Attached files

file filename
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