Ceconomy Annual Report 2014

Plain-text annual report

UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549 ________________________________________________FORM 10-K ________________________________________________xANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF1934For the fiscal year ended December 28, 2014OR¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF1934For the transition period from to Commission File Number: 1-13687 _____________________________________________________________________________________________________________________________________________________________CEC ENTERTAINMENT, INC.(Exact name of registrant as specified, in its charter) ______________________________________________________________________________________________________________________________________________________________Kansas 48-0905805(State or other jurisdiction of incorporation or organization) (IRS Employer Identification No.)4441 West Airport FreewayIrving, Texas 75062(Address of principal executive offices) (Zip Code)(972) 258-8507(Registrant’s telephone number, including area code)Securities registered pursuant to Section 12(b) of the Act:Title of each class Name of each exchange on which registeredNone None Securities registered pursuant to Section 12(g) of the Act:None _______________________________________________________________________________________________________________________________________________________________________Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No xIndicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No xIndicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted andposted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit andpost such files). Yes x No ¨Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’sknowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “largeaccelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:Large accelerated filer ¨ Accelerated filer ¨ Non-accelerated filer x (Do not check if a smaller reporting company) Smaller reporting company ¨Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨ No xAs of June 29, 2014, the last business day of the registrant’s most recently completed second fiscal quarter, no voting or non-voting common equity of the registrant is held bynon-affiliates.As of February 19, 2015, an aggregate of 200 shares of the registrant’s common stock, par value $0.01 per share, were outstanding.DOCUMENTS INCORPORATED BY REFERENCENoneCEC ENTERTAINMENT, INC.TABLE OF CONTENTS Page Cautionary Statement Regarding Forward-Looking Statements3 PART I ITEM 1.Business4ITEM 1A.Risk Factors10ITEM 1B.Unresolved Staff Comments17ITEM 2.Properties18ITEM 3.Legal Proceedings20ITEM 4.Mine Safety Disclosures22 PART II ITEM 5.Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities23ITEM 6.Selected Financial Data24ITEM 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations27ITEM 7A.Quantitative and Qualitative Disclosures About Market Risk46ITEM 8.Financial Statements and Supplementary Data47ITEM 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure93ITEM 9A.Controls and Procedures93ITEM 9B.Other Information93 PART III ITEM 10.Directors, Executive Officers and Corporate Governance93ITEM 11.Executive Compensation96ITEM 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters115ITEM 13.Certain Relationships and Related Transactions, and Director Independence116ITEM 14.Principal Accountant Fees and Services116 PART IV ITEM 15.Exhibits and Financial Statement Schedules116 SIGNATURES EXHIBIT INDEX 2As used in this report, the terms “CEC Entertainment,” “we,” “Company,” “us,” and “our” refer to CEC Entertainment, Inc. and its subsidiaries.Cautionary Statement Regarding Forward-Looking StatementsCertain statements in this report, other than historical information, may be considered “forward-looking statements” within the meaning of the“safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, and are subject to various risks, uncertainties and assumptions. Statementsthat are not historical in nature and which may be identified by the use of words such as “may,” “should,” “could,” “believe,” “predict,” “potential,”“continue,” “plan,” “intend,” “expect,” “anticipate,” “future,” “project,” “estimate,” and similar expressions (or the negative of such expressions) are forward-looking statements. Forward-looking statements are made based on management’s current expectations and beliefs concerning future events and, therefore,involve a number of assumptions, risks and uncertainties, including the risk factors described in Part I, Item 1A. “Risk Factors” of this Annual Report on Form10-K. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may differ from thoseanticipated, estimated or expected. There are a number of important factors that could cause actual results or events to differ materially from those indicatedby such forward-looking statements, including but not limited to:•The success of our capital initiatives, including new store development and existing store evolution;•Our ability to successfully implement our marketing strategy;•Competition in both the restaurant and entertainment industries;•Changes in consumer discretionary spending;•Impacts on our business and financial results from economic uncertainty in the United States and Canada;•Negative publicity concerning food quality, health, general safety and other issues;•Expansion in international markets;•Our ability to successfully integrate the operations of companies we acquire;•Our ability to generate sufficient cash flow to meet our debt service payments;•Increases in food, labor and other operating costs;•Disruptions of our information technology systems and technologies;•Changes in consumers’ health, nutrition and dietary preferences;•Any disruption of our commodity distribution system;•Our dependence on a limited number of suppliers for our games, rides, entertainment-related equipment, redemption prizes and merchandise;•Product liability claims and product recalls;•Government regulations;•Litigation risks;•Adverse effects of local conditions, natural disasters and other events;•Existence or occurrence of certain public health issues;•Fluctuations in our quarterly results of operations due to seasonality;•Inadequate insurance coverage;•Loss of certain key personnel;•Our ability to adequately protect our trademarks or other proprietary rights;•Risks in connection with owning and leasing real estate; and•Litigation risks associated with our merger.The forward-looking statements made in this report relate only to events as of the date on which the statements were made. Except as may be requiredby law, we undertake no obligation to update our forward-looking statements to reflect events and circumstances after the date on which the statements weremade or to reflect the occurrence of unanticipated events.3PART IITEM 1. Business.Company OverviewThe Company was originally incorporated under the name ShowBiz Pizza Place, Inc. and began trading on the NASDAQ Stock Market in 1989. In1998, the Company changed its name to CEC Entertainment, Inc. and began trading on the New York Stock Exchange. CEC Entertainment, Inc. remained apublicly traded company until its common stock ceased to be traded on the New York Stock Exchange after close of market on February 14, 2014.On October 16, 2014, we completed the acquisition of Peter Piper Pizza, a leading Arizona-based pizza and entertainment restaurant chain. PeterPiper Pizza was founded in 1973 in Glendale, Arizona and has evolved from a discount pizza restaurant to one of the leading pizza and entertainmentrestaurant chains in the southwestern United States and Mexico.We develop, operate and franchise family dining and entertainment centers (also referred to as “stores”) under the names “Chuck E. Cheese’s,” andsince the acquisition of Peter Piper Pizza in October 2014, “Peter Piper Pizza.” Our stores are located in 47 states and 11 foreign countries and territories. Asof December 28, 2014, we and our franchisees operated a total of 731 stores, of which 559 were Company-owned stores located in 44 states and Canada. Ourfranchisees operated a total of 172 stores located in 16 states and 10 foreign countries and territories including Chile, Guam, Guatemala, Mexico, Panama,Peru, Puerto Rico, Trinidad, Saudi Arabia and the United Arab Emirates. We consider the family dining and entertainment business to be our sole reportablesegment.Chuck E. Cheese’s and Peter Piper Pizza stores offer a wholesome family dining experience, video games, skill games, rides and other attractions,along with tokens, tickets and prizes. Chuck E. Cheese’s stores are designed to uniquely appeal to its primary customer base of families with childrenbetween two and 12 years of age. Chuck E. Cheese’s and Peter Piper Pizza stores offer a variety of pizzas, wings, appetizers, salads and desserts, as well ascertain gluten-free options. Soft drinks, coffee, and tea are also served, along with beer and wine in some locations. Chuck E. Cheese’s stores also offersandwiches. Most Peter Piper Pizza stores offer lunch buffet options with unlimited pizza, salad and breadsticks.We believe that the dining and entertainment components of our business are interdependent, and therefore, we primarily manage and promote themas an integrated product. Our typical guest experience involves a combination of wholesome family dining and entertainment comprised of games, rides andother activities. We also believe our unique integrated experience drives our strategic plan as we continuously endeavor to increase customer traffic in ourstores, benefiting both dining and entertainment revenue.MergerOn January 15, 2014, CEC Entertainment, Inc. entered into an agreement and plan of merger (the “Merger Agreement”) with Queso Holdings Inc., aDelaware corporation (“Parent”), and Q Merger Sub Inc., a Kansas corporation (“Merger Sub”). Parent and Merger Sub were controlled by Apollo GlobalManagement, LLC (“Apollo”) and its subsidiaries. Pursuant to the Merger Agreement, on January 16, 2014, Merger Sub commenced a tender offer topurchase all of the issued and outstanding shares of our common stock (the “Tender Offer”) at a price of $54.00 per share payable net to the seller in cash,without interest (the “Offer Price”). Approximately 68% of the outstanding shares were tendered in the Tender Offer, and Merger Sub accepted all suchtendered shares for payment. Following the expiration of the Tender Offer on February 14, 2014, Merger Sub exercised its option under the MergerAgreement to purchase a number of shares of common stock necessary for Merger Sub to own one share more than 90% of the outstanding shares of commonstock (the “Top-Up Shares”) at the Offer Price. Following Merger Sub’s purchase of the Top-Up Shares, on February 14, 2014, Merger Sub merged with andinto CEC Entertainment Inc. with CEC Entertainment Inc. surviving the merger (the “Merger”) and becoming a wholly owned subsidiary of Parent. We referto the Merger and the Tender Offer together as the “Acquisition.” At the effective time of the Merger, each share of common stock issued and outstandingimmediately prior thereto, other than common stock owned or held (a) in treasury by the Company or any wholly-owned subsidiary of the Company; (b) byParent or any of its subsidiaries; or (c) by stockholders who validly exercised their appraisal rights, was canceled and converted into the right to receive theOffer Price in cash, without interest and subject to applicable withholding tax. As a result of the Merger, the shares of CEC Entertainment Inc. common stockceased to be traded on the New York Stock Exchange after close of market on February 14, 2014. The aggregate consideration paid to acquire the Companywas $1.4 billion, including the payoff of net debt of $348.0 million and $65.7 million in transaction and debt issuance costs. The Acquisition was funded by(a) $350.0 million of equity contributions from investment funds directly or indirectly managed by Apollo (the “Apollo Funds”); (b) $248.5 million ofborrowings under a bridge loan facility, which were shortly thereafter repaid using the proceeds from our issuance of $255.0 million of senior notes;4and (c) $760.0 million of borrowings under a term loan facility. In addition, we also entered into a $150.0 million revolving credit facility in connection withthe Acquisition, but it was undrawn at closing. See discussion of the senior notes, term loan facility and revolving credit facility under Part II, Item 7.“Management’s Discussion and Analysis - Financial Condition, Liquidity and Capital Resources - Debt Financing.”We completed the Merger on February 14, 2014. As a result of the Merger, we applied the acquisition method of accounting and established a newbasis of accounting on February 15, 2014. Periods presented prior to and including February 14, 2014 represent the operations of the predecessor company(“Predecessor”) and the period presented after February 14, 2014 represent the operations of the successor company (“Successor”). The fifty-two weeks endedDecember 28, 2014 include the 47 day Predecessor period from December 30, 2013 through February 14, 2014 (“Predecessor Period”) and the 317 daySuccessor period from February 15, 2014 through December 28, 2014 (“Successor Period”).Sale Leaseback TransactionOn August 25, 2014, the Company closed its sale leaseback transaction (the “Sale Leaseback”) with National Retail Properties, Inc. (“NNN”).Pursuant to the Sale Leaseback, we sold 49 properties located throughout the United States to NNN, and we leased each of the 49 properties back from NNNpursuant to two separate master leases on a triple-net basis for their continued use as Chuck E. Cheese’s family dining and entertainment centers. The leaseshave an initial term of 20 years, with four five-year options to renew. The aggregate purchase price for the properties in connection with the Sale Leasebackwas $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 proceedsfrom the Sale Leaseback was used for the Peter Piper Pizza acquisition. We expect to use the remaining proceeds from the Sale Leaseback for capitalexpenditures, future liquidity needs and other general corporate purposes.Acquisition of Peter Piper PizzaOn October 15, 2014, the Company entered into an agreement and plan of merger to acquire Peter Piper Pizza, a leading pizza and entertainmentrestaurant chain operating in the southwestern U.S. and Mexico (the “PPP Acquisition”) for an aggregate purchase price of $113.1 million, net of cashacquired. We completed the PPP Acquisition, which was funded with a portion of the cash proceeds from the Sale Leaseback, on October 16, 2014.Our Competitive StrengthsWe attribute our success in large part to our established recognized brands, our unique and differentiated experience, our value-oriented familyexperience, our diversified and resilient business model and our experienced management team. Our stores are unique in that we combine a wholesomefamily dining offering with distinctive family-oriented games, rides, activities, shows and other entertainment alternatives, all under one roof and withinconvenient driving distance from our guests’ homes. Many of our high quality entertainment offerings, including all of our live and interactive shows inChuck E. Cheese’s stores, and guest WiFi and live television in Peter Piper Pizza stores, can be experienced free of charge. We also offer our guests packageddeals whereby they can receive a combination of food, drinks and tokens at discounted prices. We believe that we benefit from strong and consistent demandfor our entertainment offerings from families who desire high quality, safe, clean, convenient and affordable ways to spend time with their children outside ofthe home. Our executive management team has significant experience in the leisure, hospitality, entertainment and family dining industries and hassignificant expertise in operating complex, themed family entertainment businesses.Our Strategic PlanOur strategic plan is focused on increasing comparable store sales, improving profitability and margins and expanding our stores domestically andinternationally.Increase Comparable Store Sales. We have multiple drivers to increase our comparable store sales. We believe that entertainment is a key driver ofour sales and have remained focused on refreshing and optimizing our offerings in order to continue to provide our guests with a highly engaging andentertaining environment. During 2013, we developed a strategy to provide our stores with new games on a more regular basis and to test new majorattractions in our stores. Initial concepts tested include bumper cars, laser mazes and fun houses. These major attractions have demonstrated early success andwe expect to introduce select new attractions to additional stores in the near-term. We are also targeting other improvements to the stores’ offerings toenhance the guest experience away from our games. These include the introduction of Wi-Fi to all stores and the expansion of our menu to include additionalitems, such as desserts, wraps and thin-crust specialty pizzas. We also expect to drive comparable store sales performance through improved marketing effortsby focusing our marketing message towards kids via national television and promotional opportunities and marketing to mothers through digital advertisingand some television5and radio. Finally, we believe that we can modify pricing and packaging in select markets across the U.S. while still continuing to provide our guests with astrong value proposition when compared to other family dining-entertainment options.Improve Profitability and Margins. We continuously focus on driving financial performance through expense rationalization across all of our storesand corporate functions. We believe that continued focus on operating margins and the deployment of best practices across all of our brands and corporatefunctions will yield continued margin improvement. Our general managers at our stores and our corporate management staff have both revenue and profitincentives, which fosters a strict focus on both expense control and providing a high-quality experience for our guests. Additionally, we have implemented anumber of cost saving initiatives across our business. We are also working on several new cost savings initiatives such as implementing labor managementand store inventory systems. We expect these initiatives to generate cost savings in a number of key areas, including labor, utilities, supplies, food andgeneral and administrative expenses. Our business model benefits from substantial operating leverage and will enable us to continue to drive marginimprovement as we realize our strategic plan to grow our comparable store sales and our domestic and international store base.Expand Our Stores Domestically and Internationally. We have developed a successful track record of opening new Chuck E. Cheese’s stores atattractive rates of return. We strategically locate our stores within convenient driving distance to large metropolitan areas with favorable demographicconditions, including but not limited to, large numbers of families with children aged two through 12. We believe that there are a significant number oflocations, both domestically and internationally, with these characteristics in which a Chuck E. Cheese’s or Peter Piper Pizza store can be successful. Fordomestic new store openings, we undergo a rigorous due diligence and site selection process prior to opening a new store. This disciplined process hasenabled us to achieve highly attractive returns, generating unlevered returns on our investment in new company-operated stores in excess of 20% on average(excluding allocated advertising). Internationally, we have focused on our franchise model, through which we have developed partnerships with strong andreputable counterparties in order to grow our concept globally. Over the last few years, we have experienced growth in our international franchise store countand expect this to be a key area of growth going forward. Our franchise model is highly attractive in that it enables us to earn predictable and high-margincash flow without any upfront capital requirements. We also benefit from a highly scalable existing platform that enables us to manage additional domesticand international stores without any material incremental costs.We also believe that there are a significant number of locations, both domestically and internationally, in which we can open new Peter Piper Pizzastores at similar attractive rates of return. The opening of new domestic stores will undergo the same rigorous due diligence and site selection process asemployed with Chuck E. Cheese’s store openings. Internationally, we will continue to focus on growing Peter Piper Pizza through a franchise model. Webelieve our existing relationships with strong Chuck E. Cheese’s franchise partners, combined with existing franchise partners for Peter Piper Pizza, will allowus to continue to grow the Peter Piper Pizza brand internationally.In 2014, we opened 11 new Company-owned Chuck E. Cheese’s stores in the United States, including two relocated stores and 10 new franchiseChuck E. Cheese’s stores in six countries, including one relocated store. We did not open any new Company-owned or franchise Peter Piper Pizza stores sinceacquiring Peter Piper Pizza in October 2014. In 2015, we expect to open five to 10 new Company-owned Chuck E. Cheese’s and Peter Piper Pizza stores inthe United States. We also expect to open five to 10 franchised Chuck E. Cheese’s and Peter Piper Pizza stores in 2015.See Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Financial Condition, Liquidity andCapital Resources – Capital Expenditures” for more information regarding our capital initiatives and expenditures.Food and BeveragesEach Chuck E. Cheese’s and Peter Piper Pizza store offers a variety of pizzas, wings, appetizers, salads and desserts, as well as certain gluten-freeoptions. Soft drinks, coffee and tea are also served, along with beer and wine in some locations. Chuck E. Cheese’s stores also offer sandwiches, and mostPeter Piper Pizza stores offer lunch buffet options with unlimited pizza, salad and breadsticks. We continuously focus on delivering a quality-driven productand believe the quality of our food compares favorably with that of our competitors.Food and beverage sales represented 43.2%, 44.8%, 45.1% and 46.7% of our Company store sales during the Successor fiscal 2014 period, thePredecessor fiscal 2014 period, and the fiscal years 2013 and 2012, respectively.Entertainment and MerchandiseEach of our Chuck E. Cheese’s and Peter Piper Pizza stores has a playroom area, which includes an array of amusement and entertainment options.These options range from classic skill games, such as air hockey, skee ball and6basketball, to rides, such as mini trains, motorcycles and various driving games. At Chuck E. Cheese’s we also offer musical and comical entertainment thatfeatures our iconic Chuck E. Cheese character with live performances and frequent appearances on our showroom and playroom floor. Each Peter Piper Pizzastore also offers flat-screen televisions located throughout the dining area. Tokens are currently used to activate the games and rides in the playroom area;however, we are testing a new game card system in some of our stores that is similar to a debit card and would allow customers to activate games and rideswith their own personal card. A number of games dispense tickets that can be redeemed by guests for prize merchandise such as toys and plush items. Ourguests can also purchase this merchandise directly for cash.Entertainment and merchandise sales represented 56.8%, 55.2%, 54.9% and 53.3% of our Company store sales during the Successor fiscal 2014period, the Predecessor fiscal 2014 period, and fiscal years 2013 and 2012, respectively.FranchisingAs of December 28, 2014, we franchised a total of 62 Chuck E. Cheese’s stores, with 32 stores located in the United States and 30 stores located in10 foreign countries and territories. We also had 19 signed development agreements with rights to open another 109 Chuck E. Cheese’s stores in 13countries. As of December 28, 2014, we franchised a total of 110 Peter Piper Pizza stores, with 62 stores located in the United States and 48 stores located inMexico. We also had six signed development agreements with rights to open another 37 Peter Piper Pizza stores in Texas. See Part I, Item 1A. “Risk Factors”for more information regarding the risks associated with franchise development agreements.Our standard franchise agreements grant the franchisee the right to construct and operate a store and use our associated trade names, trademarksand service marks in accordance with our standards and guidelines. Most of our existing Chuck E. Cheese franchise agreements have an initial term of 15 to20 years and include a 10-year renewal option. Peter Piper Pizza’s franchise agreements are for a 10 year term and include a 10-year successor agreement onPeter Piper Pizza’s then standard form of agreement. The standard franchise agreement provides us with a right of first refusal should a franchisee decide tosell a store. We also enter into area development agreements which grant franchisees exclusive rights to open a specified number of stores in a designatedgeographic area within a specified period of time. In addition to initial franchise and area development fees, the franchisee is charged a continuing monthlyroyalty fee equal to a percentage of their gross monthly sales, generally up to to 6%, which varies by location and brand.In 1985, we and our Chuck E. Cheese’s franchisees formed the International Association of CEC Entertainment, Inc. (the “Association”) to discussand consider matters of common interest relating to the operation of Company-owned and franchised Chuck E. Cheese’s stores. Routine business matters ofthe Association are conducted by a board of directors of the Association, composed of five members appointed by us and five members elected by thefranchisees. The Association serves as an advisory council that among other responsibilities, oversees expenditures, including (a) the costs of development,purchasing and placement of advertising programs, including websites; (b) the costs to develop and improve audio-visual and animated entertainmentattractions, as well as the development and implementation of new entertainment concepts; and (c) the purchase of national network television advertising.The franchise agreements governing existing franchised Chuck E. Cheese’s in the United States currently require each franchisee to pay to theAssociation a monthly contribution equal to a certain percentage of their gross monthly sales. Additionally, under these franchise agreements, we arerequired, with respect to Company-owned stores, to contribute to the Advertising Fund and the Entertainment Fund at the same rates, or at higher rates incertain instances, as our franchisees. We and our franchisees are also required to spend minimum amounts on local advertising and could be required to makeadditional contributions to fund any deficits that may be incurred by the Association. Certain franchise agreements governing existing franchisedChuck E. Cheese’s outside of the United States currently require each franchisee to pay a certain percentage of their gross monthly sales to the Association tofund various advertising and media costs.We do not currently have any advertising co-ops or a franchise advisory council with our Peter Piper Pizza franchisees, but we reserve the right torequire the formation, merger or dissolution of either or both. Franchisees are required to contribute (a) 5% of weekly gross sales to an advertising fund that isused to develop, produce, distribute and administer specific advertising, public relations and promotional programs which promote the services offered bysystem franchisees; and (b) 0.5% of weekly gross sales to a creative fund which is used to research, develop, produce, and support creative ideas and materialsfor use in commercial advertisements, public relations, and promotional campaigns in the United States (“U.S.”) and Mexico. We may elect at any time not tocollect or maintain all or any portion of the advertising fund and, during such time that we have made such election, the monies not collected must beexpended by the franchisees in their own markets. In addition, we are required, with respect to Peter Piper Pizza Company-owned restaurants, to contribute tothe advertising and creative funds on the same basis as our franchisees.7Royalties, franchise and area development fees and other miscellaneous franchise income represented 0.9%, 0.6%, 0.6%, and 0.6% of our totalconsolidated revenues during the Successor fiscal 2014 period, the Predecessor fiscal 2014 period, fiscal 2013 and fiscal 2012, respectively.8Third-Party SuppliersWe use a network of 15 distribution centers managed by a single company to distribute most of the products and supplies used in our Chuck E.Cheese’s branded stores and one distribution center for our Peter Piper Pizza branded stores. We believe that alternative third-party distributors are availablefor our products and supplies, but we may incur additional costs if we are required to replace our distributors or obtain the necessary products and suppliesfrom other suppliers.We have not entered into any hedging arrangements to reduce our exposure to commodity price volatility associated with commodity prices;however, we typically enter into short-term purchasing arrangements, which may contain pricing designed to minimize the impact of commodity pricefluctuations.We procure games, rides and other entertainment-related equipment from a limited number of suppliers, some of which are located in China. Thenumber of suppliers from which we purchase games, rides and other entertainment-related equipment has declined due to industry consolidation over the pastseveral years. See Part I, Item 1A. “Risk Factors” for more information regarding the risks associated with our third-party suppliers.CompetitionThe family dining and entertainment industries are highly competitive, with a number of major national and regional chains operating in each ofthese spaces. In this regard, we compete for customers on the basis of (a) our name recognition; (b) the price, quality, variety and perceived value of our foodand entertainment offerings; (c) the quality of our customer service; and (d) the convenience and attractiveness of our stores. Although there are otherconcepts that presently utilize the combined family dining and entertainment format, these competitors primarily operate on a regional or market-by-marketbasis. To a lesser extent, we also compete directly and/or indirectly with other dining and entertainment formats, including full-service and quick-servicerestaurants appealing to families with young children, the quick service pizza segment, movie theaters, themed amusement attractions, and otherentertainment facilities for children.Intellectual PropertyWe own various trademarks and proprietary rights, including Chuck E. Cheese’s®, Where A Kid Can Be A Kid®, Peter Piper Pizza® and the Chuck E.Cheese character image used in connection with our business, which have been registered with the appropriate patent and trademark offices. The duration ofsuch trademarks is unlimited, subject to continued use and renewal. We believe that we hold the necessary rights for protection of the trademarks consideredessential to conduct our business. We believe our trade names and our ownership of trademarks and proprietary rights in the names and character likenessesfeatured in the operation of our stores provide us with an important competitive advantage, and we actively seek to protect our interests in such property.SeasonalityOur operating results fluctuate seasonally. We typically generate our highest sales volumes during the first quarter of each fiscal year due to thetiming of school vacations, holidays and changing weather conditions. School operating schedules, holidays and weather conditions may also affect oursales volumes in some operating regions differently than others. Because of the seasonality of our business, results for any quarter are not necessarilyindicative of the results that may be achieved for our full fiscal year.9Government RegulationWe and our franchisees are subject to various federal, state and local laws and regulations affecting the development and operation of Chuck E.Cheese’s and Peter Piper Pizza stores. For a discussion of government regulation risks to our business, see Part I, Item 1A. “Risk Factors.”EmployeesAs of December 28, 2014, we employed approximately 20,000 employees, including approximately 19,800 in the operation of our Company-ownedstores and approximately 350 in our corporate offices. Our employees do not belong to any union or collective bargaining group. We believe that ouremployee relations are satisfactory, and we have not experienced any work stoppages at any of our stores.Each Chuck E. Cheese’s and Peter Piper Pizza store typically employs a general manager, one or more managers, an electronic specialist who isresponsible for repair and maintenance of the show, games and rides and approximately 20 to 40 food preparation and service employees, many of whomwork part-time. Our staffing requirements are seasonal, and the number of people we employ at our stores will fluctuate throughout the year.Available InformationWe make financial information, news releases and other information available on our corporate website at www.chuckecheese.com. Our annualreports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to those reports filed or furnished pursuant toSection 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended are available free of charge on our website as soon as reasonably practicable afterwe electronically file these reports and amendments, or furnish them to, the United States Securities and Exchange Commission (“SEC”). This informationmay also be obtained by contacting Investor Relations at 4441 W. Airport Freeway, Irving, Texas 75062 or call (972) 258-4525 to obtain a hard copy of thesereports without charge. We do not intend for information contained on our website to be part of this Annual Report on Form 10-K.ITEM 1A. Risk Factors.Our business operations and the implementation of our business strategy are subject to significant risks inherent in our business, including, withoutlimitation, the risks and uncertainties described below. The occurrence of any one or more of the risks or uncertainties described below and elsewhere in thisAnnual Report on Form 10-K could have a material effect on our consolidated financial condition, results of operations and cash flows. Because theseforward-looking statements are based on estimates and assumptions that are subject to significant business, economic and competitive uncertainties, many ofwhich are beyond our control or are subject to change, actual results could be materially different.If we are unable to successfully open new stores or appropriately update and evolve our current store base, our business and our consolidated financialresults could be adversely affected.Our ability to increase revenues and improve financial results depends, to a significant degree, on our ability to successfully implement and refineour long-term growth strategy. As part of our long-term growth strategy, we plan to upgrade the games, rides and entertainment in some of our existing stores,remodel and expand certain of our existing stores and open additional new stores in selected markets. The opening and success of new Chuck E. Cheese’s andPeter Piper Pizza stores is dependent on various factors, including but not limited to the availability of suitable sites, the negotiation of acceptable leaseterms for such locations, our ability to meet construction schedules, our ability to manage such expansion and hire and train personnel to manage the newstores, the potential cannibalization of sales at our adjacent stores located in the market, as well as general economic and business conditions. Our ability tosuccessfully open new stores or remodel, expand or upgrade the entertainment at existing stores will also depend upon the availability of sufficient capital forsuch purposes, including operating cash flow, our existing credit facility, future debt financings, future equity offerings or a combination thereof. There canalso be no assurance that we will be successful in opening and operating the number of anticipated new stores on a timely or profitable basis. There can be noassurance that we can continue to successfully remodel or expand our existing facilities or upgrade the games and entertainment or obtain a reasonable returnon such investments.Our growth is also dependent on our ability to continually evolve and update our business model to anticipate and respond to changing customerpreferences and competitive conditions. There can be no assurance that we will be able to successfully anticipate changes in competitive conditions orcustomer preferences or that the market will accept our business model. If revenues and/or operating results are lower than our current estimates, we may incuradditional charges for asset impairments in the future, which could adversely impact our consolidated financial results. Additionally, we incur significantcosts each time we open a new store and other expenses when we relocate or remodel existing stores. The expenses of opening,relocating or remodeling any of our stores may be higher than anticipated. If we are unable to open or are delayed in opening new or relocated stores, we mayincur significant costs, which could adversely affect our consolidated financial results. If we are unable to remodel or are delayed in remodeling stores, wemay incur significant costs, which could adversely affect our business and our consolidated financial results.We may not be successful in the implementation of our marketing strategy, which could adversely affect our business and our consolidated financialresults.Our long-term growth is dependent on the success of strategic initiatives to effectively market and advertise our concept to our target audience. Inrecent years, we have made significant changes to our marketing and advertising strategy, including (a) the introduction of an updated Chuck E. Cheesecharacter; (b) change in the mix of our media expenditures; and (c) promoting our brand and reasons to visit through free-standing inserts in newspapers, ontelevision and online. There can be no assurance that these changes to our traditional media strategy, which was heavily weighted towards kids televisionadvertising, free-standing inserts in newspapers and significant couponing, will be effective at reaching customers or be accepted by customers. If we are noteffective in reaching our target audience with our new marketing and advertising strategy or if these changes are not accepted by guests, our business and ourconsolidated financial results could be adversely affected.We may incur additional advertising costs in the future, as there can be no assurance that our current strategy will be effective in reaching ourtargeted customer base.We may not be successful in integrating the operations of companies we acquire, which could have an adverse effect on our business and results ofoperations.We have engaged in acquisition activity and we may in the future engage in acquisitions or other strategic transactions, such as investments in otherentities. Strategic transactions, such as the Peter Piper Pizza acquisition completed in October 2014, involve risks, including those associated withintegrating the operations or maintaining the operations as separate (as applicable), financial reporting, disparate technologies and personnel of acquiredcompanies; the diversion of management’s attention from other business concerns; unknown risks; and the potential loss of key employees, customers andstrategic partners of acquired companies or companies in which we may make strategic investments. We may not successfully integrate any businesses ortechnologies we may acquire or strategically develop in the future and may not achieve anticipated revenue and cost benefits relating to any such strategictransactions. Strategic transactions may be expensive, time consuming and may strain our resources. Strategic transactions may not be accretive and maynegatively impact our results of operations as a result of, among other things, the incurrence of debt, write-offs of goodwill and amortization expenses ofother intangible assets.The restaurant and entertainment industries are highly competitive and that competition could harm our business and our consolidated financialresults.We believe that our combined restaurant and entertainment center concept puts us in a niche, which combines elements of both the restaurant andentertainment industries. As a result, we compete with entities in both industries. The family dining industry and the entertainment industry are highlycompetitive, with a number of major national and regional chains operating in each of these spaces. Although other restaurant chains presently utilize theconcept of combined family dining-entertainment operations, we believe these competitors operate primarily on a local, regional or market-by-market basis.Within the traditional restaurant sector, we compete with other casual dining restaurants on a nationwide basis with respect to price, quality and speed ofservice, type and quality of food, personnel, the number and location of restaurants, attractiveness of facilities, effectiveness of advertising and marketingprograms and new product development. To a lesser extent, our competition also includes quick service restaurants with respect to pricing, service,experience and perceived value. Within the entertainment sector, we compete with movie theaters, bowling alleys, theme parks and other family-orientedconcepts on a nationwide basis with respect to perceived value and overall experience. Additionally, children’s interests and opportunities for entertainmentcontinue to expand. If we are unable to successfully evolve our concept, including new food and entertainment offerings, we may lose market share to ourcompetition. These competitive market conditions, including the emergence of significant new competition, could adversely affect our business and ourconsolidated financial results.Changes in consumer discretionary spending could reduce sales at our stores and have an adverse effect on our business and our consolidated financialresults.Purchases at our stores are discretionary for consumers; therefore, our consolidated results of operations are susceptible to economic slowdowns andrecessions. We are dependent in particular upon discretionary spending by consumers living in the communities in which our stores are located. A significantportion of our stores are clustered in certain geographic areas. Currently, a total of 179 Chuck E. Cheese’s stores are located in California, Texas and Florida(176 are Company-owned10and three are franchised locations), and a total of 88 Peter Piper Pizza stores are located in Arizona and Texas (30 are Company-owned and 58 are franchisedlocations). A significant weakening in the local economies of these geographic areas, or any of the areas in which our stores are located, may cause consumersto curtail discretionary spending, which in turn could reduce our Company store sales and have an adverse effect on our business and our consolidatedfinancial results.The future performance of the U.S. and global economies are uncertain and are directly affected by numerous national and global financial, politicaland other factors that are beyond our control. Increases in credit card debt, home mortgage and other borrowing costs and declines in housing values couldfurther weaken the U.S. economy, leading to a further decrease in discretionary consumer spending. We believe that consumers generally are more willing tomake discretionary purchases, including at our stores, during periods in which favorable economic conditions prevail. Further, fluctuations in the retail priceof gasoline and the potential for future increases in gasoline and other energy costs may affect consumers’ disposable incomes available for entertainmentand dining. Changes in consumer spending habits as a result of a recession or a reduction in consumer confidence are likely to reduce our sales performance,which could have an adverse effect on our business and our consolidated financial results. In addition, these economic factors could affect our level ofspending on planned capital initiatives at our stores, and thereby impact our future sales.Economic uncertainty in the U.S. and Canada could adversely impact our business and our consolidated financial results, or an economic slowdowncould adversely affect our business and our consolidated financial results.Our target market of families with young children can be highly sensitive to adverse economic conditions, which may impact their desire to spenddiscretionary dollars resulting in lower customer traffic levels in our stores. Reduced consumer confidence as a result of a renewed recession, job losses, homeforeclosures, investment losses in the financial markets, personal bankruptcies and reduced access to credit may also result in lower levels of traffic to ourstores. Moreover, our customer traffic may be impacted by major changes in U.S. fiscal policy. We could experience a deterioration in customer traffic and/ora reduction in the average amount spent in our stores, which would negatively impact our sales. This could result in a reduction in staffing at our stores,deferring or curtailing our capital expenditures and potential store closures. Additionally, if revenues and/or operating results are lower than our currentestimates, we may incur additional charges for asset impairments, which could adversely impact our consolidated financial results.Negative publicity concerning food quality, health, general safety or other issues could negatively affect our brand image and adversely affect ourconsolidated financial results.Food service businesses can be adversely affected by litigation and complaints from guests, consumer groups or government authorities resultingfrom food quality, illness, injury or other health concerns or operating issues stemming from one store or a limited number of stores. Publicity concerningfood-borne illnesses, injuries caused by food tampering and general safety issues could negatively affect our operations, reputation and brand. Families withyoung children may be highly sensitive to adverse publicity that may arise from an actual or perceived negative event within one or more of our stores. Wehave, from time to time, received negative publicity related to altercations and other incidents in certain of our stores. There can be no assurance that in thefuture we will not experience negative publicity regarding one or more of our stores, and the existence of negative publicity could adversely affect our brandimage with our customers and our consolidated financial results.The speed at which negative publicity can be disseminated has increased dramatically with electronic communication, including social media.Many social media platforms allow for users to immediately publish content without checking the accuracy of the content posted. If we are unable to quicklyand effectively respond to such information, we may suffer declines in guest traffic, which could adversely impact our consolidated financial results.11Our strategy to open international franchise-owned stores may not be successful and may subject us to unanticipated conditions in foreign markets,which could adversely impact our business and our ability to operate effectively in those markets.Part of our growth strategy depends on our ability to attract new international franchisees and the ability of these franchisees to open and operatenew stores on a profitable basis. As we do not have a history of significant international growth experience, there can be no assurance that we will be able tosuccessfully execute this strategy in the future. Delays or failures in identifying desirable franchise partners and opening new franchised stores couldadversely affect our planned growth. Our franchisees depend on the availability of financing to construct and open new stores. If these franchisees experiencedifficulty in obtaining adequate financing, our growth strategy and franchise revenues could be adversely affected. Additionally, our growth strategydepends on the ability of our international franchisees to learn and implement our business strategy, while adapting to the local culture. There can be noassurance that the Chuck E. Cheese’s and Peter Piper Pizza concepts will be accepted in targeted international markets.Currently, our international franchisees operate stores in Chile, Guam, Guatemala, Mexico, Panama, Peru, Puerto Rico, Trinidad, Saudi Arabia andthe United Arab Emirates. We and our franchisees are subject to the regulatory, economic and political conditions of any foreign market in which ourfranchisees operate stores. Any change in the laws, regulations and economic and political stability of these foreign markets could adversely affect ourconsolidated financial results. Changes in foreign markets that could affect our consolidated financial results include, but are not limited to, taxation,inflation, currency fluctuations, political instability, economic instability, war or conflicts, increased regulations and quotas, tariffs and other protectionistmeasures. Additionally, our long-term growth strategy includes adding franchisees in additional foreign markets in the future. To the extent unfavorableconditions exist in the foreign markets we plan to expand into or we are unable to secure intellectual property rights sufficient to operate in such foreignmarkets, we and our international franchise partners may not be successful in opening the number of anticipated new stores on a timely and profitable basis.Delays or failures in opening new foreign market store locations could adversely affect our planned growth.Our substantial indebtedness could adversely affect our ability to raise additional capital to fund our operations, expose us to interest rate risk to theextent of our variable rate debt, limit our ability to react to changes in the economy and prevent us from making debt service payments.We are a highly leveraged company. As of December 28, 2014, we had $1,008.0 million face value of outstanding indebtedness (excluding capitalleases), in addition to $139.1 million available for borrowing under our revolving credit facility at that date. For the twelve months ended December 28,2014, we had total debt service payment obligations of $53.3 million.Our substantial indebtedness could have important consequences for us, including, but not limited to, the following:•limit our ability to borrow money for our working capital, capital expenditures, debt service requirements, strategic initiatives or otherpurposes;•make it more difficult for us to satisfy our obligations with respect to our indebtedness, and any failure to comply with the obligations ofany of our debt instruments, including restrictive covenants and borrowing conditions, could result in an event of default under theindenture and the agreements governing other indebtedness;•require us to dedicate a substantial portion of our cash flow from operations to the repayment of our indebtedness, thereby reducing fundsavailable to us for other purposes;•limit our flexibility in planning for, or reacting to, changes in our operations or business;•make us more highly leveraged than some of our competitors, which may place us at a competitive disadvantage;•impact our rent expense on leased space, which could be significant;•make us more vulnerable to downturns in our business or the economy;•restrict us from making strategic acquisitions, engaging in development activities, introducing new technologies or exploiting businessopportunities;•cause us to make non-strategic divestitures;•limit, along with the financial and other restrictive covenants in our indebtedness, among other things, our ability to borrow additionalfunds or dispose of assets;12•limit our ability to repurchase shares and pay cash dividends;•expose us to the risk of increased interest rates, as certain of our borrowings are at variable rates of interest.In addition, our credit agreement contains restrictive covenants that will limit our ability to engage in activities that may be in our long-term bestinterest. Our failure to comply with those covenants could result in an event of default which, if not cured or waived, could result in the acceleration ofsubstantially all of our indebtedness.We may be able to incur substantial additional indebtedness in the future, subject to the restrictions contained in our revolving credit facility. If newindebtedness is added to our current debt levels, the related risks described above could intensify.We may not be able to generate sufficient cash to service all of our indebtedness, and we may be forced to take other actions to satisfy our obligationsunder our indebtedness that may not be successful.Our ability to pay principal and interest on our debt obligations will depend upon, among other things, (a) our future financial and operatingperformance (including the realization of any cost savings described herein), which will be affected by prevailing economic, industry and competitiveconditions and financial, business, legislative, regulatory and other factors, many of which are beyond our control; and (b) our future ability to borrow underour revolving credit facility, the availability of which depends on, among other things, our complying with the covenants in the credit agreement governingsuch facility.We cannot be assured that our business will generate cash flow from operations, or that we will be able to draw under our revolving credit facility orotherwise, in an amount sufficient to fund our liquidity needs, including the payment of principal and interest on our debt. If our cash flows and capitalresources are insufficient to service our indebtedness, we may be forced to reduce or delay capital expenditures, sell assets, seek additional capital orrestructure or refinance our indebtedness, including the notes. These alternative measures may not be successful and may not permit us to meet our scheduleddebt service obligations. Our ability to restructure or refinance our debt will depend on the condition of the capital markets and our financial condition atsuch time. Any refinancing of our debt could be at higher interest rates and may require us to comply with more onerous covenants, which could furtherrestrict our business operations. In addition, the terms of existing or future debt agreements may restrict us from adopting some of these alternatives. In theabsence of such operating results and resources, we could face substantial liquidity problems and might be required to dispose of material assets or operationsto meet our debt service and other obligations. We may not be able to consummate those dispositions for fair market value or at all. Furthermore, anyproceeds that we could realize from any such dispositions may not be adequate to meet our debt service obligations then due. Apollo and its affiliates haveno continuing obligation to provide us with debt or equity financing. Our inability to generate sufficient cash flow to satisfy our debt obligations, or torefinance our indebtedness on commercially reasonable terms or at all, could result in a material adverse effect on our business, results of operations andfinancial condition and could negatively impact our ability to satisfy our debt obligations.If we cannot make scheduled payments on our indebtedness, we will be in default, and holders of our senior notes could declare all outstandingprincipal and interest to be due and payable, the lenders under the Secured Credit Facilities could terminate their commitments to loan money, our securedlenders could foreclose against the assets securing their loans and we could be forced into bankruptcy or liquidation.Our variable rate indebtedness subjects us to interest rate risk, which could cause our debt service obligations to increase significantly.Borrowings under the Secured Credit Facilities are at variable rates of interest and expose us to interest rate risk. Assuming the revolving creditfacility remains undrawn, each 1% change in assumed interest rates, excluding the impact of our 1% interest rate floor, would result in a $7.5 million increasein annual interest expense on indebtedness under the Secured Credit Facilities. In the future, we may enter into interest rate swaps that involve the exchangeof floating for fixed rate interest payments in order to reduce interest rate volatility. However, we may not maintain interest rate swaps with respect to all ofour variable rate indebtedness, and any swaps we enter into may not fully mitigate our interest rate risk, may prove disadvantageous or may create additionalrisks.Increases in food, labor and other operating costs could adversely affect our consolidated financial results.The performance of our stores is affected by changes in the costs for food products we purchase, including but not limited to cheese, dough, produce,chicken and beef. The commodity prices for these food products vary throughout the year and may be affected by changes in supply, demand and otherfactors beyond our control. We have not entered into any hedging arrangements to reduce our exposure to commodity price volatility associated withcommodity prices; however, we typically enter into short-term purchasing arrangements, which may contain pricing designed to minimize the impact ofcommodity price13fluctuations. An increase in our food costs could negatively affect our profit margins and adversely affect our consolidated financial results.A significant number of our store-level employees are subject to various minimum wage requirements. Several states and cities in which we operatestores have established a minimum wage higher than the federally mandated minimum wage. There may be similar increases implemented in otherjurisdictions in which we operate or seek to operate. Changes in the minimum wage could increase our labor costs and could have an adverse effect on ourprofit margins and our consolidated financial results.The performance of our stores is also adversely affected by increases in the price of utilities on which the stores depend, such as electricity andnatural gas, whether as a result of inflation, shortages or interruptions in supply, or otherwise. Our business also incurs significant costs for and including,among other things, insurance, marketing, taxes, real estate, borrowing and litigation, all of which could increase due to inflation, rising interest rates,changes in laws, competition or other events beyond our control, which could have an adverse effect on our consolidated financial results.If we are unable to maintain and protect our information technology systems and technologies, we could suffer disruptions in our business, damage ourreputation with customers and incur substantial costs.The operation of our business is heavily dependent upon the implementation, integrity, security and successful functioning of our computernetworks and information systems, including the point-of-sales systems in our stores, data centers that process transactions, enterprise resource planningsystem, birthday reservation system and various software applications used in our operations. In the ordinary course of our business, we also collect and storesensitive data, including intellectual property, our proprietary business information and that of our customers, suppliers and business partners and personallyidentifiable information of our customers and employees, on our computer networks and information systems. A failure of our systems to operate effectivelyas a result of a cyber-attack, damage to, interruption or failure of any of these systems could result in a failure to meet our reporting obligations, materialmisstatements in our Consolidated Financial Statements or losses due to disruption of our business operations. These adverse situations could also lead toloss of sales or profits or cause us to incur additional development costs. We purchase insurance coverage related to network security and privacy to limit thecost of any such failure or cyber-attack. Despite our efforts to secure our computer networks and information systems, security could be compromised orconfidential information could be misappropriated, resulting in a loss of customers’ or employees’ personal information, negative publicity or harm to ourbusiness and reputation that could cause us to incur costs to reimburse third parties for damages or cause a potential decrease in guest traffic.Changes in consumers’ health, nutrition and dietary preferences could adversely affect demand for our menu offerings and adversely affect ourconsolidated financial results.Our industry is affected by consumer preferences and perceptions. Changes in prevailing health or dietary preferences and perceptions may causeconsumers to avoid certain products we offer in favor of alternative or healthier foods. If consumer eating habits change significantly and we are unable torespond with appropriate menu offerings, it could adversely affect our consolidated financial results.Any disruption of our commodity distribution system could adversely affect our business and our consolidated financial results.We use a network of 15 distribution centers managed by a single company to distribute most of the products and supplies used in our Chuck E.Cheese’s branded stores and one distribution center for our Peter Piper Pizza branded stores. Any failure by these distributors to adequately distributeproducts or supplies to our stores could increase our costs and have an adverse effect on our business and our consolidated financial results. We believe thatalternative third-party distributors are available for our products and supplies, but we may incur additional costs if we are required to replace our distributorsor obtain the necessary products and supplies from other suppliers.Our procurement of games, rides, entertainment-related equipment, redemption prizes and merchandise is dependent upon a few global providers, theloss of any of whom could adversely affect our business and our consolidated financial results.Our ability to continue to procure new games, rides, entertainment-related equipment, redemption prizes and merchandise is important to ourbusiness strategy. The number of suppliers from which we can purchase these items is limited due to industry consolidation over the past several years. To theextent that the number of suppliers continues to decline, we could be subject to the risk of distribution delays, pricing pressure, lack of innovation and otherassociated risks. Furthermore, some of our suppliers are located in China, and continuing and increasing tension between the U.S. and Chinese governments14could also result in interruptions in our ability to procure these products, which could adversely affect our business and our consolidated financial results.We face risks with respect to product liability claims and product recalls, which could adversely affect our reputation, business and consolidatedfinancial results.We purchase merchandise from third parties and offer this merchandise to customers in exchange for prize tickets or for sale. This merchandise couldbe subject to recalls and other actions by regulatory authorities. Changes in laws and regulations could also impact the type of merchandise we offer to ourcustomers. We have experienced, and may in the future experience, issues that result in recalls of merchandise. In addition, individuals have asserted claims,and may in the future assert claims, that they have sustained injuries from third-party merchandise offered by us, and we may be subject to future lawsuitsrelating to these claims. There is a risk that these claims or liabilities may exceed, or fall outside of the scope of, our insurance coverage. Any of the issuesmentioned above could result in damage to our reputation, diversion of development and management resources, or reduced sales and increased costs, any ofwhich could adversely affect our business and our consolidated financial results.We are subject to various government regulations, which could adversely affect our business and our consolidated financial results.The development and operation of our stores are subject to various federal, state and local laws and regulations in many areas of our business,including but not limited to those that impose restrictions, levy a fee or tax, or require a permit, license or other regulatory approval, and those that relate tothe operation of video and arcade games and rides, the preparation of food and beverages, the sale and service of alcoholic beverages, and building andzoning requirements. Difficulties or failure in obtaining required permits, licenses or other regulatory approvals could delay or prevent the opening of a newstore, remodel or expansion, and the suspension of, or inability to renew, a license or permit could interrupt operations at an existing store.We are also subject to laws governing our relationship with employees, including minimum wage requirements, overtime, other health insurancemandates, working and safety conditions, immigration status requirements and child labor laws. Additionally, potential changes in federal labor laws,including card verification regulations, could result in portions of our workforce being subjected to greater organized labor influence. This could result in anincrease to our labor costs. A significant portion of our store personnel are paid at rates related to the minimum wage established by federal, state andmunicipal law. Increases in such minimum wage result in higher labor costs, which may be only partially offset by price increases and operationalefficiencies. Furthermore, we are also subject to certain laws and regulations that govern our handling of customers’ personal information. A failure to protectthe integrity and security of our customers’ personal information could expose us to litigation, as well as materially damage our reputation.We are also subject to the rules and regulations of the Federal Trade Commission and various state laws regulating the offer and sale of franchises.The Federal Trade Commission and various state laws require that we furnish a franchise disclosure document containing certain information to prospectivefranchisees, and a number of states require registration of the franchise disclosure document with state authorities. Substantive state laws that regulate thefranchisor-franchisee relationship presently exist in a substantial number of states, and bills have been introduced in Congress from time to time that wouldprovide for federal regulation of the franchisor-franchisee relationship. The state laws often limit, among other things, the duration and scope of non-competition provisions, the ability of a franchisor to terminate or refuse to renew a franchise and the ability of a franchisor to designate sources of supply. Webelieve that our franchise disclosure document, together with any applicable state versions or supplements, and franchising procedures comply in all materialrespects with both the Federal Trade Commission guidelines and all applicable state laws regulating franchising in those states in which we have offeredfranchises.While we endeavor to comply with all applicable laws and regulations, governmental and regulatory bodies may change such laws and regulationsin the future, which may require us to incur substantial cost increases. If we fail to comply with applicable laws and regulations, we may be subject to varioussanctions and/or penalties and fines or may be required to cease operations until we achieve compliance, which could have an adverse effect on our businessand our consolidated financial results.We face litigation risks from customers, employees, franchisees and other third parties in the ordinary course of business, which could adversely affectour business and our consolidated financial results.Our business is subject to the risk of litigation by customers, current and former employees, suppliers, stockholders or others through private actions,class actions, administrative proceedings, regulatory actions or other litigation. The outcome of litigation, particularly class action lawsuits and regulatoryactions, is difficult to assess or quantify. Plaintiffs in these types of lawsuits may seek recovery of very large or indeterminate amounts, and the magnitude ofthe potential loss relating to such lawsuits may remain unknown for substantial periods of time. The cost to defend future litigation may be significant. There15may also be adverse publicity associated with litigation that could decrease customer acceptance of our food or entertainment offerings, regardless of whetherthe allegations are valid or whether we are ultimately found liable. From time to time, we are also involved in lawsuits with respect to alleged infringement ofthird party intellectual property rights, as well as challenges to our intellectual property.We are continuously subject to risks from litigation and regulatory action regarding advertising to our market of children between the ages of twoand 12 years old. In addition, since certain of our stores serve alcoholic beverages, we are subject to “dram shop” statutes. These statutes generally allow aperson injured by an intoxicated person to recover damages from an establishment that wrongfully served alcoholic beverages to the intoxicated person.Although we believe we are adequately covered by insurance, a judgment against us under a “dram shop” statute in excess of the liability covered byinsurance could have an adverse effect on our business and our consolidated financial results.Our stores may be adversely affected by local conditions, natural disasters and other events.Certain regions in which our stores are located may be subject to adverse local conditions, natural disasters and other events. Severe weather, such asheavy snowfall or extreme temperatures, may discourage or restrict customers in a particular region from traveling to our stores, which could adversely affectour sales. If severe weather conditions occur during the first quarter of the year, the adverse impact to our sales and profitability could be even greater than atother times during the year because we generate our highest sales and profits during the first quarter. Natural disasters including tornadoes, hurricanes, floodsand earthquakes may damage our stores or other operations, which may adversely affect our business and our consolidated financial results.Public health issues could adversely affect our consolidated financial results.Our business may be impacted by certain public health issues including epidemics, pandemics and the rapid spread of certain illnesses andcontagious diseases. To the extent that our customers feel uncomfortable visiting public locations, particularly locations with a large number of children, dueto a perceived risk of exposure to a public health issue, we could experience a reduction in customer traffic, which could adversely affect our consolidatedfinancial results.Our business is seasonal, and quarterly results may fluctuate significantly as a result of this seasonality.We have experienced, and in the future could experience, quarterly variations in our consolidated revenues and profitability as a result of a varietyof factors, many of which are outside our control, including the timing of school vacations, holidays and changing weather conditions. We typically generateour highest sales volumes and profitability in the first quarter of each fiscal year. If there is a material decrease in the customer traffic in our stores during thefirst quarter of the year due to unusually cold or inclement weather or other circumstances outside of our control, our operating results could be materially,adversely affected for that quarter and further, may have an adverse effect on our consolidated financial results for the fiscal year.Our current insurance policies may not provide adequate levels of coverage against all claims, and we could incur losses that are not covered by ourinsurance, which could adversely affect our business and our consolidated financial results.We have procured and maintain insurance coverage, which we believe is typical for a business of our type and size. However, we could experience aloss that either cannot be insured against or is not commercially reasonable to insure. For example, insurance covering liability for violations of wage andhour laws is generally not available. Under certain circumstances, plaintiffs may file certain types of claims that may not be covered by insurance. In somecases, plaintiffs may seek punitive damages, which may also not be covered by insurance. Losses such as these, if they occur, could adversely affect ourbusiness and our consolidated financial results.We are dependent on the service of certain key personnel, and the loss of any of these personnel could harm our business.Our success significantly depends on the continued employment and performance of our senior management team. We have employment agreementswith certain members of our senior management team. However, we cannot prevent the members of our senior management team from terminating theiremployment with us. Losing the services of any member of senior management could harm our business until a suitable replacement is hired, and suchreplacement may not have equal experience or capabilities.We may not be able to adequately protect our trademarks or other proprietary rights, which could have an adverse affect on our business and ourconsolidated financial results.16We own certain common law trademark rights and a number of federal and international trademark and service mark registrations, Internet domainname registrations and other proprietary rights relating to our operations. We believe that our trademarks and other proprietary rights are important to oursuccess and our competitive position. We, therefore, devote appropriate resources to the protection of our trademarks and proprietary rights. However, theprotective actions that we take may not be enough to prevent unauthorized usage or imitation by others, which could harm our image, brand or competitiveposition and, if we commence litigation to enforce our rights, we may incur significant legal fees.There can be no assurance that third parties will not claim that our trademarks or menu offerings infringe upon their proprietary rights. Any suchclaim, whether or not it has merit, may result in costly litigation, cause delays in introducing new menu items in the future, interfere with our internationaldevelopment agreements or require us to enter into royalty or licensing agreements. As a result, any such claim could have an adverse effect on our businessand our consolidated financial results.We are subject to risks in connection with owning and leasing real estate, which could adversely affect our consolidated financial results.As an owner or lessee of the land and/or building for our Company-owned stores, we are subject to all of the risks generally associated with owningand leasing real estate, including changes in the supply and demand for real estate in general and the supply and demand for the use of the stores. We may becompelled to continue to operate a non-profitable store due to our obligations under lease agreements, or we may close a non-profitable store and continuemaking rental payments with respect to the lease, which could adversely affect our consolidated financial results. Furthermore, economic instability mayinhibit our landlords from securing financing and maintaining good standing in their existing financing arrangements, which could result in their inability tokeep, or attract new, tenants thereby reducing customer traffic to our stores. The lease term for each of our leased facilities vary and some have only a shortterm remaining. Most but not all of our leased facilities have renewal terms. When a lease term expires, the Company may not be able to renew such lease onreasonable economic and commercial terms or at all. As a result, failure to renew leases on reasonable economic and commercial terms, could adversely affectour business and consolidated financial results.We are involved in litigation relating to the Merger Agreement that could divert management’s attention and harm our business.As described in Part I, Item 3 of this report, “Legal Proceedings,” we are, and the former individual members of the Board have been named, asdefendants in a number of lawsuits related to the Merger Agreement and the Merger. These suits generally allege, among other things, that the formerdirectors breached their fiduciary duties owed to the Company’s stockholders by, among other things, agreeing to an inadequate tender price, the adoptionon January 15, 2014 of the Rights Agreement, and certain provisions in the Merger Agreement that allegedly made it less likely that the Board wouldconsider alternative acquisition proposals. These suits also allege that Apollo aided and abetted the former directors’ alleged breaches of fiduciary duty inconnection with the Company’s entry into the Merger Agreement. Although we believe these suits are without merit, the defense of these suits may beexpensive and may divert management’s attention and resources, which could adversely affect our business.ITEM 1B. Unresolved Staff Comments.None.17ITEM 2. Properties.Chuck E. Cheese’s and Peter Piper Pizza stores are typically located in densely populated locations, within a 20-minute drive of our guests and arepredominantly situated in shopping centers or in free-standing buildings near shopping centers. On average Chuck E. Cheese’s existing stores areapproximately 12,650 square feet, with table and chair seating generally averaging between 400 to 450 guests per store, and include approximately 70games, rides and attractions. On average Peter Piper Pizza existing stores are approximately 11,200 square feet, with table and chair seating generallyaveraging between 350 to 400 guests per store, and include approximately 40 games, rides and attractions.The following tables summarize information regarding the number and location of stores we and our franchisees operated as of December 28, 2014:DomesticCompany-OwnedStores Franchised Stores TotalChuck E. Cheese’s513 32 545Peter Piper Pizza32 62 94 Total domestic545 94 639International Chuck E. Cheese’s14 30 44Peter Piper Pizza— 48 48 Total international14 78 92 Total stores in operation559 172 73118DomesticCompany-Owned Stores FranchisedStores TotalAlabama718Alaska1—1Arizona321951Arkansas6—6California81485Colorado10—10Connecticut4—4Delaware2—2Florida31—31Georgia16—16Hawaii—22Idaho1—1Illinois22—22Indiana13—13Iowa4—4Kansas4—4Kentucky5—5Louisiana10212Maryland15—15Massachusetts11—11Michigan17—17Minnesota8—8Mississippi325Missouri8—8Montana—11Nebraska2—2Nevada6—6New Hampshire2—2New Jersey16—16New Mexico538New York23—23North Carolina13215North Dakota—11Ohio19120Oklahoma6—6Oregon123Pennsylvania23—23Rhode Island1—1South Carolina7—7South Dakota2—2Tennessee12—12Texas6446110Utah213Virginia12416Washington8311West Virginia1—1Wisconsin9—9Total domestic5459463919 InternationalCompany-Owned Stores FranchisedStores TotalCanada14—14Chile—66Guam—11Guatemala—22Mexico—5252Panama—11Peru—33Puerto Rico—33Trinidad—11Saudi Arabia—77United Arab Emirates—22Total international147892Total stores in operation559172731Company Store LeasesOf the 527 Company-owned Chuck E. Cheese’s stores as of December 28, 2014, 10 are owned premises and 517 are leased. All of the 32 Company-owned Peter Piper Pizza stores as of December 28, 2014 are leased premises.The terms of our store leases vary in length from lease to lease, although generally a lease provides for an initial primary term of 10 years, with twoadditional five-year options to renew. As of December 28, 2014, four of our leases were month-to-month and 34 of our leases were set to expire in 2015. Ofthose set to expire in 2015, three have no available renewal options and the remainder have available renewal options expiring between 2015 and 2034. Ourremaining leases are set to expire at various dates through 2034, with available renewal options that expire at various dates through 2045.These leases generally require us to pay the cost of repairs, other maintenance costs, insurance and real estate taxes and, in some instances, mayprovide for additional rent equal to the amount by which a percentage of revenues exceed the minimum rent. It is common for us to take possession of leasedpremises prior to the commencement of rent payments for the purpose of constructing leasehold improvements.Corporate Offices and Warehouse FacilitiesWe lease a 76,556 square foot office building in Irving, Texas, which serves as our corporate office and support services center. This lease expires inMay 2015 with options to renew through May 2025. We have decided not to exercise our renewal options and intend to move into new leased office space insummer 2015.Peter Piper Pizza leases a 24,539 square foot office building in Phoenix, Arizona, which serves primarily as its corporate office and restaurant supportcenter. Of the total square footage, approximately 6,000 square feet serves as warehouse space. This lease has been terminated early, effective October 2015.We also lease a 166,432 square foot warehouse building in Topeka, Kansas, which primarily serves as a storage and refurbishing facility for our storefixtures and game equipment. The lease expires in August 2024 with options to renew through August 2034.ITEM 3. Legal Proceedings.From time to time, we are involved in various inquiries, investigations, claims, lawsuits and other legal proceedings that are incidental to theconduct of our business. These matters typically involve claims from customers, employees or other third parties involved in operational issues common tothe 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 ofclaims 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 currentlypending against us is not expected to have a material effect on our consolidated financial condition, results of operations or cash flows.20Employment-Related Litigation: On January 27, 2014, former store employee Franchesca Ford filed a purported class action lawsuit against theCompany in San Francisco County Superior Court, California (the “Ford Litigation”). The plaintiff claims to represent other similarly-situated hourly non-exempt employees and former employees of the Company in California who were employed during the period January 27, 2010 to the present. She allegesviolations of California state wage and hour laws governing vacation pay, meal and rest period pay, wages due upon termination, and waiting time penalties,and seeks an unspecified amount in damages. On March 27, 2014, the Company removed the Ford Litigation to the U.S. District Court for the NorthernDistrict of California, San Francisco Division. On April 25, 2014, the plaintiff petitioned the court to remand the Ford Litigation to California state court; onJuly 10, 2014, that motion was denied, so the case will proceed in federal court. The parties have exchanged formal discovery. The Company’s investigationis ongoing. We believe the Company has meritorious defenses to this lawsuit and we intend to vigorously defend it. While no assurance can be given as tothe ultimate outcome of this matter, we currently believe that the final resolution of this action will not have a material adverse effect on our results ofoperations, financial position, liquidity or capital resources.On March 24, 2014, Franchesca Ford and Isabel Rodriguez filed a purported class action lawsuit against the Company in the U.S. District Court,Southern District of California, San Diego Division. The plaintiffs claim to represent other similarly-situated applicants who were subject to pre-employmentbackground checks with the Company in California and across the United States from March 24, 2012 to the present. The lawsuit alleges violations of theFair Credit Reporting Act and the California Consumer Credit Reporting and Investigative Reporting Agencies Act. On May 21, 2014, the Company filed ananswer to the complaint. On September 23, 2014, the Company reached an agreement to settle the lawsuit on a class-wide basis. The settlement would resultin the plaintiffs’ dismissal of all claims asserted in the action, as well as certain related but unasserted claims, and grant of complete releases, in exchange forthe Company’s settlement payment of up to $1,750,000 (a substantial portion of which would be covered by the Company’s insurance carrier). On January16, 2015, the parties executed a written settlement agreement, which will be submitted to the Court for approval. We currently believe that the finalresolution of this action will not have a material adverse effect on our results of operations, financial position, liquidity or capital resources.The Company has accrued for all probable and reasonably estimable losses associated with the above claims.On October 17, 2014, former store employee Wiley Wright filed a purported class action lawsuit against the Company in the United States DistrictCourt, Eastern District of New York, claiming to represent other similarly-situated salaried exempt current and former employees of the Company in theUnited States during the period October 17, 2011 to the present. The lawsuit alleges current and former Assistant Managers and Senior Assistant Managerswere unlawfully classified as exempt from overtime protections and worked more than 40 hours a week without overtime premium pay in violation of the FairLabor Standards Act and New York Labor Law. The plaintiff seeks an unspecified amount in damages. On December 12, 2014, plaintiff moved forconditional certification of the putative class of employees; the Company filed its response to this motion on January 19, 2015. We believe the Company hasmeritorious defenses to this lawsuit and we intend to vigorously defend it. While no assurance can be given as to the ultimate outcome of this matter, wecurrently believe that the final resolution of this action will not have a material adverse effect on our results of operations, financial position, liquidity orcapital resources.On October 10, 2014, former store General Manager Richard Sinohui filed a purported class action lawsuit against the Company in the SuperiorCourt of California, Riverside County (the “Sinohui Litigation”), claiming to represent other similarly-situated current and former General Managers of theCompany in California during the period October 10, 2010 to the present. The lawsuit alleges current and former California General Managers wereunlawfully classified as exempt from overtime protections and worked more than 40 hours a week without overtime premium pay, paid rest periods and paidmeal periods, in violation of the California Labor Code, California Business and Professions Code, and the applicable Wage Order issued by the CaliforniaIndustrial Welfare Commission. The plaintiff seeks an unspecified amount in damages. On December 5, 2012, the Company removed the Sinohui Litigationto the U.S. District Court, Central District of California, Southern Division. On December 30, 2014, the plaintiff petitioned the court to remand the SinohuiLitigation to California state court. On January 21, 2015, the Company issued a formal written demand to the plaintiff to dismiss his motion to remand basedon recent case law. If the plaintiff does not voluntarily dismiss the Motion to Remand, the Court will hear the motion at a hearing currently scheduled forFebruary 27, 2015. The Company’s investigation is ongoing. While no assurance can be given as to the ultimate outcome of this matter, we currently believethat the final resolution of this action will not have a material adverse effect on our results of operations, financial position, liquidity or capital resources.Litigation Related to the Merger: Following the January 16, 2014 announcement that the Company had entered into the Merger Agreement, fourputative shareholder class actions were filed in the District Court of Shawnee County, Kansas, on behalf of purported stockholders of the Company againstthe Company, its directors, Apollo, Parent and Merger Sub, in connection with the Merger Agreement and the transactions contemplated thereby. The firstpurported class action, styled Hilary Coyne v. Richard M. Frank et al. (the “Coyne Action”), was filed on January 21, 2014. The second, styled John Solak v.CEC Entertainment, Inc. et al. (the “Solak Action”), was filed on January 22, 2014. The third, styled Irene Dixon v. CEC E21ntertainment, Inc. et al. (the “Dixon Action”), was filed on January 24, 2014, and additionally names as defendants Apollo Management VIII, L.P. and the APVIII Queso Holdings, L.P. The fourth, styled Louisiana Municipal Public Employees’ Retirement System v. Frank, et al. (the “LMPERS Action”), was filed onJanuary 31, 2014, and additionally names as defendants, Apollo Management VIII, L.P. and AP VIII Queso Holdings, L.P. (Collectively, Coyne, Solak, andDixon Actions shall be referred to as the “Shareholder Actions”).Each of the Shareholder Actions alleges that the Company’s directors breached their fiduciary duties to the Company’s stockholders in connectionwith their consideration and approval of the Merger Agreement by, among other things, agreeing to an inadequate tender price, the adoption on January 15,2014 of the Rights Agreement, and certain provisions in the Merger Agreement that allegedly made it less likely that the Board would be able to consideralternative acquisition proposals. The Coyne, Dixon and LMPERS Actions further allege that the Board was advised by a conflicted financial advisor. TheSolak, Dixon and LMPERS Actions further allege that the Board was subject to material conflicts of interest in approving the Merger Agreement and that theBoard breached its fiduciary duties in allowing allegedly conflicted members of management to negotiate the transaction. The Dixon and LMPERS Actionsfurther allege that the Board breached its fiduciary duties in approving the Solicitation/Recommendation Statement on Schedule 14D-9 (together with theexhibits and annexes thereto, as it may be amended or supplemented, the “Statement”) filed with the SEC on January 22, 2014, which allegedly containedmaterial misrepresentations and omissions.Each of the Shareholder Actions allege that Apollo aided and abetted the Board’s breaches of fiduciary duties. The Solak and Dixon Actions allegethat CEC also aided and abetted such breaches, and the Solak and LMPERS Actions further allege that Parent and the Merger Sub aided and abetted suchactions. The LMPERS Action further alleges that Apollo Management VIII, L.P. and AP VIII Queso Holdings, L.P. aided and abetted such actions.The Shareholder Actions seek, among other things, rescission of the transactions, damages, attorneys’ and experts’ fees and costs, and otherunspecified relief.On January 24, 2014, the plaintiff in the Coyne Action filed an amended complaint (the “Coyne Amended Complaint”), and on January 30, 2014,the plaintiff in the Solak Action filed an amended complaint (the “Solak Amended Complaint”) (together, the “Amended Complaints”). The AmendedComplaints incorporate all of the allegations in the original complaints and add allegations that the Board-approved Statement omitted certain materialinformation, in further violation of the Board’s fiduciary duties, and request an order directing the Board to disclose such allegedly-omitted materialinformation. The Solak Amended Complaint also adds allegations that the Board breached its fiduciary duties in allowing an allegedly conflicted financialadvisor and management to lead the sales process.On March 7, 2014, the Coyne, Solak, Dixon and LMPERS Actions were consolidated into one action. The Company has accrued for all probableand reasonably estimable losses associated with this claim. The Company believes the consolidated lawsuit is without merit and intends to defend itvigorously. While no assurance can be given as to the ultimate outcome of the consolidated matter, we currently believe that the final resolution of the actionwill not have a material adverse effect on our results of operations, financial position, liquidity or capital resources.On June 10, 2014, Magnetar Global Event Driven Fund Ltd., Spectrum Opportunities Master Fund, Ltd., Magnetar Capital Master Fund, Ltd., andBlackwell Partners LLC, as the purported beneficial owners of shares held as of record by the nominal petitioner Cede & Co., (the “Appraisal Petitioners”),filed an action for statutory appraisal under Kansas state law against the Company in the U.S. District Court for the District of Kansas. The AppraisalPetitioners seek appraisal of 750,000 shares of common stock. The Company has answered the complaint and filed a verified list of stockholders, as requiredunder Kansas law. On September 3, 2014, the court entered a scheduling order that contemplates that discovery will commence in the fall of 2014 and willsubstantially be completed by May 2015. Following discovery, the scheduling order contemplates dispositive motion practice followed, potentially, by atrial on the merits of the Appraisal Petitioners’ claims thereafter. The Company has accrued for all probable and reasonably estimable losses associated withthis claim. The Company believes the lawsuit is without merit and intends to defend it vigorously. While no assurance can be given as to the ultimateoutcome of this matter, we currently believe that the final resolution of this action will not have a material adverse effect on our results of operations,financial position, liquidity or capital resources.ITEM 4. Mine Safety Disclosures.None.22PART IIITEM 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.Market Information and DividendsPrior to the Acquisition, our common stock was listed on the New York Stock Exchange under the symbol “CEC.” As of December 28, 2014, all ofour outstanding common stock was privately held and there was no established public trading market for our common stock.We did not declare any dividends in 2014. In 2013, we declared dividends of $17.4 million.In accordance with the Merger Agreement, our ability to declare dividends is restricted. See further discussion of the Merger in Part I, Item 1.“Business - Merger Agreement” and Part II, Item 8. “Financial Statements and Supplementary Data - Note 2. Acquisition of CEC Entertainment, Inc.” of thisAnnual Report on Form 10-K. See Part I, Item 1A. “Risk Factors” for a discussion of factors that might affect our financial performance and compliance withdebt covenants, including covenants that affect our ability to pay dividends. Pursuant to our current revolving credit facility agreement, there are restrictionson the amount of cash dividends that we may pay on our common stock. See the discussion of our current revolving credit facility agreement included inPart II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Financial Condition, Liquidity and CapitalResources – Debt Financing.”Issuer Purchases of Equity SecuritiesThere were no repurchases of our common stock during the fourth quarter of 2014.In order to complete the Merger, on February 14, 2014, following the expiration of the Tender Offer, Merger Sub exercised its option pursuant to theMerger Agreement (the “Top-Up Option”) to purchase directly from the Company, at the Offer Price, a number of newly issued shares of the Company’scommon stock (the “Top-Up Option”) equal to the number of shares of common stock that, when added to the number of shares of common stock held byParent and Merger Sub at the time of such exercise, constituted one share more than 90% of the total shares of common stock then outstanding on a fullydiluted basis immediately after the issuance of the Top-Up Shares pursuant to the Top-Up Option.Accordingly, the Company issued 38,277,866 Top-Up Shares to Merger Sub, at a price per share of $54.00. The aggregate consideration of$2,067,004,764 for the Top-Up Shares was provided (i) in part by an equity capital contribution by the Apollo Funds, paid in cash, and (ii) in part by apromissory note from Merger Sub payable to the Company in the amount of $2,063,176,977, which was extinguished when Merger Sub merged with and intoCEC Entertainment, Inc. following the successful completion of the Merger.The Top-Up Shares were issued in reliance upon an exemption from registration pursuant to Section 4(2) under the Securities Act of 1933, asamended, as a transaction by an issuer not involving a public offering.23ITEM 6. Selected Financial Data.The following selected financial data presented below should be read in conjunction with Part II, Item 7. “Management’s Discussion and Analysis ofFinancial Condition and Results of Operations” and our Consolidated Financial Statements included in Part II, Item 8. “Financial Statements andSupplementary Data.” Fiscal Year (1) For the 317 DayPeriod EndedDecember 28, 2014(7) (8) For the 47 DayPeriod EndedFebruary 14, 2014(9) 2013 2012 2011 2010 Successor Predecessor Predecessor Predecessor Predecessor Predecessor (in thousands, except percentages and store number amounts)Statements of Earnings Data: Company store sales$712,098 $113,556 $816,739 $798,937 $815,894 $813,133Sales percent increase (decrease): Total company store salesNM NM 2.2% (2.1)% 0.3 % (0.2)%Comparable store sales (2)NM NM 0.4% (2.9)% (2.0)% 1.5 %Total revenues718,581 $114,243 $821,721 $803,480 $821,178 $817,248Revenues percent increase(decrease)NM NM 2.3% (2.2)% 0.5 % (0.1)%Operating income (loss)$(32,259) $2,873 $83,471 $79,071 $97,979 $104,902As a percent of total revenuesNM 2.5% 10.2% 9.8 % 11.9 % 12.8 %Net income (loss)$(62,088) $704 $47,824 $43,590 $54,962 $54,034Balance Sheet Data (end of year): Total assets$1,864,143 NM $791,611 $801,806 $772,471 $778,029Total debt (3)$1,023,870 NM $382,879 $412,216 $400,509 $388,262Stockholders’ equity$292,586 NM $160,768 $143,274 $124,177 $158,062Dividends declared (4)$— $— $17,372 $16,182 $15,806 $—Non-GAAP Financial Measures: Adjusted EBITDA (5)(6)$170,456 $24,967 $186,131 $184,024 $198,412 — Adjusted EBITDA as a percent ofTotal revenues23.7% 21.9% 22.7% 22.9 % 24.2 % —Number of Stores (end of period): Company-owned559 NM 522 514 507 507Franchised172 NM 55 51 49 47 731 NM 577 565 556 554_______________________(1)We operate on a 52 or 53 week fiscal year ending on the Sunday nearest December 31. All fiscal years presented were 52 weeks.(2)We define comparable store sales as the percentage change in sales for our domestic Company-owned stores that have been open for at least 18 months as of the beginningof each respective fiscal year or operated by us for 12 months for acquired stores. We believe comparable store sales to be a key performance indicator used within ourindustry and is a critical factor when evaluating our performance, as it is indicative of acceptance of our strategic initiatives and local economic and consumer trends. Ourcomparable store sales for the Successor period excludes the Peter Piper Pizza stores that were acquired in October 2014 as we have operated them for less than 12 months.On a proforma basis, combining the successor and predecessor periods, Chuck E. Cheese’s comparable store sales decreased 2.2% in 2014. On a standalone basis Peter PiperPizza’s comparable store sales increased 4.6% in 2014, 4.9% in 2013 and 4.6% in 2012.(3)Total debt includes our senior notes, our outstanding borrowings under the term loan facility the revolving credit facility and the Predecessor Facility, and capital leaseobligations.(4)No cash dividends on common stock have been paid or declared since the Merger, and no cash dividends on common stock were declared prior to 2011.(5)See the definition of Adjusted Earnings Before Interest, Income Taxes, Depreciation and Amortization (“Adjusted EBITDA”) and the reconciliation of net income toAdjusted EBITDA in “Non-GAAP Financial Measures” below.(6)Adjusted EBITDA for 2010 was not calculated as not all information to determine the required adjustments was not available.(7)The financial results for the period February 15, 2014 through December 28, 2014 represent the 317 day Successor period reflecting the Merger.24(8)Results for the Successor period include the revenues and expenses for Peter Piper Pizza for the 73 day period from October 17, 2014 through December 28, 2014.(9)The financial results for the period December 29, 2013 through February 14, 2014 represent the 47 day Predecessor period prior to the Merger.Non-GAAP Financial MeasuresAdjusted EBITDA, a measure used by management to assess operating performance, is defined as Earnings Before Interest, Taxes, Depreciation andAmortization adjusted to exclude unusual items and other adjustments required or permitted in calculating covenant compliance under the indenture and/orthe Secured Credit Facilities (see discussion of our senior notes and Secured Credit Facilities in Item 7. “Management’s Discussion and Analysis of FinancialCondition and Results of Operations - Financial Condition, Liquidity and Capital Resources - Debt Financing).We have provided Adjusted EBITDA in this report because we believe it provides investors with additional information to measure our performance.We believe that the presentation of Adjusted EBITDA is appropriate to provide additional information to investors about certain material non-cash items andabout unusual items that we do not expect to continue at the same level in the future, as well as other items. Further, we believe Adjusted EBITDA provides ameaningful measure of operating profitability because we use it for evaluating our business performance and understanding certain significant items.Adjusted EBITDA is not a presentation made in accordance with generally accepted accounting principles in the United States (“GAAP”), and ouruse of the term Adjusted EBITDA varies from others in our industry. Adjusted EBITDA should not be considered as an alternative to operating income or anyother performance measures derived in accordance with GAAP as measures of operating performance or cash flows as measures of liquidity. Adjusted EBITDAhas important limitations as an analytical tool, and you should not consider them in isolation or as substitutes for analysis of our results as reported underGAAP. For example, Adjusted EBITDA:•excludes certain tax payments that may represent a reduction in cash available to us;•does not reflect any cash capital expenditure requirements for the assets being depreciated and amortized that may have to be replaced in thefuture;•does not reflect changes in, or cash requirements for, our working capital needs; and•does not reflect the significant interest expense, or the cash requirements necessary to service interest or principal payments on ourindebtedness.•does not include one-time expenditures;•excludes the impairment of Company-owned stores or impairments of long-lived assets, gains or losses upon disposal of property or equipmentand inventory obsolescence charges outside of the ordinary course of business;•excludes non-cash equity based compensation expense;•reflects the removal of the non-cash portion of rent expense relating to the impact of straight-line rent and the amortization of cash incentivesand allowances received from landlords, plus the actual cash received from landlords incentives and allowances in the period;•reflects franchise fees received on a cash basis post-acquisition;•excludes the purchase accounting impact to unearned revenue at the time of the acquisition;•excludes start-up and marketing costs incurred prior to the opening of new Company-owned stores;•excludes non-recurring income and expenses primarily related to (i) non-recurring franchise fee income; (ii) severance costs; (iii) employee andother legal claims and settlements; (iv) sales and use tax refunds; (v) miscellaneous professional fees; and (vi) certain insurance recoveriesrelating to prior year expense;•includes estimated cost savings, including some adjustments not permitted under Article 11 of Regulation S-X; and•does not reflect the impact of earnings or charges resulting from matters that we, the initial purchasers of the senior notes, the current holders ofthe senior notes or the lenders under the Secured Credit Facilities may consider not to be indicative of our ongoing operations.25Our definition of Adjusted EBITDA allows us to add back certain non-cash and non-recurring charges or costs that are deducted in calculating Netincome. However, these are expenses that may recur, vary greatly and are difficult to predict. They can represent the effect of long-term strategies as opposedto short-term results. In addition, certain of these expenses can represent the reduction of cash that could be used for other corporate purposes. Because ofthese limitations, we rely primarily on our GAAP results and use Adjusted EBITDA only as supplemental information. For the 317Day PeriodEnded For the 47Day PeriodEnded Fiscal Year December 28, 2014 February 14, 2014 20132012 2011 2010 (9) Successor Predecessor PredecessorPredecessorPredecessorPredecessor (in thousands)Total revenues$718,581 $114,243 $821,721$803,480$821,178$817,248 Net income (loss) as reported$(62,088) $704 $47,824$43,590$54,962—Interest expense60,952 1,151 7,4539,4018,875—Income tax expense (benefit)(31,123) 1,018 28,19426,08034,142—Depreciation and amortization118,556 9,883 79,02879,51081,560—Non-cash impairments, gain or loss ondisposal(1)9,841 294 6,36010,3145,774—Non-cash stock-based compensation(2)703 12,639 8,4817,4687,185—Rent expense book to cash(3)10,616 (1,190) 714(313)1,675—Franchise revenue, net cash received(4)2,585 — ————Impact of purchase accounting(5)1,496 — ————Store pre-opening costs(6)1,166 131 2,0571,525391—One-time items(7)55,109 (165) (40)99372—Cost savings initiatives(8)2,643 502 6,0606,3503,476—Adjusted EBITDA$170,456 $24,967 $186,131$184,024$198,412—Adjusted EBITDA as a percent of totalrevenues23.7% 21.9% 22.7%22.9% 24.2% —__________________(1)Relates primarily to (i) the impairment of Company-owned stores or impairments of long lived assets; (ii) gains or losses upon disposal of property or equipment; and (iii)inventory obsolescence charges outside of the ordinary course of business.(2)Represents non-cash equity-based compensation expense.(3)Represents (i) the removal of the non-cash portion of rent expense relating to the impact of straight-line rent and the amortization of cash incentives and allowances receivedfrom landlords, plus (ii) the actual cash received from landlords incentives and allowances in the period in which it was received.(4)Represents the actual cash received for franchise fees received in the period for post-acquisition franchise development agreements, which are not recorded as revenue untilthe franchise store is opened.(5)Represents revenue related to unearned gift cards and unearned franchise fees that were removed in purchase accounting, and therefore were not recorded as revenue.(6)Relates to start-up and marketing costs incurred prior to the opening of new Company-owned stores and generally consists of payroll, recruiting, training, supplies and rent incurredprior to store opening.(7)Represents non-recurring income and expenses primarily related to (i) transaction costs associated with the Merger, Sale Leaseback transaction and PPP Acquisition;(ii) severance expense and executive termination benefits; (iii) employee and other legal claims and settlements; (iv) sales and use tax refunds; (v) miscellaneous professionalfees; and (vi) certain insurance recoveries relating to prior year expense.(8)Relates to estimated net cost savings primarily from (i) the change from public to private ownership upon the closing of the Acquisition and elimination of public equitysecurities, with reductions in investor relations activities, directors fees and certain legal and other securities and filing costs; (ii) the full-year effect of cost savings initiativesimplemented by the Company in 2013; (iii) the estimated effect of cost savings following the Acquisition from participation in Sponsor-leveraged purchasing programsincluding various supplies, travel and communications purchasing categories; (iv) the net impact of labor savings associated with changes in management; and net of (v) theestimated incremental costs associated with our new IT systems and post-closing insurance arrangements.(9)Adjusted EBITDA for 2010 could not be calculated as not all of the information required to determine the necessary adjustments was available.26ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.As used in this report, the terms “CEC Entertainment,” the “Company,” “we,” “us” and “our” refer to CEC Entertainment, Inc. and its subsidiaries.Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to provide the readers of ourConsolidated Financial Statements with a narrative from the perspective of our management on our consolidated financial condition, results of operations,liquidity and certain other factors that may affect our future results. Our MD&A should be read in conjunction with our Consolidated Financial Statementsand related notes included in Part II, Item 8. “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K.Our MD&A includes the following sub-sections:•Executive Summary;•Overview of Operations;•Results of Operations;•Financial Condition, Liquidity and Capital Resources;•Off-Balance Sheet Arrangements and Contractual Obligations;•Critical Accounting Policies and Estimates;•Recently Issued Accounting Guidance;•Presentation of Non-GAAP Measures; and•Cautionary Statement Regarding Forward-Looking Statements.Fiscal YearWe 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 weekyear, when the fourth quarter has 14 weeks. The fiscal years ended December 28, 2014, December 29, 2013 and December 30, 2012 each consisted of 52weeks.As discussed below, we completed the Merger on February 14, 2014. As a result of the Merger, we applied the acquisition method of accounting andestablished a new basis of accounting on February 15, 2014. Periods presented prior to and including February 14, 2014 represent the operations of thepredecessor company (“Predecessor”) and the period presented after February 14, 2014 represent the operations of the successor company (“Successor”). Thefifty-two weeks ended December 28, 2014 include the 47 day Predecessor period from December 30, 2013 through February 14, 2014 (“Predecessor Period”)and the 317 day Successor period from February 15, 2014 through December 28, 2014 (“Successor Period”).Executive SummaryOur Strategic PlanOur strategic plan is focused on increasing comparable store sales, improving profitability and margins and expanding our stores domestically andinternationally.Increase Comparable Store Sales. We have multiple drivers to increase our comparable store sales. We believe that entertainment is a key driver ofour sales and have remained focused on refreshing and optimizing our offerings in order to continue to provide our guests with a highly engaging andentertaining environment. During 2013, we developed a strategy to provide our stores with new games on a more regular basis and to test new majorattractions in our stores. Initial concepts tested include bumper cars, laser mazes and fun houses. These major attractions have demonstrated early success andwe expect to introduce select new attractions to additional stores in the near-term. We are also targeting other improvements to the stores’ offerings toenhance the guest experience away from our games. These include the introduction of Wi-Fi to all stores and the expansion of our menu to include additionalitems, such as desserts, wraps and thin-crust specialty pizzas. We also expect to drive comparable store sales performance through improved marketing effortsby focusing our marketing message towards kids via national television and promotional opportunities and marketing to mothers through digital advertisingand some television and radio. Finally, we believe that we can modify pricing and packaging in select markets across the U.S. while still continuing toprovide our guests with a strong value proposition when compared to other family dining-entertainment options.27Improve Profitability and Margins. We continuously focus on driving financial performance through expense rationalization across all of our storesand corporate functions. We believe that continued focus on operating margins and the deployment of best practices across all of our brands and corporatefunctions will yield continued margin improvement. Our general managers at our stores and our corporate management staff have both revenue and profitincentives, which fosters a strict focus on both expense control and providing a high-quality experience for our guests. Additionally, we have implemented anumber of cost saving initiatives across our business. We are also working on several new cost savings initiatives such as implementing labor managementand store inventory systems. We expect these initiatives to generate cost savings in a number of key areas, including labor, utilities, supplies, food andgeneral and administrative expenses. Our business model benefits from substantial operating leverage and will enable us to continue to drive marginimprovement as we realize our strategic plan to grow our comparable store sales and our domestic and international store base.Expand Our Stores Domestically and Internationally. We have developed a successful track record of opening new Chuck E. Cheese’s stores atattractive rates of return. We strategically locate our stores within convenient driving distance to large metropolitan areas with favorable demographicconditions, including but not limited to, large numbers of families with children aged two through 12. We believe that there are a significant number oflocations, both domestically and internationally, with these characteristics in which a Chuck E. Cheese’s or Peter Piper Pizza store can be successful. Fordomestic new store openings, we undergo a rigorous due diligence and site selection process prior to opening a new store. This disciplined process hasenabled us to achieve highly attractive returns, generating unlevered returns on our investment in new company-operated stores in excess of 20% on average(excluding allocated advertising). Internationally, we have focused on our franchise model, through which we have developed partnerships with strong andreputable counterparties in order to grow our concept globally. Over the last few years, we have experienced growth in our international franchise store countand expect this to be a key area of growth going forward. Our franchise model is highly attractive in that it enables us to earn predictable and high-margincash flow without any upfront capital requirements. We also benefit from a highly scalable existing platform that enables us to manage additional domesticand international stores without any material incremental costs.We also believe that there are a significant number of locations, both domestically and internationally, in which we can open new Peter Piper Pizzastores at similar attractive rates of return. The opening of new domestic stores will undergo the same rigorous due diligence and site selection process asemployed with Chuck E. Cheese’s store openings. Internationally, we will continue to focus on growing Peter Piper Pizza through a franchise model. Webelieve our existing relationships with strong Chuck E. Cheese’s franchise partners, combined with existing franchise partners for Peter Piper Pizza, will allowus to continue to grow the Peter Piper Pizza brand internationally.In 2014, we opened 11 new Company-owned Chuck E. Cheese’s stores in the United States, including two relocated stores and 10 new franchiseChuck E. Cheese’s stores in six countries, including one relocated store. We did not open any new Company-owned or franchise Peter Piper Pizza stores sinceacquiring Peter Piper Pizza in October 2014. In 2015, we expect to open five to 10 new Company-owned Chuck E. Cheese’s and Peter Piper Pizza stores inthe United States. We also expect to open five to 10 franchised Chuck E. Cheese’s and Peter Piper Pizza stores in 2015.The MergerOn January 15, 2014, CEC Entertainment entered into an agreement and plan of merger (the “Merger Agreement”) with Queso Holdings Inc., aDelaware corporation (“Parent”), and Q Merger Sub Inc., a Kansas corporation (“Merger Sub”). Parent and Merger Sub were controlled by Apollo GlobalManagement, LLC (“Apollo”) and its subsidiaries. Pursuant to the Merger Agreement, on January 16, 2014, Merger Sub commenced a tender offer (the“Tender Offer”) to purchase all of the Company’s issued and outstanding shares of common stock at a price of $54.00 per share payable net to the seller incash, without interest (the “Offer Price”). Approximately 68% of the outstanding shares were tendered in the Tender Offer, and Merger Sub accepted all suchtendered shares for payment. Following the expiration of the Tender Offer on February 14, 2014, Merger Sub exercised its option under the MergerAgreement to purchase a number of shares of common stock necessary for Merger Sub to own one share more than 90% of the outstanding shares of commonstock (the “Top-Up Shares”) at the Offer Price. Following Merger Sub’s purchase of the Top-Up Shares, on February 14, 2014, Merger Sub merged with andinto CEC Entertainment with CEC Entertainment surviving the merger ( the “Merger”) and becoming a wholly owned subsidiary of Parent. We refer to theMerger and the Tender Offer together as the “Acquisition.” At the effective time of the Merger, each share of common stock issued and outstandingimmediately prior thereto, other than common stock owned or held (a) in treasury by the Company or any wholly-owned subsidiary of the Company; (b) byParent or any of its subsidiaries; or (c) by stockholders who validly exercised their appraisal rights, was canceled and converted into the right to receive theOffer Price in cash, without interest and subject to applicable withholding tax. As a result of the Merger, the shares of CEC Entertainment common stockceased to be traded on the New York Stock Exchange after close of market on February 14, 2014.The aggregate consideration paid to acquire the Company was $1.4 billion, including the payoff of net debt of $348.0 million and $65.7 million intransaction and debt issuance costs. The Acquisition was funded by (a) $350.0 million of equity contributions from investment funds directly or indirectlymanaged by Apollo (the “Apollo Funds”); (b) $248.5 million of28borrowings under a bridge loan facility, which were later repaid using the proceeds from our issuance of $255.0 million of senior notes; and (c) $760.0million of borrowings under a term loan facility. In addition, we also entered into a $150.0 million revolving credit facility in connection with theAcquisition, but it was undrawn at closing. See discussion of the bridge loan facility, senior notes, term loan facility and revolving credit facility under“Financial Condition, Liquidity and Capital Resources-Debt Financing.”Sale Leaseback TransactionOn August 25, 2014, we closed our sale leaseback transaction (the “Sale Leaseback”) with National Retail Properties, Inc. (“NNN”). Pursuant to theSale Leaseback, we sold 49 properties located throughout the United States to NNN, and we leased each of the 49 properties back from NNN pursuant to twoseparate master leases on a triple-net basis for their continued use as Chuck E. Cheese’s family dining and entertainment centers. The leases have an initialterm of 20 years, with four five-year options to renew. 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 theSale Leaseback was used for the Peter Piper Pizza acquisition. We expect to use the remaining proceeds from the Sale Leaseback for capital expenditures,future liquidity needs and other general corporate purposes.Acquisition of Peter Piper PizzaOn October 15, 2014, the Company entered into an agreement and plan of merger to acquire Peter Piper Pizza, a leading pizza and entertainmentrestaurant chain operating in the southwestern U.S. and Mexico, (the “PPP Acquisition”) for an aggregate purchase price of $113.1 million, net of cashacquired. We completed the PPP Acquisition, which was funded with a portion of the cash proceeds from the Sale Leaseback on October 16, 2014.2014 OverviewIn the following MD&A, we have presented the results of operations and cash flows separately for the 317 day period from February 15, 2014 toDecember 28, 2014 (the “Successor fiscal 2014 period”), the 47 day period from December 29, 2014 to February 14, 2014 (the “Predecessor fiscal 2014period”), and the fiscal years ended December 29, 2013 and December 30, 2012 (the Predecessor fiscal 2013 and Fiscal 2012 years, respectively). TheSuccessor and Predecessor periods have been demarcated by a solid black line.•Total revenues of $718.6 million in the Successor fiscal 2014 period and total revenues of $114.2 million in the Predecessor fiscal 2014period compared to total revenues of $821.7 million in Predecessor fiscal 2013.•Adjusted EBITDA of $170.4 million in the Successor fiscal 2014 period and adjusted EBITDA of $25.0 million in the Predecessor fiscal2014 period compared to $186.1 million for the Predecessor fiscal 2013.•Net loss of $62.1 million in the Successor fiscal 2014 period and net income of $0.7 million in the Predecessor fiscal 2014 period comparedto net income of $47.8 million in Predecessor fiscal 2013.•Cash provided by operations was $48.1 million for the Successor fiscal 2014 period and $22.3 million for the Predecessor fiscal 2014period compared to $138.7 million for the Predecessor fiscal 2013. The decrease was primarily driven by transaction and severance costsand an increase in interest expense, all of which were incurred in connection with the Merger.Overview of OperationsWe currently operate and franchise family dining and entertainment centers under the names “Chuck E. Cheese’s” and, “Peter Piper Pizza.” We arelocated in 47 states and 11 foreign countries and territories. Our stores provide our guests with a variety of family entertainment and dining alternatives. Ourfamily leisure offerings include video games, skill games, rides, musical and comical shows and other attractions along with tokens, tickets and prizes forkids. Our wholesome family dining offerings are centered on made-to-order pizzas, salads, sandwiches, wings, appetizers, beverages and desserts.29The following table summarizes information regarding the number of Company-owned and franchised stores for the periods presented: Twelve Months Ended December 28, 2014 December 29, 2013December 30,2012Number of Company-owned stores: Beginning of period 522 514507New(1) 11 1312Acquired by the Company (2) 32 — —Acquired from franchisee 1 —1Closed(1) (7) (5)(6)End of period 559 522514Number of franchised stores: Beginning of period 55 5149New (3) 10 63 Acquired by the Company (2) 110 ——Acquired from franchisee (1) — (1)Closed (3) (2) (2)—End of period 172 5551Total number of stores: Beginning of period 577 565 556 New (4) 21 19 15Acquired by the Company (2) 142 — —Acquired from franchisee — — — Closed (4) (9) (7) (6)End of period 731 577 565 __________________(1)The number of new and closed Company-owned stores during 2014, 2013, and 2012 included two, one, and three stores, respectivelythat were relocated.(2)In October 2014 we acquired Peter Piper Pizza, including 32 company-owned stores and 110 franchised stores.(3)The number of new and closed franchise stores during 2014 and 2013 included one store that was relocated.(4)The number of new and closed stores during 2014, 2013 and 2012 included three, two and three stores, respectively, that were relocated.Comparable store sales. We define “comparable store sales” as the percentage change in sales for our domestic Company-owned stores that havebeen open for more than 18 months as of the beginning of each respective fiscal year or acquired stores we have operated for at least 12 months. Comparablestore sales is a key performance indicator used within our industry and is a critical factor when evaluating our performance, as it is indicative of acceptance ofour strategic initiatives and local economic and consumer trends.The following table summarizes information regarding our average annual comparable store sales and comparable store base: Twelve Months Ended December 28, 2014 December 29, 2013 December 30, 2012 (in thousands, except store number amounts)Average annual sales per comparable store (1) (2) $1,550 $1,573 $1,553Number of stores included in our comparable store base (2) 485 485 480__________________30(1)Average annual sales per comparable store is calculated based on the average weekly sales of our comparable store base. The amount of average annual sales per comparablestore cannot be used to compute year-over year comparable store sales increases or decreases due to the change in comparable store base.(2)Average annual sales per comparable store and the comparable store base exclude the Peter Piper Pizza branded stores that were acquired in October 2014 as we have operatedthem for less than 12 months.The Peter Piper company-owned stores have achieved excellent comparable store sales growth over the past several years. For the fiscal year 2014,2013 and 2012, Peter Piper comparable store sales growth has been 4.6%, 4.9% and 4.6%, respectively.Revenues. Our primary source of revenues is sales at our Company-owned stores (“Company store sales”), which consist of the sale of food,beverages, game-play tokens and merchandise. A portion of our Company store sales are from sales of value-priced combination packages generallycomprised of food, beverage and game tokens (“Package Deals”), which we promote through in-store menu pricing, our website and coupon offerings. Weallocate the revenues recognized from the sale of our Package Deals and coupons between “Food and beverage sales” and “Entertainment and merchandisesales” based upon the price charged for each component when it is sold separately, or in limited circumstances, our best estimate of selling price if acomponent is not sold on a stand-alone basis, which we believe approximates each component’s fair value.Food and beverage sales include all revenues recognized with respect to stand-alone food and beverage sales, as well as the portion of revenuesallocated from Package Deals and coupons that relate to food and beverage sales. Entertainment and merchandise sales include all revenues recognized withrespect to stand-alone game token sales, as well as a portion of revenues allocated from Package Deals and coupons that relate to entertainment andmerchandise.Franchise fees and royalties are another source of revenues. We earn monthly royalties from our franchisees based on a percentage of each franchisestore’s sales. We also receive development and initial franchise fees to establish new franchised stores, as well as earn revenues from the sale of equipmentand other items or services to franchisees. We recognize development and franchise fees as revenues when the franchise store has opened and we havesubstantially completed our obligations to the franchisee relating to the opening of a store.Company store operating costs. Certain of our costs and expenses relate only to the operation of our Company-owned stores. These costs andexpenses are listed and described below:•Cost of food and beverage includes all direct costs of food, beverages and costs of related paper and birthday supplies, less rebates fromsuppliers;•Cost of entertainment and merchandise includes all direct costs of prizes provided and merchandise sold to our customers, as well as thecost of tickets dispensed to customers;•Labor expenses consist of salaries and wages, bonuses, related payroll taxes and benefits for store personnel;•Depreciation and amortization includes expenses that are directly related to our Company-owned stores’ property and equipment,including leasehold improvements, game and ride equipment, furniture, fixtures and other equipment;•Rent expense includes lease costs for Company-owned stores, excluding common occupancy costs (e.g., common area maintenance(“CAM”) charges and property taxes); and•Other store operating expenses primarily include utilities, repair and maintenance costs, liability and property insurance, CAM charges,property taxes, credit card processing fees, licenses, preopening expenses, store asset disposal gains and losses and all other costs directlyrelated to the operation of a store.The “Cost of food and beverage” and “Cost of entertainment and merchandise” mentioned above exclude any allocation of (a) store employeepayroll, related payroll taxes and benefit costs; (b) depreciation and amortization expense; (c) rent expense; and (d) other direct store operating expensesassociated with the operation of our Company-owned stores. We believe that presenting store-level labor costs, depreciation and amortization expense, rentexpense and other store operating expenses in the aggregate provides the most informative financial reporting presentation. Our rationale for excluding suchcosts is as follows:•our store employees are trained to sell and attend to both our dining and entertainment operations. We believe it would be difficult andpotentially misleading to allocate labor costs between “Cost of Food and beverage sales” and “Cost of Entertainment and merchandisesales”; and•while certain assets are individually dedicated to either our food service operations or game activities, we also have significant capitalinvestments in shared depreciating assets, such as leasehold improvements, point-of-31sale systems and showroom fixtures. Therefore, we believe it would be difficult and potentially misleading to allocate depreciation andamortization expense or rent expense between “Cost of Food and beverage sales” and “Cost of Entertainment and merchandise sales.”“Cost of food and beverage” and “Cost of entertainment and merchandise,” as a percentage of Company store sales, are influenced by both the costof products, as well as the overall mix of our Package Deals and coupon offerings. “Entertainment and merchandise sales” have higher margins than “Foodand beverage sales.”Advertising expense. Advertising expense includes production costs for television commercials, newspaper inserts, Internet advertising, coupons,media expenses for national and local advertising and consulting fees, partially offset by contributions from our franchisees.General and administrative expenses. General and administrative expenses represent all costs associated with operating our corporate office,including regional and district management and corporate personnel payroll and benefits, depreciation and amortization of corporate assets, back-officesupport systems and other administrative costs not directly related to the operation of our Company-owned stores.Asset impairments. Asset impairments represent non-cash charges for the estimated write down or write-off of the carrying amount of certain long-lived assets within our stores to their estimated fair value, which are incurred when a store’s operation is not expected to generate sufficient projected futurecash flows to recover the current net book value of the long-lived assets within the store. We believe our assumptions in calculating the fair value of our long-lived assets is similar to those used by other marketplace participants.Adjusted EBITDA. We define Adjusted EBITDA as earnings before interest, income taxes, depreciation and amortization adjusted to excludeunusual items and other adjustments required or permitted in calculating covenant compliance under the indenture governing our senior notes and/or ourSecured Credit Facilities (see discussion of our senior notes and Secured Credit Facilities under “Financial Condition, Liquidity and Capital Resources - DebtFinancing”). Adjusted EBITDA is a measure used by management to evaluate our performance. Adjusted EBITDA provides additional information aboutcertain trends, material non-cash items and unusual items that we do not expect to continue at the same level in the future, as well as other items.32Results of OperationsThe following table summarizes our principal sources of Total Company store sales expressed in dollars and as a percentage of Total Company storesales for the periods presented: For the 317 Day PeriodEnded For the 47 Day PeriodEnded Fiscal Year Ended December 28, 2014 (1) February 14, 2014 December 29, 2013 December 30, 2012 Successor Predecessor Predecessor Predecessor (in thousands, except percentages)Food and beverage sales $307,696 43.2% $50,897 44.8% $368,584 45.1% $372,948 46.7%Entertainment and merchandise sales 404,402 56.8% 62,659 55.2% 448,155 54.9% 425,989 53.3%Total Company store sales $712,098 100.0% $113,556 100.0% $816,739 100.0% $798,937 100.0% __________________(1)Company store sales for the 317 day period ended December 28, 2014 include sales from the acquired Peter Piper Pizza stores for the 73 day period from October 17, 2014through December 28, 2014. Total Food and beverage sales and Entertainment and merchandise sales from Peter Piper Pizza stores were $8.0 million and $2.5 million,respectively, for the Successor period since the PPP Acquisition.33 The following table summarizes our revenues and expenses expressed in dollars and as a percentage of Total revenues (except as otherwise noted)for the periods presented: For the 317 Day Period Ended For the 47 Day Period Ended Fiscal Year Ended December 28, 2014 (4) February 14, 2014 December 29, 2013 December 30, 2012 Successor Predecessor Predecessor Predecessor (in thousands, except percentages)Total Company store sales $712,098 99.1 % $113,556 99.4% 816,739 99.4% 798,937 99.4%Franchise fees and royalties 6,483 0.9 % 687 0.6% 4,982 0.6% 4,543 0.6%Total revenues 718,581 100.0 % 114,243 100.0% 821,721 100.0% 803,480 100.0%Company store operatingcosts: Cost of food andbeverage(1) 79,996 26.0 % 12,285 24.1% 90,363 24.5% 93,417 25.0%Cost of entertainment andmerchandise(2) 24,608 6.1 % 3,729 6.0% 29,775 6.6% 30,855 7.2%Total cost of food,beverage,entertainment andmerchandise(3) 104,604 14.7 % 16,014 14.1% 120,138 14.7% 124,272 15.6%Labor expenses(3) 200,855 28.2 % 31,998 28.2% 229,172 28.1% 223,605 28.0%Depreciation andamortization(3) 115,951 16.3 % 9,733 8.6% 78,167 9.6% 78,769 9.9%Rent expense(3) 76,698 10.8 % 12,365 10.9% 78,463 9.6% 75,312 9.4%Other store operatingexpenses(3) 119,896 16.8 % 15,760 13.9% 131,035 16.0% 126,855 15.9%Total Company storeoperating costs(3) 618,004 86.8 % 85,870 75.6% 636,975 78.0% 628,813 78.7%Other costs and expenses: Advertising expense 33,702 4.7 % 5,903 5.2% 41,217 5.0% 35,407 4.4%General and administrativeexpenses 49,969 7.0 % 7,963 7.0% 56,691 6.9% 53,437 6.7%Transaction and severancecosts 48,758 6.8 % 11,634 10.2% 316 —% — —%Asset impairments 407 0.1 % — —% 3,051 0.4% 6,752 0.8%Total operating costsand expenses 750,840 104.5 % 111,370 97.5% 738,250 89.8% 724,409 90.2%Operating income (loss) (32,259) (4.5)% 2,873 2.5% 83,471 10.2% 79,071 9.8%Interest expense 60,952 8.5 % 1,151 1.0% 7,453 0.9% 9,401 1.2%Income (loss) beforeincome taxes $(93,211) (13.0)% $1,722 1.5% $76,018 9.3% $69,670 8.7% __________________(1)Percent amount expressed as a percentage of Food and beverage sales.(2)Percent amount expressed as a percentage of Entertainment and merchandise sales.(3)Percent amount expressed as a percentage of Company store sales.(4)Results for the Successor period include the revenues and expenses for Peter Piper Pizza for the 73 day period from October 17, 2014 through December 28, 2014.Due to rounding, percentages presented in the table above may not sum to total. The percentage amounts for the components of Cost of food andbeverage and the Cost of entertainment and merchandise may not sum to total due to the fact34that Cost of food and beverage and Cost of entertainment and merchandise are expressed as a percentage of related Food and beverage sales andEntertainment and merchandise sales, as opposed to Total Company store sales.Successor Fiscal 2014 Period Compared to Predecessor Fiscal 2014 Period and Predecessor Fiscal 2013RevenuesCompany store sales were $712.1 million for the Successor fiscal 2014 period, compared to $113.6 million for the Predecessor fiscal 2014 periodand $816.7 million for Predecessor fiscal 2013. Company store sales in the Successor fiscal 2014 period reflect revenues from eleven additional Chuck E.Cheese’s branded stores opened, less revenues from seven stores closed since February 14, 2014, and store sales from Peter Piper Pizza branded stores of $10.5million. Total company store sales in the Successor fiscal 2014 period and Predecessor fiscal 2014 period reflect a 2.2% decrease in comparable store sales.Company Store Operating CostsThe cost of food, beverage, entertainment and merchandise, as a percentage of Total Company store sales, was 14.7% in the Successor fiscal 2014period, 14.1% in the Predecessor fiscal 2014 period, and 14.7% in Predecessor fiscal 2013. The decrease in the Predecessor fiscal 2014 period was attributableto our cost savings initiatives that were fully implemented in the second quarter of 2013, partially offset by commodity cost inflation during 2014.Labor expenses, as a percentage of Total Company store sales, were 28.2% in the Successor fiscal 2014 period, 28.2% in the Predecessor fiscal 2014period, and 28.1% in Predecessor fiscal 2013. Labor expenses remained relatively flat as a percentage of sales.Depreciation and amortization expense was $116.0 million in the Successor fiscal 2014 period, $9.7 million in the Predecessor fiscal 2014 periodand $78.2 million in Predecessor fiscal 2013. The increase in depreciation and amortization in the Successor fiscal 2014 period is primarily due to a higherbasis in our property, plant and equipment from the acquisition method of accounting as a result of the Merger.Rent expense was $76.7 million in the Successor fiscal 2014 period, $12.4 million in the Predecessor fiscal 2014 period and $78.5 million in Fiscal2013. As a result of the acquisition method of accounting related to the Merger, non-cash rent expense was $6.9 million in the Successor fiscal 2014 periodcompared to $(0.9) million in the Predecessor fiscal 2014 period and $1.3 million in Fiscal 2013. The increase in rent in the Successor fiscal 2014 period alsoreflects an increase in cash rent from new store development and expansions of existing stores.Advertising ExpensesAdvertising expenses were $33.7 million in the Successor fiscal 2014 period, $5.9 million in the Predecessor fiscal 2014 period, and $41.2 millionin Predecessor fiscal 2013. As a percentage of Total Company sales, advertising expenses were 4.7%, 5.2%, and 5.0%, respectively, in the Successor fiscal2014 period, Predecessor fiscal 2014 period and in Predecessor fiscal 2013, reflecting a reduction in digital brand advertising spend, a decrease in televisionproduction costs, partially offset by an increase in national television advertising.Transaction and Severance CostsTransaction and severance costs were $48.8 million for the Successor fiscal 2014 period and $11.6 million for the Predecessor fiscal 2014 period.The Transaction and severance costs in the Successor fiscal 2014 period include transaction costs of $42.5 million related to the Merger, the Sale Leasebackand the PPP Acquisition and employee benefits of $6.3 million related to the departure of our Chairman and Chief Executive Officer as a result of the Merger.The Transaction and severance costs in the Predecessor fiscal 2014 period include $11.1 million in accelerated stock-based compensation costs also relatedto the Merger. There were $0.3 million of Transaction and severance costs in Predecessor fiscal 2013.Asset ImpairmentsIn the Successor fiscal 2014 period, we recognized an asset impairment charge of $0.4 million primarily related to four stores. In Predecessor fiscal2013, we recognized an asset impairment charge of $3.1 million primarily related to seven stores, of which three stores were previously impaired. Wecontinue to operate all but one of these stores. The impairment charge was based on the determination that these stores were adversely impacted by variouseconomic factors in the markets in which they are located. Management determined that the estimated fair value of certain long-lived assets at these stores(determined from35discounted future projected operating cash flows of the stores over their remaining lease term) had declined below their carrying amount. For additionalinformation about these impairment charges, refer to Note 6. “Property and Equipment - Asset Impairments” in our Consolidated Financial Statementsincluded in Part II, Item 8. “Financial Statements and Supplementary Data.”Interest ExpenseInterest expense was $61.0 million in the Successor fiscal 2014 period, $1.2 million in the Predecessor fiscal 2014 period, and $7.5 million inPredecessor fiscal 2013. Interest expense in the Successor fiscal 2014 period reflects an increase in our level of debt compared to the Predecessor fiscal 2014and 2013 periods, as a result of debt issued to fund a portion of the Merger, as well as an increase in our weighted average effective interest rate. Interestexpense for the Successor fiscal 2014 period also includes amortization of debt issuance costs related to our Secured Credit Facilities and senior notes,amortization of our term loan facility original issue discount, commitment and other fees related to our Secured Credit Facilities and interest related to theSale Leaseback and capital leases. Our weighted average effective interest rate under our Secured Credit Facilities and senior notes, including the bridge loan,for the Successor fiscal 2014 period was 6.2%. Excluding the impact of $4.9 million of issuance costs and interim interest related to the bridge loan facility,our weighted average effective interest rate would have been 5.7% for the Successor fiscal 2014 period.Income TaxesOur effective income tax rate was 33.4% in the Successor fiscal 2014 period, 59.1% in the Predecessor fiscal 2014 period, and 37.1% in Predecessorfiscal 2013. Our effective income tax rate for the Successor fiscal 2014 period differs from the statutory rate primarily due to the unfavorable impact of non-deductible costs related to the Merger and acquisition of PPP partially offset by the favorable impact of a net decrease in our liability for uncertain taxpositions (primarily resulting from the expiration of statutes of limitations). Our effective income tax rate for the Predecessor fiscal 2014 period differs fromthe statutory rate due to the unfavorable impact of non-deductible costs related to the Merger, a net increase in our liability for uncertain tax positions, anincrease in income tax expense resulting from certain state income tax credits carried forward which we estimate will expire unused, partially offset by federalemployment related tax credits. The Predecessor fiscal 2013 effective tax rate differs from the statutory rate primarily as a result of federal Work OpportunityTax Credits which were greater in amount for the year due to the retroactive reinstatement of the credit program enacted January 2, 2013, as well as thefavorable impact of a net decrease in our liability for uncertain tax positions (primarily resulting from the settlement of positions with tax authorities and theexpiration of statutes of limitations).Predecessor Fiscal Year 2013 Compared to Predecessor Fiscal Year 2012RevenuesCompany store sales increased $17.8 million, or 2.2%, to $816.7 million in 2013 compared to $798.9 million in 2012. The increase in Companystore sales is primarily due to a 0.4% increase in comparable store sales and additional revenues from 13 new stores opened, less revenues from five closedstores, since the end of 2012.Our Company store sales mix consisted of food and beverage sales totaling 45.1% and entertainment and merchandise sales totaling 54.9% in 2013compared to 46.7% and 53.3%, respectively, in 2012. We believe that this shift in our sales mix is primarily due to the following: (a) repricing of certaincomponents of our offerings; (b) changing the mix of items included in Packaged Deals and coupons; and (c) modification of our various token offers. Thesechanges were part of our continued effort to rebalance our menu pricing between food and games. We believe that the rebalancing of our menu pricing andour ongoing investment in our games has resulted in more of our guests’ average check being allocated to games.Company Store Operating CostsOverall, the Cost of food, beverage, entertainment and merchandise, as a percentage of Total Company store sales, decreased 90 basis points to14.7% in 2013 from 15.6% in 2012. We believe the decrease was primarily attributable to the changes in our pricing strategy that were fully implemented inthe fourth quarter of 2012 and our cost savings initiatives that were fully implemented in the second quarter of 2013, partially offset by commodity costinflation.Labor expenses increased $5.6 million to $229.2 million in 2013 compared to $223.6 million in 2012, primarily related to higher sales andperformance bonuses, partially offset by a decrease in workers’ compensation and health insurance costs during 2013.Advertising ExpensesAdvertising expenses increased $5.8 million to $41.2 million in 2013 from $35.4 million in 2012 as a result of increased expenditures for televisionadvertising and our digital advertising campaign in 2013.General and Administrative ExpensesGeneral and administrative expenses increased $3.6 million to $57.0 million in 2013 from $53.4 million in 2012, primarily due to higher corporatecompensation costs, including operational management bonuses, and increases in certain professional fees related to the modernization of variousinformation technology platforms.Asset ImpairmentsIn 2013, we recognized an asset impairment charge of $3.1 million primarily related to seven stores, of which three stores were previously impaired.In 2012, we recognized an asset impairment charge of $6.8 million for 18 stores, of which seven were previously impaired. We continue to operate all but twoof these impaired stores. The impairment charge was based on the determination that these stores were adversely impacted by various economic factors in themarkets in which they are located. Management determined that the estimated fair value of certain long-lived assets at these stores (determined fromdiscounted future projected operating cash flows of the stores over their remaining lease term) had declined below their carrying amount. As a result, werecorded an impairment charge to write down the carrying amount of certain property and equipment at these stores to the estimated fair value. For additionalinformation about these impairment charges, refer to Note 4. “Property and Equipment - Asset Impairments” in our Consolidated Financial Statementsincluded in Part II, Item 8. “Financial Statements and Supplementary Data.”Interest ExpenseInterest expense decreased $1.9 million to $7.5 million in 2013 from $9.4 million in 2012, primarily as a result of favorable settlements and theexpiration of statutes of limitations relating to uncertain tax positions and a decrease in the average outstanding debt balance on our revolving credit facility.Income TaxesOur effective income tax rate decreased to 37.1% in 2013 as compared to 37.4% in 2012. The decrease primarily related to an increase in federalWork Opportunity Tax Credits related to our 2012 fiscal year, which was accounted for in the first quarter of 2013 due to the retroactive reinstatement of thecredit program enacted January 2, 2013. In addition, the 2013, and to a greater extent 2012, effective tax rates were favorably impacted by the recognition ofuncertain tax positions resulting from audit settlements and the expirations of statutes of limitations, net of increases related to uncertain tax positions takenin the current and prior years.Financial Condition, Liquidity and Capital ResourcesOverview of LiquidityWe finance our business activities through cash flows provided by our operations.The primary components of working capital are as follows:•our store customers pay for their purchases in cash or credit cards at the time of the sale and the cash from these sales is typically receivedbefore our related accounts payable to suppliers and employee payroll becomes due;•frequent inventory turnover results in a limited investment required in inventories; and•our accounts payable are generally due within five to 30 days.As a result of these factors, our requirement for working capital is not significant and we are able to operate with a net working capital deficit(current liabilities in excess of current assets).The following tables present summarized consolidated financial information that we believe is helpful in evaluating our liquidity and capitalresources as of the periods presented:36 For the 317 DayPeriod Ended For the 47 DayPeriod Ended Fiscal Year Ended December 28, 2014 February 14, 2014 December 29, 2013December 30, 2012 Successor Predecessor PredecessorPredecessor (in thousands)Net cash provided by operating activities $48,091 $22,314 $138,664$137,092Net cash used in investing activities (1,124,285) (9,659) (70,942)(98,903)Net cash provided by (used in) financing activities 1,168,448 (13,844) (66,031)(37,285)Effect of foreign exchange rate changes on cash (444) (313) (641)59Change in cash and cash equivalents $91,810 $(1,502) $1,050$963Interest paid $41,801 $938 $7,798$9,419Income taxes paid (refunded), net $24,424 $(79) $31,614$27,598 December 28, 2014 December 29, 2013 Successor Predecessor (in thousands)Cash and cash equivalents $110,994 $20,686Term loan facility, net of unamortized original issue discount $752,873 $—Senior notes $255,000 $—Note payable - Peter Piper Pizza $113 $—Predecessor Facility $— $361,500Available unused commitments under revolving credit facility $139,100 $127,600Funds generated by our operating activities and available cash and cash equivalents continue to be our primary sources of liquidity. We believefunds generated from our expected results of operations and available cash and cash equivalents will be sufficient to finance our strategic plan and capitalinitiatives for the next twelve months. Our revolving credit facility is also available for additional working capital needs and investment opportunities.However, in the event of a material decline in our sales trends or operating margins, there can be no assurance that we will generate sufficient cash flows at orabove our current levels. Our ability to access our revolving credit facility is subject to our compliance with the terms and conditions of the credit agreementgoverning such facility, including our compliance with certain prescribed covenants, as more fully described below. Our primary uses for cash provided byoperating activities relate to funding our ongoing business activities, planned capital expenditures and servicing our debt.Total cash requirements of the Merger of approximately $1.4 billion were used to (a) purchase common stock and unvested restricted shares issuedto our employees and non-employee directors; (b) repay and terminate the Predecessor’s revolving credit facility (the “Predecessor Facility”); and (c) paycertain fees, transaction costs and expenses related to the Merger. These financing requirements were funded by (a) $350.0 million of equity contributionsfrom the Apollo Funds; (b) $248.5 million of borrowings under a new bridge loan facility, which were later repaid using the proceeds from our issuance of$255.0 million of senior notes; and (c) $760.0 million of borrowings under a term loan facility. In addition, we also entered into a $150.0 million revolvingcredit facility in connection with the Acquisition, but it was undrawn at closing.Our cash and cash equivalents totaled $111.0 million and $20.7 million as of December 28, 2014 and December 29, 2013, respectively. The cashand cash equivalents balance at December 28, 2014, includes some of the remaining proceeds from the Sale Leaseback that were not used to source the PPPAcquisition. Cash and cash equivalents as of December 28, 2014 and December 29, 2013 includes $7.3 million and $8.2 million, respectively, ofundistributed income from our Canadian subsidiary that we consider to be permanently invested.Our strategic plan does not require that we enter into any material development or contractual purchase obligations. Therefore, we have theflexibility necessary to manage our liquidity by promptly deferring or curtailing any planned capital spending. In 2015, our planned capital spendingincludes new store development, existing store improvements, improvements to our various information technologies platforms and other capital initiatives.37Sources and Uses of Cash - Successor Fiscal 2014 Period Compared to Predecessor Fiscal 2014 Period and Predecessor Fiscal 2013Net cash provided by operating activities was $48.1 million in the Successor fiscal 2014 period, $22.3 million in the Predecessor fiscal 2014 periodand $138.7 million in Predecessor fiscal 2013. The Successor fiscal 2014 period reflects the impact of transaction and severance costs that were expensed inconnection with the Merger and the PPP Acquisition, as well as an increase in interest expense related to the new debt issued in connection with the Merger.The net cash provided by operating activities for the Predecessor fiscal 2014 period reflects the impact of transaction costs incurred in connection with theMerger.Net cash used in investing activities was $1,124.3 million in the Successor fiscal 2014 period, relates primarily to consideration paid in connectionwith the Merger and the PPP Acquisition of $946.9 million and $113.1 million, respectively. Net cash used in investing activities in the Predecessor fiscal2014 period and in Predecessor fiscal 2013 relates primarily to store related capital expenditures.Net cash provided by financing activities was $1,168.4 million in the Successor fiscal 2014 period, relating primarily to the proceeds from theissuance of debt in connection with the Merger totaling $1,011.2 million, the Apollo Funds’ equity contribution of $350 million, also in connection with theMerger, and proceeds from the Sale Leaseback of $183.7 million, partially offset by the repayment of the Predecessor Facility of $348.0 million. The net cashused in financing activities in the Predecessor fiscal 2014 period primarily relates to repayments on the Company’s revolving credit facility, whilePredecessor fiscal 2013 includes repayments on the revolving credit facility of $28.0 million, dividends paid of $17.1 million and common stock repurchasesof $18.1 million.Sources and Uses of Cash - Predecessor Fiscal 2013 Compared to Predecessor Fiscal 2012Net cash provided by operating activities was relatively flat at $138.7 million in 2013 compared to $137.1 million in 2012.During 2013 and 2012, we benefited from federal bonus tax depreciation for qualifying capital additions and the federal Work Opportunity TaxCredit, which both expired at the end of 2013.Net cash used in investing activities decreased $28.0 million to $70.9 million in 2013 from $98.9 million in 2012. The decrease primarily related toa reduction in the number of store expansions and other capital initiatives completed, as well as recognizing cash proceeds from the sale of a property.Net cash used in financing activities increased $28.7 million to $66.0 million in 2013 from $37.3 million in 2012. The increase primarily related tonet repayments of $28.0 million on our revolving credit facility in 2013 compared to net repayments of $0.1 million on our revolving credit facility in 2012and a $3.8 million increase in repurchases of our common stock, partially offset by a $2.7 million decrease in dividend payments.Debt FinancingPredecessor FacilityIn connection with the Merger on February 14, 2014, we repaid the total outstanding borrowings of $348.0 million under the Predecessor Facility, aswell as all incurred and unpaid interest on our Predecessor Facility. The debt issuance costs related to the Predecessor Facility were removed from ourConsolidated Balance Sheet through acquisition accounting.Secured Credit FacilitiesIn connection with the Merger, on February 14, 2014, we entered into new senior secured credit facilities (“Secured Credit Facilities”), whichinclude a $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 revolvingcredit facility with a 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”). Upon the consummation of the Acquisition, we had no borrowings outstanding under the revolving credit facility and $11.1million of letters of credit issued but undrawn under the facility. As of December 28, 2014, we had no borrowings outstanding under the revolving creditfacility and $10.9 million of letters of credit issued but undrawn under the facility.In addition, we may request one or more incremental term loan facilities and/or increase commitments under our revolving credit facility in anaggregate amount of up to the sum of (x) $200.0 million plus (y) such additional amount as long as, (i) in the case of loans under additional credit facilitiesthat rank equally and without preference with the liens on the collateral securing the Secured Credit Facilities, our consolidated net first lien senior securedleverage 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 collateralsecuring the Secured Credit Facilities, our consolidated total net secured leverage ratio would be no greater than 5.25 to 1.00, subject to certain conditionsand receipt of commitments by existing or additional lenders.38All borrowings under our revolving credit facility are subject to the satisfaction of customary conditions, including the absence of a default and theaccuracy of representations and warranties.We received proceeds on the term loan facility of $756.2 million, net of original issue discount of $3.8 million, which were used to fund a portion ofthe Acquisition. We paid $17.8 million and $3.4 million in debt issuance costs related to the term loan facility and revolving credit facility, respectively,which we capitalized in “Deferred financing costs, net” on our Consolidated Balance Sheets. The original issue discount and deferred financing costs areamortized over the lives of the facilities and are included in “Interest expense” on our Consolidated Statements of Earnings.Borrowings under the Secured Credit Facilities bear interest at a rate equal to, at our option, either (a) a London Interbank Offered Rate (“LIBOR”)determined by reference to the costs of funds for Eurodollar deposits for the interest period relevant to such borrowings, adjusted for certain additional costs,subject to a 1.00% floor in the case of term loans or (b) a base rate determined by reference to the highest of (i) the federal funds effective rate plus 0.50%; (ii)the prime rate of Deutsche Bank AG New York Branch; and (iii) the one-month adjusted LIBOR plus 1.00%; in each case plus an applicable margin. Theinitial applicable margin for borrowings is 3.25% with respect to LIBOR borrowings and 2.25% with respect to base rate borrowings under the term loanfacility and base rate borrowings and swingline borrowings under the revolving credit facility. The applicable margin for borrowings under the term loanfacility is subject to one step down based on our net first lien senior secured leverage ratio, and the applicable margin for borrowings under the revolvingcredit facility is subject to two step-downs based on our net first lien senior secured leverage ratio. During the 317 day period ended December 28, 2014, thefederal funds rate ranged from 0.06% to 0.13%, the prime rate was 3.25% and the one-month LIBOR ranged from 0.15% to 0.17%.In addition to paying interest on outstanding principal under the Secured Credit Facilities, we are required to pay acommitment fee equal to 0.50% per annum to the lenders under the revolving credit facility in respect of the unutilizedcommitments thereunder. The applicable commitment fee under the revolving credit facility is subject to one step-down basedon our first lien senior secured leverage ratio. We are also required to pay customary agency fees, as well as letter of creditparticipation fees computed at a rate per annum equal to the applicable margin for LIBOR rate borrowings on the dollarequivalent of the daily stated amount of outstanding letters of credit, plus such letter of credit issuer’s customary documentaryand processing fees and charges and a fronting fee computed at a rate equal to 0.125% per annum on the daily stated amount ofeach letter of credit.During the quarter ended September 28, 2014, we achieved a first lien senior secured leverage ratio of less than 3.25 to 1.00, and as a result, theapplicable margin under the term loan facility was stepped down from 3.25% to 3.00% with respect to LIBOR borrowings and stepped down from 2.25% to2.00% with respect to base rate borrowings, and the commitment fee’s applicable margin in relation to our revolving credit facility which we currently haveunutilized (with the exception of our outstanding letters of credit issued but undrawn) was stepped down from 0.50% to 0.375%. These step-downs tookeffect in the middle of November 2014.The weighted average effective interest rate incurred on our borrowings under our Secured Credit Facilities was 4.8% for the 317 day period endedDecember 28, 2014, which includes amortization of debt issuance costs related to our Secured Credit Facilities, amortization of our term loan facility originalissue discount and commitment and other fees related to our Secured Credit Facilities. The weighted average effective interest rates incurred on ourborrowings under our Predecessor Facility for the 47 day period ended February 14, 2014, and the twelve months ended December 29, 2013 were 1.6% and1.7%, respectively.The Secured Credit Facilities require scheduled quarterly payments on the term loan equal to 0.25% of the original principal amount of the termloan from July 2014 to November 2021, with the balance paid at maturity. In addition, the Secured Credit Facilities include customary mandatoryprepayment requirements based on certain events, such as asset sales, debt issuances and defined levels of excess cash flow.We may voluntarily repay outstanding loans under the Secured Credit Facilities at any time, without prepayment premium or penalty, except inconnection with a repricing event as described below, subject to customary “breakage” costs with respect to LIBOR rate loans. Any refinancing through theissuance or repricing amendment of any debt that results in a repricing event applicable to the term loan facility borrowings resulting in a lower yieldoccurring at any time during the first six months after the closing date will be accompanied by a 1.00% prepayment premium or fee, as applicable.Our revolving credit facility includes a springing financial maintenance covenant that requires our net first lien senior secured leverage ratio not toexceed 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 SeniorCredit Facilities). The covenant will be tested quarterly when the 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. As of December 28, 2014, theborrowings under the revolving credit facility were less than 30% of the outstanding commitments; therefore, the covenant was not in effect.39The Secured Credit Facilities also contain customary affirmative covenants and events of default, and the negativecovenants limit our ability to, among other things: incur additional debt or issue certain preferred shares; create liens on certainassets; make certain loans or investments (including acquisitions); pay dividends on or make distributions in respect of ourcapital stock or make other restricted payments; consolidate, merge, sell or otherwise dispose of all or substantially all of ourassets; sell assets; enter into certain transactions with our affiliates; enter into sale-leaseback transactions; change our lines ofbusiness; restrict dividends from our subsidiaries or restrict liens; change our fiscal year; and modify the terms of certain debtor organizational agreements.All obligations under the Secured Credit Facilities are unconditionally guaranteed by Parent on a limited-recourse basis and each of our existing andfuture direct and indirect material, wholly-owned domestic subsidiaries, subject to certain exceptions. The obligations are secured by a pledge of our capitalstock and substantially all of our assets and those of each subsidiary guarantor, including capital stock of the subsidiary guarantors and 65% of the capitalstock of the first-tier foreign subsidiaries that are not subsidiary guarantors, in each case subject to exceptions. Such security interests will consist of a first-priority lien with respect to the collateral.Senior Unsecured DebtAlso in connection with the Merger on February 14, 2014, we borrowed $248.5 million under a bridge loan facility (the “bridge loan facility”) andused the proceeds to fund a portion of the Acquisition. We incurred $4.7 million of financing costs and $0.2 million of interest related to the bridge loanfacility, which are included in “Interest expense” in our Consolidated Statements of Earnings for the 317 day period ended December 28, 2014.On February 19, 2014, we issued $255.0 million aggregate principal amount of 8.000% Senior Notes due 2022 (the “senior notes”) in a privateoffering. The senior notes bear interest at a rate of 8.000% per year and mature on February 15, 2022. On or after February 15, 2017, we may redeem some orall of the senior notes at certain redemption prices set forth in the indenture governing the senior notes (the “indenture”). Prior to February 15, 2017, we mayredeem (i) up to 40% of the original aggregate principal amount of the senior notes with the net cash proceeds of one or more equity offerings at a price equalto 108% of the principal amount thereof, plus accrued and unpaid interest, or (ii) some or all of the notes at a price equal to 100% of the principal amountthereof, plus accrued and unpaid interest, plus the applicable “make-whole” premium set forth in the indenture.We paid $6.4 million in debt issuance costs related to the senior notes, which we capitalized in “Deferred financing costs, net” on our ConsolidatedBalance Sheets. The deferred financing costs are amortized over the life of the senior notes and are included in “Interest expense” on our ConsolidatedStatements of Earnings.On October 14, 2014, we filed a preliminary prospectus under a Registration Statement on Form S-4 to offer to exchange $255.0 million of registered8.000% senior notes due 2022 and certain related guarantees (the “exchange notes”) for a like aggregate amount of our outstanding senior notes and certainrelated guarantees. The Registration Statement became effective on October 27, 2014, at which time we filed the final prospectus. The exchange offer beganon October 28, 2014 and expired on December 2, 2014, at which time all the conditions to the exchange offer were satisfied, and we exchanged all of oursenior notes that were validly tendered and not withdrawn for the exchange notes.The form and terms of the exchange notes are the same as the forms and terms of the initial senior notes except that the issuance of the exchangenotes is registered under the Securities Act, the exchange notes will not bear legends restricting their transfer and they will not be entitled to registrationrights under our registration rights agreement. The exchange notes will evidence the same debt as the initial notes, and both the initial senior notes and theexchange notes are governed by the same indenture. We refer to the senior notes and the exchange notes collectively as the “senior notes.”Our obligations under the senior notes are fully and unconditionally guaranteed, jointly and severally, by our present and future direct and indirectwholly-owned material domestic subsidiaries that guarantee our Secured Credit Facilities.The indenture contains restrictive covenants that limit our ability to, among other things: incur additional debt or issue certain preferred shares;create liens on certain assets; make certain loans or investments (including acquisitions); pay dividends on or make distributions in respect of our capitalstock or make other restricted payments; consolidate, merge, sell or otherwise dispose of all or substantially all of our assets; sell assets; enter into certaintransactions with our affiliates; and restrict dividends from our subsidiaries.Capital ExpendituresWe intend to continue to focus our future capital expenditures on reinvestment into our existing Company-owned Chuck E. Cheese’s and PeterPiper Pizza branded stores through various planned capital initiatives and the development or acquisition of additional Company-owned stores. During2014, we completed 219 game enhancements, eight major remodels and three store expansions, and we opened 11 new domestic Company-owned Chuck E.Cheese’s stores, including two40relocated stores and one acquisition from a franchisee. We have funded and expect to continue to fund our capital expenditures through existing cash flowsfrom operations. Capital expenditures in 2014 totaled approximately $74.4 million.The following table reconciles the approximate total capital spend by initiative to our Consolidated Statements of Cash Flows for the periodspresented: 317 Days Ended 47 Days Ended Twelve Months Ended December 28, 2014 February 14, 2014 December 29,2013 December 30,2012 Successor Predecessor Predecessor Predecessor (in thousands)Growth capital spend (1) $34,740 $5,102 $48,175 $66,980Maintenance capital spend (2) $29,947 $4,608 $25,910 $32,509Total Capital Spend (3) 64,687 9,710 74,085 99,489__________________(1) Growth capital spend includes major remodels, store expansions, major attractions and new store development, including relocations and franchiseacquisitions.(2) Maintenance capital spend includes game enhancements, general store capital expenditures and corporate capital expenditures.We currently estimate our capital expenditures in 2015 will total $95 million to $105 million. These capital expenditures consist of the following:(i) approximately $30 million for maintenance capital which includes games enhancements and general store maintenance capital expenditures; (ii)approximately $18 million for investments in one-time information technology initiatives, which include adding Wi-Fi to all of our stores, enhancing ourbirthday reservation system, and introducing new labor and inventory management systems; and (iii) approximately $47 million to $57 million for variousgrowth initiatives. We currently expect to open five to 10 new Company-owned Chuck E. Cheese’s and Peter Piper Pizza stores, relocate two Company-owned stores and expand two Company-owned stores. In addition to store openings, relocations and expansions, we expect to increase the number of storesundergoing major remodels and receiving major attractions. We are increasing the number of store remodel projects as part of an effort to re-launch Chuck E.Cheese’s to an entire regional market. We expect to fund our capital expenditures through cash flows from operations and cash on the balance sheet.41Off-Balance Sheet Arrangements and Contractual ObligationsAs of December 28, 2014, we had no off-balance sheet financing arrangements as described in Regulation S-K Item 303(a)(4)(ii).The following table summarizes our contractual obligations as of December 28, 2014: Payments Due by Period Total Less than1 Year 1-3Years 4-5Years More than5 Years (in thousands)Operating leases (1)$1,059,636 $94,748 $181,853 $166,340 $616,695Capital leases34,079 2,201 4,386 4,564 22,928Purchase obligations (2)46,069 42,171 948 2,950 —Secured credit facilities756,200 9,500 15,200 13,300 718,200Senior notes255,000 — — — 255,000Note payable - Peter Piper Pizza113 45 68 — —Interest obligations (3)362,644 62,785 107,752 97,544 94,563Sale leaseback obligations303,726 12,759 26,288 27,350 237,329Uncertain tax positions (4)172 172 — — —$2,817,639 $224,381 $336,495 $312,048 $1,944,715 __________________(1)Includes the initial non-cancelable term plus renewal option periods provided for in the lease that can be reasonably assured but excludes contingent rent obligations andobligations to pay property taxes, insurance and maintenance on the leased assets.(2)A “purchase obligation” is defined as an agreement to purchase goods or services that is enforceable and legally binding on us and that specifies 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 purchaseobligations primarily consist of obligations for the purchase of merchandise and entertainment inventory, obligations under fixed price purchase agreements and contractswith “spot” market prices primarily relating to food and beverage products, obligations for the purchase of commercial airtime, and obligations associated with themodernization of various information technology platforms. The above purchase obligations exclude agreements that are cancelable without significant penalty.(3)Interest obligations represent an estimate of future interest payments under our Secured Credit Facilities, senior notes, and Peter Piper Pizza note payable. We calculated theestimate based on the terms of the Secured Credit Facilities, senior notes, and note payable. Our estimate uses interest rates in effect during the 317 day period endedDecember 28, 2014 and assumes we will not have any amounts drawn on our revolving credit facility.(4)Due to the uncertainty related to the settlement of uncertain tax positions, only the current portion of the liability for unrecognized tax benefits has been provided in the tableabove. The non-current portion of $1.7 million is excluded from the table above.As of December 28, 2014, capital expenditures totaling $2.4 million were outstanding and included in accounts payable. These amounts areexpected to be paid in less than one year.The total estimate of accrued liabilities for our self-insurance programs was $18.7 million as of December 28, 2014. We estimate that $6.5 million ofthese liabilities will be paid in fiscal 2014 and the remainder paid in fiscal 2015 and beyond. Due to the nature of the underlying liabilities and the extendedperiod of time often experienced in resolving insurance claims, we cannot make reliable estimates of the timing of cash payments to be made in the future forour obligations related to our insurance liabilities. Therefore, no amounts for such liabilities have been included in the table above.As of December 28, 2014, there were $10.9 million of letters of credit issued but undrawn under our revolving credit facility. We utilize standbyletters of credit primarily for our self-insurance programs. These letters of credit do not represent additional obligations of the Company since the underlyingliabilities are already recorded in accrued liabilities. However, if we were unable to pay insurance claims when due, our insurance carrier could make demandfor payment pursuant to these letters of credit.In addition, see further discussion of our indebtedness and future debt obligations above under “Financial Condition, Liquidity and CapitalResources - Debt Financing.” As of December 28, 2014, there have been no other material changes to our contractual obligations since December 29, 2013.We enter into various purchase agreements in the ordinary course of business and have fixed price agreements and contracts with “spot” marketprices primarily relating to food and beverage products. Other than the purchase obligations42included in the above table, we do not have any material contracts (either individually or in the aggregate) in place committing us to a minimum or fixedlevel of purchases or that are cancelable subject to significant penalty.InflationOur cost of operations, including but not limited to labor, food products, supplies, utilities, financing and rental costs, can be significantly affectedby inflationary factors.Critical Accounting Policies and EstimatesOur Consolidated Financial Statements are prepared in accordance with U.S. GAAP, which requires us to make estimates and assumptions that affectthe reported amount of our assets and liabilities at the date of our Consolidated Financial Statements, the reported amount of revenues and expenses duringthe reporting period and the related disclosures of contingent assets and liabilities. The use of estimates is pervasive throughout our Consolidated FinancialStatements and is affected by management judgment and uncertainties. Our estimates, assumptions and judgments are based on historical experience, currentmarket trends and other factors that we believe to be relevant and reasonable at the time our Consolidated Financial Statements were prepared. Wecontinually evaluate the information used to make these estimates as our business and the economic environment change. Actual results could differmaterially from these estimates under different assumptions or conditions.The significant accounting policies used in the preparation of our Consolidated Financial Statements are described in Note 1. “Description ofBusiness and Summary of Significant Accounting Policies” included in Part II, Item 8. “Financial Statements and Supplementary Data.” We consider anaccounting policy or estimate to be critical if it requires difficult, subjective or complex judgments and is material to the portrayal of our consolidatedfinancial condition, changes in financial condition or results of operations. The selection, application and disclosure of the critical accounting policies andestimates have been reviewed by the Audit Committee of our Board of Directors. Our accounting policies and estimates that our management considers mostcritical are as follows:Business CombinationsThe Company has accounted for the Merger and the Peter Piper Pizza acquisition as a business combination using the acquisition method ofaccounting, whereby the purchase price is allocated to tangible and intangible assets acquired and liabilities assumed, based on their estimated fair marketvalues. Fair value measurements are applied based on assumptions that market participants would use in the pricing of the asset or liability. In connectionwith purchase price allocations, management has made estimates of the fair values of the long-lived and intangible assets based upon assumptions that arereasonable related to discount rates and asset lives utilizing currently available information, and in some cases, preliminary valuation results fromindependent valuation specialists. The Company also recorded purchase accounting adjustments to the carrying value of property and equipment andintangible assets, including the “Chuck E. Cheese’s” and “Peter Piper Pizza” tradenames, franchise agreements and favorable leases. The Company has alsorevalued its rent related liabilities. The purchase price allocation could change in subsequent periods, up to one year from the Merger date. The adjustments,if any, arising out of the finalization of the allocation of the purchase price will not impact cash flow, including cash interest and rent. However, suchadjustments could result in material changes to our Consolidated Financial Statements.Goodwill and Other Intangible AssetsThe excess of the purchase price over fair value of net identifiable assets and liabilities of an acquired business (“goodwill”), trademarks, tradenames and other indefinite-lived intangible assets are not amortized, but rather tested quantitatively and qualitatively for impairment, at least annually, andwhenever events or circumstances indicate that impairment may have occurred. Events or circumstances that could trigger an impairment review include, butare not limited to, a significant adverse change in legal factors or in the business climate, an adverse action or assessment by a regulator, significant changesin competition, a loss of key personnel, significant changes in our use of the acquired assets or the strategy for our overall business, significant negativeindustry or economic trends, or significant underperformance relative to expected historical or projected future results of operations. We determined that notriggering events occurred during the 317 day Successor period ended December 28, 2014.Recoverability of the carrying value of goodwill is measured at the reporting unit level. In performing a quantitative analysis, we measure therecoverability of goodwill for our reporting units using a discounted cash flow model incorporating discount rates commensurate with the risks involved,which is classified as a Level 3 fair value measurement. The key assumptions used in the discounted cash flow valuation model include discount rates,growth rates, tax rates, cash flow43projections and terminal value rates. Discount rates, growth rates and cash flow projections are the most sensitive and susceptible to change as they requiresignificant management judgment.We test indefinite-lived intangible assets utilizing the relief from royalty method to determine the estimated fair value for each indefinite-livedintangible asset, which is classified as a Level 3 fair value measurement. The relief from royalty method estimates our theoretical royalty savings fromownership of the intangible asset. Key assumptions used in this model include discount rates, royalty rates, growth rates, tax rates, sales projections andterminal value rates. Discount rates, royalty rates, growth rates and sales projections are the assumptions most sensitive and susceptible to change as theyrequire significant management judgment. Discount rates used are similar to the rates estimated by the weighted average cost of capital considering anydifferences in company-specific risk factors.Estimation of ReservesThe amount of liability we record for claims related to insurance and tax reserves requires us to make judgments about the amount of expenses thatwill ultimately be incurred. We use history and experience, as well as other specific circumstances surrounding these contingencies, in evaluating theamount of liability that should be recorded. As additional information becomes available, we assess the potential liability related to various claims andrevise our estimates as appropriate. These revisions could materially impact our consolidated results of operations, financial position or liquidity.Self-Insurance reserves. We are self-insured for certain losses related to workers’ compensation, general liability, property, and company-sponsoredemployee health plans. Liabilities associated with risks retained by the Company are estimated primarily using historical claims experience, current claimsdata, demographic and severity factors, other factors deemed relevant by us, as well as information provided by independent third-party actuaries. To limitour exposure for certain losses, we purchase stop-loss or high-deductible insurance coverage through third-party insurers. Our stop-loss limit or deductiblesfor workers’ compensation, general liability, property, and company-sponsored employee health plans, generally range from $0.2 million to $0.5 million peroccurrence. As of December 28, 2014, our total estimate of accrued liabilities for our self-insurance and high deductible plan programs was $18.7 million. Weestimate $6.5 million of these liabilities will be paid in fiscal 2015 and the remainder paid in fiscal 2016 and beyond. If actual claims trends or other factorsdiffer from our estimates, our financial results could be significantly impacted.Income tax reserves. We are subject to audits from multiple domestic and foreign tax authorities. We maintain reserves for federal, state and foreignincome taxes when we believe a position may not be fully sustained upon review by taxing authorities. Although we believe that our tax positions are fullysupported by the applicable tax laws and regulations, there are matters for which the ultimate outcome is uncertain. We recognize the benefit from anuncertain tax position in our Consolidated Financial Statements when the position is more-likely-than-not (a greater than 50 percent chance of beingsustained). The amount recognized is measured using a probability weighted approach and is the largest amount of benefit that is greater than 50 percentlikelihood of being realized upon settlement or ultimate resolution with the taxing authority. We routinely assess the adequacy of the estimated liability forunrecognized tax benefits, which may be affected by changing interpretations of laws, rulings by tax authorities and administrative policies, certain changesand/or developments with respect to audits and expirations of the statute of limitations. Depending on the nature of the tax issue, the ultimate resolution ofan uncertain tax position may not be known for a number of years; therefore, the estimated reserve balances could be included on our Consolidated BalanceSheets for multiple years. To the extent that new information becomes available that causes us to change our judgment regarding the adequacy of a reservebalance, such a change will affect our income tax expense in the period in which the determination is made and the reserve is adjusted. Significant judgmentis required to estimate our provision for income taxes and liability for unrecognized tax benefits. At December 28, 2014, the reserve for uncertain taxpositions (unrecognized tax benefits) was $1.9 million and the related interest and penalties was $1.5 million. Although we believe our approach isappropriate, there can be no assurance that the final outcome resulting from a tax authority’s review will not be materially different than the amountsreflected in our estimated tax provision and tax reserves. If the results of any audit materially differ from the liabilities we have established for taxes, therewould be a corresponding impact to our Consolidated Financial Statements, including the liability for unrecognized tax benefits, current tax provision,effective tax rate, net after tax earnings and cash flows, in the period of resolution.Impairment of Long-Lived AssetsWe review our property and equipment for indicators of impairment on an ongoing basis at the lowest level of cash flows available, which is on astore-by-store basis, to assess if the carrying amount may not be recoverable. Such events or changes may include a significant change in the businessclimate in a particular market area (for example, due to economic downturn or natural disaster), historical negative cash flows or plans to dispose of or sellthe property and equipment before the end of its previously estimated useful life. If an event or change in circumstances occurs, we estimate the future cashflows expected to result from the use of the property and equipment and its eventual disposition. If the sum of the expected future cash flows, undiscountedand without interest, is less than the asset carrying amount (an indication that the carrying amount44may not be recoverable), we may be required to recognize an impairment loss. We estimate the fair value of a store’s property and equipment by discountingthe expected future cash flows of the store over its remaining lease term using a weighted average cost of capital commensurate with the risk.The following estimates and assumptions used in the discounted cash flow analysis impact the fair value of a store’s long-lived assets:•Discount rate based on our weighted average cost of capital and the risk-free rate of return;•Sales growth rates and cash flow margins over the expected remaining lease terms;•Strategic plans, including projected capital spending and intent to exercise renewal options, for the store;•Salvage values; and•Other risks and qualitative factors specific to the asset or conditions in the market in which the asset islocated at the time the assessment was made.During 2014, the average discount rate, average sales growth rate and average cash flow margin rate used were 8%, 0% and 0%, respectively. Webelieve our assumptions in calculating the fair value of our long-lived assets are similar to those used by other marketplace participants. If actual results arenot consistent with our estimates and assumptions, we may be exposed to additional impairment charges, which could be material to our ConsolidatedStatements of Earnings.Accounting for LeasesThe majority of our stores are leased. The terms of our store leases vary in length from lease to lease, although a typical lease provides for an initialprimary term of 10 years with two additional five year options to renew. We estimate the expected term of a lease by assuming the exercise of renewaloptions, in addition to the initial non-cancelable lease term, if the renewal is reasonably assured. Generally, reasonably assured relates to our contractualright to renew and the existence of an economic penalty that would preclude the abandonment of the lease at the end of the initial non-cancelable leaseterm. The expected term is used in the determination of whether a lease is a capital or operating lease and in the calculation of straight-line rentexpense. Additionally, the useful life of leasehold improvements is limited by the expected lease term or the economic life of the asset, whichever isshorter. If significant expenditures are made for leasehold improvements late in the expected term of a lease and renewal is reasonably assured, the useful lifeof the leasehold improvement is limited to the end of the reasonably assured renewal period or economic life of the asset.The determination of the expected term of a lease requires us to apply judgment and estimates concerning the number of renewal periods that arereasonably assured. If a lease is terminated prior to reaching the end of the expected term, this may result in the acceleration of depreciation or impairment ofa store’s long-lived assets, and it may result in the accelerated recognition of landlord contributions and the reversal of deferred rent balances that assumedhigher rent payments in renewal periods that were never ultimately exercised by us. Recently Issued Accounting GuidanceRefer to Note 1. “Description of Business and Summary of Significant Accounting Policies” to our Consolidated Financial Statements included inPart II, Item 8. “Financial Statements and Supplementary Data” of this Annual Report for a description of recently issued accounting guidance.45ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk.We are exposed to various types of market risk in the normal course of business, including the impact of interest rates, commodity price changes andforeign currency fluctuation.Interest Rate RiskWe are exposed to market risk from changes in the variable interest rates related to borrowings from our Secured Credit Facilities. All of ourborrowings outstanding under the Secured Credit Facilities as of December 28, 2014 of $756.2 million accrue interest at variable rates. Assuming therevolving credit facility remains undrawn, each 1% change in assumed interest rates, excluding the impact of our 1% interest rate floor, would result in a $7.5million change in annual interest expense on indebtedness under the Secured Credit Facilities.Commodity Price RiskWe are exposed to commodity price changes related to certain food products that we purchase, primarily related to the prices of cheese and dough,which can vary throughout the year due to changes in supply, demand and other factors. We have not entered into any hedging arrangements to reduce ourexposure to commodity price volatility associated with such commodity prices; however, we typically enter into short-term purchasing contracts, which maycontain pricing arrangements designed to minimize the impact of commodity price fluctuations, and derivative instruments such as futures contracts tomitigate our exposure to commodity price fluctuations. For the 317 day period ended December 28, 2014, the 47 day period ended February 14, 2014, andDecember 29, 2013, the weighted average cost of a block of cheese was $2.21, $2.43 and $1.75, respectively. The estimated increase in our food costs from ahypothetical 10% increase in the average cost of a block of cheese would have been $1.3 million, $0.3 million and $1.3 million for the 317 day period endedDecember 28, 2014, the 47 day period ended February 14, 2014, and December 29, 2013, respectively. For the 317 day period ended December 28, 2014, the47 day period ended February 14, 2014, and December 29, 2013, the weighted average cost of dough per pound was $0.43, $0.50 and 0.41, respectively. Theestimated increase in our food costs from a hypothetical 10% increase in the average cost of dough per pound would have been $0.4 million, $0.1 millionand $0.4 million for the 317 day period ended December 28, 2014, the 47 day period ended February 14, 2014, and December 29, 2013, respectively.Foreign Currency RiskWe are exposed to foreign currency fluctuation risk associated with changes in the value of the Canadian dollar relative to the United States dollaras we operate a total of 14 Company-owned stores in Canada. For the 317 day period ended December 28, 2014 our Canadian stores generated $2.0 millionof operating loss compared to our consolidated operating loss of $32.3 million. For the 47 day period ended February 14, 2014, our Canadian storesgenerated $0.4 million of operating income compared to our consolidated operating income of $2.9 million.Changes in the currency exchange rate result in cumulative translation adjustments and are included in “Accumulated other comprehensive incomeloss” on our Consolidated Balance Sheets and potentially result in transaction gains or losses, which are included in our earnings. The low and high currencyexchange rates for a Canadian dollar into a United States dollar for the 317 day period ended December 28, 2014 were $0.8587 and $0.9052, respectively. Ahypothetical 10% devaluation in the average quoted U.S. dollar-equivalent of the Canadian dollar exchange rate during the 317 day period endedDecember 28, 2014 would have increased our reported consolidated operating results by approximately $0.2 million. The low and high currency exchangerates for a Canadian dollar into a United States dollar for the 47 day period ended February 14, 2014 were $0.8945 and $0.9408, respectively. A hypothetical10% devaluation in the average quoted U.S. dollar-equivalent of the Canadian dollar exchange rate during the 47 day period ended February 14, 2014 wouldhave reduced our reported consolidated operating results by less than $0.1 million.46ITEM 8. Financial Statements.REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the Board of Directors and Stockholders ofCEC Entertainment, Inc.Irving, TexasWe have audited the accompanying consolidated balance sheets of CEC Entertainment, Inc. and subsidiaries (the "Company") as ofDecember 28, 2014 (Successor) and December 29, 2013 (Predecessor), and the related consolidated statements of earnings,comprehensive income, stockholders' equity, and cash flows for the 317 day period ended December 28, 2014 (Successor), the 47 dayperiod ended February 14, 2014 (Predecessor) and the years ended December 29, 2013 and December 30, 2012 (Predecessor). Theseconsolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion onthe consolidated financial statements based on our audits.We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Thosestandards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free ofmaterial misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control overfinancial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing auditprocedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of theCompany's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on atest basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used andsignificant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our auditsprovide a reasonable basis for our opinion.In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of CECEntertainment, Inc. and subsidiaries as of December 28, 2014 (Successor) and December 29, 2013 (Predecessor), and the results oftheir operations and their cash flows for the 317 day period ended December 28, 2014 (Successor), the 47 day period end February 14,2014 (Predecessor) and the years ended December 29, 2013 and December 30, 2012 (Predecessor), in conformity with accountingprinciples generally accepted in the United States of America.As discussed in Note 1 to the consolidated financial statements, subsequent to the Company’s acquisition by Queso Holdings, Inc.(“Parent”), Parent’s cost of acquiring the Company was pushed down to establish a new accounting basis for the acquired assets andliabilities. Accordingly, the consolidated financial statements are presented for two periods, Predecessor and Successor, which relate tothe accounting periods preceding and succeeding the completion of the business combination transaction. The Predecessor andSuccessor periods have been separated by a vertical line on the face of the consolidated financial statements to highlight the fact that thefinancial information for such periods has been prepared under two different historical cost bases of accounting./s/ Deloitte & Touche LLPDallas, TexasMarch 4, 201547CEC ENTERTAINMENT, INC.CONSOLIDATED BALANCE SHEETS(in thousands, except share information)SuccessorPredecessorDecember 28, 2014December 29, 2013ASSETSCurrent assets:Cash and cash equivalents$110,994$20,686Accounts receivable18,83524,881Inventories18,97919,250Prepaid expenses20,89420,111Deferred tax asset3,9432,091Total current assets173,64587,019Property and equipment, net681,972691,454Goodwill483,4443,458Intangible assets, net491,400—Deferred financing costs, net24,0871,268Other noncurrent assets9,5958,412Total assets$1,864,143$791,611LIABILITIES AND STOCKHOLDERS’ EQUITYCurrent liabilities:Bank indebtedness and other long-term debt, current portion$9,545$—Capital lease obligations, current portion4081,014Accounts payable43,63335,770Accrued expenses35,56134,001Unearned revenues8,90614,504Accrued interest16,152977Other current liabilities2,990440Total current liabilities117,19586,706Capital lease obligations, less current portion15,47620,365Bank indebtedness and other long-term debt, less current portion998,441361,500Deferred tax liability222,91557,831Accrued insurance12,14613,194Other noncurrent liabilities205,38491,247Total liabilities1,571,557630,843Stockholders’ equity:Predecessor: Common stock, $0.10 par value; authorized 100,000,000 shares; 61,865,495 shares issuedas of December 29, 2013—6,187Successor: Common stock, $0.01 par value; authorized 1,000 shares; 200 shares issued as of December28, 2014——Capital in excess of par value355,587453,702Retained earnings (deficit)(62,088)853,464Accumulated other comprehensive income (loss)(913)4,764Less Predecessor treasury stock, at cost; 44,341,225 shares as of December 29, 2013—(1,157,349)Total stockholders’ equity292,586160,768Total liabilities and stockholders’ equity$1,864,143$791,611The accompanying notes are an integral part of these Consolidated Financial Statements.48CEC ENTERTAINMENT, INCCONSOLIDATED STATEMENTS OF EARNINGS(in thousands) SuccessorPredecessorFor the 317 DayPeriod EndedFor the 47 DayPeriod EndedTwelve MonthsEndedTwelve MonthsEndedDecember 28, 2014February 14, 2014December 29, 2013December 30, 2012REVENUES:Food and beverage sales$307,696$50,897$368,584$372,948Entertainment and merchandise sales404,40262,659448,155425,989Total Company store sales712,098113,556816,739798,937Franchise fees and royalties6,4836874,9824,543Total revenues718,581114,243821,721803,480OPERATING COSTS AND EXPENSES:Company store operating costs:Cost of food and beverage (exclusive of items shownseparately below)79,99612,28590,36393,417Cost of entertainment and merchandise (exclusive ofitems shown separately below)24,6083,72929,77530,855Total cost of food, beverage, entertainment andmerchandise104,60416,014120,138124,272Labor expenses200,85531,998229,172223,605Depreciation and amortization115,9519,73378,16778,769Rent expense76,69812,36578,46375,312Other store operating expenses119,89615,760131,035126,855Total Company store operating costs618,00485,870636,975628,813Other costs and expenses:Advertising expense33,7025,90341,21735,407General and administrative expenses49,9697,96356,69153,437Transaction and severance costs48,75811,634316—Asset impairments407—3,0516,752Total operating costs and expenses750,840111,370738,250724,409Operating income (loss)(32,259)2,87383,47179,071Interest expense60,9521,1517,4539,401Income (loss) before income taxes(93,211)1,72276,01869,670Income tax (benefit) expense(31,123)1,01828,19426,080Net income (loss)$(62,088)$704$47,824$43,590The accompanying notes are an integral part of these Consolidated Financial Statements.49CEC ENTERTAINMENT, INC.CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME(in thousands) Successor Predecessor For the 317 DayPeriod Ended For the 47 Day PeriodEnded Twelve MonthsEnded Twelve MonthsEnded December 28, 2014 February 14, 2014 December 29, 2013 December 30, 2012Net income (loss)$(62,088) $704 $47,824 $43,590Components of other comprehensive income (loss), net of tax: Foreign currency translation adjustments(913) (541) (1,116) 538Total components of other comprehensive income (loss), net oftax(913) (541) (1,116) 538Comprehensive income (loss)$(63,001) $163 $46,708 $44,128The accompanying notes are an integral part of these Consolidated Financial Statements.50CEC ENTERTAINMENT, INC.CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY(in thousands, except share amounts) Common StockCapital InExcess ofPar ValueRetainedEarningsAccumulatedOtherComprehensiveIncomeTreasury Stock SharesAmountAmountTotalPredecessor: Balance at January 1, 201261,553,6986,155441,960795,6045,34243,408,472(1,124,884)124,177Net income———43,590———43,590Other comprehensive income————538——538Stock-based compensation costs——7,595————7,595Restricted stock issued, net offorfeitures214,05922(22)—————Tax benefit from restricted stock, net——565————565Restricted stock returned for taxes(70,951)(7)(2,649)————(2,656)Dividends declared———(16,182)———(16,182)Purchases of treasury stock—————406,507(14,353)(14,353)Balance at December 30, 201261,696,8066,170447,449823,0125,88043,814,979(1,139,237)143,274Net income———47,824———47,824Other comprehensive loss————(1,116)——(1,116)Stock-based compensation costs——8,660————8,660Restricted stock issued, net offorfeitures240,61924(24)—————Tax benefit from restricted stock, net——(178)————(178)Restricted stock returned for taxes(71,930)(7)(2,205)————(2,212)Dividends declared———(17,372)———(17,372)Purchases of treasury stock—————526,246(18,112)(18,112)Balance at December 29, 201361,865,4956,187453,702853,4644,76444,341,225(1,157,349)160,768Net income———704———704Other comprehensive loss————(541)——(541)Stock-based compensation costs——12,225————12,225Restricted stock issued, net offorfeitures13,7921(1)—————Restricted stock returned for taxes(2,907)—(142)————(142)Dividends declared———2———2Balance at February 14, 201461,876,380$6,188$465,784$854,170$4,22344,341,225$(1,157,349)$173,01651CEC ENTERTAINMENT, INC.CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY, CONT'D(in thousands, except share amounts) Common Stock Capital InExcess ofPar Value RetainedEarnings AccumulatedOtherComprehensiveIncome Treasury Stock Shares Amount Shares Amount Total (in thousands, except share information)Successor: Equity contribution 200 — 350,000 — — — — 350,000Net loss — — — (62,088) — — — (62,088)Other comprehensive loss — — — — (913) — — (913)Stock-based compensation costs — — 713 — — — — 713Tax benefit from restrictedstock, net — — 4,874 — — — — 4,874Balance at December 28, 2014 200 $— $355,587 $(62,088) $(913) — $— $292,586 __________________(1)We recorded the tax benefit related to the accelerated vesting of restricted stock awards in the 317 day period ended December 28, 2014, as such tax benefit will bedeductible for income tax purposes on the Successor tax return for fiscal year 2014.The accompanying notes are an integral part of these Consolidated Financial Statements.52CEC ENTERTAINMENT, INC.CONSOLIDATED STATEMENTS OF CASH FLOWS(in thousands) SuccessorPredecessorFor the 317 DayPeriod EndedFor the 47 DayPeriod EndedTwelve MonthsEndedTwelve MonthsEndedDecember 28, 2014February 14, 2014December 29, 2013December 30, 2012CASH FLOWS FROM OPERATING ACTIVITIES:Net income (loss)$(62,088)$704$47,824$43,590Adjustments to reconcile net income to net cashprovided by operating activities:Depreciation and amortization118,5569,88379,02879,510Deferred income taxes(62,554)(1,785)(3,025)(836)Stock-based compensation expense70312,2258,4817,468Amortization of lease-related liabilities428(356)(2,355)(2,293)Amortization of original issue discount anddeferred financing costs3,96258448492Loss on asset disposals, net7,6492943,3093,562Asset impairments407—3,0516,752Non-cash rent expense7,037 (916) 2,431 2,744Other adjustments1,195144135474Changes in operating assets and liabilities:Accounts receivable(3,046)1,503578(1,587)Inventories1,418(2,472)(368)(594)Prepaid expenses2132,656(1,270)(4,150)Accounts payable8,558(270)(2,355)374Accrued expenses1,754(2,403)(344)1,132Unearned revenues2,3603492,7351,925Accrued interest15,712152(730)(376)Income taxes payable2,1342,898(647)(1,361)Deferred landlord contributions3,693(350)1,738266Net cash provided by operating activities48,09122,314138,664137,092CASH FLOWS FROM INVESTING ACTIVITIES:Acquisition of Predecessor(946,898)——— Acquisition of Peter Piper Pizza(113,142) — — —Purchases of property and equipment(62,557)(9,710)(74,085)(99,489)Development of internal use software(2,130) — — —Proceeds from sale of property and equipment442512,530586Other investing activities——613—Net cash used in investing activities(1,124,285)(9,659)(70,942)(98,903)CASH FLOWS FROM FINANCING ACTIVITIES:Proceeds from secured credit facilities, net oforiginal issue discount756,200———Proceeds from senior notes255,000———Repayment of Predecessor Facility(348,000)———Repayments on senior term loan(3,807)———Net repayments on revolving credit facility—(13,500)(28,000)(100)Proceeds from sale leaseback transaction183,685———Payment of debt financing costs(27,575)———Payments on capital lease obligations(297)(164)(953)(949)Payments on sale leaseback obligations(742) — — —Dividends paid(890)(38)(17,097)(19,846)Excess tax benefit realized from stock-basedcompensation4,874—343619Restricted stock returned for payment of taxes—(142)(2,212)(2,656)Purchases of treasury stock——(18,112)(14,353)53CEC ENTERTAINMENT, INC.CONSOLIDATED STATEMENTS OF CASH FLOWS, CONT'D(in thousands)Equity contribution350,000———Net cash provided by (used in) financingactivities1,168,448(13,844)(66,031)(37,285)Effect of foreign exchange rate changes on cash(444)(313)(641)59Change in cash and cash equivalents91,810(1,502)1,050963Cash and cash equivalents at beginning of period19,18420,68619,63618,673Cash and cash equivalents at end of period$110,994$19,184$20,686$19,636SuccessorPredecessorFor the 317 DayPeriod EndedFor the 47 DayPeriod EndedTwelve MonthsEndedTwelve MonthsEndedDecember 28, 2014February 14, 2014December 29, 2013December 30, 2012SUPPLEMENTAL CASH FLOW INFORMATION:Interest paid (1)$41,801$938$7,798$9,419Income taxes paid (refunded), net$24,424$(79)$31,614$27,598NON-CASH INVESTING AND FINANCINGACTIVITIES:Accrued construction costs$2,361$3,605$5,542$3,025Dividends payable$—$890$931$656Capital lease obligations$657$—$740$12,732 __________________(1)Includes $4.9 million of debt issuance costs and interest expense related to the bridge loan. See Note 9. “Indebtedness and Interest Expense” for further discussion of thebridge loan.The accompanying notes are an integral part of these Consolidated Financial Statements.54CEC ENTERTAINMENT, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSNote 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 PiperPizza family dining and entertainment centers (also referred to as “stores”) in a total of 47 states and 11 foreign countries and territories. As of December 28,2014 we and our franchisees operated a total of 731 stores, of which 559 were Company-owned stores located in 44 states and Canada. Our franchiseesoperated a total of 172 stores located in 16 states and 10 foreign countries and territories, including Chile, Guam, Guatemala, Mexico, Panama, Peru, PuertoRico, Saudi Arabia, Trinidad, and the United Arab Emirates. The use of the terms “CEC Entertainment,” “we,” “us” and “our” throughout these Notes toConsolidated Financial Statements refer to the Company.All of our stores utilize a consistent restaurant-entertainment format that features both family dining and entertainment areas with the same generalmix of food, beverages, entertainment and merchandise. The economic characteristics, products and services, preparation processes, distribution methods andtypes of customers are substantially similar for each of our stores. Therefore, we aggregate each store’s operating performance into one reportable segment forfinancial reporting purposes.Merger and Related Transactions: On January 15, 2014, CEC Entertainment, Inc. entered into an agreement and plan of merger (the “MergerAgreement”) with Queso Holdings Inc., a Delaware corporation (“Parent”), and Q Merger Sub Inc., a Kansas corporation (“Merger Sub”). Parent and MergerSub were controlled by Apollo Global Management, LLC (“Apollo”) and its subsidiaries. Pursuant to the Merger Agreement, on January 16, 2014, MergerSub commenced a tender offer to purchase all of the issued and outstanding shares of our common stock (the “Tender Offer”). Following the successfulcompletion of the Tender Offer, on February 14, 2014, Merger Sub merged with and into CEC Entertainment, Inc., with CEC Entertainment, Inc. survivingthe merger (the “Merger”) and becoming a wholly owned subsidiary of Parent. We refer to the Merger and the Tender Offer together as the “Acquisition.” As aresult of the Merger, the shares of CEC Entertainment, Inc. common stock ceased to be traded on the New York Stock Exchange after close of market onFebruary 14, 2014.The Merger was accounted for as a business combination using the acquisition method of accounting and the Successor financial statements reflect anew basis of accounting that is based on the fair value of assets acquired and liabilities assumed as of the effective time of the Merger. A valuation of theassets and liabilities acquired was prepared by a third party and is based on actual tangible and identifiable intangible assets and liabilities that existed as ofthe effective time of the Merger. See further discussion of the acquisition in Note 2. “Acquisition of CEC Entertainment, Inc.”Basis of Presentation: The Parent’s cost of acquiring CEC Entertainment has been pushed down to establish a new accounting basis for theCompany. Accordingly, the accompanying Consolidated Financial Statements are presented for two periods, Predecessor and Successor, which relate to theaccounting periods preceding and succeeding the completion of the Merger. The Predecessor and Successor periods have been separated by a vertical line onthe face of the Consolidated Financial Statements to highlight the fact that the financial information for such periods has been prepared under two differenthistorical cost bases of accounting. For the purpose of presentation and disclosure, all references to the “Predecessor” relate to CEC Entertainment Inc. and itssubsidiaries for periods prior to the Merger. All references to the “Successor” relate to CEC Entertainment Inc. and its subsidiaries, after giving effect to theMerger, for periods subsequent to the Merger. References to “CEC Entertainment,” the “Company,” “we,” “us” and “our” relate to the Predecessor for periodsprior to the Merger and to the Successor for periods subsequent to the Merger.All intercompany accounts and transactions have been eliminated in consolidation. Certain prior period amounts have been reclassified to conformto the current period's presentation.Our Consolidated Financial Statements include variable interest entities (“VIE”) of which we are the primary beneficiary. Judgments are made inassessing whether we are the primary beneficiary, including determination of the activities that most significantly impact the VIE’s economic performance.The Company eliminates the intercompany portion of transactions with VIE’s from our financial results.55Table of ContentsNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)In August 2014, the Company assigned a portion of its rights in the purchase and sale agreement executed by us in relation to the sale leasebacktransaction, as further discussed in Note 12. “Sale Leaseback Transaction.” The assignment resulted in $12.1 million of the proceeds from the sale leasebacktransaction being received by a newly formed trust. The Company is the sole beneficiary of the trust, and the funds are being used by a special purpose entity,a VIE, created by a Qualified Intermediary to facilitate a like-kind exchange pursuant to Internal Revenue Code Section 1031. The funds held by the trust areused by the VIE to construct capital improvements on properties leased by the Company. The Company will acquire the VIE, along with its capitalimprovements, in the first quarter of 2015. At that time, to the extent there are any remaining funds held by the trust and not fully exhausted fromconstruction, those remaining funds will be released to the Company. We included this VIE in our Consolidated Financial Statements, as we concluded thatwe are the sole beneficiary of its variable interests and will benefit from the capital improvements that will be acquired by the Company in the first quarter of2015. The assets, liabilities and operating results of the VIE are not material to our Consolidated Financial Statements.The Company also has a controlling financial interest in International Association of CEC Entertainment, Inc. (the “Association”), a VIE. TheAssociation primarily administers the collection and disbursement of funds (the “Association Funds”) used for advertising, entertainment and mediaprograms 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 thesefunds and could be required to make additional contributions to fund any deficits that may be incurred by the Association. We include the Association in ourConsolidated Financial Statements, as we concluded that we are the primary beneficiary of its variable interests because we (a) have the power to direct themajority of its significant operating activities; (b) provide it unsecured lines of credit; and (c) own the majority of the stores that benefit from theAssociation’s advertising, entertainment and media expenditures. The assets, liabilities and operating results of the Association are not material to ourConsolidated Financial Statements.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, exceptfor a 53 week year when the fourth quarter has 14 weeks. Our combined Successor and Predecessor 2014 periods, fiscal year 2013 and fiscal year 2012 eachconsisted of 52 weeks.We completed the Merger on February 14, 2014. As a result of the Merger, we applied the acquisition method of accounting and established a newbasis of accounting on February 15, 2014. Periods presented prior to and including February 14, 2014 represent the operations of the “Predecessor” and theperiod presented after February 14, 2014 represent the operations of the “Successor.” The fifty-two weeks ended December 28, 2014 include the 47 dayPredecessor period from December 30, 2013 through February 14, 2014 (“Predecessor Period”) and the 317 day Successor period from February 15, 2014through December 28, 2014 (“Successor Period”). The Successor and Predecessor periods have been demarcated by a solid black line.Use of Estimates and Assumptions: The preparation of these Consolidated Financial Statements in conformity with accounting principles generallyaccepted in the United States (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities anddisclosure of contingent assets and liabilities at the date of our Consolidated Financial Statements and the reported amounts of revenues and expenses duringthe reporting period. Actual results could differ from those estimates.Subsequent Events: We recognize the effects of events or transactions that occur after the balance sheet date but before financial statements areissued (“subsequent events”) if there is evidence that conditions related to the subsequent event existed at the date of the balance sheet, including the impactof such events on management’s estimates and assumptions used in preparing our Consolidated Financial Statements. Other significant subsequent eventsthat are not recognized in our Consolidated Financial Statements, if any, are disclosed in the Notes to Consolidated Financial Statements.Cash and Cash Equivalents: Cash and cash equivalents are comprised of demand deposits with banks and short-term cash investments withremaining 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 theUnited States and Canada deposit insurance limits, as we currently maintain a significant amount of our cash and cash equivalents balances with two majorfinancial institutions. The individual balances, at times, may exceed the insured limits. We have not experienced any losses in such accounts. Inmanagement’s opinion, the capitalization and operating history of the financial institutions are such that the likelihood of a material loss is consideredremote.Inventories: Inventories of food, beverages, merchandise, paper products and other supplies needed for our food service and entertainmentoperations are stated at the lower of cost on a first-in, first-out basis or market.Property and Equipment: Property and equipment are stated at cost, net of accumulated depreciation and amortization. Depreciation andamortization are charged to operations using the straight-line method over the assets’ estimated useful lives, which are as follows:56Table of ContentsNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)Buildings40 yearsGame and ride equipment4 to 12 yearsNon-technical play equipment15 to 20 yearsFurniture, fixtures and other equipment4 to 20 yearsLeasehold improvements are amortized using the straight-line method over the lesser of the lease term or the estimated useful lives of the relatedassets. We use a consistent lease period (generally, the initial non-cancelable lease term plus renewal option periods provided for in the lease that can bereasonably assured of being exercised) when estimating the depreciable lives of leasehold improvements, in determining classification of our leases as eitheroperating or capital and in recognizing straight-line rent expense. Interest costs incurred during the construction period are capitalized and depreciated basedon 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 astore-by-store basis, to assess if the carrying amount may not be recoverable. Such events or changes may include a significant change in the business climatein a particular market area (for example, due to economic downturn or natural disaster), historical negative cash flows or plans to dispose of or sell theproperty and equipment before the end of its previously estimated useful life. If an event or change in circumstances occurs, we estimate the future cash flowsexpected to result from the use of the property and equipment and its eventual disposition. If the sum of the expected future cash flows, undiscounted andwithout interest, is less than the asset carrying amount (an indication that the carrying amount may not be recoverable), we may be required to recognize animpairment loss. We estimate the fair value of a store’s property and equipment by discounting the expected future cash flows of the store over its remaininglease term using a weighted average cost of capital commensurate with the risk. Any impairment loss recognized equals the amount by which the assetcarrying amount exceeds its estimated fair value. In the event an asset is impaired, its carrying value is adjusted to the estimated fair value, and anysubsequent 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.Capitalized Store Development Costs: We capitalize our internal department costs that are directly attributable to store development projects, suchas the design and construction of a new store and the remodeling and expansion of our existing stores. Capitalized internal department costs include thecompensation, benefits and various office costs related to our design, construction, facilities and legal departments. We also capitalize interest costs inconjunction with the construction of new stores. Store development costs are initially accumulated in our construction in progress account until a project iscompleted. At the time of completion, the costs accumulated to date are then reclassified to property and equipment and depreciated according to ourdepreciation policies. In the 317 day period ended December 28, 2014, the 47 day period ended February 28, 2014, Fiscal 2013 and Fiscal 2012, wecapitalized internal costs of $2.9 million, $0.4 million, $3.5 million and $3.3 million, respectively, related to our store development activities.Business Combinations: We allocate the purchase price of an acquisition to the tangible and intangible assets acquired and liabilities assumedbased on their estimated fair values at the acquisition date. We recognize as goodwill the amount by which the purchase price of an acquired entity exceedsthe net of the amounts assigned to the assets acquired and liabilities assumed. Fair value measurements are applied based on assumptions that marketparticipants would use in the pricing of the asset or liablity. We initially perform these valuations based upon preliminary estimates and assumptions bymanagement 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 expenseacquisition-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 acquiredbusiness (“goodwill”), trademarks, trade names and other indefinite-lived intangible assets are not amortized, but rather tested for impairment, at leastannually. We assess the recoverability of the carrying amount of our goodwill and other indefinite-lived intangible assets either qualitatively orquantitatively annually at the beginning of the fourth quarter of each fiscal year, or whenever events or changes in circumstances indicate that the carryingamount 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 initialqualitative assessment indicates that it is more likely than not the carrying amount exceeds fair value, a quantitative analysis may be required. We may alsoelect to skip the qualitative assessment and proceed directly to the quantitative analysis.57Table of ContentsNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)Recoverability of the carrying value of goodwill is measured at the reporting unit level. A reporting unit is an operating segment, or a business unitone level below that operating segment, for which discrete financial information is prepared and regularly reviewed by management.The Company hasdetermined that the operations of Chuck E. Cheese’s and Peter Piper Pizza represent two separate reporting units for purposes of measuring the recoverabilityof the carrying value of goodwill. In performing a quantitative analysis, we measure the recoverability of goodwill using a discounted cash flow modelincorporating discount rates commensurate with the risks involved, which is classified as a Level 3 fair value measurement. The key assumptions used in thediscounted cash flow valuation model include discount rates, growth rates, tax rates, cash flow projections and terminal value rates. Discount rates, growthrates and cash flow projections are the most sensitive and susceptible to change as they require significant management judgment.If the calculated fair value is less than the current carrying amount, impairment of the reporting unit may exist. When the recoverability test indicatespotential impairment, we will calculate an implied fair value of goodwill for the reporting unit. The implied fair value of goodwill is determined in a mannersimilar to how goodwill is calculated in a business combination. If the implied fair value of goodwill exceeds the carrying amount of goodwill assigned tothe 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, animpairment 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 overits 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-livedintangible asset, which is classified as a Level 3 fair value measurement. The relief from royalty method estimates our theoretical royalty savings fromownership of the intangible asset. Key assumptions used in this model include discount rates, royalty rates, growth rates, tax rates, sales projections andterminal value rates. Discount rates, royalty rates, growth rates and sales projections are the assumptions most sensitive and susceptible to change as theyrequire significant management judgment. Discount rates used are similar to the rates estimated by the weighted average cost of capital considering anydifferences 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 incircumstances indicate that their carrying amount may not be recoverable. Estimated weighted average useful lives are 25 years for franchise agreements and10 years for favorable lease agreements. An impairment loss would be indicated when estimated undiscounted future cash flows from the use of the asset areless than its carrying amount. An impairment loss would be measured as the difference between the fair value (based on discounted future cash flows) and thecarrying amount of the asset.Fair Value Disclosures: Fair value is defined as the price that we would receive to sell an asset or pay to transfer a liability (an exit price) in anorderly transaction between market participants on the measurement date. In determining fair value, GAAP establishes a three-level hierarchy used inmeasuring fair value, as follows: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 activemarkets; 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 valuesof our long-lived assets held and used are determined using Level 3 inputs based on the estimated discounted future cash flows of the respective store over itsexpected remaining useful life or lease term. Due to uncertainties in the estimates and assumptions used, actual results could differ from the estimated fairvalues. See Note 6. “Property and Equipment” for our impairment of long-lived assets disclosures and Note 10. “Fair Value of Financial Instruments” for ourfair value disclosures.Self-Insurance Accruals: We are self-insured for certain losses related to workers’ compensation, general liability, property and our Companysponsored 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, with the assistance of an independent third-party actuary. To limit ourexposure to losses, we purchase stop-loss or high-deductible insurance coverage through third-party insurers for certain losses related to workers’compensation,58Table of ContentsNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)property and employee health insurance programs. Our deductibles generally range from $0.2 million to $0.5 million per occurrence. For claims that exceedthe deductible amount, we record a gross liability and a corresponding receivable representing expected recoveries pursuant to the stop-loss coverage, sincewe 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 acharge to income and a reserve established on the Consolidated Balance Sheets. We perform regular assessments of our contingent losses and developestimates of the degree of probability for and range of possible settlement. We accrue liabilities for losses we deem probable and for which we can reasonablyestimate an amount of settlement. We do not record liabilities for losses we believe are only reasonably possible to result in an adverse outcome, but providedisclosure 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 furtherdevelopments. 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 amaterial 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 United States (“U.S.”) dollars. The assets and liabilities ofour Canadian subsidiary are translated to U.S. dollars at year-end exchange rates, while revenues and expenses are translated at average exchange rates duringthe year. Adjustments that result from translating amounts are reported as a component of “Accumulated other comprehensive income” on our ConsolidatedStatements of Changes in Stockholders’ Equity and in our Consolidated Statements of Comprehensive Income. The effect of foreign currency exchange ratechanges on cash is reported in our Consolidated Statements of Cash Flows as a separate component of the change in cash and cash equivalents during theperiod.Stock-Based Compensation: We expense the fair value of stock-based compensation awards granted to our employees and directors in ourConsolidated Financial Statements on a straight-line basis over the period that services are required to be provided in exchange for the award (“requisiteservice period”), which typically is the period over which the award vests. Stock-based compensation is recognized only for awards that vest, and ourperiodic accrual of compensation cost is based on the estimated number of awards expected to vest. We measure the fair value of compensation cost related tostock 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 thesame financial statement caption where the associated salary expense of employees with stock-based compensation awards is recorded. The gross benefits oftax deductions in excess of the compensation cost recognized from the vesting of stock options are tax effected and classified as cash inflows from financingactivities in our Consolidated Statements of Cash Flows.Revenue Recognition – Company Store Activities: Food, beverage and merchandise revenues are recognized when sold. Game revenues arerecognized as game-play tokens are purchased by guests, and we accrue unearned revenue as a liability for the estimated amount of unused tickets and tokensthat may be redeemed or used in the future. We allocate the revenue recognized from the sale of value-priced combination packages, which generally arecomprised of food, beverage and game tokens (and in some instances, merchandise), between “Food and beverage sales” and “Entertainment andmerchandise sales” based upon the price charged for each component when it is sold separately, or in limited circumstances our best estimate of selling priceif a component is not sold on a stand-alone basis, which we believe approximates each component’s fair value.Sales taxes collected from guests are excluded from revenues. The obligation is included in accrued liabilities until the taxes are remitted to theappropriate taxing authorities.We sell gift cards to our customers in our stores and through certain third-party distributors, which do not expire and do not incur a service fee onunused balances. Gift card sales are recorded as an unearned gift card revenue liability when sold and are recognized as revenue when: (a) the gift card isredeemed 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 nothave a legal obligation to remit the value of the unredeemed gift card under applicable state unclaimed property escheat statutes. Gift card breakage isdetermined based upon historical redemption patterns of our gift cards. Breakage income from gift cards is included in “Food and beverage sales” in ourConsolidated Statements of Earnings and was not material for the periods presented.Revenue Recognition – Franchise Fees and Royalties: Revenues from franchise activities include area development and initial franchise feesreceived from franchisees to establish new stores, and once a store is opened, a franchisee is charged monthly royalties based on a percentage of franchisedstores’ sales. These fees are collectively referred to as “Franchise fees and royalties” in our Consolidated Statements of Earnings. Area development andinitial franchise fees are accrued as unearned franchise revenue liability when received and recognized as revenue when the franchised stores associated withthe fees open, which is generally when we have fulfilled all significant obligations to the franchisee. Continuing royalties and other59Table of ContentsNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)miscellaneous sales and fees are recognized in the period earned. Continuing royalties and other miscellaneous sales and fees of $4.2 million, $0.6 million,$4.3 million and $3.8 million for the 317 day period ended December 28, 2014, the 47 day period ended February 14, 2014, 2013 and 2012, respectively, areincluded 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 ourguests and related paper and birthday supplies used in our food service operations, less “vendor rebates” described below. Cost of entertainment andmerchandise includes the direct cost of prizes provided and merchandise sold to our customers, as well as the cost of tickets dispensed to customers andredeemed for prize items. These amounts exclude any allocation of other operating costs including labor and related costs for store personnel anddepreciation and amortization expense.Vendor Rebates: We receive rebate payments primarily from a single third-party vendor. Pursuant to the terms of a volume purchasing andpromotional agreement entered into with the vendor, rebates are primarily provided based on the quantity of the vendor’s products we purchase over the termof the agreement. We record these allowances in the period they are earned as a reduction in the cost of the vendor’s products, and when the related inventoryis sold, the allowances are recognized in “Cost of food and beverage” in our Consolidated Statements of Earnings.Rent Expense: We recognize rent expense on a straight-line basis over the lease term, including the construction period and lease renewal optionperiods 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 possessionand 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 “Deferredrent liability” on our Consolidated Balance Sheets. Construction allowances received from the landlord as a lease incentive intended to reimburse us for thecost of leasehold improvements (“Landlord contributions”) are accrued as deferred landlord contributions. Landlord contributions are amortized on astraight-line basis over the lease term 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 thecoupons are distributed. All other advertising costs are expensed as incurred.We and our franchisees are required to contribute a percentage of gross sales to advertising, media and entertainment funds maintained by theAssociation, which are utilized to administer all the national advertising programs that benefit both us and our franchisees. Because the Association Fundsare required to be segregated and used for specified purposes, we do not reflect franchisee contributions to the Association Funds as revenue, but rather recordfranchisee contributions as an offset to reported advertising expenses. Our contributions to the Association Funds are eliminated in consolidation.Contributions to the advertising, entertainment and media funds from our franchisees were $2.0 million for the 317 day period ended December 28, 2014,$0.4 million for the 47 day period ended February 14, 2014, $2.5 million in 2013 and $2.0 million in 2012.Income Taxes: We account for income taxes under the asset and liability method, which requires the recognition of deferred tax assets andliabilities for the expected future tax consequences attributable to temporary differences between the financial statement carrying amounts of assets andliabilities and their respective tax basis. A valuation allowance is applied against net deferred tax assets if, based on the weight of available evidence, it ismore likely than not that some or all of the deferred tax assets will not be realized. Deferred income taxes are not provided on undistributed income from ourCanadian subsidiary, as these earnings are considered to be permanently invested.We maintain tax reserves for federal, state and foreign income taxes when we believe a position may not be fully sustained upon review by taxingauthorities. Although we believe that our tax positions are fully supported by the applicable tax laws and regulations, there are matters for which the ultimateoutcome is uncertain. We recognize the benefit from an uncertain tax position in our Consolidated Financial Statements when the position is 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 largestamount of benefit that is greater than 50 percent likelihood of being realized upon settlement or ultimate resolution with the taxing authority. We routinelyassess the adequacy of the estimated liability for unrecognized tax benefits, which may be affected by changing interpretations of laws, rulings by taxauthorities and administrative policies, certain changes and/or developments with respect to audits and expirations of the statute of limitations. In ourConsolidated 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 “Accruedinterest,” current penalties in “Accrued expenses” and non-current accrued interest and penalties in “Other noncurrent liabilities.”60Table of ContentsNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)Recently Issued Accounting Guidance:Accounting Guidance Adopted:In July 2013, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2013-11, Presentation of anUnrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. This amendment requires anunrecognized tax benefit related to a net operating loss carryforward, a similar tax loss or a tax credit carryforward to be presented as a reduction to a deferredtax asset, unless the tax benefit is not available at the reporting date to settle any additional income taxes under the tax law of the applicable tax jurisdiction.The amendment is effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. Early adoption is permitted. Theadoption of this amendment did not have a significant impact on our Consolidated Financial Statements.In April 2014, the FASB issued ASU 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360):Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. This amendment revises the definition of discontinuedoperations by limiting discontinued operations reporting to disposals of components of an entity that represent strategic shifts that have (or will have) amajor effect on an entity’s operations and financial results, removing the lack of continuing involvement criteria and requiring discontinued operationsreporting for the disposal of an equity method investment that meets the definition of discontinued operations. The update also requires expandeddisclosures for discontinued operations, as well as disclosures about a disposal of an individually significant component of an entity that does not qualify fordiscontinued operations presentation in the financial statements. The amendment is effective prospectively for fiscal years, and interim periods within thoseyears, beginning on or after December 15, 2014, with early adoption permitted. We elected to early adopt this amendment effective December 30, 2013,which did not have a significant impact on our Consolidated Financial Statements.Accounting Guidance Not Yet Adopted:In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). This amendment replaces current U.S. GAAPrevenue recognition guidance and establishes a new control-based revenue recognition model, changes the basis for deciding when revenue is recognizedover time or at a point in time, provides new and more detailed guidance on specific topics, and expands and improves disclosures about revenues. Theamendment is effective for annual reporting periods beginning after December 15, 2016, including interim periods therein. Early application is not permitted.We are currently assessing the impact of adopting this new guidance on our Consolidated Financial Statements.In August 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements - Going Concern (Subtopic 205-40). This amendmentrequires management to assess the entity’s ability to continue as a going concern within one year of the date of issuance of the entity’s financial statementsand requires such assessment to be completed on a quarterly and annual basis. The update also requires certain disclosures when substantial doubt is notalleviated. The amendment is effective for annual reporting periods ending after December 15, 2016 and for interim and annual periods thereafter. Earlyapplication is permitted. We do not expect the adoption of this amendment to have a significant impact on our Consolidated Financial Statements.Note 2. Acquisition of CEC Entertainment, Inc.:On January 15, 2014, we entered into the Merger Agreement with Parent and Merger Sub, a wholly owned subsidiary of Parent, pursuant to which,among other things, Merger Sub commenced the Tender Offer to purchase all of the Company’s issued and outstanding shares of common stock at a price of$54.00 per share payable net to the seller in cash, without interest (the “Offer Price”). Approximately 68% of the outstanding shares were tendered in theTender Offer, and Merger Sub accepted all such tendered shares for payment. Following the expiration of the Tender Offer on February 14, 2014, Merger Subexercised its option under the Merger Agreement to purchase a number of shares of common stock necessary for Merger Sub to own one share more than 90%of the outstanding shares of common stock (the “Top-Up Shares”) at the Offer Price. Following Merger Sub’s purchase of the Top-Up Shares, Parentcompleted its acquisition of the Company through the Merger. At the effective time of the Merger, each share of common stock issued and outstandingimmediately prior thereto, other than common stock owned or held (a) in treasury by the Company or any wholly-owned subsidiary of the Company; (b) byParent or any of its subsidiaries; or (c) by stockholders who validly exercised their appraisal rights, was canceled and converted into the right to receive theOffer Price in cash, without interest and subject to applicable withholding tax.The aggregate consideration paid to acquire the Company was $1.4 billion, including the payoff of net debt of $348.0 million and $65.7 million intransaction and debt issuance costs. The Acquisition was funded by (a) $350.0 million of equity contributions from investment funds directly or indirectlymanaged by Apollo; (b) $248.5 million of borrowings under a bridge61Table of ContentsNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)loan facility, which were later repaid using the proceeds from our issuance of $255.0 million of our senior notes; and (c) $760.0 million of borrowings under aterm loan facility. In addition, we also entered into a $150.0 million revolving credit facility in connection with the Acquisition, but it was undrawn atclosing. See discussion of the bridge loan facility, senior notes, term loan facility and revolving credit facility in Note 9. “Indebtedness and InterestExpense.”The Acquisition has been accounted for as a business combination using the acquisition method of accounting, whereby the purchase price wasallocated to tangible and intangible assets acquired and liabilities assumed, based on their estimated fair market values on the Merger date. Fair valuemeasurements have been applied based on assumptions that market participants would use in the pricing of the asset or liability. The purchase priceallocation could change in subsequent periods, up to one year from the Merger date. Any subsequent changes to the purchase price allocation that result inmaterial changes to our Consolidated Financial Statements will be adjusted retroactively.The following table summarizes the fair values assigned to the net assets acquired as of the February 14, 2014 acquisition date (in thousands):Cash consideration paid to shareholders$946,898 Fair value of assets acquired and liabilities assumed: Cash and cash equivalents19,184 Accounts receivable22,185 Inventories21,696 Other current assets16,463 Property, plant and equipment718,066 Property under capital lease15,530 Favorable lease interests14,000 Chuck E. Cheese's tradename400,000 Franchise agreements14,000 Other non-current assets9,872 Indebtedness(348,000) Capital Leases(15,530) Unfavorable lease interests(10,160) Deferred taxes(268,946) Other current and non-current liabilities(93,520)Net assets acquired514,840Excess purchase price allocated to goodwill (1)$432,058__________________(1) See Note 7 “Goodwill and Intangible Assets, Net” for a table representing the changes in the carrying value of goodwill.At the time of the Merger, the Company believed its market position and future growth potential for both Company-operated and franchisedrestaurants were the primary factors that contributed to a total purchase price that resulted in the recognition of goodwill. As of December 28, 2014, $2.8million of our goodwill, including goodwill resulting from the franchisee acquired in the second quarter, will be deductible for federal income tax purposes.We recorded $33.6 million and $0.5 million in transaction-related costs for accounting, investment banking, legal and other costs in connectionwith the Merger, which have been recorded in “Transaction and severance costs” in our Consolidated Statements of Earnings for the 317 day period endedDecember 28, 2014 and the 47 day period ended February 14, 2014, respectively.Pro Forma Financial InformationThe following unaudited pro forma results of operations for the twelve months ended December 28, 2014 and December 29, 2013, respectively,assume that the Merger had occurred on December 31, 2012, the first day in fiscal year 2013, after giving effect to acquisition accounting adjustmentsrelating to depreciation and amortization of the revalued assets, interest62Table of ContentsNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)expense associated with the term loan facility, revolving credit facility and senior notes (see Note 9. “Indebtedness and Interest Expense”), and otheracquisition-related adjustments in connection with the Merger. These unaudited pro forma results exclude one-time, non-recurring costs related to theMerger, including transaction costs, accelerated share-based compensation expense, executive termination benefits related to the departure of our ExecutiveChairman and our President and Chief Executive Officer and financing costs related to the bridge loan facility (see Note 9. “Indebtedness and InterestExpense”). This unaudited pro forma information should not be relied upon as necessarily being indicative of the historical results that would have beenobtained if the Merger had actually occurred on those dates, nor of the results that may be obtained in the future. Twelve Months Ended December 28, 2014 December 29, 2013 (in thousands)Total revenues $832,824 $821,721Net loss $(1,359) $(6,038)Note 3. Acquisition of Peter Piper Pizza:On October 15, 2014, we entered into an agreement and plan of merger to acquire Peter Piper Pizza (the “PPP Acquisition”), a leading pizza andentertainment restaurant chain operating in the southwestern United States and Mexico, for aggregate consideration paid of $113.1 million, net of cashacquired. We completed the acquisition on October 16, 2014, which was funded by a portion of the proceeds obtained from the sale leaseback transactiondiscussed in Note 12. “Sale Leaseback Transaction.”The PPP Acquisition has been accounted for as a business combination using the acquisition method of accounting, whereby the purchase price wasallocated to tangible and intangible assets acquired and liabilities assumed based on their estimated fair values on the acquisition date, with the remainingunallocated purchase price recorded as goodwill. Fair value measurements have been applied based on assumptions that market participants would use in thepricing of the asset or liability. The purchase price allocation could change in subsequent periods, up to one year from the acquisition date. Any subsequentchanges to the purchase price allocation that result in material changes to our Consolidated Financial Statements will be adjusted retroactively.63Table of ContentsNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)The following table summarizes the fair values assigned to the net assets acquired as of the October 16, 2014 acquisition date (in thousands):Cash consideration paid$118,409Fair value of assets acquired and liabilities assumed: Cash and cash equivalents5,267 Accounts receivable511 Inventories820 Other current assets598 Property, plant and equipment14,383 Favorable lease interests2,000 Peter Piper Pizza's tradename24,800 Franchise agreements39,300 Other non-current assets154 Indebtedness(120) Unfavorable lease interests(3,290) Deferred taxes(12,935) Other current and non-current liabilities(4,061)Net assets acquired67,427Excess purchase price allocated to goodwill$50,982At the time of the acquisition, the Company believed that its enhanced market position and future domestic and international growth potential werethe primary factors that contributed to a total purchase price that resulted in the recognition of goodwill. As of December 28, 2014, $0.3 million of thegoodwill arising from the acquisition is expected to be deductible for tax purposes.We incurred $3.6 million in transaction-related costs for accounting, legal, advisory and other costs in connection with the PPP acquisition. Inaddition, Peter Piper Pizza incurred $1.6 million in transaction-related costs including severance and lease termination costs for their corporate offices. Thesetransaction-related costs have been recorded in “Transaction and severance costs” in our Consolidated Statement of Earnings for the 317 day period endedDecember 28, 2014.We have included the operating results of Peter Piper Pizza for the 73 days from October 17, 2014 to December 28, 2014 in our ConsolidatedStatement of Earnings for the 317 day period ended December 28, 2014. Our consolidated results for the Successor period ended December 28, 2014 includedtotal revenues and a net loss attributable to Peter Piper Pizza of $12.3 million and $0.6 million, respectively.Pro Forma Financial InformationThe following unaudited pro forma results of operations for the twelve months ended December 28, 2014 and December 29, 2013 assume that theacquisition of Peter Piper Pizza had occurred on December 31, 2012, the first day in fiscal year 2013, after giving effect to acquisition accountingadjustments relating to depreciation and amortization of the revalued64Table of ContentsNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)assets and the identifiable intangible assets resulting from the Peter Piper Pizza acquisition, interest expense associated with the debt paid off in connectionwith the PPP acquisition, and other purchase price and transaction-related adjustments in connection with the PPP acquisition. These unaudited pro formaresults are presented for informational purposes only and are not indicative of the results of operations that would have been achieved if the Peter Piper Pizzaacquisition had taken place at the beginning of the earliest period presented, and exclude one-time, non-recurring costs related to the PPP acquisition,including transaction costs and executive termination benefits and share-based compensation expense related to the departure of certain Peter Piper Pizzaexecutives. Such pro forma financial information is based on the historical financial statements of Peter Piper Pizza. The pro forma financial informationpresented below also assumes that the Merger had occurred on December 31, 2012 (see Note 2. “Acquisition of CEC Entertainment, Inc.”). The unaudited proforma financial information presented below does not reflect any synergies or operating cost reductions that may be achieved. Twelve Months Ended December 28, 2014 December 29, 2013 (in thousands)Total revenues 887,018 885,476Net income (loss) 5,758 (1,328)Note 4. Accounts Receivable:Accounts receivable consisted of the following at the dates presented: Successor Predecessor December 28, 2014 December 29, 2013 (in thousands)Trade receivables$5,471 $6,177Vendor rebates7,340 6,736Income taxes receivable2,218 7,884Other accounts receivable3,806 4,084Total Accounts receivable$18,835 $24,881Trade receivables consist primarily of debit and credit card receivables due from third-party financial institutions. The other accounts receivablebalance consists primarily of amounts due from our franchisees and amounts expected to be recovered from third-party insurers.Note 5. Inventories:Inventories consisted of the following at the dates presented: Successor Predecessor December 28, 2014 December 29, 2013 (in thousands)Food and beverage$4,877 $4,530Entertainment and merchandise14,102 14,720Inventories$18,979 $19,25065Table of ContentsNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)Food and beverage inventories include food, beverage, paper products and other supplies needed for our food service operations. Entertainment andmerchandise inventories consist primarily of novelty toy items, used as redemption prizes for certain games, sold directly to our guests or used as part of ourbirthday party packages. In addition, entertainment and merchandise inventories also consist of other supplies used in our entertainment operations.Note 6. Property and Equipment: Successor Predecessor December 28, 2014 December 29, 2013 (in thousands)Land$50,135 $43,423Buildings50,132 110,817Leasehold improvements397,338 624,353Game and ride equipment168,709 284,454Furniture, fixtures and other equipment108,510 230,986Property leased under capital leases16,183 28,228 791,007 1,322,261Less accumulated depreciation and amortization(114,396) (641,559)Net property and equipment in service676,611 680,702Construction in progress5,361 10,752Property and equipment, net$681,972 $691,454Property leased under capital leases consists of buildings for our stores. Accumulated amortization related to these assets was $1.0 million and $10.4million as of December 28, 2014 and December 29, 2013, respectively. Amortization of assets under capital leases is included in “Depreciation andamortization” in our Consolidated Statements of Earnings.Total depreciation and amortization expense was $118.6 million, $9.9 million, $79.0 million, and $79.5 million for the 317 day period endedDecember 28, 2014, the 47 day period ended February 14, 2014, Fiscal 2013 and Fiscal 2012, respectively, of which, $2.7 million, $0.2 million, $0.8 millionand $0.7 million, respectively, was included in “General and administrative expenses” in our Consolidated Statements of Earnings. Total depreciation andamortization expense for the 317 day period ended includes approximately $1.0 million related to the amortization of franchise agreements (see Note 7.“Goodwill and Intangible Assets, Net”).Asset ImpairmentsIn the 317 day period ended December 28, 2014, we recognized asset impairment charges of $0.4 million relating to four stores. There were noimpairment charges recognized in the 47 day period ended February 14, 2014. In 2013, we recognized asset impairment charges of $3.1 million primarilyrelating to seven stores, three of which were previously impaired. In 2012, we recognized asset impairment charges of $6.8 million relating to 18 stores, sevenof which were previously impaired. Of the stores impaired in 2014, 2013 and 2012, we continue to operate all but four. These impairment charges were theresult of a decline in the stores’ financial performance, primarily due to various economic factors in the markets in which the stores are located. As ofDecember 28, 2014 and December 29, 2013, respectively, the aggregate carrying value of the property and equipment at impaired stores, after the impairmentcharges, was $0.1 million for stores impaired in 2014 and $2.7 million for stores impaired in 2013.Asset impairments represent adjustments we recognize to write down the carrying amount of the property and equipment at our stores to theirestimated fair value, as the store’s operations are not expected to generate sufficient projected future cash flows to recover the current net book value of itslong-lived assets. We estimate the fair value of a store’s long-lived assets (property and equipment) by discounting the expected future cash flows of the storeusing a weighted average cost of capital commensurate with the risk. Accordingly, the fair value measurement of the stores for which we recognized animpairment charge is classified within Level 3 of the fair value hierarchy. The following estimates and assumptions used in the discounted cash flow analysisimpact the fair value of a store’s long-lived assets:•Discount rate based on our weighted average cost of capital and the risk-free rate of return;•Sales growth rates and cash flow margins;•Strategic plans, including projected capital spending and intent to exercise lease renewal options for the store;•Salvage values; and•Other risks and qualitative factors specific to the asset or market conditions in which the asset is located at the time the assessment wasmade.66Table of ContentsNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)During 2014, the average discount rate, average sales growth rate and average cash flow margin rate used were 8%, 0% and 0%, respectively. During2013, the average discount rate, average sales growth rate and average cash flow margin used for impaired stores were 8%, 0% and 11%, respectively. Webelieve our assumptions in calculating the fair value of our long-lived assets are similar to those used by other marketplace participants. If actual results arenot consistent with our estimates and assumptions, we may be exposed to additional impairment charges, which could be material to our ConsolidatedStatements of Earnings.Note 7. Goodwill and Intangible Assets, Net:The following table presents changes in the carrying value of goodwill for the periods ended December 29, 2013 and December 28, 2014 (inthousands):Predecessor: Balance at December 29, 2013 (1)$3,458 Successor: Goodwill assigned in connection with Merger (1)$432,058 Goodwill assigned in acquisition of Peter Piper Pizza (2)50,982 Other additions (3)404Balance at December 28, 2014$483,444_________________________(1)The Predecessor goodwill was eliminated in acquisition accounting. See Note 2 “Acquisition of CEC Entertainment, Inc.” for a discussion of goodwill recorded in connectionwith the Merger.(2)See Note 3 “Acquisition of Peter Piper Pizza” for a discussion of goodwill recorded in connection with the Peter Piper Pizza acquisition.(3)Represents goodwill related to a franchisee the Company acquired in the second quarter of 2014.The following table presents our indefinite and definite-lived intangible assets at December 28, 2014. We did not have any indefinite or definite-lived intangible assets prior to the Merger. Successor Weighted AverageLife (Years) Gross CarryingAmount AccumulatedAmortization Net CarryingAmount (in thousands)Chuck E. Cheese’s tradenameIndefinite $400,000 $— $400,000Peter Piper Pizza tradenameIndefinite $24,800 — 24,800Favorable lease agreements (1)10 16,000 (1,679) 14,321Franchise agreements25 53,300 (1,021) 52,279 $494,100 $(2,700) $491,400_________________(1)In connection with the Merger and the PPP Acquisition, we also recorded unfavorable lease liabilities of $10.2 million and $3.3 million, respectively, which are included in“Other current liabilities” and “Other non-current liabilities” in our Consolidated Balance Sheets for the Successor period. Such amounts are being amortized over a weightedaverage life of 10 years, which is included in “Rent expense” in ourConsolidated Statements of Earnings for the Successor period. 67Table of ContentsNOTES 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 LeaseAgreements Franchise Agreements Fiscal 2015 2,109 2,070 Fiscal 2016 1,987 2,053 Fiscal 2017 1,709 2,053 Fiscal 2018 1,365 2,053 Fiscal 2019 1,221 2,053 Thereafter 5,930 41,997 14,321 $52,279Amortization expense related to favorable lease agreements was $1.7 million for the 317 day period ended December 28, 2014, and is included in“Rent expense” in our Consolidated Statements of Earnings. Amortization expense related to franchise agreements was $1.0 million for the 317 day periodended December 28, 2014, and is included in “General and administrative expenses” in our Consolidated Statements of Earnings. As we did not have anyintangible assets related to favorable lease agreements or franchise agreements prior to the Merger, we did not incur any amortization expense related tofavorable lease agreements for the 47 day period ended February 14, 2014, Fiscal 2013 and Fiscal 2012.Note 8. Accrued Expenses:Accrued expenses consisted of the following as of the dates presented: Successor Predecessor December 28, 2014 December 29, 2013 (in thousands)Current: Salaries and wages$13,236 $12,399Insurance6,514 6,976Taxes, other than income taxes10,434 9,393Other accrued operating expenses5,377 5,233 Accrued expenses$35,561 $34,001Noncurrent: Insurance$12,146 $13,194Accrued 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.68Table of ContentsNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)Note 9. Indebtedness and Interest Expense: Our long-term debt consisted of the following for the periods presented: Successor Predecessor December 28, 2014 December 29, 2013 (in thousands)Term loan facility$756,200 $—Revolving credit facility— 361,500Senior notes255,000 —Note payable113 — Total debt outstanding1,011,313 361,500Less: Unamortized original issue discount(3,327) — Current portion(9,545) —Bank indebtedness and other long-term debt, less current portion$998,441 $361,500Predecessor FacilityIn connection with the Merger, on February 14, 2014, we repaid the total outstanding borrowings of $348.0 million under the Predecessor’srevolving credit facility (the “Predecessor Facility”), as well as all incurred and unpaid interest on the Predecessor Facility. The debt issuance costs related tothe Predecessor Facility were removed from our Consolidated Balance Sheets through acquisition accounting.The weighted average effective interest rate incurred on our borrowings under our Predecessor Facility for the 47 day period ended February 14,2014, and the fiscal year ended December 29, 2013 was 1.6% and 1.7%, respectively.Secured Credit FacilitiesIn connection with the Merger on February 14, 2014, we entered into new senior secured credit facilities (the “Secured Credit Facilities”), whichinclude a $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 revolvingcredit facility with a 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”). Upon the consummation of the Merger, we had no borrowings outstanding under the revolving credit facility and $11.1 millionof letters of credit issued but undrawn under the facility. As of December 28, 2014, we had no borrowings outstanding under the revolving credit facility and$10.9 million of letters of credit issued but undrawn under the facility.In addition, we may request one or more incremental term loan facilities and/or increase commitments under our revolving credit facility in anaggregate 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 facilitiesthat rank equally and without preference with the liens on the collateral securing the Secured Credit Facilities, our consolidated net first lien senior securedleverage 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 collateralsecuring the Secured Credit Facilities, our consolidated total net secured leverage ratio would be no greater than 5.25 to 1.0, subject to certain conditions,and receipt of commitments by existing or additional lenders.All borrowings under our revolving credit facility are subject to the satisfaction of customary conditions, including the absence of a default and theaccuracy 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 aportion of the Acquisition. We paid $17.8 million and $3.4 million in debt issuance costs related to the term loan facility and revolving credit facility,respectively, which we capitalized in “Deferred financing costs, net” on our Consolidated Balance Sheets. The original issue discount and deferred financingcosts are amortized over the lives of the facilities and are included in “Interest expense” on our Consolidated Statements of Earnings.Borrowings under the Secured Credit Facilities bear interest at a rate equal to, at our option, either (a) a London Interbank Offered Rate (“LIBOR”)determined by reference to the costs of funds for Eurodollar deposits for the interest period relevant to such borrowings, adjusted for certain additional costs,subject to a 1.00% floor in the case of term loans or (b) a base69Table of ContentsNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)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 initial applicable margin for borrowings is 3.25% with respect toLIBOR borrowings and 2.25% with respect to base rate borrowings under the term loan facility and base rate borrowings and swingline borrowings under therevolving credit facility. The applicable margin for borrowings under the term loan facility is subject to one step down based on our net first lien seniorsecured leverage ratio, and the applicable margin for borrowings under the revolving credit facility is subject to two step-downs based on our net first liensenior secured leverage ratio. During the 317 day period ended December 28, 2014, the federal funds rate ranged from 0.06% to 0.13%, the prime rate was3.25% and the one-month LIBOR ranged from 0.15% to 0.17%.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 therevolving credit facility is subject to a step-down based on our first lien senior secured leverage ratio. We are also required to pay customary agency fees, aswell 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 ofthe daily stated amount of outstanding letters of credit, plus such letter of credit issuer’s customary documentary and processing fees and charges and afronting fee computed at a rate equal to 0.125% per annum on the daily stated amount of each letter of credit.During the third quarter of 2014, we achieved a first lien senior secured leverage ratio of less than 3.25 to 1.00. As a result, the applicable marginunder the term loan facility was stepped down from 3.25% to 3.00% with respect to LIBOR borrowings and was stepped down from 2.25% to 2.00% withrespect to base rate borrowings. The commitment fee’s applicable margin in relation to our revolving credit facility that is currently unutilized, with theexception of our outstanding letters of credit issued but undrawn, was stepped down from 0.50% to 0.375%. These step-downs took effect in the middle ofNovember 2014.The weighted average effective interest rate incurred on our borrowings under our Secured Credit Facilities was 4.8% for the 317 day period endedDecember 28, 2014, which includes amortization of debt issuance costs related to our Secured Credit Facilities, amortization of our term loan facility originalissue discount, and commitment and other fees related to our Secured Credit Facilities.The Secured Credit Facilities require scheduled quarterly payments on the term loan equal to 0.25% of the original principal amount of the termloan from July 2014 to November 2021, with the balance paid at maturity. In addition, the Secured Credit Facilities include customary mandatoryprepayment requirements based on certain events, such as asset sales, debt issuances and defined levels of excess cash flow.We may voluntarily repay outstanding loans under the Secured Credit Facilities at any time, without prepayment premium or penalty, except inconnection with a repricing event as described below, subject to customary “breakage” costs with respect to LIBOR rate loans. Any refinancing through theissuance or repricing amendment of any debt that results in a repricing event applicable to the term loan facility borrowings resulting in a lower yieldoccurring at any time during the first six months after the closing date will be accompanied by a 1.00% prepayment premium or fee, as applicable.Our revolving credit facility includes a springing financial maintenance covenant that requires our net first lien senior secured leverage ratio not toexceed 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 SeniorCredit 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. As of December 28, 2014, theborrowings under the revolving credit facility were less than 30.0% of the outstanding commitments; therefore, the covenant was not in effect.The Secured Credit Facilities also contain customary affirmative covenants and events of default, and the negative 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-leasebacktransactions; (viii) change our lines of business; restrict dividends from our subsidiaries or restrict liens; (ix) change our fiscal year; and (x) modify the termsof certain debt or organizational agreements. The acquisitions and sale leaseback transaction and discussed in Note 2. “Acquisition of CEC Entertainment,Inc.”, Note 3. “Acquisition of Peter Piper Pizza” and Note 12. “Sale Leaseback Transaction” were permitted under the Secured Credit Facilities agreement.All obligations under the Secured Credit Facilities are unconditionally guaranteed by Parent on a limited-recourse basis and each of our existing andfuture direct and indirect material, wholly owned domestic subsidiaries, subject to certain70Table of ContentsNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)exceptions. The obligations are secured by a pledge of our capital stock and substantially all of our assets and those of each subsidiary guarantor, includingcapital 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 casesubject to exceptions. Such security interests will consist of a first-priority lien with respect to the collateral.Senior Unsecured DebtAlso in connection with the Merger on February 14, 2014, we borrowed $248.5 million under a bridge loan facility (the “bridge loan facility”) andused the proceeds to fund a portion of the Acquisition. We incurred $4.7 million of financing costs and $0.2 million of interest related to the bridge loanfacility, which are included in “Interest expense” in our Consolidated Statements of Earnings for the 317 day period ended December 28, 2014.On February 19, 2014, we issued $255.0 million aggregate principal amount of 8.000% Senior Notes due 2022 (the “senior notes”) in a privateoffering. The senior notes bear interest at a rate of 8.000% per year and mature on February 15, 2022. On or after February 15, 2017, we may redeem some orall of the senior notes at certain redemption prices set forth in the indenture governing the senior notes (the “indenture”). Prior to February 15, 2017, we mayredeem (i) up to 40.0% of the original aggregate principal amount of the senior notes with the net cash proceeds of one or more equity offerings at a priceequal to 108.0% of the principal amount thereof, plus accrued and unpaid interest, or (ii) some or all of the notes at a price equal to 100.0% of the principalamount thereof, plus accrued and unpaid interest, plus the applicable “make-whole” premium set forth in the indenture.On October 14, 2014, the Company filed a preliminary prospectus under a Registration Statement on Form S-4 to offer to exchange $255.0 millionof registered 8.000% senior notes due 2022 and certain related guarantees (the “exchange notes”) for a like aggregate amount of our outstanding senior notesand certain related guarantees, which were issued on February 19, 2014 in connection with the Merger. The Registration Statement became effective onOctober 27, 2014, at which time we filed the final prospectus. The exchange offer began on October 28, 2014 and expired on December 2, 2014. All of theconditions to the exchange offer were satisfied, and we exchanged $255.0 million of our senior notes for $255.0 million of the exchange notes.The form and terms of the exchange notes are the same as the forms and terms of the initial senior notes except that the issuance of the exchangenotes is registered under the Securities Act, the exchange notes will not bear legends restricting their transfer and they will not be entitled to registrationrights under our registration rights agreement. The exchange notes will evidence the same debt as the initial notes, and both the initial senior notes and theexchange notes are governed by the same indenture. We refer to the senior notes and the exchange notes collectively as the “senior notes.”We paid $6.4 million in debt issuance costs related to the senior notes issued in February 2014, which we capitalized in “Deferred financing costs,net” on our Consolidated Balance Sheets. The deferred financing costs are being amortized over the life of the senior notes to “Interest expense” on ourConsolidated Statements of Earnings.The weighted average effective interest rate incurred on borrowings under our senior notes was 8.3% for the 317 day period ended December 28,2014, which included amortization of debt issuance costs and other fees related to our senior notes.Our obligations under the senior notes are fully and unconditionally guaranteed, jointly and severally, by our present and future direct and indirectwholly-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 ourcapital 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.71Table of ContentsNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)Debt ObligationsThe following table sets forth our future debt payment obligations as of December 28, 2014 (in thousands):One year or less$9,545Two years7,655Three years7,613Four years5,700Five years7,600Thereafter973,200 1,011,313Less: unamortized discount(3,327) $1,007,986Interest ExpenseInterest expense consisted of the following for the periods presented: Successor Predecessor For the 317 DayPeriod Ended For the 47 DayPeriod Ended Twelve MonthsEnded Twelve MonthsEnded December 28, 2014 February 14,2014 December 29, 2013 December 30, 2012 (in thousands) Term loan facility (1)$29,962 $— $— $—Senior notes17,697 — — —Bridge loan facility (2)4,943 — — —Predecessor Facility— 745 6,034 6,440Capital lease obligations1,541 275 1,610 2,193Sale leaseback obligations3,721 — — —Amortization of debt issuance costs3,488 58 459 447Other(400) 73 (650) 321 $60,952 $1,151 $7,453 $9,401 __________________(1) Includes amortization of original issue discount.(2) Includes debt issuance costs of $4.7 million related to the issuance of the Bridge Loan and $0.2 million interest.The weighted average effective interest rate incurred on our borrowings under our Secured Credit Facilities, bridge loan facility and senior notes was6.2% for the 317 day period ended December 28, 2014. Excluding the impact of $4.9 million of issuance costs and interest relating to the bridge loan facility,our weighted average effective rate would have been 5.7% for the 317 day period ended December 28, 2014.Note 10. 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 forconsidering market participant assumptions in fair value measurements, a fair value hierarchy that distinguishes between market participant assumptionsbased 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 beenestablished.72Table of ContentsNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)The following table presents information on our financial instruments as of the dates presented: Successor Predecessor December 28, 2014 December 29, 2013 Carrying Amount Estimated Fair Value Carrying Amount Estimated FairValue (in thousands)Financial Liabilities: Bank indebtedness and other long-term debt, less current portion $998,441 $974,084 $361,500 $361,500Our financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable, our Secured Credit Facilities and our seniornotes. The carrying amount of cash and cash equivalents, accounts receivable and accounts payable approximates fair value because of their short maturities.The estimated fair value of our secured credit facilities, term loan and senior notes was determined by using estimated market prices of our outstandingborrowings under our term loan facility and the senior notes, which 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 atcarrying 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 incircumstances indicate that their carrying value may not be recoverable, we assess our long-lived assets for impairment.During the 317 day period ended December 28, 2014, the 47 day period ended February 14, 2014 and the fiscal year ended December 29, 2013,there were no significant transfers among level 1, 2 or 3 fair value determinations.Note 11. Other Non-current Liabilities:Other non-current liabilities consisted of the following as of the dates presented: Successor Predecessor December 28, 2014 December 29, 2013 (in thousands)Sale leaseback obligations, less current portion (1) $181,282 $—Deferred rent liability 7,847 59,743Deferred landlord contributions 981 26,702Long-term portion of unfavorable leases 10,942 —Other 4,332 4,802Total other noncurrent liabilities $205,384 $91,247__________________(1)See Note 12 “Sale Leaseback Transaction” for further discussion on our sale leaseback obligations.Note 12. Sale Leaseback Transaction:On August 25, 2014, we completed a sale leaseback transaction (the “Sale Leaseback”) with National Retail Properties, Inc. (“NNN”). Pursuant to theSale Leaseback, we sold 49 properties located throughout the United States to NNN, and we leased each of the 49 properties back from NNN pursuant to twoseparate master leases on a triple-net basis for their continued use as Chuck E. Cheese’s family dining and entertainment centers. The leases have an initialterm of 20 years, with four five-year options to renew. For accounting purposes, these sale-leaseback transactions are accounted for under the financingmethod, rather than as completed sales. Under the financing method, we (i) include the sales proceeds received in other long-term liabilities until ourcontinuing involvement with the properties is terminated, (ii) report the associated property as owned assets, (iii) continue to depreciate the assets over theirremaining useful lives, and (iv) record the rental payments asinterest expense and a reduction of the sale leaseback obligation. When and if our continuing involvement with a property terminates and the sale of thatproperty 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 ofthe 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 andtransaction costs, realized by the Company were $143.2 million. A portion of the proceeds from the Sale Leaseback was used for the PPP Acquisition, asdiscussed in Note 3. “Acquisition of Peter Piper Pizza”. We expect to use the remaining net proceeds from the Sale Leaseback for capital expenditures, futureliquidity needs and other general corporate purposes. The cumulative proceeds received were $183.7 million. The long-term and current portions of ourobligation under the sale leaseback were $181.3 million and $1.7 million, respectively, as of December 28, 2014, and are included in “Other non-currentliabilities” and “Other current liabilities” in our Consolidated Balance Sheets. The net book value of the associated assets, which is included in ‘Property andequipment, net’ in our Consolidated Balance Sheets, was $84.3 million and $98.7 million as of December 28, 2014 and December 29, 2013, respectively.Our future minimum lease commitments related to the Sale Leaseback, as of December 28, 2014 for fiscal years 2015, 2016, 2017, 2018, 2019 andthereafter are, in thousands, $12,759, $13,014, $13,274, $13,540, $13,810 and $237,329.Note 13. Commitments and Contingencies:LeasesWe lease certain stores under operating and capital leases that expire at various dates through 2034 with renewal options that expire at various datesthrough 2045. The leases generally require us to pay a minimum rent, property taxes, insurance, other maintenance costs and, in some instances, additionalrent equal to the amount by which a percentage of the store’s revenues exceed certain thresholds as stipulated in the respective lease agreement. The leasesgenerally have initial terms of 10 to 20 years with various renewal options.The annual future lease commitments under capital lease obligations and non-cancelable operating leases, including reasonably assured optionperiods but excluding contingent rent, as of December 28, 2014, are as follows: Capital OperatingFiscal Years(in thousands)2015$2,201 $94,74820162,174 92,88520172,213 88,96820182,283 85,02920192,280 81,311Thereafter22,928 616,695Future minimum lease payments34,079 1,059,636Less amounts representing interest (interest rates range from 2.99% to 99.09%)(18,195) Present value of future minimum lease payments15,884 Less current portion(408) Capital lease obligations, net of current portion$15,476 73Table of ContentsNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)Rent expense, including contingent rent based on a percentage of stores’ sales, when applicable, was comprised of the following: Fiscal Years Successor Predecessor Predecessor Predecessor 317 Days EndedDecember 28, 2014 47 Days EndedFebruary 14, 2014 2013 2012 (in thousands)Minimum rentals$77,498 $12,480 $79,315 $76,151Contingent rentals117 36 103 138 $77,615 $12,516 $79,418 $76,289Rent expense of $0.9 million for the 317 days ended December 28, 2014, $0.1 million for the 47 days ended February 14, 2014, and $1.0 million in2013 and 2012 related to our corporate offices and warehouse facilities and was included in “General and administrative expenses” in our ConsolidatedStatements of Earnings.Unconditional Purchase ObligationsOur unconditional purchase obligations consist of agreements to purchase goods or services that are enforceable and legally binding on us and thatspecify all significant terms, including (a) fixed or minimum quantities to be purchased; (b) fixed, minimum or variable price provisions; and (c) theapproximate timing of the transaction. Our purchase obligations with terms in excess of one year totaled $3.9 million at December 28, 2014 and consisted ofobligations associated with the modernization of various information technology platforms. These purchase obligations exclude agreements that can becanceled without significant penalty.Legal ProceedingsFrom time to time, we are involved in various inquiries, investigations, claims, lawsuits and other legal proceedings that are incidental to theconduct of our business. These matters typically involve claims from customers, employees or other third parties involved in operational issues common tothe 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 ofclaims 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 currentlypending against us is not expected to have a material effect on our consolidated financial condition, results of operations or cash flows.Employment-Related Litigation: On January 27, 2014, former store employee Franchesca Ford filed a purported class action lawsuit against theCompany in San Francisco County Superior Court, California (the “Ford Litigation”). The plaintiff claims to represent other similarly-situated hourly non-exempt employees and former employees of the Company in California who were employed during the period January 27, 2010 to the present. She allegesviolations of California state wage and hour laws governing vacation pay, meal and rest period pay, wages due upon termination, and waiting time penalties,and seeks an unspecified amount in damages. On March 27, 2014, the Company removed the Ford Litigation to the U.S. District Court for the NorthernDistrict of California, San Francisco Division. On April 25, 2014, the plaintiff petitioned the court to remand the Ford Litigation to California state court; onJuly 10, 2014, that motion was denied, so the case will proceed in federal court. The parties have exchanged formal discovery. The Company’s investigationis ongoing. We believe the Company has meritorious defenses to this lawsuit and we intend to vigorously defend it. While no assurance can be given as tothe ultimate outcome of this matter, we currently believe that the final resolution of this action will not have a material adverse effect on our results ofoperations, financial position, liquidity or capital resources.On March 24, 2014, Franchesca Ford and Isabel Rodriguez filed a purported class action lawsuit against the Company in the U.S. District Court,Southern District of California, San Diego Division. The plaintiffs claim to represent other similarly-situated applicants who were subject to pre-employmentbackground checks with the Company in California and across the United States from March 24, 2012 to the present. The lawsuit alleges violations of theFair Credit Reporting Act and the California Consumer Credit Reporting and Investigative Reporting Agencies Act. On May 21, 2014, the Company filed ananswer to the complaint. On September 23, 2014, the Company reached an agreement to settle the lawsuit on a class-wide basis. The settlement would resultin the plaintiffs’ dismissal of all claims asserted in the action, as well as certain related but74Table of ContentsNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)unasserted claims, and grant of complete releases, in exchange for the Company’s settlement payment of up to $1,750,000 (a substantial portion of whichwould be covered by the Company’s insurance carrier). On January 16, 2015, the parties executed a written settlement agreement, which will be submitted tothe Court for approval. We currently believe that the final resolution of this action will not have a material adverse effect on our results of operations,financial position, liquidity or capital resources.The Company has accrued for all probable and reasonably estimable losses associated with the above claims.On October 17, 2014, former store employee Wiley Wright filed a purported class action lawsuit against the Company in the United States DistrictCourt, Eastern District of New York, claiming to represent other similarly-situated salaried exempt current and former employees of the Company in theUnited States during the period October 17, 2011 to the present. The lawsuit alleges current and former Assistant Managers and Senior Assistant Managerswere unlawfully classified as exempt from overtime protections and worked more than 40 hours a week without overtime premium pay in violation of the FairLabor Standards Act and New York Labor Law. The plaintiff seeks an unspecified amount in damages. On December 12, 2014, plaintiff moved forconditional certification of the putative class of employees; the Company filed its response to this motion on January 19, 2015. We believe the Company hasmeritorious defenses to this lawsuit and we intend to vigorously defend it. While no assurance can be given as to the ultimate outcome of this matter, wecurrently believe that the final resolution of this action will not have a material adverse effect on our results of operations, financial position, liquidity orcapital resources.On October 10, 2014, former store General Manager Richard Sinohui filed a purported class action lawsuit against the Company in the SuperiorCourt of California, Riverside County (the “Sinohui Litigation”), claiming to represent other similarly-situated current and former General Managers of theCompany in California during the period October 10, 2010 to the present. The lawsuit alleges current and former California General Managers wereunlawfully classified as exempt from overtime protections and worked more than 40 hours a week without overtime premium pay, paid rest periods and paidmeal periods, in violation of the California Labor Code, California Business and Professions Code, and the applicable Wage Order issued by the CaliforniaIndustrial Welfare Commission. The plaintiff seeks an unspecified amount in damages. On December 5, 2012, the Company removed the Sinohui Litigationto the U.S. District Court, Central District of California, Southern Division. On December 30, 2014, the plaintiff petitioned the court to remand the SinohuiLitigation to California state court. On January 21, 2015, the Company issued a formal written demand to the plaintiff to dismiss his motion to remand basedon recent case law. If the plaintiff does not voluntarily dismiss the Motion to Remand, the Court will hear the motion at a hearing currently scheduled forFebruary 27, 2015. The Company’s investigation is ongoing. While no assurance can be given as to the ultimate outcome of this matter, we currently believethat the final resolution of this action will not have a material adverse effect on our results of operations, financial position, liquidity or capital resources.Litigation Related to the Merger: Following the January 16, 2014 announcement that the Company had entered into the Merger Agreement, fourputative shareholder class actions were filed in the District Court of Shawnee County, Kansas, on behalf of purported stockholders of the Company againstthe Company, its directors, Apollo, Parent and Merger Sub, in connection with the Merger Agreement and the transactions contemplated thereby. The firstpurported class action, styled Hilary Coyne v. Richard M. Frank et al. (the “Coyne Action”), was filed on January 21, 2014. The second, styled John Solak v.CEC Entertainment, Inc. et al. (the “Solak Action”), was filed on January 22, 2014. The third, styled Irene Dixon v. CEC Entertainment, Inc. et al. (the “DixonAction”), was filed on January 24, 2014, and additionally names as defendants Apollo Management VIII, L.P. and the AP VIII Queso Holdings, L.P. Thefourth, styled Louisiana Municipal Public Employees’ Retirement System v. Frank, et al. (the “LMPERS Action”), was filed on January 31, 2014, andadditionally names as defendants, Apollo Management VIII, L.P. and AP VIII Queso Holdings, L.P. (collectively, Coyne, Solak, and Dixon Actions shall bereferred to as the “Shareholder Actions”).Each of the Shareholder Actions alleges that the Company’s directors breached their fiduciary duties to the Company’s stockholders in connectionwith their consideration and approval of the Merger Agreement by, among other things, agreeing to an inadequate tender price, the adoption on January 15,2014 of the Rights Agreement, and certain provisions in the Merger Agreement that allegedly made it less likely that the Board would be able to consideralternative acquisition proposals. The Coyne, Dixon and LMPERS Actions further allege that the Board was advised by a conflicted financial advisor. TheSolak, Dixon and LMPERS Actions further allege that the Board was subject to material conflicts of interest in approving the Merger Agreement and that theBoard breached its fiduciary duties in allowing allegedly conflicted members of management to negotiate the transaction. The Dixon and LMPERS Actionsfurther allege that the Board breached its fiduciary duties in approving the Solicitation/Recommendation Statement on Schedule 14D-9 (together with theexhibits and annexes thereto, as it may be amended or supplemented, the “Statement”) filed with the SEC on January 22, 2014, which allegedly containedmaterial misrepresentations and omissions.Each of the Shareholder Actions allege that Apollo aided and abetted the Board’s breaches of fiduciary duties. The Solak and Dixon Actions allegethat CEC also aided and abetted such breaches, and the Solak and LMPERS Actions further allege that75Table of ContentsNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)Parent and the Merger Sub aided and abetted such actions. The LMPERS Action further alleges that Apollo Management VIII, L.P. and AP VIII QuesoHoldings, L.P. aided and abetted such actions.The Shareholder Actions seek, among other things, rescission of the transactions, damages, attorneys’ and experts’ fees and costs, and otherunspecified relief.On January 24, 2014, the plaintiff in the Coyne Action filed an amended complaint (the “Coyne Amended Complaint”), and on January 30, 2014,the plaintiff in the Solak Action filed an amended complaint (the “Solak Amended Complaint”) (together, the “Amended Complaints”). The AmendedComplaints incorporate all of the allegations in the original complaints and add allegations that the Board-approved Statement omitted certain materialinformation, in further violation of the Board’s fiduciary duties, and request an order directing the Board to disclose such allegedly-omitted materialinformation. The Solak Amended Complaint also adds allegations that the Board breached its fiduciary duties in allowing an allegedly conflicted financialadvisor and management to lead the sales process.On March 7, 2014, the Coyne, Solak, Dixon and LMPERS Actions were consolidated into one action. The Company has accrued for all probableand reasonably estimable losses associated with this claim. The Company believes the consolidated lawsuit is without merit and intends to defend itvigorously. While no assurance can be given as to the ultimate outcome of the consolidated matter, we currently believe that the final resolution of the actionwill not have a material adverse effect on our results of operations, financial position, liquidity or capital resources.On June 10, 2014, Magnetar Global Event Driven Fund Ltd., Spectrum Opportunities Master Fund, Ltd., Magnetar Capital Master Fund, Ltd., andBlackwell Partners LLC, as the purported beneficial owners of shares held as of record by the nominal petitioner Cede & Co., (the “Appraisal Petitioners”),filed an action for statutory appraisal under Kansas state law against the Company in the U.S. District Court for the District of Kansas. The AppraisalPetitioners seek appraisal of 750,000 shares of common stock. The Company has answered the complaint and filed a verified list of stockholders, as requiredunder Kansas law. On September 3, 2014, the court entered a scheduling order that contemplates that discovery will commence in the fall of 2014 and willsubstantially be completed by May 2015. Following discovery, the scheduling order contemplates dispositive motion practice followed, potentially, by atrial on the merits of the Appraisal Petitioners’ claims thereafter. The Company has accrued for all probable and reasonably estimable losses associated withthis claim. The Company believes the lawsuit is without merit and intends to defend it vigorously. While no assurance can be given as to the ultimateoutcome of this matter, we currently believe that the final resolution of this action will not have a material adverse effect on our results of operations,financial position, liquidity or capital resources.Note 14. Income Taxes:Our income tax expense (benefit) consists of the following for the periods presented: Successor Predecessor For the 317 DayPeriod Ended For the 47 DayPeriod Ended Fiscal Years December 28,2014 February 14,2014 2013 2012 (in thousands)Current tax expense (benefit): Federal 26,702 2,505 26,950 23,903 State 4,984 390 4,191 2,936 Foreign (255) (92) 78 77 31,431 2,803 31,219 26,916Deferred tax expense (benefit): Federal (52,251) (2,282) (2,099) (619) State (9,909) 302 (732) (36) Foreign (394) 195 (194) (181) (62,554) (1,785) (3,025) (836)Income tax expense (benefit) (31,123) 1,018 28,194 26,08076Table of ContentsNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)A reconciliation of the federal statutory income tax rate to our effective tax rate is as follows: Successor Predecessor For the 317 DayPeriod Ended For the 47 DayPeriod Ended Fiscal Years December 28,2014 February 14,2014 2013 2012Federal statutory rate 35.0 % 35.0 % 35.0 % 35.0 %State income taxes, net of federal benefit 3.8 % 20.5 % 3.0 % 3.4 %Federal income tax credits, net 0.4 % (2.0)% (1.2)% (0.5)%Merger and acquisition related costs (4.8)% 3.1 % — % — %State tax credit, valuation adjustment (0.4)% 5.6 % — % — %Other (0.6)% (3.1)% 0.3 % (0.5)% Effective tax rate 33.4 % 59.1 % 37.1 % 37.4 % Successor Predecessor December 28,2014 December 29,2013 (in thousands)Deferred tax assets: Accrued compensation$2,548 $2,180Unearned revenue2,105 3,645Deferred rent2,497 23,209Stock-based compensation270 2,781Accrued insurance and employee benefit plans8,462 7,915 Unrecognized tax benefits (1)1,471 1,373NOL and Other Carryforwards8,483 —Loan Costs1,758 —Other527 2,880Gross deferred tax assets28,121 43,983Deferred tax liabilities: Depreciation and amortization(59,871) (96,394)Prepaid assets(1,238) (1,636)Intangibles(183,102) —Favorable/Unfavorable Leases(795) —Other(2,087) (1,693)Gross deferred tax liabilities(247,093) (99,723)Net deferred tax liability$(218,972) $(55,740)Amounts reported on Consolidated Balance Sheets: Current deferred tax asset$3,943 $2,091Non-current deferred tax liability(222,915) (57,831)Net deferred tax liability$(218,972) $(55,740)_________________(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 aresettled.Our effective income tax rate of 33.4% for the 317 day period ended December 28, 2014 differs from the statutory rate primarily due to theunfavorable impact of non-deductible costs related to the Merger as well as the Peter Piper Pizza Acquisition.77Table of ContentsNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)Our effective income tax rate of 59.1% for the 47 day period ended February 14, 2014 differs from the statutory rate due to the unfavorable impact ofnon-deductible costs related to the Merger, a net increase in our liability for uncertain tax positions, an increase in income tax expense resulting from certainstate income tax credits carried forward which we estimate will expire unused, partially offset by federal employment related tax credits.As of December 28, 2014, we have $21.2 million of federal net operating loss carryforwards (expiring at the end of tax years 2019 through 2030),$3.8 million of state net operating loss carryforwards (expiring at the end of tax years 2015 through 2034), and $0.2 million of Alternative Minimum Taxcredit carryforwards (with no expiration). These net operating loss and credit carryforwards relate to Peter Piper Pizza, and our ability to use these taxattributes to offset future taxable income and tax is limited by Section 382 of the Internal Revenue Code. However, we do not believe the Section 382limitation will prevent us from fully utilizing these carryforwards.As of December 28, 2014, we have state income tax credit carryforwards, net of federal benefits of $1.3 million (which are not subject to Section 382limitations), with a valuation allowance, net of federal benefit, of $0.6 million. As of December 29, 2013, we had state income tax credit carryforwards, net offederal benefit, of $1.4 million with a valuation allowance, net of federal benefit, of $0.1 million.Our net deferred tax liability increased from $55.7 million as of December 29, 2013 to $219.0 million as of December 28, 2014. The increaseprimarily relates to the tax effect of acquisition accounting adjustments made to the financial statement carrying value of our assets and liabilities of $214.8million resulting from the Merger, $12.9 million related to the Peter Piper Pizza Acquisition (including the tax effect of acquisition accounting adjustmentsrelating to the carrying value of Peter Piper Pizza’s assets and liabilities) partially offset by a deferred tax benefit of $1.8 million in the 47 day period endedFebruary 14, 2014 and a deferred tax benefit of $62.6 million in the 317 day period ended December 28, 2014.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 subjectto regular examination by various tax authorities. Certain of our federal and state income tax returns are currently under examination and are in various stagesof 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 before2011 with the exception of adjustments included in certain amended returns filed in 2011, 2012 and 2013 for tax years 2006 through 2009 and Peter PiperPizza federal income tax returns with net operating losses which have been carried forward (whereas, adjustments can be made to these returns until therespective statute of limitations expire for the particular tax years the net operating losses are utilized). In general, our state income tax statutes of limitationshave expired for tax years ended before 2010 with similar exceptions as noted above regarding our federal tax returns (amended state tax returns filed for taxyears 2006 through 2009 and Peter Piper Pizza state income tax returns generating net operating loss carryforwards). In general, the statute of limitations forour Canada income tax returns has expired for tax years ended before 2010.A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows: Fiscal Year 2014 2013 2012 (in thousands)Balance at beginning of period$2,598 $2,923 $4,497 Additions for tax positions taken in the current year168 223 511 Increases for tax positions taken in prior years613 463 1,076 Decreases for tax positions taken in prior years(421) (422) (1,063) Settlement with tax authorities(114) (283) (1,699) Expiration of statute of limitations(962) (306) (399)Balance at end of period$1,882 $2,598 $2,923Our liability for uncertain tax positions (excluding interest and penalties) was $1.9 million and $2.6 million as of December 28, 2014 andDecember 29, 2013, respectively, and if recognized would decrease our provision for income taxes by $1.2 million. Within the next twelve months, we couldsettle or otherwise conclude certain ongoing income tax audits. As such, it is reasonably possible that the liability for uncertain tax positions could decreaseby as much as $0.4 million as a result of settlements with certain taxing authorities and expiring statutes of limitations within the next twelve months.78Table of ContentsNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)The total accrued interest and penalties related to unrecognized tax benefits as of December 28, 2014 and December 29, 2013, was $1.5 million and$1.9 million, respectively. On the Consolidated Balance Sheets, we include current accrued interest related to unrecognized tax benefits in “Accruedinterest,” current accrued penalties in “Accrued expenses” and non-current accrued interest and penalties in “Other non-current liabilities.”Note 15. Stock-Based Compensation Arrangements:Predecessor Restricted Stock PlansPrior to the Merger, our stock-based compensation plans permitted us to grant awards of restricted stock to our employees and non-employeedirectors. Certain of these awards were subject to performance-based criteria. Our stock-based compensation plans had provisions allowing for the automaticvesting of awards granted under those plans following a change of control, as defined in the applicable plan. The fair value of all stock-based awards, lessestimated forfeitures, if any, and portions capitalized as described below, was recognized as stock-based compensation expense in “General andadministrative expenses” in the Consolidated Statements of Earnings over the period that services were required to be provided in exchange for the award.In connection with the Merger, all unvested restricted stock awards to our employees and non-employee directors became fully vested, and at theeffective time of the Merger, each such share of restricted stock was canceled and converted into the right to receive an amount equal to the offer price of$54.00 per share, plus an amount in cash equal to all accrued but unpaid dividends relating to such shares, without interest and less any withholding requiredby applicable tax laws. We recorded $11.1 million in stock-based compensation expense related to the acceleration of restricted stock awards in “Transactionand severance cost” in the Consolidated Statements of Earnings during the 47 day period ended February 14, 2014.Successor Stock Options PlanIn the Successor period, the Board of Directors of Parent adopted the 2014 Equity Incentive Plan, whereby Parent may grant equity incentive stockoptions, nonqualified stock options, stock appreciation rights, restricted stock, restricted stock units, stock bonus awards or performance compensationawards to certain directors, officers or employees of the Company.During the 317 day period ended December 28, 2014, Parent granted options to purchase 2,324,870 shares 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 betweenTranches A, B and C, which have different vesting requirements. The options in Tranche A are service based and vest and become exercisable in equalinstallments on each of the first five anniversaries of February 14, 2014. The Black-Scholes model was used to estimate the fair value of Tranche A stockoptions. Tranche B and Tranche C options are performance based and vest and become exercisable when certain market conditions are met. The Monte Carlosimulation model was used to estimate the fair value of Tranche B and Tranche C stock options. The options are also subject to accelerated vesting in theevent of certain terminations of employment upon or within 12 months following a change in control of Queso Holdings Inc. Compensation costs related tooptions in the Parent were recorded by CEC. Stock Options Unvested stock options, February 14, 2014 — Granted 2,324,870 Forfeited (37,407) Unvested stock options, December 28, 2014 2,287,463 Stock options expected to vest, December 28, 2014 2,287,463 Exercisable stock options, December 28, 2014 — As of December 28, 2014, we had $3.1 million of total unrecognized share-based compensation expense related to unvested options, net of expectedforfeitures, which is expected to be amortized over the remaining weighted-average period of 4.2 years.79Table of ContentsNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Successor Predecessor For the 317 DayPeriod Ended For the 47 DayPeriod Ended Fiscal Years December 28, 2014 February 14, 2014 2013 2012 (in thousands)Stock-based compensation costs$713 $1,117 $8,660 $7,595Portion capitalized as property and equipment (1)(10) — (179) (127)Stock-based compensation costs related to the accelerated vesting of restrictedstock awards in connection with the Merger— 11,108 — —Stock-based compensation expense recognized$703 $12,225 $8,481 $7,468Tax benefit recognized from stock-based compensation awards (2)$4,874 $— $3,377 $2,947 __________________(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 storedevelopment projects, such as the design and construction of a new store and the remodeling and expansion of our existing stores. Capitalized stock-based compensation costsattributable to our store development projects are included in “Property and equipment, net” in the Consolidated Balance Sheets.(2)Included in tax benefit recognized is the $5.0 million tax benefit related to the accelerated vesting of restricted stock awards in the 317 day period ended December 28, 2014,as such tax benefit will be deductible for income tax purposes on the Successor tax return for fiscal year 2014.Note 16. Stockholders’ Equity:SuccessorWe have one class of common capital stock, our Successor common stock, as disclosed on our Consolidated Balance Sheets. All outstandingcommon stock is owned by Queso Holdings, Inc. As of December 28, 2014 we have 200 shares issued and outstanding. See further discussion in Note 2.“Acquisition of CEC Entertainment, Inc.”PredecessorPrior to the Merger, we had one class of common capital stock, our Predecessor common stock, as disclosed on our Consolidated Balance Sheets.Holders of our common stock were entitled to one vote per share held on all matters submitted to a vote of the stockholders.Our articles of incorporation authorized our Board of Directors (“Board”), at its discretion, to issue up to 500,000 shares of Class B Preferred Stock(“Preferred B Stock”), par value $100. Shares of Preferred B Stock could be issued in one or more series and were entitled to dividends, voting powers,liquidation preferences, conversion and redemption rights and certain other rights and preferences as determined by the Board. As of December 29, 2013,there were no shares of Preferred B Stock issued or outstanding.Stock Repurchase ProgramOn April 30, 2013, our Board authorized a $100 million increase to our existing Board approved stock repurchase program. During 2013 and 2012,we repurchased, under our repurchase program, 526,246 shares and 406,507 shares, respectively, of our common stock at an aggregate purchase price of $18.1million and $14.4 million, respectively. As of December 29, 2013, $128.9 million remained available for us to repurchase shares of our common stock in thefuture, under our approved stock repurchase program.In accordance with the Merger Agreement, our ability to repurchase shares of our common stock is restricted. Although there are no current plans tomodify the implementation of our stock repurchase program, our Board may elect to accelerate, expand, suspend, delay or discontinue the program at anytime. See further discussion of the Merger in Note 2. “Acquisition of CEC Entertainment, Inc.”Cash DividendsOn October 29, 2013, our Board had approved a 13% increase in the Company’s quarterly cash dividend. We declared dividends to commonstockholders during 2013 of $17.4 million. In accordance with the Merger Agreement, our ability to declare dividends is restricted. See further discussion ofthe Merger in Note 2. “Acquisition of CEC Entertainment, Inc.”80Table of ContentsNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)Note 17. Consolidating Guarantor Financial Information:The senior notes issued by CEC Entertainment, Inc. (the “Issuer”) in conjunction with the Acquisition are our unsecured obligations and are fullyand unconditionally, jointly and severally guaranteed by all of our wholly-owned U.S. subsidiaries (the “Guarantors”). Our wholly-owned foreignsubsidiaries and our less-than-wholly-owned U.S. subsidiaries are not a party to the guarantees (the “Non-Guarantors”). The following schedules present thecondensed consolidating financial statements of the Issuer, Guarantors and Non-Guarantors, as well as consolidated results, for the periods presented:81Table of ContentsNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)CEC Entertainment, Inc.Condensed Consolidating Balance SheetAs of December 28, 2014(in thousands) Successor Issuer Guarantor Non-Guarantors Eliminations ConsolidatedCurrent assets: Cash and cash equivalents $97,020 $6,427 $7,547 $— $110,994Accounts receivable 13,209 5,487 3,797 (3,658) 18,835Inventories 15,008 3,596 375 — 18,979Other current assets 19,086 3,711 2,040 — 24,837Total current assets 144,323 19,221 13,759 (3,658) 173,645Property and equipment, net 638,239 33,064 10,669 — 681,972Goodwill 432,462 50,982 — — 483,444Intangible assets, net 24,649 466,751 — — 491,400Intercompany 129,429 25,090 32,655 (187,174) —Investment in subsidiaries 428,836 — — (428,836) —Other noncurrent assets 27,770 5,875 37 — 33,682Total assets $1,825,708 $600,983 $57,120 $(619,668) $1,864,143Current liabilities: Bank indebtedness and other long-term debt,current portion $9,500 $45 $— $— $9,545Capital lease obligations, current portion 405 — 3 — 408Accounts payable and accrued expenses 82,995 21,989 (248) (484) 104,252Other current liabilities 2,990 — — — 2,990Total current liabilities 95,890 22,034 (245) (484) 117,195Capital lease obligations, less current portion 15,395 — 81 — 15,476Bank indebtedness and other long-term debt, less currentportion 998,374 67 — — 998,441Deferred tax liability 207,258 14,877 780 — 222,915Intercompany 6,309 126,497 57,542 (190,348) —Other noncurrent liabilities 209,896 7,472 162 — 217,530Total liabilities 1,533,122 170,947 58,320 (190,832) 1,571,557Stockholders' equity: Common stock — — — — —Capital in excess of par value 355,587 465,451 3,089 (468,540) 355,587Retained earnings (deficit) (62,088) (35,415) (3,376) 38,791 (62,088)Accumulated other comprehensive income (loss) (913) — (913) 913 (913)Total stockholders' equity 292,586 430,036 (1,200) (428,836) 292,586Total liabilities and stockholders' equity $1,825,708 $600,983 $57,120 $(619,668) $1,864,14382Table of ContentsNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)CEC Entertainment, Inc.Condensed Consolidating Balance SheetAs of December 29, 2013(in thousands) Predecessor Issuer Guarantor Non-Guarantors Eliminations ConsolidatedCurrent assets: Cash and cash equivalents $10,177 $1,914 $8,595 $— $20,686Accounts receivable 22,686 1,420 3,752 (2,977) 24,881Inventories 15,865 2,965 420 — 19,250Other current assets 16,367 3,222 2,613 — 22,202Total current assets 65,095 9,521 15,380 (2,977) 87,019Property and equipment, net 661,593 15,242 14,619 — 691,454Goodwill 3,458 — — — 3,458Intercompany 20,689 379,695 1,636 (402,020) —Investment in subsidiaries 6,190 — — (6,190) —Other noncurrent assets 4,333 5,305 1,344 (1,302) 9,680Total assets $761,358 $409,763 $32,979 $(412,489) $791,611Current liabilities: Capital lease obligations, current portion $947 $— $67 $— $1,014Accounts payable and accrued expenses 61,680 21,665 1,907 — 85,252Other current liabilities 440 — — — 440Total current liabilities 63,067 21,665 1,974 — 86,706Capital lease obligations, less current portion 19,752 — 613 — 20,365Bank indebtedness and other long-term debt — 361,500 — — 361,500Deferred tax liability 58,996 — 184 (1,349) 57,831Intercompany 362,748 12,224 29,978 (404,950) —Other noncurrent liabilities 96,027 4,432 3,982 — 104,441Total liabilities 600,590 399,821 36,731 (406,299) 630,843Stockholders' equity: Common stock 6,187 — — — 6,187Capital in excess of par value 453,702 — — — 453,702Retained earnings (deficit) 853,464 9,942 (8,516) (1,426) 853,464Accumulated other comprehensive income (loss) 4,764 — 4,764 (4,764) 4,764Less treasury stock (1,157,349) — — — (1,157,349)Total stockholders' equity 160,768 9,942 (3,752) (6,190) 160,768Total liabilities and stockholders' equity $761,358 $409,763 $32,979 $(412,489) $791,61183Table of ContentsNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)CEC Entertainment, Inc.Consolidating Statement of Comprehensive Income (Loss)For the 317 Day Period Ended December 28, 2014(in thousands) Successor Issuer Guarantor Non-Guarantors Eliminations ConsolidatedRevenues: Food and beverage sales $293,407 $8,259 $6,030 $— $307,696Entertainment and merchandise sales 391,818 2,490 10,094 — 404,402Total Company store sales 685,225 10,749 16,124 — 712,098Franchise fees and royalties 1,813 4,670 — — 6,483International Association assessments and other fees 1,006 1,233 37,388 (39,627) —Total revenues 688,044 16,652 53,512 (39,627) 718,581Operating Costs and Expenses: Company store operating costs: Cost of food and beverage 75,772 2,324 1,900 — 79,996Cost of entertainment and merchandise 23,832 244 660 (128) 24,608Total cost of food, beverage,entertainment and merchandise 99,604 2,568 2,560 (128) 104,604Labor expenses 192,651 2,922 5,282 — 200,855Depreciation and amortization 111,816 1,197 2,938 — 115,951Rent expense 73,337 938 2,423 — 76,698Other store operating expenses 112,669 2,445 3,410 1,372 119,896Total Company store operating costs590,07710,07016,6131,244618,004Advertising expense38,51163831,712(37,159)33,702General and administrative expenses18,41434,1761,091(3,712)49,969Transaction and severance costs40,9987,760——48,758Asset Impairment403364—407Total operating costs and expenses688,04052,64749,780(39,627)750,840Operating income (loss)4(35,995)3,732—(32,259)Equity in earnings (loss) in affiliates(36,988)——36,988—Interest expense59,644770538—60,952Income (loss) before income taxes(96,628)(36,765)3,19436,988(93,211)Income tax expense (benefit)(34,540)2,441976—(31,123)Net income (loss)$(62,088)$(39,206)$2,218$36,988$(62,088)Components of other comprehensive income (loss),net of tax:Foreign currency translation adjustments$(913)$—$(913)$913$(913)Total components of othercomprehensive income (loss), net of tax(913)—(913)913(913)Comprehensive income (loss)$(63,001)$(39,206)$1,305$37,901$(63,001)84Table of ContentsNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)CEC Entertainment, Inc.Consolidating Statement of Comprehensive Income (Loss)For the 47 Day Period Ended February 14, 2014(in thousands) Predecessor Issuer Guarantor Non-Guarantors Eliminations ConsolidatedRevenues: Food and beverage sales $49,803 $32 $1,062 $— $50,897Entertainment and merchandise sales 61,082 — 1,577 — 62,659Total Company store sales 110,885 32 2,639 — 113,556Franchise fees and royalties 353 334 — — 687International Association assessments and other fees — 4,558 6,095 (10,653) —Total revenues 111,238 4,924 8,734 (10,653) 114,243Operating Costs and Expenses: Company store operating costs: Cost of food and beverage 11,924 25 336 — 12,285Cost of entertainment and merchandise 3,618 — 131 (20) 3,729Total cost of food, beverage,entertainment and merchandise 15,542 25 467 (20) 16,014Labor expenses 31,107 — 891 — 31,998Depreciation and amortization 9,430 — 303 — 9,733Rent expense 11,962 — 403 — 12,365Other store operating expenses 20,193 (44) (82) (4,307) 15,760Total Company store operating costs88,234(19)1,982(4,327)85,870Advertising expense6,144175,853(6,111)5,903General and administrative expenses4,1243,863191(215)7,963Transaction and severance costs1,8009,834——11,634Total operating costs and expenses100,30213,6958,026(10,653)111,370Operating income (loss)10,936(8,771)708—2,873Equity in earnings (loss) in affiliates(4,523)——4,523—Interest expense (income)1,822(771)100—1,151Income (loss) before income taxes4,591(8,000)6084,5231,722Income tax expense (benefit)3,887(3,040)171—1,018Net income (loss)$704$(4,960)$437$4,523$704Components of other comprehensive income (loss),net of tax:Foreign currency translation adjustments$(541)$—$(541)$541$(541)Total components of othercomprehensive income (loss), net of tax(541)—(541)541(541)Comprehensive income (loss)163$(4,960)$(104)$5,064$16385Table of ContentsNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)CEC Entertainment, Inc.Consolidating Statement of Comprehensive Income (Loss)For the Twelve Months Ended December 29, 2013(in thousands) Predecessor Issuer Guarantor Non-Guarantors Eliminations ConsolidatedRevenues: Food and beverage sales $358,931 $683 $9,016 $(46) $368,584Entertainment and merchandise sales 434,429 — 13,726 — 448,155Total Company store sales 793,360 683 22,742 (46) 816,739Franchise fees and royalties 2,363 2,619 — — 4,982International Association assessments and other fees — 63,400 43,463 (106,863) —Total revenues 795,723 66,702 66,205 (106,909) 821,721Operating Costs and Expenses: Company store operating costs: Cost of food and beverage 87,543 33 2,787 — 90,363Cost of entertainment and merchandise 28,952 (32) 915 (60) 29,775Total cost of food, beverage, entertainmentand merchandise 116,495 1 3,702 (60) 120,138Labor expenses 222,085 — 7,087 — 229,172Depreciation and amortization 76,026 — 2,141 — 78,167Rent expense 75,681 — 2,782 — 78,463Other store operating expenses 189,087 (460) 4,782 (62,374) 131,035Total Company store operating costs 679,374 (459) 20,494 (62,434) 636,975Advertising expense 44,244 — 40,411 (43,438) 41,217General and administrative expenses 17,817 38,617 1,294 (1,037) 56,691Transaction and severance costs 316 — — — 316Asset impairment 2,241 — 810 — 3,051Total operating costs and expenses 743,992 38,158 63,009 (106,909) 738,250Operating income (loss) 51,731 28,544 3,196 — 83,471Equity in earnings (loss) in affiliates 23,240 — — (23,240) —Interest expense (income) 12,620 (6,002) 835 — 7,453Income (loss) before income taxes 62,351 34,546 2,361 (23,240) 76,018Income tax expense (benefit) 14,527 12,877 790 — 28,194Net income (loss) $47,824 $21,669 $1,571 $(23,240) $47,824 Components of other comprehensive income (loss), netof tax: Foreign currency translation adjustments $(1,116) $— $(1,116) $1,116 $(1,116)Total components of other comprehensiveincome (loss), net of tax (1,116) — (1,116) 1,116 (1,116)Comprehensive income (loss) $46,708 $21,669 $455 $(22,124) $46,70886Table of ContentsNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)CEC Entertainment, Inc.Consolidating Statement of Comprehensive Income (Loss)For the Twelve Months Ended December 30, 2012(in thousands) Predecessor Issuer Guarantor Non-Guarantors Eliminations ConsolidatedRevenues: Food and beverage sales $361,696 $1,641 $9,611 $— $372,948Entertainment and merchandise sales 410,853 1,132 14,004 — 425,989Total Company store sales 772,549 2,773 23,615 — 798,937Franchise fees and royalties 2,459 2,084 — — 4,543International Association assessments and other fees — 57,863 30,019 (87,882) —Total revenues 775,008 62,720 53,634 (87,882) 803,480Operating Costs and Expenses: Company store operating costs: Cost of food and beverage 89,946 316 3,155 — 93,417Cost of entertainment and merchandise 29,860 66 929 — 30,855Total cost of food, beverage, entertainment andmerchandise 119,806 382 4,084 — 124,272Labor expenses 215,787 558 7,260 — 223,605Depreciation and amortization 76,323 188 2,258 — 78,769Rent expense 72,218 258 2,836 — 75,312Other store operating expenses 179,394 240 5,026 (57,805) 126,855Total Company store operating costs 663,528 1,626 21,464 (57,805) 628,813Advertising expense 32,791 89 32,521 (29,994) 35,407General and administrative expenses 18,176 34,349 995 (83) 53,437Asset impairment 6,012 — 740 — 6,752Total operating costs and expenses 720,507 36,064 55,720 (87,882) 724,409Operating income (loss) 54,501 26,656 (2,086) — 79,071Equity in earnings (loss) in affiliates 18,146 — — (18,146) —Interest expense (income) 12,922 (4,218) 697 — 9,401Income (loss) before income taxes 59,725 30,874 (2,783) (18,146) 69,670Income tax expense (benefit) 16,135 10,937 (992) — 26,080Net income (loss) $43,590 $19,937 $(1,791) $(18,146) $43,590 Components of other comprehensive income (loss), net oftax: Foreign currency translation adjustments $538 $— $538 $(538) $538Total components of other comprehensiveincome (loss), net of tax 538 — 538 (538) 538Comprehensive income (loss) $44,128 $19,937 $(1,253) $(18,684) $44,12887Table of ContentsNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)CEC Entertainment, Inc.Consolidating Statement of Cash FlowsFor the 317 Day Period Ended December 28, 2014(in thousands) Successor Issuer Guarantors Non-Guarantors Eliminations ConsolidatedCash flows provided by (used in) operating activities: $70,034 $(24,166) $2,223 $— $48,091 Cash flows from investing activities: Acquisition of Predecessor (946,898) — — — (946,898) Acquisition of Peter Piper Pizza (118,409) 5,267 — — (113,142) Intercompany Note — 375,539 — (375,539) — Purchases of property and equipment (55,299) (5,665) (1,593) — (62,557) Development of internal use software — (2,130) — — (2,130) Proceeds from sale of property and equipment 23 419 — — 442Cash flows provided by (used in) investing activities (1,120,583) 373,430 (1,593) (375,539) (1,124,285) Cash flows from financing activities: Net proceeds from senior term loan, net oforiginal issue discount 756,200 — — — 756,200 Net proceeds from senior unsecured notes 255,000 — — — 255,000 Repayment of Predecessor Facility — (348,000) — — (348,000) Repayments on senior term loan (3,800) (7) — — (3,807) Intercompany Note (375,539) 5,050 (5,050) 375,539 — Proceeds from financing sale-leasebacktransaction 183,685 — — — 183,685 Payment of debt financing costs (27,575) — — — (27,575) Payments on capital lease obligations (297) — — — (297) Payments on sale leaseback transactions (742)—— — — (742) Dividends paid (890) — — — (890) Excess tax benefit realized from stock-basedcompensation 4,874 — — — 4,874 Equity contribution 350,000 — — — 350,000Cash flows provided by (used in) financing activities 1,140,916 (342,957) (5,050) 375,539 1,168,448Effect of foreign exchange rate changes on cash — — (444) — (444) Change in cash and cash equivalents 90,367 6,307 (4,864) — 91,810Cash and cash equivalents at beginning of period 6,653 120 12,411 — 19,184Cash and cash equivalents at end of period $97,020 $6,427 $7,547 $— $110,99488Table of ContentsNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)CEC Entertainment, Inc.Consolidating Statement of Cash FlowsFor the 47 Day Period Ended February 14, 2014(in thousands) Predecessor Issuer Guarantors Non-Guarantors Eliminations ConsolidatedCash flows provided by (used in) operating activities: $(12,224) $29,906 $4,632 $— $22,314 Cash flows from investing activities: Intercompany Note — (17,601) — 17,601 — Purchases of property and equipment (8,538) (1,082) (90) — (9,710) Proceeds from sale of property and equipment (2) 53 — — 51Cash flows provided by (used in) investing activities (8,540) (18,630) (90) 17,601 (9,659) Cash flows from financing activities: Net proceeds from (repayments on) revolvingcredit facility — (13,500) — — (13,500) Intercompany Note 17,571 430 (400) (17,601) — Payments on capital lease obligations (153) — (11) — (164) Dividends paid (38) — — — (38) Restricted stock returned for payment of taxes (142) — — — (142)Cash flows provided by (used in) financing activities 17,238 (13,070) (411) (17,601) (13,844)Effect of foreign exchange rate changes on cash — — (313) — (313) Change in cash and cash equivalents (3,526) (1,794) 3,818 — (1,502)Cash and cash equivalents at beginning of period 10,177 1,914 8,595 — 20,686Cash and cash equivalents at end of period $6,651 $120 $12,413 $— $19,18489Table of ContentsNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)CEC Entertainment, Inc.Consolidating Statement of Cash FlowsFor the Twelve Months Ended December 29, 2013(in thousands) Predecessor Issuer Guarantors Non-Guarantors Eliminations ConsolidatedCash flows provided by (used in) operating activities: $179,913 $(43,734) $2,485 $— $138,664 Cash flows from investing activities: Intercompany Note — 87,775 — (87,775) — Purchases of property and equipment (71,947) (1,265) (873) — (74,085) Proceeds from sale of property and equipment 1,890 640 — — 2,530 Other investing activities 613 — — — 613Cash flows provided by (used in) investing activities (69,444) 87,150 (873) (87,775) (70,942) Cash flows from financing activities: Net proceeds from (repayments on) revolvingcredit facility — (28,000) — — (28,000) Intercompany Note (73,650) (13,750) (375) 87,775 — Payments on capital lease obligations (885) — (68) — (953) Dividends paid (17,097) — — — (17,097) Excess tax benefit realized from stock-basedcompensation 343 — — — 343 Restricted stock returned for payment of taxes (2,212) — — — (2,212) Purchases of treasury stock (18,112) — — — (18,112)Cash flows provided by (used in) financing activities (111,613) (41,750) (443) 87,775 (66,031)Effect of foreign exchange rate changes on cash — — (641) — (641) Change in cash and cash equivalents (1,144) 1,666 528 — 1,050Cash and cash equivalents at beginning of period 11,321 248 8,067 — 19,636Cash and cash equivalents at end of period $10,177 $1,914 $8,595 $— $20,68690Table of ContentsNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)CEC Entertainment, Inc.Consolidating Statement of Cash FlowsFor the Twelve Months Ended December 30, 2012(in thousands) Predecessor Issuer Guarantors Non-Guarantors Eliminations ConsolidatedCash flows provided by (used in) operatingactivities: 568,923 (430,697) (1,134) — 137,092 Cash flows from investing activities: Acquisition of Predecessor — — — — — Acquisition of Franchise (241) 3 — — (238) Intercompany Note — 437,125 — (437,125) — Purchases of property and equipment (91,266) (6,627) (1,358) — (99,251) Proceeds from sale of property andequipment 586 — — — 586 Other investing activities — — — — —Cash flows provided by (used in) investingactivities (90,921)—430,501—(1,358)—(437,125)—(98,903) Cash flows from financing activities: Net proceeds from (repayments on)revolving credit facility — (100) — — (100) Intercompany Note (440,475) — 3,350 437,125 — Payments on capital lease obligations (903) — (46) — (949) Dividends paid (19,846) — — — (19,846) Excess tax benefit realized from stock-based compensation 619 — — — 619 Restricted stock returned for payment oftaxes (2,656) — — — (2,656) Purchases of treasury stock (14,353) — — — (14,353)Cash flows provided by (used in) financingactivities (477,614)—(100)—3,304—437,125—(37,285)Effect of foreign exchange rate changes on cash — — 59 — 59 Change in cash and cash equivalents 388—(296)—871———963Cash and cash equivalents at beginning of period 10,933 544 7,196 — 18,673Cash and cash equivalents at end of period $11,321 $248 $8,067 $— $19,63691Table of ContentsNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)Note 18. Quarterly Results of Operations (Unaudited):The following table summarizes our unaudited quarterly condensed consolidated results of operations in 2014 and 2013: Quarters in Fiscal Year 2014 Predecessor Successor (1) For the 47 Day PeriodEnded For the 44 DayPeriod Ended February 14, 2014 March 30,2014June 29,2014Sept. 28,2014Dec. 28,2014 (in thousands)Food and beverage sales$50,897 $62,277 $79,649 $82,271 $83,499Entertainment and merchandise sales62,659 78,613 105,651 115,885 104,253Company store sales113,556 140,890 185,300 198,156 187,752Franchise fees and royalties687 686 1,274 1,533 2,990Total revenues$114,243 $141,576 $186,574 $199,689 $190,742Operating income (2)$2,873 $(3,367) $(4,905) $(4,241) $(19,746)Income (loss) before income taxes (2)$1,722 $(15,410) $(20,144) $(20,215) $(37,442)Net income (loss) (2)$704 $(13,872) $(12,784) $(13,279) $(22,153) Quarters in Fiscal Year 2013 Predecessor March 31,2013 June 30,2013 Sept. 29,2013 Dec. 29,2013 (in thousands)Food and beverage sales$115,801 $86,517 $87,170 $79,096Entertainment and merchandise sales138,402 103,926 107,629 98,198Company store sales254,203 190,443 194,799 177,294Franchise fees and royalties1,100 1,501 1,107 1,274Total revenues$255,303 $191,944 $195,906 $178,568Operating income (2)$56,221 $13,465 $13,225 $560Income (loss) before income taxes (2)$54,029 $11,426 $11,947 $(1,384)Net income (loss) (2) $33,257 $7,239 $7,439 $(111)_______________________(1)The quarterly condensed consolidated results of operations for the quarter ended December 28, 2014 include the results of Peter Piper Pizza for the 73 day period fromOctober 17, 2014 through December 28, 2014.(2)The results for the fourth quarter of 2014 and the second, third and fourth quarters of 2013 include asset impairments of $0.4 million, $0.2 million, $0.5 million and $2.3million, respectively.Quarterly operating results are not necessarily representative of operations for a full year.92ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.None.ITEM 9A. Controls and Procedures.Evaluation of Disclosure Controls and ProceduresWe performed an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures under the supervision andwith the participation of our management, including our Chief Executive Officer and Chief Financial Officer, as of the end of the period covered by thisreport. Based on that evaluation, our management, including our Chief Executive Officer and Chief Financial Officer, has concluded that our disclosurecontrols and procedures were effective at the reasonable assurance level as of December 28, 2014 to ensure that information required to be disclosed by us inthe reports we file or submit under the Securities Exchange Act of 1934, as amended, was (a) recorded, processed, summarized and reported within the timeperiods specified in the Securities and Exchange Commission’s rules and forms and (b) accumulated and communicated to our management, including ourChief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how welldesigned and operated, can provide only a reasonable assurance of achieving the desired control objectives.Management’s Annual Report on Internal Control over Financial ReportingOur management is responsible for establishing and maintaining adequate internal control over financial reporting. As defined in Exchange ActRule 13a-15(f), internal control over financial reporting is a process designed by, or under the supervision of, our Chief Executive Officer and Chief FinancialOfficer and effected by our Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financialreporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes thosepolicies and procedures that (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions ofour assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance withgenerally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of management andour directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets thatcould have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detectmisstatements.Our management, including our Chief Executive Officer and Chief Financial Officer, assessed the effectiveness of our internal control over financialreporting as of December 28, 2014 based on the criteria established in “Internal Control – Integrated Framework (2013)” issued by the Committee ofSponsoring Organizations of the Treadway Commission. Based on our management’s assessment, we have concluded that, as of December 28, 2014 ourinternal control over financial reporting was effective based on those criteria.Changes in Internal Control over Financial ReportingDuring the quarterly period ended December 28, 2014, there has been no change in our internal control over financial reporting that has materiallyaffected, or is reasonably likely to materially affect, our internal control over financial reporting. However, in 2014, we began the implementation of afinancial system to upgrade our general ledger and reporting tools. We are performing the implementation in the normal course of business to increaseefficiency and align our processes throughout the organization.ITEM 9B. Other Information.None.ITEM 10. Directors, Executive Officers, and Corporate Governance.Board of DirectorsAs of the date of this report, the Board consists of five members, including our Chief Executive Officer, one partner of Apollo, two principals ofApollo and one independent member.The following table provides information regarding our executive officers and the members of our Board:Name Age Position(s) Thomas Leverton 43 Chief Executive Officer and DirectorJ. Roger Cardinale 55 PresidentTemple Weiss 43 Executive Vice President, Chief Financial OfficerRandy G. Forsythe 53 Executive Vice President, Director of OperationsMark Gordon 55 Senior Vice President and Chief Operating Officer - International OperationsLance A. Milken 39 DirectorJames Chambers 29 DirectorDaniel E. Flesh 33 DirectorAllen R. Weiss 60 DirectorThomas Leverton has served as a member of our Board and Chief Executive Officer of the Company since July 2014. He served as Chief Executive Officer ofTopgolf from May 2013 until July 2014. Before Topgolf, Mr. Leverton served as Chief Executive Officer of Omniflight, an air medical operator. Earlier in hiscareer, he held executive roles at FedEx Office, including Executive Vice President and Chief Development Officer. Mr. Leverton also served as ChiefOperating Officer of TXU Energy. He began his career at Johnson & Johnson and Bain & Company. In light of our ownership structure and Mr. Leverton’sextensive executive leadership and management experience, the Board believes it is appropriate for Mr. Leverton to serve as our director.J. Roger Cardinale has served as President of the Company since June 2014. Previously, he served as Executive Vice President of Development andPurchasing of the Company since December 1999. In 2013, he was named President of the Company’s International Division. Prior to that, he served asSenior Vice President of Purchasing from March 1998 to December 1999 and Senior Vice President of Real Estate from January 1999 to December 1999.From January 1993 to March 1998, he served as Vice President of Purchasing and, from September 1990 to January 1993, he served as Director of Purchasing.Mr. Cardinale also held various other positions with the Company from November 1986 to September 1990.Temple Weiss has served as Executive Vice President, Chief Financial Officer of the Company since September 2014. He served as Chief Financial Officer ofPegasus Solutions, Inc., a hospitality technology company, from May 2013 to September 2014. From January 2012 to January 2013, he served as ExecutiveVice President and Chief Financial Officer for ACE Cash Express, Inc., a financial services company. Prior to that, from February 2001 to December 2011, heserved in various finance and development roles with hotel operator LQ Management, Inc. and its predecessor La Quinta Corporation, including ExecutiveVice President and Chief Financial Officer.Randy G. Forsythe has served as Executive Vice President, Director of Operations of the Company since September 2008. Prior to that time he served asSenior Vice President from February 2000 to September 2008. Mr. Forsythe served as a Regional Vice President from November 1997 to February 2000. FromNovember 1982 to November 1997, Mr. Forsythe held various positions in operations with the Company.Mark Gordon has served as Senior Vice President, Chief Operating Officer International Operations since October 2009. Prior to joining CEC Entertainment,Mr. Gordon served as Executive Director of International Development for Applebee’s International, Inc. developing franchises in 23 foreign countries from2000 to 2009. Before Applebee’s Mr. Gordon served as Director of International Development for Carlson Restaurants Worldwide developing TGI Friday’sand Italianni’s in 41 foreign countries from 1997 to 2000. From 1987 to 1997 Mr. Gordon held various management positions developing dessert, snack andcoffee shops, restaurants and video stores in the United States and 34 foreign countries.93Lance A. Milken became a member of our Board in February 2014 in connection with the Acquisition. Mr. Milken is a partner of Apollo, having joined in1998. Mr. Milken serves on the board of directors of Claire’s Stores Inc. and has previously served on the board of directors of CKE Restaurants, Inc. Mr.Milken is also a member of the Milken Institute and Brentwood School Board of Trustees. In light of our ownership structure and Mr. Milken’s extensivefinancial and business experience, including experience in financing, analyzing and investing in companies in the entertainment sector, the Board believes itis appropriate for Mr. Milken to serve as our director.James Chambers became a member of our Board in February 2014 in connection with the Acquisition. Mr. Chambers is a principal at Apollo, having joinedin 2009. Prior to that time, Mr. Chambers was a member of the Consumer and Retail Group in the Investment Banking Division of Goldman, Sachs & Co. Mr.Chambers serves on the board of directors of Great Wolf Resorts, Inc., Veritable Maritime Holdings, LLC and Principal Maritime Holdings, LLC. In light ofour ownership structure and Mr. Chambers’ extensive financial and business experience, including his experience managing companies in the entertainmentsector, the Board believes it is appropriate for Mr. Chambers to serve as our director.Daniel E. Flesh became a member of our Board in February 2014 in connection with the Acquisition. Mr. Flesh is a principal at Apollo, having joined in2006. Prior to that time, Mr. Flesh was a member of the Investment Banking Division of Bear, Stearns & Co. Inc. Mr. Flesh serves on the board of directors ofHostess Brands and Jacuzzi Brands. In light of our ownership structure and Mr. Flesh’s extensive financial and business experience, including hisbackground as an investment banker, the Board believes it is appropriate for Mr. Flesh to serve as our director.Allen R. Weiss became a member of our Board in June 2014. Mr. Weiss served as President of Worldwide Operations for the Walt Disney Parks and Resortsbusiness of The Walt Disney Company, a global entertainment company listed on the NYSE, from 2005 until his retirement in 2011. Prior to that, Mr. Weissserved in a number of roles for The Walt Disney Company beginning in 1972, including most recently as President of Walt Disney World Resort, ExecutiveVice President of Walt Disney World Resort and Vice President of Resort Operations Support. Mr. Weiss serves as a director of Dick’s Sporting Goods, Inc.and Apollo Group, Inc. (a private education provider unaffiliated with Apollo). Mr. Weiss also serves on the board or council of a number of community andcivic organizations. In light of our ownership structure and Mr. Weiss’s knowledge and understanding of the entertainment sector, including insight gainedthrough his executive leadership and management experience at The Walt Disney Company, the Board believes it is appropriate for Mr. Weiss to serve as ourdirector.Corporate GovernanceCommittees of the BoardThe Board of Directors has two standing committees: Audit and Compensation. While the Audit Committee has primary responsibility for riskoversight, both our Audit Committee and our entire Board of Directors are actively involved in risk oversight on behalf of the Company and both receive areport on the Company’s risk management activities from our executive management team on a regular basis. Members of both the Audit Committee and theBoard of Directors also engage in periodic discussions with our President, Chief Executive Officer, Chief Financial Officer, General Counsel and otherofficers of the Company as they deem appropriate to ensure that risk is being properly managed at the Company. In addition, each of the committees of theBoard of Directors considers risks associated with its respective area of responsibility.Audit CommitteeThe Audit Committee currently consists of three directors: Lance Milken, James Chambers, and Daniel Flesh. The primary role of the AuditCommittee is to provide financial oversight. Our management is responsible for preparing financial statements, and our independent registered publicaccounting firm is responsible for auditing those financial statements. The Audit Committee does not provide any expert or special assurance or certificationsas to our financial statements or as to the work of our independent registered public accounting firm. The Audit Committee is directly responsible for theselection, engagement, compensation, retention and oversight of our independent registered public accounting firm. The Board has also determined that eachmember of the Audit Committee is financially literate.The Audit Committee has established a procedure whereby complaints or concerns regarding accounting, internal controls or auditing matters maybe submitted anonymously to the Audit Committee by email at auditcomm@cecentertainment.com.The Audit Committee met twice in 2014.Compensation Committee94The Compensation Committee currently consists of three directors: Lance Milken, Daniel Flesh and James Chambers. The Compensation Committeeis responsible for approving the compensation, including performance bonuses, payable to the executive officers of the Company, and administering theCompany’s equity compensation plans.The Compensation Committee acts on behalf of and in conjunction with the Board of Directors to establish or recommend the compensation ofexecutive officers of the Company and to provide oversight of our overall compensation programs and philosophy. The Compensation Committee did notmeet in 2014; instead, during 2014 the full Board of Directors performed the functions typically performed by the Compensation Committee.Code of EthicsWe have adopted a Code of Business Conduct and Ethics that applies to all of our officers and employees, as well as a separate Code of Ethics forChief Executive Officer, President and Senior Financial Officers that applies to our principal executive officer, principal financial officer and principalaccounting officer. Both documents may be accessed on our website at www.chuckecheese.com.95ITEM 11. Executive and Director CompensationCompensation Discussion and AnalysisIn this Compensation Discussion and Analysis, we discuss our compensation objectives, our decisions and the rationale behind those decisionsrelating to 2014 compensation for our named executive officers. The discussion and analysis also contains statements regarding future individual andCompany performance targets and goals. These targets and goals are disclosed in the limited context of our compensation programs and should not beunderstood to be statements of management’s expectations or estimates of results or other guidance. We specifically caution investors not to apply thesestatements to other contexts. This discussion and analysis also explains the current compensation policies of the Company, which may change in the futurein certain circumstances that the Board of Directors or the Compensation Committee considers advisable.Our named executive officers for 2014 were:•Thomas Leverton, Chief Executive Officer since July 23, 2014; during the period between July 23 andSeptember 29, 2014, Mr. Leverton served as the interim Principal Financial Officer•J. Roger Cardinale, President. Mr. Cardinale became President effective close of business on June 2, 2014;prior to becoming President, Mr. Cardinale served as Executive Vice President of Development andPurchasing; during the period between June 2 and July 23, 2014, Mr. Cardinale served as interim PrincipalExecutive Officer and Principal Financial Officer•Temple Weiss, Executive Vice President and Chief Financial Officer since September 29, 2014•Randy G. Forsythe, Executive Vice President and Director of Operations•Mark Gordon, Senior Vice President and Chief Operating Officer-International Operations•Michael H. Magusiak, President and Chief Executive Officer until close of business on June 2, 2014•Tiffany B. Kice, Executive Vice President, Chief Financial Officer and Treasurer until close of business July11, 2014•Richard M. Frank, Executive Chairman until close of business on March 31, 2014.Objectives of Our Compensation ProgramThe objectives of our 2014 compensation program included the following:•attract, retain and motivate executive officers and other employees to successfully implement our strategic plan and enhance stockholder value,through the use of both short- and long-term incentives that reward individual and Company performance;•structure compensation based on performance measures intended to reward performance, which we believe creates value for our stockholders;and•promote an ownership mentality and ensure senior management continuity among our officers and employees through the use of equity-basedcompensation that more closely aligns the interests of the executives with those of our stockholders.Our ability to hire and retain executives with the requisite skills and experience to implement our strategic plan is essential to our success. The goalsencompassed in our strategic plan include both improving sales and profits from our existing stores and increasing the number of Company-owned andfranchise stores. We believe that if we successfully execute this strategic plan, we can enhance the Company’s value by increasing our free cash flow over thelong-term through increased earnings and careful management of capital expenditures.We believe that our success in recruitment and retention of executives is dependent upon our ability to offer a work environment in which ourexecutives can find attractive career challenges and opportunities. We also understand that our executives have a choice regarding where they pursue theircareers, and that the compensation we offer plays a significant role in their decision to work for the Company.What Our Compensation Program Is Designed to RewardOur executive compensation program during 2014 was designed to reward strong financial performance of the Company that results from qualityexecution of our strategic plan on both a short-term and long-term basis. In addition, we96wanted to reinforce those core values that we believed help us achieve our strategic goals, including teamwork, integrity, and the importance we place oneach individual.Elements of Our Compensation Program and Why We Pay Each ElementOur 2014 compensation program was primarily comprised of three elements: base salaries, cash bonuses and long-term equity-based incentivecompensation.•Base Salaries. We pay base salary to recognize each executive officer’s unique value and historical contributions to the Company’s success. Inestablishing base salaries, the Board of Directors considered salary norms in the industry and the general marketplace, base salaries offered bycompanies that we compete with for executive talent, experience in the role (either here or at one or more other companies), and the executive’sposition and level of responsibility.•Cash Bonuses. We included cash bonuses as part of our compensation program because we believe this element of compensation helps to focusexecutive officers on achieving, and motivates executive officers to achieve, key corporate objectives by rewarding the achievement of theseobjectives. We also believe that it is necessary in order to offer a competitive total remuneration package.•Long-Term Equity-Based Incentive Compensation. Long-term equity-based incentive compensation is an element of our compensation policybecause we believe it aligns executive officers’ interests with the interests of the Company’s stockholders, rewards long-term performance, isrequired in order for us to be competitive from a total remuneration standpoint, encourages executive retention and provides executives theopportunity to share in the long-term performance of the Company.Prior to the merger, we typically granted restricted stock with a four-year ratable vesting schedule. By typically providing a four-year ratablevesting schedule, the recipients of the restricted stock had an incentive to remain employed over the vesting period. For several years, theCompensation Committee had also included a performance-based component to restricted stock awards to Messrs. Frank and Magusiak. InFebruary 2013, the Compensation Committee approved a performance-based criterion for the restricted stock grants to the named executiveofficers other than Messrs. Frank and Magusiak. The performance-based components for certain of the restricted stock awards are discussedbelow under “Long-Term Equity-Based Incentives.” We believe that our restricted stock plan served as a vehicle for providing performance-based incentives where applicable, long-term incentives and also served as a retention tool.Since the Merger, with one exception described below, the Company discontinued its practice of granting equity-based awards denominated incommon stock of the Company. As described below, certain of our executive officers have received restricted stock and option awards relatingto common stock of Queso Holdings Inc., (“Holdings”) the Company’s parent.How We Determined the Amount and Material Terms of Each Element of CompensationThe Compensation Committee of our Board of Directors oversaw our compensation programs during 2013 and until the Merger in 2014; after theMerger, that task was performed by our Board of Directors until the first quarter of 2015, when the Compensation Committee of the new Board resumedregular meetings. Before the Merger, the Compensation Committee’s primary purpose was to assist the Board of Directors in the discharge of itsresponsibilities relating to determining the compensation of the Company’s executive officers. Consistent with the listing requirements of the New YorkStock Exchange that applied to the Company until the Merger, the Compensation Committee was composed entirely of independent members of our Boardof Directors.In October 2011, the Compensation Committee engaged the firm of Longnecker & Associates, an executive compensation consulting company(“Longnecker”), for the purpose of evaluating the compensation of the Company’s top 10 executives from 2012. The Compensation Committee selectedLongnecker as its independent compensation consultant for 2012 primarily as a result of Longnecker’s familiarity with the Company and its executivecompensation program as well as the Compensation Committee’s satisfaction with the compensation consulting services Longnecker had provided in thepast. The evaluation resulting from this engagement was submitted to the Compensation Committee in January 2012 (the “2012 Longnecker Report”) andwas considered by the Compensation Committee along with a number of factors in the process of determining the 2012 compensation for the Company’sexecutives. The 2012 Longnecker Report reviewed, assessed and compared a variety of compensation surveys, and compared our executive compensation tothat of a peer group of 10 public companies from the restaurant industry. The peer group utilized by Longnecker was selected based on companies in theleisure, hospitality and entertainment services industry with revenues and market capitalization similar to that of the Company’s.97The 10 companies included in the peer group for the 2012 Longnecker Report are as follows: • Bob Evans Farms, Inc. • Panera Bread Company • California Pizza Kitchen, Inc. • Papa John’s International, Inc. • Cracker Barrel Old Country Store, Inc. • Red Robin Gourmet Burgers, Inc. • The Cheesecake Factory Incorporated • Ruby Tuesday, Inc. • P.F. Chang’s China Bistro • Texas Roadhouse, Inc.From a business perspective at the time of the 2012 Longnecker Report, as compared to the 50th percentile of our selected peer group, the Companygenerally had a higher enterprise value, higher annual operating cash flow, higher gross profit percentage, lower gross profit, lower revenues and loweramount of assets.In reviewing total compensation of executives, the 2012 Longnecker Report analyzed total compensation of amounts generally in the rangebetween the 50th and 75th percentile of our selected peer group. The 50th percentile, or midpoint range of our peer group, was intended to providecompensation at a level appropriate for an executive who met expectations and was fully qualified for the responsibilities of a given position. Compensationapproximating the 75th percentile of the range was intended to provide compensation at a level appropriate for a seasoned incumbent who typicallyexceeded expectations.As part of its process during 2013, the Compensation Committee again utilized the assistance of Longnecker to assist it in evaluating executivecompensation programs and in evaluating executive officers’ compensation compared to an established peer group of similar public companies selected bythe Compensation Committee in consultation with Longnecker. While the Compensation Committee considered many factors in determining compensation,including Company and individual performance, the use by the Compensation Committee of an independent consultant was intended to provide someadditional assurance that the Company’s executive compensation programs were reasonable and consistent with the Company’s compensation objectivesand market compensation levels. Longnecker reported directly to the Compensation Committee, communicated with the Compensation Committee todiscuss compensation trends and best practices, and did not perform any services for management.After the Merger, the Board of Directors set the compensation of each of the Company’s new and continuing executives by reviewing factors such asmarket compensation levels, levels of prior achievement and experience, Board members’ experience with compensation programs of companies in similarindustries, and an arm’s-length negotiation with each executive.Base SalaryThe base salaries of the Company’s executive officers as of the date of the Merger were determined by the Compensation Committee in 2013, inconsultation with Messrs. Frank and Magusiak (except as to their own base salaries, as to which they made no recommendation). For 2013, the CompensationCommittee set the base salaries of Messrs. Frank, Magusiak, Cardinale, Forsythe, and Gordon, and of Ms. Kice, at $600,000, $800,000, $375,000, $257,500,$225,000, and $315,000, respectively.With merger negotiations ongoing and the anticipated change in Company ownership, the salaries of the named executives did not change from2013 to 2014. When Messrs. Leverton and Weiss were hired and when Messrs. Cardinale and Forsythe reached agreement with the Board to continue inleadership positions with the Company, the Board set the annualized base salaries of these individuals at $550,000 (for Mr. Leverton), $325,000 (for Mr.Weiss), $485,000 (for Mr. Cardinale), and $315,000 (for Mr. Forsythe), with Mr. Forsythe’s salary increase to become effective as of January 1, 2015. Mr.Gordon’s base salary remained at $225,000.Cash BonusesDuring 2014, each of our named executive officers was eligible to earn a cash bonus in respect of individual and corporate performanceachievements, except for Mr. Leverton, whose 2014 bonus (based on his employment agreement with the Company) was a grant of Restricted Stock, asdescribed further below. Messrs. Cardinale and Weiss were eligible for cash bonuses pursuant to the Incentive Bonus Plan, in accordance with the terms oftheir employment agreements with the Company.98During 2014, Mr. Forsythe was not eligible to participate in our Incentive Bonus Plan, but was eligible to earn bonuses pursuant to a period performance andbonus plan. A percentage of Mr. Gordon’s bonus was based on the Incentive Bonus Plan, but another portion was based on the Company’s success in enteringinto international franchise development agreements. In addition, the Board had the ability to award cash bonuses on a discretionary basis.Eligibility Pursuant to Employment AgreementsAfter the Merger, Messrs. Leverton, Cardinale, Weiss, and Forsythe entered into employment agreements that provided for them to receive amaximum annual bonus of a specified percentage of their annual base salaries, contingent on the achievement of qualitative and quantitative performancegoals set by the Board (which goals formed the basis of the Incentive Bonus Plan described below). Each of these executives has a bonus target of 100% ofbase salary and a maximum bonus of 150% of base salary, pursuant to their employment agreements. Pursuant to their agreements with the Company, Messrs.Leverton and Forsythe were ineligible to participate in the Incentive Bonus Plan during 2014, but will be eligible to participate in the Plan during theremaining term of their employment agreement.Incentive Bonus PlanDuring 2014, the Company maintained the Incentive Bonus Plan, whereby executive officers (excluding (i) the departing officers, who did notparticipate in the Incentive Bonus Plan; (ii) Messrs. Forsythe and Gordon, whose 2014 bonus eligibility was governed by different arrangements describedbelow; and (iii) Mr. Leverton, whose 2014 bonus was paid in the form of Restricted Stock, pursuant to his employment agreement, as described below, havethe potential to receive a cash bonus if the Compensation Committee’s qualitative and quantitative performance goals for the fiscal year are met. For 2014,the Compensation Committee determined that comparable store sales, revenues, free cash flow, and Adjusted EBITDA were appropriate quantitative measuresof Company performance for purposes of determining the incentive compensation to be awarded under the Incentive Bonus Plan. The CompensationCommittee also determined that the Incentive Bonus Plan should have a discretionary component to reward individual performance.As to eligible executives and employees other than the named executive officers who are subject to employment agreements, as well as executiveswho otherwise negotiated bonus-related agreements with the Company as part of their hiring packages, the Compensation Committee determined beforeMarch 15, 2014, the percentage of such employees’ gross base earnings that may be earned under the Incentive Bonus Plan for the year (the “BonusPotential”). Such employees would receive a bonus under the Incentive Bonus Plan if each of the performance measures for the applicable fiscal year reachedthe target levels established by the Compensation Committee. In no event would a cash bonus be paid under the 2014 Incentive Bonus Plan unless certainminimum targets for the fiscal year as predetermined by the Compensation Committee were attained.For 2014, the actual bonus payout for an eligible employee is equal to the employee’s gross base earnings multiplied by his or her Bonus Potential,multiplied by the sum of the multipliers for each of the following five metrics: (i) comparable store sales, (ii) Company revenues, (iii) adjusted EBITDA, (iv)free cash flow, and (v) the discretionary portion of the bonus. The five components of the 2014 Incentive Bonus Plan are weighted as follows:Metric Total Bonus %Comparable Store Sales 10.0%Revenues 10.0%Adjusted EBITDA 50.0%Free Cash Flow (1) 20.0%Discretionary (2) 10.0%Total 100.0%_______________(1)Free Cash Flow represents Adjusted EBITDA less CapEx.(2)Amount represents the maximum payout.For 2014, the Compensation Committee set the target, minimum, and maximum growth levels for payout eligibility under each of the quantitativecomponents of the Incentive Bonus Plan as follows:99 Target Minimum MaximumMetric Growth Metric Growth Metric Growth Metric (in thousands, except for percentages)Comparable Store Sales 3.0% 3.0% 0.5% 0.5% 5.0% 5.0%Revenues 6.3% $873.3 2.0% $838.1 8.3% $890.0Adjusted EBITDA 11.0% $205.8 1.1% $187.4 16.5% $215.9Free Cash Flow (1) 15.4% $128.4 1.5% $112.9 23.1% $136.9________________(1)Free Cash Flow represents Adjusted EBITDA less capital expenditures.The Compensation Committee believed that the metrics listed above are appropriate measures of Company performance and established the 2014targets after taking into consideration the Company’s recent performance, the continuing difficult economic environment and continuing pressures onconsumer discretionary spending. The Compensation Committee established what it considered to be ambitious, yet achievable goals, and determined thatthe targets-as well as minimum and maximum growth levels-established the appropriate short-term incentive for the named executive officers and othereligible employees. The Compensation Committee set the target bonus amount for each such employee based upon a percentage of gross base earnings.For purposes of the 2014 Incentive Bonus Plan, gross base earnings equaled the amount of taxable earnings paid to the executive as salary duringfiscal year 2014. This is distinguished from the Base Salary set forth in the “Summary Compensation Table,” which is the annual base salary established bythe Compensation Committee. For each eligible executive, the Compensation Committee set a percentage of gross base earnings that the executive wouldreceive if the target comparable store sales and the target diluted earnings per share were met in 2014.Actual Company performance on each of the four quantitative measures considered for determination of payment eligibility in the 2014 IncentiveBonus Plan was as follows: 2014 Actuals (1)Metric Growth MetricComparable Store Sales (2.2)% (2.2)%Revenues (0.1)% $820.6Adjusted EBITDA 3.8% $192.5Free Cash Flow 7.0% $119.1________________(1)Based on the combined Successor and Predecessor 2014 periods.Actual Company performance on the Comparable Store Sales and Revenue measurements did not meet the minimum growth thresholds set by theIncentive Bonus Plan, so these components of the plan did not contribute to the total bonus payout calculation. The Company’s 3.8% growth of AdjustedEBITDA represented 34.9% of the Plan’s growth target for Adjusted EBITDA of 11.0%, and since this metric represented 50% of the total bonus availableunder the plan, the actual payout for Adjusted EBITDA was 17.5% of eligible employees’ gross base earnings (34.9% x 50% = 17.5%). Similarly, theCompany’s 7.0% growth of Free Cash Flow was 45.5% of the 15.4% target growth percentage under the plan. This measure could contribute up to 20% of thetotal bonus available under the plan, so payout for the Free Cash Flow component of the plan was 9.1% of eligible employees’ gross base earnings (45.5% x20% = 9.1%). Assuming a 100% award of the discretionary portion of the bonus, therefore, the maximum payout that an eligible employee could receivewould be 36.6% of the employee’s gross base earnings.These calculations are set forth in the following table:100 2015 PayoutMetric MaximumBonus % Bonus as a % ofTarget % of BaseComparable Store Sales 10.0% —% —%Revenues 10.0% —% —%Adjusted EBITDA 50.0% 34.9% 17.5%Free Cash Flow 20.0% 45.5% 9.1%Discretionary 10.0% 100.0% 10.0%Total 100.0% 36.6%Based on these calculations, our named executive officers received the following bonuses for 2014 under the Incentive Bonus Plan:Name and Position Incentive Bonus Plan PaymentJ. Roger Cardinale $164,912Temple Weiss $21,709Mark Gordon $15,268 (1)_________________(1)Under Mr. Gordon’s arrangement with the Company, he could receive up to 25% of his gross base pay under the Incentive Bonus Plan. His bonus eligible earnings in 2014were $230,000, including $225,000 in base pay and a $5,000 payment retroactive for 2013. Mr. Gordon’s payment under the Incentive Bonus Plan was $15,268, or $57,500 x26.6%.Alternative Bonus Plans for Messrs. Forsythe and GordonIn 2014, the cash bonuses for Mr. Forsythe, our Executive Vice President, Director of Operations, and Mr. Gordon, our Senior Vice President andChief Operating Officer-International Operations, were based on separate plans. Mr. Forsythe’s was comprised of two components: the period performancebonus and the quarterly sales bonus. Mr. Gordon’s was based in part on the Incentive Bonus Plan and in part on the Company’s success in entering into newinternational franchise development agreements.Mr. Forsythe’s period performance bonus was calculated by multiplying his base salary for each applicable performance period by the performancebonus factor for such period. The performance bonus factor was 50% of Mr. Forsythe’s base salary, subject to an increase or a decrease depending on whetherthe Company’s controllable profit percent was above or below the targeted controllable profit performance. The targeted performance levels set forthspecified target controllable profit percentages at varying levels of average weekly sales. The controllable profit percent was our controllable profit as apercentage of sales for the applicable performance period. In 2014, no bonus would have been paid under the period performance component of the plan ifthe Company’s actual controllable profit percent was below the specified target controllable profit percent by more than 4.1%. In 2014, for the periodperformance bonus, the minimum Mr. Forsythe could earn was $0 and there was no limit on the amount that could be earned. In 2014, Mr. Forsythe receivedan aggregate period performance bonus of $124,788 for all performance periods (or 96.92% of the target performance in 2014).In 2014, Mr. Forsythe’s quarterly sales bonus was based on comparable store sales for the Company and was calculated based upon multiplying 50%of his base salary for the first three quarters by the sales bonus factor for each such quarter. The fourth quarter sales bonus was calculated on an annual basis.In 2014, the sales bonus factor was based on a targeted increase in comparable store sales of 2.0% for the first quarter of 2014 and 3.0% for the remainingquarters of 2014. The sales bonus factor ranged from a minimum factor of 0.0 for flat comparable stores sales, which would have resulted in Mr. Forsythe’s notreceiving a quarterly sales bonus, to a maximum sales bonus factor of 2.0 for a 5% comparable store sales increase for the first three quarters of the fiscal year,which would have resulted in a maximum quarterly sales bonus of 100% of his base salary earned during each such quarter, or $64,375. The maximum salesbonus factor did not apply to the fourth quarter sales bonus. The calculation of the 2014 fourth quarter sales bonus on an annual basis would be adjusted forpayments in prior quarters. To qualify for the full amount of the quarterly sales bonus, the increase in the Company’s controllable profit as a percent of itsincrease in sales must have been 50% or greater and no quarterly sales bonus would be payable if the threshold fell below 30%. In 2014, Mr. Forsythereceived an aggregate sales bonus of $0 based on the Company’s comparable store sales results (or 0% of the target for sales in 2014).101Mr. Gordon’s bonus is comprised of two components. First, he could receive up to a target of 25% of his base pay pursuant to the Company’sIncentive Bonus Plan. Mr. Gordon’s base pay was $225,000 in 2014; additionally, in 2014, Mr. Gordon was paid $5,000 in retroactive pay for 2013, but thisamount was not included in his 2013 bonus eligible earnings, so the total amount of Mr. Gordon’s bonus-eligible pay in 2014 was $230,000. As detailedabove, therefore, Mr. Gordon’s payout under the Incentive Bonus Plan was $21,045. Second, he could receive 50% of his base pay if the Company obtainedsix executed franchise development agreements (cash collected), representing at least 30 stores in total, in 2014. In fact, the Company executed only twofranchise development agreements in 2014, so Mr. Gordon received no payout under this component of his agreement with the Company.Discretionary BonusesDuring 2014, the Board of Directors, in its discretion based on the collective business judgment of its members, also had the authority to choose toaward a bonus other than pursuant to the Incentive Bonus Plan, and decide on the actual level of the award in light of all relevant factors during or aftercompletion of the fiscal year. No discretionary bonuses were paid to our named executive officers in 2014.Long-Term Equity-Based IncentivesAs an additional inducement to Mr. Leverton to accept the position as the Company’s Chief Executive Officer, and in consideration for hisagreement to accept other financial terms of his Employment Agreement, Mr. Leverton’s Employment Agreement additionally provided that he was to begranted a number of shares of restricted Common Stock in the Company in 2014. The amount of such “Restricted Stock” was to be equal to the quotientobtained by dividing (x) the 2014 Pro Rata Target Bonus (as defined below) by (y) the Investment Price. The shares of Restricted Stock are non-transferable,and are scheduled to vest on the date on which annual bonuses are paid to senior executives of the Company under the Company’s annual bonus plan (nolater than March 15, 2015), subject to Mr. Leverton’s continued employment with the Company through such date. If Mr. Leverton’s employment with theCompany were to terminate for any reason before the date that the shares of Restricted Stock vest, he would forfeit all of the shares of Restricted Stock. Forpurposes of this provision, “2014 Pro Rata Target Bonus” was defined to mean an amount equal to the product obtained by multiplying (I) $550,000 by (II) afraction, the numerator of which is the number of days during the 2014 fiscal year that Executive is employed with the Company and the denominator ofwhich is 365.None of the other named executive officers received grants of Restricted Stock in 2014. Mr. Frank, Mr. Magusiak, and Ms. Kice received severanceand other payments upon their departures from the Company after the Merger. The Employment Agreements of Messrs. Cardinale and Forsythe granted themthe right to purchase stock options, as further described below. 2014 Restricted StockName and Position ValueSharesThomas Leverton (Chief Executive Officer) 242,60024,260J. Roger Cardinale (President) ——Temple Weiss (Chief Financial Officer) ——Randy G. Forsythe (Executive Vice President) ——Mark Gordon (Sr. VP, COO - International Development) ——Michael H. Magusiak (Former President and Chief Executive Officer) (1) ——Richard M. Frank (Former Executive Chairman) (2) ——Tiffany B. Kice (Former EVP, Chief Financial Officer and Treasurer) (3) ——_______________________(1)Michael H. Magusiak was the President and Chief Executive Officer until close of business on June 2, 2014 when he retired from the Company in connection with theMerger.(2)Richard M. Frank was Executive Chairman until close of business on March 31, 2014 when he retired from the Company.(3)Tiffany B. Kice was EVP, Chief Financial Officer and Treasurer until close of business on July 11, 2014 when she left the Company.BenefitsDuring 2014, we provided Company benefits, or perquisites, that we believed were standard in the industry to our executive officers. We provided agroup medical and dental insurance program for the executives and their qualified dependents, group life insurance for the executives and their spouses,accidental death and dismemberment coverage and a Company sponsored cafeteria plan. A major portion of these benefits was paid for by the Company.Employee life insurance102amounts surpassing the Internal Revenue Service maximum were treated as additional compensation to all employees. The named executive officersparticipated in a separate medical, dental and life insurance benefits program that was fully-funded by the Company. Messrs. Frank and Magusiak were alsoreimbursed for all out-of-pocket expenses related to their life insurance premiums, as well as all out-of-pocket medical and dental expenses for them, theirspouses and dependent children while they were employed by the Company. We paid all administrative costs to maintain the medical and dental benefitplans. Our executive officers were also entitled to certain benefits that were not otherwise available to all of our employees, including car allowances andsubsidized annual physical exams.How Elements of Our Compensation Program Are Related to Each OtherWe view the various components of 2014 compensation as related but distinct, and emphasize “pay for performance” with cash bonuses and equityawards as a significant portion of total compensation, reflecting a risk aspect that is tied to long-term and short-term financial and strategic goals. Ourcompensation philosophy is to foster entrepreneurship and alignment of the interests of executives by making equity compensation a significant componentof executive compensation. We determined the appropriate level for each compensation component based in part, but not exclusively, on our view of internalequity and consistency, retention of executive officers and other considerations we deem relevant, such as rewarding extraordinary performance and the otherfactors discussed above. Our Compensation Committee did not have any formal or informal policies or guidelines during 2014 for allocating compensationbetween long-term and currently paid out compensation, between cash and non-cash compensation, or among different forms of non-cash compensation.Role of Executive Officers in Compensation DecisionsDuring 2014, Messrs. Leverton and Cardinale and other executive officers provided information and helped explain data relating to compensationmatters under consideration by the Board. Executive officers, however, did not participate in deliberations or determination of their respective compensationor during executive sessions. In addition, Mr. Leverton submitted recommendations to the Board regarding certain elements of the compensation for the othernamed executive officers. All decisions regarding the compensation of executive officers ultimately were made solely by the Board, which considered theserecommendations and exercised its discretion to modify certain recommended adjustments or awards based on a number of factors considered by the Board,as described above. The Board’s determinations regarding compensation for the other named executive officers were generally consistent with therecommendations of management.Tax ConsiderationsIn general, prior to the Merger, we structured our compensation program to attempt to satisfy certain provisions of the Internal Revenue Code of1986, as amended (the “Code”). Under Section 162(m) of the Code, a limitation is placed on tax deductions of any publicly held corporation for individualcompensation to certain executives of such corporation exceeding $1,000,000 in any taxable year, unless the compensation is performance-based. Since wehave ceased to be a publicly-held corporation for purposes of Section 162(m) of the Code, it is no longer a consideration for us when making compensationdecisions.Stock Ownership GuidelinesPrior to the Merger, the Board of Directors believed that executive officers should invest in appropriate amounts of the Company’s Common Stockto align their interests with those of the Company’s stockholders. The Board also had stock ownership and retention guidelines in place for the President,Chief Executive Officer, all Executive Vice Presidents and all non-employee directors. The ownership targets under that policy were as follows:Executive Chairman75,000 sharesChief Executive Officer75,000 sharesPresident75,000 sharesExecutive Vice Presidents10,000 sharesNon-employee Directors5,000 sharesAfter the Merger, the Board continued to believe that the Company’s executives should align their interests with those of the Company’sstockholders by investing in the Company’s Common Stock. Rather than requiring investment in a specific number of shares, the Board negotiated with eachofficer a cash amount that such officer should invest in the Company, with such cash to be used to purchase Common Stock in the Company at a valuationequal to fair market value of the Common Stock, without discount for lack of marketability or other factors commonly associated with privately held stock.Based on this requirement, and as set forth in the section below titled “Narrative Disclosure to Summary Compensation Table and Grants of103Plan-Based Awards in Fiscal 2014 Table,” the named executive officers paid the following amounts to purchase Common Stock during 2014:Thomas Leverton$500,000J. Roger Cardinale$1,500,000Temple Weiss$100,000Randy G. Forsythe$750,000Mark Gordon$100,000Termination Payments Provided for Certain ExecutivesPrior to their retirements in 2014, we had “change in control” severance provisions in the employment agreements negotiated with our formerExecutive Chairman and our former President and Chief Executive Officer. Our previous Board of Directors and Compensation Committee believed thatproviding these agreements to our Executive Chairman and our President and Chief Executive Officer would serve to help protect stockholders’ interests. Theagreements provided that the executives would receive “change in control” severance only in the event that both a “change in control” occurred and theexecutive left the Company within one year of the “change in control.” Our previous Board of Directors and Compensation Committee believed thatproviding these agreements to our Executive Chairman and our President and Chief Executive Officer would serve to help protect stockholders’ interests inthe event of a change in control event affecting the Company, by enhancing the likelihood of management continuity through the closing of any transaction.Our previous Board of Directors and Compensation Committee further believed that these provisions were appropriate given the combined tenure of the twoexecutives with the Company was approximately 50 years and that in the event of any “change in control,” Messrs. Frank and Magusiak would likely beasked to remain as members of the executive management team of the Company. Finally, the previous Board of Directors and Compensation Committeebelieved that the remuneration for any “change in control” severance, which approximated one year of total target compensation for Mr. Frank and amountedto less than one year of total target compensation for Mr. Magusiak, was fair and appropriate given their long-term service with the Company and providedthe appropriate incentive to continue service to the Company during any pending change in control.The employment agreements with Messrs. Frank and Magusiak also provided the executives with certain additional severance and deferredcompensation benefits. The Board of Directors and Compensation Committee believed that such benefits, which were less than those for any “change incontrol” severance, were fair and appropriate given their long-term service with the Company. The Board of Directors and Compensation Committee alsobelieved that such benefits provided an appropriate incentive for each of the executives to enter his respective employment agreement and for each ofMessrs. Magusiak and Frank to continue his service to the Company.In addition, our equity incentive plans had provisions allowing for the vesting of awards granted under those plans in connection with a “change incontrol” (as defined in the applicable equity incentive plan), which would apply to awards granted to our executive officers. Generally, awards granted underthe equity incentive plans provided that the award would vest in the event that there was a “change in control.” The employment agreements withMessrs. Frank and Magusiak also provided for the vesting of their awards under certain circumstances.See “Termination Payments to Former Executives” for more information on the benefits paid to the Company’s executives upon the termination oftheir employment in 2014.104Summary Compensation TableThe Summary Compensation Table below summarizes the total compensation of each named executive officer earned and awarded during fiscalyears 2014, 2013 and 2012:Name and PrincipalPositionYearSalaryBonusStockAwards (1)OptionAwards (2)Non-EquityIncentive PlanCompensationAll OtherCompensation (3)Total ($)($)($)($)($)($)($)Thomas Leverton2014232,692——875,185—10,1541,118,031(Chief Executive Officer)2013n/an/an/an/an/an/an/a 2012n/an/an/an/an/an/an/aTemple Weiss201475,000——338,99021,709—435,699(Chief Financial Officer)2013n/an/an/an/an/an/an/a 2012n/an/an/an/an/an/an/aJ. Roger Cardinale2014408,846——583,454164,91283,1181,240,330(President and InterimPrincipal Financial Officer)2013375,000—550,000—147,61319,3761,091,989 2012299,519—525,000—120,89519,864965,278Randy G. Forsythe2014257,500——291,731124,78872,566746,585(Executive Vice Presidentand Director of Operations)2013257,500—350,000—189,61819,345816,463 2012250,000—349,417—83,01010,045692,472Mark Gordon2014225,000——40,84215,26830,098311,208(Senior Vice President andChief Operating Officer -International Operations)2013225,000———104,17012,000341,170 2012225,000———128,48012,897366,377Michael H. Magusiak2014 (4)356,923————3,297,6473,654,570(Former President and CEO)2013836,760—1,800,000—394,00035,6933,066,453 2012833,336—1,670,733—336,00035,1422,875,211Richard M. Frank2014 (5)163,846————3,219,9513,383,797(Former ExecutiveChairman)2013661,382—1,350,000——46,6342,058,016 2012771,017—1,392,290—252,00056,0732,471,380Tiffany B. Kice2014187,789————42,639230,428(Former Executive VicePresident, Chief FinancialOfficer, and Treasurer)2013315,000—300,000—123,97419,376758,350 2012299,519—300,000—100,63919,692719,850___________________________(1)These columns represent the fair value of restricted stock and option awards approved by the Compensation Committee in each of the fiscal years presented and is consistentwith the grant date fair value of the award computed in accordance with FASB ASC Topic 718. For further discussion on the valuation assumptions used with respect to theoption awards granted in 2014, refer to Note 15. “Stock-Based Compensation Arrangements” included in Part II, Item 8. “Financial Statements and Supplementary Data” ofthis Annual Report on Form 10-K.105(2)This column represents the fair value of stock options given to executive officers in 2014, and is consistent with the grant date fair value of the award computed in accordancewith GAAP. Option Award amounts reported in the table above for 2014 consist of the following items:Option Award Component Mr.Leverton Mr. Weiss Mr.Cardinale Mr.Forsythe Mr. Gordon Mr. Magusiak Mr. Frank Ms. KiceStock options - Tranche A: Fair value on grant date ($) $532,469 $194,953 $354,978 $177,491 $24,849 $— $— $— Options granted (#) 193,625 66,994 129,083 64,542 9,036 — — —Stock options - Tranche B: Fair value on grant date ($) $211,051 $88,432 $140,700 $70,351 $9,849 $— $— $— Options granted (#) 193,625 66,994 129,083 64,542 9,036 — — —Stock options - Tranche C: Fair value on grant date ($) $131,665 $55,605 $87,776 $43,889 $6,144 $— $— $— Options granted (#) 193,625 66,994 129,083 64,542 9,036 — — —Stock options - Totals: Fair value on grant date ($) $875,185 $338,990 $583,454 $291,731 $40,842 $— $— $— Options granted (#) 580,875 200,982 387,249 193,626 27,108 — — —(3)See the “All Other Compensation in Fiscal 2014” table below for additional information about the compensation included under “All Other Compensation” for 2014.(4)The salary paid to Mr. Magusiak in 2014 was his base salary of $800,000, prorated for the period from January 1, 2014 to June 2, 2014, when he left the Company, andincluded imputed interest associated with Mr. Magusiak’s previously earned deferred compensation.(5)The salary paid to Mr. Frank in 2014 was his base salary of $600,000, prorated for the period from January 1, 2014 to March 31, 2014 when Mr. Frank retired from theCompany, and included imputed interest associated with Mr. Frank’s previously earned deferred compensation.All Other Compensation in Fiscal 2014Name and PrincipalPosition CarAllowance Long TermDisability,Spousal andChild LifeInsuranceReimbursement Medical ExpenseReimbursement Car InsuranceReimbursement Moving ExpenseReimbursement Dividends -RestrictedStock VacationPay onTermination Severance Total ($) ($) ($) ($) ($) ($) ($) ($) ($)Thomas Leverton(Chief ExecutiveOfficer) 10,154 — — — — — — — 10,154Temple Weiss (ChiefFinancial Officer) — — — — — — — — —J. Roger Cardinale(President) 18,000 — — 1,723 — 63,395 — — 83,118Randy G. Forsythe(Executive VicePresident) 18,000 — — 1,723 10,336 42,507 — — 72,566Mark Gordon (SVP,COO - InternationalDevelopment) 12,000 — — — — 18,098 — — 30,098Michael H. Magusiak(Former President andCEO) 10,154 — 13,914 — — 212,040 61,539 3,000,000 3,297,647Richard M. Frank(Former ExecutiveChairman) 6,462 — 12,548 1,723 — 153,063 46,155 3,000,000 3,219,951Tiffany B. Kice(Former EVP, CFO andTreasurer) 10,385 — — 861 — 31,393 — — 42,639106Grants of Plan-Based Awards in Fiscal 2014The following table summarizes the 2014 grants of non-equity awards under the Company’s Incentive Bonus Plan and all restricted stock awards: Estimated Possible PayoutsUnder Non-Equity IncentivePlan Awards (1) All OtherStockAwards:Numberof Sharesof Stockor Units All OtherOptionAwards:Number ofSecuritiesUnderlyingOptions (3) ExercisePrice ofOptionAwards Grant DateFair Valueof OptionAwardsNameGrantDate ThresholdTargetMaximum Shares Options Price Fair Value ($)($)($) (#) ($ / sh) ($)Thomas Leverton08/21/14 ——— — 580,875 10.00 875,185 08/21/14 ——— 24,260 — — 242,600Temple Weiss09/29/14 32,500325,000487,500 — 200,982 10.83 338,990J. Roger Cardinale08/21/14 48,500485,000727,500 — 387,249 10.00 583,454Randy G. Forsythe08/21/14 —257,753No limit — 193,626 10.00 291,731Mark Gordon08/21/14 80,500172,500690,000 — 27,108 10.00 40,842Michael H. Magusiak08/21/14 ——— — — — —Richard M. Frank08/21/14 ——— — — — —Tiffany B. Kice08/21/14 ——— — — — —__________________________(1)For explanation of the bonus thresholds, targets, and maximums for Messrs. Forsythe and Gordon, please see “Elements of Our Compensation Program and Why We Pay EachElement: Alternative Bonus Plans for Messrs. Forsythe and Gordon,” above.Narrative Disclosure to Summary Compensation Table and Grants of Plan-Based Awards in Fiscal 2014 TableEmployment AgreementsEmployment Agreements with Messrs. Leverton, Cardinale, Forsythe, and WeissOn July 30, 2014, the Company entered into employment agreements with Messrs. Leverton, Cardinale, and Forsythe and on October 9, 2014, theCompany entered into an employment agreement with Mr. Weiss. Each of these agreements contains substantially similar terms and conditions ofemployment. The employment agreements provide for an annual base salary of $550,000 for Mr. Leverton, $485,000 for Mr. Cardinale, $325,000 for Mr.Weiss, and $315,000 for Mr. Forsythe (as of January 1, 2015), a maximum annual bonus opportunity of 150% of base salary, and employee benefits asprovided to senior executives of the Company. Under each employment agreement, if the executive is terminated by the Company without “cause” or heresigns for “good reason” (each as defined in the agreement), then, subject to his execution, delivery, and non-revocation of a release of claims in favor of theCompany, he will be entitled to receive the sum of his base salary and the annual bonus paid or to be paid with respect to the fiscal year completed mostrecently prior to the employment termination date. Each employment agreement also provides for certain restrictive covenants, including 12-month post-termination noncompetition and nonsolicitation covenants.The employment agreements also provide that each executive will (a) purchase common stock in Holdings having an aggregate value equal to$1,500,000, in the case of Mr. Cardinale; $750,000, in the case of Mr. Forsythe; $500,000, in the case of Mr. Leverton; and $100,000, in the case of Mr.Weiss; (b) receive options to purchase 1.50% (580,875 shares), in the case of Mr. Leverton; 1.00% (387,249 shares), in the case of Mr. Cardinale; 0.519%(200,982 shares) in the case of Mr. Weiss; and 0.50% (193,626 shares), in the case of Mr. Forsythe, of the common stock of Holdings on a fully diluted basisunder the Queso Holdings Inc. 2014 Equity Incentive Plan, and (c) for Mr. Leverton only, receive a restricted stock award having an aggregate grant datevalue equal to $550,000, prorated for the number of days he served during 2014 (which reduced, dollar-for-dollar, his annual bonus for 2014). Each ofMessrs. Leverton, Cardinale, Weiss, and Forsythe purchased Holdings common stock and was granted options to purchase Holdings common stock onAugust 21, 2014.The options are subject to certain service- and performance-based vesting criteria, and also to accelerated vesting in the event of certain terminationsof employment within a specified period following a sale of the Company. (See “Potential107Payments Upon Termination or Change in Control: Accelerated Vesting of Stock Options,” below.) Mr. Weiss also agreed to invest 100% of the after-taxportion of any bonus he receives in respect of the 2014 fiscal year and 50% of the after-tax portion of any bonus he receives in respect of the 2015 fiscal yearin Holding’s common stock. Mr. Leverton’s restricted stock award will vest on the date on which annual bonuses are paid to senior executives of theCompany with respect to 2014 performance. In connection with the purchase of Holdings shares and the grant of options, each executive become a party toan investor rights agreement among Holdings, AP VIII Queso Holdings, L.P., and other shareholder parties. The shares purchased by the executive or receivedby the executive upon exercise of a vested option are subject to repurchase by Holdings under certain circumstances.Employment Agreement with Mr. FrankOn February 23, 2010, Mr. Frank entered into an employment agreement with the Company providing for a forty-nine (49) month term commencingon February 23, 2010 and ending on March 31, 2014. The employment agreement replaced Mr. Frank’s prior employment agreement with the Companydated March 29, 2005, as amended. The employment agreement provided for (i) a base salary of $750,000 (which may be increased from time to time by theCompensation Committee), (ii) a cash bonus, payable annually, if earned, based upon the achievement of corporate objectives pursuant to the Company’sIncentive Bonus Plan, (iii) the grant of performance-based restricted stock or restricted stock unit awards (“Restricted Stock Awards”) in accordance with theterms of the Company’s Third Amended and Restated 2004 Restricted Stock Plan or any successor plan (the “Restricted Stock Plan”) in such number ofshares and under such terms as may be determined by the Compensation Committee, in accordance with the terms of the Restricted Stock Plan, with any suchawards vesting over the term of the employment agreement (subject to the Restricted Stock Plan), (iv) the reimbursement of reasonable business expenses,(v) an automobile allowance of $24,000 annually (subject to adjustment from time to time in direct proportion to generally applicable adjustments by theCompany to its automobile allowances) and a reimbursement of $1,000 annually, or such other amount as the Company and Employee may from time to timeagree, toward the premiums upon a policy of collision and liability insurance covering such automobile, (vi) at least $500,000 in life insurance coverage,(vii) at least five (5) weeks’ vacation, and (viii) such additional benefits and/or compensation as may be determined by the Compensation Committee. Theemployment agreement also provided for certain severance and change-in-control payments. See “Potential Payments Upon Termination or Change-In-Control.”Employment Agreement with Mr. MagusiakOn February 23, 2010, Mr. Magusiak entered into an employment agreement with the Company providing for a seventy-three (73) month termcommencing on February 23, 2010 and ending on March 31, 2016. The employment agreement replaced Mr. Magusiak’s prior employment agreement withthe Company dated March 29, 2005, as amended. The employment agreement provided for (i) a base salary of $750,000 (which could be increased from timeto time by the Compensation Committee), (ii) a cash bonus, payable annually, if earned, based upon the achievement of corporate objectives pursuant to theCompany’s Incentive Bonus Plan, (iii) the grant of Restricted Stock Awards in accordance with the terms of the Company’s Restricted Stock Plan in suchnumber of shares and under such terms as may be determined by the Compensation Committee, in accordance with the terms of the Restricted Stock Plan,(iv) the reimbursement of reasonable business expenses, (v) an automobile allowance of $24,000 annually and a reimbursement of automobile insurancepremiums of $1,000 annually, (vi) at least $500,000 in life insurance coverage, (vii) at least five weeks’ vacation, and (viii) such additional benefits and/orcompensation as may be determined by the Compensation Committee. The Compensation Committee set Mr. Magusiak’s base salary at $800,000 for 2013.The employment agreement also provided for certain severance and change-in-control payments. See “Termination Payments to Former Executives.”Indemnification AgreementsIn addition, before the Merger, certain current and former senior officers and directors of the Company entered into indemnification agreements withthe Company, each in a form approved by the Company’s Board of Directors and previously disclosed by the Company. The Board of Directors alsoauthorized the Company to enter into indemnification agreements with future directors and senior officers of the Company that may be designated from timeto time by the Board. The indemnification agreements supplement and clarify existing indemnification provisions of the Company’s Articles ofIncorporation and Bylaws and, in general, require the Company, to the extent permitted under applicable law, to indemnify such persons against all expenses,judgments and fines incurred in connection with the defense or settlement of any actions brought against them by reason of the fact that they are or weredirectors or officers of the Company or any other enterprise to the extent they assumed those responsibilities at the direction of the Company. Theindemnification agreements also establish processes and procedures for indemnification claims, advancement of expenses and costs and other determinationswith respect to indemnification.108Outstanding Equity Awards at 2014 Fiscal Year-EndThe following table provides information on the stock option and restricted stock awards held by our named executive officers as of December 28,2014. Each equity grant is shown separately for each named executive officer. The vesting schedule for each grant is shown following this table, based on thestock option or restricted stock award grant date. See “Compensation Discussion and Analysis” for additional information about the stock options andrestricted stock awards. Option Awards Restricted Stock AwardsName Number ofSecuritiesUnderlyingUnexercisedOptions (#)Exercisable Number ofSecuritiesUnderlyingUnexercisedOptions (#)Unexercisable OptionsExercisePrice ($) OptionExpirationDate Number ofShares of Unitsof Stock ThatHave NotVested (#) MarketValue ofShares orUnits ofStock ThatHave NotVested ($)Thomas Leverton — 580,875 10.00 02/14/2024 24,260 242,600Temple Weiss — 200,982 10.83 02/14/2024 — —J. Roger Cardinale — 387,249 10.00 02/14/2024 — —Randy G. Forsythe — 193,626 10.00 02/14/2024 — —Mark Gordon — 27,108 10.00 02/14/2024 — —Michael H. Magusiak — — — — — —Richard M. Frank — — — — — —Tiffany B. Kice — — — — — —In August 2014 (except for Mr. Weiss, whose stock options were granted in October 2014), Holdings granted options to purchase a total of1,389,839 shares of its common stock to the named executives. The options are subject to certain service and performance based vesting criteria, and weresplit evenly between Tranches A, B and C, which have different vesting requirements. The options in Tranche A are service based and vest and becomeexercisable in equal installments on each of the first five anniversaries of February 14, 2014. Tranche B and Tranche C options are performance based andvest and become exercisable when certain performance conditions are met. The options are also subject to accelerated vesting in the event of certainterminations of employment upon or within 12 months following a change in control of Holdings. The stock options expire on February 14, 2024.Mr. Leverton’s 2014 bonus, pursuant to his employment agreement and as further detailed above, was in the form of an award of restricted stock.109Nonqualified Deferred CompensationThe following table sets forth unsecured, unfunded obligations of the Company to make payments of deferred compensation:Name ExecutiveContributions inLast Fiscal Year RegistrantContribution inLast Fiscal Year AggregateEarnings in LastFiscal Year AggregateWithdrawals /Distributions AggregateBalance at LastFiscal Year End (3) ($) ($) ($) ($) ($)Thomas Leverton — — — — —J. Roger Cardinale — — — — —Temple Weiss — — — — —Randy G. Forsythe — — — — —Mark Gordon — — — — —Michael H. Magusiak — 122,521(1) — 25,000 225,000Richard M. Frank — 35,577(2) — 25,000 225,000Tiffany B. Kice — — — — —________________________(1)Pursuant to Mr. Magusiak’s employment agreement entered into on February 23, 2010, deferred compensation in the amount of $250,000 became payable to Mr. Magusiak incertain circumstances in ten equal annual installments, without interest, with the first installment due upon the Company’s termination of his employment, the end of the term ofthe agreement or a change in control based on the terms set forth in such agreement. At the closing of the Merger, Mr. Magusiak became entitled to the full $250,000 paymentto be paid out in ten (10) pro rata, annual installments. During 2010, the Company recorded the actuarially determined present value of the estimated earned future benefitpayments payable to Mr. Magusiak and was required to record an additional amount every year representing the additional prorated amount earned and the imputed interestassociated with the previously earned deferred compensation for Mr. Magusiak. The additional amount of $122,521 is included in the Summary Compensation Table as salaryfor Mr. Magusiak for the fiscal year 2014.(2)Pursuant to Mr. Frank’s employment agreement entered into on February 23, 2010, deferred compensation in the amount of $250,000 became payable to Mr. Frank in tenequal annual installments, without interest, with the first installment due upon termination of his employment, at the end of the term of the agreement in March 2014 based onthe terms set forth in such agreement. The entire amount of deferred compensation was deemed earned during the 2010 fiscal year. The Company was required to record anadditional deferred compensation amount every year representing the imputed interest associated with the deferred compensation for Mr. Frank. The additional amount of$35,577 is included in the Summary Compensation Table as salary of Mr. Frank for the fiscal year 2014.(3)This column represents the dollar amount of the total balance of each executive’s nonqualified deferred compensation account as of the end of 2014.Narrative Disclosure to Nonqualified Deferred CompensationSee “Narrative Disclosure to Summary Compensation Table and Grants of Plan-Based Awards in Fiscal 2014 Table - Employment Agreements”above for a description of the nonqualified deferred compensation arrangements for Messrs. Frank and Magusiak.Potential Payments Upon Termination or Change in ControlSeverance BenefitsPursuant to their employment agreements with the Company, each of Messrs. Leverton, Cardinale, Forsythe, and Weiss are entitled to severancebenefits upon a termination by the Company without “cause” or a resignation with “good reason,” in either case consisting of a lump sum payment equal toone year of base salary and the annual bonus paid to the executive in respect of the most recently completed fiscal year. Each executive would have “goodreason” to resign and receive such severance benefits upon the occurrence of any of the following: (i) any reduction in base salary (or in the case of Mr.Leverton, reduction in base salary or maximum bonus opportunity), (ii) any material breach by the Company of the employment agreement, and (iii) a forcedrelocation of more than 50 miles from the executive’s principal place of employment. The right to receive such severance is conditioned upon delivery of acomprehensive release of claims against the Company.110Assuming a severance-eligible termination as of December 28, 2014, each executive would have been entitled to the following cash severancebenefits:Thomas Leverton Temple Weiss J. Roger Cardinale Randy G. Forsythe$550,000 $385,000 $485,000 $257,500Accelerated Vesting of Stock Options; Option to Repurchase StockUnder the “Queso Holdings Inc. 2014 Equity Incentive Plan Stock Option Agreement” (the “Option Agreement”), which each of the namedexecutive officers signed as a condition of receiving option grants from Holdings, any Tranche A options that have not vested at the time of a termination forany reason other than a change in control will be cancelled for no consideration. In the event of a change in control, however, any unvested Tranche Aoptions will vest and become exercisable on the first anniversary of the change in control, as long as the executive holding the options is still employed atthat time. If the options holder is terminated without Cause (as that term is defined by the Option Agreement) before the first anniversary of the change incontrol, however, the Tranche A options shall automatically become vested and exercisable as of the date of such termination. Any unvested Tranche B andC options as of the date of a change in control are to be canceled as of that date pursuant to the Option Agreement. The Option Agreement further providesthat, in the event of an initial public offering, the original options vesting schedule shall hold, except that Tranche B and C options may vest ahead ofschedule, if the applicable vesting requirements are achieved in the initial public offering and if the options holder remains employed through suchaccelerated vesting date. In the event that the options holder terminates for any reason other than Cause and independent of a change in control or initialpublic offering, all unvested options will be canceled for no consideration, but vested options may be exercised for a defined period after the termination. Atermination for Cause will result in termination of all options, including those that have vested.Each of Messrs. Leverton, Cardinale, Weiss, and Forsythe also signed an “Investor Rights Agreement” as a condition of purchasing common stock ofHoldings pursuant to his employment agreement. That agreement provides that Holdings or its designee may repurchase such stock from the officer in theevent of termination of his employment prior to a public offering of Holdings. If the executive’s termination is for any reason other than (i) by the Companyfor Cause (as that term is defined in the Investor Rights Agreement), or (ii) a voluntary resignation by the executive, then the price that the Company or itsdesignee will pay for the stock will be the fair market value of the stock as of the termination date. If the termination is by the Company for Cause, or by theexecutive for any reason, the price to be paid will be the lesser of the fair market value of the stock as of the termination date and the amount originally paidby the shareholder to acquire the shares, less any amount per share of any dividends or other distributions paid or payable to the shareholder since sharepurchase.As of December 28, 2014, none of the stock options granted to any of the named executives had vested, so in the event of their termination as of thatdate for any reason absent a change in control, there would have been no options available for exercise.Had the executives’ employment been terminated by the Company without cause as of December 28, 2014, in connection with a change in control,the executives’ Tranche A options would have vested in full. The following table reflects the spread value of the Tranche A options that would have vested inconnection with such a termination, based on the year-end fair market value of Holdings’ common stock of $11.93 per share:Name Tranche A Options Fair Market Value as ofDate of Grant Fair Market Value asof December 28, 2014 Amount Owed ifTerminated for AnyReason Other ThanCause (Shares) ($/Share) ($) ($)Thomas Leverton 193,625 10.00 11.93 373,696Temple Weiss 66,994 10.83 11.93 73,693J. Roger Cardinale 129,083 10.00 11.93 249,130Randy G. Forsythe 64,542 10.00 11.93 124,566Mark Gordon 9,036 10.00 11.93 17,439Termination Payments to Certain Former ExecutivesDuring 2014, the Company provided benefits to certain of the named executive officers upon the terminations of employment from the Company.These benefits were in addition to the benefits to which the executives were generally entitled111upon a termination of employment generally (i.e., vested stock options accrued as of the date of termination, restricted stock awards that are vested as of thedate of termination, vested benefits, if any, in the Company’s 401(k) Plan, and the right to elect continued health coverage pursuant to COBRA). Theincremental benefits that were payable to the named executive officers are described as follows:Termination Payments under Mr. Frank’s and Mr. Magusiak’s Employment AgreementsUnder the terms of their respective employment agreements, Mr. Frank and Mr. Magusiak each became entitled to certain payments in connectionwith the Merger and their subsequent terminations of employment. Specifically, Mr. Frank was entitled to deferred compensation payments equaling $25,000per year for ten years, without interest, after the termination of his employment at the expiration of its term in March 2014. Mr. Magusiak was entitled todeferred compensation payments equaling $25,000 per year for ten years, without interest, commencing on, among other events, a change in control.In addition, Mr. Frank’s and Mr. Magusiak’s employment agreements provided for a lump sum cash severance benefit equal to $3,000,000 in the event that achange in control occurred and the executive’s employment was terminated by the Company within one year after such a change in control or such executivevoluntarily terminated his employment within one year after such a change in control. Each executive would also have been entitled to such payment if hisemployment were terminated for any reason prior to a change in control (whether or not the change in control ever occurs) and such termination was either(i) at the request or direction of a person who has entered into an agreement with the Company, the consummation of which would constitute a change incontrol or (ii) otherwise in connection with or in anticipation of a change in control.In connection with the voluntary termination of his employment in 2014, each of Messrs. Frank and Magusiak became entitled to the cash severancebenefits described above.Termination Payments to Other Named Executive OfficersDuring 2014, Tiffany Kice was entitled to all base salary and other amounts actually earned, accrued or owing as of the date of termination, vestedbenefits, if any, in the Company’s 401(k) Plan, and the right to elect continued health coverage pursuant to COBRA.Vesting of Equity Awards Upon a Change in ControlRestricted Stock PlanThe Company’s restricted stock plan provided that all restricted stock awards outstanding would automatically become vested upon a change incontrol. The following table provides information on the restricted stock awards held by our named officers that became automatically vested as a result ofthe Merger: Option Awards Stock AwardsName Date Number ofShares Acquiredon Exercise (#) Value Realizedon Exercise ($) Number ofSharesAcquired onVesting (#) Value Realized onVesting ($)J. Roger Cardinale 02/14/14 — — 37,893 2,046,222Randy G. Forsythe 02/14/14 — — 25,007 1,350,378Mark Gordon 02/14/14 — — 10,673 576,342Michael H. Magusiak 02/14/14 — — 125,418 6,772,572Richard M. Frank 02/14/14 — — 91,770 4,955,580Tiffany B. Kice 02/14/14 — — 19,574 1,056,996DIRECTOR COMPENSATIONIn December 2012 (before the Merger), the Compensation Committee retained Longnecker & Associates, an independent compensation consultant,for the purposes of: (i) a review and evaluation of the Company’s non-employee director cash and equity compensation, including a review and analysis oflead independent director and committee chair compensation; and (ii) to recommend any changes based on such analysis and review (the “2013 LongneckerDirector Report”). Based on the recommendations of the 2013 Longnecker Director Report, in February 2013, the Compensation Committee recommended tothe Board and the Board approved changes to non-employee director compensation for 2013. In 2013, each of the non-112employee directors received a retainer of $25,000, $2,000 per regularly scheduled Board meeting for attendance (in person or telephonically), $2,000 perspecially called meeting of the Board, for which attendance is requested in person or telephonically to address a significant issue outside of the normal courseof business, and $1,250 per specially called committee meeting, for which attendance is requested in person or telephonically to address a significant issueoutside of the normal course of business. In 2013, the Lead Independent Director received a retainer of $15,000 and the chairpersons of the committees of theBoard received the following retainers: Audit Committee Chair: $15,000; Compensation Committee Chair: $7,500; and Nominating/Corporate GovernanceCommittee Chair: $5,000. No changes to the annual restricted stock grant (discussed below) were recommended to or approved by the CompensationCommittee.In addition, before the Merger, the Company’s non-employee directors were entitled to receive grants of restricted stock awards under theCompany’s Second Amended and Restated Non-Employee Directors Restricted Stock Plan. On the day a non-employee director was first elected or appointedto the Board of Directors, such non-employee director was granted a restricted stock award for the number of shares of Common Stock having a fair marketvalue (as defined in the Second Amended and Restated Non-Employee Directors Restricted Stock Plan) as of the date of grant equal to $100,000 multipliedby a fraction the numerator of which is the number of days until the date of the next annual grant and the denominator of which is 365. Each Januarythereafter, a non-employee director who was previously elected to the Board of Directors and who continued to serve in such capacity would be granted arestricted stock award during each year of service on the Board for the number of shares of Common Stock having a fair market value (representing theaverage of the closing prices of the Common Stock as reported by the New York Stock Exchange for the five trading day period ending on and including thedate of the stock award) as of the date of grant equal to $100,000. Each restricted stock award was scheduled to vest on each anniversary date of the awardwith respect to 25% of the amount of the grant for four consecutive anniversary dates so that the restricted stock award would be fully vested at the end of thefourth anniversary date of the date of grant. If a non-employee director ceased to be a director for any reason other than death prior to the fourth anniversarydate of grant of a restricted stock award, such unvested shares would be forfeited; however, if a non-employee director ceased to be a director because ofvoluntary retirement after a lengthy period of service or because of health reasons, the non-employee directors, excluding the affected non-employee director,would consider whether or not to vest in full the affected non-employee director’s restricted stock that was awarded at least one year prior to the affected non-employee director’s cessation of board service. If a non-employee director ceased to be a director due to death, then all of such non-employee director’srestricted stock awards would immediately vest in full. Other directors, who were either officers or employees of the Company or its affiliates, did not receiveseparate compensation for their services as directors of the Company during fiscal 2013.After the Merger, we compensate Mr. Weiss for his services on the Board as follows:•An annual retainer fee of $100,000; and•We awarded Mr. Weiss 193,626 stock options in Queso Holdings, as detailed in footnote 5 to the table below. All other members of our board of directors after the Merger receive no compensation.We reimburse our directors for travel expenses to our board meetings and other out-of-pocket expenses they incur when attending meetings orconducting their duties as directors of our company.113The following table sets forth information concerning compensation to each non-employee director of the Company during fiscal 2014:Director Compensation for Fiscal 2014Name (1) Fees Earned orPaid in Cash Stock Awards Option Awards All OtherCompensation Total ($)(4) ($)(5) ($)(6) ($) ($)General (Ret) Tommy Franks (2) 5,365 110,018 — 22,427 137,810Tim T. Morris (2) 5,365 110,018 — 22,427 115,383Louis P. Neeb (2) 6,038 110,018 — 22,427 116,056Cynthia Pharr Lee (2) 5,365 110,018 — 22,427 115,383Bruce M. Swenson (2) 7,384 110,018 — 18,590 117,402Walter Tyree (2) 5,365 110,018 — 22,427 115,383Raymond E. Wooldridge (2) 8,394 110,018 — 22,427 118,412Lance A. Milken (3) — — — — —James Chambers (3) — — — — —Daniel E. Flesh (3) — — — — —Allen R. Weiss (3) 41,667 — 291,730 — 41,667____________________(1)Messrs. Frank, Magusiak and Leverton have been excluded from this table because each of such executive’s compensation is fully reflected in the Summary Compensation Tablefor executive officers.(2)The compensation for these directors reflects amounts earned through February 14, 2014, which was the date on which they resigned their positions as Directors of CEC.(3)Messrs. Milken, Chambers and Flesh are employees of Apollo and are not awarded any compensation for their Board of Directors and committee service. The Company is onlycompensating Mr. Weiss, the sole independent director of the Board of Directors, for his Board of Directors and committee service.(4)This column reports the amount of cash compensation earned in 2014 for Board of Directors and committee service.(5)This column represents the grant date fair value of restricted stock awarded under the Company’s Second Amended and Restated Non-Employee Directors Restricted Stock Plancomputed in accordance with GAAP, which is calculated by multiplying the number of shares of restricted stock awarded by the closing market price of our Common Stock onthe date of grant. Vesting of previously-unvested restricted stock awards granted to non-employee directors was accelerated in February 2014 as a result of the Merger.(6)This column represents the fair value of stock options given to Directors in 2014, and is consistent with the grant date fair value of the award computed in accordance with GAAP.Option Award amounts reported in the table above for 2014 consist of the following items:Option Award Component Mr. WeissStock options - Tranche A: Fair value on grant date ($) $177,491 Options granted (#) 64,542Stock options - Tranche B: Fair value on grant date ($) $70,351 Options granted (#) 64,542Stock options - Tranche C: Fair value on grant date ($) $43,888 Options granted (#) 64,542Stock options - Totals: Fair value on grant date ($) $291,730 Options granted (#) 193,626114 All vesting of unvested restricted stock awards granted to non-employee directors was accelerated in February 2014 as a result of the Merger.Part III, Item 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERSAND MANAGEMENT AND RELATED STOCKHOLDER MATTERSThe following table sets forth information, as of December 28, 2014, relating to the beneficial ownership of the Company’s common stock by: (i) eachdirector and named executive officer; (ii) the directors and the executive officers as a group; and (iii) each person, as that term is used in the Exchange Act,known to the Company to own beneficially five percent (5%) or more of the Company’s outstanding shares of common stock. Unless otherwise indicated, tothe Company’s knowledge, each stockholder has sole voting and dispositive power with respect to the securities beneficially owned by that stockholder.Except as otherwise indicated, all stockholders set forth below have the same principal business address as the Company. On December 28, 2014, there were200 shares of the Company’s common stock outstanding.Name of Beneficial Owner Number of Shares ofCommon Stock Percentage ofOutstandingCommon StockQueso Holdings Inc. (1) 200 100%Thomas Leverton — —Temple Weiss — —J. Roger Cardinale — —Randy G. Forsythe — —Lance A. Milken — —James Chambers — —Daniel E. Flesh — —Allen R. Weiss — —Directors and Executive Officers as a Group (8 persons) — —___________________________(1) AP VIII Queso Holdings, L.P. (“Queso LP”) is the sole shareholder of Queso Holdings, Inc. Apollo Management VIII, L.P. (“Management VIII”) is the manager of QuesoLP. AIF VIII Management, LLC (“AIF VIII LLC”) is the general partner of Management VIII. Apollo Management, L.P. (“Apollo Management”) is the sole member-manager of AIF VIII LLC. Apollo Management GP, LLC (“Management GP”) is the general partner of Apollo Management. Apollo Management Holdings, L.P.(“Management Holdings”) is the sole member of Management GP. Apollo Management Holdings GP, LLC (“Management Holdings GP”) is the general partner ofManagement Holdings. Leon Black, Joshua Harris and Marc Rowan are the managers, as well as executive officers, of Management Holdings GP, and as such may bedeemed to have voting and dispositive control with respect to the shares of our common stock held of record by Queso Holdings, Inc. Each of Queso LP, Management VIII,AIF VIII LLC, Apollo Management, Management GP, Management Holdings and Management Holdings GP, disclaims beneficial ownership of the shares of our commonstock owned of record by Queso Holdings, Inc., except to the extent of any pecuniary interest therein. The address of each of Queso Holdings, Inc., Queso LP, ManagementVIII, AIF VIII LLC, Apollo Management, Management GP, Management Holdings and Management Holdings GP, and Messrs. Black, Harris and Rowan, is 9 W. 57thStreet, 43rd Floor, New York, New York 10019.115Part III, Item 13.CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS,AND DIRECTOR INDEPENDENCEThe Company’s Code of Business Conduct and Ethics provides that employees, officers and directors must act in the best interests of the Companyand refrain from engaging in any activity or having a personal interest that presents a “conflict of interest.” In addition, under applicable SEC rules, theCompany is required to disclose related person transactions as defined in the SEC’s rules. The Code of Business Conduct and Ethics may be accessed on theCompany’s website at www.chuckecheese.com under “Investor Relations-Governance.” We intend to disclose future amendments to or, with respect todirectors and certain executive officers, waivers from, certain provisions of the Code of Business Conduct and Ethics on our website.Related Party Transaction PolicyThe Board of Directors has adopted a Related Party Transaction Policy to set forth in writing the policies and procedures for review and approval oftransactions involving the Company and “related parties” (directors, executive officers, security holders owning five percent or greater of the Company’soutstanding voting securities, and immediate family members of the foregoing persons). The policy covers any related party transaction that meets theminimum threshold for disclosure under the relevant SEC rules, generally transactions involving amounts exceeding $120,000 in which a related party had,has or will have a direct or indirect material interest.Policy•Related party transactions must be approved by the Audit Committee or by the Chairman of the Audit Committee under authority delegated to theChairman of the Audit Committee by the Audit Committee.•A related party transaction will be approved only if the Audit Committee or the Chairman of the Audit Committee determines that it is fair to theCompany and in, or not inconsistent with, the best interests of the Company and its stockholders.•In considering the transaction, the Audit Committee or its Chairman will consider all relevant facts and circumstances of the transaction or proposedtransaction with a related party.Procedures•The affected related party will bring the matter to the attention of the General Counsel.•The General Counsel will determine whether the matter should be considered by the Audit Committee or its Chairman.•If a member of the Audit Committee is involved in the transaction, he or she will be recused from all discussions and decisions about the transaction.•The transaction must be approved in advance by the Audit Committee or its Chairman whenever practicable, and if not practicable, it may bepresented to the General Counsel for preliminary approval, or be preliminarily entered into, subject to ratification by the Audit Committee or itsChairman.•If the Audit Committee or its Chairman does not ratify the related party transaction, the Company will take all reasonable efforts or actions to amend,terminate or cancel it, as directed by the Audit Committee or its Chairman.•All related party transactions will be disclosed to the Board of Directors following their approval or ratification.Currently, there are no related party transactions which meet the requirements for review and approval under our policy.DIRECTOR INDEPENDENCESee “Corporate Governance - Independence of Certain Directors” in Part III, Item 10 of this Report.ITEM 14. Principal Accountant Fees and Services.The firm of Deloitte & Touche LLP was the independent registered public accounting firm for the audit of the Company’s annual consolidatedfinancial statements included in the Company’s annual report on Form 10-K, the review of the consolidated financial statements included in the Company’squarterly reports on Forms 10-Q and for services that are normally provided by accountants in connection with statutory and regulatory filings orengagements for the fiscal years ended December 28, 2014 and December 29, 2013. The following table presents fees billed or expected to be billed forprofessional services rendered by Deloitte & Touche LLP for the audit of the Company’s annual consolidated financial statements, audit-related services, taxservices and all other services rendered by Deloitte & Touche LLP for the Company’s 2014 and 2013 fiscal years: Fiscal 2014 Fiscal 2013Audit Fees (1) $621,000 $595,000Audit-related Fees (2) 49,000 170,000Tax fees (3) — —All other fees (4) — — Total $670,000 $765,000_______________________(1) “Audit fees” are fees billed by Deloitte & Touche LLP for professional services rendered for the audit of the Company’s annual consolidatedfinancial statements (including services incurred with rendering an opinion under Section 404 of the Sarbanes-Oxley Act of 2002) included in theCompany’s Form 10-K, the review of the Company’s quarterly consolidated financial statements included in the Company’s Forms 10-Q, andincludes fees for services that are normally incurred in connection with statutory and regulatory filings or engagements, such as consents, comfortletters, statutory audits, attest services and review of documents filed with the Securities and Exchange Commission.(2) “Audit-related fees” are fees billed by Deloitte & Touche LLP for assurance services that are reasonably related to the performance of the audit orreview of the Company’s consolidated financial statements or other attestation services or consultations that are not reported under audit fees.(3) “Tax fees” are fees billed by Deloitte & Touche LLP for professional services rendered for tax compliance, tax planning and tax advice.(4) “All other fees” are fees billed by Deloitte & Touche LLP for any professional services not included in the first three categories.All audit services, audit related services, and other services were pre-approved by the Audit Committee, which concluded that the provision ofsuch services by Deloitte & Touche LLP was compatible with the maintenance of that firm’s independence in the conduct of its auditing functions.PART II – OTHER INFORMATIONPART IVITEM 15. Exhibits and Financial Statement Schedules.Documents filed as part of this report:116 Financial Statements. The financial statements and related notes included in Part II, Item 8. “Financial Statements andSupplementary Data” are filed as a part of this Annual Report on Form 10-K. See “Index to ConsolidatedFinancial Statements.” Financial StatementSchedules. There are no financial statement schedules filed as a part of this Annual Report on Form 10-K, since thecircumstances requiring inclusion of such schedules are not present. Exhibits. The exhibits required by Item 601 of Regulation S-K are listed in the Exhibit Index, which Exhibit Indexis incorporated in this Annual Report on Form 10-K by reference. The exhibits include agreements towhich the Company is a party or has a beneficial interest. The agreements have been filed to provideinvestors with information regarding their respective terms. The agreements are not intended to provideany other factual information about the Company or its business or operations. In particular, the assertionsembodied in any representations, warranties and covenants contained in the agreements may be subject toqualifications with respect to knowledge and materiality different from those applicable to investors andmay be qualified by information in confidential disclosure schedules not included with the exhibits.These disclosure schedules may contain information that modifies, qualifies and creates exceptions to therepresentations, warranties and covenants set forth in the agreements. Moreover, certain representations,warranties and covenants in the agreements may have been used for the purpose of allocating risk betweenthe parties, rather than establishing matters as facts. In addition, information concerning the subject matterof the representations, warranties and covenants may have changed after the date of the respectiveagreement, which subsequent information may or may not be fully reflected in the Company’s publicdisclosures. Accordingly, investors should not rely on the representations, warranties and covenants in theagreements as characterizations of the actual state of facts about the Company or its business or operationson the date hereof.117SIGNATURESPursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signedon its behalf by the undersigned, thereunto duly authorized. Dated: March 4, 2015 CEC Entertainment, Inc. /s/ Thomas Leverton Thomas Leverton Chief Executive Officer and DirectorPursuant to the requirements of the Securities and Exchange Act of 1934, this report has been signed below by the following persons on behalf of theregistrant and in the capacities and on the dates indicated. Signature Title Date /s/ Thomas Leverton Chief Executive Officer and Director (Principal ExecutiveOfficer) March 4, 2015Thomas Leverton /s/ Temple Weiss Executive Vice President and Chief Financial Officer (PrincipalFinancial Officer) March 4, 2015Temple Weiss /s/ Laurie E. Priest Vice President and Controller (Principal Accounting Officer) March 4, 2015Laurie E. Priest * President March 4, 2015J. Roger Cardinale * Executive Vice President and Director of Operations March 4, 2015Randy G. Forsythe * Director March 4, 2015Lance A. Milken * Director March 4, 2015James P. Chambers * Director March 4, 2015Daniel E. Flesh * Director March 4, 2015Allen R. Weiss *By: /s/ Rodolfo Rodriguez, Jr. Rodolfo Rodriguez, Jr. Senior Vice President and General Counsel March 4, 2015 118EXHIBIT INDEX ExhibitNumber Description2.1 Agreement and Plan of Merger, dated as of January 15, 2014, among Queso Holdings Inc., Q Merger Sub Inc., and CEC Entertainment,Inc. (incorporated by reference to Exhibit 2.1 to the Company’s Registration Statement on Form S-4 (File No. 333-199298) as filedwith the Commission on October 14, 2014) 3.1 Third Restated Articles of Incorporation of CEC Entertainment, Inc. (incorporated by reference to Exhibit 3.1 to the Company’sRegistration Statement on Form S-4 (File No. 333-199298) as filed with the Commission on October 14, 2014) 3.2 Second Amended and Restated Bylaws of CEC Entertainment, Inc. (incorporated by reference to Exhibit 3.2 to the Company’sRegistration Statement on Form S-4 (File No. 333-199298) as filed with the Commission on October 14, 2014) 4.1 Indenture, dated as of February 19, 2014, among CEC Entertainment, Inc., the Subsidiary Guarantors party thereto from time to timeand Wilmington Trust, National Association (incorporated by reference to Exhibit 4.1 to the Company’s Registration Statement onForm S-4 (File No. 333-199298) as filed with the Commission on October 14, 2014). 4.2 Registration Rights Agreement, dated as of February 19, 2014, among CEC Entertainment, Inc., the Subsidiary Guarantors, CreditSuisse Securities (USA) LLC and Deutsche Bank Securities Inc. (incorporated by reference to Exhibit 4.2 to the Company’sRegistration Statement on Form S-4 (File No. 333-199298) as filed with the Commission on October 14, 2014) 4.3 First Supplemental Indenture, dated as of October 9, 2014, among CEC Entertainment, Inc., CEC Entertainment Leasing Company andWilmington Trust, National Association (incorporated by reference to Exhibit 4.1 to the Company’s Quarterly Report on Form 10-Q(File No. 001-13687) as filed with the Commission on November 12, 2014) 4.4* Second Supplemental Indenture, dated as of November 20, 2014, among Peter Piper Holdings, Inc., CEC Entertainment, Inc., PeterPiper Inc., Peter Piper Mexico, LLC, Peter Piper Texas, LLC, Texas PP Beverage, Inc. and Wilmington Trust, National Association 10.1 First Lien Credit Agreement, dated as of February 14, 2014, among Queso Holdings Inc., as Holdings, Q Merger Sub Inc., as Borrower,the Lenders party thereto, Deutsche Bank AG New York Branch, as Administrative Agent, Deutsche Bank Securities Inc., Credit SuisseSecurities (USA) LLC, Morgan Stanley Senior Funding, Inc. and UBS Securities LLC, as Joint Lead Arrangers and Joint Bookrunners,Credit Suisse Securities (USA) LLC, as Syndication Agent, and Morgan Stanley Senior Funding, Inc. and UBS Securities LLC, asDocumentation Agents (incorporated by reference to Exhibit 10.1 to the Company’s Registration Statement on Form S-4 (File No.333-199298) as filed with the Commission on October 14, 2014) 10.2 Collateral Agreement (First Lien), dated as of February 14, 2014, among CEC Entertainment, Inc. (as successor by merger on the datethereof to Q Merger Sub Inc.), as Borrower, each Subsidiary Loan Party party thereto and Deutsche Bank AG New York Branch, asCollateral Agent (incorporated by reference to Exhibit 10.2 to the Company’s Registration Statement on Form S-4 (File No. 333-199298) as filed with the Commission on October 14, 2014) 10.3 Holdings Guarantee and Pledge Agreement, dated as of February 14, 2014, between Queso Holdings Inc., as Holdings, and DeutscheBank AG New York Branch, as Agent (incorporated by reference to Exhibit 10.3 to the Company’s Registration Statement on Form S-4(File No. 333-199298) as filed with the Commission on October 14, 2014) 10.4 Subsidiary Guarantee Agreement (First Lien), dated as of February 14, 2014, among the subsidiaries of CEC Entertainment, Inc. namedtherein and Deutsche Bank AG New York Branch, as Collateral Agent (incorporated by reference to Exhibit 10.4 to the Company’sRegistration Statement on Form S-4 (File No. 333-199298) as filed with the Commission on October 14, 2014) 10.5 Employment Agreement, dated as of July 30, 2014, between the Company and Thomas Leverton (incorporated by reference to Exhibit10.5 to the Company’s Registration Statement on Form S-4 (File No. 333-199298) as filed with the Commission on October 14, 2014) 10.6 Employment Agreement, dated as of July 30, 2014, between the Company and J. Roger Cardinale (incorporated by reference toExhibit 10.6 to the Company’s Registration Statement on Form S-4 (File No. 333-199298) as filed with the Commission on October14, 2014) 10.7 Employment Agreement, dated as of July 30, 2014, between the Company and Randy Forsythe (incorporated by reference to Exhibit10.7 to the Company’s Registration Statement on Form S-4 (File No. 333-199298) as filed with the Commission on October 14, 2014) 10.8 Employment Agreement, dated as of October 9, 2014, between the Company and Temple Weiss (incorporated by reference to Exhibit10.8 to the Company’s Registration Statement on Form S-4 (File No. 333-199298) as filed with the Commission on October 14, 2014) 10.9 Non-Employee Director Term Sheet, dated as of July 30, 2014, between the Company and Allen R. Weiss (incorporated by reference toExhibit 10.9 to the Company’s Registration Statement on Form S-4 (File No. 333-199298) as filed with the Commission on October14, 2014) 10.10 Queso Holdings Inc. 2014 Equity Incentive Plan, as adopted on August 21, 2014 (incorporated by reference to Exhibit 10.10 to theCompany’s Registration Statement on Form S-4 (File No. 333-199298) as filed with the Commission on October 14, 2014) 10.11 Form of Queso Holdings Inc. 2014 Equity Incentive Plan Stock Option Agreement (incorporated by reference to Exhibit 10.11 to theCompany’s Registration Statement on Form S-4 (File No. 333-199298) as filed with the Commission on October 14, 2014) 12.1 Statement regarding Computation of Ratios (incorporated by reference to Exhibit 12.1 to the Company’s Registration Statement onForm S-4 (File No. 333-199298) as filed with the Commission on October 14, 2014) 14.1* CEC Entertainment, Inc. Code of Business Conduct and Ethics, dated as of October 31, 2014 21.1 Subsidiaries of the Company (incorporated by reference to Exhibit 12.1 to the Company’s Registration Statement on Form S-4 (FileNo. 333-199298) as filed with the Commission on October 14, 2014) 31.1* Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as adoptedpursuant to Section 302 of the Sarbanes-Oxley Act of 2002 31.2* Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as adoptedpursuant to Section 302 of the Sarbanes-Oxley Act of 2002 32.1** Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-OxleyAct of 2002 32.2** Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-OxleyAct of 2002 101.INS XBRL Instance Document 101.SCH XBRL Taxonomy Extension Schema Document 101.CAL XBRL Taxonomy Extension Calculation Linkbase Document 101.DEF XBRL Taxonomy Extension Definition Linkbase Document 101.LAB XBRL Taxonomy Extension Label Linkbase Document 101.PRE XBRL Taxonomy Extension Presentation Linkbase Document__________________* Filed herewith.** Furnished herewith.4Doc#: US1:9685093v3SECOND SUPPLEMENTAL INDENTURESECOND SUPPLEMENTAL INDENTURE (this “Supplemental Indenture”) dated as of November 20, 2014 amongPETER PIPER HOLDINGS, INC., a Delaware corporation (“Piper Holdings”), a direct subsidiary of CEC Entertainment, Inc. (or itssuccessor), a Kansas Corporation (the “Issuer”), PETER PIPER INC., an Arizona corporation (“Piper Inc.”), a direct subsidiary ofPiper Holdings, PETER PIPER MEXICO, LLC, an Arizona limited liability company (“Piper Mexico”), a direct subsidiary of PiperInc., PETER PIPER TEXAS, LLC, a Texas limited liability company (“Piper Texas”), a direct subsidiary of Piper Inc., TEXAS PPBEVERAGE, INC., a Texas corporation (“Texas Beverage” and, together with Piper Holdings, Piper Inc., Piper Mexico and PiperTexas, the “New Subsidiary Guarantors” and each a “New Subsidiary Guarantor”), a direct subsidiary of Piper Texas, andWILMINGTON TRUST, NATIONAL ASSOCIATION, a national banking association, as trustee under the indenture referred tobelow (the “Trustee”).W I T N E S S E T H :WHEREAS the Issuer, certain Subsidiary Guarantors and the Trustee have heretofore executed an indenture, dated asof February 19, 2014 (as amended, supplemented or otherwise modified, the “Indenture”), providing for the issuance of the Issuer’s8.000% Senior Notes due 2022 (the “Notes”), initially in the aggregate principal amount of $255,000,000;WHEREAS Sections 4.11 and 12.07 of the Indenture provide that under certain circumstances the Issuer is required tocause each New Subsidiary Guarantor to execute and deliver to the Trustee a supplemental indenture pursuant to which each NewSubsidiary Guarantor shall unconditionally guarantee all the Issuer’s Obligations under the Notes and the Indenture pursuant to aSubsidiary Guarantee on the terms and conditions set forth herein; andWHEREAS pursuant to Section 9.01 of the Indenture, the Trustee and the Issuer are authorized to execute and deliverthis Supplemental Indenture;NOW THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt ofwhich is hereby acknowledged, the New Subsidiary Guarantors, the Issuer and the Trustee mutually covenant and agree for the equaland ratable benefit of the holders of the Notes as follows:1. Defined Terms. As used in this Supplemental Indenture, terms defined in the Indenture or in the preamble or recitalhereto are used herein as therein defined, except that the term “holders” in this Supplemental Indenture shall refer to the term “holders”as defined in the Indenture and the Trustee acting on behalf of and for the benefit of such holders. The words “herein,” “hereof” and“hereby” and other words of similar import used in this Supplemental Indenture refer to this Supplemental Indenture as a whole andnot to any particular Section hereof.2. Agreement to Guarantee. Each New Subsidiary Guarantor hereby agrees, jointly and severally with all existingSubsidiary Guarantors, to unconditionally guarantee the Issuer’s Obligations under the Notes and the Indenture on the terms andsubject to the conditions set forth in Article XII of the Indenture and to be bound by all other applicable provisions of the Indenture andthe Notes and to perform all of the obligations and agreements of a Subsidiary Guarantor under the Indenture.3. Notices. All notices or other communications to any New Subsidiary Guarantor shall be given as provided inSection 13.02 of the Indenture.4. Ratification of Indenture; Supplemental Indentures Part of Indenture. Except as expressly amended hereby, theIndenture is in all respects ratified and confirmed and all the terms, conditions and provisions thereof shall remain in full force andeffect. This Supplemental Indenture shall form a part of the Indenture for all purposes, and every holder of Notes heretofore orhereafter authenticated and delivered shall be bound hereby.5. Governing Law. THIS SUPPLEMENTAL INDENTURE SHALL BE GOVERNED BY, ANDCONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TOPRINCIPLES OF CONFLICTS OF LAW.6. Trustee Makes No Representation. The Trustee makes no representation as to the validity or sufficiency of thisSupplemental Indenture.7. Counterparts. The parties may sign any number of copies of this Supplemental Indenture. Each signed copy shall bean original, but all of them together represent the same agreement.8. Effect of Headings. The Section headings herein are for convenience only and shall not affect the constructionthereof.[Remainder of page intentionally left blank.]IN WITNESS WHEREOF, the parties have caused this Indenture to be duly executed as of the date first written above.CEC Entertainment, Inc.By:/s/ Temple Weiss Name: Temple WeissTitle: Chief Financial Officer,Executive Vice PresidentPETER PIPER HOLDINGS, INC., as a Subsidiary GuarantorBy:/s/ Charles R. Bruce Name: Charles R. BruceTitle: President, Chief ExecutiveOfficerPETER PIPER, INC., as a Subsidiary GuarantorBy:/s/ Charles R. Bruce Name: Charles R. BruceTitle: President, Chief ExecutiveOfficerPETER PIPER TEXAS, LLC, as a Subsidiary GuarantorBy:/s/ James Herrera Name: James HerreraTitle: Manager[Signature Page to Second Supplemental Indenture]TEXAS PP BEVERAGE, INC., as a Subsidiary GuarantorBy:/s/ James Herrera Name: James HerreraTitle: PresidentPETER PIPER MEXICO, LLC, as a Subsidiary GuarantorBy:/s/ Charles R. Bruce Name: Charles R. BruceTitle: Manager[Signature Page to Second Supplemental Indenture]WILMINGTON TRUST, NATIONAL ASSOCIATION, not in its individualcapacity, but solely as TrusteeBy:/s/ Jane Schweiger Name: Jane SchweigerTitle: Vice PresidentDate: December 2, 2014[Signature Page to Second Supplemental Indenture]CEC ENTERTAINMENT, INC.CODE OF BUSINESS CONDUCT AND ETHICSAs amended on October 31, 2014Table of ContentsPageMessage from the President and CEO 3Introduction 4Compliance with Laws 5Conflicts of Interest. 8Fair Dealing 11Responding to Inquiries from the Press, Securities Analysts, Investors and Others 11Political Activity 12Safeguarding Corporate Assets 12Confidentiality 12Equal Employment Opportunity and Anti-Harassment 13Communications 14Accuracy of Company Records 14Reporting any Illegal or Unethical Behavior 15Record Retention 15Administration of this Code 16Waivers of this Code 16Message from the President and CEOTo all CEC employees, officers and directors:At CEC we are committed to establishing and maintaining high ethical principles and standards. Upholding this commitmentis essential to our continued success.The legal and ethical principles and standards that comprise this Code of Business Conduct and Ethics (this “Code”) mustguide our actions. This Code is, of course, broadly stated. Its guidelines are not intended to be a complete listing of detailedinstructions for every conceivable situation. Instead, it is intended to help you develop a working knowledge of the laws andregulations that affect your job.Adhering to this Code is essential. I encourage you to take the time to study it carefully. Should you have any questions aboutthis Code, please contact our Legal department.Ultimately, our most valuable asset is our people and reputation. Complying with the principles and standards contained in thisCode is the starting point for protecting and enhancing our reputation. Thank you for your commitment!Thomas Leverton, CEOIntroductionThis Code of Business Conduct and Ethics of CEC Entertainment, Inc. (this “Code”) applies to every employee, officer anddirector of CEC Entertainment, Inc. and its subsidiaries and affiliates (collectively, “CEC”). Each employee, officer and director mustcomply with and use this Code to ensure that each business decision follows our commitment to the highest ethical and legalstandards. Adherence to this Code and to our other official policies is essential to maintaining and furthering our reputation for fairand ethical practices among our customers, stockholders, employees and communities. This Code is available through our website atwww.chuckecheese.com and may be updated from time to time by us.It is your responsibility to comply with all applicable laws and regulations and all provisions of this Code and the relatedpolicies and procedures. Each of us must report any violations of the law or this Code. Failure to follow the provisions of this Codeand in some cases, failure to report violations of this Code may have serious legal consequences and could result in discipline byCEC, up to and including termination of employment.This Code summarizes certain legal and ethical policies that apply to you. Several provisions in this Code refer to moredetailed policies that either (1) concern more complex CEC policies or legal provisions or (2) apply to select groups of individualswithin CEC. If these detailed policies apply to you, it is important that you read, understand and comply with them. If you havequestions as to whether any detailed policies apply to you, contact our Legal department.After reading this Code, you should:•Have a thorough knowledge of this Code’s terms and provisions.•Be able to recognize situations that present legal or ethical dilemmas.•Be able to deal effectively with questionable situations in conformity with this Code.Situations that involve ethics, values and violations of certain laws are often very complex. No single code of conduct cancover every business situation that you will encounter. The thrust of our procedures is when in doubt, ask. If you do not understand aprovision of this Code, are confused as to what actions you should take in a given situation, or wish to report a violation of the law orthis Code, you should follow the procedures outlined below.In order to understand your obligations, please take the following steps:•Read the entire Code.•If there are references to more detailed policies that are not contained in this Code, obtain and read those policies ifthey apply to you.•Think about how the provisions of this Code apply to your job and consider how you might handle situations to avoidillegal, improper or unethical actions.•If you have questions, ask your supervisor, the Senior Vice President of Human Resources or our Legal department.When you are faced with a situation and you are not clear as to what action you should take, askyourself the following questions:•Is the action legal?•Does the action comply with this Code?•How will your decision affect others, including our customers, stockholders, employees and the community?•How will your decision look to others? If your action is legal but can result in the appearance of wrongdoing, considertaking alternative steps.•How would you feel if your decision were made public? Could the decision be honestly explained and defended?•Have you contacted your supervisor, the Senior Vice President of Human Resources or our Legal departmentregarding the action?To reiterate, when in doubt, ask.Please note that this Code is not an employment contract and does not modify the employment relationship between you andCEC. CEC does not create any contractual or legal rights or guarantees by issuing these policies, and reserves the right toamend, alter and terminate policies at any time and for any reason.Compliance with LawsOur policy is that all employees, officers and directors must behave in an ethical manner and comply with all laws, rules andgovernment regulations that apply to our business, including but not limited to wage and hour laws. Although several important legaltopics are addressed in this Code, we cannot anticipate every possible situation or cover every topic in detail. In addition to theprovisions of this Code, you must also comply with all other CEC policies that apply to you, the CEC employee handbook and otherworkplace rules. It is your responsibility to know and follow the law and conduct yourself in an ethical manner. It is also yourresponsibility to report any violations of the law or this Code. You may report such violations by following the complianceprocedures outlined in the section of this Code entitled “Reporting Any Illegal or Unethical Behavior.” We will not permit retaliationfor reports made in good faith.Insider TradingEmployees who have access to Confidential Information (as defined below) are not permitted to use or share that informationfor stock trading purposes or for any other purpose other than the conduct of our business. “Confidential Information” includes allnon-public information that, if disclosed, might be useful to competitors or investors or harmful to us or our customers. Using non-public information for personal financial benefit or to “tip” others who might make an investment decision on the basis of thisinformation is not only unethical but also illegal. In order to assist with compliance with laws against insider trading, we have adopteda specific policy governing employees’ and directors’ trading in our securities. This Insider Trading Policy is applicable to everyemployee and director. A copy of our Insider Trading Policy may be accessed through our website at www.chuckecheese.com and ifyou have any questions regarding this policy, please consult our Legal department.Antitrust LawsCEC must comply with the antitrust and unfair competition laws of the countries in which it does business. Antitrust laws aredesigned to ensure a fair and competitive marketplace by prohibiting various types of anti-competitive behavior. Generally, these lawsprohibit or regulate attempts to monopolize or otherwise restrain trade, the sale of products below cost, price fixing or otheragreements with competitors that would divide or allocate customers or otherwise harm customers, “tying” arrangements that require acustomer who wishes to buy a given product to buy other products or services, artificially maintaining prices and certain other overlyrestrictive agreements. Accordingly, it is important to avoid discussions with our competitors regarding pricing, terms and conditions,costs, marketing plans, customers and any other proprietary or Confidential Information.An agreement or understanding does not have to be in writing to be unlawful. Unlawful agreements can be based on informaldiscussions or the mere exchange of information with a competitor. If you believe that a conversation with a competitor enters aninappropriate area, end the conversation at once.Whenever any question arises as to the application of antitrust laws, the Legal department should be consulted, and anyagreements with possible antitrust implications should be made only with the prior approval of the Legal department.Anti-corruption LawsCEC is committed to conducting its business ethically, honestly, and in compliance with all applicable anti-corruption laws. Itis never acceptable to offer or accept a bribe or to use an agent or third party to offer or accept a bribe or perform any other activitythat you could not do directly under this Code or other applicable laws or regulations. A bribe involves the promise of money, a gift orother favor to a person in a position of power, which is offered with the intention of influencing that person’s behavior.CEC’s commitment to conducting business ethically, honestly, and in compliance with all applicable anti-corruption lawsapplies to dealings with government officials, business partners, and employees. Conducting business with governments is not thesame as conducting business with private parties. What may be considered an acceptable practice in the private business sector maybe improper or illegal when dealing with government officials. Therefore, interactions with government officials require strict scrutinyand adherence to the law.Improper or illegal payments to government officials are prohibited. The term “government officials” generally means anyemployee or officer of a government, including any federal, regional, or local department, agency, enterprise or instrumentality ownedor controlled by the government, any official of a political party, any official or employee of a public international organization, anyperson acting in an official capacity for, or on behalf of, such entities, and any candidate for political office. If you interact with suchpersons or entities, you should consult with our Legal Department to be sure that you understand these laws and your responsibilities.You may not give anything of value to a government official unless it is specifically allowed by local law and approved in advanceand in writing by the Legal Department.If you are involved in transactions with foreign government officials, you must comply not only with the laws of the countrywith which you are involved but also with the U.S. Foreign Corrupt Practices Act. This act makes it illegal to pay, or promise to paymoney or anything of value to any non-U.S. government official for the purpose of directly or indirectly obtaining or retainingbusiness, inducing that person to act, rewarding that person for acting or refraining from acting, or securing anyimproper advantage. This ban on illegal payments and bribes also applies to our agents or intermediaries who use funds for purposesprohibited by the statute.Although anti-bribery laws in some countries permit payments to government officials in limited circumstances for thepurpose of facilitating or expediting the performance of routine, non-discretionary governmental actions, such as obtaining phoneservice or an ordinary license, CEC strictly prohibits such payments. For further guidance, please refer to CEC’s Anti-Bribery andCorruption Policy http://phx.corporate-ir.net/phoenix.zhtml?c=72589&p=irol- AntibriberyandCorruption.Import-Export Laws and Anti-boycott LawsWe are committed to complying fully with all applicable U.S. laws governing imports, exports and the conduct of businesswith non-U.S. entities. These laws contain limitations on the types of products that may be imported into the United States and themanner of importation. They also prohibit exports to, and most other transactions with, certain countries as well as cooperation withor participation in foreign boycotts of countries that are not boycotted by the United States. Under U.S. anti-boycott legislation, weare prohibited from participating in certain foreign economic boycotts, including by refusing to do business with boycotted countries,their nationals or blacklisted companies; furnishing information about CEC’s or any person’s past, present or prospective relationshipwith boycotted countries or blacklisted companies; furnishing information about any person’s race, religion, sex, national origin ormembership in or support of charitable organizations supporting a boycotted country; discriminating against individuals or companiesonthe basis of race, sex or national origin; and paying, honoring or confirming letters of credit containing prohibited boycott provisions.Health, Safety and Environmental LawsWe are committed to providing safe and healthy working conditions by following all occupational health and safety lawsgoverning our activities.We believe that management and employees have a shared responsibility in the promotion of health and safety in theworkplace. You should follow all safety laws and regulations, including our safety policies and procedures. You must not work underthe influence of any substances that would impair the safety of others. We also prohibit all threats or acts of physical violence orintimidation. You should immediately report any accident, injury or unsafe equipment, practices or conditions to our RiskManagement Department.You also have an obligation to carry out CEC activities in ways that preserve and promote a clean, safe and healthyenvironment. You must strictly comply with the letter and spirit of applicable environmental laws and the public policies theyrepresent. The consequences of failing to adhere to environmental laws and policies can be serious. We as a company, as well asindividuals, may be liable not only for the costs of cleaning up pollution but also for significant civil and criminal penalties. Youshould make every effort to prevent violations from occurring and report any potential violations to our Legal department.This discussion regarding compliance with laws is not comprehensive and you are expected to familiarize yourself with alllaws and regulations relevant to your position with us, as well as all of our related written policies on these laws and regulations. Tothis end, our Legal department is available toanswer your calls and questions. If you have any questions concerning any possible reporting or compliance obligations, or withrespect to your own duties under the law, you should not hesitate to call and seek guidance from our Legal department.Conflicts of InterestYou must be able to perform your duties and exercise judgment on behalf of CEC without influence or impairment, or theappearance of influence or impairment, due to any activity, interest or relationship that arises outside of work. Put more simply, ifyour loyalty to us is affected by actual or potential benefit or influence from an outside source, a conflict of interest exists. In general,you should avoid situations where your personal interests conflict, or appear to conflict, with those of CEC.Any time you believe a conflict of interest may exist, you must disclose the potential conflict of interest to the Senior VicePresident of Human Resources or our Legal department. Any activity that is approved, despite the actual or apparent conflict, must bedocumented. A potential conflict of interest that involves an executive officer must be approved by our Board of Directors. Apotential conflict of interest involving a non-executive officer must be approved by our Legal department.It is not possible to describe every conflict of interest, but some situations that could cause a conflict of interest include thefollowing:Doing Business with Family MembersA conflict of interest may arise if your family members work for a supplier or other third party with whom we do business. Italso may be a conflict if your family member has a significant financial interest in a supplier or other third party with whom we dobusiness. A “significant financial interest” is defined below under the heading “Ownership in Other Businesses.” Before doingbusiness on our behalf with an organization in which your family member works or has a significant financial interest, an employeemust disclose the situation to the Senior Vice President of Human Resources or our Legal department and discuss it with him or her.If approval is granted, such approval must be documented by the Legal department.“Family members” include but are not limited to your:·Spouse·Brothers or Sisters·Children·Parents·In-laws·Step-children·Grandparents·First or Second Cousins·GrandchildrenEmploying relatives or close friends who report directly to you may also be a conflict of interest. Although we encourageemployees to refer candidates for job openings, employees who may influence a hiring decision must avoid giving an unfairadvantage to anyone with whom they have a personal relationship. In particular, supervisors should not hire relatives or attempt toinfluence any decisions about the employment or advancement of people related to or otherwise close to them, unless they havedisclosed the relationship to the Senior Vice President of Human Resources or our Legal department who has approved the decision.Ownership in Other BusinessesYour investments can cause a conflict of interest. In general, you should not own, directly orindirectly, a significant financial interest in any company that does business with us or seeks to do business with us. Investing inrelatively small positions of publicly traded securities of other companies is generally not prohibited so long as there is no violation ofour policy related to trading while in possession of material non-public information about other companies. You also should not owna significant financial interest in any of our competitors.The following two tests determine if a “significant financial interest” exists:•You or a family member owns more than l0% of the outstanding stock of a business or you or a family member has orshares voting control over major decisions affecting that business; or•The investment represents more than 5% of your total assets or of your family member’s total assets.If you or a family member has a significant financial interest in a company with whom we do business or propose to do business with,that interest must be approved by the Board of Directors prior to the transaction.Notwithstanding the foregoing, non-employee directors of the Company and their family members may have significantfinancial interests in or be affiliates of suppliers, customers, competitors and third parties with whom we do business or propose to dobusiness so long as it does not jeopardize their independence status under the New York Stock Exchange Marketplace Rules orSecurities and Exchange Commission regulations. A director must, at a minimum:•disclose any such relationship promptly after the director becomes aware of it;•remove himself or herself from any Board of Directors activity that directly impacts the relationship between CEC andany such company with respect to which the director may have a conflict of interest; and•obtain prior approval of the Board of Directors for any transaction of which the director is aware between CEC andany such company.Outside EmploymentYou may desire to take additional part-time jobs or do other work after hours. This kind of work does not in and of itselfconstitute a conflict of interest provided that the second job must be strictly separated from your job with us and must not interferewith your ability to devote the time and effort needed to fulfill your duties to us as our employee. You cannot engage in any outsideactivity that causes competition with us or provides assistance to our competitors or other parties (such as suppliers) with whom weregularly do business. Additionally, you should not attempt to sell services or products from your second job to us. You should avoidoutside activities that embarrass or discredit us. Outside work may never be done on our time and must not involve the use of oursupplies or equipment.Before engaging in outside work, you should disclose your plans to your supervisor to confirm that the proposed activity is notcontrary to our best interests. You may also contact the Senior Vice President of Human Resources or our Legal department for moreinformation about our policies concerning outside employment.Business OpportunitiesBusiness opportunities, including but not limited to business opportunities that fit into our strategic plans, satisfy ourcommercial objectives, or relate to our products and services, that arise during the course of your employment or through your use ofour property or information belong to us. You may not (i) direct our business opportunities to our competitors, to other third parties orto other businesses that you own or are affiliated with or (ii) use our business opportunities for your own use or personal gain. In allinstances, you should advance our legitimate interests when the opportunity to do so arises, including when you are presented with abusiness opportunity.LoansIt is unlawful for CEC, directly or indirectly, to extend or maintain credit, to arrange for the extension of credit, or to renew anextension of credit, in the form of a personal loan to or for any of our directors or executive officers. However, advancement of legalfees to directors or officers is permissible if made in accordance with established CEC policies approved by our Board of Directorsand applicable law.Gifts and EntertainmentWe are dedicated to treating fairly and impartially all persons and firms with whom we do business. Therefore, you must notgive or receive gifts, entertainment, gratuities or other items of value that could influence or be perceived to influence businessdecisions. Misunderstandings can usually be avoided by conduct that makes clear that we conduct business on an ethical basis andwill not seek or grant special considerations.Under no circumstances can any bribe, kickback, or illegal payment or gift of cash or cash equivalents be made. Also, specialrules apply when dealing with government employees. These are discussed in this Code under “Compliance with Laws - Anti-corruption Laws” and in our Anti-Bribery and Corruption Policy.If you are not sure whether a specific gift or entertainment is permissible, please contact our Legal department.Fair DealingWe have built a reputation as a trustworthy and ethical member of our community and our industry. We are committed tomaintaining the highest levels of integrity and fairness. When we fail to negotiate, perform or market in good faith, we may seriouslydamage our reputation and lose the loyalty of our customers. You must conduct business honestly and fairly and not take unfairadvantage of anyone through any misrepresentation of material facts, manipulation, concealment, abuse of privileged information,fraud or other unfair business practice. To this end, we will seek to avoid any and all misstatements of fact or misleading impression inany of our advertising, literature, exhibits or other public statements. All statements made in support of our products and serviceshould be true and supported by documentation. We seek to communicate clearly and precisely the products and services we provideso that our customers understand what they are purchasing and the costs associated with such purchase.Our contracts with suppliers of products and services should be based exclusively on our bestinterests. These contracts should reflect a fair price for the deliverables and should be documented in accordance with appropriateapproval, contracting and internal control procedures.We also expect that our affiliates, consultants, agents, subcontractors, and other business partners will adhere to lawful andethical business practices. It is important to our reputation that you assist in avoiding doing business with companies that violateapplicable laws or have reputations which could harm our business.Responding to Inquiries from the Press, Securities Analysts, Investors and OthersWe are subject to laws that govern the timing of our disclosures of material information to the public and others. Only certaindesignated employees may discuss CEC with the news media, securities analysts and investors. All inquiries from outsiders regardingfinancial or other information about us should be referred to our Chief Financial Officer, President and Chief Executive Officer orExecutive Chairman.Political ActivityWe will fully comply with all political contribution laws. CEC funds may not be used, directly or indirectly, for contributionsof any kind to any political party or committee or to any candidate or holder of any government position (national, state or local)unless such contribution is permitted by law and complies with CEC policy. Please contact our Legal department to determinewhether a specific CEC contribution is permitted.It is against our policy for you to lobby other employees on behalf of a political candidate during the workday. It is alsoagainst our policy to reimburse an employee for any political contributions or expenditures. Outside normal business hours, you arefree to participate in political campaigns on behalf of candidates or issues of your choosing, as well as make personal politicalcontributions, so long as such activities do not imply that they are endorsed by us.Safeguarding Corporate AssetsYou have a responsibility to protect CEC assets entrusted to you from loss, theft, misuse and waste. CEC assets and fundsmay be used only for CEC business purposes and may never be used for illegal purposes. If you become aware of theft, waste ormisuse of our assets or funds or have any questions about your proper use of them, you should speak immediately with yoursupervisor (if you are in the Support Center) or your District Manager, Regional Vice President or Senior Vice President of HumanResources (if you are in field operations).ConfidentialityYou must protect the confidentiality of our Confidential Information and proprietary information. Confidential Informationshould be marked accordingly, if necessary, kept secure and access should be limited to those who have a need to know theinformation in order to do their jobs.Our business relationships are built on trust and our customers and suppliers rely on that trust. If you learn information fromthem that is not otherwise public, you should also keep thatinformation confidential.While CEC recognizes that online social networking can be used by employees for personal reasons as well as legitimateauthorized business purposes, CEC strives to maintain its identity, integrity andreputation in a manner consistent with its values and policies and has therefore established rules and guidelines for employees whouse internet blogging and social networking sites which are set forth in CEC’s Internet Blogging and Social Networking Policy. Youare expected to be familiar with and adhere to the principles set forth in CEC’s Internet Blogging and Social Networking Policy andyou can obtain a copy of the current policy from your HR representative. We own all e-mail messages and any other data that iscreated, sent from or received through our systems and employees are not entitled to an expectation of privacy with respect to suchdata. We may monitor your messages and may be required to disclose them in the case of litigation or governmental inquiry.All intangible assets, such as proprietary information, intellectual property and innovative ideas, are Confidential Informationand must be safeguarded. Intellectual property rights, including patents, trademarks, copyright, trade secrets and know-how, must beprotected and managed with the same degree of care as any other valuable asset. You must also respect the legitimate intellectualproperty rights of others and may not reproduce or use software or the other technology licensed from suppliers except as permittedby the applicable license agreement or by law.Equal Employment Opportunity and Anti-HarassmentWe are committed to providing equal employment opportunities for all employees. We will not tolerate any speech or conductthat is intended to, or has the effect of, discriminating against or harassing any applicant for employment or employee because of,including but not limited to, his or her race, color, religion, sex, national origin, age, ancestry, marital status, citizenship, pregnancy,gender, sexual orientation, physical or mental disability or medical condition, veteran status or being a member of any protected classunder federal, state and local law. We will not tolerate discrimination or harassment by anyone, including but not limited to ourmanagers, supervisors, coworkers, suppliers or our customers. This policy extends to every phase of the employment process,including recruiting, hiring, training, promotion, compensation, benefits, transfers, discipline and termination, layoffs, recalls, andCEC-sponsored educational, social and recreational programs, as applicable.We prohibit all forms of harassment of employees, including demeaning, insulting, embarrassing or intimidating behavior byfellow employees, applicants for employment, employees of outside contractors or visitors. We specifically ban unwelcome sexualadvances or physical contact, sexually-oriented gestures and statements and the display or circulation of sexually-oriented pictures,cartoons, jokes or other materials.All employees are accountable for promoting equal opportunity practices and a harassment-free work environment. You mustdo this not just because it is the law but also because it is the right thing to do. If you observe conduct that you believe isdiscriminatory or harassing, or if you feel you have been the victim of discrimination or harassment, you should notify ourHuman Resources Department immediately.For more information concerning our anti-discrimination and anti-harassment policies, you should refer to our employeehandbook. We will not retaliate against any employee for filing a good faith complaint under our anti-discrimination and anti-harassment policies or for cooperating in an investigation. We also will not tolerate retaliation by management, employees or co-workers. To the fullest extent possible, we will keep complaints and the terms of their resolution confidential. If an investigationconfirms harassment or discrimination has occurred, we will take appropriate corrective action against the offending individual orindividuals, including such discipline up to and including immediate termination of employment, as appropriate.CommunicationsYou are expected to use appropriate judgment and discretion in your e-mails, memos, notes and other formal and informalcommunications relating to our business or while using our resources. Communications relating to our business must avoidinappropriate or derogatory comments about other individuals or companies and unprofessional language.Accuracy of Company RecordsAll financial and other business information you record or report on our behalf, whether for our purposes or for third parties,must be done accurately and honestly. All of our records, including accounting and financial statements, must be maintained inreasonable and appropriate detail, must be kept in a timely fashion and must appropriately reflect transactions. Federal criminalliability may be imposed on any person who (a) corruptly alters, destroys, mutilates or conceals a record, document or other objectwith the intent to impair its availability for use in an official proceeding or (b) knowingly alters, covers up, falsifies or makes a falseentry in any record, document or tangible object with the intent to impede or obstruct the investigation or administration of any matterby a federal government agency or bankruptcy court.Information derived from our records is provided to our stockholders, investors and government agencies. Thus, our financialand accounting records must conform not only to our internal control and disclosure procedures but also to generally acceptedaccounting principles and other laws and regulations, such as those of the Internal Revenue Service. Our public communications andthe reports we file with government agencies should contain information that is full, fair, accurate, timely and understandable in lightof the circumstances surrounding disclosure.Our internal and external auditing functions help ensure that our financial books, records and accounts are accurate. We arerequired by the Securities and Exchange Commission rules to maintain effective “disclosure controls and procedures” so that thefinancial and non-financial information we are required to report to the Securities and Exchange Commission is timely and accuratelyreported both to our senior management and in our filings. You are expected, within the scope of your employment duties, to supportthe effectiveness of our disclosure controls and procedures. To that end, it is our policy to promote the full, fair, accurate, timely andunderstandable disclosure in reports and documents that we file or furnish to the Securities and Exchange Commission and otherwisecommunicate to the public. Therefore, you should provide our accounting and legal department, Board of Directors and independentpublic accountants with all pertinent information that they may request. We encourage open lines of communication with our Boardof Directors, accountants, auditors and legal counsel and require that all our personnel cooperate with them to the maximum extentpossible. It is unlawful for you to fraudulently influence, induce, coerce, manipulate or mislead our independent public accountants.Reporting Any Illegal or Unethical BehaviorYou are encouraged to talk to appropriate personnel about any illegal or unethical behavior that you observe and when youare in doubt about the best course of action in a particular situation. However, it is a violation of this Code for any employee tocommunicate a report claiming illegal or unethical conduct which the employee knows to be false.Your supervisor is usually a good place to start with a compliance or integrity issue. You may also get help or advice fromyour supervisor’s supervisor, the head of your department or location, the Legalor Human Resources Department. Additionally, you may report employment related matters (such as harassment or discrimination),auditing or accounting matters, or violations or potential violations of applicable laws, rules and regulations or of our codes, policiesand procedures, by (1) calling our Compliance Hotline at 1-800-789-5216 or (2) our dedicated and secure reporting website which islocated at https://cec.silentwhistle.com.Our Complaint and Reporting Procedures for Accounting and Auditing Matters describes our procedures for the receipt,retention and treatment of complaints that we receive regarding accounting, internal accounting controls, or auditing matters orviolations or potential violations of applicable laws, rules and regulations or of our codes, policies and procedures. If you are unsureabout the accounting treatment of a transaction or believe that a transaction has been improperly recorded or you otherwise have aconcern or complaint regarding an accounting matter, our internal accounting controls or an audit matter, you should confer with ourDirector of Internal Audit or Legal department or follow the procedures set forth in our Complaint and Reporting Procedures forAccounting and Auditing Matters.It is our policy not to tolerate retaliation for good faith reports of misconduct by others. Additionally, under federal law, wemay not discharge or otherwise discriminate against you for any lawful act that you do to provide information, or assist, in aninvestigation of conduct that you reasonably believe is a violation of federal securities law and other listed laws. This applies to aninvestigation conducted by us, by any federal agency or by a member of Congress or its committees. It is also unlawful for anyperson, knowingly and with intent to retaliate, to interfere with the lawful employment or livelihood of another person for providingto any law enforcement officer any truthful information relating to possible violations of any federal law. You are encouraged andexpected to cooperate in internal investigations of misconduct.Record RetentionOur records should be retained or discarded in accordance with our record retention policies and all applicable laws andregulations. From time to time we may be involved in legal proceedings that may require us to make some of our records available tothird parties. Our Legal Department will assist us in releasing appropriate information to third parties and provide you or yoursupervisor with specific instructions. It is a crime to alter, destroy, modify, mutilate or conceal any record, document or other objectthat is relevant to a government investigation or otherwise obstruct, influence or impede an official proceeding. The law appliesequally to all of our records, including formal reports and informal data such as e-mail, expense reports and internal memos. If theexistence of a subpoena or a pending government investigation is known or reportedto you, you should immediately contact our Legal Department and you must retain all records that may pertain to the investigation orbe responsive to the subpoena.Administration of this CodeAll of our directors, officers and employees must comply with this Code and may be asked to sign the confirmation certificatethat appears on the final page of this Code, and return it to the Human Resources Department (if you are an employee) or the Legaldepartment (if you are a director). This Code is available through our website at www.chuckecheese.com and may be updated fromtime to time.Waivers of this CodeAny waiver of this Code for executive officers or directors may be made only by the Board of Directors or a committee of theBoard of Directors and will be promptly disclosed as required by law and the New York Stock Exchange regulations.Code of Business Conduct and Ethics Confirmation CertificateI hereby acknowledge that I have read the Code of Business Conduct and Ethics of CEC Entertainment, Inc. (the “Code”)and understand the responsibilities thereunder. I further acknowledge that I will adhere to the principles outlined in the Code andreport any concerns I have regarding compliance and integrity in accordance with the Code.Signature: ______________________ Printed Name: ____________________Date: ____________________________EXHIBIT 31.1CERTIFICATION PURSUANT TO RULE 13a – 14(a)/15d-14(a)OF THE SECURITIES EXCHANGE ACT OF 1934, AS ADOPTED PURSUANT TOSECTION 302 OF THE SARBANES-OXLEY ACT OF 2002(Chief Executive Officer)I, Thomas Leverton, certify that:1.I have reviewed this annual report on Form 10-K for the fiscal year ended December 28, 2014 of CEC Entertainment, Inc.;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisreport;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under oursupervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to usby others within those entities, particularly during the period in which this report is being prepared;b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed underour supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financialstatements for external purposes in accordance with generally accepted accounting principles;c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; andd)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s mostrecent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonablylikely to materially affect, the registrant’s internal control over financial reporting; and5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, tothe registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; andb)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’sinternal control over financial reporting.March 4, 2015 /s/ Thomas Leverton Thomas Leverton Chief Executive Officer and DirectorEXHIBIT 31.2CERTIFICATION PURSUANT TO RULE 13a – 14(a)/15d-14(a)OF THE SECURITIES EXCHANGE ACT OF 1934, AS ADOPTED PURSUANT TOSECTION 302 OF THE SARBANES-OXLEY ACT OF 2002(Chief Financial Officer)I, Temple Weiss, certify that:1.I have reviewed this annual report on Form 10-K for the fiscal year ended December 28, 2014 of CEC Entertainment, Inc.;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisreport;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under oursupervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to usby others within those entities, particularly during the period in which this report is being prepared;b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed underour supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financialstatements for external purposes in accordance with generally accepted accounting principles;c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; andd)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s mostrecent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonablylikely to materially affect, the registrant’s internal control over financial reporting; and5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, tothe registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; andb)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’sinternal control over financial reporting.March 4, 2015 /s/ Temple Weiss Temple Weiss Executive Vice President and Chief Financial OfficerEXHIBIT 32.1CERTIFICATION PURSUANT TO18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002(Chief Executive Officer)In connection with the Annual Report of CEC Entertainment, Inc. (the “Company”) on Form 10-K for the fiscal year ended December 28, 2014 asfiled with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned certifies, pursuant to 18 U.S.C. Section 1350, asadopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:(1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of theCompany as of, and for, the periods presented in this Report.March 4, 2015/s/ Thomas Leverton Thomas Leverton Chief Executive Officer and DirectorEXHIBIT 32.2CERTIFICATION PURSUANT TO18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002(Chief Financial Officer)In connection with the Annual Report of CEC Entertainment, Inc. (the “Company”) on Form 10-K for the fiscal year ended December 28, 2014 asfiled with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned certifies, pursuant to 18 U.S.C. Section 1350, asadopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:(1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of theCompany as of, and for, the periods presented in this Report.March 4, 2015/s/ Temple Weiss Temple Weiss Executive Vice President and Chief Financial Officer

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