8-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
  
FORM 8-K
 
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of report (Date of earliest event reported): February 25, 2016
  
CEC ENTERTAINMENT, INC.
(Exact name of registrant as specified in charter)
 
 
 
 
 
Kansas
 
1-13687
 
48-0905805
(State or other jurisdiction
of incorporation)
 
(Commission
File Number)
 
(IRS Employer
Identification No.)
 
 
 
 
1707 Market Place Blvd, Suite 200
Irving, Texas
 
75063
(Address of principal executive offices)
 
(Zip Code)
(972) 258-8507
(Registrant’s telephone number, including area code)
Not applicable
(Former name or former address, if changed since last report)
 
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
 
¨
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
 
¨
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
 
¨
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
 
¨
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))


Item 2.02. Results of Operations and Financial Condition.
On February 25, 2016, CEC Entertainment, Inc. (the “Company”) issued a press release announcing its financial results for the fourth quarter ended January 3, 2016. A copy of the press release is furnished as Exhibit 99.1 to this Current Report on Form 8-K.
The information furnished in this Current Report on Form 8-K and the press release attached hereto as Exhibit 99.1 shall not be deemed “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section, and will not be incorporated by reference into any registration statement or other document filed under the Securities Act of 1933, as amended, or the Exchange Act, except as expressly set forth by specific reference in that filing.
Item 9.01. Financial Statements and Exhibits.
(d)
Exhibits
 
 
Exhibit
Number
Description
 
 
99.1
Press Release of CEC Entertainment, Inc. dated February 25, 2016

2

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 hereunto duly authorized.
 
 
 
 
 
 
 
 
 
 
 
 
CEC ENTERTAINMENT, INC.
 
 
 
 
Date: February 26, 2016
 
 
 
By:
 
/s/ Dale R. Black
 
 
 
 
 
 
Dale R. Black
 
 
 
 
 
 
Executive Vice President and Chief Financial Officer 

3

EXHIBIT INDEX
 
 
 
 
Exhibit
Number
  
Description
 
 
99.1
  
Press Release of CEC Entertainment, Inc. dated February 25, 2016


4

Exhibit 99.1
News Release                                            


CEC Entertainment, Inc. Reports
Financial Results for the 2015 Fourth Quarter

IRVING, Texas - February 25, 2016 - CEC Entertainment, Inc. (the “Company”) today announced financial results for its fourth quarter ended January 3, 2016.

•
Total revenues increased 17.0% over the prior year to $223.1 million;
•
Adjusted EBITDA, a non-GAAP measure, up 43.7% over the prior year quarter to $45.7 million;
•
Fourth quarter same store sales for Chuck E. Cheese’s stores, excluding an extra week of operations in 2015, increased 1.3% compared to the prior year;
•
Fourth quarter same store sales for Peter Piper Pizza stores, excluding an extra week of operations in 2015, increased 3.6% compared to the prior year;
•
Additional week of operations in 2015 contributed approximately $24.7 million to total revenues, $3.5 million in net income and $11.5 million in Adjusted EBITDA;
•
Total revenues and Adjusted EBITDA, before the benefit of the extra week of operations, increased $7.7 million and $2.4 million, respectively, to $198.4 million and $34.2 million, respectively.
“We are pleased to report our third consecutive quarter of positive same store sales growth at our Chuck E. Cheese’s stores” said Tom Leverton, Chief Executive Officer. “We believe the investments we are making to improve the in-store experience and communicating to our guests are generating positive momentum and driving traffic and sales at a reinvigorated Chuck E. Cheese’s. In addition, we are also pleased to report that Peter Piper Pizza continues its positive momentum, recording its 22nd consecutive quarter of same store sales growth.”
Fourth Quarter Results
Total revenues for the fourth quarter of 2015 increased 17.0%, or $32.4 million, over the prior year to $223.1 million. The increase is primarily attributable to the $24.7 million favorable impact of the additional week in 2015, an increase in same store sales at our Chuck E. Cheese’s stores, and additional revenues at Peter Piper Pizza, which we owned for the entire quarter in 2015 as compared to 73 days in the 2014 quarter. Excluding the impact of an additional week of operations in 2015, same store sales for the fourth quarter of 2015 for Chuck E. Cheese’s stores increased 1.3% from the prior year and same store sales for the fourth quarter of 2015 for Peter Piper Pizza increased 3.6% over the prior year, when we did not own Peter Piper Pizza for the entire period.
Adjusted EBITDA for the fourth quarter of 2015 increased 43.7% or $13.9 million, over the prior year to $45.7 million. The increase is primarily related to the estimated $11.5 million impact of the additional week of operations in the fourth quarter of 2015, incremental Adjusted EBITDA from Peter Piper Pizza as we owned them for the entire quarter in 2015, and improved Adjusted EBITDA from increased store revenues and improved cost margins. Adjusted EBITDA represents net income (loss) adjusted to exclude interest expense, income taxes, depreciation and amortization, asset impairments, the effects of acquisition accounting adjustments, transaction and severance costs and certain other items.
The Company reported a net loss of $14.2 million for the fourth quarter of 2015, compared to a net loss of $22.2 million for the fourth quarter of 2014. The decrease in the net loss is primarily due to the favorable impact of the extra week of operations in 2015 and the improvement in our revenues and operating margins as discussed in the previous paragraph, partially offset by an increase in Merger related litigation costs.
Balance Sheet and Liquidity
As of January 3, 2016, cash and cash equivalents were $50.7 million, and total debt was $1.0 billion, with net availability of $139.1 million on our undrawn revolving credit facility. During the fourth quarter of 2015, we had capital expenditures of $18.1 million, of which $9.3 million were related to growth initiatives. In addition, we had $4.9 million in capital expenditures related to IT initiatives. Capital expenditures were $77.8 million for the fiscal year 2015.

1

As of January 3, 2016, the Company’s system-wide portfolio consisted of:
 
 
Chuck E. Cheese’s
 
Peter Piper Pizza
 
Total
Company operated
 
524

 
32

 
556

Domestic franchised
 
29

 
62

 
91

International franchised
 
39

 
46

 
85

Total
 
592

 
140

 
732

Conference Call Information:
The Company will host a conference call beginning at 9:00 a.m. Central Time on Friday, February 26, 2016. The call can be accessed by dialing (855) 743-8451 or (330) 968-0151 for international participants and conference code 36546371.
A replay of the call will be available from 12:00 p.m. Central Time on February 26, 2016 through midnight Central Time on March 4, 2016. The replay of the call can be accessed by dialing (800) 585-8367 or (404) 537-3406 for international participants and conference code 36546371.
About CEC Entertainment, Inc.
For nearly 40 years, CEC Entertainment has served as the nationally recognized leader in family dining and entertainment and the place Where A Kid Can Be A Kid®. Chuck E. Cheese’s goal is to create positive, lifelong memories for families through fun, food, and play. Each Chuck E. Cheese’s features musical entertainment, games, rides, and play areas for kids of all ages, as well as a variety of freshly prepared dining options. Committed to providing a fun, safe environment, Chuck E. Cheese’s helps protect families through industry-leading programs such as Kid Check®. As a strong advocate for its local communities and childhood education, Chuck E. Cheese’s has donated more than $12 million to schools through its fundraising programs. As of January 3, 2016, the Company and its franchisees operated a system of 592 Chuck E. Cheese’s stores and 140 Peter Piper Pizza stores, with locations in 47 states and 12 foreign countries and territories. For more information, visit chuckecheese.com and peterpiperpizza.com.

Investor Inquiries:                            Media Inquiries:
Dale R. Black                                Alexis Linn
EVP & CFO                                PR Manager
CEC Entertainment, Inc.                            CEC Entertainment, Inc.
(972) 258-4525                             (972) 258-4223
dblack@cecentertainment.com                        alinn@cecentertainment.com
                    

2

Cautionary Statement Regarding Forward-Looking Statements
Certain statements in this press release, other than historical information, may be considered “forward-looking statements” within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, and are subject to various risks, uncertainties and assumptions. Statements that are not historical in nature and which may be identified by the use of words such as “may,” “should,” “could,” “believe,” “predict,” “potential,” “continue,” “plan,” “intend,” “expect,” “anticipate,” “future,” “project,” “estimate,” and similar expressions (or the negative of such expressions) are forward-looking statements. Forward-looking statements are made based on management’s current expectations and beliefs concerning future events and, therefore, involve a number of assumptions, risks and uncertainties, including the risk factors described in Part I, Item 1A. “Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended December 28, 2014, filed with the Securities and Exchange Commission on March 5, 2015. 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 not limited to:
•
The success of our capital initiatives, including new store development and existing store evolution;
•
Our ability to successfully implement our marketing strategy;
•
Competition in both the restaurant and entertainment industries;
•
Economic uncertainty and changes in consumer discretionary spending in the United States and Canada;
•
Negative publicity concerning food quality, health, general safety and other issues, and changes in consumer preferences;
•
Expansion in international markets;
•
Our ability to generate sufficient cash flow to meet our debt service payments;
•
Increases in food, labor and other operating costs;
•
Disruptions of our information technology systems and technologies, including, but not limited to, data security breaches;
•
Any disruption of our commodity distribution system;
•
Our dependence on a limited number of suppliers for our games, rides, entertainment-related equipment, redemption prizes and merchandise;
•
Product liability claims and product recalls;
•
Government regulations;
•
Litigation risks;
•
Adverse effects of local conditions, natural disasters and other events;
•
Fluctuations in our quarterly results of operations due to seasonality;
•
Inadequate insurance coverage;
•
Loss of certain key personnel;
•
Our ability to adequately protect our trademarks or other proprietary rights;
•
Risks in connection with owning and leasing real estate;
•
Our ability to successfully integrate the operations of companies we acquire; and
•
Litigation risks associated with our merger.
The forward-looking statements made in this report relate only to events as of the date on which the statements were made. Except as may be required by law, we undertake no obligation to update our forward-looking statements to reflect events and circumstances after the date on which the statements were made or to reflect the occurrence of unanticipated events.
Merger
On February 14, 2014, the Company announced the completion of the acquisition of CEC Entertainment, Inc. by an affiliate of Apollo Global Management, LLC (“Apollo”). The acquisition is referred to as the “Merger.” The accompanying

3

consolidated statements of earnings and related information present the Company’s results of operations for the period preceding the acquisition (Predecessor) and the period succeeding the acquisition (Successor). The results for the Predecessor and Successor periods have been demarcated by a solid black line.

- financial tables follow -

4

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




 
Fourth Quarter Ended
 
January 3, 2016 (1)
 
December 28,
2014
 
(Successor)
 
(Successor)
REVENUES:
 
 
 
 
 
 
 
Food and beverage sales
$
99,170

 
44.5
 %
 
$
83,499

 
43.8
 %
Entertainment and merchandise sales
119,657

 
53.6
 %
 
104,253

 
54.7
 %
Total Company store sales
218,827

 
98.1
 %
 
187,752

 
98.4
 %
Franchise fees and royalties
4,238

 
1.9
 %
 
2,990

 
1.6
 %
Total revenues
223,065

 
100.0
 %
 
190,742

 
100.0
 %
OPERATING COSTS AND EXPENSES:

 
 
 
 
 
 
Company store operating costs:

 
 
 
 
 
 
Cost of food and beverage (exclusive of items shown separately below) (2)
26,225

 
26.4
 %
 
22,746

 
27.2
 %
Cost of entertainment and merchandise (exclusive of items shown separately below) (3)
8,120

 
6.8
 %
 
7,182

 
6.9
 %
Total cost of food, beverage, entertainment and merchandise (4)
34,345

 
15.7
 %
 
29,928

 
15.9
 %
Labor expenses (4)
64,179

 
29.3
 %
 
57,074

 
30.4
 %
Depreciation and amortization (4)
28,630

 
13.1
 %
 
31,810

 
16.9
 %
Rent expense (4)
23,971

 
11.0
 %
 
23,686

 
12.6
 %
Other store operating expenses (4)
37,643

 
17.2
 %
 
35,795

 
19.1
 %
Total Company store operating costs (4)
188,768

 
86.3
 %
 
178,293

 
95.0
 %
Other costs and expenses:
 
 
 
 
 
 
 
Advertising expense
10,807

 
4.8
 %
 
8,900

 
4.7
 %
General and administrative expenses
17,381

 
7.8
 %
 
16,011

 
8.4
 %
Transaction, severance and related litigation costs
7,976

 
3.6
 %
 
6,877

 
3.6
 %
Asset impairments
—

 
—
 %
 
407

 
0.2
 %
Total operating costs and expenses
224,932

 
100.8
 %
 
210,488

 
110.4
 %
Operating income (loss)
(1,867
)
 
(0.8
)%
 
(19,746
)
 
(10.4
)%
Interest expense
18,550

 
8.3
 %
 
17,696

 
9.3
 %
Income (loss) before income taxes
(20,417
)
 
(9.2
)%
 
(37,442
)
 
(19.6
)%
Income tax expense (benefit)
(6,259
)
 
(2.8
)%
 
(15,289
)
 
(8.0
)%
Net income (loss)
$
(14,158
)
 
(6.3
)%
 
$
(22,153
)
 
(11.6
)%
________________
Percentages are expressed as a percent of total revenues (except as otherwise noted).
(1)    The quarterly period ended January 3, 2016 consisted of 14 weeks compared to the quarterly period ended December 28, 2014 which consisted of 13 weeks.
(2)    Percentage amount expressed as a percentage of food and beverage sales.
(3)    Percentage amount expressed as a percentage of entertainment and merchandise sales.
(4)    Percentage amount expressed as a percentage of total Company store sales.
Due to rounding, percentages presented in the table above may not sum to total. The percentage amounts for the components of cost of food and beverage and the cost of entertainment and merchandise may not sum to total due to the fact that cost of food and beverage and cost of entertainment and merchandise are expressed as a percentage of related food and beverage sales and entertainment and merchandise sales, as opposed to total Company store sales.


5

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


 
 
 
Fiscal Year Ended
 
For the 317 Day Period Ended
 
 
For the 47 Day Period Ended
 
January 3, 2016 (1)
 
December 28,
2014
 
 
February 14,
2014
 
(Successor)
 
 
(Predecessor)
REVENUES:
 
 
 
 
 
 
 
 
 
 
Food and beverage sales
$
408,095

 
44.2
 %
 
$
307,696

 
42.8
 %
 
 
$
50,897

 
44.6
%
Entertainment and merchandise sales
497,015

 
53.9
 %
 
404,402

 
56.3
 %
 
 
62,659

 
54.8
%
Total Company store sales
905,110

 
98.1
 %
 
712,098

 
99.1
 %
 
 
113,556

 
99.4
%
Franchise fees and royalties
17,479

 
1.9
 %
 
6,483

 
0.9
 %
 
 
687

 
0.6
%
Total revenues
922,589

 
100.0
 %
 
718,581

 
100.0
 %
 
 
114,243

 
100.0
%
OPERATING COSTS AND EXPENSES:

 
 
 

 
 
 
 
 
 
 
Company store operating costs:

 
 
 

 
 
 
 
 
 
 
Cost of food and beverage (exclusive of items shown separately below) (2)
104,434

 
25.6
 %
 
79,996

 
26.0
 %
 
 
12,285

 
24.1
%
Cost of entertainment and merchandise (exclusive of items shown separately below) (3)
31,519

 
6.3
 %
 
24,608

 
6.1
 %
 
 
3,729

 
6.0
%
Total cost of food, beverage, entertainment and merchandise (4)
135,953

 
15.0
 %
 
104,604

 
14.7
 %
 
 
16,014

 
14.1
%
Labor expenses (4)
250,584

 
27.7
 %
 
200,855

 
28.2
 %
 
 
31,998

 
28.2
%
Depreciation and amortization (4)
115,236

 
12.7
 %
 
115,951

 
16.3
 %
 
 
9,733

 
8.6
%
Rent expense (4)
96,669

 
10.7
 %
 
76,698

 
10.8
 %
 
 
12,365

 
10.9
%
Other store operating expenses (4)
143,078

 
15.8
 %
 
119,896

 
16.8
 %
 
 
15,760

 
13.9
%
Total Company store operating costs (4)
741,520

 
81.9
 %
 
618,004

 
86.8
 %
 
 
85,870

 
75.6
%
Other costs and expenses:


 
 
 


 
 
 
 
 
 
 
Advertising expense
47,146

 
5.1
 %
 
33,702

 
4.7
 %
 
 
5,903

 
5.2
%
General and administrative expenses
66,003

 
7.2
 %
 
48,182

 
6.7
 %
 
 
7,963

 
7.0
%
Transaction, severance and related litigation costs
11,914

 
1.3
 %
 
50,545

 
7.0
 %
 
 
11,634

 
10.2
%
Asset impairments
875

 
0.1
 %
 
407

 
0.1
 %
 
 
—

 
—
%
Total operating costs and expenses
867,458

 
94.0
 %
 
750,840

 
104.5
 %
 
 
111,370

 
97.5
%
Operating income (loss)
55,131

 
6.0
 %
 
(32,259
)
 
(4.5
)%
 
 
2,873

 
2.5
%
Interest expense
70,582

 
7.7
 %
 
60,952

 
8.5
 %
 
 
1,151

 
1.0
%
Income (loss) before income taxes
(15,451
)
 
(1.7
)%
 
(93,211
)
 
(13.0
)%
 
 
1,722

 
1.5
%
Income tax expense (benefit)
(2,941
)
 
(0.3
)%
 
(31,123
)
 
(4.3
)%
 
 
1,018

 
0.9
%
Net income (loss)
$
(12,510
)
 
(1.4
)%
 
$
(62,088
)
 
(8.6
)%
 
 
$
704

 
0.6
%
________________
Percentages are expressed as a percent of total revenues (except as otherwise noted).
(1) 
Fiscal year 2015 consisted of 53 weeks compared to 52 weeks in the combined Successor 2014 and Predecessor 2014 periods.
(2)    Percentage amount expressed as a percentage of food and beverage sales.
(3)    Percentage amount expressed as a percentage of entertainment and merchandise sales.
(4)    Percentage amount expressed as a percentage of total Company store sales.
Due to rounding, percentages presented in the table above may not sum to total. The percentage amounts for the components of cost of food and beverage and the cost of entertainment and merchandise may not sum to total due to the fact that cost of food and beverage and cost of entertainment and merchandise are expressed as a percentage of related food and beverage sales and entertainment and merchandise sales, as opposed to total Company store sales.

6

CEC ENTERTAINMENT, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands)

 
 
January 3,
2016
 
December 28,
2014
 
 
(Successor)
 
(Successor)
ASSETS
 
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
50,654

 
$
110,994

Other current assets
 
67,434

 
58,708

Total current assets
 
118,088

 
169,702

Property and equipment, net
 
629,047

 
681,972

Goodwill
 
483,876

 
483,444

Intangible assets, net
 
488,095

 
491,400

Other noncurrent assets
 
13,929

 
9,595

Total assets
 
$
1,733,035

 
$
1,836,113

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
 
Current liabilities:
 
 
 
 
Bank indebtedness and other long-term debt, current portion
 
$
7,650

 
$
9,545

Other current liabilities
 
106,463

 
107,650

Total current liabilities
 
114,113

 
117,195

Capital lease obligations, less current portion
 
15,044

 
15,476

Bank indebtedness and other long-term debt, less current portion
 
971,333

 
974,354

Deferred tax liability
 
201,734

 
218,972

Other noncurrent liabilities
 
222,265

 
217,530

Total liabilities
 
1,524,489

 
1,543,527

Stockholders’ equity:
 
 
 
 
Common stock, $0.01 par value; authorized 1,000 shares; 200 shares issued as of January 3, 2016 and December 28, 2014
 
—

 
—

Capital in excess of par value
 
356,460

 
355,587

Retained earnings (deficit)
 
(144,598
)
 
(62,088
)
Accumulated other comprehensive income (loss)
 
(3,316
)
 
(913
)
Total stockholders’ equity
 
208,546

 
292,586

Total liabilities and stockholders’ equity
 
$
1,733,035

 
$
1,836,113



7

CEC ENTERTAINMENT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)


 
 
Fiscal Year Ended
 
For the 317 Day Period Ended
 
For the 47 Day Period Ended
 
 
January 3,
2016
 
December 28,
2014
 
February 14,
2014
 
 
(Successor)
 
(Predecessor)
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
Net income (loss)
 
$
(12,510
)
 
$
(62,088
)
 
$
704

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
 
 
  Depreciation and amortization
 
119,294

 
118,556

 
9,883

  Deferred income taxes
 
(16,748
)
 
(62,554
)
 
(1,785
)
  Stock-based compensation expense
 
838

 
703

 
12,225

  Amortization of lease related intangibles and liabilities, net
 
87

 
428

 
(356
)
  Amortization of deferred debt financing costs
 
4,634

 
3,962

 
58

  Loss on asset disposals, net
 
7,729

 
7,649

 
294

  Asset Impairments
 
875

 
407

 
—

   Non-cash rent expenses
 
8,218

 
7,037

 
(916
)
  Other adjustments
 
(951
)
 
1,195

 
144

Changes in operating assets and liabilities:
 
 
 
 
 
 
Operating assets
 
(1,871
)
 
(1,415
)
 
1,687

Operating liabilities
 
(8,982
)
 
34,211

 
376

Net cash provided by operating activities
 
100,613

 
48,091

 
22,314

CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
 
 
 
Acquisition of Predecessor
 
—

 
(946,898
)
 
—

Acquisition of Peter Piper Pizza
 
(663
)
 
(113,142
)
 
—

Acquisition of franchisee
 
—

 
(1,529
)
 
—

Purchases of property and equipment
 
(73,034
)
 
(61,028
)
 
(9,710
)
Development of internal use software
 
(4,802
)
 
(2,130
)
 
—

Other investing activities
 
308

 
442

 
51

Net cash used in investing activities
 
(78,191
)
 
(1,124,285
)
 
(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
 
(9,500
)
 
(3,807
)
 
—

Net repayments on revolving credit facility
 
—

 
—

 
(13,500
)
Proceeds from sale leaseback transaction
 
—

 
183,685

 
—

Payment of debt financing costs
 
—

 
(27,575
)
 
—

Equity contribution
 
—

 
350,000

 
—

Dividends paid
 
(70,000
)
 
(890
)
 
(38
)
Other financing activities
 
(2,099
)
 
3,835

 
(306
)
Net cash provided by (used in) financing activities
 
(81,599
)
 
1,168,448

 
(13,844
)
Effect of foreign exchange rate changes on cash
 
(1,163
)
 
(444
)
 
(313
)
Change in cash and cash equivalents
 
(60,340
)
 
91,810

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

 
19,184

 
20,686

Cash and cash equivalents at end of period
 
$
50,654

 
$
110,994

 
$
19,184


8

CEC ENTERTAINMENT, INC.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(Unaudited)
(in thousands)



Non-GAAP Financial Measures
The Company reports and discusses its operating results using financial measures consistent with accounting principles generally accepted in the United States (“GAAP”). From time to time in the course of financial presentations, earnings conference calls or otherwise, the Company may disclose certain non-GAAP financial measures such as Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (“Adjusted EBITDA”). The Company believes Adjusted EBITDA is a measure that provides investors with additional information to measure our performance. We believe that the presentation of Adjusted EBITDA is appropriate to provide additional information to investors about certain material non-cash items and about unusual items that we do not expect to continue at the same level in the future, as well as other items. Further, we believe Adjusted EBITDA provides a meaningful measure of operating profitability because we use it for evaluating our business performance and understanding certain significant items. The non-GAAP financial measures presented in this earnings release should not be viewed as alternatives or substitutes for the Company’s reported GAAP results.
The following table sets forth a reconciliation of net income to Adjusted EBITDA and Adjusted EBITDA expressed as a percentage of total revenues for the periods shown:
 
Fourth Quarter Ended
 
 
Fiscal Year Ended
 
For the 317 Day Period Ended
 
 
For the 47 Day Period Ended
 
January 3, 2016
 
December 28, 2014
 
 
January 3, 2016
 
December 28, 2014
 
 
February 14, 2014
 
(Successor)
 
(Successor)
 
 
(Successor)
 
(Successor)
 
 
(Predecessor)
 
 
 
 
 
Total revenues
$
223,065

 
$
190,742

 
 
$
922,589


$
718,581

 
 
$
114,243

Net income (loss) as reported
$
(14,158
)
 
$
(22,153
)
 
 
$
(12,510
)
 
$
(62,088
)
 
 
$
704

Interest expense
18,550

 
17,696

 
 
70,582

 
60,952

 
 
1,151

Income tax expense (benefit)
(6,259
)
 
(15,289
)
 
 
(2,941
)
 
(31,123
)
 
 
1,018

Depreciation and amortization
29,697

 
33,173

 
 
119,294

 
118,556

 
 
9,883

Non-cash impairments, gain or loss on disposal
3,191

 
4,618

 
 
8,934

 
9,841

 
 
294

Non-cash stock-based compensation
106

 
512

 
 
838

 
703

 
 
12,639

Rent expense book to cash
1,815

 
2,147

 
 
8,463

 
10,616

 
 
(1,190
)
Franchise revenue, net cash received
895

 
381

 
 
1,217

 
2,585

 
 
—

Impact of purchase accounting
398

 
473

 
 
995

 
1,496

 
 
—

Store pre-opening costs
253

 
681

 
 
792

 
1,166

 
 
131

One-time items
10,539

 
8,577

 
 
23,085

 
55,109

 
 
(165
)
Cost savings initiatives
682

 
947

 
 
2,187

 
2,643

 
 
502

Adjusted EBITDA
$
45,709

 
$
31,763

 
 
$
220,936

 
$
170,456

 
 
$
24,967

Adjusted EBITDA as a percent of total revenues
20.5
%
 
16.7
%
 
 
23.9
%
 
23.7
%
 
 
21.9
%
Adjusted EBITDA, a measure used by management to assess operating performance, is defined as Net income (loss) plus interest expense, income taxes and depreciation and amortization, adjusted to exclude asset impairments, the effects of acquisition accounting adjustments, transaction and severance costs, and certain other items.

9

CEC ENTERTAINMENT, INC.
STORE COUNT INFORMATION
(Unaudited)

 
 
Fourth Quarter Ended
 
Fiscal Year Ended
 
 
January 3,
2016
 
December 28,
2014
 
January 3,
2016
 
December 28,
2014
Number of Company-owned stores:
 
 
 
 
 
 
 
 
Beginning of period
 
556

 
522

 
559

 
522

New (1)
 
2

 
5

 
5

 
11

Acquired by the Company (2)
 
—

 
32

 
—

 
32

Acquired from franchisee
 
—

 
—

 
—

 
1

Closed (1)
 
(2
)
 
—

 
(8
)
 
(7
)
End of period
 
556

 
559

 
556

 
559

Number of franchised stores:
 

 
 
 

 
 
Beginning of period
 
173

 
57

 
172

 
55

New (3)
 
4

 
6

 
12

 
10

Acquired by the Company (2)
 
—

 
110

 
—

 
110

Acquired from franchisee
 
—

 
—

 
—

 
(1
)
Closed (3)
 
(1
)
 
(1
)
 
(8
)
 
(2
)
End of period
 
176

 
172

 
176

 
172

Total number of stores:
 


 
 
 


 
 
Beginning of period
 
729

 
579

 
731

 
577

New (4)
 
6

 
11

 
17

 
21

Acquired by the Company (2)
 
—

 
142

 
—

 
142

Acquired from franchisee
 
—

 
—

 
—

 
—

Closed (4)
 
(3
)
 
(1
)
 
(16
)
 
(9
)
End of period
 
732

 
731

 
732

 
731

_____________________
(1) 
The number of new and closed Company-owned stores during the fourth quarter of 2015, the 2015 fiscal year and the 2014 fiscal year included one, two and two stores, respectively, that were relocated. There were no Company-owned stores that were relocated during the fourth quarter of 2014.
(2) 
In October 2014, the Company acquired Peter Piper Pizza, including 32 company-owned stores and 110 franchised stores.
(3) 
The number of new and closed franchise stores during the fourth quarter of 2014, the 2015 fiscal year and the 2014 fiscal year included one, two and one stores, respectively, that were relocated. There were no franchise stores that were relocated during the fourth quarter of 2015.
(4) 
The number of new and closed stores during the fourth quarter of 2015, the fourth quarter of 2014, the 2015 fiscal year and the 2014 fiscal year included one, one, four and three, respectively, that were relocated.





10