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 ~~July 1, 2018~~June 30, 2019



¨	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, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer” “smaller reporting ~~company”~~company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:



Large accelerated filer	¨	Accelerated filer	¨
Non-accelerated filer	ý	Smaller reporting company	¨
		Emerging growth company	¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ¨

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 ~~August 6, 2018,~~July 29, 2019, an aggregate of 200 shares of the registrant’s common stock, par value $0.01 per share were outstanding.

CEC ENTERTAINMENT, INC.

TABLE OF CONTENTS



	Page
PART I FINANCIAL INFORMATION

ITEM 1. Financial Statements (Unaudited)

Consolidated Balance Sheets at ~~July 1, 2018~~June 30, 2019 and December ~~31, 2017~~30, 2018	3

Consolidated Statements of Earnings for the three and six months ended June 30, 2019 and July 1, 2018 ~~and July 2, 2017~~	45

Consolidated Statements of Comprehensive Income (Loss) for the three and six months ended June 30, 2019 and July 1, 2018 ~~and July 2, 2017~~	5

Consolidated Statements of Cash Flows for the six months ended June 30, 2019 and July 1, 2018 ~~and July 2, 2017~~	6

Notes to Consolidated Financial Statements	8

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	2931

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk	4445

ITEM 4. Controls and Procedures	4546

PART II OTHER INFORMATION

ITEM 1. Legal Proceedings	4647

ITEM 1A. Risk Factors	4647

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds	4647

ITEM 6. Exhibits	4748

SIGNATURES

PART I - FINANCIAL INFORMATION

ITEM 1. Financial Statements.

CEC ENTERTAINMENT, INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited)

(in thousands, except share information)


	July 1, 2018			December 31, 2017			June 30, 2019			December 30, 2018
ASSETS
Current assets:
Cash and cash equivalents	$	88,887		$	67,200		$	113,636		$	63,170
Restricted cash	207			112			182			151
Accounts receivable	18,154			20,061			20,676			24,020
Income taxes receivable	6,073			10,960			—			10,160
Inventories	20,671			22,000			25,465			23,807
Prepaid expenses	28,745			20,398			21,252			25,424
Total current assets	162,737			140,731			181,211			146,732
Property and equipment, net	553,780			570,021			523,617			539,185
Operating lease right-of-use assets, net							537,031			—
Goodwill	484,438			484,438			484,438			484,438
Intangible assets, net	478,682			480,377			469,730			477,085
Other noncurrent assets	18,062			19,477			17,781			18,725
Total assets	$	1,697,699		$	1,695,044		$	2,213,808		$	1,666,165
LIABILITIES AND STOCKHOLDER’S EQUITY
Current liabilities:
Bank indebtedness and other long-term debt, current portion	$	7,600		$	7,600		$	7,600		$	7,600
Capital lease obligations, current portion	634			596
Operating lease liability, current portion							48,381			—
Accounts payable	34,050			31,374			35,879			31,410
Accrued expenses	37,644			36,616			44,173			36,030
Unearned revenues	19,959			21,050			20,749			18,124
Accrued interest	8,296			8,277			8,060			7,463
Other current liabilities	5,000			4,776			4,397			5,955
Total current liabilities	113,183			110,289			169,239			106,582
Capital lease obligations, less current portion	12,674			13,010
Operating lease obligations, less current portion							523,598			—
Bank indebtedness and other long-term debt, net of deferred financing costs, less current portion	963,243			965,213			959,874			961,514
Deferred tax liability	110,672			114,186			106,646			107,058
Accrued insurance	8,876			8,311			8,815			9,861
Other noncurrent liabilities	223,114			221,887			190,541			238,579
Total liabilities	1,431,762			1,432,896			1,958,713			1,423,594
Stockholder’s equity:
Common stock, $0.01 par value; authorized 1,000 shares; 200 shares issued as of July 1, 2018 and December 31, 2017	—			—
Common stock, $0.01 par value; authorized 1,000 shares; 200 shares issued as of June 30, 2019 and December 30, 2018							—			—
Capital in excess of par value	359,466			359,233			359,867			359,570
Accumulated deficit	(91,943		)	(95,199		)	(103,148		)	(115,660		)
Accumulated other comprehensive loss	(1,586		)	(1,886		)	(1,624		)	(1,339		)
Total stockholder’s equity	265,937			262,148			255,095			242,571
Total liabilities and stockholder’s equity	$	1,697,699		$	1,695,044		$	2,213,808		$	1,666,165

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

CEC ENTERTAINMENT, INC.

COSOLIDATED STATEMENTS OF EARNINGS

(Unaudited)

(in thousands)


	Three Months Ended						Six Months Ended				Three Months Ended						Six Months Ended
	July 1, 2018			July 2, 2017			July 1, 2018		July 2, 2017		June 30, 2019			July 1, 2018			June 30, 2019		July 1, 2018
REVENUES:
Food and beverage sales	$	96,258		$	97,411		$	214,635	$	221,830	$	91,650		$	96,258		$	209,466	$	214,635
Entertainment and merchandise sales	115,904			109,724			247,021		245,641		117,413			115,904			267,090		247,021
Total company venue sales	212,162			207,135			461,656		467,471		209,063			212,162			476,556		461,656
Franchise fees and royalties	5,196			4,649			10,606		9,272		6,113			5,196			11,933		10,606
Total revenues	217,358			211,784			472,262		476,743		215,176			217,358			488,489		472,262
OPERATING COSTS AND EXPENSES:
Company venue operating costs (excluding Depreciation and amortization):
Cost of food and beverage	22,894			22,823			50,254		51,040		21,285			22,894			47,937		50,254
Cost of entertainment and merchandise	8,421			6,854			17,802		15,341		9,452			8,421			21,198		17,802
Total cost of food, beverage, entertainment and merchandise	31,315			29,677			68,056		66,381		30,737			31,315			69,135		68,056
Labor expenses	62,618			60,351			129,966		126,738		63,975			62,618			136,480		129,966
Rent expense	24,714			23,906			48,764		47,225
Lease costs											27,516			24,714			54,543		48,764
Other venue operating expenses	37,069			35,967			75,132		72,716		32,653			37,069			67,950		75,132
Total company venue operating costs	155,716			149,901			321,918		313,060		154,881			155,716			328,108		321,918
Other costs and expenses:
Other costs and expenses:
Advertising expense	12,977			12,237			26,952		25,619		10,977			12,977			23,230		26,952
General and administrative expenses	13,416			13,719			26,325		29,090		14,649			13,416			29,893		26,325
Depreciation and amortization	25,493			27,623			52,065		55,928		24,118			25,493			48,452		52,065
Transaction, severance and related litigation costs	191			490			725		570		8			191			31		725
Asset impairments	1,591			—			1,591		—		1,285			1,591			1,285		1,591
Total operating costs and expenses	209,384			203,970			429,576		424,267		205,918			209,384			430,999		429,576
Operating income	7,974			7,814			42,686		52,476		9,258			7,974			57,490		42,686
Interest expense	19,113			17,061			37,671		34,123		19,979			19,113			39,787		37,671
Income (loss) before income taxes	(11,139		)	(9,247		)	5,015		18,353		(10,721		)	(11,139		)	17,703		5,015
Income tax expense (benefit)	(2,174		)	(3,317		)	1,759		7,061		(1,987		)	(2,174		)	5,191		1,759
Net income (loss)	$	(8,965	)	$	(5,930	)	$	3,256	$	11,292	$	(8,734	)	$	(8,965	)	$	12,512	$	3,256

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						Six Months Ended				Three Months Ended						Six Months Ended
	July 1, 2018			July 2, 2017			July 1, 2018		July 2, 2017		June 30, 2019			July 1, 2018			June 30, 2019			July 1, 2018
Net income (loss)	$	(8,965	)	$	(5,930	)	$	3,256	$	11,292	$	(8,734	)	$	(8,965	)	$	12,512		$	3,256
Components of other comprehensive income (loss), net of tax:
Foreign currency translation adjustments	145			420			300		539		(130		)	145			(285		)	300
Comprehensive income (loss)	$	(8,820	)	$	(5,510	)	$	3,556	$	11,831	$	(8,864	)	$	(8,820	)	$	12,227		$	3,556

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)


	Six Months Ended						Six Months Ended
	July 1, 2018			July 2, 2017			June 30, 2019			July 1, 2018
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	3,256		$	11,292		$	12,512		$	3,256
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	52,065			55,928			48,452			52,065
Deferred income taxes	(3,626		)	(3,589		)	(309		)	(3,626		)
Stock-based compensation expense	227			336			2,096			227
Amortization of lease related liabilities	(508		)	(237		)	—			(508		)
Amortization of original issue discount and deferred debt financing costs	2,226			2,273			2,117			2,226
Loss on asset disposals, net	2,038			3,716			1,983			2,038
Asset impairments	1,591			—			1,285			1,591
Non-cash rent expense	2,931			2,101
Non-cash lease costs							1,663			2,931
Change in operating lease liabilities							(945		)	—
Other adjustments	348			9			(270		)	348
Changes in operating assets and liabilities:

Accounts receivable	2,380			2,770			4,200			2,380
Inventories	1,314			(7,453		)	(1,771		)	1,314
Prepaid expenses	(7,430		)	(2,587		)	(1,925		)	(7,430		)
Accounts payable	1,439			8,031			4,045			1,439
Accrued expenses	1,134			(3,090		)	1,059			1,134
Unearned revenues	(1,089		)	2,905			2,619			(1,089		)
Accrued interest	14			54			745			14
Income taxes (receivable) payable	4,964			2,933
Income taxes receivable							13,516			4,964
Deferred landlord contributions	1,751			1,210			—			1,751
Net cash provided by operating activities	65,025			76,602			91,072			65,025
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment	(36,808		)	(47,045		)	(34,342		)	(36,808		)
Development of internal use software	(1,022		)	(2,075		)	(609		)	(1,022		)
Proceeds from sale of property and equipment	412			237			141			412
Net cash used in investing activities	(37,418		)	(48,883		)	(34,810		)	(37,418		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments on senior term loan	(3,800		)	(3,800		)	(3,800		)	(3,800		)
Repayments on note payable	—			(13		)
Proceeds from sale leaseback transaction	—			4,073
Payment of debt financing costs	(395		)	—			—			(395		)
Payments on capital lease obligations	(295		)	(218		)
Payments on financing lease obligations							(344		)	(295		)
Payments on sale leaseback obligations	(1,384		)	(1,161		)	(1,619		)	(1,384		)

Table of Contents

CEC ENTERTAINMENT, INC.

CONSOLIDATED ~~STATEMENT~~STATEMENTS OF CASH FLOWS, CONT'D

(Unaudited)

(in thousands)


Return of capital	—			1,447
Net cash used in financing activities	(5,874		)	328		(5,763		)	(5,874		)
Effect of foreign exchange rate changes on cash	49			239		(2		)	49
Change in cash, cash equivalents and restricted cash	21,782			28,286		50,497			21,782
Cash, cash equivalents and restricted cash at beginning of period	67,312			61,291		63,321			67,312
Cash, cash equivalents and restricted cash at end of period	$	89,094		$	89,577	$	113,818		$	89,094


	Six Months Ended					Six Months Ended
	July 1, 2018			July 2, 2017		June 30, 2019			July 1, 2018
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid	$	35,906		$	31,861	$	36,994		$	35,906
Income taxes paid, net	$	421		$	7,716
Income taxes (refunded) paid, net						$	(8,016	)	$	421
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Accrued construction costs	$	1,352		$	2,214	$	324		$	1,352

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the statements of financial position that sum to the total of the same such amounts shown in the statements of cash flows.



	June 30, 2019		July 1, 2018
Cash and cash equivalents	$	113,636	$	88,887
Restricted cash⁽¹⁾	182		207
Cash, cash equivalents and restricted cash	$	113,818	$	89,094

__________________


⁽¹⁾	Restricted cash represents cash balances held by the Association that are restricted for use in our advertising, entertainment and media programs.

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

CEC ENTERTAINMENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 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~~Cheese and Peter Piper Pizza family dining and entertainment venues in 47 states and 14 foreign countries and territories. As of June 30, 2019, we and our franchisees operated a total of 749 venues, of which 554 were Company-operated venues located in 44 states and Canada. Our franchisees operated a total of 195 venues ~~provide our guests with~~located in 14 states and 13 foreign countries and territories, including Chile, Colombia, Costa Rica, Guam, Guatemala, Honduras, Mexico, Panama, Peru, Puerto Rico, Saudi Arabia, Trinidad & Tobago, and the United Arab Emirates. As of June 30, 2019, a ~~variety~~total of ~~family entertainment~~181 Chuck E. Cheese venues are located in California, Texas, and ~~dining alternatives.~~ Florida (178 are Company-operated and three are franchised locations), and a total of 132 Peter Piper Pizza venues are located in Arizona, Texas, and Mexico (33 are Company-operated and 99 are franchised locations).

All of our venues utilize a consistent restaurant-entertainment format that features both family dining and entertainment areas with a mix of food, entertainment and merchandise. The economic characteristics, products and services, preparation processes, distribution methods and types of customers are substantially similar for each of our venues. Therefore, we aggregate each venue’s operating performance into one reportable segment for financial reporting purposes.

Basis of Presentation

The Company has a controlling financial interest in International Association of CEC Entertainment, Inc. (the “Association”), a variable interest entity (“VIE”). The Association primarily administers the collection and disbursement of funds (the “Association Funds”) used for advertising, entertainment and media programs that benefit both us and our Chuck E. ~~Cheese’s~~Cheese 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 venues that benefit from the Association’s advertising, entertainment and media expenditures. We eliminate the intercompany portion of transactions with VIEs from our financial results. The assets, liabilities and operating results of the Association are not material to our Consolidated Financial Statements.

The Association Funds are required to be segregated and used for specified purposes. 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. Contributions to the advertising, entertainment and media funds from our franchisees were ~~$1.3~~$1.7 million and ~~$1.2~~$1.3 million for the six months ended June 30, 2019 and July 1, 2018, ~~and July 2, 2017,~~ respectively. Our contributions to the Association Funds are eliminated in consolidation. ~~On January 1, 2018 we adopted Accounting Standards Update (“ASU”) 2014-09,~~ ~~Revenue from Contracts with Customers (ASC Topic 606). As a result of the adoption of ASU 2016-15,~~ ~~Statement of Cash Flows (Topic 230) and ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash,~~ ~~on January 1, 2018, certain reclassifications have been made in our Consolidated Statements of Cash Flows to conform with the current period presentation.~~

~~For further details regarding the impact of these new accounting standards on our Consolidated financial statements “Recently Issued Accounting Guidance - Accounting Guidance Adopted - below.~~

We reclassified $1.8 million and $3.7 million, respectively, of depreciation and amortization for the three and six months ended July 2, 2017 which was previously included in “General and administrative expenses” and we reclassified “Depreciation and amortization” of $25.8 million and $52.2 million, respectively, for the three months and six months ended July 2, 2017 from “Company venue operating costs” to a single classification as “Depreciation and amortization” now shown in “Other costs and expenses” in our Consolidated Statements of Earnings, to conform to the current period’s presentation.

The preparation of these unaudited Consolidated Financial Statements in conformity with accounting principles generally accepted in the United States (“U.S. 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.

~~Table~~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 current fiscal year, which ends on December 29, 2019, and our fiscal year ended December 30, 2018, each consist of ~~Contents~~

~~CEC ENTERTAINMENT, INC.~~

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

~~(Unaudited)~~

52 weeks. References to the three-month and six-month periods ended June 30, 2019 and July 1, 2018 are for the 13-week and 26-week periods ended June 30, 2019 and July 1, 2018, respectively.

Interim Financial Statements

The accompanying Consolidated Financial Statements as of and for the three and six months ended June 30, 2019 and July 1, 2018 ~~and July 2, 2017~~ 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”). All intercompany accounts have been eliminated in consolidation.

Consolidated results of operations for interim periods are not necessarily indicative of results for the full year. The unaudited Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and related notes included in our Annual Report on Form 10-K for the fiscal year ended December ~~31, 2017~~30, 2018, filed with the SEC on March ~~28, 2018.~~12, 2019.

Recently ~~Issued~~Adopted Accounting Guidance

~~Accounting Guidance Adopted:~~

Effective ~~January 1,~~December 31, 2018, the beginning of our Fiscal 2019 year, we adopted ~~the following~~ Accounting Standards ~~Updates:~~

~~(i) 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 ASU 2014-09 ~~Revenue From Contracts With Customers (Topic 606).~~ 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. The adoption of this amendment did not have a significant impact on our Consolidated Financial Statements.

~~(ii) ASU 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing~~ ~~(“ASU 2016-10”~~Update (“ASU”). 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. We elected the modified retrospective method to apply this standard. Under the modified retrospective method, results for reporting periods beginning on or after January 1, 2018 are presented under the revenue guidance in this amendment, while prior period amounts are not adjusted and continue to be reported in accordance with our historic accounting treatment. The cumulative impact of adopting this amendment was not material, and as such we did not record an adjustment to our opening accumulated deficit in our Consolidated Balance Sheet as of January 1, 2018. For further details, see Note 2. “Revenue.”

~~(iii) ASU 2016-15,~~ ~~Statement of Cash Flows (Topic 230) and~~ ~~ASU 2016-18,~~ ~~Statement of Cash Flows (Topic 230): Restricted Cash~~ ~~on a retrospective basis~~. Amounts generally described as restricted cash and restricted cash equivalents are now presented with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. Accordingly, as a result of the adoption of these amendments, we reclassified $0.1 million of restricted cash into cash, cash equivalents and restricted cash as of July 2, 2017 for a total balance of $89.6 million, which resulted in a reduction in net cash provided by operating activities of $0.2 million in the Consolidated Statement of Cash Flows for the six months ended July 2, 2017. The adoption of these amendments did not impact net cash used in investing or financing activities for the six months ended July 2, 2017.

~~Table of Contents~~

~~CEC ENTERTAINMENT, INC.~~

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

~~(Unaudited)~~

The adoption of these amendments also requires us to reconcile our cash balance on our Consolidated Statements of Cash Flows to the cash balance on our Consolidated Balance Sheets, as well as make disclosures about the nature of restricted cash balances. A reconciliation of “Cash and cash equivalents” and “Restricted cash” as presented in our Consolidated Balance Sheets for the periods presented and “Cash, cash equivalents and restricted cash” as presented in our Consolidated Statements of Cash Flows for the six months ended July 1, 2018 and July 2, 2017 is as follows:

July 1, 2018 December 31, 2017 July 2, 2017 January 1, 2017
(in thousands)
Cash and cash equivalents $ 88,887
$ 67,200
$ 89,462
$ 61,023
Restricted cash 207
112
115
268
Cash, cash equivalents and restricted cash $ 89,094
$ 67,312
$ 89,577
$ 61,291

~~__________________~~


~~(1)~~	Restricted cash represents cash balances held by the Association that are restricted for use in our advertising, entertainment and media programs (see Note 1 “Description of Business and Summary of Significant Accounting Policies” for further discussion of the Association Funds).

~~(iv) ASU 2017-04,~~ ~~Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment~~ ~~on a prospective basis.~~This amendment eliminates Step 2 from the goodwill impairment test, which measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill, from the goodwill impairment test. Instead, under the amendments in this ASU, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. However, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. Additionally, an entity should consider income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable. We early adopted this amendment on January 1, 2018. The adoption of this amendment did not have a significant impact on our Consolidated Financial Statements.

~~Accounting Guidance Not Yet Adopted:~~

~~In February 2016, the FASB issued~~ ASU 2016-02, Leases (Topic 842)(“ASU 2016-02”) and the subsequent amendment ASU 2018-11, Leases (Topic 842): Target Improvements (“ASU 2018-11”). ~~This new standard~~ASU 2016-02 introduces a new lease model that requires the recognition of lease right-of-use assets and operating lease liabilities on the balance sheet and the disclosure of key information about leasing arrangements. ~~While~~ASU 2018-11 provides for another transition method in addition to the modified retrospective approach required by ASU 2016-02. This option allows for entities to initially apply ASU 2016-02 at the adoption date and recognize a cumulative adjustment to the opening balance sheet in the period of adoption. The cumulative impact of adopting ASU 2016-02 did not require us to record an adjustment to our opening accumulated deficit as of December 31, 2018 in our Consolidated Balance Sheet.

Upon the adoption of ASU 2016-02, we applied the package of practical expedients included therein, which eliminated the requirements to reassess prior conclusions about lease identification, lease classification, and initial direct costs. We did not elect the hindsight practical expedient, which permits the use of hindsight when determining lease term. Further, we elected a short-term lease exception policy, permitting us to not apply the recognition requirements of this ~~new~~ standard ~~retains most~~to short-term leases (i.e. leases with terms of 1 year or less) and an accounting policy to account for lease and non-lease components as a single component for real estate operating leases. We also utilized the transition method included in ASU 2018-11. By applying ASU 2016-02 at the adoption date, as opposed to at the beginning of the ~~principles~~earliest period presented, the presentation of ~~the existing lessor model under U.S. GAAP, it aligns many of those principles~~financial information for periods prior to December 31, 2018 remained unchanged and in accordance withAccounting Standards Codification (“ASC”) ~~606: Revenue from Contracts with Customers~~840Leases (Topic 840).. The ~~new guidance will be effective for us beginning~~adoption of ASU 2016-02 resulted in the recognition as of December 31, ~~2018. We are currently evaluating the impact~~2018 of ~~the adoption~~Right-of-Use assets related to our operating leases of ~~this guidance on~~$557.1 million and lease liabilities related to our ~~Consolidated Financial Statements, but we expect this will have a material effect on our balance sheet since the Company has a significant amount~~operating leases of ~~operating and capital lease arrangements.~~

$590.8 million. In ~~February 2018, the FASB issued ASU 2018-02,~~ ~~Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.~~ This standard provides companies with an option to reclassify stranded tax effects resulting from enactment of the Tax Cuts and Jobs Act ("TCJA") from accumulated other comprehensive income to retained earnings. This ASU will be effective for us for annual and interim periods beginning on December 31, 2019. Early adoption of this standard is permitted and may be applied either in the period of adoption or retrospectively to each period in which the effect of the change in the tax rateaddition, as a result of ~~TCJA is recognized. We do not expect the adoption~~electing to account for lease and non-lease components as a single component for certain classes of ~~this ASU to have a material impact on our results of operations, financial position and cash flows.~~

~~2. Revenue:~~

Food, beverage and merchandise revenues from company-operated venues are recognized when sold. A portion of our entertainment revenue includes customer purchases of game play credits on Play Pass game cards. We recognize a liabilityassets, lease costs for the ~~estimated amount~~three and six months ended June 30, 2019 include $3.6 million and $7.1 million, respectively, of ~~unused game play credits~~common area maintenance charges, which ~~we believe our customers will utilize~~was previously included in ~~the future, based on credits remaining on Play Pass cards and utilization patterns.~~

~~We sell gift cards to our customers~~“Other venue operating expenses” in our venues and through certain third-party distributors, which do not expire and do not incur a service fee on unused balances. Gift card sales are recorded as deferred revenue when sold and are recognized as revenue when: (a) the gift card is redeemed by the guest or (b) the likelihoodConsolidated Statement of ~~the gift card being redeemed by the guest is remote (“gift card breakage”) and we determine that we do not have a legal obligation to remit the value~~Earnings. Other venue operating expenses in our Consolidated Statement of ~~the unredeemed gift~~

~~card under applicable state unclaimed property escheat statutes. Gift card breakage is determined based upon historical redemption patterns of our gift cards.~~

~~Table of Contents~~

~~CEC ENTERTAINMENT, INC.~~

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

~~(Unaudited)~~

On January 1, 2018 we adopted the revenue guidance set forth in ASU 2016-10. Under the new guidance, there is a five-step model to apply to revenue recognition. The five-steps consist of: (i) the determination of whether a contract, an agreement between two or more parties that creates legally enforceable rights and obligations, exists; (ii) the identification of the performance obligations in the contract; (iii) the determination of the transaction price; (iv) the allocation of the transaction price to the performance obligations in the contract; and (v) recognition of revenue when (or as) the performance obligation is satisfied.

ASU 2016-10 requires us to recognize initial and renewal franchise and development fees on a straight-line basis over the life of the related franchise agreement or the renewal period. Historically, we recognized revenue from initial franchise and development fees upon the opening of a franchised restaurant when we completed all of our material obligations and initial services. Additionally, our national advertising fund receipts from Association members are now accountedEarnings for on a gross basis as “Franchise fees and royalties,” when historically they were netted against “Advertising expense.” Revenue related to advertising contributions from our franchisees was $0.6 million and $1.3 million in the three and six months ended July 1, 2018 ~~respectively,~~includes common area maintenance charges of $3.4 million and ~~is recorded in “Franchise fees and royalties” in~~$7.0 million, respectively. The adoption of the guidance did not have a material impact on our Consolidated Statement of ~~Earnings.~~Cash Flows.

Note 2. Unearned Revenues:

Liabilities relating to unused game credits, ~~Play Pass game cards,~~ gift card liabilities and deferred franchise and development fees are included in “Unearned revenues” on our Consolidated Balance Sheets. The following table presents changes in the Company’s Unearned revenue balances during the six months ended ~~July 1, 2018:~~June 30, 2019:


	Balance at							Balance at		Balance at							Balance at
	January 1, 2018		Revenue Deferred		Revenue Recognized			July 1, 2018		December 31, 2018		Revenue Deferred		Revenue Recognized			June 30, 2019
	(in thousands)									(in thousands)
PlayPass related deferred revenue	$	12,035	$	36,136	$	(38,183	)	$	9,988
PlayPass and ticket related deferred revenue										$	5,561	$	25,433	$	(24,892	)	$	6,102
Gift card related deferred revenue	3,868		2,883		(3,476		)	3,275		5,253		5,248		(5,016		)	5,485
Unearned franchise and development fees	4,274		1,045		(31		)	5,288		6,321		1,399		(63		)	7,657
Other unearned revenues	873		13,547		(13,012		)	1,408		989		14,213		(13,697		)	1,505
Total unearned revenue	$	21,050	$	53,611	$	(54,702	)	$	19,959
Total unearned revenues										$	18,124	$	46,293	$	(43,668	)	$	20,749

Note 3. Property and Equipment

Asset Impairments

During the three and six months ended June 30, 2019, we recognized impairment charges of $1.1 million primarily related to two venues. During the three and six months ended July 1, 2018, we recognized an asset impairment charge of $1.6 million primarily related to one venue. ~~This~~These impairment ~~charge was~~charges were the result of a decline in the ~~venue’s~~venues’ financial performance, primarily related to various competitive and economic factors in the market in which the ~~venue is~~venues are located. As of ~~July 1, 2018,~~June 30, 2019, the aggregate carrying value of the property and equipment at impaired venues, after the impairment ~~charge,~~charges, was ~~$0.4~~$0.7 million for venues impaired in ~~2018.~~2019.

~~Table of Contents~~

~~CEC ENTERTAINMENT, INC.~~

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

~~(Unaudited)~~

Note 4. Intangible Assets, Net:

The following table presents our indefinite and definite-lived intangible assets at ~~July 1, 2018:~~June 30, 2019:


	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
Chuck E. Cheese tradename									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		(7,976		)	6,904
Franchise agreements	25	53,300		(8,222		)	45,078		25	53,300		(10,270		)	43,030
		$	494,880	$	(16,198	)	$	478,682		$	480,000	$	(10,270	)	$	469,730

~~__________________~~In connection with the adoption of ASU 2016-02 effective December 31, 2018, we reclassified $6.3 million related to the net carrying amount of our favorable lease definite-lived intangible asset from “Intangible Assets, Net” to “Operating lease right-of-use assets, net” on our Consolidated Balance Sheets. See Note 1. “Description of Business and Summary of Significant Accounting Policies - Recently Adopted Accounting Guidance” and Note 5. “Leases” for further discussion on the adoption of ASU 2016-02.

~~(1)~~

In connection with the Merger, as defined in Note 12 “Consolidating Guarantor Financial Information”, and the acquisition of Peter Piper Pizza in October 2014, 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 $0.3 million ~~and $0.4 million~~ for the three months ended July 1, 2018, and ~~July 2, 2017, respectively, and $0.7 million and $0.9 million for the six months ended July 1, 2018 and July 2, 2017, respectively, and~~ is included in ~~“Rent expense”~~“Lease costs” in our Consolidated Statements of Earnings. As described above, in connection with the adoption of ASU 2016-02 at the beginning of Fiscal 2019, our favorable lease definite-lived intangible asset was reclassified from “Intangible Assets, Net” to “Operating lease right-of-use assets, net” and therefore we no longer have any amortization expense related to favorable lease agreements. Amortization expense related to franchise agreements was $0.5 million for both the three months ended June 30, 2019 and July 1, 2018, ~~and July 2, 2017,~~ respectively, and $1.0 million for both the six months ended June 30, 2019 and July 1, 2018, ~~and July 2, 2017,~~ respectively, and is included in “Depreciation and amortization” in our Consolidated Statements of Earnings.

Note 5. Leases:

We lease certain venues, warehouses, office space and equipment. The leases generally require us to pay minimum rent, property taxes, insurance, and other maintenance costs. Certain lease agreements include rental payments based on a percentage of retail sales over contractual levels and others include rental payments adjusted periodically for inflation. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants

Most of the Company's leases generally have initial terms of 10 to 20 years and include one or more options to renew. The exercise of lease renewal options is at our sole discretion and based on our history of exercising renewal lease options, our operating lease liabilities typically assume the exercise of two lease renewal options. The depreciable life of assets and leasehold improvements are limited by the expected lease term.



		June 30, 2019
	Balance Sheet Classification	(in thousands)
Assets
Operating	Operating lease right-of-use assets, net ⁽¹⁾	$	537,031
Finance	Property and equipment, net ⁽²⁾	9,593
Total leased assets		$	546,624

Liabilities
Current
Operating	Operating lease liability, current portion	$	48,381
Finance	Other current liabilities	777
Noncurrent
Operating	Operating lease obligations, less current portion	523,598
Finance	Other noncurrent liabilities	11,888
Total leased liabilities		$	584,644

__________________

⁽¹⁾During the three and six months ended June 30, 2019, we recognized impairment charges of $0.2 million against our operating right-of-use lease assets related to three Peter Piper Pizza venues in Oklahoma that were closed in 2018. These impairment charges represent a change in the sublease income assumptions for these locations to reflect a longer than expected period to secure subtenants.

⁽²⁾ Finance lease assets are recorded net of accumulated amortization of $5.5 million as of June 30, 2019.

As most of our leases do not provide an implicit rate, we use our estimated incremental borrowing rate based on the current cost of debt on our secured credit facilities at commencement date in determining the present value of lease payments.



		Three Months Ended		Six Months Ended
		June 30, 2019		June 30, 2019
	Statement of Earnings Classification	(in thousands)		(in thousands)
Operating lease cost ⁽¹⁾	Lease costs	$	27,516	$	54,543
Operating lease cost ⁽²⁾	General and administrative	327		650
Finance lease cost
Amortization of leased assets	Depreciation and amortization	248		496
Interest on lease liabilities	Net interest expense	376		757
Net lease cost		$	28,467	$	56,446

__________________

⁽¹⁾Includes common area maintenance charges of $3.6 million and $7.1 million for the three and six months ended June 30, 2019, respectively.

⁽²⁾ Represents the lease cost associated with operating leases relating to our corporate offices and warehouse facilities.

The following table illustrates the Company’s future minimum rental payments for non-cancelable leases as of June 30, 2019:



	Operating Leases ⁽¹⁾		Finance Leases ⁽²⁾		Total
	(in thousands)
Remainder of 2019	$	46,438	$	2,152	$	48,590
2020	92,308		2,164		94,472
2021	89,789		2,148		91,937
2022	87,200		2,147		89,347
2023	84,750		1,920		86,670
After 2023	461,590		13,331		474,921
Total lease payments	862,075		23,862		885,937
Less: interest	290,096		11,197		301,293
Present value of minimum lease payments ⁽³⁾	$	571,979	$	12,665	$	584,644

__________________

⁽¹⁾ Operating lease payments include payments related to options to extend lease terms that are reasonably certain of being exercised and exclude legally binding minimum lease payments for leases signed but not yet commenced.

⁽²⁾ Finance lease payments include payments related to options to extend lease terms that are reasonably certain of being exercised and exclude legally binding minimum lease payments for leases signed but not yet commenced.

⁽³⁾ The present value of minimum operating lease payments of $48.4 million and $523.6 million are included in “Operating lease liability, current portion” and “Operating lease obligations, less current portion”, respectively, in our Consolidated Balance Sheet. The present value of minimum finance lease payments of $0.8 million and $11.9 million are included in “Other current liabilities” and “Other noncurrent liabilities”, respectively, in our Consolidated Balance Sheet.



	Six Months Ended
Lease Term and Discount Rate	June 30, 2019
Weighted average remaining lease term (years):
Operating leases	10.2
Finance leases	11.2
Weighted average discount rate:
Operating leases	8.0	%
Finance leases	13.6	%

The following table includes supplemental cash flow information related to leases:



	Six Months Ended
	June 30, 2019
	(in thousands)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases	$	43,888
Operating cash flows for finance leases	757
Financing cash flows for finance leases	347
Right-of-use assets obtained in exchange for lease obligations:
Operating lease liabilities	5,940
Finance lease liabilities	—

The following table illustrates the Company’s future minimum rental payments for non-cancelable leases as of December 30, 2018:



	Financing			Operating
Fiscal Years	(in thousands)
2019	2,182			92,435
2020	2,214			90,983
2021	2,201			88,914
2022	2,184			87,183
2023	1,956			84,806
After 2023	13,266			457,277
Future minimum lease payments	24,003			901,598
Less amounts representing interest	(10,996		)
Present value of future minimum lease payments	13,007
Less current portion	(677		)
Finance lease liability, net of current portion	$	12,330

Note 6. Accounts Payable:

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


	July 1, 2018		December 31, 2017		June 30, 2019		December 30, 2018
	(in thousands)				(in thousands)
Trade and other amounts payable	$	23,881	$	20,492	$	25,037	$	20,685
Book overdraft	10,169		10,882		10,842		10,725
Accounts payable	$	34,050	$	31,374	$	35,879	$	31,410

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

~~Table of Contents~~

~~CEC ENTERTAINMENT, INC.~~

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

~~(Unaudited)~~

6.Note 7. Indebtedness and Interest Expense:

Our long-term debt consisted of the following as of the dates presented:


	July 1, 2018			December 31, 2017			June 30, 2019			December 30, 2018
	(in thousands)						(in thousands)
Term loan facility	$	727,700		$	731,500		$	720,100		$	723,900
Senior notes	255,000			255,000			255,000			255,000
Total debt outstanding	982,700			986,500			975,100			978,900
Less:
Deferred financing costs, net							(6,743		)	(8,633		)
Unamortized original issue discount	(1,424		)	(1,694		)	(883		)	(1,153		)
Deferred financing costs, net	(10,433		)	(11,993		)
Current portion	(7,600		)	(7,600		)
Current portion of term loan facility							(7,600		)	(7,600		)
Bank indebtedness and other long-term debt, net of deferred financing costs, less current portion	$	963,243		$	965,213		$	959,874		$	961,514

We were in compliance with the debt covenants in effect as of June 30, 2019 for both the secured credit facilities and the senior notes.

We monitor the capital markets and our capital structure and make changes from time to time, with the goal of maintaining financial flexibility, preserving or improving liquidity and/or achieving cost efficiency. From time to time we may opportunistically pursue financing transactions. In addition, we may elect to repurchase amounts of our outstanding debt, including the senior notes (as defined below under “Senior Unsecured Debt”), for cash, through open market repurchases or privately negotiated transactions with certain of our debt holders, although there is no assurance we will do so.

On August 1, 2019, the Company announced that it is seeking to obtain a new first lien senior secured credit facility to refinance in full its existing secured credit facilities (as defined below).

Secured Credit Facilities

Our secured credit facilities include (i) a $760.0 million term loan facility with a maturity date of February 14, 2021 (the “term loan facility”) and (ii) a ~~$150.0~~$95.0 million senior secured revolving credit facility with ~~an original~~a maturity date of November 16, 2020 (as discussed in more detail below, $95.0 million of our original $150.0 million revolving credit facility maturing on February 14, 2019, ~~which~~was extended to November 16, 2020). The revolving credit facility includes a letter of credit sub-facility and a $30.0 million swingline loan sub-facility (the “revolving credit facility” and together with the term loan facility, the “secured credit facilities”). The term loan facility requires scheduled quarterly payments equal to 0.25% of the original principal amount from July 2014 to December 2020, with the remaining balance ~~paid~~due at maturity, February 14, 2021. We

As of June 30, 2019, we had no borrowings outstanding and ~~$9.0~~an $8.5 million ~~and $9.9 million, respectively~~letter of credit issued but undrawn ~~letters~~under the revolving credit facility, and a $9.0 million letter of credit issued but undrawn under the revolving credit facility, as of ~~July 1, 2018 and~~ December ~~31, 2017, respectively.~~

30, 2018. On May 8, 2018 we entered into an incremental assumption agreement with certain of our revolving credit facility lenders to extend the maturity on $95.0 million of the revolving credit facility through November 16, 2020. In connection with the extension of the maturity date, we agreed to the following covenants for the benefit of the revolving credit facility lenders: (a) with respect to each fiscal year (commencing with the fiscal year ending December 30, 2018), to the extent we have excess cash flow (as defined in the secured credit ~~facilities)~~facilities agreement), we ~~will~~are required to make ~~one or more optional prepayments~~a mandatory prepayment of term ~~loans,~~loan principal to the extent ~~required, such~~ that ~~the amount of such optional prepayments, together with the mandatory~~75% times our excess cash flow ~~prepayment of term loans required under~~(as defined in the secured credit facilities ~~in respect of such fiscal year, shall equal at least 75% of the Company’s excess cash flow for such fiscal year (subject~~agreement) and subject to step-downs based on our net first lien senior secured leverage ratio ~~and subject~~(the ratio of consolidated debt secured by first-priority liens on the collateral less unrestricted cash (“net first lien debt”) to ~~a certain excess cash flow threshold amount)~~the last twelve months’ EBITDA, as defined in the senior credit facilities debt agreement) exceeds $10 million with any such required mandatory payment reduced by any optional prepayments of principal that may have occurred during the fiscal year, and (b) we shall not incur additional first lien debt in connection with certain acquisitions, mergers or consolidations unless our net first lien senior secured leverage ratio is ~~not~~ greater than 3.65 to 1.00 on a pro forma basis. The ~~maturity date~~remaining $55.0 million of the ~~amount of the~~original revolving credit facility ~~that was not extended remains~~matured on February 14, ~~2019.~~2019 with no borrowings outstanding thereunder. 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.

The term loan was issued net of $3.8 million of original issue discount. We also paid $17.8 million and $3.8 million in debt financing costs related to the term loan facility and revolving credit facility ~~inclusive~~(inclusive of costs incurred in connection with the May 8, 2018 incremental assumption ~~agreement,~~agreement), respectively. All debt financing costs were 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 related to the term loan facility are amortized over the life of the term loan facility, and the deferred financing costs related to the revolving credit facility are being amortized through November 16, 2020, and are included in “Interest expense” on our Consolidated Statements of Earnings.

term loan facility and base rate borrowings and swingline borrowings under the revolving credit facility. The applicable margin

~~Table of Contents~~

~~CEC ENTERTAINMENT, INC.~~

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

~~(Unaudited)~~

for LIBOR 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 LIBOR 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. ~~Effective March 4, 2016,~~During the ~~applicable margin for both our term loan facility~~six months ended June 30, 2019 and ~~revolving credit facility stepped down to 3.0%. Effective November 16, 2017,~~July 1, 2018, the applicable margin for LIBOR borrowings under both the term loan facility and the revolving credit facility ~~returned to their previous level of~~was 3.25%.

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 ~~was~~is 0.50% per annum and is subject to one step-down from 0.50% to 0.375% based on our net first lien senior secured leverage ratio. During the six months ended June 30, 2019 and July 1, 2018 the commitment fee rate was 0.50%. 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, processing, and ~~processing~~fronting fees ~~and charges and a fronting fee~~ computed at a rate equal to 0.125% per annum on the daily stated amount of such letter of credit.

During the six months ended ~~July 1, 2018,~~June 30, 2019, the federal funds rate ranged from ~~1.34%~~2.36% to ~~1.92%~~2.45%, the prime rate ~~ranged from 4.50% to 5.00%~~was 5.50% and the one-month LIBOR ranged from ~~1.55%~~2.38% to ~~2.10%~~2.52%.

The weighted average effective interest rate incurred on our borrowings under our secured credit facilities was ~~5.6%~~6.3% and ~~4.6%~~5.6% for the six months ended June 30, 2019 and July 1, 2018, ~~and July 2, 2017,~~ respectively, which includes amortization of deferred financing 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.

Obligations under the secured credit facilities are unconditionally guaranteed by Queso Holdings Inc. (“Parent”) on a limited-recourse basis and each of our existing and future direct and indirect material, wholly-owned domestic subsidiaries, subject to certain exceptions. The obligations are secured by a pledge of our capital stock and substantially all of our assets and those of each subsidiary guarantor, including capital stock of the subsidiary guarantors and 65% of the capital stock of the first-tier foreign subsidiaries that are not subsidiary guarantors, in each case subject to exceptions. Such security interests consist of first priority liens with respect to the collateral.

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

Our revolving credit facility includes a springing financial maintenance covenant that requires our net first lien senior secured leverage ratio not to exceed 6.25 to ~~1.00 (the ratio of consolidated net debt secured by first-priority liens on the collateral to the last twelve months’ EBITDA, as defined in the senior credit facilities).~~1.00. 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.

Senior Unsecured Debt

Our senior unsecured debt consists of $255.0 million aggregate principal amount borrowings of 8.0% Senior Notes due 2022 (the “senior notes”). The senior notes bear interest at a rate of 8.0% per year payable February 15th and August 15th each year and mature on February 15, 2022. We may ~~redeem~~call some or all of the senior notes at ~~certain redemption prices~~102% on or after February 15, 2019 and at 100% on or after February 15, 2020 as set forth in the indenture governing the senior notes (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 being amortized over the life of the senior notes and are included in “Interest expense” in 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: (i) incur additional debt or issue certain preferred shares; (ii) create liens on certain assets; (iii) make certain loans or investments (including acquisitions);

~~Table of Contents~~

~~CEC ENTERTAINMENT, INC.~~

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

~~(Unaudited)~~

(iv) pay dividends on or make distributions in respect of our capital stock or make other restricted payments; (v) consolidate, merge, sell or otherwise dispose of all or substantially all of our assets; (vi) sell assets; (vii) enter into certain transactions with our affiliates; and (viii) restrict dividends from our subsidiaries.

The weighted average effective interest rate incurred on borrowings under our senior notes was 8.2% for both the ~~both~~ six months ended June 30, 2019 and July 1, 2018, ~~and July 2, 2017,~~ which included amortization of deferred financing costs and other fees related to our senior notes.

Interest Expense

Interest expense consisted of the following for the periods presented:


	Three Months Ended				Three Months Ended
	July 1, 2018		July 2, 2017		June 30, 2019		July 1, 2018
	(in thousands)				(in thousands)
Term loan facility ⁽¹⁾	$	9,681	$	7,619	$	10,577	$	9,681
Senior notes	5,083		5,083		5,083		5,083
Capital lease obligations	431		414
Finance lease obligations					376		431
Sale leaseback obligations	2,623		2,663		2,683		2,623
Amortization of deferred financing costs	954		1,001		923		954
Other	341		281		337		341
Total interest expense	$	19,113	$	17,061	$	19,979	$	19,113


	Six Months Ended				Six Months Ended
	July 1, 2018		July 2, 2017		June 30, 2019		July 1, 2018
	(in thousands)				(in thousands)
Term loan facility ⁽¹⁾	$	18,800	$	15,226	$	21,243	$	18,800
Senior notes	10,165		10,165		10,165		10,165
Capital lease obligations	859		831
Finance lease obligations					757		859
Sale leaseback obligations	5,252		5,302		5,377		5,252
Amortization of deferred financing costs	1,955		2,003		1,847		1,955
Other	640		596		398		640
Total interest expense	$	37,671	$	34,123	$	39,787	$	37,671

__________________

(1) Includes amortization of original issue discount.

The weighted average effective interest rate incurred on our borrowings under our secured credit facilities and senior notes (including amortized debt issuance costs, amortization of original issue discount, commitment and other fees related to the secured credit facilities and senior notes) was 6.8% for the six months ended June 30, 2019 and 6.3% for the six months ended July 1, 2018, ~~and 5.5% for the six months ended July 2, 2017,~~ respectively.

~~We were in compliance with the debt covenants in effect as of July 1, 2018 for both the secured credit facilities and the senior notes.~~

7.Note 8. Fair Value of Financial Instruments:

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

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

~~Table of Contents~~

~~CEC ENTERTAINMENT, INC.~~

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

~~(Unaudited)~~


	July 1, 2018				December 31, 2017				June 30, 2019				December 30, 2018
	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:
Current portion	$	7,600	$	7,068	$	7,600	$	7,220	$	7,600	$	7,548	$	7,600	$	7,051
Long-term portion ⁽²⁾	973,676		896,189		977,206		937,662		966,617		967,221		970,147		885,212
Bank indebtedness and other long-term debt:	$	981,276	$	903,257	$	984,806	$	944,882	$	974,217	$	974,769	$	977,747	$	892,263

_________________

⁽¹⁾ Excluding net deferred financing costs.

⁽²⁾ Net of original issue discount.

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, restricted cash, accounts receivable and accounts payable approximates fair value because of their short maturities. The estimated fair value of our secured credit facilities, term loan facility and senior notes was determined by using the respective average of the ask and bid price of our outstanding borrowings under our term loan facility and the senior notes as of the nearest open market date preceding the reporting period end. The average of the ask and bid price are classified as Level 2 in the fair value hierarchy.

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

During the six months ended June 30, 2019 and July 1, 2018, ~~and July 2, 2017,~~ there were no significant transfers among Level 1, 2 or 3 fair value determinations.

8.Note 9. Other Noncurrent Liabilities:

Other noncurrent liabilities consisted of the following as of the dates presented:


	July 1, 2018		December 31, 2017		June 30, 2019		December 30, 2018
	(in thousands)				(in thousands)
Sale leaseback obligations, less current portion(1)	$	176,324	$	177,933	$	172,704	$	174,520
Deferred rent liability	29,775		27,951
Deferred landlord contributions	7,571		6,282
Long-term portion of unfavorable leases	4,577		5,453
Lease related liabilities ⁽²⁾					—		45,195
Financing lease obligations, less current portion					11,888		12,330
Other	4,867		4,268		5,949		6,534
Total other noncurrent liabilities	$	223,114	$	221,887	$	190,541	$	238,579

________________

⁽¹⁾

The sale leaseback obligations are accounted for under the financing method, rather than as completed sales. Under the financing method the sales proceeds received are included in other long-term liabilities until our continuing involvement with the properties is terminated. The rental payments related to the sale leaseback properties are recorded as interest expense and a reduction of the sale leaseback obligation.


⁽²⁾	Lease liabilities totaling $45.2 million were reclassified in connection with the adoption of ASU 2016-02 on December 31, 2018. See Note 1. “Description of Business and Summary of Significant Accounting Policies - Recently Adopted Accounting Guidance” and Note 5. “Leases” for further discussion on the adoption of ASU 2016-02.

9.Note 10. Income Taxes:

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



	Three Months Ended
	June 30, 2019			July 1, 2018
	(in thousands)
Federal and state income taxes	$	(2,332	)	$	(2,251	)
Foreign income taxes ⁽¹⁾	345			77
Income tax benefit	$	(1,987	)	$	(2,174	)



	Six Months Ended
	June 30, 2019		July 1, 2018
	(in thousands)
Federal and state income taxes	$	4,566	$	1,284
Foreign income taxes ⁽¹⁾	625		475
Income tax expense	$	5,191	$	1,759

Three Months Ended
July 1, 2018 July 2, 2017
(in thousands)
Federal and state income taxes $ (2,251 ) $ (3,420 )
Foreign income taxes ⁽¹⁾
77
103
Income tax benefit $ (2,174 ) $ (3,317 )

Six Months Ended
July 1, 2018 July 2, 2017
(in thousands)
Federal and state income taxes $ 1,284
$ 6,678
Foreign income taxes ⁽¹⁾
475
383
Income tax expense $ 1,759
$ 7,061

~~_________________~~__________________

(1) Including foreign taxes withheld.

Our effective income tax ~~rates~~rate was 18.5% and 29.3% for the three ~~and six~~ months ended June 30, 2019 and July 1, 2018, ~~were 19.5% and 35.1%, respectively, as compared to 35.9% and 38.5%, respectively, for the three and six months ended July 2, 2017.~~respectively. Our effective income tax rate for the three ~~and six~~ months ended ~~July 1, 2018 was impacted~~June 30, 2019 differs from the statutory rate primarily due to state income taxes and the negative impact of nondeductible litigation costs related to the Merger (as defined in Note 13. “Consolidating Guarantor Financial Information”), nondeductible penalties, and foreign income taxes (withheld on royalties and franchise fees earned from international franchisees not offset by foreign tax credits due to the foreign tax credit limitation), nondeductible penalties and other expenses, and foreign income taxes (taxes withheld on royalties and franchise fees earned from international franchisees not offset by foreign tax credits due to the foreign tax credit limitation) partially offset by the ~~reduction in the U.S.~~favorable impact of employment-related federal ~~statutory corporate~~ income tax ~~rate from 35% to 21% resulting from the Tax Cuts and Jobs Act (TCJA) signed into law on December 22, 2017.~~credits. Our effective income tax rate for the three ~~and six~~ months ended July 1, 2018, differs from the statutory tax rate primarily due to state income taxes including the impact of certain state tax legislation enacted during the second quarter of 2018 that increased the amount of income subject to state taxation, nondeductible litigation costs related to the Merger, non-deductible penalties and other expenses partially offset by the favorable impact of employment-related federal income tax credits and an adjustment recorded during the three months ended July 1, 2018 to the provisional estimate provided at the end of Fiscal 2017 to account for the impact of the Tax Cuts and Jobs Act (“TCJA”) enacted on December 22, 2017 pursuant to Staff Accounting Bulletin No. 118 (“SAB 118”).

Our effective income tax rate was 29.3% and 35.1% for the six-month periods ended June 30, 2019 and July 1, 2018, respectively. Our effective income tax rate for the six-month period ended June 30, 2019 differs from the statutory rate primarily due to state taxes and the negative impact of nondeductible litigation costs related to the Merger (as defined in Note 13. “Consolidating Guarantor Financial Information”), nondeductible penalties and other expenses, and foreign income taxes (withheld on royalties and franchise fees received from international franchisees not offset by foreign tax credits due to the foreign tax credit limitation) primarily offset by the favorable impact of employment-related tax credits. Our effective income tax rate for the six-month period ended July 1, 2018 differs from the statutory tax rate primarily due to state income taxes including the impact of certain state tax legislation enacted during the second quarter of 2018 that increased the amount of income subject to state taxation, nondeductible litigation costs related to the Merger, non-deductible penalties and other expenses partially offset by the favorable impact of employment-related federal income tax credits, an adjustment recorded during the second quarter of 2018 to the provisional estimate provided at the end of Fiscal 2017 to account for the impact of the TCJA enacted on December 22, 2017 pursuant to SAB 118, a one-time adjustment to deferred ~~taxes~~tax (the tax effect of the cumulative foreign currency translation adjustment existing as of January 1, 2018) resulting from the change in our intent to no longer indefinitely reinvest monies ~~previously~~ loaned to our Canadian subsidiary ~~partially offset by~~recorded in the ~~negative impact of nondeductible litigation costs related to the Merger, non-deductible penalties, and state tax legislation enacted during the second~~first quarter of 2018, ~~that increased the amount of income subject to state taxation~~ and changed state income tax rates. Our effective income tax rates for the three and six months ended July 2, 2017 differed from the statutory rate primarily due to state income taxes and the favorable impact of employment-related federal income tax credits.

~~The TCJA’s reduction~~an increase in ~~the U.S. corporate tax rate from 35% to 21% (effective for Fiscal 2018) and increased~~a valuation allowance for ~~bonus depreciation will have a favorable impact on~~deferred tax assets associated our future net income and cash flows. While we were able to make provisional estimates for the impact of the TJCA, the actual results may differ from these estimates, due to, among other things, changes in our interpretations and assumptions relating to the changes made by the TCJA and additional guidanceCanadian operations that is anticipated to be issued by the U.S. Treasury and Internal Revenue Service regarding (i) the newly enacted increase in bonus depreciation for qualifying assets acquired and placed in service after September 27, 2017, (ii) the expansion of the limitation

~~Table of Contents~~

~~CEC ENTERTAINMENT, INC.~~

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

~~(Unaudited)~~

under Section 162(m) relating to the deductibility of executive compensation in excess of $1.0 million, and (iii) the one-time transition tax, net of foreign tax credits and operating losses, on earnings of foreign subsidiaries that were previously deferred from U.S. tax.could expire before they are utilized.

For the periods presented herein, we have used the year-to-date effective tax rate (the “discrete method”), as prescribed by ASC 740-270, Accounting for Income Taxes-Interim Reporting when a reliable estimate of the estimated annual rate cannot be made. We believe 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 annual projected pre-tax income or loss nears a relatively small amount in comparison to the differences between income and deductions determined for financial statement purposes versus income tax purposes. Using the discrete method, we have determined our current and deferred income tax expense as if the interim period were an annual period.

Our liability for uncertain tax positions (excluding interest and penalties) was ~~$3.9~~$4.2 million as of ~~July 1,~~June 30, 2019 and $4.3 million as of December 30, 2018 ~~and December 31, 2017~~ and if recognized would decrease our provision for income taxes by ~~$2.7~~$3.3 million. Within the next twelve months, we could settle or otherwise conclude certain ongoing income tax ~~audits.~~audits and resolve uncertain tax positions as a result of expiring statutes of limitations or payment. As such, it is reasonably possible that the liability for uncertain tax positions could decrease by as much as ~~$1.1~~$3.7 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 was $1.2 million as of ~~July 1, 2018~~June 30, 2019 and ~~December 31, 2017 was~~ $1.1 million ~~and $1.0 million,~~as of December 30, 2018, 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.”

~~10.~~Note 11. Stock-Based Compensation Arrangements:

2014 Equity Incentive Plan

The 2014 Equity Incentive Plan provides Parent authority to grant equity incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock, restricted stock units, stock bonus awards or performance compensation awards to certain directors, officers or employees of the Company. A summary of the options outstanding under the equity incentive plan as of ~~July 1, 2018~~June 30, 2019 and the activity for the six months ended ~~July 1, 2018~~June 30, 2019 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, December 31, 2017 2,349,288
$9.00

     Options Granted 112,769
$13.73

     Options Exercised (7,745 ) $9.96

     Options Forfeited (191,632 ) $9.58

Outstanding stock options, July 1, 2018 2,262,680
$9.17 6.2 $ 132
Stock options expected to vest, July 1, 2018 1,573,236
$9.40 6.3 $ —
Exercisable stock options, July 1, 2018 514,639
$8.41 5.8 $ 423



	Stock Options		Weighted Average Exercise Price ⁽¹⁾	Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value
			($ per share)		($ in thousands)
Outstanding stock options, December 30, 2018	1,987,331		$8.87
Options granted	424,985		$8.86
Options forfeited	(36,783	)	$10.46
Outstanding stock options, June 30, 2019	2,375,533		$8.84	5.9	$	3,013
Stock options expected to vest, June 30, 2019	1,599,290		$9.02	6.2	$	1,739
Exercisable stock options, June 30, 2019	598,545		$8.30	4.8	$	1,080

__________________

(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 1, 2018,~~June 30, 2019, we had ~~$1.1~~$1.7 million of total unrecognized share-based compensation expense related to unvested options, which is expected to be amortized over the remaining weighted-average vesting period of ~~2.8~~4.2 years.

Stock Awards

~~Table~~During the first quarter of ~~Contents~~

~~CEC ENTERTAINMENT, INC.~~

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

~~(Unaudited)~~

2019, certain officers of the Company were granted stock bonus awards under the 2014 Equity Incentive Plan. The number of common shares of Parent awarded was based on the fair market value of Parent’s common stock as of December 31, 2018. The shares granted to the officers were fully vested immediately on the date that they were granted. In addition, during 2019, the Company agreed to issue fully vested common shares of Parent to certain officers of the Company in the first quarter 2020 based on the Company’s financial performance for Fiscal 2019.

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

Three Months Ended
July 1,
2018 July 2,
2017
(in thousands)
Stock-based compensation costs $ 166
$ 189
Portion capitalized as property and equipment ⁽¹⁾
(3 ) (3 )
Stock-based compensation expense recognized $ 163
$ 186


	Six Months Ended						Three Months Ended
	July 1, 2018			July 2, 2017			June 30, 2019			July 1, 2018
	(in thousands)						(in thousands)
Stock-based compensation costs	$	233		$	343
Stock-based compensation costs related to stock awards							$	782		$	—
Stock-based compensation costs related to incentive stock options							171			166
Portion capitalized as property and equipment ⁽¹⁾	(6		)	(7		)	(5		)	(3		)
Stock-based compensation expense recognized	$	227		$	336		$	948		$	163
Payroll taxes related to stock awards							$	—		$	—



	Six Months Ended
	June 30, 2019			July 1, 2018
	(in thousands)
Stock-based compensation costs related to stock awards	$	1,814		$	—
Stock-based compensation costs related to incentive stock options	297			233
Portion capitalized as property and equipment ⁽¹⁾	(15		)	(6		)
Stock-based compensation expense recognized	$	2,096		$	227
Payroll taxes related to stock awards	$	15		$	—

__________________

(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 venue development projects, such as the design and construction of a new venue and the remodeling and expansion of our existing venues. Capitalized stock-based compensation costs attributable to our venue development projects are included in “Property and equipment, net” in the Consolidated Balance Sheets.

~~11.~~Note 12. Stockholder’s Equity:

The following ~~table summarizes~~tables summarize the changes in stockholder’s equity during the ~~six months~~three and six-month periods ended June 30, 2019 and July 1, ~~2018:~~2018, respectively:

Common Stock Capital In
Excess of
Par Value Accumulated Deficit Accumulated
Other
Comprehensive
Loss
Shares Amount Total
(in thousands, except share information)
Balance at December 31, 2017 200
$ —
$ 359,233
$ (95,199 ) $ (1,886 ) $ 262,148
Net income —
—

3,256

3,256
Other comprehensive income —
—

300
300
Stock-based compensation costs —
—
233

233
Balance July 1, 2018 200
$ —
$ 359,466
$ (91,943 ) $ (1,586 ) $ 265,937



	Common Stock			Capital In Excess of Par Value		Accumulated Deficit			Accumulated Other Comprehensive Income (Loss)
	Shares	Amount		Capital In Excess of Par Value		Accumulated Deficit			Accumulated Other Comprehensive Income (Loss)			Total
	(in thousands, except share information)
Balance at December 30, 2018	200	$	—	$	359,570	$	(115,660	)	$	(1,339	)	$	242,571
Net income	—	—		—		21,246			—			21,246
Other comprehensive loss	—	—		—		—			(155		)	(155		)
Stock-based compensation costs related to stock awards	—	—		126		—			—			126
Balance March 31, 2019	200	$	—	$	359,696	$	(94,414	)	$	(1,494	)	$	263,788
Net loss	—	—		—		(8,734		)	—			(8,734		)
Other comprehensive loss	—	—		—		—			(130		)	(130		)
Stock-based compensation costs related to stock awards	—	—		171		—			—			171
Balance June 30, 2019	200	$	—	$	359,867	$	(103,148	)	$	(1,624	)	$	255,095



	Common Stock			Capital In Excess of Par Value		Accumulated Deficit			Accumulated Other Comprehensive Income (Loss)
	Shares	Amount		Capital In Excess of Par Value		Accumulated Deficit			Accumulated Other Comprehensive Income (Loss)			Total
	(in thousands, except share information)
Balance at December 31, 2017	200	$	—	$	359,233	$	(95,199	)	$	(1,886	)	$	262,148
Net income	—	—		—		12,223			—			12,223
Other comprehensive income	—	—		—		—			154			154
Stock-based compensation costs related to stock awards	—	—		67		—			—			67
Balance April 1, 2018	200	$	—	$	359,300	$	(82,976	)	$	(1,732	)	$	274,592
Net loss	—	—		—		(8,965		)	—			(8,965		)
Other comprehensive income	—	—		—		—			145			145
Stock-based compensation costs related to stock awards	—	—		166		—			—			166
Balance July 1, 2018	200	$	—	$	359,466	$	(91,941	)	$	(1,587	)	$	265,938

~~12.~~13. Consolidating Guarantor Financial Information:

On February 14, 2014, CEC Entertainment, Inc. (the “Issuer”) merged with and into an entity controlled by Apollo Global Management, LLC and its subsidiaries, which we refer to as the “Merger.” The senior notes issued by 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:

~~Table of Contents~~

~~CEC ENTERTAINMENT, INC.~~

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

~~(Unaudited)~~



CEC Entertainment, Inc.
Condensed Consolidating Balance Sheet
As of June 30, 2019
(in thousands)

	Issuer			Guarantors		Non-Guarantors			Eliminations			Consolidated
Current assets:
Cash and cash equivalents	$	104,179		$	7,236	$	2,221		$	—		$	113,636
Restricted cash	—			—		182			—			182
Accounts receivable	13,600			6,393		4,689			(4,006		)	20,676
Inventories	19,184			5,980		301			—			25,465
Prepaid expenses	8,090			11,779		1,383			—			21,252
Total current assets	145,053			31,388		8,776			(4,006		)	181,211
Property and equipment, net	450,358			67,913		5,346			—			523,617
Operating lease right-of-use assets, net	479,758			47,267		10,006			—			537,031
Goodwill	433,024			51,414		—			—			484,438
Intangible assets, net	8,368			461,362		—			—			469,730
Intercompany	53,882			87,166		—			(141,048		)	—
Investment in subsidiaries	497,187			—		—			(497,187		)	—
Other noncurrent assets	6,913			10,854		14			—			17,781
Total assets	$	2,074,543		$	757,364	$	24,142		$	(642,241	)	$	2,213,808
Current liabilities:
Bank indebtedness and other long-term debt, current portion	$	7,600		$	—	$	—		$	—		$	7,600
Operating lease liability, current portion	43,701			3,552		1,128			—			48,381
Accounts payable, accrued expenses and unearned revenues	60,090			44,790		3,981			—			108,861
Other current liabilities	4,381			—		16			—			4,397
Total current liabilities	115,772			48,342		5,125			—			169,239
Operating lease obligations, less current portion	459,293			55,072		9,233			—			523,598
Bank indebtedness and other long-term debt, net of deferred financing costs, less current portion	959,874			—		—			—			959,874
Deferred tax liability	90,098			18,201		(1,653		)	—			106,646
Intercompany	—			117,590		27,464			(145,054		)	—
Other noncurrent liabilities	194,411			4,915		30			—			199,356
Total liabilities	1,819,448			244,120		40,199			(145,054		)	1,958,713
Stockholder's equity:
Common stock	—			—		—			—			—
Capital in excess of par value	359,867			466,114		3,241			(469,355		)	359,867
Retained earnings (deficit)	(103,148		)	47,130		(17,674		)	(29,456		)	(103,148		)
Accumulated other comprehensive income (loss)	(1,624		)	—		(1,624		)	1,624			(1,624		)
Total stockholder's equity	255,095			513,244		(16,057		)	(497,187		)	255,095
Total liabilities and stockholder's equity	$	2,074,543		$	757,364	$	24,142		$	(642,241	)	$	2,213,808

																														CEC Entertainment, Inc.	Condensed Consolidating Balance Sheet
As of July 1, 2018
As of December 30, 2018															As of December 30, 2018
(in thousands)

	Issuer			Guarantors		Non-Guarantors			Eliminations			Consolidated				Issuer			Guarantors		Non-Guarantors			Eliminations			Consolidated
Current assets:
Cash and cash equivalents	$	86,234		$	1,884	$	769		$	—		$	88,887			$	54,775		$	6,725	$	1,670		$	—		$	63,170
Restricted cash	—			—		207			—			207				—			—		151			—			151
Accounts receivable	20,823			2,748		4,665			(4,009		)	24,227				28,421			4,956		4,117			(3,314		)	34,180
Inventories	16,361			4,041		269			—			20,671				16,896			6,617		294			—			23,807
Prepaid expenses	14,360			13,083		1,302			—			28,745				14,264			10,562		598			—			25,424
Total current assets	137,778			21,756		7,212			(4,009		)	162,737				114,356			28,860		6,830			(3,314		)	146,732
Property and equipment, net	474,661			72,528		6,591			—			553,780				468,827			64,721		5,637			—			539,185
Goodwill	433,024			51,414		—			—			484,438				433,024			51,414		—			—			484,438
Intangible assets, net	15,692			462,990		—			—			478,682				14,716			462,369		—			—			477,085
Intercompany	76,325			—		—			(76,325		)	—				78,402			66,373		—			(144,775		)	—
Investment in subsidiaries	477,703			—		—			(477,703		)	—				477,556			—		—			(477,556		)	—
Other noncurrent assets	7,870			10,111		81			—			18,062				7,292			11,409		24			—			18,725
Total assets	$	1,623,053		$	618,799	$	13,884		$	(558,037	)	$	1,697,699			$	1,594,173		$	685,146	$	12,491		$	(625,645	)	$	1,666,165
Current liabilities:
Bank indebtedness and other long-term debt, current portion	$	7,600		$	—	$	—		$	—		$	7,600			$	7,600		$	—	$	—		$	—		$	7,600
Capital lease obligations, current portion	624			—		10			—			634
Accounts payable and accrued expenses	55,843			39,717		4,389			—			99,949
Accounts payable, accrued expenses and unearned revenues																56,277			34,429		2,321			—			93,027
Other current liabilities	4,490			510		—			—			5,000				5,429			510		16			—			5,955
Total current liabilities	68,557			40,227		4,399			—			113,183				69,306			34,939		2,337			—			106,582
Capital lease obligations, less current portion	12,627			—		47			—			12,674
Bank indebtedness and other long-term debt, net of deferred financing costs, less current portion	963,243			—		—			—			963,243				961,514			—		—			—			961,514
Deferred tax liability	96,539			16,056		(1,923		)	—			110,672				91,049			17,866		(1,857		)	—			107,058
Intercompany	—			53,341		26,993			(80,334		)	—				—			119,498		28,591			(148,089		)	—
Other noncurrent liabilities	216,150			15,379		461			—			231,990				229,733			18,191		516			—			248,440
Total liabilities	1,357,116			125,003		29,977			(80,334		)	1,431,762				1,351,602			190,494		29,587			(148,089		)	1,423,594
Stockholder's equity:
Common stock	—			—		—			—			—				—			—		—			—			—
Capital in excess of par value	359,466			466,115		3,241			(469,356		)	359,466				359,570			466,114		3,241			(469,355		)	359,570
Retained earnings (deficit)	(91,943		)	27,681		(17,748		)	(9,933		)	(91,943		)		(115,660		)	28,538		(18,691		)	(9,847		)	(115,660		)
Accumulated other comprehensive income (loss)	(1,586		)	—		(1,586		)	1,586			(1,586		)		(1,339		)	—		(1,646		)	1,646			(1,339		)
Total stockholder's equity	265,937			493,796		(16,093		)	(477,703		)	265,937				242,571			494,652		(17,096		)	(477,556		)	242,571
Total liabilities and stockholder's equity	$	1,623,053		$	618,799	$	13,884		$	(558,037	)	$	1,697,699			$	1,594,173		$	685,146	$	12,491		$	(625,645	)	$	1,666,165

~~Table of Contents~~

~~CEC ENTERTAINMENT, INC.~~

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

~~(Unaudited)~~

CEC Entertainment, Inc.
Condensed Consolidating Balance Sheet
As of December 31, 2017
(in thousands)

Issuer Guarantors Non-Guarantors Eliminations Consolidated
Current assets:
Cash and cash equivalents $ 59,948
$ 410
$ 6,842
$ —
$ 67,200
Restricted cash —
—
112
—
112
Accounts receivable 27,098
3,283
2,563
(1,923 ) 31,021
Inventories 17,104
4,614
282
—
22,000
Prepaid expenses 13,766
5,549
1,083
—
20,398
Total current assets 117,916
13,856
10,882
(1,923 ) 140,731
Property and equipment, net 496,725
66,669
6,627
—
570,021
Goodwill 433,024
51,414
—
—
484,438
Intangible assets, net 16,764
463,613
—
—
480,377
Intercompany 90,937
10,770
—
(101,707 ) —
Investment in subsidiaries 462,873
—
—
(462,873 ) —
Other noncurrent assets 7,913
11,359
205
—
19,477
Total assets $ 1,626,152
$ 617,681
$ 17,714
$ (566,503 ) $ 1,695,044
Current liabilities:
Bank indebtedness and other long-term debt, current portion $ 7,600
$ —
$ —
$ —
$ 7,600
Capital lease obligations, current portion 586
—
10
—
596
Accounts payable and accrued expenses 58,014
35,134
4,169
—
97,317
Other current liabilities 4,265
511
—
—
4,776
Total current liabilities 70,465
35,645
4,179
—
110,289
Capital lease obligations, less current portion 12,956
—
54
—
13,010
Bank indebtedness and other long-term debt, net of deferred financing costs, less current portion 965,213
—
—
—
965,213
Deferred tax liability 99,083
16,697
(1,594 ) —
114,186
Intercompany —
75,052
28,578
(103,630 ) —
Other noncurrent liabilities 216,287
13,465
446
—
230,198
Total liabilities 1,364,004
140,859
31,663
(103,630 ) 1,432,896
Stockholder's equity:
Common stock —
—
—
—
—
Capital in excess of par value 359,233
466,114
3,241
(469,355 ) 359,233
Retained earnings (deficit) (95,199 ) 10,708
(15,304 ) 4,596
(95,199 )
Accumulated other comprehensive income (loss) (1,886 ) —
(1,886 ) 1,886
(1,886 )
Total stockholder's equity 262,148
476,822
(13,949 ) (462,873 ) 262,148
Total liabilities and stockholder's equity $ 1,626,152
$ 617,681
$ 17,714
$ (566,503 ) $ 1,695,044



CEC Entertainment, Inc.
Consolidating Statement of Comprehensive Income (Loss)
For the Three Months Ended June 30, 2019
(in thousands)


	Issuer			Guarantors		Non-Guarantors			Eliminations			Consolidated
Revenues:
Food and beverage sales	$	77,176		$	13,327	$	1,147		$	—		$	91,650
Entertainment and merchandise sales	104,508			10,709		2,196			—			117,413
Total company venue sales	181,684			24,036		3,343			—			209,063
Franchise fees and royalties	650			4,692		771			—			6,113
International Association assessments and other fees	263			10,440		8,611			(19,314		)	—
Total revenues	182,597			39,168		12,725			(19,314		)	215,176
Operating Costs and Expenses:
Company venue operating costs:
Cost of food and beverage	17,377			3,501		407			—			21,285
Cost of entertainment and merchandise	8,824			428		200			—			9,452
Total cost of food, beverage, entertainment and merchandise	26,201			3,929		607			—			30,737
Labor expenses	57,993			4,803		1,179			—			63,975
Lease costs	25,050			1,861		605			—			27,516
Other venue operating expenses	38,732			3,888		761			(10,728		)	32,653
Total company venue operating costs	147,976			14,481		3,152			(10,728		)	154,881
Advertising expense	8,590			1,375		9,598			(8,586		)	10,977
General and administrative expenses	4,547			10,339		(237		)	—			14,649
Depreciation and amortization	21,269			2,471		378			—			24,118
Transaction, severance and related litigation costs	8			—		—			—			8
Asset impairments	1,111			174		—			—			1,285
Total operating costs and expenses	183,501			28,840		12,891			(19,314		)	205,918
Operating income (loss)	(904		)	10,328		(166		)	—			9,258
Equity in earnings in affiliates	5,630			—		—			(5,630		)	—
Interest expense	19,027			795		157			—			19,979
Income (loss) before income taxes	(14,301		)	9,533		(323		)	(5,630		)	(10,721		)
Income tax expense (benefit)	(5,567		)	3,657		(77		)	—			(1,987		)
Net income (loss)	$	(8,734	)	$	5,876	$	(246	)	$	(5,630	)	$	(8,734	)

Components of other comprehensive income (loss), net of tax:
Foreign currency translation adjustments	(130		)	—		(130		)	130			(130		)
Comprehensive income (loss)	$	(8,864	)	$	5,876	$	(376	)	$	(5,500	)	$	(8,864	)



CEC Entertainment, Inc.
Consolidating Statement of Comprehensive Income (Loss)
For the Three Months Ended July 1, 2018
(in thousands)


	Issuer			Guarantors		Non-Guarantors			Eliminations			Consolidated
Revenues:
Food and beverage sales	$	81,611		$	13,438	$	1,209		$	—		$	96,258
Entertainment and merchandise sales	100,495			13,147		2,262			—			115,904
Total company venue sales	182,106			26,585		3,471			—			212,162
Franchise fees and royalties	429			4,216		551			—			5,196
International Association assessments and other fees	233			9,713		8,529			(18,475		)	—
Total revenues	182,768			40,514		12,551			(18,475		)	217,358
Operating Costs and Expenses:
Company venue operating costs:
Cost of food and beverage	18,848			3,607		439			—			22,894
Cost of entertainment and merchandise	7,899			403		119			—			8,421
Total cost of food, beverage, entertainment and merchandise	26,747			4,010		558			—			31,315
Labor expenses	56,461			4,994		1,163			—			62,618
Lease costs	21,900			2,319		495			—			24,714
Other venue operating expenses	42,386			3,793		837			(9,947		)	37,069
Total company venue operating costs	147,494			15,116		3,053			(9,947		)	155,716
Advertising expense	8,773			1,420		11,312			(8,528		)	12,977
General and administrative expenses	4,326			8,669		421			—			13,416
Depreciation and amortization	22,268			2,713		512			—			25,493
Transaction, severance and related litigation costs	146			45		—			—			191
Asset impairments	86			1,505		—			—			1,591
Total operating costs and expenses	183,093			29,468		15,298			(18,475		)	209,384
Operating income (loss)	(325		)	11,046		(2,747		)	—			7,974
Equity in earnings in affiliates	5,778			—		—			(5,778		)	—
Interest expense	18,099			911		103			—			19,113
Income (loss) before income taxes	(12,646		)	10,135		(2,850		)	(5,778		)	(11,139		)
Income tax expense (benefit)	(3,681		)	2,227		(720		)	—			(2,174		)
Net income (loss)	$	(8,965	)	$	7,908	$	(2,130	)	$	(5,778	)	$	(8,965	)

Components of other comprehensive income (loss), net of tax:
Foreign currency translation adjustments	145			—		145			(145		)	145
Comprehensive income (loss)	$	(8,820	)	$	7,908	$	(1,985	)	$	(5,923	)	$	(8,820	)

~~Table of Contents~~

~~CEC ENTERTAINMENT, INC.~~

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

~~(Unaudited)~~



CEC Entertainment, Inc.
Consolidating Statement of Comprehensive Income (Loss)
For the Six Months Ended June 30, 2019
(in thousands)

	Issuer			Guarantors		Non-Guarantors			Eliminations			Consolidated
Revenues:
Food and beverage sales	$	179,290		$	27,550	$	2,626		$	—		$	209,466
Entertainment and merchandise sales	238,159			23,915		5,016			—			267,090
Total company venue sales	417,449			51,465		7,642			—			476,556
Franchise fees and royalties	1,336			8,986		1,611			—			11,933
International Association assessments and other fees	578			22,225		19,929			(42,732		)	—
Total revenues	419,363			82,676		29,182			(42,732		)	488,489
Operating Costs and Expenses:
Company venue operating costs (excluding Depreciation and amortization):
Cost of food and beverage	39,805			7,235		897			—			47,937
Cost of entertainment and merchandise	19,870			870		458			—			21,198
Total cost of food, beverage, entertainment and merchandise	59,675			8,105		1,355			—			69,135
Labor expenses	124,234			9,744		2,502			—			136,480
Lease costs	49,644			3,722		1,177			—			54,543
Other venue operating expenses	81,543			7,625		1,610			(22,828		)	67,950
Total company venue operating costs	315,096			29,196		6,644			(22,828		)	328,108
Advertising expense	19,913			2,975		20,246			(19,904		)	23,230
General and administrative expenses	9,655			20,736		(498		)	—			29,893
Depreciation and amortization	42,695			4,938		819			—			48,452
Transaction, severance and related litigation costs	31			—		—			—			31
Asset Impairments	1,111			174		—			—			1,285
Total operating costs and expenses	388,501			58,019		27,211			(42,732		)	430,999
Operating income	30,862			24,657		1,971			—			57,490
Equity in earnings in affiliates	20,019			—		—			(20,019		)	—
Interest expense	37,943			1,505		339			—			39,787
Income before income taxes	12,938			23,152		1,632			(20,019		)	17,703
Income tax expense	426			4,559		206			—			5,191
Net income	$	12,512		$	18,593	$	1,426		$	(20,019	)	$	12,512

Components of other comprehensive income (loss), net of tax:
Foreign currency translation adjustments	(285		)	—		(285		)	285			(285		)
Comprehensive income (loss)	$	12,227		$	18,593	$	1,141		$	(19,734	)	$	12,227

CEC Entertainment, Inc.
Consolidating Statement of Comprehensive Income (Loss)
For the Three Months Ended July 1, 2018
(in thousands)

Issuer Guarantors Non-Guarantors Eliminations Consolidated
Revenues:
Food and beverage sales $ 81,611
$ 13,438
$ 1,209
$ —
$ 96,258
Entertainment and merchandise sales 100,495
13,147
2,262
—
115,904
Total company venue sales 182,106
26,585
3,471
—
212,162
Franchise fees and royalties 429
4,216
551
—
5,196
International Association assessments and other fees 233
9,713
8,529
(18,475 ) —
Total revenues 182,768
40,514
12,551
(18,475 ) 217,358
Operating Costs and Expenses:
Company venue operating costs:
Cost of food and beverage 18,848
3,607
439
—
22,894
Cost of entertainment and merchandise 7,899
403
119
—
8,421
Total cost of food, beverage, entertainment and merchandise 26,747
4,010
558
—
31,315
Labor expenses 56,461
4,994
1,163
—
62,618
Rent expense 21,900
2,319
495
—
24,714
Other venue operating expenses 42,386
3,793
837
(9,947 ) 37,069
Total company venue operating costs 147,494
15,116
3,053
(9,947 ) 155,716
Advertising expense 8,773
1,420
11,312
(8,528 ) 12,977
General and administrative expenses 4,326
8,669
421
—
13,416
Depreciation and amortization 22,268
2,713
512
—
25,493
Transaction, severance and related litigation costs 146
45
—
—
191
Asset impairments 86
1,505
—
—
1,591
Total operating costs and expenses 183,093
29,468
15,298
(18,475 ) 209,384
Operating income (loss) (325 ) 11,046
(2,747 ) —
7,974
Equity in earnings (loss) in affiliates 5,778
—
—
(5,778 ) —
Interest expense 18,099
911
103
—
19,113
Income (loss) before income taxes (12,646 ) 10,135
(2,850 ) (5,778 ) (11,139 )
Income tax expense (3,681 ) 2,227
(720 ) —
(2,174 )
Net income (loss) $ (8,965 ) $ 7,908
$ (2,130 ) $ (5,778 ) $ (8,965 )

Components of other comprehensive income (loss), net of tax:
Foreign currency translation adjustments 145
—
145
(145 ) 145
Comprehensive income (loss) $ (8,820 ) $ 7,908
$ (1,985 ) $ (5,923 ) $ (8,820 )

~~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 July 2, 2017
(in thousands)

Issuer Guarantors Non-Guarantors Eliminations Consolidated
Revenues:
Food and beverage sales $ 82,807
$ 13,324
$ 1,280
$ —
$ 97,411
Entertainment and merchandise sales 88,857
18,811
2,056
—
109,724
Total company venue sales 171,664
32,135
3,336
—
207,135
Franchise fees and royalties 463
4,186
—
—
4,649
International Association assessments and other fees 375
10,544
8,098
(19,017 ) —
Total revenues 172,502
46,865
11,434
(19,017 ) 211,784
Operating Costs and Expenses:
Company venue operating costs:
Cost of food and beverage 18,936
3,464
423
—
22,823
Cost of entertainment and merchandise 6,329
389
136
—
6,854
Total cost of food, beverage, entertainment and merchandise 25,265
3,853
559
—
29,677
Labor expenses 54,654
4,541
1,156
—
60,351
Rent expense 21,825
1,552
529
—
23,906
Other venue operating expenses 42,664
3,259
990
(10,946 ) 35,967
Total company venue operating costs 144,408
13,205
3,234
(10,946 ) 149,901
Advertising expense 8,315
1,413
10,580
(8,071 ) 12,237
General and administrative expenses 4,391
9,268
60
—
13,719
Depreciation and amortization 24,729
2,401
493
—
27,623
Transaction, severance and related litigation costs 490
—
—
—
490
Total operating costs and expenses 182,333
26,287
14,367
(19,017 ) 203,970
Operating income (loss) (9,831 ) 20,578
(2,933 ) —
7,814
Equity in earnings (loss) in affiliates 27,993
—
—
(27,993 ) —
Interest expense 15,921
975
165
—
17,061
Income (loss) before income taxes 2,241
19,603
(3,098 ) (27,993 ) (9,247 )
Income tax expense (benefit) 8,171
(10,515 ) (973 ) —
(3,317 )
Net income (loss) $ (5,930 ) $ 30,118
$ (2,125 ) $ (27,993 ) $ (5,930 )

Components of other comprehensive income (loss), net of tax:
Foreign currency translation adjustments 420
—
420
(420 ) 420
Comprehensive income (loss) $ (5,510 ) $ 30,118
$ (1,705 ) $ (28,413 ) $ (5,510 )

~~Table of Contents~~

~~CEC ENTERTAINMENT, INC.~~

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

~~(Unaudited)~~

CEC Entertainment, Inc.
Consolidating Statement of Comprehensive Income (Loss)
For the Six Months Ended July 1, 2018
(in thousands)

Issuer Guarantors Non-Guarantors Eliminations Consolidated
Revenues:
Food and beverage sales $ 184,259
$ 27,396
$ 2,980
$ —
$ 214,635
Entertainment and merchandise sales 215,770
25,874
5,377
—
247,021
Total company venue sales 400,029
53,270
8,357
—
461,656
Franchise fees and royalties 1,000
8,359
1,247
—
10,606
International Association assessments and other fees 574
18,751
19,090
(38,415 ) —
Total revenues 401,603
80,380
28,694
(38,415 ) 472,262
Operating Costs and Expenses:
Company venue operating costs:
Cost of food and beverage 41,733
7,497
1,024
—
50,254
Cost of entertainment and merchandise 16,665
848
289
—
17,802
Total cost of food, beverage, entertainment and merchandise 58,398
8,345
1,313
—
68,056
Labor expenses 117,290
10,088
2,588
—
129,966
Rent expense 43,697
4,008
1,059
—
48,764
Other venue operating expenses 85,295
7,382
1,806
(19,351 ) 75,132
Total company venue operating costs 304,680
29,823
6,766
(19,351 ) 321,918
Advertising expense 19,758
3,361
22,897
(19,064 ) 26,952
General and administrative expenses 8,521
16,837
967
—
26,325
Depreciation and amortization 45,645
5,445
975
—
52,065
Transaction, severance and related litigation costs 459
266
—
—
725
Asset Impairments 86
1,505
—
—
1,591
Total operating costs and expenses 379,149
57,237
31,605
(38,415 ) 429,576
Operating income (loss) 22,454
23,143
(2,911 ) —
42,686
Equity in earnings (loss) in affiliates 14,423
—
—
(14,423 ) —
Interest expense 35,627
1,755
289
—
37,671
Income (loss) before income taxes 1,250
21,388
(3,200 ) (14,423 ) 5,015
Income tax expense (2,006 ) 4,414
(649 ) —
1,759
Net income (loss) $ 3,256
$ 16,974
$ (2,551 ) $ (14,423 ) $ 3,256

Components of other comprehensive income (loss), net of tax:
Foreign currency translation adjustments 300
—
300
(300 ) 300
Comprehensive income (loss) $ 3,556
$ 16,974
$ (2,251 ) $ (14,723 ) $ 3,556

~~Table of Contents~~

~~CEC ENTERTAINMENT, INC.~~

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

~~(Unaudited)~~

																												CEC Entertainment, Inc.	Consolidating Statement of Comprehensive Income (Loss)
For the Six Months Ended July 2, 2017
For the Six Months Ended July 1, 2018														For the Six Months Ended July 1, 2018
(in thousands)

	Issuer		Guarantors			Non-Guarantors			Eliminations			Consolidated			Issuer			Guarantors		Non-Guarantors			Eliminations			Consolidated
Revenues:
Food and beverage sales	$	190,998	$	27,725		$	3,107		$	—		$	221,830		$	184,259		$	27,396	$	2,980		$	—		$	214,635
Entertainment and merchandise sales	207,645		32,923			5,073			—			245,641			215,770			25,874		5,377			—			247,021
Total company venue sales	398,643		60,648			8,180			—			467,471			400,029			53,270		8,357			—			461,656
Franchise fees and royalties	904		8,368			—			—			9,272			1,000			8,359		1,247			—			10,606
International Association assessments and other fees	689		21,088			18,607			(40,384		)	—			574			18,751		19,090			(38,415		)	—
Total revenues	400,236		90,104			26,787			(40,384		)	476,743			401,603			80,380		28,694			(38,415		)	472,262
Operating Costs and Expenses:
Company venue operating costs:
Company venue operating costs (excluding Depreciation and amortization):
Cost of food and beverage	42,931		7,152			957			—			51,040			41,733			7,497		1,024			—			50,254
Cost of entertainment and merchandise	14,230		804			307			—			15,341			16,665			848		289			—			17,802
Total cost of food, beverage, entertainment and merchandise	57,161		7,956			1,264			—			66,381			58,398			8,345		1,313			—			68,056
Labor expenses	114,837		9,379			2,522			—			126,738			117,290			10,088		2,588			—			129,966
Rent expense	43,104		3,053			1,068			—			47,225
Lease costs															43,697			4,008		1,059			—			48,764
Other venue operating expenses	85,680		6,545			2,295			(21,804		)	72,716			85,295			7,382		1,806			(19,351		)	75,132
Total company venue operating costs	300,782		26,933			7,149			(21,804		)	313,060			304,680			29,823		6,766			(19,351		)	321,918
Advertising expense	19,252		3,259			21,688			(18,580		)	25,619			19,758			3,361		22,897			(19,064		)	26,952
General and administrative expenses	10,137		18,803			150			—			29,090			8,521			16,837		967			—			26,325
Depreciation and amortization	50,044		4,820			1,064			—			55,928			45,645			5,445		975			—			52,065
Transaction, severance and related litigation costs	570		—			—			—			570			459			266		—			—			725
Asset impairment															86			1,505		—			—			1,591
Total operating costs and expenses	380,785		53,815			30,051			(40,384		)	424,267			379,149			57,237		31,605			(38,415		)	429,576
Operating income (loss)	19,451		36,289			(3,264		)	—			52,476			22,454			23,143		(2,911		)	—			42,686
Equity in earnings (loss) in affiliates	38,647		—			—			(38,647		)	—
Equity in earnings in affiliates															14,423			—		—			(14,423		)	—
Interest expense	31,828		1,992			303			—			34,123			35,627			1,755		289			—			37,671
Income (loss) before income taxes	26,270		34,297			(3,567		)	(38,647		)	18,353			1,250			21,388		(3,200		)	(14,423		)	5,015
Income tax expense (benefit)	14,978		(6,803		)	(1,114		)	—			7,061
Income tax expense															(2,006		)	4,414		(649		)	—			1,759
Net income (loss)	$	11,292	$	41,100		$	(2,453	)	$	(38,647	)	$	11,292		$	3,256		$	16,974	$	(2,551	)	$	(14,423	)	$	3,256

Components of other comprehensive income (loss), net of tax:
Foreign currency translation adjustments	539		—			539			(539		)	539			300			—		300			(300		)	300
Comprehensive income (loss)	$	11,831	$	41,100		$	(1,914	)	$	(39,186	)	$	11,831		$	3,556		$	16,974	$	(2,251	)	$	(14,723	)	$	3,556



CEC Entertainment, Inc.
Consolidating Statement of Cash Flows
For the Six Months Ended June 30, 2019
(in thousands)

	Issuer			Guarantors			Non-Guarantors			Consolidated
Cash flows provided by operating activities:	$	81,583		$	8,563		$	926		$	91,072

Cash flows from investing activities:
Purchases of property and equipment	(26,381		)	(7,625		)	(336		)	(34,342		)
Development of internal use software	(182		)	(427		)	—			(609		)
Proceeds from sale of property and equipment	141			—			—			141
Cash flows used in investing activities	(26,422		)	(8,052		)	(336		)	(34,810		)

Cash flows from financing activities:
Repayments on senior term loan	(3,800		)	—			—			(3,800		)
Payments on financing lease obligations	(338		)	—			(6		)	(344		)
Payments on sale leaseback transactions	(1,619		)	—			—			(1,619		)
Cash flows used in financing activities	(5,757		)	—			(6		)	(5,763		)
Effect of foreign exchange rate changes on cash	—			—			(2		)	(2		)
Change in cash, cash equivalents and restricted cash	49,404			511			582			50,497
Cash, cash equivalents and restricted cash at beginning of period	54,775			6,725			1,821			63,321
Cash, cash equivalents and restricted cash at end of period	$	104,179		$	7,236		$	2,403		$	113,818

~~Table of Contents~~

~~CEC ENTERTAINMENT, INC.~~

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

~~(Unaudited)~~

CEC Entertainment, Inc.
Consolidating Statement of Cash Flows
For the Six Months Ended July 1, 2018
(in thousands)

Issuer Guarantors Non-Guarantors Eliminations Consolidated
Cash flows provided by operating activities: $ 55,435
$ 14,473
$ (4,883 ) $ —
$ 65,025

Cash flows from investing activities:
  Purchases of property and equipment (22,876 ) (12,792 ) (1,140 ) —
(36,808 )
  Development of internal use software (973 ) (49 ) —
—
(1,022 )
  Proceeds from sale of property and equipment 570
(158 ) —
—
412
Cash flows provided by (used in) investing activities (23,279 ) (12,999 ) (1,140 ) —
(37,418 )

Cash flows from financing activities:
  Repayments on senior term loan (3,800 ) —
—
—
(3,800 )
  Payment of debt financing costs (395 ) —
—
—
(395 )
  Payments on capital lease obligations (291 ) —
(4 ) —
(295 )
  Payments on sale leaseback transactions (1,384 ) —
—
—
(1,384 )
Cash flows provided by (used in) financing activities (5,870 ) —
(4 ) —
(5,874 )
Effect of foreign exchange rate changes on cash —
—
49
—
49
Change in cash, cash equivalents and restricted cash 26,286
1,474
(5,978 ) —
21,782
Cash, cash equivalents and restricted cash at beginning of period 59,948
410
6,954
—
67,312
Cash, cash equivalents and restricted cash at end of period $ 86,234
$ 1,884
$ 976
$ —
$ 89,094

~~Table of Contents~~

~~CEC ENTERTAINMENT, INC.~~

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

~~(Unaudited)~~

																																			CEC Entertainment, Inc.	Consolidating Statement of Cash Flows
For the Six Months Ended July 2, 2017
For the Six Months Ended July 1, 2018																			For the Six Months Ended July 1, 2018
(in thousands)

	Issuer				Guarantors				Non-Guarantors				Eliminations			Consolidated				Issuer				Guarantors				Non-Guarantors				Consolidated
Cash flows provided by (used in) operating activities:	$	55,867			$	20,594			$	141			$	—		$	76,602			$	55,435			$	14,473			$	(4,883	)		$	65,025

Cash flows from investing activities:
Purchases of property and equipment	(32,066		)		(14,330		)		(649		)		—			(47,045		)		(22,876		)		(12,792		)		(1,140		)		(36,808		)
Development of internal use software	—				(2,075		)		—				—			(2,075		)		(973		)		(49		)		—				(1,022		)
Proceeds from the sale of property and equipment	237				—				—				—			237				570				(158		)		—				412
Cash flows provided by (used in) investing activities	(31,829		)	—	(16,405		)	—	(649		)	—	—		—	(48,883		)
Cash flows used in investing activities																				(23,279		)	—	(12,999		)	—	(1,140		)	—	(37,418		)

Cash flows from financing activities:
Repayments on senior term loan	(3,800		)		—				—				—			(3,800		)		(3,800		)		—				—				(3,800		)
Repayments on note payable	—				(13		)		—				—			(13		)
Proceeds from sale leaseback transaction	4,073				—				—				—			4,073
Payments on capital lease obligations	(215		)		—				(3		)		—			(218		)
Payment of debt financing costs																				(395		)		—				—				(395		)
Payments on financing lease obligations																				(291		)		—				(4		)		(295		)
Payments on sale leaseback transactions	(1,161		)		—				—				—			(1,161		)		(1,384		)		—				—				(1,384		)
Return of capital	1,447				—				—				—			1,447
Cash flows provided by (used in) financing activities	344			—	(13		)	—	(3		)	—	—		—	328
Cash flows used in financing activities																				(5,870		)	—	—			—	(4		)	—	(5,874		)
Effect of foreign exchange rate changes on cash	—				—				239				—			239				—				—				49				49
Change in cash, cash equivalents and restricted cash	24,382			—	4,176			—	(272		)	—	—		—	28,286				26,286			—	1,474			—	(5,978		)	—	21,782
Cash, cash equivalents and restricted cash at beginning of period	53,088				1,158				7,045				—			61,291				59,948				410				6,954				67,312
Cash, cash equivalents and restricted cash at end of period	$	77,470			$	5,334			$	6,773			$	—		$	89,577			$	86,234			$	1,884			$	976			$	89,094

~~13.~~Note 14. Related Party Transactions:

We reimburse Apollo Management, L.P. for certain out-of-pocket expenses incurred in connection with travel and Board of Directors related expenses. These expenses totaled $0.1 million for the three months ended July 1, 2018 and $0.2 million for the three months ended July 2, 2017 and $0.1 million and $0.3 million for the six months ended July 1, 2018 and July 2, 2017, respectively, and are included in “General and administrative expenses” in our Consolidated Statements of Earnings.

~~We utilize an~~In addition, CEC Entertainment engages Apollo portfolio ~~company~~companies to provide various services, including security services to ~~certain of~~its venues, licensed music video content for use in its venues, and employment screening services to its recruiting functions. Included in our ~~venues. These~~Total operating costs and expenses ~~totaled approximately $0.2~~are related expenses totaling $0.4 million for both the three months ended June 30, 2019 and July 1, 2018, and ~~July 2, 2017,~~$0.7 million and $0.8 million, respectively, ~~and $0.5 million~~ for ~~both~~ the six months ended June 30, 2019 and July 1, ~~2018 and July 2, 2017, respectively, in connection with services provided by this Apollo portfolio company. These expenses are included in “Other venue operating expenses”~~2018.

Included in our ~~Consolidated Statements~~Accounts Receivable balance are amounts due from Parent totaling $3.0 million and $2.6 million at June 30, 2019 and December 30, 2018, respectively, primarily related to various general and administrative and transaction related expenses paid on behalf of ~~Earnings.~~Parent. Our Accrued Expenses balance includes amounts payable to Parent totaling $0.3 million and $0.1 million at June 30, 2019 and December 30, 2018, respectively, primarily related to stock bonus awards granted to certain officers of the Company (see Note 11 “Stock-Based Compensation Arrangements” for further discussion of stock bonus awards granted to officers).

~~14.~~Note 15. Commitments and Contingencies:

Legal Proceedings

From time to time, we are involved in various inquiries, investigations, claims, lawsuits and other legal proceedings that are incidental to the conduct of our business. These matters typically involve claims from customers, employees or other third parties involved in operational issues common to the retail, restaurant and entertainment industries. Such matters typically represent actions with respect to contracts, intellectual property, taxation, employment, employee benefits, personal injuries and other matters. A number of such claims may exist at any given time, and there are currently a number of claims and legal proceedings pending against us.

~~Table of Contents~~

~~CEC ENTERTAINMENT, INC.~~

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

~~(Unaudited)~~

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 October 10, 2014, former General Manager Richard Sinohui filed a purported class action lawsuit against CEC Entertainment in the Superior Court of California, Riverside County (the “Sinohui Litigation”), claiming to represent other similarly-situated current and former General Managers of CEC Entertainment in California during the period October 10, 2010 to the present. The lawsuit sought an unspecified amount in damages and to certify a class based on allegations that CEC Entertainment wrongfully classified current and former California General Managers as exempt from overtime protections; that such General Managers worked more than 40 hours a week without overtime premium pay, paid rest periods, and paid meal periods; and that CEC Entertainment 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. The plaintiff also alleged that CEC Entertainment 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”). On December 5, 2014, CEC Entertainment 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 CEC Entertainment had wrongfully failed to reimburse him for cell phone expenses and/or mileage. On June 14, 2016, the Court dismissed Sinohui’s PAGA claim. After participating in mediation on April 19, 2017, the parties agreed to settle all of Sinohui’s individual and class claims. Pursuant to the basic terms of their settlement, Sinohui will grant a complete release to CEC Entertainment on behalf of himself and the class of all claims that he asserted or could have asserted against the Company, based on the facts that gave rise to the certified reimbursement claim in the Sinohui Litigation, in exchange for the Company’s settlement payment. On December 13, 2017, the Court entered its order granting preliminary approval of the parties’ settlement and setting a final fairness hearing for June 15, 2018. Pursuant to the order, Plaintiff filed his motion for final approval of the parties’ settlement on April 27, 2018; the Court then set the motion for hearing on June 15, 2018. By order dated June 6, 2018, the Court continued the hearing on the motion for final approval to September 21, 2018. The settlement of this lawsuit should not have a material adverse effect on our results of operations, financial position, liquidity or capital resources.

On January 30, 2017, former Technical Manager Kevin French filed a purported class action lawsuit against the Company in the U. S. District Court for the Northern District of California (“the French Federal Court Lawsuit”), alleging that CEC Entertainment failed to pay overtime wages, failed to issue accurate itemized wage statements, failed to pay wages due upon separation of employment, and failed to reimburse for certain business expenses, including for mileage and personal cell phone usage, in violation of the California Labor Code and federal law, and seeking to certify separate classes on his federal and state claims. On October 30, 2017, the parties conducted a mediation. At the conclusion of the mediation, the parties agreed to settle all of French’s class and individual claims. Pursuant to the parties’ agreement, on November 14, 2017, the Federal Court Lawsuit was dismissed, and on November 15, 2017, Plaintiff filed a new lawsuit in Superior Court of San Bernadino County, California (the “French State Court Lawsuit”). The French State Court Lawsuit carried forward only the California state law claims alleging a failure to reimburse for business expenses, and sought to certify a class of CEC California Senior Assistant Managers, Assistant Managers, Technical Managers and Assistant Technical Managers who were authorized to drive on behalf of CEC from January 30, 2013 through April 27, 2018. On December 20, 2017, further pursuant to the parties’

settlement, Plaintiff filed a Notice of Settlement. The Court entered an order preliminarily approving of the parties’ settlement on May 17, 2018; in that same order, the Court set the final approval hearing for October 15, 2018. The settlement of this action will not have a material adverse effect on our results of operations, financial position, liquidity or capital resources.

Litigation Related to the Merger: Following the January 16, 2014 announcement that CEC Entertainment had entered into an agreement (“Merger Agreement”), pursuant to which an entity controlled by Apollo Global Management, LLC and its subsidiaries merged with and into CEC Entertainment, with CEC Entertainment 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 CEC Entertainment, against A.P. VIII Queso Holdings, L.P., CEC Entertainment, CEC Entertainment's directors, Apollo and Merger Sub (as defined in the Merger Agreement), in connection with the Merger Agreement and the transactions contemplated thereby. These actions were consolidated into one action (the “Consolidated Shareholder Litigation”) in March 2014, and on July 21, 2015, a consolidated class action petition was filed as the operative consolidated complaint, asserting claims against CEC’s former directors, adding The Goldman Sachs Group (“Goldman Sachs”) as a defendant, and removing all Apollo entities as defendants (the “Consolidated Class Action Petition”). The Consolidated Class Action Petition alleges that CEC Entertainment’s directors breached their fiduciary duties to CEC Entertainment’s stockholders in connection

~~Table of Contents~~

~~CEC ENTERTAINMENT, INC.~~

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

~~(Unaudited)~~

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 CEC Entertainment’s board who also served as the senior managers of CEC Entertainment 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, among other things, to recover damages, attorneys’ fees and costs. The Company assumed the defense of the Consolidated Shareholder Litigation on behalf of CEC’s named former directors and Goldman Sachs pursuant to existing indemnity agreements. On March 23, 2016, the Court conducted a hearing on the defendants’ Motion to Dismiss the Consolidated Class Action Petition and on March 1, 2017, the Special Master appointed by the Court issued a report recommending to the Court that the Consolidated Class Action Petition be dismissed. On September 9, 2018, the Court accepted the Special Master’s recommendations and dismissed the lawsuit in its entirety.

On ~~March 17, 2017, Plaintiffs filed objections to~~October 8, 2018, the ~~Special Master’s report and recommendation with~~Plaintiff in the ~~Kansas court and separately~~Consolidated Shareholder Litigation filed a ~~motion with the Special Master to amend the complaint as to Goldman Sachs, but not objecting to the dismissal~~notice of ~~CEC or its former directors. On November 20, 2017, the Special Master filed a Supplemental Report recommending to the Court that Plaintiffs’ motion for leave to amend be denied; if~~appeal of the District Court’s decision. The Kansas Court ~~accepts~~of Appeals conducted oral arguments of the ~~Special Master’s supplemental recommendations, the case will be dismissed in its entirety. Both remaining parties (Plaintiffs and Goldman Sachs) filed objections to the Supplemental Report~~appeal on ~~December 22, 2017, and the parties filed responses to these objections on February 16, 2018. The District Court has not yet set this case for trial.~~August 13, 2019. 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.

Note 16. Subsequent Events:

The Company has evaluated subsequent events through August 13, 2019, and determined that there have been no events that have occurred that would require adjustments to our disclosures in the consolidated financial statements except for the events described below:

~~Peter Piper, Inc. Litigation:~~Termination of Business Combination: On April 7, 2019, Parent and Leo Holdings Corp. (“Leo”), a publicly traded special purpose acquisition company, together with Parent’s controlling stockholder, an entity owned by funds managed by affiliates of Apollo, entered into a Business Combination Agreement (the “Leo Merger Agreement”). On July 29, 2019, the parties jointly terminated the Leo Merger Agreement.

Refinancing: On ~~September 8, 2016, Diane Jacobson filed~~August 1, 2019, the Company announced that it is seeking to obtain a ~~purported class action lawsuit against Peter Piper, Inc. (“Peter Piper”)~~new first lien senior secured credit facility to refinance in ~~the U.S. District Court~~full its secured credit facilities (see Note 7. “Indebtedness and Interest Expense” for ~~the District~~further discussion of ~~Arizona, Tucson Division (the “Jacobson Litigation”)~~our secured credit facilities). The plaintiff claims to represent other similarly-situated consumers who, within the two years prior to the filing of the Jacobson Litigation, received a printed receipt on which Peter Piper allegedly printed more than the last five digits of the consumer’s credit/debit card number, in violation of the Fair and Accurate Credit Transactions Act. On November 11, 2016, Peter Piper filed a motion to dismiss the Jacobson Litigation. After the plaintiff filed her opposition to the Motion to Dismiss and Peter Piper filed its reply in support thereof, the motion was submitted to the Court for ruling on December 22, 2016. On February 2, 2017, the Court stayed the Jacobson Litigation pending the decision of the U.S. Ninth Circuit Court of Appeals in ~~Noble v. Nevada Check Cab Corp.~~, a case that presented an issue for decision that is relevant to Peter Piper’s motion to dismiss. On March 9, 2018, the Ninth Circuit issued its decision in the Noble case, setting precedent that favors Peter Piper’s position in the Jacobson Litigation. Based on the appellate court’s decision in that case, on March 15, 2018 Peter Piper filed a motion to lift the stay and requesting that the trial court grant its motion to dismiss. On June 28, 2018, the magistrate judge issued a report recommending that the District Court grant Peter Piper’s motion to dismiss and dismiss the plaintiff’s claims without prejudice to their refiling. On August 3, 2018, the District Court accepted the magistrate judge’s recommendation and entered an order dismissing the lawsuit without prejudice to its refiling.

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.

This 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 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 December ~~31, 2017~~30, 2018, filed with the Securities and Exchange Commission (“SEC”) on March ~~28, 2018.~~12, 2019. Our MD&A includes the following sub-sections:

Presentation of Operating Results;

Executive Summary;

Key Measure of Our Financial Performance and Key Non-GAAP Measures;

Key Income Statement Line Item Descriptions;

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;

Non-GAAP Financial Measures; and

Cautionary Statement Regarding Forward-Looking Statements.

Presentation of Operating Results

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 current fiscal year, which ends on December ~~30, 2018,~~29, 2019, and our fiscal year ended December ~~31, 2017,~~30, 2018, each consist of 52 weeks. References to the three-month and six-month periods ended June 30, 2019 and July 1, 2018 are for the 13-week and 26-week periods ended June 30, 2019 and July 1, 2018, respectively.

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.

Executive Summary

General

We develop, operate and franchise family dining and entertainment centers (also referred to as “venues”) under the names “Chuck E. ~~Cheese’s”~~Cheese” (“Where A Kid Can Be A Kid”) and “Peter Piper Pizza” (“~~The Solution to the Family Night Out”~~Pizza Made Fresh, Families Made Happy”). Our venues deliver a lively, kid-friendly atmosphere that feature a broad array of entertainment offerings including arcade-style and skill-oriented games, rides, live entertainment shows, and other attractions, with the opportunity for kids to win tickets that they can redeem for prizes. We combine this memorable entertainment experience with a broad and creative menu that combines kid-friendly classics as well as a selection of more sophisticated options for adults.We operate ~~559~~554 venues and have an additional ~~196~~195 venues operating under franchise arrangements across 47 states and 14 foreign countries and territories as of ~~July 1, 2018.~~June 30, 2019.

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


	Three Months Ended				Six Months Ended				Three Months Ended				Six Months Ended
	July 1, 2018		July 2, 2017		July 1, 2018		July 2, 2017		June 30, 2019		July 1, 2018		June 30, 2019		July 1, 2018
Number of Company-operated venues:
Beginning of period	561		560		562		559		554		561		554		562
New	—		2		—		3		—		—		—		—
Acquired from franchisee	—		2		—		2
Acquired from franchisee ⁽¹⁾									—		—		1		—
Closed	(2	)	—		(3	)	—		—		(2	)	(1	)	(3	)
End of period	559		564		559		564		554		559		554		559
Number of franchised venues:
Beginning of period	195		191		192		188		194		195		196		192
New	2		4		6		7		3		2		3		6
Acquired from franchisee	—		(2	)	—		(2	)
Acquired from franchisee ⁽¹⁾									—		—		(1	)	—
Closed	(1	)	—		(2	)	—		(2	)	(1	)	(3	)	(2	)
End of period	196		193		196		193		195		196		195		196
Total number of venues:
Beginning of period	756		751		754		747		748		756		750		754
New	2		6		6		10		3		2		3		6
Acquired from franchisee	—		—		—		—		—		—		—		—
Closed	(3	)	—		(5	)	—		(2	)	(3	)	(4	)	(5	)
End of period	755		757		755		757		749		755		749		755

__________________


(1)	The number of new Company-operated venues and closed franchised venues during the six months ended June 30, 2019 included one store that was acquired from a franchisee.

Key Measure of Our Financial Performance and Key Non-GAAP Measures

Comparable venue sales. We define “comparable venue sales” as the sales for our domestic Company-operated venues that have been open for more than 18 months as of the beginning of each respective fiscal year or acquired venues we have operated for at least 12 months as of the beginning of each respective fiscal year. Comparable venue sales ~~also~~ excludes sales for our domestic ~~Company-owned~~Company-operated venues that are expected to be temporarily closed for more than three months primarily as a result of natural disasters, fires, floods and property damage. Company-operated venues that were temporarily closed for more than three months are included in comparable venue sales once they have been reopened for at least 12 months as of the beginning of each respective fiscal year. We define “comparable venue sales change” as the percentage change in comparable venue sales for each respective fiscal period. We believe comparable venue sales change to be a key performance indicator used within our industry; it is a critical factor when evaluating our performance, as it is indicative of acceptance of our strategic initiatives and local economic and consumer trends.

Adjusted EBITDA and Margin. We define Adjusted EBITDA, a measure used by management to assess operating performance, as net income (loss) plus interest expense, income tax expense (benefit), depreciation and amortization expense, impairments, gains and losses on asset disposals, and stock based compensation. In addition, Adjusted EBITDA excludes other items we consider unusual or non-recurring and certain other adjustments required or permitted in calculating covenant compliance under the indenture governing our senior notes and/or our secured credit facilities. Adjusted EBITDA Margin represents Adjusted EBITDA as a percentage of total revenues.

Key Income Statement Line Item Descriptions

Revenues. Our primary source of revenues is sales at our ~~Company-owned~~Company-operated venues (“~~Company~~company venue sales”), which consist of the sale of food, beverages, unlimited game-play time blocks, game-play credits, and merchandise. A portion of our ~~Company~~company venue sales are from sales of value-priced combination packages ~~have historically been~~generally comprised of food, beverage, and through the end of the second quarter of 2018, game plays ~~(“Package Deals”),~~and/or time blocks, which we promote through in-venue menu pricing, our website and coupon offerings. ~~We allocate~~Beginning in the third quarter of 2018, we offer combination packages comprised of food and beverage only (“Package Deals”), with game plays and/or time blocks available for purchase separately. Prior to the bifurcation of the “Food and beverage sales” and “Entertainment and merchandise sales” components of combination packages, we

allocated the revenues recognized from the sale of ~~our Package Deals~~combination packages and coupons between “Food and beverage sales” and “Entertainment and merchandise sales” based upon the ~~relative~~ 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~~and through the end of the second quarter of 2018, the portion of revenues allocated from ~~Package Deals~~combination packages and coupons that relate to food and beverage sales. Entertainment and

merchandise sales include all revenues recognized with respect to stand-alone ~~game token~~sales of game-play credits and ~~game play credit sales, as well as~~unlimited game-play time blocks, and through the end of the second quarter of 2018, a portion of revenues allocated from ~~Package Deals~~combination packages 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 venue’s sales. We also receive development and initial franchise fees to establish new franchised venues, as well as earn fees from the sale of equipment and other items or services to franchisees. Historically, we recognized development and franchise fees as revenues when the franchise venue had opened and we had substantially completed our obligations to the franchisee relating to the opening of a venue. Effective January 1, 2018, with the adoption of Accounting Standards Update 2016-10 ~~Revenues from Contracts with Customers (Topic 606), we~~We recognize initial and renewal development and franchise fees as revenues on a straight-line basis over the life of the franchise agreement starting when the franchise venue has opened. ~~In addition, our~~Our national advertising fund receipts from members of the International Association of CEC Entertainment, Inc. (the “Association”) are ~~now~~ accounted for on a gross basis as revenue from ~~franchisees, when historically they have been netted against advertising expense.~~franchisees.

Company venue operating costs. Certain of our costs and expenses relate only to the operation of our Company-operated venues. 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;~~customers.

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

~~Rent expense includes~~Lease costs include lease costs for Company-operated venues, ~~excluding common occupancy costs (e.g.,~~including common area maintenance (“CAM”) ~~charges and property taxes);~~charges; and

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

“Cost of food and beverage” and “Cost of entertainment and merchandise,” as a percentage of ~~Company~~Total company venue 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, ~~and~~ media expenses for national and local advertising, consulting fees and ~~consulting fees.~~other forms of advertising such as social media.

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, back-office support systems, costs of outsourced functions, and other administrative costs not directly related to the operation of our Company-operated venues.

Depreciation and amortization. Depreciation and amortization includes expenses that are (i) directly related to our

Company-operated venues’ property and equipment, including leasehold improvements, game and ride equipment, furniture,

fixtures and other equipment, and (ii) depreciation and amortization of corporate assets and intangibles.

Results of Operations

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


	Three Months Ended								Three Months Ended
	July 1, 2018				July 2, 2017				June 30, 2019				July 1, 2018
	(in thousands, except percentages)								(in thousands, except percentages)
Food and beverage sales	$	96,258	45.4	%	$	97,411	47.0	%	$	91,650	43.8	%	$	96,258	45.4	%
Entertainment and merchandise sales	115,904		54.6	%	109,724		53.0	%	117,413		56.2	%	115,904		54.6	%
Total company venue sales	$	212,162	100.0	%	$	207,135	100.0	%	$	209,063	100.0	%	$	212,162	100.0	%


	Six Months Ended								Six Months Ended
	July 1, 2018				July 2, 2017				June 30, 2019				July 1, 2018
	(in thousands, except percentages)								(in thousands, except percentages)
Food and beverage sales	$	214,635	46.5	%	$	221,830	47.5	%	$	209,466	44.0	%	$	214,635	46.5	%
Entertainment and merchandise sales	247,021		53.5	%	245,641		52.5	%	267,090		56.0	%	247,021		53.5	%
Total company venue sales	$	461,656	100.0	%	$	467,471	100.0	%	$	476,556	100.0	%	$	461,656	100.0	%

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

Three Months Ended
July 1, 2018 July 2, 2017
(in thousands, except percentages)
Total company venue sales $ 212,162
97.6 % $ 207,135
97.8 %
Franchise fees and royalties 5,196
2.4 % 4,649
2.2 %
Total revenues 217,358
100.0 % 211,784
100.0 %
Company venue operating costs:
Cost of food and beverage ⁽¹⁾
22,894
23.8 % 22,823
23.4 %
Cost of entertainment and merchandise ⁽²⁾
8,421
7.3 % 6,854
6.2 %
Total cost of food, beverage, entertainment and merchandise ⁽³⁾
31,315
14.8 % 29,677
14.3 %
Labor expenses ⁽³⁾
62,618
29.5 % 60,351
29.1 %
Rent expense ⁽³⁾
24,714
11.6 % 23,906
11.5 %
Other venue operating expenses ⁽³⁾
37,069
17.5 % 35,967
17.4 %
Total company venue operating costs ⁽³⁾
155,716
73.4 % 149,901
72.4 %
Other costs and expenses:

Advertising expense 12,977
6.0 % 12,237
5.8 %
General and administrative expenses 13,416
6.2 % 13,719
6.5 %
Depreciation and amortization 25,493
11.7 % 27,623
13.0 %
Transaction, severance and related litigation costs 191
0.1 % 490
0.2 %
Asset impairments 1,591
0.7 % —
— %
Total operating costs and expenses 209,384
96.3 % 203,970
96.3 %
Operating income 7,974
3.7 % 7,814
3.7 %
Interest expense 19,113
8.8 % 17,061
8.1 %
Loss before income taxes $ (11,139 ) (5.1 )% $ (9,247 ) (4.4 )%

~~__________________~~


~~(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 venue sales.~~

~~(4)~~

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 sales and Entertainment and merchandise sales, as opposed to Total company venue sales.



	Three Months Ended
	June 30, 2019					July 1, 2018
	(in thousands, except percentages ⁽⁴⁾)
Total company venue sales	$	209,063		97.2	%	$	212,162		97.6	%
Franchise fees and royalties	6,113			2.8	%	5,196			2.4	%
Total revenues	215,176			100.0	%	217,358			100.0	%
Operating Costs and Expenses:
Cost of food and beverage ⁽¹⁾	21,285			23.2	%	22,894			23.8	%
Cost of entertainment and merchandise ⁽²⁾	9,452			8.1	%	8,421			7.3	%
Total cost of food, beverage, entertainment and merchandise ⁽³⁾	30,737			14.7	%	31,315			14.8	%
Labor expenses ⁽³⁾	63,975			30.6	%	62,618			29.5	%
Lease costs ⁽³⁾	27,516			13.2	%	24,714			11.6	%
Other venue operating expenses ⁽³⁾	32,653			15.6	%	37,069			17.5	%
Total company venue operating costs ⁽³⁾	154,881			74.1	%	155,716			73.4	%
Other costs and expenses:
Advertising expense	10,977			5.1	%	12,977			6.0	%
General and administrative expenses	14,649			6.8	%	13,416			6.2	%
Depreciation and amortization	24,118			11.2	%	25,493			11.7	%
Transaction, severance and related litigation costs	8			—	%	191			0.1	%
Asset impairments	1,285			0.6	%	1,591			0.7	%
Total operating costs and expenses	205,918			95.7	%	209,384			96.3	%
Operating income	9,258			4.3	%	7,974			3.7	%
Interest expense	19,979			9.3	%	19,113			8.8	%
Income before income taxes	$	(10,721	)	(5.0	)%	$	(11,139	)	(5.1	)%


	Six Months Ended								Six Months Ended
	July 1, 2018				July 2, 2017				June 30, 2019				July 1, 2018
	(in thousands, except percentages)								(in thousands, except percentages ⁽⁴⁾)
Total company venue sales	$	461,656	97.8	%	$	467,471	98.1	%	$	476,556	97.6	%	$	461,656	97.8	%
Franchise fees and royalties	10,606		2.2	%	9,272		1.9	%	11,933		2.4	%	10,606		2.2	%
Total revenues	472,262		100.0	%	476,743		100.0	%	488,489		100.0	%	472,262		100.0	%
Company venue operating costs:
Operating Costs and Expenses:
Cost of food and beverage ⁽¹⁾	50,254		23.4	%	51,040		23.0	%	47,937		22.9	%	50,254		23.4	%
Cost of entertainment and merchandise ⁽²⁾	17,802		7.2	%	15,341		6.2	%	21,198		7.9	%	17,802		7.2	%
Total cost of food, beverage, entertainment and merchandise ⁽³⁾	68,056		14.7	%	66,381		14.2	%	69,135		14.5	%	68,056		14.7	%
Labor expenses ⁽³⁾	129,966		28.2	%	126,738		27.1	%	136,480		28.6	%	129,966		28.2	%
Rent expense ⁽³⁾	48,764		10.6	%	47,225		10.1	%
Lease costs ⁽³⁾									54,543		11.4	%	48,764		10.6	%
Other venue operating expenses ⁽³⁾	75,132		16.3	%	72,716		15.6	%	67,950		14.3	%	75,132		16.3	%
Total company venue operating costs ⁽³⁾	321,918		69.7	%	313,060		67.0	%	328,108		68.8	%	321,918		69.7	%
Other costs and expenses:
Other costs and expenses:
Advertising expense	26,952		5.7	%	25,619		5.4	%	23,230		4.8	%	26,952		5.7	%
General and administrative expenses	26,325		5.6	%	29,090		6.1	%	29,893		6.1	%	26,325		5.6	%
Depreciation and amortization	52,065		—	%	55,928		—	%	48,452		9.9	%	52,065		11.0	%
Transaction, severance and related litigation costs	725		0.2	%	570		0.1	%	31		—	%	725		0.2	%
Asset impairments	1,591		0.3	%	—		—	%	1,285		0.3	%	1,591		0.3	%
Total operating costs and expenses	429,576		91.0	%	424,267		89.0	%	430,999		88.2	%	429,576		91.0	%
Operating income	42,686		9.0	%	52,476		11.0	%	57,490		11.8	%	42,686		9.0	%
Interest expense	37,671		8.0	%	34,123		7.2	%	39,787		8.1	%	37,671		8.0	%
Income before income taxes	$	5,015	1.1	%	$	18,353	3.8	%	$	17,703	3.6	%	$	5,015	1.1	%

__________________


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


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


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

(4)

Three months ended ~~July 1, 2018~~June 30, 2019 Compared to the Three months ended July ~~2, 2017~~1, 2018

Revenues

Company venue sales were $209.1 million and $212.2 million for the second quarter of 2019 and the second quarter of 2018, ~~compared~~respectively. The decrease in company venue sales was primarily attributable to ~~$207.1~~net breakage related to PlayPass of $1.3 million for the second quarter of ~~2017, primarily attributable~~2019 compared to $5.2 million for the second quarter of 2018, declining as a ~~1.0% increase in comparable venue sales and a $4.6 million increase~~result of the third quarter 2018 introduction of All You Can Play (“AYCP”), our time-based play offering. The impact of the reduction in net breakage related to PlayPass ~~compared to the second quarter of 2017,~~was partially offset by a ~~$1.2 million decrease~~0.5% increase in ~~revenue due to temporary store closures.~~comparable venue sales.

Franchise fees and royalties increased from ~~$4.6~~$5.2 million to ~~$5.2~~$6.1 million ~~primarily due~~or 17.6% in the second quarter of 2019 compared to ~~the impact of new revenue recognition guidance which was effective for us on January 1, 2018. Franchise fees and royalties for~~ the second quarter of 2018, ~~increased $0.6 million related~~primarily due to ~~the recognition of our national advertising fund contributions as revenue, rather than netted against advertising expense (see “Advertising Expense” below).~~a net increase in franchise locations.

Company Venue Operating Costs

The cost of food, beverage, entertainment and merchandise, as a percentage of Total company venue sales, was 14.7% and 14.8% for thesecond quarter of 2019 and 2018, respectively.

The cost of food and beverage, as a percentage of food and beverage sales, was 23.2% and 23.8% for the second quarter of 2019 and 2018, ~~compared to 23.4% for the second quarter of 2017.~~respectively. The ~~marginal increase~~decrease in the cost of food and beverage on a percentage basis in the second quarter of ~~2018~~2019 was primarily driven by ~~mix shift related to a promotion on chicken wing packages during the second quarter of 2018.~~higher average selling prices and favorability in commodity prices and volume.

The cost of entertainment and merchandise, as a percentage of entertainment and merchandise sales, was 8.1% and 7.3% for the second quarter of 2019 and 2018, ~~compared to 6.2% for the second quarter of 2017.~~respectively. The increase in the cost of entertainment and merchandise on a percentage of sales basis in the second quarter of ~~2018 was impacted by an increase~~2019 reflects the impact of the AYCP and More Tickets initiatives we launched nationally in ~~PlayPass related supplies as a result of PlayPass being deployed to~~ all of our ~~Company-owned~~Chuck E. Cheese Company-operated venues ~~compared to 459 venues at~~during the ~~end~~third quarter of 2018.

Gross profit, which represents Total revenues less total cost of food, beverage, entertainment and merchandise, as a percentage of Total revenues was 85.7% and 85.6% for the second quarter of ~~2017~~2019 and ~~due to~~2018, respectively.

Labor expenses, as a percentage of sales, were 30.6% and 29.5% for the second quarter of 2019 and 2018, respectively, as wage pressures exceeded the favorable impact of ~~various tests related to time based play and “More Tickets”~~a decrease in ~~certain~~labor hours on higher sales. Our sales per labor hour improved approximately 4.6% in the second quarter of ~~our venues during~~2019 from the second quarter of 2018.

~~Labor expenses~~Lease costs, as a percentage of sales, were $62.6 million in the second quarter of 2018 compared to $60.4 million in the second quarter of 2017. The increase in the second quarter of 2018 reflects a 4.7% increase in our average hourly wage rate, driven by mandated minimum wage rate increases, partially offset by a reduction in hours.

Other venue operating expenses were $37.1 million in the second quarter of 2018 compared to $36.0 million in the second quarter of 2017. The increase was primarily driven by an increase in self-insurance expense associated with general liability claims, an increase in common area maintenance expenses,13.2% and ~~increased expenses related to the production of new menu panels and inserts in connection with the launch of time based play in all of our domestic Company-operated venues.~~

~~Advertising Expense~~

~~Advertising expense was $13.0 million in the second quarter of 2018 compared to $12.2 million in the second quarter of 2017. Advertising expense~~11.6%, for the second quarter of 2019 and 2018, ~~was~~respectively. Lease costs for the second quarter of 2019 were impacted by the adoption of a new ~~revenue recognition~~lease standard effective ~~January 1,~~December 31, 2018, the first day of Fiscal 2019, that requires us to ~~account for our national advertising fund contributions~~recognize lease and non-lease components, such as ~~revenues,~~CAM charges, as lease costs, rather than ~~netted against Advertising expense. Including the impact~~reflecting CAM charges as Other venue operating expenses. Excluding CAM charges, Lease costs, as a percentage of ~~netting national advertising fund revenues against Advertising expense, Advertising expense~~sales, would have been 11.4% for the second quarter of 2019.

Other venue operating expenses, as a percentage of sales, were 15.6% and 17.5% for the second quarter of 2019 and 2018, respectively. Other venue operating expenses for the second quarter of 2019 were impacted by the adoption of a new lease standard, as discussed in the previous paragraph under Lease costs. Other venue operating expenses as a percentage of sales, including the impact of CAM charges, would have been ~~$12.4~~17.3% for the second quarter of 2019, reflecting savings initiatives and efficiencies.

Advertising Expense

Advertising expense was $11.0 million ~~(see “Revenues” above).~~and $13.0 million for the second quarter of 2019 and 2018, respectively, due to a shift in our marketing strategy away from television to targeted digital and social media platforms.

General and Administrative Expenses

General and administrative expenses were $14.6 million and $13.4 million infor the second quarter of 2019 and 2018, ~~compared to $13.7 million in the second quarter of 2017.~~respectively. The ~~decrease~~increase in general and administrative expenses infor the second quarter of ~~2018~~2019 is primarily due to ~~cost reductions implemented in the first quarter of 2018, partially offset by~~ an increase in ~~legal fees related to venue related incidents.~~performance-based compensation as a result of improved operating results.

Depreciation and Amortization

Depreciation and amortization was $24.1 million and $25.5 million infor the second quarter of 2019 and 2018, ~~compared to $27.6 million in the second quarter of 2017.~~respectively. The decrease in depreciation and amortization is primarily due to the impact of ~~certain property plant~~eight venue closures and ~~equipment having reached the end of their depreciable lives throughout the past year.~~non-cash venue impairments recorded in 2018.

~~Transaction, Severance~~Income Taxes

Our effective income tax rate was 18.5% and ~~Related Litigation Costs~~

~~Transaction, severance and related litigation costs were $0.2 million in~~19.5% for the second quarter of 2019 and 2018, ~~compared to $0.5 million in~~respectively. Our effective income tax rate for the second quarter of ~~2017. The Transaction, severance~~2019 differs from the statutory rate primarily due to state income taxes and ~~related~~the negative impact of nondeductible litigation costs ~~relate primarily~~related to ~~legal fees incurred in connection with litigation payments incurred in connection with~~ the 2014 merger ~~in 2014~~ of ~~CEC Entertainment, Inc. with and into~~ an entity controlled by Apollo Global Management, LLC and its subsidiaries ~~(referred~~with and into CEC Entertainment (the “Merger”), nondeductible penalties and other expenses, and foreign income taxes (withheld on royalties and franchise fees earned from international franchisees not offset by foreign tax credits due to as the ~~“Merger”).~~

~~Income Taxes~~

~~Our effective~~foreign tax credit limitation) partially offset by the favorable impact of employment-related federal income tax rate was 19.5% for the second quarter of 2018 as compared to 35.9% for the second quarter of 2017, and was favorably impacted by the Tax Cuts and Jobs Act signed into law on December 22, 2017 which reduced the U.S. federal corporate income tax rate from 35% to 21%. credits.

Our effective income tax rate for the second quarter of 2018 differs from the statutory tax rate primarily due to state income taxes including the ~~favorable~~ impact of ~~employment-related federal income tax credits offset by the negative impact of nondeductible litigation costs related to the Merger, non-deductible penalties, and~~certain state tax legislation enacted during the quarter that increased the amount of income subject to state taxation, nondeductible litigation costs related to the Merger, non-deductible penalties and ~~changed state income tax rates. Our effective income tax rate for the second quarter of 2017 differed from the statutory rate primarily due to state income taxes and~~other expenses partially offset by the favorable impact of employment-related federal income tax credits ~~partially offset by~~and an adjustment recorded in the ~~negative~~second quarter of 2018 to the provisional estimate provided at the end of Fiscal 2017 to account for the impact of ~~non-deductible litigation costs related~~the Tax Cuts and Jobs Act (“TCJA”) enacted on December 22, 2017 pursuant to ~~the Merger.~~Staff Accounting Bulletin No. 118 (“SAB 118”).

Six months ended ~~July 1, 2018~~June 30, 2019 Compared to Six months ended July ~~2, 2017~~1, 2018

Revenues

Company venue sales were $476.6 million and $461.7 million for the first six months of 2019 and 2018, ~~compared~~respectively. The increase in company venue sales for the first six months of 2019 was primarily attributable to ~~$467.5~~a 4.5% increase in comparable venue sales, partially offset by a $2.2 million decrease in company venue sales due to a net reduction of eight

Company-operated venues. In addition, net revenue deferrals related to PlayPass were $0.5 million for the first six months of ~~2017, primarily attributable~~2019 compared to ~~a 2.4% decrease~~$2.0 million in ~~comparable venue sales, offset partially by a $6.4 million decrease in deferred revenue related to PlayPass compared to~~net breakage for the first six months of ~~2017, and revenue from new~~2018, which further offset the increase in comparable venue ~~openings.~~sales.

Franchise fees and royalties increased from ~~$9.3~~$10.6 million to ~~$10.6~~$11.9 million primarily due to a net increase in average franchise locations during the first six months of 2019.

Company Venue Operating Costs

The cost of food, beverage, entertainment and merchandise, as a percentage of Total company venue sales, was 14.5% and 14.7% for the first six months of 2019 and 2018, respectively, as a sales shift towards higher margin Entertainment and merchandise sales from food and beverage sales was offset by cost pressures, primarily related to the impact of new ~~revenue recognition guidance which resulted~~initiatives launched by the Company in ~~$1.3 million~~the third quarter of ~~national advertising fund contributions from franchisees being recorded as revenue, rather than netted against advertising expense in 2018 (see “Advertising Expense” below).~~

~~Company Venue Operating Costs~~2018.

The cost of food and beverage, as a percentage of food and beverage sales, was 22.9% and 23.4% for the first six months of 2019 and 2018, ~~compared to 23.0% for the first six months of 2017.~~respectively. The ~~increase~~decrease in the cost of food and beverage on a percentage basis in the first six months of ~~2018~~2019 was driven ~~primarily~~ by ~~a change in sales mix and~~ an increase in ~~beverage costs.~~average selling prices and favorability in commodity prices and volume.

The cost of entertainment and merchandise, as a percentage of entertainment and merchandise sales, was 7.9% and 7.2% for the first six months of 2019 and 2018, ~~compared to 6.2% for the first six months of 2017.~~respectively. The cost of entertainment and merchandise on a percentage basis infor the first six months of ~~2018~~2019 compared to the first six months of ~~2017~~2018 was impacted by ~~an increase in PlayPass related supplies as~~ a ~~result~~combination of ~~PlayPass now being deployed to all of our Company-owned venues, compared to 268 venues at the beginning of 2017, and due to~~ the impact of ~~various tests related to time based play~~AYCP and ~~“More Tickets” in certain of our venues~~More Tickets, which were launched nationally during the ~~second~~third quarter of 2018.

~~Labor expenses were $130.0 million~~Gross profit, which represents Total revenues less total cost of food, beverage, entertainment and merchandise, as a percentage of Total revenues, was 85.8% and 85.6% for the first six months of 2019 and 2018, ~~compared to $126.7 million~~respectively.

Labor expenses, as a percentage of sales, were 28.6% and 28.2% for the first six months of ~~2017. Increased minimum~~2019 and 2018, respectively, as wage ~~rates in several states, fully offset~~pressures exceeded the favorable impact of a decrease in labor hours ~~as a result of lower~~on higher sales. Our sales ~~volumes~~per labor hour improved approximately 5.8% in the first six months of ~~2018 compared to~~2019 from the first six months of ~~2017.~~2018.

Lease costs, as a percentage of sales, were 11.4% and 10.6%, for the first six months of 2019 and 2018, respectively. Lease costs for the first six months of 2019 were impacted by the adoption of a new lease standard effective December 31, 2018, the first day of Fiscal 2019, that requires us to recognize lease and non-lease components, such as CAM charges, as lease costs, rather than reflecting CAM charges as Other venue operating expenses. Excluding CAM charges, Lease costs, as a percentage of sales, would have been 10.0% for the first six months of 2019, reflecting an increase in Company venue sales.

Other venue operating costs, as a percentage of sales, were ~~$75.1 million~~14.3% and 16.3% for the first six months of 2019 and 2018, respectively. Other venue operating expenses for the first six months of 2019 were impacted by the adoption of a new lease standard, as discussed in the previous paragraph under Lease costs. Other venue operating expenses as a percentage of sales, including the impact of CAM charges, would have been 15.7% for the first six months of 2019, reflecting savings initiatives and efficiencies in general operating costs, and expenses incurred in the first six months of 2018 compared to $72.7 million in the first six months of 2017. The increase was primarily due to an increase in self-insurance expense associated with general liability claims, increased common area and utility costs, and increased expenses related to the production of new menu boards and panels ~~partially offset by a decreases~~ in ~~postage and maintenance and repair costs.~~connection with the launch of AYCP during the third quarter of 2018.

Advertising Expense

Advertising expense was $23.2 million and $27.0 million ~~in the first six months of 2018 compared to $25.6 million in the first six months of 2017. Advertising expense~~ for the first six months of 2019 and 2018, ~~was impacted by the adoption of~~respectively, due to a ~~new revenue recognition standard effective January 1, 2018 that requires us~~shift in our marketing strategy away from television to account for our national advertising fund contributions as revenues, rather than netted against Advertising expense. Including the impact of netting national advertising fund revenues against Advertising expense, Advertising expense for the first six months of 2018 would have been $25.7 million (see “Revenues” above).targeted digital and social media platforms.

General and Administrative Expenses

General and administrative expenses were $29.9 million and $26.3 million for the first six months of 2019 and 2018, ~~compared to $29.1 million for the first six months of 2017.~~respectively. The ~~decrease~~increase in general and administrative expenses in the first six months of ~~2018~~2019 is primarily due to an increase in performance-based compensation as a ~~decrease in labor related litigation costs, and cost reductions implemented in the first quarter~~result of ~~2018.~~improved operating results.

Depreciation and Amortization

Depreciation and amortization was $48.5 million and $52.1 million infor the first six months of 2019 and 2018, ~~compared to $55.9 million in the first six months of 2017.~~respectively. The decrease in depreciation and amortization is primarily due to the impact of ~~certain property plant~~eight venue closures and ~~equipment having reached the end of their depreciable lives.~~non-cash venue impairments recorded in 2018.

Transaction, Severance and Related Litigation Costs

Transaction, severance and related litigation costs were less than $0.1 million and $0.7 million infor the first six months of 2019 and 2018, ~~compared to $0.6 million in the first six months of 2017.~~respectively. The Transaction, severance and related litigation costs for the first six months of 2019 relate to legal fees incurred in connection with Merger related litigation costs. The Transaction, severance and related litigation costs for

the first six months of 2018 relate ~~primarily~~ to $0.5 million in legal fees incurred in connection with Merger related litigation, and severance payments of $0.2 million. ~~The Transaction, severance and related litigation costs in the first six months of 2017 relate to legal fees incurred in connection with Merger related litigation.~~

Income Taxes

Our effective income tax rate was 29.3% and 35.1% for the first six months ~~ended July 1,~~of 2019 and 2018, was 35.1% as compared to 38.5% for the six months ended July 2, 2017, and was favorably impacted by the TCJA signed into law on December 22, 2017 which reduced the U.S. federal corporate income tax rate from 35% to 21%.respectively. Our effective income tax rate for the first six months ~~ended July 1,~~of 2019 differs from the statutory rate primarily due to state taxes and the negative impact of nondeductible litigation costs related to the Merger, nondeductible penalties and other expenses, and foreign income taxes (withheld on royalties and franchise fees received from international franchisees not offset by foreign tax credits due to the foreign tax credit limitation) partially offset by the favorable impact of employment-related tax credits.

Our effective income tax rate for the first six months of 2018 differs from the statutory tax rate primarily due to state income taxes including the impact of certain state tax legislation enacted during the second quarter of 2018 that increased the amount of income subject to state taxation, nondeductible litigation costs related to the Merger, non-deductible penalties and other expenses partially offset by the favorable impact of employment-related federal income tax credits, ~~and~~an adjustment recorded in the second quarter of 2018 to the provisional estimate provided at the end of Fiscal 2017 to account for the impact of the TCJA enacted on December 22, 2017 pursuant to SAB 118, a one-time adjustment recorded in the first quarter of 2018 to deferred ~~taxes~~tax (the tax effect of the cumulative foreign currency translation adjustment existing as of January 1, 2018) resulting from the change in our intent to no longer indefinitely reinvest monies ~~previously~~ loaned to our Canadian subsidiary, ~~partially offset by the negative impact of nondeductible litigation costs related to the Merger~~ and ~~non-deductible penalties. In addition,~~an increase in a valuation allowance for deferred tax assets associated with our ~~effective income tax rate for the six months ended July 1, 2018 was negatively impacted by certain state tax legislation enacted during the quarter~~Canadian operations that increased the amount of income subject to state taxation and changed state income tax rates. Our effective income tax rate for the six months ended July 2, 2017 differed from the statutory rate primarily due to state income taxes and the favorable impact of employment-related federal income tax credits partially offset by the negative impact of non-deductible litigation costs related to the Merger.could expire before they are utilized.

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 guests 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 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.~~cash management strategies.

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), similar to other companies in the restaurant industry. As part of our capital allocation strategy, we may elect from time to time to retire certain of our debt obligations through voluntary prepayments or open market purchases.

Sources and Uses of Cash

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


	Six Months Ended						Six Months Ended
	July 1, 2018			July 2, 2017			June 30, 2019			July 1, 2018
	(in thousands)						(in thousands)
Net cash provided by operating activities	$	65,025		$	76,602		$	91,072		$	65,025
Net cash used in investing activities	(37,418		)	(48,883		)	(34,810		)	(37,418		)
Net cash provided by (used in) financing activities	(5,874		)	328
Net cash used in financing activities							(5,763		)	(5,874		)
Effect of foreign exchange rate changes on cash	49			239			(2		)	49
Change in cash, cash equivalents and restricted cash	$	21,782		$	28,286		$	50,497		$	21,782
Interest paid	$	35,906		$	31,861		$	36,994		$	35,906
Income taxes paid, net	$	421		$	7,716
Income taxes paid (refunded), net							$	(8,016	)	$	421


	July 1, 2018		December 31, 2017		June 30, 2019		December 30, 2018
	(in thousands)				($ in thousands)
Cash and cash equivalents	$	88,887	$	67,200	$	113,636	$	63,170
Restricted cash	$	207	$	112	182		151
Term loan facility	$	727,700	$	731,500	720,100		723,900
Senior notes	$	255,000	$	255,000	255,000		255,000
Available unused commitments under revolving credit facility	$	141,000	$	140,100	86,538		141,000

Sources and Uses of Cash - Six months ended ~~July 1, 2018~~June 30, 2019 Compared to the Six months ended July ~~2, 2017~~1, 2018

Net cash provided by operating activities was $91.1 million and $65.0 million in the six months ended June 30, 2019 and July 1, 2018, ~~compared to $76.6 million in the six months ended July 2, 2017.~~respectively. The ~~decrease~~increase in net cash provided by operating activities is primarily due to ~~a decrease~~an increase in net income, income tax refunds, and favorable fluctuations in our working capital.

Net cash used in investing activities was $34.8 million and $37.4 million in the six months ended June 30, 2019 and July 1, 2018, ~~compared to $48.9 million in the six months ended July 2, 2017.~~respectively. Net cash used in investing activities in the six months ended June 30, 2019 and July 1, 2018 ~~and July 2, 2017~~ relates primarily to capital expenditures.

Net cash used in financing activities was $5.8 million and $5.9 million in the six months ended June 30, 2019 and July 1, 2018, respectively, relating primarily to principal payments on our term loan and other lease related obligations. Net cash provided by financing activities of $0.3 million in the six months ended July 2, 2017 related primarily to sale leaseback proceeds of $4.1 million, partially offset by a $1.4 million return of capital.

Debt Financing

We monitor the capital markets and our capital structure and make changes from time to time, with the goal of maintaining financial flexibility, preserving or improving liquidity and/or achieving cost efficiency. From time to time we may opportunistically pursue financing transactions. In addition, we may elect to repurchase amounts of our outstanding debt, including the senior notes as described below under “Senior Unsecured Notes” for cash, through open market repurchases or privately negotiated transactions with certain of our debt holders, although there is no assurance we will do so.

On August 1, 2019, the Company announced that it is seeking to obtain a new first lien senior secured credit facility to refinance in full its existing secured credit facilities (as defined below).

Secured Credit Facilities

Our secured credit facilities include (i) a $760.0 million term loan facility with a maturity date of February 14, 2021 (the “term loan facility”) and (ii) a ~~$150.0~~$95.0 million senior secured revolving credit facility with ~~an original~~a maturity date of November 16, 2020 (as discussed in more detail below, $95.0 million of our original $150.0 million revolving credit facility maturing on February 14, 2019 ~~which~~was extended to November 16, 2020). The revolving credit facility includes a letter of credit sub-facility and a $30.0 million swingline loan sub-facility (the “revolving credit facility” and together with the term loan facility, the “secured credit facilities”). The secured credit facilities require scheduled quarterly payments on the term loan facility equal to 0.25% of the original principal amount of the term loan facility from July 2014 to December 2020, with the balance paid at maturity, February 14, 2021. As of July 1, 2018, we had no borrowings outstanding under the revolving credit facility and $9.0 million and $9.9 million of letters of credit issued but undrawn under the facility as of July 1, 2018 and December 31, 2017, respectively.

On May 8, 2018 we entered into an incremental assumption agreement with certain of our revolving credit facility lenders to extend the maturity on $95.0 million of the revolving credit facility through November 16, 2020. In connection with the extension of the maturity date, we agreed to the following covenants for the benefit of the revolving facility ~~lenders: (a)~~

lenders: (a) with respect to each fiscal year (commencing with the fiscal year ending December 30, 2018), to the extent we have ~~positive~~ excess cash flow (as defined in the secured credit ~~facilities)~~facilities agreement), we ~~will~~are required to make ~~one or more optional prepayments~~a mandatory prepayment of term ~~loans~~loan principal to the extent ~~required such~~ that ~~the amount of such optional prepayments, together with the mandatory~~75% times our excess cash flow ~~prepayment of term loans required under~~(as defined in the secured credit facilities ~~in respect of such fiscal year, shall equal at least 75% of our excess cash flow for such fiscal year (subject~~agreement) and subject to step-downs based on our net first lien senior secured leverage ratio ~~and subject~~(the ratio of consolidated debt secured by first-priority liens on the collateral less unrestricted cash (“net first lien debt”) to ~~a certain excess cash flow threshold amount)~~the last twelve months’ EBITDA, as defined in the senior credit facilities debt agreement) exceeds $10 million with any such required mandatory payment reduced by any optional prepayments of principal that may have occurred during the fiscal year, and (b) we shall not incur additional first lien senior secured debt in connection with certain acquisitions, mergers or consolidations unless our net first lien senior secured leverage ratio is ~~not~~ greater than 3.65 to 1.00 on a pro forma basis. The remaining $55.0 million of the original revolving credit facility matured on February 14, 2019 with no borrowings outstanding thereunder.

The secured credit facilities require scheduled quarterly payments on the term loan facility equal to 0.25% of the original principal amount of the term loan facility from July 2014 to December 2020, with the balance due at maturity, February 14, 2021.

As of June 30, 2019, we had no borrowings outstanding and $8.5 million of letters of credit issued but undrawn under the revolving credit facility, leaving $86.5 million in borrowing capacity under the revolving credit facility. As of December 30, 2018, we had no borrowings outstanding and $9.0 million of letters of credit issued but undrawn under the revolving credit facility.

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 ~~0.5%~~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 LIBOR 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. The applicable margin for LIBOR 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. ~~Effective March 4, 2016,~~During both the ~~applicable margin for both our term loan facility~~six months ended June 30, 2019 and ~~revolving credit facility stepped-down to 3.00%. Effective November 16, 2017,~~July 1, 2018, the applicable margin for LIBOR borrowings under both the term loan facility and the revolving facility ~~returned to their previous level of~~was 3.25%.

During the six months ended ~~July 1, 2018,~~June 30, 2019, the federal funds rate ranged from ~~1.34%~~2.36% to ~~1.92%~~2.45%, the prime rate ~~ranged from 4.5% to 5.0%~~was 5.50% and the one-month LIBOR ranged from ~~1.55%~~2.38% to ~~2.10%~~2.52%.

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 ~~was 0.5%~~is 0.50% per annum and is subject to one step-down from ~~0.5%~~0.50% to 0.375% based on our net first lien senior secured leverage ratio. ~~Effective March 4, 2016,~~During both the six months ended June 30, 2019 and July 1, 2018, the commitment fee rate ~~stepped down to 0.375%. Effective November 16, 2017, the commitment fee rate returned to its previous level of 0.5%~~was 0.50%. 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, processing, and ~~processing~~fronting fees ~~and charges and a fronting fee~~ computed at a rate equal to 0.125% per annum on the daily stated amount of such letter of credit.

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.

Senior Unsecured Notes

Our senior unsecured notes consist of $255.0 million aggregate principal amount borrowings of ~~8.000%~~8.0% Senior Notes due 2022 (the “senior notes”) ~~and~~that mature on February 15, 2022. The senior notes bear interest at a rate of ~~8.000%~~8.0% per year payable February 15th and ~~mature on February 15, 2022.~~ August 15th of each year.

We may ~~redeem~~call some or all of the senior notes at ~~certain redemption prices~~102% on or after February 15, 2019 and at 100% on or after February 15, 2020 as set forth in the indenture governing the senior notes (the “indenture”).

Capital Expenditures

We intend to continue to focus our future capital expenditures on reinvestment into our existing Company-operated Chuck E. ~~Cheese’s~~Cheese and Peter Piper Pizza venues through various planned capital initiatives and the development or acquisition of additional Company-operated venues. During the ~~first~~ six months ~~of 2018,~~ended June 30, 2019, we completed ~~144~~195 game enhancements and 5one major ~~remodels.~~ remodel related to the re-imaging effort to update Chuck E. Cheese locations to a new look and feel.

We have funded and expect to continue to fund our capital expenditures through existing cash flows from operations. Capital expenditures in the first six months of ~~2018~~2019 totaled approximately ~~$37.9~~$35.0 million.

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


	Six Months Ended				Six Months Ended
	July 1, 2018		July 2, 2017		June 30, 2019		July 1, 2018
	(in thousands)				(in thousands)
Growth capital spend ⁽¹⁾	$	10.768	$	28,890	$	11,349	$	10,768
Maintenance capital spend ⁽²⁾	25,256		16,304		22,749		25,256
IT capital spend	1,858		3,916		853		1,858
Total Capital Spend	$	37,882	$	49,110	$	34,951	$	37,882

__________________


(1)	Growth capital spend includes major remodels, including the re-imaging effort to update Chuck E. Cheese venues to a new look and feel, venue expansions, ~~our PlayPass initiative and~~ new venue development, including relocations, and franchise acquisitions.

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

We currently estimate our capital expenditures in ~~2018~~2019 will total approximately ~~$75~~$95 million to ~~$85~~$105 million, inclusive of maintenance capital, growth capital and IT related capital.

Off-Balance Sheet Arrangements and Contractual Obligations

As of ~~July 1, 2018,~~June 30, 2019, 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 December ~~31, 2017,~~30, 2018, filed with the SEC on March ~~28, 2018.~~12, 2019.

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 December ~~31, 2017.~~30, 2018.

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 December ~~31, 2017,~~30, 2018, filed with the SEC on March ~~28, 2018. See~~12, 2019. Except for the adoption of Accounting Standards Update ASU 2016-12, Leases (Topic 842) and subsequent amendment ASU 2018-11, Leases (Topic 842): Target Improvements, there has been no other material change to the information concerning our critical accounting policies and estimates since December 30, 2018 (see 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 ~~report. There has been no other material change to the information concerning our critical accounting policies and estimates since December 31, 2017.~~report).

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 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 Net income (loss) plus interest expense, income tax expense (benefit), depreciation and amortization expense, impairments, gains and losses on asset disposals, and stock based compensation. In addition, Adjusted EBITDA excludes other items we consider unusual or non-recurring and certain other adjustments required or permitted in calculating covenant compliance under our secured credit facilities and the indenture governing our senior notes (see discussion of our senior notes in Note 67. “Indebtedness and Interest Expense” to our Consolidated Financial Statements included in Part I, Item 1. “Financial Statements” and above under the heading “Financial Condition, Liquidity and Capital Resources - Debt Financing”).

Adjusted EBITDA is presented because we believe that it provides useful information to investors regarding our operating performance and our capacity to incur and service debt and fund capital expenditures. We believe that Adjusted EBITDA is used by many investors, analysts and rating agencies as a measure of performance. We also present Adjusted EBITDA because it is substantially similar to Credit Agreement EBITDA, a measure used in calculating financial ratios and other calculations under our debt agreements, except for ~~(i) the Change in deferred amusement revenue, and (ii)~~ excluding the annualized full year effect of Company-operated and franchised venues that were opened and closed during the year. By reporting Adjusted EBITDA, we provide a basis for comparison of our business operations between current, past and future periods by excluding items that we do not believe are indicative of our core operating performance.

Our definition of Adjusted EBITDA allows for the exclusion of certain non-cash and other income and expense items that are used in calculating net income from continuing operations. However, these are items that may recur, vary greatly and can be difficult to predict. They can represent the effect of long-term strategies as opposed to short-term results. In addition, certain of these items can represent the reduction of cash that could be used for other corporate purposes. These measures should not be considered as alternatives to operating income, cash flows from operating activities or any other performance measures derived in accordance with GAAP as measures of operating performance, or cash flows as measures of liquidity. These measures have important limitations as analytical tools, and you should not consider them in isolation or as a substitute for analysis of our results as reported under GAAP. Because of these limitations, we rely primarily on our U.S. GAAP results and use Adjusted EBITDA and Adjusted EBITDA Margin, only supplementally.

The following table sets forth a reconciliation of Net income (loss) to Adjusted EBITDA and Adjusted EBITDA Margin for the periods presented:


	Three Months Ended						Six Months Ended						Three Months Ended						Six Months Ended
	July 1, 2018			July 2, 2017			July 1, 2018			July 2, 2017			June 30, 2019			July 1, 2018			June 30, 2019			July 1, 2018
	(in thousands, except percentages)												(in thousands, except percentages)
Total revenues	$	217,358		$	211,784		$	472,262		$	476,743		$	215,176		$	217,358		$	488,489		$	472,262
Net income as reported	$	(8,965	)	$	(5,930	)	$	3,256		$	11,292
Net income (loss) as reported													$	(8,734	)	$	(8,965	)	$	12,512		$	3,256
Interest expense	19,113			17,061			37,671			34,123			19,979			19,113			39,787			37,671
Income tax expense	(2,174		)	(3,317		)	1,759			7,061
Income tax expense (benefit)													(1,987		)	(2,174		)	5,191			1,759
Depreciation and amortization	25,493			27,623			52,065			55,928			24,118			25,493			48,452			52,065
EBITDA													33,376			33,467			105,942			94,751
Asset Impairments	1,591			—			1,591			—			1,285			1,591			1,285			1,591
Loss on asset disposals, net ⁽¹⁾	801			1,961			2,038			3,716			1,028			801			1,983			2,038
Unrealized loss on foreign exchange ⁽²⁾	339			—			695			—
Unrealized (gain) loss on foreign exchange ⁽²⁾													(295		)	339			(637		)	695
Non-cash stock-based compensation ⁽³⁾	163			186			227			336			949			163			2,111			227
Rent expense book to cash ⁽⁴⁾	2,015			1,856			4,188			2,836			966			2,015			1,698			4,188
Franchise revenue, net cash received ⁽⁵⁾	322			(254		)	742			(344		)	472			322			1,170			742
Impact of purchase accounting ⁽⁶⁾	—			569			—			785
Venue pre-opening costs ⁽⁷⁾⁽⁶⁾	2			248			25			488			151			2			216			25
One-time and unusual items ⁽⁸⁾⁽⁷⁾	702			947			1,467			3,213			485			702			785			1,467
Change in deferred amusement revenue ⁽⁹⁾	(5,237		)	(676		)	(2,006		)	4,368
Adjusted EBITDA	$	34,165		$	40,274		$	103,718		$	123,802		$	38,417		$	39,402		$	114,553		$	105,724
Adjusted EBITDA Margin	15.7		%	19.0		%	22.0		%	26.0		%	17.9		%	18.1		%	23.5		%	22.4		%

____________


(1)	Relates primarily to gains or losses upon disposal of property or equipment.


(2)	Relates to unrealized gains or losses on the revaluation of our indebtedness with our Canadian subsidiary. ~~Effective January 1, 2018, we no longer consider undistributed income from our Canadian subsidiary to be permanently invested.~~


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


(4)	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.


(5)	Represents the actual cash received for franchise fees received in the period for post-acquisition franchise development agreements, which we do not start recognizing into revenue until the franchise venue is opened.


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


~~(7)~~	Relates to start-up and marketing costs incurred prior to the opening of new ~~Company-owned~~Company-operated venues and generally consists of payroll, recruiting, training, supplies and rent incurred prior to venue opening.

~~(8)~~(7)

Represents non-recurring income and expenses primarily related to (i) legal fees, claims and settlements related to litigation in respect of the Merger; (ii) severance expense and executive termination benefits; (iii) legal claims and settlements related to employee class action lawsuits and settlements; (iv) sales and use ~~tax refunds~~taxes relating to prior periods; (v) professional fees incurred in connection with one-time strategic corporate and tax initiatives, such as accounting and consulting fees ~~incurred~~related to ~~enhance~~the acquisition of Peter Piper Pizza (such as transfer pricing and ~~to implement PlayPass;~~cost segregation); (vi) legal fees incurred in connection with certain potential transactions the Company did not pursue; (vii) removing current period property losses and insurance recoveries relating to prior period business interruption losses at certain venues, primarily relating to disaster recoveries, such as natural disasters, fires, floods and property damage; (viii) one-time costs related to the early termination of a supplier contract in connection with the transition to a new supplier; (ix) one-time marketing expenses related to the grand openings of our re-imaged Chuck E. Cheese venues; and ~~(vii)~~(x) one-time training and travel-related costs incurred in connection with training venue employees in connection with the implementation of our PlayPass initiative ~~that we began in 2016.~~

~~(9)~~

~~Represents~~and the ~~change in the deferred revenue liability relating to unused game play credits on PlayPass cards through the end~~re-imaging effort of the ~~periods presented. The deferred revenue liability built up due to the PlayPass implementation as the shift~~venues in ~~the business model from tokens to play credits impacted revenue recognition. Since PlayPass is now fully deployed in all of~~ our ~~domestic Company-operated venues, the liability should fluctuate in proportion to entertainment and merchandise revenue in future periods.~~Chuck E. Cheese portfolio.

Cautionary Statement Regarding Forward-Looking Statements

This report contains forward-looking statements, which involve risks and uncertainties. These forward-looking statements are generally identified by the use of forward-looking terminology, including the terms “anticipate,” “believe,” “could,” “estimate,” “expect,” “intent,” “may,” “plan,” “predict,” “potential,” “project,” “should,” “target,” “will,” “would” and, in each case, their negative or other various or comparable terminology. All statements other than statements of historical facts contained in this report, including statements regarding our strategy, future operations, future financial position, future revenue, projected costs, prospects, plans, objections of management and expected market growth 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 December ~~31, 2017~~30, 2018, filed with the SEC on March ~~28, 2018.~~12, 2019. 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. There are a number of important factors that could cause actual results or events to differ materially from those indicated by such forward-looking statements, including, but are not limited to:

our strategy, outlook and growth prospects;

our operational and financial targets and dividend policy;

our planned expansion of the venue base and the implementation of the new design in our existing venues;

general economic trends and trends in the industry and markets; and

the competitive environment in which we operate.

These statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Important factors that could cause our results to vary from expectations include, but are not limited to:

negative publicity and changes in consumer preferences;

our ability to successfully expand and update our current venue base;

our ability to successfully implement our marketing strategy;

our ability to compete effectively in an environment of intense competition;

our ability to weather economic uncertainty and changes in discretionary spending;

increases in food, labor and other operating costs;

the impact of labor scheduling legislation;

our ability to successfully open international franchises and to operate under the United States and foreign anti-corruption laws that govern those international ventures;

risks related to our substantial indebtedness;

failure of our information technology systems to support our current and growing business;

disruptions to our commodity distribution system;

our dependence on third-party vendors to provide us with sufficient quantities of new entertainment-related equipment, prizes and merchandise at acceptable prices;

risks from product liability claims and product recalls;

the impact of governmental laws and regulations and the outcomes of legal proceedings;

potential liability under certain state property laws;

fluctuations in our financial results due to new venue openings;

local conditions, natural disasters, terrorist attacks and other events and public health issues;

the seasonality of our business;

inadequate insurance coverage;

labor shortages and immigration reform;

loss of certain personnel;

our ability to protect our trademarks or other proprietary rights;

our ability to pay our fixed rental payments;

impairment charges for goodwill, indefinite-lived intangible assets or other long-lived assets;

our ability to successfully integrate the operations of companies we acquire;

~~impairment charges for goodwill, indefinite-lived intangible assets or other long-lived assets;~~

our failure to maintain adequate internal controls over our financial and management systems; and

other risks, uncertainties and factors set forth in Part I, Item 1A. “Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended December ~~31, 2017,~~30, 2018, filed with the SEC on March ~~28, 2018.~~12, 2019.

The forward-looking statements made in this report reflect our views with respect to future events as of the date of this report and are based on assumptions and subject to risks and uncertainties. Given these uncertainties, undue reliance should not be placed on these forward-looking statements. These forward-looking statements represent our estimates and assumptions only as of the date of this report and, except as required by law, we undertake no obligation to update or review publicly any forward-looking statements, whether as a result of new information, future events or otherwise after the date of this report. We anticipate that subsequent events and developments will cause our views to change. This report should be read completely and with the understanding that our actual future results may be materially different from what we expect. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments we may undertake. We qualify all of our forward-looking statements by these cautionary statements.

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, ~~$727.7~~$720.1 million as of ~~July 1, 2018~~June 30, 2019, 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 ~~$7.3~~$7.2 million change in annual interest expense on indebtedness under the secured credit facilities.

Commodity Price Risk

We are exposed to commodity price changes related to certain food products that we purchase, primarily related to the prices of cheese and dough, which can vary throughout the year due to changes in supply, demand, and other factors. We have not entered into any hedging arrangements to reduce our exposure to commodity price volatility associated with such commodity prices; however, we typically enter into short-term purchasing contracts, which may contain pricing arrangements designed to minimize the impact of commodity price fluctuations, and derivative instruments such as futures contracts to mitigate our exposure to commodity price fluctuations.

For the three months ended June 30, 2019 and July 1, 2018, ~~and July 2, 2017,~~ the average cost of a block of cheese was ~~$1.68~~$1.77 and ~~$1.79,~~$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 $0.2 million ~~and $0.3 million~~ for both the three months ended June 30, 2019 and July 1, ~~2018 and July 2, 2017, respectively.~~2018. For the six months ended June 30, 2019 and July 1, 2018, ~~and July 2, 2017,~~ the average cost of a block of cheese was ~~$1.69~~$1.72 and ~~$1.74,~~$1.69, 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 $0.5 million for both the six months ended June 30, 2019 and July 1, ~~2018 and $0.6 million for the six months ended July 2, 2017, respectively.~~2018.

For both the three months ended June 30, 2019 and July 1, 2018, ~~and July 2, 2017,~~ the average cost of dough per pound was ~~$0.47 and $0.45, respectively.~~$0.47. 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 June 30, 2019 and July 1, ~~2018 and July 2, 2017, respectively.~~2018. For the six months ended June 30, 2019 and July 1, 2018, ~~and July 2, 2017,~~ the average cost of dough per pound was ~~$0.48~~$0.47 and ~~$0.45,~~$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 million and $0.3 million for ~~both~~ the six months ended June 30, 2019 and July 1, 2018, ~~and July 2, 2017.~~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 U.S. dollar as we operate a total of 11 ~~Company-owned~~Company-operated venues in Canada. For the three and six months ended ~~July 1, 2018,~~June 30, 2019, our Canadian venues generated operating ~~losses~~income of ~~$0.2~~less than $0.1 million and ~~$0.5~~$0.7 million, respectively, compared to our consolidated operating income of ~~$8.0~~$9.3 million and ~~$42.7~~$57.5 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 and six months ended ~~July 1, 2018~~June 30, 2019 were ~~$0.751~~$0.733 and ~~$0.814,~~$0.764, 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 ~~July 1, 2018~~June 30, 2019 would have decreased our reported consolidated operating results by ~~less than~~ $0.1 million for ~~both~~ the three ~~and~~months ended June 30, 2019. A hypothetical 10% devaluation in the average quoted U.S. dollar-equivalent of the Canadian dollar exchange rate during the six months ended ~~July 1, 2018.~~June 30, 2019 would have increased our reported consolidated operating results by $0.1 million for the six months ended June 30, 2019.

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 ~~July 1, 2018~~June 30, 2019 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~~processes 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 1415 “Commitments and Contingencies” to our Consolidated Financial Statements included in Part I, Item 1. “Financial Statements” of this 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 December ~~31, 2017,~~30, 2018, filed with the SEC on March ~~28, 2018.~~12, 2019.

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

NONE.

ITEM 6. Exhibits.

EXHIBIT INDEX



Exhibit Number		Description

10.1*		~~Incremental Assumption Agreement (Extended Revolving Facility Commitment) dated as of May 8, 2018~~

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.

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.

August ~~10, 2018~~14, 2019	By:	/s/ ~~Thomas Leverton~~James A. Howell
		~~Thomas Leverton~~James A. Howell
		~~Chief Executive Officer and Director~~

~~August 10, 2018~~	~~By:~~	~~/s/ Dale R. Black~~
		~~Dale R. Black~~
		Executive Vice President and Chief Financial Officer
		(Principal Financial Officer)

August 14, 2019	By:	/s/ Tony Howard
		Tony Howard
		Vice President, Controller and Chief Accounting Officer
		(Principal Accounting Officer)

EXHIBIT INDEX



Exhibit Number		Description

10.1*		~~Incremental Assumption Agreement (Extended Revolving Facility Commitment) dated as of May 8, 2018~~

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.



CEC Entertainment, Inc.
Condensed Consolidating Balance Sheet
As of December 31, 2017
(in thousands)

	Issuer			Guarantors		Non-Guarantors			Eliminations			Consolidated
Current assets:
Cash and cash equivalents	$	59,948		$	410	$	6,842		$	—		$	67,200
Restricted cash	—			—		112			—			112
Accounts receivable	27,098			3,283		2,563			(1,923		)	31,021
Inventories	17,104			4,614		282			—			22,000
Prepaid expenses	13,766			5,549		1,083			—			20,398
Total current assets	117,916			13,856		10,882			(1,923		)	140,731
Property and equipment, net	496,725			66,669		6,627			—			570,021
Goodwill	433,024			51,414		—			—			484,438
Intangible assets, net	16,764			463,613		—			—			480,377
Intercompany	90,937			10,770		—			(101,707		)	—
Investment in subsidiaries	462,873			—		—			(462,873		)	—
Other noncurrent assets	7,913			11,359		205			—			19,477
Total assets	$	1,626,152		$	617,681	$	17,714		$	(566,503	)	$	1,695,044
Current liabilities:
Bank indebtedness and other long-term debt, current portion	$	7,600		$	—	$	—		$	—		$	7,600
Capital lease obligations, current portion	586			—		10			—			596
Accounts payable and accrued expenses	58,014			35,134		4,169			—			97,317
Other current liabilities	4,265			511		—			—			4,776
Total current liabilities	70,465			35,645		4,179			—			110,289
Capital lease obligations, less current portion	12,956			—		54			—			13,010
Bank indebtedness and other long-term debt, net of deferred financing costs, less current portion	965,213			—		—			—			965,213
Deferred tax liability	99,083			16,697		(1,594		)	—			114,186
Intercompany	—			75,052		28,578			(103,630		)	—
Other noncurrent liabilities	216,287			13,465		446			—			230,198
Total liabilities	1,364,004			140,859		31,663			(103,630		)	1,432,896
Stockholder's equity:
Common stock	—			—		—			—			—
Capital in excess of par value	359,233			466,114		3,241			(469,355		)	359,233
Retained earnings (deficit)	(95,199		)	10,708		(15,304		)	4,596			(95,199		)
Accumulated other comprehensive income (loss)	(1,886		)	—		(1,886		)	1,886			(1,886		)
Total stockholder's equity	262,148			476,822		(13,949		)	(462,873		)	262,148
Total liabilities and stockholder's equity	$	1,626,152		$	617,681	$	17,714		$	(566,503	)	$	1,695,044



CEC Entertainment, Inc.
Consolidating Statement of Comprehensive Income (Loss)
For the Three Months Ended July 2, 2017
(in thousands)


	Issuer			Guarantors			Non-Guarantors			Eliminations			Consolidated
Revenues:
Food and beverage sales	$	82,807		$	13,324		$	1,280		$	—		$	97,411
Entertainment and merchandise sales	88,857			18,811			2,056			—			109,724
Total company venue sales	171,664			32,135			3,336			—			207,135
Franchise fees and royalties	463			4,186			—			—			4,649
International Association assessments and other fees	375			10,544			8,098			(19,017		)	—
Total revenues	172,502			46,865			11,434			(19,017		)	211,784
Operating Costs and Expenses:
Company venue operating costs:
Cost of food and beverage	18,936			3,464			423			—			22,823
Cost of entertainment and merchandise	6,329			389			136			—			6,854
Total cost of food, beverage, entertainment and merchandise	25,265			3,853			559			—			29,677
Labor expenses	54,654			4,541			1,156			—			60,351
Rent expense	21,825			1,552			529			—			23,906
Other venue operating expenses	42,664			3,259			990			(10,946		)	35,967
Total company venue operating costs	144,408			13,205			3,234			(10,946		)	149,901
Advertising expense	8,315			1,413			10,580			(8,071		)	12,237
General and administrative expenses	4,391			9,268			60			—			13,719
Depreciation and amortization	24,729			2,401			493			—			27,623
Transaction, severance and related litigation costs	490			—			—			—			490
Total operating costs and expenses	182,333			26,287			14,367			(19,017		)	203,970
Operating income (loss)	(9,831		)	20,578			(2,933		)	—			7,814
Equity in earnings (loss) in affiliates	27,993			—			—			(27,993		)	—
Interest expense	15,921			975			165			—			17,061
Income (loss) before income taxes	2,241			19,603			(3,098		)	(27,993		)	(9,247		)
Income tax expense (benefit)	8,171			(10,515		)	(973		)	—			(3,317		)
Net income (loss)	$	(5,930	)	$	30,118		$	(2,125	)	$	(27,993	)	$	(5,930	)

Components of other comprehensive income (loss), net of tax:
Foreign currency translation adjustments	420			—			420			(420		)	420
Comprehensive income (loss)	$	(5,510	)	$	30,118		$	(1,705	)	$	(28,413	)	$	(5,510	)