NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Description of Business and Summary of Significant Accounting Policies:
Description of Business
The use of the terms “CEC Entertainment,” the “Company,” “we,” “us” and “our” throughout these unaudited notes to the interim Consolidated Financial Statements refer to CEC Entertainment, Inc. and its subsidiaries.
We currently operate and franchise Chuck E. Cheese and Peter Piper Pizza family dining and entertainment venues in 47 states and 15 foreign countries and territories. As of September 29, 2019, we and our franchisees operated a total of 738 venues, of which 553 were Company-operated venues located in 44 states and Canada. Our franchisees operated a total of 185 venues located in 14 states and 14 foreign countries and territories, including Chile, Colombia, Costa Rica, Guam, Guatemala, Honduras, Jordan, Mexico, Panama, Peru, Puerto Rico, Saudi Arabia, Trinidad & Tobago, and the United Arab Emirates. As of September 29, 2019, a total of 181 Chuck E. Cheese venues are located in California, Texas, and Florida (178 are Company-operated and three are franchised locations), and a total of 118 Peter Piper Pizza venues are located in Arizona, Texas, and Mexico (33 are Company-operated and 85 are franchised locations).
All of our venues utilize a consistent restaurant-entertainment format that features both family dining and entertainment areas with a mix of food, entertainment and merchandise. The economic characteristics, products and services, preparation processes, distribution methods and types of customers are substantially similar for each of our venues. Therefore, we aggregate each venue’s operating performance into one reportable segment for financial reporting purposes.
Basis of Presentation
The Company has a controlling financial interest in International Association of CEC Entertainment, Inc. (the “Association”), a variable interest entity (“VIE”). The Association primarily administers the collection and disbursement of funds (the “Association Funds”) used for advertising, entertainment and media programs that benefit both us and our Chuck E. Cheese franchisees. We and our franchisees are required to contribute a percentage of gross sales to these funds and could be required to make additional contributions to fund any deficits that may be incurred by the Association. We include the Association in our Consolidated Financial Statements, as we concluded that we are the primary beneficiary of its variable interests because we (a) have the power to direct the majority of its significant operating activities; (b) provide it unsecured lines of credit; and (c) own the majority of the venues that benefit from the Association’s advertising, entertainment and media expenditures. We eliminate the intercompany portion of transactions with VIEs from our financial results. The assets, liabilities and operating results of the Association are not material to our Consolidated Financial Statements.
The Association Funds are required to be segregated and used for specified purposes. Cash balances held by the Association are restricted for use in our advertising, entertainment and media programs, and are recorded as “Restricted cash” on our Consolidated Balance Sheets. Contributions to the advertising, entertainment and media funds from our franchisees were $2.3 million and $1.8 million for the nine months ended September 29, 2019 and September 30, 2018, respectively. Our contributions to the Association Funds are eliminated in consolidation.
The preparation of these unaudited Consolidated Financial Statements in conformity with accounting principles generally accepted in the United States (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of our unaudited Consolidated Financial Statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
We operate on a 52 or 53 week fiscal year that ends on the Sunday nearest to December 31. Each quarterly period has 13 weeks, except for a 53 week year when the fourth quarter has 14 weeks. Our current fiscal year, which ends on December 29, 2019, and our fiscal year ended December 30, 2018, each consist of 52 weeks. References to the three and nine-month periods ended ended September 29, 2019 and September 30, 2018 are for the 13-week and 39-week periods ended September 29, 2019 and September 30, 2018, respectively.
Interim Financial Statements
The accompanying Consolidated Financial Statements as of and for the three and nine months ended September 29, 2019 and September 30, 2018 are unaudited and are presented in accordance with the requirements for quarterly reports on Form 10-Q and, consequently, do not include all of the information and footnote disclosures required by GAAP. In the opinion of management, the Consolidated Financial Statements include all adjustments (consisting solely of normal recurring adjustments) necessary for the fair statement of its consolidated results of operations, financial position and cash flows as of the
dates and for the periods presented in accordance with GAAP and the rules and regulations of the United States Securities and Exchange Commission (the “SEC”). All intercompany accounts have been eliminated in consolidation.
Consolidated results of operations for interim periods are not necessarily indicative of results for the full year. The unaudited Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and related notes included in our Annual Report on Form 10-K for the fiscal year ended December 30, 2018, filed with the SEC on March 12, 2019.
Recently Adopted Accounting Guidance
Effective December 31, 2018, the beginning of our Fiscal 2019 year, we adopted Accounting Standards Update (“ASU”) ASU 2016-02, Leases (Topic 842) (“ASU 2016-02”) and the subsequent amendment ASU 2018-11, Leases (Topic 842): Target Improvements (“ASU 2018-11”). ASU 2016-02 introduces a new lease model that requires the recognition of lease right-of-use assets and operating lease liabilities on the balance sheet and the disclosure of key information about leasing arrangements. ASU 2018-11 provides for another transition method in addition to the modified retrospective approach required by ASU 2016-02. This option allows for entities to initially apply ASU 2016-02 at the adoption date and recognize a cumulative adjustment to the opening balance sheet in the period of adoption. The cumulative impact of adopting ASU 2016-02 did not require us to record an adjustment to our opening accumulated deficit as of December 31, 2018 in our Consolidated Balance Sheet.
Upon the adoption of ASU 2016-02, we applied the package of practical expedients included therein, which eliminated the requirements to reassess prior conclusions about lease identification, lease classification, and initial direct costs. We did not elect the hindsight practical expedient, which permits the use of hindsight when determining lease term. Further, we elected a short-term lease exception policy, permitting us to not apply the recognition requirements of this standard to short-term leases (i.e. leases with terms of 1 year or less) and an accounting policy to account for lease and non-lease components as a single component for real estate operating leases. We also utilized the transition method included in ASU 2018-11. By applying ASU 2016-02 at the adoption date, as opposed to at the beginning of the earliest period presented, the presentation of financial information for periods prior to December 31, 2018 remained unchanged and in accordance with Accounting Standards Codification (“ASC”) 840 Leases (Topic 840). The adoption of ASU 2016-02 resulted in the recognition as of December 31, 2018 of Right-of-Use assets related to our operating leases of $557.1 million and lease liabilities related to our operating leases of $590.8 million. In addition, as a result of electing to account for lease and non-lease components as a single component for certain classes of assets, lease costs for the three and nine months ended September 29, 2019 include $3.4 million and $10.5 million, respectively, of common area maintenance charges, which was previously included in “Other venue operating expenses” in our Consolidated Statement of Earnings. Other venue operating expenses in our Consolidated Statement of Earnings for the three and nine months ended September 30, 2018 includes common area maintenance charges of $3.2 million and $10.2 million, respectively. The adoption of the guidance did not have a material impact on our Consolidated Statement of Cash Flows.
Note 2. Unearned Revenues:
Liabilities relating to unused game credits, gift card liabilities and deferred franchise and development fees are included in “Unearned revenues” on our Consolidated Balance Sheets. The following table presents changes in the Company’s Unearned revenue balances during the nine months ended September 29, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
|
|
|
Balance at
|
|
December 31, 2018
|
|
Revenue Deferred
|
|
Revenue Recognized
|
|
September 29, 2019
|
|
(in thousands)
|
PlayPass and ticket related deferred revenue
|
$
|
5,561
|
|
|
$
|
36,541
|
|
|
$
|
(35,331
|
)
|
|
$
|
6,771
|
|
Gift card related deferred revenue
|
5,253
|
|
|
7,814
|
|
|
(8,003
|
)
|
|
5,064
|
|
Unearned franchise and development fees
|
6,321
|
|
|
2,324
|
|
|
(145
|
)
|
|
8,500
|
|
Other unearned revenues
|
989
|
|
|
19,944
|
|
|
(19,399
|
)
|
|
1,534
|
|
Total unearned revenues
|
$
|
18,124
|
|
|
$
|
66,623
|
|
|
$
|
(62,878
|
)
|
|
$
|
21,869
|
|
Note 3. Property and Equipment
Asset Impairments
During the three and nine months ended September 29, 2019, we recognized an asset impairment charge of $8.2 million and $9.5 million, primarily related to 10 and 12 venues, respectively. During the three and nine months ended September 30, 2018, we recognized an asset impairment charge of $5.3 million and $6.9 million primarily related to eight and nine venues, respectively. These impairment charges were the result of a decline in the venues’ financial performance, primarily related to various competitive and economic factors in the market in which the venues are located. As of September 29, 2019, the aggregate carrying value of the property and equipment at impaired venues, after the impairment charges, was $7.2 million for venues impaired in 2019.
Note 4. Intangible Assets, Net:
The following table presents our indefinite and definite-lived intangible assets at September 29, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Life (Years)
|
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
|
Net Carrying Amount
|
|
|
|
(in thousands)
|
Chuck E. Cheese tradename
|
Indefinite
|
|
$
|
400,000
|
|
|
|
|
$
|
400,000
|
|
Peter Piper Pizza tradename
|
Indefinite
|
|
26,700
|
|
|
|
|
26,700
|
|
Franchise agreements
|
25
|
|
53,300
|
|
|
(10,782
|
)
|
|
42,518
|
|
|
|
|
$
|
480,000
|
|
|
$
|
(10,782
|
)
|
|
$
|
469,218
|
|
In connection with the adoption of ASU 2016-02 effective December 31, 2018, we reclassified $6.3 million related to the net carrying amount of our favorable lease definite-lived intangible asset from “Intangible Assets, Net” to “Operating lease right-of-use assets, net” on our Consolidated Balance Sheets. See Note 1. “Description of Business and Summary of Significant Accounting Policies - Recently Adopted Accounting Guidance” and Note 5. “Leases” for further discussion on the adoption of ASU 2016-02.
Amortization expense related to favorable lease agreements was $0.3 million and $1.0 million for the three and nine-month periods ended September 30, 2018, respectively, and is included in “Lease costs” in our Consolidated Statements of Earnings. As described above, in connection with the adoption of ASU 2016-02 at the beginning of Fiscal 2019, our favorable lease definite-lived intangible asset was reclassified from “Intangible Assets, Net” to “Operating lease right-of-use assets, net” and therefore we no longer have any amortization expense related to favorable lease agreements. Amortization expense related to franchise agreements was $0.5 million for both the three months ended September 29, 2019 and September 30, 2018, respectively, and $1.5 million for both the nine months ended September 29, 2019 and September 30, 2018, respectively, and is included in “Depreciation and amortization” in our Consolidated Statements of Earnings.
Note 5. Leases:
We lease certain venues, warehouses, office space and equipment. The leases generally require us to pay minimum rent, property taxes, insurance, and other maintenance costs. Certain lease agreements include rental payments based on a percentage of retail sales over contractual levels and others include rental payments adjusted periodically for inflation. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.
Most of the Company's leases generally have initial terms of 10 to 20 years and include one or more options to renew. The exercise of lease renewal options is at our sole discretion, and based on our history of exercising renewal lease options, our operating lease liabilities typically assume the exercise of two lease renewal options. The depreciable life of assets and leasehold improvements are limited by the expected lease term.
|
|
|
|
|
|
|
|
September 29, 2019
|
|
Balance Sheet Classification
|
(in thousands)
|
Assets
|
|
|
Operating
|
Operating lease right-of-use assets, net (1)
|
$
|
536,057
|
|
Finance
|
Property and equipment, net (2)
|
9,346
|
|
Total leased assets
|
|
$
|
545,403
|
|
|
|
|
Liabilities
|
|
|
Current
|
|
|
Operating
|
Operating lease liability, current portion
|
$
|
49,203
|
|
Finance
|
Other current liabilities
|
803
|
|
Noncurrent
|
|
|
Operating
|
Operating lease obligations, less current portion
|
522,380
|
|
Finance
|
Other noncurrent liabilities
|
11,675
|
|
Total leased liabilities
|
|
$
|
584,061
|
|
__________________
(1) During the nine months ended September 29, 2019, we recognized impairment charges of $0.2 million against our operating right-of-use lease assets related to three Peter Piper Pizza venues in Oklahoma that were closed in 2018. These impairment charges represent a change in the sublease income assumptions for these locations to reflect a longer than expected period to secure subtenants.
(2) Finance lease assets are recorded net of accumulated amortization of $5.7 million as of September 29, 2019.
As most of our leases do not provide an implicit rate, we use our estimated incremental borrowing rate based on the current cost of debt on our Secured Credit Facilities at commencement date in determining the present value of lease payments.
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
|
|
September 29, 2019
|
|
September 29, 2019
|
|
|
Statement of Earnings Classification
|
|
(in thousands)
|
|
(in thousands)
|
Operating lease cost (1)
|
|
Lease costs
|
|
$
|
27,559
|
|
|
$
|
82,102
|
|
Operating lease cost (2)
|
|
General and administrative
|
|
326
|
|
|
976
|
|
Finance lease cost
|
|
|
|
|
|
|
Amortization of leased assets
|
|
Depreciation and amortization
|
|
246
|
|
|
742
|
|
Interest on lease liabilities
|
|
Net interest expense
|
|
366
|
|
|
1,123
|
|
Net lease cost
|
|
|
|
$
|
28,497
|
|
|
$
|
84,943
|
|
__________________
(1) Includes common area maintenance charges of $3.4 million and $10.5 million for the three and nine months ended September 29, 2019, respectively.
(2) Represents the lease cost associated with operating leases relating to our corporate offices and warehouse facilities.
The following table illustrates the Company’s future minimum rental payments for non-cancelable leases as of September 29, 2019:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Leases (1)
|
|
Finance
Leases (2)
|
|
Total
|
|
|
(in thousands)
|
Remainder of 2019
|
|
$
|
22,694
|
|
|
$
|
548
|
|
|
$
|
23,242
|
|
2020
|
|
91,537
|
|
|
2,194
|
|
|
93,731
|
|
2021
|
|
89,203
|
|
|
2,173
|
|
|
91,376
|
|
2022
|
|
87,221
|
|
|
2,147
|
|
|
89,368
|
|
2023
|
|
84,861
|
|
|
1,920
|
|
|
86,781
|
|
After 2023
|
|
472,432
|
|
|
12,931
|
|
|
485,363
|
|
Total lease payments
|
|
847,948
|
|
|
21,913
|
|
|
869,861
|
|
Less: interest
|
|
276,365
|
|
|
9,435
|
|
|
285,800
|
|
Present value of minimum lease payments (3)
|
|
$
|
571,583
|
|
|
$
|
12,478
|
|
|
$
|
584,061
|
|
__________________
(1) Operating lease payments include payments related to options to extend lease terms that are reasonably certain of being exercised and exclude legally binding minimum lease payments for leases signed but not yet commenced.
(2) Finance lease payments include payments related to options to extend lease terms that are reasonably certain of being exercised and exclude legally binding minimum lease payments for leases signed but not yet commenced.
(3) The present value of minimum operating lease payments of $49.2 million and $522.4 million are included in “Operating lease liability, current portion” and “Operating lease obligations, less current portion”, respectively, in our Consolidated Balance Sheet. The present value of minimum finance lease payments of $0.8 million and $11.7 million are included in “Other current liabilities” and “Other noncurrent liabilities”, respectively, in our Consolidated Balance Sheet.
|
|
|
|
|
|
|
Nine Months Ended
|
Lease Term and Discount Rate
|
September 29, 2019
|
Weighted average remaining lease term (years):
|
|
Operating leases
|
|
10
|
|
Finance leases
|
|
11
|
|
Weighted average discount rate:
|
|
|
Operating leases
|
|
8.0
|
%
|
Finance leases
|
|
13.2
|
%
|
The following table includes supplemental cash flow information related to leases:
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
September 29, 2019
|
|
|
(in thousands)
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
Operating cash flows for operating leases
|
$
|
64,237
|
|
Operating cash flows for finance leases
|
1,123
|
|
Financing cash flows for finance leases
|
488
|
|
Right-of-use assets obtained in exchange for lease obligations:
|
|
Operating lease liabilities
|
|
17,397
|
|
Finance lease liabilities
|
|
—
|
|
The following table illustrates the Company’s future minimum rental payments for non-cancelable leases as of December 30, 2018:
|
|
|
|
|
|
|
|
|
Financing
|
|
Operating
|
Fiscal Years
|
(in thousands)
|
2019
|
2,182
|
|
|
92,435
|
|
2020
|
2,214
|
|
|
90,983
|
|
2021
|
2,201
|
|
|
88,914
|
|
2022
|
2,184
|
|
|
87,183
|
|
2023
|
1,956
|
|
|
84,806
|
|
After 2023
|
13,266
|
|
|
457,277
|
|
Future minimum lease payments
|
24,003
|
|
|
901,598
|
|
Less amounts representing interest
|
(10,996
|
)
|
|
|
Present value of future minimum lease payments
|
13,007
|
|
|
|
Less current portion
|
(677
|
)
|
|
|
Finance lease liability, net of current portion
|
$
|
12,330
|
|
|
|
Note 6. Accounts Payable:
Accounts payable consisted of the following as of the dates presented:
|
|
|
|
|
|
|
|
|
|
September 29,
2019
|
|
December 30, 2018
|
|
(in thousands)
|
Trade and other amounts payable
|
$
|
33,312
|
|
|
$
|
20,685
|
|
Book overdraft
|
10,389
|
|
|
10,725
|
|
Accounts payable
|
$
|
43,701
|
|
|
$
|
31,410
|
|
The book overdraft balance represents payments we have issued but that have not cleared the banks.
Note 7. Indebtedness and Interest Expense:
Our long-term debt consisted of the following as of the dates presented:
|
|
|
|
|
|
|
|
|
|
September 29,
2019
|
|
December 30,
2018
|
|
(in thousands)
|
Term loan facility
|
$
|
760,000
|
|
|
$
|
723,900
|
|
Revolving credit facility
|
—
|
|
|
—
|
|
Senior notes
|
255,000
|
|
|
255,000
|
|
Total debt outstanding
|
1,015,000
|
|
|
978,900
|
|
Less:
|
|
|
|
Deferred financing costs, net
|
(18,003
|
)
|
|
(8,633
|
)
|
Unamortized original issue discount
|
(30,411
|
)
|
|
(1,153
|
)
|
Current portion of Term Loan Facility
|
(7,600
|
)
|
|
(7,600
|
)
|
Bank indebtedness and other long-term debt, net of deferred financing costs, less current portion
|
$
|
958,986
|
|
|
$
|
961,514
|
|
We were in compliance with the debt covenants in effect as of September 29, 2019 for both the Secured Credit Facilities and the Senior Notes.
We monitor the capital markets and our capital structure and make changes from time to time, with the goal of maintaining financial flexibility, preserving or improving liquidity and/or achieving cost efficiency. From time to time we may opportunistically pursue financing transactions. In addition, we may elect to repurchase amounts of our outstanding debt, including the Senior Notes (as defined below under “Senior Unsecured Debt”), for cash, through open market repurchases or privately negotiated transactions with certain of our debt holders, although there is no assurance we will do so.
Secured Credit Facilities
On August 30, 2019 the Company entered into a new credit agreement and related security agreements with Credit Suisse AG, Cayman Islands Branch, as administrative and collateral agent. The new credit agreement provides senior secured financing consisting of:
|
|
(i)
|
a $114 million secured revolving credit facility which includes a $50 million letter of credit sub-facility (collectively the “2019 Revolving Credit Facility”) with a maturity date of August 30, 2024 (the “revolver maturity date); and
|
|
|
(ii)
|
a $760 million secured term loan facility (the “2019 Term Loan Facility” and together with the 2019 Revolving Credit Facility, the “2019 Secured Credit Facilities”) with a maturity date of August 30, 2026 (the “term loan maturity date”).
|
In the event more than $50 million of the Company’s 8.0% Senior Notes maturing February 15, 2022 remain outstanding on the date that is 91 days prior to the stated maturity date of the notes, the term loan maturity date will spring to such earlier date, November 16, 2021.
The net proceeds from the 2019 Secured Credit Facilities, plus cash on hand, were used to pay the outstanding principal, accrued interest and fees related to our secured credit facilities dated as of February 14, 2014, as amended by an incremental assumption agreement, dated as of May 8, 2018 (the “2014 Secured Credit Facilities”), and debt issuance costs related to the 2019 Secured Credit Facilities. All obligations under the 2014 Secured Credit Facilities have been terminated.
The 2019 secured term loan was issued net of $30.4 million of original issue discount. We also incurred a total of $15.4 million in debt issuance costs ($13.4 million related to the issuance of the 2019 Term Loan Facility and $2.0 million related to the 2019 Revolving Credit Facility). The debt issuance costs are reflected in our consolidated financial statements as follows:
|
|
•
|
Loss on Extinguishment of Debt: We recorded a loss on extinguishment of debt totaling $2.9 million which includes $0.5 million of fees paid to lenders in connection with the 2019 Term Loan Facility and wrote off $2.4 million of unamortized deferred financing costs and original issue discount related to the 2014 Secured Credit
|
Facilities;
|
|
•
|
Transaction related costs: We expensed third party fees totaling $0.3 million related to legal fees incurred in connection with the 2019 Term Loan Facility. The transaction related costs are included in “Transaction, severance and related litigation costs” in our Consolidated Statement of Earnings;
|
|
|
•
|
Interest Expense: We expensed third party fees totaling $0.4 million related to rating agency fees incurred in connection with the 2019 Secured Credit Facilities. These fees are included in “Interest Expense” in our Consolidated Statement of Earnings; and
|
|
|
•
|
Deferred Financing Costs: Debt issuance costs totaling $14.2 million related to the 2019 Secured Credit Facilities were capitalized and are included in “Bank indebtedness and other long-term debt, net of deferred financing costs” on our Consolidated Balance Sheets. We also continued to defer $2.1 million of unamortized deferred financing costs related to the 2014 Secured Credit Facilities.
|
The deferred financing costs related to the 2019 Term Loan Facility and original issue discount are amortized through the 2019 term loan maturity date, and the deferred financing costs related to the 2019 Revolving Credit Facility are being amortized through the 2019 revolver maturity date. The amortization of the deferred financing costs and original issue discount is included in “Interest expense” in our Consolidated Statements of Earnings.
The 2019 Secured Credit Facilities allow the Company to request one or more incremental term loan facilities and/or increase the commitments under our revolving credit facility in an aggregate amount of up to the sum of (a) $50.0 million plus (b) such additional amount so long as, (i) in the case of loans that rank equally and without preference with the liens on the collateral securing the 2019 Secured Credit Facilities, our net first lien senior secured leverage ratio (the ratio of total consolidated debt secured by first-priority liens on the collateral net of unrestricted cash to the last twelve month’s EBITDA, as defined in the 2019 Senior Credit Facilities agreement) would be no greater than 2.75 to 1.00 and (ii) in the case of loans that rank junior to the liens on the collateral securing the 2019 Secured Credit Facilities, our total net secured leverage ratio (as defined in the 2019 Senior Credit Facilities agreement) would be no greater than 5.00 to 1.00, subject to certain conditions, and receipt of commitments by existing or additional lenders.
The 2019 Secured Credit Facilities include certain mandatory prepayment requirements:
|
|
•
|
Excess Cash Flow- Subject to certain exceptions, to the extent we have excess cash flow determined on an annual basis (as defined in the 2019 Secured Credit Facilities agreement), we are required to make a mandatory prepayment of term loan principal (reduced by any optional prepayments of principal that may have occurred during the fiscal year) to the extent that 75% (the “required percentage” which is subject to step downs discussed below) times the excess cash flow exceeds $10.0 million. The required percentage steps down from 75% to 50% provided our Net Total Leverage Ratio (the ratio of total consolidated debt including lease related obligations net of unrestricted cash to the last twelve month’s EBITDA, as defined in the 2019 Senior Credit Facilities agreement) is less than or equal to 4.50 to 1.00 and greater than 4.25 to 1.00, steps down to 25% provided our Net Total Leverage Ratio is less than or equal to 4.25 to 1.00 and greater than 4.00 to 1.00, and steps down to 0% provided our Net Total Leverage Ratio is less than or equal to 4.00 to 1.00.
|
|
|
•
|
Sales and Disposition of Assets- Subject to certain exceptions, we are required to make a mandatory prepayment of term loan principal of 100% of the net cash proceeds of all non-ordinary course asset sales, other dispositions of property or certain casualty events, in each case subject to certain exceptions and provided that the Company may (i) reinvest within 12 months or (ii) commit to reinvest those proceeds and does reinvest such proceeds within 18 months in assets to be used in its business, or certain other permitted investments; and
|
|
|
•
|
Issuance or incurrence of Debt- Subject to certain exceptions, we are required to make a mandatory prepayment of term loan principal of 100% of the net cash proceeds of any issuance or incurrence of debt, other than proceeds from debt permitted under the 2019 Secured Credit Facilities.
|
The Company may voluntarily repay outstanding loans under the 2019 Secured Credit Facilities at any time, without prepayment premium or penalty except in connection with a repricing event as described below, subject to customary “breakage” costs with respect to LIBOR rate loans. Any refinancing through the issuance or repricing amendment of any debt that results in a repricing event applicable to the 2019 Term Loan Facility resulting in a lower yield occurring at any time during the first twelve months following August 30, 2019 will be accompanied by a 1.00% prepayment premium or fee, as applicable.
The 2019 Term Loan Facility requires scheduled quarterly payments equal to $1.9 million (0.25% of the original principal amount) from December 2019 to June 2026, with the remaining balance due at maturity, August 30, 2026.
As of September 29, 2019, we had no borrowings outstanding and an $8.5 million letter of credit issued but undrawn under the 2019 Revolving Credit Facility. As of December 30, 2018 we had a $9.0 million letter of credit issued but undrawn under the revolving credit facility related to the 2014 Senior Secured Facilities.
Borrowings under the 2019 Secured Credit Facilities bear interest at a rate equal to, at the option of the Company, either:
(a) a LIBOR rate determined by reference to the costs of funds for Eurodollar deposits for the interest period relevant to such borrowing, adjusted for certain additional costs, subject to a 1.00% floor; or
(b) a base rate determined by reference to the highest of (i) the federal funds rate plus 0.50%, (ii) the prime rate of Credit Suisse AG, Cayman Islands Branch, and (iii) the one-month adjusted LIBOR plus 1.00%.
In each case the interest rate is also subject to an applicable margin determined as follows:
•2019 Term Loan Facility:
|
|
|
|
|
Margin for Base Rate Loans
|
|
Margin for LIBOR Loans
|
5.50%
|
|
6.50
|
%
|
•2019 Revolving Credit Facility:
|
|
|
|
|
|
Net Total Leverage Ratio
|
|
Margin for Base Rate Loans
|
|
Margin for LIBOR Loans
|
Greater than 4.80 to 1.00
|
|
5.50%
|
|
6.50%
|
Less than or equal to 4.80 to 1.00 but greater than 4.30 to 1.00
|
|
5.25%
|
|
6.25%
|
Less than or equal to 4.30 to 1.00
|
|
5.00%
|
|
6.00%
|
During the period from August 30, 2019 through September 29, 2019 the applicable margin for LIBOR borrowings under the 2019 Secured Credit Facilities was 6.50%. During the period from December 31, 2018 through August 29, 2019 and the nine months ended September 30, 2018, the applicable margin for LIBOR borrowings under the 2014 Secured Credit Facilities was 3.25%.
In addition to paying interest on outstanding principal under both the 2019 and 2014 Secured Credit Facilities, the Company is required to pay a commitment fee to the lenders under the respective revolving credit facilities in respect of any unutilized commitments thereunder. The applicable commitment fee rate under the 2019 Revolving Credit Facility is determined as follows:
|
|
|
|
Net Total Leverage Ratio
|
|
Commitment Fee
|
Greater than 4.30 to 1.00
|
|
0.50%
|
Less than or equal to 4.30 to 1.00
|
|
0.375%
|
During the nine months ended September 29, 2019 and September 30, 2018 the commitment fee rate was 0.50%.
The Company is also required to pay customary agency fees as well as letter of credit participation fees computed at a rate per annum equal to the applicable margin for LIBOR rate borrowings on the dollar equivalent of the daily stated amount of outstanding letters of credit, plus such letter of credit issuer’s customary documentary and processing fees and charges, and a fronting fee computed at a rate equal to 0.125% per annum on the daily stated amount of each letter of credit.
During the nine months ended September 29, 2019, the federal funds rate ranged from 1.83% to 2.45%, the prime rate ranged from 5.00% to 5.50% and the one-month LIBOR ranged from 2.02% to 2.52%.
The weighted average effective interest rate incurred on our borrowings under both our 2019 and 2014 Secured Credit Facilities was 6.6% and 5.7% for the nine months ended September 29, 2019 and September 30, 2018, respectively, which includes amortization of deferred financing costs related to our Secured Credit Facilities, amortization of our Term Loan Facility original issue discount and commitment and other fees related to our Secured Credit Facilities but excludes the Loss on extinguishment of debt.
Obligations under the both the 2019 and 2014 Secured Credit Facilities are unconditionally guaranteed by Parent on a
limited-recourse basis and each of our existing and future direct and indirect material, wholly-owned domestic subsidiaries, subject to certain exceptions. The obligations are secured by a pledge of our capital stock and substantially all of our assets and those of each subsidiary guarantor, including capital stock of the subsidiary guarantors and 65% of the capital stock of the first- tier foreign subsidiaries that are not subsidiary guarantors, in each case subject to exceptions. Such security interests consist of first priority liens with respect to the collateral.
The 2019 Secured Credit Facilities also contain customary affirmative and negative covenants, and events of default, which limit our ability to, among other things: incur additional debt or issue certain preferred shares; create liens on certain assets; make certain loans or investments (including acquisitions); pay dividends on or make distributions with respect to our capital stock or make other restricted payments; consolidate, merge, sell or otherwise dispose of all or substantially all of our assets; sell assets; enter into certain transactions with our affiliates; enter into sale-leaseback transactions; change our lines of business; restrict dividends from our subsidiaries or restrict liens; change our fiscal year; and modify the terms of certain debt or organizational agreements. For a period of 18 months following August 30, 2019, we are prohibited from paying dividends to investment funds managed by Apollo or its affiliates.
Our 2019 Revolving Credit Facility includes a springing financial maintenance covenant that requires our net first lien senior secured leverage ratio not to exceed 5.25 to 1.00. The covenant will be tested quarterly if the 2019 Revolving Credit Facility is more than 30% drawn (excluding outstanding letters of credit) and will be a condition to drawings under the Revolving Credit Facility that would result in more than 30% drawn thereunder.
Senior Unsecured Debt
Our senior unsecured debt consists of $255.0 million aggregate principal amount borrowings of 8.0% Senior Notes due 2022 (the “Senior Notes”). The Senior Notes bear interest at a rate of 8.0% per year payable February 15th and August 15th each year and mature on February 15, 2022. We may call some or all of the Senior Notes at 102% on or after February 15, 2019 and at 100% on or after February 15, 2020 as set forth in the indenture governing the Senior Notes (the “indenture”).
We paid $6.4 million in debt issuance costs related to the Senior Notes, which we capitalized in “Bank indebtedness and other long-term debt, net of deferred financing costs” on our Consolidated Balance Sheets. The deferred financing costs are being amortized over the life of the Senior Notes and are included in “Interest expense” in our Consolidated Statements of Earnings.
Our obligations under the Senior Notes are fully and unconditionally guaranteed, jointly and severally, by our present and future direct and indirect wholly-owned material domestic subsidiaries that guarantee our 2019 Secured Credit Facilities.
The indenture contains restrictive covenants that limit our ability to, among other things: (i) incur additional debt or issue certain preferred shares; (ii) create liens on certain assets; (iii) make certain loans or investments (including acquisitions); (iv) pay dividends on or make distributions in respect of our capital stock or make other restricted payments; (v) consolidate, merge, sell or otherwise dispose of all or substantially all of our assets; (vi) sell assets; (vii) enter into certain transactions with our affiliates; and (viii) restrict dividends from our subsidiaries.
The weighted average effective interest rate incurred on borrowings under our Senior Notes was 8.2% for both the nine months ended September 29, 2019 and September 30, 2018, which includes amortization of deferred financing costs and other fees related to our Senior Notes.
Interest Expense
Interest expense consisted of the following for the periods presented:
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
September 29, 2019
|
|
September 30, 2018
|
|
(in thousands)
|
Term Loan Facility (1)
|
$
|
12,776
|
|
|
$
|
9,946
|
|
Senior notes
|
5,083
|
|
|
5,083
|
|
Finance lease obligations
|
366
|
|
|
394
|
|
Sale leaseback obligations
|
2,393
|
|
|
2,628
|
|
Amortization of deferred financing costs
|
970
|
|
|
923
|
|
Other
|
441
|
|
|
95
|
|
Total interest expense
|
$
|
22,029
|
|
|
$
|
19,069
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
September 29, 2019
|
|
September 30, 2018
|
|
(in thousands)
|
Term Loan Facility (1)
|
$
|
34,019
|
|
|
$
|
28,747
|
|
Senior Notes
|
15,248
|
|
|
15,248
|
|
Finance lease obligations
|
1,123
|
|
|
1,253
|
|
Sale leaseback obligations
|
7,770
|
|
|
7,880
|
|
Amortization of deferred financing costs
|
2,817
|
|
|
2,878
|
|
Other
|
839
|
|
|
734
|
|
Total interest expense
|
$
|
61,816
|
|
|
$
|
56,740
|
|
__________________
(1) Includes amortization of original issue discount.
The weighted average effective interest rate incurred on our borrowings under our 2019 and 2014 Secured Credit Facilities and Senior Notes (including amortized debt issuance costs, amortization of original issue discount, commitment and other fees related to the Secured Credit Facilities and Senior Notes) was 7.0% for the nine months ended September 29, 2019 and 6.3% for the nine months ended September 30, 2018, respectively.
Note 8. Fair Value of Financial Instruments:
Fair value measurements of financial instruments are determined based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entity’s own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy) has been established.
The following table presents information on our financial instruments as of the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 29, 2019
|
|
|
December 30, 2018
|
|
|
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
|
|
|
$
|
7,464
|
|
|
|
$
|
7,600
|
|
|
$
|
7,051
|
|
Long-term portion (2)
|
|
1,007,400
|
|
|
980,882
|
|
|
|
971,300
|
|
|
885,212
|
|
Bank indebtedness and other long-term debt:
|
|
$
|
1,015,000
|
|
|
$
|
988,346
|
|
|
|
$
|
978,900
|
|
|
$
|
892,263
|
|
_________________
(1) Excluding net deferred financing costs and original issue discount.
(2) The unamortized portion of original issue discount was $30.4 million and 1.2 million at September 29, 2019 and December 30, 2018, respectively.
Our financial instruments consist of cash and cash equivalents, restricted cash, accounts receivable, accounts payable, our 2019 and 2014 Secured Credit Facilities and our Senior Notes. The carrying amount of cash and cash equivalents, restricted cash, accounts receivable and accounts payable approximates fair value because of their short maturities. The estimated fair value of both our 2019 and 2014 Secured Credit Facilities and our Senior Notes was determined by using their respective average of the ask and bid price as of the nearest open market date preceding the reporting period end. The average of the ask and bid price are classified as Level 2 in the fair value hierarchy.
Our non-financial assets, which include long-lived assets, including property, plant and equipment, operating lease right-of-use assets, goodwill and intangible assets, are reported at carrying value and are not required to be measured at fair value on a recurring basis. However, on a periodic basis, or whenever events or changes in circumstances indicate that their carrying value may not be recoverable, we assess our long-lived assets for impairment.
During the nine months ended September 29, 2019 and September 30, 2018, there were no significant transfers among Level 1, 2 or 3 fair value determinations.
Note 9. Other Noncurrent Liabilities:
Other noncurrent liabilities consisted of the following as of the dates presented:
|
|
|
|
|
|
|
|
|
|
|
|
September 29, 2019
|
|
December 30, 2018
|
|
|
(in thousands)
|
Sale leaseback obligations, less current portion (1)
|
|
$
|
171,729
|
|
|
$
|
174,520
|
|
Lease related liabilities (2)
|
|
—
|
|
|
45,195
|
|
Financing lease obligations, less current portion
|
|
11,675
|
|
|
12,330
|
|
Accrued insurance
|
|
6,724
|
|
|
9,861
|
|
Other
|
|
5,902
|
|
|
6,534
|
|
Total other noncurrent liabilities
|
|
$
|
196,030
|
|
|
$
|
248,440
|
|
________________
|
|
(1)
|
The sale leaseback obligations are accounted for under the financing method, rather than as completed sales. Under the financing method the sales proceeds received are included in other long-term liabilities until our continuing involvement with the properties is terminated. The rental payments related to the sale leaseback properties are recorded as interest expense and a reduction of the sale leaseback obligation.
|
|
|
(2)
|
Lease liabilities totaling $45.2 million were reclassified in connection with the adoption of ASU 2016-02 on December 31, 2018. See Note 1. “Description of Business and Summary of Significant Accounting Policies - Recently Adopted Accounting Guidance” and Note 5. “Leases” for further discussion on the adoption of ASU 2016-02.
|
Note 10. Income Taxes:
Our income tax expense (benefit) consists of the following for the periods presented:
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
September 29, 2019
|
|
September 30, 2018
|
|
(in thousands)
|
Federal and state income taxes
|
$
|
(5,900
|
)
|
|
$
|
(2,451
|
)
|
Foreign income taxes (1)
|
67
|
|
|
238
|
|
Income tax benefit
|
$
|
(5,833
|
)
|
|
$
|
(2,213
|
)
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
September 29, 2019
|
|
September 30, 2018
|
|
(in thousands)
|
Federal and state income taxes
|
$
|
(1,334
|
)
|
|
$
|
(1,167
|
)
|
Foreign income taxes (1)
|
692
|
|
|
713
|
|
Income tax benefit
|
$
|
(642
|
)
|
|
$
|
(454
|
)
|
__________________
(1) Including foreign taxes withheld.
Our effective income tax rate was 27.6% and 18.9% for the three months ended September 29, 2019 and September 30, 2018, respectively. Our effective income tax rate for the three months ended September 29, 2019 differs from the statutory rate primarily due to state income taxes and the unfavorable impact of nondeductible litigation costs related to the Merger (as defined in Note 13. “Consolidating Guarantor Financial Information”), foreign income taxes (withheld on royalties and franchise fees earned from international franchisees not offset by foreign tax credits due to the foreign tax credit limitation), and certain nondeductible penalties and other expenses, partially offset by the favorable impact of employment-related federal income tax credits. Our effective income tax rate for the three months ended September 30, 2018, differs from the statutory tax rate primarily due to state income taxes, nondeductible litigation costs related to the Merger, foreign income taxes (withheld on royalties and franchise fees earned from international franchisees not offset by foreign tax credits due to the foreign tax credit limitation), non-deductible penalties and other expenses, and an increase in the reserve for uncertain tax positions, partially offset by the favorable impact of employment-related federal income tax credits.
Our effective income tax rate was 18.5% and 6.8% for the nine-month period ended September 29, 2019 and September 30, 2018, respectively. Our effective income tax rate for the nine-month period ended September 29, 2019 differs from the statutory rate primarily due to state income taxes net of the favorable impact of certain state tax legislation enacted during the second quarter of 2019 that decreased the amount of income subject to state taxation, nondeductible litigation costs related to the Merger (as defined in Note 13. “Consolidating Guarantor Financial Information”), foreign income taxes (withheld on royalties and franchise fees earned from international franchisees not offset by foreign tax credits due to the foreign tax credit limitation), and certain nondeductible penalties and other expenses, partially offset by the favorable impact of employment-related federal income tax credits. Our effective income tax rate for the nine-month period ended September 30, 2018 differs from the statutory tax rate primarily due to state income taxes including the impact of certain state tax legislation enacted during the second quarter of 2018 that increased the amount of income subject to state taxation, nondeductible litigation costs related to the Merger, foreign income taxes (withheld on royalties and franchise fees earned from international franchisees not offset by foreign tax credits due to the foreign tax credit limitation), certain non-deductible penalties and other expenses, an increase in the reserve for uncertain tax positions, an increase in a valuation allowance for deferred tax assets associated with a carryforward of certain state tax credits and deferred tax assets relating to our Canada operations that could expire before they are utilized, partially offset by the favorable impact of employment-related federal income tax credits, adjustments to the provisional estimate provided at the end of Fiscal 2017 to account for the impact of the Tax Cuts and Jobs Act (“TCJA”) enacted on December 22, 2017 pursuant to Staff Accounting Bulletin No. 118 (“SAB 118”), a one-time adjustment to deferred 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 loaned to our Canadian subsidiary.
For the periods presented herein, we have used the year-to-date effective tax rate (the “discrete method”), as prescribed by ASC 740-270, Accounting for Income Taxes-Interim Reporting when a reliable estimate of the estimated annual rate cannot be made. We believe at this time, the use of the discrete method is more appropriate than the annual effective tax rate method due to significant variations in the customary relationship between income tax expense and projected annual pre-tax income or
loss which occurs when annual projected pre-tax income or loss nears a relatively small amount in comparison to the differences between income and deductions determined for financial statement purposes versus income tax purposes. Using the discrete method, we have determined our current and deferred income tax expense as if the interim period were an annual period.
Our liability for uncertain tax positions (excluding interest and penalties) was $4.2 million as of September 29, 2019 and $4.3 million as of December 30, 2018 and if recognized would decrease our provision for income taxes by $3.2 million. Within the next twelve months, we could settle or otherwise conclude certain ongoing income tax audits and resolve uncertain tax positions as a result of expiring statutes of limitations or payment. As such, it is reasonably possible that the liability for uncertain tax positions could decrease by as much as $3.7 million within the next twelve months.
Total accrued interest and penalties related to unrecognized tax benefits was $1.2 million as of September 29, 2019 and $1.1 million as of December 30, 2018, respectively. On the Consolidated Balance Sheets, we include current accrued interest related to unrecognized tax benefits in “Accrued interest,” current accrued penalties in “Accrued expenses” and noncurrent accrued interest and penalties in “Other noncurrent liabilities.”
Note 11. Stock-Based Compensation Arrangements:
2014 Equity Incentive Plan
The 2014 Equity Incentive Plan provides Parent authority to grant equity incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock, restricted stock units, stock bonus awards or performance compensation awards to certain directors, officers or employees of the Company. A summary of the options outstanding under the equity incentive plan as of September 29, 2019 and the activity for the nine months ended September 29, 2019 is presented below:
|
|
|
|
|
|
|
|
|
|
Stock Options
|
Weighted Average Exercise Price (1)
|
Weighted Average Remaining Contractual Term
|
Aggregate Intrinsic Value
|
|
|
($ per share)
|
|
($ in thousands)
|
Outstanding stock options, December 30, 2018
|
1,987,331
|
|
$8.87
|
|
|
Options granted
|
424,985
|
|
$8.86
|
|
|
Options forfeited
|
(114,921
|
)
|
$9.87
|
|
|
Outstanding stock options, September 29, 2019
|
2,297,395
|
|
$8.80
|
5.5
|
$
|
—
|
|
Stock options expected to vest, September 29, 2019
|
1,530,812
|
|
$8.97
|
5.9
|
$
|
—
|
|
Exercisable stock options, September 29, 2019
|
841,086
|
|
$8.31
|
4.5
|
$
|
—
|
|
__________________
(1) The weighted average exercise price reflects the original grant date fair value per option as adjusted for the dividend payment made in August 2015.
As of September 29, 2019, we had $1.4 million of total unrecognized share-based compensation expense related to unvested options, which is expected to be amortized over the remaining weighted-average vesting period of 3.9 years.
Stock Awards
During the first quarter of 2019, certain officers of the Company were granted stock bonus awards under the 2014 Equity Incentive Plan. The number of common shares of Parent awarded was based on the fair market value of Parent’s common stock as of December 31, 2018. The shares granted to the officers were fully vested immediately on the date that they were granted. In addition, during 2019, the Company agreed to issue fully vested common shares of Parent to certain officers of the Company in the first quarter 2020 based on the Company’s financial performance for Fiscal 2019.
The following tables summarize stock-based compensation expense and the associated tax benefit recognized in the Consolidated Financial Statements for the periods presented:
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
September 29,
2019
|
|
September 30,
2018
|
|
(in thousands)
|
Stock-based compensation costs related to stock awards
|
$
|
(182
|
)
|
|
$
|
—
|
|
Stock-based compensation costs related to incentive stock options, net (1)
|
71
|
|
|
(58
|
)
|
Stock-based compensation expense recognized
|
$
|
(111
|
)
|
|
$
|
(58
|
)
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
September 29,
2019
|
|
September 30,
2018
|
|
(in thousands)
|
Stock-based compensation costs related to stock awards
|
$
|
1,632
|
|
|
$
|
—
|
|
Stock-based compensation costs related to incentive stock options, net (1)
|
353
|
|
|
169
|
|
Stock-based compensation expense recognized
|
$
|
1,985
|
|
|
$
|
169
|
|
Payroll taxes related to stock awards
|
$
|
15
|
|
|
$
|
—
|
|
__________________
|
|
(1)
|
We capitalize the portion of stock-based compensation costs related to our design, construction, facilities and legal departments that are directly attributable to our venue development projects, such as the design and construction of a new venue and the remodeling and expansion of our existing venues. Capitalized stock-based compensation costs attributable to our venue development projects are included in “Property and equipment, net” in the Consolidated Balance Sheets.
|
Note 12. Stockholder’s Equity:
The following tables summarize the changes in stockholder’s equity during the three and nine-month periods ended September 29, 2019 and September 30, 2018, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
Capital In
Excess of
Par Value
|
|
Accumulated Deficit
|
|
Accumulated
Other
Comprehensive
Income (Loss)
|
|
|
|
|
Shares
|
|
Amount
|
|
|
|
|
Total
|
|
|
(in thousands, except share information)
|
Balance at December 30, 2018
|
|
200
|
|
|
$
|
—
|
|
|
$
|
359,570
|
|
|
$
|
(115,660
|
)
|
|
$
|
(1,339
|
)
|
|
$
|
242,571
|
|
Net income
|
|
—
|
|
|
—
|
|
|
—
|
|
|
21,246
|
|
|
—
|
|
|
21,246
|
|
Other comprehensive loss
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(155
|
)
|
|
(155
|
)
|
Stock-based compensation costs related to stock awards
|
|
—
|
|
|
—
|
|
|
126
|
|
|
—
|
|
|
—
|
|
|
126
|
|
Balance March 31, 2019
|
|
200
|
|
|
$
|
—
|
|
|
$
|
359,696
|
|
|
$
|
(94,414
|
)
|
|
$
|
(1,494
|
)
|
|
$
|
263,788
|
|
Net loss
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(8,734
|
)
|
|
—
|
|
|
(8,734
|
)
|
Other comprehensive loss
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(130
|
)
|
|
(130
|
)
|
Stock-based compensation costs related to stock awards
|
|
—
|
|
|
—
|
|
|
171
|
|
|
—
|
|
|
—
|
|
|
171
|
|
Balance June 30, 2019
|
|
200
|
|
|
$
|
—
|
|
|
$
|
359,867
|
|
|
$
|
(103,148
|
)
|
|
$
|
(1,624
|
)
|
|
$
|
255,095
|
|
Net loss
|
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(15,334
|
)
|
|
$
|
—
|
|
|
$
|
(15,334
|
)
|
Other comprehensive income
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
73
|
|
|
73
|
|
Stock-based compensation costs related to stock awards
|
|
—
|
|
|
—
|
|
|
63
|
|
|
—
|
|
|
—
|
|
|
63
|
|
Balance September 29, 2019
|
|
200
|
|
|
$
|
—
|
|
|
$
|
359,930
|
|
|
$
|
(118,482
|
)
|
|
$
|
(1,551
|
)
|
|
$
|
239,897
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
Capital In
Excess of
Par Value
|
|
Accumulated Deficit
|
|
Accumulated
Other
Comprehensive
Income (Loss)
|
|
|
|
|
Shares
|
|
Amount
|
|
|
|
|
Total
|
|
|
(in thousands, except share information)
|
Balance at December 31, 2017
|
|
200
|
|
|
$
|
—
|
|
|
$
|
359,233
|
|
|
$
|
(95,199
|
)
|
|
$
|
(1,886
|
)
|
|
$
|
262,148
|
|
Net income
|
|
—
|
|
|
—
|
|
|
—
|
|
|
12,223
|
|
|
—
|
|
|
12,223
|
|
Other comprehensive income
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
154
|
|
|
154
|
|
Stock-based compensation costs related to stock awards
|
|
—
|
|
|
—
|
|
|
67
|
|
|
—
|
|
|
—
|
|
|
67
|
|
Balance April 1, 2018
|
|
200
|
|
|
$
|
—
|
|
|
$
|
359,300
|
|
|
$
|
(82,976
|
)
|
|
$
|
(1,732
|
)
|
|
$
|
274,592
|
|
Net loss
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(8,965
|
)
|
|
—
|
|
|
(8,965
|
)
|
Other comprehensive income
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
145
|
|
|
145
|
|
Stock-based compensation costs related to stock awards
|
|
—
|
|
|
—
|
|
|
166
|
|
|
—
|
|
|
—
|
|
|
166
|
|
Balance July 1, 2018
|
|
200
|
|
|
$
|
—
|
|
|
$
|
359,466
|
|
|
$
|
(91,941
|
)
|
|
$
|
(1,587
|
)
|
|
$
|
265,938
|
|
Net loss
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(9,487
|
)
|
|
—
|
|
|
(9,487
|
)
|
Other comprehensive loss
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(172
|
)
|
|
(172
|
)
|
Stock-based compensation costs related to stock awards
|
|
—
|
|
|
—
|
|
|
(55
|
)
|
|
—
|
|
|
—
|
|
|
(55
|
)
|
Balance September 30, 2018
|
|
200
|
|
|
—
|
|
|
$
|
359,411
|
|
|
$
|
(101,428
|
)
|
|
$
|
(1,759
|
)
|
|
$
|
256,224
|
|
13. Consolidating Guarantor Financial Information:
On February 14, 2014, CEC Entertainment, Inc. (the “Issuer”) merged with and into an entity controlled by Apollo Global Management, Inc. (“Apollo”) 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CEC Entertainment, Inc.
|
Condensed Consolidating Balance Sheet
|
As of September 29, 2019
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuer
|
|
Guarantors
|
|
Non-Guarantors
|
|
Eliminations
|
|
Consolidated
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
94,627
|
|
|
$
|
7,712
|
|
|
$
|
2,720
|
|
|
$
|
—
|
|
|
$
|
105,059
|
|
Restricted cash
|
|
—
|
|
|
—
|
|
|
212
|
|
|
—
|
|
|
212
|
|
Accounts receivable
|
|
13,098
|
|
|
6,644
|
|
|
4,620
|
|
|
(3,786
|
)
|
|
20,576
|
|
Inventories
|
|
20,420
|
|
|
6,862
|
|
|
297
|
|
|
—
|
|
|
27,579
|
|
Prepaid expenses
|
|
6,754
|
|
|
6,776
|
|
|
744
|
|
|
—
|
|
|
14,274
|
|
Total current assets
|
|
134,899
|
|
|
27,994
|
|
|
8,593
|
|
|
(3,786
|
)
|
|
167,700
|
|
Property and equipment, net
|
|
456,798
|
|
|
63,281
|
|
|
5,028
|
|
|
—
|
|
|
525,107
|
|
Operating lease right-of-use assets, net
|
|
478,836
|
|
|
47,677
|
|
|
9,544
|
|
|
—
|
|
|
536,057
|
|
Goodwill
|
|
433,024
|
|
|
51,414
|
|
|
—
|
|
|
—
|
|
|
484,438
|
|
Intangible assets, net
|
|
8,152
|
|
|
461,066
|
|
|
—
|
|
|
—
|
|
|
469,218
|
|
Intercompany
|
|
41,679
|
|
|
96,942
|
|
|
—
|
|
|
(138,621
|
)
|
|
—
|
|
Investment in subsidiaries
|
|
497,945
|
|
|
—
|
|
|
—
|
|
|
(497,945
|
)
|
|
—
|
|
Other noncurrent assets
|
|
6,741
|
|
|
10,036
|
|
|
17
|
|
|
—
|
|
|
16,794
|
|
Total assets
|
|
$
|
2,058,074
|
|
|
$
|
758,410
|
|
|
$
|
23,182
|
|
|
$
|
(640,352
|
)
|
|
$
|
2,199,314
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
Bank indebtedness and other long-term debt, current portion
|
|
$
|
7,600
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
7,600
|
|
Operating lease liability, current portion
|
|
44,413
|
|
|
3,749
|
|
|
1,041
|
|
|
—
|
|
|
49,203
|
|
Accounts payable, accrued expenses and unearned revenues
|
|
66,180
|
|
|
46,049
|
|
|
5,720
|
|
|
—
|
|
|
117,949
|
|
Other current liabilities
|
|
4,530
|
|
|
—
|
|
|
18
|
|
|
—
|
|
|
4,548
|
|
Total current liabilities
|
|
122,723
|
|
|
49,798
|
|
|
6,779
|
|
|
—
|
|
|
179,300
|
|
Operating lease obligations, less current portion
|
|
458,412
|
|
|
55,100
|
|
|
8,868
|
|
|
—
|
|
|
522,380
|
|
Bank indebtedness and other long-term debt, net of deferred financing costs, less current portion
|
|
958,986
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
958,986
|
|
Deferred tax liability
|
|
86,918
|
|
|
17,577
|
|
|
(1,774
|
)
|
|
—
|
|
|
102,721
|
|
Intercompany
|
|
—
|
|
|
116,739
|
|
|
25,668
|
|
|
(142,407
|
)
|
|
—
|
|
Other noncurrent liabilities
|
|
191,138
|
|
|
4,868
|
|
|
24
|
|
|
—
|
|
|
196,030
|
|
Total liabilities
|
|
1,818,177
|
|
|
244,082
|
|
|
39,565
|
|
|
(142,407
|
)
|
|
1,959,417
|
|
Stockholder's equity:
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Capital in excess of par value
|
|
359,930
|
|
|
466,114
|
|
|
3,241
|
|
|
(469,355
|
)
|
|
359,930
|
|
Accumulated earnings (deficit)
|
|
(118,482
|
)
|
|
48,214
|
|
|
(18,073
|
)
|
|
(30,141
|
)
|
|
(118,482
|
)
|
Accumulated other comprehensive income (loss)
|
|
(1,551
|
)
|
|
—
|
|
|
(1,551
|
)
|
|
1,551
|
|
|
(1,551
|
)
|
Total stockholder's equity
|
|
239,897
|
|
|
514,328
|
|
|
(16,383
|
)
|
|
(497,945
|
)
|
|
239,897
|
|
Total liabilities and stockholder's equity
|
|
$
|
2,058,074
|
|
|
$
|
758,410
|
|
|
$
|
23,182
|
|
|
$
|
(640,352
|
)
|
|
$
|
2,199,314
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CEC Entertainment, Inc.
|
Condensed Consolidating Balance Sheet
|
As of December 30, 2018
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuer
|
|
Guarantors
|
|
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 expenses
|
|
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
|
|
Accounts payable, accrued expenses and unearned revenues
|
|
56,277
|
|
|
34,429
|
|
|
2,321
|
|
|
—
|
|
|
93,027
|
|
Other current liabilities
|
|
5,429
|
|
|
510
|
|
|
16
|
|
|
—
|
|
|
5,955
|
|
Total current liabilities
|
|
69,306
|
|
|
34,939
|
|
|
2,337
|
|
|
—
|
|
|
106,582
|
|
Bank indebtedness and other long-term debt, net of deferred financing costs, 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
|
|
229,733
|
|
|
18,191
|
|
|
516
|
|
|
—
|
|
|
248,440
|
|
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
|
|
Accumulated 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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CEC Entertainment, Inc.
|
Consolidating Statement of Comprehensive Income (Loss)
|
For the Three Months Ended September 29, 2019
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuer
|
|
Guarantors
|
|
Non-Guarantors
|
|
Eliminations
|
|
Consolidated
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
Food and beverage sales
|
|
$
|
77,475
|
|
|
$
|
13,866
|
|
|
$
|
1,304
|
|
|
$
|
—
|
|
|
$
|
92,645
|
|
Entertainment and merchandise sales
|
|
106,258
|
|
|
10,651
|
|
|
2,779
|
|
|
—
|
|
|
119,688
|
|
Total company venue sales
|
|
183,733
|
|
|
24,517
|
|
|
4,083
|
|
|
—
|
|
|
212,333
|
|
Franchise fees and royalties
|
|
448
|
|
|
4,249
|
|
|
564
|
|
|
—
|
|
|
5,261
|
|
International Association assessments and other fees
|
|
258
|
|
|
8,485
|
|
|
8,763
|
|
|
(17,506
|
)
|
|
—
|
|
Total revenues
|
|
184,439
|
|
|
37,251
|
|
|
13,410
|
|
|
(17,506
|
)
|
|
217,594
|
|
Operating Costs and Expenses:
|
|
|
|
|
|
|
|
|
|
|
Company venue operating costs:
|
|
|
|
|
|
|
|
|
|
|
Cost of food and beverage
|
|
17,243
|
|
|
3,635
|
|
|
424
|
|
|
—
|
|
|
21,302
|
|
Cost of entertainment and merchandise
|
|
9,445
|
|
|
396
|
|
|
272
|
|
|
—
|
|
|
10,113
|
|
Total cost of food, beverage, entertainment and merchandise
|
|
26,688
|
|
|
4,031
|
|
|
696
|
|
|
—
|
|
|
31,415
|
|
Labor expenses
|
|
57,163
|
|
|
4,847
|
|
|
1,203
|
|
|
—
|
|
|
63,213
|
|
Lease costs
|
|
25,105
|
|
|
1,865
|
|
|
589
|
|
|
—
|
|
|
27,559
|
|
Other venue operating expenses
|
|
38,399
|
|
|
3,992
|
|
|
939
|
|
|
(8,744
|
)
|
|
34,586
|
|
Total company venue operating costs
|
|
147,355
|
|
|
14,735
|
|
|
3,427
|
|
|
(8,744
|
)
|
|
156,773
|
|
Advertising expense
|
|
8,649
|
|
|
1,190
|
|
|
9,726
|
|
|
(8,762
|
)
|
|
10,803
|
|
General and administrative expenses
|
|
4,240
|
|
|
8,561
|
|
|
250
|
|
|
—
|
|
|
13,051
|
|
Depreciation and Amortization
|
74,749
|
|
21,766
|
|
|
2,476
|
|
|
380
|
|
|
—
|
|
|
24,622
|
|
Transaction, severance and related litigation costs
|
|
371
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
371
|
|
Asset impairments
|
|
2,023
|
|
|
6,179
|
|
|
—
|
|
|
—
|
|
|
8,202
|
|
Total operating costs and expenses
|
|
184,404
|
|
|
33,141
|
|
|
13,783
|
|
|
(17,506
|
)
|
|
213,822
|
|
Operating income (loss)
|
|
35
|
|
|
4,110
|
|
|
(373
|
)
|
|
—
|
|
|
3,772
|
|
Equity in earnings in affiliates
|
|
658
|
|
|
—
|
|
|
—
|
|
|
(658
|
)
|
|
—
|
|
Interest expense
|
|
21,150
|
|
|
705
|
|
|
174
|
|
|
—
|
|
|
22,029
|
|
Loss on extinguishment of debt
|
|
2,910
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,910
|
|
Income (loss) before income taxes
|
|
(23,367
|
)
|
|
3,405
|
|
|
(547
|
)
|
|
(658
|
)
|
|
(21,167
|
)
|
Income tax expense (benefit)
|
|
(8,033
|
)
|
|
2,321
|
|
|
(121
|
)
|
|
—
|
|
|
(5,833
|
)
|
Net income (loss)
|
|
$
|
(15,334
|
)
|
|
$
|
1,084
|
|
|
$
|
(426
|
)
|
|
$
|
(658
|
)
|
|
$
|
(15,334
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Components of other comprehensive income (loss), net of tax:
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
73
|
|
|
|
|
|
(73
|
)
|
|
73
|
|
|
73
|
|
Comprehensive income (loss)
|
|
$
|
(15,261
|
)
|
|
$
|
1,084
|
|
|
$
|
(499
|
)
|
|
$
|
(585
|
)
|
|
$
|
(15,261
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CEC Entertainment, Inc.
|
Consolidating Statement of Comprehensive Income (Loss)
|
For the Three Months Ended September 30, 2018
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuer
|
|
Guarantors
|
|
Non-Guarantors
|
|
Eliminations
|
|
Consolidated
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
Food and beverage sales
|
|
$
|
79,871
|
|
|
$
|
12,854
|
|
|
$
|
1,298
|
|
|
$
|
—
|
|
|
$
|
94,023
|
|
Entertainment and merchandise sales
|
|
108,461
|
|
|
10,380
|
|
|
2,770
|
|
|
—
|
|
|
121,611
|
|
Total company venue sales
|
|
188,332
|
|
|
23,234
|
|
|
4,068
|
|
|
—
|
|
|
215,634
|
|
Franchise fees and royalties
|
|
441
|
|
|
4,302
|
|
|
568
|
|
|
—
|
|
|
5,311
|
|
International Association assessments and other fees
|
|
221
|
|
|
9,588
|
|
|
8,862
|
|
|
(18,671
|
)
|
|
—
|
|
Total revenues
|
|
188,994
|
|
|
37,124
|
|
|
13,498
|
|
|
(18,671
|
)
|
|
220,945
|
|
Operating Costs and Expenses:
|
|
|
|
|
|
|
|
|
|
|
Company venue operating costs:
|
|
|
|
|
|
|
|
|
|
|
Cost of food and beverage
|
|
18,700
|
|
|
3,348
|
|
|
472
|
|
|
—
|
|
|
22,520
|
|
Cost of entertainment and merchandise
|
|
9,306
|
|
|
391
|
|
|
177
|
|
|
—
|
|
|
9,874
|
|
Total cost of food, beverage, entertainment and merchandise
|
|
28,006
|
|
|
3,739
|
|
|
649
|
|
|
—
|
|
|
32,394
|
|
Labor expenses
|
|
58,818
|
|
|
4,976
|
|
|
1,234
|
|
|
—
|
|
|
65,028
|
|
Lease costs
|
|
21,719
|
|
|
1,630
|
|
|
502
|
|
|
—
|
|
|
23,851
|
|
Other venue operating expenses
|
|
43,711
|
|
|
3,500
|
|
|
830
|
|
|
(9,809
|
)
|
|
38,232
|
|
Total company venue operating costs
|
|
152,254
|
|
|
13,845
|
|
|
3,215
|
|
|
(9,809
|
)
|
|
159,505
|
|
Advertising expense
|
|
8,984
|
|
|
1,150
|
|
|
9,786
|
|
|
(8,862
|
)
|
|
11,058
|
|
General and administrative expenses
|
|
5,017
|
|
|
8,499
|
|
|
(323
|
)
|
|
—
|
|
|
13,193
|
|
Depreciation and amortization
|
|
21,429
|
|
|
2,807
|
|
|
503
|
|
|
—
|
|
|
24,739
|
|
Transaction, severance and related litigation costs
|
|
(262
|
)
|
|
(1
|
)
|
|
—
|
|
|
—
|
|
|
(263
|
)
|
Asset impairments
|
|
2,505
|
|
|
2,836
|
|
|
3
|
|
|
—
|
|
|
5,344
|
|
Total operating costs and expenses
|
|
189,927
|
|
|
29,136
|
|
|
13,184
|
|
|
(18,671
|
)
|
|
213,576
|
|
Operating income (loss)
|
|
(933
|
)
|
|
7,988
|
|
|
314
|
|
|
—
|
|
|
7,369
|
|
Equity in earnings in affiliates
|
|
5,444
|
|
|
—
|
|
|
—
|
|
|
(5,444
|
)
|
|
—
|
|
Interest expense
|
|
18,205
|
|
|
692
|
|
|
172
|
|
|
—
|
|
|
19,069
|
|
Income (loss) before income taxes
|
|
(13,694
|
)
|
|
7,296
|
|
|
142
|
|
|
(5,444
|
)
|
|
(11,700
|
)
|
Income tax expense (benefit)
|
|
(4,207
|
)
|
|
2,113
|
|
|
(119
|
)
|
|
—
|
|
|
(2,213
|
)
|
Net income (loss)
|
|
$
|
(9,487
|
)
|
|
$
|
5,183
|
|
|
$
|
261
|
|
|
$
|
(5,444
|
)
|
|
$
|
(9,487
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Components of other comprehensive income (loss), net of tax:
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
(172
|
)
|
|
—
|
|
|
(172
|
)
|
|
172
|
|
|
(172
|
)
|
Comprehensive income (loss)
|
|
$
|
(9,659
|
)
|
|
$
|
5,183
|
|
|
$
|
89
|
|
|
$
|
(5,272
|
)
|
|
$
|
(9,659
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CEC Entertainment, Inc.
|
Consolidating Statement of Comprehensive Income (Loss)
|
For the Nine Months Ended September 29, 2019
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuer
|
|
Guarantors
|
|
Non-Guarantors
|
|
Eliminations
|
|
Consolidated
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
Food and beverage sales
|
|
$
|
256,765
|
|
|
$
|
41,416
|
|
|
$
|
3,930
|
|
|
$
|
—
|
|
|
$
|
302,111
|
|
Entertainment and merchandise sales
|
|
344,417
|
|
|
34,566
|
|
|
7,795
|
|
|
—
|
|
|
386,778
|
|
Total company venue sales
|
|
601,182
|
|
|
75,982
|
|
|
11,725
|
|
|
—
|
|
|
688,889
|
|
Franchise fees and royalties
|
|
1,784
|
|
|
13,235
|
|
|
2,175
|
|
|
—
|
|
|
17,194
|
|
International Association assessments and other fees
|
|
836
|
|
|
30,710
|
|
|
28,692
|
|
|
(60,238
|
)
|
|
—
|
|
Total revenues
|
|
603,802
|
|
|
119,927
|
|
|
42,592
|
|
|
(60,238
|
)
|
|
706,083
|
|
Operating Costs and Expenses:
|
|
|
|
|
|
|
|
|
|
|
Company venue operating costs (excluding Depreciation and amortization):
|
|
|
|
|
|
|
|
|
|
|
Cost of food and beverage
|
|
57,048
|
|
|
10,870
|
|
|
1,321
|
|
|
—
|
|
|
69,239
|
|
Cost of entertainment and merchandise
|
|
29,315
|
|
|
1,266
|
|
|
730
|
|
|
—
|
|
|
31,311
|
|
Total cost of food, beverage, entertainment and merchandise
|
|
86,363
|
|
|
12,136
|
|
|
2,051
|
|
|
—
|
|
|
100,550
|
|
Labor expenses
|
|
181,397
|
|
|
14,591
|
|
|
3,705
|
|
|
—
|
|
|
199,693
|
|
Lease costs
|
|
74,749
|
|
|
5,587
|
|
|
1,766
|
|
|
—
|
|
|
82,102
|
|
Other venue operating expenses
|
|
119,942
|
|
|
11,617
|
|
|
2,549
|
|
|
(31,572
|
)
|
|
102,536
|
|
Total company venue operating costs
|
|
462,451
|
|
|
43,931
|
|
|
10,071
|
|
|
(31,572
|
)
|
|
484,881
|
|
Advertising expense
|
|
28,562
|
|
|
4,165
|
|
|
29,972
|
|
|
(28,666
|
)
|
|
34,033
|
|
General and administrative expenses
|
|
13,895
|
|
|
29,297
|
|
|
(248
|
)
|
|
—
|
|
|
42,944
|
|
Depreciation and amortization
|
|
64,461
|
|
|
7,414
|
|
|
1,199
|
|
|
—
|
|
|
73,074
|
|
Transaction, severance and related litigation costs
|
|
402
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
402
|
|
Asset Impairments
|
|
3,134
|
|
|
6,353
|
|
|
—
|
|
|
—
|
|
|
9,487
|
|
Total operating costs and expenses
|
|
572,905
|
|
|
91,160
|
|
|
40,994
|
|
|
(60,238
|
)
|
|
644,821
|
|
Operating income
|
|
30,897
|
|
|
28,767
|
|
|
1,598
|
|
|
—
|
|
|
61,262
|
|
Equity in earnings in affiliates
|
|
20,677
|
|
|
—
|
|
|
—
|
|
|
(20,677
|
)
|
|
—
|
|
Interest expense
|
|
59,093
|
|
|
2,210
|
|
|
513
|
|
|
—
|
|
|
61,816
|
|
Loss on debt extinguishment
|
|
2,910
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,910
|
|
Income before income taxes
|
|
(10,429
|
)
|
|
26,557
|
|
|
1,085
|
|
|
(20,677
|
)
|
|
(3,464
|
)
|
Income tax expense
|
|
(7,607
|
)
|
|
6,880
|
|
|
85
|
|
|
—
|
|
|
(642
|
)
|
Net income
|
|
$
|
(2,822
|
)
|
|
$
|
19,677
|
|
|
$
|
1,000
|
|
|
$
|
(20,677
|
)
|
|
$
|
(2,822
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Components of other comprehensive income (loss), net of tax:
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
(212
|
)
|
|
—
|
|
|
(212
|
)
|
|
212
|
|
|
(212
|
)
|
Comprehensive income (loss)
|
|
$
|
(3,034
|
)
|
|
$
|
19,677
|
|
|
$
|
788
|
|
|
$
|
(20,465
|
)
|
|
$
|
(3,034
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CEC Entertainment, Inc.
|
Consolidating Statement of Comprehensive Income (Loss)
|
For the Nine Months Ended September 30, 2018
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuer
|
|
Guarantors
|
|
Non-Guarantors
|
|
Eliminations
|
|
Consolidated
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
Food and beverage sales
|
|
$
|
264,130
|
|
|
$
|
40,250
|
|
|
$
|
4,278
|
|
|
$
|
—
|
|
|
$
|
308,658
|
|
Entertainment and merchandise sales
|
|
324,231
|
|
|
36,255
|
|
|
8,147
|
|
|
—
|
|
|
368,633
|
|
Total company venue sales
|
|
588,361
|
|
|
76,505
|
|
|
12,425
|
|
|
—
|
|
|
677,291
|
|
Franchise fees and royalties
|
|
1,441
|
|
|
12,661
|
|
|
1,815
|
|
|
—
|
|
|
15,917
|
|
International Association assessments and other fees
|
|
794
|
|
|
28,339
|
|
|
27,951
|
|
|
(57,084
|
)
|
|
—
|
|
Total revenues
|
|
590,596
|
|
|
117,505
|
|
|
42,191
|
|
|
(57,084
|
)
|
|
693,208
|
|
Operating Costs and Expenses:
|
|
|
|
|
|
|
|
|
|
|
Company venue operating costs (excluding Depreciation and amortization):
|
|
|
|
|
|
|
|
|
|
|
Cost of food and beverage
|
|
60,432
|
|
|
10,845
|
|
|
1,497
|
|
|
—
|
|
|
72,774
|
|
Cost of entertainment and merchandise
|
|
25,972
|
|
|
1,238
|
|
|
466
|
|
|
—
|
|
|
27,676
|
|
Total cost of food, beverage, entertainment and merchandise
|
|
86,404
|
|
|
12,083
|
|
|
1,963
|
|
|
—
|
|
|
100,450
|
|
Labor expenses
|
|
176,106
|
|
|
15,065
|
|
|
3,823
|
|
|
—
|
|
|
194,994
|
|
Lease costs
|
|
65,417
|
|
|
5,638
|
|
|
1,560
|
|
|
—
|
|
|
72,615
|
|
Other venue operating expenses
|
|
129,006
|
|
|
10,882
|
|
|
2,634
|
|
|
(29,159
|
)
|
|
113,363
|
|
Total company venue operating costs
|
|
456,933
|
|
|
43,668
|
|
|
9,980
|
|
|
(29,159
|
)
|
|
481,422
|
|
Advertising expense
|
|
28,742
|
|
|
4,511
|
|
|
32,682
|
|
|
(27,925
|
)
|
|
38,010
|
|
General and administrative expenses
|
|
13,539
|
|
|
25,336
|
|
|
644
|
|
|
—
|
|
|
39,519
|
|
Depreciation and amortization
|
|
67,073
|
|
|
8,253
|
|
|
1,478
|
|
|
—
|
|
|
76,804
|
|
Transaction, severance and related litigation costs
|
|
197
|
|
|
266
|
|
|
—
|
|
|
—
|
|
|
463
|
|
Asset impairment
|
|
2,591
|
|
|
4,341
|
|
|
3
|
|
|
—
|
|
|
6,935
|
|
Total operating costs and expenses
|
|
569,075
|
|
|
86,375
|
|
|
44,787
|
|
|
(57,084
|
)
|
|
643,153
|
|
Operating income (loss)
|
|
21,521
|
|
|
31,130
|
|
|
(2,596
|
)
|
|
—
|
|
|
50,055
|
|
Equity in earnings in affiliates
|
|
19,869
|
|
|
—
|
|
|
—
|
|
|
(19,869
|
)
|
|
—
|
|
Interest expense
|
|
53,833
|
|
|
2,446
|
|
|
461
|
|
|
—
|
|
|
56,740
|
|
Income (loss) before income taxes
|
|
(12,443
|
)
|
|
28,684
|
|
|
(3,057
|
)
|
|
(19,869
|
)
|
|
(6,685
|
)
|
Income tax expense
|
|
(6,212
|
)
|
|
6,526
|
|
|
(768
|
)
|
|
—
|
|
|
(454
|
)
|
Net income (loss)
|
|
$
|
(6,231
|
)
|
|
$
|
22,158
|
|
|
$
|
(2,289
|
)
|
|
$
|
(19,869
|
)
|
|
$
|
(6,231
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Components of other comprehensive income (loss), net of tax:
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
127
|
|
|
—
|
|
|
127
|
|
|
(127
|
)
|
|
127
|
|
Comprehensive income (loss)
|
|
$
|
(6,104
|
)
|
|
$
|
22,158
|
|
|
$
|
(2,162
|
)
|
|
$
|
(19,996
|
)
|
|
$
|
(6,104
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CEC Entertainment, Inc.
|
Consolidating Statement of Cash Flows
|
For the Nine Months Ended September 29, 2019
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Issuer
|
|
Guarantors
|
|
Non-Guarantors
|
|
Consolidated
|
Cash flows provided by operating activities:
|
|
$
|
104,719
|
|
|
$
|
9,292
|
|
|
$
|
1,633
|
|
|
$
|
115,644
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
(52,180
|
)
|
|
(7,701
|
)
|
|
(507
|
)
|
|
(60,388
|
)
|
Development of internal use software
|
|
(183
|
)
|
|
(604
|
)
|
|
—
|
|
|
(787
|
)
|
Proceeds from sale of property and equipment
|
|
160
|
|
|
—
|
|
|
—
|
|
|
160
|
|
Cash flows used in investing activities
|
|
(52,203
|
)
|
|
(8,305
|
)
|
|
(507
|
)
|
|
(61,015
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Net proceeds from senior term loan, net of original issue discount
|
|
479,449
|
|
|
—
|
|
|
—
|
|
|
479,449
|
|
Repayments on senior term loan
|
|
(473,749
|
)
|
|
—
|
|
|
—
|
|
|
(473,749
|
)
|
Payment of debt financing costs
|
|
(15,375
|
)
|
|
—
|
|
|
—
|
|
|
(15,375
|
)
|
Payments on financing lease obligations
|
|
(520
|
)
|
|
—
|
|
|
(10
|
)
|
|
(530
|
)
|
Payments on sale leaseback transactions
|
|
(2,469
|
)
|
|
—
|
|
|
—
|
|
|
(2,469
|
)
|
Cash flows used in financing activities
|
|
(12,664
|
)
|
|
—
|
|
|
(10
|
)
|
|
(12,674
|
)
|
Effect of foreign exchange rate changes on cash
|
|
—
|
|
|
—
|
|
|
(5
|
)
|
|
(5
|
)
|
Change in cash, cash equivalents and restricted cash
|
|
39,852
|
|
|
987
|
|
|
1,111
|
|
|
41,950
|
|
Cash, cash equivalents and restricted cash at beginning of period
|
|
54,775
|
|
|
6,725
|
|
|
1,821
|
|
|
63,321
|
|
Cash, cash equivalents and restricted cash at end of period
|
|
$
|
94,627
|
|
|
$
|
7,712
|
|
|
$
|
2,932
|
|
|
$
|
105,271
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CEC Entertainment, Inc.
|
Consolidating Statement of Cash Flows
|
For the Nine Months Ended September 30, 2018
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Issuer
|
|
Guarantors
|
|
Non-Guarantors
|
|
Consolidated
|
Cash flows provided by (used in) operating activities:
|
|
$
|
68,801
|
|
|
$
|
17,888
|
|
|
$
|
(4,214
|
)
|
|
$
|
82,475
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
(38,536
|
)
|
|
(15,512
|
)
|
|
(1,154
|
)
|
|
(55,202
|
)
|
Development of internal use software
|
|
(1,484
|
)
|
|
(508
|
)
|
|
—
|
|
|
(1,992
|
)
|
Proceeds from the sale of property and equipment
|
|
464
|
|
|
|
|
|
—
|
|
|
464
|
|
Cash flows used in investing activities
|
|
(39,556
|
)
|
—
|
|
(16,020
|
)
|
—
|
|
(1,154
|
)
|
—
|
|
(56,730
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Repayments on senior term loan
|
|
(5,700
|
)
|
|
—
|
|
|
—
|
|
|
(5,700
|
)
|
Payment of debt financing costs
|
|
(395
|
)
|
|
—
|
|
|
—
|
|
|
(395
|
)
|
Payments on capital lease obligations
|
|
(436
|
)
|
|
—
|
|
|
(6
|
)
|
|
(442
|
)
|
Payments on sale leaseback transactions
|
|
(2,119
|
)
|
|
—
|
|
|
—
|
|
|
(2,119
|
)
|
Cash flows used in financing activities
|
|
(8,650
|
)
|
—
|
|
—
|
|
—
|
|
(6
|
)
|
—
|
|
(8,656
|
)
|
Effect of foreign exchange rate changes on cash
|
|
—
|
|
|
—
|
|
|
51
|
|
|
51
|
|
Change in cash, cash equivalents and restricted cash
|
|
20,595
|
|
—
|
|
1,868
|
|
—
|
|
(5,323
|
)
|
—
|
|
17,140
|
|
Cash, cash equivalents and restricted cash at beginning of period
|
|
59,948
|
|
|
410
|
|
|
6,954
|
|
|
67,312
|
|
Cash, cash equivalents and restricted cash at end of period
|
|
$
|
80,543
|
|
|
$
|
2,278
|
|
|
$
|
1,631
|
|
|
$
|
84,452
|
|
Note 14. Related Party Transactions:
We reimburse Apollo Management, L.P. for certain out-of-pocket expenses incurred in connection with travel and Board of Directors related expenses. 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 related expenses totaling $1.1 million and $0.4 million for the three months ended September 29, 2019 and September 30, 2018, respectively, and $1.8 million and $1.2 million, respectively, for the nine months ended September 29, 2019 and September 30, 2018.
In connection with the 2019 Secured Credit Facilities, an affiliate of Apollo received an arrangement fee of $1.1 million related to the 2019 Term Loan Facility (see Note 7 “Indebtedness and Interest Expense” for further discussion of the 2019 Secured Credit Facilities).
Included in our Accounts Receivable balance are amounts due from Parent totaling $3.0 million and $2.6 million at September 29, 2019 and December 30, 2018, respectively, primarily related to various general and administrative and transaction related expenses paid on behalf of Parent. Our Accrued Expenses balance includes amounts payable to Parent totaling $0.3 million and $0.1 million at September 29, 2019 and December 30, 2018, respectively, primarily related to stock bonus awards granted to certain officers of the Company (see Note 11 “Stock-Based Compensation Arrangements” for further discussion of stock bonus awards granted to officers).
Note 15. Commitments and Contingencies:
Legal Proceedings
From time to time, we are involved in various inquiries, investigations, claims, lawsuits and other legal proceedings that are incidental to the conduct of our business. These matters typically involve claims from customers, employees or other third parties involved in operational issues common to the retail, restaurant and entertainment industries. Such matters typically represent actions with respect to contracts, intellectual property, taxation, employment, employee benefits, personal injuries and
other matters. A number of such claims may exist at any given time, and there are currently a number of claims and legal proceedings pending against us.
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.
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, Inc. and its subsidiaries merged with and into CEC Entertainment, with CEC Entertainment surviving the merger (“the Merger”), four putative shareholder class actions were filed in the District Court of Shawnee County, Kansas, on behalf of purported stockholders of CEC Entertainment, against A.P. VIII Queso Holdings, L.P., CEC Entertainment, CEC Entertainment's directors, Apollo and Merger Sub (as defined in the Merger Agreement), in connection with the Merger Agreement and the transactions contemplated thereby. These actions were consolidated into one action (the “Consolidated Shareholder Litigation”) in March 2014, and on July 21, 2015, a consolidated class action petition was filed as the operative consolidated complaint, asserting claims against CEC’s former directors, adding The Goldman Sachs Group (“Goldman Sachs”) as a defendant, and removing all Apollo entities as defendants (the “Consolidated Class Action Petition”). On October 8, 2018, the Plaintiff in the Consolidated Shareholder Litigation appealed the District Court’s decision to dismiss the lawsuit in its entirety, but after conducting oral arguments, on September 27, 2019 the Kansas Court of Appeals affirmed the trial court’s dismissal of the case, and Plaintiff did not file a notice of appeal from this last decision before the expiration of the deadline to do so.
Note 16. Subsequent Events:
The Company has evaluated subsequent events through November 11, 2019, and determined that there have been no events that have occurred that would require adjustments to our disclosures in the consolidated financial statements.