UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q



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

For the quarterly period ended September ~~30, 2018~~29, 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 October ~~31, 2018,~~30, 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 September ~~30, 2018~~29, 2019 and December ~~31, 2017~~30, 2018	3

Consolidated Statements of Earnings for the three and nine months ended September 29, 2019 and September 30, 2018 ~~and October 1, 2017~~	45

Consolidated Statements of Comprehensive ~~Income (Loss)~~Loss for the three and nine months ended September, 29, 2019 and September 30, 2018 ~~and October 1, 2017~~	5

Consolidated Statements of Cash Flows for the nine months ended September 29, 2019 and September 30, 2018 ~~and October 1, 2017~~	6

Notes to Consolidated Financial Statements	8

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	3035

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk	4553

ITEM 4. Controls and Procedures	4654

PART II OTHER INFORMATION

ITEM 1. Legal Proceedings	4755

ITEM 1A. Risk Factors	4755

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds	4755

ITEM 6. Exhibits	4856

SIGNATURES

PART I - FINANCIAL INFORMATION

ITEM 1. Financial Statements.

CEC ENTERTAINMENT, INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited)

(in thousands, except share information)


	September 30, 2018			December 31, 2017			September 29, 2019			December 30, 2018
ASSETS
Current assets:
Cash and cash equivalents	$	84,429		$	67,200		$	105,059		$	63,170
Restricted cash	23			112			212			151
Accounts receivable	18,898			20,061			20,576			24,020
Income taxes receivable	9,749			10,960			—			10,160
Inventories	22,069			22,000			27,579			23,807
Prepaid expenses	24,579			20,398			14,274			25,424
Total current assets	159,747			140,731			167,700			146,732
Property and equipment, net	542,896			570,021			525,107			539,185
Operating lease right-of-use assets, net							536,057			—
Goodwill	484,438			484,438			484,438			484,438
Intangible assets, net	477,872			480,377			469,218			477,085
Other noncurrent assets	21,104			19,477			16,794			18,725
Total assets	$	1,686,057		$	1,695,044		$	2,199,314		$	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							49,203			—
Accounts payable	36,140			31,374			43,701			31,410
Accrued expenses	37,927			36,616			44,156			36,030
Unearned revenues	17,787			21,050			21,869			18,124
Accrued interest	2,760			8,277			8,223			7,463
Other current liabilities	5,000			4,776			4,548			5,955
Total current liabilities	107,848			110,289			179,300			106,582
Capital lease obligations, less current portion	12,528			13,010
Operating lease obligations, less current portion							522,380			—
Bank indebtedness and other long-term debt, net of deferred financing costs, less current portion	962,402			965,213			958,986			961,514
Deferred tax liability	110,921			114,186			102,721			107,058
Accrued insurance	9,484			8,311
Other noncurrent liabilities	226,652			221,887			196,030			248,440
Total liabilities	1,429,835			1,432,896			1,959,417			1,423,594
Stockholder’s equity:
Common stock, $0.01 par value; authorized 1,000 shares; 200 shares issued as of September 30, 2018 and December 31, 2017	—			—
Common stock, $0.01 par value; authorized 1,000 shares; 200 shares issued as of September 29, 2019 and December 30, 2018							—			—
Capital in excess of par value	359,411			359,233			359,930			359,570
Accumulated deficit	(101,430		)	(95,199		)	(118,482		)	(115,660		)
Accumulated other comprehensive loss	(1,759		)	(1,886		)	(1,551		)	(1,339		)
Total stockholder’s equity	256,222			262,148			239,897			242,571
Total liabilities and stockholder’s equity	$	1,686,057		$	1,695,044		$	2,199,314		$	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						Nine Months Ended					Three Months Ended							Nine Months Ended
	September 30, 2018			October 1, 2017			September 30, 2018			October 1, 2017		September 29, 2019			September 30, 2018				September 29, 2019			September 30, 2018
REVENUES:
Food and beverage sales	$	94,023		$	98,255		$	308,658		$	320,085	$	92,645		$	94,023			$	302,111		$	308,658
Entertainment and merchandise sales	121,611			110,633			368,633			356,274		119,688			121,611				386,778			368,633
Total company venue sales	215,634			208,888			677,291			676,359		212,333			215,634				688,889			677,291
Franchise fees and royalties	5,311			4,459			15,917			13,731		5,261			5,311				17,194			15,917
Total revenues	220,945			213,347			693,208			690,090		217,594			220,945				706,083			693,208
OPERATING COSTS AND EXPENSES:
Company venue operating costs (excluding Depreciation and amortization):
Company venue operating costs and expenses (excluding Depreciation and amortization):
Cost of food and beverage	22,520			23,974			72,774			75,014		21,302			22,520				69,239			72,774
Cost of entertainment and merchandise	9,874			7,430			27,676			22,771		10,113			9,874				31,311			27,676
Total cost of food, beverage, entertainment and merchandise	32,394			31,404			100,450			97,785		31,415			32,394				100,550			100,450
Labor expenses	65,028			61,220			194,994			187,958		63,213			65,028				199,693			194,994
Rent expense	23,851			24,259			72,615			71,484
Lease costs												27,559			23,851				82,102			72,615
Other venue operating expenses	38,232			40,561			113,363			113,277		34,586			38,232				102,536			113,363
Total company venue operating costs	159,505			157,444			481,422			470,504
Other costs and expenses:
Total company venue operating costs and expenses												156,773			159,505				484,881			481,422
Other costs and expenses:
Advertising expense	11,058			12,083			38,010			37,702		10,803			11,058				34,033			38,010
General and administrative expenses	13,193			13,575			39,519			42,665		13,051			13,193				42,944			39,519
Depreciation and amortization	24,739			27,136			76,804			83,064		24,622			24,739				73,074			76,804
Transaction, severance and related litigation costs	(263		)	128			463			698		371			(263		)		402			463
Asset impairments	5,344			1,843			6,935			1,843		8,202			5,344				9,487			6,935
Total operating costs and expenses	213,576			212,209			643,153			636,476		213,822			213,576				644,821			643,153
Operating income	7,369			1,138			50,055			53,614		3,772			7,369				61,262			50,055
Interest expense	19,069			17,451			56,740			51,574		22,029			19,069				61,816			56,740
Income (loss) before income taxes	(11,700		)	(16,313		)	(6,685		)	2,040
Income tax expense (benefit)	(2,213		)	(5,221		)	(454		)	1,840
Net income (loss)	$	(9,487	)	$	(11,092	)	$	(6,231	)	$	200
Loss on extinguishment of debt												2,910			—			—	2,910			—
Loss before income taxes												(21,167		)	(11,700		)		(3,464		)	(6,685		)
Income tax benefit												(5,833		)	(2,213		)		(642		)	(454		)
Net loss												$	(15,334	)	$	(9,487	)		$	(2,822	)	$	(6,231	)

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

CEC ENTERTAINMENT, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE ~~INCOME (LOSS)~~LOSS

(Unaudited)

(in thousands)

Three Months Ended Nine Months Ended
September 30,
2018 October 1,
2017 September 30,
2018 October 1,
2017
Net income (loss) $ (9,487 ) $ (11,092 ) $ (6,231 ) $ 200
Components of other comprehensive income (loss), net of tax:

Foreign currency translation adjustments (172 ) 648
127
1,187
Comprehensive income (loss) $ (9,659 ) $ (10,444 ) $ (6,104 ) $ 1,387



	Three Months Ended						Nine Months Ended
	September 29, 2019			September 30, 2018			September 29, 2019			September 30, 2018
Net loss	$	(15,334	)	$	(9,487	)	$	(2,822	)	$	(6,231	)
Foreign currency translation adjustments	73			(172		)	(212		)	127
Comprehensive loss	$	(15,261	)	$	(9,659	)	$	(3,034	)	$	(6,104	)

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)


	Nine Months Ended						Nine Months Ended
	September 30, 2018			October 1, 2017			September 29, 2019			September 30, 2018
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	(6,231	)	$	200
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Net loss							$	(2,822	)	$	(6,231	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Loss on extinguishment of debt							2,910			—
Depreciation and amortization	76,804			83,064			73,074			76,804
Deferred income taxes	(3,314		)	(5,220		)	(4,261		)	(3,314		)
Stock-based compensation expense	169			520			1,985			169
Amortization of lease related liabilities	(749		)	(411		)	—			(749		)
Amortization of original issue discount and deferred debt financing costs	3,284			3,410			3,544			3,284
Debt refinancing costs							694			—
Loss on asset disposals, net	2,551			5,457			2,903			2,551
Asset impairments	6,935			1,843			9,487			6,935
Non-cash rent expense	4,109			3,562
Non-cash lease costs							2,438			4,109
Change in operating lease liabilities							(1,219		)	—
Other adjustments	531			18			(170		)	531
Changes in operating assets and liabilities:
Accounts receivable	2,016			2,678			4,222			2,016
Inventories	(84		)	(4,499		)	(3,871		)	(84		)
Prepaid expenses	(3,479		)	1,195			2,167			(3,479		)
Accounts payable	886			1,775			7,356			886
Accrued expenses	3,847			(2,097		)	932			3,847
Unearned revenues	(3,263		)	5,952			3,740			(3,263		)
Accrued interest	(5,291		)	(4,891		)	972			(5,291		)
Income taxes receivable	1,994			425
Income taxes payable							11,563			1,994
Deferred landlord contributions	1,760			1,210			—			1,760
Net cash provided by operating activities	82,475			94,191			115,644			82,475
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment	(55,202		)	(71,910		)	(60,388		)	(55,202		)
Development of internal use software	(1,992		)	(2,520		)	(787		)	(1,992		)
Proceeds from sale of property and equipment	464			424			160			464
Net cash used in investing activities	(56,730		)	(74,006		)	(61,015		)	(56,730		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from refinancing of senior term loan							479,449			—
Repayments on senior term loan	(5,700		)	(5,700		)	(473,749		)	(5,700		)
Repayments on note payable	—			(13		)
Proceeds from sale leaseback transaction	—			4,073
Payment of debt financing costs	(395		)	—			(15,375		)	(395		)
Payments on capital lease obligations	(442		)	(340		)
Payments on financing lease obligations							(530		)	(442		)
Payments on sale leaseback obligations	(2,119		)	(1,789		)	(2,469		)	(2,119		)

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	(8,656		)	(2,322		)	(12,674		)	(8,656		)
Effect of foreign exchange rate changes on cash	51			492			(5		)	51
Change in cash, cash equivalents and restricted cash	17,140			18,355			41,950			17,140
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	$	84,452		$	79,646		$	105,271		$	84,452


	Nine Months Ended						Nine Months Ended
	September 30, 2018			October 1, 2017			September 29, 2019			September 30, 2018
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid	$	59,229		$	53,076		$	57,232		$	59,229
Income taxes paid, net	$	867		$	6,635
Income taxes (refunded) paid, net							$	(7,944	)	$	867
Non cash portion of Loss on debt extinguishment							2,364			—
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Accrued construction costs	$	1,659		$	2,772		$	5,687		$	1,659

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.



	September 29, 2019		September 30, 2018
Cash and cash equivalents	$	105,059	$	84,429
Restricted cash⁽¹⁾	212		23
Cash, cash equivalents and restricted cash	$	105,271	$	84,452

__________________


⁽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 15 foreign countries and territories. As of September 29, 2019, we and our franchisees operated a total of 738 venues, of which 553 were Company-operated venues located in 44 states and Canada. Our franchisees operated a total of 185 venues located in 14 states and 14 foreign countries and ~~territories. Our~~territories, including Chile, Colombia, Costa Rica, Guam, Guatemala, Honduras, Jordan, Mexico, Panama, Peru, Puerto Rico, Saudi Arabia, Trinidad & Tobago, and the United Arab Emirates. As of September 29, 2019, a total of 181 Chuck E. Cheese venues ~~provide our guests with~~are located in California, Texas, and Florida (178 are Company-operated and three are franchised locations), and a ~~variety~~total of ~~family entertainment~~118 Peter Piper Pizza venues are located in Arizona, Texas, and ~~dining alternatives.~~ Mexico (33 are Company-operated and 85 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 ~~$1.8~~$2.3 million and ~~$1.7~~$1.8 million for the nine months ended September 29, 2019 and September 30, 2018, ~~and October 1, 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 see “Recently Issued Accounting Guidance” - “Accounting Guidance Adopted” - below.

We reclassified $1.8 million and $5.6 million, respectively, of depreciation and amortization for the three and nine months ended October 1, 2017 which was previously included in “General and administrative expenses” and we reclassified “Depreciation and amortization” of $25.3 million and $77.5 million, respectively, for the three and nine months ended October 1, 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 and nine-month periods ended ended September 29, 2019 and September 30, 2018 are for the 13-week and 39-week periods ended September 29, 2019 and September 30, 2018, respectively.

Interim Financial Statements

The accompanying Consolidated Financial Statements as of and for the three and nine months ended September 29, 2019 and September 30, 2018 ~~and October 1, 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 October 1, 2017 for a total balance of $79.6 million, which resulted in a reduction in net cash provided by operating activities of less than $0.1 million in the Consolidated Statement of Cash Flows for the nine months ended October 1, 2017. The adoption of these amendments did not impact net cash used in investing or financing activities for the six months ended October 1, 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 nine months ended September 30, 2018 and October 1, 2017 is as follows:

September 30, 2018 December 31, 2017 October 1, 2017 January 1, 2017
(in thousands)
Cash and cash equivalents $ 84,429
$ 67,200
$ 79,427
$ 61,023
Restricted cash 23
112
219
268
Cash, cash equivalents and restricted cash $ 84,452
$ 67,312
$ 79,646
$ 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. 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 adoption of ASU ~~2018-11 allows entities~~

~~to change their date~~2016-02 resulted in the recognition as of ~~initial application to the beginning of the period of adoption. The new guidance will be effective for us beginning~~ 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 of this ASU~~electing to ~~have a material impact on our results of operations, financial position and cash flows.~~

~~In July 2018, the FASB issued ASU 2018-11,~~ ~~Leases (Topic 842): Target Improvements~~. This standard allows entities to change their date of initial application to the beginning of the period of adoption. Additionally, this update amends ASC 842 to include a practical expedient under which lessors are not required to separateaccount for lease and ~~nonlease components. The new guidance will be effective~~non-lease components as a single component for ~~us beginning December 31, 2018. We are currently evaluating~~certain classes of assets, lease costs for the ~~impact~~three and nine months ended September 29, 2019 include $3.4 million and $10.5 million, respectively, of ~~the adoption of this guidance on~~common area maintenance charges, which was previously included in “Other venue operating expenses” in our Consolidated ~~Financial Statements, but we expect this will have a material effect on our balance sheet since the Company has a significant amount~~Statement of Earnings. Other venue operating ~~and capital lease arrangements.~~

~~In August 2018, the FASB issued ASU 2018-13,~~ ~~Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement~~. This standard will require entities to disclose the amount of total gains or losses for the period recognized in other comprehensive income that is attributable to fair value changes in assets and liabilities held as of the balance sheet date and categorized within Level 3 of the fair value hierarchy. This ASU will be effective for us for annual and interim periods beginning on December 31, 2020. Early adoption of this standard is permitted.

~~Table of Contents~~

~~CEC ENTERTAINMENT, INC.~~

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

~~(Unaudited)~~

~~We do not expect the adoption of this ASU to have a material impact on our results of operations, financial position and cash flows.~~

~~In August 2018, the FASB issued ASU 2018-15,~~ ~~Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract~~ . Under this standard customers will apply the same criteria for capitalizing implementation costs as they would for an arrangement that has a software license. The adoption of this new guidance prescribes the balance sheet, income statement, and cash flow classification of the capitalized implementation costs and related amortization expense, and additional quantitative and qualitative disclosures. This ASU will be effective for us for annual and interim periods beginning on December 30, 2020. Early adoption of this standard is permitted and may be applied either prospectively to eligible costs incurred on or after the date of the new guidance or retrospectively. We do not expect the adoption 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 liability for the estimated amount of unused game play credits which we believe our customers will utilize in the future, based on credits remaining on Play Pass cards and utilization patterns.

~~We sell gift cards to our customers~~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 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.~~

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 $0.8 million and $2.6 million in the three and nine months ended September 30, 2018 ~~respectively,~~includes common area maintenance charges of $3.2 million and ~~is recorded in “Franchise fees and royalties” in~~$10.2 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, 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 nine months ended September ~~30, 2018:~~29, 2019:


	Balance at							Balance at		Balance at							Balance at
	January 1, 2018		Revenue Deferred		Revenue Recognized			September 30, 2018		December 31, 2018		Revenue Deferred		Revenue Recognized			September 29, 2019
	(in thousands)									(in thousands)
PlayPass related deferred revenue	$	12,035	$	48,368	$	(52,119	)	$	8,284
PlayPass and ticket related deferred revenue										$	5,561	$	36,541	$	(35,331	)	$	6,771
Gift card related deferred revenue	3,868		4,215		(4,912		)	3,171		5,253		7,814		(8,003		)	5,064
Unearned franchise and development fees	4,274		534		(62		)	4,746		6,321		2,324		(145		)	8,500
Other unearned revenues	873		19,726		(19,013		)	1,586		989		19,944		(19,399		)	1,534
Total unearned revenue	$	21,050	$	72,843	$	(76,106	)	$	17,787
Total unearned revenues										$	18,124	$	66,623	$	(62,878	)	$	21,869

~~Table of Contents~~

~~CEC ENTERTAINMENT, INC.~~

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

~~(Unaudited)~~

Note 3. Property and Equipment

Asset Impairments

During the three and nine months ended September 29, 2019, we recognized an asset impairment charge of $8.2 million and $9.5 million, primarily related to 10 and 12 venues, respectively. During the three and nine months ended September 30, 2018, we recognized an asset impairment ~~charges~~charge of $5.3 million and $6.9 million primarily related to eight and nine venues, respectively. ~~During the three and nine months ended October 1, 2017, we recognized asset impairment charges of $1.8 million primarily related to five venues.~~ These impairment charges were the result of a decline in the venues’ financial performance, primarily related to various competitive and economic factors in the market in which the venues are located. As of September ~~30, 2018,~~29, 2019, the aggregate carrying value of the property and equipment at impaired venues, after the impairment ~~charge,~~charges, was ~~$5.1~~$7.2 million for venues impaired in ~~2018.~~2019.

Note 4. Intangible Assets, Net:

The following table presents our indefinite and definite-lived intangible assets at September ~~30, 2018:~~29, 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		(8,274		)	6,606
Franchise agreements	25	53,300		(8,734		)	44,566		25	53,300		(10,782		)	42,518
		$	494,880	$	(17,008	)	$	477,872		$	480,000	$	(10,782	)	$	469,218

~~__________________~~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~~$1.0 million for the three ~~months~~and nine-month periods ended September 30, 2018, ~~and October 1, 2017, respectively, and $1.0 million and $1.3 million for the nine months ended September 30, 2018 and October 1, 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 September 29, 2019 and September 30, 2018, ~~and October 1, 2017,~~ respectively, and $1.5 million for both the nine months ended September 29, 2019 and September 30, 2018, ~~and October 1, 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.



		September 29, 2019
	Balance Sheet Classification	(in thousands)
Assets
Operating	Operating lease right-of-use assets, net ⁽¹⁾	$	536,057
Finance	Property and equipment, net ⁽²⁾	9,346
Total leased assets		$	545,403

Liabilities
Current
Operating	Operating lease liability, current portion	$	49,203
Finance	Other current liabilities	803
Noncurrent
Operating	Operating lease obligations, less current portion	522,380
Finance	Other noncurrent liabilities	11,675
Total leased liabilities		$	584,061

__________________

⁽¹⁾During the nine months ended September 29, 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 $5.7 million as of September 29, 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		Nine Months Ended
		September 29, 2019		September 29, 2019
	Statement of Earnings Classification	(in thousands)		(in thousands)
Operating lease cost ⁽¹⁾	Lease costs	$	27,559	$	82,102
Operating lease cost ⁽²⁾	General and administrative	326		976
Finance lease cost
Amortization of leased assets	Depreciation and amortization	246		742
Interest on lease liabilities	Net interest expense	366		1,123
Net lease cost		$	28,497	$	84,943

__________________

⁽¹⁾Includes common area maintenance charges of $3.4 million and $10.5 million for the three and nine months ended September 29, 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 September 29, 2019:



	Operating Leases ⁽¹⁾		Finance Leases ⁽²⁾		Total
	(in thousands)
Remainder of 2019	$	22,694	$	548	$	23,242
2020	91,537		2,194		93,731
2021	89,203		2,173		91,376
2022	87,221		2,147		89,368
2023	84,861		1,920		86,781
After 2023	472,432		12,931		485,363
Total lease payments	847,948		21,913		869,861
Less: interest	276,365		9,435		285,800
Present value of minimum lease payments ⁽³⁾	$	571,583	$	12,478	$	584,061

__________________

⁽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 $49.2 million and $522.4 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 $11.7 million are included in “Other current liabilities” and “Other noncurrent liabilities”, respectively, in our Consolidated Balance Sheet.



	Nine Months Ended
Lease Term and Discount Rate	September 29, 2019
Weighted average remaining lease term (years):
Operating leases	10
Finance leases	11
Weighted average discount rate:
Operating leases	8.0	%
Finance leases	13.2	%

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



	Nine Months Ended
	September 29, 2019
	(in thousands)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases	$	64,237
Operating cash flows for finance leases	1,123
Financing cash flows for finance leases	488
Right-of-use assets obtained in exchange for lease obligations:
Operating lease liabilities	17,397
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:


	September 30, 2018		December 31, 2017		September 29, 2019		December 30, 2018
	(in thousands)				(in thousands)
Trade and other amounts payable	$	25,476	$	20,492	$	33,312	$	20,685
Book overdraft	10,664		10,882		10,389		10,725
Accounts payable	$	36,140	$	31,374	$	43,701	$	31,410

The book overdraft balance represents ~~checks~~payments we have issued but that have not ~~yet presented to~~cleared the 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:


	September 30, 2018			December 31, 2017			September 29, 2019			December 30, 2018
	(in thousands)						(in thousands)
Term loan facility	$	725,800		$	731,500		$	760,000		$	723,900
Revolving credit facility							—			—
Senior notes	255,000			255,000			255,000			255,000
Total debt outstanding	980,800			986,500			1,015,000			978,900
Less:
Deferred financing costs, net							(18,003		)	(8,633		)
Unamortized original issue discount	(1,288		)	(1,694		)	(30,411		)	(1,153		)
Deferred financing costs, net	(9,510		)	(11,993		)
Current portion of term loan facility	(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	$	962,402		$	965,213		$	958,986		$	961,514

We were in compliance with the debt covenants in effect as of September 29, 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.

Secured Credit Facilities

~~Our~~On August 30, 2019 the Company entered into a new credit agreement and related security agreements with Credit Suisse AG, Cayman Islands Branch, as administrative and collateral agent. The new credit agreement provides senior secured financing consisting of:


(i)	a $114 million secured revolving credit facility which includes a $50 million letter of credit sub-facility (collectively the “2019 Revolving Credit Facility”) with a maturity date of August 30, 2024 (the “revolver maturity date); and


(ii)	a $760 million secured term loan facility (the “2019 Term Loan Facility” and together with the 2019 Revolving Credit Facility, the “2019 Secured Credit Facilities”) with a maturity date of August 30, 2026 (the “term loan maturity date”).

In the event more than $50 million of the Company’s 8.0% Senior Notes maturing February 15, 2022 remain outstanding on the date that is 91 days prior to the stated maturity date of the notes, the term loan maturity date will spring to such earlier date, November 16, 2021.

The net proceeds from the 2019 Secured Credit Facilities, plus cash on hand, were used to pay the outstanding principal, accrued interest and fees related to our secured credit facilities ~~include (i) a $760.0 million term loan facility with a maturity date~~dated as of February 14, 2021 (the “term loan facility”) and (ii) a $150.0 million senior secured revolving credit facility with an original maturity date of February 14, 2019, which includes a letter of credit sub-facility and a $30.0 million swingline loan sub-facility (the “revolving credit facility” and together with the term loan facility, the “secured credit facilities”). The 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 at maturity, February 14, 2021. We had no borrowings outstanding and $9.0 million and $9.9 million, respectively of issued but undrawn letters of credit under the revolving credit facility as ~~of September 30, 2018 and December 31, 2017, respectively.~~

~~On May 8, 2018 we entered into~~amended by an incremental assumption agreement, ~~with certain~~dated as 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 agreedMay 8, 2018 (the “2014 Secured Credit Facilities”), and debt issuance costs related to the ~~following covenants for~~2019 Secured Credit Facilities. All obligations under 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~~2014 Secured Credit Facilities have excess cash flow (as defined in the secured credit facilities agreement), we are required to make a mandatory prepayment of term loan principal equal to at least 75% (subject to step-downs based on our net first lien senior secured leverage ratio) of the amount of excess cash flow that exceeds $10 million less 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 of the amount of the revolving credit facility that was not extended remains February 14, 2019.been terminated.

The 2019 secured term loan was issued net of ~~$3.8~~$30.4 million of original issue discount. We also ~~paid $17.8 million and $3.8~~incurred a total of $15.4 million in debt ~~financing~~issuance costs ($13.4 million related to the ~~term loan facility~~issuance of the 2019 Term Loan Facility and ~~revolving credit facility (inclusive~~$2.0 million related to the 2019 Revolving Credit Facility). The debt issuance costs are reflected in our consolidated financial statements as follows:

Loss on Extinguishment of Debt: We recorded a loss on extinguishment of debt totaling $2.9 million which includes $0.5 million of fees paid to lenders in connection with the 2019 Term Loan Facility and wrote off $2.4 million of unamortized deferred financing costs and original issue discount related to the 2014 Secured Credit

Facilities;

Transaction related costs: We expensed third party fees totaling $0.3 million related to legal fees incurred in connection with the ~~May 8, 2018 incremental assumption agreement), respectively. All debt financing~~2019 Term Loan Facility. The transaction related costs are included in “Transaction, severance and related litigation costs” in our Consolidated Statement of Earnings;

Interest Expense: We expensed third party fees totaling $0.4 million related to rating agency fees incurred in connection with the 2019 Secured Credit Facilities. These fees are included in “Interest Expense” in our Consolidated Statement of Earnings; and

Deferred Financing Costs: Debt issuance costs totaling $14.2 million related to the 2019 Secured Credit Facilities were capitalized and are included in “Bank indebtedness and other long-term debt, net of deferred financing costs” on our Consolidated Balance Sheets. ~~The original issue discount and~~We also continued to defer $2.1 million of unamortized deferred financing costs related to the 2014 Secured Credit Facilities.

The deferred financing costs related to the 2019 Term Loan Facility and original issue discount are amortized through the 2019 term loan ~~facility are amortized over the life of the term loan facility,~~maturity date, and the deferred financing costs related to the ~~revolving credit facility~~2019 Revolving Credit Facility are being amortized through ~~November 16, 2020,~~the 2019 revolver maturity date. The amortization of the deferred financing costs and ~~are~~original issue discount is included in “Interest expense” onin our Consolidated Statements of Earnings.

The 2019 Secured Credit Facilities allow the Company to request one or more incremental term loan facilities and/or increase the commitments under our revolving credit facility in an aggregate amount of up to the sum of (a) $50.0 million plus (b) such additional amount so long as, (i) in the case of loans that rank equally and without preference with the liens on the collateral securing the 2019 Secured Credit Facilities, our net first lien senior secured leverage ratio (the ratio of total consolidated debt secured by first-priority liens on the collateral net of unrestricted cash to the last twelve month’s EBITDA, as defined in the 2019 Senior Credit Facilities agreement) would be no greater than 2.75 to 1.00 and (ii) in the case of loans that rank junior to the liens on the collateral securing the 2019 Secured Credit Facilities, our total net secured leverage ratio (as defined in the 2019 Senior Credit Facilities agreement) would be no greater than 5.00 to 1.00, subject to certain conditions, and receipt of commitments by existing or additional lenders.

The 2019 Secured Credit Facilities include certain mandatory prepayment requirements:

Excess Cash Flow- Subject to certain exceptions, to the extent we have excess cash flow determined on an annual basis (as defined in the 2019 Secured Credit Facilities agreement), we are required to make a mandatory prepayment of term loan principal (reduced by any optional prepayments of principal that may have occurred during the fiscal year) to the extent that 75% (the “required percentage” which is subject to step downs discussed below) times the excess cash flow exceeds $10.0 million. The required percentage steps down from 75% to 50% provided our Net Total Leverage Ratio (the ratio of total consolidated debt including lease related obligations net of unrestricted cash to the last twelve month’s EBITDA, as defined in the 2019 Senior Credit Facilities agreement) is less than or equal to 4.50 to 1.00 and greater than 4.25 to 1.00, steps down to 25% provided our Net Total Leverage Ratio is less than or equal to 4.25 to 1.00 and greater than 4.00 to 1.00, and steps down to 0% provided our Net Total Leverage Ratio is less than or equal to 4.00 to 1.00.

Sales and Disposition of Assets- Subject to certain exceptions, we are required to make a mandatory prepayment of term loan principal of 100% of the net cash proceeds of all non-ordinary course asset sales, other dispositions of property or certain casualty events, in each case subject to certain exceptions and provided that the Company may (i) reinvest within 12 months or (ii) commit to reinvest those proceeds and does reinvest such proceeds within 18 months in assets to be used in its business, or certain other permitted investments; and

Issuance or incurrence of Debt- Subject to certain exceptions, we are required to make a mandatory prepayment of term loan principal of 100% of the net cash proceeds of any issuance or incurrence of debt, other than proceeds from debt permitted under the 2019 Secured Credit Facilities.

The Company may voluntarily repay outstanding loans under the 2019 Secured Credit Facilities at any time, without prepayment premium or penalty except in connection with a repricing event as described below, subject to customary “breakage” costs with respect to LIBOR rate loans. Any refinancing through the issuance or repricing amendment of any debt that results in a repricing event applicable to the 2019 Term Loan Facility resulting in a lower yield occurring at any time during the first twelve months following August 30, 2019 will be accompanied by a 1.00% prepayment premium or fee, as applicable.

The 2019 Term Loan Facility requires scheduled quarterly payments equal to $1.9 million (0.25% of the original principal amount) from December 2019 to June 2026, with the remaining balance due at maturity, August 30, 2026.

As of September 29, 2019, we had no borrowings outstanding and an $8.5 million letter of credit issued but undrawn under the 2019 Revolving Credit Facility. As of December 30, 2018 we had a $9.0 million letter of credit issued but undrawn under the revolving credit facility related to the 2014 Senior Secured Facilities.

Borrowings under the ~~secured credit facilities~~2019 Secured Credit Facilities bear interest at a rate equal to, at ~~our~~the option ~~either~~ of the Company, either:

(a) a ~~London Interbank Offered Rate (“LIBOR”)~~LIBOR rate determined by reference to the costs of funds for Eurodollar deposits for the interest period relevant to such ~~borrowings,~~borrowing, adjusted for certain additional costs, subject to a 1.00% ~~floor in the case of term loans~~floor; or ~~(b)~~

(b) a base rate determined by reference to the highest of (i) the federal funds ~~effective~~ rate plus 0.50%;, (ii) the prime rate of ~~Deutsche Bank~~Credit Suisse AG, ~~New York Branch;~~Cayman Islands Branch, and (iii) the one-month adjusted LIBOR plus 1.00%~~, in~~.

In each case ~~plus~~the interest rate is also subject to 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~~determined as follows:

•2019 Term Loan Facility:



Margin for Base Rate Loans	Margin for LIBOR Loans
5.50%	6.50	%

•2019 Revolving Credit Facility:



Net Total Leverage Ratio	Margin for Base Rate Loans	Margin for LIBOR Loans
Greater than 4.80 to 1.00	5.50%	6.50%
Less than or equal to 4.80 to 1.00 but greater than 4.30 to 1.00	5.25%	6.25%
Less than or equal to 4.30 to 1.00	5.00%	6.00%

During 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~~ period from ~~3.25% to 3.00% based on our net first lien senior secured leverage ratio and~~August 30, 2019 through September 29, 2019 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.~~2019 Secured Credit Facilities was 6.50%. During the period from December 31, 2018 through August 29, 2019 and the nine

~~Table of Contents~~

~~CEC ENTERTAINMENT, INC.~~

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

~~(Unaudited)~~

months ended September 30, 2018, the applicable margin for LIBOR borrowings under ~~both~~ the ~~term loan facility and the revolving credit facility~~2014 Secured Credit Facilities was 3.25%.

In addition to paying interest on outstanding principal under both the ~~secured credit facilities, we are~~2019 and 2014 Secured Credit Facilities, the Company is required to pay a commitment fee to the lenders under the respective revolving credit ~~facility with~~facilities in respect ~~to the~~of any unutilized commitments thereunder. The ~~base~~ applicable commitment fee rate under the ~~revolving credit facility~~2019 Revolving Credit Facility is ~~0.50% per annum and is subject to one step-down from 0.50% to 0.375% based on our net first lien senior secured leverage ratio.~~ determined as follows:



Net Total Leverage Ratio		Commitment Fee
Greater than 4.30 to 1.00		0.50%
Less than or equal to 4.30 to 1.00		0.375%

During the nine months ended September 29, 2019 and September 30, 2018 the commitment fee rate was 0.50%. ~~We are~~

The Company is also required to pay customary agency fees as well as letter of credit participation fees computed at a rate per annum equal to the applicable margin for LIBOR rate borrowings on the dollar equivalent of the daily stated amount of outstanding letters of credit, plus such letter of credit issuer’s customary documentary and processing fees and charges, and a fronting fee computed at a rate equal to 0.125% per annum on the daily stated amount of ~~such~~each letter of credit.

During the nine months ended September ~~30, 2018,~~29, 2019, the federal funds rate ranged from ~~1.34%~~1.83% to ~~2.18%~~2.45%, the prime rate ranged from ~~4.50%~~5.00% to ~~5.25%~~5.50% and the one-month LIBOR ranged from ~~1.55%~~2.02% to ~~2.26%~~2.52%.

The weighted average effective interest rate incurred on our borrowings under both our ~~secured credit facilities~~2019 and 2014 Secured Credit Facilities was ~~5.7%~~6.6% and ~~4.7%~~5.7% for the nine months ended September 29, 2019 and September 30, 2018, ~~and October 1, 2017,~~ respectively, which includes amortization of deferred financing costs related to our ~~secured credit facilities,~~Secured Credit Facilities, amortization of our ~~term loan facility~~Term Loan Facility original issue discount and commitment and other fees related to our ~~secured credit facilities.~~Secured Credit Facilities but excludes the Loss on extinguishment of debt.

Obligations under the ~~secured credit facilities~~both the 2019 and 2014 Secured Credit Facilities are unconditionally guaranteed by ~~Queso Holdings Inc. (“Parent”)~~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~~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~~2019 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. For a period of 18 months following August 30, 2019, we are prohibited from paying dividends to investment funds managed by Apollo or its affiliates.

Our ~~revolving credit facility~~2019 Revolving Credit Facility includes a springing financial maintenance covenant that requires our net first lien senior secured leverage ratio not to exceed ~~6.25~~5.25 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~~2019 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~~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”~~“Senior Notes”). The ~~senior notes~~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~~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~~Senior Notes (the “indenture”).

We paid $6.4 million in debt issuance costs related to the ~~senior notes,~~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~~Senior Notes and are included in “Interest expense” in our Consolidated Statements of Earnings.

Our obligations under the ~~senior notes~~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.~~2019 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); (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.

~~Table of Contents~~

~~CEC ENTERTAINMENT, INC.~~

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

~~(Unaudited)~~

The weighted average effective interest rate incurred on borrowings under our ~~senior notes~~Senior Notes was 8.2% for both the nine months ended September 29, 2019 and September 30, 2018, ~~and October 1, 2017,~~ which ~~included~~includes amortization of deferred financing costs and other fees related to our ~~senior notes.~~Senior Notes.

Interest Expense

Interest expense consisted of the following for the periods presented:


	Three Months Ended				Three Months Ended
	September 30, 2018		October 1, 2017		September 29, 2019		September 30, 2018
	(in thousands)				(in thousands)
Term loan facility ⁽¹⁾	$	9,946	$	8,014
Term Loan Facility ⁽¹⁾					$	12,776	$	9,946
Senior notes	5,083		5,083		5,083		5,083
Capital lease obligations	394		434
Finance lease obligations					366		394
Sale leaseback obligations	2,628		2,647		2,393		2,628
Amortization of deferred financing costs	923		1,001		970		923
Other	95		272		441		95
Total interest expense	$	19,069	$	17,451	$	22,029	$	19,069


	Nine Months Ended				Nine Months Ended
	September 30, 2018		October 1, 2017		September 29, 2019		September 30, 2018
	(in thousands)				(in thousands)
Term loan facility ⁽¹⁾	$	28,747	$	23,240
Senior notes	15,248		15,248
Capital lease obligations	1,253		1,264
Term Loan Facility ⁽¹⁾					$	34,019	$	28,747
Senior Notes					15,248		15,248
Finance lease obligations					1,123		1,253
Sale leaseback obligations	7,880		7,949		7,770		7,880
Amortization of deferred financing costs	2,878		3,004		2,817		2,878
Other	734		869		839		734
Total interest expense	$	56,740	$	51,574	$	61,816	$	56,740

__________________

(1) Includes amortization of original issue discount.

The weighted average effective interest rate incurred on our borrowings under our ~~secured credit facilities~~2019 and ~~senior notes~~2014 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~~Secured Credit Facilities and ~~senior notes)~~Senior Notes) was 7.0% for the nine months ended September 29, 2019 and 6.3% for the nine months ended September 30, 2018, ~~and 5.6% for the nine months ended October 1, 2017,~~ respectively.

~~We were in compliance with the debt covenants in effect as of September 30, 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.

~~Table of Contents~~

~~CEC ENTERTAINMENT, INC.~~

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

~~(Unaudited)~~

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


	September 30, 2018				December 31, 2017				September 29, 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	$	7,366	$	7,600	$	7,220	$	7,600	$	7,464	$	7,600	$	7,051
Long-term portion ⁽²⁾	971,912		930,715		977,206		937,662		1,007,400		980,882		971,300		885,212
Bank indebtedness and other long-term debt:	$	979,512	$	938,081	$	984,806	$	944,882	$	1,015,000	$	988,346	$	978,900	$	892,263

_________________

⁽¹⁾ Excluding net deferred financing ~~costs.~~costs and original issue discount.

^{(2) Net} The unamortized portion of original issue ~~discount.~~discount was $30.4 million and 1.2 million at September 29, 2019 and December 30, 2018, respectively.

Our financial instruments consist of cash and cash equivalents, restricted cash, accounts receivable, accounts payable, our ~~secured credit facilities~~2019 and 2014 Secured Credit Facilities and our ~~senior notes.~~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 both our ~~secured credit facilities, term loan facility~~2019 and ~~senior notes~~2014 Secured Credit Facilities and our Senior Notes was determined by using ~~the~~their 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 nine months ended September 29, 2019 and September 30, 2018, ~~and October 1, 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:


	September 30, 2018		December 31, 2017		September 29, 2019		December 30, 2018
	(in thousands)				(in thousands)
Sale leaseback obligations, less current portion(1)	$	175,589	$	177,933	$	171,729	$	174,520
Deferred rent liability	30,946		27,951
Deferred landlord contributions	8,276		6,282
Long-term portion of unfavorable leases	4,176		5,453
Lease related liabilities ⁽²⁾					—		45,195
Financing lease obligations, less current portion					11,675		12,330
Accrued insurance					6,724		9,861
Other	7,665		4,268		5,902		6,534
Total other noncurrent liabilities	$	226,652	$	221,887	$	196,030	$	248,440

________________

⁽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.

~~Table of Contents~~

~~CEC ENTERTAINMENT, INC.~~

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

~~(Unaudited)~~

9.Note 10. Income Taxes:

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



	Three Months Ended
	September 29, 2019			September 30, 2018
	(in thousands)
Federal and state income taxes	$	(5,900	)	$	(2,451	)
Foreign income taxes ⁽¹⁾	67			238
Income tax benefit	$	(5,833	)	$	(2,213	)



	Nine Months Ended
	September 29, 2019			September 30, 2018
	(in thousands)
Federal and state income taxes	$	(1,334	)	$	(1,167	)
Foreign income taxes ⁽¹⁾	692			713
Income tax benefit	$	(642	)	$	(454	)

Three Months Ended
September 30, 2018 October 1, 2017
(in thousands)
Federal and state income taxes $ (2,451 ) $ (5,533 )
Foreign income taxes ⁽¹⁾
238
312
Income tax benefit $ (2,213 ) $ (5,221 )

Nine Months Ended
September 30, 2018 October 1, 2017
(in thousands)
Federal and state income taxes $ (1,167 ) $ 1,145
Foreign income taxes ⁽¹⁾
713
695
Income tax expense (benefit) $ (454 ) $ 1,840

~~_________________~~__________________

(1) Including foreign taxes withheld.

Our effective income tax ~~rates~~rate was 27.6% and 18.9% for the three ~~and nine~~ months ended September 29, 2019 and September 30, 2018, ~~were 18.9% and 6.8%, respectively, as compared to 32.0% and 90.2%, respectively, for the three and nine months ended October 1, 2017.~~respectively. Our effective income tax rate for the three ~~and nine~~ months ended September ~~30, 2018 was impacted by the reduction in the U.S. federal statutory corporate income tax rate from 35% to 21% resulting~~29, 2019 differs from the ~~Tax Cuts and Jobs Act (TCJA) signed into law on December 22, 2017, return-to-provision adjustments including those related~~statutory rate primarily due to ~~the true up of provisional estimates provided in 2017 to account for the impact of the TCJA pursuant to SAB118,~~state income taxes and the ~~impact of employment-related federal income tax credits, offset by the negative~~unfavorable impact of nondeductible litigation costs related to the Merger (as defined in Note 13. “Consolidating Guarantor Financial Information”), 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), and certain nondeductible penalties ~~a net increase in our liability for uncertain~~and other expenses, partially offset by the favorable impact of employment-related federal income tax ~~positions, and state and foreign taxes.~~credits. Our effective income tax rate for the ~~nine~~three months ended September 30, 2018, ~~was further impacted~~differs from the statutory tax rate primarily due to state income taxes, nondeductible litigation costs related to the Merger, 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), non-deductible penalties and other expenses, and an increase in the reserve for uncertain tax positions, partially offset by the ~~unfavorable results~~favorable impact of employment-related federal income tax credits.

Our effective income tax rate was 18.5% and 6.8% for the nine-month period ended September 29, 2019 and September 30, 2018, respectively. Our effective income tax rate for the nine-month period ended September 29, 2019 differs from the statutory rate primarily due to state income taxes net of the favorable impact of certain state tax legislation enacted during the second quarter of 2019 that decreased the amount of income subject to state taxation, nondeductible litigation costs related to the Merger (as defined in Note 13. “Consolidating Guarantor Financial Information”), 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), and certain nondeductible penalties and other expenses, partially offset by the favorable impact of employment-related federal income tax credits. Our effective income tax rate for the nine-month period ended September 30, 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, 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), certain non-deductible penalties and other expenses, an increase in the reserve for uncertain tax positions, an increase in a valuation allowance for deferred tax assets associated with a carryforward of certain state tax credits and deferred tax assets relating to our Canada operations that could expire before they are utilized, partially offset by the favorable impact of employment-related federal income tax credits, adjustments 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”), 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 recorded in the first quarter. Our effective income tax rates for the three and nine months ended October 1, 2017 differed from the statutory rate primarily due to state income taxes and the favorable impact of employment-related federal income tax credits.

On December 22, 2017, the SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”) to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed to complete the accounting for certain income tax effects of the TCJA. Pursuant to SAB118, we included provisional estimates for the impact of the TJCA in our consolidated financial statements for the fiscal year ended December 31, 2017, noting that actual results may differ from the provisional estimates, due to, among other things, changes in our interpretations and assumptions relating to the changes made by the TCJA and additional guidance 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 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. SAB118 further states that any adjustments made to the provisional amounts under SAB 118 should be recorded as discrete adjustments in the period identified and not to extend beyond the one-year measurement provided in SAB 118. During the nine months ended September 30, 2018, we recognized a $0.5 million return-to-provision adjustment discrete tax benefit relating to the provisional estimates required to account for TCJA that normally would not have impacted our effective tax rate (deductions in 2017’s tax return at 35% with the offset to deferred taxes at 21%). The final adjustments to the provisional estimates will be completed in the fourth quarter of 2018.subsidiary.

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

~~Table of Contents~~

~~CEC ENTERTAINMENT, INC.~~

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

~~(Unaudited)~~

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 ~~$4.6~~$4.2 million as of September ~~30, 2018~~29, 2019 and ~~$3.9~~$4.3 million as of December ~~31, 2017~~30, 2018 and if recognized would decrease our provision for income taxes by ~~$3.3~~$3.2 million. Within the next twelve months, we could settle or otherwise conclude certain ongoing income tax 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 ~~$3.9~~$3.7 million within the next twelve months.

Total accrued interest and penalties related to unrecognized tax benefits was $1.2 million as of September ~~30, 2018~~29, 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 accrued interest related to unrecognized tax benefits in “Accrued interest,” current accrued 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 September ~~30, 2018~~29, 2019 and the activity for the nine months ended September ~~30, 2018~~29, 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 (421,614 ) $10.47

Outstanding stock options, September 30, 2018 2,032,698
$8.93 5.8 $ —
Stock options expected to vest, September 30, 2018 1,386,999
$9.12 5.9 $ —
Exercisable stock options, September 30, 2018 491,588
$8.32 5.5 $ —



	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	(114,921	)	$9.87
Outstanding stock options, September 29, 2019	2,297,395		$8.80	5.5	$	—
Stock options expected to vest, September 29, 2019	1,530,812		$8.97	5.9	$	—
Exercisable stock options, September 29, 2019	841,086		$8.31	4.5	$	—

__________________

(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 September ~~30, 2018,~~29, 2019, we had ~~$0.7~~$1.4 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 ~~2.9~~3.9 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
September 30,
2018 October 1,
2017
(in thousands)
Stock-based compensation costs $ (55 ) $ 187
Portion capitalized as property and equipment ⁽¹⁾
(3 ) (3 )
Stock-based compensation expense recognized $ (58 ) $ 184



	Three Months Ended
	September 29, 2019			September 30, 2018
	(in thousands)
Stock-based compensation costs related to stock awards	$	(182	)	$	—
Stock-based compensation costs related to incentive stock options, net ⁽¹⁾	71			(58		)
Stock-based compensation expense recognized	$	(111	)	$	(58	)

Nine Months Ended
September 30,
2018 October 1,
2017
(in thousands)
Stock-based compensation costs $ 178
$ 531
Portion capitalized as property and equipment ⁽¹⁾
(9 ) (11 )
Stock-based compensation expense recognized $ 169
$ 520



	Nine Months Ended
	September 29, 2019		September 30, 2018
	(in thousands)
Stock-based compensation costs related to stock awards	$	1,632	$	—
Stock-based compensation costs related to incentive stock options, net ⁽¹⁾	353		169
Stock-based compensation expense recognized	$	1,985	$	169
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 ~~nine months~~three and nine-month periods ended September 29, 2019 and September 30, ~~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 loss —
—
—
(6,231 ) —
(6,231 )
Other comprehensive income —
—
—
—
127
127
Stock-based compensation costs —
—
178
—
—
178
Balance September 30, 2018 200
$ —
$ 359,411
$ (101,430 ) $ (1,759 ) $ 256,222



	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
Net loss	—	$	—	$	—	$	(15,334	)	$	—		$	(15,334	)
Other comprehensive income	—	—		—		—			73			73
Stock-based compensation costs related to stock awards	—	—		63		—			—			63
Balance September 29, 2019	200	$	—	$	359,930	$	(118,482	)	$	(1,551	)	$	239,897

~~12.~~



	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
Net loss	—	—		—			(9,487		)	—			(9,487		)
Other comprehensive loss	—	—		—			—			(172		)	(172		)
Stock-based compensation costs related to stock awards	—	—		(55		)	—			—			(55		)
Balance September 30, 2018	200	—		$	359,411		$	(101,428	)	$	(1,759	)	$	256,224

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~~Inc. (“Apollo”) and its subsidiaries, which we refer to as the “Merger.” The ~~senior notes~~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 September 29, 2019
(in thousands)

	Issuer			Guarantors		Non-Guarantors			Eliminations			Consolidated
Current assets:
Cash and cash equivalents	$	94,627		$	7,712	$	2,720		$	—		$	105,059
Restricted cash	—			—		212			—			212
Accounts receivable	13,098			6,644		4,620			(3,786		)	20,576
Inventories	20,420			6,862		297			—			27,579
Prepaid expenses	6,754			6,776		744			—			14,274
Total current assets	134,899			27,994		8,593			(3,786		)	167,700
Property and equipment, net	456,798			63,281		5,028			—			525,107
Operating lease right-of-use assets, net	478,836			47,677		9,544			—			536,057
Goodwill	433,024			51,414		—			—			484,438
Intangible assets, net	8,152			461,066		—			—			469,218
Intercompany	41,679			96,942		—			(138,621		)	—
Investment in subsidiaries	497,945			—		—			(497,945		)	—
Other noncurrent assets	6,741			10,036		17			—			16,794
Total assets	$	2,058,074		$	758,410	$	23,182		$	(640,352	)	$	2,199,314
Current liabilities:
Bank indebtedness and other long-term debt, current portion	$	7,600		$	—	$	—		$	—		$	7,600
Operating lease liability, current portion	44,413			3,749		1,041			—			49,203
Accounts payable, accrued expenses and unearned revenues	66,180			46,049		5,720			—			117,949
Other current liabilities	4,530			—		18			—			4,548
Total current liabilities	122,723			49,798		6,779			—			179,300
Operating lease obligations, less current portion	458,412			55,100		8,868			—			522,380
Bank indebtedness and other long-term debt, net of deferred financing costs, less current portion	958,986			—		—			—			958,986
Deferred tax liability	86,918			17,577		(1,774		)	—			102,721
Intercompany	—			116,739		25,668			(142,407		)	—
Other noncurrent liabilities	191,138			4,868		24			—			196,030
Total liabilities	1,818,177			244,082		39,565			(142,407		)	1,959,417
Stockholder's equity:
Common stock	—			—		—			—			—
Capital in excess of par value	359,930			466,114		3,241			(469,355		)	359,930
Accumulated earnings (deficit)	(118,482		)	48,214		(18,073		)	(30,141		)	(118,482		)
Accumulated other comprehensive income (loss)	(1,551		)	—		(1,551		)	1,551			(1,551		)
Total stockholder's equity	239,897			514,328		(16,383		)	(497,945		)	239,897
Total liabilities and stockholder's equity	$	2,058,074		$	758,410	$	23,182		$	(640,352	)	$	2,199,314

																														CEC Entertainment, Inc.	Condensed Consolidating Balance Sheet
As of September 30, 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	$	80,543		$	2,278	$	1,608		$	—		$	84,429			$	54,775		$	6,725	$	1,670		$	—		$	63,170
Restricted cash	—			—		23			—			23				—			—		151			—			151
Accounts receivable	24,805			3,058		4,465			(3,681		)	28,647				28,421			4,956		4,117			(3,314		)	34,180
Inventories	16,854			4,937		278			—			22,069				16,896			6,617		294			—			23,807
Prepaid expenses	13,867			10,062		650			—			24,579				14,264			10,562		598			—			25,424
Total current assets	136,069			20,335		7,024			(3,681		)	159,747				114,356			28,860		6,830			(3,314		)	146,732
Property and equipment, net	467,580			68,992		6,324			—			542,896				468,827			64,721		5,637			—			539,185
Goodwill	433,024			51,414		—			—			484,438				433,024			51,414		—			—			484,438
Intangible assets, net	15,193			462,679		—			—			477,872				14,716			462,369		—			—			477,085
Intercompany	67,181			77,548		—			(144,729		)	—				78,402			66,373		—			(144,775		)	—
Investment in subsidiaries	482,913			—		—			(482,913		)	—				477,556			—		—			(477,556		)	—
Other noncurrent assets	7,641			13,429		34			—			21,104				7,292			11,409		24			—			18,725
Total assets	$	1,609,601		$	694,397	$	13,382		$	(631,323	)	$	1,686,057			$	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	50,629			40,261		3,724			—			94,614
Accounts payable, accrued expenses and unearned revenues																56,277			34,429		2,321			—			93,027
Other current liabilities	4,489			511		—			—			5,000				5,429			510		16			—			5,955
Total current liabilities	63,342			40,772		3,734			—			107,848				69,306			34,939		2,337			—			106,582
Capital lease obligations, less current portion	12,482			—		46						12,528
Bank indebtedness and other long-term debt, net of deferred financing costs, less current portion	962,402			—		—			—			962,402				961,514			—		—			—			961,514
Deferred tax liability	97,698			15,265		(2,042		)	—			110,921				91,049			17,866		(1,857		)	—			107,058
Intercompany	—			121,193		27,217			(148,410		)	—				—			119,498		28,591			(148,089		)	—
Other noncurrent liabilities	217,455			18,188		493			—			236,136				229,733			18,191		516			—			248,440
Total liabilities	1,353,379			195,418		29,448			(148,410		)	1,429,835				1,351,602			190,494		29,587			(148,089		)	1,423,594
Stockholder's equity:
Common stock	—			—		—			—			—				—			—		—			—			—
Capital in excess of par value	359,411			466,114		3,241			(469,355		)	359,411				359,570			466,114		3,241			(469,355		)	359,570
Retained earnings (deficit)	(101,430		)	32,865		(17,675		)	(15,190		)	(101,430		)
Accumulated earnings (deficit)																(115,660		)	28,538		(18,691		)	(9,847		)	(115,660		)
Accumulated other comprehensive income (loss)	(1,759		)	—		(1,632		)	1,632			(1,759		)		(1,339		)	—		(1,646		)	1,646			(1,339		)
Total stockholder's equity	256,222			498,979		(16,066		)	(482,913		)	256,222				242,571			494,652		(17,096		)	(477,556		)	242,571
Total liabilities and stockholder's equity	$	1,609,601		$	694,397	$	13,382		$	(631,323	)	$	1,686,057			$	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 September 29, 2019
(in thousands)


		Issuer			Guarantors		Non-Guarantors			Eliminations			Consolidated
Revenues:
Food and beverage sales		$	77,475		$	13,866	$	1,304		$	—		$	92,645
Entertainment and merchandise sales		106,258			10,651		2,779			—			119,688
Total company venue sales		183,733			24,517		4,083			—			212,333
Franchise fees and royalties		448			4,249		564			—			5,261
International Association assessments and other fees		258			8,485		8,763			(17,506		)	—
Total revenues		184,439			37,251		13,410			(17,506		)	217,594
Operating Costs and Expenses:
Company venue operating costs:
Cost of food and beverage		17,243			3,635		424			—			21,302
Cost of entertainment and merchandise		9,445			396		272			—			10,113
Total cost of food, beverage, entertainment and merchandise		26,688			4,031		696			—			31,415
Labor expenses		57,163			4,847		1,203			—			63,213
Lease costs		25,105			1,865		589			—			27,559
Other venue operating expenses		38,399			3,992		939			(8,744		)	34,586
Total company venue operating costs		147,355			14,735		3,427			(8,744		)	156,773
Advertising expense		8,649			1,190		9,726			(8,762		)	10,803
General and administrative expenses		4,240			8,561		250			—			13,051
Depreciation and Amortization	74,749	21,766			2,476		380			—			24,622
Transaction, severance and related litigation costs		371			—		—			—			371
Asset impairments		2,023			6,179		—			—			8,202
Total operating costs and expenses		184,404			33,141		13,783			(17,506		)	213,822
Operating income (loss)		35			4,110		(373		)	—			3,772
Equity in earnings in affiliates		658			—		—			(658		)	—
Interest expense		21,150			705		174			—			22,029
Loss on extinguishment of debt		2,910			—		—			—			2,910
Income (loss) before income taxes		(23,367		)	3,405		(547		)	(658		)	(21,167		)
Income tax expense (benefit)		(8,033		)	2,321		(121		)	—			(5,833		)
Net income (loss)		$	(15,334	)	$	1,084	$	(426	)	$	(658	)	$	(15,334	)

Components of other comprehensive income (loss), net of tax:
Foreign currency translation adjustments		73					(73		)	73			73
Comprehensive income (loss)		$	(15,261	)	$	1,084	$	(499	)	$	(585	)	$	(15,261	)



CEC Entertainment, Inc.
Consolidating Statement of Comprehensive Income (Loss)
For the Three Months Ended September 30, 2018
(in thousands)


	Issuer			Guarantors			Non-Guarantors			Eliminations			Consolidated
Revenues:
Food and beverage sales	$	79,871		$	12,854		$	1,298		$	—		$	94,023
Entertainment and merchandise sales	108,461			10,380			2,770			—			121,611
Total company venue sales	188,332			23,234			4,068			—			215,634
Franchise fees and royalties	441			4,302			568			—			5,311
International Association assessments and other fees	221			9,588			8,862			(18,671		)	—
Total revenues	188,994			37,124			13,498			(18,671		)	220,945
Operating Costs and Expenses:
Company venue operating costs:
Cost of food and beverage	18,700			3,348			472			—			22,520
Cost of entertainment and merchandise	9,306			391			177			—			9,874
Total cost of food, beverage, entertainment and merchandise	28,006			3,739			649			—			32,394
Labor expenses	58,818			4,976			1,234			—			65,028
Lease costs	21,719			1,630			502			—			23,851
Other venue operating expenses	43,711			3,500			830			(9,809		)	38,232
Total company venue operating costs	152,254			13,845			3,215			(9,809		)	159,505
Advertising expense	8,984			1,150			9,786			(8,862		)	11,058
General and administrative expenses	5,017			8,499			(323		)	—			13,193
Depreciation and amortization	21,429			2,807			503			—			24,739
Transaction, severance and related litigation costs	(262		)	(1		)	—			—			(263		)
Asset impairments	2,505			2,836			3			—			5,344
Total operating costs and expenses	189,927			29,136			13,184			(18,671		)	213,576
Operating income (loss)	(933		)	7,988			314			—			7,369
Equity in earnings in affiliates	5,444			—			—			(5,444		)	—
Interest expense	18,205			692			172			—			19,069
Income (loss) before income taxes	(13,694		)	7,296			142			(5,444		)	(11,700		)
Income tax expense (benefit)	(4,207		)	2,113			(119		)	—			(2,213		)
Net income (loss)	$	(9,487	)	$	5,183		$	261		$	(5,444	)	$	(9,487	)

Components of other comprehensive income (loss), net of tax:
Foreign currency translation adjustments	(172		)	—			(172		)	172			(172		)
Comprehensive income (loss)	$	(9,659	)	$	5,183		$	89		$	(5,272	)	$	(9,659	)

~~Table of Contents~~

~~CEC ENTERTAINMENT, INC.~~

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

~~(Unaudited)~~



CEC Entertainment, Inc.
Consolidating Statement of Comprehensive Income (Loss)
For the Nine Months Ended September 29, 2019
(in thousands)

	Issuer			Guarantors		Non-Guarantors			Eliminations			Consolidated
Revenues:
Food and beverage sales	$	256,765		$	41,416	$	3,930		$	—		$	302,111
Entertainment and merchandise sales	344,417			34,566		7,795			—			386,778
Total company venue sales	601,182			75,982		11,725			—			688,889
Franchise fees and royalties	1,784			13,235		2,175			—			17,194
International Association assessments and other fees	836			30,710		28,692			(60,238		)	—
Total revenues	603,802			119,927		42,592			(60,238		)	706,083
Operating Costs and Expenses:
Company venue operating costs (excluding Depreciation and amortization):
Cost of food and beverage	57,048			10,870		1,321			—			69,239
Cost of entertainment and merchandise	29,315			1,266		730			—			31,311
Total cost of food, beverage, entertainment and merchandise	86,363			12,136		2,051			—			100,550
Labor expenses	181,397			14,591		3,705			—			199,693
Lease costs	74,749			5,587		1,766			—			82,102
Other venue operating expenses	119,942			11,617		2,549			(31,572		)	102,536
Total company venue operating costs	462,451			43,931		10,071			(31,572		)	484,881
Advertising expense	28,562			4,165		29,972			(28,666		)	34,033
General and administrative expenses	13,895			29,297		(248		)	—			42,944
Depreciation and amortization	64,461			7,414		1,199			—			73,074
Transaction, severance and related litigation costs	402			—		—			—			402
Asset Impairments	3,134			6,353		—			—			9,487
Total operating costs and expenses	572,905			91,160		40,994			(60,238		)	644,821
Operating income	30,897			28,767		1,598			—			61,262
Equity in earnings in affiliates	20,677			—		—			(20,677		)	—
Interest expense	59,093			2,210		513			—			61,816
Loss on debt extinguishment	2,910			—		—			—			2,910
Income before income taxes	(10,429		)	26,557		1,085			(20,677		)	(3,464		)
Income tax expense	(7,607		)	6,880		85			—			(642		)
Net income	$	(2,822	)	$	19,677	$	1,000		$	(20,677	)	$	(2,822	)

Components of other comprehensive income (loss), net of tax:
Foreign currency translation adjustments	(212		)	—		(212		)	212			(212		)
Comprehensive income (loss)	$	(3,034	)	$	19,677	$	788		$	(20,465	)	$	(3,034	)

CEC Entertainment, Inc.
Consolidating Statement of Comprehensive Income (Loss)
For the Three Months Ended September 30, 2018
(in thousands)

Issuer Guarantors Non-Guarantors Eliminations Consolidated
Revenues:
Food and beverage sales $ 79,871
$ 12,854
$ 1,298
$ —
$ 94,023
Entertainment and merchandise sales 108,461
10,380
2,770
—
121,611
Total company venue sales 188,332
23,234
4,068
—
215,634
Franchise fees and royalties 441
4,302
568
—
5,311
International Association assessments and other fees 221
9,588
8,862
(18,671 ) —
Total revenues 188,994
37,124
13,498
(18,671 ) 220,945
Operating Costs and Expenses:
Company venue operating costs:
Cost of food and beverage 18,700
3,348
472
—
22,520
Cost of entertainment and merchandise 9,306
391
177
—
9,874
Total cost of food, beverage, entertainment and merchandise 28,006
3,739
649
—
32,394
Labor expenses 58,818
4,976
1,234
—
65,028
Rent expense 21,719
1,630
502
—
23,851
Other venue operating expenses 43,711
3,500
830
(9,809 ) 38,232
Total company venue operating costs 152,254
13,845
3,215
(9,809 ) 159,505
Advertising expense 8,984
1,150
9,786
(8,862 ) 11,058
General and administrative expenses 5,017
8,499
(323 ) —
13,193
Depreciation and amortization 21,429
2,807
503
—
24,739
Transaction, severance and related litigation costs (262 ) (1 ) —
—
(263 )
Asset impairments 2,505
2,836
3
—
5,344
Total operating costs and expenses 189,927
29,136
13,184
(18,671 ) 213,576
Operating income (loss) (933 ) 7,988
314
—
7,369
Equity in earnings (loss) in affiliates 5,444
—
—
(5,444 ) —
Interest expense 18,205
692
172
—
19,069
Income (loss) before income taxes (13,694 ) 7,296
142
(5,444 ) (11,700 )
Income tax expense (benefit) (4,207 ) 2,113
(119 ) —
(2,213 )
Net income (loss) $ (9,487 ) $ 5,183
$ 261
$ (5,444 ) $ (9,487 )

Components of other comprehensive income (loss), net of tax:
Foreign currency translation adjustments (172 ) —
(172 ) 172
(172 )
Comprehensive income (loss) $ (9,659 ) $ 5,183
$ 89
$ (5,272 ) $ (9,659 )

~~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 October 1, 2017
(in thousands)

Issuer Guarantors Non-Guarantors Eliminations Consolidated
Revenues:
Food and beverage sales $ 83,413
$ 13,234
$ 1,608
$ —
$ 98,255
Entertainment and merchandise sales 88,551
19,174
2,908
—
110,633
Total company venue sales 171,964
32,408
4,516
—
208,888
Franchise fees and royalties 506
3,953
—
—
4,459
International Association assessments and other fees 364
7,702
8,294
(16,360 ) —
Total revenues 172,834
44,063
12,810
(16,360 ) 213,347
Operating Costs and Expenses:
Company venue operating costs:
Cost of food and beverage 19,916
3,519
539
—
23,974
Cost of entertainment and merchandise 6,807
432
191
—
7,430
Total cost of food, beverage, entertainment and merchandise 26,723
3,951
730
—
31,404
Labor expenses 55,252
4,729
1,239
—
61,220
Rent expense 22,066
1,624
569
—
24,259
Other venue operating expenses 43,731
3,817
1,079
(8,066 ) 40,561
Total company venue operating costs 147,772
14,121
3,617
(8,066 ) 157,444
Advertising expense 8,670
1,085
10,622
(8,294 ) 12,083
General and administrative expenses 4,526
9,003
46
—
13,575
Depreciation and amortization 24,126
2,515
495
—
27,136
Transaction, severance and related litigation costs 128
—
—
—
128
Asset impairments 1,824
14
5
—
1,843
Total operating costs and expenses 187,046
26,738
14,785
(16,360 ) 212,209
Operating income (loss) (14,212 ) 17,325
(1,975 ) —
1,138
Equity in earnings (loss) in affiliates (10,551 ) —
—
10,551
—
Interest expense 15,902
1,353
196
—
17,451
Income (loss) before income taxes (40,665 ) 15,972
(2,171 ) 10,551
(16,313 )
Income tax expense (benefit) (29,573 ) 25,067
(715 ) —
(5,221 )
Net income (loss) $ (11,092 ) $ (9,095 ) $ (1,456 ) $ 10,551
$ (11,092 )

Components of other comprehensive income (loss), net of tax:
Foreign currency translation adjustments 648
—
648
(648 ) 648
Comprehensive income (loss) $ (10,444 ) $ (9,095 ) $ (808 ) $ 9,903
$ (10,444 )

~~Table of Contents~~

~~CEC ENTERTAINMENT, INC.~~

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

~~(Unaudited)~~

CEC Entertainment, Inc.
Consolidating Statement of Comprehensive Income (Loss)
For the Nine Months Ended September 30, 2018
(in thousands)

Issuer Guarantors Non-Guarantors Eliminations Consolidated
Revenues:
Food and beverage sales $ 264,130
$ 40,250
$ 4,278
$ —
$ 308,658
Entertainment and merchandise sales 324,231
36,255
8,147
—
368,633
Total company venue sales 588,361
76,505
12,425
—
677,291
Franchise fees and royalties 1,441
12,661
1,815
—
15,917
International Association assessments and other fees 794
28,339
27,951
(57,084 ) —
Total revenues 590,596
117,505
42,191
(57,084 ) 693,208
Operating Costs and Expenses:
Company venue operating costs:
Cost of food and beverage 60,432
10,845
1,497
—
72,774
Cost of entertainment and merchandise 25,972
1,238
466
—
27,676
Total cost of food, beverage, entertainment and merchandise 86,404
12,083
1,963
—
100,450
Labor expenses 176,106
15,065
3,823
—
194,994
Rent expense 65,417
5,638
1,560
—
72,615
Other venue operating expenses 129,006
10,882
2,634
(29,159 ) 113,363
Total company venue operating costs 456,933
43,668
9,980
(29,159 ) 481,422
Advertising expense 28,742
4,511
32,682
(27,925 ) 38,010
General and administrative expenses 13,539
25,336
644
—
39,519
Depreciation and amortization 67,073
8,253
1,478
—
76,804
Transaction, severance and related litigation costs 197
266
—
—
463
Asset Impairments 2,591
4,341
3
—
6,935
Total operating costs and expenses 569,075
86,375
44,787
(57,084 ) 643,153
Operating income (loss) 21,521
31,130
(2,596 ) —
50,055
Equity in earnings (loss) in affiliates 19,869
—
—
(19,869 ) —
Interest expense 53,833
2,446
461
—
56,740
Income (loss) before income taxes (12,443 ) 28,684
(3,057 ) (19,869 ) (6,685 )
Income tax expense (benefit) (6,212 ) 6,526
(768 ) —
(454 )
Net income (loss) $ (6,231 ) $ 22,158
$ (2,289 ) $ (19,869 ) $ (6,231 )

Components of other comprehensive income (loss), net of tax:
Foreign currency translation adjustments 127
—
127
(127 ) 127
Comprehensive income (loss) $ (6,104 ) $ 22,158
$ (2,162 ) $ (19,996 ) $ (6,104 )

~~Table of Contents~~

~~CEC ENTERTAINMENT, INC.~~

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

~~(Unaudited)~~

																													CEC Entertainment, Inc.	Consolidating Statement of Comprehensive Income (Loss)
For the Nine Months Ended October 1, 2017
For the Nine Months Ended September 30, 2018														For the Nine Months Ended September 30, 2018
(in thousands)

	Issuer			Guarantors		Non-Guarantors			Eliminations			Consolidated			Issuer			Guarantors		Non-Guarantors			Eliminations			Consolidated
Revenues:
Food and beverage sales	$	274,411		$	40,959	$	4,715		$	—		$	320,085		$	264,130		$	40,250	$	4,278		$	—		$	308,658
Entertainment and merchandise sales	296,197			52,097		7,980			—			356,274			324,231			36,255		8,147			—			368,633
Total company venue sales	570,608			93,056		12,695			—			676,359			588,361			76,505		12,425			—			677,291
Franchise fees and royalties	1,411			12,320		—			—			13,731			1,441			12,661		1,815			—			15,917
International Association assessments and other fees	1,054			28,791		26,900			(56,745		)	—			794			28,339		27,951			(57,084		)	—
Total revenues	573,073			134,167		39,595			(56,745		)	690,090			590,596			117,505		42,191			(57,084		)	693,208
Operating Costs and Expenses:
Company venue operating costs:
Company venue operating costs (excluding Depreciation and amortization):
Cost of food and beverage	62,847			10,671		1,496			—			75,014			60,432			10,845		1,497			—			72,774
Cost of entertainment and merchandise	21,037			1,236		498			—			22,771			25,972			1,238		466			—			27,676
Total cost of food, beverage, entertainment and merchandise	83,884			11,907		1,994			—			97,785			86,404			12,083		1,963			—			100,450
Labor expenses	170,089			14,108		3,761			—			187,958			176,106			15,065		3,823			—			194,994
Rent expense	65,168			4,678		1,638			—			71,484
Lease costs															65,417			5,638		1,560			—			72,615
Other venue operating expenses	129,415			10,360		3,373			(29,871		)	113,277			129,006			10,882		2,634			(29,159		)	113,363
Total company venue operating costs	448,556			41,053		10,766			(29,871		)	470,504			456,933			43,668		9,980			(29,159		)	481,422
Advertising expense	27,921			4,345		32,310			(26,874		)	37,702			28,742			4,511		32,682			(27,925		)	38,010
General and administrative expenses	14,663			27,806		196			—			42,665			13,539			25,336		644			—			39,519
Depreciation and amortization	74,171			7,334		1,559			—			83,064			67,073			8,253		1,478			—			76,804
Transaction, severance and related litigation costs	698			—		—			—			698			197			266		—			—			463
Asset impairment	1,824			14		5			—			1,843			2,591			4,341		3			—			6,935
Total operating costs and expenses	567,833			80,552		44,836			(56,745		)	636,476			569,075			86,375		44,787			(57,084		)	643,153
Operating income (loss)	5,240			53,615		(5,241		)	—			53,614			21,521			31,130		(2,596		)	—			50,055
Equity in earnings (loss) in affiliates	28,096			—		—			(28,096		)	—
Equity in earnings in affiliates															19,869			—		—			(19,869		)	—
Interest expense	47,730			3,345		499			—			51,574			53,833			2,446		461			—			56,740
Income (loss) before income taxes	(14,394		)	50,270		(5,740		)	(28,096		)	2,040			(12,443		)	28,684		(3,057		)	(19,869		)	(6,685		)
Income tax expense (benefit)	(14,594		)	18,263		(1,829		)	—			1,840
Income tax expense															(6,212		)	6,526		(768		)	—			(454		)
Net income (loss)	$	200		$	32,007	$	(3,911	)	$	(28,096	)	$	200		$	(6,231	)	$	22,158	$	(2,289	)	$	(19,869	)	$	(6,231	)

Components of other comprehensive income (loss), net of tax:
Foreign currency translation adjustments	1,187			—		1,187			(1,187		)	1,187			127			—		127			(127		)	127
Comprehensive income (loss)	$	1,387		$	32,007	$	(2,724	)	$	(29,283	)	$	1,387		$	(6,104	)	$	22,158	$	(2,162	)	$	(19,996	)	$	(6,104	)



CEC Entertainment, Inc.
Consolidating Statement of Cash Flows
For the Nine Months Ended September 29, 2019
(in thousands)

	Issuer			Guarantors			Non-Guarantors			Consolidated
Cash flows provided by operating activities:	$	104,719		$	9,292		$	1,633		$	115,644

Cash flows from investing activities:
Purchases of property and equipment	(52,180		)	(7,701		)	(507		)	(60,388		)
Development of internal use software	(183		)	(604		)	—			(787		)
Proceeds from sale of property and equipment	160			—			—			160
Cash flows used in investing activities	(52,203		)	(8,305		)	(507		)	(61,015		)

Cash flows from financing activities:
Net proceeds from senior term loan, net of original issue discount	479,449			—			—			479,449
Repayments on senior term loan	(473,749		)	—			—			(473,749		)
Payment of debt financing costs	(15,375		)	—			—			(15,375		)
Payments on financing lease obligations	(520		)	—			(10		)	(530		)
Payments on sale leaseback transactions	(2,469		)	—			—			(2,469		)
Cash flows used in financing activities	(12,664		)	—			(10		)	(12,674		)
Effect of foreign exchange rate changes on cash	—			—			(5		)	(5		)
Change in cash, cash equivalents and restricted cash	39,852			987			1,111			41,950
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	$	94,627		$	7,712		$	2,932		$	105,271

~~Table of Contents~~

~~CEC ENTERTAINMENT, INC.~~

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

~~(Unaudited)~~

CEC Entertainment, Inc.
Consolidating Statement of Cash Flows
For the Nine Months Ended September 30, 2018
(in thousands)

Issuer Guarantors Non-Guarantors Eliminations Consolidated
Cash flows provided by operating activities: $ 68,801
$ 17,888
$ (4,214 ) $ —
$ 82,475

Cash flows from investing activities:
  Purchases of property and equipment (38,536 ) (15,512 ) (1,154 ) —
(55,202 )
  Development of internal use software (1,484 ) (508 ) —
—
(1,992 )
  Proceeds from sale of property and equipment 464
—
—
—
464
Cash flows provided by (used in) investing activities (39,556 ) (16,020 ) (1,154 ) —
(56,730 )

Cash flows from financing activities:
  Net proceeds from senior term loan, net of original issue discount

—
  Repayments on senior term loan (5,700 ) —
—
—
(5,700 )
  Payment of debt financing costs (395 ) —
—
—
(395 )
  Payments on capital lease obligations (436 ) —
(6 ) —
(442 )
  Payments on sale leaseback transactions (2,119 ) —
—
—
(2,119 )
Cash flows provided by (used in) financing activities (8,650 ) —
(6 ) —
(8,656 )
Effect of foreign exchange rate changes on cash —
—
51
—
51
Change in cash, cash equivalents and restricted cash 20,595
1,868
(5,323 ) —
17,140
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 $ 80,543
$ 2,278
$ 1,631
$ —
$ 84,452

~~Table of Contents~~

~~CEC ENTERTAINMENT, INC.~~

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

~~(Unaudited)~~

																																			CEC Entertainment, Inc.	Consolidating Statement of Cash Flows
For the Nine Months Ended October 1, 2017
For the Nine Months Ended September 30, 2018																			For the Nine Months Ended September 30, 2018
(in thousands)

	Issuer				Guarantors				Non-Guarantors				Eliminations			Consolidated				Issuer				Guarantors				Non-Guarantors				Consolidated
Cash flows provided by (used in) operating activities:	$	68,568			$	24,632			$	991			$	—		$	94,191			$	68,801			$	17,888			$	(4,214	)		$	82,475

Cash flows from investing activities:
Purchases of property and equipment	(49,735		)		(21,407		)		(768		)		—			(71,910		)		(38,536		)		(15,512		)		(1,154		)		(55,202		)
Development of internal use software	—				(2,520		)		—				—			(2,520		)		(1,484		)		(508		)		—				(1,992		)
Proceeds from the sale of property and equipment	424				—				—				—			424				464								—				464
Cash flows provided by (used in) investing activities	(49,311		)	—	(23,927		)	—	(768		)	—	—		—	(74,006		)
Cash flows used in investing activities																				(39,556		)	—	(16,020		)	—	(1,154		)	—	(56,730		)

Cash flows from financing activities:
Repayments on senior term loan	(5,700		)		—				—				—			(5,700		)		(5,700		)		—				—				(5,700		)
Repayments on note payable	—				(13		)		—				—			(13		)
Proceeds from sale leaseback transaction	4,073				—				—				—			4,073
Payment of debt financing costs																				(395		)		—				—				(395		)
Payments on capital lease obligations	(335		)		—				(5		)		—			(340		)		(436		)		—				(6		)		(442		)
Payments on sale leaseback transactions	(1,789		)		—				—				—			(1,789		)		(2,119		)		—				—				(2,119		)
Return of capital	1,447				—				—				—			1,447
Cash flows provided by (used in) financing activities	(2,304		)	—	(13		)	—	(5		)	—	—		—	(2,322		)
Cash flows used in financing activities																				(8,650		)	—	—			—	(6		)	—	(8,656		)
Effect of foreign exchange rate changes on cash	—				—				492				—			492				—				—				51				51
Change in cash, cash equivalents and restricted cash	16,953			—	692			—	710			—	—		—	18,355				20,595			—	1,868			—	(5,323		)	—	17,140
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	$	70,041			$	1,850			$	7,755			$	—		$	79,646			$	80,543			$	2,278			$	1,631			$	84,452

~~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~~In addition, CEC Entertainment engages Apollo portfolio companies to provide various services, including security services to its venues, licensed music video content for use in its venues, and employment screening services to its recruiting functions. Included in our Total operating costs and expenses ~~totaled $0.1~~are related expenses totaling $1.1 million and ~~less than $0.1~~$0.4 million for the three months ended September 29, 2019 and September 30, 2018, ~~and October 1, 2017,~~ respectively, and ~~$0.2~~$1.8 million and ~~$0.4~~$1.2 million, respectively, for the nine months ended September 29, 2019 and September 30, 2018.

In connection with the 2019 Secured Credit Facilities, an affiliate of Apollo received an arrangement fee of $1.1 million related to the 2019 Term Loan Facility (see Note 7 “Indebtedness and Interest Expense” for further discussion of the 2019 Secured Credit Facilities).

Included in our Accounts Receivable balance are amounts due from Parent totaling $3.0 million and $2.6 million at September 29, 2019 and December 30, 2018, ~~and October 1, 2017, respectively. These expenses are included in “General~~respectively, primarily related to various general and administrative ~~expenses” in our Consolidated Statements~~and transaction related expenses paid on behalf of ~~Earnings.~~

~~We utilize an Apollo portfolio company~~Parent. Our Accrued Expenses balance includes amounts payable to ~~provide security services~~Parent totaling $0.3 million and $0.1 million at September 29, 2019 and December 30, 2018, respectively, primarily related to stock bonus awards granted to certain officers of ~~our venues. These expenses totaled approximately $0.2 million~~the Company (see Note 11 “Stock-Based Compensation Arrangements” for both the three months ended September 30, 2018 and October 1, 2017, and $0.7 million for both the nine months ended September 30, 2018 and October 1, 2017, in connection with services provided by this Apollo portfolio company. These expenses are included in “Other venue operating expenses” in our Consolidated Statementsfurther discussion of ~~Earnings.~~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 on October 2, 2018, the Court entered an order granting final approval of the settlement. CEC Entertainment has fully complied with its payment and other obligations under the settlement. The settlement of this lawsuit has not had 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, and on October 18, 2018, the Court entered an order granting final approval of the settlement. CEC Entertainment has fully complied with its payment and other obligations under the settlement. The settlement of this lawsuit has not had 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~~Inc. 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 October 8, 2018, the Plaintiff in the Consolidated Shareholder Litigation ~~filed~~appealed the District Court’s decision to dismiss the lawsuit in its entirety, but after conducting oral arguments, on September 27, 2019 the Kansas Court of Appeals affirmed the trial court’s dismissal of the case, and Plaintiff did not file a notice of appeal from this last decision before the expiration of the ~~District Court’s decision. While~~deadline to do so.

Note 16. Subsequent Events:

The Company has evaluated subsequent events through November 11, 2019, and determined that there have been no ~~assurance can be given as~~events that have occurred that would require adjustments to ~~the ultimate outcome of~~our disclosures in 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.~~

~~Peter Piper, Inc. Litigation:~~ On September 8, 2016, Diane Jacobson filed a purported class action lawsuit against Peter Piper, Inc. (“Peter Piper”) in the U.S. District Court for the District of Arizona, Tucson Division (the “Jacobson Litigation”). 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. The plaintiff did not appeal the District Court’s order, so it is now final and the case is concluded.statements.

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 nine-month periods ended September 29, 2019 and September 30, 2018 are for the 13-week and 39-week periods ended September 29, 2019 and September 30, 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 ~~557~~553 venues and have an additional ~~197~~185 venues operating under franchise arrangements across 47 states and 1415 foreign countries and territories as of September ~~30, 2018.~~29, 2019.

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


	Three Months Ended				Nine Months Ended				Three Months Ended				Nine Months Ended
	September 30, 2018		October 1, 2017		September 30, 2018		October 1, 2017		September 29, 2019		September 30, 2018		September 29, 2019		September 30, 2018
Number of Company-operated venues:
Beginning of period	559		564		562		559		554		559		554		562
New ⁽¹⁾	1		—		1		3
Acquired from franchisee	—		—		—		2
Closed ⁽¹⁾	(3	)	(2	)	(6	)	(2	)
New									1		1		1		1
Acquired from franchisee ⁽¹⁾									—		—		1		—
Closed									(2	)	(3	)	(3	)	(6	)
End of period	557		562		557		562		553		557		553		557
Number of franchised venues:
Beginning of period									195		196		196		192
New									4		1		7		7
Acquired from franchisee ⁽¹⁾									—		—		(1	)	—
Closed									(14	)	—		(17	)	(2	)
End of period									185		197		185		197
Total number of venues:
Beginning of period	196		193		192		188		749		755		750		754
New	1		—		7		7		5		2		8		8
Acquired from franchisee	—		—		—		(2	)	—		—		—		—
Closed	—		(2	)	(2	)	(2	)	(16	)	(3	)	(20	)	(8	)
End of period	197		191		197		191		738		754		738		754
Total number of venues:
Beginning of period	755		757		754		747
New ⁽¹⁾	2		—		8		10
Acquired from franchisee	—		—		—		—
Closed ⁽¹⁾	(3	)	(4	)	(8	)	(4	)
End of period	754		753		754		753

__________________


(1)	The number of new Company-operated venues and closed ~~Company-operated~~franchised venues during the ~~three and~~ nine months ended September ~~30, 2018~~29, 2019 included one store that was ~~relocated.~~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 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~~Senior Notes and/or our ~~secured credit facilities.~~2019 and 2014 Secured Credit Facilities (as defined under “Financial Condition, Liquidity and Capital Resources - Debt Financing”). 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 tickets issued, stored-value PlayPass and All You Can Play (“AYCP”) cards, 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~~and, effective the first day of Fiscal 2019, in connection with the adoption of a new lease accounting standards, lease costs ~~(e.g.,~~include 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, CAM charges (through the end of Fiscal 2018 as discussed under Lease costs above) 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
	September 30, 2018				October 1, 2017				September 29, 2019				September 30, 2018
	(in thousands, except percentages)								(in thousands, except percentages)
Food and beverage sales	$	94,023	43.6	%	$	98,255	47.0	%	$	92,645	43.6	%	$	94,023	43.6	%
Entertainment and merchandise sales	121,611		56.4	%	110,633		53.0	%	119,688		56.4	%	121,611		56.4	%
Total company venue sales	$	215,634	100.0	%	$	208,888	100.0	%	$	212,333	100.0	%	$	215,634	100.0	%



	Nine Months Ended
	September 29, 2019				September 30, 2018
	(in thousands, except percentages)
Food and beverage sales	$	302,111	43.9	%	$	308,658	45.6	%
Entertainment and merchandise sales	386,778		56.1	%	368,633		54.4	%
Total company venue sales	$	688,889	100.0	%	$	677,291	100.0	%

Nine Months Ended
September 30, 2018 October 1, 2017
(in thousands, except percentages)
Food and beverage sales $ 308,658
45.6 % $ 320,085
47.3 %
Entertainment and merchandise sales 368,633
54.4 % 356,274
52.7 %
Total company venue sales $ 677,291
100.0 % $ 676,359
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
September 30, 2018 October 1, 2017
(in thousands, except percentages)
Total company venue sales $ 215,634
97.6 % $ 208,888
97.9 %
Franchise fees and royalties 5,311
2.4 % 4,459
2.1 %
Total revenues 220,945
100.0 % 213,347
100.0 %
Company venue operating costs:
Cost of food and beverage ⁽¹⁾
22,520
24.0 % 23,974
24.4 %
Cost of entertainment and merchandise ⁽²⁾
9,874
8.1 % 7,430
6.7 %
Total cost of food, beverage, entertainment and merchandise ⁽³⁾
32,394
15.0 % 31,404
15.0 %
Labor expenses ⁽³⁾
65,028
30.2 % 61,220
29.3 %
Rent expense ⁽³⁾
23,851
11.1 % 24,259
11.6 %
Other venue operating expenses ⁽³⁾
38,232
17.7 % 40,561
19.4 %
Total company venue operating costs ⁽³⁾
159,505
74.0 % 157,444
75.4 %
Other costs and expenses:

Advertising expense 11,058
5.0 % 12,083
5.7 %
General and administrative expenses 13,193
6.0 % 13,575
6.4 %
Depreciation and amortization 24,739
11.2 % 27,136
12.7 %
Transaction, severance and related litigation costs (263 ) (0.1 )% 128
0.1 %
Asset impairments 5,344
2.4 % 1,843
0.9 %
Total operating costs and expenses 213,576
96.7 % 212,209
99.5 %
Operating income 7,369
3.3 % 1,138
0.5 %
Interest expense 19,069
8.6 % 17,451
8.2 %
Loss before income taxes $ (11,700 ) (5.3 )% $ (16,313 ) (7.6 )%

~~__________________~~


~~(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
	September 29, 2019					September 30, 2018
	(in thousands, except percentages ⁽⁴⁾)
Total company venue sales	$	212,333		97.6	%	$	215,634		97.6	%
Franchise fees and royalties	5,261			2.4	%	5,311			2.4	%
Total revenues	217,594			100.0	%	220,945			100.0	%
Operating Costs and Expenses:
Cost of food and beverage ⁽¹⁾	21,302			23.0	%	22,520			24.0	%
Cost of entertainment and merchandise ⁽²⁾	10,113			8.4	%	9,874			8.1	%
Total cost of food, beverage, entertainment and merchandise ⁽³⁾	31,415			14.8	%	32,394			15.0	%
Labor expenses ⁽³⁾	63,213			29.8	%	65,028			30.2	%
Lease costs ⁽³⁾	27,559			13.0	%	23,851			11.1	%
Other venue operating expenses ⁽³⁾	34,586			16.3	%	38,232			17.7	%
Total company venue operating costs and expenses ⁽³⁾	156,773			73.8	%	159,505			74.0	%
Other costs and expenses:
Advertising expense	10,803			5.0	%	11,058			5.0	%
General and administrative expenses	13,051			6.0	%	13,193			6.0	%
Depreciation and amortization	24,622			11.3	%	24,739			11.2	%
Transaction, severance and related litigation costs	371			0.2	%	(263		)	(0.1	)%
Asset impairments	8,202			3.8	%	5,344			2.4	%
Total operating costs and expenses	213,822			98.3	%	213,576			96.7	%
Operating income	3,772			1.7	%	7,369			3.3	%
Interest expense	22,029			10.1	%	19,069			8.6	%
Loss on extinguishment of debt	2,910			1.3	%	—			—	%
Loss before income taxes	$	(21,167	)	(9.7	)%	$	(11,700	)	(5.3	)%


	Nine Months Ended									Nine Months Ended
	September 30, 2018					October 1, 2017				September 29, 2019					September 30, 2018
	(in thousands, except percentages)									(in thousands, except percentages ⁽⁴⁾)
Total company venue sales	$	677,291		97.7	%	$	676,359	98.0	%	$	688,889		97.6	%	$	677,291		97.7	%
Franchise fees and royalties	15,917			2.3	%	13,731		2.0	%	17,194			2.4	%	15,917			2.3	%
Total revenues	693,208			100.0	%	690,090		100.0	%	706,083			100.0	%	693,208			100.0	%
Company venue operating costs:
Operating Costs and Expenses:
Cost of food and beverage ⁽¹⁾	72,774			23.6	%	75,014		23.4	%	69,239			22.9	%	72,774			23.6	%
Cost of entertainment and merchandise ⁽²⁾	27,676			7.5	%	22,771		6.4	%	31,311			8.1	%	27,676			7.5	%
Total cost of food, beverage, entertainment and merchandise ⁽³⁾	100,450			14.8	%	97,785		14.5	%	100,550			14.6	%	100,450			14.8	%
Labor expenses ⁽³⁾	194,994			28.8	%	187,958		27.8	%	199,693			29.0	%	194,994			28.8	%
Rent expense ⁽³⁾	72,615			10.7	%	71,484		10.6	%
Lease costs ⁽³⁾										82,102			11.9	%	72,615			10.7	%
Other venue operating expenses ⁽³⁾	113,363			16.7	%	113,277		16.7	%	102,536			14.9	%	113,363			16.7	%
Total company venue operating costs ⁽³⁾	481,422			71.1	%	470,504		69.6	%
Other costs and expenses:
Total company venue operating costs and expenses ⁽³⁾										484,881			70.4	%	481,422			71.1	%
Other costs and expenses:
Advertising expense	38,010			5.5	%	37,702		5.5	%	34,033			4.8	%	38,010			5.5	%
General and administrative expenses	39,519			5.7	%	42,665		6.2	%	42,944			6.1	%	39,519			5.7	%
Depreciation and amortization	76,804			—	%	83,064		—	%	73,074			10.3	%	76,804			11.1	%
Transaction, severance and related litigation costs	463			0.1	%	698		0.1	%	402			0.1	%	463			0.1	%
Asset impairments	6,935			1.0	%	1,843		0.3	%	9,487			1.3	%	6,935			1.0	%
Total operating costs and expenses	643,153			92.8	%	636,476		92.2	%	644,821			91.3	%	643,153			92.8	%
Operating income	50,055			7.2	%	53,614		7.8	%	61,262			8.7	%	50,055			7.2	%
Interest expense	56,740			8.2	%	51,574		7.5	%	61,816			8.8	%	56,740			8.2	%
Income before income taxes	$	(6,685	)	(1.0	)%	$	2,040	0.3	%
Loss on extinguishment of debt										$	2,910		0.4	%	$	—		—	%
Loss before income taxes										$	(3,464	)	(0.5	)%	$	(6,685	)	(1.0	)%

__________________


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


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


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

(4)

Three months ended September ~~30, 2018~~29, 2019 Compared to the Three months ended ~~October 1, 2017~~September 30, 2018

Revenues

Company venue sales were $212.3 million and $215.6 million for the third quarter of 2019 and the third quarter of 2018, ~~compared~~respectively. The decrease in company venue sales was primarily attributable to ~~$208.9~~a 0.9% decrease in comparable venue sales, and net revenue deferrals related to a net Play Pass revenue deferral of $0.7 million for the third quarter of ~~2017, primarily attributable~~2019 compared to ~~a 2.2% increase in comparable venue sales and a $5.3~~$1.7 million ~~increase~~ in net breakage ~~related to PlayPass compared to~~for the third quarter of ~~2017, offset by a $1.5 million decrease in revenue due to temporary store closures and a net reduction of four Company-operated venues.~~2018.

Franchise fees and royalties ~~increased from $4.5 million to~~were $5.3 million ~~primarily due to the impact of new revenue recognition guidance which was effective~~ for ~~us on January 1, 2018. Franchise fees and royalties for~~both the third quarter of ~~2018 increased $0.8 million related to the recognition of our national advertising fund contributions as revenue, rather than netted against advertising expense (see “Advertising Expense” below).~~2019 and 2018.

Company Venue Operating Costs

The cost of food, beverage, entertainment and merchandise, as a percentage of Total company venue sales, was 14.8% and 15.0% for ~~both~~ the third quarter of 2019 and 2018, ~~and the third quarter of 2017 as a sales shift towards higher margin Entertainment and merchandise sales from food and beverage sales was offset by cost pressures.~~respectively.

The cost of food and beverage, as a percentage of food and beverage sales, was 23.0% and 24.0% for the third quarter of 2019 and 2018, ~~compared to 24.4% for the third quarter of 2017.~~respectively. The decrease in the cost of food and beverage on a percentage basis in the

third quarter of ~~2018~~2019 was primarily driven by ~~lower commodity~~higher average selling prices and ~~a mix shift to higher margin items during the third quarter of 2018.~~favorability in commodity volume.

The cost of entertainment and merchandise, as a percentage of entertainment and merchandise sales, was 8.4% and 8.1% for the third quarter of 2019 and 2018, ~~compared to 6.7% for the third quarter of 2017.~~respectively. The increase in the cost of entertainment and merchandise on a percentage of sales basis in the third quarter of ~~2018 was impacted by a combination~~2019 reflects the impact of the ~~national launch of time based play~~AYCP and ~~“More Tickets”~~More Tickets initiatives we launched nationally in all of our Chuck E. Cheese Company-operated venues during the 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 85.6% and 85.3% for the third quarter of 2019 and 2018, respectively.

Labor expenses, as a percentage of sales, were 29.8% and 30.2% for the third quarter of 2019 and 2018, respectively, as the favorable impact of a decrease in labor hours exceeded wage pressures. Our sales per labor hour improved approximately 4.0% in the third quarter of ~~2018 compared to 29.3% in~~2019 from the third quarter of ~~2017. The increase in Labor expenses~~2018.

Lease costs, as a percentage of sales, inwere 13.0% and 11.1%, for the third quarter of 2019 and 2018, ~~reflects an increase~~respectively. Lease costs for the third quarter 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 11.4% for the third quarter of 2019, primarily reflecting a decrease in ~~our average hourly wage rate, driven by mandated minimum wage rate increases, partially offset by a reduction in hours.~~Company venue sales.

Other venue operating expenses, as a percentage of sales, ~~improved 170 basis points in~~were 16.3% and 17.7% for the third quarter of 2019 and 2018, ~~as we focused on improving productivity. The decrease in~~respectively. Other venue operating ~~costs~~expenses for the third 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, ~~was primarily driven by property and inventory losses incurred in~~including the impact of CAM charges, would have been 17.9% for the third quarter of ~~2017 in connection with Hurricanes Harvey and Irma, as well~~2019, increasing primarily as a ~~decrease~~result of an increase in insurance costs associated with general liability ~~claims and business interruption insurance proceeds received in the third quarter of 2018 related to one of our venues that was temporarily closed due to a fire.~~claims.

Advertising Expense

Advertising expense was $10.8 million and $11.1 million ~~in the third quarter of 2018 compared to $12.1 million in the third quarter of 2017. Advertising expense~~ for the third quarter 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~~planned 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 in the third quarter of 2018 would have been $10.3 million, compared to $12.1 million in the third quarter of 2017 (see “Revenues” above). Advertising expense for the third quarter of 2018 reflects a decrease in purchases of national televisiontargeted digital and ~~print media.~~social media platforms.

General and Administrative Expenses

General and administrative expenses were $13.1 million and $13.2 million infor the third quarter of 2019 and 2018, ~~compared to $13.6 million in the third quarter of 2017.~~respectively. The decrease in general and administrative expenses infor the third quarter of ~~2018~~2019 is primarily due to ~~savings initiatives implemented in the first quarter of 2018, partially offset by an increase in incentive compensation as~~ a ~~result of improved sales.~~

~~Depreciation and Amortization~~

~~Depreciation and amortization was $24.7 million in the third quarter of 2018 compared to $27.1 million in the third quarter of 2017. The~~ decrease in ~~depreciation and amortization is primarily due to the impact of certain property plant and equipment having reached the end of their depreciable lives throughout the past year.~~miscellaneous professional services fees.

Transaction, ~~Severance~~severance and ~~Related Litigation Costs~~related litigation costs

Transaction, severance and related litigation costs were $0.4 million and $(0.3) million infor the third quarter of 2019 and 2018, ~~compared to $0.1 million in the third quarter of 2017.~~respectively. The Transaction, severance and related litigation costs for the third quarter of 2019 relate to third-party costs incurred in connection with the refinancing of our Secured Credit Facilities. See further discussion of the refinancing of our senior secured facilities in “Financial Condition, Liquidity and Capital Resources - Debt Financing” of this report. The Transaction, severance and related litigation costs for the third quarter of 2018 reflect an insurance settlement received relating to legal fees incurred in prior years.

Asset Impairments

In the third quarter of 2019 we recognized an asset impairment charge of $8.2 million primarily related to ten venues, of which none were previously impaired. In the third quarter of 2018, we recognized an asset impairment charge of $5.3 million ~~primarily~~ related to eight venues, of which one was previously impaired. ~~In the third quarter of 2017 we recognized an asset impairment charge of $1.8 million primarily related to five venues, of which two were previously impaired.~~ We continue to operate all of the venues that were impaired in the third quarter of 2019 and all but ~~one~~two of ~~these venues.~~the venues that were impaired in the third quarter of 2018. The impairment charge was based on the determination that the financial performance of these venues was adversely impacted by various competitive and economic factors in the markets in which the venues are located.

Interest Expense

Interest expense was $22.0 millionand $19.1 million for the third quarter of 2019 and 2018, respectively. The increase in interest expense is related to an increase in the weighted average effective rate incurred on our borrowings under our 2019 and 2014 Secured Credit Facilities driven by the increase in LIBOR rates and a higher interest margin on our recently refinanced secured credit facilities. The weighted average effective interest rate incurred on our borrowings under our secured credit facilities was 7.3% and 5.9% for the third quarter of 2019 and 2018, respectively, which includes amortization of deferred financing costs related to our secured credit facilities, amortization of our 2019 and 2014 Term Loan Facility original issue discount and commitment and other fees related to our secured credit facilities. See further discussion of the refinancing of our senior secured facilities in “Financial Condition, Liquidity and Capital Resources - Debt Financing” of this report.

Loss on Extinguishment of Debt

In the third quarter of 2019 we recognized a Loss on Extinguishment of Debt of $2.9 million in connection with the refinancing of our 2014 Secured Credit Facilities. See further discussion of the refinancing of our senior secured facilities in “Financial Condition, Liquidity and Capital Resources - Debt Financing” of this report.

Income Taxes

Our effective income tax rate was 27.6% and 18.9% for the third quarter of 2019 and 2018, ~~as compared to 32.0% for the third quarter of 2017.~~respectively. Our effective income tax rate for 2018 was favorably impacted by the reduction in the U.S. 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, return-to-provision adjustments including those related to the true up of provisional estimates provided in 2017 to account for the impact of the TCJA pursuant to SAB118, and the impact of employment-related federal income tax credits offset by the unfavorable impact of nondeductible litigation costs related to the Merger, nondeductible penalties, a net increase in our liability for uncertain tax positions, and state and foreign taxes. Our effective income tax rates for the third quarter of ~~2017~~

~~differed~~2019 differs from the statutory rate primarily due to state income taxes and the unfavorable impact of nondeductible litigation costs related to the Merger (as defined in Note 13. “Consolidating Guarantor Financial Information”), 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), and certain nondeductible penalties and other expenses, partially offset by the favorable impact of ~~employment~~employment-related federal income tax credits.

Our effective income tax rate for the third quarter of 2018, differs from the statutory tax rate primarily due to state income taxes, nondeductible litigation costs related to the Merger, 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), non-deductible penalties and other expenses, and an increase in the reserve for uncertain tax positions, partially offset by the favorable impact of employment-related federal income tax credits.

Nine months ended September ~~30, 2018~~29, 2019 Compared to Nine months ended ~~October 1, 2017~~September 30, 2018

Revenues

Company venue sales were $688.9 million and $677.3 million for the first nine months of 2019 and 2018, ~~compared to $676.4 million for the first nine months of 2017.~~respectively. The increase in ~~Company~~company venue sales for the first nine months of ~~2018~~2019 was primarily attributable to ~~the recognition of $3.7 million in net breakage revenue related to PlayPass for the first nine months of 2018 compared to~~ a ~~net deferral of $7.9 million the first nine months of 2017, offset partially by a 1.0% decrease~~2.7% increase in comparable venue sales, partially offset by a ~~$3.3~~$2.0 million decrease in ~~revenue~~company venue sales due to temporary store closures and a net reduction of ~~three~~four Company-operated venues. In addition, net revenue deferrals related to PlayPass were $1.2 million for the first nine months of 2019 compared to $3.7 million in net revenue breakage for the first nine months of 2018, which further offset the increase in comparable venue sales.

Franchise fees and royalties increased from ~~$13.7~~$15.9 million to ~~$15.9~~$17.2 million primarily due to a net increase in average franchise locations during the ~~impact~~first nine months of new revenue recognition guidance which resulted in $2.6 million of national advertising fund contributions from franchisees being recorded as revenue, rather than netted against advertising expense in 2018 (see “Advertising Expense” below).2019.

Company Venue Operating Costs

The cost of food, beverage, entertainment and merchandise, as a percentage of Total company venue sales, was 14.6% and 14.8% ~~for first nine months of 2018 compared to 14.5%~~ for the first nine months of ~~2017~~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 initiatives launched by the ~~Company.~~Company in the third quarter of 2018.

The cost of food and beverage, as a percentage of food and beverage sales, was 22.9% and 23.6% for the first nine months of 2019 and 2018, ~~compared to 23.4% for the first nine months of 2017.~~respectively. The ~~increase~~decrease in the cost of food and beverage on a percentage basis in the first nine 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 8.1% and 7.5% for the first nine months of 2019 and 2018, ~~compared to 6.4% for the first nine months of 2017.~~respectively. The cost of entertainment and merchandise on a percentage basis infor the first nine months of ~~2018~~2019 compared to the first nine months of ~~2017~~2018 was impacted by a combination of the impact of ~~time based play~~AYCP and ~~“More Tickets”~~More Tickets, which were launched nationally during the third quarter of ~~2018,~~2018.

Gross profit, which represents Total revenues less total cost of food, beverage, entertainment and ~~by an increase in PlayPass related supplies~~merchandise, as a ~~result~~percentage of ~~PlayPass now being deployed to all~~Total revenues, was 85.8% and 85.5% for the first nine months of ~~our Company-owned venues, compared to 268 venues at the beginning of 2017.~~2019 and 2018, respectively.

Labor expenses, as a percentage of sales, were 29.0% and 28.8% for the first nine months of 2019 and 2018, ~~compared to 27.8%~~respectively, as wage pressures exceeded the favorable impact of a decrease in labor hours on higher sales. Our sales per labor hour improved approximately 5.2% in the first nine months of 2019 from the first nine months of 2018.

Lease costs, as a percentage of sales, were 11.9% and 10.7%, for the first nine months of ~~2017. Increased minimum wage rates in several states fully offset a decrease in labor hours in~~2019 and 2018, respectively. Lease costs for the first nine months of 2019 were impacted by the adoption of a new lease standard effective December 31, 2018, ~~compared~~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 10.4% for the first nine months of ~~2017.~~2019, reflecting an increase in Company venue sales.

Other venue operating costs, as a percentage of sales, were ~~16.7% in both the first nine months of 2018~~14.9% and 2017. An increase in common area and utility costs, and increased expenses related to the production of new menu boards and panels in the first nine months of 2018, offset decreases related to the impact of property and inventory losses in the third quarter of 2017 in connection with Hurricanes Harvey and Irma, as well as business interruption insurance proceeds received in the third quarter of 2018 related to one of our venues that was temporarily closed due to a fire.

~~Advertising Expense~~

~~Advertising expense was $38.0 million in the first nine months of 2018 compared to $37.7 million in the first nine months of 2017. Advertising expense~~16.7% for the first nine months of 2019 and 2018, ~~was~~respectively. Other venue operating expenses for the first nine months of 2019 were impacted by the adoption of a new ~~revenue recognition~~lease standard, ~~effective January 1, 2018 that requires us to account for our national advertising fund contributions~~ as ~~revenues, rather than netted against Advertising expense. Including~~discussed in the previous paragraph under Lease costs. Other venue operating expenses as a percentage of sales, including the impact of ~~netting national advertising fund revenues against Advertising expense, Advertising expense~~CAM charges, would have been 16.4% for the first nine months of ~~2018 would have been $35.5~~2019, reflecting savings initiatives and efficiencies in general operating costs. The favorable impact of these savings was partially offset by an increase in bank and credit card service fees, as the percentage of credit card sales increased in the first nine months of 2019 from the first nine months of 2018.

Advertising Expense

Advertising expense was $34.0 million ~~(see “Revenues” above). Advertising expense~~and $38.0 million for the first nine months of 2019 and 2018, ~~reflects~~respectively, due to a ~~decrease~~planned shift in ~~national~~our marketing strategy away from television to targeted digital and social media ~~costs and a decrease in advertising for our Peter Piper Pizza venues.~~platforms.

General and Administrative Expenses

General and administrative expenses were $42.9 million and $39.5 million for the first nine months of 2019 and 2018, ~~compared to $42.7 million for the first nine months of 2017.~~respectively. The ~~decrease~~increase in general and administrative expenses in the first nine months of ~~2018~~2019 is primarily due to an increase in performance-based compensation as a ~~decrease in labor related litigation costs, and savings initiatives implemented in the first quarter~~result of ~~2018.~~

improved operating results.

Depreciation and Amortization

Depreciation and amortization was $73.1 million and $76.8 million infor the first nine months of 2019 and 2018, ~~compared to $83.1 million in the first nine months of 2017.~~respectively. The decrease in depreciation and amortization is primarily due to the impact of ~~certain property plant~~six 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 $0.4 million and $0.5 million infor the first nine months of 2019 and 2018, ~~compared to $0.7 million in the first nine months of 2017.~~respectively. The Transaction, severance and related litigation costs for the first nine 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 nine months of 2018 relate ~~primarily~~ to $0.2 million in legal fees incurred in connection with Merger related litigation, and severance payments of $0.3 million. ~~The Transaction, severance and related litigation costs in~~

Asset Impairments

In the first nine months of ~~2017 relate~~2019 we recognized an asset impairment charge of $9.5 million primarily related to ~~legal fees incurred in connection with Merger related litigation.~~

~~Asset Impairments~~

12 venues, of which none were previously impaired. In thefirst nine months of 2018, we recognized an asset impairment charge of $6.9 million ~~primarily~~ related to ~~nine~~9 venues, of which one was previously impaired. InWe continue to operate all of the venues that were impaired in the first nine months of ~~2017 we recognized an asset impairment charge of $1.8 million primarily related to five venues, of which two were previously impaired. We continue to operate~~2019 and all but ~~two~~three of ~~these venues.~~the venues that were impaired in the first nine months of 2018. The impairment charge was based on the determination that the financial performance of these venues was adversely impacted by various competitive and economic factors in the markets in which the venues are located.

Interest Expense

Interest expense was $61.8 millionand $56.7 million for the first nine months of 2019 and 2018, respectively. The increase in interest expense is related to an increase in the weighted average effective rate incurred on our borrowings under both our 2019 and 2014 Secured Credit Facilities, driven by the increase in LIBOR rates and a higher interest margin on our recently refinanced secured credit facilities. The weighted average effective interest rate incurred on our borrowings under our secured credit facilities was 6.6% and 5.7% for the first nine months of 2019 and 2018, respectively, which includes amortization of deferred financing costs related to both our 2019 and 2014 Secured Credit Facilities, amortization of our 2019 and 2014 Term Loan Facility original issue discount and commitment and other fees related to our secured credit facilities. See further discussion of the refinancing of our senior secured facilities in “Financial Condition, Liquidity and Capital Resources - Debt Financing” of this report.

Loss on Extinguishment of Debt

In the first nine months of 2019 we recognized a Loss on Extinguishment of Debt of $2.9 million in connection with the refinancing of our 2014 Secured Credit Facilities. See further discussion of the refinancing of our senior secured facilities in “Financial Condition, Liquidity and Capital Resources - Debt Financing” of this report.

Income Taxes

Our effective income tax rate was 18.5% and 6.8% for the first nine months ~~ended September 30,~~of 2019 and 2018, ~~was 6.8% as compared to 90.2% for the nine months ended October 1, 2017.~~respectively. Our effective income tax rate for ~~2018 was favorably impacted~~the first nine months of 2019 differs from the statutory rate primarily due to state taxes net of the favorable impact of certain state tax legislation enacted during the second quarter of 2019 that decreased the amount of income subject to state taxation, nondeductible litigation costs related to the Merger (as defined in Note 13. “Consolidating Guarantor Financial Information”), 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), and certain nondeductible penalties and other expenses, partially offset by the ~~reduction in the U.S.~~favorable impact of employment-related federal ~~statutory corporate~~income tax credits.

Our effective income tax rate ~~from 35% to 21% resulting~~for the first nine months of 2018 differs from the ~~Tax Cuts and Jobs Act (TCJA) signed into law on December 22, 2017, return-to-provision adjustments~~statutory tax rate primarily due to state income taxes including ~~those~~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 ~~true up~~Merger, 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), certain non-deductible penalties and other expenses, an increase in the reserve for uncertain tax positions, an increase in a valuation allowance for deferred tax assets associated with a carryforward of certain state tax credits and deferred tax assets relating to our Canada operations that could expire before they are utilized, partially offset by the favorable impact of employment-related federal income tax credits, adjustments to the provisional ~~estimates~~estimate provided inat the end of Fiscal 2017 to account for the impact of the TCJA enacted on December 22, 2017 pursuant to ~~SAB118, the impact of employment-related federal income tax credits,~~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 offset by the negative impact of nondeductible litigation costs related to the Merger, nondeductible penalties, a net increase in our liability for uncertain tax positions, state income taxes including the negative impact of state tax legislation enacted during the second quarter that increased the amount of income subject to state taxation and foreign taxes. Our effective income tax rates for the nine months ended October 1, 2017 differed from the statutory rate primarily due to state income taxes and the favorable impact of employment related federal income tax credits.

subsidiary.

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:


	Nine Months Ended						Nine Months Ended
	September 30, 2018			October 1, 2017			September 29, 2019			September 30, 2018
	(in thousands)						(in thousands)
Net cash provided by operating activities	$	82,475		$	94,191		$	115,644		$	82,475
Net cash used in investing activities	(56,730		)	(74,006		)	(61,015		)	(56,730		)
Net cash provided by (used in) financing activities	(8,656		)	(2,322		)
Net cash used in financing activities							(12,674		)	(8,656		)
Effect of foreign exchange rate changes on cash	51			492			(5		)	51
Change in cash, cash equivalents and restricted cash	$	17,140		$	18,355		$	41,950		$	17,140
Interest paid	$	59,229		$	53,076		$	57,232		$	59,229
Income taxes paid (refunded), net	$	867		$	6,635		$	(7,944	)	$	867


	September 30, 2018		December 31, 2017		September 29, 2019		December 30, 2018
	($ in thousands)				($ in thousands)
Cash and cash equivalents	$	84,429	$	67,200	$	105,059	$	63,170
Restricted cash	23		112		212		151
Available unused commitments under Revolving Credit Facility					105,538		141,000
Total cash, cash equivalents, restricted cash and available unused commitments under Revolving Credit Facility					$	210,809	$	204,321
Term loan facility	725,800		731,500		760,000		723,900
Senior notes	255,000		255,000		255,000		255,000
Available unused commitments under revolving credit facility	141,000		140,100

Sources and Uses of Cash - Nine months ended September ~~30, 2018~~29, 2019 Compared to the Nine months ended ~~October 1, 2017~~September 30, 2018

Net cash provided by operating activities was $115.6 million and $82.5 million in the nine months ended September 29, 2019 and September 30, 2018, ~~compared to $94.2 million in the nine months ended October 1, 2017.~~respectively. The ~~decrease~~increase in net cash provided by operating activities is primarily due to ~~a decrease in net~~ income tax refunds and favorable fluctuations in our working capital.

Net cash used in investing activities was $61.0 million and $56.7 million in the nine months ended September 29, 2019 and September 30, 2018, ~~compared to $74.0 million in the nine months ended October 1, 2017.~~respectively. Net cash used in investing activities in the nine months ended September 29, 2019 and September 30, 2018 ~~and October 1, 2017~~ relates primarily to capital expenditures.

Net cash used in financing activities was $12.7 million and $8.7 million in the nine months ended September 29, 2019 and September 30, 2018, ~~relating~~respectively. The net cash used in financing activities for the nine months ended September 29, 2019 includes (i) $5.9 million in loan costs and third party legal and other professional fees paid, net of proceeds received, in connection with the refinancing of our secured credit facilities occurring in the third quarter of 2019, (ii) principal payments on our 2014 Secured Credit Facilities and (iii) other lease related obligations. See further discussion below under Debt Financing - Secured Credit Facilities. Net cash used in financing activities for the nine months ended September 30, 2018 relates primarily to principal payments on our term loan and other lease related obligations. Net cash provided by financing activities of $2.3 million in the nine months ended October 1, 2017 related primarily to sale leaseback proceeds of $4.1 million and a $1.4 million return of capital, partially offset by principal payments on our term loan2014 Secured Credit Facilities and other lease related obligations.

Debt Financing

Secured Credit Facilities


(i)	a $114 million secured revolving credit facility which includes a $50 million letter of credit sub-facility (collectively the “2019 Revolving Credit Facility”) with a maturity date of August 30, 2024 (the “revolver maturity date); and


(ii)	a $760 million secured term loan facility (the “2019 Term Loan Facility” and together with the 2019

Revolving Credit Facility, the “2019 Secured Credit Facilities”) with a maturity date of ~~February 14, 2021~~August 30, 2026 (the “term loan ~~facility”~~maturity date”) ~~and (ii) a $150.0~~.

In the event more than $50 million ~~senior secured revolving credit facility with an original~~of the Company’s 8.0% Senior Notes maturing February 15, 2022 remain outstanding on the date that is 91 days prior to the stated maturity date of ~~February 14, 2019, which includes a letter of credit sub-facility and a $30.0 million swingline loan sub-facility (the “revolving credit facility” and together with~~the notes, the term loan ~~facility,~~maturity date will spring to such earlier date, November 16, 2021.

The net proceeds from the ~~“secured credit facilities”). The~~2019 Secured Credit Facilities, plus cash on hand, were used to pay the outstanding principal, accrued interest and fees related to our secured credit facilities ~~require scheduled quarterly payments on the term loan facility equal to 0.25%~~dated as 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 September 30, 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~~2014, as ~~of September 30, 2018 and December 31, 2017, respectively.~~

~~On May 8, 2018 we entered into~~amended by an incremental assumption agreement, dated as of May 8, 2018 (the “2014 Secured Credit Facilities”), and debt issuance costs related to the 2019 Secured Credit Facilities. All obligations under the 2014 Secured Credit Facilities have been terminated.

The 2019 secured term loan was issued net of $30.4 million of original issue discount. We also incurred a total of $15.4 million in debt issuance costs ($13.4 million related to the issuance of the 2019 Term Loan Facility and $2.0 million related to the 2019 Revolving Credit Facility). The debt issuance costs are reflected in our consolidated financial statements as follows:

Loss on Extinguishment of Debt: We recorded a loss on extinguishment of debt totaling $2.9 million which includes $0.5 million of fees paid to lenders in connection with ~~certain~~the 2019 Term Loan Facility and wrote off $2.4 million of unamortized deferred financing costs and original issue discount related to the 2014 Secured Credit Facilities;

Transaction related costs: We expensed third party fees totaling $0.3 million related to legal fees incurred in connection with the 2019 Term Loan Facility. The transaction related costs are included in “Transaction, severance and related litigation costs” in our Consolidated Statement of Earnings;

Deferred Financing Costs: Debt issuance costs totaling $14.2 million related to the 2019 Secured Credit Facilities were capitalized and are included in “Bank indebtedness and other long-term debt, net of deferred financing costs” on our Consolidated Balance Sheets. We also continued to defer $2.1 million of unamortized deferred financing costs related to the 2014 Secured Credit Facilities.

The deferred financing costs related to the 2019 Term Loan Facility and original issue discount are amortized through the 2019 term loan maturity date, and the deferred financing costs related to the 2019 Revolving Credit Facility are being amortized through the 2019 revolver maturity date. The amortization of the deferred financing costs and original issue discount is included in “Interest expense” in our Consolidated Statements of Earnings.

The 2019 Secured Credit Facilities allow the Company to request one or more incremental term loan facilities and/or increase the commitments under our revolving credit facility ~~lenders~~in an aggregate amount of up to ~~extend~~ the ~~maturity on $95.0~~sum of (a) $50.0 million plus (b) such additional amount so long as, (i) in the case of ~~the revolving credit facility through November 16, 2020. In connection~~loans that rank equally and without preference with the ~~extension~~liens on the collateral securing the 2019 Secured Credit Facilities, our net first lien senior secured leverage ratio (the ratio of total consolidated debt secured by first-priority liens on the ~~maturity date, we agreed~~collateral net of unrestricted cash to the ~~following covenants for~~last twelve month’s EBITDA, as defined in the ~~benefit~~2019 Senior Credit Facilities agreement) would be no greater than 2.75 to 1.00 and (ii) in the case of loans that rank junior to the ~~revolving facility lenders: (a)~~liens on the collateral securing the 2019 Secured Credit Facilities, our total net secured leverage ratio (as defined in the 2019 Senior Credit Facilities agreement) would be no greater than 5.00 to 1.00, subject to certain conditions, and receipt of commitments by existing or additional lenders.

The 2019 Secured Credit Facilities include certain mandatory prepayment requirements:

~~with respect~~

Excess Cash Flow- Subject to ~~each fiscal year (commencing with the fiscal year ending December 30, 2018),~~certain exceptions, to the extent we have excess cash flow determined on an annual basis (as defined in the ~~secured credit facilities~~2019 Secured Credit Facilities agreement), we are required to make a mandatory prepayment of term loan principal ~~equal to at least 75% (subject to step-downs based on our net first lien senior secured leverage ratio) of the amount of excess cash flow that exceeds $10 million less~~(reduced by any optional prepayments of principal that may have occurred during the fiscal ~~year~~year) to the extent that 75% (the “required percentage” which is subject to step downs discussed below) times the excess cash flow exceeds $10.0 million. The required percentage steps down from 75% to 50% provided our Net Total Leverage Ratio (the ratio of total consolidated debt including lease related obligations net of unrestricted cash to the last twelve month’s EBITDA, as defined in the 2019 Senior Credit Facilities agreement) is less than or equal to 4.50 to 1.00 and ~~(b)~~greater than 4.25 to 1.00, steps down to 25% provided our Net Total Leverage Ratio is less than or equal to 4.25 to 1.00 and greater than 4.00 to 1.00, and steps down to 0% provided our Net Total Leverage Ratio is less than or equal to 4.00 to 1.00.

Sales and Disposition of Assets- Subject to certain exceptions, we ~~shall not incur additional first lien senior secured~~are required to make a mandatory prepayment of term loan principal of 100% of the net cash proceeds of all non-ordinary course asset sales,

other dispositions of property or certain casualty events, in each case subject to certain exceptions and provided that the Company may (i) reinvest within 12 months or (ii) commit to reinvest those proceeds and does reinvest such proceeds within 18 months in assets to be used in its business, or certain other permitted investments; and

The Company may voluntarily repay outstanding loans under the 2019 Secured Credit Facilities at any time, without prepayment premium or penalty except in connection with ~~certain acquisitions, mergers~~a repricing event as described below, subject to customary “breakage” costs with respect to LIBOR rate loans. Any refinancing through the issuance or ~~consolidations unless our net~~repricing amendment of any debt that results in a repricing event applicable to the 2019 Term Loan Facility resulting in a lower yield occurring at any time during the first ~~lien senior secured leverage ratio is not greater than 3.65~~twelve months following August 30, 2019 will be accompanied by a 1.00% prepayment premium or fee, as applicable.

The 2019 Term Loan Facility requires scheduled quarterly payments equal to ~~1.00 on a pro forma basis. The maturity date~~$1.9 million (0.25% of the ~~amount~~original principal amount) from December 2019 to June 2026, with the remaining balance due at maturity, August 30, 2026.

Borrowings under the ~~secured credit facilities~~2019 Secured Credit Facilities bear interest at a rate equal to, at ~~our~~the option ~~either~~ of the Company, either:

(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~~Credit Suisse AG, ~~New York Branch;~~Cayman Islands Branch, and (iii) the one-month adjusted LIBOR plus 1.00%~~; in~~.

•2019 Term Loan Facility:



Margin for Base Rate Loans		Margin for LIBOR Loans
5.50%		6.50%

•2019 Revolving Credit Facility:



Net Total Leverage Ratio	Margin for Base Rate Loans	Margin for LIBOR Loans
Greater than 4.80 to 1.00	5.50%	6.50%
Less than or equal to 4.80 to 1.00 but greater than 4.30 to 1.00	5.25%	6.25%
Less than or equal to 4.30 to 1.00	5.00%	6.00%

During the ~~term loan facility, and base rate borrowings and swingline borrowings under~~period from August 30, 2019 through September 29, 2019 the ~~revolving credit facility. The~~ applicable margin for LIBOR borrowings under the ~~term loan facility is subject to one step down~~2019 Secured Credit Facilities was 6.50%. During the period 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%December 31, 2018 through August 29, 2019 and ~~2.75% based on our net first lien senior secured leverage ratio. During~~ the nine months ended September 30, 2018, the applicable margin for LIBOR borrowings under ~~both~~ the ~~term loan facility and the revolving facility~~2014 Secured Credit Facilities was 3.25% ~~and during the nine months ended October 1, 2017 was 3.00% and 2.75%, respectively.~~

~~During the nine months ended September 30, 2018, the federal funds rate ranged from 1.34% to 2.18%, the prime rate ranged from 4.50% to 5.25% and the one-month LIBOR ranged from 1.55% to 2.26%~~.

In addition to paying interest on outstanding principal under both the ~~secured credit facilities, we are~~2019 and 2014 Secured Credit Facilities, the Company is required to pay a commitment fee to the lenders under the respective revolving credit ~~facility with~~facilities in respect ~~to the~~of any unutilized commitments thereunder. The ~~base~~ applicable commitment fee rate under the ~~revolving credit facility was 0.5% per annum and~~2019 Revolving Credit Facility is ~~subject to one step-down from 0.5% to 0.375% based on our net first lien senior secured leverage ratio.~~ determined as follows:



Net Total Leverage Ratio		Commitment Fee
Greater than 4.30 to 1.00		0.50%
Less than or equal to 4.30 to 1.00		0.375%

During the nine months ended September 29, 2019 and September 30, 2018 the commitment fee rate was ~~0.5% and for the nine months ended October 1, 2017 it was 0.375%~~0.50%. ~~We are~~

~~All~~During the nine months ended September 29, 2019, the federal funds rate ranged from 1.83% to 2.45%, the prime rate ranged from 5.00% to 5.50% and the one-month LIBOR ranged from 2.02% to 2.52%.

The weighted average effective interest rate incurred on our borrowings under both our ~~revolving credit facility~~2019 and 2014 Secured Credit Facilities was 6.6% and 5.7% for the nine months ended September 29, 2019 and September 30, 2018, 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 but excludes the Loss on extinguishment of debt.

Obligations under the both the 2019 and 2014 Secured Credit Facilities are unconditionally guaranteed by Parent on a limited-recourse basis and each of our existing and future direct and indirect material, wholly-owned domestic subsidiaries, subject to certain exceptions. The obligations are secured by a pledge of our capital stock and substantially all of our assets and those of each subsidiary guarantor, including capital stock of the ~~satisfaction~~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 2019 Secured Credit Facilities also contain customary ~~conditions, including~~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 ~~absence~~terms of certain debt or organizational agreements. For a ~~default~~period of 18 months months following August 30, 2019, we are prohibited from paying dividends to investment funds managed by Apollo or its affiliates.

Our 2019 Revolving Credit Facility includes a springing financial maintenance covenant that requires our net first lien senior secured leverage ratio not to exceed 5.25 to 1.00. The covenant will be tested quarterly if the 2019 Revolving Credit Facility is more than 30% drawn (excluding outstanding letters of credit) and will be a condition to drawings under the ~~accuracy of representations and warranties.~~Revolving Credit Facility that would result in more than 30% drawn thereunder.

Senior Unsecured ~~Notes~~Debt

Our senior unsecured ~~notes consist~~debt consists of $255.0 million aggregate principal amount borrowings of ~~8.000%~~8.0% Senior Notes due 2022 (the ~~“senior notes”~~“Senior Notes”) ~~and mature on February 15, 2022.~~. The ~~senior notes~~Senior Notes bear interest at a rate of ~~8.000%~~8.0% per year payable February 15th and August 15th of each year and mature on February 15, 2022. We may ~~redeem~~call some or all of the ~~senior notes~~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~~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 2019 Secured Credit Facilities.

The weighted average effective interest rate incurred on borrowings under our Senior Notes was 8.2% for both the nine months ended September 29, 2019 and September 30, 2018, which includes amortization of deferred financing costs and other fees related to our Senior Notes.

Capital Expenditures

We ~~intend to continue to~~ focus our ~~future~~ capital expenditures on reinvestment into our existing Company-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~~Company-

operated venues. During the ~~first~~ nine months ~~of 2018,~~ended September 29, 2019, we completed ~~194~~252 game enhancements and 1320 major ~~remodels.~~ remodels 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 nine months of ~~2018~~2019 totaled approximately ~~$57.2~~$61.2 million.

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


	Nine Months Ended				Nine Months Ended
	September 30, 2018		October 1, 2017		September 29, 2019		September 30, 2018
	(in thousands)				(in thousands)
Growth capital spend ⁽¹⁾	$	21,157	$	42,960	$	23,390	$	21,157
Maintenance capital spend ⁽²⁾	33,048		26,104		35,264		33,048
IT capital spend	2,989		5,363		2,521		2,989
Total Capital Spend	$	57,194	$	74,427	$	61,175	$	57,194

__________________


(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 ~~$80~~$105 million, inclusive of maintenance capital, growth capital and IT related capital.

Off-Balance Sheet Arrangements and Contractual Obligations

As of September ~~30, 2018,~~29, 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~~Secured Credit Facilities and the indenture governing our ~~senior notes~~Senior Notes (see discussion of our ~~senior notes~~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 excluding (i) the annualized full year effect of Company-operated and franchised venues that were opened and closed during the ~~year.~~year, (ii) the projected annualized run-rate expected to be achieved from major remodels under development, and (iii) the full-year effect of costs savings resulting from contract negotiations with suppliers, and investments in productivity enhancements or other operational initiatives. 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 (loss) 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						Nine Months Ended						Three Months Ended						Nine Months Ended
	September 30, 2018			October 1, 2017			September 30, 2018			October 1, 2017			September 29, 2019			September 30, 2018			September 29, 2019			September 30, 2018
	(in thousands, except percentages)												(in thousands, except percentages)
Total revenues	$	220,945		$	213,347		$	693,208		$	690,090		$	217,594		$	220,945		$	706,083		$	693,208
Net income (loss) as reported	$	(9,487	)	$	(11,092	)	$	(6,231	)	$	200
Net loss as reported													$	(15,334	)	$	(9,487	)	$	(2,822	)	$	(6,231	)
Interest expense	19,069			17,451			56,740			51,574			22,029			19,069			61,816			56,740
Income tax expense	(2,213		)	(5,221		)	(454		)	1,840
Income tax benefit													(5,833		)	(2,213		)	(642		)	(454		)
Depreciation and amortization	24,739			27,136			76,804			83,064			24,622			24,739			73,074			76,804
Asset Impairments	5,344			1,843			6,935			1,843
EBITDA													25,484			32,108			131,426			126,859
Asset impairments													8,202			5,344			9,487			6,935
Loss on asset disposals, net ⁽¹⁾	513			1,741			2,551			5,457			920			513			2,903			2,551
Unrealized loss on foreign exchange ⁽²⁾	(412		)	—			283			—
Unrealized (gain) loss on foreign exchange ⁽²⁾													168			(412		)	(469		)	283
Non-cash stock-based compensation ⁽³⁾	(58		)	184			169			520			(111		)	(58		)	2,000			169
Rent expense book to cash ⁽⁴⁾	945			1,192			5,133			4,028			783			945			2,481			5,133
Franchise revenue, net cash received ⁽⁵⁾	(30		)	—			712			(344		)	464			(30		)	1,634			712
Impact of purchase accounting ⁽⁶⁾	—			—			—			785			31			—			31			—
Venue pre-opening costs ⁽⁷⁾	81			155			105			643			170			81			386			105
One-time and unusual items ⁽⁸⁾	44			1,167			1,511			4,379			2,781			44			3,566			1,511
Adjusted EBITDA ⁽⁹⁾	$	38,535		$	34,556		$	144,258		$	153,989
Adjusted EBITDA													$	38,892		$	38,535		$	153,445		$	144,258
Adjusted EBITDA Margin	17.4		%	16.2		%	20.8		%	22.3		%	17.9		%	17.4		%	21.7		%	20.8		%

____________


(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~~landlord 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)

Represents non-recurring income and expenses primarily related to (i) legal fees, claims and settlements related to litigation in respect of the ~~merger in 2014 of CEC Entertainment, Inc. with and into an entity controlled by Apollo Global Management, LLC and its subsidiaries (referred to as the “Merger”);~~Merger; (ii) severance expense and executive termination benefits; (iii) legal claims and settlements related to employee class action lawsuits and settlements; (iv) one-time loss on extinguishment of debt related to the refinancing of our 2014 Secured Credit Facilities; (v) professional and legal fees incurred in connection with our 2019 Secured Credit Facilities; (vi) sales and use ~~tax refunds~~taxes relating to prior periods; ~~(v)~~(vii) 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; (vi)~~cost segregation); (viii) legal fees incurred in connection with certain potential transactions the Company did not pursue; (ix) 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; (x) one-time costs related to the early termination of a supplier contract in connection with the transition to a new supplier; (xi) one-time marketing expenses related to the grand openings of our re-imaged Chuck E. Cheese venues; and ~~(vii)~~(xii) 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)~~

~~With~~and the continued evolution of our games business from tokens to game play credits and now towards time-based play packages following the implementation of All You Can Play (“AYCP”) in the third quarter of 2018, the impact on our financial resultsre-imaging effort of the ~~fluctuation of the deferred revenue liability related to unused credits on Play Pass cards begins to lessen~~venues in ~~importance in understanding~~ our Adjusted EBITDA. Customers continue to see the value of time based play and game play credits continue to decline as a percentage of overall game play. As a result, the change in the deferred revenue liability relating to unused Play Pass cards has been removed from Adjusted EBITDA for all periods presented.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.~~2019 Secured Credit Facilities. All of our borrowings outstanding under the ~~secured credit facilities, $725.8~~2019 Secured Credit Facilities, $760 million as of September ~~30, 2018~~29, 2019, accrue interest at variable rates. Assuming the ~~revolving credit facility~~2019 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~~$7.6 million change in annual interest expense on indebtedness under the ~~secured credit facilities.~~2019 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 September 29, 2019 and September 30, 2018, ~~and October 1, 2017,~~ the average cost of a block of cheese was $1.77 and $1.85, respectively. The estimated increase in our food costs from a hypothetical 10% increase in the average cost of a block of cheese would have been $0.3 million for both the three months ended September 30, 2018 and October 1, 2017. For the nine months ended September 30, 2018 and October 1, 2017, the average cost of a block of cheese was $1.72$1.94 and $1.77, 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 the three months ended September 29, 2019 and September 30, 2018, respectively. For the nine months ended September 29, 2019 and September 30, 2018, the average cost of a block of cheese was $1.78 and $1.72, 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 $0.7 million and $0.8 million for the nine months ended September 29, 2019 and September 30, 2018, ~~and $0.9 million for the nine months ended October 1, 2017,~~ respectively.

For ~~both~~ the three and nine months ended September 29, 2019 and September 30, 2018, ~~and October 1, 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 September 29, 2019 and September 30, ~~2018 and October 1, 2017,~~2018. The estimated increase in our food costs from a hypothetical 10% increase in the average cost of dough per pound would have been $0.3 million and $0.4 million for ~~both~~ the nine months ended September 29, 2019 and September 30, 2018, ~~and October 1, 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~~10 Company-operated venues in Canada. For the three and nine months ended September ~~30, 2018,~~29, 2019, our Canadian venues generated operating income of ~~$0.7~~less than $0.1 million and ~~$0.5~~$0.7 million, respectively, compared to our consolidated operating income of ~~$7.2~~$3.8 million and ~~$49.9~~$61.3 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 nine months ended September ~~30, 2018~~29, 2019 were ~~$0.751~~$0.750. $0.767, $0.733 and ~~$0.814,~~$0.767, respectively. A hypothetical 10% devaluation in the average quoted U.S. dollar-equivalent of the Canadian dollar exchange rate during the three and nine months ended September ~~30, 2018~~29, 2019 would have decreased our reported consolidated operating results by $0.1 million for both the three and nine months ended September ~~30, 2018.~~29, 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 September ~~30, 2018~~29, 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~~10.1*		~~Amendment to Employment~~First Lien Credit Agreement, dated as of ~~October 12, 2018, between~~August 30, 2019, among Queso Holdings Inc., as Holdings, CEC Entertainment, Inc., as Borrower, the Lenders party thereto, and ~~Thomas Leverton~~Credit Suisse AG, Cayman Islands Branch, as Administrative Agent

~~10.2~~10.2*		~~Amendment to Employment~~Collateral Agreement (First Lien), dated as of ~~October 12, 2018, between~~August 30, 2019, among CEC Entertainment, Inc., as Borrower, each Subsidiary Loan Party party thereto and ~~J. Roger Cardinale~~Credit Suisse AG, Cayman Islands Branch, as Collateral Agent

~~10.3~~10.3*		~~Amendment to Employment~~Holdings Guarantee and Pledge Agreement, dated as of ~~October 12, 2018,~~August 30, 2019, between ~~CEC Entertainment,~~Queso Holdings Inc., as Holdings, and ~~Randy Forsythe~~Credit Suisse AG, Cayman Islands Branch, as Agent

10.4*		Subsidiary Guarantee Agreement (First Lien), dated as of August 30, 2019, among the subsidiaries of CEC Entertainment, Inc. named therein and Credit Suisse AG, Cayman Islands Branch, as Administrative Agent

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.

November ~~9, 2018~~12, 2019	By:	/s/ James A. Howell
		James A. Howell
		Executive Vice President and Chief Financial Officer
		(Principal Financial Officer)

November ~~9, 2018~~12, 2019	By:	/s/ ~~David Rappaport~~Tony Howard
		~~David Rappaport~~Tony Howard
		Vice President, Controller and Chief Accounting Officer
		(Principal Accounting Officer)

~~EXHIBIT INDEX~~



~~Exhibit~~ ~~Number~~		~~Description~~

~~10.1~~		~~Amendment to Employment Agreement, dated as of October 12, 2018, between CEC Entertainment, Inc. and Thomas Leverton~~

~~10.2~~		~~Amendment to Employment Agreement, dated as of October 12, 2018, between CEC Entertainment, Inc. and J. Roger Cardinale~~

~~10.3~~		~~Amendment to Employment Agreement, dated as of October 12, 2018, between CEC Entertainment, Inc. and Randy Forsythe~~

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 October 1, 2017
(in thousands)


	Issuer			Guarantors			Non-Guarantors			Eliminations			Consolidated
Revenues:
Food and beverage sales	$	83,413		$	13,234		$	1,608		$	—		$	98,255
Entertainment and merchandise sales	88,551			19,174			2,908			—			110,633
Total company venue sales	171,964			32,408			4,516			—			208,888
Franchise fees and royalties	506			3,953			—			—			4,459
International Association assessments and other fees	364			7,702			8,294			(16,360		)	—
Total revenues	172,834			44,063			12,810			(16,360		)	213,347
Operating Costs and Expenses:
Company venue operating costs:
Cost of food and beverage	19,916			3,519			539			—			23,974
Cost of entertainment and merchandise	6,807			432			191			—			7,430
Total cost of food, beverage, entertainment and merchandise	26,723			3,951			730			—			31,404
Labor expenses	55,252			4,729			1,239			—			61,220
Rent expense	22,066			1,624			569			—			24,259
Other venue operating expenses	43,731			3,817			1,079			(8,066		)	40,561
Total company venue operating costs	147,772			14,121			3,617			(8,066		)	157,444
Advertising expense	8,670			1,085			10,622			(8,294		)	12,083
General and administrative expenses	4,526			9,003			46			—			13,575
Depreciation and amortization	24,126			2,515			495			—			27,136
Transaction, severance and related litigation costs	128			—			—			—			128
Asset impairments	1,824			14			5			—			1,843
Total operating costs and expenses	187,046			26,738			14,785			(16,360		)	212,209
Operating income (loss)	(14,212		)	17,325			(1,975		)	—			1,138
Equity in earnings (loss) in affiliates	(10,551		)	—			—			10,551			—
Interest expense	15,902			1,353			196			—			17,451
Income (loss) before income taxes	(40,665		)	15,972			(2,171		)	10,551			(16,313		)
Income tax expense (benefit)	(29,573		)	25,067			(715		)	—			(5,221		)
Net income (loss)	$	(11,092	)	$	(9,095	)	$	(1,456	)	$	10,551		$	(11,092	)

Components of other comprehensive income (loss), net of tax:
Foreign currency translation adjustments	648			—			648			(648		)	648
Comprehensive income (loss)	$	(10,444	)	$	(9,095	)	$	(808	)	$	9,903		$	(10,444	)