expenses
 
63,734

 
3,999

 
1,310

 

 
69,043

Depreciation and amortization
 
26,563

 
607

 
459

 

 
27,629

Rent expense
 
22,257

 
1,333

 
560

 

 
24,150

Other store operating expenses
 
33,763

 
2,166

 
951

 
(870
)
 
36,010

Total company store operating costs
 
181,080

 
11,847

 
4,046

 
(870
)
 
196,103

Advertising expense
 
12,420

 
1,673

 
10,965

 
(11,958
)
 
13,100

General and administrative expenses
 
7,183

 
10,659

 
176

 

 
18,018

Transaction, severance and related litigation costs
 
701

 
48

 

 

 
749

Total operating costs and expenses
 
201,384

 
24,227

 
15,187

 
(12,828
)
 
227,970

Operating income (loss)
 
46,499

 
(1,265
)
 
1,114

 

 
46,348

Equity in earnings (loss) in affiliates
 
(1,112
)
 

 

 
1,112

 

Interest expense (income)
 
16,602

 
351

 
108

 

 
17,061

Income (loss) before income taxes
 
28,785

 
(1,616
)
 
1,006

 
1,112

 
29,287

Income tax expense (benefit)
 
10,870

 
165

 
337

 

 
11,372

Net income (loss)
 
$
17,915

 
$
(1,781
)
 
$
669

 
$
1,112

 
$
17,915


 


 


 


 


 


Components of other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
 
 
 
Foreign currency translation adjustments
 
754

 

 
(754
)
 
754

 
754

Comprehensive income (loss)
 
$
18,669

 
$
(1,781
)
 
$
(85
)
 
$
1,866

 
$
18,669


20

CEC ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)

CEC Entertainment, Inc.
Consolidating Statement of Comprehensive Income (Loss)
For the Three Months Ended March 29, 2015
(in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
Issuer
 
Guarantors
 
Non-Guarantors
 
Eliminations
 
Consolidated
Revenues:
 
 
 
 
 
 
 
 
 
 
Food and beverage sales
 
$
102,387

 
$
12,316

 
$
1,834

 
$

 
$
116,537

Entertainment and merchandise sales
 
137,510

 
4,110

 
3,124

 

 
144,744

Total company store sales
 
239,897

 
16,426

 
4,958

 

 
261,281

Franchise fees and royalties
 
805

 
3,422

 

 

 
4,227

International Association assessments and other fees
 
286

 
662

 
8,653

 
(9,601
)
 

Total revenues
 
240,988

 
20,510

 
13,611

 
(9,601
)
 
265,508

Operating Costs and Expenses:
 
 
 
 
 
 
 
 
 
 
Company store operating costs:
 
 
 
 
 
 
 
 
 
 
Cost of food and beverage
 
25,390

 
3,244

 
591

 

 
29,225

Cost of entertainment and merchandise
 
7,620

 
753

 
149

 

 
8,522

Total cost of food, beverage, entertainment and merchandise
 
33,010

 
3,997

 
740

 

 
37,747

Labor expenses
 
61,732

 
3,930

 
1,511

 

 
67,173

Depreciation and amortization
 
27,619

 
1,114

 
508

 

 
29,241

Rent expense
 
22,303

 
1,494

 
661

 

 
24,458

Other store operating expenses
 
31,509

 
1,830

 
1,128

 
(948
)
 
33,519

Total company store operating costs
 
176,173

 
12,365

 
4,548

 
(948
)
 
192,138

Advertising expense
 
9,141

 
1,060

 
9,904

 
(8,653
)
 
11,452

General and administrative expenses
 
4,893

 
11,316

 
117

 

 
16,326

Transaction, severance and related litigation costs

 

 
905

 

 

 
905

Total operating costs and expenses
 
190,207

 
25,646

 
14,569

 
(9,601
)
 
220,821

Operating income (loss)
 
50,781

 
(5,136
)
 
(958
)
 

 
44,687

Equity in earnings (loss) in affiliates
 
(7,769
)
 

 

 
7,769

 

Interest expense (income)
 
16,737

 
633

 
129

 

 
17,499

Income (loss) before income taxes
 
26,275

 
(5,769
)
 
(1,087
)
 
7,769

 
27,188

Income tax expense (benefit)
 
11,533

 
1,328

 
(415
)
 

 
12,446

Net income (loss)
 
$
14,742

 
$
(7,097
)
 
$
(672
)
 
$
7,769

 
$
14,742

 
 
 
 
 
 
 
 
 
 
 
Components of other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
 
 
 
Foreign currency translation adjustments
 
(1,642
)
 

 
(1,642
)
 
1,642

 
(1,642
)
Comprehensive income (loss)
 
$
13,100

 
$
(7,097
)
 
$
(2,314
)
 
$
9,411

 
$
13,100






21

CEC ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)


CEC Entertainment, Inc.
Consolidating Statement of Cash Flows
For the Three Months Ended April 3, 2016
(in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
Issuer
 
Guarantors
 
Non-Guarantors
 
Eliminations
 
Consolidated
Cash flows provided by (used in) operating activities:
 
$
40,445

 
$
3,662

 
$
(335
)
 
$

 
$
43,772

 
 
 
 
 
 
 
 
 
 
 
Cash flows from investing activities:
 
 
 
 
 
 
 
 
 
 
  Purchases of property and equipment
 
(18,342
)
 
(451
)
 
(30
)
 

 
(18,823
)
  Development of internal use software
 
(841
)
 
(2,784
)
 

 

 
(3,625
)
  Proceeds from sale of property and equipment
 
79

 

 

 

 
79

Cash flows provided by (used in) investing activities
 
(19,104
)
 
(3,235
)
 
(30
)
 

 
(22,369
)
 
 
 
 
 
 
 
 
 
 
 
Cash flows from financing activities:
 
 
 
 
 
 
 
 
 
 
  Repayments on senior term loan
 
(1,900
)
 

 

 

 
(1,900
)
  Repayments on note payable
 

 
(7
)
 

 

 
(7
)
  Payments on capital lease obligations
 
(100
)
 

 
(1
)
 

 
(101
)
  Payments on sale leaseback transactions
 
(474
)
 

 

 

 
(474
)
  Excess tax benefit realized from stock-based compensation
 
4

 

 

 

 
4

Cash flows provided by (used in) financing activities
 
(2,470
)
 
(7
)
 
(1
)
 

 
(2,478
)
Effect of foreign exchange rate changes on cash
 

 

 
419

 

 
419

 
 
 
 
 
 
 
 
 
 
 
Change in cash and cash equivalents
 
18,871

 
420

 
53

 

 
19,344

Cash and cash equivalents at beginning of period
 
42,235

 
1,797

 
6,622

 

 
50,654

Cash and cash equivalents at end of period
 
$
61,106

 
$
2,217

 
$
6,675

 
$

 
$
69,998



22

CEC ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)

CEC Entertainment, Inc.
Consolidating Statement of Cash Flows
For the Three Months Ended March 29, 2015
(in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
Issuer
 
Guarantors
 
Non-Guarantors
 
Eliminations
 
Consolidated
Cash flows provided by (used in) operating activities:
 
$
53,409

 
$
2,476

 
$
4,663

 
$

 
$
60,548

 
 
 
 
 
 
 
 
 
 
 
Cash flows from investing activities:
 
 
 
 
 
 
 
 
 
 
  Acquisition of Peter Piper Pizza
 
(663
)
 

 

 

 
(663
)
  Intercompany note
 
(96
)
 
2,500

 

 
(2,404
)
 

  Purchases of property and equipment
 
(14,451
)
 
(1,023
)
 
(635
)
 

 
(16,109
)
  Development of internal use software
 

 
(185
)
 

 

 
(185
)
  Proceeds from sale of property and equipment
 
97

 

 

 

 
97

Cash flows provided by (used in) investing activities
 
(15,113
)
 
1,292

 
(635
)
 
(2,404
)
 
(16,860
)
 
 
 
 
 
 
 
 
 
 
 
Cash flows from financing activities:
 
 
 
 
 
 
 
 
 
 
 Repayments on senior term loan
 
(1,900
)
 

 

 

 
(1,900
)
 Repayments on Note Payable
 

 
(11
)
 


 


 
(11
)
  Intercompany note
 

 
96

 
(2,500
)
 
2,404

 

  Payments on capital lease obligations
 
(100
)
 

 

 

 
(100
)
 Payments on sale leaseback transactions
 
(386
)
 

 

 

 
(386
)
Cash flows provided by (used in) financing activities
 
(2,386
)
 
85

 
(2,500
)
 
2,404

 
(2,397
)
Effect of foreign exchange rate changes on cash
 

 

 
(661
)
 

 
(661
)
 
 
 
 
 
 
 
 
 
 
 
Change in cash and cash equivalents
 
35,910

 
3,853

 
867

 

 
40,630

Cash and cash equivalents at beginning of period
 
97,020

 
6,427

 
7,547

 

 
110,994

Cash and cash equivalents at end of period
 
$
132,930

 
$
10,280

 
$
8,414

 
$

 
$
151,624





23

CEC ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)


12. Related Party Transactions:

CEC Entertainment reimburses Apollo Management, L.P. for certain out-of-pocket expenses incurred in connection with travel and Board of Directors related expenses. Expense reimbursements by CEC Entertainment to Apollo totaled $0.5 million for the three months ended April 3, 2016 and are included in “General and administrative expenses” in our Consolidated Statements of Earnings.


24



ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
As used in this report, the terms “CEC Entertainment,” the “Company,” “we,” “us” and “our” refer to CEC Entertainment, Inc. and its subsidiaries.
Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to provide the readers of our Consolidated Financial Statements with a narrative from the perspective of our management on our consolidated financial condition, results of operations, liquidity and certain other factors that may affect our future results. Our MD&A should be read in conjunction with (i) our Consolidated Financial Statements and related notes included in Part I, Item 1. “Financial Statements” of this Periodic Report and (ii) Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Part II, Item 8. “Financial Statements and Supplementary Data” in our Annual Report on Form 10-K for the fiscal year ended January 3, 2016, filed with the SEC on March 2, 2016. Our MD&A includes the following sub-sections:
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;
Presentation of Non-GAAP Measures; and
Cautionary Statement Regarding Forward-Looking Statements.
Executive Summary
We operate on a 52 or 53 week fiscal year that ends on the Sunday nearest to December 31. Each quarterly period has 13 weeks, except for a 53 week year when the fourth quarter has 14 weeks. Our fiscal year ending January 1, 2017 will consist of 52 weeks and our fiscal year ended January 3, 2016 consisted of 53 weeks. As a result of the 53 week fiscal year in 2015, our 2016 fiscal year began one calendar week later than our 2015 fiscal year. In order to provide useful information and to better analyze our business, we have provided below comparable store sales presented on both a fiscal week basis and calendar week basis. Comparable store sales growth on a calendar week basis compares the results for the period from January 4, 2016 through April 3, 2016 (weeks 1 through 13 of our 2016 fiscal year) to the results for the period from January 5, 2015 through April 5, 2015 (weeks 2 through 14 of our 2015 fiscal year). We believe comparable store sales growth calculated on a same calendar week basis is more indicative of the operating trends in our business. However, we also recognize that comparable store sales growth calculated on a fiscal week basis is a useful measure when analyzing year-over-year changes in our financial statements.
First Quarter 2016 Overview:
Total revenues of $274.3 million in the first quarter of 2016 compared to total revenues of $265.5 million in the first quarter of 2015.
Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (“Adjusted EBITDA”) was $82.1 million for the first quarter of 2016 compared to $80.7 million for the first quarter of 2015. For our definition of Adjusted EBITDA and a reconciliation of Net income to Adjusted EBITDA, see “Non-GAAP Financial Measures.”
Net income of $17.9 million in the first quarter of 2016 compared to net income of $14.7 million in the first quarter of 2015.


25


Overview of Operations
We currently operate and franchise family dining and entertainment centers under the names “Chuck E. Cheese’s” and “Peter Piper Pizza” in 47 states and 12 foreign countries and territories. Our stores provide our guests with a variety of family entertainment and dining alternatives. Our family leisure offerings include video games, skill games, rides, musical and comical shows and other attractions along with tokens, tickets and prizes for kids. Our wholesome family dining offerings are centered on made-to-order pizzas, salads, sandwiches, wings, appetizers, beverages and desserts.
The following table summarizes information regarding the number of Company-owned and franchised stores for the periods presented:
 
 
Three Months Ended
 
 
April 3,
2016
 
March 29,
2015
Number of Company-owned stores:
 
 
 
 
Beginning of period
 
556

 
559

       New (1)
 
1

 
2

Acquired from franchisee
 

 

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

 
560

Number of franchised stores:
 
 
 
 
Beginning of period
 
176

 
172

       New
 
4

 
3

       Acquired from franchisee
 

 

       Closed
 
(1
)
 

End of period
 
179

 
175

Total number of stores:
 
 
 
 
Beginning of period
 
732

 
731

       New
 
5

 
5

       Acquired from franchisee
 

 

       Closed
 
(2
)
 
(1
)
End of period
 
735

 
735

 __________________

(1)
During the three months ended March 29, 2015, the number of new and closed Company owned stores included one store that was relocated.
Comparable store sales. We define “comparable store sales” as the sales for our domestic Company-owned stores that have been open for more than 18 months as of the beginning of each respective fiscal year or acquired stores we have operated for at least 12 months as of the beginning of fiscal year 2016. Comparable store sales is a key performance indicator used within our industry and is a critical factor when evaluating our performance, as it is indicative of acceptance of our strategic initiatives and local economic and consumer trends.
Revenues. Our primary source of revenues is sales at our Company-owned stores (“Company store sales”), which consist of the sale of food, beverages, game-play tokens, game play credits on game cards, and merchandise. A portion of our Company store sales are from sales of value-priced combination packages generally comprised of food, beverage and game tokens (“Package Deals”), which we promote through in-store menu pricing, our website and 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.
Food and beverage sales include all revenues recognized with respect to stand-alone food and beverage sales, as well as the portion of revenues allocated from Package Deals and coupons that relate to food and beverage sales. Entertainment and merchandise sales include all revenues recognized with respect to stand-alone game token sales, as well as a portion of revenues allocated from Package Deals and coupons that relate to entertainment and merchandise.
Franchise fees and royalties are another source of revenues. We earn monthly royalties from our franchisees based on a percentage of each franchise store’s sales. We also receive development and initial franchise fees to establish new franchised

26


stores, as well as earn revenues from the sale of equipment and other items or services to franchisees. We recognize development and franchise fees as revenues when the franchise store has opened and we have substantially completed our obligations to the franchisee relating to the opening of a store.
Company store operating costs. Certain of our costs and expenses relate only to the operation of our Company-owned stores. These costs and expenses are listed and described below:
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.
The “Cost of food and beverage” and “Cost of entertainment and merchandise” mentioned above exclude any allocation of (a) store employee payroll, related payroll taxes and benefit costs; (b) depreciation and amortization expense; (c) rent 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, 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:
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 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.”
“Cost of food and beverage” and “Cost of entertainment and merchandise,” as a percentage of Company store sales, are influenced both by the cost of products and by the overall mix of our Package Deals and coupon offerings. “Entertainment and merchandise sales” have higher margins than “Food and beverage sales.”
Advertising expense. Advertising expense includes production costs for television commercials, newspaper inserts, Internet advertising, coupons, media expenses for national and local advertising and consulting fees, partially offset by contributions from our franchisees.
General and administrative expenses. General and administrative expenses represent all costs associated with operating our corporate office, including regional and district management and corporate personnel payroll and benefits, depreciation and amortization of corporate assets, back-office support systems and other administrative costs not directly related to the operation of our Company-owned stores.
Adjusted EBITDA. We define Adjusted EBITDA as earnings before interest, income taxes, depreciation and amortization adjusted to exclude unusual items and other adjustments required or permitted in calculating covenant compliance under the indenture governing our senior notes and/or our Secured Credit Facilities (see discussion of our senior notes and Secured Credit Facilities under “Financial Condition, Liquidity and Capital Resources - Debt Financing”). Adjusted EBITDA is a measure used by management to evaluate our performance. Adjusted EBITDA provides additional information about certain trends, material non-cash items and unusual items that we do not expect to continue at the same level in the future, as well as other items.
Seasonality and Variation in Quarterly Results
Our operating results fluctuate seasonally due to the timing of school vacations, holidays and changing weather conditions. As a result, we typically generate higher sales volumes during the first quarter of each fiscal year. School operating

27


schedules, holidays and weather conditions may affect sales volumes in some operating regions differently than others. Because of the seasonality of our business, results for any quarter are not necessarily indicative of the results that may be achieved for the full fiscal year.

Results of Operations
The following table summarizes our principal sources of Total company store sales expressed in dollars and as a percentage of Total company store sales for the periods presented:
 
 
Three Months Ended
 
 
April 3, 2016
 
March 29, 2015
 
 
 
Food and beverage sales
 
$
122,202

 
45.3
%
 
$
116,537

 
44.6
%
Entertainment and merchandise sales
 
147,557

 
54.7
%
 
144,744

 
55.4
%
Total company store sales
 
$
269,759

 
100.0
%
 
$
261,281

 
100.0
%
The following tables summarize our revenues and expenses expressed in dollars and as a percentage of Total revenues (except as otherwise noted) for the periods presented:
 
 
Three Months Ended
 
 
April 3, 2016
 
March 29, 2015
 
 
(in thousands, except percentages)
Total company store sales
 
$
269,759

 
98.3
%
 
$
261,281

 
98.4
%
Franchise fees and royalties
 
4,559

 
1.7
%
 
4,227

 
1.6
%
Total revenues
 
274,318

 
100.0
%
 
265,508

 
100.0
%
Company store operating costs:
 
 
 
 
 
 
 
 
Cost of food and beverage (1)
 
30,521

 
25.0
%
 
29,225

 
25.1
%
Cost of entertainment and merchandise (2)
 
8,750

 
5.9
%
 
8,522

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

 
14.6
%
 
37,747

 
14.4
%
Labor expenses (3)
 
69,043

 
25.6
%
 
67,173

 
25.7
%
Depreciation and amortization (3)
 
27,629

 
10.2
%
 
29,241

 
11.2
%
Rent expense (3)
 
24,150

 
9.0
%
 
24,458

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

 
13.3
%
 
33,519

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

 
72.7
%
 
192,138

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

 
4.8
%
 
11,452

 
4.3
%
General and administrative expenses
 
18,018

 
6.6
%
 
16,326

 
6.1
%
Transaction, severance and related litigation costs
 
749

 
0.3
%
 
905

 
0.3
%
Total operating costs and expenses
 
227,970

 
83.1
%
 
220,821

 
83.2
%
Operating income (loss)
 
46,348

 
16.9
%
 
44,687

 
16.8
%
Interest expense
 
17,061

 
6.2
%
 
17,499

 
6.6
%
Income (loss) before income taxes
 
$
29,287

 
10.7
%
 
$
27,188

 
10.2
%
 __________________
(1)
Percent amount expressed as a percentage of Food and beverage sales.
(2)
Percent amount expressed as a percentage of Entertainment and merchandise sales.
(3)
Percent amount expressed as a percentage of Total company store sales.
Due to rounding, percentages presented in the table above may not sum to total. The percentage amounts for the components of Cost of food and beverage and the Cost of entertainment and merchandise may not sum to total due to the fact that Cost of food and beverage and Cost of entertainment and merchandise are expressed as a percentage of related Food and beverage and Entertainment and merchandise sales, as opposed to Total company store sales. 

28



Three months ended April 3, 2016 Compared to the Three months ended March 29, 2015
Revenues
Company store sales increased $8.5 million, or 3.2%, to $269.8 million during the first quarter of 2016 compared to $261.3 million during the first quarter of 2015. On a same calendar week basis comparable store sales increased 6.0%. We believe comparable store sales calculated on a same calendar week basis is more indicative of the operating trends in our business. On a fiscal week basis, comparable store sales increased 3.2% during the first quarter of 2016, primarily due to the effect of an additional operating week in our 2015 fiscal year, which caused the seasonally strong first week of the 2016 calendar year to shift into the fourth quarter of 2015. Company store sales were also impacted by approximately $0.4 million of incremental deferred revenue as a result of the implementation of our proprietary card system, which we refer to as PlayPass.
Company Store Operating Costs
The cost of food, beverage, entertainment and merchandise, as a percentage of Total company store sales, was 14.6% in the first quarter of 2016 compared to 14.4% in the first quarter of 2015. The increase in the cost of food, beverage, entertainment and merchandise on a percentage basis in the first quarter of 2016 was impacted by an increase in the average price of cheese compared to the first quarter of 2015.
Labor expenses, as a percentage of Total company store sales, were 25.6% in the first quarter of 2016 compared to 25.7% in the first quarter of 2015. The decrease in labor expenses on a percentage basis in the first quarter of 2016 reflects improved labor management, as we were able to minimize additional labor hours required to serve the increased number of guests visiting our stores, offset by increases in minimum wage rates in certain states over the past year.
Depreciation and amortization expense was $27.6 million in the first quarter of 2016 compared to $29.2 million in the first quarter of 2015. The decrease in depreciation and amortization in the first quarter of 2016 is primarily due to higher depreciation expense during the first quarter of 2015 from certain property, plant and equipment assets that were assigned short useful lives from the acquisition method of accounting as a result of the Merger.
Other store operating expenses, as a percentage of Total company store sales, were 13.3% in the first quarter of 2016 compared to 12.8% in the first quarter of 2015, primarily due to an increase in self-insurance expense associated with general liability claims and an increase in credit card fees as a result of higher sales volumes.
Advertising Expense
Advertising expense increased from $11.5 million in the first quarter of 2015 to $13.1 million in the first quarter of 2016. As a percentage of Total revenues, advertising expense was 4.8% and 4.3%, respectively, for the first quarter of 2016 and the first quarter of 2015. The first quarter of 2016 reflects an increase in digital advertising, partially offset by a decrease in production costs in the first quarter of 2016.
General and Administrative Expenses
General and administrative expenses were $18.0 million in the first quarter of 2016 compared to $16.3 million in the first quarter of 2015. The increase in general and administrative expenses in the first quarter of 2016 is primarily due to an increase in professional fees primarily related to IT and other corporate initiatives and an increase in incentive compensation as a result of higher sales and profit performance.
Income Taxes
Our effective income tax rate was 38.8% for the first quarter of 2016 compared to an effective income tax rate of 45.8% for the first quarter of 2015. The effective income tax rate of 38.8% for the three months ended April 3, 2016 differs from the statutory rate primarily due to the favorable impact of employment related federal income tax credits partially offset by the impact of non-deductible litigation costs related to the Merger. Our effective income tax rate of 45.8% for the three months ended March 29, 2015 differs from the statutory rate primarily due to the unfavorable impact of non-deductible litigation and settlement costs related to the Merger, partially offset by benefits stemming from employment related income tax credits.

29


Financial Condition, Liquidity and Capital Resources
Overview of Liquidity
We finance our business activities through cash flows provided by our operations. The primary components of working capital are as follows:
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.
As a result of these factors, our requirement for working capital is not significant and we are able to operate with a net working capital deficit (current liabilities in excess of current assets).
Sources and Uses of Cash
The following tables present summarized consolidated cash flow information that we believe is helpful in evaluating our liquidity and capital resources as of and for the periods presented:
 
 
Three Months Ended
 
 
April 3,
2016
 
March 29,
2015
 
 
(in thousands)
Net cash provided by operating activities
 
$
43,772

 
$
60,548

Net cash used in investing activities
 
(22,369
)
 
(16,860
)
Net cash provided by (used in) financing activities
 
(2,478
)
 
(2,397
)
Effect of foreign exchange rate changes on cash
 
419

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

 
$
40,630

Interest paid
 
$
21,994

 
$
21,734

Income taxes paid (refunded), net
 
$
2,949

 
$
183

 
 
April 3,
2016
 
January 3,
2016
 
 
(in thousands)
Cash and cash equivalents
 
$
69,998

 
$
50,654

Restricted cash
 
$
4,142

 
$

Term loan facility
 
$
744,800

 
$
746,700

Senior notes
 
$
255,000

 
$
255,000

Note payable
 
$
56

 
$
63

Available unused commitments under revolving credit facility
 
$
139,100

 
$
139,100

Our cash and cash equivalents totaled $70.0 million as of April 3, 2016. Cash and cash equivalents as of April 3, 2016 includes $6.7 million of undistributed income from our Canadian subsidiary that we consider to be permanently invested.
Cash that is held by the Association and restricted for use in our advertising, entertainment and media funds was $4.1 million as of April 3, 2016.
Sources and Uses of Cash - Three months ended April 3, 2016 Compared to the Three months ended March 29, 2015
Net cash provided by operating activities was $43.8 million in the first quarter of 2016 compared to $60.5 million in the first quarter of 2015. The reduction in net cash provided by operating activities is primarily due to the payment of a Merger related litigation settlement and fluctuations in our working capital.
Net cash used in investing activities was $22.4 million in the first quarter of 2016 compared to $16.9 million in the first quarter of 2015. Net cash used in investing activities in the first quarter of 2016 and the first quarter of 2015 relates primarily to store related capital expenditures.

30


Net cash used in financing activities was $2.5 million in the first quarter of 2016 and $2.4 million in the first quarter of 2015, relating primarily to principal payments on our term loan and other lease related obligations.
Debt Financing
Secured Credit Facilities
Our Secured Credit Facilities include a $760.0 million term loan facility with a maturity date of February 14, 2021 (the “term loan facility”) and a $150.0 million senior secured revolving credit facility with a maturity date of February 14, 2019, which includes a letter of credit sub-facility and a $30.0 million swingline loan sub-facility (the “revolving credit facility”). The Secured Credit Facilities require scheduled quarterly payments on the term loan equal to 0.25% of the original principal amount of the term loan from July 2014 to December 2020, with the balance paid at maturity. As of both April 3, 2016 and January 3, 2016, we had no borrowings outstanding under the revolving credit facility, and we had $10.9 million of letters of credit issued but undrawn under the facility. Effective April 8, 2016, the balance of our letters of credit issued but undrawn was reduced to $9.9 million.
All borrowings under our revolving credit facility are subject to the satisfaction of customary conditions, including the absence of a default and the accuracy of representations and warranties.
Borrowings under the Secured Credit Facilities bear interest at a rate equal to, at our option, either (a) a London Interbank Offered Rate (“LIBOR”) determined by reference to the costs of funds for Eurodollar deposits for the interest period relevant to such borrowings, adjusted for certain additional costs, subject to a 1.00% floor in the case of term loans or (b) a base rate determined by reference to the highest of (i) the federal funds effective rate plus 0.50%; (ii) the prime rate of Deutsche Bank AG New York Branch; and (iii) the one-month adjusted LIBOR plus 1.00%; in each case plus an applicable margin. The base applicable margin is 3.25% with respect to LIBOR borrowings and 2.25% with respect to base rate borrowings under the term loan facility and base rate borrowings and swingline borrowings under the revolving credit facility. The applicable margin for borrowings under the term loan facility is subject to one step down from 3.25% to 3.00% based on our net first lien senior secured leverage ratio, and the applicable margin for borrowings under the revolving credit facility is subject to two step-downs from 3.25% to 3.00% and 2.75% based on our net first lien senior secured leverage ratio. During the three months ended April 3, 2016, the federal funds rate ranged from 0.25% to 0.38%, the prime rate was 3.25% and the one-month LIBOR ranged from 0.42% to 0.44%.
In addition to paying interest on outstanding principal under the Secured Credit Facilities, we are required to pay a commitment fee to the lenders under the revolving credit facility in respect to the unutilized commitments thereunder. The base applicable commitment fee rate under the revolving credit facility is 0.5% per annum and is subject to one step-down from 0.5% to 0.375% based on our first lien senior secured leverage ratio. We are also required to pay customary agency fees, as well as letter of credit participation fees computed at a rate per annum equal to the applicable margin for LIBOR rate borrowings on the dollar equivalent of the daily stated amount of outstanding letters of credit, plus such letter of credit issuer’s customary documentary and processing fees and charges and a fronting fee computed at a rate equal to 0.125% per annum on the daily stated amount of letter of credit.
As a result of a decrease in our net first lien senior secured leverage ratio reported for the period ending January 3, 2016, effective March 4, 2016, the applicable margin for borrowings under the term loan facility stepped down from 3.25% to 3.00%, the applicable margin for borrowings under the revolving credit facility stepped down from 3.25% to 3.00%, and the applicable commitment fee rate stepped down from 0.5% to 0.375%.
The weighted average effective interest rate incurred on our borrowings under our Secured Credit Facilities was 4.7% and 4.6% for the three months ended April 3, 2016 and March 29, 2015, respectively, which includes amortization of debt issuance costs related to our Secured Credit Facilities, amortization of our term loan facility original issue discount and commitment and other fees related to our Secured Credit Facilities.
Our revolving credit facility includes a springing financial maintenance covenant that requires our net first lien senior secured leverage ratio not to exceed 6.25 to 1.00 (the ratio of consolidated net debt secured by first-priority liens on the collateral to last twelve month’s EBITDA, as defined in the Senior Credit Facilities). The covenant will be tested quarterly if the revolving credit facility is more than 30% drawn (excluding outstanding letters of credit) and will be a condition to drawings under the revolving credit facility that would result in more than 30% drawn thereunder. As of April 3, 2016, there were no borrowings under the revolving credit facility; therefore, the springing financial maintenance covenant under our revolving credit facility was not in effect.
The Secured Credit Facilities also contain customary affirmative covenants and events of default, and the negative covenants limit our ability to, among other things: incur additional debt or issue certain preferred shares; create liens on certain assets; make certain loans or investments (including acquisitions); pay dividends on or make distributions in respect of our capital stock or make other restricted payments; consolidate, merge, sell or otherwise dispose of all or substantially all of our

31


assets; sell assets; enter into certain transactions with our affiliates; enter into sale-leaseback transactions; change our lines of business; restrict dividends from our subsidiaries or restrict liens; change our fiscal year; and modify the terms of certain debt or organizational agreements.
All obligations under the Secured Credit Facilities are unconditionally guaranteed by Parent on a limited-recourse basis and each of our existing and future direct and indirect material, wholly-owned domestic subsidiaries, subject to certain exceptions. The obligations are secured by a pledge of our capital stock and substantially all of our assets and those of each subsidiary guarantor, including capital stock of the subsidiary guarantors and 65% of the capital stock of the first-tier foreign subsidiaries that are not subsidiary guarantors, in each case subject to exceptions. Such security interests will consist of a first priority lien with respect to the collateral.
Senior Unsecured Debt
Our senior unsecured debt consists of $255.0 million aggregate principal amount borrowings of 8.000% Senior Notes due 2022 (the “senior notes”) bearing interest at a rate of 8.000% per year and maturing on February 15, 2022. The senior notes are registered under the Securities Act, do not bear legends restricting their transfer and are not entitled to registration rights under our registration rights agreement. On or after February 15, 2017, we may redeem some or all of the senior notes at certain redemption prices set forth in the indenture governing the senior notes (the “indenture”). Prior to February 15, 2017, we may redeem (i) up to 40% of the original aggregate principal amount of the senior notes with the net cash proceeds of one or more equity offerings at a price equal to 108% of the principal amount thereof, plus accrued and unpaid interest, or (ii) some or all of the notes at a price equal to 100% of the principal amount thereof, plus accrued and unpaid interest, plus the applicable “make-whole” premium set forth in the indenture.
We paid $6.4 million in debt issuance costs related to the senior notes, which we capitalized in “Bank indebtedness and other long-term debt, net of deferred financing costs” on our Consolidated Balance Sheets. The deferred financing costs are amortized over the life of the senior notes and are included in “Interest expense” on our Consolidated Statements of Earnings.
Our obligations under the senior notes are fully and unconditionally guaranteed, jointly and severally, by our present and future direct and indirect wholly-owned material domestic subsidiaries that guarantee our Secured Credit Facilities.
The indenture contains restrictive covenants that limit our ability to, among other things: incur additional debt or issue certain preferred shares; create liens on certain assets; make certain loans or investments (including acquisitions); pay dividends on or make distributions in respect of our capital stock or make other restricted payments; consolidate, merge, sell or otherwise dispose of all or substantially all of our assets; sell assets; enter into certain transactions with our affiliates; and restrict dividends from our subsidiaries.
The weighted average effective interest rate incurred on borrowings under our senior notes was 8.3% for both the three months ended April 3, 2016 and March 29, 2015, which included amortization of debt issuance costs and other fees related to our senior notes.
Capital Expenditures
We intend to continue to focus our future capital expenditures on reinvestment into our existing Company-owned Chuck E. Cheese’s and PPP stores through various planned capital initiatives and the development or acquisition of additional Company-owned stores. During the first three months of 2016, we completed 73 game enhancements and one major remodel, and we opened one new domestic Company-owned Chuck E. Cheese’s store. We have funded and continue to fund our capital expenditures through existing cash flows from operations. Capital expenditures in the first three months of 2016 totaled approximately $22.2 million.

32



The following table reconciles the approximate total capital spend by initiative to our Consolidated Statements of Cash Flows for the periods presented:
 
 
Three Months Ended
 
 
April 3, 2016

March 29, 2015
 
 
(in thousands)
Growth capital spend (1)
 
$
9,503

 
$
7,590

Maintenance capital spend (2)
 
8,304

 
8,461

IT capital spend
 
4,365

 
230

Total Capital Spend
 
$
22,172

 
$
16,281

__________________
(1)    Growth capital spend includes major remodels, store expansions, major attractions and new store development, including relocations and franchise
acquisitions.
(2)    Maintenance capital spend includes game enhancements, general store capital expenditures and corporate capital expenditures.
We currently estimate our capital expenditures in 2016 will total approximately $105 million to $115 million. These capital expenditures consist of the following: (i) approximately $30 million for maintenance capital which includes game enhancements and general store maintenance capital expenditures; (ii) approximately $10 million for investments in one-time information technology initiatives, (iii) approximately $40 million to $45 million for various growth initiatives, including new store openings and major remodels, and (iv) approximately $25 million to $30 million related to our PlayPass initiative. In addition we are re-evaluating our store design for Chuck E. Cheese’s stores as a part of an effort to launch a new store prototype. We expect to fund our capital expenditures through cash flows from operations and existing cash on hand.
Off-Balance Sheet Arrangements and Contractual Obligations
As of April 3, 2016, we had no off-balance sheet financing arrangements as described in Regulation S-K Item 303(a)(4)(ii).
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 January 3, 2016, filed with the SEC on March 2, 2016.
See further discussion of our indebtedness and future debt obligations in “Financial Condition, Liquidity and Capital Resources - Debt Financing” of this report. There have been no other material changes to our contractual obligations since January 3, 2016.
Critical Accounting Policies and Estimates
Information with respect to our critical accounting policies and estimates, which we believe could have the most significant effect on our reported consolidated results and require difficult, subjective or complex judgment by management are described under “Critical Accounting Policies and Estimates” 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 January 3, 2016, filed with the SEC on March 2, 2016. As of April 3, 2016, there has been no material change to the information concerning our critical accounting policies and estimates.
Recently Issued Accounting Guidance
Refer to Note 1 “Description of Business and Summary of Significant Accounting Policies” to our Consolidated Financial Statements included in Part I, Item 1. “Financial Statements” of this Periodic Report for a description of recently issued accounting guidance.

33


Non-GAAP Financial Measures
Adjusted EBITDA, a measure used by management to assess operating performance, is defined as Earnings Before Interest, Taxes, Depreciation and Amortization adjusted to exclude unusual items and other adjustments required or permitted in calculating covenant compliance under the indenture and/or the Secured Credit Facilities.
We have provided Adjusted EBITDA in this report because we believe it provides investors with additional information to measure our performance. We believe that the presentation of Adjusted EBITDA is appropriate to provide additional information to investors about certain material non-cash items and about unusual items that we do not expect to continue at the same level in the future, as well as other items. Further, we believe Adjusted EBITDA provides a meaningful measure of operating profitability because we use it for evaluating our business performance and understanding certain significant items.
Adjusted EBITDA is not a presentation made in accordance with GAAP, and our use of the term Adjusted EBITDA varies from others in our industry. Adjusted EBITDA should not be considered as an alternative to operating income or any other performance measures derived in accordance with GAAP as measures of operating performance, or cash flows as measures of liquidity. Adjusted EBITDA has important limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP. For example, Adjusted EBITDA:
excludes certain tax payments that may represent a reduction in cash available to us;
does not reflect any cash capital expenditure requirements for the assets being depreciated and amortized that may have to be replaced in the future;
does not reflect changes in, or cash requirements for, our working capital needs;
does not reflect the significant interest expense, or the cash requirements necessary to service interest or principal payments, on our indebtedness;
does not include one-time expenditures;
excludes the impairment of Company-owned stores or impairments of long-lived assets, and gains or losses upon disposal of property or equipment, and inventory obsolescence charges outside of the ordinary course of business;
excludes non-cash equity based compensation expense;
reflects the removal of the non-cash portion of rent expense relating to the impact of straight-line rent and the amortization of cash incentives and allowances received from landlords, plus the actual cash received from landlords incentives and allowances in the period;
reflects franchise fees received on a cash basis post-acquisition;
excludes the purchase accounting impact to unearned revenue at the time of the acquisition;
excludes start-up and marketing costs incurred prior to the opening of new Company-owned stores;
excludes non-recurring income and expenses primarily related to (i) non-recurring franchise fee income; (ii) severance costs; (iii) integration costs in connection with acquisitions; (iv) employee and other legal claims and settlements; (v) costs incurred in connection with the relocation of our corporate offices; (vi) actual cash landlord incentives received on our new corporate offices; (vii) sales and use tax refunds relating to prior periods; (viii) miscellaneous professional fees; and (ix) certain insurance recoveries relating to prior year expense;
includes estimated cost savings, including some adjustments not permitted under Article 11 of Regulation S-X; and
does not reflect the impact of earnings or charges resulting from matters that we, the initial purchasers of the senior notes, the current holders of the senior notes or the lenders under the Secured Credit Facilities may consider not to be indicative of our ongoing operations.

34


Our definition of Adjusted EBITDA allows us to add back certain non-cash and non-recurring charges or costs that are deducted in calculating Net income. However, these are expenses that may recur, vary greatly and are difficult to predict. They can represent the effect of long-term strategies as opposed to short-term results. In addition, certain of these expenses can represent the reduction of cash that could be used for other corporate purposes. Because of these limitations, we rely primarily on our GAAP results and use Adjusted EBITDA only as supplemental information.
 
Three Months Ended
 
April 3,
2016
 
March 29,
2015
 
(in thousands)
Total revenues
$
274,318

 
$
265,508

Net income as reported
$
17,915

 
$
14,742

   Interest expense
17,061

 
17,499

   Income tax expense
11,372

 
12,446

   Depreciation and amortization
28,998

 
30,398

Non-cash impairments, gain or loss on disposal (1)
2,177

 
1,244

Non-cash stock-based compensation (2)
135

 
391

Rent expense book to cash (3)
2,160

 
2,211

Franchise revenue, net cash received (4)
(109
)
 
(65
)
Impact of purchase accounting (5)
199

 
232

Store pre-opening costs (6)
221

 
244

One-time items (7)
1,902

 
1,351

Cost savings initiatives (8)
62

 

Adjusted EBITDA
$
82,093

 
$
80,693

Adjusted EBITDA as a percent of total revenues
29.9
%
 
30.4
%
__________________
(1)
Relates primarily to (i) the impairment of Company-owned stores or impairments of long lived assets; (ii) gains or losses upon disposal of property or equipment; and (iii) inventory obsolescence charges outside of the ordinary course of business.
(2)
Represents non-cash equity-based compensation expense.
(3)
Represents (i) the removal of the non-cash portion of rent expense relating to the impact of straight-line rent and the amortization of cash incentives and allowances received from landlords, plus (ii) the actual cash received from landlords incentives and allowances in the period in which it was received.
(4)
Represents the actual cash received for franchise fees received in the period for post-acquisition franchise development agreements, which are not recorded as revenue until the franchise store is opened.
(5)
Represents revenue related to unearned gift cards and unearned franchise fees that were removed in purchase accounting, and therefore were not recorded as revenue.
(6)
Relates to start-up and marketing costs incurred prior to the opening of new Company-owned stores and generally consists of payroll, recruiting, training, supplies and rent incurred prior to store opening.
(7)
Represents non-recurring income and expenses primarily related to (i) transaction costs associated with the Merger, Sale Leaseback transaction and PPP acquisition; (ii) severance expense and executive termination benefits; (iii) integration costs in connection with the PPP acquisition; (iv) employee and other legal claims and settlements; (v) costs incurred in connection with the relocation of our corporate offices; (vi) actual cash landlord incentives received on our new corporate offices; (vii) sales and use tax refunds relating to prior periods; (viii) miscellaneous professional fees; and (ix) certain insurance recoveries relating to prior year expense.
(8)
Relates to estimated net cost savings primarily from (i) the change from public to private ownership upon the closing of the Acquisition and elimination of public equity securities, with reductions in investor relations activities, directors fees and certain legal and other securities and filing costs; (ii) the full-year effect of cost savings initiatives implemented by the Company in 2013; (iii) the estimated effect of cost savings following the Merger from participation in Sponsor-leveraged purchasing programs including various supplies, travel and communications purchasing categories; (iv) the net impact of labor savings associated with changes in management; (v) cost savings in connection with the relocation of the Company’s corporate offices in 2015; (vi) labor savings associated with planned headcount reductions in 2015; (vii) estimated cost savings associated with the integration of PPP; (viii) the full-year effect of costs savings associated with upgrades to our telephone communication systems; and net of (ix) the estimated incremental costs associated with our new IT systems and post-closing insurance arrangements.


35


Cautionary Statement Regarding Forward-Looking Statements
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 are subject to various risks, uncertainties and assumptions. Statements that are not historical in nature, and which may be identified by the use of words such as “may,” “should,” “could,” “believe,” “predict,” “potential,” “continue,” “plan,” “intend,” “expect,” “anticipate,” “future,” “project,” “estimate” and similar expressions (or the negative of such expressions) are forward-looking statements. Forward-looking statements are made based on management’s current expectations and beliefs concerning future events and, therefore, involve a number of assumptions, risks and uncertainties, including the risk factors described in Part I, Item 1A. “Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended January 3, 2016, filed with the SEC on March 2, 2016. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may differ from those anticipated, estimated or expected. Factors that could cause actual results to differ materially from those contemplated by forward-looking statements include, but are not limited to:
Negative publicity concerning food quality, health, general safety and other issues, and changes in consumer preferences;
The success of our capital initiatives, including new store development and existing store evolution;
Our ability to successfully implement our marketing strategy;
Competition in both the restaurant and entertainment industries;
Economic uncertainty and changes in consumer discretionary spending in the United States and Canada;
Expansion in international markets;
Our ability to generate sufficient cash flow to meet our debt service payments;
Increases in food, labor and other operating costs;
Disruptions of our information technology systems and technologies, including, but not limited to, data security breaches;
Any disruption of our commodity distribution system;
Our dependence on a limited number of suppliers for our games, rides, entertainment-related equipment, redemption prizes and merchandise;
Product liability claims and product recalls;
Government regulations;
Litigation risks;
Adverse effects of local conditions, natural disasters and other events;
Fluctuations in our quarterly results of operations due to seasonality;
Inadequate insurance coverage;
Loss of certain key personnel;
Our ability to adequately protect our trademarks or other proprietary rights;
Risks in connection with owning and leasing real estate; and
Our ability to successfully integrate the operations of companies we acquire.
The forward-looking statements made in this report relate only to events as of the date on which the statements are made in this report. Except as may be required by law, we undertake no obligation to update our forward-looking statements to reflect events and circumstances after the date on which the statements were made or to reflect the occurrence of unanticipated events.

36


ITEM 3. Quantitative and Qualitative Disclosures About Market Risk.
We are exposed to various types of market risk in the normal course of business, including the impact of interest rates, commodity price changes and foreign currency fluctuation.
Interest Rate Risk
We are exposed to market risk from changes in the variable interest rates related to borrowings from our Secured Credit Facilities. All of our borrowings outstanding under the Secured Credit Facilities as of April 3, 2016 of $744.8 million accrue interest at variable rates. Assuming the revolving credit facility remains undrawn, each 1% change in assumed interest rates, excluding the impact of our 1% interest rate floor, would result in a $7.5 million change in annual interest expense on indebtedness under the Secured Credit Facilities.
Commodity Price Risk
We are exposed to commodity price changes related to certain food products that we purchase, primarily related to the prices of cheese and dough, which can vary throughout the year due to changes in supply, demand, and other factors. We have not entered into any hedging arrangements to reduce our exposure to commodity price volatility associated with such commodity prices; however, we typically enter into short-term purchasing contracts, which may contain pricing arrangements designed to minimize the impact of commodity price fluctuations, and derivative instruments such as futures contracts to mitigate our exposure to commodity price fluctuations. For the three months ended April 3, 2016 and March 29, 2015, the average cost of a block of cheese was $1.80 and $1.66, respectively. The estimated increase in our food costs from a hypothetical 10% increase in the average cost of a block of cheese would have been $0.4 million for both the three months ended April 3, 2016 and March 29, 2015. For the three months ended April 3, 2016 and March 29, 2015, the average cost of dough per pound was $0.45 and $0.49, respectively. 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 million for both the three months ended April 3, 2016 and March 29, 2015.
Foreign Currency Risk
We are exposed to foreign currency fluctuation risk associated with changes in the value of the Canadian dollar relative to the United States dollar as we operate a total of 12 Company-owned stores in Canada. For the three months ended April 3, 2016 our Canadian stores generated an operating income of $0.1 million compared to our consolidated operating income of $46.4 million.
Changes in the currency exchange rate result in cumulative translation adjustments and are included in “Accumulated other comprehensive income (loss)” on our Consolidated Balance Sheets and potentially result in transaction gains or losses, which are included in our earnings. The low and high currency exchange rates for a Canadian dollar into a United States dollar for the three months ended April 3, 2016 were $0.685 and $0.771, respectively. A hypothetical 10% devaluation in the average quoted U.S. dollar-equivalent of the Canadian dollar exchange rate during the three months ended April 3, 2016 would have decreased our reported consolidated operating results by less than $0.1 million.
ITEM 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
We performed an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, as of the end of the period covered by this report. Based on that evaluation, our management, including our Chief Executive Officer and Chief Financial Officer, has concluded that our disclosure controls and procedures were effective as of April 3, 2016 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.
Changes in Internal Control over Financial Reporting
During the quarterly period covered by this report there has been no change in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

37



PART II – OTHER INFORMATION
ITEM 1. Legal Proceedings.
Refer to Note 7 “Commitments and Contingencies” to our Consolidated Financial Statements included in Part I, Item 1. “Financial Statements” of this Periodic Report for a discussion of our legal proceedings.
ITEM 1A. Risk Factors.
We believe there have been no material changes in our risk factors from those disclosed in Part I, Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended January 3, 2016, filed with the SEC on March 2, 2016.
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds.

NONE.


38


ITEM 6. Exhibits.
EXHIBIT INDEX
 
Exhibit
Number
 
Description
 
 
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.
Pursuant to Item 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933 or Section 18 of the Securities Exchange Act of 1934 and otherwise are not subject to liability.

39


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.
 
 
 
 
 
May 9, 2016
 
By:
 
/s/ Dale R. Black
 
 
 
 
Dale R. Black
 
 
 
 
Executive Vice President and Chief Financial Officer
 
 
 
 
(Principal Financial Officer)
 
 
 
 
 
May 9, 2016
 
 
 
/s/ Laurie E. Priest
 
 
 
 
Laurie E. Priest
 
 
 
 
Vice President, Controller
 
 
 
 
(Principal Accounting Officer)

40


EXHIBIT INDEX
 
Exhibit
Number
 
Description
 
 
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.
Pursuant to Item 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933 or Section 18 of the Securities Exchange Act of 1934 and otherwise are not subject to liability.