CEC FY2015 10-Q Q2
Table of Contents

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 June 28, 2015
OR 
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                  to                     
Commission File Number: 001-13687 
____________________________________
CEC ENTERTAINMENT, INC.
(Exact name of registrant as specified in its charter)
____________________________________
Kansas
(State or other jurisdiction of
incorporation or organization)
  
48-0905805
(IRS Employer
Identification No.)
 
 
 
1707 Market Place Blvd
Irving, Texas
  
75063
(Address of principal executive offices)
  
(Zip Code)
(972) 258-8507
(Registrant’s telephone number, including area code)
Not applicable
(Former name, former address and former fiscal year, if changed since last report) 
____________________________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes   ý     No   ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).     Yes   ý     No   ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:
Large accelerated filer
¨
Accelerated filer
¨
 
 
 
 
Non-accelerated filer
ý
Smaller reporting company
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  ý
As of July 27, 2015, an aggregate of 200 shares of the registrant’s common stock, par value $0.01 per share were outstanding.

Table of Contents

CEC ENTERTAINMENT, INC.
TABLE OF CONTENTS
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

2
Table of Contents

PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements.
CEC ENTERTAINMENT, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands, except share information)
 
 
Successor
 
 
June 28,
2015
 
December 28,
2014
ASSETS
 
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
132,355

 
$
110,994

Accounts receivable
 
16,720

 
18,835

Inventories
 
20,651

 
18,979

Prepaid expenses
 
22,858

 
20,894

Deferred tax asset
 
3,943

 
3,943

Total current assets
 
196,527

 
173,645

Property and equipment, net
 
657,086

 
681,972

Goodwill
 
483,983

 
483,444

Intangible assets, net
 
490,200

 
491,400

Deferred financing costs, net
 
22,084

 
24,087

Other noncurrent assets
 
12,675

 
9,595

Total assets
 
$
1,862,555

 
$
1,864,143

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
 
Current liabilities:
 
 
 
 
Bank indebtedness and other long-term debt, current portion
 
$
9,548

 
$
9,545

Capital lease obligations, current portion
 
402

 
408

Accounts payable
 
44,545

 
43,633

Accrued expenses
 
43,177

 
35,561

Unearned revenues
 
10,761

 
8,906

Accrued interest
 
16,021

 
16,152

Other current liabilities
 
2,989

 
2,990

Total current liabilities
 
127,443

 
117,195

Capital lease obligations, less current portion
 
15,269

 
15,476

Bank indebtedness and other long-term debt, less current portion
 
994,887

 
998,441

Deferred tax liability
 
208,686

 
222,915

Accrued insurance
 
9,675

 
12,146

Other noncurrent liabilities
 
209,448

 
205,384

Total liabilities
 
1,565,408

 
1,571,557

Stockholders’ equity:
 
 
 
 
Common stock, $0.01 par value; authorized 1,000 shares; 200 shares issued as of June 28, 2015 and December 28, 2014
 
—

 
—

Capital in excess of par value
 
356,163

 
355,587

Retained earnings (deficit)
 
(57,238
)
 
(62,088
)
Accumulated other comprehensive income (loss)
 
(1,778
)
 
(913
)
Total stockholders’ equity
 
297,147

 
292,586

Total liabilities and stockholders’ equity
 
$
1,862,555

 
$
1,864,143


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

3
Table of Contents

CEC ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(in thousands)
 
 
Successor
 
 
Three Months Ended
 
 
June 28,
2015
 
June 29,
2014
 
REVENUES:
 
 
 
 
Food and beverage sales
$
94,145

 
$
79,649

 
Entertainment and merchandise sales
113,861

 
105,651

 
Total company store sales
208,006

 
185,300

 
Franchise fees and royalties
4,073

 
1,274

 
Total revenues
212,079

 
186,574

 
OPERATING COSTS AND EXPENSES:
 
 
 
 
Company store operating costs:
 
 
 
 
Cost of food and beverage (exclusive of items shown separately below)
23,951

 
20,386

 
Cost of entertainment and merchandise (exclusive of items shown separately below)
7,015

 
5,927

 
Total cost of food, beverage, entertainment and merchandise
30,966

 
26,313

 
Labor expenses
59,234

 
54,747

 
Depreciation and amortization
28,970

 
34,044

 
Rent expense
24,260

 
22,715

 
Other store operating expenses
35,330

 
32,339

 
Total company store operating costs
178,760

 
170,158

 
Other costs and expenses:
 
 
 
 
Advertising expense
14,596

 
9,551

 
General and administrative expenses
18,973

 
11,928

 
Transaction and severance costs
(62
)
 
(158
)
 
Total operating costs and expenses
212,267

 
191,479

 
Operating income (loss)
(188
)
 
(4,905
)
 
Interest expense
17,324

 
15,239

 
Income (loss) before income taxes
(17,512
)
 
(20,144
)
 
Income tax expense (benefit)
(7,620
)
 
(7,360
)
 
Net income (loss)
$
(9,892
)
 
$
(12,784
)
 
The accompanying notes are an integral part of these unaudited interim Consolidated Financial Statements.
















4
Table of Contents

CEC ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(in thousands)

 
Successor
 
 
Predecessor
 
Six Months Ended
 
For the 135 Day Period Ended
 
 
For the 47 Day Period Ended
 
June 28,
2015
 
June 29,
2014
 
 
February 14,
2014
REVENUES:
 
 
 
 
 
 
Food and beverage sales
$
210,681

 
$
141,926

 
 
$
50,897

Entertainment and merchandise sales
258,605

 
184,264

 
 
62,659

Total company store sales
469,286

 
326,190

 
 
113,556

Franchise fees and royalties
8,300

 
1,960

 
 
687

Total revenues
477,586

 
328,150

 
 
114,243

OPERATING COSTS AND EXPENSES:
 
 
 
 
 
 
Company store operating costs:
 
 
 
 
 
 
Cost of food and beverage (exclusive of items shown separately below)
53,176

 
36,083

 
 
12,285

Cost of entertainment and merchandise (exclusive of items shown separately below)
15,537

 
10,757

 
 
3,729

Total cost of food, beverage, entertainment and merchandise
68,713

 
46,840

 
 
16,014

Labor expenses
126,407

 
86,695

 
 
31,998

Depreciation and amortization
58,211

 
52,519

 
 
9,733

Rent expense
48,719

 
30,425

 
 
12,365

Other store operating expenses
68,848

 
48,978

 
 
15,760

Total company store operating costs
370,898

 
265,457

 
 
85,870

Other costs and expenses:
 
 
 
 
 
 
Advertising expense
26,048

 
14,688

 
 
5,903

General and administrative expenses
36,060

 
18,756

 
 
7,963

Transaction and severance costs
82

 
37,521

 
 
11,634

Total operating costs and expenses
433,088

 
336,422

 
 
111,370

Operating income (loss)
44,498

 
(8,272
)
 
 
2,873

Interest expense
34,822

 
27,282

 
 
1,151

Income (loss) before income taxes
9,676

 
(35,554
)
 
 
1,722

Income tax expense (benefit)
4,826

 
(8,898
)
 
 
1,018

Net income (loss)
$
4,850

 
$
(26,656
)
 
 
$
704

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




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Table of Contents

CEC ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
(in thousands)
 

 
 
Successor
 
 
Three Months Ended
 
 
June 28, 2015
 
June 29, 2014
Net income (loss)
 
$
(9,892
)
 
$
(12,784
)
Components of other comprehensive income (loss), net of tax:
 
 
 
 
Foreign currency translation adjustments
 
777

 
613

Total components of other comprehensive income (loss), net of tax
 
777

 
613

Comprehensive income (loss)
 
$
(9,115
)
 
$
(12,171
)


 
 
 
Successor
 
 
Predecessor
 
 
Six Months Ended
 
For the 135 Day Period Ended
 
 
For the 47 Day Period Ended
 
 
June 28, 2015
 
June 29, 2014
 
 
February 14, 2014
Net income (loss)
 
$
4,850

 
$
(26,656
)
 
 
$
704

Components of other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
Foreign currency translation adjustments
 
(865
)
 
501

 
 
(541
)
Total components of other comprehensive income (loss), net of tax
 
(865
)
 
501

 
 
(541
)
Comprehensive income (loss)
 
$
3,985

 
$
(26,155
)
 
 
$
163




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



6
Table of Contents

CEC ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
 
Successor
 
 
Predecessor
 
Six Months Ended
 
For the 135 Day Period Ended
 
 
For the 47 Day Period Ended
 
June 28,
2015
 
June 29,
2014
 
 
February 14,
2014
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
Net income (loss)
$
4,850

 
$
(26,656
)
 
 
$
704

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
 
 
Depreciation and amortization
60,248

 
53,240

 
 
9,883

Deferred income taxes
(11,909
)
 
(13,151
)
 
 
(1,785
)
Stock-based compensation expense
570

 
—

 
 
12,225

Amortization of lease-related intangibles and liabilities, net
61

 
182

 
 
(356
)
Amortization of original issue discount and deferred financing costs
2,273

 
1,689

 
 
58

Loss on asset disposals, net
3,042

 
2,551

 
 
294

Non-cash rent expense
4,289

 
2,845

 
 
(916
)
Other adjustments
(494
)
 
122

 
 
144

Changes in operating assets and liabilities:
 
 
 
 
 
 
Accounts receivable
416

 
(1,144
)
 
 
1,503

Inventories
(219
)
 
2,735

 
 
(2,472
)
Prepaid expenses
(4,568
)
 
(2,271
)
 
 
2,656

Accounts payable
547

 
(15,480
)
 
 
(270
)
Accrued expenses
2,181

 
2,423

 
 
(2,403
)
Unearned revenues
1,860

 
(1,221
)
 
 
349

Accrued interest
(2
)
 
9,023

 
 
152

Income taxes payable
3,569

 
(1,585
)
 
 
2,898

Deferred landlord contributions
657

 
3,529

 
 
(350
)
Net cash provided by operating activities
67,371

 
16,831

 
 
22,314

CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
 
 
 
Acquisition of Predecessor
—

 
(946,898
)
 
 
—

Acquisition of Peter Piper Pizza
(663
)
 
—

 
 
—

Purchases of property and equipment
(38,628
)
 
(22,558
)
 
 
(9,710
)
Acquisition of franchisee
—

 
(1,529
)
 
 
—

Development of internal use software
(1,571
)
 
—

 
 
—

Other investing activities
82

 
241

 
 
51

Net cash used in investing activities
(40,780
)
 
(970,744
)
 
 
(9,659
)
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
 
 
 
Proceeds from secured credit facilities, net of original issue discount
—

 
756,200

 
 
—

Proceeds from senior notes
—

 
255,000

 
 
—

Repayment of Predecessor Facility
—

 
(348,000
)
 
 
—

Repayments on senior term loan
(3,800
)
 
—

 
 
—

Repayments on note payable
(22
)
 
—

 
 
—

Net repayments on revolving credit facility
—

 
—

 
 
(13,500
)
Payment of debt financing costs
—

 
(27,575
)
 
 
—

Payments on capital lease obligations
(209
)
 
(111
)
 
 
(164
)
Payments on sale leaseback obligations
(771
)
 
—

 
 
—

Dividends paid
—

 
(890
)
 
 
(38
)
Excess tax benefit realized from stock-based compensation
—

 
5,043

 
 
—

Restricted stock returned for payment of taxes
—

 
—

 
 
(142
)

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Table of Contents
CEC ENTERTAINMENT, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS, CONT'D
(Unaudited)
(in thousands)

Equity contribution
—

 
350,000

 
 
—

Net cash provided by (used in) financing activities
(4,802
)
 
989,667

 
 
(13,844
)
Effect of foreign exchange rate changes on cash
(428
)
 
233

 
 
(313
)
Change in cash and cash equivalents
21,361

 
35,987

 
 
(1,502
)
Cash and cash equivalents at beginning of period
110,994

 
19,184

 
 
20,686

Cash and cash equivalents at end of period
$
132,355

 
$
55,171

 
 
$
19,184

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Successor
 
 
Predecessor
 
Six Months Ended
 
For the 135 Day Period Ended
 
 
For the 47 Day Period Ended
 
June 28,
2015
 
June 29,
2014
 
 
February 14,
2014
SUPPLEMENTAL CASH FLOW INFORMATION:
 
 
 
 
 
 
Interest paid (1)
$
32,610

 
$
16,800

 
 
$
938

Income taxes paid (refunded), net
$
13,180

 
$
794

 
 
$
(79
)
NON-CASH INVESTING AND FINANCING ACTIVITIES:
 
 
 
 
 
 
Accrued construction costs
$
2,922

 
$
4,888

 
 
$
3,605

Dividends payable
$
—

 
$
—

 
 
$
890

 
__________________
(1)
The 135 day period ended June 29, 2014 includes $4.9 million of debt issuance costs and interest expense related to the bridge loan.
The accompanying notes are an integral part of these unaudited interim Consolidated Financial Statements.

8
Table of Contents

CEC ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Description of Business and Summary of Significant Accounting Policies:
Description of Business
The use of the terms “CEC Entertainment,” the “Company,” “we,” “us” and “our” throughout these unaudited notes to the interim Consolidated Financial Statements refer to CEC Entertainment, Inc. and its subsidiaries.
We currently operate and franchise Chuck E. Cheese’s and Peter Piper Pizza family dining and entertainment centers (also referred to as “stores”) in a total of 47 states and 11 foreign countries and territories. Our stores provide our guests with a variety of family entertainment and dining alternatives. All of our stores utilize a consistent restaurant-entertainment format that features both family dining and entertainment areas with the same general mix of food, beverages, entertainment and merchandise. The economic characteristics, products and services, preparation processes, distribution methods and types of customers are substantially similar for each of our stores. Therefore, we aggregate each store’s operating performance into one reportable segment for financial reporting purposes.
Basis of Presentation
The accompanying interim Consolidated Financial Statements are presented for two periods, Predecessor and Successor, which relate to the accounting periods preceding and succeeding the completion of the merger of Q Merger Sub Inc., a Kansas corporation (“Merger Sub”) controlled by Apollo with and into CEC Entertainment on February 14, 2014 (the “Merger”). The Predecessor and Successor periods have been separated by a vertical line on the face of the Consolidated Financial Statements to highlight the fact that the financial information for such periods has been prepared under two different historical cost bases of accounting. For the purpose of presentation and disclosure, all references to the “Predecessor” relate to CEC Entertainment and its subsidiaries for periods prior to the Merger. All references to the “Successor” relate to CEC Entertainment and its subsidiaries, after giving effect to the Merger, for periods subsequent to the Merger. References to “CEC Entertainment,” the “Company,” “we,” “us” and “our” relate to the Predecessor for periods prior to the Merger and to the Successor for periods subsequent to the Merger.
In connection with our sale leaseback transaction that occurred in August 2014, the Company assigned a portion of its rights in the resulting purchase and sale agreement to a newly formed special purpose entity, a variable interest entity (“VIE”), created by a Qualified Intermediary to facilitate a like-kind exchange pursuant to Internal Revenue Code Section 1031. The assignment resulted in $12.1 million of the sales proceeds from the transaction being received by the VIE. We included the VIE in our Consolidated Financial Statements for the fiscal year ended December 28, 2014. In February 2015, we acquired the VIE, along with its capital improvements and remaining cash balance. The assets, liabilities and operating results of the acquired VIE are not material to our Consolidated Financial Statements.
The Company has a controlling financial interest in International Association of CEC Entertainment, Inc. (the “Association”), a VIE. The Association primarily administers the collection and disbursement of funds (the “Association Funds”) used for advertising, entertainment and media programs that benefit both us and our franchisees. We and our franchisees are required to contribute a percentage of gross sales to these funds and could be required to make additional contributions to fund any deficits that may be incurred by the Association. We include the Association in our Consolidated Financial Statements, as we concluded that we are the primary beneficiary of its variable interests because we (a) have the power to direct the majority of its significant operating activities; (b) provide it unsecured lines of credit; and (c) own the majority of the stores that benefit from the Association’s advertising, entertainment and media expenditures. The assets, liabilities and operating results of the Association are not material to our Consolidated Financial Statements.
Because the Association Funds are required to be segregated and used for specified purposes, we do not reflect franchisee contributions to the Association Funds as revenue, but rather record franchisee contributions as an offset to reported advertising expenses. Our contributions to the Association Funds are eliminated in consolidation. Contributions to the advertising, entertainment and media funds from our franchisees were $1.1 million for the six months ended June 28, 2015, $0.9 million for the 135 day period ended June 29, 2014 and $0.4 million for the 47 day period ended February 14, 2014.
The preparation of these unaudited Consolidated Financial Statements in conformity with accounting principles generally accepted in the United States (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of our unaudited Consolidated Financial Statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

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Table of Contents
CEC ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)

Interim Financial Statements
The accompanying Consolidated Financial Statements as of June 28, 2015 and for the six months ended June 28, 2015, the 135 day period ended June 29, 2014, the 47 day period ended February 14, 2014, and the three months ended June 28, 2015 and June 29, 2014 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 Company’s Consolidated Financial Statements include all adjustments (consisting solely of normal recurring adjustments) necessary for the fair statement of its consolidated results of operations, financial position and cash flows as of the dates and for the periods presented in accordance with GAAP and the rules and regulations of the United States Securities and Exchange Commission (the “SEC”). Our Consolidated Financial Statements include all necessary reclassification adjustments to conform prior year results to the current period presentation.
Consolidated results of operations for interim periods are not necessarily indicative of results for the full year. The unaudited Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and related notes included in our Annual Report on Form 10-K for the fiscal year ended December 28, 2014, filed with the SEC on March 5, 2015.
Recently Issued Accounting Guidance
Accounting Guidance Not Yet Adopted: In January 2015, the FASB issued ASU 2015-01, Income Statement - Extraordinary and Unusual Items (Subtopic 225-20). This amendment eliminates the income statement concept of extraordinary items and the requirements for entities to consider whether an underlying event or transaction is extraordinary. This amendment is effective for fiscal years beginning after December 15, 2015, including interim periods therein. Early adoption is permitted provided that the guidance is applied from the beginning of the fiscal year of adoption. We do not expect the adoption of this amendment to have a significant impact on our Consolidated Financial Statements.
In April 2015, the FASB issued ASU 2015-03, Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs. This amendment requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by this amendment. This amendment is effective for fiscal years beginning after December 15, 2015, including interim periods therein. The amendment should be applied on a retrospective basis, wherein the balance sheet of each individual period should be adjusted to reflect the period-specific effects of applying the new guidance. Early adoption is permitted for financial statements that have not been previously issued. As of June 28, 2015, we have $22.1 million of net deferred financing costs that would be reclassified from a long-term asset to a reduction in the carrying amount of our debt.
In July 2015, the FASB deferred the effective date for ASU 2014-09, Revenue from Contracts with Customers (Topic 606). The amendment is now effective for annual reporting periods beginning after December 15, 2017 and for interim periods therein. Early application is permitted, but only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods therein. We are currently assessing the impact of adopting this new guidance on our Consolidated Financial Statements.
Note 2. Acquisition of Peter Piper Pizza:
In October 2014, the Company acquired Peter Piper Pizza (“PPP”), a leading pizza and entertainment restaurant chain operating in the southwestern United States and Mexico, for aggregate consideration paid of $113.1 million, net of cash acquired. During the six months ended June 28, 2015, the Company made certain adjustments to the initial PPP purchase price allocation related to the final settlement of net working capital, the valuation of favorable and unfavorable lease interests and the valuation of PPP’s tradename that resulted in a net increase to goodwill of $0.5 million.
The following table summarizes the final allocation of the purchase price to the estimated fair values of assets acquired and liabilities assumed at the date of the acquisition, as well as adjustments made during the measurement period (in thousands):



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Table of Contents
CEC ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)

 
PPP Preliminary Purchase Price Allocation
 
Measurement Period Adjustments
 
PPP Final Purchase Price Allocation
Cash consideration paid
$
118,409

 
$
663

 
$
119,072

 
 
 
 
 
 
Fair value of assets acquired and liabilities assumed:
 
 
 
 
 
    Cash and cash equivalents
5,267

 
—

 
5,267

    Accounts receivable
511

 
—

 
511

    Inventories
820

 
—

 
820

    Other current assets
598

 
—

 
598

    Property, plant and equipment
14,383

 
—

 
14,383

    Favorable lease interests
2,000

 
(1,120
)
 
880

    Peter Piper Pizza's tradename
24,800

 
1,900

 
26,700

    Franchise agreements
39,300

 
—

 
39,300

    Other non-current assets
154

 
—

 
154

    Indebtedness
(120
)
 
—

 
(120
)
    Unfavorable lease interests
(3,290
)
 
(580
)
 
(3,870
)
    Deferred taxes
(12,935
)
 
(76
)
 
(13,011
)
    Other current and non-current liabilities
(4,061
)
 
—

 
(4,061
)
Net assets acquired
67,427

 
124

 
67,551

Excess purchase price allocated to goodwill
$
50,982

 
$
539

 
$
51,521


The measurement period adjustments did not have a significant impact on our consolidated statements of earnings for the six months ended June 28, 2015. In addition, these adjustments did not have a significant impact on our consolidated balance sheet as of December 28, 2014. Therefore, we have not retrospectively adjusted this financial information.
3. Property and Equipment:
Total depreciation and amortization expense related to property and equipment was $29.8 million and $34.5 million for the three months ended June 28, 2015 and June 29, 2014, respectively, of which $0.9 million and $0.5 million, respectively, was included in “General and administrative expenses” in our Consolidated Statements of Earnings. Total depreciation and amortization expense for the three months ended June 28, 2015 and June 29, 2014, includes approximately $0.5 million and $0.2 million, respectively, related to the amortization of franchise agreements (see Note 4. “Goodwill and Intangible Assets, Net”).
Total depreciation and amortization expense related to property and equipment was $60.2 million, $53.2 million, and $9.9 million for the six months ended June 28, 2015, the 135 day period ended June 29, 2014 and the 47 day period ended February 14, 2014, respectively, of which $2.0 million, $0.7 million and $0.2 million, respectively, was included in “General and administrative expenses” in our Consolidated Statements of Earnings. Total depreciation and amortization expense for the six months ended June 28, 2015 and the 135 day period ended June 29, 2014 includes approximately $1.0 million and $0.3 million, respectively, related to the amortization of franchise agreements (see Note 4. “Goodwill and Intangible Assets, Net”).

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CEC ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)

4. Goodwill and Intangible Assets, Net:
The following table presents changes in the carrying value of goodwill for the six months ended June 28, 2015 (in thousands):
 
Successor
Balance at December 28, 2014
$
483,444

Additions (1)
539

Balance at June 28, 2015
$
483,983

__________________
(1)
In the first quarter of 2015, we recorded certain adjustments to the initial PPP purchase price allocation related to the final settlement of net working capital, the valuation of favorable and unfavorable lease interests and the valuation of PPP’s tradename that resulted in a net increase to goodwill of $0.5 million. See Note 2 “Peter Piper Acquisition” for a discussion of the measurement period adjustments.
The following table presents our indefinite and definite-lived intangible assets at June 28, 2015:
 
Successor
 
Weighted Average Life (Years)
 
Gross Carrying Amount
 
Accumulated Amortization
 
Net Carrying Amount
 
 
 
(in thousands)
Chuck E. Cheese's tradename
Indefinite
 
$
400,000

 
$
—

 
$
400,000

Peter Piper Pizza tradename (1) (2)
Indefinite
 
26,700

 
—

 
26,700

Favorable lease agreements (2)
10
 
14,880

 
(2,633
)
 
12,247

Franchise agreements
25
 
53,300

 
(2,047
)
 
51,253

 
 
 
$
494,880

 
$
(4,680
)
 
$
490,200

__________________
(1)
In connection with the Merger and the PPP Acquisition, we also recorded unfavorable lease liabilities of $10.2 million and $3.9 million, respectively, which are included in “Other current liabilities” and “Other non-current 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 for the Successor periods.
(2)
In the first quarter of 2015 we recorded adjustments related to the valuation of the PPP tradename and the valuation of the favorable lease agreements intangible asset of $1.9 million and $(1.1) million, respectively, recorded in connection with the PPP Acquisition. See Note 2 “Acquisition of Peter Piper Pizza” for a discussion of these adjustments.
Amortization expense related to favorable lease agreements was $1.0 million for the six months ended June 28, 2015, $0.7 million for the 135 day period ended June 29, 2014, $0.5 million for the second quarter of 2015, and $0.5 million for the second quarter of 2014 and is included in “Rent expense” in our Consolidated Statements of Earnings. Amortization expense related to franchise agreements was $1.0 million for the six months ended June 28, 2015, $0.3 million for the 135 day period ended June 29, 2014, $0.5 million for the second quarter of 2015, and $0.2 million for the second quarter of 2014, and is included in “General and administrative expenses” in our Consolidated Statements of Earnings. As we did not have any intangible assets related to favorable lease agreements or franchise agreements prior to the Acquisition, we did not incur any amortization expense related to favorable lease agreements or franchise agreements for the 47 day period ended February 14, 2014.


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CEC ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)

5. Indebtedness and Interest Expense:
 Our long-term debt consisted of the following for the periods presented:
 
Successor
 
June 28,
2015
 
December 28,
2014
 
(in thousands)
Term loan facility
$
752,400

 
$
756,200

Revolving credit facility
—

 
—

Senior notes
255,000

 
255,000

Note payable
91

 
113

     Total debt outstanding
1,007,491

 
1,011,313

Less:
 
 
 
    Unamortized original issue discount
(3,056
)
 
(3,327
)
    Current portion
(9,548
)
 
(9,545
)
Bank indebtedness and other long-term debt, less current portion
$
994,887

 
$
998,441

We were in compliance with the debt covenants in effect as of June 28, 2015 for both the Secured Credit Facilities and the senior notes. For further discussion regarding the debt covenants, see Secured Credit Facilities and Senior Unsecured Debt sections below.
Secured Credit Facilities
As of June 28, 2015, we had $752.4 million (excluding the original issue discount) outstanding under the Term loan facility, no borrowings outstanding under the revolving credit facility and $10.9 million of letters of credit issued but undrawn. The Secured Facilities require scheduled quarterly payments on the term loan equal to 0.25% of the original principal amount of the Term loan from July 2014 to December 2020, with the remaining balance paid at maturity, February 14, 2021.
Borrowings under the Secured Credit Facilities bear interest at a rate equal to, at our option, either (a) a London Interbank Offered Rate (“LIBOR”) determined by reference to the costs of funds for Eurodollar deposits for the interest period relevant to such borrowings, adjusted for certain additional costs, subject to a 1.00% floor in the case of term loans or (b) a base rate determined by reference to the highest of (i) the federal funds effective rate plus 0.50%; (ii) the prime rate of Deutsche Bank AG New York Branch; and (iii) the one-month adjusted LIBOR plus 1.00%, in each case plus an applicable margin. The applicable margin for borrowings is 3.00% with respect to LIBOR borrowings and 2.00% with respect to base rate borrowings under the term loan facility and base rate borrowings and swingline borrowings under the revolving credit facility. During the six months ended June 28, 2015, the federal funds rate ranged from 0.06% to 0.14%, the prime rate was 3.25% and the one-month LIBOR ranged from 0.17% to 0.19%.
The weighted average effective interest rate incurred on our borrowings under our Secured Credit Facilities was 4.6% for the six months ended June 28, 2015, and 4.8% for the 135 day period ended June 29, 2014, which includes amortization of debt issuance costs related to our Secured Credit Facilities, amortization of our term loan facility original issue discount and commitment and other fees related to our Secured Credit Facilities.
As of June 28, 2015, the borrowings under the revolving credit facility were less than 30% of the outstanding commitments; therefore, the springing financial maintenance covenant under our revolving credit facility was not in effect.
Senior Unsecured Debt
Our $255.0 million aggregate principal amount borrowings of 8.000% Senior Notes due 2022 (the “senior notes”) bear interest at a rate of 8.000% per year and mature on February 15, 2022.
Our obligations under the senior notes are fully and unconditionally guaranteed, jointly and severally, by our present and future direct and indirect wholly-owned material domestic subsidiaries that guarantee our Secured Credit Facilities.
The indenture contains restrictive covenants that limit our ability to, among other things: incur additional debt or issue certain preferred shares; create liens on certain assets; make certain loans or investments (including acquisitions); pay dividends on or make distributions in respect of our capital stock or make other restricted payments; consolidate, merge, sell or otherwise dispose of all or substantially all of our assets; sell assets; enter into certain transactions with our affiliates; and restrict

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CEC ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)

dividends from our subsidiaries.
The weighted average effective interest rate incurred on borrowings under our senior notes was 8.3% for the six months ended June 28, 2015 and 8.4% for the 135 day period ended June 29, 2014, which included amortization of debt issuance costs and other fees related to our senior notes.
Interest Expense
Interest expense consisted of the following for the periods presented:
 
Successor
 
Three Months Ended
 
June 28,
2015
 
June 29, 2014
 
(in thousands)
Term loan facility(1)
$
7,743

 
$
8,626

Senior notes
5,157

 
5,194

Capital lease obligations
447

 
459

Sale leaseback obligations
2,783

 
—

Amortization of debt issuance costs
1,001

 
1,013

Other
193

 
(53
)
 
$
17,324

 
$
15,239

 
Successor
 
 
Predecessor
 
Six Months Ended
 
For the 135 Day Period Ended
 
 
For the 47 Day Period Ended
 
June 28,
2015
 
June 29, 2014
 
 
February 14, 2014
 
(in thousands)
Term loan facility (1)
$
15,505

 
$
12,807

 
 
$
—

Senior notes
10,313

 
7,477

 
 
—

Bridge Loan facility (2)
—

 
4,943

 
 
—

Predecessor Facility
—

 
—

 
 
745

Capital lease obligations
902

 
612

 
 
275

Sale leaseback obligations
5,566

 
—

 
 
—

Amortization of debt issuance costs
2,002

 
1,486

 
 
58

Other
534

 
(43
)
 
 
73

 
$
34,822

 
$
27,282

 
 
$
1,151

 __________________
(1)    Includes amortization of original issue discount.
(2)    The 135 day period ended June 29, 2014 includes Bridge Loan debt issuance costs of $4.7 million and interest of $0.2 million.
The weighted average effective interest rate incurred on our borrowings under our Secured Credit Facilities and senior notes was 5.5% for the six months ended June 28, 2015, and 6.9% for the 135 day period ended June 29, 2014. Excluding the impact of $4.9 million of issuance costs and interest relating to the bridge loan facility, our weighted average effective rate would have been 5.6% for the 135 day period ended June 29, 2014. The weighted average effective interest rate incurred on our borrowings under our Predecessor Facility for the 47 day period ended February 14, 2014 was 1.6%.






14
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CEC ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)

6. Fair Value of Financial Instruments:
The following table presents information on our financial instruments as of the periods presented:

 
 
Successor
 
 
Successor
 
 
June 28, 2015
 
 
December 28, 2014
 
 
Carrying Amount
 
Estimated Fair Value
 
 
Carrying Amount
 
Estimated Fair Value
 
 
(in thousands)
Financial Liabilities:
 
 
 
 
 
 
 
 
 
Bank indebtedness and other long-term debt, less current portion
 
$
994,887

 
$
989,877

 
 
$
998,441

 
$
974,084


Our financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable, our Secured Credit Facilities and our senior notes. The carrying amount of cash and cash equivalents, accounts receivable and accounts payable approximates fair value because of their short maturities. The estimated fair value of our Secured Credit Facilities' term loan and senior notes was determined by using estimated market prices of our outstanding borrowings under our term loan facility and the senior notes, which are classified as Level 2 in the fair value hierarchy.
During the six months ended June 28, 2015, the 135 day period ended June 29, 2014, the 47 day period ended February 14, 2014, and the three months ended June 28, 2015 and June 29, 2014, there were no significant transfers among level 1, 2 or 3 fair value determinations.
7. Commitments and Contingencies:
Legal Proceedings
From time to time, we are involved in various inquiries, investigations, claims, lawsuits and other legal proceedings that are incidental to the conduct of our business. These matters typically involve claims from customers, employees or other third parties involved in operational issues common to the retail, restaurant and entertainment industries. Such matters typically represent actions with respect to contracts, intellectual property, taxation, employment, employee benefits, personal injuries and other matters. A number of such claims may exist at any given time, and there are currently a number of claims and legal proceedings pending against us.
In the opinion of our management, after consultation with legal counsel, the amount of liability with respect to claims or proceedings currently pending against us is not expected to have a material effect on our consolidated financial condition, results of operations or cash flows.
Employment-Related Litigation: On January 27, 2014, former store employee Franchesca Ford filed a purported class action lawsuit against the Company in San Francisco County Superior Court, California (the “Ford Litigation”). The plaintiff claims to represent other similarly-situated hourly non-exempt employees and former employees of the Company in California who were employed during the period January 27, 2010 to the present. She alleges violations of California state wage and hour laws governing vacation pay, meal and rest period pay, wages due upon termination, and waiting time penalties, and seeks an unspecified amount in damages. In March 2014, the Company removed the Ford Litigation to the U.S. District Court for the Northern District of California, San Francisco Division, and subsequently defeated the plaintiff’s motion to remand the case to California state court. On May 22, 2015, the parties reached an agreement to settle the lawsuit on a class-wide basis. The settlement would result in the plaintiffs’ dismissal of all claims asserted in the action, as well as certain related but unasserted claims, and grant of complete releases, in exchange for the Company’s settlement payment. The settlement currently awaits the Court’s approval. The Company has accrued for all probable and reasonably estimable losses associated with this claim. We currently believe that the final resolution of this action will not have a material adverse effect on our results of operations, financial position, liquidity or capital resources.
On March 24, 2014, Franchesca Ford and Isabel Rodriguez filed a purported class action lawsuit against the Company in the U.S. District Court, Southern District of California, San Diego Division. The plaintiffs claim to represent other similarly-situated applicants who were subject to pre-employment background checks with the Company in California and across the United States from March 24, 2012 to the present. The lawsuit alleges violations of the Fair Credit Reporting Act and the

15
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CEC ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)

California Consumer Credit Reporting and Investigative Reporting Agencies Act. On September 23, 2014, the Company reached an agreement to settle the lawsuit on a class-wide basis. The settlement would result in the plaintiffs’ dismissal of all claims asserted in the action, as well as certain related but unasserted claims, and grant of complete releases, in exchange for the Company’s settlement payment. On July 7, 2015, the Court entered an order preliminarily approving the settlement. The Company has accrued for all probable and reasonably estimable losses associated with this claim. We currently believe that the final resolution of this action will not have a material adverse effect on our results of operations, financial position, liquidity or capital resources.
On October 17, 2014, former store employee Wiley Wright filed a purported class action lawsuit against the Company in the United States District Court, Eastern District of New York, claiming to represent other similarly-situated salaried exempt current and former employees of the Company in the state of New York during the period October 17, 2008, as well as similarly-situated salaried exempt current and former employees throughout the remainder of the United States during the period October 17, 2011 to the present. The lawsuit alleges that current and former Assistant Managers and Senior Assistant Managers were unlawfully classified as exempt from overtime protections and worked more than 40 hours a week without overtime premium pay in violation of the Fair Labor Standards Act and New York Labor Law. The plaintiff seeks an unspecified amount in damages. On December 12, 2014, plaintiff moved for conditional certification of the putative class of employees; the Company filed its response to this motion on January 19, 2015. On July 16, 2015, the Court granted conditional certification of a collective group that included only the Assistant Managers and Senior Assistant Managers who worked in the four New York stores where plaintiff worked during his employment with the Company, while permitting plaintiff to obtain further discovery from the Company relating to his original motion. We believe the Company has meritorious defenses to this lawsuit and we intend to vigorously defend it. While no assurance can be given as to the ultimate outcome of this matter, we currently believe that the final resolution of this action will not have a material adverse effect on our results of operations, financial position, liquidity or capital resources.
On October 10, 2014, former store General Manager Richard Sinohui filed a purported class action lawsuit against the Company in the Superior Court of California, Riverside County (the “Sinohui Litigation”), claiming to represent other similarly-situated current and former General Managers of the Company in California during the period October 10, 2010 to the present. The lawsuit alleges current and former California General Managers were unlawfully classified as exempt from overtime protections and worked more than 40 hours a week without overtime premium pay, paid rest periods and paid meal periods, 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 seeks an unspecified amount in damages. On December 5, 2012, the Company removed the Sinohui Litigation to the U.S. District Court for the Central District of California, Southern Division. On December 30, 2014, the plaintiff petitioned the court to remand the Sinohui Litigation to California state court. On February 26, 2015, the Court overruled the plaintiff’s motion to remand. The Company’s investigation is ongoing. The parties are engaged in discovery. We believe the Company has meritorious defenses to this lawsuit and we intend to vigorously defend it. While no assurance can be given as to the ultimate outcome of this matter, we currently believe that the final resolution of this action will not have a material adverse effect on our results of operations, financial position, liquidity or capital resources.
Litigation Related to the Merger: Following the January 16, 2014 announcement that the Company had entered into the Merger Agreement, four putative shareholder class actions were filed in the District Court of Shawnee County, Kansas, on behalf of purported stockholders of the Company against the Company, its directors, Apollo, Parent and Merger Sub, in connection with the Merger Agreement and the transactions contemplated thereby. The first purported class action, styled Hilary Coyne v. Richard M. Frank et al. (the “Coyne Action”), was filed on January 21, 2014. The second, styled John Solak v. CEC Entertainment, Inc. et al. (the “Solak Action”), was filed on January 22, 2014. The third, styled Irene Dixon v. CEC Entertainment, Inc. et al. (the “Dixon Action”), was filed on January 24, 2014, and additionally names as defendants Apollo Management VIII, L.P. and the AP VIII Queso Holdings, L.P. The fourth, styled Louisiana Municipal Public Employees’ Retirement System v. Frank, et al. (the “LMPERS Action”), was filed on January 31, 2014, and additionally names as defendants, Apollo Management VIII, L.P. and AP VIII Queso Holdings, L.P. (collectively, Coyne, Solak, and Dixon Actions shall be referred to as the “Shareholder Actions”).
Each of the Shareholder Actions alleges that the Company’s directors breached their fiduciary duties to the Company’s stockholders in connection with their consideration and approval of the Merger Agreement by, among other things, agreeing to an inadequate tender price, the adoption on January 15, 2014 of the Rights Agreement, and certain provisions in the Merger Agreement that allegedly made it less likely that the Board would be able to consider alternative acquisition proposals. The Coyne, Dixon and LMPERS Actions further allege that the Board was advised by a conflicted financial advisor. The Solak, Dixon and LMPERS Actions further allege that the Board was subject to material conflicts of interest in approving the Merger Agreement and that the Board breached its fiduciary duties in allowing allegedly conflicted members of management to negotiate the transaction. The Dixon and LMPERS Actions further allege that the Board breached its fiduciary duties in

16
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CEC ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)

approving the Solicitation/Recommendation Statement on Schedule 14D-9 (together with the exhibits and annexes thereto, as it may be amended or supplemented, the “Statement”) filed with the SEC on January 22, 2014, which allegedly contained material misrepresentations and omissions.
Each of the Shareholder Actions allege that Apollo aided and abetted the Board’s breaches of fiduciary duties. The Solak and Dixon Actions allege that CEC also aided and abetted such breaches, and the Solak and LMPERS Actions further allege that Parent and the Merger Sub aided and abetted such actions. The LMPERS Action further alleges that Apollo Management VIII, L.P. and AP VIII Queso Holdings, L.P. aided and abetted such actions.
The Shareholder Actions seek, among other things, rescission of the transactions, damages, attorneys’ and experts’ fees and costs, and other unspecified relief.
On January 24, 2014, the plaintiff in the Coyne Action filed an amended complaint (the “Coyne Amended Complaint”), and on January 30, 2014, the plaintiff in the Solak Action filed an amended complaint (the “Solak Amended Complaint”) (together, the “Amended Complaints”). The Amended Complaints incorporated all of the allegations in the original complaints, added allegations that the Board-approved Statement omitted certain material information, in further violation of the Board’s fiduciary duties, and requested an order directing the Board to disclose such allegedly-omitted material information. The Solak Amended Complaint also added allegations that the Board breached its fiduciary duties in allowing an allegedly conflicted financial advisor and management to lead the sales process.
On March 7, 2014, the Coyne, Solak, Dixon and LMPERS Actions were consolidated into one action. The Company has accrued for all probable and reasonably estimable losses associated with this claim. The Company believes the consolidated lawsuit is without merit and intends to defend it vigorously. While no assurance can be given as to the ultimate outcome of the consolidated matter, we currently believe that the final resolution of the action will not have a material adverse effect on our results of operations, financial position, liquidity or capital resources.
On July 21, 2015 a consolidated class action complaint was filed by Twin City Pipe Trades Pension Trust that continued to assert claims against CEC and its former directors; added The Goldman Sachs Group (“Goldman Sachs”) as a defendant; and removed all Apollo entities as defendants (“Consolidated Class Action Petition”). The Consolidated Class Action Petition alleges that the Company’s directors breached their fiduciary duties to the Company’s stockholders in connection with their consideration and approval of the Merger Agreement by, among other things, conducting a deficient sales process, agreeing to an inadequate tender price, agreeing to certain provisions in the Merger Agreement, and filing materially deficient disclosures regarding the transaction. The Consolidated Class Action Petition also alleges that two members of the Company’s board who also served as the senior managers of the Company had material conflicts of interest and that Goldman Sachs aided and abetted the board’s breaches as a result of various conflicts of interest facing the bank. The Company believes the Consolidated Class Action Petition is without merit and intends to defend it vigorously. While no assurance can be given as to the ultimate outcome of the consolidated matter, we currently believe that the final resolution of the action will not have a material adverse effect on our results of operations, financial position, liquidity or capital resources.
On June 10, 2014, Magnetar Global Event Driven Fund Ltd., Spectrum Opportunities Master Fund, Ltd., Magnetar Capital Master Fund, Ltd., and Blackwell Partners LLC, as the purported beneficial owners of shares held as of record by the nominal petitioner Cede & Co., (the “Appraisal Petitioners”), filed an action for statutory appraisal under Kansas state law against the Company in the U.S. District Court for the District of Kansas. The Appraisal Petitioners seek appraisal of 750,000 shares of common stock. The Company answered the complaint and filed a verified list of stockholders, as required under Kansas law. The parties have completed discovery in the case. Following discovery, the scheduling order contemplates dispositive motion practice, followed thereafter, potentially, by a trial on the merits of the Appraisal Petitioners’ claims. The Company has accrued for all probable and reasonably estimable losses associated with this claim. The Company believes the lawsuit is without merit and intends to defend it vigorously. While no assurance can be given as to the ultimate outcome of this matter, we currently believe that the final resolution of this action will not have a material adverse effect on our results of operations, financial position, liquidity or capital resources.
8. Income Taxes:
Our income tax expense (benefit) consists of the following for the periods presented:

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Table of Contents
CEC ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)

 
Successor
 
Three Months Ended
 
June 28, 2015
 
June 29, 2014
 
 
Federal and state income taxes
$
(8,101
)
 
$
(6,959
)
Foreign income taxes
481

 
(401
)
      Income tax expense (benefit)
$
(7,620
)
 
$
(7,360
)
      Effective rate
43.5
%
 
36.5
%

 
Successor
 
 
Predecessor
 
Six Months Ended
 
For the 135 Day Period Ended
 
 
For the 47 Day Period Ended
 
June 28, 2015
 
June 29, 2014
 
 
February 14, 2014
 
 
Federal and state income taxes
$
4,074

 
$
(8,492
)
 
 
$
914

Foreign income taxes
752

 
(406
)
 
 
104

      Income tax expense (benefit)
$
4,826

 
$
(8,898
)
 
 
$
1,018

      Effective rate
49.9
%
 
25.0
%
 
 
59.1
%
Our effective income tax rate of 49.9% for the six months ended June 28, 2015, 25.0% for the 135 day period ended June 29, 2014, and 59.1% for the 47 day period ended February 14, 2014, differs from the statutory rate primarily due to the unfavorable impact of non-deductible costs related to the Merger and Merger related litigation.
Our liability for uncertain tax positions (excluding interest and penalties) was $2.1 million and $1.9 million as of June 28, 2015 and December 28, 2014, respectively, and if recognized would decrease our provision for income taxes by $1.3 million. Within the next twelve months, we could settle or otherwise conclude income tax audits and/or have expiring statutes of limitations. As such, it is reasonably possible that the liability for uncertain tax positions could decrease by as much as $0.2 million as a result of settlements with certain taxing authorities and expiring statutes of limitations within the next twelve months.
The total accrued interest and penalties related to unrecognized tax benefits as of June 28, 2015 and December 28, 2014, was $1.7 million and $1.5 million, respectively. On the Consolidated Balance Sheets, we include current interest related to unrecognized tax benefits in “Accrued interest,” current penalties in “Accrued expenses” and noncurrent accrued interest and penalties in “Other noncurrent liabilities.”
9. Stock-Based Compensation Arrangements:
The following tables summarize stock-based compensation expense and the associated tax benefit recognized in the Consolidated Financial Statements for the periods presented:
 
Successor
 
Three Months Ended
 
June 28,
2015
 
June 29,
2014
 
(in thousands)
Stock-based compensation costs
$
180

 
$
—

Portion capitalized as property and equipment (1)
(2
)
 
—

Stock-based compensation expense recognized
$
178

 
$
—


 
 
Successor
 
 
Predecessor
 
 
Six Months Ended
 
For the 135 Day Period Ended
 
 
For the 47 Day Period Ended
 
 
June 28,
2015
 
June 29,
2014
 
 
February 14,
2014
 
 
(in thousands)
Stock-based compensation costs
 
$
576

 
$
—

 
 
$
1,117

Portion capitalized as property and equipment (1)
 
(6
)
 
—

 
 
—

Stock-based compensation costs related to the accelerated vesting of restricted stock awards in connection with the Merger
 
—

 
—

 
 
11,108

Stock-based compensation expense recognized
 
$
570

 
$
—

 
 
$
12,225

Tax benefit recognized from stock-based compensation awards (2)
 
$
—

 
$
5,043

 
 
$
—

 __________________
(1)
We capitalize the portion of stock-based compensation costs related to our design, construction, facilities and legal departments that are directly attributable to our store development projects, such as the design and construction of a new store and the remodeling and expansion of our existing stores. Capitalized stock-based compensation cost attributable to our store development projects is included in “Property and equipment, net” in the Consolidated Balance Sheets.
(2)
We recorded the $5.0 million tax benefit related to the accelerated vesting of restricted stock awards in the 135 day period ended June 29, 2014, as such tax benefits are deductible for income tax purposes on the Successor tax return for fiscal year 2014.
10. Stockholders’ Equity:
The following table summarizes the changes in stockholders’ equity during the six months ended June 28, 2015:
 
 
 
Common Stock
 
Capital In
Excess of
Par Value
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Income
 
 
 
 
Shares
 
Amount
 
 
 
 
Total
 
 
(in thousands, except share information)
Balance at December 29, 2014
 
200

 
$
—

 
$
355,587

 
$
(62,088
)
 
$
(913
)
 
$
292,586

Net income (loss)
 
—

 
—

 
—

 
4,850

 
—

 
4,850

Other comprehensive income (loss)
 
—

 
—

 
—

 
—

 
(865
)
 
(865
)
Stock-based compensation costs
 
—

 
—

 
576

 
—

 
—

 
576

Balance at June 28, 2015
 
200

 
$
—

 
$
356,163

 
$
(57,238
)
 
$
(1,778
)
 
$
297,147

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

18
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CEC ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)

CEC Entertainment, Inc.
Condensed Consolidating Balance Sheet
As of June 28, 2015
(in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
Successor
 
 
Issuer
 
Guarantors
 
Non-Guarantors
 
Eliminations
 
Consolidated
Current assets:
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
108,767

 
$
14,776

 
$
8,812

 
$
—

 
$
132,355

Accounts receivable
 
13,385

 
2,610

 
5,212

 
(4,487
)
 
16,720

Inventories
 
10,955

 
9,449

 
247

 
—

 
20,651

Other current assets
 
19,350

 
4,391

 
3,060

 
—

 
26,801

Total current assets
 
152,457

 
31,226

 
17,331

 
(4,487
)
 
196,527

Property and equipment, net
 
611,905

 
34,848

 
10,333

 
—

 
657,086

Goodwill
 
432,462

 
51,521

 
—

 
—

 
483,983

Intangible assets, net
 
23,311

 
466,889

 
—

 
—

 
490,200

Intercompany
 
138,600

 
28,533

 
—

 
(167,133
)
 
—

Investment in subsidiaries
 
417,834

 
—

 
—

 
(417,834
)
 
—

Other noncurrent assets
 
27,702

 
7,232

 
(175
)
 
—

 
34,759

Total assets
 
$
1,804,271

 
$
620,249

 
$
27,489

 
$
(589,454
)
 
$
1,862,555

Current liabilities:
 
 
 
 
 
 
 
 
 
 
Bank indebtedness and other long-term debt, current portion
 
$
9,500

 
$
48

 
$
—

 
$
—

 
$
9,548

Capital lease obligations, current portion
 
399

 
—

 
3

 
—

 
402

Accounts payable and accrued expenses
 
79,131

 
25,204

 
10,169

 
—

 
114,504

Other current liabilities
 
2,989

 
—

 
—

 
—

 
2,989

Total current liabilities
 
92,019

 
25,252

 
10,172

 
—

 
127,443

Capital lease obligations, less current portion
 
15,194

 
—

 
75

 
—

 
15,269

Bank indebtedness and other long-term debt, less current portion
 
994,844

 
43

 
—

 
—

 
994,887

Deferred tax liability
 
195,265

 
13,975

 
(554
)
 
—

 
208,686

Intercompany
 
5

 
149,448

 
22,171

 
(171,624
)
 
—

Other noncurrent liabilities
 
209,797

 
9,090

 
232

 
4

 
219,123

Total liabilities
 
1,507,124

 
197,808

 
32,096

 
(171,620
)
 
1,565,408

Stockholders' equity:
 
 
 
 
 
 
 
 
 
 
Common stock
 
—

 
—

 
—

 
—

 
—

Capital in excess of par value
 
356,163

 
466,114

 
3,241

 
(469,355
)
 
356,163

Retained earnings (deficit)
 
(57,238
)
 
(43,673
)
 
(6,070
)
 
49,743

 
(57,238
)
Accumulated other comprehensive income (loss)
 
(1,778
)
 
—

 
(1,778
)
 
1,778

 
(1,778
)
Total stockholders' equity
 
297,147

 
422,441

 
(4,607
)
 
(417,834
)
 
297,147

Total liabilities and stockholders' equity
 
$
1,804,271

 
$
620,249

 
$
27,489

 
$
(589,454
)
 
$
1,862,555


19
Table of Contents
CEC ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)

CEC Entertainment, Inc.
Condensed Consolidating Balance Sheet
As of December 28, 2014
(in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
Successor
 
 
Issuer
 
Guarantors
 
Non-Guarantors
 
Eliminations
 
Consolidated
Current assets:
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
97,020

 
$
6,427

 
$
7,547

 
$
—

 
$
110,994

Accounts receivable
 
13,209

 
5,487

 
3,797

 
(3,658
)
 
18,835

Inventories
 
15,008

 
3,596

 
375

 
—

 
18,979

Other current assets
 
19,086

 
3,711

 
2,040

 
—

 
24,837

Total current assets
 
144,323

 
19,221

 
13,759

 
(3,658
)
 
173,645

Property and equipment, net
 
638,239

 
33,064

 
10,669

 
—

 
681,972

Goodwill
 
432,462

 
50,982

 
—

 
—

 
483,444

Intangible assets, net
 
24,649

 
466,751

 
—

 
—

 
491,400

Intercompany
 
129,429

 
25,090

 
32,655

 
(187,174
)
 
—

Investment in subsidiaries
 
428,836

 
—

 
—

 
(428,836
)
 
—

Other noncurrent assets
 
27,770

 
5,875

 
37

 
—

 
33,682

Total assets
 
$
1,825,708

 
$
600,983

 
$
57,120

 
$
(619,668
)
 
$
1,864,143

Current liabilities:
 
 
 
 
 
 
 
 
 
 
Bank indebtedness and other long-term debt, current portion
 
$
9,500

 
$
45

 
$
—

 
$
—

 
$
9,545

Capital lease obligations, current portion
 
405

 
—

 
3

 
—

 
408

Accounts payable and accrued expenses
 
82,995

 
21,989

 
(248
)
 
(484
)
 
104,252

Other current liabilities
 
2,990

 
—

 
—

 
—

 
2,990

Total current liabilities
 
95,890

 
22,034

 
(245
)
 
(484
)
 
117,195

Capital lease obligations, less current portion
 
15,395

 
—

 
81

 
—

 
15,476

Bank indebtedness and other long-term debt
 
998,374

 
67

 
—

 
—

 
998,441

Deferred tax liability
 
207,258

 
14,877

 
780

 
—

 
222,915

Intercompany
 
6,309

 
126,497

 
57,542

 
(190,348
)
 
—

Other noncurrent liabilities
 
209,896

 
7,472

 
162

 
—

 
217,530

Total liabilities
 
1,533,122

 
170,947

 
58,320

 
(190,832
)
 
1,571,557

Stockholders' equity:
 
 
 
 
 
 
 
 
 
 
Common stock
 
—

 
—

 
—

 
—

 
—

Capital in excess of par value
 
355,587

 
465,451

 
3,089

 
(468,540
)
 
355,587

Retained earnings (deficit)
 
(62,088
)
 
(35,415
)
 
(3,376
)
 
38,791

 
(62,088
)
Accumulated other comprehensive income (loss)
 
(913
)
 
—

 
(913
)
 
913

 
(913
)
Total stockholders' equity
 
292,586

 
430,036

 
(1,200
)
 
(428,836
)
 
292,586

Total liabilities and stockholders' equity
 
$
1,825,708

 
$
600,983

 
$
57,120

 
$
(619,668
)
 
$
1,864,143



20
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 June 28, 2015
(in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
Successor
 
 
Issuer
 
Guarantors
 
Non-Guarantors
 
Eliminations
 
Consolidated
Revenues:
 
 
 
 
 
 
 
 
 
 
Food and beverage sales
 
$
81,022

 
$
11,745

 
$
1,378

 
$
—

 
$
94,145

Entertainment and merchandise sales
 
107,733

 
3,882

 
2,246

 
—

 
113,861

Total company store sales
 
188,755

 
15,627

 
3,624

 
—

 
208,006

Franchise fees and royalties
 
495

 
3,578

 
—

 
—

 
4,073

International Association assessments and other fees
 
227

 
761

 
11,351

 
(12,339
)
 
—

Total revenues
 
189,477

 
19,966

 
14,975

 
(12,339
)
 
212,079

Operating Costs and Expenses:
 
 
 
 
 
 
 
 
 
 
Company store operating costs:
 
 
 
 
 
 
 
 
 
 
Cost of food and beverage
 
20,330

 
3,112

 
509

 
—

 
23,951

Cost of entertainment and merchandise
 
6,707

 
148

 
160

 
—

 
7,015

Total cost of food, beverage, entertainment and merchandise
 
27,037

 
3,260

 
669

 
—

 
30,966

Labor expenses
 
54,452

 
3,439

 
1,343

 
—

 
59,234

Depreciation and amortization
 
27,269

 
1,174

 
527

 
—

 
28,970

Rent expense
 
22,285

 
1,310

 
665

 
—

 
24,260

Other store operating expenses
 
33,161

 
2,103

 
1,054

 
(988
)
 
35,330

Total company store operating costs
 
164,204

 
11,286

 
4,258

 
(988
)
 
178,760

Advertising expense
 
11,995

 
1,266

 
12,686

 
(11,351
)
 
14,596

General and administrative expenses
 
5,882

 
12,937

 
154

 
—

 
18,973

Transaction and severance costs
 
(185
)
 
123

 
—

 
—

 
(62
)
Total operating costs and expenses
 
181,896

 
25,612

 
17,098

 
(12,339
)
 
212,267

Operating income (loss)
 
7,581

 
(5,646
)
 
(2,123
)
 
—

 
(188
)
Equity in earnings (loss) in affiliates
 
(3,036
)
 
—

 
—

 
3,036

 
—

Interest expense (income)
 
16,568

 
621

 
135

 
—

 
17,324

Income (loss) before income taxes
 
(12,023
)
 
(6,267
)
 
(2,258
)
 
3,036

 
(17,512
)
Income tax expense (benefit)
 
(2,131
)
 
(5,102
)
 
(387
)