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EX-32.2 - EXHIBIT 32.2 - CEC ENTERTAINMENT INCcecfy2016q3322.htm
EX-32.1 - EXHIBIT 32.1 - CEC ENTERTAINMENT INCcecfy2016q3321.htm
EX-31.2 - EXHIBIT 31.2 - CEC ENTERTAINMENT INCcecfy2016q3312.htm
EX-31.1 - EXHIBIT 31.1 - CEC ENTERTAINMENT INCcecfy2016q3311.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 October 2, 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 October 31, 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)
 
 
October 2,
2016
 
January 3,
2016
ASSETS
 
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
79,857

 
$
50,654

Restricted cash
 
196

 

Accounts receivable
 
16,313

 
25,936

Inventories
 
21,528

 
23,275

Prepaid expenses
 
21,734

 
18,223

Total current assets
 
139,628

 
118,088

Property and equipment, net
 
599,653

 
629,047

Goodwill
 
483,876

 
483,876

Intangible assets, net
 
485,057

 
488,095

Other noncurrent assets
 
22,861

 
13,929

Total assets
 
$
1,731,075

 
$
1,733,035

LIABILITIES AND STOCKHOLDER’S EQUITY
 
 
 
 
Current liabilities:
 
 
 
 
Bank indebtedness and other long-term debt
 
$
7,626

 
$
7,650

Capital lease obligations
 
477

 
421

Accounts payable
 
39,237

 
44,090

Accrued expenses
 
43,532

 
38,284

Unearned revenues
 
14,624

 
10,233

Accrued interest
 
3,942

 
9,757

Other current liabilities
 
3,969

 
3,678

Total current liabilities
 
113,407

 
114,113

Capital lease obligations, less current portion
 
14,681

 
15,044

Bank indebtedness and other long-term debt, net of deferred financing costs, less current portion
 
969,030

 
971,333

Deferred tax liability
 
191,532

 
201,734

Accrued insurance
 
9,664

 
9,737

Other noncurrent liabilities
 
216,517

 
212,528

Total liabilities
 
1,514,831

 
1,524,489

Stockholder’s equity:
 
 
 
 
Common stock, $0.01 par value; authorized 1,000 shares; 200 shares issued as of October 2, 2016 and January 3, 2016
 

 

Capital in excess of par value
 
356,996

 
356,460

Accumulated deficit
 
(138,139
)
 
(144,598
)
Accumulated other comprehensive loss
 
(2,613
)
 
(3,316
)
Total stockholder’s equity
 
216,244

 
208,546

Total liabilities and stockholder’s equity
 
$
1,731,075

 
$
1,733,035


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

3


CEC ENTERTAINMENT, INC.
COSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(in thousands)
 
 
Three Months Ended
 
Nine Months Ended
 
October 2,
2016
 
September 27,
2015
 
October 2,
2016
 
September 27,
2015
REVENUES:
 
 
 
 
 
 
 
Food and beverage sales
$
101,984

 
$
98,243

 
$
321,591

 
$
308,924

Entertainment and merchandise sales
121,764

 
118,753

 
383,978

 
377,358

Total company store sales
223,748

 
216,996

 
705,569

 
686,282

Franchise fees and royalties
4,322

 
4,941

 
13,440

 
13,241

Total revenues
228,070

 
221,937

 
719,009

 
699,523

OPERATING COSTS AND EXPENSES:
 
 
 
 
 
 
 
Company store operating costs:
 
 
 
 
 
 
 
Cost of food and beverage (exclusive of items shown separately below)
25,507

 
25,032

 
80,702

 
78,209

Cost of entertainment and merchandise (exclusive of items shown separately below)
8,014

 
7,863

 
25,004

 
23,399

Total cost of food, beverage, entertainment and merchandise
33,521

 
32,895

 
105,706

 
101,608

Labor expenses
61,721

 
59,998

 
191,170

 
186,405

Depreciation and amortization
27,667

 
28,394

 
85,029

 
86,606

Rent expense
24,120

 
23,979

 
72,318

 
72,698

Other store operating expenses
38,757

 
36,587

 
112,143

 
105,435

Total company store operating costs
185,786

 
181,853

 
566,366

 
552,752

Other costs and expenses:
 
 
 
 
 
 
 
Advertising expense
11,515

 
10,292

 
36,777

 
36,339

General and administrative expenses
17,284

 
14,592

 
51,222

 
48,620

Transaction, severance and related litigation costs
166

 
1,826

 
1,349

 
3,939

Asset impairments
772

 
875

 
772

 
875

Total operating costs and expenses
215,523

 
209,438

 
656,486

 
642,525

Operating income
12,547

 
12,499

 
62,523

 
56,998

Interest expense
17,237

 
17,209

 
51,419

 
52,031

Income (loss) before income taxes
(4,690
)
 
(4,710
)
 
11,104

 
4,967

Income tax expense (benefit)
(2,286
)
 
(1,508
)
 
4,645

 
3,319

Net income (loss)
$
(2,404
)
 
$
(3,202
)
 
$
6,459

 
$
1,648

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
 
Nine Months Ended
 
October 2,
2016
 
September 27,
2015
 
October 2,
2016
 
September 27,
2015
Net income (loss)
$
(2,404
)
 
$
(3,202
)
 
$
6,459

 
$
1,648

Components of other comprehensive loss, net of tax:
 
 
 
 
 
 
 
Foreign currency translation adjustments
(212
)
 
(1,034
)
 
703

 
(1,899
)
Comprehensive income (loss)
$
(2,616
)
 
$
(4,236
)
 
$
7,162

 
$
(251
)
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)
 
Nine Months Ended
 
October 2,
2016
 
September 27,
2015
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
Net income
$
6,459

 
$
1,648

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
  Depreciation and amortization
90,167

 
89,597

  Deferred income taxes
(10,329
)
 
(19,101
)
  Stock-based compensation expense
522

 
733

  Amortization of lease related liabilities
(17
)
 
(2
)
  Amortization of original issue discount and deferred debt financing costs
3,410

 
3,410

  Loss on asset disposals, net
6,298

 
4,867

  Asset impairments
772

 
875

  Non-cash rent expense
5,261

 
6,190

  Other adjustments
237

 
(908
)
  Changes in operating assets and liabilities:
 
 
 
        Restricted cash
(196
)
 

        Accounts receivable
5,938

 
3,321

        Inventories
(1,867
)
 
(2,828
)
        Prepaid expenses
(321
)
 
(2,504
)
        Accounts payable
(3,973
)
 
(7,311
)
        Accrued expenses
3,424

 
2,163

        Unearned revenues
4,386

 
813

        Accrued interest
(5,784
)
 
(5,199
)
        Income taxes payable
5,400

 
9,298

        Deferred landlord contributions
1,467

 
3,236

Net cash provided by operating activities
111,254

 
88,298

CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
Acquisition of Peter Piper Pizza

 
(663
)
Purchases of property and equipment
(66,535
)
 
(56,994
)
Development of internal use software
(8,788
)
 
(2,784
)
Proceeds from sale of property and equipment
426

 
261

Net cash used in investing activities
(74,897
)
 
(60,180
)
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
  Repayments on senior term loan
(5,700
)
 
(5,700
)
  Repayments on note payable
(37
)
 
(34
)
  Payments on capital lease obligations
(311
)
 
(308
)
  Payments on sale leaseback obligations
(1,466
)
 
(1,196
)
  Dividends paid

 
(70,000
)
  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 used in financing activities
(7,510
)
 
(77,238
)
Effect of foreign exchange rate changes on cash
356

 
(977
)
Change in cash and cash equivalents
29,203

 
(50,097
)
Cash and cash equivalents at beginning of period
50,654

 
110,994

Cash and cash equivalents at end of period
$
79,857

 
$
60,897

 
 
 
 
 
 
 
 
 
Nine Months Ended
 
October 2,
2016
 
September 27,
2015
SUPPLEMENTAL CASH FLOW INFORMATION:
 
 
 
Interest paid
$
53,971

 
$
53,868

Income taxes paid, net
$
9,569

 
$
13,142

NON-CASH INVESTING AND FINANCING ACTIVITIES:
 
 
 
Accrued construction costs
$
2,926

 
$
3,156

 
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 a 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 variable interest entity (“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 $1.7 million and $1.6 million for the nine months ended October 2, 2016 and September 27, 2015, respectively. 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.
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 October 2, 2016 and for the three and nine months ended October 2, 2016 and September 27, 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 $1.5 million and $3.6 million of litigation costs related to the Merger (as defined in Note 12. “Commitments and Contingencies”) in our Consolidated Statement of Earnings for the three and nine months ended September 27, 2015, respectively, from “General and administrative expenses” to “Transaction, severance and litigation related costs” to conform to the current period’s presentation.

8

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

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 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 February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). This new standard introduces a new lease model that requires the recognition of lease assets and lease liabilities on the balance sheet and the disclosure of key information about leasing arrangements. The new guidance will be effective for the Company for annual and interim periods beginning after December 15, 2018 (i.e., calendar periods beginning on January 1, 2019). Early adoption will be permitted for all entities. We are currently assessing the impact of adopting this new guidance on our Consolidated Financial Statements.
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 the Company 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) be recognized as income tax expense or benefit on the income statement, (ii) the tax effects of exercised or vested awards be treated as discrete items in the reporting period in which they occur, and (iii) an entity 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 the Company, the amendments in this update are effective for annual periods beginning after December 15, 2016 and interim periods within those annual periods. We do not expect the adoption of this amendment to have a significant impact on our Consolidated Financial Statements.
In April 2016, the FASB issued ASU 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing. This amendment updates the revenue guidance on identifying performance obligations and accounting for licenses of intellectual property, changing the FASB’s previous proposals on right-of-use licenses and contractual restrictions. For an entity that licenses intellectual property, the amount or timing of revenue recognition and the timing and pattern of revenue recognition for intellectual property licenses, including the application of the sale- and usage-based royalties exception, may be significantly different from current practice. Additionally, an entity will need to evaluate which contractual restrictions are attributes of a license and which give rise to separate performance obligations. This amendment is effective for annual reporting periods beginning after December 15, 2017 and for interim periods therein. Early application is permitted, but only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods therein. We do not expect the adoption of this amendment to have a significant impact on our Consolidated Financial Statements.


9

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

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This amendment changes the impairment model for most financial assets and certain other instruments. For trade and other receivables, held-to-maturity debt securities, loans and other instruments, entities will be required to use a new forward-looking “expected loss” model that generally will result in the earlier recognition of allowances for losses. The amendments in this update are effective for the Company for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. Entities may early adopt the amendments in this update as of the fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. We do not expect the adoption of this amendment to have a significant impact on our Consolidated Financial Statements.
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230). This amendment reduces diversity in practice in how certain transactions are classified in the statement of cash flows. Current GAAP either is unclear or does not include specific guidance on eight cash flow classification issues addressed in this amendment, including (i) debt prepayment or debt extinguishment costs; (ii) proceeds from the settlement of insurance claims; (iii) separately identifiable cash flows and application of the predominance principle; and (iv) contingent consideration payments made after a business combination. The amendment is effective for the Company for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. We do not expect the adoption of this amendment to have a significant impact on our Consolidated Financial Statements.
2. Property and Equipment:
Total depreciation and amortization expense was $29.9 million and $29.4 million for the three months ended October 2, 2016 and September 27, 2015, respectively, of which $2.2 million and $1.0 million, respectively, was included in “General and administrative expenses” in our Consolidated Statements of Earnings.
Total depreciation and amortization expense was $90.2 million and $89.6 million for the nine months ended October 2, 2016 and September 27, 2015, respectively, of which $5.1 million and $3.0 million, respectively, was included in “General and administrative expenses” in our Consolidated Statements of Earnings.
Asset Impairments
During the three and nine months ended October 2, 2016, we recognized an asset impairment charge of $0.8 million primarily related to four stores. During the three and nine months ended September 27, 2015, we recognized an asset impairment charge of $0.9 million primarily related to four stores. We closed two of these stores. These impairment charges were the result of a decline in the stores’ financial performance, primarily related to various economic factors in the markets in which the stores are located. As of October 2, 2016, the aggregate carrying value of the property and equipment at impaired stores, after the impairment charges, was $0.6 million for stores impaired in 2016.
3. Intangible Assets, Net:
The following table presents our indefinite and definite-lived intangible assets at October 2, 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

 
(5,187
)
 
9,693

Franchise agreements
25
 
53,300

 
(4,636
)
 
48,664

 
 
 
$
494,880

 
$
(9,823
)
 
$
485,057

__________________
(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 October 2, 2016 and September 27, 2015 and $1.5 million for both the nine months ended October 2, 2016 and September 27, 2015, and is included in “Rent expense” in our Consolidated Statements of Earnings. Amortization expense related to franchise

10

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

agreements was $0.5 million for both the three months ended October 2, 2016 and September 27, 2015, and $1.5 million for both the nine months ended October 2, 2016 and September 27, 2015 and is included in “General and administrative expenses” in our Consolidated Statements of Earnings.
4. Accounts Payable:
Accounts payable consisted of the following as of the dates presented:
 
October 2, 2016
 
January 3, 2016
 
(in thousands)
Trade and other amounts payable
$
29,229

 
$
35,228

Book overdraft
10,008

 
8,862

       Accounts Payable
$
39,237

 
$
44,090


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 as of the dates presented:
 
October 2,
2016
 
January 3,
2016
 
(in thousands)
Term loan facility
$
741,000

 
$
746,700

Senior notes
255,000

 
255,000

Note payable
26

 
63

     Total debt outstanding
996,026

 
1,001,763

Less:
 
 
 
    Unamortized original issue discount
(2,370
)
 
(2,776
)
    Deferred financing costs, net
(17,000
)
 
(20,004
)
    Current portion
(7,626
)
 
(7,650
)
Bank indebtedness and other long-term debt, net of deferred financing costs, less current portion
$
969,030

 
$
971,333

Secured Credit Facilities
Our Secured Credit Facilities include (i) a $760.0 million term loan facility with a maturity date of February 14, 2021 (the “term loan facility”) and (ii) 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” and together with the term loan facility, the “Secured Credit Facilities”). The Secured Credit Facilities require scheduled quarterly payments on the term loan facility equal to 0.25% of the original principal amount of the term loan facility from July 2014 to December 2020, with the remaining balance paid at maturity, February 14, 2021. As of October 2, 2016 we had $9.9 million of letters of credit issued but undrawn under the Secured Credit Facilities.
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

11

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

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 nine months ended October 2, 2016, the federal funds rate ranged from 0.25% to 0.41%, the prime rate was 3.5% and the one-month LIBOR ranged from 0.42% to 0.55%.
The weighted average effective interest rate incurred on our borrowings under our Secured Credit Facilities was 4.6% for the nine months ended October 2, 2016 and September 27, 2015, 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.
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 with respect to the unutilized commitments thereunder. The base applicable commitment fee rate under the revolving credit facility is 0.50% per annum and is subject to one step-down from 0.50% to 0.375% based on our net 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 such letter of credit.
Effective March 4, 2016, the applicable margin for borrowings under the Secured Credit Facilities stepped down from 3.25% to 3.00% and the applicable commitment fee rate stepped down from 0.5% to 0.375%.
All obligations under the Secured Credit Facilities are unconditionally guaranteed by Queso Holdings Inc. (“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 consist of first priority liens with respect to the collateral.
The Secured Credit Facilities also contain customary affirmative and negative covenants, and events of default, which 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 with respect to 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; 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.
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 the last twelve months’ 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.
We were in compliance with the debt covenants in effect as of October 2, 2016 for both the Secured Credit Facilities and the senior notes.
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”) and maturing on February 15, 2022. The senior notes are registered under the Securities Act of 1933 (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.

12

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

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 nine months ended October 2, 2016 and the nine months ended September 27, 2015, which included amortization of debt issuance costs and other fees related to our senior notes.
Interest Expense
Interest expense consisted of the following for the periods presented:
 
Three Months Ended
 
October 2, 2016
 
September 27, 2015
 
(in thousands)
Term loan facility (1)
$
7,646

 
$
7,724

Senior notes
5,157

 
5,157

Capital lease obligations
436

 
447

Sale leaseback obligations
2,674

 
2,765

Amortization of debt issuance costs
1,001

 
1,002

Other
323

 
114

Total interest expense
$
17,237

 
$
17,209

 
Nine Months Ended
 
October 2, 2016
 
September 27, 2015
 
(in thousands)
Term loan facility (1)
$
23,303

 
$
23,229

Senior notes
15,470

 
15,470

Capital lease obligations
1,315

 
1,349

Sale leaseback obligations
8,067

 
8,331

Amortization of debt issuance costs
3,004

 
3,004

Other
260

 
648

Total interest expense
$
51,419

 
$
52,031

 __________________
(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% for the nine months ended October 2, 2016, and 5.5% for the nine months ended September 27, 2015.



13

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

6. Fair Value of Financial Instruments:
The following table presents information on our financial instruments as of the periods presented:
 
 
October 2, 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:
 
 
 
 
 
 
 
 
 
     Current portion
 
$
7,626

 
$
7,541

 
 
$
7,650

 
$
7,451

     Long-term portion
 
986,030

 
981,106

 
 
991,337

 
962,600

Bank indebtedness and other long-term debt:
 
$
993,656

 
$
988,647

 
 
$
998,987

 
$
970,051

 _________________
(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 facility and senior notes was determined by using the respective average of the ask and bid price of our outstanding borrowings under our term loan facility and the senior notes as of the nearest open market date preceding the reporting period end. The average of the ask and bid price are classified as Level 2 in the fair value hierarchy.
During the nine months ended October 2, 2016 and September 27, 2015, there were no significant transfers among Level 1, 2 or 3 fair value determinations.
7. Income Taxes:
Our income tax expense (benefit) consists of the following for the periods presented:
 
Three Months Ended
 
October 2, 2016
 
September 27, 2015
 
(in thousands, except %)
Federal and state income taxes
$
(2,662
)
 
$
(1,643
)
Foreign income taxes(1)
376

 
135

      Income tax benefit
$
(2,286
)
 
$
(1,508
)
      Effective rate
48.7
%
 
32.0
%

 
Nine Months Ended
 
October 2, 2016
 
September 27, 2015
 
(in thousands, except %)
Federal and state income taxes
$
4,051

 
$
2,431

Foreign income taxes(1)
594

 
888

      Income tax expense
$
4,645

 
$
3,319

      Effective rate
41.8
%
 
66.8
%
_________________
(1)    Including foreign taxes withheld.
Our effective income tax rates for the three and nine-month periods ended October 2, 2016 and September 27, 2015, differ from the statutory rate primarily due to the favorable impact of employment-related federal and state income tax credits,

14

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

the favorable impact of adjustments related to the prior year’s estimated tax provision versus actuals, the unfavorable impact of non-deductible litigation and settlement costs related to the Merger, and the unfavorable impact of increases in the liability for uncertain tax positions.
Our quarterly provision for income taxes has historically been calculated using the annual effective rate method which applies an estimated annual effective tax rate to pre-tax income or loss. However, for the three and nine-month periods ended October 2, 2016, we have used the actual year-to-date effective tax rate (the “discrete method”), as required by ASC 740-270, Accounting for Income Taxes-Interim Reporting when a reliable estimate cannot be made. We believe that at this time, the use of the discrete method is more appropriate than the annual effective tax rate method due to significant variations in the customary relationship between income tax expense and projected annual pre-tax income or loss which occurs when projected pre-tax income or loss nears a relatively small amount in comparison to the differences between income and deductions determined for financial statement purposes versus income tax purposes. Using the discrete method, we have determined our current and deferred income tax expense as if the interim period were an annual period.
Our liability for uncertain tax positions (excluding interest and penalties) was $3.7 million and $3.3 million as of October 2, 2016 and January 3, 2016, respectively, and if recognized would decrease our provision for income taxes by $1.2 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 October 2, 2016 and January 3, 2016, was $1.0 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.”
8. Stock-Based Compensation Arrangements:
The 2014 Equity Incentive Plan provides Parent authority to grant equity incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock, restricted stock units, stock bonus awards or performance compensation awards to certain directors, officers or employees of the Company. A summary of the options outstanding under the equity incentive plan as of October 2, 2016 and the activity for the nine months ended October 2, 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
(36,776
)
$9.09


Outstanding stock options, October 2, 2016
2,444,019

$8.79
7.6
$
11,978

Stock options expected to vest, October 2, 2016
1,938,263

$8.85
7.6
$
9,373

Exercisable stock options, October 2, 2016
290,394

$8.31
7.4
$
2,762

 
 
 
 
 
__________________
(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 October 2, 2016, we had $2.5 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 3.0 years.
The following table summarizes stock-based compensation expense and the associated tax benefit recognized in the Consolidated Financial Statements for the periods presented:

15

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

 
Three Months Ended
 
Nine Months Ended
 
October 2,
2016
 
September 27,
2015
 
October 2,
2016
 
September 27,
2015
 
(in thousands)
 
 
Stock-based compensation costs
$
188

 
$
166

 
$
532

 
$
742

Portion capitalized as property and equipment (1)
(3
)
 
(2
)
 
(10
)
 
(9
)
Stock-based compensation expense recognized
$
185

 
$
164

 
$
522

 
$
733

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 costs attributable to our store development projects are included in “Property and equipment, net” in the Consolidated Balance Sheets.


16

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

9. Stockholder’s Equity:
The following table summarizes the changes in stockholder’s equity during the nine months ended October 2, 2016:
 
 
 
Common Stock
 
Capital In
Excess of
Par Value
 
Accumulated Deficit
 
Accumulated
Other
Comprehensive
Loss
 
 
 
 
Shares
 
Amount
 
 
 
 
Total
 
 
(in thousands, except share information)
Balance at January 3, 2016
 
200

 
$

 
$
356,460

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

Net income
 

 

 

 
6,459

 

 
6,459

Other comprehensive income
 

 

 

 

 
703

 
703

Stock-based compensation costs
 

 

 
532

 

 

 
532

Excess tax benefit realized from exercise of stock options
 

 

 
4

 

 

 
4

Balance at October 2, 2016
 
200

 
$

 
$
356,996

 
$
(138,139
)
 
$
(2,613
)
 
$
216,244

10. 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 October 2, 2016
(in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
Issuer
 
Guarantors
 
Non-Guarantors
 
Eliminations
 
Consolidated
Current assets:
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
71,704

 
$
1,144

 
$
7,009

 
$

 
$
79,857

Restricted cash
 

 

 
196

 

 
196

Accounts receivable
 
13,664

 
2,188

 
7,343

 
(6,882
)
 
16,313

Inventories
 
18,260

 
3,012

 
256

 

 
21,528

Other current assets
 
13,855

 
6,331

 
1,548

 

 
21,734

Total current assets
 
117,483

 
12,675

 
16,352

 
(6,882
)
 
139,628

Property and equipment, net
 
545,922

 
45,982

 
7,749

 

 
599,653

Goodwill
 
432,462

 
51,414

 

 

 
483,876

Intangible assets, net
 
19,802

 
465,255

 

 

 
485,057

Intercompany
 
144,080

 
34,612

 

 
(178,692
)
 

Investment in subsidiaries
 
415,015

 

 

 
(415,015
)
 

Other noncurrent assets
 
2,641

 
19,791

 
429

 

 
22,861

Total assets
 
$
1,677,405

 
$
629,729

 
$
24,530

 
$
(600,589
)
 
$
1,731,075

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

 
$
26

 
$

 
$

 
$
7,626

Capital lease obligations, current portion
 
471

 

 
6

 

 
477

Accounts payable and accrued expenses
 
80,161

 
17,494

 
3,680

 

 
101,335

Other current liabilities
 
3,641

 
328

 

 

 
3,969

Total current liabilities
 
91,873

 
17,848

 
3,686

 

 
113,407

Capital lease obligations, less current portion
 
14,618

 

 
63

 

 
14,681

Bank indebtedness and other long-term debt, net of deferred financing costs, less current portion
 
969,030

 

 

 

 
969,030

Deferred tax liability
 
172,592

 
19,110

 
(170
)
 

 
191,532

Intercompany
 

 
159,821

 
25,753

 
(185,574
)
 

Other noncurrent liabilities
 
213,048

 
12,823

 
310

 

 
226,181

Total liabilities
 
1,461,161

 
209,602

 
29,642

 
(185,574
)
 
1,514,831

Stockholder's equity:
 
 
 
 
 
 
 
 
 
 
Common stock
 

 

 

 

 

Capital in excess of par value
 
356,996

 
466,114

 
3,241

 
(469,355
)
 
356,996

Retained earnings (deficit)
 
(138,139
)
 
(45,987
)
 
(5,740
)
 
51,727

 
(138,139
)
Accumulated other comprehensive income (loss)
 
(2,613
)
 

 
(2,613
)
 
2,613

 
(2,613
)
Total stockholder's equity
 
216,244

 
420,127

 
(5,112
)
 
(415,015
)
 
216,244

Total liabilities and stockholder's equity
 
$
1,677,405

 
$
629,729

 
$
24,530

 
$
(600,589
)
 
$
1,731,075


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

Restricted cash
 

 

 

 

 

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 October 2, 2016
(in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Issuer
 
Guarantors
 
Non-Guarantors
 
Eliminations
 
Consolidated
Revenues:
 
 
 
 
 
 
 
 
 
 
Food and beverage sales
 
$
88,557

 
$
11,892

 
$
1,535

 
$

 
$
101,984

Entertainment and merchandise sales
 
112,306

 
6,703

 
2,755

 

 
121,764

Total company store sales
 
200,863

 
18,595

 
4,290

 

 
223,748

Franchise fees and royalties
 
292

 
4,030

 

 

 
4,322

International Association assessments and other fees
 
273

 
615

 
8,431

 
(9,319
)
 

Total revenues
 
201,428

 
23,240

 
12,721

 
(9,319
)
 
228,070

Operating Costs and Expenses:
 
 
 
 
 
 
 
 
 
 
Company store operating costs:
 
 
 
 
 
 
 
 
 
 
Cost of food and beverage
 
21,773

 
3,194

 
540

 

 
25,507

Cost of entertainment and merchandise
 
7,391

 
428

 
195

 

 
8,014

Total cost of food, beverage, entertainment and merchandise
 
29,164

 
3,622

 
735

 

 
33,521

Labor expenses
 
56,386

 
4,039

 
1,296

 

 
61,721

Depreciation and amortization
 
26,501

 
650

 
516

 

 
27,667

Rent expense
 
22,235

 
1,331

 
554

 

 
24,120

Other store operating expenses
 
35,659

 
3,033

 
953

 
(888
)
 
38,757

Total company store operating costs
 
169,945

 
12,675

 
4,054

 
(888
)
 
185,786

Advertising expense
 
8,967

 
828

 
10,151

 
(8,431
)
 
11,515

General and administrative expenses
 
6,741

 
10,270

 
273

 

 
17,284

Transaction, severance and related litigation costs
 
166

 

 

 

 
166

Asset impairments
 
709

 

 
63

 

 
772

Total operating costs and expenses
 
186,528

 
23,773

 
14,541

 
(9,319
)
 
215,523

Operating income (loss)
 
14,900

 
(533
)
 
(1,820
)
 

 
12,547

Equity in earnings (loss) in affiliates
 
(2,299
)
 

 

 
2,299

 

Interest expense
 
15,685

 
1,440

 
112

 

 
17,237

Income (loss) before income taxes
 
(3,084
)
 
(1,973
)
 
(1,932
)
 
2,299

 
(4,690
)
Income tax expense (benefit)
 
(680
)
 
(935
)
 
(671
)
 

 
(2,286
)
Net income (loss)
 
$
(2,404
)
 
$
(1,038
)
 
$
(1,261
)
 
$
2,299

 
$
(2,404
)

 
 
 
 
 
 
 
 
 
 
Components of other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
 
 
 
Foreign currency translation adjustments
 
(212
)
 

 
(212
)
 
212

 
(212
)
Comprehensive income (loss)
 
$
(2,616
)
 
$
(1,038
)
 
$
(1,473
)
 
$
2,511

 
$
(2,616
)

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 September 27, 2015
(in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Issuer
 
Guarantors
 
Non-Guarantors
 
Eliminations
 
Consolidated
Revenues:
 
 
 
 
 
 
 
 
 
 
Food and beverage sales
 
$
83,524

 
$
13,202

 
$
1,517

 
$

 
$
98,243

Entertainment and merchandise sales
 
112,266

 
3,808

 
2,679

 

 
118,753

Total company store sales
 
195,790

 
17,010

 
4,196

 

 
216,996

Franchise fees and royalties
 
493

 
4,438

 
10

 

 
4,941

International Association assessments and other fees
 
250

 
755

 
11,861

 
(12,866
)
 

Total revenues
 
196,533

 
22,203

 
16,067

 
(12,866
)
 
221,937

Operating Costs and Expenses:
 
 
 
 
 
 
 
 
 
 
Company store operating costs:
 
 
 
 
 
 
 
 
 
 
Cost of food and beverage
 
21,459

 
3,061

 
512

 

 
25,032

Cost of entertainment and merchandise
 
7,293

 
389

 
181

 

 
7,863

Total cost of food, beverage, entertainment and merchandise
 
28,752

 
3,450

 
693

 

 
32,895

Labor expenses
 
54,890

 
3,751

 
1,357

 

 
59,998

Depreciation and amortization
 
26,911

 
934

 
549

 

 
28,394

Rent expense
 
22,105

 
1,243

 
631

 

 
23,979

Other store operating expenses
 
34,362

 
2,215

 
1,042

 
(1,032
)
 
36,587

Total company store operating costs
 
167,020

 
11,593

 
4,272

 
(1,032
)
 
181,853

Advertising expense
 
12,368

 
798

 
8,960

 
(11,834
)
 
10,292

General and administrative expenses
 
3,856

 
10,606

 
130

 

 
14,592

Transaction, severance and litigation related costs
 
200

 
1,626

 

 

 
1,826

Asset impairments
 
766

 
20

 
89

 

 
875

Total operating costs and expenses
 
184,210

 
24,643

 
13,451

 
(12,866
)
 
209,438

Operating income (loss)
 
12,323

 
(2,440
)
 
2,616

 

 
12,499

Equity in earnings (loss) in affiliates
 
(605
)
 

 

 
605

 

Interest expense
 
16,728

 
365

 
116

 

 
17,209

Income (loss) before income taxes
 
(5,010
)
 
(2,805
)
 
2,500

 
605

 
(4,710
)
Income tax expense (benefit)
 
(1,808
)
 
(744
)
 
1,044

 

 
(1,508
)
Net income (loss)
 
$
(3,202
)
 
$
(2,061
)
 
$
1,456

 
$
605

 
$
(3,202
)

 
 
 
 
 
 
 
 
 
 
Components of other comprehensive income (loss), net of tax: