NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Description of Business and Summary of Significant Accounting Policies:
Description of Business:
CEC Entertainment, Inc. and its subsidiaries (the “Company”) operate and franchise Chuck E. Cheese’s and Peter Piper Pizza family dining and entertainment centers (also referred to as “venues”) in a total of
47
states and
14
foreign countries and territories. As of
December 30, 2018
we and our franchisees operated a total of
750
venues, of which
554
were Company-operated venues located in
44
states and Canada. Our franchisees operated a total of
196
venues located in
15
states and
13
foreign countries and territories, including Chile, Colombia, Guam, Guatemala, Honduras, Mexico, Panama, Peru, Puerto Rico, Saudi Arabia, Trinidad & Tobago, and the United Arab Emirates. As of
December 30, 2018
, a total of
181
Chuck E. Cheese's venues are located in California, Texas, and Florida (
178
are Company-operated and
three
are franchised locations), and a total of
135
Peter Piper Pizza venues are located in Arizona, Texas, and Mexico (
34
are Company-operated and
101
are franchised locations). The use of the terms “CEC Entertainment,” “we,” “us” and “our” throughout these Notes to Consolidated Financial Statements refer to the Company.
All of our venues 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 venues. Therefore, we aggregate each venue’s operating performance into one reportable segment for financial reporting purposes.
Basis of Presentation:
All intercompany accounts and transactions have been eliminated in consolidation.
The Company has a controlling financial interest in International Association of CEC Entertainment, Inc. (the “Association”), a VIE. The Association primarily administers the collection and disbursement of funds (the “Association Funds”) used for advertising, entertainment and media programs that benefit both us and our Chuck E. Cheese’s franchisees. We and our franchisees are required to contribute a percentage of gross sales to these funds and could be required to make additional contributions to fund any deficits that may be incurred by the Association. We include the Association in our Consolidated Financial Statements, as we concluded that we are the primary beneficiary of its variable interests because we (a) have the power to direct the majority of its significant operating activities; (b) provide it unsecured lines of credit; and (c) own the majority of the venues that benefit from the Association’s advertising, entertainment and media expenditures. We eliminate the intercompany portion of transactions with VIE’s from our financial results. The assets, liabilities and operating results of the Association are not material to our Consolidated Financial Statements.
The Association Funds are required to be segregated and used for specified purposes. Cash balances held by the Association are restricted for use in our advertising, entertainment and media programs, and are recorded as “Restricted cash” on our Consolidated Balance Sheets. Contributions to the advertising, entertainment and media funds from our franchisees were
$2.2 million
and
$2.1 million
for the year ended
December 30, 2018
and
December 31, 2017
, respectively. Cash balances held by the Association are restricted for use in our advertising, entertainment and media programs, and are recorded as “Restricted cash” on our Consolidated Balance Sheets.
Fiscal Year:
We operate on a 52 or 53 week fiscal year that ends on the Sunday nearest to December 31. Each quarterly period has 13 weeks, except for a 53 week year when the fourth quarter has 14 weeks. The fiscal years ended
December 30, 2018
,
December 31, 2017
and
January 1, 2017
each consisted of 52 weeks.
Use of Estimates and Assumptions:
The preparation of these Consolidated Financial Statements in conformity with accounting principles generally accepted in the United States (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of our Consolidated Financial Statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents:
Cash and cash equivalents are comprised of demand deposits with banks and short-term cash investments with remaining maturities of three months or less from the purchase date.
Concentrations of Credit Risk:
We have exposure to credit risk to the extent that our cash and cash equivalents exceed amounts covered by the United States and Canada deposit insurance limits, as we currently maintain a significant amount of our cash and cash equivalents balances with two major financial institutions. The individual balances, at times, may exceed the insured limits. We have not experienced any losses in such accounts. In management’s opinion, the capitalization and operating history of the financial institutions are such that the likelihood of a material loss is considered remote.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Inventories:
Inventories of food, beverages, merchandise, paper products and other supplies needed for our food service and entertainment operations are stated at the lower of cost on a first-in, first-out basis or net realizable value. Our cost consists of amounts paid to third party suppliers.
Property and Equipment:
Property and equipment are stated at cost, net of accumulated depreciation and amortization. Depreciation and amortization are charged to operations using the straight-line method over the assets’ estimated useful lives, which are as follows:
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|
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Buildings
|
40 years
|
Game and ride equipment
|
4 to 12 years
|
Non-technical play equipment
|
15 to 20 years
|
Furniture, fixtures and other equipment
|
4 to 20 years
|
Leasehold improvements are amortized using the straight-line method over the lesser of the lease term or the estimated useful lives of the related assets. We use a consistent lease period (generally, the initial non-cancelable lease term plus renewal option periods provided for in the lease that can be reasonably assured of being exercised) when estimating the depreciable lives of leasehold improvements, in determining classification of our leases as either operating or capital and in recognizing straight-line rent expense. Interest costs incurred during the construction period are capitalized and depreciated based on the estimated useful life of the underlying asset.
We review our property and equipment for indicators of impairment on an ongoing basis at the lowest level of cash flows available, which is on a venue-by-venue basis, to assess if the carrying amount may not be recoverable. Potential indicators of impairment may include a significant change in the business climate in a particular market area (for example, due to economic downturn or natural disaster), historical negative cash flows or plans to dispose of or sell the property and equipment before the end of its previously estimated useful life. If an event or change in circumstances occurs, we estimate the future cash flows expected to result from the use of the property and equipment and its eventual disposition. If the sum of the expected future cash flows, undiscounted and without interest, is less than the asset carrying amount (an indication that the carrying amount may not be recoverable), we may be required to recognize an impairment loss. We estimate the fair value of a venue’s property and equipment by discounting the expected future cash flows of the venue over its remaining lease term using a weighted average cost of capital commensurate with the risk. Any impairment loss recognized equals the amount by which the asset carrying amount exceeds its estimated fair value. In the event an asset is impaired, its carrying value is adjusted to the estimated fair value, and any subsequent increases in fair value are not recorded. Additionally, if it is determined that the estimated remaining useful life of the asset should be decreased, any periodic depreciation and amortization expense is adjusted based on the new carrying value of the asset unless the asset is written down to salvage value, at which time depreciation or amortization ceases. In
Fiscal 2018
,
Fiscal 2017
and
Fiscal 2016
, we recognized asset impairment charges of
$6.9 million
,
$1.8 million
, and
$1.6 million
, respectively.
Development of Internal Use Software:
We capitalize our internal and external costs that are directly attributable to the development, testing and validation of internal use software, such as our enterprise resource planning (ERP) system and corporate and venue related IT system initiatives. Capitalized internal development costs include the compensation, benefits and various office costs primarily related to our IT department. The capitalization of costs related to a software development project ceases once the software is ready for its intended use and the asset is amortized according to our amortization policies. In
Fiscal 2018
,
Fiscal 2017
and
Fiscal 2016
, we capitalized costs of
$2.8 million
,
$3.2 million
and
$10.5 million
, respectively, related to the development of internal use software.
Capitalized Venue Development Costs:
We capitalize our external and internal department costs that are directly attributable to venue development projects, such as the design and construction of a new venue and the remodeling and expansion of our existing venues. Capitalized internal department costs include certain compensation, benefits, travel and overhead costs related to our design, construction, facilities and legal departments. We also capitalize interest costs in conjunction with the construction of new venues. Venue development costs are initially accumulated in our construction in progress account until a project is completed. At the time of completion, the costs accumulated to date are then reclassified to property and equipment and depreciated according to our depreciation policies. In
Fiscal 2018
,
Fiscal 2017
and
Fiscal 2016
, we capitalized internal costs of
$4.6 million
,
$3.5 million
, and
$3.4 million
, respectively, related to our venue development activities.
Business Combinations:
We allocate the purchase price of an acquisition to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values at the acquisition date. We recognize as goodwill the amount by which the purchase price of an acquired entity exceeds the net of the amounts assigned to the assets acquired and
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
liabilities assumed. Fair value measurements are applied based on assumptions that market participants would use in the pricing of the asset or liability. We initially perform these valuations based upon preliminary estimates and assumptions by management or independent valuation specialists under our supervision, where appropriate, and make revisions as estimates and assumptions are finalized. We record the net assets and results of operations of an acquired entity in our Consolidated Financial Statements from the acquisition date. We expense acquisition-related costs as incurred.
Goodwill and Other Intangible Assets:
The excess of the purchase price over fair value of net identifiable assets and liabilities of an acquired business (“goodwill”), trademarks, trade names and other indefinite-lived intangible assets are not amortized, but rather tested for impairment, at least annually. We assess the recoverability of the carrying amount of our goodwill and other indefinite-lived intangible assets either qualitatively or quantitatively annually at the beginning of the fourth quarter of each fiscal year, or whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable.
When assessing the recoverability of goodwill and other indefinite-lived intangible assets, we may first assess qualitative factors. If an initial qualitative assessment indicates that it is more likely than not the carrying amount exceeds fair value, a quantitative analysis may be required. We may also elect to skip the qualitative assessment and proceed directly to the quantitative analysis.
Recoverability of the carrying value of goodwill is measured at the reporting unit level. A reporting unit is an operating segment, or a business unit one level below that operating segment, for which discrete financial information is prepared and regularly reviewed by management. The Company has determined that the operations of Chuck E. Cheese’s and Peter Piper Pizza represent two separate reporting units for purposes of measuring the recoverability of the carrying value of goodwill. In performing a quantitative analysis, we measure the recoverability of goodwill using: (i) a discounted cash flow model incorporating discount rates commensurate with the risks involved, which is classified as a Level 3 fair value measurement, and (ii) a market approach based upon public trading and recent transaction valuation multiples for similar companies. The key assumptions used in the discounted cash flow valuation model include discount rates, growth rates, tax rates, cash flow projections and terminal value rates. Discount rates, growth rates and cash flow projections are the most sensitive and susceptible to change as they require significant management judgment and are material to the financial statements.
If the calculated fair value is less than the current carrying amount, impairment of the reporting unit may exist. When the recoverability test indicates potential impairment, we calculate an implied fair value of goodwill for the reporting unit. The implied fair value of goodwill is determined in a manner similar to how goodwill is calculated in a business combination. If the implied fair value of goodwill exceeds the carrying amount of goodwill assigned to the reporting unit, there is no impairment. If the carrying amount of goodwill assigned to a reporting unit exceeds the implied fair value of the goodwill, an impairment loss is recorded to write down the carrying amount.
In performing a quantitative analysis, recoverability is measured by a comparison of the carrying amount of the indefinite-lived intangible asset over its fair value. Any excess of the carrying amount of the indefinite-lived intangible asset over its fair value is recognized as an impairment loss.
We test indefinite-lived intangible assets utilizing the relief from royalty method to determine the estimated fair value for each indefinite-lived intangible asset, which is classified as a Level 3 fair value measurement. The relief from royalty method estimates our theoretical royalty savings from ownership of the intangible asset. Key assumptions used in this model include discount rates, royalty rates, growth rates, tax rates, sales projections and terminal value rates. Discount rates, royalty rates, growth rates and sales projections are the assumptions most sensitive and susceptible to change as they require significant management judgment. Discount rates used are similar to the rates estimated by the weighted average cost of capital considering any differences in company-specific risk factors.
Intangible assets with finite lives are amortized over their estimated useful lives and are reviewed for impairment whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. Estimated weighted average useful lives are
25
years for franchise agreements and
10
years for favorable lease agreements. An impairment loss would be indicated when estimated undiscounted future cash flows from the use of the asset are less than its carrying amount. An impairment loss would be measured as the difference between the fair value (based on discounted future cash flows) and the carrying amount of the asset.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Fair Value Disclosures:
Fair value is defined as the price that we would expect to receive to sell an asset or pay to transfer a liability (an exit price) in an orderly transaction between market participants on the measurement date. In determining fair value, GAAP establishes a three-level hierarchy used in measuring fair value, as follows:
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|
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Level 1 –
|
inputs are quoted prices available for identical assets or liabilities in active markets.
|
|
|
Level 2 –
|
inputs are observable for the asset or liability, either directly or indirectly, including quoted prices for similar assets and liabilities in active markets; or other inputs that are observable or can be corroborated by observable market data.
|
|
|
Level 3 –
|
inputs are unobservable and reflect our own assumptions.
|
We may also adjust the carrying amount of certain nonfinancial assets to fair value on a non-recurring basis when they are impaired. The fair values of our long-lived assets held and used are determined using Level 3 inputs based on the estimated discounted future cash flows of the respective venue over its expected remaining useful life or lease term. Due to uncertainties in the estimates and assumptions used, actual results could differ from the estimated fair values. See Note 4. “Property and Equipment” for our impairment of long-lived assets disclosures and Note 10. “Fair Value of Financial Instruments” for our fair value disclosures.
Self-Insurance Accruals:
We are self-insured up to certain limits for certain losses related to workers’ compensation, general liability, property and our Company sponsored employee health insurance programs. We estimate the accrued liabilities for all risk retained by the Company at the end of each reporting period. This estimate is primarily based on historical claims experience and loss reserves, calculated with the assistance of an independent third-party actuary. Our deductibles generally range from
$0.2 million
to
$0.5 million
per occurrence. For claims that exceed the deductible amount, we record a gross liability and a corresponding receivable representing expected recoveries pursuant to the stop-loss coverage, since we are not legally relieved of our obligation to the claimant.
Contingent Loss Accruals:
When a contingency involving uncertainty as to a possible loss occurs, an estimate of the loss may be accrued as a charge to income and a reserve established on the Consolidated Balance Sheets. We perform regular assessments of our contingent losses and develop estimates of the degree of probability for and range of possible settlement. We accrue liabilities for losses we deem probable and for which we can reasonably estimate an amount of settlement. We do not record liabilities for losses we believe are only reasonably possible to result in an adverse outcome, but provide disclosure of the reasonably possible range of loss to the extent it is estimable. Reserve balances may be increased or decreased in the future to reflect further developments. However, there can be no assurance that there will not be a loss different from the amounts accrued. Any such loss, if realized, could have a material effect on our consolidated results of operations in the period during which the underlying matters are resolved.
Foreign Currency Translation:
Our Consolidated Financial Statements are presented in U.S. dollars. The assets and liabilities of our Canadian subsidiary are translated to U.S. dollars at year-end exchange rates, while revenues and expenses are translated at average exchange rates during the year. Adjustments that result from translating amounts are reported as a component of “Accumulated other comprehensive income (loss)” on our Consolidated Statements of Changes in Stockholder’s Equity and in our Consolidated Statements of Comprehensive Income (Loss). The effect of foreign currency exchange rate changes on cash is reported in our Consolidated Statements of Cash Flows as a separate component of the change in cash and cash equivalents during the period.
Stock-Based Compensation:
We expense the fair value of stock-based compensation awards granted to our employees and directors in our Consolidated Financial Statements on a straight-line basis over the period that services are required to be provided in exchange for the award (“requisite service period”), which typically is the period over which the award vests. Stock-based compensation is recognized only for awards that vest, and we record forfeitures as they occur. We measure the fair value of compensation cost related to stock options based on third party valuations.
Stock-based compensation expense is recorded in “General and administrative expenses” in the Consolidated Statements of Earnings, which is the same financial statement caption where the associated salary expense of employees with stock-based compensation awards is recorded. The gross benefits of tax deductions in excess of the compensation cost recognized from the vesting of stock options are tax effected and classified as cash inflows from financing activities in our Consolidated Statements of Cash Flows.
Revenue Recognition – Company Venue Activities:
Food, beverage and merchandise revenues are recognized net of discounts, when sold. Game revenues are recognized as game-play tokens, game play credits on game cards, and game play time blocks are used by guests. Prior to the
third quarter of 2018
, we offered value-priced combination packages, which
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
generally were comprised of food, beverage and game credits (and in some instances, merchandise), and allocated the revenue recognized from the sale of these combination packages, between “Food and beverage sales” and “Entertainment and merchandise sales” based upon the price charged for each component when it is sold separately, or in limited circumstances our best estimate of selling price if a component is not sold on a stand-alone basis, which we believe approximates each component’s fair value. Beginning in the
third quarter of 2018
, we offer combination packages comprised of food and beverage only, with game plays and/or time blocks available for purchase separately, and recognize revenue for each component at its stand-alone price.
Our entertainment revenue includes customer purchases of game play credits on Play Pass game cards which allow our customers to play the games in our venues and earn tickets that can be redeemed for merchandise. We recognize a liability for the estimated amount of unused game play credits and unredeemed tickets, which we believe our customers will redeem or utilize in the future based on credits remaining on Play Pass cards, utilization patterns, and revenue per game play credit sold. Our total estimate of unearned revenue for unused Play Pass credits and unredeemed tickets as of
December 30, 2018
and
December 31, 2017
was
$5.6 million
and
$12.0 million
, respectively, and is included in “Unearned revenues” in our Consolidated Balance Sheets.
We sell gift cards to our customers in our venues and through certain third-party distributors, which do not expire and do not incur a service fee on unused balances. Gift card sales are recorded as deferred revenue when sold and are recognized as revenue when: (a) the gift card is redeemed by the guest or (b) the likelihood of the gift card being redeemed by the guest is remote (“gift card breakage”) and we determine that we do not have a legal obligation to remit the value of the unredeemed gift card under applicable state unclaimed property escheat statutes. Gift card breakage is determined based upon historical redemption patterns of our gift cards.
Revenue Recognition – Franchise Fees and Royalties:
Revenues from franchise activities include area development and initial franchise fees received from franchisees to establish new venues, and once a venue is opened, a franchisee is charged monthly royalties based on a percentage of franchised venues’ sales. These fees are collectively referred to as “Franchise fees and royalties” in our Consolidated Statements of Earnings. We earn monthly royalties from our franchisees based on a percentage of each franchise venue’s sales. We also receive development and initial franchise fees to establish new franchised venues, as well as earn fees from the sale of equipment and other items or services to franchisees. Historically, we recognized development and franchise fees as revenues when the franchise venue had opened and we had substantially completed our obligations to the franchisee relating to the opening of a venue. Effective January 1, 2018, with the adoption of Accounting Standards Update 2016-10 Revenues from Contracts with Customers (Topic 606) (“ASC 606”), we recognize initial and renewal development and franchise fees as revenues on a straight-line basis over the life of the franchise agreement starting when the franchise venue has opened. Continuing royalties and other miscellaneous sales and fees are recognized in the period earned. Continuing royalties and other miscellaneous sales and fees of
$20.7 million
,
$17.9 million
and
$17.4 million
for
Fiscal 2018
,
Fiscal 2017
and
Fiscal 2016
, respectively, are included in “Franchise fees and royalties” in our Consolidated Statements of Earnings.
We and our franchisees are required to contribute a percentage of gross sales to administer all the national advertising programs that benefit both us and our franchisees. Effective January 1, 2018, with the adoption of ASC 606, our national advertising fund receipts from members of the International Association of CEC Entertainment, Inc. (the “Association”) are accounted for on a gross basis as revenue from franchisees, when historically they were netted against advertising expense (see Advertising Costs). Advertising contributions from our franchisees of
$2.2 million
for
Fiscal 2018
are included in “Franchise fees and royalties” in our Consolidated Statements of Earnings.
Cost of Food, Beverage, Entertainment and Merchandise:
Cost of food and beverage includes all direct costs of food and beverage sold to our guests and related paper and birthday supplies used in our food service operations, less “vendor rebates” described below. Cost of entertainment and merchandise includes the direct cost of prizes provided and merchandise sold to our customers, as well as the cost of tickets dispensed to customers and redeemed for prize items, as well as the cost of Play Pass and AYCP cards and wristbands. These amounts exclude any allocation of other operating costs including labor and related costs for venue personnel and depreciation and amortization expense, which are disclosed separately.
Vendor Rebates:
We receive rebate payments from certain third-party vendors. Pursuant to the terms of volume purchasing and promotional agreements entered into with the vendors, rebates are primarily provided based on the quantity of the vendors’ products we purchase over the term of the agreement. We record these allowances in the period they are earned as a reduction in the cost of the vendors’ products, and when the related inventory is sold, the allowances are recognized in “Cost of food and beverage” in our Consolidated Statements of Earnings.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Rent Expense:
We recognize rent expense on a straight-line basis over the lease term, including the construction period and lease renewal option periods provided for in the lease that can be reasonably assured at the inception of the lease. The lease term commences on the date when we take possession and have the right to control use of the leased premises. The difference between actual rent payments and rent expense in any period is recorded as a deferred rent liability and included in “Other Noncurrent Liabilities” on our Consolidated Balance Sheets. Construction allowances received from the landlord as a lease incentive intended to reimburse us for the cost of leasehold improvements (“Landlord contributions”) are accrued as deferred landlord contributions. Landlord contributions are amortized on a straight-line basis over the lease term, including lease renewal option periods provided for in the lease that can be reasonably assured at the inception of the lease, as a reduction to rent expense.
Advertising Costs:
Production costs for commercials and coupons are expensed in the period in which the commercials are initially aired and the coupons are distributed. All other advertising costs are expensed as incurred.
We and our franchisees are required to contribute a percentage of gross sales to administer all the national advertising programs that benefit both us and our franchisees. Prior to the adoption of ASC 606, effective January 1, 2018, our national advertising fund receipts from members the Association were netted against advertising expense. Our advertising contributions for Chuck E. Cheese’s franchise venues are paid to the Association and are eliminated in consolidation. Advertising contributions from our franchisees were
$2.1 million
in
Fiscal 2017
and
$2.2 million
in
Fiscal 2016
.
Income Taxes:
We account for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences attributable to temporary differences between the financial statement carrying amounts of assets and liabilities and their respective tax basis. A valuation allowance is applied against net deferred tax assets if, based on the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.
We maintain tax reserves for federal, state and foreign income taxes when we believe a position may not be fully sustained upon review by taxing authorities. Although we believe that our tax positions are fully supported by the applicable tax laws and regulations, there are matters for which the ultimate outcome is uncertain. We recognize the benefit from an uncertain tax position in our Consolidated Financial Statements when the position is at least more-likely-than-not (a greater than 50 percent chance of being sustained). The amount recognized is measured using a probability weighted approach and is the largest amount of benefit that is greater than 50 percent likelihood of being realized upon settlement or ultimate resolution with the taxing authority. We routinely assess the adequacy of the estimated liability for unrecognized tax benefits, which may be affected by changing interpretations of laws, rulings by tax authorities and administrative policies, certain changes and/or developments with respect to audits and expirations of the statute of limitations. In our Consolidated Statements of Earnings, we include interest expense related to unrecognized tax benefits in “Interest expense” and include penalties in “General and administrative expenses.” On our 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.”
Recently Issued Accounting Guidance:
Accounting Guidance Adopted:
Effective
January 1, 2018
, we adopted the following Accounting Standards Updates:
(i) ASU 2016-04,
Liabilities—Extinguishments of Liabilities (Subtopic 405-20).
This amendment provides a narrow scope exception to Liabilities—Extinguishment of Liabilities (Subtopic 405-20) that requires breakage for those liabilities to be accounted for in accordance with the breakage guidance in ASU 2014-09
Revenue From Contracts With Customers (Topic 606).
Under the new guidance, if an entity expects to be entitled to a breakage amount for a liability resulting from the sale of a prepaid stored-value product, the entity shall derecognize the amount related to the expected breakage in proportion to the pattern of rights expected to be exercised by the product holder only to the extent that it is probable that a significant reversal of the recognized breakage amount will not subsequently occur. If an entity does not expect to be entitled to a breakage amount for a prepaid stored-value product, the entity shall derecognize the amount related to the breakage when the likelihood of the product holder exercising its remaining rights becomes remote. The adoption of this amendment did not have a significant impact on our Consolidated Financial Statements.
(ii) ASU 2014-09,
Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”)
and
ASU 2016-10
, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing
(“ASU 2016-10”). ASU 2014-09 replaces the historical U.S. GAAP revenue recognition guidance and establishes a new control-based revenue recognition model, changes the basis for deciding when revenue is recognized over time or at a point in time, provides new and more detailed guidance on specific topics, and expands and improves disclosure about revenues. ASU 2016-10 updates the
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
revenue guidance on identifying performance obligations and accounting for licenses of intellectual property, changing the FASB's previous proposals on right-of-use licenses and contractual restrictions. We elected the modified retrospective method to apply these standards. Under the modified retrospective method, results for reporting periods beginning on or after
January 1, 2018
are presented under the revenue guidance in these amendments, while prior period amounts are not adjusted and continue to be reported in accordance with our historic accounting treatment. The cumulative impact of adopting this amendment was not material, and as such we did not record an adjustment to our opening accumulated deficit in our Consolidated Balance Sheet as of
January 1, 2018
. For further details, see Note 2. “Revenue.”
(iii) ASU 2016-15,
Statement of Cash Flows (Topic 230) and
ASU 2016-18,
Statement of Cash Flows (Topic 230): Restricted Cash
on a retrospective basis
.
Amounts generally described as restricted cash and restricted cash equivalents are now presented with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. Accordingly, as a result of the adoption of these amendments, we reclassified
$0.1 million
of restricted cash into cash, cash equivalents and restricted cash as of
December 31, 2017
for a total balance of
$67.3 million
, which resulted in a reduction in net cash provided by operating activities of less than $0.1 million in the Consolidated Statement of Cash Flows for the year ended
December 31, 2017
. The adoption of these amendments did not impact net cash used in investing or financing activities for the year ended
December 30, 2018
.
The adoption of these amendments also requires us to reconcile our cash balance on our Consolidated Statements of Cash Flows to the cash balance on our Consolidated Balance Sheets, as well as make disclosures about the nature of restricted cash balances. A reconciliation of “Cash and cash equivalents” and “Restricted cash” as presented in our Consolidated Balance Sheets for the periods presented and “Cash, cash equivalents and restricted cash” as presented in our Consolidated Statements of Cash Flows for the years ended
December 30, 2018
and
December 31, 2017
is as follows:
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|
|
|
|
|
|
|
|
December 30, 2018
|
|
December 31, 2017
|
|
January 1, 2017
|
|
(in thousands)
|
Cash and cash equivalents
|
$
|
63,170
|
|
|
$
|
67,200
|
|
|
$
|
61,023
|
|
Restricted cash
(1)
|
151
|
|
|
112
|
|
|
268
|
|
Cash, cash equivalents and restricted cash
|
$
|
63,321
|
|
|
$
|
67,312
|
|
|
$
|
61,291
|
|
__________________
|
|
(1)
|
Restricted cash represents cash balances held by the Association that are restricted for use in our advertising, entertainment and media programs (see “Basis of Presentation” above for further discussion of the Association Funds).
|
(iv) ASU 2017-04,
Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment
on a prospective basis.
This amendment eliminates Step 2 from the goodwill impairment test, which measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. Instead, under the amendments in this ASU, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. However, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. Additionally, an entity should consider income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable. We early adopted this amendment on January 1, 2018. The adoption of this amendment did not have a significant impact on our Consolidated Financial Statements.
Accounting Guidance Not Yet Adopted:
In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-02
,
Leases (Topic 842) (“ASU 2016-02”)
. This new standard introduces a new lease model that requires the recognition of lease assets and lease liabilities on the balance sheet and the disclosure of key information about leasing arrangements. While this new standard retains most of the principles of the existing lessor model under U.S. GAAP, it aligns many of those principles with
Accounting Standards Codification (“ASC”) 606: Revenue from Contracts with Customers
. Subsequent to ASU 2016-02, the FASB issued related ASUs, including
ASU 2018-11 (“ASU 2018-11”), Leases (Topic 842): Targeted Improvements
, which provides for another transition method in addition to the modified retrospective approach required by ASU 2016-02. This option allows entities to initially apply the new leases standard at the adoption date and recognize a cumulative adjustment to the opening balance sheet of retained earnings in the period of adoption.
We will adopt ASU 2016-02 on December 31, 2018, the first day of
Fiscal 2019
, and apply the package of practical expedients included therein, which among other things, allows us to carryforward our historical lease classification. We will also utilize the transition method included in ASU 2018-11. By applying ASU 2016-02 at the adoption date, as opposed to at the beginning of the earliest period presented, the presentation of financial information for periods prior to December 31, 2018
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
will remain unchanged and in accordance with
Leases (Topic 840).
The most significant impact of adopting the new guidance will be the recognition of Right of Use assets and lease liabilities for operating leases, while our accounting for capital leases will remain substantially unchanged. As of
December 31, 2018
, we expect to recognize additional Right-of-Use assets related to our operating leases between
$520 million
and
$620 million
and lease liabilities related to our operating leases of between
$550 million
and
$650 million
, respectively, with the difference recognized in accumulated deficit. We do not believe the adoption of the standard will have a material impact on our ongoing results of operations and cash flows. In preparation for the adoption, we have designed internal controls and information system functionality to enable the preparation of the necessary financial information.
In June 2016, the FASB issued ASU 2016-13,
Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments
. This amendment changes the impairment model for most financial assets and certain other instruments. For trade and other receivables, held-to-maturity debt securities, loans and other instruments, entities will be required to use a new forward-looking “expected loss” model that generally will result in the earlier recognition of allowances for losses. The amendments in this update are effective for the Company for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. Entities may early adopt the amendments in this update as of the fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. We do not expect the adoption of this amendment to have a significant impact on our Consolidated Financial Statements.
In January 2017, the FASB issued ASU 2017-01,
Clarifying the Definition of a Business
(Topic 805
). The amendments in this update clarify the definition of a business to assist entities with evaluating whether transactions should be accounted for as acquisitions or disposals of assets or businesses. The definition of a business affects many areas of accounting, including acquisitions, disposals, goodwill and consolidation. This ASU will be effective for us for annual and interim reporting periods beginning on January 1, 2018. We do not expect the adoption of this amendment to have a significant impact on our Consolidated Financial Statements.
In August 2017, the FASB issued ASU 2017-12,
Derivatives and Hedging (Topic 815).
This amendment expands and refines hedge accounting for both nonfinancial and financial risk components and aligns the recognition and presentation of the effects of the hedging instrument and the hedged item in the financial statements. It also includes certain targeted improvements to simplify the application of current guidance related to hedge accounting. This ASU will be effective for us for annual and interim reporting periods beginning on December 31, 2019, with early adoption permitted. We do not expect the adoption of this amendment to have a significant impact on our Consolidated Financial Statements.
In February 2018, the FASB issued ASU 2018-02,
Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.
This standard provides companies with an option to reclassify stranded tax effects resulting from enactment of the Tax Cuts and Jobs Act ("TCJA") from accumulated other comprehensive income to retained earnings. This ASU will be effective for us for annual and interim periods beginning on December 31, 2019. Early adoption of this standard is permitted and may be applied either in the period of adoption or retrospectively to each period in which the effect of the change in the tax rate as a result of TCJA is recognized. We do not expect the adoption of this ASU to have a material impact on our results of operations, financial position and cash flows.
In August 2018, the FASB issued ASU 2018-13,
Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement
. This standard will require entities to disclose the amount of total gains or losses for the period recognized in other comprehensive income that is attributable to fair value changes in assets and liabilities held as of the balance sheet date and categorized within Level 3 of the fair value hierarchy. This ASU will be effective for us for annual and interim periods beginning on December 31, 2020. Early adoption of this standard is permitted. We do not expect the adoption of this ASU to have a material impact on our results of operations, financial position and cash flows.
In August 2018, the FASB issued ASU 2018-15,
Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract
. Under this standard customers will apply the same criteria for capitalizing implementation costs as they would for an arrangement that has a software license. The adoption of this new guidance prescribes the balance sheet, income statement, and cash flow classification of the capitalized implementation costs and related amortization expense, and additional quantitative and qualitative disclosures. This ASU will be effective for us for annual and interim periods beginning on December 30, 2020. Early adoption of this standard is permitted and may be applied either prospectively to eligible costs incurred on or after the date of the new guidance or retrospectively. We do not expect the adoption of this ASU to have a material impact on our results of operations, financial position and cash flows.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 2. Revenue:
Our venues sell food, beverages, entertainment, and merchandise to customers on a stand-alone basis and through discounted packaged deals. We consider our performance obligations for food and beverages to be separate and distinct from our performance obligations on entertainment and merchandise.
Revenues are recognized net of discounts. Net revenue from each stand-alone purchase is allocated to the performance obligation purchased. Net revenue from each package deal is allocated to each performance obligation purchased pro-rata their stand-alone menu prices. Revenues are recognized at the time we complete the performance obligation, generally on the day of sale. The portion of our entertainment and merchandise revenues representing purchased and unused credits, as well as unredeemed credits, is deferred and subsequently recognized based on credits remaining and utilization patterns.
We also earn revenues from our franchises. Our franchise agreements require the payment of various fixed fees as well as the payment of royalties that are based on a percentage of franchisee sales. In addition, franchisees have the option to purchase games and equipment from our inventory. We consider our performance obligations for the franchise agreement to be separate and distinct from our performance obligations on sales of inventory. Revenue from sales of our inventory is recognized when the franchisee takes possession of the games and equipment. All other payments from franchisees are allocated to the franchise agreement, where royalties are recognized as revenue on a monthly basis and the fixed fees are recognized as revenue on a straight-line basis over the life of the franchise agreement, beginning when the first venue opens.
We sell gift cards to our customers in our venues and through certain third-party distributors, which do not expire and do not incur a service fee on unused balances. Gift card sales are recorded as deferred revenue when sold and are recognized as revenue when: (a) the gift card is redeemed by the guest or (b) the likelihood of the gift card being redeemed by the guest is remote (“gift card breakage”) and we determine that we do not have a legal obligation to remit the value of the unredeemed gift
card under applicable state unclaimed property escheat statutes. Gift card breakage is determined based upon our historical redemption patterns.
On
January 1, 2018
we adopted the revenue guidance set forth in ASU 2016-10. Under the new guidance, there is a five-step model to apply to revenue recognition. The five-steps consist of: (i) the determination of whether a contract, an agreement between two or more parties that creates legally enforceable rights and obligations, exists; (ii) the identification of the performance obligations in the contract; (iii) the determination of the transaction price; (iv) the allocation of the transaction price to the performance obligations in the contract; and (v) recognition of revenue when (or as) the performance obligation is satisfied.
ASU 2016-10 requires us to recognize initial and renewal franchise and development fees on a straight-line basis over the life of the related franchise agreement or the renewal period. Historically, we recognized revenue from initial franchise and development fees upon the opening of a franchised restaurant when we completed all of our material obligations and initial services. Additionally, our national advertising fund receipts from Association members are now accounted for on a gross basis as “Franchise fees and royalties,” when historically they were netted against “Advertising expense.” Revenue related to advertising contributions from our franchisees was
$3.6 million
the
twelve months ended
December 30, 2018
and is recorded in “Franchise fees and royalties” in our Consolidated Statement of Earnings.
Liabilities relating to unused game credits, unredeemed tickets, gift card liabilities and deferred franchise and development fees are included in “Unearned revenues” on our Consolidated Balance Sheets. The following table presents changes in the Company’s Unearned revenue balances during the
twelve months ended
December 30, 2018
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
|
|
|
Balance at
|
|
January 1, 2018
|
|
Revenue Deferred
|
|
Revenue Recognized
|
|
December 30, 2018
|
|
(in thousands)
|
Game credit and unredeemed ticket related deferred revenue
|
$
|
12,035
|
|
|
$
|
58,496
|
|
|
$
|
(64,970
|
)
|
|
$
|
5,561
|
|
Gift card related deferred revenue
|
3,868
|
|
|
8,392
|
|
|
(7,007
|
)
|
|
5,253
|
|
Unearned franchise and development fees
|
4,274
|
|
|
2,131
|
|
|
(84
|
)
|
|
6,321
|
|
Other unearned revenues
|
873
|
|
|
25,918
|
|
|
(25,802
|
)
|
|
989
|
|
Total unearned revenue
|
$
|
21,050
|
|
|
$
|
94,937
|
|
|
$
|
(97,863
|
)
|
|
$
|
18,124
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 3. Accounts Receivable:
Accounts receivable consisted of the following at the dates presented:
|
|
|
|
|
|
|
|
|
|
December 30, 2018
|
|
December 31, 2017
|
|
(in thousands)
|
Trade receivables
|
$
|
11,185
|
|
|
$
|
8,863
|
|
Vendor rebates
|
6,651
|
|
|
6,525
|
|
Other accounts receivable
|
6,184
|
|
|
4,673
|
|
Total Accounts receivable
|
$
|
24,020
|
|
|
$
|
20,061
|
|
Trade receivables consist primarily of debit and credit card receivables due from third-party financial institutions. Vendor rebates receivable are based on amounts purchased primarily from
one
supplier. The other accounts receivable balance consists primarily of lease incentives, amounts due from our franchisees and amounts expected to be recovered from third-party insurers.
Note 4. Inventories:
Inventories consisted of the following at the dates presented:
|
|
|
|
|
|
|
|
|
|
December 30, 2018
|
|
December 31, 2017
|
|
(in thousands)
|
Food and beverage
|
$
|
5,383
|
|
|
$
|
5,440
|
|
Entertainment and merchandise
|
18,424
|
|
|
16,560
|
|
Inventories
|
$
|
23,807
|
|
|
$
|
22,000
|
|
Food and beverage inventories include food, beverage, paper products and other supplies needed for our food service operations and are procured from a
single
distributor. Entertainment and merchandise inventories consist primarily of novelty toy items, used as redemption prizes for certain games, sold directly to our guests or used as part of our birthday party packages. In addition, entertainment and merchandise inventories also consist of other supplies used in our entertainment operations.
Note 5. Property and Equipment:
|
|
|
|
|
|
|
|
|
|
December 30,
2018
|
|
December 31,
2017
|
|
(in thousands)
|
Land
|
$
|
50,135
|
|
|
$
|
50,135
|
|
Buildings
|
61,378
|
|
|
56,415
|
|
Leasehold improvements
|
474,210
|
|
|
453,167
|
|
Game and ride equipment
|
263,689
|
|
|
250,139
|
|
Furniture, fixtures and other equipment
|
159,560
|
|
|
150,505
|
|
Buildings leased under capital leases
|
15,061
|
|
|
15,067
|
|
|
1,024,033
|
|
|
975,428
|
|
Less accumulated depreciation and amortization
|
(495,125
|
)
|
|
(414,245
|
)
|
Net property and equipment in service
|
528,908
|
|
|
561,183
|
|
Construction in progress
|
10,277
|
|
|
8,838
|
|
Property and equipment, net
|
$
|
539,185
|
|
|
$
|
570,021
|
|
Buildings includes certain venues leased under capital leases. Accumulated amortization related to these assets was
$5.0 million
and
$4.0 million
as of
December 30, 2018
and
December 31, 2017
, respectively. Amortization of assets under capital leases is included in “Depreciation and amortization” in our Consolidated Statements of Earnings.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
We procure games, rides and other entertainment-related equipment from a limited number of suppliers, some of which are located in China.
Asset Impairments
During
Fiscal 2018
, we recognized an asset impairment charge of
$6.9 million
primarily related to
eight
venues, of which one was previously impaired. During
Fiscal 2017
and
Fiscal 2016
, we recognized asset impairment charges of
$1.8 million
and
$1.6 million
, respectively, primarily related to
five
venues and
five
venues, respectively. These impairment charges were the result of a decline in the venues’ financial performance, primarily related to various economic factors in the markets in which the venues are located. As of
December 30, 2018
, the aggregate carrying value of the property and equipment at impaired venues, after the impairment charges, was
$4.5 million
for venues impaired in
2018
.
Note 6. Goodwill and Intangible Assets, Net:
The following table presents changes in the carrying value of goodwill for the periods ended
December 30, 2018
and
December 31, 2017
:
|
|
|
|
|
|
|
|
|
|
December 30, 2018
|
|
December 31, 2017
|
|
(in thousands)
|
Balance at beginning of period
|
$
|
484,438
|
|
|
$
|
483,876
|
|
Goodwill assigned in acquisition of franchisee
(1)
|
—
|
|
|
562
|
|
Balance at end of period
|
$
|
484,438
|
|
|
$
|
484,438
|
|
__________________
|
|
(1)
|
Represents goodwill related to two franchise venues the Company acquired in the second quarter of 2017. The acquisition did not have a significant impact on our Consolidated Balance Sheet as of
December 31, 2017
or on our Consolidated Statements of Earnings for
Fiscal 2017
.
|
The following table presents our indefinite and definite-lived intangible assets at
December 30, 2018
and
December 31, 2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 30, 2018
|
|
December 31, 2017
|
|
Weighted Average Life (Years)
|
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
|
Net Carrying Amount
|
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
|
Net Carrying Amount
|
|
|
|
(in thousands)
|
Chuck E. Cheese's tradename
|
Indefinite
|
|
$
|
400,000
|
|
|
$
|
—
|
|
|
$
|
400,000
|
|
|
$
|
400,000
|
|
|
$
|
—
|
|
|
$
|
400,000
|
|
Peter Piper Pizza tradename
|
Indefinite
|
|
26,700
|
|
|
—
|
|
|
26,700
|
|
|
26,700
|
|
|
—
|
|
|
26,700
|
|
Favorable lease agreements
(1)
|
10
|
|
14,880
|
|
|
(8,550
|
)
|
|
6,330
|
|
|
14,880
|
|
|
(7,306
|
)
|
|
7,574
|
|
Franchise agreements
|
25
|
|
53,300
|
|
|
(9,245
|
)
|
|
44,055
|
|
|
53,300
|
|
|
(7,197
|
)
|
|
46,103
|
|
|
|
|
$
|
494,880
|
|
|
$
|
(17,795
|
)
|
|
$
|
477,085
|
|
|
$
|
494,880
|
|
|
$
|
(14,503
|
)
|
|
$
|
480,377
|
|
__________________
|
|
(1)
|
In connection with the Merger, as defined in Note 19 “Consolidating Guarantor Financial Information”, and the acquisition of Peter Piper Pizza (“PPP”) in October 2014 (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 noncurrent liabilities” in our Consolidated Balance Sheets. Such amounts are being amortized over a weighted average life of
10 years
, and are included in “Rent expense” in our Consolidated Statements of Earnings.
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Our estimated future amortization expense related to the favorable lease agreements and franchise agreements is set forth as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Favorable Lease Agreements
|
|
Franchise Agreements
|
Fiscal 2019
|
|
$
|
1,102
|
|
|
$
|
2,049
|
|
Fiscal 2020
|
|
1,050
|
|
|
2,088
|
|
Fiscal 2021
|
|
846
|
|
|
2,049
|
|
Fiscal 2022
|
|
753
|
|
|
2,049
|
|
Fiscal 2023
|
|
631
|
|
|
2,049
|
|
Thereafter
|
|
1,948
|
|
|
33,771
|
|
|
|
$6,330
|
|
$44,055
|
Amortization expense related to favorable lease agreements was
$1.2 million
for
Fiscal 2018
,
$1.6 million
for
Fiscal 2017
and
$2.0 million
for
Fiscal 2016
, respectively, and is included in “Rent expense” in our Consolidated Statements of Earnings. Amortization expense related to franchise agreements was
$2.0 million
for
Fiscal 2018
,
Fiscal 2017
and
Fiscal 2016
, respectively, and is included in “Depreciation and amortization” in our Consolidated Statements of Earnings.
Note 7. Other Noncurrent Assets:
Other noncurrent assets consisted of the following as of the dates presented:
|
|
|
|
|
|
|
|
|
|
|
|
December 30,
2018
|
|
December 31,
2017
|
|
|
(in thousands)
|
Internally developed software, net
(1)
|
|
$
|
14,756
|
|
|
$
|
17,167
|
|
Deferred charges
(2)
|
|
1,122
|
|
|
24
|
|
Deposits
|
|
848
|
|
|
1,125
|
|
Other
|
|
1,999
|
|
|
1,161
|
|
Total other noncurrent assets
|
|
$
|
18,725
|
|
|
$
|
19,477
|
|
__________________
|
|
(1)
|
Relates to the costs directly attributable to the development, testing and validation of internally developed software, primarily our ERP system, Play Pass, and IT related security initiatives, net of accumulated amortization of
$10.3 million
and
$6.6 million
at
December 30, 2018
and
December 31, 2017
, respectively. The assets are being amortized over a weighted average life of
6 years
. See Note 1. “Description of Business and Summary of Significant Accounting Policies - Development of Internal Use Software.”
|
|
|
(2)
|
December 30, 2018
includes a commitment to a supplier for IT related services to be paid in January 2020.
|
Note 8. Accounts Payable:
Accounts payable consisted of the following as of the dates presented:
|
|
|
|
|
|
|
|
|
|
December 30, 2018
|
|
December 31, 2017
|
|
(in thousands)
|
Trade and other amounts payable
|
$
|
20,685
|
|
|
$
|
20,492
|
|
Book overdraft
|
10,725
|
|
|
10,882
|
|
Accounts Payable
|
$
|
31,410
|
|
|
$
|
31,374
|
|
Trade and other amounts payable represents amounts payable to our vendors, legal fee accruals and settlements payable. The book overdraft balance represents checks issued but not yet presented to banks.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 9. Accrued Expenses:
Accrued expenses consisted of the following as of the dates presented:
|
|
|
|
|
|
|
|
|
|
December 30, 2018
|
|
December 31, 2017
|
|
(in thousands)
|
Current:
|
|
|
|
Salaries and wages
|
$
|
13,702
|
|
|
$
|
11,366
|
|
Insurance
|
4,836
|
|
|
6,614
|
|
Taxes, other than income taxes
|
13,488
|
|
|
13,151
|
|
Other accrued operating expenses
|
4,004
|
|
|
5,485
|
|
Accrued expenses
|
$
|
36,030
|
|
|
$
|
36,616
|
|
Noncurrent:
|
|
|
|
Insurance
|
$
|
9,861
|
|
|
$
|
8,311
|
|
Accrued current and noncurrent insurance represents estimated claims incurred but unpaid under our self-insurance programs for general liability, workers’ compensation, health benefits and certain other insured risks.
Note 10. Indebtedness and Interest Expense:
Our long-term debt consisted of the following for the periods presented:
|
|
|
|
|
|
|
|
|
|
December 30,
2018
|
|
December 31,
2017
|
|
(in thousands)
|
Term loan facility
|
$
|
723,900
|
|
|
$
|
731,500
|
|
Senior notes
|
255,000
|
|
|
255,000
|
|
Total debt outstanding
|
978,900
|
|
|
986,500
|
|
Less:
|
|
|
|
Unamortized original issue discount
|
(1,153
|
)
|
|
(1,694
|
)
|
Deferred financing costs, net
|
(8,633
|
)
|
|
(11,993
|
)
|
Current portion
|
(7,600
|
)
|
|
(7,600
|
)
|
Bank indebtedness and other long-term debt, less current portion
|
$
|
961,514
|
|
|
$
|
965,213
|
|
We were in compliance with the debt covenants in effect as of
December 30, 2018
for both the secured credit facilities and the senior notes. For further discussion regarding the debt covenants, see Secured Credit Facilities and Senior Unsecured Notes sections below.
Secured Credit Facilities
In connection with the Merger on February 14, 2014, we entered into new senior secured credit facilities, which include an initial
$760.0 million
term loan facility with a maturity date of February 14, 2021 (the “term loan facility”) and a
$150.0 million
senior secured revolving credit facility with an original maturity date of February 14, 2019, which includes a letter of credit sub-facility and a
$30.0 million
swingline loan sub-facility (the “revolving credit facility” and, together with the term loan facility, the “secured credit facilities”).
As of
December 30, 2018
, we had
no
borrowings outstanding and a $9.0 million letter of credit issued but undrawn under the revolving credit facility and no borrowings outstanding and
$9.9 million
of letter of credit issued but undrawn under the revolving credit facility as of
December 31, 2017
. On May 8, 2018 we entered into an incremental assumption agreement with certain of our revolving credit facility lenders to extend the maturity on $95.0 million of the revolving credit facility through November 16, 2020. In connection with the extension of the maturity date, we paid fees of $0.4 million and agreed to the following covenants for the benefit of the revolving facility lenders: (a) with respect to each fiscal year (commencing with the fiscal year ending December 30, 2018), we are required to make a mandatory prepayment of term loan principal to the extent that 75% times our excess cash flow (as defined in the secured credit facilities agreement and subject to step-downs based on our net first lien senior secured leverage ratio) exceeds $10 million and any such required mandatory payment shall be reduced by any optional prepayments of principal that may have occurred during the fiscal year, and (b) we shall not incur additional first lien senior secured debt in connection with certain acquisitions, mergers or consolidations unless our net first lien senior secured leverage ratio is not greater than 3.65 to 1.00 on a pro forma basis. The maturity date of the amount of the
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
revolving credit facility that was not extended remains February 14, 2019. All borrowings under our revolving credit facility are subject to the satisfaction of customary conditions, including the absence of a default and the accuracy of representations and warranties.
We received net proceeds from the term loan facility of
$756.2 million
, net of original issue discount of
$3.8 million
, which were used to fund a portion of the Acquisition. We paid
$17.8 million
and $3.8 million in debt issuance costs related to the term loan facility and revolving credit facility (including fees related to extending the maturity date), respectively, which we capitalized in “Bank indebtedness and other long-term debt, net of deferred financing costs” on our Consolidated Balance Sheets. The original issue discount and deferred financing costs are amortized over the lives of the facilities and are included in “Interest expense” on our Consolidated Statements of Earnings.
We may request one or more incremental term loan facilities and/or increase commitments under our revolving credit facility in an aggregate amount of up to the sum of (a)
$200.0 million
plus (b) such additional amount so long as, (i) in the case of loans under additional credit facilities that rank equally and without preference with the liens on the collateral securing the secured credit facilities, our consolidated net first lien senior secured leverage ratio would be no greater than
4.25
to 1.00 and (ii) in the case of loans under additional credit facilities that rank junior to the liens on the collateral securing the secured credit facilities, our consolidated total net secured leverage ratio would be no greater than
5.25
to 1.00, subject to certain conditions, and receipt of commitments by existing or additional lenders.
We may voluntarily repay outstanding loans under the secured credit facilities at any time, without prepayment premium or penalty, except in connection with a repricing event as described below, subject to customary “breakage” costs with respect to London Interbank Offered Rate (“LIBOR”) loans.
The secured credit facilities require scheduled quarterly payments on the term loan equal to 0.25% of the original principal amount of the term loan from July 2014 to December 2020, with the remaining balance paid at maturity, February 14, 2021. The secured credit facilities include customary mandatory prepayment requirements based on defined events, such as certain asset sales and debt issuances. In addition (as described above in more detail), we are required to make a mandatory prepayment of term loan principal to the extent that 75% times our excess cash flow exceeds $10.0 million.
Borrowings under the secured credit facilities bear interest at a rate equal to, at our option, either (a) 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 under the term loan facility is subject to one step down to
3.00%
based on our net first lien senior secured leverage ratio, and the applicable margin for borrowings under the revolving credit facility is subject to two step-downs to
3.00%
and
2.75%
based on our net first lien senior secured leverage ratio. During
Fiscal 2018
, the applicable margin for LIBOR borrowings under both the term loan facility and the revolving credit facility was
3.25%
.
During
Fiscal 2018
, the federal funds rate ranged from
1.34%
to
2.40%
, the prime rate ranged from
4.50%
to
5.50%
and the one-month LIBOR ranged from
1.55%
to
2.52%
.
The weighted average effective interest rate incurred on our borrowings under our secured credit facilities was
5.8%
for the
2018 fiscal year
,
4.7%
for the
2017
fiscal year and
4.6%
for the
2016
fiscal year, 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.
All borrowings under our revolving credit facility are subject to the satisfaction of customary conditions, including the absence of a default and the accuracy of representations and warranties.
In addition to paying interest on outstanding principal under the secured credit facilities, we are required to pay a commitment fee equal to
0.50%
per annum to the lenders under the revolving credit facility in respect of the unutilized commitments thereunder. The applicable commitment fee under the revolving credit facility is subject to one step-down to
0.375%
based on our net first lien senior secured leverage ratio. During
Fiscal 2018
, the commitment fee rate was
0.50%
. We are also required to pay customary agency fees, as well as letter of credit participation fees computed at a rate per annum equal to the applicable margin for LIBOR rate borrowings on the dollar equivalent of the daily stated amount of outstanding letters of credit, plus such letter of credit issuer’s customary documentary and processing and fronting fees computed at a rate equal to
0.125%
per annum on the daily stated amount of each letter of credit.
Obligations under the secured credit facilities are unconditionally guaranteed by Queso Holdings Inc. (“Parent”) on a limited-recourse basis and each of our existing and future direct and indirect material, wholly owned domestic subsidiaries, subject to certain exceptions. The obligations are secured by a pledge of our capital stock and substantially all of our assets and
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
those of each subsidiary guarantor, including capital stock of the subsidiary guarantors and
65.0%
of the capital stock of the first-tier foreign subsidiaries that are not subsidiary guarantors, in each case subject to exceptions. Such security interests consist of a first-priority lien with respect to the collateral.
The secured credit facilities also contain customary covenants and events of default. The covenants limit our ability to, among other things: (i) incur additional debt or issue certain preferred shares; (ii) create liens on certain assets; (iii) make certain loans or investments (including acquisitions); (iv) pay dividends on or make distributions in respect of our capital stock or make other restricted payments; (v) consolidate, merge, sell or otherwise dispose of all or substantially all of our assets; (vi) sell assets; enter into certain transactions with our affiliates; (vii) enter into sale-leaseback transactions; (viii) change our lines of business; restrict dividends from our subsidiaries or restrict liens; (ix) change our fiscal year; and (x) modify the terms of certain debt or organizational agreements. The PPP acquisition and the sale leaseback transactions discussed in Note 6. “Goodwill and Intangible Assets, Net” and Note 13. “Sale Leaseback Transactions” were permitted under the secured credit facilities agreement.
Our revolving credit facility includes a springing financial maintenance covenant that requires our net first lien senior secured leverage ratio not to exceed
6.25
to 1.00 (the ratio of consolidated net debt secured by first-priority liens on the collateral to last twelve month’s EBITDA, as defined in the Senior Credit Facilities). The covenant will be tested quarterly when the revolving credit facility is more than
30.0%
drawn (excluding outstanding letters of credit) and will be a condition to drawings under the revolving credit facility that would result in more than
30.0%
drawn thereunder.
Senior Unsecured Notes
On February 19, 2014, we issued
$255.0 million
aggregate principal amount of
8.000%
Senior Notes due 2022 which mature on February 15, 2022 (the “senior notes”) in a private offering. On December 2, 2014 we completed an exchange offer whereby the original senior notes were exchanged for new notes (the “exchange notes”) which are identical to the initial senior notes except that the issuance of the exchange notes is registered under the Securities Act, the exchange notes do not bear legends restricting their transfer and they are not entitled to registration rights under our registration rights agreement. We refer to the senior notes and the exchange notes collectively as the “senior notes.” We may redeem some or all of the senior notes at certain redemption prices set forth in the indenture governing the senior notes (the “indenture”).
We paid
$6.4 million
in debt issuance costs related to the senior notes, which we recorded as an offset to “Bank indebtedness and other long-term debt, net of deferred financing costs” on our Consolidated Balance Sheets. The deferred financing costs are being amortized over the life of the senior notes to “Interest expense” on our Consolidated Statements of Earnings.
Our obligations under the senior notes are fully and unconditionally guaranteed, jointly and severally, by our present and future direct and indirect wholly-owned material domestic subsidiaries that guarantee our secured credit facilities.
The indenture contains restrictive covenants that limit our ability to, among other things: (i) incur additional debt or issue certain preferred shares; (ii) create liens on certain assets; (iii) make certain loans or investments (including acquisitions); (iv) pay dividends on or make distributions in respect of our capital stock or make other restricted payments; (v) consolidate, merge, sell or otherwise dispose of all or substantially all of our assets; (vi) sell assets; (vii) enter into certain transactions with our affiliates; and (viii) restrict dividends from our subsidiaries.
The weighted average effective interest rate incurred on borrowings under our senior notes was
8.2%
for the
2018
,
2017
, and
2016
fiscal years, which includes amortization of debt issuance costs and other fees related to our senior notes.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Debt Obligations
The following table sets forth our future debt payment obligations as of
December 30, 2018
(in thousands):
|
|
|
|
|
One year or less
|
$
|
7,600
|
|
Two years
|
7,600
|
|
Three years
|
708,700
|
|
Four years
|
255,000
|
|
Five years
|
—
|
|
|
978,900
|
|
Less: debt financing costs, net
|
(8,633
|
)
|
Less: unamortized discount
|
(1,153
|
)
|
|
$
|
969,114
|
|
Interest Expense
Interest expense consisted of the following for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
December 30,
2018
|
|
December 31, 2017
|
|
January 1,
2017
|
|
(in thousands)
|
Term loan facility
(1)
|
$
|
39,065
|
|
|
$
|
31,549
|
|
|
$
|
30,987
|
|
Senior notes
|
20,330
|
|
|
20,330
|
|
|
19,774
|
|
Capital lease obligations
|
1,643
|
|
|
1,695
|
|
|
1,749
|
|
Sale leaseback obligations
|
10,488
|
|
|
10,585
|
|
|
10,714
|
|
Amortization of debt issuance costs
|
3,803
|
|
|
4,005
|
|
|
4,005
|
|
Other
|
954
|
|
|
951
|
|
|
516
|
|
Total interest expense
|
$
|
76,283
|
|
|
$
|
69,115
|
|
|
$
|
67,745
|
|
__________________
(1) Includes amortization of original issue discount
The weighted average effective interest rate incurred on our borrowings under our secured credit facilities and senior notes (including amortized debt issuance costs, amortization of original issue discount, commitment and other fees related to the secured credit facilities and senior notes) was
6.4%
for the
2018 fiscal year
,
5.6%
for the
2017
fiscal year, and
5.5%
for the
2016
fiscal year.
Note 11. Fair Value of Financial Instruments:
Fair value measurements are determined based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entity’s own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy) has been established.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The following table presents information on our financial instruments as of the dates presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 30, 2018
|
|
December 31, 2017
|
|
|
Carrying Amount
(1)
|
|
Estimated Fair Value
|
|
Carrying Amount
(1)
|
|
Estimated Fair Value
|
|
|
(in thousands)
|
Financial Liabilities:
|
|
|
|
|
|
|
|
|
Bank indebtedness and other long-term debt:
|
|
|
|
|
|
|
|
|
Current portion
|
|
$
|
7,600
|
|
|
$
|
7,051
|
|
|
$
|
7,600
|
|
|
$
|
7,220
|
|
Long-term portion
|
|
970,147
|
|
|
885,212
|
|
|
977,206
|
|
|
937,662
|
|
Bank indebtedness and other long-term debt:
|
|
$
|
977,747
|
|
|
$
|
892,263
|
|
|
$
|
984,806
|
|
|
$
|
944,882
|
|
__________________
(1) Excluding net deferred financing costs.
Our financial instruments consist of cash and cash equivalents, restricted cash, accounts receivable, accounts payable, our secured credit facilities and our senior notes. The carrying amount of cash and cash equivalents, accounts receivable and accounts payable approximates fair value because of their short maturities. The estimated fair value of our secured credit facilities' term loan facility and senior notes was determined by using the respective average of the ask and bid price of our outstanding borrowings under our term loan facility and our senior notes as of the nearest open market date preceding the reporting period end. The average of the ask and bid price are classified as Level 2 in the fair value hierarchy.
Our non-financial assets, which include long-lived assets, including property, plant and equipment, goodwill and intangible assets, are reported at carrying value and are not required to be measured at fair value on a recurring basis. However, on a periodic basis, or whenever events or changes in circumstances indicate that their carrying value may not be recoverable, we assess our long-lived assets for impairment.
During
Fiscal 2018
and
Fiscal 2017
, there were no significant transfers among level 1, 2 or 3 fair value determinations.
Note 12. Other Noncurrent Liabilities:
Other noncurrent liabilities consisted of the following as of the dates presented:
|
|
|
|
|
|
|
|
|
|
|
|
December 30,
2018
|
|
December 31,
2017
|
|
|
(in thousands)
|
Sale leaseback obligations, less current portion
(1)
|
|
$
|
174,520
|
|
|
$
|
177,933
|
|
Deferred rent liability
|
|
31,978
|
|
|
27,951
|
|
Deferred landlord contributions
|
|
7,603
|
|
|
6,282
|
|
Long-term portion of unfavorable leases
|
|
3,796
|
|
|
5,453
|
|
Long-term portion of cease use liabilities
(2)
|
|
1,818
|
|
|
—
|
|
Other
|
|
6,534
|
|
|
4,268
|
|
Total other noncurrent liabilities
|
|
$
|
226,249
|
|
|
$
|
221,887
|
|
_________________
|
|
(1)
|
See Note 13 “Sale Leaseback Transaction” for further discussion on our sale leaseback obligations.
|
|
|
(2)
|
In connection with three Peter Piper Pizza venues in Oklahoma that were closed in 2018, we recorded cease use liabilities totaling
$1.8 million
related to future lease related obligations, net of expected future sublease income, which are included in “Other current liabilities” and “Other noncurrent liabilities” in our Consolidated Balance Sheets at
December 30, 2018
. The liabilities consisted of
$0.9 million
related to future rental payments, net of expected future sublease income, and
$0.9 million
related to future common area maintenance, property tax and insurance expenses, which are included in “Rent expense” and “Other venue operating expenses”, respectively, in our Consolidated Statements of Earnings for
Fiscal 2018
.
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 13. Sale Leaseback Transactions:
On August 25, 2014, we completed a sale leaseback transaction (the “Sale Leaseback”) with National Retail Properties, Inc. (“NRP”). Pursuant to the Sale Leaseback, we sold
49
properties located throughout the United States to NRP, and we leased each of the
49
properties back from NRP pursuant to two separate master leases on a triple-net basis for their continued use as Chuck E. Cheese’s family dining and entertainment venues. On
April 25, 2017
, we completed an additional sale leaseback transaction with NADG NNN Acquisitions, Inc. (“NADG NNN”), pursuant to which we sold our property located in Conyers, Georgia to NADG NNN (the “Conyers Sale Leaseback” and together with the Sale Leaseback, the “Sale Leasebacks”), and we leased the property back from NADG NNN pursuant to a master lease on a triple-net basis for its continued use as Chuck-E-Cheese’s family dining and entertainment venue.
The leases in the Sale Leasebacks have an initial term of
20 years
, with
four
five
-year options to renew. For accounting purposes, these sale-leaseback transactions are accounted for under the financing method, rather than as completed sales. Under the financing method, we (i) include the sales proceeds received in other long-term liabilities until our continuing involvement with the properties is terminated, (ii) report the associated property as owned assets, (iii) continue to depreciate the assets over their remaining useful lives, and (iv) record the rental payments as interest expense and a reduction of the sale leaseback obligation. When and if our continuing involvement with a property terminates and the sale of that property is recognized for accounting purposes, we expect to record a gain equal to the excess of the proceeds received over the remaining net book value of the property.
The aggregate purchase price for the properties in connection with the Sale Leaseback was
$183.7 million
in cash, and the proceeds, net of taxes and transaction costs, realized by the Company were
$143.2 million
. A portion of the proceeds from the Sale Leaseback was used for the PPP Acquisition. We used the remaining net proceeds from the Sale Leaseback for capital expenditure needs and other general corporate purposes. The aggregate purchase price for the property in connection with the Conyers Sale Leaseback transaction was approximately
$4.1 million
in cash, and the net proceeds realized were approximately
$3.9 million
.
The long-term and current portions of our obligations under the Sale Leasebacks were
$174.5 million
and
$3.4 million
, respectively, as of
December 30, 2018
, and are included in “Other noncurrent liabilities” and “Other current liabilities” in our Consolidated Balance Sheets. The net book value of the associated assets, which is included in “Property and equipment, net” in our Consolidated Balance Sheets, was
$82.4 million
and
$79.3 million
as of
December 30, 2018
and
December 31, 2017
, respectively.
Our future minimum lease commitments related to the Sale Leasebacks, as of
December 30, 2018
for fiscal years
2019
,
2020
,
2021
,
2022
,
2023
and thereafter are, in thousands,
$14,083
,
$14,360
,
$14,641
,
$14,947
,
$15,249
and
$183,737
.
Note 14. Commitments and Contingencies:
Leases
We lease certain venues under operating and capital leases that expire at various dates through
2037
with renewal options that expire at various dates through
2054
. The leases generally require us to pay a minimum rent, property taxes, insurance, other maintenance costs and, in some instances, additional rent equal to the amount by which a percentage of the venue’s revenues exceed
certain thresholds as stipulated in the respective lease agreement. The leases generally have initial terms of
10
to
20
years with various renewal options.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The annual future lease commitments under capital lease obligations and non-cancelable operating leases, including reasonably assured option periods but excluding contingent rent, as of
December 30, 2018
, are as follows:
|
|
|
|
|
|
|
|
|
|
Capital
|
|
Operating
|
Fiscal Years
|
(in thousands)
|
2019
|
$
|
2,182
|
|
|
$
|
92,435
|
|
2020
|
2,214
|
|
|
90,983
|
|
2021
|
2,201
|
|
|
88,914
|
|
2022
|
2,184
|
|
|
87,183
|
|
2023
|
1,956
|
|
|
84,806
|
|
Thereafter
|
13,266
|
|
|
457,277
|
|
Future minimum lease payments
|
24,003
|
|
|
901,598
|
|
Less amounts representing interest
|
(10,996
|
)
|
|
|
Present value of future minimum lease payments
|
13,007
|
|
|
|
Less current portion
|
(677
|
)
|
|
|
Capital lease obligations, net of current portion
|
$
|
12,330
|
|
|
|
Rent expense, including contingent rent based on a percentage of venues’ sales, when applicable, was comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
2018
|
|
2017
|
|
2016
|
|
(in thousands)
|
Minimum rentals
|
$
|
97,598
|
|
|
$
|
96,927
|
|
|
$
|
96,953
|
|
Contingent rentals
|
43
|
|
|
156
|
|
|
217
|
|
|
$
|
97,641
|
|
|
$
|
97,083
|
|
|
$
|
97,170
|
|
Rent expense of
$1.2 million
related to our corporate offices and warehouse facilities was included in “General and administrative expenses” in our Consolidated Statements of Earnings for the fiscal years ended
December 30, 2018
,
December 31, 2017
and
January 1, 2017
.
Unconditional Purchase Obligations
Our unconditional purchase obligations consist of agreements to purchase goods or services that are enforceable and legally binding on us and that specify all significant terms, including (a) fixed or minimum quantities to be purchased; (b) fixed, minimum or variable price provisions; and (c) the approximate timing of the transaction. Our purchase obligations with terms in excess of one year totaled
$9.2 million
at
December 30, 2018
and consisted primarily of obligations associated with the modernization of various information technology platforms and information technology data security service agreements, and the fixed price purchase agreements relating to beverage products. These purchase obligations exclude agreements that can be canceled without significant penalty.
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. All necessary loss accruals based on the probability and estimate of loss have been recorded.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Litigation Related to the Merger:
Following the January 16, 2014 announcement that CEC Entertainment had entered into an agreement (“Merger Agreement”), pursuant to which an entity controlled by Apollo Global Management, LLC (“Apollo”) and its subsidiaries merged with and into CEC Entertainment, with CEC Entertainment surviving the merger (the “Merger”),
four
putative shareholder class actions were filed in the District Court of Shawnee County, Kansas, on behalf of purported stockholders of CEC Entertainment, against A.P. VIII Queso Holdings, L.P., CEC Entertainment, CEC Entertainment's directors, Apollo and Merger Sub (as defined in the Merger Agreement), in connection with the Merger Agreement and the transactions contemplated thereby. These actions were consolidated into
one
action (the “Consolidated Shareholder Litigation”) in March 2014, and on July 21, 2015, a consolidated class action petition was filed as the operative consolidated complaint, asserting claims against CEC’s former directors, adding The Goldman Sachs Group (“Goldman Sachs”) as a defendant, and removing all Apollo entities as defendants (the “Consolidated Class Action Petition”). The Consolidated Class Action Petition alleges that CEC Entertainment’s directors breached their fiduciary duties to CEC Entertainment’s stockholders in connection with their consideration and approval of the Merger Agreement by, among other things, conducting a deficient sales process, agreeing to an inadequate tender price, agreeing to certain provisions in the Merger Agreement, and filing materially deficient disclosures regarding the transaction. The Consolidated Class Action Petition also alleges that
two
members of CEC Entertainment’s board who also served as the senior managers of CEC Entertainment had material conflicts of interest and that Goldman Sachs aided and abetted the board’s breaches as a result of various conflicts of interest facing the bank. The Consolidated Class Action Petition seeks, among other things, to recover damages, attorneys’ fees and costs. The Company assumed the defense of the Consolidated Shareholder Litigation on behalf of CEC’s named former directors and Goldman Sachs pursuant to existing indemnity agreements. On March 23, 2016, the Court conducted a hearing on the defendants’ Motion to Dismiss the Consolidated Class Action Petition and on March 1, 2017, the Special Master appointed by the Court issued a report recommending to the Court that the Consolidated Class Action Petition be dismissed. On September 9, 2018, the Court accepted the Special Master’s recommendations and dismissed the lawsuit in its entirety. On October 8, 2018, the Plaintiff in the Consolidated Shareholder Litigation filed a notice of appeal of the District Court’s decision. While no assurance can be given as to the ultimate outcome of the consolidated matter, we currently believe that the final resolution of the action will not have a material adverse effect on our results of operations, financial position, liquidity or capital resources.
Note 15. Income Taxes:
For financial reporting purposes, income (loss) before income taxes includes the following components:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
|
2018
|
|
2017
|
|
2016
|
|
(in thousands)
|
United States
|
|
$
|
(28,731
|
)
|
|
$
|
(25,667
|
)
|
|
$
|
(11,002
|
)
|
Foreign (including U.S. Possessions)
|
|
3,249
|
|
|
4,442
|
|
|
4,709
|
|
Income (loss) before income taxes
|
|
$
|
(25,482
|
)
|
|
$
|
(21,225
|
)
|
|
$
|
(6,293
|
)
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Our income tax expense (benefit) consists of the following for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
|
2018
|
|
2017
|
|
2016
|
|
(in thousands)
|
Current tax expense (benefit):
|
|
|
|
|
|
|
Federal
|
|
$
|
1,276
|
|
|
$
|
(2,668
|
)
|
|
$
|
8,008
|
|
State
|
|
1,090
|
|
|
(708
|
)
|
|
3,879
|
|
Foreign
|
|
795
|
|
|
960
|
|
|
1,008
|
|
|
|
3,161
|
|
|
(2,416
|
)
|
|
12,895
|
|
Deferred tax expense (benefit):
|
|
|
|
|
|
|
Federal
|
|
(8,382
|
)
|
|
(72,829
|
)
|
|
(11,848
|
)
|
State
|
|
24
|
|
|
(137
|
)
|
|
(3,274
|
)
|
Foreign
|
|
176
|
|
|
1,091
|
|
|
(399
|
)
|
|
|
(8,182
|
)
|
|
(71,875
|
)
|
|
(15,521
|
)
|
Income tax expense (benefit)
|
|
$
|
(5,021
|
)
|
|
$
|
(74,291
|
)
|
|
$
|
(2,626
|
)
|
A reconciliation of the federal statutory income tax rate to our effective tax rate is as follows:
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
2018
|
|
2017
|
|
2016
|
Federal statutory rate
|
(21.0
|
)%
|
|
(35.0
|
)%
|
|
(35.0
|
)%
|
State income taxes, net of federal benefit
|
2.0
|
%
|
|
(4.5
|
)%
|
|
2.5
|
%
|
Federal employment related income tax credits, net
|
(2.9
|
)%
|
|
(1.2
|
)%
|
|
(21.8
|
)%
|
Merger and litigation related costs
|
0.4
|
%
|
|
1.6
|
%
|
|
5.8
|
%
|
Canadian tax rate difference
|
—
|
%
|
|
0.4
|
%
|
|
2.4
|
%
|
Canadian nondeductible interest
|
—
|
%
|
|
0.7
|
%
|
|
1.8
|
%
|
Canadian deferred tax valuation adjustment
|
0.7
|
%
|
|
5.7
|
%
|
|
—
|
%
|
Canadian tax reorganization
|
0.8
|
%
|
|
(7.6
|
)%
|
|
—
|
%
|
State tax credit, valuation adjustment
|
1.3
|
%
|
|
2.0
|
%
|
|
2.8
|
%
|
Foreign taxes withheld
|
1.4
|
%
|
|
—
|
%
|
|
—
|
%
|
Other
|
0.4
|
%
|
|
1.9
|
%
|
|
(0.2
|
)%
|
Effective tax rate (before impact of Tax Cuts and Jobs Act of 2017
(1)
|
(16.9
|
)%
|
|
(36.0
|
)%
|
|
(41.7
|
)%
|
Adjustment related to the Tax Cuts and Jobs Act of 2017
(1)
|
(2.8
|
)%
|
|
(314.0
|
)%
|
|
—
|
%
|
Adjusted effective tax rate
|
(19.7
|
)%
|
|
(350.0
|
)%
|
|
(41.7
|
)%
|
_________________
(1) The Tax Cuts and Jobs Act of 2017 (enacted on December 22, 2017) resulted in a
$66.6 million
decrease of our net deferred tax liability and a corresponding benefit to our deferred federal income taxes for
Fiscal 2017
.
Our effective income tax rates for
Fiscal 2018
and
Fiscal 2017
were
16.9%
and
36.0%
, respectively (excluding the adjustment to our deferred tax liability resulting from the decrease in the federal income tax rate from
35%
to
21%
enacted on
December 22, 2017
, as part of tax the Tax Cuts and Jobs Act (the “TCJA”)). The TCJA made broad changes to the U.S. tax code that not only effected
2017
(e.g., one-time transition tax on certain unrepatriated earnings of foreign subsidiaries and bonus depreciation that will allow for full expensing of qualified property) but also impacted
2018
and subsequent years. Changes enacted by the TCJA that impact our
2018
and subsequent years include: (1) the reduction of the U.S. federal c
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
orporate income tax rate from
35%
to
21%
; (2) bonus depreciation that will allow for full expensing of certain qualified property in the year acquired and placed in service; (3) elimination of the corporate alternative minimum tax (AMT); (4) a new limitation on the deductibility of interest expense; (5) limitations on the deductibility of certain executive compensation; (6) limitations on the use of foreign tax credits to reduce current U.S. income tax liability; and (7) limitations on net operating losses generated after
December 31, 2017
, to 80 percent of taxable income.
Our effective income tax rate for
Fiscal 2018
was favorably impacted by employment-related federal income tax credits, offset by the negative impact of nondeductible litigation costs related to the Merger, nondeductible penalties, an increase in our state income tax expense for the year which in large part was caused by state tax legislation enacted during the second quarter that increased the amount of income subject to state taxation, foreign income taxes withheld (not offset by a foreign tax credits due to the foreign tax credit limitation), an increase in the reserve for uncertain tax positions, an increase in a valuation allowance for deferred tax assets associated with a carryforward of certain state tax credits and deferred tax assets relating to our Canada operations that could expire before they are utilized, partially offset by a favorable one-time adjustment to deferred tax (the tax effect of the cumulative foreign currency translation adjustment existing as of January 1, 2018) resulting from the change in our intent to no longer indefinitely reinvest monies previously loaned to our Canadian subsidiary recorded in the first quarter.
Our effective income tax rate for
Fiscal 2018
was also favorably impacted by adjustments to the provisional estimates provided in Fiscal 2017 to account for the impact of the TCJA pursuant to Staff Accounting Bulletin No. 118 (“SAB 118”). The SEC staff issued SAB 118 on
December 22, 2017
, which allows a company to recognize provisional amounts during a measurement period when it does not have the necessary information available, prepared or analyzed (including computations) in reasonable detail to complete its accounting for the change in tax law. SAB 118 further provides that the measurement period for finalizing the provisional estimates should not extend beyond one year from the enactment of the TCJA and that any adjustments made to the provisional amounts under SAB 118 should be recorded as discrete adjustments in the period identified.
Pursuant to SAB 118, we included a provisional estimate of
$66.6 million
tax benefit in our consolidated financial statements for the fiscal year ended
December 31, 2017
, relating to the enactment of TJCA, which primarily related to the re-measurement of our deferred tax liability. In the second quarter of
Fiscal 2018
, we recorded an adjustment to the provisional estimate of
$0.2 million
tax benefit, in the third quarter of
Fiscal 2018
, we recorded an incremental adjustment to the provisional estimate of
$0.5 million
tax benefit. The measurement period relating to the enactment of the TCJA ended during our fourth quarter, and the tax effects thereof have been completed as of the end of
Fiscal 2018
.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Deferred income tax assets and liabilities consisted of the following at the dates presented:
|
|
|
|
|
|
|
|
|
|
December 30, 2018
|
|
December 31, 2017
|
|
(in thousands)
|
Deferred tax assets:
|
|
|
|
Accrued compensation
|
$
|
1,523
|
|
|
$
|
1,231
|
|
Unearned revenue
|
2,360
|
|
|
979
|
|
Deferred rent
|
8,272
|
|
|
6,914
|
|
Stock-based compensation
|
730
|
|
|
639
|
|
Accrued insurance and employee benefit plans
|
3,328
|
|
|
3,516
|
|
Unrecognized tax benefits
(1)
|
377
|
|
|
452
|
|
NOL and other carryforwards
|
5,746
|
|
|
5,635
|
|
Loan costs
|
394
|
|
|
577
|
|
Other
|
722
|
|
|
552
|
|
Gross deferred tax assets
|
23,452
|
|
|
20,495
|
|
Less: Valuation allowance
(2)
|
2,896
|
|
|
$
|
2,424
|
|
Net deferred tax asset
|
20,556
|
|
|
18,071
|
|
Deferred tax liabilities:
|
|
|
|
Depreciation and amortization
|
(5,774
|
)
|
|
(9,492
|
)
|
Prepaid assets
|
(621
|
)
|
|
(672
|
)
|
Intangibles
|
(117,025
|
)
|
|
(117,717
|
)
|
Favorable/Unfavorable Leases
|
(172
|
)
|
|
(65
|
)
|
Internal use software and other
|
(4,022
|
)
|
|
(4,311
|
)
|
Gross deferred tax liabilities
|
(127,614
|
)
|
|
(132,257
|
)
|
Net deferred tax liability
|
$
|
(107,058
|
)
|
|
$
|
(114,186
|
)
|
_________________
|
|
(1)
|
Amount represents the value of future tax benefits that would result if the liabilities for uncertain state tax positions and accrued interest related to uncertain tax positions are settled.
|
|
|
(2)
|
Valuation allowance for deferred tax assets relating to Canada net operating loss and other non-U.S. differences and certain state tax credits.
|
As of
December 30, 2018
, we have
$8.1 million
of federal net operating loss carryforwards (
$5.2 million
expiring at the end of tax year 2037 and
$2.8 million
with an indefinite carryforward period),
$14.5 million
of state net operating loss carryforwards (expiring at the end of tax years
2022
through
2037
), and
$2.1 million
of Canadian net operating loss carryforwards (expiring at the end of tax years
2034
through
2037
). In addition, as of
December 30, 2018
, we have
$12.2 million
of interest carryforwards with an indefinite carryforward period,
$0.5 million
of Alternative Minimum Tax credit carryforwards with an indefinite carryforward period, and state income tax credit carryforwards of
$0.5 million
net of their related valuation allowance (expiring at the end of
2019
through
2027
).
We file numerous federal, state, and local income tax returns in the U.S. and some foreign jurisdictions. As a matter of ordinary course, we are subject to regular examination by various tax authorities. Certain of our federal and state income tax returns are currently under examination and are in various stages of the audit/appeals process. In general, the U.S. federal statute of limitations has expired for our federal income tax returns filed for tax years ended before 2014 with the exception of the Peter Piper Pizza federal income tax returns with net operating losses which have been carried forward to open tax years (whereas, adjustments can be made to these prior returns until the respective statute of limitations expire for the particular tax years the net operating losses are utilized). In general, our state income tax statutes of limitations have expired for tax years ended before 2014. In general, the statute of limitations for our Canada income tax returns has expired for tax years ended before 2014.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
2018
|
|
2017
|
|
2016
|
|
(in thousands)
|
Balance at beginning of period
|
$
|
3,853
|
|
|
$
|
3,119
|
|
|
$
|
3,288
|
|
Additions for tax positions taken in the current year
|
114
|
|
|
1,677
|
|
|
74
|
|
Increases for tax positions taken in prior years
|
571
|
|
|
16
|
|
|
1,479
|
|
Decreases for tax positions taken in prior years
|
(48
|
)
|
|
(390
|
)
|
|
(964
|
)
|
Settlements with tax authorities
|
(5
|
)
|
|
(32
|
)
|
|
(558
|
)
|
Expiration of statute of limitations
|
(199
|
)
|
|
(537
|
)
|
|
(200
|
)
|
Balance at end of period
|
$
|
4,286
|
|
|
$
|
3,853
|
|
|
$
|
3,119
|
|
Our liability for uncertain tax positions (excluding interest and penalties) was
$4.3 million
and
$3.9 million
as of
December 30, 2018
and
December 31, 2017
, respectively, and if recognized would decrease our provision for income taxes by
$3.3 million
. Within the next twelve months, we could settle or otherwise conclude certain ongoing income tax audits. As such, it is reasonably possible that the liability for uncertain tax positions could decrease within the next twelve months by as much as
$3.9 million
as a result of payments and/or 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
December 30, 2018
and
December 31, 2017
, was
$1.1 million
and
$1.0 million
, respectively. On the Consolidated Balance Sheets, we include current accrued interest related to unrecognized tax benefits in “Accrued interest,” current accrued penalties in “Accrued expenses” and non-current accrued interest and penalties in “Other noncurrent liabilities.”
Note 16. Stock-Based Compensation Arrangements:
2014 Equity Incentive Plan
The 2014 Equity Incentive Plan provides Parent authority to grant equity incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock, restricted stock units, stock bonus awards or performance compensation awards to certain directors, officers or employees of the Company.
During
2018
,
2017
and
2016
, Parent granted options to purchase
112,769
shares,
123,603
shares, and
101,110
shares, respectively, of its common stock to certain directors, officers and employees of the Company. The options are subject to certain service and performance based vesting criteria, and were split evenly between Tranches A, B and C, which have different vesting requirements. The options in Tranche A are service based, and vest and become exercisable in equal installments on each of the first
five
anniversaries of the respective grant dates. The Black-Scholes model was used to estimate the fair value of Tranche A stock options. Tranche B and Tranche C options are performance based and vest and become exercisable when certain return thresholds are achieved. The Monte Carlo simulation model was used to estimate the fair value of Tranche B and Tranche C stock options. Unvested Tranche A options are also subject to accelerated vesting and exercisability on the first anniversary of a change in control of Parent or within
12
months
following
such a change in control. Tranche B and C options may also vest and become exercisable if applicable hurdles are achieved in connection with an initial public offering. Compensation costs related to options in the Parent were recorded by the Company.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The weighted-average fair value of the options granted in
2018
,
2017
and
2016
was estimated at
$4.93
,
$1.93
and
$0.98
per option,
$3.71
,
$2.28
and
$1.28
per option and
$2.99
,
$1.68
and
$0.87
per option, respectively, for Tranches A, B and C, respectively, on the date of grant based on the following assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
2018
|
|
2017
|
|
2016
|
|
February 2018
|
|
August 2017
|
|
February 2017
|
|
February 2016
|
|
|
|
|
|
|
|
|
Dividend yield
|
—
|
%
|
|
—
|
%
|
|
—
|
%
|
|
—
|
%
|
Volatility for Tranche A
|
33
|
%
|
|
35
|
%
|
|
34
|
%
|
|
30
|
%
|
Volatility for Tranches B and C
|
35
|
%
|
|
34
|
%
|
|
33
|
%
|
|
30
|
%
|
Risk-free interest rate for Tranche A
|
2.70
|
%
|
|
1.39
|
%
|
|
1.38
|
%
|
|
1.09
|
%
|
Risk-free interest rate for Tranches B and C
|
2.42
|
%
|
|
1.28
|
%
|
|
1.16
|
%
|
|
0.99
|
%
|
Expected life - years
|
3.7
|
|
|
1.7
|
|
|
2.2
|
|
|
3.6
|
|
A summary of the option activity under the equity incentive plan as of
December 30, 2018
and the activity for
2018
is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
Stock Options
|
Weighted Average Exercise Price
(1)
|
Weighted Average Remaining Contractual Term
|
Aggregate Intrinsic Value
|
|
|
|
($ per share)
|
|
($ in thousands)
|
Outstanding stock options, December 31, 2017
|
|
2,349,288
|
|
$9.00
|
|
|
Options Granted
|
|
112,769
|
|
$13.73
|
|
|
Options Exercised
|
|
(7,745
|
)
|
$9.96
|
|
|
Options Forfeited
|
|
(466,981
|
)
|
$10.53
|
|
|
Outstanding stock options, December 30, 2018
|
|
1,987,331
|
|
$8.87
|
5.6
|
$
|
—
|
|
Stock options expected to vest, December 30, 2018
|
|
1,360,557
|
|
$9.08
|
5.7
|
$
|
—
|
|
Exercisable stock options, December 30, 2018
|
|
475,603
|
|
$8.21
|
5.2
|
$
|
310
|
|
_________________
(1)
The weighted average exercise price reflects the original grant date fair value per option as adjusted for the dividend payment made in August 2015.
As of
December 30, 2018
, we had
$0.6 million
of total unrecognized share based compensation expense related to unvested options, net of expected forfeitures, which is expected to be amortized over the remaining weighted average period of
3.1
years.
In January 2019 and February 2019, the Parent granted additional options to purchase
314,051
shares and
110,994
shares, respectively, of its common stock to certain officers and employees of the Company.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
A summary of stock based compensation costs recognized and capitalized is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
|
December 30,
2018
|
|
December 31,
2017
|
|
January 1,
2017
|
|
|
(in thousands)
|
Stock-based compensation costs
|
|
$
|
337
|
|
|
$
|
620
|
|
|
$
|
702
|
|
Portion capitalized as property and equipment
(1)
|
|
(13
|
)
|
|
(14
|
)
|
|
(13
|
)
|
Stock-based compensation expense recognized
|
|
$
|
324
|
|
|
$
|
606
|
|
|
$
|
689
|
|
Tax benefit recognized from stock-based compensation awards
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
4
|
|
__________________
(1)
We capitalize the portion of stock-based compensation costs related to our design, construction, facilities and legal departments that are directly attributable to our venue development projects, such as the design and construction of a new venue and the remodeling and expansion of our existing venues. Capitalized stock-based compensation costs attributable to our venue development projects are included in “Property and equipment, net” in the Consolidated Balance Sheets.
Note 17. Stockholder’s Equity:
We have one class of common capital stock, as disclosed on our Consolidated Balance Sheets. All outstanding common stock is owned by Queso Holdings Inc. As of
December 30, 2018
and
December 31, 2017
, we have
200
shares issued and outstanding.
Note 18. Related Party Transactions:
CEC Entertainment reimburses Apollo Management, L.P. for certain out-of-pocket expenses incurred in connection with travel and Board of Directors related expenses. In addition, CEC Entertainment engages Apollo portfolio companies to provide various services, including security services to its venues, licensed music video content for use in its venues, and employment screening services to its recruiting functions. Included in our Total operating costs and expenses are
$1.5 million
,
$1.4 million
and
$1.7 million
for
Fiscal 2018
,
Fiscal 2017
and
Fiscal 2016
, respectively.
Included in our Accounts Receivable balance are amounts due from Parent totaling
$2.6 million
and
$2.5 million
at
December 30, 2018
and
December 31, 2017
, respectively, primarily related to various general and administrative and transaction related expenses paid on behalf of Parent.
Note 19. Consolidating Guarantor Financial Information:
On
February 14, 2014
, CEC Entertainment, Inc. (the “Issuer”), merged with and into an entity controlled by Apollo Global Management, LLC and its subsidiaries, which we refer to as the “Merger.” The senior notes issued by the Issuer in conjunction with the Merger are our unsecured obligations and are fully and unconditionally, jointly and severally guaranteed by all of our 100% wholly-owned U.S. subsidiaries (the “Guarantors”). Our wholly-owned foreign subsidiaries and our less-than-wholly-owned U.S. subsidiaries are not a party to the guarantees (the “Non-Guarantors”). The following schedules present the condensed consolidating financial statements of the Issuer, Guarantors and Non-Guarantors, as well as consolidated results, for the periods presented:
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CEC Entertainment, Inc.
|
Condensed Consolidating Balance Sheet
|
As of December 30, 2018
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuer
|
|
Guarantor
|
|
Non-Guarantors
|
|
Eliminations
|
|
Consolidated
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
54,775
|
|
|
$
|
6,725
|
|
|
$
|
1,670
|
|
|
$
|
—
|
|
|
$
|
63,170
|
|
Restricted cash
|
|
—
|
|
|
—
|
|
|
151
|
|
|
—
|
|
|
151
|
|
Accounts receivable
|
|
28,421
|
|
|
4,956
|
|
|
4,117
|
|
|
(3,314
|
)
|
|
34,180
|
|
Inventories
|
|
16,896
|
|
|
6,617
|
|
|
294
|
|
|
—
|
|
|
23,807
|
|
Prepaid assets
|
|
14,264
|
|
|
10,562
|
|
|
598
|
|
|
—
|
|
|
25,424
|
|
Total current assets
|
|
114,356
|
|
|
28,860
|
|
|
6,830
|
|
|
(3,314
|
)
|
|
146,732
|
|
Property and equipment, net
|
|
468,827
|
|
|
64,721
|
|
|
5,637
|
|
|
—
|
|
|
539,185
|
|
Goodwill
|
|
433,024
|
|
|
51,414
|
|
|
—
|
|
|
—
|
|
|
484,438
|
|
Intangible assets, net
|
|
14,716
|
|
|
462,369
|
|
|
—
|
|
|
—
|
|
|
477,085
|
|
Intercompany
|
|
78,402
|
|
|
66,373
|
|
|
—
|
|
|
(144,775
|
)
|
|
—
|
|
Investment in subsidiaries
|
|
477,556
|
|
|
—
|
|
|
—
|
|
|
(477,556
|
)
|
|
—
|
|
Other noncurrent assets
|
|
7,292
|
|
|
11,409
|
|
|
24
|
|
|
—
|
|
|
18,725
|
|
Total assets
|
|
$
|
1,594,173
|
|
|
$
|
685,146
|
|
|
$
|
12,491
|
|
|
$
|
(625,645
|
)
|
|
$
|
1,666,165
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
Bank indebtedness and other long-term debt, current portion
|
|
$
|
7,600
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
7,600
|
|
Capital lease obligations, current portion
|
|
661
|
|
|
—
|
|
|
16
|
|
|
—
|
|
|
677
|
|
Accounts payable and accrued expenses
|
|
56,277
|
|
|
34,429
|
|
|
2,321
|
|
|
—
|
|
|
93,027
|
|
Other current liabilities
|
|
4,768
|
|
|
510
|
|
|
—
|
|
|
—
|
|
|
5,278
|
|
Total current liabilities
|
|
69,306
|
|
|
34,939
|
|
|
2,337
|
|
|
—
|
|
|
106,582
|
|
Capital lease obligations, less current portion
|
|
12,296
|
|
|
—
|
|
|
34
|
|
|
—
|
|
|
12,330
|
|
Bank indebtedness and other long-term debt, less current portion
|
|
961,514
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
961,514
|
|
Deferred tax liability
|
|
91,049
|
|
|
17,866
|
|
|
(1,857
|
)
|
|
—
|
|
|
107,058
|
|
Intercompany
|
|
—
|
|
|
119,498
|
|
|
28,591
|
|
|
(148,089
|
)
|
|
—
|
|
Other noncurrent liabilities
|
|
217,437
|
|
|
18,191
|
|
|
482
|
|
|
—
|
|
|
236,110
|
|
Total liabilities
|
|
1,351,602
|
|
|
190,494
|
|
|
29,587
|
|
|
(148,089
|
)
|
|
1,423,594
|
|
Stockholder's equity:
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Capital in excess of par value
|
|
359,570
|
|
|
466,114
|
|
|
3,241
|
|
|
(469,355
|
)
|
|
359,570
|
|
Retained earnings (deficit)
|
|
(115,660
|
)
|
|
28,538
|
|
|
(18,691
|
)
|
|
(9,847
|
)
|
|
(115,660
|
)
|
Accumulated other comprehensive income (loss)
|
|
(1,339
|
)
|
|
—
|
|
|
(1,646
|
)
|
|
1,646
|
|
|
(1,339
|
)
|
Total stockholder's equity
|
|
242,571
|
|
|
494,652
|
|
|
(17,096
|
)
|
|
(477,556
|
)
|
|
242,571
|
|
Total liabilities and stockholder's equity
|
|
$
|
1,594,173
|
|
|
$
|
685,146
|
|
|
$
|
12,491
|
|
|
$
|
(625,645
|
)
|
|
$
|
1,666,165
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CEC Entertainment, Inc.
|
Condensed Consolidating Balance Sheet
|
As of December 31, 2017
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuer
|
|
Guarantor
|
|
Non-Guarantors
|
|
Eliminations
|
|
Consolidated
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
59,948
|
|
|
$
|
410
|
|
|
$
|
6,842
|
|
|
—
|
|
|
$
|
67,200
|
|
Restricted cash
|
|
—
|
|
|
—
|
|
|
112
|
|
|
—
|
|
|
112
|
|
Accounts receivable
|
|
27,098
|
|
|
3,283
|
|
|
2,563
|
|
|
(1,923
|
)
|
|
31,021
|
|
Inventories
|
|
17,104
|
|
|
4,614
|
|
|
282
|
|
|
—
|
|
|
22,000
|
|
Prepaid assets
|
|
13,766
|
|
|
5,549
|
|
|
1,083
|
|
|
—
|
|
|
20,398
|
|
Total current assets
|
|
117,916
|
|
|
13,856
|
|
|
10,882
|
|
|
(1,923
|
)
|
|
140,731
|
|
Property and equipment, net
|
|
496,725
|
|
|
66,669
|
|
|
6,627
|
|
|
—
|
|
|
570,021
|
|
Goodwill
|
|
433,024
|
|
|
51,414
|
|
|
—
|
|
|
—
|
|
|
484,438
|
|
Intangible assets, net
|
|
16,764
|
|
|
463,613
|
|
|
—
|
|
|
—
|
|
|
480,377
|
|
Intercompany
|
|
90,937
|
|
|
10,770
|
|
|
—
|
|
|
(101,707
|
)
|
|
—
|
|
Investment in subsidiaries
|
|
462,873
|
|
|
—
|
|
|
—
|
|
|
(462,873
|
)
|
|
—
|
|
Other noncurrent assets
|
|
7,913
|
|
|
11,359
|
|
|
205
|
|
|
—
|
|
|
19,477
|
|
Total assets
|
|
$
|
1,626,152
|
|
|
$
|
617,681
|
|
|
$
|
17,714
|
|
|
$
|
(566,503
|
)
|
|
$
|
1,695,044
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
Bank indebtedness and other long-term debt, current portion
|
|
$
|
7,600
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
7,600
|
|
Capital lease obligations, current portion
|
|
586
|
|
|
—
|
|
|
10
|
|
|
—
|
|
|
596
|
|
Accounts payable and accrued expenses
|
|
58,014
|
|
|
35,134
|
|
|
4,169
|
|
|
—
|
|
|
97,317
|
|
Other current liabilities
|
|
4,265
|
|
|
511
|
|
|
—
|
|
|
—
|
|
|
4,776
|
|
Total current liabilities
|
|
70,465
|
|
|
35,645
|
|
|
4,179
|
|
|
—
|
|
|
110,289
|
|
Capital lease obligations, less current portion
|
|
12,956
|
|
|
—
|
|
|
54
|
|
|
—
|
|
|
13,010
|
|
Bank indebtedness and other long-term debt, less current portion
|
|
965,213
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
965,213
|
|
Deferred tax liability
|
|
99,083
|
|
|
16,697
|
|
|
(1,594
|
)
|
|
—
|
|
|
114,186
|
|
Intercompany
|
|
—
|
|
|
75,052
|
|
|
28,578
|
|
|
(103,630
|
)
|
|
—
|
|
Other noncurrent liabilities
|
|
216,287
|
|
|
13,465
|
|
|
446
|
|
|
—
|
|
|
230,198
|
|
Total liabilities
|
|
1,364,004
|
|
|
140,859
|
|
|
31,663
|
|
|
(103,630
|
)
|
|
1,432,896
|
|
Stockholder's equity:
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Capital in excess of par value
|
|
359,233
|
|
|
466,114
|
|
|
3,241
|
|
|
(469,355
|
)
|
|
359,233
|
|
Retained earnings (deficit)
|
|
(95,199
|
)
|
|
10,708
|
|
|
(15,304
|
)
|
|
4,596
|
|
|
(95,199
|
)
|
Accumulated other comprehensive income (loss)
|
|
(1,886
|
)
|
|
—
|
|
|
(1,886
|
)
|
|
1,886
|
|
|
(1,886
|
)
|
Total stockholder's equity
|
|
262,148
|
|
|
476,822
|
|
|
(13,949
|
)
|
|
(462,873
|
)
|
|
262,148
|
|
Total liabilities and stockholder's equity
|
|
$
|
1,626,152
|
|
|
$
|
617,681
|
|
|
$
|
17,714
|
|
|
$
|
(566,503
|
)
|
|
$
|
1,695,044
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CEC Entertainment, Inc.
|
Consolidating Statement of Comprehensive Income (Loss)
|
Fiscal Year 2018
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuer
|
|
Guarantor
|
|
Non-Guarantors
|
|
Eliminations
|
|
Consolidated
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
Food and beverage sales
|
|
$
|
338,837
|
|
|
$
|
52,353
|
|
|
$
|
5,468
|
|
|
$
|
—
|
|
|
$
|
396,658
|
|
Entertainment and merchandise sales
|
|
432,266
|
|
|
36,086
|
|
|
10,324
|
|
|
—
|
|
|
478,676
|
|
Total company venue sales
|
|
771,103
|
|
|
88,439
|
|
|
15,792
|
|
|
—
|
|
|
875,334
|
|
Franchise fees and royalties
|
|
1,797
|
|
|
16,693
|
|
|
2,242
|
|
|
—
|
|
|
20,732
|
|
International Association assessments and other fees
|
|
1,187
|
|
|
38,659
|
|
|
36,043
|
|
|
(75,889
|
)
|
|
—
|
|
Total revenues
|
|
774,087
|
|
|
143,791
|
|
|
54,077
|
|
|
(75,889
|
)
|
|
896,066
|
|
Operating Costs and Expenses:
|
|
|
|
|
|
|
|
|
|
|
Company venue operating costs (excluding Depreciation and amortization):
|
|
|
|
|
|
|
|
|
|
|
Cost of food and beverage
|
|
78,458
|
|
|
13,925
|
|
|
1,936
|
|
|
—
|
|
|
94,319
|
|
Cost of entertainment and merchandise
|
|
34,435
|
|
|
1,580
|
|
|
635
|
|
|
—
|
|
|
36,650
|
|
Total cost of food, beverage, entertainment and merchandise
|
|
112,893
|
|
|
15,505
|
|
|
2,571
|
|
|
—
|
|
|
130,969
|
|
Labor expenses
|
|
231,727
|
|
|
19,657
|
|
|
4,943
|
|
|
—
|
|
|
256,327
|
|
Rent expense
|
|
86,882
|
|
|
7,544
|
|
|
2,058
|
|
|
—
|
|
|
96,484
|
|
Other venue operating expenses
|
|
170,239
|
|
|
16,287
|
|
|
3,602
|
|
|
(39,873
|
)
|
|
150,255
|
|
Total company venue operating costs
|
|
601,741
|
|
|
58,993
|
|
|
13,174
|
|
|
(39,873
|
)
|
|
634,035
|
|
Advertising expense
|
|
36,833
|
|
|
6,051
|
|
|
41,330
|
|
|
(36,016
|
)
|
|
48,198
|
|
General and administrative expenses
|
|
17,956
|
|
|
35,184
|
|
|
1,710
|
|
|
—
|
|
|
54,850
|
|
Depreciation and amortization
|
|
88,174
|
|
|
10,606
|
|
|
1,940
|
|
|
—
|
|
|
100,720
|
|
Transaction, severance and related litigation costs
|
|
277
|
|
|
250
|
|
|
—
|
|
|
—
|
|
|
527
|
|
Asset Impairment
|
|
2,591
|
|
|
4,341
|
|
|
3
|
|
|
—
|
|
|
6,935
|
|
Total operating costs and expenses
|
|
747,572
|
|
|
115,425
|
|
|
58,157
|
|
|
(75,889
|
)
|
|
845,265
|
|
Operating income (loss)
|
|
26,515
|
|
|
28,366
|
|
|
(4,080
|
)
|
|
—
|
|
|
50,801
|
|
Equity in earnings (loss) in affiliates
|
|
13,940
|
|
|
—
|
|
|
—
|
|
|
(13,940
|
)
|
|
—
|
|
Interest expense
|
|
72,394
|
|
|
3,241
|
|
|
648
|
|
|
—
|
|
|
76,283
|
|
Income (loss) before income taxes
|
|
(31,939
|
)
|
|
25,125
|
|
|
(4,728
|
)
|
|
(13,940
|
)
|
|
(25,482
|
)
|
Income tax expense (benefit)
|
|
(11,478
|
)
|
|
7,295
|
|
|
(838
|
)
|
|
—
|
|
|
(5,021
|
)
|
Net income (loss)
|
|
$
|
(20,461
|
)
|
|
$
|
17,830
|
|
|
$
|
(3,890
|
)
|
|
$
|
(13,940
|
)
|
|
$
|
(20,461
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Components of other comprehensive income (loss), net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
547
|
|
|
—
|
|
|
547
|
|
|
(547
|
)
|
|
547
|
|
Comprehensive income (loss)
|
|
$
|
(19,914
|
)
|
|
$
|
17,830
|
|
|
$
|
(3,343
|
)
|
|
$
|
(14,487
|
)
|
|
$
|
(19,914
|
)
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CEC Entertainment, Inc.
|
Consolidating Statement of Comprehensive Income (Loss)
|
Fiscal Year 2017
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuer
|
|
Guarantor
|
|
Non-Guarantors
|
|
Eliminations
|
|
Consolidated
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
Food and beverage sales
|
|
$
|
351,374
|
|
|
$
|
52,962
|
|
|
$
|
6,273
|
|
|
$
|
—
|
|
|
$
|
410,609
|
|
Entertainment and merchandise sales
|
|
406,930
|
|
|
41,036
|
|
|
10,313
|
|
|
—
|
|
|
458,279
|
|
Total company venue sales
|
|
758,304
|
|
|
93,998
|
|
|
16,586
|
|
|
—
|
|
|
868,888
|
|
Franchise fees and royalties
|
|
1,694
|
|
|
16,189
|
|
|
—
|
|
|
|
|
|
17,883
|
|
International Association assessments and other fees
|
|
1,684
|
|
|
37,743
|
|
|
34,366
|
|
|
(73,793
|
)
|
|
—
|
|
Total revenues
|
|
761,682
|
|
|
147,930
|
|
|
50,952
|
|
|
(73,793
|
)
|
|
886,771
|
|
Operating Costs and Expenses:
|
|
|
|
|
|
|
|
|
|
|
Company venue operating costs (excluding Depreciation and amortization):
|
|
|
|
|
|
|
|
|
|
|
Cost of food and beverage
|
|
81,420
|
|
|
14,137
|
|
|
2,013
|
|
|
—
|
|
|
97,570
|
|
Cost of entertainment and merchandise
|
|
27,704
|
|
|
1,591
|
|
|
653
|
|
|
—
|
|
|
29,948
|
|
Total cost of food, beverage, entertainment and merchandise
|
|
109,124
|
|
|
15,728
|
|
|
2,666
|
|
|
—
|
|
|
127,518
|
|
Labor expenses
|
|
224,176
|
|
|
18,791
|
|
|
5,094
|
|
|
—
|
|
|
248,061
|
|
Rent expense
|
|
87,342
|
|
|
6,375
|
|
|
2,200
|
|
|
—
|
|
|
95,917
|
|
Other venue operating expenses
|
|
168,991
|
|
|
15,122
|
|
|
4,802
|
|
|
(39,453
|
)
|
|
149,462
|
|
Total company venue operating costs
|
|
589,633
|
|
|
56,016
|
|
|
14,762
|
|
|
(39,453
|
)
|
|
620,958
|
|
Advertising expense
|
|
35,514
|
|
|
5,437
|
|
|
41,768
|
|
|
(34,340
|
)
|
|
48,379
|
|
General and administrative expenses
|
|
20,208
|
|
|
35,950
|
|
|
324
|
|
|
—
|
|
|
56,482
|
|
Depreciation and amortization
|
|
97,789
|
|
|
9,900
|
|
|
2,082
|
|
|
—
|
|
|
109,771
|
|
Transaction, severance and related litigation costs
|
|
974
|
|
|
474
|
|
|
—
|
|
|
—
|
|
|
1,448
|
|
Asset Impairment
|
|
1,824
|
|
|
14
|
|
|
5
|
|
|
—
|
|
|
1,843
|
|
Total operating costs and expenses
|
|
745,942
|
|
|
107,791
|
|
|
58,941
|
|
|
(73,793
|
)
|
|
838,881
|
|
Operating income (loss)
|
|
15,740
|
|
|
40,139
|
|
|
(7,989
|
)
|
|
—
|
|
|
47,890
|
|
Equity in earnings (loss) in affiliates
|
|
25,405
|
|
|
—
|
|
|
—
|
|
|
(25,405
|
)
|
|
—
|
|
Interest expense
|
|
64,117
|
|
|
4,261
|
|
|
737
|
|
|
—
|
|
|
69,115
|
|
Income (loss) before income taxes
|
|
(22,972
|
)
|
|
35,878
|
|
|
(8,726
|
)
|
|
(25,405
|
)
|
|
(21,225
|
)
|
Income tax expense (benefit)
|
|
(76,038
|
)
|
|
2,407
|
|
|
(660
|
)
|
|
—
|
|
|
(74,291
|
)
|
Net income (loss)
|
|
$
|
53,066
|
|
|
$
|
33,471
|
|
|
$
|
(8,066
|
)
|
|
$
|
(25,405
|
)
|
|
$
|
53,066
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Components of other comprehensive income (loss), net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
1,010
|
|
|
—
|
|
|
1,010
|
|
|
(1,010
|
)
|
|
1,010
|
|
Comprehensive income (loss)
|
|
$
|
54,076
|
|
|
$
|
33,471
|
|
|
$
|
(7,056
|
)
|
|
$
|
(26,415
|
)
|
|
$
|
54,076
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CEC Entertainment, Inc.
|
Consolidating Statement of Comprehensive Income (Loss)
|
Fiscal Year 2016
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuer
|
|
Guarantor
|
|
Non-Guarantors
|
|
Eliminations
|
|
Consolidated
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
Food and beverage sales
|
|
$
|
361,111
|
|
|
$
|
48,178
|
|
|
$
|
5,770
|
|
|
$
|
—
|
|
|
$
|
415,059
|
|
Entertainment and merchandise sales
|
|
453,362
|
|
|
27,059
|
|
|
9,834
|
|
|
—
|
|
|
490,255
|
|
Total company venue sales
|
|
814,473
|
|
|
75,237
|
|
|
15,604
|
|
|
—
|
|
|
905,314
|
|
Franchise fees and royalties
|
|
2,011
|
|
|
16,328
|
|
|
—
|
|
|
—
|
|
|
18,339
|
|
International Association assessments and other fees
|
|
1,308
|
|
|
36,861
|
|
|
36,250
|
|
|
(74,419
|
)
|
|
—
|
|
Total revenues
|
|
817,792
|
|
|
128,426
|
|
|
51,854
|
|
|
(74,419
|
)
|
|
923,653
|
|
Operating Costs and Expenses:
|
|
|
|
|
|
|
|
|
|
|
Company venue operating costs (excluding Depreciation and amortization):
|
|
|
|
|
|
|
|
|
|
|
Cost of food and beverage
|
|
89,373
|
|
|
12,835
|
|
|
2,107
|
|
|
—
|
|
|
104,315
|
|
Cost of entertainment and merchandise
|
|
29,668
|
|
|
1,690
|
|
|
656
|
|
|
—
|
|
|
32,014
|
|
Total cost of food, beverage, entertainment and merchandise
|
|
119,041
|
|
|
14,525
|
|
|
2,763
|
|
|
—
|
|
|
136,329
|
|
Labor expenses
|
|
230,526
|
|
|
15,865
|
|
|
5,035
|
|
|
—
|
|
|
251,426
|
|
Rent expense
|
|
88,557
|
|
|
5,234
|
|
|
2,215
|
|
|
—
|
|
|
96,006
|
|
Other venue operating expenses
|
|
170,385
|
|
|
12,134
|
|
|
4,545
|
|
|
(38,195
|
)
|
|
148,869
|
|
Total company venue operating costs
|
|
608,509
|
|
|
47,758
|
|
|
14,558
|
|
|
(38,195
|
)
|
|
632,630
|
|
Advertising expense
|
|
37,891
|
|
|
4,358
|
|
|
40,117
|
|
|
(36,224
|
)
|
|
46,142
|
|
General and administrative expenses
|
|
24,704
|
|
|
35,867
|
|
|
440
|
|
|
—
|
|
|
61,011
|
|
Depreciation and amortization
|
|
109,985
|
|
|
7,343
|
|
|
2,241
|
|
|
—
|
|
|
119,569
|
|
Transaction, severance and related litigation costs
|
|
1,244
|
|
|
55
|
|
|
—
|
|
|
—
|
|
|
1,299
|
|
Asset Impairment
|
|
1,487
|
|
|
—
|
|
|
63
|
|
|
—
|
|
|
1,550
|
|
Total operating costs and expenses
|
|
783,820
|
|
|
95,381
|
|
|
57,419
|
|
|
(74,419
|
)
|
|
862,201
|
|
Operating income (loss)
|
|
33,972
|
|
|
33,045
|
|
|
(5,565
|
)
|
|
—
|
|
|
61,452
|
|
Equity in earnings (loss) in affiliates
|
|
13,654
|
|
|
—
|
|
|
—
|
|
|
(13,654
|
)
|
|
—
|
|
Interest expense
|
|
62,630
|
|
|
4,664
|
|
|
451
|
|
|
—
|
|
|
67,745
|
|
Income (loss) before income taxes
|
|
(15,004
|
)
|
|
28,381
|
|
|
(6,016
|
)
|
|
(13,654
|
)
|
|
(6,293
|
)
|
Income tax expense (benefit)
|
|
(11,337
|
)
|
|
10,520
|
|
|
(1,809
|
)
|
|
—
|
|
|
(2,626
|
)
|
Net income (loss)
|
|
$
|
(3,667
|
)
|
|
$
|
17,861
|
|
|
$
|
(4,207
|
)
|
|
$
|
(13,654
|
)
|
|
$
|
(3,667
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Components of other comprehensive income (loss), net of tax:
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
420
|
|
|
—
|
|
|
420
|
|
|
(420
|
)
|
|
420
|
|
Comprehensive income (loss)
|
|
$
|
(3,247
|
)
|
|
$
|
17,861
|
|
|
$
|
(3,787
|
)
|
|
$
|
(14,074
|
)
|
|
$
|
(3,247
|
)
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CEC Entertainment, Inc.
|
Consolidating Statement of Cash Flows
|
Fiscal Year 2018
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuer
|
|
Guarantors
|
|
Non-Guarantors
|
|
Eliminations
|
|
Consolidated
|
Cash flows provided by (used in) operating activities:
|
|
$
|
68,828
|
|
|
$
|
21,872
|
|
|
$
|
(3,910
|
)
|
|
$
|
—
|
|
|
$
|
86,790
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
(61,178
|
)
|
|
(14,646
|
)
|
|
(1,264
|
)
|
|
—
|
|
|
(77,088
|
)
|
Development of internal use software
|
|
(1,845
|
)
|
|
(911
|
)
|
|
—
|
|
|
—
|
|
|
(2,756
|
)
|
Proceeds from sale of property and equipment
|
|
560
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
560
|
|
Cash flows provided by (used in) investing activities
|
|
(62,463
|
)
|
|
|
(15,557
|
)
|
|
(1,264
|
)
|
|
—
|
|
|
(79,284
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
Repayments on senior term loan
|
|
(7,600
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(7,600
|
)
|
Payment of debt financing costs
|
|
(442
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(442
|
)
|
Payments on capital lease obligations
|
|
(586
|
)
|
|
—
|
|
|
(9
|
)
|
|
—
|
|
|
(595
|
)
|
Payments on sale leaseback transactions
|
|
(2,910
|
)
|
—
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2,910
|
)
|
Cash flows provided by (used in) financing activities
|
|
(11,538
|
)
|
|
|
—
|
|
|
(9
|
)
|
|
—
|
|
|
(11,547
|
)
|
Effect of foreign exchange rate changes on cash
|
|
—
|
|
|
—
|
|
|
50
|
|
|
—
|
|
|
50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in cash, cash equivalents and restricted cash
|
|
(5,173
|
)
|
|
|
6,315
|
|
|
(5,133
|
)
|
|
—
|
|
|
(3,991
|
)
|
Cash, cash equivalents and restricted cash at beginning of period
|
|
59,948
|
|
|
410
|
|
|
6,954
|
|
|
—
|
|
|
67,312
|
|
Cash, cash equivalents and restricted cash at end of period
|
|
$
|
54,775
|
|
|
|
$
|
6,725
|
|
|
$
|
1,821
|
|
|
$
|
—
|
|
|
$
|
63,321
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CEC Entertainment, Inc.
|
Consolidating Statement of Cash Flows
|
Fiscal Year 2017
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuer
|
|
Guarantors
|
|
Non-Guarantors
|
|
Eliminations
|
|
Consolidated
|
Cash flows provided by (used in) operating activities:
|
|
$
|
73,925
|
|
|
$
|
29,569
|
|
|
$
|
803
|
|
|
$
|
—
|
|
|
$
|
104,297
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
(62,544
|
)
|
|
(27,061
|
)
|
|
(1,353
|
)
|
|
—
|
|
|
(90,958
|
)
|
Development of internal use software
|
|
—
|
|
|
(3,243
|
)
|
|
—
|
|
|
—
|
|
|
(3,243
|
)
|
Proceeds from sale of property and equipment
|
|
489
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
489
|
|
Cash flows provided by (used in) investing activities
|
|
(62,055
|
)
|
—
|
|
(30,304
|
)
|
—
|
|
(1,353
|
)
|
—
|
|
—
|
|
—
|
|
(93,712
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
Repayments on senior term loan
|
|
(7,600
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(7,600
|
)
|
Repayments on note payable
|
|
—
|
|
|
(13
|
)
|
|
—
|
|
|
—
|
|
|
(13
|
)
|
Proceeds from financing sale-leaseback transaction
|
|
4,073
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4,073
|
|
Payments on capital lease obligations
|
|
(460
|
)
|
|
—
|
|
|
(7
|
)
|
|
—
|
|
|
(467
|
)
|
Payments on sale leaseback transactions
|
|
(2,470
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2,470
|
)
|
Return of capital
|
|
1,447
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,447
|
|
Cash flows provided by (used in) financing activities
|
|
(5,010
|
)
|
|
(13
|
)
|
|
(7
|
)
|
|
—
|
|
|
(5,030
|
)
|
Effect of foreign exchange rate changes on cash
|
|
—
|
|
|
—
|
|
|
466
|
|
|
—
|
|
|
466
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in cash and cash equivalents and
restricted cash
|
|
6,860
|
|
|
(748
|
)
|
|
(91
|
)
|
|
—
|
|
|
6,021
|
|
Cash and cash equivalents and
restricted cash
at beginning of period
|
|
53,088
|
|
|
1,158
|
|
|
7,045
|
|
|
—
|
|
|
61,291
|
|
Cash and cash equivalents and
restricted cash
at end of period
|
|
$
|
59,948
|
|
|
$
|
410
|
|
|
$
|
6,954
|
|
|
$
|
—
|
|
|
$
|
67,312
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CEC Entertainment, Inc.
|
Consolidating Statement of Cash Flows
|
Fiscal Year 2016
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
Issuer
|
|
Guarantors
|
|
Non-Guarantors
|
|
Eliminations
|
|
Consolidated
|
Cash flows provided by (used in) operating activities:
|
|
$
|
73,722
|
|
|
$
|
44,608
|
|
|
$
|
625
|
|
|
$
|
—
|
|
|
$
|
118,955
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
(69,827
|
)
|
|
(18,439
|
)
|
|
(414
|
)
|
|
—
|
|
|
(88,680
|
)
|
Development of internal use software
|
|
(7,671
|
)
|
|
(2,784
|
)
|
|
—
|
|
|
—
|
|
|
(10,455
|
)
|
Proceeds from sale of property and equipment
|
|
696
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
696
|
|
Cash flows provided by (used in) investing activities
|
|
(76,802
|
)
|
—
|
|
(21,223
|
)
|
—
|
|
(414
|
)
|
—
|
|
—
|
|
—
|
|
(98,439
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
Repayments on senior term loan
|
|
(7,600
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(7,600
|
)
|
Repayments on note payable
|
|
—
|
|
|
(50
|
)
|
|
—
|
|
|
—
|
|
|
(50
|
)
|
Intercompany note
|
|
23,974
|
|
|
(23,974
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
Payments on capital lease obligations
|
|
(417
|
)
|
|
—
|
|
|
(4
|
)
|
|
—
|
|
|
(421
|
)
|
Payments on sale leaseback transactions
|
|
(2,028
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2,028
|
)
|
Excess tax benefit realized from stock-based compensation
|
|
4
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4
|
|
Cash flows provided by (used in) financing activities
|
|
13,933
|
|
|
(24,024
|
)
|
|
(4
|
)
|
|
—
|
|
|
(10,095
|
)
|
Effect of foreign exchange rate changes on cash
|
|
—
|
|
|
—
|
|
|
216
|
|
|
—
|
|
|
216
|
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
Change in cash and cash equivalents and
restricted cash
|
|
10,853
|
|
|
(639
|
)
|
|
423
|
|
|
—
|
|
|
10,637
|
|
Cash and cash equivalents and
restricted cash
at beginning of period
|
|
$
|
42,235
|
|
|
$
|
1,797
|
|
|
$
|
6,622
|
|
|
$
|
—
|
|
|
$
|
50,654
|
|
Cash and cash equivalents and
restricted cash
at end of period
|
|
$
|
53,088
|
|
|
$
|
1,158
|
|
|
$
|
7,045
|
|
|
$
|
—
|
|
|
$
|
61,291
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)