UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q



ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~April~~July 3, 2016



¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-13687

CEC ENTERTAINMENT, INC.

(Exact name of registrant as specified in its charter)



Kansas (State or other jurisdiction of incorporation or organization)		48-0905805 (IRS Employer Identification No.)

1707 Market Place Blvd Irving, Texas		75063
(Address of principal executive offices)		(Zip Code)

(972) 258-8507

(Registrant’s telephone number, including area code)

Not applicable

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:



Large accelerated filer	¨	Accelerated filer	¨

Non-accelerated filer	ý	Smaller reporting company	¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No ý

As of ~~May 2,~~August 1, 2016, an aggregate of 200 shares of the registrant’s common stock, par value $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 ~~April~~July 3, 2016 and January 3, 2016	3

Consolidated Statements of Earnings for the three months ended ~~April~~July 3, 2016 and ~~March 29,~~June 28, 2015 and the six months ended July 3, 2016 and June 28, 2015	4

Consolidated Statements of Comprehensive Income (Loss) for the three months ended ~~April~~July 3, 2016 and ~~March 29,~~June 28, 2015 and the six months ended July 3, 2016 and June 28, 2015	56

Consolidated Statements of Cash Flows for the ~~three~~six months ended ~~April~~July 3, 2016 and ~~March 29,~~June 28, 2015	67

Notes to Consolidated Financial Statements	89

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	2529

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk	3743

ITEM 4. Controls and Procedures	3743

PART II OTHER INFORMATION

ITEM 1. Legal Proceedings	3844

ITEM 1A. Risk Factors	3844

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds	3844

ITEM 6. Exhibits	3945

SIGNATURES

PART I - FINANCIAL INFORMATION

ITEM 1. Financial Statements.

CEC ENTERTAINMENT, INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited)

(in thousands, except share information)


	April 3, 2016			January 3, 2016			July 3, 2016			January 3, 2016
ASSETS
Current assets:
Cash and cash equivalents	$	69,998		$	50,654		$	75,591		$	50,654
Restricted cash	4,142			—			1,303			—
Accounts receivable	17,658			25,936			16,322			25,936
Inventories	26,425			23,275			24,738			23,275
Prepaid expenses	20,830			18,223			21,672			18,223
Total current assets	139,053			118,088			139,626			118,088
Property and equipment, net	613,637			629,047			606,646			629,047
Goodwill	483,876			483,876			483,876			483,876
Intangible assets, net	487,068			488,095			486,041			488,095
Other noncurrent assets	20,276			13,929			21,449			13,929
Total assets	$	1,743,910		$	1,733,035		$	1,737,638		$	1,733,035
LIABILITIES AND STOCKHOLDER’S EQUITY
Current liabilities:
Bank indebtedness and other long-term debt	$	7,656		$	7,650		$	7,639		$	7,650
Capital lease obligations	435			421			454			421
Accounts payable	35,580			44,090			38,303			44,090
Accrued expenses	52,156			38,284			44,134			38,284
Unearned revenues	10,555			10,233			10,953			10,233
Accrued interest	3,912			9,757			8,895			9,757
Other current liabilities	3,780			3,678			3,877			3,678
Total current liabilities	114,074			114,113			114,255			114,113
Capital lease obligations, less current portion	14,934			15,044			14,813			15,044
Bank indebtedness and other long-term debt, net of deferred financing costs, less current portion	970,556			971,333			969,793			971,333
Deferred tax liability	193,584			201,734			195,452			201,734
Accrued insurance	9,485			9,737			9,664			9,737
Other noncurrent liabilities	213,890			212,528			214,989			212,528
Total liabilities	1,516,523			1,524,489			1,518,966			1,524,489
Stockholder’s equity:
Common stock, $0.01 par value; authorized 1,000 shares; 200 shares issued as of April 3, 2016 and January 3, 2016	—			—
Common stock, $0.01 par value; authorized 1,000 shares; 200 shares issued as of July 3, 2016 and January 3, 2016							—			—
Capital in excess of par value	356,632			356,460			356,808			356,460
Retained earnings (deficit)	(126,683		)	(144,598		)
Accumulated other comprehensive income (loss)	(2,562		)	(3,316		)
Accumulated deficit							(135,735		)	(144,598		)
Accumulated other comprehensive loss							(2,401		)	(3,316		)
Total stockholder’s equity	227,387			208,546			218,672			208,546
Total liabilities and stockholder’s equity	$	1,743,910		$	1,733,035		$	1,737,638		$	1,733,035

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

CEC ENTERTAINMENT, INC.

~~CONSOLIDATED~~COSOLIDATED STATEMENTS OF EARNINGS

(Unaudited)

(in thousands)


	Three Months Ended				Three Months Ended
	April 3, 2016		March 29, 2015		July 3, 2016			June 28, 2015
REVENUES:
Food and beverage sales	$	122,202	$	116,537	$	97,404		$	94,145
Entertainment and merchandise sales	147,557		144,744		114,657			113,861
Total company store sales	269,759		261,281		212,061			208,006
Franchise fees and royalties	4,559		4,227		4,560			4,073
Total revenues	274,318		265,508		216,621			212,079
OPERATING COSTS AND EXPENSES:
Company store operating costs:
Cost of food and beverage (exclusive of items shown separately below)	30,521		29,225		24,673			23,951
Cost of entertainment and merchandise (exclusive of items shown separately below)	8,750		8,522		8,240			7,015
Total cost of food, beverage, entertainment and merchandise	39,271		37,747		32,913			30,966
Labor expenses	69,043		67,173		60,405			59,234
Depreciation and amortization	27,629		29,241		29,733			28,970
Rent expense	24,150		24,458		24,049			24,260
Other store operating expenses	36,010		33,519		37,376			35,330
Total company store operating costs	196,103		192,138		184,476			178,760
Other costs and expenses:
Advertising expense	13,100		11,452		12,162			14,596
General and administrative expenses	18,018		16,326		15,922			17,807
Transaction, severance and related litigation costs	749		905		434			1,104
Total operating costs and expenses	227,970		220,821		212,994			212,267
Operating income (loss)	46,348		44,687		3,627			(188		)
Interest expense	17,061		17,499		17,121			17,324
Income (loss) before income taxes	29,287		27,188
Income tax expense (benefit)	11,372		12,446
Net income (loss)	$	17,915	$	14,742
Loss before income taxes					(13,494		)	(17,512		)
Income tax benefit					(4,442		)	(7,620		)
Net loss					$	(9,052	)	$	(9,892	)

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

CEC ENTERTAINMENT, INC.

CONSOLIDATED STATEMENTS OF EARNINGS

(Unaudited)

(in thousands)



	Six Months Ended
	July 3, 2016		June 28, 2015
REVENUES:
Food and beverage sales	$	219,607	$	210,681
Entertainment and merchandise sales	262,214		258,605
Total company store sales	481,821		469,286
Franchise fees and royalties	9,118		8,300
Total revenues	490,939		477,586
OPERATING COSTS AND EXPENSES:
Company store operating costs:
Cost of food and beverage (exclusive of items shown separately below)	55,195		53,176
Cost of entertainment and merchandise (exclusive of items shown separately below)	16,989		15,537
Total cost of food, beverage, entertainment and merchandise	72,184		68,713
Labor expenses	129,448		126,407
Depreciation and amortization	57,362		58,211
Rent expense	48,199		48,719
Other store operating expenses	73,387		68,848
Total company store operating costs	380,580		370,898
Other costs and expenses:
Advertising expense	25,261		26,048
General and administrative expenses	33,939		34,030
Transaction, severance and related litigation costs	1,184		2,112
Total operating costs and expenses	440,964		433,088
Operating income	49,975		44,498
Interest expense	34,182		34,822
Income before income taxes	15,793		9,676
Income tax expense	6,930		4,826
Net income	$	8,863	$	4,850

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

CEC ENTERTAINMENT, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)

(in thousands)

Three Months Ended
April 3,
2016 March 29,
2015
Net income (loss) $ 17,915
$ 14,742
Components of other comprehensive income (loss), net of tax:

Foreign currency translation adjustments 754
(1,642 )
Comprehensive income (loss) $ 18,669
$ 13,100



	Three Months Ended
	July 3, 2016			June 28, 2015
Net loss	$	(9,052	)	$	(9,892	)
Components of other comprehensive loss, net of tax:
Foreign currency translation adjustments	161			777
Comprehensive loss	$	(8,891	)	$	(9,115	)



	Six Months Ended
	July 3, 2016		June 28, 2015
Net income	$	8,863	$	4,850
Components of other comprehensive income, net of tax:
Foreign currency translation adjustments	915		(865		)
Comprehensive income	$	9,778	$	3,985

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

CEC ENTERTAINMENT, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(in thousands)


	Three Months Ended						Six Months Ended
	April 3, 2016			March 29, 2015			July 3, 2016			June 28, 2015
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	17,915		$	14,742
Net income							$	8,863		$	4,850
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	28,998			30,398			60,282			60,248
Deferred income taxes	(8,287		)	(13,268		)	(6,449		)	(11,909		)
Stock-based compensation expense	135			391			337			570
Amortization of lease related liabilities	12			5			23			61
Amortization of original issue discount and deferred debt financing costs	1,136			1,137			2,273			2,273
Loss on asset disposals, net	2,177			1,244			4,073			3,042
Non-cash rent expense	1,730			2,136			3,507			4,289
Other adjustments	27			19			172			(494		)
Changes in operating assets and liabilities:
Restricted cash	(4,142		)	—			(1,303		)	—
Accounts receivable	5,011			2,392			5,527			416
Inventories	(3,287		)	880			(3,645		)	(219		)
Prepaid expenses	(1,899		)	(752		)	(2,208		)	(4,568		)
Accounts payable	(7,551		)	(1,230		)	(4,542		)	547
Accrued expenses	165			1,512			1,763			2,181
Unearned revenues	316			309			713			1,860
Accrued interest	(5,951		)	(5,326		)	(868		)	(2		)
Income taxes payable	16,717			25,551			7,803			3,569
Deferred landlord contributions	550			408			1,417			657
Net cash provided by operating activities	43,772			60,548			77,738			67,371
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of Peter Piper Pizza	—			(663		)	—			(663		)
Purchases of property and equipment	(18,823		)	(16,109		)	(42,400		)	(38,628		)
Acquisition of franchisee	—			—
Development of internal use software	(3,625		)	(185		)	(6,223		)	(1,571		)
Proceeds from sale of property and equipment	79			97			318			82
Net cash used in investing activities	(22,369		)	(16,860		)	(48,305		)	(40,780		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments on senior term loan	(1,900		)	(1,900		)	(3,800		)	(3,800		)
Repayments on note payable	(7		)	(11		)	(24		)	(22		)
Payments on capital lease obligations	(101		)	(100		)	(204		)	(209		)
Payments on sale leaseback obligations	(474		)	(386		)	(956		)	(771		)
Excess tax benefit realized from stock-based compensation	4			—			4			—

Table of Contents

CEC ENTERTAINMENT, INC.

CONSOLIDATED STATEMENT OF CASH FLOWS, CONT'D

(Unaudited)

(in thousands)


Net cash provided by (used in) financing activities	(2,478		)	(2,397		)
Net cash used in financing activities							(4,980		)	(4,802		)
Effect of foreign exchange rate changes on cash	419			(661		)	484			(428		)
Change in cash and cash equivalents	19,344			40,630			24,937			21,361
Cash and cash equivalents at beginning of period	50,654			110,994			50,654			110,994
Cash and cash equivalents at end of period	$	69,998		$	151,624		$	75,591		$	132,355


	Three Months Ended						Six Months Ended
	April 3, 2016			March 29, 2015			July 3, 2016			June 28, 2015
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid	$	21,994		$	21,734		$	32,960		$	32,610
Income taxes paid, net	$	2,949		$	183		$	5,572		$	13,180
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Accrued construction costs	$	783		$	2,870		$	1,436		$	2,922

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

CEC ENTERTAINMENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Description of Business and Summary of Significant Accounting Policies:

Description of Business

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

We currently operate and franchise Chuck E. Cheese’s and Peter Piper Pizza family dining and entertainment centers (also referred to as “stores”) in a total of 47 states and 12 foreign countries and territories. Our stores provide our guests with a variety of family entertainment and dining alternatives. All of our stores utilize a consistent restaurant-entertainment format that features both family dining and entertainment areas with the same general mix of food, beverages, entertainment and merchandise. The economic characteristics, products and services, preparation processes, distribution methods and types of customers are substantially similar for each of our stores. Therefore, we aggregate each store’s operating performance into one reportable segment for financial reporting purposes.

Basis of Presentation

The Company has a controlling financial interest in International Association of CEC Entertainment, Inc. (the “Association”), a VIE. The Association primarily administers the collection and disbursement of funds (the “Association Funds”) used for advertising, entertainment and media programs that benefit both us and our Chuck E. Cheese’s franchisees. We and our franchisees are required to contribute a percentage of gross sales to these funds and could be required to make additional contributions to fund any deficits that may be incurred by the Association. We include the Association in our Consolidated Financial Statements, as we concluded that we are the primary beneficiary of its variable interests because we (a) have the power to direct the majority of its significant operating activities; (b) provide it unsecured lines of credit; and (c) own the majority of the stores that benefit from the Association’s advertising, entertainment and media expenditures. The assets, liabilities and operating results of the Association are not material to our Consolidated Financial Statements.

Because the Association Funds are required to be segregated and used for specified purposes, we do not reflect franchisee contributions to the Association Funds as revenue, but rather record franchisee contributions as an offset to reported advertising expenses. Our contributions to the Association Funds are eliminated in consolidation. Contributions to the advertising, entertainment and media funds from our franchisees were ~~$0.6~~$1.2 million and $1.1 million for ~~both~~ the ~~three~~six months ended ~~April~~July 3, 2016 and ~~March 29, 2015.~~June 28, 2015, respectively. Cash balances held by the Association are restricted for use in our advertising, entertainment and media programs, and are recorded as “Restricted cash” on our Consolidated Balance Sheets at ~~April~~July 3, 2016.

The preparation of these unaudited Consolidated Financial Statements in conformity with accounting principles generally accepted in the United States (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of our unaudited Consolidated Financial Statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Interim Financial Statements

The accompanying Consolidated Financial Statements as of ~~April~~July 3, 2016 and for the three and six months ended ~~April~~July 3, 2016 and ~~March 29,~~June 28, 2015 are unaudited and are presented in accordance with the requirements for quarterly reports on Form 10-Q and, consequently, do not include all of the information and footnote disclosures required by GAAP. In the opinion of management, the Consolidated Financial Statements include all adjustments (consisting solely of normal recurring adjustments) necessary for the fair statement of its consolidated results of operations, financial position and cash flows as of the dates and for the periods presented in accordance with GAAP and the rules and regulations of the United States Securities and Exchange Commission (the “SEC”). Our Consolidated Financial Statements include all necessary reclassification adjustments to conform prior year results to the current period presentation.

We reclassified ~~$0.9~~$1.2 million and $2.0 million of litigation costs related to the Merger, respectively (as defined in Note 7.12. “Commitments and Contingencies”) in our Consolidated Statement of Earnings for the three and six months ended ~~March 29,~~June 28, 2015, respectively, from “General and administrative expenses” to “Transaction, severance and litigation related costs” to conform to the current period’s presentation.

Consolidated results of operations for interim periods are not necessarily indicative of results for the full year. The unaudited Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and

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CEC ENTERTAINMENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

related notes included in our Annual Report on Form 10-K for the fiscal year ended January 3, 2016, filed with the SEC on March 2, 2016.

Recently Issued Accounting Guidance

Accounting Guidance Not Yet Adopted:

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). This new standard introduces a new lease model that requires the recognition of lease assets and lease liabilities on the balance sheet and the disclosure of key information about leasing arrangements. While this new standard retains most of the principles of the existing lessor model under U.S. GAAP, it aligns many of those principles with ASC 606: Revenue from Contracts with Customers. The new guidance will be effective for public business entities for annual periods beginning after December 15, 2018 (i.e., calendar periods beginning on January 1, 2019), and interim periods therein. For all other entities, the ASU will be effective for annual periods beginning after December 15, 2019 (i.e., calendar periods beginning on January 1, 2020), and interim periods thereafter. Early adoption will be permitted for all entities. We are currently assessing the impact of adopting this new guidance on our Consolidated Financial Statements.

In March 2016, The FASB issued ASU 2016-04, Liabilities - Extinguishments of Liabilities (Subtopic 405-20). This amendment provides a narrow scope exception to Liabilities - Extinguishment of Liabilities (Subtopic 405-20) that requires breakage for those liabilities to be accounted for in accordance with the breakage guidance in Revenue From Contracts With Customers (Topic 606). There is currently no guidance in GAAP, or pending guidance, regarding the derecognition of prepaid stored-value product liabilities within the scope of the amendments in this ~~Update.~~update. Under the new guidance, if an entity expects to be entitled to a breakage amount for a liability resulting from the sale of a prepaid stored-value product, the entity shall derecognize the amount related to the expected breakage in proportion to the pattern of rights expected to be exercised by the product holder only to the extent that it is probable that a significant reversal of the recognized breakage amount will not subsequently occur. If an entity does not expect to be entitled to a breakage amount for a prepaid stored-value product, the entity shall derecognize the amount related to the breakage when the likelihood of the product holder exercising its remaining rights becomes remote. This change to an entity’s estimated breakage amount shall be accounted for as a change in accounting estimate. The amendments in this ~~Update~~update are effective for public business entities for financial statements issued for fiscal years beginning after December 15, 2017. Early adoption is permitted, including adoption in an interim period. We are currently assessing the impact of adopting this new guidance on our Consolidated Financial Statements.

In March 2016, the FASB issued ASU 2016-09, Compensation - Stock Compensation (Topic 718). This amendment will require that (i) all excess tax benefits and deficiencies (including tax benefits of dividends on share-based payment awards) ~~should~~ be recognized as income tax expense or benefit on the income statement, (ii) the tax effects of exercised or vested awards ~~should now~~ be treated as discrete items in the reporting period in which they occur, and (iii) an entity ~~should~~ recognize excess tax benefits regardless of whether the benefit reduces taxes payable in the current period or not. On the statement of cash flows excess tax benefits should be classified along with other income tax cash flows as an operating activity. This amendment allows an entity to make an entity-wide accounting policy election to either estimate the number of awards that are expected to vest (current GAAP) or account for forfeitures when they occur. The threshold for an award to qualify for equity classification permits withholding up to the maximum statutory tax rate in applicable jurisdictions, and the cash paid by an employer when directly withholding shares for tax-withholding purposes should be classified as a financing activity on the statement of cash flows. Nonpublic entities can make an accounting policy election to apply a practical expedient to estimate the expected term for all awards with performance or service conditions that meet certain conditions. For public entities, the amendments in this ~~Update~~update are effective for annual periods beginning after December 15, 2016 and interim periods within those annual periods. We are currently assessing the impact of adopting this new guidance on our Consolidated Financial Statements.

In April 2016, the FASB issued ASU 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing. This amendment updates the revenue guidance on identifying performance obligations and accounting for licenses of intellectual property, changing the FASB’s previous proposals on right-of-use licenses and contractual restrictions. For an entity that licenses intellectual property, the amount or timing of revenue recognition the timing and pattern of revenue recognition for intellectual property licenses, including the application of the sale- and usage-based royalties exception may be significantly different from current practice. Additionally, an entity will need to evaluate which contractual restrictions are attributes of a license and which give rise to separate performance obligations. This amendment is effective for annual reporting periods beginning after December 15, 2017 and for interim periods therein. Early application is permitted, but only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods therein. We are currently assessing the impact of adopting this new guidance on our Consolidated Financial Statements.

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CEC ENTERTAINMENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326):Measurement of Credit Losses on Financial Instruments. This amendment changes the impairment model for most financial assets and certain other instruments. For trade and other receivables, held-to-maturity debt securities, loans and other instruments, entities will be required to use a new forward-looking “expected loss” model that generally will result in the earlier recognition of allowances for losses. For public companies that are SEC filers, the amendments in this update are effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. Entities may early adopt the amendments in this update as of the fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. We do not expect the adoption of this amendment to have a significant impact on our Consolidated Financial Statements.

2. Property and Equipment:

Total depreciation and amortization expense was ~~$29.0~~$31.3 million and ~~$30.4~~$29.8 million for the three months ended ~~April~~July 3, 2016 and ~~March 29,~~June 28, 2015, respectively, of which ~~$1.4~~$1.6 million and ~~$1.0~~$0.9 million, respectively, was included in “General and administrative expenses” in our Consolidated Statements of Earnings. Total depreciation and amortization expense for both the three months ended ~~April~~July 3, 2016 and ~~March 29,~~June 28, 2015, includes approximately $0.5 million related to the amortization of franchise agreements (see Note 3. “Intangible Assets, Net”).

~~Asset Impairments~~

~~There were no impairment charges recognized during~~Total depreciation and amortization expense was $60.3 million and $60.2 million for the ~~three~~six months ended ~~April~~July 3, 2016 and ~~March 29,~~June 28, 2015, ~~respectively.~~respectively, of which $2.9 million and $2.0 million, respectively, was included in “General and administrative expenses” in our Consolidated Statements of Earnings. Total depreciation and amortization expense for both the six months ended July 3, 2016 and June 28, 2015, includes approximately $1.0 million and related to the amortization of franchise agreements (see Note 3. “Intangible Assets, Net”).

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~~CEC ENTERTAINMENT, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)~~

~~(Unaudited)~~

3. Intangible Assets, Net:

The following table presents our indefinite and definite-lived intangible assets at ~~April~~July 3, 2016:


	Weighted Average Life (Years)	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Weighted Average Life (Years)	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
		(in thousands)								(in thousands)
Chuck E. Cheese's tradename	Indefinite	$	400,000	$	—		$	400,000	Indefinite	$	400,000				$	400,000
Peter Piper Pizza tradename	Indefinite	26,700		—			26,700		Indefinite	26,700					26,700
Favorable lease agreements ⁽¹⁾	10	14,880		(4,200		)	10,680		10	14,880		(4,715		)	10,165
Franchise agreements	25	53,300		(3,612		)	49,688		25	53,300		(4,124		)	49,176
		$	494,880	$	(7,812	)	$	487,068		$	494,880	$	(8,839	)	$	486,041

__________________

(1)

In connection with the Merger and the acquisition of Peter Piper Pizza (“PPP”), we also recorded unfavorable lease liabilities of $10.2 million and $3.9 million, respectively, which are included in “Other current liabilities” and “Other noncurrent liabilities” in our Consolidated Balance Sheets. Such amounts are being amortized over a weighted average life of 10 years, and are included in “Rent expense” in our Consolidated Statements of Earnings.

Amortization expense related to favorable lease agreements was $0.5 million for both the three months ended ~~April~~July 3, 2016 and ~~March 29,~~June 28, 2015 and $1.0 million for both the six months ended July 3, 2016 and June 28, 2015, and is included in “Rent expense” in our Consolidated Statements of Earnings. Amortization expense related to franchise agreements was $0.5 million for both the three months ended ~~April~~July 3, 2016 and ~~March 29,~~June 28, 2015, and $1.0 million for both the six months ended July 3, 2016 and June 28, 2015 and is included in “General and administrative expenses” in our Consolidated Statements of Earnings.

~~Note~~ 4. Accounts Payable:

Accounts payable consisted of the following as of the dates presented:

April 3, 2016 January 3, 2016
(in thousands)
Trade and other amounts payable $ 27,085
$ 35,228
Book overdraft 8,495
8,862
Accounts Payable $ 35,580
$ 44,090

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

~~Trade and other amounts payable represents amounts payable to our vendors, legal fee accruals and settlements payable.~~



	July 3, 2016		January 3, 2016
	(in thousands)
Trade and other amounts payable	$	29,408	$	35,228
Book overdraft	8,895		8,862
Accounts Payable	$	38,303	$	44,090

The book overdraft balance represents checks issued but not yet presented to banks.

5. Indebtedness and Interest Expense:

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

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~~CEC ENTERTAINMENT, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)~~

~~(Unaudited)~~


	April 3, 2016			January 3, 2016			July 3, 2016			January 3, 2016
	(in thousands)						(in thousands)
Term loan facility	$	744,800		$	746,700		$	742,900		$	746,700
Senior notes	255,000			255,000			255,000			255,000
Note payable	56			63			39			63
Total debt outstanding	999,856			1,001,763			997,939			1,001,763
Less:
Unamortized original issue discount	(2,641		)	(2,776		)	(2,506		)	(2,776		)
Deferred financing costs, net	(19,003		)	(20,004		)	(18,001		)	(20,004		)
Current portion	(7,656		)	(7,650		)	(7,639		)	(7,650		)
Bank indebtedness and other long-term debt, net of deferred financing costs, less current portion	$	970,556		$	971,333		$	969,793		$	971,333

We were in compliance with the debt covenants in effect as of ~~April~~July 3, 2016 for both the Secured Credit Facilities and the senior notes. For further discussion regarding the debt covenants, see Secured Credit Facilities and Senior Unsecured Debt sections below.

Secured Credit Facilities

As of ~~April~~July 3, 2016, we had ~~$744.8~~$742.9 million (excluding the original issue discount) outstanding under the Term loan facility, no borrowings outstanding under the revolving credit facility and ~~$10.9~~$9.9 million of letters of credit issued but undrawn. The Secured Credit Facilities require scheduled quarterly payments on the term loan equal to 0.25% of the original principal amount of the Term loan from July 2014 to December 2020, with the remaining balance paid at maturity, February 14, 2021. ~~Effective April 8, 2016, the balance of our letters of credit issued but undrawn was reduced to $9.9 million.~~

The term loan was issued net of $3.8 million of original issue discount. We also paid $17.8 million and $3.4 million in debt financing costs related to the term loan facility and revolving credit facility, respectively, which we capitalized in “Bank indebtedness and other long-term debt, net of deferred financing costs” on our Consolidated Balance Sheets. The original issue discount and deferred financing costs are amortized over the lives of the facilities and are included in “Interest expense” on our Consolidated Statements of Earnings.

The weighted average effective interest rate incurred on our borrowings under our Secured Credit Facilities was 4.7% and 4.6% for the six months ended July 3, 2016 and June 28, 2015, respectively, which includes amortization of debt issuance costs related to our Secured Credit Facilities, amortization of our term loan facility original issue discount and commitment and other fees related to our Secured Credit Facilities.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

In addition to paying interest on outstanding principal under the Secured Credit Facilities, we are required to pay a commitment fee to the lenders under the revolving credit facility with respect to the unutilized commitments thereunder. The base applicable commitment fee rate under the revolving credit facility is 0.5% per annum and is subject to one step-down from 0.5% to 0.375% based on our net first lien senior secured leverage ratio. We are also required to pay customary agency fees, as well as letter of credit participation fees computed at a rate per annum equal to the applicable margin for LIBOR rate borrowings on the dollar equivalent of the daily stated amount of outstanding letters of credit, plus such letter of credit issuer’s customary documentary and processing fees and charges and a fronting fee computed at a rate equal to 0.125% per annum on the daily stated amount of letter of credit.

As a result of a decrease in our net first lien secured leverage ratio reported for the year ended January 3, 2016, effective March 4, 2016, the applicable margin for borrowings under the term loan facility stepped down from 3.25% to 3.00%, the applicable margin for borrowings under the revolving credit facility stepped down from 3.25% to 3.00%, and the applicable ~~unused~~ commitment fee rate stepped down from 0.5% to 0.375% ~~based~~. Effective April 8, 2016, the balance of our letters of credit issued but undrawn was reduced from $10.9 million to $9.9 million.

The Secured Credit Facilities also contain customary affirmative covenants and events of default, negative covenants which limit our ability to, among other things: incur additional debt or issue certain preferred shares; create liens on certain assets; make certain loans or investments (including acquisitions); pay dividends on or make distributions with respect to our capital stock or make other restricted payments; consolidate, merge, sell or otherwise dispose of all or substantially all of our assets; sell assets; enter into certain transactions with our affiliates; enter into sale-leaseback transactions; change our lines of business; restrict dividends from our subsidiaries or restrict liens; change our fiscal year; and modify the terms of certain debt or organizational agreements.

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 consist of first priority liens with respect to the collateral.

Our revolving credit facility includes a springing financial maintenance covenant that requires our net first lien senior secured leverage ~~ratio.During~~ratio not to exceed 6.25 to 1.00 (the ratio of consolidated net debt secured by first-priority liens on the ~~three months ended April 3, 2016,~~collateral to the ~~federal funds rate ranged from 0.25%~~last twelve months’ EBITDA, as defined in the Senior Credit Facilities). The covenant will be tested quarterly if the revolving credit facility is more than 30% drawn (excluding outstanding letters of credit) and will be a condition to ~~0.38%,~~drawings under the ~~prime rate was~~ ~~3.25%~~ ~~and the one-month LIBOR ranged from 0.42% to 0.44%.~~

The weighted average effective interest rate incurred on our borrowings under our Secured Credit Facilities was 4.7% and 4.6% for the three months ended April 3, 2016 and March 29, 2015, respectively, which includes amortization of debt issuance costs related to our Secured Credit Facilities, amortization of our term loanrevolving credit facility ~~original issue discount and commitment and other fees related to our Secured Credit Facilities.~~that would result in more than 30% drawn thereunder.

As of ~~April~~July 3, 2016, the borrowings under the revolving credit facility were less than 30% of the outstanding commitments; therefore, the springing financial maintenance covenant under our revolving credit facility was not in effect.

Senior Unsecured Debt

Our senior unsecured debt consists of $255.0 million aggregate principal amount borrowings of 8.000% Senior Notes due 2022 (the “senior notes”) ~~bear interest at a rate of 8.000% per year~~ and ~~mature~~maturing on February 15, 2022. The senior notes are registered under the Securities Act, do not bear legends restricting their transfer and are not entitled to registration rights under our registration rights agreement. On or after February 15, 2017, we may redeem some or all of the senior notes at certain redemption prices set forth in the indenture governing the senior notes (the “indenture”). Prior to February 15, 2017, we may redeem (i) up to 40% of the original aggregate principal amount of the senior notes with the net cash proceeds of one or more equity offerings at a price equal to 108% of the principal amount thereof, plus accrued and unpaid interest, or (ii) some or all of the notes at a price equal to 100% of the principal amount thereof, plus accrued and unpaid interest, plus the applicable “make-whole” premium set forth in the indenture.

We paid $6.4 million in debt issuance costs related to the senior notes, which we capitalized in “Bank indebtedness and other long-term debt, net of deferred financing costs” on our Consolidated Balance Sheets. The deferred financing costs are amortized over the life of the senior notes and are included in “Interest expense” on our Consolidated Statements of Earnings.

Our obligations under the senior notes are fully and unconditionally guaranteed, jointly and severally, by our present and future direct and indirect wholly-owned material domestic subsidiaries that guarantee our Secured Credit Facilities.

The indenture contains restrictive covenants that limit our ability to, among other things: incur additional debt or issue certain preferred shares; create liens on certain assets; make certain loans or investments (including acquisitions); pay dividends on or make distributions in respect of our capital stock or make other restricted payments; consolidate, merge, sell or otherwise

1113

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CEC ENTERTAINMENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

dispose of all or substantially all of our assets; sell assets; enter into certain transactions with our affiliates; and restrict dividends from our subsidiaries.

The weighted average effective interest rate incurred on borrowings under our senior notes was 8.3% for both the ~~three~~six months ended ~~April~~July 3, 2016 and the ~~three~~six months ended ~~March 29,~~June 28, 2015, which included amortization of debt issuance costs and other fees related to our senior notes.

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~~CEC ENTERTAINMENT, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)~~

~~(Unaudited)~~

Interest Expense

Interest expense consisted of the following for the periods presented:


	Three Months Ended					Three Months Ended
	April 3, 2016			March 29, 2015		July 3, 2016		June 28, 2015
	(in thousands)					(in thousands)
Term loan facility ⁽¹⁾	$	8,157		$	7,907	$	7,500	$	7,743
Senior notes	5,157			5,157		5,157		5,157
Capital lease obligations	440			455		439		447
Sale leaseback obligations	2,758			2,783		2,636		2,783
Amortization of debt issuance costs	1,001			1,001		1,001		1,001
Other	(452		)	196		388		193
Total interest expense	$	17,061		$	17,499	$	17,121	$	17,324



	Six Months Ended
	July 3, 2016			June 28, 2015
	(in thousands)
Term loan facility ⁽¹⁾	$	15,657		$	15,505
Senior notes	10,313			10,313
Capital lease obligations	879			902
Sale leaseback obligations	5,394			5,566
Amortization of debt issuance costs	2,002			2,002
Other	(63		)	534
Total interest expense	$	34,182		$	34,822

__________________

(1) Includes amortization of original issue discount.

The weighted average effective interest rate incurred on our combined borrowings under our Secured Credit Facilities and senior notes was 5.6% and 5.5% for the ~~three~~six months ended ~~April~~July 3, 2016, and ~~March 29,~~June 28, 2015, respectively.

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CEC ENTERTAINMENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

6. Fair Value of Financial Instruments:

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


	April 3, 2016				January 3, 2016				July 3, 2016				January 3, 2016
	Carrying Amount ⁽¹⁾		Estimated Fair Value		Carrying Amount ⁽¹⁾		Estimated Fair Value		Carrying Amount ⁽¹⁾		Estimated Fair Value		Carrying Amount ⁽¹⁾		Estimated Fair Value
	(in thousands)								(in thousands)
Financial Liabilities:
Bank indebtedness and other long-term debt, less current portion	$	989,559	$	920,101	$	991,337	$	962,600
Bank indebtedness and other long-term debt:
Current portion									$	7,639	$	7,430	$	7,650	$	7,451
Long-term portion									987,794		963,067		991,337		962,600
Bank indebtedness and other long-term debt:									$	995,433	$	970,497	$	998,987	$	970,051

_________________

(1) Excluding net deferred financing costs

Our financial instruments consist of cash and cash equivalents, restricted cash, accounts receivable, accounts payable, our Secured Credit Facilities and our senior notes. The carrying amount of cash and cash equivalents, accounts receivable and accounts payable approximates fair value because of their short maturities. The estimated fair value of our Secured Credit Facilities' term loan and senior notes was determined by using ~~estimated market prices~~the average of the ask and bid price of our outstanding borrowings under our term loan facility and the senior notes ~~which~~as of the nearest open market date preceding the reporting period end. The average of the ask and bid price are classified as Level 2 in the fair value hierarchy.

During the ~~three~~six months ended ~~April~~July 3, 2016 and ~~March 29,~~June 28, 2015, there were no significant transfers among level 1, 2 or 3 fair value determinations.

7. Income Taxes:

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



	Three Months Ended
	July 3, 2016			June 28, 2015
	(in thousands, except %)
Federal and state income taxes	$	(4,551	)	$	(8,101	)
Foreign income taxes⁽¹⁾	109			481
Income tax benefit	$	(4,442	)	$	(7,620	)
Effective rate	32.9		%	43.5		%



	Six Months Ended
	July 3, 2016			June 28, 2015
	(in thousands, except %)
Federal and state income taxes	$	6,712		$	4,074
Foreign income taxes⁽¹⁾	218			752
Income tax expense	$	6,930		$	4,826
Effective rate	43.9		%	49.9		%

_________________

(1) Including foreign taxes withheld.

Our effective income tax rate of 32.9% for the three months ended July 3, 2016, and 43.5% for the three months ended June 28, 2015, differs from the statutory rate primarily due to the favorable impact of employment related federal income tax credits and the unfavorable impact of non-deductible litigation and settlement costs related to the Merger. Our effective income tax rate of 43.9% for the six months ended July 3, 2016, and 49.9% for the six months ended June 28, 2015differs from the statutory rate primarily due to the favorable impact of employment related federal income tax credits and the unfavorable impact of non-deductible litigation and settlement costs related to the Merger. In addition, both the three-month and six-month periods ended July 3, 2016, were negatively impacted by an increase in the liability for uncertain tax posi

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

tions and a change in state income tax rates.

Our quarterly provision for income taxes has historically been calculated using the annual effective rate method which applies an estimated annual effective tax rate to pre-tax income or loss. However, for the three and six month periods ended July 3, 2016, we have used the actual year-to-date effective tax rate (the “discrete method”), as required by ASC 740-270, Accounting for Income Taxes-Interim Reporting when a reliable estimate cannot be made. We believe that at this time, the use of the discrete method is more appropriate than the annual effective tax rate method due to significant variations in the customary relationship between income tax expense and projected annual pre-tax income or loss which occurs when projected pre-tax income or loss nears a relatively small amount in comparison to the differences between financial statement versus tax accounting. Using the discrete method, we have determined our current and deferred income tax expense as if the interim period were an annual period.

Our liability for uncertain tax positions (excluding interest and penalties) was $3.9 million and $3.3 million as of July 3, 2016 and January 3, 2016, respectively, and if recognized would decrease our provision for income taxes by $1.6 million. Within the next twelve months, we could settle or otherwise conclude income tax audits. As such, it is reasonably possible that the liability for uncertain tax positions could decrease by as much as $0.6 million as a result of settlements with certain taxing authorities and expiring statutes of limitations within the next twelve months.

Total accrued interest and penalties related to unrecognized tax benefits as of July 3, 2016 and January 3, 2016, was $1.0 million and $1.7 million, respectively. On the Consolidated Balance Sheets, we include current interest related to unrecognized tax benefits in “Accrued interest,” current penalties in “Accrued expenses” and noncurrent accrued interest and penalties in “Other noncurrent liabilities.”

8. Stock-Based Compensation Arrangements:

The 2014 Equity Incentive Plan provides Queso Holdings Inc. (“Parent”) authority to grant equity incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock, restricted stock units, stock bonus awards or performance compensation awards to certain directors, officers or employees of the Company. A summary of the option activity under the equity incentive plan as of July 3, 2016 and the activity for the six months ended July 3, 2016 is presented below:



	Stock Options		Weighted Average Exercise Price ⁽¹⁾	Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value
			($ per share)		($ in thousands)
Outstanding stock options, January 3, 2016	2,393,084		$8.59
Options Granted	101,110		$12.51
Options Exercised	(13,399	)	$8.86
Options Forfeited	(34,646	)	$9.15
Outstanding stock options, July 3, 2016	2,446,149		$8.79	7.90	$	11,550
Stock options expected to vest, July 3, 2016	2,201,534		$8.79	7.90	$	10,395
Exercisable stock options, July 3, 2016	312,141		$8.34	7.67	$	2,910

__________________

(1) The weighted average exercise price reflects the original grant date fair value per option as adjusted for the dividend payment made in August 2015.

As of July 3, 2016, we had $2.7 million of total unrecognized share-based compensation expense related to unvested options, net of expected forfeitures, which is expected to be amortized over the remaining weighted-average period of 3.3 years.

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)



	Three Months Ended
	July 3, 2016			June 28, 2015
	(in thousands)
Stock-based compensation costs	$	206		$	180
Portion capitalized as property and equipment ⁽¹⁾	(4		)	(2		)
Stock-based compensation expense recognized	$	202		$	178
Excess tax benefit recognized from exercise of stock-based compensation awards	$	—		$	—



	Six Months Ended
	July 3, 2016			June 28, 2015
	(in thousands)
Stock-based compensation costs	$	344		$	576
Portion capitalized as property and equipment ⁽¹⁾	(7		)	(6		)
Stock-based compensation expense recognized	$	337		$	570
Excess tax benefit recognized from exercise of stock-based compensation awards	$	4		$	—

__________________

(1)

We capitalize the portion of stock-based compensation costs related to our design, construction, facilities and legal departments that are directly attributable to our store development projects, such as the design and construction of a new store and the remodeling and expansion of our existing stores. Capitalized stock-based compensation costs attributable to our store development projects are included in “Property and equipment, net” in the Consolidated Balance Sheets.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

9. Stockholder’s Equity:

The following table summarizes the changes in stockholder’s equity during the six months ended July 3, 2016:



	Common Stock			Capital In Excess of Par Value		Accumulated Deficit			Accumulated Other Comprehensive Loss
	Shares	Amount		Capital In Excess of Par Value		Accumulated Deficit			Accumulated Other Comprehensive Loss			Total
	(in thousands, except share information)
Balance at January 3, 2016	200	$	—	$	356,460	$	(144,598	)	$	(3,316	)	$	208,546
Net income	—	—		—		8,863			—			8,863
Other comprehensive income	—	—		—		—			915			915
Stock-based compensation costs	—	—		344		—			—			344
Excess tax benefit realized from exercise of stock options	—	—		4		—			—			4
Balance at July 3, 2016	200	$	—	$	356,808	$	(135,735	)	$	(2,401	)	$	218,672

10. Consolidating Guarantor Financial Information:

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)



CEC Entertainment, Inc.
Condensed Consolidating Balance Sheet
As of July 3, 2016
(in thousands)

	Issuer			Guarantors			Non-Guarantors			Eliminations			Consolidated
Current assets:
Cash and cash equivalents	$	68,377		$	747		$	6,467		$	—		$	75,591
Restricted cash	—			—			1,303			—			1,303
Accounts receivable	13,903			1,855			7,557			(6,993		)	16,322
Inventories	21,358			3,091			289			—			24,738
Other current assets	14,743			5,800			1,129			—			21,672
Total current assets	118,381			11,493			16,745			(6,993		)	139,626
Property and equipment, net	555,394			42,846			8,406			—			606,646
Goodwill	432,462			51,414			—			—			483,876
Intangible assets, net	20,458			465,583			—			—			486,041
Intercompany	138,609			32,976			—			(171,585		)	—
Investment in subsidiaries	417,528			—			—			(417,528		)	—
Other noncurrent assets	2,370			18,448			631			—			21,449
Total assets	$	1,685,202		$	622,760		$	25,782		$	(596,106	)	$	1,737,638
Current liabilities:
Bank indebtedness and other long-term debt, current portion	$	7,600		$	39		$	—		$	—		$	7,639
Capital lease obligations, current portion	449			—			5			—			454
Accounts payable and accrued expenses	85,813			13,198			3,274			—			102,285
Other current liabilities	3,549			328			—			—			3,877
Total current liabilities	97,411			13,565			3,279			—			114,255
Capital lease obligations, less current portion	14,747			—			66			—			14,813
Bank indebtedness and other long-term debt, net of deferred financing costs, less current portion	969,793			—			—			—			969,793
Deferred tax liability	172,323			23,247			(118		)	—			195,452
Intercompany	—			152,670			25,908			(178,578		)	—
Other noncurrent liabilities	212,256			12,111			286			—			224,653
Total liabilities	1,466,530			201,593			29,421			(178,578		)	1,518,966
Stockholder's equity:
Common stock	—			—			—			—			—
Capital in excess of par value	356,808			466,114			3,241			(469,355		)	356,808
Retained earnings (deficit)	(135,735		)	(44,947		)	(4,479		)	49,426			(135,735		)
Accumulated other comprehensive income (loss)	(2,401		)	—			(2,401		)	2,401			(2,401		)
Total stockholder's equity	218,672			421,167			(3,639		)	(417,528		)	218,672
Total liabilities and stockholder's equity	$	1,685,202		$	622,760		$	25,782		$	(596,106	)	$	1,737,638

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)



CEC Entertainment, Inc.
Condensed Consolidating Balance Sheet
As of January 3, 2016
(in thousands)

	Issuer			Guarantors			Non-Guarantors			Eliminations			Consolidated
Current assets:
Cash and cash equivalents	$	42,235		$	1,797		$	6,622		$	—		$	50,654
Restricted cash	—			—			—			—			—
Accounts receivable	21,595			3,944			9,468			(9,071		)	25,936
Inventories	19,959			3,021			295			—			23,275
Other current assets	13,562			3,561			1,100			—			18,223
Total current assets	97,351			12,323			17,485			(9,071		)	118,088
Property and equipment, net	585,915			34,539			8,593			—			629,047
Goodwill	432,462			51,414			—			—			483,876
Intangible assets, net	21,855			466,240			—			—			488,095
Intercompany	129,151			30,716			—			(159,867		)	—
Investment in subsidiaries	422,407			—			—			(422,407		)	—
Other noncurrent assets	4,318			8,940			671			—			13,929
Total assets	$	1,693,459		$	604,172		$	26,749		$	(591,345	)	$	1,733,035
Current liabilities:
Bank indebtedness and other long-term debt, current portion	$	7,600		$	50		$	—		$	—		$	7,650
Capital lease obligations, current portion	418			—			3			—			421
Accounts payable and accrued expenses	71,320			27,774			3,270			—			102,364
Other current liabilities	3,350			328			—			—			3,678
Total current liabilities	82,688			28,152			3,273			—			114,113
Capital lease obligations, less current portion	14,980			—			64			—			15,044
Bank indebtedness and other long-term debt, net of deferred financing costs, less current portion	971,320			13			—			—			971,333
Deferred tax liability	184,083			17,867			(216		)	—			201,734
Intercompany	20,580			121,850			26,508			(168,938		)	—
Other noncurrent liabilities	211,262			10,784			219			—			222,265
Total liabilities	1,484,913			178,666			29,848			(168,938		)	1,524,489
Stockholder's equity:
Common stock	—			—			—			—			—
Capital in excess of par value	356,460			466,114			3,241			(469,355		)	356,460
Retained earnings (deficit)	(144,598		)	(40,608		)	(3,024		)	43,632			(144,598		)
Accumulated other comprehensive income (loss)	(3,316		)	—			(3,316		)	3,316			(3,316		)
Total stockholder's equity	208,546			425,506			(3,099		)	(422,407		)	208,546
Total liabilities and stockholder's equity	$	1,693,459		$	604,172		$	26,749		$	(591,345	)	$	1,733,035

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CEC Entertainment, Inc.
Consolidating Statement of Comprehensive Income (Loss)
For the Three Months Ended July 3, 2016
(in thousands)


	Issuer			Guarantors			Non-Guarantors			Eliminations			Consolidated
Revenues:
Food and beverage sales	$	84,011		$	12,099		$	1,294		$	—		$	97,404
Entertainment and merchandise sales	106,678			5,850			2,129			—			114,657
Total company store sales	190,689			17,949			3,423			—			212,061
Franchise fees and royalties	672			3,888			—			—			4,560
International Association assessments and other fees	207			615			8,357			(9,179		)	—
Total revenues	191,568			22,452			11,780			(9,179		)	216,621
Operating Costs and Expenses:
Company store operating costs:
Cost of food and beverage	21,014			3,140			519			—			24,673
Cost of entertainment and merchandise	7,639			457			144			—			8,240
Total cost of food, beverage, entertainment and merchandise	28,653			3,597			663			—			32,913
Labor expenses	55,375			3,803			1,227			—			60,405
Depreciation and amortization	28,596			628			509			—			29,733
Rent expense	22,110			1,379			560			—			24,049
Other store operating expenses	34,876			2,369			979			(848		)	37,376
Total company store operating costs	169,610			11,776			3,938			(848		)	184,476
Advertising expense	8,801			1,048			10,644			(8,331		)	12,162
General and administrative expenses	5,746			10,067			109			—			15,922
Transaction, severance and related litigation costs	427			7			—			—			434
Total operating costs and expenses	184,584			22,898			14,691			(9,179		)	212,994
Operating income (loss)	6,984			(446		)	(2,911		)	—			3,627
Equity in earnings (loss) in affiliates	(4,683		)	—			—			4,683			—
Interest expense	15,479			1,536			106			—			17,121
Income (loss) before income taxes	(13,178		)	(1,982		)	(3,017		)	4,683			(13,494		)
Income tax expense (benefit)	(4,126		)	585			(901		)	—			(4,442		)
Net income (loss)	$	(9,052	)	$	(2,567	)	$	(2,116	)	$	4,683		$	(9,052	)

Components of other comprehensive income (loss), net of tax:
Foreign currency translation adjustments	161			—			161			(161		)	161
Comprehensive income (loss)	$	(8,891	)	$	(2,567	)	$	(1,955	)	$	4,522		$	(8,891	)

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CEC Entertainment, Inc.
Consolidating Statement of Comprehensive Income (Loss)
For the Three Months Ended June 28, 2015
(in thousands)


	Issuer			Guarantors			Non-Guarantors			Eliminations			Consolidated
Revenues:
Food and beverage sales	$	81,022		$	11,745		$	1,378		$	—		$	94,145
Entertainment and merchandise sales	107,733			3,882			2,246			—			113,861
Total company store sales	188,755			15,627			3,624			—			208,006
Franchise fees and royalties	495			3,578			—			—			4,073
International Association assessments and other fees	227			761			11,351			(12,339		)	—
Total revenues	189,477			19,966			14,975			(12,339		)	212,079
Operating Costs and Expenses:
Company store operating costs:
Cost of food and beverage	20,330			3,112			509			—			23,951
Cost of entertainment and merchandise	6,707			148			160			—			7,015
Total cost of food, beverage, entertainment and merchandise	27,037			3,260			669			—			30,966
Labor expenses	54,452			3,439			1,343			—			59,234
Depreciation and amortization	27,269			1,174			527			—			28,970
Rent expense	22,285			1,310			665			—			24,260
Other store operating expenses	33,161			2,103			1,054			(988		)	35,330
Total company store operating costs	164,204			11,286			4,258			(988		)	178,760
Advertising expense	11,995			1,266			12,686			(11,351		)	14,596
General and administrative expenses	5,882			11,771			154			—			17,807
Transaction, severance and litigation related costs	(185		)	1,289			—			—			1,104
Total operating costs and expenses	181,896			25,612			17,098			(12,339		)	212,267
Operating income (loss)	7,581			(5,646		)	(2,123		)	—			(188		)
Equity in earnings (loss) in affiliates	(3,036		)	—			—			3,036			—
Interest expense	16,568			621			135			—			17,324
Income (loss) before income taxes	(12,023		)	(6,267		)	(2,258		)	3,036			(17,512		)
Income tax expense (benefit)	(2,131		)	(5,102		)	(387		)	—			(7,620		)
Net income (loss)	$	(9,892	)	$	(1,165	)	$	(1,871	)	$	3,036		$	(9,892	)

Components of other comprehensive income (loss), net of tax:
Foreign currency translation adjustments	777			—			777			(777		)	777
Comprehensive income (loss)	$	(9,115	)	$	(1,165	)	$	(1,094	)	$	2,259		$	(9,115	)

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CEC Entertainment, Inc.
Consolidating Statement of Comprehensive Income (Loss)
For the Six Months Ended July 3, 2016
(in thousands)

	Issuer			Guarantors			Non-Guarantors			Eliminations			Consolidated
Revenues:
Food and beverage sales	$	191,834		$	24,888		$	2,885		$	—		$	219,607
Entertainment and merchandise sales	245,886			11,448			4,880			—			262,214
Total company store sales	437,720			36,336			7,765			—			481,821
Franchise fees and royalties	1,268			7,850			—			—			9,118
International Association assessments and other fees	462			1,230			20,315			(22,007		)	—
Total revenues	439,450			45,416			28,080			(22,007		)	490,939
Operating Costs and Expenses:
Company store operating costs:
Cost of food and beverage	47,658			6,438			1,099			—			55,195
Cost of entertainment and merchandise	15,757			902			330			—			16,989
Total cost of food, beverage, entertainment and merchandise	63,415			7,340			1,429			—			72,184
Labor expenses	119,109			7,802			2,537			—			129,448
Depreciation and amortization	55,158			1,235			969			—			57,362
Rent expense	44,367			2,712			1,120			—			48,199
Other store operating expenses	68,639			4,536			1,930			(1,718		)	73,387
Total company store operating costs	350,688			23,625			7,985			(1,718		)	380,580
Advertising expense	21,222			2,719			21,609			(20,289		)	25,261
General and administrative expenses	12,928			20,726			285			—			33,939
Transaction, severance and related litigation costs	1,129			55			—			—			1,184
Total operating costs and expenses	385,967			47,125			29,879			(22,007		)	440,964
Operating income (loss)	53,483			(1,709		)	(1,799		)	—			49,975
Equity in earnings (loss) in affiliates	(5,795		)	—			—			5,795			—
Interest expense (income)	32,081			1,887			214			—			34,182
Income (loss) before income taxes	15,607			(3,596		)	(2,013		)	5,795			15,793
Income tax expense (benefit)	6,744			751			(565		)	—			6,930
Net income (loss)	$	8,863		$	(4,347	)	$	(1,448	)	$	5,795		$	8,863

Components of other comprehensive income (loss), net of tax:
Foreign currency translation adjustments	915			—			915			(915		)	915
Comprehensive income (loss)	$	9,778		$	(4,347	)	$	(533	)	$	4,880		$	9,778

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CEC Entertainment, Inc.
Consolidating Statement of Comprehensive Income (Loss)
For the Six Months Ended June 28, 2015
(in thousands)

	Issuer			Guarantors			Non-Guarantors			Eliminations			Consolidated
Revenues:
Food and beverage sales	$	183,407		$	24,061		$	3,213		$	—		$	210,681
Entertainment and merchandise sales	245,243			7,992			5,370			—			258,605
Total company store sales	428,650			32,053			8,583			—			469,286
Franchise fees and royalties	1,301			6,999			—			—			8,300
International Association assessments and other fees	512			1,424			20,004			(21,940		)	—
Total revenues	430,463			40,476			28,587			(21,940		)	477,586
Operating Costs and Expenses:
Company store operating costs:
Cost of food and beverage	45,721			6,355			1,100			—			53,176
Cost of entertainment and merchandise	14,328			901			308			—			15,537
Total cost of food, beverage, entertainment and merchandise	60,049			7,256			1,408			—			68,713
Labor expenses	116,185			7,368			2,854			—			126,407
Depreciation and amortization	54,888			2,288			1,035			—			58,211
Rent expense	44,588			2,805			1,326			—			48,719
Other store operating expenses	64,670			3,933			2,181			(1,936		)	68,848
Total company store operating costs	340,380			23,650			8,804			(1,936		)	370,898
Advertising expense	21,137			2,324			22,591			(20,004		)	26,048
General and administrative expenses	10,776			22,984			270			—			34,030
Transaction, severance and related litigation costs	(184		)	2,296			—			—			2,112
Total operating costs and expenses	372,109			51,254			31,665			(21,940		)	433,088
Operating income (loss)	58,354			(10,778		)	(3,078		)	—			44,498
Equity in earnings (loss) in affiliates	(10,798		)	—			—			10,798			—
Interest expense	33,304			1,254			264			—			34,822
Income (loss) before income taxes	14,252			(12,032		)	(3,342		)	10,798			9,676
Income tax expense (benefit)	9,402			(3,774		)	(802		)	—			4,826
Net income (loss)	$	4,850		$	(8,258	)	$	(2,540	)	$	10,798		$	4,850

Components of other comprehensive income (loss), net of tax:
Foreign currency translation adjustments	(865		)	—			(865		)	865			(865		)
Comprehensive income (loss)	$	3,985		$	(8,258	)	$	(3,405	)	$	11,663		$	3,985

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(Unaudited)



CEC Entertainment, Inc.
Consolidating Statement of Cash Flows
For the Six Months Ended July 3, 2016
(in thousands)

	Issuer			Guarantors			Non-Guarantors			Eliminations		Consolidated
Cash flows provided by (used in) operating activities:	$	66,349		$	11,899		$	(510	)	$	—	$	77,738

Cash flows from investing activities:
Purchases of property and equipment	(31,814		)	(10,459		)	(127		)	—		(42,400		)
Development of internal use software	(3,439		)	(2,784		)	—			—		(6,223		)
Proceeds from sale of property and equipment	—			318			—			—		318
Cash flows provided by (used in) investing activities	(35,253		)	(12,925		)	(127		)	—		(48,305		)

Cash flows from financing activities:
Repayments on senior term loan	(3,800		)	—			—			—		(3,800		)
Repayments on note payable	—			(24		)	—			—		(24		)
Payments on capital lease obligations	(202		)	—			(2		)	—		(204		)
Payments on sale leaseback transactions	(956		)	—			—			—		(956		)
Excess tax benefit realized from stock-based compensation	4			—			—			—		4
Cash flows provided by (used in) financing activities	(4,954		)	(24		)	(2		)	—		(4,980		)
Effect of foreign exchange rate changes on cash	—			—			484			—		484

Change in cash and cash equivalents	26,142			(1,050		)	(155		)	—		24,937
Cash and cash equivalents at beginning of period	42,235			1,797			6,622			—		50,654
Cash and cash equivalents at end of period	$	68,377		$	747		$	6,467		$	—	$	75,591

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CEC Entertainment, Inc.
Consolidating Statement of Cash Flows
For the Six Months Ended June 28, 2015
(in thousands)

	Issuer				Guarantors				Non-Guarantors				Eliminations				Consolidated
Cash flows provided by (used in) operating activities:	$	50,694			$	10,722			$	5,955			$	—			$	67,371

Cash flows from investing activities:
Acquisition of Peter Piper Pizza	(663		)		—				—				—				(663		)
Intercompany note	67				2,925				—				(2,992		)		—
Purchases of property and equipment	(33,679		)		(3,613		)		(1,336		)		—				(38,628		)
Development of internal use software	—				(1,571		)		—				—				(1,571		)
Proceeds from sale of property and equipment	107				(25		)		—				—				82
Cash flows provided by (used in) investing activities	(34,168		)	—	(2,284		)	—	(1,336		)	—	(2,992		)	—	(40,780		)

Cash flows from financing activities:
Repayments on senior term loan	(3,800		)		—				—				—				(3,800		)
Repayments on Note Payable	—				(22		)		—				—				(22		)
Intercompany note	—				(67		)		(2,925		)		2,992				—
Payments on capital lease obligations	(208		)		—				(1		)		—				(209		)
Payments on sale leaseback transactions	(771		)		—				—				—				(771		)
Cash flows provided by (used in) financing activities	(4,779		)	—	(89		)	—	(2,926		)	—	2,992			—	(4,802		)
Effect of foreign exchange rate changes on cash	—				—				(428		)		—				(428		)

Change in cash and cash equivalents	11,747			—	8,349			—	1,265			—	—			—	21,361
Cash and cash equivalents at beginning of period	97,020				6,427				7,547				—				110,994
Cash and cash equivalents at end of period	$	108,767			$	14,776			$	8,812			$	—			$	132,355

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(Unaudited)

11. Related Party Transactions:

CEC Entertainment reimburses Apollo Management, L.P. for certain out-of-pocket expenses incurred in connection with travel and Board of Directors related expenses. Expense reimbursements by CEC Entertainment to Apollo totaled $0.5 million for the six months ended July 3, 2016, and are included in “General and administrative expenses” in our Consolidated Statements of Earnings. There were no expense reimbursements paid to Apollo during the three months ended July 3, 2016.

In June 2016, CEC Entertainment entered into an agreement with an Apollo portfolio company, to manage CEC Entertainment’s print services and processes. We did not make any payments in connection with this agreement during the three or six months ended July 3, 2016.

12. 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

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third parties involved in operational issues common to the retail, restaurant and entertainment industries. Such matters typically represent actions with respect to contracts, intellectual property, taxation, employment, employee benefits, personal injuries and other matters. A number of such claims may exist at any given time, and there are currently a number of claims and legal proceedings pending against us.

In the opinion of our management, after consultation with legal counsel, the amount of liability with respect to claims or proceedings currently pending against us is not expected to have a material effect on our consolidated financial condition, results of operations or cash flows. All necessary loss accruals based on the probability and estimate of loss have been recorded.

Employment-Related Litigation: On January 27, 2014, former CEC employee Franchesca Ford filed a purported class action lawsuit against the Company in San Francisco County Superior Court, California (the “Ford Litigation”). The plaintiff claims to represent other similarly-situated hourly non-exempt employees and former employees of the Company in California who were employed from January 27, 2010 to the present, and she alleges violations of California state wage and hour laws. In March 2014, the Company removed the Ford Litigation to the U.S. District Court for the Northern District of California, San Francisco Division, and subsequently defeated the plaintiff’s motion to remand the case to California state court. In May 2015, the parties reached an agreement to settle the lawsuit on a class-wide basis. The settlement would result in the plaintiffs’ dismissal of all claims asserted in the action, as well as certain related but unasserted claims, and grant of complete releases, in exchange for the Company’s settlement payment. On March 24, 2016, the Court issued an order granting preliminary approval of the class settlement and setting a final approval hearing regarding the settlement for August 2016. The settlement of this action will not have a material adverse effect on our results of operations, financial position, liquidity or capital resources.

On October 10, 2014, former store General Manager Richard Sinohui filed a purported class action lawsuit against the Company in the Superior Court of California, Riverside County (the “Sinohui Litigation”), claiming to represent other similarly-situated current and former General Managers of the Company in California during the period October 10, 2010 to the present. The lawsuit ~~alleges~~sought an unspecified amount in damages and to certify a class based on allegations that CEC wrongfully classified current and former California General Managers as exempt from overtime ~~protections,~~protections; that such General Managers worked more than 40 hours a week without overtime premium pay, paid rest periods, and paid meal ~~periods,~~periods; and that the Company failed to provide accurate itemized wage statements or to pay timely wages upon separation from employment, in violation of the California Labor Code, California Business and Professions Code, and the applicable Wage Order issued by the California Industrial Welfare Commission. ~~Additionally, the~~The plaintiff also alleged that the Company failed to reimburse General Managers for certain business expenses, including for personal cell phone usage and mileage, in violation of the California Labor Code; he also asserted a claim for civil penalties under the California Private Attorneys General Act (“PAGA”). ~~The plaintiff seeks an unspecified amount in damages.~~ On December 5, 2014, the Company removed the Sinohui Litigation to the U.S. District Court for the Central District of California, Southern Division. On March 16, 2016, the Court issued an order denying in part and granting in part Plaintiff’s Motion for Class Certification. Specifically, the Court denied Plaintiff’s motion to the extent that he sought to certify a class on Plaintiff’s misclassification and wage statement claims, but certified a class with respect to Plaintiff’s claims that the Company had wrongfully failed to reimburse him for cell phone expenses and/or mileage. On June 14, 2016, the Court dismissed Sinohui’s PAGA claim. The parties have scheduled mediation of the Sinohui ~~Litigation~~lawsuit for October 2016. If the parties are unable to resolve the case at mediation, trial is ~~set~~currently scheduled for ~~trial in August 2016.~~June 2017. We believe the Company has meritorious defenses to this lawsuit and we intend to vigorously defend it. While no assurance can be given as to the ultimate outcome of this matter, we currently believe that the final resolution of this action will not have a material adverse effect on our results of operations, financial position, liquidity or capital resources.

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(Unaudited)

Litigation Related to the Merger: Following the January 16, 2014 announcement that the Company had entered into a merger agreement (the “Merger Agreement”), pursuant to which an entity controlled by Apollo Global Management, LLC and its subsidiaries merged with and into CEC Entertainment Inc., with CEC Entertainment Inc. surviving the merger (the “Merger”), four putative shareholder class actions were filed in the District Court of Shawnee County, Kansas, on behalf of purported stockholders of the Company, against the Company, its directors, Apollo, Parent and Merger Sub, in connection with the Merger Agreement and the transactions contemplated thereby. These actions were consolidated into one action in March ~~2014.~~

On2014, and on July 21, 2015, a consolidated class action petition was filed as the operative consolidated complaint, asserting claims against CEC and its former directors, adding The Goldman Sachs Group (“Goldman Sachs”) as a defendant, and removing all Apollo entities as defendants (“Consolidated Class Action Petition”). The Consolidated Class Action Petition alleges that the Company’s directors breached their fiduciary duties to the Company’s stockholders in connection with their consideration and approval of the Merger Agreement by, among other things, conducting a deficient sales process, agreeing to an inadequate tender price, agreeing to certain provisions in the Merger Agreement, and filing materially deficient disclosures regarding the transaction. The Consolidated Class Action Petition also alleges that two members of the Company’s board who also served as the senior managers of the Company had material conflicts of interest and that Goldman Sachs aided and abetted the board’s breaches as a result of various conflicts of interest facing the bank. The Consolidated Class Action Petition seeks,

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among other things, to recover damages, attorneys’ fees and costs. On March 23, 2016, the Court conducted a hearing on the defendants’ Motion to Dismiss the Consolidated Class Action Petition, and the parties are currently awaiting the Court’s ruling. The Court has not yet set this case for trial. The Company believes the Consolidated Class Action Petition is without merit and intends to defend it vigorously. While no assurance can be given as to the ultimate outcome of the consolidated matter, we currently believe that the final resolution of the action will not have a material adverse effect on our results of operations, financial position, liquidity or capital resources.

~~8. Income Taxes:~~

~~Our income tax expense consists of the following for the periods presented:~~

Three Months Ended
April 3, 2016 March 29, 2015
(in thousands, except %)
Federal and state income taxes $ 11,263
$ 12,174
Foreign income taxes 109
272
Income tax expense ⁽¹⁾
$ 11,372
$ 12,446
Effective rate 38.8 % 45.8 %

~~_________________~~

~~(1) Including foreign taxes withheld.~~

~~Our effective income tax rate of 38.8% for the three months ended~~ ~~April 3, 2016~~ differs from the statutory rate primarily due to the favorable impact of employment related federal income tax credits partially offset by the impact of non-deductible litigation costs related to the Merger. Our effective income tax rate of 45.8% for the three months ended March 29, 2015differs from the statutory rate primarily due to the unfavorable impact of non-deductible litigation and settlement costs related to the Merger, partially offset by benefits stemming from employment related income tax credits. Our liability for uncertain tax positions (excluding interest and penalties) was $3.4 million and $3.3 million as of April 3, 2016 and January 3, 2016, respectively, and if recognized would decrease our provision for income taxes by $1.3 million. Within the next twelve months, we could settle or otherwise conclude income tax audits. As such, it is reasonably possible that the liability for uncertain tax positions could decrease by as much as $0.2 million as a result of settlements with certain taxing authorities and expiring statutes of limitations within the next twelve months.

~~Total accrued interest and penalties related to unrecognized tax benefits as of~~ ~~April 3, 2016~~ ~~and~~ ~~January 3, 2016~~, was $0.8 million and $1.7 million, respectively. On the Consolidated Balance Sheets, we include current interest related to unrecognized tax benefits in “Accrued interest,” current penalties in “Accrued expenses” and noncurrent accrued interest and penalties in “Other noncurrent liabilities.”

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~~(Unaudited)~~

~~9. Stock-Based Compensation Arrangements:~~

~~A summary of the option activity under the equity incentive plan as of April 3, 2016 and the activity for the three months ended April 3, 2016 is presented below:~~

Stock Options
Weighted Average Exercise Price ⁽¹⁾
Weighted Average Remaining Contractual Term Aggregate Intrinsic Value
($ per share) ($ in thousands)
Outstanding stock options, January 3, 2016 2,393,084
$8.59

     Options Granted 101,110
$12.51

     Options Exercised (13,399 ) $8.86

     Options Forfeited (11,185 ) $10.91

Outstanding stock options, April 3, 2016 2,469,610
$8.78 8.14 10,141
Stock options expected to vest, April 3, 2016 2,222,650
$8.78 8.14 9,127
Exercisable stock options, April 3, 2016 327,726
$8.32 7.92 2,861

~~__________________~~

~~(1) The weighted average exercise price reflects the original grant date fair value per option as adjusted for the dividend payment made in August 2015.~~

As of April 3, 2016, we had $2.9 million of total unrecognized share-based compensation expense related to unvested options, net of expected forfeitures, which is expected to be amortized over the remaining weighted-average period of 3.2 years.

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

Three Months Ended
April 3,
2016 March 29,
2015
(in thousands)
Stock-based compensation costs $ 168
$ 395
Portion capitalized as property and equipment ⁽¹⁾
(33 ) (4 )
Stock-based compensation expense recognized $ 135
$ 391
Excess tax benefit recognized from exercise of stock-based compensation awards $ 4
$ —

~~__________________~~

~~(1)~~

We capitalize the portion of stock-based compensation costs related to our design, construction, facilities and legal departments that are directly attributable to our store development projects, such as the design and construction of a new store and the remodeling and expansion of our existing stores. Capitalized stock-based compensation cost attributable to our store development projects is included in “Property and equipment, net” in the Consolidated Balance Sheets.

~~Table of Contents~~

~~CEC ENTERTAINMENT, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)~~

~~(Unaudited)~~

~~10. Stockholder’s Equity:~~

~~The following table summarizes the changes in stockholder’s equity during the three months ended April 3, 2016:~~

Common Stock Capital In
Excess of
Par Value Retained
Earnings Accumulated
Other
Comprehensive
Income
Shares Amount Total
(in thousands, except share information)
Balance at January 3, 2016 200
$ —
$ 356,460
$ (144,598 ) $ (3,316 ) $ 208,546
Net income (loss) —
—
—
17,915
—
17,915
Other comprehensive income (loss) —
—
—
—
754
754
Stock-based compensation costs —
—
168
—
—
168
Excess tax benefit realized from exercise of stock options —
—
4
—
—
4
Balance at April 3, 2016 200
$ —
$ 356,632
$ (126,683 ) $ (2,562 ) $ 227,387

~~11. Consolidating Guarantor Financial Information:~~

~~Table of Contents~~

~~CEC ENTERTAINMENT, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)~~

~~(Unaudited)~~

CEC Entertainment, Inc.
Condensed Consolidating Balance Sheet
As of April 3, 2016
(in thousands)

Issuer Guarantors Non-Guarantors Eliminations Consolidated
Current assets:
Cash and cash equivalents $ 61,106
$ 2,217
$ 6,675
$ —
$ 69,998
Restricted cash —
—
4,142
—
4,142
Accounts receivable 14,416
2,811
8,944
(8,513 ) 17,658
Inventories 23,031
3,087
307
—
26,425
Other current assets 14,608
4,219
2,003
—
20,830
Total current assets 113,161
12,334
22,071
(8,513 ) 139,053
Property and equipment, net 570,343
34,587
8,707
—
613,637
Goodwill 432,462
51,414
—
—
483,876
Intangible assets, net 21,156
465,912
—
—
487,068
Intercompany 129,033
27,913
—
(156,946 ) —
Investment in subsidiaries 422,049
—
—
(422,049 ) —
Other noncurrent assets 7,692
11,965
619
—
20,276
Total assets $ 1,695,896
$ 604,125
$ 31,397
$ (587,508 ) $ 1,743,910
Current liabilities:
Bank indebtedness and other long-term debt, current portion $ 7,600
$ 56
$ —
$ —
$ 7,656
Capital lease obligations, current portion 430
—
5
—
435
Accounts payable and accrued expenses 80,532
13,381
8,290
—
102,203
Other current liabilities 3,452
328
—
—
3,780
Total current liabilities 92,014
13,765
8,295
—
114,074
Capital lease obligations, less current portion 14,867
—
67
—
14,934
Bank indebtedness and other long-term debt, net of deferred financing costs, less current portion
970,556
—
—
—
970,556
Deferred tax liability 178,014
16,991
(1,421 ) —
193,584
Intercompany 1,479
138,099
25,881
(165,459 ) —
Other noncurrent liabilities 211,579
11,538
258
—
223,375
Total liabilities 1,468,509
180,393
33,080
(165,459 ) 1,516,523
Stockholder's equity:
Common stock —
—
—
—
—
Capital in excess of par value 356,632
466,114
3,241
(469,355 ) 356,632
Retained earnings (deficit) (126,683 ) (42,382 ) (2,362 ) 44,744
(126,683 )
Accumulated other comprehensive income (loss) (2,562 ) —
(2,562 ) 2,562
(2,562 )
Total stockholder's equity 227,387
423,732
(1,683 ) (422,049 ) 227,387
Total liabilities and stockholder's equity $ 1,695,896
$ 604,125
$ 31,397
$ (587,508 ) $ 1,743,910

~~Table of Contents~~

~~CEC ENTERTAINMENT, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)~~

~~(Unaudited)~~

CEC Entertainment, Inc.
Condensed Consolidating Balance Sheet
As of January 3, 2016
(in thousands)

Issuer Guarantors Non-Guarantors Eliminations Consolidated
Current assets:
Cash and cash equivalents $ 42,235
$ 1,797
$ 6,622
$ —
$ 50,654
Accounts receivable 21,595
3,944
9,468
(9,071 ) 25,936
Inventories 19,959
3,021
295
—
23,275
Other current assets 13,562
3,561
1,100
—
18,223
Total current assets 97,351
12,323
17,485
(9,071 ) 118,088
Property and equipment, net 585,915
34,539
8,593
—
629,047
Goodwill 432,462
51,414
—
—
483,876
Intangible assets, net 21,855
466,240
—
—
488,095
Intercompany 129,151
30,716
—
(159,867 ) —
Investment in subsidiaries 422,407
—
—
(422,407 ) —
Other noncurrent assets 4,318
8,940
671
—
13,929
Total assets $ 1,693,459
$ 604,172
$ 26,749
$ (591,345 ) $ 1,733,035
Current liabilities:
Bank indebtedness and other long-term debt, current portion $ 7,600
$ 50
$ —
$ —
$ 7,650
Capital lease obligations, current portion 418
—
3
—
421
Accounts payable and accrued expenses 71,320
27,774
3,270
—
102,364
Other current liabilities 3,350
328
—
—
3,678
Total current liabilities 82,688
28,152
3,273
—
114,113
Capital lease obligations, less current portion 14,980
—
64
—
15,044
Bank indebtedness and other long-term debt, net of deferred financing costs, less current portion 971,320
13
—
—
971,333
Deferred tax liability 184,083
17,867
(216 ) —
201,734
Intercompany 20,580
121,850
26,508
(168,938 ) —
Other noncurrent liabilities 211,262
10,784
219
—
222,265
Total liabilities 1,484,913
178,666
29,848
(168,938 ) 1,524,489
Stockholder's equity:
Common stock —
—
—
—
—
Capital in excess of par value 356,460
466,114
3,241
(469,355 ) 356,460
Retained earnings (deficit) (144,598 ) (40,608 ) (3,024 ) 43,632
(144,598 )
Accumulated other comprehensive income (loss) (3,316 ) —
(3,316 ) 3,316
(3,316 )
Total stockholder's equity 208,546
425,506
(3,099 ) (422,407 ) 208,546
Total liabilities and stockholder's equity $ 1,693,459
$ 604,172
$ 26,749
$ (591,345 ) $ 1,733,035

~~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 April 3, 2016
(in thousands)

Issuer Guarantors Non-Guarantors Eliminations Consolidated
Revenues:
Food and beverage sales $ 107,822
$ 12,788
$ 1,592
$ —
$ 122,202
Entertainment and merchandise sales 139,208
5,598
2,751
—
147,557
Total company store sales 247,030
18,386
4,343
—
269,759
Franchise fees and royalties 598
3,961
—
—
4,559
International Association assessments and other fees 255
615
11,958
(12,828 ) —
Total revenues 247,883
22,962
16,301
(12,828 ) 274,318
Operating Costs and Expenses:
Company store operating costs:
Cost of food and beverage 26,644
3,297
580
—
30,521
Cost of entertainment and merchandise 8,119
445
186
—
8,750
Total cost of food, beverage, entertainment and merchandise 34,763
3,742
766
—
39,271
Labor expenses 63,734
3,999
1,310
—
69,043
Depreciation and amortization 26,563
607
459
—
27,629
Rent expense 22,257
1,333
560
—
24,150
Other store operating expenses 33,763
2,166
951
(870 ) 36,010
Total company store operating costs 181,080
11,847
4,046
(870 ) 196,103
Advertising expense 12,420
1,673
10,965
(11,958 ) 13,100
General and administrative expenses 7,183
10,659
176
—
18,018
Transaction, severance and related litigation costs 701
48
—
—
749
Total operating costs and expenses 201,384
24,227
15,187
(12,828 ) 227,970
Operating income (loss) 46,499
(1,265 ) 1,114
—
46,348
Equity in earnings (loss) in affiliates (1,112 ) —
—
1,112
—
Interest expense (income) 16,602
351
108
—
17,061
Income (loss) before income taxes 28,785
(1,616 ) 1,006
1,112
29,287
Income tax expense (benefit) 10,870
165
337
—
11,372
Net income (loss) $ 17,915
$ (1,781 ) $ 669
$ 1,112
$ 17,915

Components of other comprehensive income (loss), net of tax:
Foreign currency translation adjustments 754
—
(754 ) 754
754
Comprehensive income (loss) $ 18,669
$ (1,781 ) $ (85 ) $ 1,866
$ 18,669

~~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 March 29, 2015
(in thousands)

Issuer Guarantors Non-Guarantors Eliminations Consolidated
Revenues:
Food and beverage sales $ 102,387
$ 12,316
$ 1,834
$ —
$ 116,537
Entertainment and merchandise sales 137,510
4,110
3,124
—
144,744
Total company store sales 239,897
16,426
4,958
—
261,281
Franchise fees and royalties 805
3,422
—
—
4,227
International Association assessments and other fees 286
662
8,653
(9,601 ) —
Total revenues 240,988
20,510
13,611
(9,601 ) 265,508
Operating Costs and Expenses:
Company store operating costs:
Cost of food and beverage 25,390
3,244
591
—
29,225
Cost of entertainment and merchandise 7,620
753
149
—
8,522
Total cost of food, beverage, entertainment and merchandise 33,010
3,997
740
—
37,747
Labor expenses 61,732
3,930
1,511
—
67,173
Depreciation and amortization 27,619
1,114
508
—
29,241
Rent expense 22,303
1,494
661
—
24,458
Other store operating expenses 31,509
1,830
1,128
(948 ) 33,519
Total company store operating costs 176,173
12,365
4,548
(948 ) 192,138
Advertising expense 9,141
1,060
9,904
(8,653 ) 11,452
General and administrative expenses 4,893
11,316
117
—
16,326
Transaction, severance and related litigation costs

—
905
—
—
905
Total operating costs and expenses 190,207
25,646
14,569
(9,601 ) 220,821
Operating income (loss) 50,781
(5,136 ) (958 ) —
44,687
Equity in earnings (loss) in affiliates (7,769 ) —
—
7,769
—
Interest expense (income) 16,737
633
129
—
17,499
Income (loss) before income taxes 26,275
(5,769 ) (1,087 ) 7,769
27,188
Income tax expense (benefit) 11,533
1,328
(415 ) —
12,446
Net income (loss) $ 14,742
$ (7,097 ) $ (672 ) $ 7,769
$ 14,742

Components of other comprehensive income (loss), net of tax:
Foreign currency translation adjustments (1,642 ) —
(1,642 ) 1,642
(1,642 )
Comprehensive income (loss) $ 13,100
$ (7,097 ) $ (2,314 ) $ 9,411
$ 13,100

~~Table of Contents~~

~~CEC ENTERTAINMENT, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)~~

~~(Unaudited)~~

CEC Entertainment, Inc.
Consolidating Statement of Cash Flows
For the Three Months Ended April 3, 2016
(in thousands)

Issuer Guarantors Non-Guarantors Eliminations Consolidated
Cash flows provided by (used in) operating activities: $ 40,445
$ 3,662
$ (335 ) $ —
$ 43,772

Cash flows from investing activities:
  Purchases of property and equipment (18,342 ) (451 ) (30 ) —
(18,823 )
  Development of internal use software (841 ) (2,784 ) —
—
(3,625 )
  Proceeds from sale of property and equipment 79
—
—
—
79
Cash flows provided by (used in) investing activities (19,104 ) (3,235 ) (30 ) —
(22,369 )

Cash flows from financing activities:
  Repayments on senior term loan (1,900 ) —
—
—
(1,900 )
  Repayments on note payable —
(7 ) —
—
(7 )
  Payments on capital lease obligations (100 ) —
(1 ) —
(101 )
  Payments on sale leaseback transactions (474 ) —
—
—
(474 )
  Excess tax benefit realized from stock-based compensation 4
—
—
—
4
Cash flows provided by (used in) financing activities (2,470 ) (7 ) (1 ) —
(2,478 )
Effect of foreign exchange rate changes on cash —
—
419
—
419

Change in cash and cash equivalents 18,871
420
53
—
19,344
Cash and cash equivalents at beginning of period 42,235
1,797
6,622
—
50,654
Cash and cash equivalents at end of period $ 61,106
$ 2,217
$ 6,675
$ —
$ 69,998

~~Table of Contents~~

~~CEC ENTERTAINMENT, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)~~

~~(Unaudited)~~

CEC Entertainment, Inc.
Consolidating Statement of Cash Flows
For the Three Months Ended March 29, 2015
(in thousands)

Issuer Guarantors Non-Guarantors Eliminations Consolidated
Cash flows provided by (used in) operating activities: $ 53,409
$ 2,476
$ 4,663
$ —
$ 60,548

Cash flows from investing activities:
  Acquisition of Peter Piper Pizza (663 ) —
—
—
(663 )
  Intercompany note (96 ) 2,500
—
(2,404 ) —
  Purchases of property and equipment (14,451 ) (1,023 ) (635 ) —
(16,109 )
  Development of internal use software —
(185 ) —
—
(185 )
  Proceeds from sale of property and equipment 97
—
—
—
97
Cash flows provided by (used in) investing activities (15,113 ) 1,292
(635 ) (2,404 ) (16,860 )

Cash flows from financing activities:
Repayments on senior term loan (1,900 ) —
—
—
(1,900 )
Repayments on Note Payable —
(11 )

(11 )
  Intercompany note —
96
(2,500 ) 2,404
—
  Payments on capital lease obligations (100 ) —
—
—
(100 )
Payments on sale leaseback transactions (386 ) —
—
—
(386 )
Cash flows provided by (used in) financing activities (2,386 ) 85
(2,500 ) 2,404
(2,397 )
Effect of foreign exchange rate changes on cash —
—
(661 ) —
(661 )

Change in cash and cash equivalents 35,910
3,853
867
—
40,630
Cash and cash equivalents at beginning of period 97,020
6,427
7,547
—
110,994
Cash and cash equivalents at end of period $ 132,930
$ 10,280
$ 8,414
$ —
$ 151,624

~~Table of Contents~~

~~CEC ENTERTAINMENT, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)~~

~~(Unaudited)~~

~~12. Related Party Transactions:~~

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

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

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

Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to provide the readers of our Consolidated Financial Statements with a narrative from the perspective of our management on our consolidated financial condition, results of operations, liquidity and certain other factors that may affect our future results. Our MD&A should be read in conjunction with (i) our Consolidated Financial Statements and related notes included in Part I, Item 1. “Financial Statements” of this Periodic Report and (ii) Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Part II, Item 8. “Financial Statements and Supplementary Data” in our Annual Report on Form 10-K for the fiscal year ended January 3, 2016, filed with the SEC on March 2, 2016. Our MD&A includes the following sub-sections:

Executive Summary;

Overview of Operations;

Results of Operations;

Financial Condition, Liquidity and Capital Resources;

Off-Balance Sheet Arrangements and Contractual Obligations;

Critical Accounting Policies and Estimates;

Recently Issued Accounting Guidance;

Presentation of Non-GAAP Measures; and

Cautionary Statement Regarding Forward-Looking Statements.

Executive Summary

We operate on a 52 or 53 week fiscal year that ends on the Sunday nearest to December 31. Each quarterly period has 13 weeks, except for a 53 week year when the fourth quarter has 14 weeks. Our fiscal year ending January 1, 2017 will consist of 52 weeks and our fiscal year ended January 3, 2016 consisted of 53 weeks. As a result of the 53 week fiscal year in 2015, our 2016 fiscal year began one calendar week later than our 2015 fiscal year. In order to provide useful information and to better analyze our business, we have provided below comparable store sales presented on both a fiscal week basis and calendar week basis. Comparable store sales growth for the first six months of the year on a calendar week basis compares the results for the period from January 4, 2016 through ~~April~~July 3, 2016 (weeks 1 through 1326 of our 2016 fiscal year) to the results for the period from January 5, 2015 through ~~April~~July 5, 2015 (weeks 2 through 27 of our 2015 fiscal year). For the second quarter, comparable store sales growth on a calendar week basis compares the results for the period from April 4, 2016 through July 3, 2016 (weeks 14 through 26 of our 2016 fiscal year) to the results for the period from April 6, 2015 through July 5, 2015 (weeks 15 through 27 of our 2015 fiscal year). We believe comparable store sales growth calculated on a same calendar week basis is more indicative of the operating trends in our business. However, we also recognize that comparable store sales growth calculated on a fiscal week basis is a useful measure when analyzing year-over-year changes in our financial statements.

~~First~~Second Quarter 2016 Overview:

Total revenues of ~~$274.3~~$216.6 million in the ~~first~~second quarter of 2016 compared to total revenues of ~~$265.5~~$212.1 million in the ~~first~~second quarter of 2015.

Net loss of $9.1 million in the second quarter of 2016 compared to a net loss of $9.9 million in the second quarter of 2015.

Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (“Adjusted EBITDA”) was ~~$82.1~~$41.4 million for the ~~first~~second quarter of 2016 compared to ~~$80.7~~$41.1 million for the ~~first~~second quarter of 2015. For our definition of Adjusted EBITDA and a reconciliation of Net income to Adjusted EBITDA, see “Non-GAAP Financial Measures.”

~~Net income of $17.9 million in the first quarter of 2016 compared to net income of $14.7 million in the first quarter of 2015.~~

Overview of Operations

We currently operate and franchise family dining and entertainment centers under the names “Chuck E. Cheese’s” and “Peter Piper Pizza” in 47 states and 12 foreign countries and territories. Our stores provide our guests with a variety of family entertainment and dining alternatives. Our family leisure offerings include video games, skill games, rides, musical and comical shows and other attractions along with tokens, tickets and prizes for kids. Our wholesome family dining offerings are centered on made-to-order pizzas, salads, sandwiches, wings, appetizers, beverages and desserts.

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


	Three Months Ended				Three Months Ended				Six Months Ended
	April 3, 2016		March 29, 2015		July 3, 2016		June 28, 2015		July 3, 2016		June 28, 2015
Number of Company-owned stores:
Beginning of period	556		559		556		560		556		559
New ⁽¹⁾	1		2		—		—		1		2
Acquired from franchisee	—		—
Closed ⁽¹⁾	(1	)	(1	)	—		(3	)	(1	)	(4	)
End of period	556		560		556		557		556		557
Number of franchised stores:
Beginning of period	176		172		179		175		176		172
New	4		3
Acquired from franchisee	—		—
Closed	(1	)	—
New ⁽²⁾					5		1		9		4
Closed ⁽²⁾					(1	)	(3	)	(2	)	(3	)
End of period	179		175		183		173		183		173
Total number of stores:
Beginning of period	732		731		735		735		732		731
New	5		5
Acquired from franchisee	—		—
Closed	(2	)	(1	)
New ⁽³⁾					5		1		10		6
Closed ⁽³⁾					(1	)	(6	)	(3	)	(7	)
End of period	735		735		739		730		739		730

__________________


(1)	~~During the three months ended March 29, 2015, the~~The number of new and closed Company owned stores during the six months ended June 28, 2015 included one store that was relocated.


(2)	The number of new and closed franchise stores during the three and six months ended June 28, 2015 included one store that was relocated.


(3)	The number of new and closed stores during the three and six months ended June 28, 2015 included one and two stores, respectively, that were relocated.

Comparable store sales. We define “comparable store sales” as the sales for our domestic Company-owned stores that have been open for more than 18 months as of the beginning of each respective fiscal year or acquired stores we have operated for at least 12 months as of the beginning of fiscal year 2016. Comparable store sales is a key performance indicator used within our industry and is a critical factor when evaluating our performance, as it is indicative of acceptance of our strategic initiatives and local economic and consumer trends.

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

Food and beverage sales include all revenues recognized with respect to stand-alone food and beverage sales, as well as the portion of revenues allocated from Package Deals and coupons that relate to food and beverage sales. Entertainment and merchandise sales include all revenues recognized with respect to stand-alone game token and game play credit 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~~fees from the sale of equipment and other items or services to franchisees. We recognize development and franchise fees as revenues when the franchise store has opened and we have substantially completed our obligations to the franchisee relating to the opening of a store.

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

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

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

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

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

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

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

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

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

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

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

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

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

Adjusted EBITDA. We define Adjusted EBITDA as earnings before interest, income taxes, depreciation and amortization adjusted to exclude unusual items and other adjustments required or permitted in calculating covenant compliance under the indenture governing our senior notes and/or our Secured Credit Facilities (see discussion of our senior notes and Secured Credit Facilities under “Financial Condition, Liquidity and Capital Resources - Debt Financing”). Adjusted EBITDA is a measure used by management to evaluate our performance. Adjusted EBITDA provides additional information about certain trends, material non-cash items and unusual items that we do not expect to continue at the same level in the future, as well as other items.

Seasonality and Variation in Quarterly Results

Our operating results fluctuate seasonally due to the timing of school vacations, holidays and changing weather conditions. As a result, we typically generate higher sales volumes during the first quarter of each fiscal year. School operating

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

Results of Operations

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


	Three Months Ended								Three Months Ended
	April 3, 2016				March 29, 2015				July 3, 2016				June 28, 2015

Food and beverage sales	$	122,202	45.3	%	$	116,537	44.6	%	$	97,404	45.9	%	$	94,145	45.3	%
Entertainment and merchandise sales	147,557		54.7	%	144,744		55.4	%	114,657		54.1	%	113,861		54.7	%
Total company store sales	$	269,759	100.0	%	$	261,281	100.0	%	$	212,061	100.0	%	$	208,006	100.0	%



	Six Months Ended
	July 3, 2016				June 28, 2015

Food and beverage sales	$	219,607	45.6	%	$	210,681	44.9	%
Entertainment and merchandise sales	262,214		54.4	%	258,605		55.1	%
Total company store sales	$	481,821	100.0	%	$	469,286	100.0	%

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


	Three Months Ended								Three Months Ended
	April 3, 2016				March 29, 2015				July 3, 2016					June 28, 2015
	(in thousands, except percentages)								(in thousands, except percentages)
Total company store sales	$	269,759	98.3	%	$	261,281	98.4	%	$	212,061		97.9	%	$	208,006		98.1	%
Franchise fees and royalties	4,559		1.7	%	4,227		1.6	%	4,560			2.1	%	4,073			1.9	%
Total revenues	274,318		100.0	%	265,508		100.0	%	216,621			100.0	%	212,079			100.0	%
Company store operating costs:
Cost of food and beverage ⁽¹⁾	30,521		25.0	%	29,225		25.1	%	24,673			25.3	%	23,951			25.4	%
Cost of entertainment and merchandise ⁽²⁾	8,750		5.9	%	8,522		5.9	%	8,240			7.2	%	7,015			6.2	%
Total cost of food, beverage, entertainment and merchandise ⁽³⁾	39,271		14.6	%	37,747		14.4	%	32,913			15.5	%	30,966			14.9	%
Labor expenses ⁽³⁾	69,043		25.6	%	67,173		25.7	%	60,405			28.5	%	59,234			28.5	%
Depreciation and amortization ⁽³⁾	27,629		10.2	%	29,241		11.2	%	29,733			14.0	%	28,970			13.9	%
Rent expense ⁽³⁾	24,150		9.0	%	24,458		9.4	%	24,049			11.3	%	24,260			11.7	%
Other store operating expenses ⁽³⁾	36,010		13.3	%	33,519		12.8	%	37,376			17.6	%	35,330			17.0	%
Total company store operating costs ⁽³⁾	196,103		72.7	%	192,138		73.5	%	184,476			87.0	%	178,760			85.9	%
Other costs and expenses:
Advertising expense	13,100		4.8	%	11,452		4.3	%	12,162			5.6	%	14,596			6.9	%
General and administrative expenses	18,018		6.6	%	16,326		6.1	%	15,922			7.4	%	17,807			8.4	%
Transaction, severance and related litigation costs	749		0.3	%	905		0.3	%	434			0.2	%	1,104			0.5	%
Total operating costs and expenses	227,970		83.1	%	220,821		83.2	%	212,994			98.3	%	212,267			100.1	%
Operating income (loss)	46,348		16.9	%	44,687		16.8	%	3,627			1.7	%	(188		)	(0.1	)%
Interest expense	17,061		6.2	%	17,499		6.6	%	17,121			7.9	%	17,324			8.2	%
Income (loss) before income taxes	$	29,287	10.7	%	$	27,188	10.2	%
Loss before income taxes									$	(13,494	)	(6.2	)%	$	(17,512	)	(8.3	)%

__________________


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


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


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

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



	Six Months Ended
	July 3, 2016				June 28, 2015
	(in thousands, except percentages)
Total company store sales	$	481,821	98.1	%	$	469,286	98.3	%
Franchise fees and royalties	9,118		1.9	%	8,300		1.7	%
Total revenues	490,939		100.0	%	477,586		100.0	%
Company store operating costs:
Cost of food and beverage ⁽¹⁾	55,195		25.1	%	53,176		25.2	%
Cost of entertainment and merchandise ⁽²⁾	16,989		6.5	%	15,537		6.0	%
Total cost of food, beverage, entertainment and merchandise ⁽³⁾	72,184		15.0	%	68,713		14.6	%
Labor expenses ⁽³⁾	129,448		26.9	%	126,407		26.9	%
Depreciation and amortization ⁽³⁾	57,362		11.9	%	58,211		12.4	%
Rent expense ⁽³⁾	48,199		10.0	%	48,719		10.4	%
Other store operating expenses ⁽³⁾	73,387		15.2	%	68,848		14.7	%
Total company store operating costs ⁽³⁾	380,580		79.0	%	370,898		79.0	%
Other costs and expenses:
Advertising expense	25,261		5.1	%	26,048		5.5	%
General and administrative expenses	33,939		6.9	%	34,030		7.1	%
Transaction, severance and related litigation costs	1,184		0.2	%	2,112		0.4	%
Total operating costs and expenses	440,964		89.8	%	433,088		90.7	%
Operating income	49,975		10.2	%	44,498		9.3	%
Interest expense	34,182		7.0	%	34,822		7.3	%
Income before income taxes	$	15,793	3.2	%	$	9,676	2.0	%

__________________


(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 Total company store sales.

Three months ended ~~April~~July 3, 2016 Compared to the Three months ended ~~March 29,~~June 28, 2015

Revenues

Company store sales increased ~~$8.5~~$4.1 million, or ~~3.2%~~1.9%, to ~~$269.8~~$212.1 million during the ~~first~~second quarter of 2016 compared to ~~$261.3~~$208.0 million during the ~~first~~second quarter of 2015. On a same calendar week basis comparable store sales increased ~~6.0%~~2.6%. ~~We believe comparable store sales calculated on a same calendar week basis is more indicative of the operating trends in our business.~~ On a fiscal week basis, comparable store sales increased ~~3.2%~~1.8% during the second quarter of 2016, primarily due to the effect of an additional operating week in our 2015 fiscal year, which caused the Fourth of July holiday weekend to shift into the second quarter of 2016 compared to the third quarter in 2015, and the shift of several spring breaks into the first quarter in 2016 compared to the second quarter in 2015.

Company Store Operating Costs

The cost of food, beverage, entertainment and merchandise, as a percentage of Total company store sales, was 15.5% in the second quarter of 2016 compared to 14.9% in the second quarter of 2015. The increase in the cost of food, beverage, entertainment and merchandise on a percentage basis in the second quarter of 2016 was impacted by an increase in promotional merchandise giveaways.

Labor expenses, as a percentage of Total company store sales, were 28.5% in both the second quarter of 2016 and 2015. We were able to offset increased minimum wage rates in certain states over the past year with improved labor management.

Other store operating expenses, as a percentage of Total company store sales, were 17.6% in the second quarter of 2016 compared to 17.0% in the second quarter of 2015, primarily due to an increase in self-insurance expense associated with general liability claims.

Advertising Expense

Advertising expense was $12.2 million in the second quarter of 2016 compared to $14.6 million in the second quarter of 2015. As a percentage of Total revenues, advertising expense was 5.6% and 6.9%, respectively, for the second quarter of 2016 and the second quarter of 2015. The second quarter of 2016 reflects a decrease in digital advertising, production costs and advertising agency fees in connection with our transition in 2015 to new advertising agencies for our Chuck E. Cheese’s stores.

General and Administrative Expenses

General and administrative expenses were $15.9 million in the second quarter of 2016 compared to $17.8 million in the second quarter of 2015. The decrease in general and administrative expenses in the second quarter of 2016 is primarily due to a decrease in labor-related litigation and PPP integration costs, partially offset by an increase in professional fees primarily related to IT initiatives and an increase in incentive compensation as a result of higher sales and profit performance.

Income Taxes

Our effective income tax rate was 32.9% for the second quarter of 2016 compared to an effective income tax rate of 43.5% for the second quarter of 2015. Our effective tax rates differ from the statutory tax rate during these periods primarily due to the favorable impact of employment related federal income tax credits and the unfavorable impact of non-deductible litigation and settlement costs related to the Merger, an increase in the liability for uncertain tax positions, and an increase in state income tax rates.

Six months ended July 3, 2016 Compared to Six months ended June 28, 2015

Revenues

Company store sales increased $12.5 million, or 2.7%, to $481.8 million during the first ~~quarter~~six months of 2016 compared to $469.3 million during the first six months of 2015. On a same calendar week basis comparable store sales increased 4.5%. On a fiscal week basis, comparable store sales increased 2.6% during the first six months of 2016, primarily due to the effect of an additional operating week in our 2015 fiscal year, which caused the seasonally strong first week of the 2016 calendar year to shift into the fourth quarter of 2015. Company store sales were also impacted by approximately $0.4 million of incremental deferred revenue as a result of the implementation of our proprietary card system, which we refer to as PlayPass.

Company Store Operating Costs

The cost of food, beverage, entertainment and merchandise, as a percentage of Total company store sales, was 15.0% in the first six months of 2016 compared to 14.6% in the first ~~quarter of 2016 compared to 14.4% in the first quarter~~six months of 2015. The increase in the cost of food, beverage, entertainment and merchandise on a percentage basis in the first ~~quarter~~six months of 2016 was impacted by an increase in ~~the average price of cheese compared to the first quarter of 2015.~~promotional merchandise giveaways.

Labor expenses, as a percentage of Total company store sales, were ~~25.6%~~26.9% in both the first ~~quarter~~six months of 2016 ~~compared to 25.7% in the first quarter of~~and 2015. ~~The decrease in labor~~Labor expenses on a percentage basis in the first ~~quarter~~six months of 2016 ~~reflects~~reflect improved labor management, as we were able to minimize additional labor hours required to serve the increased number of guests visiting our stores, offset by an increase in the average hourly wage rate due to increases in minimum wage rates in certain states over the past year.

Depreciation and amortization expense was $27.6 million in the first quarter of 2016 compared to $29.2 million in the first quarter of 2015. The decrease in depreciation and amortization in the first quarter of 2016 is primarily due to higher depreciation expense during the first quarter of 2015 from certain property, plant and equipment assets that were assigned short useful lives from the acquisition method of accounting as a result of the Merger.

Other store operating expenses, as a percentage of Total company store sales, were ~~13.3%~~15.2% in the first ~~quarter~~six months of 2016 compared to ~~12.8%~~14.7% in the first ~~quarter~~six months of 2015, primarily due to an increase in self-insurance expense associated with general liability ~~claims and an increase in credit card fees as a result of higher sales volumes.~~claims.

Advertising Expense

Advertising expense ~~increased from $11.5~~was $25.3 million in the first ~~quarter~~six months of ~~2015~~2016 compared to ~~$13.1~~$26.0 million in the first ~~quarter~~six months of ~~2016.~~2015. As a percentage of Total revenues, advertising expense was ~~4.8%~~5.1% and ~~4.3%~~5.5%, respectively, for the first ~~quarter~~six months of 2016 and the first ~~quarter~~six months of 2015. The first ~~quarter~~six months of 2016 reflects ~~an increase in digital advertising, partially offset by~~ a decrease in production costs, ~~in the first quarter of 2016.~~partially offset by increased digital advertising and national media costs.

General and Administrative Expenses

General and administrative expenses were ~~$18.0~~$33.9 million infor the first ~~quarter~~six months of 2016 ~~compared to $16.3~~and $34.0 million infor the first ~~quarter~~six months of 2015. ~~The increase in general~~General and administrative expenses in the first ~~quarter~~six months of 2016 ~~is primarily due to~~reflect an increase in professional fees primarily related to IT and other corporate initiatives and an increase in incentive compensation as a result of higher sales and profit ~~performance.~~performance, offset by a decrease in PPP integration costs and labor related litigation costs.

Income Taxes

Our effective income tax rate was ~~38.8%~~43.9% for the first ~~quarter~~six months of 2016 compared to an effective income tax rate of ~~45.8%~~49.9% for the first ~~quarter~~six months of 2015. ~~The~~Our effective ~~income~~ tax ~~rate of 38.8% for the three months ended April 3, 2016 differs~~rates differ from the statutory tax rate during these periods primarily due to the favorable impact of employment related federal income tax credits ~~partially offset by the impact of non-deductible litigation costs related to the Merger. Our effective income tax rate of 45.8% for the three months ended March 29, 2015differs from the statutory rate primarily due to~~and the unfavorable impact of non-deductible litigation and settlement costs related to the Merger, ~~partially offset by benefits stemming from employment related~~an increase in the liability for uncertain tax positions and an increase in state income tax ~~credits.~~rates.

Financial Condition, Liquidity and Capital Resources

Overview of Liquidity

We finance our business activities through cash flows provided by our operations. The primary components of working capital are as follows:

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

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

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

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

Sources and Uses of Cash

The following tables present summarized consolidated cash flow information that we believe is helpful in evaluating our liquidity and capital resources as of and for the periods presented:


	Three Months Ended						Six Months Ended
	April 3, 2016			March 29, 2015			July 3, 2016			June 28, 2015
	(in thousands)						(in thousands)
Net cash provided by operating activities	$	43,772		$	60,548		$	77,738		$	67,371
Net cash used in investing activities	(22,369		)	(16,860		)	(48,305		)	(40,780		)
Net cash provided by (used in) financing activities	(2,478		)	(2,397		)
Net cash used in financing activities							(4,980		)	(4,802		)
Effect of foreign exchange rate changes on cash	419			(661		)	484			(428		)
Change in cash and cash equivalents	$	19,344		$	40,630		$	24,937		$	21,361
Interest paid	$	21,994		$	21,734		$	32,960		$	32,610
Income taxes paid (refunded), net	$	2,949		$	183
Income taxes paid, net							$	5,572		$	13,180


	April 3, 2016		January 3, 2016		July 3, 2016		January 3, 2016
	(in thousands)				(in thousands)
Cash and cash equivalents	$	69,998	$	50,654	$	75,591	$	50,654
Restricted cash	$	4,142	$	—	$	1,303	$	—
Term loan facility	$	744,800	$	746,700	$	742,900	$	746,700
Senior notes	$	255,000	$	255,000	$	255,000	$	255,000
Note payable	$	56	$	63	$	39	$	63
Available unused commitments under revolving credit facility	$	139,100	$	139,100	$	140,100	$	139,100

Our cash and cash equivalents totaled ~~$70.0~~$75.6 million as of ~~April~~July 3, 2016. Cash and cash equivalents as of ~~April~~July 3, 2016 includes ~~$6.7~~$6.5 million of undistributed income from our Canadian subsidiary that we consider to be permanently invested.

Cash that is held by the Association and restricted for use in our advertising, entertainment and media funds was ~~$4.1~~$1.3 million as of ~~April~~July 3, 2016.

Sources and Uses of Cash - ~~Three~~Six months ended ~~April~~July 3, 2016 Compared to the ~~Three~~Six months ended ~~March 29,~~June 28, 2015

Net cash provided by operating activities was ~~$43.8~~$77.7 million in the ~~first quarter of~~six months ended July 3, 2016 compared to ~~$60.5~~$67.4 million in the ~~first quarter of~~six months ended June 28, 2015. The ~~reduction~~increase in net cash provided by operating activities is primarily due to an improvement in our results from operations and fluctuations in our working capital, partially offset by the payment of a Merger related litigation ~~settlement and fluctuations in our working capital.~~settlement.

Net cash used in investing activities was ~~$22.4~~$48.3 million in the ~~first quarter of~~six months ended July 3, 2016 compared to ~~$16.9~~$40.8 million in the ~~first quarter of~~six months ended June 28, 2015. Net cash used in investing activities in the ~~first quarter of~~six months ended July 3, 2016 and ~~the first quarter of~~June 28, 2015 relates primarily to store related capital expenditures.

The increase for the six months ended July 3, 2016 compared to the six months ended June 28, 2015 is primarily related to our PlayPass initiative.

Net cash used in financing activities was ~~$2.5~~$5.0 million in the ~~first quarter of~~six months ended July 3, 2016 and ~~$2.4~~$4.8 million in the ~~first quarter of~~six months ended June 28, 2015, relating primarily to principal payments on our term loan and other lease related obligations.

Debt Financing

Secured Credit Facilities

Our Secured Credit Facilities include a $760.0 million term loan facility with a maturity date of February 14, 2021 (the “term loan facility”) and a $150.0 million senior secured revolving credit facility with a maturity date of February 14, 2019, which includes a letter of credit sub-facility and a $30.0 million swingline loan sub-facility (the “revolving credit facility”). The Secured Credit Facilities require scheduled quarterly payments on the term loan equal to 0.25% of the original principal amount of the term loan from July 2014 to December 2020, with the balance paid at maturity. As of ~~both April~~July 3, 2016 and January 3, 2016, we had no borrowings outstanding under the revolving credit facility, and we had $9.9 million and $10.9 million, respectively, of letters of credit issued but undrawn under the facility. ~~Effective April 8, 2016, the balance of our letters of credit issued but undrawn was reduced to $9.9 million.~~

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

Borrowings under the Secured Credit Facilities bear interest at a rate equal to, at our option, either (a) a London Interbank Offered Rate (“LIBOR”) determined by reference to the costs of funds for Eurodollar deposits for the interest period relevant to such borrowings, adjusted for certain additional costs, subject to a 1.00% floor in the case of term loans or (b) a base rate determined by reference to the highest of (i) the federal funds effective rate plus 0.50%; (ii) the prime rate of Deutsche Bank AG New York Branch; and (iii) the one-month adjusted LIBOR plus 1.00%; in each case plus an applicable margin. The base applicable margin is 3.25% with respect to LIBOR borrowings and 2.25% with respect to base rate borrowings under the term loan facility and base rate borrowings and swingline borrowings under the revolving credit facility. The applicable margin for borrowings under the term loan facility is subject to one step down from 3.25% to 3.00% based on our net first lien senior secured leverage ratio, and the applicable margin for borrowings under the revolving credit facility is subject to two step-downs from 3.25% to 3.00% and 2.75% based on our net first lien senior secured leverage ratio. During the ~~three~~six months ended ~~April~~July 3, 2016, the federal funds rate ranged from 0.25% to ~~0.38%~~0.41%, the prime rate was ~~3.25%~~3.5% and the one-month LIBOR ranged from 0.42% to ~~0.44%~~0.47%.

In addition to paying interest on outstanding principal under the Secured Credit Facilities, we are required to pay a commitment fee to the lenders under the revolving credit facility in respect to the unutilized commitments thereunder. The base applicable commitment fee rate under the revolving credit facility is 0.5% per annum and is subject to one step-down from 0.5% to 0.375% based on our first lien senior secured leverage ratio. We are also required to pay customary agency fees, as well as letter of credit participation fees computed at a rate per annum equal to the applicable margin for LIBOR rate borrowings on the dollar equivalent of the daily stated amount of outstanding letters of credit, plus such letter of credit issuer’s customary documentary and processing fees and charges and a fronting fee computed at a rate equal to 0.125% per annum on the daily stated amount of letter of credit.

As a result of a decrease in our net first lien senior secured leverage ratio reported for the period ending January 3, 2016, effective March 4, 2016, the applicable margin for borrowings under the term loan facility stepped down from 3.25% to 3.00%, the applicable margin for borrowings under the revolving credit facility stepped down from 3.25% to 3.00%, and the applicable commitment fee rate stepped down from 0.5% to 0.375%.

The weighted average effective interest rate incurred on our borrowings under our Secured Credit Facilities was 4.7% and 4.6% for the three months ended April 3, 2016 and March 29, 2015, respectively, which includes amortization of debt issuance costs related to our Secured Credit Facilities, amortization of our term loan facility original issue discount and commitment and other fees related to our Secured Credit Facilities.

Our revolving credit facility includes a springing financial maintenance covenant that requires our net first lien senior secured leverage ratio not to exceed 6.25 to 1.00 (the ratio of consolidated net debt secured by first-priority liens on the collateral to last twelve month’s EBITDA, as defined in the Senior Credit Facilities). The covenant will be tested quarterly if the revolving credit facility is more than 30% drawn (excluding outstanding letters of credit) and will be a condition to drawings under the revolving credit facility that would result in more than 30% drawn thereunder. As of April 3, 2016, there were no borrowings under the revolving credit facility; therefore, the springing financial maintenance covenant under our revolving credit facility was not in effect.

The Secured Credit Facilities also contain customary affirmative covenants and events of default, and the negative covenants limit our ability to, among other things: incur additional debt or issue certain preferred shares; create liens on certain assets; make certain loans or investments (including acquisitions); pay dividends on or make distributions in respect of our capital stock or make other restricted payments; consolidate, merge, sell or otherwise dispose of all or substantially all of our

assets; sell assets; enter into certain transactions with our affiliates; enter into sale-leaseback transactions; change our lines of business; restrict dividends from our subsidiaries or restrict liens; change our fiscal year; and modify the terms of certain debt or organizational agreements.

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

Senior Unsecured Debt

Our senior unsecured debt consists of $255.0 million aggregate principal amount borrowings of 8.000% Senior Notes due 2022 (the “senior notes”) ~~bearing interest at a rate of 8.000% per year~~ and maturing on February 15, 2022. The senior notes are registered under the Securities Act, do not bear legends restricting their transfer and are not entitled to registration rights under our registration rights agreement. On or after February 15, 2017, we may redeem some or all of the senior notes at certain redemption prices set forth in the indenture governing the senior notes (the “indenture”). Prior to February 15, 2017, we may redeem (i) up to 40% of the original aggregate principal amount of the senior notes with the net cash proceeds of one or more equity offerings at a price equal to 108% of the principal amount thereof, plus accrued and unpaid interest, or (ii) some or all of the notes at a price equal to 100% of the principal amount thereof, plus accrued and unpaid interest, plus the applicable “make-whole” premium set forth in the indenture.

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

Capital Expenditures

We intend to continue to focus our future capital expenditures on reinvestment into our existing Company-owned Chuck E. Cheese’s and PPP stores through various planned capital initiatives, and the development or acquisition of additional Company-owned stores. During the first ~~three~~six months of 2016, we completed 73147 game enhancements and ~~one~~three major ~~remodel,~~remodels, and we opened one new domestic Company-owned Chuck E. Cheese’s store. We have funded and continue to fund our capital expenditures through existing cash flows from operations. Capital expenditures in the first ~~three~~six months of 2016 totaled approximately ~~$22.2~~$48.6 million.

The following table reconciles the approximate total capital spend by initiative to our Consolidated Statements of Cash Flows for the periods presented:


	Three Months Ended				Six Months Ended
	April 3, 2016		March 29, 2015		July 3, 2016		June 28, 2015
	(in thousands)				(in thousands)
Growth capital spend ⁽¹⁾	$	9,503	$	7,590	$	23,162	$	16,687
Maintenance capital spend ⁽²⁾	8,304		8,461		18,706		17,036
IT capital spend	4,365		230		6,722		6,476
Total Capital Spend	$	22,172	$	16,281	$	48,590	$	40,199

__________________

~~(1) Growth capital spend includes major remodels, store expansions, major attractions and new store development, including relocations and franchise~~

~~acquisitions.~~


(1)	Growth capital spend includes major remodels, store expansions, our PlayPass initiative and new store development, including relocations and franchise acquisitions.

(2) Maintenance capital spend includes game enhancements, general store capital expenditures and corporate capital expenditures.

We currently estimate our capital expenditures in 2016 will total approximately $105 million to $115 million. These capital expenditures consist of the following: (i) approximately $30 million for maintenance capital which includes game enhancements and general store maintenance capital expenditures; (ii) approximately $10 million for investments in one-time information technology initiatives, (iii) approximately $40 million to $45 million for various growth initiatives, including new store openings and major remodels, and (iv) approximately $25 million to $30 million related to our PlayPass initiative. In addition we are re-evaluating our store design for Chuck E. Cheese’s stores as a part of an effort to launch a new store prototype. We expect to fund our capital expenditures through cash flows from operations and existing cash on hand.

Off-Balance Sheet Arrangements and Contractual Obligations

As of ~~April~~July 3, 2016, we had no off-balance sheet financing arrangements as described in Regulation S-K Item 303(a)(4)(ii).

For information regarding our contractual obligations, refer to “Off Balance Sheet Arrangements and Contractual Obligations” in Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended January 3, 2016, filed with the SEC on March 2, 2016.

See further discussion of our indebtedness and future debt obligations in “Financial Condition, Liquidity and Capital Resources - Debt Financing” of this report. There have been no other material changes to our contractual obligations since January 3, 2016.

Critical Accounting Policies and Estimates

Information with respect to our critical accounting policies and estimates, which we believe could have the most significant effect on our reported consolidated results and require difficult, subjective or complex judgment by management are described under “Critical Accounting Policies and Estimates” in Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended January 3, 2016, filed with the SEC on March 2, 2016. As of ~~April~~July 3, 2016, there has been no material change to the information concerning our critical accounting policies and estimates.

Recently Issued Accounting Guidance

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

Non-GAAP Financial Measures

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

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

Adjusted EBITDA is also an important measure because, under our debt agreements, our ability to incur additional indebtedness or issue certain preferred shares, make certain types of acquisitions or investments, operate our business and make dividends, conduct asset sales or dispose of all or substantially all of our assets, all of which will impact our financial performance, is impacted by our Adjusted EBITDA, as our lenders measure our performance with a senior secured leverage ratio by comparing our senior secured bank indebtedness to our Adjusted EBITDA, and several of the debt, investment and restricted payment baskets contained in our debt agreements are measured using Adjusted EBITDA.

Adjusted EBITDA is not a presentation made in accordance with GAAP, and our use of the term Adjusted EBITDA varies from others in our industry. Adjusted EBITDA should not be considered as an alternative to operating income or any other performance measures derived in accordance with GAAP as measures of operating performance, or cash flows as measures of liquidity. Adjusted EBITDA has important limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP. For example, Adjusted EBITDA:

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

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

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

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

does not include one-time expenditures;

excludes the impairment of Company-owned stores or impairments of long-lived assets, and gains or losses upon disposal of property or equipment, and inventory obsolescence charges outside of the ordinary course of business;

excludes non-cash equity based compensation expense;

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

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

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

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

excludes non-recurring income and expenses primarily related to (i) non-recurring franchise fee income; (ii) severance costs; (iii) integration costs in connection with acquisitions; (iv) employee and other legal claims and settlements; (v) costs incurred in connection with the relocation of our corporate offices; (vi) actual cash landlord incentives received on our new corporate offices; (vii) sales and use tax refunds relating to prior periods; (viii) miscellaneous professional fees; and (ix) certain insurance recoveries relating to prior year expense; and

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.

S-X.

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


	Three Months Ended						Three Months Ended
	April 3, 2016			March 29, 2015			July 3, 2016			June 28, 2015
	(in thousands)						(in thousands)
Total revenues	$	274,318		$	265,508		$	216,621		$	212,079
Net income as reported	$	17,915		$	14,742
Net loss as reported							$	(9,052	)	$	(9,892	)
Interest expense	17,061			17,499			17,121			17,324
Income tax expense	11,372			12,446
Income tax benefit							(4,442		)	(7,620		)
Depreciation and amortization	28,998			30,398			31,284			29,849
Non-cash impairments, gain or loss on disposal ⁽¹⁾	2,177			1,244			1,895			1,799
Non-cash stock-based compensation ⁽²⁾	135			391			202			178
Rent expense book to cash ⁽³⁾	2,160			2,211			2,503			1,968
Franchise revenue, net cash received ⁽⁴⁾	(109		)	(65		)	271			—
Impact of purchase accounting ⁽⁵⁾	199			232			356			116
Store pre-opening costs ⁽⁶⁾	221			244			96			117
One-time items ⁽⁷⁾	1,902			1,351			1,153			6,254
Cost savings initiatives ⁽⁸⁾	62			—			—			1,001
Adjusted EBITDA	$	82,093		$	80,693		$	41,387		$	41,094
Adjusted EBITDA as a percent of total revenues	29.9		%	30.4		%	19.1		%	19.4		%



	Six Months Ended
	July 3, 2016			June 28, 2015
	(in thousands)
Total revenues	$	490,939		$	477,586
Net income as reported	$	8,863		$	4,850
Interest expense	34,182			34,822
Income tax expense	6,930			4,826
Depreciation and amortization	60,282			60,248
Non-cash impairments, gain or loss on disposal ⁽¹⁾	4,073			3,042
Non-cash stock-based compensation ⁽²⁾	337			570
Rent expense book to cash ⁽³⁾	4,663			4,179
Franchise revenue, net cash received ⁽⁴⁾	162			(65		)
Impact of purchase accounting ⁽⁵⁾	555			348
Store pre-opening costs ⁽⁶⁾	316			362
One-time items ⁽⁷⁾	3,055			7,605
Cost savings initiatives ⁽⁸⁾	62			1,001
Adjusted EBITDA	$	123,480		$	121,788
Adjusted EBITDA as a percent of total revenues	25.2		%	25.5		%

__________________


(1)	Relates primarily to (i) the impairment of Company-owned stores or impairments of long lived assets; (ii) gains or losses upon disposal of property or equipment; and (iii) inventory obsolescence charges outside of the ordinary course of business.


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


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


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


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


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

(7)

Represents non-recurring income and expenses primarily related to (i) transaction costs associated with the Merger, Sale Leaseback transaction and PPP acquisition; (ii) severance expense and executive termination benefits; (iii) integration costs in connection with the PPP acquisition; (iv) employee and other legal claims and settlements; (v) costs incurred in connection with the relocation of our corporate offices; (vi) actual cash landlord incentives received on our new corporate offices; (vii) sales and use tax refunds relating to prior periods; (viii) miscellaneous professional fees; and (ix) certain insurance recoveries relating to prior year expense.

(8)

Relates to estimated net cost savings primarily from (i) the change from public to private ownership upon the closing of the Acquisition and elimination of public equity securities, with reductions in investor relations activities, directors fees and certain legal and other securities and filing costs; (ii) the full-year effect of cost savings initiatives implemented by the Company in 2013; (iii) the estimated effect of cost savings following the Merger from participation in Sponsor-leveraged purchasing programs including various supplies, travel and communications purchasing categories; (iv) the net impact of labor savings associated with changes in management; ~~(v)~~(ii) cost savings in connection with the relocation of the Company’s corporate offices in 2015; ~~(vi)~~(iii) labor savings associated with planned headcount reductions in 2015; ~~(vii)~~(iii) estimated cost savings associated with the integration of PPP; ~~(viii)~~(iv) the full-year effect of costs savings associated with upgrades to our telephone communication systems; and net of ~~(ix)~~(v) the estimated incremental costs associated with our new IT systems and post-closing insurance arrangements.

Cautionary Statement Regarding Forward-Looking Statements

Certain statements in this report, other than historical information, may be considered “forward-looking statements” within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, and are subject to various risks, uncertainties and assumptions. Statements that are not historical in nature, and which may be identified by the use of words such as “may,” “should,” “could,” “believe,” “predict,” “potential,” “continue,” “plan,” “intend,” “expect,” “anticipate,” “future,” “project,” “estimate” and similar expressions (or the negative of such expressions) are forward-looking statements. Forward-looking statements are made based on management’s current expectations and beliefs concerning future events and, therefore, involve a number of assumptions, risks and uncertainties, including the risk factors described in Part I, Item 1A. “Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended January 3, 2016, filed with the SEC on March 2, 2016. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may differ from those anticipated, estimated or expected. Factors that could cause actual results to differ materially from those contemplated by forward-looking statements include, but are not limited to:

Negative publicity concerning food quality, health, general safety and other issues, and changes in consumer preferences;

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

Our ability to successfully implement our marketing strategy;

Competition in both the restaurant and entertainment industries;

Economic uncertainty and changes in consumer discretionary spending in the United States and Canada;

Expansion in international markets;

Our ability to generate sufficient cash flow to meet our debt service payments;

Increases in food, labor and other operating costs;

Disruptions of our information technology systems and technologies, including, but not limited to, data security breaches;

Any disruption of our commodity distribution system;

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

Product liability claims and product recalls;

Government regulations;

Litigation risks;

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

Fluctuations in our quarterly results of operations due to seasonality;

Inadequate insurance coverage;

Loss of certain key personnel;

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

Risks in connection with owning and leasing real estate; and

Our ability to successfully integrate the operations of companies we acquire.

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

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk.

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

Interest Rate Risk

We are exposed to market risk from changes in the variable interest rates related to borrowings from our Secured Credit Facilities. All of our borrowings outstanding under the Secured Credit Facilities as of ~~April~~July 3, 2016 of ~~$744.8~~$742.9 million accrue interest at variable rates. Assuming the revolving credit facility remains undrawn, each 1% change in assumed interest rates, excluding the impact of our 1% interest rate floor, would result in a ~~$7.5~~$7.4 million change in annual interest expense on indebtedness under the Secured Credit Facilities.

Commodity Price Risk

We are exposed to commodity price changes related to certain food products that we purchase, primarily related to the prices of cheese and dough, which can vary throughout the year due to changes in supply, demand, and other factors. We have not entered into any hedging arrangements to reduce our exposure to commodity price volatility associated with such commodity prices; however, we typically enter into short-term purchasing contracts, which may contain pricing arrangements designed to minimize the impact of commodity price fluctuations, and derivative instruments such as futures contracts to mitigate our exposure to commodity price fluctuations. For both the three months ended ~~April~~July 3, 2016 and ~~March 29,~~June 28, 2015, the average cost of a block of cheese was ~~$1.80~~$1.71. 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 for both the three months ended July 3, 2016 and ~~$1.66,~~June 28, 2015. For the three months ended July 3, 2016 and June 28, 2015, the average cost of dough per pound was $0.45 and $0.48, 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 for both the three months ended July 3, 2016 and June 28, 2015. For the six months ended July 3, 2016 and June 28, 2015, the average cost of a block of cheese was $1.76 and $1.68, respectively. The estimated increase in our food costs from a hypothetical 10% increase in the average cost of a block of cheese would have been ~~$0.4~~$0.7 million and $0.6 million for ~~both~~ the ~~three~~six months ended ~~April 3, 2016~~ ~~and March 29, 2015. For the three months ended April~~July 3, 2016 and ~~March 29,~~June 28, 2015, respectively. For the six months ended July 3, 2016 and June 28, 2015, the average cost of dough per pound was $0.45 and ~~$0.49,~~$0.48, respectively. The estimated increase in our food costs from a hypothetical 10% increase in the average cost of dough per pound would have been ~~$0.2~~$0.3 million for both the ~~three~~six months ended ~~April~~July 3, 2016 and ~~March 29, 2015.~~June 28, 2015, 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 12 Company-owned stores in Canada. For the three and six months ended ~~April~~July 3, 2016 our Canadian stores generated an operating ~~income~~losses of ~~$0.1~~$0.6 million and $0.4 million, respectively, compared to our consolidated operating income of ~~$46.4 million.~~$3.6 million and $50.0 million, respectively.

Changes in the currency exchange rate result in cumulative translation adjustments and are included in “Accumulated other comprehensive income (loss)” on our Consolidated Balance Sheets and potentially result in transaction gains or losses, which are included in our earnings. The low and high currency exchange rates for a Canadian dollar into a United States dollar for the ~~three~~six months ended ~~April~~July 3, 2016 were $0.685 and $~~0.771~~0.798, respectively. A hypothetical 10% devaluation in the average quoted U.S. dollar-equivalent of the Canadian dollar exchange rate during the three and six months ended ~~April~~July 3, 2016 would have decreased our reported consolidated operating results by ~~less than~~ $0.1 ~~million.~~million and $0.1 million, respectively.

ITEM 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

We performed an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, as of the end of the period covered by this report. Based on that evaluation, our management, including our Chief Executive Officer and Chief Financial Officer, has concluded that our disclosure controls and procedures were effective as of ~~April~~July 3, 2016 to ensure that information required to be disclosed by us in the reports we file or submit under the Securities Exchange Act of 1934, as amended, was (a) recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms; and (b) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

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

PART II – OTHER INFORMATION

ITEM 1. Legal Proceedings.

Refer to Note 712 “Commitments and Contingencies” to our Consolidated Financial Statements included in Part I, Item 1. “Financial Statements” of this Periodic Report for a discussion of our legal proceedings.

ITEM 1A. Risk Factors.

We believe there have been no material changes in our risk factors from those disclosed in Part I, Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended January 3, 2016, filed with the SEC on March 2, 2016.

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

NONE.

ITEM 6. Exhibits.

EXHIBIT INDEX



Exhibit Number		Description

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

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

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

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

101.INS†		XBRL Instance Document

101.SCH†		XBRL Taxonomy Extension Schema Document

101.CAL†		XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF†		XBRL Taxonomy Extension Definition Linkbase Document

101.LAB†		XBRL Taxonomy Extension Label Linkbase Document

101.PRE†		XBRL Taxonomy Extension Presentation Linkbase Document

__________________

* Filed herewith.

** Furnished herewith.


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

SIGNATURES

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



		CEC ENTERTAINMENT, INC.

~~May~~August 9, 2016	By:	/s/ Dale R. Black
		Dale R. Black
		Executive Vice President and Chief Financial Officer
		(Principal Financial Officer)

~~May~~August 9, 2016		/s/ Laurie E. Priest
		Laurie E. Priest
		Vice President, Controller
		(Principal Accounting Officer)

EXHIBIT INDEX



Exhibit Number		Description

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

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

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

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

101.INS†		XBRL Instance Document

101.SCH†		XBRL Taxonomy Extension Schema Document

101.CAL†		XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF†		XBRL Taxonomy Extension Definition Linkbase Document

101.LAB†		XBRL Taxonomy Extension Label Linkbase Document

101.PRE†		XBRL Taxonomy Extension Presentation Linkbase Document

__________________

* Filed herewith.

** Furnished herewith.


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



	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)
Balance at January 3, 2016	200	$	—	$	356,460	$	(144,598	)	$	(3,316	)	$	208,546
Net income (loss)	—	—		—		17,915			—			17,915
Other comprehensive income (loss)	—	—		—		—			754			754
Stock-based compensation costs	—	—		168		—			—			168
Excess tax benefit realized from exercise of stock options	—	—		4		—			—			4
Balance at April 3, 2016	200	$	—	$	356,632	$	(126,683	)	$	(2,562	)	$	227,387



CEC Entertainment, Inc.
Condensed Consolidating Balance Sheet
As of April 3, 2016
(in thousands)

	Issuer			Guarantors			Non-Guarantors			Eliminations			Consolidated
Current assets:
Cash and cash equivalents	$	61,106		$	2,217		$	6,675		$	—		$	69,998
Restricted cash	—			—			4,142			—			4,142
Accounts receivable	14,416			2,811			8,944			(8,513		)	17,658
Inventories	23,031			3,087			307			—			26,425
Other current assets	14,608			4,219			2,003			—			20,830
Total current assets	113,161			12,334			22,071			(8,513		)	139,053
Property and equipment, net	570,343			34,587			8,707			—			613,637
Goodwill	432,462			51,414			—			—			483,876
Intangible assets, net	21,156			465,912			—			—			487,068
Intercompany	129,033			27,913			—			(156,946		)	—
Investment in subsidiaries	422,049			—			—			(422,049		)	—
Other noncurrent assets	7,692			11,965			619			—			20,276
Total assets	$	1,695,896		$	604,125		$	31,397		$	(587,508	)	$	1,743,910
Current liabilities:
Bank indebtedness and other long-term debt, current portion	$	7,600		$	56		$	—		$	—		$	7,656
Capital lease obligations, current portion	430			—			5			—			435
Accounts payable and accrued expenses	80,532			13,381			8,290			—			102,203
Other current liabilities	3,452			328			—			—			3,780
Total current liabilities	92,014			13,765			8,295			—			114,074
Capital lease obligations, less current portion	14,867			—			67			—			14,934
Bank indebtedness and other long-term debt, net of deferred financing costs, less current portion	970,556			—			—			—			970,556
Deferred tax liability	178,014			16,991			(1,421		)	—			193,584
Intercompany	1,479			138,099			25,881			(165,459		)	—
Other noncurrent liabilities	211,579			11,538			258			—			223,375
Total liabilities	1,468,509			180,393			33,080			(165,459		)	1,516,523
Stockholder's equity:
Common stock	—			—			—			—			—
Capital in excess of par value	356,632			466,114			3,241			(469,355		)	356,632
Retained earnings (deficit)	(126,683		)	(42,382		)	(2,362		)	44,744			(126,683		)
Accumulated other comprehensive income (loss)	(2,562		)	—			(2,562		)	2,562			(2,562		)
Total stockholder's equity	227,387			423,732			(1,683		)	(422,049		)	227,387
Total liabilities and stockholder's equity	$	1,695,896		$	604,125		$	31,397		$	(587,508	)	$	1,743,910



CEC Entertainment, Inc.
Consolidating Statement of Comprehensive Income (Loss)
For the Three Months Ended April 3, 2016
(in thousands)

	Issuer			Guarantors			Non-Guarantors			Eliminations			Consolidated
Revenues:
Food and beverage sales	$	107,822		$	12,788		$	1,592		$	—		$	122,202
Entertainment and merchandise sales	139,208			5,598			2,751			—			147,557
Total company store sales	247,030			18,386			4,343			—			269,759
Franchise fees and royalties	598			3,961			—			—			4,559
International Association assessments and other fees	255			615			11,958			(12,828		)	—
Total revenues	247,883			22,962			16,301			(12,828		)	274,318
Operating Costs and Expenses:
Company store operating costs:
Cost of food and beverage	26,644			3,297			580			—			30,521
Cost of entertainment and merchandise	8,119			445			186			—			8,750
Total cost of food, beverage, entertainment and merchandise	34,763			3,742			766			—			39,271
Labor expenses	63,734			3,999			1,310			—			69,043
Depreciation and amortization	26,563			607			459			—			27,629
Rent expense	22,257			1,333			560			—			24,150
Other store operating expenses	33,763			2,166			951			(870		)	36,010
Total company store operating costs	181,080			11,847			4,046			(870		)	196,103
Advertising expense	12,420			1,673			10,965			(11,958		)	13,100
General and administrative expenses	7,183			10,659			176			—			18,018
Transaction, severance and related litigation costs	701			48			—			—			749
Total operating costs and expenses	201,384			24,227			15,187			(12,828		)	227,970
Operating income (loss)	46,499			(1,265		)	1,114			—			46,348
Equity in earnings (loss) in affiliates	(1,112		)	—			—			1,112			—
Interest expense (income)	16,602			351			108			—			17,061
Income (loss) before income taxes	28,785			(1,616		)	1,006			1,112			29,287
Income tax expense (benefit)	10,870			165			337			—			11,372
Net income (loss)	$	17,915		$	(1,781	)	$	669		$	1,112		$	17,915

Components of other comprehensive income (loss), net of tax:
Foreign currency translation adjustments	754			—			(754		)	754			754
Comprehensive income (loss)	$	18,669		$	(1,781	)	$	(85	)	$	1,866		$	18,669



CEC Entertainment, Inc.
Consolidating Statement of Comprehensive Income (Loss)
For the Three Months Ended March 29, 2015
(in thousands)

	Issuer			Guarantors			Non-Guarantors			Eliminations			Consolidated
Revenues:
Food and beverage sales	$	102,387		$	12,316		$	1,834		$	—		$	116,537
Entertainment and merchandise sales	137,510			4,110			3,124			—			144,744
Total company store sales	239,897			16,426			4,958			—			261,281
Franchise fees and royalties	805			3,422			—			—			4,227
International Association assessments and other fees	286			662			8,653			(9,601		)	—
Total revenues	240,988			20,510			13,611			(9,601		)	265,508
Operating Costs and Expenses:
Company store operating costs:
Cost of food and beverage	25,390			3,244			591			—			29,225
Cost of entertainment and merchandise	7,620			753			149			—			8,522
Total cost of food, beverage, entertainment and merchandise	33,010			3,997			740			—			37,747
Labor expenses	61,732			3,930			1,511			—			67,173
Depreciation and amortization	27,619			1,114			508			—			29,241
Rent expense	22,303			1,494			661			—			24,458
Other store operating expenses	31,509			1,830			1,128			(948		)	33,519
Total company store operating costs	176,173			12,365			4,548			(948		)	192,138
Advertising expense	9,141			1,060			9,904			(8,653		)	11,452
General and administrative expenses	4,893			11,316			117			—			16,326
Transaction, severance and related litigation costs	—			905			—			—			905
Total operating costs and expenses	190,207			25,646			14,569			(9,601		)	220,821
Operating income (loss)	50,781			(5,136		)	(958		)	—			44,687
Equity in earnings (loss) in affiliates	(7,769		)	—			—			7,769			—
Interest expense (income)	16,737			633			129			—			17,499
Income (loss) before income taxes	26,275			(5,769		)	(1,087		)	7,769			27,188
Income tax expense (benefit)	11,533			1,328			(415		)	—			12,446
Net income (loss)	$	14,742		$	(7,097	)	$	(672	)	$	7,769		$	14,742

Components of other comprehensive income (loss), net of tax:
Foreign currency translation adjustments	(1,642		)	—			(1,642		)	1,642			(1,642		)
Comprehensive income (loss)	$	13,100		$	(7,097	)	$	(2,314	)	$	9,411		$	13,100