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 September ~~29, 2013~~28, 2014



¨	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.)

4441 West Airport Freeway Irving, Texas		75062
(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~~"large accelerated filer,~~” “accelerated filer”~~" "accelerated filer" and ~~“smaller~~"smaller reporting ~~company”~~company" in Rule 12b-2 of the Exchange Act:



Large accelerated filer	ý¨	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 ~~16, 2013~~,29, 2014, an aggregate of ~~17,551,269~~200 shares of the registrant’s common stock, par value ~~$0.10~~$0.01 per share were outstanding.

Table of Contents

CEC ENTERTAINMENT, INC.

TABLE OF CONTENTS



	Page
PART I FINANCIAL INFORMATION

ITEM 1. Financial Statements (Unaudited)

Consolidated Balance Sheets at September 28, 2014 (Successor) and December 29, 2013 ~~and December 30, 2012~~(Predecessor)	3

Consolidated Statements of Earnings for the three months ended September 28, 2014 and September 29, 2013 and the 226 day period ended September 28, 2014 (Successor), the 47 day period ended February 14, 2014 (Predecessor), and the nine ~~months~~month period ended September 29, 2013 ~~and September 30, 2012~~(Predecessor)	4

Consolidated Statements of Comprehensive Income (Loss) for the three months ended September 28, 2014 and September 29, 2013 and the 226 day period ended September 28, 2014 (Successor), the 47 day period ended February 14, 2014 (Predecessor), and the nine ~~months~~month period ended September 29, 2013 ~~and September 30, 2012~~(Predecessor)	56

Consolidated Statements of Cash Flows for the 226 day period ended September 28, 2014 (Successor), the 47 day period ended February 14, 2014 (Predecessor) and the nine months ended September 29, 2013 ~~and September 30, 2012~~(Predecessor)	67

Notes to Consolidated Financial Statements	79

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	1442

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk	3063

ITEM 4. Controls and Procedures	3064

PART II OTHER INFORMATION

ITEM 1. Legal Proceedings	3164

ITEM 1A. Risk Factors	3166

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds	3167

ITEM 6. Exhibits	3268

SIGNATURES	33

Table of Contents

PART I - FINANCIAL INFORMATION

ITEM 1. Financial Statements.

CEC ENTERTAINMENT, INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited)

(in thousands, except share information)


							Successor			Predecessor
	September 29, 2013			December 30, 2012			September 28, 2014			December 29, 2013
ASSETS
Current assets:
Cash and cash equivalents	$	21,384		$	19,636		$	240,985		$	20,686
Accounts receivable	17,462			26,411			13,425			24,881
Inventories	20,595			18,957			18,228			19,250
Prepaid expenses	18,445			18,171			19,182			20,111
Deferred tax asset	2,884			2,884			2,643			2,091
Total current assets	80,770			86,059			294,463			87,019
Property and equipment, net	695,020			703,956			682,718			691,454
Goodwill							430,697			3,458
Intangible assets, net							426,304			—
Deferred financing costs, net							25,088			1,268
Other noncurrent assets	11,058			11,791			8,723			8,412
Total assets	$	786,848		$	801,806		$	1,867,993		$	791,611
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Bank indebtedness and other long-term debt, current portion							$	7,600		$	—
Capital lease obligations, current portion	$	1,011		$	1,060		397			1,014
Accounts payable	30,640			32,678			35,316			35,770
Accrued expenses	39,473			35,517			44,716			34,001
Unearned revenues	10,745			11,779			6,969			14,504
Dividends payable	4,340			312
Accrued interest	1,107			1,794			11,703			977
Other current liabilities							2,904			440
Total current liabilities	87,316			83,140			109,605			86,706
Capital lease obligations, less current portion	20,646			21,656			15,585			20,365
Revolving credit facility borrowings	348,500			389,500
Deferred rent liability	58,745			57,196
Deferred landlord contributions	26,218			27,092
Bank indebtedness and other long-term debt, less current portion							1,002,037			361,500
Deferred tax liability	62,557			62,931			213,219			57,831
Accrued insurance	13,863			11,980			12,045			13,194
Other noncurrent liabilities	5,056			5,037			200,348			91,247
Total liabilities	622,901			658,532			1,552,839			630,843
Stockholders’ equity:
Common stock, $0.10 par value; authorized 100,000,000 shares; 61,892,493 and 61,696,806 shares issued, respectively	6,189			6,170
Predecessor: Common stock, $0.10 par value; authorized 100,000,000 shares; 61,865,495 shares issued as of December 29, 2013							—			6,187
Successor: Common stock, $0.01 par value; authorized 1,000 shares; 200 shares issued as of September 28, 2014							—			—
Capital in excess of par value	451,570			447,449			355,240			453,702
Retained earnings	858,253			823,012
Accumulated other comprehensive income	5,284			5,880
Less treasury stock, at cost; 44,341,224 and 43,814,979 shares, respectively	(1,157,349		)	(1,139,237		)
Retained earnings (deficit)							(39,935		)	853,464
Accumulated other comprehensive income (loss)							(151		)	4,764
Less Predecessor treasury stock, at cost; 44,341,225 shares as of December 29, 2013							—			(1,157,349		)
Total stockholders’ equity	163,947			143,274			315,154			160,768
Total liabilities and stockholders’ equity	$	786,848		$	801,806		$	1,867,993		$	791,611

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

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CEC ENTERTAINMENT, INC.

CONSOLIDATED STATEMENTS OF EARNINGS

(Unaudited)

(in ~~thousands, except per share information)~~thousands)


									Successor			Predecessor
	Three Months Ended				Nine Months Ended				Three Months Ended			Three Months Ended
	September 29, 2013		September 30, 2012		September 29, 2013		September 30, 2012		September 28, 2014			September 29, 2013
REVENUES:
Food and beverage sales	$	87,170	$	90,406	$	289,488	$	291,190	$	82,271		$	87,170
Entertainment and merchandise sales	107,629		105,223		349,957		331,021		115,885			107,629
Total Company store sales	194,799		195,629		639,445		622,211		198,156			194,799
Franchise fees and royalties	1,107		921		3,708		3,512		1,533			1,107
Total revenues	195,906		196,550		643,153		625,723		199,689			195,906
OPERATING COSTS AND EXPENSES:
Company store operating costs:
Cost of food and beverage (exclusive of items shown separately below)	20,850		22,627		69,815		71,863		21,167			20,850
Cost of entertainment and merchandise (exclusive of items shown separately below)	6,976		7,703		23,256		23,848		6,669			6,976
Total cost of food, beverage, entertainment and merchandise	27,826		30,330		93,071		95,711		27,836			27,826
Labor expenses	56,469		55,139		174,409		170,192		57,086			56,469
Depreciation and amortization	19,603		19,872		58,666		58,702		31,622			19,603
Rent expense	19,672		19,526		58,648		57,441		22,587			19,672
Other store operating expenses	34,401		33,501		98,775		95,767		35,123			34,401
Total Company store operating costs	157,971		158,368		483,569		477,813		174,254			157,971
Other costs and expenses:
Advertising expense	10,644		9,966		32,960		26,947		10,114			10,644
General and administrative expenses	13,529		12,931		42,950		39,635		13,820			13,529
Transaction and severance costs									5,742			—
Asset impairments	537		818		763		3,541		—			537
Total operating costs and expenses	182,681		182,083		560,242		547,936		203,930			182,681
Operating income	13,225		14,467		82,911		77,787
Operating income (loss)									(4,241		)	13,225
Interest expense	1,278		2,031		5,509		6,085		15,974			1,278
Income before income taxes	11,947		12,436		77,402		71,702
Income taxes	4,508		4,642		29,467		27,525
Net income	$	7,439	$	7,794	$	47,935	$	44,177
Earnings per share:
Basic	$	0.44	$	0.45	$	2.80	$	2.51
Diluted	$	0.43	$	0.45	$	2.78	$	2.50
Weighted average common shares outstanding:
Basic	16,958		17,397		17,128		17,595
Diluted	17,121		17,473		17,238		17,652
Cash dividends declared per share	$	0.24	$	0.22	$	0.72	$	0.66
Income (loss) before income taxes									(20,215		)	11,947
Income tax expense (benefit)									(6,936		)	4,508
Net income (loss)									$	(13,279	)	$	7,439

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

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CEC ENTERTAINMENT, INC.

CONSOLIDATED STATEMENTS OF ~~COMPREHENSIVE INCOME~~EARNINGS

(Unaudited)

(in thousands)

Three Months Ended Nine Months Ended
September 29,
2013 September 30,
2012 September 29,
2013 September 30,
2012
Net income $ 7,439
$ 7,794
$ 47,935
$ 44,177
Components of other comprehensive income, net of tax:

Foreign currency translation adjustments 225
767
(596 ) 712
Total components of other comprehensive income (loss), net of tax 225
767
(596 ) 712
Comprehensive income $ 7,664
$ 8,561
$ 47,339
$ 44,889



	Successor			Predecessor
	For the 226 Day Period Ended			For the 47 Day Period Ended		Nine Months Ended
	September 28, 2014			February 14, 2014		September 29, 2013
REVENUES:
Food and beverage sales	$	224,197		$	50,897	$	289,488
Entertainment and merchandise sales	300,149			62,659		349,957
Total Company store sales	524,346			113,556		639,445
Franchise fees and royalties	3,493			687		3,708
Total revenues	527,839			114,243		643,153
OPERATING COSTS AND EXPENSES:
Company store operating costs:
Cost of food and beverage (exclusive of items shown separately below)	57,250			12,285		69,815
Cost of entertainment and merchandise (exclusive of items shown separately below)	17,426			3,729		23,256
Total cost of food, beverage, entertainment and merchandise	74,676			16,014		93,071
Labor expenses	143,781			31,998		174,409
Depreciation and amortization	84,141			9,733		58,666
Rent expense	53,012			12,365		58,648
Other store operating expenses	84,101			15,760		98,775
Total Company store operating costs	439,711			85,870		483,569
Other costs and expenses:
Advertising expense	24,802			5,903		32,960
General and administrative expenses	32,576			7,963		42,950
Transaction and severance costs	43,263			11,634		—
Asset impairments	—			—		763
Total operating costs and expenses	540,352			111,370		560,242
Operating income (loss)	(12,513		)	2,873		82,911
Interest expense	43,256			1,151		5,509
Income (loss) before income taxes	(55,769		)	1,722		77,402
Income tax expense (benefit)	(15,834		)	1,018		29,467
Net income (loss)	$	(39,935	)	$	704	$	47,935

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

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CEC ENTERTAINMENT, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(in thousands)



	Successor			Predecessor
	Three Months Ended
	September 28, 2014			September 29, 2013
Net income (loss)	$	(13,279	)	$	7,439
Components of other comprehensive income (loss), net of tax:
Foreign currency translation adjustments	(652		)	225
Total components of other comprehensive income (loss), net of tax	(652		)	225
Comprehensive income (loss)	$	(13,931	)	$	7,664



	Successor			Predecessor
	For the 226 Day Period Ended			For the 47 Day Period Ended			Nine Months Ended
	September 28, 2014			February 14, 2014			September 29, 2013
Net income (loss)	$	(39,935	)	$	704		$	47,935
Components of other comprehensive income (loss), net of tax:
Foreign currency translation adjustments	(151		)	(541		)	(596		)
Total components of other comprehensive income (loss), net of tax	(151		)	(541		)	(596		)
Comprehensive income (loss)	$	(40,086	)	$	163		$	47,339

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

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CEC ENTERTAINMENT, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(in thousands)


							Successor			Predecessor
	Nine Months Ended						For the 226 Day Period Ended			For the 47 Day Period Ended			Nine Months Ended
	September 29, 2013			September 30, 2012			September 28, 2014			February 14, 2014			September 29, 2013
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	47,935		$	44,177
Net income (loss)							$	(39,935	)	$	704		$	47,935
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	59,269			59,257			85,383			9,883			59,269
Deferred income taxes	(477		)	4,551			(56,431		)	(1,785		)	(477		)
Stock-based compensation expense	6,469			5,630			191			12,225			6,469
Amortization of landlord contributions	(1,729		)	(1,653		)
Amortization of deferred debt financing costs	337			367
Amortization of lease-related liabilities							287			(356		)	(1,729		)
Amortization of original issue discount and deferred financing costs							2,824			58			337
Loss on asset disposals, net	704			1,797			5,223			294			704
Asset impairments	763			3,541			—			—			763
Other adjustments	75			266			378			144			75
Changes in operating assets and liabilities:
Accounts receivable	4,246			1,957			482			1,503			4,246
Inventories	(1,665		)	872			3,304			(2,472		)	(1,665		)
Prepaid expenses	55			(4,905		)	(1,480		)	2,656			55
Accounts payable	(2,928		)	(687		)	650			(270		)	(2,928		)
Accrued expenses	5,325			5,039			4,239			(2,403		)	5,325
Unearned revenues	(1,029		)	(656		)	605			349			(1,029		)
Accrued interest	(637		)	(623		)	10,597			152			(637		)
Income taxes payable	4,105			(2,563		)	12,778			2,898			4,105
Deferred rent liability	1,468			2,550
Deferred landlord contributions	1,469			323
Lease-related liabilities							8,367			(1,266		)	2,937
Net cash provided by operating activities	123,755			119,240			37,462			22,314			123,755
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of Predecessor							(946,898		)	—			—
Purchases of property and equipment	(54,446		)	(75,831		)	(40,395		)	(9,710		)	(54,446		)
Proceeds from sale of property and equipment	2,260			474			350			51			2,260
Other investing activities	678			—			—			—			678
Net cash used in investing activities	(51,508		)	(75,357		)	(986,943		)	(9,659		)	(51,508		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from secured credit facilities, net of original issue discount							756,200			—			—
Proceeds from senior notes							255,000			—			—
Repayment of Predecessor Facility							(348,000		)	—			—
Repayments on senior term loan							(1,900		)	—			—
Net repayments on revolving credit facility	(41,000		)	(15,200		)	—			(13,500		)	(41,000		)
Proceeds from sale leaseback transaction							183,685			—			—
Payment of debt financing costs							(27,575		)	—			—
Payments on capital lease obligations	(697		)	(590		)	(204		)	(164		)	(697		)
Dividends paid	(8,445		)	(11,829		)	(890		)	(38		)	(8,445		)
Excess tax benefit realized from stock-based compensation	249			619			5,043			—			249
Restricted stock returned for payment of taxes	(2,191		)	(2,629		)	—			(142		)	(2,191		)
Purchases of treasury stock	(18,112		)	(14,353		)	—			—			(18,112		)
Net cash used in financing activities	(70,196		)	(43,982		)
Equity contribution							350,000			—			—
Net cash provided by (used in) financing activities							1,171,359			(13,844		)	(70,196		)
Effect of foreign exchange rate changes on cash	(303		)	119			(77		)	(313		)	(303		)
Change in cash and cash equivalents	1,748			20			221,801			(1,502		)	1,748
Cash and cash equivalents at beginning of period	19,636			18,673			19,184			20,686			19,636
Cash and cash equivalents at end of period	$	21,384		$	18,693		$	240,985		$	19,184		$	21,384
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid	$	5,713		$	6,398
Income taxes paid, net	$	25,616		$	24,812
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Accrued construction costs	$	3,904		$	3,214
Dividends payable	$	4,904		$	4,381
Capital lease obligations	$	740		$	10,689

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	Successor		Predecessor
	For the 226 Day Period Ended		For the 47 Day Period Ended			Nine Months Ended
	September 28, 2014		February 14, 2014			September 29, 2013
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid⁽¹⁾	$	29,914	$	938		$	5,713
Income taxes paid (refunded), net	$	22,777	$	(79	)	$	25,616
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Accrued construction costs	$	3,724	$	3,605		$	3,904
Dividends payable	$	—	$	890		$	4,904
Capital lease obligations	$	657	$	—		$	740

__________________


(1)	Includes $4.9 million of debt issuance costs and interest expense related to the bridge loan. See Note 5 "Indebtedness and Interest Expense" for further discussion of the bridge loan.

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

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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~~"CEC Entertainment,~~” “Company,” “we,” “us”~~" the "Company," "we," "us" and ~~“our”~~"our" throughout these unaudited notes to the interim Consolidated Financial Statements refer to CEC Entertainment, Inc. and its subsidiaries.

We currently operate and franchise family dining and entertainment centers under the name "Chuck E. Cheese's" in 47 states and 11 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.

Merger and Related Transactions

On January 15, 2014, CEC Entertainment, Inc. entered into an agreement and plan of merger (the "Merger Agreement") with Queso Holdings Inc., a Delaware corporation ("Parent"), and Q Merger Sub Inc., a Kansas corporation ("Merger Sub"). Parent and Merger Sub were controlled by Apollo Global Management, LLC ("Apollo") and its subsidiaries. Pursuant to the Merger Agreement, on January 16, 2014, Merger Sub commenced a tender offer to purchase all of the issued and outstanding shares of our common stock (the "Tender Offer"). Following the successful completion of the Tender Offer, on February 14, 2014, Merger Sub merged with and into CEC Entertainment, Inc., with CEC Entertainment, Inc. surviving the merger (the "Merger") and becoming a wholly owned subsidiary of Parent. We refer to the Merger and the Tender Offer together as the "Acquisition." As a result of the Merger, the shares of CEC Entertainment common stock ceased to be traded on the New York Stock Exchange after close of market on February 14, 2014.

The Merger was accounted for as a business combination using the acquisition method of accounting and Successor financial statements reflect a new basis of accounting that is based on the fair value of assets acquired and liabilities assumed as of the effective time of the Merger. The determination of these fair values is based on a valuation prepared by a third party and is based on actual tangible and identifiable intangible assets and liabilities that existed as of the effective time of the Merger. See further discussion of the acquisition in Note 2 "Acquisition of CEC Entertainment, Inc.".

Basis of Presentation

Parent’s cost of acquiring CEC Entertainment has been pushed down to establish a new accounting basis for the Company. Accordingly, the accompanying interim Consolidated Financial Statements are presented for two periods, Predecessor and Successor, which relate to the accounting periods preceding and succeeding the completion of the Merger. The Predecessor and Successor periods have been separated by a vertical line on the face of the Consolidated Financial Statements to highlight the fact that the financial information for such periods has been prepared under two different historical cost bases of accounting. For the purpose of presentation and disclosure, all references to the "Predecessor" relate to CEC Entertainment and its subsidiaries for periods prior to the Merger. All references to the "Successor" relate to the CEC Entertainment and its subsidiaries after giving effect to the Merger for periods subsequent to the Merger. References to "CEC Entertainment," the "Company," "we," "us" and "our" relate to the Predecessor for periods prior to the Merger and to the Successor for periods subsequent to the Merger.

Our Consolidated Financial Statements include variable interest entities ("VIE") of which we are the ~~accounts~~primary beneficiary. Judgments are made in assessing whether we are the primary beneficiary, including determination of the activities that most significantly impact the VIE's economic performance. The Company eliminates the intercompany portion of transactions with VIE's from our financial results.

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CEC ENTERTAINMENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

In August 2014, the Company assigned a portion of its rights in the purchase and sale agreement executed by us in relation to the sale leaseback transaction, as further discussed in Note 8 "Sale Leaseback Transaction". The assignment resulted in $12.1 million of the proceeds from the sale leaseback transaction being received by a newly formed trust. The Company is the sole beneficiary of the trust, and the funds are being used by a special purpose entity, a VIE, created by a Qualified Intermediary to facilitate a like-kind exchange pursuant to Internal Revenue Code Section 1031. The funds held by the trust are used by the VIE to construct capital improvements on properties leased by the Company. The Company will acquire the VIE, along with its capital improvements, in the first quarter of 2015. At that time, to the extent there are any remaining funds held by the trust and not fully exhausted from construction, those remaining funds will be released to the Company. We included this VIE in our Consolidated Financial Statements, as we concluded that we are the sole beneficiary of its variable interests and will benefit from the capital improvements which will be acquired by the Company in the first quarter of 2015. The assets, liabilities and operating results of the VIE are not material to our Consolidated Financial Statements.

The Company also has a controlling financial interest in International Association of CEC Entertainment, Inc. (the ~~“Association”~~"Association"), a ~~variable interest entity in which we have a controlling financial interest.~~VIE. The Association primarily administers the collection and disbursement of funds (the ~~“Association Funds”~~"Association Funds") used for advertising, entertainment and media programs that benefit both us and our 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~~$0.6 million and ~~$0.5~~$0.6 million for the three months ended September ~~29, 2013~~28, 2014 and September ~~30, 2012~~29, 2013, respectively, $1.5 million for the 226 day period ended September 28, 2014, $0.4 million for the 47 day period ended February 14, 2014 and $2.0 million ~~and~~ ~~$1.6 million~~for the nine months endedSeptember 29, 2013 ~~and~~ ~~September 30, 2012, respectively.~~.

The preparation of these unaudited Consolidated Financial Statements in conformity with accounting principles generally accepted in the United States ~~(“U.S. GAAP”~~("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 ~~unaudted~~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 September ~~29, 2013~~28, 2014 and for the three months ended September 28, 2014, the 226 day period ended September 28, 2014, the 47 day period ended February 14, 2014, and the three and nine months ended September 29, 2013 ~~and~~ ~~September 30, 2012~~ are unaudited and are presented in accordance with the requirements for quarterly reports on Form 10-Q and, consequently, do not include all of the information and footnote disclosures required by ~~accounting principles generally accepted in the United States of America (“GAAP”).~~GAAP. In the opinion of management, the Company’s Consolidated Financial Statements include all adjustments (consisting solely of normal recurring adjustments) necessary for the fair statement of its consolidated results of operations, financial position and cash flows as of the dates and for the periods presented in accordance with GAAP and the rules and regulations of the United States Securities and Exchange Commission (the ~~“SEC”~~"SEC"). Our Consolidated Financial Statements include all necessary reclassification adjustments to conform prior year results to the current period 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 related notes included in our Annual Report on Form 10-K for the fiscal year ended December ~~30, 2012~~29, 2013, filed with the SEC on February ~~21, 2013.~~12, 2014.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

Goodwill and Other Intangible Assets

The excess of the purchase price over fair value of net identifiable assets and liabilities of an acquired business ("goodwill"), trademarks and trade names and other indefinite-lived intangible assets are not amortized, but rather tested for impairment, at least annually. We assess the recoverability of the carrying amount of our goodwill and other indefinite-lived intangible assets either qualitatively or quantitatively annually at the beginning of the fourth quarter of each fiscal year, or whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable.

When assessing the recoverability of goodwill and other indefinite-lived intangible assets, we may first assess qualitative factors. If an initial qualitative assessment indicates that it is more likely than not the carrying amount exceeds fair value, a quantitative analysis may be required. We may also elect to skip the qualitative assessment and proceed directly to the quantitative analysis.

Recoverability of the carrying value of goodwill is measured at the reporting unit level. In performing a quantitative analysis, we measure the recoverability of goodwill using a discounted cash flow model incorporating discount rates commensurate with the risks involved, which is classified as a Level 3 fair value measurement. The key assumptions used in the discounted cash flow valuation model include discount rates, growth rates, tax rates, cash flow projections and terminal value rates. Discount rates, growth rates and cash flow projections are the most sensitive and susceptible to change as they require significant management judgment.

If the calculated fair value is less than the current carrying amount, impairment of the reporting unit may exist. When the recoverability test indicates potential impairment, we will calculate an implied fair value of goodwill for the reporting unit. The implied fair value of goodwill is determined in a manner similar to how goodwill is calculated in a business combination. If the implied fair value of goodwill exceeds the carrying amount of goodwill assigned to the reporting unit, there is no impairment. If the carrying amount of goodwill assigned to a reporting unit exceeds the implied fair value of the goodwill, an impairment loss is recorded to write down the carrying amount.

In performing a quantitative analysis, recoverability is measured by a comparison of the carrying amount of the indefinite-lived intangible asset over its fair value. Any excess of the carrying amount of the indefinite-lived intangible asset over its fair value is recognized as an impairment loss.

We test indefinite-lived intangible assets utilizing the relief from royalty method to determine the estimated fair value for each indefinite-lived intangible asset, which is classified as a Level 3 fair value measurement. The relief from royalty method estimates our theoretical royalty savings from ownership of the intangible asset. Key assumptions used in this model include discount rates, royalty rates, growth rates, tax rates, sales projections and terminal value rates. Discount rates, royalty rates, growth rates and sales projections are the assumptions most sensitive and susceptible to change as they require significant management judgment. Discount rates used are similar to the rates estimated by the weighted average cost of capital ("WACC") considering any differences in company-specific risk factors.

Intangible assets with finite lives are amortized over their estimated useful lives and are reviewed for impairment whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. Estimated weighted average useful lives are 15 years for franchise agreements and 10 years for favorable lease agreements. An impairment loss would be indicated when estimated undiscounted future cash flows from the use of the asset are less than its carrying amount. An impairment loss would be measured as the difference between the fair value (based on discounted future cash flows) and the carrying amount of the asset.

Fair Value Disclosures

Fair value is defined as the price that we would receive to sell an asset or pay to transfer a liability (an exit price) in an orderly transaction between market participants on the measurement date. In determining fair value, GAAP establishes a three-level hierarchy used in measuring fair value, as follows:



Level 1 –	inputs are quoted prices available for identical assets or liabilities in active markets.

Level 2 –	inputs are observable for the asset or liability, either directly or indirectly, including quoted prices for similar assets and liabilities in active markets; or other inputs that are observable or can be corroborated by observable market data.

Level 3 –	inputs are unobservable and reflect our own assumptions.

~~Our financial instruments consist~~

Table of cash and cash equivalents, accounts receivable, accounts payable and revolving credit facility obligations. The carrying amount of cash and cash equivalents, accounts receivable and accounts payable approximates fair value because of their short maturities. We believe that the carrying amount of borrowings under our revolving credit facility approximates fair value because the interest rates are adjusted regularly based on current market conditions. Contents

CEC ENTERTAINMENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

We may also adjust the carrying amount of certain nonfinancial assets to fair value on a non-recurring basis when they are impaired. The fair values of our long-lived assets held and used are determined using Level 3 inputs based on the estimated discounted future cash flows of the respective store over its expected remaining useful life or lease term. Due to uncertainties in the estimates and assumptions used, actual results could differ from the estimated fair values. See Note ~~2 “Asset Impairments”~~3 "Property and Equipment" for ~~the~~our impairment of long-lived assets disclosures and Note 6 "Fair Value of Financial Instruments" for our fair value ~~disclosures of stores we have impaired.~~

~~During the~~ ~~three and nine months endedSeptember 29, 2013~~ ~~and~~ ~~September 30, 2012, there were no significant transfers among level 1, 2 or 3 fair value determinations.~~disclosures.

Recently Issued Accounting Guidance

Accounting Guidance ~~Adopted:~~ ~~In July 2012, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2012-2,~~ ~~Testing Indefinite-Lived Intangible Assets for Impairment~~. This amendment allows an entity to first assess relevant qualitative factors in order to determine whether it is necessary to perform the two-step quantitative impairment test for indefinite-lived intangible assets. Unless the entity determines, based on the qualitative assessment, that it is more likely than not that the asset is impaired, it would not be required to calculate the fair value of an indefinite-lived intangible asset in connection with the impairment test. The adoption of this amendment during the first quarter of 2013 did not have a significant impact on our impairment analysis.

~~In February 2013, the FASB issued ASU 2013-2,~~ ~~Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income~~. This amendment requires an entity to provide the effects on net income of significant reclassifications out of accumulated other comprehensive income by component on a prospective basis. The adoption of this amendment during the first quarter of 2013 required additional disclosure but did not have an impact on our Consolidated Financial Statements.

~~Accounting Guidance Not Yet~~ Adopted: In July 2013, the FASB issued ASU 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. This amendment requires an unrecognized tax benefit related to a net operating loss carryforward, a similar tax loss or a tax credit carryforward to be presented as a reduction to a deferred tax asset, unless the tax benefit is not available at the reporting date to settle any additional income taxes under the tax law of the applicable tax jurisdiction. The amendment is effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. Early adoption is permitted. ~~We believe the~~The adoption of this amendment ~~will~~did not have a significant impact on our Consolidated Financial Statements.

In April 2014, the FASB issued ASU 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. This amendment revises the definition of discontinued operations by limiting discontinued operations reporting to disposals of components of an entity that represent strategic shifts that have (or will have) a major effect on an entity's operations and financial results, removing the lack of continuing involvement criteria and requiring discontinued operations reporting for the disposal of an equity method investment that meets the definition of discontinued operations. The update also requires expanded disclosures for discontinued operations, as well as disclosures about a disposal of an individually significant component of an entity that does not qualify for discontinued operations presentation in the financial statements. The amendment is effective prospectively for fiscal years, and interim periods within those years, beginning on or after December 15, 2014, with early adoption permitted. We have elected to early adopt this amendment effective December 30, 2013, which did not have a significant impact on our Consolidated Financial Statements.

Accounting Guidance Not Yet Adopted:In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). This amendment replaces current U.S. GAAP revenue recognition guidance and established a new control-based revenue recognition model, changes the basis for deciding when revenue is recognized over time or at a point in time, provides new and more detailed guidance on specific topics, and expands and improves disclosures about revenues. The amendment is effective for annual reporting periods beginning after December 15, 2016, including interim periods therein. Early application is not permitted. We do not expect the adoption of this amendment to have a significant impact on our Consolidated Financial Statements.

In August 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements - Going Concern (Subtopic 205-40). This amendment requires management to assess the entity's ability to continue as a going concern within one year of the date of issuance of the entity's financial statements and requires such assessment to be completed on a quarterly and annual basis. The update also requires certain disclosures when substantial doubt is not alleviated. The amendment is effective for annual reporting periods ending after December 15, 2016 and for interim and annual periods thereafter. Early application is permitted. We do not expect the adoption of this amendment to have a significant impact on our Consolidated Financial Statements.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

2. Acquisition of CEC Entertainment, Inc.:

On January 15, 2014, we entered into the Merger Agreement with Parent and Merger Sub, a wholly owned subsidiary of Parent, pursuant to which, among other things, Merger Sub commenced the Tender Offer to purchase all of the Company’s issued and outstanding shares of common stock at a price of $54.00 per share payable net to the seller in cash, without interest (the "Offer Price"). Approximately 68% of the outstanding shares were tendered in the Tender Offer, and Merger Sub accepted all such tendered shares for payment. Following the expiration of the Tender Offer on February 14, 2014, Merger Sub exercised its option under the Merger Agreement to purchase a number of shares of common stock necessary for Merger Sub to own one share more than 90% of the outstanding shares of common stock (the "Top-Up Shares") at the Offer Price. Following Merger Sub's purchase of the Top-Up Shares, Parent completed its acquisition of the Company through the Merger. At the effective time of the Merger, each share of common stock issued and outstanding immediately prior thereto, other than common stock owned or held (a) in treasury by the Company or any wholly-owned subsidiary of the Company; (b) by Parent or any of its subsidiaries; or (c) by stockholders who validly exercised their appraisal rights, was cancelled and converted into the right to receive the Offer Price in cash, without interest and subject to applicable withholding tax.

The aggregate consideration paid to acquire the Company was $1.4 billion, including the payoff of net debt of $362 million and $65 million in transaction and debt issuance costs. The Acquisition was funded by (a) $350.0 million of equity contributions from investment funds directly or indirectly managed by Apollo; (b) $248.5 million of borrowings under a bridge loan facility, which were later repaid using the proceeds from our issuance of $255.0 million of our senior notes; and (c) $760.0 million of borrowings under a term loan facility. In addition, we also entered into a $150.0 million revolving credit facility in connection with the Acquisition, but it was undrawn at closing. See discussion of the bridge loan facility, senior notes, term loan facility and revolving credit facility in Note 5 "Indebtedness and Interest Expense".

The Acquisition has been accounted for as a business combination using the acquisition method of accounting, whereby the purchase price was allocated to tangible and intangible assets acquired and liabilities assumed, based on their estimated fair market values on the Merger date. Fair value measurements have been applied based on assumptions that market participants would use in the pricing of the asset or liability. The purchase price allocation could change in subsequent periods, up to one year from the Merger date. Any subsequent changes to the purchase price allocation that result in material changes to our Consolidated Financial Statements will be adjusted retroactively.

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CEC ENTERTAINMENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

The following table summarizes the fair values assigned to the net assets acquired as of the February 14, 2014 acquisition date (in thousands):



Cash consideration paid to shareholders	$	946,898

Fair value of assets acquired and liabilities assumed:
Cash and cash equivalents	19,184
Accounts receivable	22,185
Inventories	21,696
Other current assets	16,463
Property, plant and equipment	718,066
Property under capital lease	15,530
Favorable lease interests	14,000
Chuck E. Cheese's tradename	400,000
Franchise agreements	14,000
Other non-current assets	9,872
Indebtedness	(348,000		)
Capital Leases	(15,530		)
Unfavorable lease interests	(10,160		)
Deferred taxes	(267,181		)
Other current and non-current liabilities	(93,520		)
Net assets acquired	516,605
Excess purchase price allocated to goodwill⁽¹⁾	$	430,293

__________________

(1) The Company acquired a franchisee in the second quarter of 2014. Goodwill as presented in this footnote excludes approximately $0.4 million of

goodwill resulting from the acquisition of the franchisee. See Note 4 "Goodwill and Intangible Assets, Net" for a table representing the changes in the carrying value of goodwill.

At the time of the Merger, the Company believed its market position and future growth potential for both Company-operated and franchised restaurants were the primary factors that contributed to a total purchase price that resulted in the recognition of goodwill. As of September 28, 2014, $2.9 million of our goodwill, including goodwill resulting from the franchisee acquired in the second quarter, will be deductible for federal income tax purposes.

We recorded $33.6 million and $0.5 million in transaction-related costs for accounting, investment banking, legal and other costs in connection with the Merger, which have been recorded in "Transaction and severance costs" in our unaudited Consolidated Statements of Earnings for the 226 day period ended September 28, 2014 and the 47 day period ended February 14, 2014, respectively.

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CEC ENTERTAINMENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

Pro Forma Financial Information

The following unaudited pro forma results of operations assume that the Merger had occurred on December 31, 2012, the first day in fiscal year 2013, for the nine months ended September 28, 2014 and for the nine months ended September 29, 2013, after giving effect to acquisition accounting adjustments relating to depreciation and amortization of the revalued assets, interest expense associated with the term loan facility, revolving credit facility and senior notes (see Note 5 "Indebtedness and Interest Expense"), and other acquisition-related adjustments in connection with the Merger. These unaudited pro forma results exclude one-time, non-recurring costs related to the Merger, including transaction costs, accelerated share-based compensation expense, executive termination benefits related to the departure of our Executive Chairman and our President and Chief Executive Officer and financing costs related to the bridge loan facility (see Note 5 "Indebtedness and Interest Expense"). This unaudited pro forma information should not be relied upon as necessarily being indicative of the historical results that would have been obtained if the Merger had actually occurred on those dates, nor of the results that may be obtained in the future.



	Three Months Ended						Nine Months Ended
	September 28, 2014			September 29, 2013			September 28, 2014			September 29, 2013
	(in thousands)
Total revenues	$	199,689		$	195,906		$	642,082		$	643,153
Net loss	$	(11,003	)	$	(11,349	)	$	(3,268	)	$	(5,223	)

3. Property and Equipment:



	Successor			Predecessor
	September 28, 2014			December 29, 2013
	(in thousands)
Land	$	50,100		$	43,423
Buildings	49,345			110,817
Leasehold improvements	380,467			624,353
Game and ride equipment	162,949			284,454
Furniture, fixtures and other equipment	96,493			230,986
Property leased under capital leases	16,188			28,228
	755,542			1,322,261
Less accumulated depreciation and amortization	(83,426		)	(641,559		)
Net property and equipment in service	672,116			680,702
Construction in progress	10,602			10,752
	$	682,718		$	691,454

Property leased under capital leases consists of buildings for our store locations. Accumulated amortization related to these assets was $0.7 million and $10.4 million as of September 28, 2014 and December 29, 2013, respectively. Amortization of assets under capital leases is included in "Depreciation and amortization" in our Consolidated Statements of Earnings.

Total depreciation and amortization expense related to property and equipment was $31.8 million and $19.8 million in the three months ended September 28, 2014 and September 29, 2013, respectively, of which, $0.2 million and $0.2 million, respectively, was included in "General and administrative expenses" in our Consolidated Statements of Earnings.

Total depreciation and amortization expense related to property and equipment was $84.6 million, $9.8 million and $59.3 million in the 226 day period ended September 28, 2014, the 47 day period ended February 14, 2014 and the nine months ended September 29, 2013, respectively, of which, $0.6 million, $0.2 million and $0.6 million, respectively, was included in "General and administrative expenses" in our Consolidated Statements of Earnings.

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CEC ENTERTAINMENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

Asset ~~Impairments:~~Impairment

During the three months ended September 29, 2013,, we recognized an asset impairment charge of ~~$0.5~~$0.5 million primarily related to one store, which was previously impaired. During the ~~three~~nine months ended ~~September 30, 2012, we recognized an asset impairment charge of~~ ~~$0.8 million~~ ~~related to~~ ~~two~~ ~~stores, of which~~ ~~one~~ ~~store was previously impaired. During the~~ ~~nine months ended~~September 29, 2013,, we recognized asset impairment charges of ~~$0.8~~$0.8 million primarily related to two stores, of which one store was previously impaired. ~~During~~We did not record any impairment charges for the three and nine months endedSeptember ~~30, 2012, we recognized asset impairment charges of~~ ~~$3.5 million~~ ~~related to~~ 12 ~~stores, of which~~ ~~seven~~ ~~stores were previously impaired.~~28, 2014. These impairment charges were the result of declines in the stores’ financial performance primarily due to various competitive and economic factors in the markets in which the stores are located. We continue to operate all but one of these stores.

As of September 29, 2013, ~~and~~ ~~September 30, 2012~~, the aggregate carrying value of the property and equipment at the impaired stores, after the impairment charges, was ~~$0.9 million~~ ~~and~~ ~~$4.5 million, respectively.~~$0.9 million.

Asset impairments represent adjustments we recognize to write down the carrying amount of the property and equipment at our stores to their estimated fair value, as the store’s operations are not expected to generate sufficient projected future cash flows to recover the current net book value of its long-lived assets. We estimate the fair value of a store’s long-lived assets (property and equipment) by discounting the expected future cash flows of the store using a weighted average cost of capital commensurate with the risk. Accordingly, the fair value measurement of the stores for which we recognized an impairment charge is classified within Level 3 of the fair value hierarchy. The following estimates and assumptions used in the discounted cash flow analysis impact the fair value of a store’s long-lived assets:

Discount rate based on our weighted average cost of capital and the risk-free rate of return;

Sales growth rates and cash flow margins;

Strategic plans, including projected capital spending and intent to exercise lease renewal options for the store;

Salvage values; and

Other risks and qualitative factors specific to the asset or market conditions in which the asset is located at the time the assessment was made.

During the first nine months of 2013, the average discount rate, average sales growth rate and average cash flow margin used for impaired stores were 7%, 0% and 12%, respectively. We believe our assumptions in calculating the fair value of our long-lived assets are similar to those used by other marketplace participants. If actual results are not consistent with our estimates and assumptions, we may be exposed to additional impairment charges, which could be material to our Consolidated Statements of Earnings.

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CEC ENTERTAINMENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

~~3. Revolving Credit Facility:~~4. Goodwill and Intangible Assets, Net:

The following table presents changes in the carrying value of goodwill for the periods ended December 29, 2013 and September 28, 2014 (in thousands):

September 29,
2013 December 30,
2012
(in thousands)
Revolving credit facility borrowings $ 348,500
$ 389,500



Predecessor:
Balance at December 29, 2013⁽¹⁾	$	3,458

Successor:
Goodwill assigned in acquisition accounting⁽¹⁾	$	430,293
Additions⁽²⁾	404
Balance at September 28, 2014	$	430,697

_________________________


(1)	The historical goodwill was eliminated in acquisition accounting. See Note 2 "Acquisition of CEC Entertainment, Inc." for a discussion of goodwill recorded in connection with the Merger.


(2)	The Company acquired a franchisee in the second quarter of 2014.

The following table presents our indefinite and definite-lived intangible assets at September 28, 2014:



	Successor
	Weighted Average Life (Years)	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
		(in thousands)
Tradename	Indefinite	$	400,000	$	—		$	400,000
Favorable lease agreements⁽¹⁾	10	14,000		(1,142		)	12,858
Franchise agreements	15	14,000		(554		)	13,446
		$	428,000	$	(1,696	)	$	426,304

__________________


(1)	In connection with the Merger, we also recorded an unfavorable lease liability of $10.2 million, which is being amortized over a weighted average life of 10 years and is included in "Rent expense" in our Consolidated Statements of Earnings.

Amortization expense related to favorable lease agreements was $1.1 million for the 226 day period ended September 28, 2014 and $0.5 million for the third quarter of 2014, and is included in "Rent expense" in our Consolidated Statements of Earnings. As we did not have any intangible assets related to favorable lease agreements prior to the Acquisition, we did not incur any amortization expense related to favorable lease agreements for the 47 day period ended February 14, 2014 and three and nine months ended September 29, 2013. Our estimated future amortization expense related to favorable lease agreements is set forth as follows (in thousands):



September 29, 2014 through December 28, 2014	$	491
Fiscal 2015	1,930
Fiscal 2016	1,809
Fiscal 2017	1,530
Fiscal 2018	1,187
Fiscal 2019	1,043
Thereafter	4,868
	$	12,858

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CEC ENTERTAINMENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

Amortization expense related to franchise agreements was $0.6 million for the 226 day period ended September 28, 2014 and $0.2 million for the third quarter of 2014 and is included in "General and administrative expenses" in our Consolidated Statements of Earnings. As we did not have any intangible assets related to franchise agreements prior to the Acquisition, we did not incur any amortization expense related to franchise agreements for the 47 day period ended February 14, 2014 and three and nine months ended September 29, 2013. Our estimated future amortization expense related to franchise agreements is set forth as follows (in thousands):



September 29, 2014 through December 28, 2014	$	233
Fiscal 2015	948
Fiscal 2016	930
Fiscal 2017	930
Fiscal 2018	930
Fiscal 2019	930
Thereafter	8,545
	$	13,446

5. Indebtedness and Interest Expense:

Our long-term debt consisted of the following for the periods presented:



	Successor			Predecessor
	September 28, 2014			December 29, 2013
	(in thousands)
Term loan facility	$	758,100		$	—
Revolving credit facility	—			361,500
Senior notes	255,000			—
Total debt outstanding	1,013,100			361,500
Less:
Unamortized original issue discount	(3,463		)	—
Current portion	(7,600		)	—
Bank indebtedness and other long-term debt, less current portion	$	1,002,037		$	361,500

In connection with the Acquisition, on February 14, 2014, we repaid the total outstanding borrowings of $348.0 million under the Predecessor's revolving credit facility is(the "Predecessor Facility"), as well as all incurred and unpaid interest on the Predecessor Facility. The debt issuance costs related to the Predecessor Facility were removed from our Consolidated Balance Sheet through acquisition accounting.

Secured Credit Facilities

In connection with the Merger on February 14, 2014, we entered into new senior secured credit facilities (the "Secured Credit Facilities"), which include a $760.0 million term loan facility with a maturity date of February 14, 2021 (the "term loan facility") and a $150.0 million senior ~~unsecured credit commitment of~~ ~~$500.0 million~~ ~~that expires on~~ ~~October 28, 2016. The~~secured revolving credit facility ~~also~~with a maturity date of February 14, 2019, which includes ~~an accordion feature allowing us, subject to meeting certain conditions~~a letter of credit sub-facility and ~~lender approval, to request an increase to~~a $30.0 million swingline loan sub-facility (the "revolving credit facility"). Upon the ~~revolving commitment of up to~~ ~~$200.0 million~~ ~~in borrowings at any time. Based on the type of borrowing, the revolving credit facility bears interest at the one month London Interbank Offered Rate (“LIBOR”) plus an applicable margin of~~ ~~0.875%~~ to ~~1.625%, determined based on our financial performance and debt levels, or alternatively, the highest of (a) the Prime Rate; (b) the Federal Funds rate plus~~ ~~0.50%; or (c) one month LIBOR plus~~ ~~1.0%; plus an applicable margin up to~~ ~~0.625%, determined based on our financial performance and debt levels. During the~~ ~~nine months endedSeptember 29, 2013, the Prime Rate was~~ ~~3.25%~~ ~~and the one month LIBOR rate ranged from~~ ~~0.18%~~ to ~~0.24%. The revolving credit facility also requires us to pay a commitment fee on a quarterly basis, ranging from~~ ~~0.15%~~ to ~~0.30%, depending on our financial performance and debt levels, on any unused portion~~consummation of the ~~revolving credit facility. All~~Acquisition, we had no borrowings outstanding under the revolving credit facility ~~are unsecured, but we agreed not to pledge any of our existing assets to secure any other future indebtedness.~~

~~As of~~and ~~September 29, 2013, we had~~ $~~10.9~~11.1 million of letters of credit issued but undrawn under the facility. As of September 28, 2014, we had no borrowings outstanding under the revolving credit facility and $10.9 million of letters of credit issued but undrawn under the facility.

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CEC ENTERTAINMENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

In addition, we may request one or more incremental term loan facilities and/or increase commitments under our revolving credit facility in an aggregate amount of up to the sum of (x) $200.0 million plus (y) such additional amount so long as, (i) in the case of loans under additional credit facilities that rank equally and without preference with the liens on the collateral securing the Secured Credit Facilities, our consolidated net first lien senior secured leverage ratio would be no greater than 4.25 to 1.00 and (ii) in the case of loans under additional credit facilities that rank junior to the liens on the collateral securing the Secured Credit Facilities, our consolidated total net secured leverage ratio would be no greater than 5.25 to 1.0, subject to certain conditions and receipt of commitments by existing or additional lenders.

All borrowings under our revolving credit facility are subject to the satisfaction of customary conditions, including the absence of a default and the accuracy of representations and warranties.

We received net proceeds from the term loan facility of $756.2 million, net of original issue discount of $3.8 million, which were used to fund a portion of the Acquisition. We paid $17.8 million and $3.4 million in debt issuance costs related to the term loan facility and revolving credit facility, respectively, which we capitalized in "Deferred financing costs, net" 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. The initial applicable margin for borrowings 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 based on our first lien senior secured leverage ratio, and the applicable margin for borrowings under the revolving credit facility is subject to two step-downs based on our first lien senior secured leverage ratio. During the 226 day period ended September 28, 2014, the federal funds rate ranged from 0.06% to 0.10%, the prime rate was 3.25% and the one-month LIBOR ranged from 0.15% to 0.16%.

In addition to paying interest on outstanding principal under the Secured Credit Facilities, we are required to pay a commitment fee equal to 0.50% per annum to the lenders under the revolving credit facility in respect of the unutilized commitments thereunder. The applicable commitment fee under the revolving credit facility is subject to one step-down based on our first lien senior secured leverage ratio. We are also required to pay customary agency fees, as well as letter of credit participation fees computed at a rate per annum equal to the applicable margin for LIBOR rate borrowings on the dollar equivalent of the daily stated amount of outstanding letters of credit, plus such letter of credit issuer’s customary documentary and processing fees and charges and a fronting fee computed at a rate equal to 0.125% per annum on the daily stated amount of each letter of credit.

During the quarter ended September 28, 2014, we achieved a first lien senior secured leverage ratio of less than 3.25 to 1.00. As a result, the applicable margin under the term loan facility will step down from 3.25% to 3.00% with respect to LIBOR borrowings and step down from 2.25% to 2.00% with respect to base rate borrowings. The commitment fee’s applicable margin in relation to our revolving credit facility that is currently unutilized, with the exception of our outstanding letters of credit issued but undrawn, will step down from 0.50% to 0.375%. These step-downs will take effect the middle of November 2014.

The weighted average effective interest rate incurred on our borrowings under our ~~revolving credit~~Secured Credit Facilities was 4.8% for the 226 day period ended September 28, 2014, 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. The weighted average effective interest rate incurred on our borrowings under our Predecessor Facility for ~~both~~the 47 day period ended February 14, 2014, the three and nine months ended September 29, 2013 were 1.6%, 1.7% and ~~September 30, 2012~~ ~~was~~ 1.7%., respectively.

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 November 2021, with the balance paid at maturity. In addition, the Secured Credit Facilities include customary mandatory prepayment requirements based on certain events, such as asset sales, debt issuances and defined levels of excess cash flow.

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CEC ENTERTAINMENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

We may voluntarily repay outstanding loans under the Secured Credit Facilities at any time, without prepayment premium or penalty, except in connection with a repricing event as described below, subject to customary "breakage" costs with respect to LIBOR rate loans. Any refinancing through the issuance or repricing amendment of any debt that results in a repricing event applicable to the term loan facility borrowings resulting in a lower yield occurring at any time during the first six months after the closing date will be accompanied by a 1.00% prepayment premium or fee, as applicable.

Our revolving credit ~~agreement for~~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 EBITDA, as defined in the Senior Credit Facilities). The covenant will be tested quarterly when the revolving credit facility ~~also contains certain restrictions~~is more than 30% drawn (excluding outstanding letters of credit) and ~~conditions that, among other things, require us~~will be a condition to ~~comply with specified financial covenant ratios, including, at the end of any fiscal quarter, a consolidated fixed charge coverage ratio of not less than~~ ~~1.5~~ ~~to 1.0 and a consolidated maximum leverage ratio of not greater than~~ ~~3.0~~ ~~to 1.0, as defined in the revolving credit facility. Additionally, the terms of the credit agreement for~~drawings under the revolving credit facility ~~do not restrict dividend payments or stock repurchases by us as long as we do not exceed a consolidated leverage ratio (as defined~~that would result in more than 30% drawn thereunder. As of September 28, 2014, the borrowings under the revolving credit ~~facility)~~facility were less than 30% of ~~2.75~~the outstanding commitments; therefore, the covenant was not in effect.

The Secured Credit Facilities also contain customary affirmative covenants and events of default, and the negative covenants limit our ability to, ~~1.0~~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; 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. The sale leaseback transaction and acquisition discussed in Note 8 "Sale Leaseback Transaction" and Note 14 "Subsequent Events" were permitted under the Secured Credit Facilities agreement.

All obligations under the Secured Credit Facilities are unconditionally guaranteed by Parent on a ~~pro forma~~limited-recourse basis and each of our existing and future direct and indirect material, wholly owned domestic subsidiaries, subject to certain exceptions. The obligations are secured by a pledge of our capital stock and substantially all of our assets and those of each subsidiary guarantor, including capital stock of the subsidiary guarantors and 65% of the capital stock of the first-tier foreign subsidiaries that are not subsidiary guarantors, in each case subject to exceptions. Such security interests will consist of a first-priority lien with respect to the collateral.

Senior Unsecured Debt

Also in connection with the Merger on February 14, 2014, we borrowed $248.5 million under a bridge loan facility (the "bridge loan facility") and used the proceeds to fund a portion of the Acquisition. We incurred $4.7 million of financing costs and $0.2 million of interest related to the bridge loan facility, which are included in "Interest expense" in our Consolidated Statements of Earnings for the ~~four fiscal quarters then most recently~~226 day period ended ~~immediately~~September 28, 2014.

On February 19, 2014, we issued $255.0 million aggregate principal amount of 8.000% Senior Notes due 2022 (the "senior notes") in a private offering. The senior notes bear interest at a rate of 8.000% per year and mature on February 15, 2022. On or after ~~giving effect~~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 ~~such payments~~February 15, 2017, we may redeem (i) up to 40.0% of the original aggregate principal amount of the senior notes with the net cash proceeds of one or ~~repurchases. As~~more equity offerings at a price equal to 108.0% of the principal amount thereof, plus accrued and unpaid interest, or (ii) some or all of the notes at a price equal to 100% of the principal amount thereof, plus accrued and unpaid interest, plus the applicable "make-whole" premium set forth in the indenture.

We paid $6.4 million in debt issuance costs related to the senior notes, which we capitalized in "Deferred financing costs, net" on our Consolidated Balance Sheets. The deferred financing costs are amortized over the life of the senior notes to "Interest expense" on our Consolidated Statements of Earnings.

The weighted average effective interest rate incurred on borrowings under our senior notes was 8.3% for the 226 day period ended September 28, 2014, which included amortization of debt issuance costs and other fees related to our senior notes.

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.

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CEC ENTERTAINMENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

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.

Debt Obligations

The following table sets forth our future debt payment obligations as of September ~~29, 2013~~28, 2014~~, we were in compliance with all~~ (in thousands):



One year or less	$	7,600
Two years	9,500
Three years	7,600
Four years	7,600
Five years	5,700
Thereafter	975,100
	1,013,100
Less: unamortized discount	(3,463		)
	$	1,009,637

Interest Expense

Interest expense consisted of ~~these restrictions and covenants.~~

~~4. Income Taxes:~~

~~Our effective income tax rate~~the following for the ~~three months~~periods presented:



	Successor			Predecessor
	Three Months Ended			Three Months Ended
	September 28, 2014			September 29, 2013
	(in thousands)
Term loan facility⁽¹⁾	$	8,725		$	—
Senior notes	5,169			—
Predecessor Facility	—			1,488
Capital lease obligations	469			422
Sale leaseback obligations	932			—
Amortization of debt issuance costs	1,001			112
Other	(322		)	(744		)
	$	15,974		$	1,278

__________________

(1) Includes amortization of original issue discount.

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CEC ENTERTAINMENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)



	Successor			Predecessor
	For the 226 Day Period Ended			For the 47 Day Period Ended		Nine Months Ended
	September 28, 2014			February 14, 2014		September 29, 2013
	(in thousands)
Term loan facility⁽¹⁾	$	21,586		$	—	$	—
Senior notes	12,592			—		—
Bridge loan facility⁽²⁾	4,943			—		—
Predecessor Facility	—			745		4,372
Capital lease obligations	1,082			275		1,191
Sale leaseback obligations	932			—		—
Amortization of debt issuance costs	2,487			58		347
Other	(366		)	73		(401		)
	$	43,256		$	1,151	$	5,509

__________________

(1) Includes amortization of original issue discount.

(2) Includes debt issuance costs of $4.7 million related to the issuance of the Bridge Loan and $0.2 million interest.

The weighted average effective interest rate incurred on our borrowings under our Secured Credit Facilities, bridge loan facility and senior notes was 6.4% for the 226 day period ended September ~~29, 2013~~28, 2014 ~~was~~ ~~37.7%~~ ~~compared~~. Excluding the impact of $4.9 million of issuance costs and interest relating to ~~37.3%~~the bridge loan facility, our weighted average effective rate would have been 5.7% for the ~~three months~~226 day period ended September ~~30, 2012~~28, 2014. ~~Our~~The weighted average effective ~~income tax~~interest rate incurred on our borrowings under our Predecessor Facility for the 47 day period ended February 14, 2014, the three and nine months ended September 29, 2013 were 1.6%, 1.7%, and 1.7%, respectively.

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CEC ENTERTAINMENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

6. Fair Value of Financial Instruments:

Fair value measurements are determined based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entity’s own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy) has been established.

The following table presents information on our financial instruments as of:



	Successor				Predecessor
	September 28, 2014				December 29, 2013
	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
	(in thousands)
Financial Liabilities:
Bank indebtedness and other long-term debt, less current portion	$	1,002,037	$	981,783	$	361,500	$	361,500

Our financial instruments consist of cash and cash equivalents, 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.

Our non-financial assets, which include long-lived assets, including property, plant and equipment, goodwill and intangible assets, are reported at carrying value and are not required to be measured at fair value on a recurring basis. However, on a periodic basis, or whenever events or changes in circumstances indicate that their carrying value may not be recoverable, we assess our long-lived assets for impairment.

During the 226 day period ended ~~38.1%~~September 28, 2014 ~~compared to~~ ~~38.4%~~ ~~for~~, the 47 day period ended February 14, 2014 and the three and nine months ended September 29, 2013, there were no significant transfers among level 1, 2 or 3 fair value determinations.

7. Other Noncurrent Liabilities:

Other noncurrent liabilities consisted of the following:



	Successor		Predecessor
	September 28, 2014		December 29, 2013
	(in thousands)
Sale leaseback obligations, less current portion	$	181,747	$	—
Lease-related liabilities	14,088		86,445
Other	4,513		4,802
	$	200,348	$	91,247

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CEC ENTERTAINMENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

8. Sale Leaseback Transaction:

On August 25, 2014, we completed a sale leaseback transaction (the "Sale Leaseback") with National Retail Properties, Inc. ("NNN"). Pursuant to the Sale Leaseback, we sold 49 properties located throughout the United States to NNN, and we leased each of the 49 properties back from NNN pursuant to two separate master leases on a triple-net basis for their continued use as Chuck E. Cheese’s family dining and entertainment centers. The leases have an initial term of 20 years, with four five-year options to renew. For accounting purposes, these sale-leaseback transactions are accounted for under the financing method, rather than as completed sales. Under the financing method, we include the sales proceeds received in other long-term liabilities until our continuing involvement with the properties is terminated, report the associated property as owned assets, continue to depreciate the assets over their remaining useful lives, and record the rental payments as interest expense and a reduction of the sale leaseback obligation. When and if our continuing involvement with a property terminates and the sale of that property is recognized for accounting purposes, we expect to record a gain equal to the excess of the proceeds received over the remaining net book value of the property.

The aggregate purchase price for the properties in connection with the Sale Leaseback was $183.7 million in cash, and the proceeds, net of taxes and transaction costs, realized by the Company were $141.7 million. A portion of the proceeds from the Sale Leaseback was used for the acquisition discussed in Note 14 "Subsequent Events". We expect to use the remaining net proceeds from the Sale Leaseback for capital expenditures, future liquidity needs and other general corporate purposes. The cumulative proceeds of $183.7 million are included in Other noncurrent liabilities in our unaudited Consolidated Balance Sheets as of September 28, 2014. The net book value of the associated assets, which is included in Property and equipment, net in our unaudited Consolidated Balance Sheets, was $84.5 million and $98.7 million as of September 28, 2014 and December 29, 2013, respectively.

Our future minimum lease commitments related to the Sale Leaseback, as of September 28, 2014, for fiscal years 2014, 2015, 2016, 2017, 2018 and thereafter are, in thousands, $4,463, $12,759, $13,014, $13,274, $13,540 and $251,140.

9. 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 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.

Employment-Related Litigation: On January 27, 2014, a purported class action lawsuit against the Company, entitled Franchesca Ford v. CEC Entertainment, Inc. d/b/a Chuck E. Cheese’s (the "Ford Litigation"), was filed in San Francisco County Superior Court, California, Cause Number CGC 14-536992. The Company received service of process on February 26, 2014. The Ford Litigation was filed by Franchesca Ford, a former store employee, claiming to represent other similarly situated hourly non-exempt employees and former employees of the Company in California from January 27, 2010 to the present. The lawsuit alleges violations of the state wage and hour laws involving unpaid vacation wages, meal and rest periods, wages due upon termination and waiting time penalties. The plaintiff seeks an unspecified amount in damages. On March 27, 2014, the Company removed the Ford Litigation to the U.S. District Court Northern District of California San Francisco Division, Cause Number 3:14-cv-01420-MEJ. On April 25, 2014, the plaintiff petitioned the court to remand the Ford Litigation to California state court and on July 10, 2014, the motion to remand was denied. The case thus will proceed in federal court. The parties have exchanged initial disclosures but no other formal discovery. The Company's investigation is on-going. We believe the Company has meritorious defenses to this lawsuit and intends to vigorously defend against it, including the Ford Litigation plaintiff’s efforts to certify a California class action.

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CEC ENTERTAINMENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

On March 24, 2014, a purported class action lawsuit against the Company, entitled Franchesca Ford and Isabel Rodriguez v. CEC Entertainment, Inc. d/b/a Chuck E. Cheese's (the "FCRA Litigation"), was filed in U.S. District Court Southern District, California, Case Number 3:14-cv-00677-JLS-JLB. The Company received service of process on March 31, 2014. The FCRA Litigation was filed by Franchesca Ford and Isabel Rodriguez claiming to represent other similarly situated applicants who were subject to pre-employment background checks with the Company across the United States and in California from March 24, 2012 to the present. The lawsuit alleges violations of the Fair Credit Reporting Act and the California Consumer Credit Reporting and Investigative Reporting Agencies Act. On May 21, 2014, the Company filed an answer to the complaint. The Court conducted an Early Neutral Evaluation Conference in the case on June 30, ~~2012~~2014, and a Continued Early Neutral Evaluation Conference on August 13, 2014 and September 23, 2014. The parties reached a settlement in principle at the September 23rd session of the Continued Early Neutral Evaluation Conference to settle the action on a class-wide basis. The settlement would result in the dismissal of all claims asserted in the action, along with certain related claims and releases in exchange for a maximum settlement payment of $1,750,000, a substantial portion of which would be covered by the Company's insurance carrier.

The Company has accrued for all probable and reasonably estimable losses associated with the above claims.

In October 2014, the Company was served with a complaint alleging misclassification of certain restaurant managers as exempt employees under federal and New York law. The Company is considering its response. It is too early in the litigation to determine what, if any, potential liability may exist.

Litigation Related to the Merger: Following the January 16, 2014 announcement that the Company had entered into the Merger Agreement, four putative shareholder class actions were filed 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 in the District Court of Shawnee County, Kansas. The first purported class action, which is captioned Hilary Coyne v. Richard M. Frank et al., Case No. 14C57, was filed on January 21, 2014 (the "Coyne Action"). The second purported class action, which is captioned John Solak v. CEC Entertainment, Inc. et al., Civil Action No. 14C55, was filed on January 22, 2014 (the "Solak Action"). The third purported class action, which is captioned Irene Dixon v. CEC Entertainment, Inc. et al., Case No. 14C81, was filed on January 24, 2014 and additionally names as defendants Apollo Management VIII, L.P. and the AP VIII Queso Holdings, L.P. (the "Dixon Action"). The fourth purported class action, which is captioned Louisiana Municipal Public Employees’ Retirement System v. Frank, et al., Case No. 14C97, was filed on January 31, 2014 and additionally names as defendants, Apollo Managemnet VIII, L.P. and AP VIII Queso Holdings, L.P. (the "LMPERS Action") (together with the Coyne, Solak, and Dixon Actions, the "Shareholder Actions").

Each of the Shareholder Actions 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, agreeing to an inadequate tender price, the adoption on January 15, 2014 of the Rights Agreement, and certain provisions in the Merger Agreement that allegedly made it less likely that the Board would be able to consider alternative acquisition proposals. The Coyne, Dixon and LMPERS Actions further allege that the Board was advised by a conflicted financial advisor. The Solak, Dixon and LMPERS Actions further allege that the Board was subject to material conflicts of interest in approving the Merger Agreement and that the Board breached its fiduciary duties in allowing allegedly conflicted members of management to negotiate the transaction. The Dixon and LMPERS Actions further allege that the Board breached their fiduciary duties in approving the Solicitation/Recommendation Statement on Schedule 14D-9 (together with the exhibits and annexes thereto, as it may be amended or supplemented, the "Statement") filed with the SEC on January 22, 2014, which allegedly contained material misrepresentations and omissions.

Each of the Shareholder Actions allege that Apollo aided and abetted the Board’s breaches of fiduciary duties. The Solak and Dixon Actions allege that CEC also aided and abetted such breaches, and the Solak and LMPERS Actions further allege that Parent and the Merger Sub aided and abetted such actions. The LMPERS Action further alleges that Apollo Management VIII, L.P. and AP VIII Queso Holdings, L.P. aided and abetted such actions.

The Shareholder Actions seek, among other things, rescission of these transactions, damages, attorneys’ and experts’ fees and costs and other relief that the court may deem just and proper.

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CEC ENTERTAINMENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

On January 24, 2014, the plaintiff in the Coyne Action filed an amended complaint (the "Coyne Amended Complaint"); furthermore, on January 30, 2014, the plaintiff in the Solak Action filed an amended complaint (the "Solak Amended Complaint") (together, the "Amended Complaints"). The Amended Complaints incorporate all of the allegations in the original complaints and add allegations that the Board approved the Statement which omitted certain material information in violation of their fiduciary duties. The Amended Complaints further request an order directing the Board to disclose such allegedly omitted material information. Additionally, the Solak Amended Complaint adds allegations that the Board breached its fiduciary duties in allowing an allegedly conflicted financial advisor and management to lead the sales process.

On January 28, 2014, the plaintiffs in the Coyne and Dixon Actions jointly filed a motion in each action for a temporary restraining order, expedited discovery, and the scheduling of a hearing for the plaintiffs’ anticipated motion for temporary injunction seeking expedited discovery and a hearing date in anticipation of a motion for a temporary injunction. CEC Entertainment, Inc. and the individual defendants filed responses to those motions on January 31, 2014.

On February 6, 2014, the plaintiff in the LMPERS Action filed a motion to join the January 28 motion, and the plaintiff in the Solak Action filed a motion for expedited proceedings in anticipation of a motion for a temporary injunction.

On February 7, 2014 and February 11, 2014, the plaintiffs in the four actions pending in Kansas withdrew their respective motions and determined to pursue a consolidated action for damages after the Tender Offer closed.

On March 7, 2014, the Coyne, Solak, Dixon and LMPERS Actions were consolidated under the caption In re CEC Entertainment, Inc. Stockholder Litigation, Case No. 14C57. Thereafter, the parties engaged in limited discovery. By stipulation of the parties, the Company has no obligation to answer, move, or otherwise respond to the complaints filed in the Coyne, Solak, Dixon or LMPERS Actions until after the plaintiffs serve a consolidated amended complaint, or designate an operative complaint or amended complaint.

A fifth purported class action, which was captioned McCullough v Frank, et al. Case No. CC-14-00622-B, was filed in the County Court of Dallas County, Texas on February 7, 2014 (the "McCullough Action"). On May 21, 2014, the County Court of Dallas County, Texas dismissed the McCullough Action for want of prosecution.

On June 10, 2014, Magnetar Global Event Driven Fund Ltd., Spectrum Opportunities Master Fund, Ltd., Magnetar Capital Master Fund, Ltd., and Blackwell Partners LLC, as the purported beneficial owners of shares held as of record by the nominal petitioner Cede & Co., (the "Appraisal Petitioners"), filed an action for statutory appraisal under Kansas state law against the Company in the U.S. District Court for the District of Kansas, captioned Magnetar Global Event Driven Master Fund Ltd, et al. v. CEC Entertainment, Inc., 2:14-cv-02279-RDR-KGS. The Appraisal Petitioners seek appraisal of 750,000 shares of common stock. The Company has answered the complaint and filed a verified list of stockholders, as required under Kansas law. On September 3, 2014, the court entered a scheduling order that contemplates that discovery will commence in the fall of 2014 and will substantially be completed by May 2015. Following discovery, the scheduling order contemplates dispositive motion practice followed, pottentially, by a trial on the merits of the Appraisal Petitioners' claims thereafter. We are currently in settlement negotiations with the Appraisal Petitioners, but no settlement has been reached. The Company has accrued for all probable and reasonably estimable losses associated with this claim.

The Company believes these lawsuits are without merit and intends to defend them vigorously; however, we are presently unable to predict the ultimate outcome of this litigation.

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CEC ENTERTAINMENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

10. Income Taxes:

Our income tax expense (benefit) consists of the following for the periods presented:



	Successor			Predecessor
	Three Months Ended			Three Months Ended
	September 28, 2014			September 29, 2013
	(in thousands, except percentages)
Federal and state income taxes	$	(6,728	)	$	4,519
Foreign income taxes	(208		)	(11		)
Income tax expense (benefit)	$	(6,936	)	$	4,508
Effective rate	34.3		%	37.7		%



	Successor			Predecessor
	For the 226 Day Period Ended			For the 47 Day Period Ended			Nine Months Ended
	September 28, 2014			February 14, 2014			September 29, 2013
	(in thousands, except percentages)
Federal and state income taxes	$	(15,220	)	$	914		$	29,247
Foreign income taxes	(614		)	104			220
Income tax expense (benefit)	$	(15,834	)	$	1,018		$	29,467
Effective rate	28.4		%	59.1		%	38.1		%

Our effective income tax rate of 28.4% differs from the statutory rate for the 226 day period ended September 28, 2014 primarily due to the unfavorable impact of non-deductible transaction and litigation costs related to the Merger, and an increase in income tax expense resulting from certain state income tax credits (carried forward) and estimated to expire after 2022. These unfavorable adjustments were partially offset by the recognition of uncertain tax positions resulting from settlements and expirations of statutes of limitation. The majority of these favorable and unfavorable adjustments were recognized as discrete items in their respective periods.

Our effective income tax rate of 59.1% for the 47 day period ended February 14, 2014 differs from the statutory rate due to non-deductible transaction costs related to the Merger, a net increase in uncertain tax positions and an increase in income tax expense resulting from certain state income tax credits (carried forward) and estimated to expire after 2022.

As of September 28, 2014, we have state income tax credit carryforwards, net of federal benefits, of $1.4 million with a valuation allowance, net of federal benefit, of $0.5 million, and as of December 29, 2013, we had state income tax credit carryforwards, net of federal benefit, of $1.4 million with a valuation allowance, net of federal benefit, of $0.1 million.

Our net deferred tax liability increased from $55.7 million as of December 29, 2013 to $210.6 million as of September 28, 2014. The increase primarily relates to the tax effect of acquisition accounting adjustments made to the financial statement carrying value of our assets and liabilities of $213.2 million in connection with the Merger, partially offset by a deferred tax benefit of $1.8 million in the 47 day period ended February 14, 2014 and a deferred tax benefit of $56.5 million in the 226 day period ended September 28, 2014.

Our liability for uncertain tax positions (excluding interest and penalties) was $~~3.2~~2.2 million and $~~2.9~~2.6 million as of September ~~29, 2013~~28, 2014 and December ~~30, 2012~~29, 2013, respectively, and if recognized would decrease our provision for income taxes by $~~2.3~~1.4 million. Within the next twelve months, we could settle or otherwise conclude certain ongoing income tax audits. As such, it is reasonably possible that the liability for uncertain tax positions could decrease by as much as $~~1.6~~0.4 million as a result of settlements with certain taxing authorities and expiring statutes of limitations within the next twelve months.

The total accrued interest and penalties related to unrecognized tax benefits as of September ~~29, 2013~~28, 2014 and December ~~30, 2012~~29, 2013, was $~~2.0~~1.6 million and ~~$2.6~~$1.9 million,, respectively. On the Consolidated Balance Sheets, we include current accrued interest related to unrecognized tax benefits in ~~“Accrued~~"Accrued interest,”" current accrued penalties in ~~“Accrued expenses”~~"Accrued expenses" and noncurrent accrued interest and penalties in ~~“Other~~"Other noncurrent liabilities.”"

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(Unaudited)

~~5. Earnings Per Share:~~11. Stock-Based Compensation Arrangements:

~~Basic earnings per share (“EPS”) represents net income divided by~~Predecessor Restricted Stock Plans

Prior to the ~~weighted average number of common shares outstanding during the period. Common shares outstanding consist of shares of~~Merger, our ~~common stock and certain unvested shares~~stock-based compensation plans permitted us to grant awards of restricted stock ~~containing nonforfeitable dividend rights. As~~to our employees and non-employee directors. Certain of ~~March 31, 2013,~~these awards were subject to performance-based criteria. Our stock-based compensation plans had provisions allowing for the automatic vesting of awards granted under those plans following a change of control, as defined in the applicable plan. The fair value of all ~~shares~~stock-based awards, less estimated forfeitures, if any, and portions capitalized as described below, was recognized as stock-based compensation expense in "General and administrative expenses" in the Consolidated Financial Statements over the period that services were required to be provided in exchange for the award.

In connection with the Merger, all unvested restricted stock awards to our employees and non-employee directors became fully vested, and at the effective time of the Merger, each such share of restricted stock ~~with nonforfeitable dividend~~was canceled and converted into the right to receive an amount equal to the offer price of $54.00 per share, plus an amount in cash equal to all accrued but unpaid dividends relating to such shares, without interest and less any withholding required by applicable tax laws. We recorded $11.1 million in stock-based compensation expense related to the acceleration of restricted stock awards during the 47 day period endedFebruary 14, 2014.

Successor Stock Options Plan

The Board of Directors of Parent adopted the 2014 Equity Incentive Plan, whereby Parent may grant equity incentive stock options, nonqualified stock options, stock appreciation rights, ~~had vested. Diluted EPS represents net income divided~~restricted stock, restricted stock units, stock bonus awards or performance compensation awards to certain directors, officers or employees of CEC Entertainment, Inc.

On August 21, 2014, Parent granted options to purchase 2,061,927 shares of its common stock to certain directors, officers and employees of CEC Entertainment, Inc. The options are subject to certain service and performance based vesting criteria, and were split evenly between Tranches A, B and C, which have different vesting requirements. The options in Tranche A are service based and vest and become exercisable in equal installments on each of the first five anniversaries of February 14, 2014. The Black-Scholes model was used to estimate the fair value of Tranche A stock options. Tranche B and Tranche C options are performance based and vest and become exercisable when certain market conditions are met. The Monte Carlo simulation model was used to estimate the fair value of Tranches B and C stock options. Using these methodologies, the per option fair value of the A, B and C tranches was calculated as $2.75, $1.09, and $0.68, respectively. The options are also subject to accelerated vesting in the event of certain terminations of employment upon or within 12 months following a change in control of Queso Holdings Inc. Compensation costs related to options in the Parent were recorded by the basic weighted average number of common shares and, if dilutive, potential common shares outstanding during the period. Potential common shares represent the incremental common shares issuable upon the vesting of unvested shares of restricted stock. The dilutive effect of potential common shares is determined using the treasury stock method, whereby unamortized stock-based compensation cost of unvested restricted stock, and any associated excess tax benefits are assumed to be used to repurchase our common stock at the average market price during the period.Company.

~~The following table sets forth the computation of basic and diluted EPS:~~

Three Months Ended Nine Months Ended
September 29,
2013 September 30,
2012 September 29,
2013 September 30,
2012
(in thousands, except per share data)
Numerator:

Net income $ 7,439
$ 7,794
$ 47,935
$ 44,177
Denominator:

Basic weighted average common shares outstanding 16,958
17,397
17,128
17,595
Potential common shares for restricted stock 163
76
110
57
Diluted weighted average common shares outstanding 17,121
17,473
17,238
17,652
Earnings per share:

Basic $ 0.44
$ 0.45
$ 2.80
$ 2.51
Diluted $ 0.43
$ 0.45
$ 2.78
$ 2.50

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

~~6. Stock-Based Compensation Arrangements:~~

Our stock-based compensation plans permit us to grant awards of restricted stock to our employees and non-employee directors. Certain of these awards are subject to performance-based criteria. The fair value of all stock-based awards, less estimated forfeitures, if any, and portions capitalized as described below, is recognized as stock-based compensation expense in “General and administrative expenses” in the Consolidated Financial Statements over the period that services are required to be provided in exchange for the award.

The following table summarizes stock-based compensation expense and associated tax benefit recognized in the Consolidated Financial Statements:



	Successor			Predecessor
	Three Months Ended			Three Months Ended
	September 28, 2014			September 29, 2013
	(in thousands)
Stock-based compensation costs	$	197		$	2,288
Portion capitalized as property and equipment⁽¹⁾	(6		)	(44		)
Stock-based compensation expense recognized	$	191		$	2,244
Tax benefit recognized from stock-based compensation awards	$	—		$	77


													Successor			Predecessor
	Three Months Ended						Nine Months Ended						For the 226 Day Period Ended			For the 47 Day Period Ended		Nine Months Ended
	September 29, 2013			September 30, 2012			September 29, 2013			September 30, 2012			September 28, 2014			February 14, 2014		September 29, 2013
	(in thousands)												(in thousands)
Stock-based compensation costs	$	2,288		$	1,958		$	6,603		$	5,725		$	197		$	1,117	$	6,603
Portion capitalized as property and equipment⁽¹⁾	(44		)	(33		)	(134		)	(95		)	(6		)	—		(134		)
Stock-based compensation costs related to the accelerated vesting of restricted stock awards in connection with the Merger													—			11,108		—
Stock-based compensation expense recognized	$	2,244		$	1,925		$	6,469		$	5,630		$	191		$	12,225	$	6,469
Tax benefit recognized from stock-based compensation awards	$	77		$	—		$	249		$	619
Tax benefit recognized from stock-based compensation awards⁽²⁾													$	5,043		$	—	$	249

__________________

(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~~"Property and equipment, ~~net”~~net" in the Consolidated Balance Sheets.

~~As of~~ ~~September 29, 2013, unrecognized pre-tax stock-based compensation cost of~~ ~~$14.7 million~~ ~~related to restricted stock awards granted will be recognized over a weighted average remaining vesting period of~~ ~~1.7~~ ~~years.~~

~~Restricted Stock~~

~~The following table summarizes restricted stock activity during the~~ ~~nine months~~ ~~ended~~ ~~September 29, 2013~~:

Restricted
Shares

Weighted
Average
Grant Date
Fair Value
Unvested restricted stock awards, December 30, 2012
547,077
$ 35.94
Granted
291,245
$ 30.95
Vested
(221,751 ) $ 33.69
Forfeited
(24,093 ) $ 35.73
Unvested restricted stock awards, September 29, 2013
592,478
$ 34.34

~~During the~~ ~~nine months~~ ~~ended~~ ~~September 29, 2013, employees and non-employee directors tendered~~ ~~71,465~~ ~~shares of their common stock to satisfy tax withholding requirements on the vesting of their restricted stock at an average price per share of~~ ~~$30.66~~.


(2)	We recorded the $5.0 million tax benefit related to the accelerated vesting of restricted stock awards in the 226 day period ended September 28, 2014, as such tax benefit will be deductible for income tax purposes on the Successor tax return for fiscal year 2014.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

7.12. Stockholders’ Equity:

The following ~~table summarizes~~tables summarize the changes in stockholders’ equity during the ~~first~~ ~~nine months~~ of ~~2013~~:47 day period ended February 14, 2014 and the 226 day period ended September 28, 2014:

Common Stock
Capital In
Excess of
Par Value

Retained
Earnings

Accumulated
Other
Comprehensive
Income
Treasury Stock
Shares Amount Shares Amount Total
(in thousands, except share information)
Balance at December 30, 2012 61,696,806
$ 6,170
$ 447,449
$ 823,012
$ 5,880
43,814,979
$ (1,139,237 ) $ 143,274
Net income —
—
—
47,935
—
—
—
47,935
Other comprehensive income —
—
—
—
(596 ) —
—
(596 )
Stock-based compensation costs —
—
6,603
—
—
—
—
6,603
Restricted stock issued, net of forfeitures 267,152
27
(27 ) —
—
—
—
—
Tax shortfall from restricted stock, net —
—
(272 ) —
—
—
—
(272 )
Restricted stock returned for taxes (71,465 ) (8 ) (2,183 ) —
—
—
—
(2,191 )
Repurchase of treasury shares —
—
—
—
—
526,245
(18,112 ) (18,112 )
Dividends declared —
—
—
(12,694 ) —
—
—
(12,694 )
Balance at September 29, 2013 61,892,493
$ 6,189
$ 451,570
$ 858,253
$ 5,284
44,341,224
$ (1,157,349 ) $ 163,947



	Common Stock				Capital In Excess of Par Value			Retained Earnings		Accumulated Other Comprehensive Income			Treasury Stock
	Shares		Amount		Capital In Excess of Par Value			Retained Earnings		Accumulated Other Comprehensive Income			Shares	Amount			Total
	(in thousands, except share information)
Predecessor:
Balance at December 29, 2013	61,865,495		$	6,187	$	453,702		$	853,464	$	4,764		44,341,225	$	(1,157,349	)	$	160,768
Net income	—		—		—			704		—			—	—			704
Other comprehensive income (loss)	—		—		—			—		(541		)	—	—			(541		)
Stock-based compensation costs	—		—		12,225			—		—			—	—			12,225
Restricted stock issued, net of forfeitures	13,792		1		(1		)	—		—			—	—			—
Restricted stock returned for taxes	(2,907	)	—		(142		)	—		—			—	—			(142		)
Dividends forfeited	—		—		—			2		—			—	—			2
Balance at February 14, 2014	61,876,380		$	6,188	$	465,784		$	854,170	$	4,223		44,341,225	$	(1,157,349	)	$	173,016

~~Cash Dividends~~



	Common Stock			Capital In Excess of Par Value		Retained Earnings			Accumulated Other Comprehensive Income
	Shares	Amount		Capital In Excess of Par Value		Retained Earnings			Accumulated Other Comprehensive Income			Total
	(in thousands, except share information)
Successor:
Equity contribution	200	$	—	$	350,000	$	—		$	—		$	350,000
Net income (loss)	—	—		—		(39,935		)	—			(39,935		)
Other comprehensive income (loss)	—	—		—		—			(151		)	(151		)
Stock-based compensation costs	—	—		197		—			—			197
Tax benefit from restricted stock, net⁽¹⁾	—	—		5,043		—			—			5,043
Balance at September 28, 2014	200	$	—	$	355,240	$	(39,935	)	$	(151	)	$	315,154

__________________


(1)	We recorded the tax benefit related to the accelerated vesting of restricted stock awards in the 226 day period ended September 28, 2014, as such tax benefit will be deductible for income tax purposes on the Successor tax return for fiscal year 2014.

Table of Contents

CEC ENTERTAINMENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

13. Consolidating Guarantor Financial Information:

The senior notes issued by CEC Entertainment, Inc. (the "Issuer") in conjunction with the Acquisition are our unsecured obligations and are fully and unconditionally, jointly and severally guaranteed by all of our 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:

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)



CEC Entertainment, Inc.
Condensed Consolidating Balance Sheet
As of September 28, 2014
(in thousands)

	Successor
	Issuer			Guarantor			Non-Guarantors			Eliminations			Consolidated
Current assets:
Cash and cash equivalents	$	222,314		$	14		$	18,657		$	—		$	240,985
Accounts receivable	11,176			1,652			4,086			(3,489		)	13,425
Inventories	14,763			3,037			428			—			18,228
Other current assets	17,059			2,390			2,376			—			21,825
Total current assets	265,312			7,093			25,547			(3,489		)	294,463
Property and equipment, net	649,564			19,011			14,143			—			682,718
Goodwill	430,697			—			—			—			430,697
Intangible assets, net	25,344			400,960			—			—			426,304
Intercompany	61,376			24,482			24,472			(110,330		)	—
Investment in subsidiaries	388,504			—			—			(388,504		)	—
Other noncurrent assets	28,551			4,945			443			(128		)	33,811
Total assets	$	1,849,348		$	456,491		$	64,605		$	(502,451	)	$	1,867,993
Current liabilities:
Bank indebtedness and other long-term debt, current portion	$	7,600		$	—		$	—		$	—		$	7,600
Capital lease obligations, current portion	394			—			3			—			397
Accounts payable and accrued expenses	81,955			16,277			472			—			98,704
Other current liabilities	2,904			—			—			—			2,904
Total current liabilities	92,853			16,277			475			—			109,605
Capital lease obligations, less current portion	15,499			—			86			—			15,585
Bank indebtedness and other long-term debt, less current portion	1,002,037			—			—			—			1,002,037
Deferred tax liability	212,362			—			955			(98		)	213,219
Intercompany	3,482			44,715			65,652			(113,849		)	—
Other noncurrent liabilities	207,961			4,310			122			—			212,393
Total liabilities	1,534,194			65,302			67,290			(113,947		)	1,552,839
Stockholders' equity:
Common stock	—			—			—			—			—
Capital in excess of par value	355,240			410,178			3,354			(413,532		)	355,240
Retained earnings (deficit)	(39,935		)	(18,989		)	(5,888		)	24,877			(39,935		)
Accumulated other comprehensive income (loss)	(151		)	—			(151		)	151			(151		)
Total stockholders' equity	315,154			391,189			(2,685		)	(388,504		)	315,154
Total liabilities and stockholders' equity	$	1,849,348		$	456,491		$	64,605		$	(502,451	)	$	1,867,993

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CEC ENTERTAINMENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)



CEC Entertainment, Inc.
Condensed Consolidating Balance Sheet
As of December 29, 2013
(in thousands)

	Predecessor
	Issuer			Guarantor		Non-Guarantors			Eliminations			Consolidated
Current assets:
Cash and cash equivalents	$	10,177		$	1,914	$	8,595		$	—		$	20,686
Accounts receivable	22,686			1,420		3,752			(2,977		)	24,881
Inventories	15,865			2,965		420			—			19,250
Other current assets	16,367			3,222		2,613			—			22,202
Total current assets	65,095			9,521		15,380			(2,977		)	87,019
Property and equipment, net	661,593			15,242		14,619			—			691,454
Goodwill	3,458			—		—			—			3,458
Intercompany	20,689			379,695		1,636			(402,020		)	—
Investment in subsidiaries	6,190			—		—			(6,190		)	—
Other noncurrent assets	4,333			5,305		1,344			(1,302		)	9,680
Total assets	$	761,358		$	409,763	$	32,979		$	(412,489	)	$	791,611
Current liabilities:
Capital lease obligations, current portion	$	947		$	—	$	67		$	—		$	1,014
Accounts payable and accrued expenses	61,680			21,665		1,907			—			85,252
Other current liabilities	440			—		—			—			440
Total current liabilities	63,067			21,665		1,974			—			86,706
Capital lease obligations, less current portion	19,752			—		613			—			20,365
Bank indebtedness and other long-term debt	—			361,500		—			—			361,500
Deferred tax liability	58,996			—		184			(1,349		)	57,831
Intercompany	362,748			12,224		29,978			(404,950		)	—
Other noncurrent liabilities	96,027			4,432		3,982			—			104,441
Total liabilities	600,590			399,821		36,731			(406,299		)	630,843
Stockholders' equity:
Common stock	6,187			—		—			—			6,187
Capital in excess of par value	453,702			—		—			—			453,702
Retained earnings (deficit)	853,464			9,942		(8,516		)	(1,426		)	853,464
Accumulated other comprehensive income (loss)	4,764			—		4,764			(4,764		)	4,764
Less treasury stock	(1,157,349		)	—		—			—			(1,157,349		)
Total stockholders' equity	160,768			9,942		(3,752		)	(6,190		)	160,768
Total liabilities and stockholders' equity	$	761,358		$	409,763	$	32,979		$	(412,489	)	$	791,611

Table of Contents

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 28, 2014
(in thousands)

	Successor
	Issuer			Guarantor			Non-Guarantors			Eliminations			Consolidated
Revenues:
Food and beverage sales	$	80,296		$	75		$	1,900		$	—		$	82,271
Entertainment and merchandise sales	112,560			—			3,325			—			115,885
Total Company store sales	192,856			75			5,225			—			198,156
Franchise fees and royalties	526			1,007			—			—			1,533
International Association assessments and other fees	5,002			398			10,596			(15,996		)	—
Total revenues	198,384			1,480			15,821			(15,996		)	199,689
Operating Costs and Expenses:
Company store operating costs:
Cost of food and beverage	20,575			9			583			—			21,167
Cost of entertainment and merchandise	6,566			(8		)	223			(112		)	6,669
Total cost of food, beverage, entertainment and merchandise	27,141			1			806			(112		)	27,836
Labor expenses	55,414			—			1,672			—			57,086
Depreciation and amortization	30,673			—			949			—			31,622
Rent expense	21,800			—			787			—			22,587
Other store operating expenses	29,028			4,336			1,262			497			35,123
Total Company store operating costs	164,056			4,337			5,476			385			174,254
Advertising expense	10,778			—			9,709			(10,373		)	10,114
General and administrative expenses	10,864			9,625			329			(6,998		)	13,820
Transaction and severance costs	5,757			(15		)	—			—			5,742
Total operating costs and expenses	191,455			13,947			15,514			(16,986		)	203,930
Operating income (loss)	6,929			(12,467		)	307			990			(4,241		)
Equity in earnings (loss) in affiliates	(10,913		)	—			—			10,913			—
Interest expense (income)	14,955			(123		)	152			990			15,974
Income (loss) before income taxes	(18,939		)	(12,344		)	155			10,913			(20,215		)
Income tax expense (benefit)	(5,660		)	(1,360		)	84			—			(6,936		)
Net income (loss)	(13,279		)	(10,984		)	71			10,913			(13,279		)

Components of other comprehensive income (loss), net of tax:
Foreign currency translation adjustments	$	(652	)	$	—		$	(652	)	$	652		$	(652	)
Total components of other comprehensive income (loss), net of tax	(652		)	—			(652		)	652			(652		)
Comprehensive income (loss)	(13,931		)	(10,984		)	(581		)	11,565			(13,931		)

Table of Contents

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 29, 2013
(in thousands)

	Predecessor
	Issuer		Guarantor			Non-Guarantors			Eliminations			Consolidated
Revenues:
Food and beverage sales	$	84,779	$	269		$	2,122		$	—		$	87,170
Entertainment and merchandise sales	104,203		—			3,426			—			107,629
Total Company store sales	188,982		269			5,548			—			194,799
Franchise fees and royalties	535		572			—			—			1,107
International Association assessments and other fees	808		17,115			10,348			(28,271		)	—
Total revenues	190,325		17,956			15,896			(28,271		)	195,906
Operating Costs and Expenses:
Company store operating costs:
Cost of food and beverage	20,179		19			652			—			20,850
Cost of entertainment and merchandise	6,785		(8		)	231			(32		)	6,976
Total cost of food, beverage, entertainment and merchandise	26,964		11			883			(32		)	27,826
Labor expenses	54,495		—			1,974			—			56,469
Depreciation and amortization	19,129		—			474			—			19,603
Rent expense	18,983		—			689			—			19,672
Other store operating expenses	50,432		(318		)	1,133			(16,846		)	34,401
Total Company store operating costs	170,003		(307		)	5,153			(16,878		)	157,971
Advertising expense	10,516		—			10,476			(10,348		)	10,644
General and administrative expenses	4,191		10,159			227			(1,048		)	13,529
Asset impairment	537		—			—			—			537
Total operating costs and expenses	185,247		9,852			15,856			(28,274		)	182,681
Operating income (loss)	5,078		8,104			40			3			13,225
Equity in earnings (loss) in affiliates	10,775		—			—			(10,775		)	—
Interest expense (income)	3,086		(2,012		)	201			3			1,278
Income (loss) before income taxes	12,767		10,116			(161		)	(10,775		)	11,947
Income tax expense (benefit)	5,328		(738		)	(82		)	—			4,508
Net income (loss)	7,439		10,854			(79		)	(10,775		)	7,439

Components of other comprehensive income (loss), net of tax:
Foreign currency translation adjustments	$	225	$	—		$	225		$	(225	)	$	225
Total components of other comprehensive income (loss), net of tax	225		—			225			(225		)	225
Comprehensive income (loss)	7,664		10,854			146			(11,000		)	7,664

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CEC ENTERTAINMENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)



CEC Entertainment, Inc.
Consolidating Statement of Comprehensive Income (Loss)
For the 226 Day Period Ended September 28, 2014
(in thousands)

	Successor
	Issuer			Guarantor			Non-Guarantors			Eliminations			Consolidated
Revenues:
Food and beverage sales	$	219,044		$	196		$	4,957		$	—		$	224,197
Entertainment and merchandise sales	292,064			—			8,085			—			300,149
Total Company store sales	511,108			196			13,042			—			524,346
Franchise fees and royalties	1,452			2,041			—			—			3,493
International Association assessments and other fees	10,502			1,822			27,964			(40,288		)	—
Total revenues	523,062			4,059			41,006			(40,288		)	527,839
Operating Costs and Expenses:
Company store operating costs:
Cost of food and beverage	55,705			38			1,507			—			57,250
Cost of entertainment and merchandise	17,013			(22		)	527			(92		)	17,426
Total cost of food, beverage, entertainment and merchandise	72,718			16			2,034			(92		)	74,676
Labor expenses	139,673			—			4,108			—			143,781
Depreciation and amortization	81,874			—			2,267			—			84,141
Rent expense	51,196			—			1,816			—			53,012
Other store operating expenses	81,398			9,955			2,654			(9,906		)	84,101
Total Company store operating costs	426,859			9,971			12,879			(9,998		)	439,711
Advertising expense	28,513			(17		)	24,003			(27,697		)	24,802
General and administrative expenses	12,886			21,453			830			(2,593		)	32,576
Transaction and severance costs	37,271			5,992			—			—			43,263
Total operating costs and expenses	505,529			37,399			37,712			(40,288		)	540,352
Operating income (loss)	17,533			(33,340		)	3,294			—			(12,513		)
Equity in earnings (loss) in affiliates	(21,779		)	—			—			21,779			—
Interest expense (income)	42,907			(47		)	396			—			43,256
Income (loss) before income taxes	(47,153		)	(33,293		)	2,898			21,779			(55,769		)
Income tax expense (benefit)	(7,218		)	(9,321		)	705			—			(15,834		)
Net income (loss)	(39,935		)	(23,972		)	2,193			21,779			(39,935		)

Components of other comprehensive income (loss), net of tax:
Foreign currency translation adjustments	$	(151	)	$	—		$	(151	)	$	151		$	(151	)
Total components of other comprehensive income (loss), net of tax	(151		)	—			(151		)	151			(151		)
Comprehensive income (loss)	(40,086		)	(23,972		)	2,042			21,930			(40,086		)

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CEC ENTERTAINMENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)



CEC Entertainment, Inc.
Consolidating Statement of Comprehensive Income (Loss)
For the 47 Day Period Ended February 14, 2014
(in thousands)

	Predecessor
	Issuer			Guarantor			Non-Guarantors			Eliminations			Consolidated
Revenues:
Food and beverage sales	$	49,803		$	32		$	1,062		$	—		$	50,897
Entertainment and merchandise sales	61,082			—			1,577			—			62,659
Total Company store sales	110,885			32			2,639			—			113,556
Franchise fees and royalties	353			334			—			—			687
International Association assessments and other fees	—			4,558			6,095			(10,653		)	—
Total revenues	111,238			4,924			8,734			(10,653		)	114,243
Operating Costs and Expenses:
Company store operating costs:
Cost of food and beverage	11,924			25			336			—			12,285
Cost of entertainment and merchandise	3,618			—			131			(20		)	3,729
Total cost of food, beverage, entertainment and merchandise	15,542			25			467			(20		)	16,014
Labor expenses	31,107			—			891			—			31,998
Depreciation and amortization	9,430			—			303			—			9,733
Rent expense	11,962			—			403			—			12,365
Other store operating expenses	20,193			(44		)	(82		)	(4,307		)	15,760
Total Company store operating costs	88,234			(19		)	1,982			(4,327		)	85,870
Advertising expense	6,144			17			5,853			(6,111		)	5,903
General and administrative expenses	4,124			3,863			191			(215		)	7,963
Transaction and severance costs	1,800			9,834			—			—			11,634
Total operating costs and expenses	100,302			13,695			8,026			(10,653		)	111,370
Operating income (loss)	10,936			(8,771		)	708			—			2,873
Equity in earnings (loss) in affiliates	(4,523		)	—			—			4,523			—
Interest expense (income)	1,822			(771		)	100			—			1,151
Income (loss) before income taxes	4,591			(8,000		)	608			4,523			1,722
Income tax expense (benefit)	3,887			(3,040		)	171			—			1,018
Net income (loss)	704			(4,960		)	437			4,523			704

Components of other comprehensive income (loss), net of tax:
Foreign currency translation adjustments	(541		)	—			(541		)	541			$	(541	)
Total components of other comprehensive income (loss), net of tax	(541		)	—			(541		)	541			(541		)
Comprehensive income (loss)	163			(4,960		)	(104		)	5,064			163

Table of Contents

CEC ENTERTAINMENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)



CEC Entertainment, Inc.
Consolidating Statement of Comprehensive Income (Loss)
For the Nine Months Ended September 29, 2013
(in thousands)

	Predecessor
	Issuer			Guarantor			Non-Guarantors			Eliminations			Consolidated
Revenues:
Food and beverage sales	$	281,913		$	544		$	7,031		$	—		$	289,488
Entertainment and merchandise sales	339,138			—			10,819			—			349,957
Total Company store sales	621,051			544			17,850			—			639,445
Franchise fees and royalties	1,755			1,953			—			—			3,708
International Association assessments and other fees	808			48,166			34,046			(83,020		)	—
Total revenues	623,614			50,663			51,896			(83,020		)	643,153
Operating Costs and Expenses:
Company store operating costs:
Cost of food and beverage	67,597			36			2,182			—			69,815
Cost of entertainment and merchandise	22,597			(25		)	716			(32		)	23,256
Total cost of food, beverage, entertainment and merchandise	90,194			11			2,898			(32		)	93,071
Labor expenses	169,021			—			5,388			—			174,409
Depreciation and amortization	57,040			—			1,626			—			58,666
Rent expense	56,549			—			2,099			—			58,648
Other store operating expenses	142,067			(290		)	3,970			(46,972		)	98,775
Total Company store operating costs	514,871			(279		)	15,981			(47,004		)	483,569
Advertising expense	34,508			—			32,473			(34,021		)	32,960
General and administrative expenses	14,224			30,041			680			(1,995		)	42,950
Asset impairment	763			—			—			—			763
Total operating costs and expenses	564,366			29,762			49,134			(83,020		)	560,242
Operating income (loss)	59,248			20,901			2,762			—			82,911
Equity in earnings (loss) in affiliates	16,549			—			—			(16,549		)	—
Interest expense (income)	9,530			(4,649		)	628			—			5,509
Income (loss) before income taxes	66,267			25,550			2,134			(16,549		)	77,402
Income tax expense (benefit)	18,332			10,453			682			—			29,467
Net income (loss)	$	47,935		$	15,097		$	1,452		$	(16,549	)	$	47,935

Components of other comprehensive income (loss), net of tax:
Foreign currency translation adjustments	$	(596	)	$	—		$	(596	)	$	596		$	(596	)
Total components of other comprehensive income (loss), net of tax	(596		)	—			(596		)	596			(596		)
Comprehensive income (loss)	$	47,339		$	15,097		$	856		$	(15,953	)	$	47,339

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CEC ENTERTAINMENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)



CEC Entertainment, Inc.
Consolidating Statement of Cash Flows
For the 226 Day Period Ended September 28, 2014
(in thousands)

	Successor
	Issuer			Guarantors			Non-Guarantors			Eliminations			Consolidated
Cash flows provided by (used in) operating activities:	$	93,262		$	(68,202	)	$	12,402		$	—		$	37,462

Cash flows from investing activities:
Acquisition of Predecessor	(946,898		)	—			—			—			(946,898		)
Intercompany Note	(41,149		)	375,358			—			(334,209		)	—
Purchases of property and equipment	(33,374		)	(3,667		)	(3,354		)	—			(40,395		)
Proceeds from sale of property and equipment	—			350			—			—			350
Cash flows provided by (used in) investing activities	(1,021,421		)	372,041			(3,354		)	(334,209		)	(986,943		)

Cash flows from financing activities:
Net proceeds from senior term loan, net of original issue discount	756,200			—			—			—			756,200
Net proceeds from senior unsecured notes	255,000			—			—			—			255,000
Repayment of Predecessor Facility	—			(348,000		)	—			—			(348,000		)
Repayments on senior term loan	(1,900		)	—			—			—			(1,900		)
Intercompany Note	(375,539		)	44,055			(2,725		)	334,209			—
Proceeds from financing sale-leaseback transaction	183,685			—			—			—			183,685
Payment of debt financing costs	(27,575		)	—			—			—			(27,575		)
Payments on capital lease obligations	(204		)	—			—			—			(204		)
Dividends paid	(890		)	—			—			—			(890		)
Excess tax benefit realized from stock-based compensation	5,043			—			—			—			5,043
Equity contribution	350,000			—			—			—			350,000
Cash flows provided by (used in) financing activities	1,143,820			(303,945		)	(2,725		)	334,209			1,171,359
Effect of foreign exchange rate changes on cash	—			—			(77		)	—			(77		)

Change in cash and cash equivalents	215,661			(106		)	6,246			—			221,801
Cash and cash equivalents at beginning of period	6,653			120			12,411			—			19,184
Cash and cash equivalents at end of period	$	222,314		$	14		$	18,657		$	—		$	240,985

Table of Contents

CEC ENTERTAINMENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)



CEC Entertainment, Inc.
Consolidating Statement of Cash Flows
For the 47 Day Period Ended February 14, 2014
(in thousands)

	Predecessor
	Issuer			Guarantors			Non-Guarantors			Eliminations			Consolidated
Cash flows provided by (used in) operating activities:	$	(12,224	)	$	29,906		$	4,632		$	—		$	22,314

Cash flows from investing activities:
Intercompany Note	—			(17,601		)	—			17,601			—
Purchases of property and equipment	(8,538		)	(1,082		)	(90		)	—			(9,710		)
Proceeds from sale of property and equipment	(2		)	53			—			—			51
Cash flows provided by (used in) investing activities	(8,540		)	(18,630		)	(90		)	17,601			(9,659		)

Cash flows from financing activities:
Net proceeds from (repayments on) revolving credit facility	—			(13,500		)	—			—			(13,500		)
Intercompany Note	17,571			430			(400		)	(17,601		)	—
Payments on capital lease obligations	(153		)	—			(11		)	—			(164		)
Dividends paid	(38		)	—			—			—			(38		)
Restricted stock returned for payment of taxes	(142		)	—			—			—			(142		)
Cash flows provided by (used in) financing activities	17,238			(13,070		)	(411		)	(17,601		)	(13,844		)
Effect of foreign exchange rate changes on cash	—			—			(313		)	—			(313		)

Change in cash and cash equivalents	(3,526		)	(1,794		)	3,818			—			(1,502		)
Cash and cash equivalents at beginning of period	10,177			1,914			8,595			—			20,686
Cash and cash equivalents at end of period	$	6,651		$	120		$	12,413		$	—		$	19,184

Table of Contents

CEC ENTERTAINMENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)



CEC Entertainment, Inc.
Consolidating Statement of Cash Flows
For the Nine Months Ended September 29, 2013
(in thousands)

	Predecessor
	Issuer			Guarantors			Non-Guarantors			Eliminations			Consolidated
Cash flows provided by (used in) operating activities:	$	222,077		$	(99,747	)	$	1,425		$	—		$	123,755

Cash flows from investing activities:
Intercompany Note	—			143,339			—			(143,339		)	—
Purchases of property and equipment	(48,684		)	(4,843		)	(919		)	—			(54,446		)
Proceeds from sale of property and equipment	1,888			372			—			—			2,260
Other investing activities	678			—			—			—			678
Cash flows provided by (used in) investing activities	(46,118		)	138,868			(919		)	(143,339		)	(51,508		)

Cash flows from financing activities:
Net proceeds from (repayments on) revolving credit facility	—			(41,000		)	—			—			(41,000		)
Intercompany Note	(145,996		)	1,757			900			143,339			—
Payments on capital lease obligations	(646		)	—			(51		)	—			(697		)
Dividends paid	(8,445		)	—			—			—			(8,445		)
Excess tax benefit realized from stock-based compensation	249			—			—			—			249
Restricted stock returned for payment of taxes	(2,191		)	—			—			—			(2,191		)
Purchases of treasury stock	(18,112		)	—			—			—			(18,112		)
Cash flows provided by (used in) financing activities	(175,141		)	(39,243		)	849			143,339			(70,196		)
Effect of foreign exchange rate changes on cash	—			—			(303		)	—			(303		)

Change in cash and cash equivalents	818			(122		)	1,052			—			1,748
Cash and cash equivalents at beginning of period	11,321			248			8,067			—			19,636
Cash and cash equivalents at end of period	$	12,139		$	126		$	9,119		$	—		$	21,384

14. Subsequent Events:

~~During~~On October 14, 2014, the ~~nine months endedSeptember 29, 2013~~Company filed a preliminary prospectus under a Registration Statement on Form S-4 to offer to exchange $255.0 million of registered 8.000% senior notes due 2022 and ~~September 30, 2012~~,certain related guarantees (the "Exchange Notes") for a like aggregate amount of our outstanding senior notes and certain related guarantees, which were issued on February 19, 2014 in connection with the Acquisition. The Registration Statement became effective on October 27, 2014, at which time we ~~declared cash dividends~~filed the final prospectus. The exchange offer began on October 28, 2014 and is set to ~~common stockholders~~expire on December 2, 2014. If all the conditions to the exchange offer are satisfied, we will exchange all of ~~$12.7 million~~our senior notes that are validly tendered and not withdrawn for the Exchange Notes.~~$11.9 million, respectively.~~

On October ~~29, 2013, our Board~~15, 2014, the Company entered into an agreement and plan of ~~Directors ("Board"~~merger ( the "Peter Piper Pizza Merger Agreement") ~~approved~~to acquire Peter Piper Pizza, a ~~13%~~ ~~increase~~leading pizza and entertainment restaurant chain operating in the ~~Company's quarterly cash dividend~~southwestern U.S. and ~~declared~~Mexico, for a ~~cash dividend of~~ ~~$0.27~~ ~~per share, which will be paid on~~ ~~December 27, 2013~~ ~~to stockholders of record on~~ ~~December 5, 2013~~.

~~Stock Repurchase Program~~

~~On April 30, 2013, the Board authorized a~~ ~~$100 million~~ ~~increase to our existing Board approved stock repurchase program.~~

~~During the~~ ~~nine months endedSeptember 29, 2013, we repurchased~~ ~~526,245~~ ~~shares of our common stock at an average price of~~ ~~$34.42~~ ~~per share for an aggregate~~ purchase price, including transaction costs, of ~~$18.1~~$117 million,~~. As~~ net of ~~September 29, 2013~~, ~~$128.9 million~~ ~~remained available for us to repurchase shares~~cash acquired. We completed the acquisition on October 16, 2014, which was funded with a portion of ~~our common stock in~~ the ~~future, under our stock repurchase program as most recently amended April 30, 2013.~~cash proceeds from the Sale Leaseback.

Our stock repurchase program does not have an expiration date, and the pace of our repurchase activity will depend on factors such as our working capital needs, our debt repayment obligations, the market price of our common stock and economic and market conditions. Our share repurchases may be performed from time to time through open market purchases, accelerated share repurchases or in privately negotiated transactions. Although there are no current plans to modify the implementation of our stock repurchase program, our Board may elect to accelerate, expand, suspend, delay or discontinue the program at any time.

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ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

As used in this report, the terms ~~“CEC~~"CEC Entertainment,~~” “Company,” “we,” “us”~~" the "Company," "we," "us" and ~~“our”~~"our" refer to CEC Entertainment, Inc. and its subsidiaries.

Management’s Discussion and Analysis of Financial Condition and Results of Operations (“("MD~~&A”~~&A") is intended to provide the readers of our Consolidated Financial Statements with a narrative from the perspective of our management on our consolidated financial condition, results of operations, liquidity and certain other factors that may affect our future results. Our MD&A should be read in conjunction with (i) our Consolidated Financial Statements and related notes included in Part I, Item 1. ~~“Financial Statements”~~"Financial Statements" of this ~~Quarterly~~Periodic Report ~~on Form 10-Q,~~ and (ii) Part II, Item 7. ~~“Management’s~~"Management’s Discussion and Analysis of Financial Condition and Results of ~~Operations”~~Operations" and Part II, Item 8. ~~“Financial~~"Financial Statements and Supplementary ~~Data”~~Data" in our Annual Report on Form 10-K for the fiscal year ended December ~~30, 2012~~29, 2013, filed with the ~~United States~~ Securities and Exchange Commission ~~(“SEC”~~(the "SEC") on February ~~21, 2013.~~12, 2014. Our MD&A includes the ~~following:~~following sub-sections:

Executive Summary;

Overview of Operations;

Results of Operations;

Financial Condition, Liquidity and Capital Resources;

Off-Balance Sheet Arrangements and Contractual Obligations;

Critical Accounting Policies and Estimates;

Recently Issued Accounting Guidance;

Presentation of Non-GAAP Measures; and

Cautionary Statement Regarding Forward-Looking Statements.

Executive Summary

~~Our Strategic Plan~~The Merger

~~As previously disclosed, we implemented~~On January 15, 2014, CEC Entertainment entered into an ~~updated strategic~~agreement and plan of merger (the "Merger Agreement") with Queso Holdings Inc., a Delaware corporation ("Parent"), and Q Merger Sub Inc., a Kansas corporation ("Merger Sub"). Parent and Merger Sub were controlled by Apollo Global Management, LLC ("Apollo") and its subsidiaries. Pursuant to the ~~primary objective~~Merger Agreement, on January 16, 2014, Merger Sub commenced a tender offer (the "Tender Offer") to purchase all of ~~increasing guest traffic~~the Company’s issued and ~~ultimately improving our sales~~outstanding shares of common stock at a price of $54.00 per share payable net to the seller in cash, without interest (the "Offer Price"). Approximately 68% of the outstanding shares were tendered in the Tender Offer, and ~~operating results. As part~~Merger Sub accepted all such tendered shares for payment. Following the expiration of ~~this plan, we implemented~~the Tender Offer on February 14, 2014, Merger Sub exercised its option under the Merger Agreement to purchase a number of ~~strategic changes over~~shares of common stock necessary for Merger Sub to own one share more than 90% of the ~~last twelve months.~~outstanding shares of common stock (the "Top-Up Shares") at the Offer Price. Following Merger Sub's purchase of the Top-Up Shares, on February 14, 2014, Merger Sub merged with and into CEC Entertainment with CEC Entertainment surviving the merger ( the "Merger") and becoming a wholly owned subsidiary of Parent. We ~~introduced~~refer to the Merger and the Tender Offer together as the "Acquisition." At the effective time of the Merger, each share of common stock issued and outstanding immediately prior thereto, other than common stock owned or held (a) in treasury by the Company or any wholly-owned subsidiary of the Company; (b) by Parent or any of its subsidiaries; or (c) by stockholders who validly exercised their appraisal rights, was cancelled and converted into the right to receive the Offer Price in cash, without interest and subject to applicable withholding tax. As a ~~new~~result of the Merger, the shares of CEC Entertainment common stock ceased to be traded on the New York Stock Exchange after close of market on February 14, 2014.

The aggregate consideration paid to acquire the Company was $1.4 billion, including the payoff of net debt of $362 million and ~~updated Chuck E. Cheese character, launched~~$63 million in transaction and debt issuance costs. The Acquisition was funded by (a) $350.0 million of equity contributions from investment funds directly or indirectly managed by Apollo (the "Apollo Funds"); (b) $248.5 million of borrowings under a ~~multi-faceted advertising campaign, launched~~bridge loan facility, which were later repaid using the proceeds from our ~~redesigned website, began implementing~~issuance of $255.0 million of senior notes; and ~~communicating our value proposition to our guests and began providing~~(c) $760.0 million of borrowings under a ~~significantly improved and targeted operational plan focused on enhancing the service level and experience for all guests.~~

Our value proposition includes changes in our pricing strategy to ensure that we continue to provide our guests with what we believe is a great value. Based on market research and testing, we changed our pricing structure during 2012, including reducing price points for our package deals, reducing pizza prices, decreasing the number of tokens included in various token packages, reducing discounts included in certain coupons and reducing the number of “token only” coupons.term loan facility. In addition, we also entered into a ~~standardized menu and pricing for domestic Company-owned stores~~$150.0 million revolving credit facility in connection with the Acquisition, but it was included on our redesigned website and in all of our stores by November 2012. We believe that these changes to our pricing strategy increase the attractiveness of our everyday menu offerings, while continuing to provide our guests with a great value proposition.

We continue to refine our strategic plan and are in the process of implementing several enhancements, including changes to our capital spending initiatives, the mix of our advertising spend and our methods for obtaining and measuring customer satisfaction. Beginning in the second quarter, we reduced the cost of game enhancements by utilizing more transferred games and rides, which will allow us to perform game enhancementsundrawn at ~~a store more frequently and for approximately half the cost.~~closing. See ~~further~~ discussion of ~~our capital spending initiatives in~~the bridge loan facility, senior notes, term loan facility and revolving credit facility under "Financial Condition, Liquidity and Capital ~~Resources - Capital Expenditures.~~Resources-Debt Financing." In the third and fourth quarters of 2013, we are reducing spend on our digital brand advertising and are using a portion of national television airtime for new birthday commercials in lieu of certain planned brand commercials. In the third quarter, we implemented a new guest survey tool that allows the guest to provide real-time, meaningful and actionable feedback to ensure our service is delivered in accordance with our operational plan. We continuously look for opportunities to improve overall communication with our guests through our television advertising and website. We are enhancing our communications around our value and entertainment offerings, including package deals, coupons, all games are one token and the Chuck E. Cheese live performances and ticket giveaway every hour. We believe these enhancements to our strategic plan will improve our sales and operating results.

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~~Third Quarter2013~~ ~~Overview:~~Stock Options in Parent

~~Net income~~ ~~decreased~~On August 21, 2014, Queso Holdings Inc. granted options to ~~$7.4 million~~,purchase 2,061,927 shares of its common stock to certain directors, officers, and employees of CEC Entertainment, Inc. The options are subject to certain service- and performance-based vesting criteria, and also to accelerated vesting in the event of certain terminations of employment upon or ~~$0.43~~ ~~per share,~~within 12 months following a change in control of Queso Holdings Inc.

Sale Leaseback Transaction

On August 25, 2014, we closed our sale leaseback transaction (the "Sale Leaseback") with National Retail Properties, Inc. ("NNN"). Pursuant to the Sale Leaseback, we sold 49 properties located throughout the United States to NNN, and we leased each of the 49 properties back from NNN pursuant to two separate master leases on a triple-net basis for their continued use as Chuck-E-Cheese’s family dining and entertainment centers. The leases have an initial term of 20 years, with four five-year options to renew. The aggregate purchase price for the ~~three months ended~~ ~~September 29, 2013~~ ~~compared to~~ ~~$7.8~~properties in connection with the Sale Leaseback was $183.7 million~~, or~~ ~~$0.45~~ ~~per share,~~ in cash, and the proceeds, net of taxes and transaction costs, realized by the Company were $141.7 million. A portion of the proceeds from the Sale Leaseback was used for the ~~three months ended~~ ~~September 30, 2012~~.acquisition below. We expect to use the remaining proceeds from the Sale Leaseback for capital expenditures, future liquidity needs and other general corporate purposes.

Acquisition of Peter Piper Pizza

On October 15, 2014, the Company entered into an agreement and plan of merger ( the "Peter Piper Pizza Merger Agreement") to acquire Peter Piper Pizza, a leading pizza and entertainment restaurant chain operating in the southwestern U.S. and Mexico, for a purchase price, including transaction costs, of $117 million, net of cash acquired. We completed the acquisition on October 16, 2014, which was funded with a portion of the cash proceeds from the Sale Leaseback.

Third Quarter 2014 Overview:

Total revenues ~~decreased$0.7~~increased $3.8 million,, or ~~0.4%~~1.9%, compared to the third quarter of ~~2012~~2013, primarily due to a ~~2.1%decrease~~ ~~in comparable store sales, partially offset by additional~~ revenues generated from ~~seven~~four net new stores (including the acquisition of one franchisee) opened since the end of the third quarter of ~~2012~~2013.

~~Company store operating costs~~ ~~increased~~10 ~~basis points, as a percentage of Company store sales, primarily due to an~~ 80 ~~basis point~~ ~~increase~~ ~~in labor costs and a~~ 60 ~~basis point~~ ~~increase~~ ~~in other store operating expenses, substantially~~, partially offset by a ~~120~~ ~~basis point~~0.2% decrease in ~~the cost of food, beverage, entertainment and merchandise.~~comparable store sales.

~~Other costs~~Adjusted Earnings Before Interest, Taxes, Depreciation and ~~expenses~~Amortization ("Adjusted EBITDA") was $44.5 million for the three months ended ~~increased$1.0 million, primarily due to a~~ ~~$0.6 millionincrease~~September 28, 2014 ~~in advertising costs~~compared to $38.9 million for the three months ended September 29, 2013. For our definition of Adjusted EBITDA and a ~~$0.6 millionincrease~~ ~~in general and administrative expenses, partially offset by a~~ ~~$0.3 milliondecrease~~ ~~in asset impairments.~~reconciliation of Net income (loss) to Adjusted EBITDA, see "Presentation of Non-GAAP Measures."

We recorded a net loss of $13.3 million for the three months ended September 28, 2014 compared to net income of $7.4 million for the three months ended September 29, 2013.

Cash provided by operations was ~~$31.1~~$59.8 million in for the ~~third quarter~~ of ~~2013~~nine months ended September 28, 2014 compared to ~~$39.4~~$123.8 million for the nine months ended September 29, 2013. The decrease of $64.0 million was primarily driven by transaction and severance costs and an increase in interest expense, all of which were incurred in connection with the ~~third quarter~~ of ~~2012, driven primarily by changes in our working capital.~~

~~During the~~ ~~third quarter~~ of ~~2013, we completed~~ 68 ~~capital initiatives consisting of~~ 58 ~~game enhancements,~~ ~~three~~ ~~major remodels,~~ ~~two~~ ~~store expansions and~~ ~~five~~ ~~new store openings, as well as began construction on~~ ~~four~~ ~~new stores.~~

~~During the~~ ~~third quarter~~ of ~~2013, we declared a cash dividend of~~ ~~$4.2 million, or~~ ~~$0.24~~ ~~per share.~~

Merger.

Overview of Operations

We currently operate and franchise family dining and entertainment centers under the name ~~“Chuck~~"Chuck E. ~~Cheese’s”~~Cheese’s" in 47 states and 1011 foreign countries and territories. ~~Additionally, we have development agreements focused on franchising our concept in~~ ~~four~~ ~~additional foreign countries.~~ Our stores ~~offer~~provide our guests with a variety of family entertainment and dining alternatives. Our family leisure offerings include video games, skill games, rides, musical and comical shows and other attractions along with tokens, tickets and prizes for kids. Our wholesome family dining ~~distinctive musical~~offerings are centered on made-to-order pizzas and ~~comic entertainment by computer-controlled robotic characters, family-oriented arcade-style~~a salad bar, as well as a variety of sandwiches, wings, appetizers, beverages and ~~skill-oriented games, video games, rides and other activities, which are intended to uniquely appeal to our primary customer base of~~desserts. We target families with children ~~between~~that are two ~~and~~through 12 years of age. ~~Our stores offer dining selections consisting~~

In order to present Management's Discussion and Analysis of Financial Condition and Results of Operations in a ~~variety~~way that offers meaningful period to period comparison, we have combined the results of ~~pizzas, sandwiches, wings, appetizers, a salad bar, beverages~~the Predecessor and ~~desserts.~~Successor periods to arrive at the nine month period ended September 28, 2014 and compared to the Predecessor nine months ended September 29, 2013; however, these combined results are considered non-GAAP financial measures.

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The following table summarizes information regarding the number of Company-owned and franchised stores for the periods presented:


	Three Months Ended				Nine Months Ended				Three Months Ended				Nine Months Ended
	September 29, 2013		September 30, 2012		September 29, 2013		September 30, 2012		September 28, 2014		September 29, 2013		September 28, 2014		September 29, 2013
Number of Company-owned stores:
Beginning of period	514		510		514		507		524		514		522		514
New⁽¹⁾	5		2		8		7		—		5		6		8
Acquired from franchisee	—		—		—		1		—		—		1		—
Closed⁽¹⁾	(1	)	(1	)	(4	)	(4	)	(2	)	(1	)	(7	)	(4	)
End of period	518		511		518		511		522		518		522		518
Number of franchised stores:
Beginning of period	53		50		51		49		54		53		55		51
New⁽²⁾	1		1		4		3		4		1		4		4
Acquired by the Company	—		—		—		(1	)	—		—		(1	)	—
Closed⁽²⁾	(1	)	—		(2	)	—		(1	)	(1	)	(1	)	(2	)
End of period	53		51		53		51		57		53		57		53

__________________

(1)

During the ~~three and~~ nine months endedSeptember ~~29, 2013~~,28, 2014, the number of new and closed Company-owned stores included ~~one~~ ~~store~~two stores that ~~was~~were relocated. During the three and nine months ended September ~~30, 2012~~,29, 2013, the number of new and closed Company-owned stores included one store that was relocated. ~~During the~~ ~~nine months endedSeptember 30, 2012, the number of new and closed Company-owned stores included~~ ~~three~~ ~~stores that were relocated.~~


~~(2)~~	~~During the~~ ~~nine months endedSeptember 29, 2013, the number of new and closed franchised stores included~~ ~~one~~ ~~store that was relocated.~~

We continue to focus on growing our concept both domestically and internationally. We currently expect to open a total of 1311 to 1413 new domestic Company-owned stores, including ~~one~~ ~~relocated store, in~~ ~~2013~~ ~~and a total of 12 to 15 new domestic Company-owned stores, including three~~two relocated stores and one ~~franchise~~ acquisition from a franchisee, in 2014. We ~~currently expect to close~~ ~~five~~have closed seven Company-owned stores, including two relocated stores, in ~~2013~~2014. We are also targeting franchising our concept internationally in certain countries located in Asia, Latin America, the Middle East and Eastern Europe. We currently expect our franchisees to open a total of ~~four~~eight to ~~five~~10 international franchise stores during ~~2013~~2014. ~~During the first~~ ~~nine months~~ of ~~2013, our international franchisees opened~~ ~~three~~ ~~new stores located one each in Panama, Peru and Saudi Arabia.~~

Comparable store sales. We define ~~comparable~~"comparable store ~~sales~~sales" as the percentage change in sales for our domestic Company-owned stores that have been open for more than 18 months as of the beginning of each respective fiscal year or acquired stores we have operated for at least 12 ~~months (our “comparable store sales”).~~months. Comparable store sales is a key performance indicator used within our industry and is a critical factor when evaluating our performance, as it is indicative of acceptance of our strategic initiatives and local economic and consumer trends.

Revenues. Our primary source of revenues is sales at our Company-owned stores (“("Company store ~~sales”~~sales"), which consist of the sale of food, beverages, game-play tokens and merchandise. A portion of our Company store sales are from sales of value-priced combination packages generally comprised of food, beverage and game tokens (“("Package ~~Deals”~~Deals"), which we promote through in-store menu pricing, our website and coupon offerings. We allocate the revenues recognized from the sale of our Package Deals and coupons between ~~“Food~~"Food and beverage ~~sales”~~sales" and ~~“Entertainment~~"Entertainment and merchandise ~~sales”~~sales" based upon the price charged for each component when it is sold separately, or in limited circumstances, our best estimate of selling price if a component is not sold on a stand-alone basis, which we believe approximates each component’s fair value.

Food and beverage sales include all revenues recognized with respect to stand-alone food and beverage sales, as well as the portion of revenues allocated from Package Deals and coupons that relate to food and beverage sales. Entertainment and merchandise sales include all revenues recognized with respect to stand-alone game token sales, as well as a portion of revenues allocated from Package Deals and coupons that relate to entertainment and merchandise.

Franchise fees and royalties are another source of revenues. We earn monthly royalties from our franchisees based on a percentage of each franchise store’s sales. We also receive development and initial franchise fees to establish new franchised stores, as well as earn revenues from the sale of equipment and other items or services to franchisees. We recognize development and franchise fees as revenues when the franchise store has opened and we have substantially completed our obligations to the franchisee relating to the opening of a store.

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Company store operating costs. Certain of our costs and expenses relate only to the operation of our Company-owned ~~stores~~stores. These costs and expenses are ~~as follows:~~listed and described below:

Cost of food and beverage includes all direct costs of food, beverages and costs of related paper and birthday supplies, less rebates from suppliers;

Cost of entertainment and merchandise includes all direct costs of prizes provided and merchandise sold to our customers, as well as the cost of tickets dispensed to customers;

Labor expenses consist of salaries and wages, bonuses, related payroll taxes and benefits for store personnel;

Depreciation and amortization includes expenses that are directly related to our Company-owned stores’ property and equipment, including leasehold improvements, game and ride equipment, furniture, fixtures and other equipment;

Rent expense includes lease costs for Company-owned stores, excluding common occupancy costs (e.g., common area maintenance ~~(“CAM”~~("CAM") charges and property taxes); and

Other store operating expenses primarily include utilities, repair and maintenance costs, liability and property insurance, CAM charges, property taxes, credit card processing fees, licenses, preopening expenses, store asset disposal gains and losses and all other costs directly related to the operation of a store.

The ~~“Cost~~"Cost of food and ~~beverage”~~beverage" and ~~“Cost~~"Cost of entertainment and ~~merchandise”~~merchandise" mentioned above exclude any allocation of (a) store employee payroll, related payroll taxes and benefit costs; (b) depreciation and amortization expense; (c) rent expense; and (d) other direct store operating expenses associated with the operation of our Company-owned stores. We believe that presenting store-level labor costs, depreciation and amortization expense, rent expense and other store operating expenses in the aggregate provides the most informative financial reporting presentation. Our rationale for excluding such costs is as follows:

our store employees are trained to sell and attend to both our dining and entertainment operations. We believe it would be difficult and potentially misleading to allocate labor costs between ~~“Food~~"Food and beverage ~~sales”~~sales" and ~~“Entertainment~~"Entertainment and merchandise ~~sales”~~sales"; and

while certain assets are individually dedicated to either our food service operations or game activities, we also have significant capital investments in shared depreciating assets, such as leasehold improvements, point-of-sale systems ~~computer-controlled robotic characters~~ and showroom fixtures. Therefore, we believe it would be difficult and potentially misleading to allocate depreciation and amortization expense or rent expense between ~~“Food~~"Food and beverage ~~sales”~~sales" and ~~“Entertainment~~"Entertainment and merchandise sales.”"

“"Cost of food and ~~beverage”~~beverage" and ~~“Cost~~"Cost of entertainment and ~~merchandise”~~merchandise", as a percentage of Company store sales, are influenced by both the cost of products, as well as the overall mix of our Package Deals and coupon offerings. ~~“Entertainment~~"Entertainment and merchandise ~~sales”~~sales" have higher margins than ~~“Food~~"Food and beverage sales.”"

Advertising expense. Advertising expense includes production costs for television commercials, newspaper inserts, ~~Internet~~internet advertising, coupons, media expenses for national and local advertising and consulting fees, partially offset by contributions from our franchisees.

General and administrative expenses. General and administrative expenses represent all costs associated with operating our corporate office, including regional and district management and corporate personnel payroll and benefits, depreciation and amortization of corporate assets, back-office support systems and other administrative costs not directly related to the operation of our Company-owned stores.

~~Asset impairments.~~Adjusted EBITDA. ~~Asset impairments represent non-cash charges for the estimated write down~~We define Adjusted EBITDA as earnings before interest, income taxes, depreciation and amortization adjusted to exclude unusual items and other adjustments required or write-off of the carrying amount of certain long-lived assets within our stores to their estimated fair value, which are incurred when a store’s operations are not expected to generate sufficient projected future cash flows to recover the current net book value of the long-lived assets within the store. We believe our assumptionspermitted in calculating covenant compliance under the ~~fair value~~indenture governing our senior notes and/or our Secured Credit Facilities (see discussion of our ~~long-lived assets are similar to those~~senior notes and Secured Credit Facilities under "Financial Condition, Liquidity and Capital Resources - Debt Financing"). Adjusted EBITDA is a measure used by management to evaluate our performance. Adjusted EBITDA provides additional information about certain trends, material non-cash items and unusual items that we do not expect to continue at the same level in the future, as well as other ~~marketplace participants.~~items.

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Seasonality and Variation in Quarterly Results

Our operating results fluctuate seasonally due to the timing of school vacations, holidays and changing weather conditions. As a result, we typically generate higher sales volumes during the first ~~and third quarters~~quarter of each fiscal year. School operating schedules, holidays and weather conditions may affect sales volumes in some operating regions differently than others. Because of the seasonality of our business, results for any quarter are not necessarily indicative of the results that may be achieved for the full fiscal year.

Fiscal year

We operate on a 52 or 53 week fiscal year that ends on the Sunday nearest to December 31. Each quarterly period has 13 weeks, except during a 53 week year when the fourth quarter has 14 weeks. Our ~~2013~~2014 and ~~2012~~2013 fiscal years each consist of 52 weeks.

Results of Operations

The following table summarizes our principal sources of Total Company store sales expressed in dollars and as a percentage of ~~total~~Total Company store sales for the periods presented:


																	Three Months Ended
	Three Months Ended								Nine Months Ended								September 28, 2014				September 29, 2013
	September 29, 2013				September 30, 2012				September 29, 2013				September 30, 2012				Successor				Predecessor
	(in thousands, except percentages)																(in thousands, except percentages)
Food and beverage sales	$	87,170	44.7	%	$	90,406	46.2	%	$	289,488	45.3	%	$	291,190	46.8	%	$	82,271	41.5	%	$	87,170	44.7	%
Entertainment and merchandise sales	107,629		55.3	%	105,223		53.8	%	349,957		54.7	%	331,021		53.2	%	115,885		58.5	%	107,629		55.3	%
Total Company store sales	$	194,799	100.0	%	$	195,629	100.0	%	$	639,445	100.0	%	$	622,211	100.0	%	$	198,156	100.0	%	$	194,799	100.0	%



	For the 226 Day Period Ended				For the 47 Day Period Ended				Nine Months Ended
	September 28, 2014				February 14, 2014				September 28, 2014				September 29, 2013
	Successor				Predecessor				Combined⁽¹⁾				Predecessor
	(in thousands, except percentages)
Food and beverage sales	$	224,197	42.8	%	$	50,897	44.8	%	$	275,094	43.1	%	$	289,488	45.3	%
Entertainment and merchandise sales	300,149		57.2	%	62,659		55.2	%	362,808		56.9	%	349,957		54.7	%
Total Company store sales	$	524,346	100.0	%	$	113,556	100.0	%	$	637,902	100.0	%	$	639,445	100.0	%

__________________

(1)

In order to present Management’s Discussion and Analysis of Financial Condition and Results of Operations in a way that offers a meaningful period to period comparison, we have combined the Predecessor and Successor periods to arrive at the nine months ended September 28, 2014 and compared to the Predecessor nine months ended September 29, 2013; however, these combined results are considered non-GAAP financial measures

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The following table summarizes our revenues and expenses expressed in dollars and as a percentage of ~~total~~Total revenues (except as otherwise noted) for the periods presented:


																	Three Months Ended
	Three Months Ended								Nine Months Ended								September 28, 2014					September 29, 2013
	September 29, 2013				September 30, 2012				September 29, 2013				September 30, 2012				Successor					Predecessor
	(in thousands, except percentages)																(in thousands, except percentages)
Total Company store sales	$	194,799	99.4	%	$	195,629	99.5	%	$	639,445	99.4	%	$	622,211	99.4	%	$	198,156		99.2	%	$	194,799	99.4	%
Franchise fees and royalties	1,107		0.6	%	921		0.5	%	3,708		0.6	%	3,512		0.6	%	1,533			0.8	%	1,107		0.6	%
Total revenues	195,906		100.0	%	196,550		100.0	%	643,153		100.0	%	625,723		100.0	%	199,689			100.0	%	195,906		100.0	%
Company store operating costs:
Cost of food and beverage⁽¹⁾	20,850		23.9	%	22,627		25.0	%	69,815		24.1	%	71,863		24.7	%	21,167			25.7	%	20,850		23.9	%
Cost of entertainment and merchandise⁽²⁾	6,976		6.5	%	7,703		7.3	%	23,256		6.6	%	23,848		7.2	%	6,669			5.8	%	6,976		6.5	%
Total cost of food, beverage, entertainment and merchandise⁽³⁾	27,826		14.3	%	30,330		15.5	%	93,071		14.6	%	95,711		15.4	%	27,836			14.0	%	27,826		14.3	%
Labor expenses⁽³⁾	56,469		29.0	%	55,139		28.2	%	174,409		27.3	%	170,192		27.4	%	57,086			28.8	%	56,469		29.0	%
Depreciation and amortization⁽³⁾	19,603		10.1	%	19,872		10.2	%	58,666		9.2	%	58,702		9.4	%	31,622			16.0	%	19,603		10.1	%
Rent expense⁽³⁾	19,672		10.1	%	19,526		10.0	%	58,648		9.2	%	57,441		9.2	%	22,587			11.4	%	19,672		10.1	%
Other store operating expenses⁽³⁾	34,401		17.7	%	33,501		17.1	%	98,775		15.4	%	95,767		15.4	%	35,123			17.7	%	34,401		17.7	%
Total Company store operating costs⁽³⁾	157,971		81.1	%	158,368		81.0	%	483,569		75.6	%	477,813		76.8	%	174,254			87.9	%	157,971		81.1	%
Other costs and expenses:
Advertising expense	10,644		5.4	%	9,966		5.1	%	32,960		5.1	%	26,947		4.3	%	10,114			5.1	%	10,644		5.4	%
General and administrative expenses	13,529		6.9	%	12,931		6.6	%	42,950		6.7	%	39,635		6.3	%	13,820			6.9	%	13,529		6.9	%
Transaction and severance costs																	5,742			2.9	%	—		—	%
Asset impairments	537		0.3	%	818		0.4	%	763		0.1	%	3,541		0.6	%	—			—	%	537		0.3	%
Total operating costs and expenses	182,681		93.2	%	182,083		92.6	%	560,242		87.1	%	547,936		87.6	%	203,930			102.1	%	182,681		93.2	%
Operating income	13,225		6.8	%	14,467		7.4	%	82,911		12.9	%	77,787		12.4	%
Operating income (loss)																	(4,241		)	(2.1	)%	13,225		6.8	%
Interest expense	1,278		0.7	%	2,031		1.0	%	5,509		0.9	%	6,085		1.0	%	15,974			8.0	%	1,278		0.7	%
Income before income taxes	$	11,947	6.1	%	$	12,436	6.3	%	$	77,402	12.0	%	$	71,702	11.5	%
Income (loss) before income taxes																	$	(20,215	)	(10.1	)%	$	11,947	6.1	%

__________________


(1)	Percent amount expressed as a percentage of Food and beverage sales.


(2)	Percent amount expressed as a percentage of Entertainment and merchandise sales.


(3)	Percent amount expressed as a percentage of Company store sales.

Due to rounding, percentages presented in the table above may not sum to total. The percentage amounts for the components of Cost of food and beverage and the Cost of entertainment and merchandise may not sum to total due to the fact that Cost of food and beverage and Cost of entertainment and merchandise are expressed as a percentage of related Food and beverage and Entertainment and merchandise sales, as opposed to Total Company store sales.

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The following table summarizes our revenues and expenses expressed in dollars and as a percentage of Total revenues (except as otherwise noted) for the periods presented:



	For the 226 Day Period Ended					For the 47 Day Period Ended				Nine Months Ended
	September 28, 2014					February 14, 2014				September 28, 2014					September 29, 2013
	Successor					Predecessor				Combined⁽⁴⁾					Predecessor
	(in thousands, except percentages)
Total Company store sales	$	524,346		99.3	%	$	113,556	99.4	%	$	637,902		99.3	%	$	639,445	99.4	%
Franchise fees and royalties	3,493			0.7	%	687		0.6	%	4,180			0.7	%	3,708		0.6	%
Total revenues	527,839			100.0	%	114,243		100.0	%	642,082			100.0	%	643,153		100.0	%
Company store operating costs:
Cost of food and beverage⁽¹⁾	57,250			25.5	%	12,285		24.1	%	69,535			25.3	%	69,815		24.1	%
Cost of entertainment and merchandise⁽²⁾	17,426			5.8	%	3,729		6.0	%	21,155			5.8	%	23,256		6.6	%
Total cost of food, beverage, entertainment and merchandise⁽³⁾	74,676			14.2	%	16,014		14.1	%	90,690			14.2	%	93,071		14.6	%
Labor expenses⁽³⁾	143,781			27.4	%	31,998		28.2	%	175,779			27.6	%	174,409		27.3	%
Depreciation and amortization⁽³⁾	84,141			16.0	%	9,733		8.6	%	93,874			14.7	%	58,666		9.2	%
Rent expense⁽³⁾	53,012			10.1	%	12,365		10.9	%	65,377			10.2	%	58,648		9.2	%
Other store operating expenses⁽³⁾	84,101			16.0	%	15,760		13.9	%	99,861			15.7	%	98,775		15.4	%
Total Company store operating costs⁽³⁾	439,711			83.9	%	85,870		75.6	%	525,581			82.4	%	483,569		75.6	%
Other costs and expenses:
Advertising expense	24,802			4.7	%	5,903		5.2	%	30,705			4.8	%	32,960		5.1	%
General and administrative expenses	32,576			6.2	%	7,963		7.0	%	40,539			6.3	%	42,950		6.7	%
Transaction and severance costs	43,263			8.2	%	11,634		10.2	%	54,897			8.5	%	—		—	%
Asset impairments	—			—	%	—		—	%	—			—	%	763		0.1	%
Total operating costs and expenses	540,352			102.4	%	111,370		97.5	%	651,722			101.5	%	560,242		87.1	%
Operating income (loss)	(12,513		)	(2.4	)%	2,873		2.5	%	(9,640		)	(1.5	)%	82,911		12.9	%
Interest expense	43,256			8.2	%	1,151		1.0	%	44,407			6.9	%	5,509		0.9	%
Income (loss) before income taxes	$	(55,769	)	(10.6	)%	$	1,722	1.5	%	$	(54,047	)	(8.4	)%	$	77,402	12.0	%

__________________


(1)	Percent amount expressed as a percentage of Food and beverage sales.


(2)	Percent amount expressed as a percentage of Entertainment and merchandise sales.


(3)	Percent amount expressed as a percentage of Company store sales.

(4)

Table of Contents

Three Months Ended September ~~29, 2013~~28, 2014 Compared to Three Months Ended September ~~30, 2012~~29, 2013

Revenues

Company store sales ~~decreased~~increased $~~0.8~~3.4 million, or ~~0.4%~~1.7%, to $198.2 million during the third quarter of 2014 compared to $194.8 million during the third quarter of 2013 ~~compared to~~ ~~$195.6 million~~ ~~during the same period in the prior year.~~. The ~~decrease~~increase ~~was~~in Company store sales is primarily due to a ~~2.1%decrease~~ ~~in comparable store sales, partially offset by~~ revenues generated from ~~seven~~four net new stores (including the acquisition of one franchisee) opened since the end of the third quarter of ~~2012~~2013, offset by a 0.2%decrease in comparable store sales.

Company Store Operating Costs

During the third quarter of 2014, the Cost of food, beverage, entertainment and merchandise, as a percentage of Company store sales, decreased 30 basis points to 14.0% as compared to 14.3% during the third quarter of 2013. We believe this decrease was attributable to a shift in revenue mix from food and beverage to entertainment and merchandise, partially offset by commodity cost inflation.

Labor expenses increased $0.6 million to $57.1 million during the third quarter of 2014 from $56.5 million during the third quarter of 2013. The increase is primarily due to increases in hours worked for new stores opened since the third quarter of 2013 and the hourly wage rate in several states.

Depreciation and amortization increased $12.0 million to $31.6 million during the third quarter of 2014 from $19.6 million during the third quarter of 2013 primarily due to an increase in the basis of our property, plant and equipment to fair value in accordance with the acquisition method of accounting as a result of the Merger.

Rent expense increased $2.9 million to $22.6 million during the third quarter of 2014 from $19.7 million during the third quarter of 2013. As a result of the acquisition method of accounting related to the Merger, non-cash rent expense net of landlord contributions increased $2.2 million when compared to same period of the prior year. The increase in rent expense also was due to a $0.7 million increase in cash rent from new store development and expansions of existing stores.

Advertising Expense

Advertising expense decreased $0.5 million to $10.1 million during the third quarter of 2014 from $10.6 million during the third quarter of 2013. The decrease is primarily related to a reduction in digital brand advertising spend and a decrease in television production costs as a result of the timing of new commercials, offset by an increase in national television advertising.

General and Administrative Expenses

General and administrative expenses increased$0.3 million to $13.8 million during the third quarter of 2014 from $13.5 million during the third quarter of 2013, primarily due to an increase in legal fees related to pending litigation, offset by a decrease in corporate compensation costs.

Transaction and Severance Costs

Transaction and severance costs increased $5.7 million in the third quarter of 2014 due to transaction costs associated with the Sale Leaseback.

Interest Expense

Interest expense increased $14.7 million to $16.0 million for the third quarter of 2014 from $1.3 million for the third quarter of 2013. Interest expense for the third quarter includes amortization of debt issuance costs related to our Secured Credit Facilities and senior notes, amortization of our term loan facility original issue discount, commitment and other fees related to our Secured Credit Facilities and interest related to the Sale Leaseback. The increase in our interest expense for the period was caused by an increase in our level of debt, which increased in 2014 as a result of debt issued to fund the Acquisition, as well as an increase in our weighted average effective interest rate. The weighted average effective interest rate under our Secured Credit Facilities and senior notes increased to 5.7% as of the third quarter of 2014 from 1.7% for the third quarter of 2013.

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Nine months ended September 28, 2014 Compared to Nine months ended September 29, 2013

Revenues

Company store sales decreased$1.5 million, or 0.2%, to $637.9 million in the first nine months of 2014 compared to $639.4 million in the first nine months of 2013. The decrease in Company store sales is primarily due to a 2.4%decrease in comparable store sales, ~~is primarily related to an approximate 11% decline in birthday party sales during~~offset by revenues generated from four net new stores (including the acquisition of one franchisee)opened since the end of the third quarter of 2013 as compared to the same period in the prior year, which have historically generated approximately 15% to 20% of comparable store sales. In addition, we believe our comparable stores sales have been impacted by overall political and economic uncertainties and increased competition from kids' movies.

~~Our Company store sales mix consisted of Food and beverage sales totaling~~ ~~44.7%~~ ~~and Entertainment and merchandise sales totaling~~ ~~55.3%~~ ~~during the~~ ~~third quarter~~ of ~~2013~~ ~~compared to~~ ~~46.2%~~ ~~and~~ ~~53.8%, respectively, during the~~ ~~third quarter~~ of ~~2012~~. We believe the shift in our sales mix is primarily due to: (a) repricing of certain components of our offerings; (b) changing the mix of items included in Packaged Deals and coupons; and (c) modification of our various token offers. These changes were part of our continuing effort to rebalance our menu pricing between food and games. We believe that the rebalancing of our menu pricing and our ongoing investments in our games continues to result in more of our guests’ average check being allocated to games.

Company Store Operating Costs

Overall, the Cost of food, beverage, entertainment and merchandise, as a percentage of Total Company store sales, decreased ~~120~~40 basis points to ~~14.3%~~14.2% in the ~~third quarter~~first nine months of ~~2013~~2014 compared to ~~15.5%~~14.6% in the ~~third quarter~~first nine months of ~~2012~~2013. We believe this decrease was attributable to ~~the changes in our pricing strategy that were fully implemented in the fourth quarter of 2012 and~~ our cost savings initiatives that were fully implemented in the second quarter of ~~2013.~~

~~Cost of food and beverage, as a percentage of Food and beverage sales,~~ ~~decreased110~~ ~~basis points to~~ ~~23.9%~~ ~~in the~~ ~~third quarter~~ of ~~2013~~ ~~from~~ ~~25.0%~~ ~~in the~~ ~~third quarter~~ of ~~2012. The percentage~~ ~~decrease~~ ~~primarily related to an approximate 20%~~ ~~reduction~~ ~~in dough usage as a result of our new thinner, more crispy pizza crust implemented in our stores in March~~ 2013, ~~and a~~ 40 ~~basis point~~ ~~decrease~~ ~~relating to changes in the product mix of paper and birthday supplies.~~

~~Cost of entertainment and merchandise, as a percentage of Entertainment and merchandise sales,~~ ~~decreased~~80 ~~basis points to~~ ~~6.5%~~ ~~in the~~ ~~third quarter~~ of ~~2013~~ ~~from to~~ ~~7.3%~~ ~~in the~~ ~~third quarter~~ of ~~2012. The Cost of entertainment and merchandise, as a percentage of Entertainment and merchandise sales, was favorably impacted~~partially offset by ~~the modification of our prize and merchandise categories, as well as the shift in the sales mix to entertainment and merchandise.~~commodity cost inflation.

Labor expenses ~~as a percentage of Company store sales,~~ increased80 ~~basis points~~ $1.4 million to ~~29.0%~~$175.8 million in the ~~third quarter~~first nine months of 2014 compared to $174.4 million in the first nine months of 2013 ~~compared to~~ ~~28.2%~~ ~~in the~~ ~~third quarter~~ of ~~2012~~. The increase was primarily related to an increase in ~~labor hours,~~health insurance costs during the ~~average hourly wage rate and higher performance bonuses,~~second quarter of 2014, partially offset by a decrease in ~~workers’ compensation costs during~~sales bonuses as a result of current sales performance.

Depreciation and amortization increased $35.2 million to $93.9 million in the ~~third quarter~~first nine months of 2014 compared to $58.7 million in the first nine months of 2013.

~~Other store operating costs, as a percentage of Company store sales,~~ ~~increased~~60 ~~basis points to~~ ~~17.7%~~ ~~in the~~ ~~third quarter~~ of ~~2013~~ ~~compared to~~ ~~17.1%~~ ~~in the~~ ~~third quarter~~ of ~~2012~~ primarily due to an increase in ~~self-insurance reserves associated~~the basis of our property, plant and equipment to fair value in accordance with ~~unfavorable development~~the acquisition method of ~~certain general liability claims and an~~accounting as a result of the Merger.

Rent expense increased $6.8 million to $65.4 million in the first nine months of 2014 compared to $58.6 million in the first nine months of 2013. As a result of the acquisition method of accounting related to the Merger, non-cash rent expense net of landlord contributions increased $4.3 million when compared to same period of the prior year. The increase in ~~preopening expenses~~rent expense also was due to ~~support~~a $2.4 million increase in cash rent from new store ~~development.~~development and expansions of existing stores.

Advertising Expense

Advertising expense ~~increased~~decreased $~~0.6~~2.3 million to $~~10.6~~30.7 million in the first nine months of 2014 from ~~third quarter~~$33.0 million in the first nine months of 2013 ~~from~~ ~~$10.0 million~~ ~~in the~~ ~~third quarter~~ of ~~2012, or, as a percentage of Total revenues,~~ ~~increased~~30 ~~basis points to~~ ~~5.4%~~ ~~in the~~ ~~third quarter~~ of ~~2013~~ ~~from~~ ~~5.1%~~ ~~in the~~ ~~third quarter~~ of ~~2012~~. The ~~increase~~decrease is primarily related to a reduction in digital brand advertising spend and a decrease in television production costs as a result of the timing of new commercials, partially offset by an increase in national television ~~advertising, partially offset by a reduction in production expenses.~~advertising.

General and Administrative Expenses

General and administrative expenses ~~increased$0.6~~decreased $2.5 million to ~~$13.5~~$40.5 million in the ~~third quarter~~first nine months of 2014 from $43.0 million in the first nine months of 2013 ~~from~~ ~~$12.9 million~~ ~~in the~~ ~~third quarter~~ of ~~2012~~, primarily due to ~~increases~~a decrease in ~~various~~ corporate ~~office overhead~~compensation costs, partially offset by ~~a decrease~~an increase in ~~management bonuses~~legal fees related to pending litigation.

Transaction and Severance Costs

Transaction and severance costs increased $54.9 million in the first nine months of 2014 due to transaction costs of $37.8 million related to the ~~current quarter's sales~~Merger and ~~profit performance.~~the Sale Leaseback, accelerated stock-based compensation costs of $11.1 million and employee termination benefits of $6.0 million related to the departure of our Chairman and Chief Executive Officer as a result of the Merger.

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~~Asset Impairments~~

~~During the~~ ~~third quarter~~ of ~~2013, we recognized an asset impairment charge of~~ ~~$0.5 million~~ ~~primarily related to~~ ~~one~~ ~~store, which was previously impaired. During the~~ ~~third quarter~~ of ~~2012, we recognized an asset impairment charge of~~ ~~$0.8 million~~ ~~for~~ ~~two~~ ~~stores, of which~~ ~~one~~ store was previously impaired. We continue to operate all of these impaired stores. For additional information about this impairment charge, refer to Note 2 “Asset Impairments” to our Consolidated Financial Statements included in Part I, Item 1. “Financial Statements.”

Interest Expense

Interest expense ~~decreased~~increased $~~0.7~~38.9 million to $~~1.3~~44.4 million in the first nine months of 2014 from ~~third quarter~~$5.5 million in the first nine months of 2013 ~~from~~ ~~$2.0 million~~. Interest expense for the first nine months includes debt issuance costs related to the bridge loan facility, amortization of debt issuance costs related to our Secured Credit Facilities and senior notes, amortization of our term loan facility original issue discount, commitment and other fees related to our Secured Credit Facilities and interest related to the Sale Leaseback. The increase in our interest expense for the ~~third quarter~~period was caused by an increase in our level of ~~2012~~debt which increased in 2014 as a result of debt issued to fund a portion of the ~~settlement~~Acquisition, as well as an increase in our weighted average effective interest rate. The weighted average effective interest rate for the first nine months of ~~specific uncertain tax positions.~~2014 was further impacted by $4.7 million of debt issuance costs related to borrowings under the bridge loan facility, which we used to fund a portion of the Acquisition and expensed in the first quarter. Our weighted average effective interest rate under our Secured Credit Facilities and senior notes, including the bridge loan facility, for the first nine months of 2014 was 6.1% compared to 1.7% for the first nine months of 2013. Excluding the bridge loan facility issuance costs, our weighted average effective rate would have been 5.7% for the 226 day period ended September 28, 2014.

Income Taxes

~~Our~~We recorded an effective income tax rate ~~increased~~ to ~~37.7%~~of 27.4% for the ~~third quarter~~ of ~~2013~~nine months ended September 28, 2014 compared to ~~37.3%~~an effective income tax rate of 38.1% for the ~~third quarter~~ of ~~2012~~.nine months ended September 29, 2013. The ~~increase~~change in our effective income tax rate was primarily due to an increase in liabilities for uncertain tax positions, net of decreases resulting from favorable audit settlements, and an increase in tax expense resulting from a law enacted during the current quarter that repealed the former California Enterprise Zone credit program and set a limit on the credit carryforward period.

~~Diluted Earnings Per Share~~

~~Diluted earnings per share~~ ~~decreased~~ ~~$0.02, or~~ ~~4.4%, to~~ ~~$0.43~~ ~~per share in the~~ ~~third quarter~~ of ~~2013~~ ~~from~~ ~~$0.45~~ ~~per share in the~~ ~~third quarter~~ of ~~2012~~ ~~primarily due to the~~ ~~decrease~~ ~~in net income.~~

~~Nine Months EndedSeptember 29, 2013~~ ~~Compared to~~ ~~Nine Months EndedSeptember 30, 2012~~

~~Revenues~~

~~Company store sales~~ ~~increased$17.2 million, or~~ ~~2.8%, to~~ ~~$639.4 million~~ ~~in the first~~ ~~nine months~~ of ~~2013~~ ~~compared to~~ ~~$622.2 million~~ ~~in the first~~ ~~nine months~~ of ~~2012. The~~ ~~increase~~ ~~in Company store sales is primarily due to a~~ ~~0.8%increase~~ ~~in comparable store sales, as well as revenues generated from~~ ~~seven~~ ~~net new stores opened since the end of the~~ ~~third quarter~~ of ~~2012. Comparable store sales were favorably impacted~~caused by record warm weather in the Midwest and Northeast in March 2012, which negatively impacted our prior year results. We also believe the first nine months of 2013 benefited from certain components of our strategy; however, this benefit was partially offset by an approximate 7% decline in birthday party sales during this same period, which have historically generated 15% to 20% of comparable store sales. In addition, we believe our comparable store sales have been impacted by overall political and economic uncertainties.

~~Our Company store sales mix consisted of Food and beverage sales totaling~~ ~~45.3%~~ ~~and Entertainment and merchandise sales totaling~~ ~~54.7%~~ ~~for the first~~ ~~nine months~~ of ~~2013~~ ~~compared to~~ ~~46.8%~~ ~~and~~ ~~53.2%, respectively, for the first~~ ~~nine months~~ of ~~2012~~. We believe the shift in our sales mix is primarily due to: (a) repricing of certain components of our offerings; (b) changing the mix of items included in Packaged Deals and coupons; and (c) modification of our various token offers. These changes were part of our continuing effort to rebalance our menu pricing between food and games. We believe that the rebalancing of our menu pricing and our ongoing investments in our games continues to result in more of our guests’ average check being allocated to games.

~~Company Store Operating Costs~~

~~For the first~~ ~~nine months~~ of ~~2013, the Cost of food, beverage, entertainment and merchandise, as a percentage of Company store sales,~~ ~~decreased~~80 ~~basis points to~~ ~~14.6%~~ ~~as compared to~~ ~~15.4%~~ ~~in the first~~ ~~nine months~~ of ~~2012. We believe this~~ ~~decrease~~ was partially attributable to the changes in our pricing strategy that were fully implemented in the fourth quarter of 2012 and our cost savings initiatives that were fully implemented in the second quarter of 2013.

~~Cost of food and beverage, as a percentage of Food and beverage sales,~~ ~~decreased~~60 ~~basis points to~~ ~~24.1%~~ ~~in the first~~ ~~nine months~~ of ~~2013~~ ~~compared to~~ ~~24.7%~~ ~~in the first~~ ~~nine months~~ of ~~2012. The percentage~~ ~~decrease~~ ~~primarily related to an approximate 15%~~ ~~reduction~~ ~~in dough usage as a result of our new thinner, more crispy pizza crust implemented in stores in March 2013 and a~~ 30 ~~basis point~~ ~~decrease~~ ~~relating to changes in the product mix of paper and birthday supplies, partially offset by an~~ ~~increase~~ of ~~$0.12, or~~ ~~7.5%, in the average cost per pound of cheese.~~

~~Table of Contents~~

~~Cost of entertainment and merchandise, as a percentage of Entertainment and merchandise sales,~~ ~~decreased~~60 ~~basis points to~~ ~~6.6%~~ ~~in the first~~ ~~nine months~~ of ~~2013~~ ~~compared to~~ ~~7.2%~~ ~~in the first~~ ~~nine months~~ of ~~2012~~. The Cost of entertainment and merchandise, as a percentage of Entertainment and merchandise sales, was favorably impacted by the modification of our prize and merchandise categories, as well as the shift in the sales mix to entertainment and merchandise.

~~Labor expenses, as a percentage of Company store sales,~~ ~~decreased~~10 ~~basis points to~~ ~~27.3%~~ ~~in the first~~ ~~nine months~~ of ~~2013~~ ~~compared to~~ ~~27.4%~~ ~~in the first~~ ~~nine months~~ of ~~2012, as our~~ ~~increase~~ ~~in labor~~nondeductible transaction costs ~~was outpaced by our~~ ~~increase~~ ~~in sales. In addition, we experienced a decrease in workers’ compensation and health insurance costs during the first~~ ~~nine months~~ of ~~2013. These benefits were partially offset by an increase in sales and performance bonuses due to improved results.~~

~~Advertising Expense~~

~~Advertising expense~~ ~~increased$6.1 million~~ to ~~$33.0 million~~ ~~in the first~~ ~~nine months~~ of ~~2013~~ ~~from~~ ~~$26.9 million~~ ~~in the first~~ ~~nine months~~ of ~~2012, or, as a percentage of Total revenues,~~ ~~increased~~80 ~~basis points to~~ ~~5.1%~~ ~~in the first~~ ~~nine months~~ of ~~2013~~ ~~from~~ ~~4.3%~~ ~~in the first~~ ~~nine months~~ of ~~2012. In accordance with our updated strategic plan, we increased our advertising expenditures for national television advertising and our digital advertising campaign in~~ ~~2013~~.

~~General and Administrative Expenses~~

~~General and administrative expenses~~ ~~increased$3.4 million~~ to ~~$43.0 million~~ ~~in the first~~ ~~nine months~~ of ~~2013~~ ~~from~~ ~~$39.6 million~~ ~~in the first~~ ~~nine months~~ of ~~2012, primarily due to an increase in management bonuses as a result of improved sales and profit performance and higher corporate overhead costs, including professional fees, partially~~ related to the ~~modernization of various information technology platforms. These increases were partially offset by a gain on the sale of a property in the second quarter of 2013.~~

~~Asset Impairments~~

~~During the first~~ ~~nine months~~ of ~~2013, we recognized an asset impairment charge of~~ ~~$0.8 million~~ ~~primarily related to~~ ~~two~~ ~~stores, of which~~ ~~one~~ ~~store was previously impaired. During the first~~ ~~nine months~~ of ~~2012, we recognized an asset impairment charge of~~ ~~$3.5 million~~ ~~for~~ ~~twelve~~ ~~stores, of which~~ ~~seven~~ ~~stores were previously impaired. We continue to operate all but~~ ~~one~~ of these impaired stores. For additional information about this impairment charge, refer to Note 2 “Asset Impairments” to our Consolidated Financial Statements included in Part I, Item 1. “Financial Statements.”

~~Income Taxes~~

~~Our effective income tax rate~~ ~~decreased~~ to ~~38.1%~~ ~~for the first~~ ~~nine months~~ of ~~2013~~ ~~compared to~~ ~~38.4%~~ ~~for the first~~ ~~nine months~~ of ~~2012. The~~ ~~decrease~~ in our effective income tax rate was primarily due to an increase in federal Work Opportunity Tax Credits relating to our 2012 and 2013 fiscal years. The increase in credits related to our 2012 fiscal tax year was accounted for in the first quarter of 2013 due to the retroactive reinstatement of certain aspects of the federal credit program enacted January 2, 2013. The decrease in the effective tax rate was partially offset by an increase in liabilities for uncertain tax positions, net of decreases resulting from favorable audit settlements, and an increase in tax expense resulting from a law enacted during the current quarter that repealed the former California Enterprise Zone credit program and set a limit on the credit carryforward period.

~~Diluted Earnings Per Share~~

~~Diluted earnings per share~~ ~~increased~~ ~~$0.28, or~~ ~~11.2%, to~~ ~~$2.78~~ ~~per share in the first~~ ~~nine months~~ of ~~2013~~ ~~from~~ ~~$2.50~~ ~~per share in the first~~ ~~nine months~~ of ~~2012, primarily due to the~~ ~~increase~~ ~~in net income and a~~ ~~2.3%decrease~~ ~~in the number of weighted average diluted shares outstanding between the two periods. The~~ ~~decrease~~ ~~in weighted average diluted shares outstanding between the two periods was impacted by our repurchase of~~ ~~0.9 million~~ ~~shares of our common stock since the beginning of the first quarter of~~ ~~2012~~ ~~through the end of the~~ ~~third quarter~~ of ~~2013. During the first~~ ~~nine months~~ of ~~2013, we repurchased~~ ~~526,245~~ ~~shares of our common stock. We estimate that the~~ ~~decrease~~ ~~in the number of weighted average diluted shares outstanding between the two periods attributable solely to stock repurchases benefited our earnings per share in the first~~ ~~nine months~~ of ~~2013~~ by ~~$0.07. Our estimate is based on the weighted average number of shares repurchased since the beginning of the first quarter of~~ ~~2012~~ and includes consideration of the estimated additional interest expense attributable to increased borrowings under our revolving credit facility to finance the repurchases. Our computation does not include the effect of share repurchases prior to the ~~2012~~ ~~fiscal year or the effect of the issuance of restricted stock subsequent to the beginning of the~~ ~~2012~~ ~~fiscal year.~~Merger.

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Financial Condition, Liquidity and Capital Resources

Overview of Liquidity

We finance our business activities through cash flows provided by our ~~operations and, as necessary, from borrowings under our revolving credit facility.~~operations.

The primary components of working capital are as follows:

our store customers pay for their purchases in cash or credit cards at the time of the sale and the cash from these sales is typically received before our related accounts payable to suppliers and employee payroll becomes due;

frequent inventory turnover results in a limited investment required in inventories; and

our accounts payable are generally due within five to 30 days.

~~As a result of these factors, our requirement for working capital is not significant, and we are able to operate with a net working capital deficit (current liabilities in excess of current assets).~~

~~The following tables present summarized consolidated financial information that we believe is helpful in evaluating our liquidity and capital resources:~~

Nine Months Ended
September 29,
2013 September 30,
2012
(in thousands)
Net cash provided by operating activities $ 123,755
$ 119,240
Net cash used in investing activities (51,508 ) (75,357 )
Net cash used in financing activities (70,196 ) (43,982 )
Effect of foreign exchange rate changes on cash (303 ) 119
Change in cash and cash equivalents $ 1,748
$ 20
Interest paid $ 5,713
$ 6,398
Income taxes paid, net $ 25,616
$ 24,812

September 29,
2013 December 30,
2012
(in thousands)
Cash and cash equivalents $ 21,384
$ 19,636
Revolving credit facility borrowings $ 348,500
$ 389,500
Available unused commitments under revolving credit facility $ 140,600
$ 100,100

Funds generated by our operating activities and available cash and cash equivalents ~~and, as necessary, borrowings from our revolving credit facility~~ continue to be our primary sources of liquidity. We believe funds generated from our expected results of operations and available cash and cash equivalents will be sufficient to finance our strategic plan and capital initiatives for the next twelve months. Our revolving credit facility is also available for additional working capital needs and investment opportunities. However, in the event of a material decline in our sales trends or operating margins, there can be no assurance that we will generate sufficient cash flows at or above our current levels. ~~Although we are in compliance with the debt covenants associated with our revolving credit facility, our~~Our ability to access our revolving credit facility is subject to our ~~continued~~ compliance with the terms and conditions of the credit agreement governing such facility, ~~agreement,~~ including our compliance with certain prescribed ~~financial ratio~~ covenants, as more fully described below.

Our primary uses for cash provided by operating activities relate to funding our ongoing business activities, planned capital expenditures and servicing our debt. ~~We may also use~~

Total cash ~~from operations~~requirements of the Merger of approximately $1.4 billion were used to ~~pay cash dividends~~(a) purchase common stock and unvested restricted shares issued to our ~~stockholders~~employees and non-employee directors; (b) repay and terminate the Predecessor's revolving credit facility (the "Predecessor Facility"); and (c) pay certain fees, transaction costs and expenses related to ~~repurchase shares~~the Merger. These financing requirements were funded by (a) $350.0 million of ~~our common stock.~~

~~Table~~equity contributions from the Apollo Funds; (b) $248.5 million of ~~Contents~~

borrowings under a new bridge loan facility, which were later repaid using the~~Our cash and cash equivalents totaled~~ ~~$21.4 million~~ ~~and~~ ~~$19.6 million~~ ~~as of~~ ~~September 29, 2013~~ ~~and~~ ~~December 30, 2012, respectively. Cash and cash equivalents as of~~ ~~September 29, 2013~~ ~~and~~ ~~December 30, 2012~~ ~~includes~~ ~~$8.8 million~~ ~~and~~ ~~$7.8 million, respectively, of undistributed income~~proceeds from our ~~Canadian subsidiary that~~issuance of $255.0 million of senior notes; and (c) $760.0 million of borrowings under a term loan facility. In addition, we ~~consider to be permanently invested.~~

~~Our strategic plan does not require that we enter~~also entered into ~~any material development or contractual purchase obligations. Therefore, we have the flexibility necessary to manage our liquidity by promptly deferring or curtailing any planned capital spending. In~~ ~~2013, our planned capital spending includes new store development, existing store improvements, improvements to our various information technologies platforms and other capital initiatives.~~

~~Sources and Uses of Cash~~

~~Net cash provided by operating activities~~ ~~increased~~ by ~~$4.6~~a $150.0 million to ~~$123.8 million~~ ~~in the first~~ ~~nine months~~ of ~~2013~~ ~~from~~ ~~$119.2 million~~ ~~in the first~~ ~~nine months~~ of ~~2012. The~~ ~~increase~~ ~~was primarily attributable to changes in working capital and the~~ ~~increase~~ ~~in net income.~~

~~Net cash used in investing activities~~ ~~decreased$23.9 million~~ to ~~$51.5 million~~ ~~in the first~~ ~~nine months~~ of ~~2013~~ ~~from~~ ~~$75.4 million~~ ~~in the first~~ ~~nine months~~ of ~~2012, primarily due to a reduction in the number of store expansions and other capital initiatives completed, as well as recognizing cash proceeds from the sale of a property.~~

~~Net cash used in financing activities~~ ~~increased$26.2 million~~ to ~~$70.2 million~~ ~~in the first~~ ~~nine months~~ of ~~2013~~ ~~from~~ ~~$44.0 million~~ ~~in the first~~ ~~nine months~~ of ~~2012. The~~ ~~increase~~ ~~primarily related to increases in repayments on our~~ revolving credit ~~facility.~~facility in connection with the Acquisition, but it was undrawn at closing.

Debt Financing

Predecessor Facility

In connection with the Merger on February 14, 2014, we repaid the total outstanding borrowings of $348.0 million under the Predecessor Facility, as well as all incurred and unpaid interest on our Predecessor Facility. The debt issuance costs related to the Predecessor Facility were removed from our Consolidated Balance Sheet through acquisition accounting.

Secured Credit Facilities

~~We maintain~~In connection with the Merger, on February 14, 2014, we entered into new senior secured credit facilities ("Secured Credit Facilities"), which include a ~~$500.0~~$760.0 million term loan facility with a maturity date of February 14, 2021 (the "term loan facility") and a $150.0 million senior secured revolving credit facility ~~under a credit agreement dated October 28, 2011,~~ with a ~~syndicate~~maturity date of ~~lenders. The revolving~~February 14, 2019, which includes a letter of credit ~~facility is~~sub-facility and a ~~senior unsecured~~$30.0 million swingline loan sub-facility (the "revolving credit ~~commitment, which matures in October 2016. The revolving credit facility includes an accordion feature allowing us, subject to meeting certain conditions and lender approval, to request an increase to~~facility"). Upon the ~~revolving commitment~~consummation of ~~up to~~ ~~$200.0 million~~ inthe Acquisition, we had no borrowings ~~at any time. Based on the type of borrowing,~~outstanding under the revolving credit facility ~~bears interest at the one month London Interbank Offered Rate (“LIBOR”) plus an applicable margin of~~ ~~0.875%~~ to ~~1.625%, determined based on our financial performance and debt levels, or alternatively, the highest of (a) the Prime Rate; (b) the Federal Funds rate plus~~ ~~0.50%; or (c) one-month LIBOR plus~~ ~~1.0%; plus an applicable margin of up to~~ ~~0.625%, determined based on our financial performance and debt levels. During the first~~ ~~nine months~~ of ~~2013, the Prime Rate was~~ ~~3.25%~~ ~~and the one-month LIBOR rate ranged from~~ ~~0.18%~~ to ~~0.24%. The revolving credit facility also requires us to pay a quarterly commitment fee ranging from~~ ~~0.15%~~ to ~~0.30%~~, depending on our financial performance and debt levels, on any unused portions of our revolving credit facility. All borrowings under our revolving credit facility are unsecured, but we agreed not to pledge any of our existing assets to secure any other future indebtedness. We have the unrestricted ability to pay dividends and repurchase shares of our common stock under our revolving credit facility, provided that our consolidated leverage ratio, as defined in the revolving credit facility, does not exceed ~~2.75~~ ~~to 1.0 on a proforma basis, for the four fiscal quarters then most recently ended, immediately after giving effect to such payments or repurchases.~~

~~As of~~ ~~September 29, 2013, we had~~ ~~$348.5 million~~ ~~of borrowings outstanding~~ and $~~10.9~~11.1 million of letters of credit issued but undrawn under the facility. As of September 28, 2014, we had no borrowings outstanding under the revolving credit facility and $10.9 million of letters of credit issued but undrawn under the facility.

In addition, we may request one or more incremental term loan facilities and/or increase commitments under our revolving credit facility in an aggregate amount of up to the sum of (x) $200.0 million plus (y) such additional amount as long as, (i) in the case of loans under additional credit facilities that rank equally and without preference with the liens on the collateral securing the Secured Credit Facilities, our consolidated net first lien senior secured leverage ratio would be no greater than 4.25 to 1.00 and (ii) in the case of loans under additional credit facilities that rank junior to the liens on the collateral securing the Secured Credit Facilities, our consolidated total net secured leverage ratio would be no greater than 5.25 to 1.00, subject to certain conditions and receipt of commitments by existing or additional lenders.

All borrowings under our revolving credit facility are subject to the satisfaction of customary conditions, including the absence of a default and the accuracy of representations and warranties.

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We received proceeds on the term loan facility of $756.2 million, net of original issue discount of $3.8 million, which were used to fund a portion of the Acquisition. We paid $17.8 million and $3.4 million in debt issuance costs related to the term loan facility and revolving credit facility, respectively, which we capitalized in "Deferred financing costs, net" 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. The initial applicable margin for borrowings 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 based on our first lien senior secured leverage ratio, and the applicable margin for borrowings under the revolving credit facility is subject to two step-downs based on our first lien senior secured leverage ratio. During the 226 day period ended September 28, 2014, the federal funds rate ranged from 0.06% to 0.10%, the prime rate was 3.25% and the one-month LIBOR ranged from 0.15% to 0.16%.

In addition to paying interest on outstanding principal under the Secured Credit Facilities, we are required to pay a

commitment fee equal to 0.50% per annum to the lenders under the revolving credit facility in respect of the unutilized

commitments thereunder. The applicable commitment fee under the revolving credit facility is subject to one step-down based

on our first lien senior secured leverage ratio. We are also required to pay customary agency fees, as well as letter of credit

participation fees computed at a rate per annum equal to the applicable margin for LIBOR rate borrowings on the dollar

equivalent of the daily stated amount of outstanding letters of credit, plus such letter of credit issuer’s customary documentary

and processing fees and charges and a fronting fee computed at a rate equal to 0.125% per annum on the daily stated amount of

each letter of credit.

During the quarter ended September 28, 2014, we achieved a first lien senior secured leverage ratio of less than 3.25 to 1.00, and as a result, the applicable margin under the term loan facility will step down from 3.25% to 3.00% with respect to LIBOR borrowings and step down from 2.25% to 2.00% with respect to base rate borrowings, and the commitment fee’s applicable margin in relation to our revolving credit facility which we currently have unutilized (with the exception of our outstanding letters of credit issued but undrawn) will step down from 0.50% to 0.375%. These step-downs will take effect the middle of November 2014.

The weighted average effective interest rate incurred on our borrowings under our ~~credit facilities~~Secured Credit Facilities was ~~1.7%~~4.8% for the 226 day period ended September 28, 2014, 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. The weighted average effective interest rate incurred on our borrowings under our Predecessor Facility for the 47 day period ended February 14, 2014, the three and nine months ended September 29, 2013. were 1.6%, 1.7%, and 1.7%, respectively.

Our revolving credit facility ~~contains~~includes a ~~number of covenants~~springing financial maintenance covenant that ~~among other things, require us~~requires our net first lien senior secured leverage ratio not to ~~comply with the following financial ratios as of the end of any fiscal quarter:~~

~~a consolidated fixed charge coverage~~exceed 6.25 to 1.00 (the ratio of ~~not less than~~ ~~1.5~~consolidated net debt secured by first-priority liens on the collateral to 1.0, based upon the ratio of (a) consolidated earnings before interest, income taxes and rents (“EBITR”) for the last four fiscal quarters to (b) the sum of consolidated interest charges plus consolidated rent expense during such period. Consolidated EBITR, as defined in the revolving credit facility, equals net income plus consolidated interest charges, income taxes, stock-based compensation expense, rent expense and other non-cash charges, reduced by non-cash income.

~~a consolidated leverage ratio of not greater than~~ ~~3.0~~ to 1.0, based upon the ratio of (a) the quarter-end consolidated funded indebtedness (as defined in the revolving credit facility) to (b) consolidated earnings before interest, income taxes and depreciation and amortization (“EBITDA”) for the last four fiscal quarters. Consolidated EBITDA, as defined in the Senior Credit Facilities). The covenant will be tested quarterly when the revolving credit facility ~~equals our consolidated EBITR adjusted~~is more than 30% drawn (excluding outstanding letters of credit) and will be a condition to ~~exclude~~drawings under the ~~non-cash portion~~revolving credit facility that would result in more than 30% drawn thereunder. As of ~~rent expense plus depreciation and amortization.~~

September 28, 2014, the borrowings under the revolving credit facility were less than 30% of the outstanding commitments; therefore, the covenant was not in effect.

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~~Our revolving credit~~The Secured Credit Facilities also contain customary affirmative covenants and events of default, and the negative

covenants limit our ability to, among other things: incur additional debt or issue certain preferred shares; create liens on certain

assets; make certain loans or investments (including acquisitions); pay dividends on or make distributions in respect of our

capital stock or make other restricted payments; consolidate, merge, sell or otherwise dispose of all or substantially all of our

assets; sell assets; enter into certain transactions with our affiliates; enter into sale-leaseback transactions; change our lines of

business; restrict dividends from our subsidiaries or restrict liens; change our fiscal year; and modify the terms of certain debt

or organizational agreements.

All obligations under the Secured Credit Facilities are unconditionally guaranteed by Parent on a limited-recourse basis and each of our existing and future direct and indirect material, wholly-owned domestic subsidiaries, subject to certain exceptions. The obligations are secured by a pledge of our capital stock and substantially all of our assets and those of each subsidiary guarantor, including capital stock of the subsidiary guarantors and 65% of the capital stock of the first-tier foreign subsidiaries that are not subsidiary guarantors, in each case subject to exceptions. Such security interests will consist of a first-priority lien with respect to the collateral.

Senior Unsecured Debt

Also in connection with the Merger on February 14, 2014, we borrowed $248.5 million under a bridge loan facility is(the "bridge loan facility") and used the ~~primary source~~proceeds to fund a portion of ~~committed funding from~~the Acquisition. We incurred $4.7 million of financing costs and $0.2 million of interest related to the bridge loan facility, which are included in "Interest expense" in our Consolidated Statements of Earnings for the 226 day period ended 226 day period ended.

On February 19, 2014, we issued $255.0 million aggregate principal amount of 8.000% Senior Notes due 2022 (the "senior notes") in a private offering. The senior notes bear interest at a rate of 8.000% per year and mature on February 15, 2022. 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 40.0% 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 108.0% of the principal amount thereof, plus accrued and unpaid interest, or (ii) some or all of the notes at a price equal to 100% of the principal amount thereof, plus accrued and unpaid interest, plus the applicable "make-whole" premium set forth in the indenture.

We paid $6.4 million in debt issuance costs related to the senior notes, which we ~~finance~~capitalized in "Deferred financing costs, net" on our ~~planned~~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.

The indenture contains restrictive covenants that limit our ability to, among other things: incur additional debtor 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 ~~expenditures, repurchase~~stock or make other restricted payments; consolidate, merge, sell or otherwise dispose of all or substantially all of our ~~common stock~~assets; sell assets; enter into certain transactions with our affiliates; and ~~provide~~restrict dividends from our subsidiaries.

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Sources and Uses of Cash

The following table presents summarized consolidated cash flow information for ~~working capital needs. Non-compliance~~the periods presented:



	For the 226 Day Period Ended			For the 47 Day Period Ended			Nine Months Ended
	September 28, 2014			February 14, 2014			September 28, 2014			September 29, 2013
	Successor			Predecessor			Combined			Predecessor
	(in thousands)
Net cash provided by operating activities	$	37,462		$	22,314		$	59,776		$	123,755
Net cash used in investing activities	(986,943		)	(9,659		)	(996,602		)	(51,508		)
Net cash provided by (used in) financing activities	1,171,359			(13,844		)	1,157,515			(70,196		)
Effect of foreign exchange rate changes on cash	(77		)	(313		)	(390		)	(303		)
Change in cash and cash equivalents	$	221,801		$	(1,502	)	$	220,299		$	1,748
Interest paid	$	29,914		$	938		$	30,852		$	5,713
Income taxes paid (refunded), net	$	22,777		$	(79	)	$	22,698		$	25,616

Net cash provided by operating activities decreased by $64.0 million to $59.8 million in the first nine months of 2014 from $123.8 million in the first nine months of 2013. The decrease was primarily driven by transaction and severance costs and an increase in interest expense, all of which were incurred in connection with the ~~financial covenant ratios could prevent us from being able~~Merger.

Net cash used in investing activities increased to ~~access further borrowings under our revolving credit facility, require us to immediately repay all amounts outstanding under~~$996.6 million in the ~~revolving credit facility and increase our cost of borrowing. As~~first nine months of ~~September 29,~~ 2014 from $51.5 million in the first nine months of 2013, ~~we were~~primarily due to the $946.9 million paid as part of the Acquisition.

Net cash provided by (used in) financing activities increased to $1.2 billion in ~~compliance with these covenant ratios, with a consolidated fixed charge coverage ratio~~the first nine months of ~~2.04~~2014 ~~to 1.0 and a consolidated leverage ratio~~from $(70.2) million in the first nine months of ~~2.15~~2013. The increase primarily related to ~~1.0,~~proceeds from the issuance of debt in connection with Parent's acquisition of the Company, the Apollo Funds' equity contribution of $350 million and ~~we expect to remain in compliance for~~proceeds from the ~~next twelve months.~~Sale Leaseback, partially offset by the repayment of the Predecessor Facility.

~~Cash Dividends~~The following table presents summarized consolidated financial information that we believe is helpful in evaluating our liquidity and capital resources:



	September 28, 2014		December 29, 2013
	Successor		Predecessor
	(in thousands)
Cash and cash equivalents	$	240,985	$	20,686
Term loan facility, net of unamortized original issue discount	$	754,637	$	—
Senior notes	$	255,000	$	—
Predecessor Facility	$	—	$	361,500
Available unused commitments under revolving credit facility	$	139,100	$	127,600

~~During the~~Our cash and cash equivalents totaled ~~nine months endedSeptember 29, 2013~~ ~~and~~ ~~September 30, 2012, we declared cash dividends to common stockholders of~~ $~~12.7~~241.0 million and $~~11.9~~20.7 million~~, respectively. On~~ as of ~~October~~September 28, 2014 and December 29, 2013, ~~our Board of Directors ("Board") approved a~~ ~~13%~~ ~~increase in the Company's quarterly~~respectively. Cash and cash ~~dividend and declared a cash dividend~~equivalents as of ~~$0.27~~September 28, 2014 ~~per share, which will be paid on~~and December ~~27,~~29, 2013 includes $7.8 million and $8.2 million, respectively, of undistributed income from our Canadian subsidiary that we consider to ~~stockholders of record on~~ ~~December 5, 2013. We currently expect to continue to pay quarterly cash dividends. However, we can give no assurance that future cash dividends will~~ be declared or paid. The actual declaration and payment of future cash dividends, the amount of any such dividends and the establishment of record and payment dates, if any, is subject to final determination by our Board each quarter, after its review of our business strategy, applicable debt covenants and financial performance and position, among other things.permanently invested.

~~Pursuant~~Our strategic plan does not require that we enter into any material development or contractual purchase obligations. Therefore, we have the flexibility necessary to manage our liquidity by promptly deferring or curtailing any planned capital spending. In 2014, our planned capital spending includes new store development, existing store improvements, improvements to our ~~current revolving credit facility agreement, there are restrictions on the amount~~various information technologies platforms and other capital initiatives.

Table of ~~cash dividends that we may pay on our common stock. See the discussion of our current revolving credit facility included above in “Debt Financing.”~~Contents

Capital Expenditures

We intend to continue to focus our future capital expenditures on reinvestment into our existing Company-owned stores through various planned capital initiatives and the development or acquisition of additional Company-owned stores. WeDuring 2014, we currently expect to complete 225 game enhancements, eight major remodels and three store expansions, and we currently expect to open a total of 1311 to 1413 new domestic Company-owned stores, including ~~one~~ ~~relocated store, in~~ ~~2013~~ ~~and a total of 12 to 15 new domestic Company-owned stores, including three~~two relocated stores and one ~~franchise~~ acquisition from a franchisee, in 2014. ~~We opened~~ ~~eight~~ ~~stores during the first~~ ~~nine months~~ of ~~2013, and we are currently constructing~~ ~~five~~ ~~new stores.~~ We have funded and expect to continue to fund our capital expenditures through existing cash flows from ~~operations and, if necessary, borrowings under our revolving credit facility.~~operations. We currently estimate capital expenditures in ~~2013~~2014 will total approximately $75 million to $80 million~~, including (a) approximately~~ ~~$38 million~~ ~~related to new store development; (b) approximately~~ ~~$20 million~~ related to capital initiatives for our existing stores; and (c) the remainder for other store initiatives, general store requirements and other corporate capital expenditures. In 2014, we currently estimate capital expenditures will include approximately ~~$32 million~~ ~~related to new store development and approximately~~ ~~$29 million~~ ~~related to capital initiatives for our existing stores.~~.

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The following ~~tables summarize information regarding the Company’s actual and projected number of capital spending initiatives and~~table reconciles the approximate total capital spend by initiative to our Consolidated Statements of Cash Flows for the periods presented:

Three Months Ended Nine Months Ended
September 29,
2013 September 30,
2012 September 29,
2013 September 30,
2012
Investment in Company-owned stores:
Game Enhancements 58
13
90
51
Major Remodels 3
—
3
3
Store Expansions 2
9
4
18
Total completed 63
22
97
72
Total capital spend on existing Company-owned stores (in millions) $ 8
$ 10
$ 12
$ 26
New Company owned stores⁽¹⁾
5
2
8
7
Total capital spend on new Company-owned stores (in millions) $ 14
$ 5
$ 22
$ 19

~~__________________~~


~~(1)~~	~~In February 2012, we acquired a store from a franchisee.~~

Actual
Completions
in
Fiscal Year
2012

Projected
Completions
in
Fiscal Year
2013

Estimated
Average
Cost Per
Project

Projected
Total Cost
in
Fiscal Year
2013
(in millions, except actual and projected completions)
Investment in Company-owned stores:
Game Enhancements 94 150 $ 0.06
$ 9
Major Remodels 6 6 $ 0.65
4
Store Expansions 25 7 $ 1.00
7
Total 125 163 $ 20
New Company store development⁽¹⁾
13 14 $ 2.68
$ 38

~~__________________~~


~~(1)~~	~~New Company store development for fiscal year~~ ~~2012~~ ~~included~~ ~~three~~ ~~store relocations and~~ ~~one~~ ~~acquisition. Projected new Company store development for fiscal year~~ ~~2013~~ ~~includes~~ ~~one~~ ~~store relocation.~~

Projected
Completions
in
Fiscal Year
2014 Estimated
Average
Cost Per
Project Projected
Total Cost
in
Fiscal Year
2014
(in millions, except projected completions)
Investment in Company-owned stores:
Game Enhancements 250
$ 0.06
$ 15
Major Remodels 8
$ 0.65
5
Store Expansions 5
$ 1.00
5
Major Attractions —
—
4
Total 263
$ 29
New Company store development⁽¹⁾
13
$ 2.47
$ 32



	Nine Months Ended
	September 28, 2014		September 29, 2013
	Successor		Predecessor
	(in thousands)
Growth capital spend⁽¹⁾	$	25,390	$	31,780
Maintenance capital spend⁽²⁾	$	24,268	$	22,666
Total Capital Spend⁽³⁾	49,658		54,446

__________________

(1)~~Projected new Company~~ Growth capital spend includes major remodels, store ~~development for fiscal year~~ ~~2014~~ ~~includes~~ ~~three~~ ~~store relocations~~expansions, major attractions and~~one~~ ~~acquisition.~~

~~Table of Contents~~

~~New Company store development.~~ ~~Our plan for~~ new store development, ~~primarily focuses on opening high sales volume stores in densely populated areas. We expect the cost of opening a new store will vary depending on many factors,~~ including ~~the existing real estate market, the size of the store, whether we acquire land and whether the store is located in an in-line or freestanding building. In some cases, new store development~~relocations.

(2) Maintenance capital spend includes ~~relocating existing stores.~~

~~Existing stores.~~ We believe that in order to maintain consumer demand and the appeal of our concept, we must continue to invest in our existing stores. For our existing stores, we utilize the following capital initiatives: (a) game enhancements; (b) major remodels; and (c) store expansions.

~~Game enhancements.~~ ~~Game enhancements include replacing a portion of a store’s games and rides with new and refurbished equipment. We believe~~ game enhancements, ~~are necessary to maintain~~general store capital expenditures and corporate capital expenditures.

(3) Total capital spend does not include $0.4 million of goodwill and intangible assets associated with the ~~relevance~~franchise acquisition during the second

quarter of 2014, which is included in Purchases of property and ~~appeal of our games and rides. In addition, game enhancements counteract general wear and tear~~equipment on the ~~equipment and incorporate improvements in game and ride technology. During the second quarter~~Consolidated Statement of 2013, we enhanced our existing store capital strategy to reduce the cost of game enhancements by utilizing more used and transferred games and rides in combination with new games and rides. This revised plan will allow us to perform a game enhancement at a store, generally, every two years for approximately half the cost of our historical game enhancements. We are testing a number of major attractions that will be incorporated into game enhancements, which we expect will add approximately $3 million to $4 million to the total cost of game enhancements in 2014.Cash Flows.

~~Major remodels.~~ We undertake periodic major remodels when there is a need to improve the overall appearance or layout of a store or when we introduce concept changes or enhancements to our stores. A major remodel initiative typically includes interior design modifications that allow us to more effectively utilize space allocated to the gameroom area of the store, increase the number of games and rides and modify or develop a new exterior and interior identity.

~~Store expansions.~~ We believe store expansions improve the quality of our guests’ experience because the additional square footage allows us to increase the number and variety of games, rides and other entertainment offerings in the expanded stores. In addition to expanding the square footage of a store, store expansions typically include all components of a major remodel and result in an increase in the store’s seat count. We consider our investments in store expansions generally to be discretionary in nature. In undertaking store expansions, our objective is to improve the appeal of our stores and to capture sales growth opportunities as they arise.

Since the lifecycles of our store format and our games are largely driven by changes in consumer behaviors and preferences, we believe that our capital initiatives involving major remodels and game enhancements are strategic investments required in order to keep pace with consumer entertainment expectations. As a result, we view our major remodel and game enhancement initiatives as a means to maintain and protect our existing sales and cash flows over the long-term. While we are hopeful that our major remodels and game enhancements will contribute to incremental sales growth, we believe that our capital spending with respect to expansions of existing stores will more directly lead to growth in our comparable store sales and cash flow. We typically invest in expansions when we believe there is a potential for sales growth and, in some instances, in order to maintain sales in stores that have competitors in their market. We believe that expanding the square footage and entertainment space of a store increases our customer traffic and enhances the overall customer experience, which we believe will contribute to the growth of our long-term comparable store sales. The objective of an expansion or remodel that increases space available for entertainment is not intended to exclusively improve our entertainment sales, but rather is focused on impacting overall Company store sales through increased customer traffic and satisfaction.

~~Share Repurchases~~

~~On April 30, 2013, our Board authorized a~~ ~~$100 million~~ ~~increase to our existing Board approved stock repurchase program. During the~~ ~~nine months endedSeptember 29, 2013, we repurchased~~ ~~526,245~~ ~~shares of our common stock at an average price of~~ ~~$34.42~~ ~~per share for an aggregate purchase price of~~ ~~$18.1 million. As of~~ ~~September 29, 2013~~, ~~$128.9 million~~ ~~remained available for us to repurchase shares of our common stock, in the future, under our stock repurchase program as most recently amended April 30, 2013.~~

Our stock repurchase program does not have an expiration date and the pace of our repurchase activity will depend on factors such as our working capital needs, our debt repayment obligations, the market price of our common stock and economic and market conditions. Our share repurchases may be performed from time to time through open market purchases, accelerated share repurchases or in privately negotiated transactions. Although there are no current plans to modify the implementation of our stock repurchase program, our Board may elect to accelerate, expand, suspend, delay or discontinue the program at any time. Pursuant to our current revolving credit facility agreement, there are restrictions on the amount of our common stock we may repurchase. See the discussion of our current revolving credit facility included above in “Debt Financing.”

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Off-Balance Sheet Arrangements and Contractual Obligations

As of September ~~29, 2013,~~28, 2014, we had no off-balance sheet financing arrangements as described in Regulation S-K Item 303(a)(4)(ii).

~~As of September 29, 2013, there have been no material changes outside the ordinary course of business to our contractual obligations since December 30, 2012.~~ For information regarding our contractual obligations, refer to ~~“Off~~"Off Balance Sheet Arrangements and Contractual ~~Obligations”~~Obligations" in Part II, Item 7. ~~“Management’s~~"Management’s Discussion and Analysis of Financial Condition and Results of ~~Operations”~~Operations" in our Annual Report on Form 10-K for the fiscal year ended December ~~30, 2012,~~29, 2013, filed with the SEC on February ~~21,~~12, 2014.

The following table summarizes material changes to our contractual obligations since December 29, 2013:



	Payments Due by Period
	Total		Less than 1 Year		1-3 Years		4-5 Years		More than 5 Years
	(in thousands)
Secured credit facilities	$	758,100	$	7,600	$	17,100	$	13,300	$	720,100
Senior notes	255,000		—		—		—		255,000
Interest obligations⁽¹⁾	371,173		54,456		116,335		97,960		102,422
Advertising Spend	27,093		19,821		7,272		—		—
	$	1,411,366	$	81,877	$	140,707	$	111,260	$	1,077,522

__________________


(1)	Interest obligations represent an estimate of future interest payments under our Secured Credit Facilities and senior notes. We calculated the estimate based on the terms of the Secured Credit Facilities and senior notes. Our estimate uses interest rates in effect during the 226 day period ended September 28, 2014 and assumes we will not have any amounts drawn on our revolving credit facility.

In addition, see further discussion of our indebtedness and future debt obligations above under "Financial Condition, Liquidity and Capital Resources - Debt Financing." As of September 28, 2014, there have been no other material changes to our contractual obligations since December 29, 2013.

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Critical Accounting Policies and Estimates

Information with respect to our critical accounting policies and estimates, which we believe could have the most significant effect on our reported consolidated results and require difficult, subjective or complex judgment by management are described under ~~“Critical~~"Critical Accounting Policies and ~~Estimates”~~Estimates" in Part II, Item 7. ~~“Management’s~~"Management’s Discussion and Analysis of Financial Condition and Results of ~~Operations”~~Operations" in our Annual Report on Form 10-K for the fiscal year ended December ~~30, 2012~~29, 2013, filed with the SEC on February ~~21, 2013.~~12, 2014. As of September ~~29, 2013~~28, 2014, there has been no material change to the information concerning our critical accounting policies and ~~estimates.~~estimates, with the exception of the addition of acquisition accounting in connection with the Merger.

The Company has accounted for the Merger as a business combination using the acquisition method of accounting, whereby the purchase price was allocated to tangible and intangible assets acquired and liabilities assumed, based on their estimated fair market values. Fair value measurements have been applied based on assumptions that market participants would use in the pricing of the asset or liability. The Acquisition and the allocation of the purchase price have been recorded as of February 14, 2014. In connection with the purchase price allocation, the Company has made estimates of the fair values of the long-lived and intangible assets based upon assumptions that are reasonable related to discount rates and asset lives utilizing currently available information, and in some cases, preliminary valuation results from independent valuation specialists. As of February 14, 2014, the Company recorded purchase accounting adjustments to the carrying value of property and equipment and intangible assets, including our "Chuck E. Cheese's" tradename, franchise agreements and favorable leases. The Company has also revalued our rent related liabilities. The purchase price allocation could change in subsequent periods, up to one year from the Merger date. The adjustments, if any, arising out of the finalization of the allocation of the purchase price will not impact cash flow, including cash interest and rent. However, such adjustments could result in material changes to our Consolidated Financial Statements.

Goodwill and Other Intangible Assets

Recoverability of the carrying value of goodwill is measured at the reporting unit level. In performing a quantitative analysis, we measure the recoverability of goodwill for our reporting units using a discounted cash flow model incorporating discount rates commensurate with the risks involved, which is classified as a Level 3 fair value measurement. The key assumptions used in the discounted cash flow valuation model include discount rates, growth rates, tax rates, cash flow projections and terminal value rates. Discount rates, growth rates and cash flow projections are the most sensitive and susceptible to change as they require significant management judgment.

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Recently Issued Accounting Guidance

Refer to Note 1 ~~“Description~~"Description of Business and Summary of Significant Accounting ~~Policies”~~Policies" to our Consolidated Financial Statements included in Part I, Item 1. ~~“Financial Statements”~~"Financial Statements" of this ~~Quarterly~~Periodic Report ~~on Form 10-Q~~ for a description of recently issued accounting guidance.

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Presentation of Non-GAAP Measurements

EBITDA, a measure used by management to assess operating performance, is defined as Net income plus interest expense, income taxes and depreciation and amortization.

Adjusted EBITDA, another measure used by management to assess operating performance, is defined as EBITDA adjusted to exclude unusual items and other adjustments required or permitted in calculating covenant compliance under the indenture and/or the Secured Credit Facilities.

We have provided EBITDA and Adjusted EBITDA in this report because we believe they provide investors with additional information to measure our performance. We believe that the presentation of Adjusted EBITDA is appropriate to provide additional information to investors about certain material non-cash items and about unusual items that we do not expect to continue at the same level in the future, as well as other items. Further, we believe Adjusted EBITDA provides a meaningful measure of operating profitability because we use it for evaluating our business performance and understanding certain significant items.

EBITDA and Adjusted EBITDA are not presentations made in accordance with generally accepted accounting principles in the United States ("GAAP"), and our use of the terms EBITDA and Adjusted EBITDA varies from others in our industry. EBITDA and Adjusted EBITDA should not be considered as alternatives to operating income or any other performance measures derived in accordance with GAAP as measures of operating performance or cash flows as measures of liquidity. EBITDA and Adjusted EBITDA have important limitations as analytical tools, and you should not consider them in isolation or as substitutes for analysis of our results as reported under GAAP. For example, EBITDA:

excludes certain tax payments that may represent a reduction in cash available to us;

does not reflect any cash capital expenditure requirements for the assets being depreciated and amortized that may have to be replaced in the future;

does not reflect changes in, or cash requirements for, our working capital needs; and

does not reflect the significant interest expense, or the cash requirements necessary to service interest or principal payments, on our indebtedness.

In addition, Adjusted EBITDA:

does not include one-time expenditures;

excludes the impairment of Company-owned stores or impairments of long-lived assets and gains or losses upon disposal of property or equipment;

excludes non-cash equity based compensation expense;

reflects the removal of the non-cash portion of rent expense relating to the impact of straight-line rent and the amortization of cash incentives and allowances received from landlords, plus the actual cash received from landlords incentives and allowances in the period;

reflects franchise fees received on a cash basis post-acquisition;

excludes the purchase accounting impact to unearned revenue at the time of the acquisition;

excludes start-up and marketing costs incurred prior to the opening of new Company-owned stores;

excludes non-recurring income and expenses primarily related to (i) non-recurring franchise fee income; (ii) severance costs; (iii) employee and other legal claims and settlements; (iv) sales and use tax refunds; and (v) certain insurance recoveries relating to prior year expense;

includes estimated cost savings, including some adjustments not permitted under Article 11 of Regulation S-X; and

does not reflect the impact of earnings or charges resulting from matters that we, the initial purchasers of the senior notes, the current holders of the senior notes or the lenders under the Secured Credit Facilities may consider not to be indicative of our ongoing operations.

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Our definition of Adjusted EBITDA allows us to add back certain non-cash and non-recurring charges or costs that are deducted in calculating Net income. However, these are expenses that may recur, vary greatly and are difficult to predict. They can represent the effect of long-term strategies as opposed to short-term results. In addition, certain of these expenses can represent the reduction of cash that could be used for other corporate purposes. Because of these limitations, we rely primarily on our GAAP results and use EBITDA and Adjusted EBITDA only supplementally.



	Three Months Ended
	September 28, 2014			September 29, 2013
	Successor			Predecessor
	(in thousands)
Net income (loss) as Reported	$	(13,279	)	$	7,439
Interest expense	15,974			1,278
Income tax expense (benefit)	(6,936		)	4,508
Depreciation and amortization	32,143			19,838
EBITDA	27,902			33,063
Non-cash impairments, gain or loss on disposal⁽¹⁾	2,672			1,566
Non-cash stock-based compensation⁽²⁾	191			2,244
Rent expense book to cash⁽³⁾	2,008			(201		)
Franchise revenue, net cash received⁽⁴⁾	2,104			—
Impact of purchase accounting⁽⁵⁾	610			—
Store pre-opening costs⁽⁶⁾	(22		)	729
One-time items⁽⁷⁾	8,546			77
Cost savings initiatives⁽⁸⁾	529			1,454
Adjusted EBITDA	$	44,540		$	38,932

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	For the 226 Day Period Ended			For the 47 Day Period Ended			Nine Months Ended			Nine Months Ended
	September 28, 2014			February 14, 2014			September 28, 2014			September 29, 2013
	Successor			Predecessor			Combined			Predecessor
	(in thousands)
Net income (loss) as Reported	$	(39,935	)	$	704		$	(39,231	)	$	47,935
Interest expense	43,256			1,151			44,407			5,509
Income tax expense (benefit)	(15,834		)	1,018			(14,816		)	29,467
Depreciation and amortization	85,383			9,883			95,266			59,269
EBITDA	72,870			12,756			85,626			142,180
Non-cash impairments, gain or loss on disposal⁽¹⁾	5,223			294			5,517			1,467
Non-cash stock-based compensation⁽²⁾	191			12,639			12,830			6,469
Rent expense book to cash⁽³⁾	8,469			(1,190		)	7,279			671
Franchise revenue, net cash received⁽⁴⁾	2,204			—			2,204			—
Impact of purchase accounting⁽⁵⁾	1,023			—			1,023			—
Store pre-opening costs⁽⁶⁾	485			131			616			1,278
One-time items⁽⁷⁾	46,532			(165		)	46,367			427
Cost savings initiatives⁽⁸⁾	1,696			502			2,198			4,335
Adjusted EBITDA	$	138,693		$	24,967		$	163,660		$	156,827

__________________


(1)	Relates primarily to (i) the impairment of Company-owned stores or impairments of long lived assets and (ii) gains or losses upon disposal of property or equipment.


(2)	Represents non-cash equity-based compensation expense.


(3)	Represents (i) the removal of the non-cash portion of rent expense relating to the impact of straight-line rent and the amortization of cash incentives and allowances received from landlords, plus (ii) the actual cash received from landlords incentives and allowances in the period in which it was received.


(4)	Represents the actual cash received for franchise fees received in the period for post-acquisition franchise development agreements, which are not recorded as revenue until the franchise store is opened.


(5)	Represents revenue related to unearned gift cards and unearned franchise fees that were removed in purchase accounting, and therefore were not recorded as revenue.


(6)	Relates to start-up and marketing costs incurred prior to the opening of new Company-owned stores and generally consists of payroll, recruiting, training, supplies and rent incurred prior to store opening.


(7)	Represents non-recurring income and expenses primarily related to (i) transaction costs associated with the Merger; (ii) severance expense and executive termination benefits; (iii) employee and other legal claims and settlements; (iv) sales and use tax refunds; and (v) certain insurance recoveries relating to prior year expense.

(8)

Relates to estimated net cost savings primarily from (i) the change from public to private ownership upon the closing of the Acquisition and elimination of public equity securities, with reductions in investor relations activities, directors fees and certain legal and other securities and filing costs; (ii) the full-year effect of cost savings initiatives implemented by the Company in 2013; (iii) the estimated effect of cost savings following the Acquisition from participation in Sponsor-leveraged purchasing programs including various supplies, travel and communications purchasing categories; (iv) the net impact of labor savings associated with changes in management; and net of (v) the estimated incremental costs associated with our new IT systems and post-closing insurance arrangements.

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Cautionary Statement Regarding Forward-Looking Statements

Certain statements in this report, other than historical information, may be considered ~~“forward-looking statements”~~"forward-looking statements" within the meaning of the ~~“safe harbor”~~"safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, and are subject to various risks, uncertainties and assumptions. Statements that are not historical in nature, and which may be identified by the use of words such as “may,” “should,” “could,” “believe,” “predict,” “potential,” “continue,” “plan,” “intend,” “expect,” “anticipate,” “future,” “project,” “estimate”"may," "should," "could," "believe," "predict," "potential," "continue," "plan," "intend," "expect," "anticipate," "future," "project," "estimate" and similar expressions (or the negative of such expressions) are forward-looking statements. Forward-looking statements are made based on management’s current expectations and beliefs concerning future events and, therefore, involve a number of assumptions, risks and uncertainties, including the risk factors described in Part I, Item 1A. ~~“Risk Factors”~~"Risk Factors" of our Annual Report on Form 10-K for the fiscal year ended December ~~30, 2012~~29, 2013, filed with the SEC on February ~~21, 2013.~~12, 2014. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may differ from those anticipated, estimated or expected. Factors that could cause actual results to differ materially from those contemplated by forward-looking statements include, but are not limited to:

The success of our capital initiatives, including new store development and existing store evolution;

Our ability to successfully implement our ~~strategic plan;~~marketing strategy;

Competition in both the restaurant and entertainment industries;

Changes in consumer discretionary spending;

Impacts on our business and financial results from economic uncertainty in the ~~U.S.~~United States and Canada;

Negative publicity concerning food quality, health, general safety and other issues;

Expansion in international markets;

Increases in our leverage;

Increases in food, labor and other operating costs;

~~Unanticipated costs~~Disruptions of our information technology systems and ~~delays in implementing our strategic plan;~~

~~Government regulations, including health care reform;~~

~~Existence or occurrence of certain public health issues;~~technologies;

Changes in consumers’ health, nutrition and dietary preferences;

Any disruption of our commodity distribution ~~system, which currently utilizes a single distributor for most of our products and supplies;~~

~~Product liability claims and product recalls;~~

~~Inadequate insurance coverage;~~

~~Disruptions of our information technology systems and technologies;~~

~~Litigation risks;~~system;

Our dependence on a limited number of suppliers for our games, rides, entertainment-related equipment, redemption prizes and merchandise;

Product liability claims and product recalls;

Government regulations, including health care reform;

Litigation risks;

Adverse effects of local conditions, natural disasters and other events;

~~Increases in our leverage;~~

~~Loss~~Existence or occurrence of certain ~~key personnel;~~public health issues;

Fluctuations in our quarterly results of operations due to seasonality;

Inadequate insurance coverage;

Loss of certain key personnel;

Our ability to adequately protect our trademarks or other proprietary rights;

Risks in connection with owning and leasing real estate; and

~~Conditions in foreign markets.~~Litigation risks associated with our merger.

The forward-looking statements made in this report relate only to events as of the date on which the statements are made in this report. Except as may be required by law, we undertake no obligation to update our forward-looking statements to reflect events and circumstances after the date on which the statements are made in this report or to reflect the occurrence of unanticipated events.

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ITEM 3. Quantitative and Qualitative Disclosures About Market Risk.

We are exposed to various types of market risk in the normal course of business, including the impact of interest rates, commodity price changes and foreign currency fluctuation.

Interest Rate Risk

We are exposed to market risk from changes in the variable interest rates ~~(primarily LIBOR)~~ related to borrowings from our ~~revolving credit facility.~~Secured Credit Facilities. All of our borrowings outstanding under the Secured Credit Facilities as of September ~~29, 2013~~28, 2014 of ~~$348.5~~$758.1 million accrue interest at variable rates. AWe have elected to base our interest on the cost of funds for Eurodollar deposits, which uses LIBOR (a variable interest rate) and is subject to a 1% floor. During the 226 day period ended September 28, 2014, the one month LIBOR ranged from 0.15% to 0.16%. Therefore, a hypothetical increase of 100 basis points in ~~variable interest rates,~~the one-month LIBOR, assuming no change in our outstanding debt balance, would have increased interest expense by $~~2.7~~0.5 million for the 226 day period ended ~~nine months ended~~September ~~29, 2013~~28, 2014., or approximately $1.2 million on an annualized basis.

Commodity Price Risk

We are exposed to commodity price changes related to certain food products that we purchase, primarily related to the prices of cheese and dough, which can vary throughout the year due to changes in supply, demand and other factors. We have not entered into any hedging arrangements to reduce our exposure to commodity price volatility associated with such commodity prices; however, we typically enter into short-term cancellable purchasing contracts, which may contain pricing arrangements designed to minimize the impact of commodity price fluctuations. For the three and nine months endedSeptember ~~29, 2013~~28, 2014, the weighted average cost of a block of cheese was $2.08 and $~~1.73~~2.14., respectively. The estimated increase in our food costs from a hypothetical 10% increase in the average cost of a block of cheese would have been $0.3 million and $~~1.0~~1.1 million for the three and nine months endedSeptember ~~29, 2013~~28, 2014., respectively. For the three and nine months endedSeptember ~~29, 2013~~28, 2014, the weighted average cost of dough per pound was $0.41 and $~~0.41~~0.42., respectively. The estimated increase in our food costs from a hypothetical 10% increase in the average cost of dough per pound would have been $0.1 million and $0.3 million for the three and nine months endedSeptember ~~29, 2013~~28, 2014., respectively.

Foreign Currency Risk

We are exposed to foreign currency fluctuation risk associated with changes in the value of the Canadian dollar relative to the United States dollar as we operate a total of 14 Company-owned stores in Canada. For the 226 day period ended ~~nine months ended~~September ~~29, 2013~~28, 2014, our Canadian stores ~~represented~~generated ~~0.9%~~$0.9 million of operating loss compared to our consolidated operating ~~income.~~loss of $12.5 million. For the 47 day period ended February 14, 2014, our Canadian stores generated $0.4 million of operating income compared to our consolidated operating income of $2.9 million.

Changes in the currency exchange rate result in cumulative translation adjustments and are included in ~~“Accumulated~~"Accumulated other comprehensive ~~income”~~income" and potentially result in transaction gains or losses, which are included in our earnings. The low and high currency exchange rates for a Canadian dollar into a United States dollar for the 226 day period ended ~~nine months ended~~September ~~29, 2013~~28, 2014 were $~~0.9445~~0.8888 and $~~1.0166~~0.9397, respectively. A hypothetical 10% devaluation in the average quoted U.S. dollar-equivalent of the Canadian dollar exchange rate during the 226 day period ended ~~nine months ended~~September ~~29, 2013~~28, 2014 would have increased our reported consolidated operating results by approximately $0.1 million. The low and high currency exchange rates for a Canadian dollar into a United States dollar for the 47 day period ended February 14, 2014 were $0.8945 and $0.9408, respectively. A hypothetical 10% devaluation in the average quoted U.S. dollar-equivalent of the Canadian dollar exchange rate during the 47 day period ended February 14, 2014 would have reduced our reported consolidated operating ~~income~~results by less than ~~$0.1 million~~.$0.1 million.

ITEM 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

We performed an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, as of the end of the period covered by this report. Based on that evaluation, our management, including our Chief Executive Officer and Chief Financial Officer, has concluded that our disclosure controls and procedures were effective as of September ~~29, 2013~~28, 2014 to ensure that information required to be disclosed by us in the reports we file or submit under the Securities Exchange Act of 1934, as amended, was (a) recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms; and (b) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

During the quarterly period covered by this report there has been no change in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

~~Table of Contents~~

PART II – OTHER INFORMATION

ITEM 1. 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 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.

On March 24, 2014, a purported class action lawsuit against the Company, entitled Franchesca Ford and Isabel Rodriguez v. CEC Entertainment, Inc. d/b/a Chuck E. Cheese's (the "FCRA Litigation"), was filed in U.S. District Court Southern District, California, Case Number 3:14-cv-00677-JLS-JLB. The Company received service of process on March 31, 2014. The FCRA Litigation was filed by Franchesca Ford and Isabel Rodriguez claiming to represent other similarly situated applicants who were subject to pre-employment background checks with the Company across the United States and in California from March 24, 2012 to the present. The lawsuit alleges violations of the Fair Credit Reporting Act and the California Consumer Credit Reporting and Investigative Reporting Agencies Act. On May 21, 2014, the Company filed an answer to the complaint. The Court conducted an Early Neutral Evaluation Conference in the case on June 30, 2014, and a Continued Early Neutral Evaluation Conference on August 13, 2014 and September 23, 2014. The parties reached a settlement in principle at the September 23rd session of the Continued Early Neutral Evaluation Conference to settle the action on a class-wide basis. The settlement would result in the dismissal of all claims asserted in the action, along with certain related claims and releases in exchange for a maximum settlement payment of $1,750,000, a substantial portion of which would be covered by the Company's insurance carrier.

The Company has accrued for all probable and reasonably estimable losses associated with the above claims.

Litigation Related to the Merger: Following the January 16, 2014 announcement that the Company had entered into the Merger Agreement, four putative shareholder class actions were filed 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 in the District Court of Shawnee County, Kansas. The first purported class action, which is captioned Hilary Coyne v. Richard M. Frank et al., Case No. 14C57, was filed on January 21, 2014 (the "Coyne Action"). The second purported class action, which is captioned John Solak v. CEC Entertainment, Inc. et al., Civil Action No. 14C55, was filed on January 22, 2014 (the "Solak Action"). The third purported class action, which is captioned Irene Dixon v. CEC Entertainment, Inc. et al., Case No. 14C81, was filed on January 24, 2014 and additionally names as defendants Apollo Management VIII, L.P. and the AP VIII Queso Holdings, L.P. (the "Dixon Action"). The fourth purported class action, which is captioned Louisiana Municipal Public Employees’ Retirement System v. Frank, et al., Case No. 14C97, was filed on January 31, 2014 and additionally names as defendants, Apollo Management VIII, L.P. and AP VIII Queso Holdings, L.P. (the "LMPERS Action")(together with the Coyne, Solak, and Dixon Actions, the "Shareholder Actions").

Each of the Shareholder Actions 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, agreeing to an inadequate tender price, the adoption on January 15, 2014 of the Rights Agreement, and certain provisions in the Merger Agreement that allegedly make it less likely that the Board would be able to consider alternative acquisition proposals. The Coyne, Dixon and LMPERS Actions further allege that the Board was advised by a conflicted financial advisor. The Solak, Dixon and LMPERS Actions further allege that the Board was subject to material conflicts of interest in approving the Merger Agreement and that the Board breached its fiduciary duties in allowing allegedly conflicted members of management to negotiate the transaction. The Dixon and LMPERS Actions further allege that the Board breached their fiduciary duties in approving the Solicitation/Recommendation Statement on Schedule 14D-9 (together with the exhibits and annexes thereto, as it may be amended or supplemented, the "Statement") filed with the SEC on January 22, 2014, which allegedly contained material misrepresentations and omissions.

The Shareholder Actions seek, among other things, rescission of these transactions, damages, attorneys’ and experts’ fees and costs and other relief that the court may deem just and proper.

The Company believes these lawsuits are without merit and intends to defend them vigorously; however, we are presently unable to predict the ultimate outcome of this litigation.

ITEM 1A. Risk Factors.

We believe there ~~has~~have been no material changes in our risk factors from those disclosed in Part I, Item 1A. ~~“Risk Factors”~~"Risk Factors" in our Annual Report on Form 10-K for the year ended December ~~30, 2012,~~29, 2013, filed with the SEC on February ~~21, 2013.~~12, 2014.

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds.

The following table presents information related to repurchases of our common stock during the ~~third quarter~~ of ~~2013~~47 day period ended February 14, 2014 and the maximum dollar value of shares that may yet be purchased pursuant to our stock repurchase program:

													Issuer Purchases of Equity Securities
Period	Total Number of Shares Purchased(1)	Average Price Paid Per Share(1)		Total Number of Shares Purchased As Part of Publicly Announced Plans or Programs	Maximum Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs(2)		Total Number of Shares Purchased⁽¹⁾	Average Price Paid Per Share⁽¹⁾		Total Number of Shares Purchased As Part of Publicly Announced Plans or Programs	Maximum Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs
July 1 – July 28, 2013	—	$	—	—	$	128,880,167
July 29 – August 25, 2013	673	$	42.85	—	$	128,880,167
August 26 – September 29, 2013	—	$	—	—	$	128,880,167
Predecessor:
December 30, 2013 – January 26, 2014							2,907	$	48.53	—	$	128,880,167
January 27 – February 14, 2014⁽²⁾							—	$	—	—	$	—
Total	673	$	42.85	—	$	128,880,167	2,907	$	48.53	—	$	—

__________________

(1)

For the period ended ~~August 25~~, ~~2013~~,January 26, 2014, the total number of shares purchased were tendered by employees to satisfy tax withholding requirements on the vesting of restricted stock awards, which are not deducted from shares available to be purchased under our stock repurchase program. Shares tendered by employees to satisfy tax withholding requirements were considered purchased at the closing price of our common stock on the date of vesting.

(2)

~~We may repurchase shares~~As a result of the Merger on February 14, 2014, our stock ceased to be traded on the New York Stock Exchange and all of our common stock under a plan authorized by our Board of Directors. On April 30, 2013, the Board authorized a $100 million increase to our existing Board approved stock repurchase program. The stock repurchase program, which does not have a stated expiration date, authorizes us to make repurchases through open market purchases, accelerated share repurchases or in privately negotiated transactions.outstanding shares were purchased for $54.00 per share.

In order to complete the Merger, on February 14, 2014, following the expiration of the Tender Offer, Merger Sub exercised its option pursuant to the Merger Agreement (the "Top-Up Option") to purchase directly from the Company, at the Offer Price, a number of newly issued shares of the Company’s common stock (the "Top-Up Shares") equal to the number of shares of common stock that, when added to the number of shares of common stock held by Parent and Merger Sub at the time of such exercise, constituted one share more than 90% of the total shares of common stock then outstanding on a fully diluted basis immediately after the issuance of the Top-Up Shares pursuant to the Top-Up Option.

Accordingly, the Company issued 38,277,866 Top-Up Shares to Merger Sub, at a price per share of $54.00. The aggregate consideration of $2,067,004,764 for the Top-Up Shares was provided (i) in part by an equity capital contribution by the Apollo Funds, paid in cash, and (ii) in part by a promissory note from Merger Sub payable to the Company in the amount of $2,063,176,977, which was extinguished when Merger Sub merged with and into CEC Entertainment, Inc. following the successful completion of the Merger.

The Top-Up Shares were issued in reliance upon an exemption from registration pursuant to Section 4(2) under the Securities Act of 1933, as amended, as a transaction by an issuer not involving a public offering.

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ITEM 6. Exhibits.

EXHIBIT INDEX



Exhibit Number		Description
~~3.1~~4.1*		~~Second Restated Articles~~First Supplemental Indenture, dated as of ~~Incorporation of~~October 9, 2014, among CEC Entertainment, Inc. (the “Company”) ~~dated May 4, 2010 (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K (File No. 001-13687) as filed with the Securities~~, CEC Entertainment Leasing Company and ~~Exchange Commission (the “Commission”) on May 6, 2010)~~Wilmington Trust, National Association

~~3.2~~10.1		~~Amended and Restated Bylaws~~Employment Agreement, dated as of July 30, 2014, between the Company ~~dated May 4, 2010~~and Thomas Leverton (incorporated by reference to Exhibit ~~3.2~~10.5 to the Company’s ~~Current Report~~Registration Statement on Form ~~8-K~~S-4 (File No. ~~001-13687) as filed with the Commission on May 6, 2010)~~

~~4.1~~		~~Specimen form of Certificate representing $0.10 par value Common Stock (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 10-Q (File No. 001-13687)~~333-199298) as filed with the Commission on October ~~29, 2009)~~14, 2014)

10.2		Employment Agreement, dated as of July 30, 2014, between the Company and J. Roger Cardinale (incorporated by reference to Exhibit 10.6 to the Company’s Registration Statement on Form S-4 (File No. 333-199298) as filed with the Commission on October 14, 2014)

10.3		Employment Agreement, dated as of July 30, 2014, between the Company and Randy Forsythe (incorporated by reference to Exhibit 10.7 to the Company’s Registration Statement on Form S-4 (File No. 333-199298) as filed with the Commission on October 14, 2014)

10.4		Employment Agreement, dated as of October 9, 2014, between the Company and Temple Weiss (incorporated by reference to Exhibit 10.8 to the Company’s Registration Statement on Form S-4 (File No. 333-199298) as filed with the Commission on October 14, 2014)

10.5		Non-Employee Director Term Sheet, dated as of July 30, 2014, between the Company and Allen R. Weiss (incorporated by reference to Exhibit 10.9 to the Company’s Registration Statement on Form S-4 (File No. 333-199298) as filed with the Commission on October 14, 2014)

10.6		Queso Holdings Inc. 2014 Equity Incentive Plan, as adopted on August 21, 2014 (incorporated by reference to Exhibit 10.10 to the Company’s Registration Statement on Form S-4 (File No. 333-199298) as filed with the Commission on October 14, 2014)

10.7		Form of Queso Holdings Inc. 2014 Equity Incentive Plan Stock Option Agreement (incorporated by reference to Exhibit 10.11 to the Company’s Registration Statement on Form S-4 (File No. 333-199298) as filed with the Commission on October 14, 2014)

31.1*		Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2*		Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1**		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2**		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

~~101.INS~~101.INS†		XBRL Instance Document

~~101.SCH~~101.SCH†		XBRL Taxonomy Extension Schema Document

~~101.CAL~~101.CAL†		XBRL Taxonomy Extension Calculation Linkbase Document

~~101.DEF~~101.DEF†		XBRL Taxonomy Extension Definition Linkbase Document

~~101.LAB~~101.LAB†		XBRL Taxonomy Extension Label Linkbase Document

~~101.PRE~~101.PRE†		XBRL Taxonomy Extension Presentation Linkbase Document

__________________

* Filed herewith.

** Furnished herewith.


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

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



		CEC ENTERTAINMENT, INC.

~~October 31, 2013~~November 12, 2014	By:	/s/ ~~Tiffany B. Kice~~Temple H. Weiss
		~~Tiffany B. Kice~~Temple H. Weiss
		Executive Vice President, Chief Financial Officer ~~and Treasurer~~
		(Principal Financial Officer)

~~October 31, 2013~~November 12, 2014		/s/ Laurie E. Priest
		Laurie E. Priest
		Vice President, Controller
		(Principal Accounting Officer)

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EXHIBIT INDEX



Exhibit Number		Description
~~3.1~~4.1*		~~Second Restated Articles~~First Supplemental Indenture, dated as of ~~Incorporation of~~October 9, 2014, among CEC Entertainment, Inc. (the “Company”) ~~dated May 4, 2010 (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K (File No. 001-13687) as filed with the Securities~~, CEC Entertainment Leasing Company and ~~Exchange Commission (the “Commission”) on May 6, 2010)~~Wilmington Trust, National Association

~~3.2~~10.1		~~Amended and Restated Bylaws~~Employment Agreement, dated as of July 30, 2014, between the Company ~~dated May 4, 2010~~and Thomas Leverton (incorporated by reference to Exhibit ~~3.2~~10.5 to the Company’s ~~Current Report~~Registration Statement on Form ~~8-K~~S-4 (File No. ~~001-13687) as filed with the Commission on May 6, 2010)~~

~~4.1~~		~~Specimen form of Certificate representing $0.10 par value Common Stock (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 10-Q (File No. 001-13687)~~333-199298) as filed with the Commission on October ~~29, 2009)~~14, 2014)

10.2		Employment Agreement, dated as of July 30, 2014, between the Company and J. Roger Cardinale (incorporated by reference to Exhibit 10.6 to the Company’s Registration Statement on Form S-4 (File No. 333-199298) as filed with the Commission on October 14, 2014)

10.3		Employment Agreement, dated as of July 30, 2014, between the Company and Randy Forsythe (incorporated by reference to Exhibit 10.7 to the Company’s Registration Statement on Form S-4 (File No. 333-199298) as filed with the Commission on October 14, 2014)

10.4		Employment Agreement, dated as of October 9, 2014, between the Company and Temple Weiss (incorporated by reference to Exhibit 10.8 to the Company’s Registration Statement on Form S-4 (File No. 333-199298) as filed with the Commission on October 14, 2014)

10.5		Non-Employee Director Term Sheet, dated as of July 30, 2014, between the Company and Allen R. Weiss (incorporated by reference to Exhibit 10.9 to the Company’s Registration Statement on Form S-4 (File No. 333-199298) as filed with the Commission on October 14, 2014)

10.6		Queso Holdings Inc. 2014 Equity Incentive Plan, as adopted on August 21, 2014 (incorporated by reference to Exhibit 10.10 to the Company’s Registration Statement on Form S-4 (File No. 333-199298) as filed with the Commission on October 14, 2014)

10.7		Form of Queso Holdings Inc. 2014 Equity Incentive Plan Stock Option Agreement (incorporated by reference to Exhibit 10.11 to the Company’s Registration Statement on Form S-4 (File No. 333-199298) as filed with the Commission on October 14, 2014)

31.1*		Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2*		Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1**		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2**		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

~~101.INS~~101.INS†		XBRL Instance Document

~~101.SCH~~101.SCH†		XBRL Taxonomy Extension Schema Document

~~101.CAL~~101.CAL†		XBRL Taxonomy Extension Calculation Linkbase Document

~~101.DEF~~101.DEF†		XBRL Taxonomy Extension Definition Linkbase Document

~~101.LAB~~101.LAB†		XBRL Taxonomy Extension Label Linkbase Document

~~101.PRE~~101.PRE†		XBRL Taxonomy Extension Presentation Linkbase Document

__________________

* Filed herewith.

** Furnished herewith.


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



	Restricted Shares		Weighted Average Grant Date Fair Value
Unvested restricted stock awards, December 30, 2012	547,077		$	35.94
Granted	291,245		$	30.95
Vested	(221,751	)	$	33.69
Forfeited	(24,093	)	$	35.73
Unvested restricted stock awards, September 29, 2013	592,478		$	34.34



	Actual Completions in Fiscal Year 2012	Projected Completions in Fiscal Year 2013	Estimated Average Cost Per Project		Projected Total Cost in Fiscal Year 2013
	(in millions, except actual and projected completions)
Investment in Company-owned stores:
Game Enhancements	94	150	$	0.06	$	9
Major Remodels	6	6	$	0.65	4
Store Expansions	25	7	$	1.00	7
Total	125	163			$	20
New Company store development⁽¹⁾	13	14	$	2.68	$	38



	Projected Completions in Fiscal Year 2014	Estimated Average Cost Per Project		Projected Total Cost in Fiscal Year 2014
	(in millions, except projected completions)
Investment in Company-owned stores:
Game Enhancements	250	$	0.06	$	15
Major Remodels	8	$	0.65	5
Store Expansions	5	$	1.00	5
Major Attractions	—	—		4
Total	263			$	29
New Company store development⁽¹⁾	13	$	2.47	$	32