Ceconomy
Annual Report 2016

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 January 1, 2017OR¨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.)1707 Market Place Blvd, Suite 200Irving, Texas 75063(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 July 3, 2016, 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 March 6, 2017, an aggregate of 200 shares of the registrant’s common stock, par value $0.01 per share, were outstanding.DOCUMENTS INCORPORATED BY REFERENCENoneCEC ENTERTAINMENT, INC.TABLE OF CONTENTS Page Cautionary Statement Regarding Forward-Looking Statements3 PART I ITEM 1.Business5ITEM 1A.Risk Factors10ITEM 1B.Unresolved Staff Comments21ITEM 2.Properties22ITEM 3.Legal Proceedings24ITEM 4.Mine Safety Disclosures26 PART II ITEM 5.Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities27ITEM 6.Selected Financial Data28ITEM 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations32ITEM 7A.Quantitative and Qualitative Disclosures About Market Risk50ITEM 8.Financial Statements and Supplementary Data51ITEM 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure97ITEM 9A.Controls and Procedures97ITEM 9B.Other Information97 PART III ITEM 10.Directors, Executive Officers and Corporate Governance98ITEM 11.Executive and Director Compensation101ITEM 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters101ITEM 13.Certain Relationships and Related Transactions, and Director Independence102ITEM 14.Principal Accountant Fees and Services103 PART IV ITEM 15.Exhibits and Financial Statement Schedules104 SIGNATURES EXHIBIT INDEX 2As 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 StatementsThis report contains forward-looking statements, which involve risks and uncertainties. These forward-looking statements are generally identified bythe use of forward-looking terminology, including the terms “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan, “potential,”“predict,” “project,” “should,” “target,” “will,” “would” and, in each case, their negative or other various or comparable terminology. All statements otherthan statements of historical facts contained in this report, including statements regarding our strategy, future operations, future financial position, futurerevenue, projected costs, prospects, plans, objectives of management and expected market growth are forward-looking statements. The forward-lookingstatements are contained principally in Part I, Item 1. “Business”, Part 1, Item 1A. “Risk Factors” and Part II, Item 7. “Management’s Discussion and Analysisof Financial Condition and Results of Operations” of this Annual Report on Form 10-K and include, among other things, statements relating to:•our strategy, outlook and growth prospects;•our operational and financial targets and dividend policy;•our planned expansion of the venue base and the implementation of the new design in our existing venues;•general economic trends and trends in the industry and markets; and•the competitive environment in which we operate.These statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance orachievements to be materially different from any future results, performance or achievements expressed or implied by the forward -looking statements.Important factors that could cause our results to vary from expectations include, but are not limited to:•negative publicity and changes in consumer preference;•our ability to successfully expand and update our current venue base;•our ability to successfully implement our marketing strategy;•our ability to compete effectively in an environment of intense competition;•our ability to weather economic uncertainty and changes in consumer discretionary spending;•increases in food, labor and other operating costs;•our ability to successfully open international franchises and to operate under the U.S. and foreign anti-corruption laws that govern thoseinternational ventures;•risks related to our substantial indebtedness;•failure of our information technology systems to support our current and growing businesses;•disruptions to our commodity distribution system;•our dependence on third-party vendors to provide us with sufficient quantities of new entertainment-related equipment, prizes and merchandise atacceptable prices;•risks from product liability claims and product recalls;•the impact of governmental laws and regulations and the outcomes of legal proceedings;•potential liability under certain state property laws;•fluctuations in our financial results due to new venue openings;•local conditions, natural disasters, terrorist attacks and other events and public health issues;•the seasonality of our business;•inadequate insurance coverage;•labor shortages and immigration reform;•loss of certain personnel;•our ability to adequately protect our trademarks or other proprietary rights;•our ability to pay our fixed rental payments;•our ability to successfully integrate the operations of companies we acquire;•impairment charges for goodwill, indefinite-lived intangible assets or other long-lived assets;3•our failure to maintain adequate internal controls over our financial and management systems; and•other risks, uncertainties and factors set forth in Part I, Item 1A. “Risk Factors.”The forward-looking statements made in this report reflect our views with respect to future events as of the date of this report and are based onassumptions and subject to risks and uncertainties. Given these uncertainties, undue reliance should not be placed on these forward-looking statements.These forward-looking statements represent our estimates and assumptions only as of the date of this report and, except as required by law, we undertake noobligation to update or review publicly any forward-looking statements, whether as a result of new information, future events or otherwise after the date ofthis report. We anticipate that subsequent events and developments will cause our views to change. This report should be read completely and with theunderstanding that our actual future results may be materially different from what we expect. Our forward-looking statements do not reflect the potentialimpact of any future acquisitions, mergers, dispositions, joint ventures or investments we may undertake. We qualify all of our forward -looking statementsby these cautionary statements.4PART IITEM 1. Business.Company OverviewWe believe we are a leading family entertainment and dining company, focused on providing an exciting, fun-filled play and food experience forchildren and parents alike. We develop, operate and franchise family dining and entertainment centers (also referred to as “venues”) under the names“Chuck E. Cheese’s” (“Where A Kid Can Be A Kid”) and “Peter Piper Pizza”(“The Solution to the Family Night Out”). Our venues deliver a lively, kid-friendly atmosphere and feature a broad array of entertainment offerings including arcade-style and skill-oriented games, rides, live entertainment shows, andother attractions, with the opportunity for kids to win tickets that they can redeem for prizes. We combine this memorable entertainment experience with abroad and creative menu that combines kid-friendly classics as well as a new selection of sophisticated options for adults. We offer families a highlycompelling value proposition, where a family of four, for as little as $8 per person, can dine at Chuck E. Cheese's for food, drinks and entertainment, which webelieve to be significantly lower than comparable offerings at both casual dining and entertainment alternatives. We believe the combination of wholesomeentertainment, family dining and a strong value proposition creates a highly differentiated experience, which appeals to our diverse customer base. Weoperate 559 venues and have 188 venues operating under franchise arrangements across 47 states and 12 foreign countries and territories as of January 1,2017.In Fiscal 2016, we generated $923.7 million in revenue, $3.7 million of net loss and $212.3 million in Adjusted EBITDA. From Fiscal 2012 to Fiscal2016, revenue and Adjusted EBITDA grew at a compound annual growth rate (“CAGR”) of 3.6% and 3.6%, respectively. Our Adjusted EBITDA Marginremained at or above 23.0% throughout each of these individual periods.We have developed iconic brands and a highly loyal customer base through our 40-year commitment to being a family-fun and entertainmentcompany. Over the last three years, our leadership team has invested in revitalizing our guest experience, revamping our menu offering, improving ourmarketing message, and reinvigorating our corporate culture. We have made corresponding investments in technology, staff training, and our physical assets.We believe these significant investments have underpinned our sales and Adjusted EBITDA growth and are still in their early stages of execution,positioning our Company for sustained growth into the future. See Item 6. “Selected Financial Data -Non - GAAP Financial Measures” for additionalinformation about Adjusted EBITDA, a reconciliation of net income to Adjusted EBITDA and the calculation of Adjusted EBITDA Margin.MergerOn February 14, 2014, pursuant to an agreement and plan of merger (the “Merger Agreement”), an entity controlled by Apollo Global Management,LLC (“Apollo”) and its subsidiaries merged with and into CEC Entertainment, Inc., with CEC Entertainment, Inc. surviving the merger (the “Merger” or the“Acquisition”). The aggregate consideration paid to acquire the Company was $1.4 billion, including the payoff of net debt of $348.0 million and $65.7million in transaction and debt issuance costs. The Acquisition was funded by (a) $350.0 million of equity contributions from investment funds directly orindirectly managed by Apollo (the “Apollo Funds”); (b) $248.5 million of borrowings under a bridge loan facility, which were shortly thereafter repaid usingthe 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 enteredinto a $150.0 million revolving credit facility in connection with the Acquisition, which was undrawn at closing. We refer to our term loan facility andrevolving credit facility together as the “Secured Credit Facilities.” See Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition andResults of Operations - Financial Condition, Liquidity and Capital Resources - Debt Financing” for additional discussion of the senior notes, term loanfacility and revolving credit facility.As a result of the Merger, we applied the acquisition method of accounting and established a new basis of accounting on February 15, 2014. Periodspresented prior to and including February 14, 2014 represent the operations of the predecessor company (“Predecessor”) and the periods presented afterFebruary 14, 2014 represent the operations of the successor company (“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”).Our BrandsChuck E. Cheese's: Where A Kid Can Be A Kid. Chuck E. Cheese's was founded in 1977 and is a highly recognized5brand that uniquely appeals to our primary customer base of families with children between 2 and 12 years of age. Chuck E. Cheese, our iconic, energeticmouse mascot, performs music and entertainment shows along with his friends, providing free entertainment to our customers and driving strong brandrecognition. Chuck E. Cheese's venues feature an open and bright setting, which creates an inviting atmosphere for kids and an easier line of sight for parents.Showrooms include approximately 75 games, rides and attractions for kids of all ages, including classic skill games, such as arcade basketball, Skee-Ball andWhack-a-Mole, as well as the Ticket Blaster machine where birthday guests can grab as many tickets as possible in 30 seconds. Our menu features fresh,hand-made pizza, sandwiches, whole-wheat wraps, boneless and bone-in chicken wings, desserts and beverages, including beer and wine. We also offer high-energy musical entertainment and live performances featuring our iconic Chuck E. character with frequent appearances on our showroom and playroom floor.As of January 1, 2017, there were 603 Chuck E. Cheese's locations in 47 states and 12 foreign countries and territories, of which 87% are Company-operated.Peter Piper Pizza: The Solution to the Family Night Out. Peter Piper Pizza serves fresh, high-quality handcrafted food, craft beer and wine, andoffers state-of-the-art games for all ages. Venues feature open kitchens with viewing windows where customers can watch fresh mozzarella being shred off theblock, vegetables being hand-chopped, wings being hand-tossed and our Certified Dough Masters crafting pizzas with made-from-scratch dough. Our large,open dining areas provide an enjoyable atmosphere for families and group events, with attentive staff dedicated to providing an enjoyable and memorableexperience to each guest. As of January 1, 2017, there were 144 Peter Piper Pizza locations in the United States and Mexico, of which 25% are Company-operated.We believe Peter Piper Pizza is complementary to Chuck E. Cheese's by offering guests a pizza-anchored menu and entertainment in ways that createvery different experiences from Chuck E. Cheese's. Peter Piper Pizza is a food-first experience with more sophisticated food offerings (e.g., sriracha pizzas)and a décor/layout package that creates more of a restaurant feel for guests. While the venues offer games, the game packages target older children and aregenerally placed in the back of the restaurant behind a glass wall to protect the dining experience for adults. With this approach, Peter Piper Pizza is not onlypopular with families, but also attracts a guest base that includes many adults without children. In addition to everyday visits for the excellent food, adultswithout families are common guests for the day-time buffet on their weekday lunch break and frequently choose Peter Piper Pizza's takeout option, which canalso be ordered online.During the fiscal year ended January 1, 2017, approximately 56% and 25% of our Company-operated venue revenue for Chuck E. Cheese's and PeterPiper Pizza, respectively, was from entertainment and merchandise. For the same period, food and beverage made up 44% and 75% of company venuerevenue for Chuck E. Cheese's and Peter Piper Pizza, respectively. Approximately one quarter of all Peter Piper Pizza food and beverage revenue came fromtakeout.Our Company has benefited from the 2014 acquisition of Peter Piper Pizza through the implementation of best corporate practices and synergiesfrom both brands. We promoted the executive chef of Peter Piper Pizza as our new corporate chef and revamped the menu for Chuck E. Cheese's under hisguidance. We have also leveraged our expertise in opening and operating Chuck E. Cheese's venues to open the first four Company-operated Peter PiperPizza venues in nearly a decade. In addition, Peter Piper Pizza has benefited from lower procurement costs under CEC Entertainment's ownership, as Chuck E.Cheese's is one of the largest purchasers of arcade games in the United States. We believe the combination of Chuck E. Cheese's and Peter Piper Pizza willposition our brands for sustained growth through the realization of synergies and further implementation of best corporate practices across our brands.Although these brands are complementary in many ways, we believe that these are distinct concepts that do not directly compete. Peter Piper Pizzaoperates smaller venues with a primary emphasis on food, resulting in an older customer demographic with higher frequency visits.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 venues 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 venues, guest Wi-Fi in all our venues, and live television in our Peter Piper Pizza venues, can be experienced free of charge. We also offerour guests packaged offerings whereby they can receive a combination of food, drinks and tokens or game credits at discounted prices. We believe that webenefit from strong and consistent demand for our entertainment offerings from families who desire high quality, safe, clean, convenient and affordable waysto spend time with their children outside of the home. Our executive management team has significant experience in the leisure, hospitality, entertainmentand family dining industries and has significant expertise in operating complex, themed family entertainment businesses.6Our Strategic PlanOur strategic plan is focused on increasing comparable venue sales, improving profitability and margins and expanding our venues domesticallyand internationally.Increase Comparable Venue Sales. Our core strategy to grow comparable venue sales is achieved by protecting and enhancing the service providedto children while improving the experience delivered to adults. During 2016, we continued to focus on enhancing the guest experience at our venues toappeal both to kids and parents through menu innovation, best-in-class hospitality, and a modernized guest experience. Led by our then-new executive chef,we introduced a revamped menu in April 2015 to enhance the quality and execution of our food. The menu was further refined to improve on classicchildhood favorites while adding appealing options to align with parents' evolving preferences.In addition to our enhanced food offerings, we have introduced several new initiatives to improve our overall guest experience. We introduced freeWi-Fi to all of our Chuck E. Cheese’s venues in 2015. Additionally, we deployed a proprietary card system, which we refer to as PlayPass, at 268 of theChuck E. Cheese’s venues as of January 1, 2017. Our customers have reacted positively to the PlayPass experience, and we expect to introduce PlayPass in allof our Company-owned Chuck E. Cheese’s venues by the end of 2017. We also expect to drive favorable comparable venue sales performance throughimproved marketing efforts by focusing our marketing message towards kids via national television, cinema and promotional opportunities and marketing tomoms through digital advertising, social media, public relations and e-mail. Finally, we believe that we can modify pricing, couponing and packaging inselect markets across the U.S. while still continuing to provide our guests with a strong value proposition when compared to other family dining-entertainment options.Improve Profitability and Margins. Our business model benefits from substantial operating leverage, enabling us to continue to drive marginimprovement. We continuously focus on delivering financial performance through expense rationalization across all of our venues and functions. We believethat the deployment of best corporate practices across each of our brands and our corporate functions will yield continued margin improvement. Our generalmanagers at our venues and our corporate management staff have revenue, profit and cash flow incentives, which foster a strict focus on both providing ahigh-quality experience for our guests and expense control. Additionally, we are in the early stages of implementing several new technology investments thatwill drive continued cost savings. These investments include our enhanced labor management tool, a system-wide upgrade of our point-of-sale terminals andan improved venue inventory management system that provides additional visibility into food cost measurements and automates our replenishment cycles.We expect these initiatives to generate cost efficiencies in a number of key areas, including labor, supplies, food and general and administrative expenses.Pursue New Venue Growth Domestically and Internationally. We have a long track record of successful new venue development and will continueto pursue a disciplined venue growth strategy in both new and existing markets where we can achieve strong cash-on-cash returns. For new venue openings,we follow a rigorous due diligence and site selection process and strategically locate our venues within convenient driving distance to large metropolitanareas. Our venues generate strong cash flow and perform consistently well across geographic regions, which demonstrates the portability of our concept tonew domestic and international markets.We have a successful track record of opening new Company-operated Chuck E. Cheese's venues at attractive rates of return and believe our existingmarkets can support a considerable number of additional venues. We have identified a meaningful growth opportunity to open new Peter Piper Pizza venuesand are actively searching for new locations with a dedicated team focused on new venue rollout.As of January 1, 2017, we have 97 international venues operating under franchise arrangements. We plan to grow internationally with existing andnew franchise partners.In 2016, we opened 22 new venues collectively in six countries, with two new Company-operated Chuck E. Cheese's venues and four newCompany-operated Peter Piper Pizza venues in the United States and 13 new franchised Chuck E. Cheese's venues and three new franchised Peter Piper Pizzavenues in four other countries.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.Overview of OperationsFood and BeveragesEach Chuck E. Cheese’s and Peter Piper Pizza venue 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 many locations. Chuck E. Cheese’s venues also offer sandwiches, and mostChuck E. Cheese’s and Peter Piper Pizza venues offer lunch buffet7options with unlimited pizza, salad and breadsticks. We continuously focus on delivering a quality-driven product and believe the quality of our foodcompares favorably with that of our competitors.Food and beverage sales represented 45.8%, 45.1%, 43.2% and 44.8% of our Company-operated venue sales during Fiscal 2016, Fiscal 2015, theSuccessor 2014 period and the Predecessor 2014 period, respectively.Entertainment and MerchandiseEach of our Chuck E. Cheese’s and Peter Piper Pizza venues has a playroom area, which includes an array of amusement and entertainment options.These options range from classic arcade, redemption and skill games, such as air hockey, skee-ball and basketball, to rides, such as mini trains, motorcyclesand various driving games. At Chuck E. Cheese’s, we also offer musical and comical entertainment that features our iconic Chuck E. Cheese character withlive performances and frequent appearances on our showroom and playroom floor. Each Peter Piper Pizza venue also offers flat-screen televisions locatedthroughout the dining area. Historically, tokens have been used to activate the games and rides in the playroom area; however, in 2015 we began testingPlayPass, a new proprietary game card system, which is now available in 268 of our Chuck E. Cheese’s Company-operated venues. PlayPass is similar to adebit card and allows customers to activate games and rides with their own personal card. We anticipate a complete system-wide PlayPass rollout to all of ourChuck E. Cheese’s Company-operated venues by the end of 2017. A number of games dispense tickets that can be redeemed by guests for prize merchandisesuch as toys and plush items. Our guests can also purchase this merchandise directly for cash.Entertainment and merchandise sales represented 54.2%, 54.9%, 56.8% and 55.2% of our Company-operated venue sales during Fiscal 2016, Fiscal2015, the Successor 2014 period and the Predecessor 2014 period, respectively.FranchisingAs of January 1, 2017, we franchised a total of 80 Chuck E. Cheese’s venues, with 29 venues located in the United States and 51 venues located in11 foreign countries and territories, and a total of 108 Peter Piper Pizza venues, with 62 venues located in the United States and 46 venues located in Mexico.We also had 21 signed development and franchise agreements with rights to open another 110 Chuck E. Cheese’s venues in 15 countries, and four signeddevelopment and franchise agreements with rights to open another 19 Peter Piper Pizza venues in Texas and one signed development and franchiseagreement with rights to open another three stores in Mexico. See Part I, Item 1A. “Risk Factors” for more information regarding the risks associated withfranchise development agreements.Our standard franchise agreements grant the franchisee the right to construct and operate a venue and use our associated trade names, trademarksand service marks in accordance with our standards and guidelines. Most of our existing Chuck E. Cheese’s 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 venue. We also enter into area development agreements, which grant franchisees exclusive rights to open a specified number of venues 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 its gross monthly sales, generally up 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-operated and franchised Chuck E. Cheese’s venues. Routine business mattersof the Association are conducted by a board of directors, composed of five members appointed by us and five members elected by the franchisees. TheAssociation serves as an advisory council that, among other responsibilities, oversees expenditures, including (a) the costs of development, purchasing andplacement of advertising programs, including websites; (b) the costs to develop and improve audio-visual and animated entertainment attractions, as well asthe 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 its gross monthly sales. Additionally, under these franchise agreements, we are required,with respect to Chuck E. Cheese’s Company-operated venues, to contribute at the same rates, or at higher rates in certain instances, as our franchisees. We andour franchisees are also required to spend minimum amounts on local advertising and could be required to make additional contributions to fund any deficitsthat may be incurred by the Association. Certain franchise agreements governing existing franchised Chuck E. Cheese’s outside of the United States currentlyrequire each franchisee to pay a certain percentage of their gross monthly sales to the Association to fund various advertising, media, and entertainment costs.8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 be used to develop,produce, distribute and administer specific advertising, public relations and promotional programs that promote the services offered by system franchisees;and (b) 0.5% of weekly gross sales to be used to research, develop, produce, and support creative ideas and materials for use in commercial advertisements,public relations, and promotional campaigns in the United States (“U.S.”) and Mexico. We may elect at any time not to collect or maintain all or any portionof the amount contributed to fund advertising related programs and activities and, during such time that we have made such election, the monies notcollected must be expended by the franchisees in their own markets. In addition, we are required, with respect to Company-operated Peter Piper Pizzarestaurants, to contribute funds on the same basis as our franchisees.Royalties, franchise and area development fees and other miscellaneous franchise income represented 2.0%, 1.9%, 0.9% and 0.6% of our totalconsolidated revenues during Fiscal 2016, Fiscal 2015, the Successor 2014 period and the Predecessor 2014 period, respectively.Foreign OperationsAs of January 1, 2017, we operated a total of 12 Company-operated venues in Canada. Our Canada venues generated Total revenues of $15.6million, $16.6 million, $18.5 million and $2.7 million during the fiscal years ended January 1, 2017 and January 3, 2016, the 317 day period endedDecember 28, 2014 and the 47 day period ended February 14, 2014 respectively, representing 1.7%, 1.8%, 2.6%, and 2.4% of our total consolidatedrevenues, respectively. All of our other international venues are franchised.These foreign activities, along with our international franchisees, are subject to various risks of conducting business in a foreign country, includingchanges in foreign currency, laws and regulations and economic and political stability. See “Risk Factors” for more information regarding the risks associatedwith operations located in foreign markets.Third-Party SuppliersWe use a network of 15 distribution centers operated by a single company to distribute most of the products and supplies used in our Chuck E.Cheese’s branded venues and two distribution centers for our Peter Piper Pizza branded venues. We believe that alternative third-party distributors areavailable for our products and supplies, but we may incur additional costs if we are required to replace our distributors or obtain the necessary products andsupplies from other suppliers.We have not entered into any hedging arrangements to reduce our exposure to commodity price volatility; however, we typically enter into short-term purchasing arrangements, which may contain pricing designed to minimize the impact of commodity price fluctuations.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 markets. In this regard, we compete for customers on the basis of (a) our name recognition; (b) the price, quality, variety, and perceived value of ourfood and entertainment offerings; (c) the quality of our customer service; and (d) the convenience and attractiveness of our venues. 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 venues provide us with an important competitive advantage, and we actively seek to protect our interests in such property.9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.Government 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 venues. For a discussion of government regulation risks to our business, see Part I, Item 1A. “Risk Factors.”EmployeesAs of January 1, 2017, we employed approximately 18,000 employees, including approximately 17,600 in the operation of our Company-operatedvenues and approximately 400 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 venues.Each Chuck E. Cheese’s and Peter Piper Pizza venue typically employs a general manager, one or more assistant managers, an electronic’s specialistwho is responsible for repair and maintenance of the show, games and rides, and approximately 20 to 40 food preparation and service employees, many ofwhom work part-time. Our staffing requirements are seasonal, and the number of people we employ at our venues 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 1707 Market Place Blvd, Suite 200, Irving, Texas 75063, or one may call (972) 258-8507 to obtaina hard copy of these reports 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.Risks Related to Our Business and IndustryNegative publicity concerning food quality, health, general safety or other issues, and changes in consumer preferences, could negatively affect our brandimage and reputation and adversely affect our consolidated 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 venue or a limited number of venues. 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 venues. Wehave, from time to time, received negative publicity related to altercations and other safety-related incidents in certain of our venues. There can be noassurance that in the future we will not experience negative publicity regarding one or more of our venues, and the existence of negative publicity couldadversely affect our brand image and reputation with our customers and our consolidated financial results.10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.In addition, our industry is affected by consumer preferences and perceptions. Changes in prevailing health or dietary preferences and perceptionsmay cause consumers to avoid certain products we offer in favor of alternative or healthier foods. If consumer eating habits change significantly and we areunable to respond with appropriate menu offerings, it could adversely affect our brand image and consolidated financial results.Our business may also be impacted by certain public health issues including epidemics, pandemics and the rapid spread of certain illnesses andcontagious diseases. To the extent that extensive publicity relating to such events causes our customers to feel uncomfortable visiting or taking their childrento public locations, particularly locations with a large number of children, due to a perceived risk of exposure to a public health issue, we could experience areduction in customer traffic, which could adversely affect our consolidated financial results.If we are unable to successfully open new venues or appropriately update and evolve our current venue 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 existingvenues, remodel and expand certain of our existing venues and open additional new venues in selected markets.The opening and success of new Chuck E. Cheese's and Peter Piper Pizza venues is dependent on various factors, including but not limited to theavailability of suitable sites, the negotiation of acceptable lease terms for such locations, our ability to meet construction schedules, our ability to managesuch expansion and hire and train personnel to manage the new venues, our ability to obtain, for acceptable cost, building and other permits and approvalsincluding liquor licenses, the potential cannibalization of sales at our adjacent venues located in the market, as well as general economic and businessconditions. Our ability to successfully open new venues or remodel, expand or upgrade the entertainment at existing venues will also depend upon theavailability of sufficient capital for such purposes, including operating cash flow, our existing credit facility, future debt financings, future equity offerings,or a combination thereof. There can also be no assurance that we will be successful in opening and operating the number of anticipated new venues on atimely or profitable basis. There can be no assurance that we can continue to successfully remodel or expand our existing facilities or upgrade the games andentertainment or obtain a reasonable return on 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 venue and other expenses when we relocate or remodel existing venues. The expenses of opening, relocating, or remodelingany of our venues may be higher than anticipated. If we are unable to open or are delayed in opening new or relocated venues, we may incur significant costs,which could adversely affect our consolidated financial results. If we are unable to remodel or are delayed in remodeling venues, we may incur significantcosts, 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) a change in the mix of our media expenditures; (c) an increase in advertising directed to parents; and (d) promoting our brand and reasons tovisit through free-standing inserts in newspapers, on television, and online. There can be no assurance that these changes to our traditional media strategy,which was heavily weighted towards kids' television advertising, free-standing inserts in newspapers, and significant couponing, will be effective at reachingcustomers or be accepted by customers. If we are not effective in reaching our target audience with our new marketing and advertising strategy or if thesechanges are not accepted by guests, we may incur additional advertising costs, and our business and our consolidated financial results could be adverselyaffected.11The restaurant and entertainment industries are highly competitive, and that competition could harm our business and our consolidated financial results.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.Economic uncertainty and changes in consumer discretionary spending could reduce sales at our venues and have an adverse effect on our business andour consolidated financial results.Purchases at our venues 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 venues are located. Asignificant portion of our venues are clustered in certain geographic areas. As of January 1, 2017, a total of 182 Chuck E. Cheese's venues are located inCalifornia, Texas, and Florida (179 are Company-operated and three are franchised locations), and a total of 134 Peter Piper Pizza venues are located inArizona, Texas, and Mexico (30 are Company-operated and 104 are franchised locations). A significant weakening in the local economies of thesegeographic areas, or any of the areas in which our venues are located, may cause consumers to curtail discretionary spending, which in turn could reduce ourCompany venue sales and have an adverse effect on our business and our consolidated financial results.The future performance of the U.S. and global economies is uncertain and is directly affected by numerous national and global financial, politicaland other factors that are beyond our control. Our target market of families with young children can be highly sensitive to adverse economic conditions,which may impact their desire to spend discretionary dollars, resulting in lower customer traffic levels in our venues. Increases in credit card debt, homemortgage and other borrowing costs and declines in housing values could further weaken the U.S., Mexican or Canadian economies, leading to a furtherdecrease in discretionary consumer spending. In addition, reduced consumer confidence as a result of a renewed recession, job losses, home foreclosures,investment losses in the financial markets, personal bankruptcies, and reduced access to credit may also result in lower levels of traffic to our venues.Moreover, our customer traffic may be impacted by major changes in U.S. fiscal policy. We believe that consumers generally are more willing to makediscretionary purchases, including at our venues, during periods in which favorable economic conditions prevail. Further, fluctuations in the retail price ofgasoline and the potential for future increases in gasoline and other energy costs may affect consumers' disposable incomes available for entertainment anddining. Changes in consumer spending habits as a result of a recession or a reduction in consumer confidence are likely to reduce our customer traffic andsales performance, which could have an adverse effect on our business and our consolidated financial results. In addition, these economic factors could affectour level of spending on planned capital initiatives at our venues, and thereby impact our future sales, and could also result in potential asset impairmentsand venue closures.Increases in food, labor, and other operating costs could adversely affect our consolidated financial results.For the 2016 fiscal year, 45.8% of company venue sales revenue came from food and beverage sales as compared to the 54.2% of company venuesales revenue resulting from entertainment and merchandise sales. As a result, the performance of our venues is affected by changes in the costs for foodproducts we purchase, including but not limited to cheese, dough, produce, chicken, and beef. The commodity prices for these food products vary throughoutthe year and may be affected by changes in supply, demand, and other factors beyond our control. We have not entered into any hedging arrangements toreduce 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 price fluctuations. An increase in our food costs could negatively affect our profitmargins and adversely affect our consolidated financial results.Several states and cities in which we operate venues have established a minimum wage higher than the federally-mandated minimum wage. Theremay be similar increases implemented in other jurisdictions in which we operate or seek to12operate. Additionally, a number of our employees could be subject to changes in federal or state rules and regulations concerning increases to salary andcompensation levels necessary for white collar workers to be classified as exempt in 2016 and beyond, as well as state-specific laws governing relative payfor male and female employees and/or employees of different ethnicities. Such changes in the minimum wage and other wage or salary requirements couldincrease our labor costs and could have an adverse effect on our profit margins and our consolidated financial results.The performance of our venues could also be adversely affected by increases in the price of utilities on which the venues depend, such as electricityand natural gas, whether as a result of inflation, shortages or interruptions in supply, or otherwise. Our business also incurs significant costs for, among otherthings, 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.Our strategy to open international franchised venues may not be successful and may subject us to unanticipated conditions in foreign markets, which couldadversely 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 venues on a profitable basis. As we do not have a long history of significant international growth experience, there can be no assurance that we will beable to successfully execute this strategy in the future. Delays or failures in identifying desirable franchise partners and opening new franchised venues couldadversely affect our planned growth. Moreover, our franchisees depend on the availability of financing to construct and open new venues. If these franchiseesexperience difficulty in obtaining adequate financing, our growth strategy and franchise revenues could be adversely affected. Additionally, our growthstrategy depends on the ability of our international franchisees to learn and implement our business strategy, while adapting to the local culture. There can beno assurance that the Chuck E. Cheese's and Peter Piper Pizza concepts will be accepted in targeted international markets.Currently, our international franchisees operate venues in 11 countries. We and our franchisees are subject to the regulatory, economic, and politicalconditions of any foreign market in which our franchisees operate venues. Any change in the laws, regulations, and economic and political stability of theseforeign markets could adversely affect our consolidated financial results. Changes in foreign markets that could affect our consolidated financial resultsinclude, but are not limited to, taxation, inflation, currency fluctuations, political instability, economic instability, war or conflicts, increased regulations andquotas, tariffs, and other protectionist measures. Additionally, our long-term growth strategy includes adding franchisees in additional foreign markets in thefuture. To the extent unfavorable conditions exist in the foreign markets we plan to expand into or we are unable to secure intellectual property rightssufficient to operate in such foreign markets, we and our international franchise partners may not be successful in opening the number of anticipated newvenues on a timely and profitable basis. Delays or failures in opening new foreign market venue locations could adversely affect our planned growth andresult in increased attendant costs.Our business dealings with foreign franchisees and vendors are subject to U.S. and foreign anti-corruption law, and investigations or enforcement actionsbrought under such law could adversely impact our business and our ability to operate effectively in those markets.As a business that regularly enters into negotiations and contractual relationships with franchisees and vendors located in foreign countries, we aresubject to the requirements of the United States Foreign Corrupt Practices Act and other domestic and foreign laws and regulations governing such activities.Although we have a strong compliance program that includes regular training and reinforcement of our employees who represent us in dealings with foreignindividuals and entities on the laws impacting such dealings, we may be faced with investigations or enforcement actions by the United States or foreigngovernments arising from such dealings. Responding to such investigations or enforcement actions would be costly and may divert management's attentionand resources from the regular operation of our business, and together with any fines, penalties, or other actions ordered by governmental authorities, couldadversely affect our business and 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 venues, data centers that process transactions, the enterprise resource planningsystem, the Chuck E. Cheese and Peter Piper Pizza brand websites, the birthday reservation system, and various software applications used in our operations.In the ordinary course of our business, we also collect and store on our computer networks and information systems sensitive data, including intellectualproperty, our proprietary business information and that of our customers, suppliers and business partners, and personally identifiable information of ourcustomers and employees. A failure of our systems to operate effectively as a result13of a cyber-attack, damage to, interruption, or failure of any of these systems could result in a failure to meet our reporting obligations, material misstatementsin our financial statements, or losses due to the disruption of our business operations. These adverse situations could also lead to loss of sales or profits orcause us to incur additional development costs. While we purchase insurance coverage related to network security and privacy to limit the cost of any suchfailure or cyber-attack our coverage may not be sufficient to reimburse us for all of the costs we may incur in the event of a cyber-attack. Despite our efforts tosecure our computer networks and information systems, security could be compromised or confidential information could be misappropriated, resulting in aloss of customers' or employees' personal information, negative publicity or harm to our business and reputation that could cause us to incur costs toreimburse third parties for damages or to pay governmental fines, or cause a decrease in guest traffic.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 operated by a single company to distribute most of the products and supplies used in our Chuck E.Cheese's branded venues and one distribution center for our Peter Piper Pizza branded venues. Any failure by these distributors to adequately distributeproducts or supplies to our venues could increase our costs and have an adverse effect on our business and our consolidated financial results. Although webelieve that alternative third-party distributors are available for our products and supplies, we may incur additional costs if we are required to replace ourdistributors or obtain the necessary products and supplies from other suppliers, and there can be no assurance that our business would not be disrupted.Our procurement of games, rides, entertainment-related equipment, redemption prizes, and merchandise is dependent upon a few global providers, the lossof any of which 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 risks of distribution delays, pricing pressure and lack of innovation, amongother things. Furthermore, some of our suppliers are located in China, and continuing and increasing tension between the U.S. and Chinese governmentscould 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 consolidated financialresults.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 may in the futureassert claims or file lawsuits alleging that they have sustained injuries from third-party merchandise offered by us. There is a risk that these claims orliabilities may exceed, or fall outside of the scope of, our insurance coverage. Any of the issues mentioned above could result in damage to our reputation,diversion of development and management resources, or reduced sales and increased costs, any of which could adversely affect our business and ourconsolidated 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 venues 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 redemption, video, and arcade games and rides, the preparation of food and beverages, the sale and service of alcoholic beverages, andbuilding and zoning requirements. Difficulties or failure in obtaining required permits, licenses, or other regulatory approvals could delay or prevent theopening of a new venue, remodel or expansion, and the suspension of, or inability to renew, a license or permit could interrupt operations at an existingvenue.We are also subject to laws and regulations governing our relationship with our employees, including those related to minimum wage requirements,exempt status, overtime, health insurance mandates, working and safety conditions, immigration status requirements, child labor, and non- discrimination.Additionally, changes in federal labor laws, including card verification regulations, could result in portions of our workforce being subjected to greaterorganized labor influence, which could result in an increase to our labor costs. A significant portion of our venue personnel are paid at minimum wage ratesestablished by federal, state and municipal law. Increases in the minimum wage result in higher labor costs, which may be only partially offset by priceincreases and operational efficiencies. We are also subject to certain laws and regulations that govern14our handling of customers' personal information. A failure to protect the integrity and security of our customers' personal information could expose us tolitigation and regulatory enforcement action, 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. State laws that regulate the franchisor-franchisee relationship presently exist in a substantial number of states, and bills have been introduced in Congress from time to time that would provide forfederal regulation of the franchisor-franchisee relationship. The state laws often limit, among other things, the duration and scope of non-competitionprovisions, the ability of a franchisor to terminate or refuse to renew a franchise and the ability of a franchisor to designate sources of supply. We believe thatour franchise disclosure document, together with any applicable state versions or supplements, and franchising procedures, comply in all material respectswith both the Federal Trade Commission guidelines and all applicable state laws regulating franchising in those states in which we have offered franchises.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, penalties, fines and/or lawsuits, or may be required to cease operations until we achieve compliance, which could have an adverse effect on ourbusiness and 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 affect ourbusiness and our consolidated financial results.Our business is subject to the risk of litigation by customers, current and former employees, franchisees, suppliers, governmental entities,stockholders, or others, through private actions, class actions, administrative proceedings, regulatory actions, or other litigation. The outcome of litigation,particularly class action lawsuits and regulatory actions, is difficult to assess or quantify. Plaintiffs in these types of lawsuits may seek recovery of very largeor indeterminate amounts, and the magnitude of the potential loss relating to such lawsuits may remain unknown for substantial periods of time. The cost todefend future litigation may be significant. There may also be adverse publicity associated with litigation that could decrease customer acceptance of ourfood or entertainment offerings, regardless of whether the allegations are valid or whether we are ultimately found liable. From time to time, we are alsoinvolved in lawsuits with respect to alleged infringement of third party intellectual property rights, as well as challenges to our intellectual property.We are also subject to risks from litigation and regulatory action regarding advertising to our market of children between the ages of two and 12years old. In addition, since certain of our venues serve alcoholic beverages, we are subject to “dram shop” statutes. These statutes generally allow a personinjured by an intoxicated person to recover damages from an establishment that wrongfully served alcoholic beverages to the intoxicated person. Althoughwe believe we are adequately protected against such losses by insurance, a judgment against us under a “dram shop” statute in excess of the liability coveredby insurance could have an adverse effect on our business and our consolidated financial results.We face potential liability with our gift cards and PlayPass cards under the property laws of some states.Our gift cards are used in our venues to purchase food, beverages, merchandise and game credits, and our PlayPass cards are loaded with game creditspurchased by our guests. These cards may be considered stored value cards by certain states in accordance with their abandoned and unclaimed propertylaws. These laws may require us to remit cash amounts equal to all or a designated portion of the unredeemed balance of stored value cards based on certaincriteria and the length of time that the cards are inactive or dormant. Our gift cards and PlayPass cards do not expire and do not incur service fees. Werecognize income from unredeemed cards when we determine that the likelihood of the cards being redeemed is remote, and we believe remittance pursuantto abandoned and unclaimed property laws is not required.The analysis of the potential application of the abandoned and unclaimed property laws to our gift cards and PlayPass cards is complex and involvesan analysis of constitutional issues, statutory provisions, case law and factual matters. In the event that one or more states change their existing abandonedand unclaimed property laws or successfully challenges our position on the application of its abandoned and unclaimed property laws or if the estimates thatwe use in projecting the likelihood of the cards being redeemed prove to be inaccurate, our liabilities for deferred revenue and revenue recognition withrespect to unredeemed gift cards and PlayPass cards may materially differ from the amounts reported in our financial statements and our net income could bematerially and adversely affected.Our business may be adversely affected by local conditions, natural disasters, terrorist attacks and other events.Certain regions in which our facilities (including our support services center, venues, and warehouses) are located15may be subject to adverse local conditions, natural disasters, terrorist attacks and other events. Severe weather, such as heavy snowfall, ice, or extremetemperatures, may discourage or restrict customers in affected regions from traveling to our venues or prevent employees from performing their work in ourfacilities, which could adversely affect our sales. If severe weather conditions occur during the first quarter of the year, the adverse impact to our sales andprofitability could be even greater than at other times during the year because we typically generate our highest sales and profits during the first quarter.Natural disasters including tornadoes, hurricanes, floods and earthquakes may damage our facilities, which may adversely affect our business and ourconsolidated financial 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 typicallygenerate our 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 venuesduring the first quarter of the year due to unusually cold or inclement weather or other circumstances outside of our control, our operating results could bematerially, adversely affected for that quarter and further, may have an adverse effect on our consolidated financial results for the fiscal year.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 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 at levels that we believe are typical for a business of our type and size. However, we couldexperience a loss that either cannot be insured against or is not commercially reasonable to insure. For example, insurance covering liability for violations ofwage and hour laws is generally not available. Under certain circumstances, plaintiffs may file certain types of claims that may not be covered by insurance,or by sufficient insurance to cover the entire amount of a judgment. In some cases, plaintiffs may seek punitive damages, which may also not be covered byinsurance. Losses such as these, if they occur, could adversely affect our business and our consolidated financial results.We may face labor shortages that could slow our growth and adversely impact our ability to operate our venues.The successful operation of our business depends upon our ability to attract, motivate and retain a sufficient number of qualified executives,managers and skilled employees. From time-to-time, there may be a shortage of skilled labor in certain of the communities in which our venues are located.Shortages of skilled labor may make it increasingly difficult and expensive to attract, train and retain the services of a satisfactory number of qualifiedemployees and could delay the planned openings of new venues or adversely impact our existing venues. Any such delays, material increases in employeeturnover rates in existing venues or widespread employee dissatisfaction could have a material adverse effect on our business and results of operations.Competition for qualified employees could require us to pay higher wages, which could result in higher labor costs and could have a material adverse effecton our results of operations.Immigration reform continues to attract significant attention in the public arena and the U.S. Congress. If new immigration legislation is enacted,such laws may contain provisions that could increase our costs in recruiting, training and retaining employees. Also, although our hiring practices complywith the requirements of federal law in reviewing employees' citizenship or authority to work in the United States, increased enforcement efforts with respectto existing immigration laws by governmental authorities may disrupt a portion of our workforce or our operations at one or more of our venues, therebynegatively impacting our business.We are dependent on the service of certain key executives, and the loss of any of these personnel could harm our business.Our success significantly depends on the continued employment and performance of our key executives. We have employment agreements withcertain of our key executives. However, we cannot prevent our key executives from terminating their employment with us. Losing the services of any of ourkey executives could harm our business until a suitable replacement is hired, and such replacement may not have equal experience or capabilities.Additionally, economic conditions or concerted overtures by competitors may lead to resignations of significant numbers of members of our operationsmanagement team, which may also negatively impact our consolidated financial results in the short term.Failure to establish and maintain effective internal control over financial reporting could have a material adverse16effect on our business and operating results.Maintaining effective internal control over financial reporting is necessary for us to produce reliable financial reports and is important in helping toprevent mistakes in our financial statements and financial fraud. If we are unable to maintain adequate internal controls, our business and operating resultscould be harmed. Any failure to remediate deficiencies noted by our management or our independent registered public accounting firm or to implementrequired new or improved controls or difficulties encountered in their implementation could cause us to fail to meet our reporting obligations or result inmaterial misstatements in our financial statements. Any such failure could result in a loss of investor confidence in the reliability of our financial statements,have a material adverse effect on our business, financial condition and results of operations and the fair value of our common stock.We may not be able to adequately protect our trademarks or other proprietary rights, which could have an adverse effect on our business and ourconsolidated financial results.We 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, menu offerings, or advertising claims infringe upon their proprietaryrights or constitute unfair competition. Any such claim, whether or not it has merit, may result in costly litigation, cause delays in introducing new menuitems in the future, interfere with our international development agreements, lead to delays or cancellation of pre-paid marketing campaigns, or require us toenter into royalty or licensing agreements. Additionally, we may be subject to infringement claims by purported patent holders that relate to software orsystems that are critical to our operations. As a result, any such claim could have an adverse effect on our business and 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-operated venues, we are subject to all of the risks generally associated withowning and 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 venues.We may be compelled to continue to operate a non-profitable venue due to our obligations under lease agreements, or we may close a non-profitable venueand continue making rental payments with respect to the lease, which could adversely affect our consolidated financial results. Furthermore, economicinstability may inhibit our landlords from securing financing and maintaining good standing in their existing financing arrangements, which could result intheir inability to keep existing tenants or attract new tenants, thereby reducing customer traffic to our venues. The lease terms for our leased facilities vary,and some have only a short term remaining. Most - but not all - of our leased facilities have renewal terms. When a lease term expires, the Company may notbe able to renew such lease on reasonable economic and commercial terms, or at all. Such failure to renew leases on reasonable economic and commercialterms could adversely affect our business and consolidated financial results.We also may not be able to renew real property leases on favorable terms, or at all, which may require us to close a venue or relocate, either of whichcould have a material adverse effect on our business, results of operations or financial condition. Of the 523 Company-operated Chuck E. Cheese's venues asof January 1, 2017, 513 are leased. All of the 36 Company-operated Peter Piper Pizza venues as of January 1, 2017 are leased premises. The leases typicallyprovide for a base rent plus additional rent based on a percentage of the revenue generated by the venues on the leased premises once certain thresholds aremet. A decision not to renew a lease for a venue could be based on a number of factors, including an assessment of the area in which the venue is located. Wemay choose not to renew, or may not be able to renew, certain of such existing leases if the capital investment then required to maintain the venues at theleased locations is not justified by the return on the required investment. If we are not able to renew the leases at rents that allow such venues to remainprofitable as their terms expire, the number of such venues may decrease, resulting in lower revenue from operations, or we may relocate a venue, which couldsubject us to construction and other costs and risks, and, in either case, could have a material adverse effect on our business, results of operations or financialcondition.Fixed rental payments account for a significant portion of our operating expenses, which increases our vulnerability to general adverse economic andindustry conditions and could limit our operating and financial flexibility.Payments under our operating leases account for a significant portion of our operating expenses. For example, total rental payments, includingadditional rental payments based on sales at some of our venues, under operating leases were approximately $97.2 million, or 10.5% of our Total revenues, infiscal 2016. In addition, as of January 1, 2017, we were a party17to operating leases requiring future minimum lease payments aggregating approximately $177.9 million through the next two years and approximately$799.2 million thereafter. We expect that we will lease any new venues we open under operating leases. Our substantial operating lease obligations couldhave significant negative consequences, including:• increasing our vulnerability to general adverse economic and industry conditions;• limiting our ability to obtain additional financing;•requiring a substantial portion of our available cash to be applied to pay our rental obligations, thus reducing cash available for otherpurposes;•limiting our flexibility in planning for or reacting to changes in our business or the industry in which we compete; and• placing us at a disadvantage with respect to our competitors.We depend on cash flow from operations to pay our lease obligations and to fulfill our other cash needs. If our business does not generate sufficientcash flow from operating activities and sufficient funds are not otherwise available to us from borrowings under the CEC revolving credit facility or fromother sources, we may not be able to service our operating lease obligations, grow our business, respond to competitive challenges or fund our other liquidityand capital needs, which would have a material adverse effect on us.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 operations or maintaining 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 and 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.We are involved in litigation relating to the Merger Agreement that could divert management's attention and harm our business.As described in Part 1, Item 3 of this report, “Legal Proceedings,” following the January 16, 2014 announcement that we had entered into a mergeragreement (the ‘‘Merger Agreement’’), pursuant to which an entity controlled by Apollo Global Management, LLC and its subsidiaries merged with and intoCEC Entertainment Inc., with CEC Entertainment Inc. surviving the merger (the ‘‘Merger’’), four putative class actions were filed by 29 shareholder in theDistrict Court of Shawnee County, Kansas, on behalf of our purported stockholders, against us, our directors, Apollo, Parent and Merger Sub, in connectionwith the Merger Agreement and the transactions contemplated thereby. These actions were consolidated into one action in March 2014. On July 21, 2015, aconsolidated class action petition was filed as the operative consolidated complaint, asserting claims against CEC and its former directors, adding TheGoldman Sachs Group (‘‘Goldman Sachs’’) as a defendant, and removing all Apollo entities as defendants (‘‘Consolidated Class Action Petition’’). TheConsolidated Class Action Petition alleges that our directors breached their fiduciary duties to our stockholders in connection with their consideration andapproval of the Merger Agreement by, among other things, conducting a deficient sales process, agreeing to an inadequate tender price, agreeing to certainprovisions in the Merger Agreement, and filing materially deficient disclosures regarding the transaction. The Consolidated Class Action Petition alsoalleges that two members of our board who also served as our senior managers had material conflicts of interest and that Goldman Sachs aided and abetted theboard’s breaches as a result of various conflicts of interest facing the bank. The Consolidated Class Action Petition seeks, among other things, to recoverdamages, attorneys’ fees and costs. On March 23, 2016, the Court conducted a hearing on the defendants’ Motion to Dismiss the Consolidated Class ActionPetition, and the parties are currently awaiting the Court’s ruling. The Court has not yet set this case for trial. Although we believe this suit is without meritand intend to vigorously defend against it, the defense of this action is expensive and may divert management’s attention and resources, which couldadversely affect our business.Risks Related to our Capital StructureOur substantial indebtedness could adversely affect our ability to raise additional capital or 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, and18prevent us from making debt service payments.We are a highly leveraged company. As of January 1, 2017, we had $994.1 million face value of outstanding indebtedness (excluding capital leaseand sale leaseback obligations), in addition to $140.1 million available for borrowing under the revolving credit facility at that date. For the fiscal year endedJanuary 1, 2017, we made total debt service payments of $59.6 million.Our substantial indebtedness could have important consequences for us, including, but not limited to, the following:•limit, along with the financial and other restrictive covenants in our indebtedness, among other things, our ability to borrow additionalfunds or dispose of assets; limit our ability to repurchase shares and pay cash dividends;•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; and•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 assure you 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 senior notes (as defined in “Part II, Item 7. Management’s Discussion and Analysis of FinancialCondition and Results of Operations - Financial Condition, Liquidity and Capital Resources - Debt Financing”). These alternative measures may not besuccessful and may not permit us to meet our scheduled debt service obligations. Our ability to restructure or refinance our debt will depend on the conditionof the capital markets and our financial condition at such time. Any refinancing of our debt could be at higher interest rates and may require us to complywith more onerous covenants, which could further restrict our business operations. In addition, the terms of existing or future debt agreements may restrict19us from adopting some of these alternatives. In the absence of such operating results and resources, we could face substantial liquidity problems and might berequired to dispose of material assets or operations to meet our debt service and other obligations. We may not be able to consummate those dispositions forfair market value or at all. Furthermore, any proceeds that we could realize from any such dispositions may not be adequate to meet our debt serviceobligations then due. Apollo and its affiliates have no continuing obligation to provide us with debt or equity financing. Our inability to generate sufficientcash flow to satisfy our debt obligations, or to refinance our indebtedness on commercially reasonable terms or at all, could have a material adverse effect onour business, results of operations, and financial 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.20ITEM 1B. Unresolved Staff Comments.None.21ITEM 2. Properties.Chuck E. Cheese’s and Peter Piper Pizza venues are typically located in densely populated locations and are predominantly situated in shoppingcenters or in free-standing buildings near shopping centers. On average, Chuck E. Cheese’s existing venues are approximately 12,700 square feet, with tableand chair seating generally averaging between 400 to 450 guests per venue, and include approximately 75 games, rides and attractions. On average, PeterPiper Pizza existing venues are approximately 10,100 square feet, with table and chair seating generally averaging between 350 to 400 guests per venue, andinclude approximately 40 games, rides and attractions.The following tables summarize information regarding the number and location of venues we and our franchisees operated as of January 1, 2017:DomesticCompany-operatedvenues Franchised venues TotalChuck E. Cheese’s511 29 540Peter Piper Pizza36 62 98 Total domestic547 91 638International Chuck E. Cheese’s12 51 63Peter Piper Pizza— 46 46 Total international12 97 109 Total venues in operation559 188 74722DomesticCompany-Owned venues Franchisedvenues TotalAlabama8 1 9Alaska1 — 1Arizona32 16 48Arkansas6 — 6California81 4 85Colorado10 — 10Connecticut4 — 4Delaware2 — 2Florida32 — 32Georgia15 — 15Hawaii— 2 2Idaho1 — 1Illinois22 — 22Indiana13 — 13Iowa4 — 4Kansas4 — 4Kentucky5 — 5Louisiana10 2 12Maryland15 — 15Massachusetts11 — 11Michigan16 — 16Minnesota8 — 8Mississippi3 2 5Missouri8 — 8Montana— 1 1Nebraska2 — 2Nevada7 — 7New Hampshire2 — 2New Jersey14 — 14New Mexico6 3 9New York22 — 22North Carolina13 2 15North Dakota— 1 1Ohio19 1 20Oklahoma8 — 8Oregon1 2 3Pennsylvania22 — 22Rhode Island1 — 1South Carolina7 — 7South Dakota2 — 2Tennessee12 — 12Texas66 47 113Utah2 1 3Virginia12 3 15Washington8 3 11West Virginia1 — 1Wisconsin9 — 9Total domestic547 91 63823 InternationalCompany-Owned venues Franchisedvenues TotalCanada12 — 12Chile— 7 7Colombia— 1 1Guam— 1 1Guatemala— 2 2Mexico— 60 60Panama— 2 2Peru— 3 3Puerto Rico— 3 3Trinidad— 2 2Saudi Arabia— 13 13United Arab Emirates— 3 3Total international12 97 109Total venues in operation559 188 747Company-operated Venue LeasesOf the 523 Company-operated Chuck E. Cheese’s venues as of January 1, 2017, 10 are owned premises and 513 are leased. All of the 36 Company-operated Peter Piper Pizza venues as of January 1, 2017 are leased premises.The terms of our venue 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 January 1, 2017, two of our leases were month-to-month and 30 of our leases were set to expire in 2017. Of thoseset to expire in 2017, nine have no available renewal options and the remainder have available renewal options expiring between 2019 and 2032. Ourremaining leases are set to expire at various dates through 2035, with available renewal options that expire at various dates through 2054.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 55,257 square feet of space in an office building in Irving, Texas, which serves as our corporate office and support services center. Thislease expires in July 2026 with options to renew through July 2036. Peter Piper Pizza leases a 5,243 square foot office building in Phoenix, Arizona, whichserves primarily as its corporate office. The lease expires in September 2018 with no options to renew, and we expect that we will relocate our Peter PiperPizza office to our Irving location upon expiration of the lease. We also lease a 166,432 square foot warehouse building in Topeka, Kansas, which primarilyserves as a storage, distribution and refurbishing facility for our venue fixtures and game equipment. The lease expires in August 2024 with options to renewthrough 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. All necessary lossaccruals based on the probability and estimate of loss have been recorded.Employment-Related Litigation: On January 27, 2014, former CEC Entertainment employee Franchesca Ford filed a purported class action lawsuitagainst CEC Entertainment in San Francisco County Superior Court, California (the “Ford24Litigation”). The plaintiff claims to represent other similarly-situated hourly non-exempt employees and former employees of CEC Entertainment inCalifornia who were employed from January 27, 2010 to the present, and alleges violations of California state wage and hour laws. In March 2014, CECEntertainment removed the Ford Litigation to the U.S. District Court for the Northern District of California, San Francisco Division, and subsequentlydefeated the plaintiff's motion to remand the case to California state court. In May 2015, the parties reached an agreement to settle the lawsuit on a class-widebasis and we recorded a liability for the settlement. The settlement would result in the plaintiffs' dismissal of all claims asserted in the action, as well ascertain related but unasserted claims, and grant of complete releases, in exchange for CEC Entertainment's settlement payment. On March 24, 2016, the Courtgranted preliminary approval of the class settlement, and on November 18, 2016, the Court issued its order granting final approval of the class settlement. OnDecember 5, 2016, pursuant to the Court's order and the parties' agreement, CEC Entertainment funded the class settlement.On October 10, 2014, former venue General Manager Richard Sinohui filed a purported class action lawsuit against CEC Entertainment in theSuperior Court of California, Riverside County (the “Sinohui Litigation”), claiming to represent other similarly-situated current and former General Managersof CEC Entertainment in California during the period October 10, 2010 to the present. The lawsuit sought an unspecified amount in damages and to certify aclass based on allegations that CEC Entertainment wrongfully classified current and former California General Managers as exempt from overtimeprotections; that such General Managers worked more than 40 hours a week without overtime premium pay, paid rest periods, and paid meal periods; and thatCEC Entertainment failed to provide accurate itemized wage statements or to pay timely wages upon separation from employment, in violation of theCalifornia Labor Code, California Business and Professions Code, and the applicable Wage Order issued by the California Industrial Welfare Commission.The plaintiff also alleged that CEC Entertainment failed to reimburse General Managers for certain business expenses, including for personal cell phoneusage and mileage, in violation of the California Labor Code; he also asserted a claim for civil penalties under the California Private Attorneys General Act(“PAGA”). On December 5, 2014, CEC Entertainment removed the Sinohui Litigation to the U.S. District Court for the Central District of California, SouthernDivision. On March 16, 2016, the Court issued an order denying in part and granting in part Plaintiff's Motion for Class Certification. Specifically, the Courtdenied Plaintiff's motion to the extent that he sought to certify a class on Plaintiff's misclassification and wage statement claims, but certified a class withrespect to Plaintiff's claims that CEC Entertainment had wrongfully failed to reimburse him for cell phone expenses and/or mileage. On June 14, 2016, theCourt dismissed Sinohui's PAGA claim. The parties participated in mediation in October 2016, but were unable to reach an agreement on settlement at thattime. Trial is currently scheduled for June 2017. We believe the Company has meritorious defenses to this lawsuit and we intend to vigorously defend it.While no assurance can be given as to the ultimate outcome of this matter, we currently believe that the final resolution of this action will not have a materialadverse effect on our results of operations, financial position, liquidity or capital resources.Since the Court in the Sinohui Litigation issued its order denying certification of a class of California-based general managers on misclassificationand wage statement claims, five lawsuits have been filed in California state court (the “California General Manager Litigation”). The plaintiffs in theseactions include nine current and 12 former California General Managers asserting individual misclassification, wage statement, and expense reimbursementclaims. On December 20, 2016, CEC filed its original answer to the lawsuit styled Heather Smith v. CEC Entertainment, Inc. (the “Smith Lawsuit”), and onDecember 21, 2016, CEC removed the Smith Lawsuit to the United States District Court for the Central District of California, where it was assigned causenumber 2:16-cv-009452. On January 17, 2017, CEC filed its original answer to the lawsuit styled Audrae Escobar, Christine Ortiz, and Debora Templeton v.CEC Entertainment, Inc. (the “Escobar Lawsuit”), and on January 18, 2017, CEC removed the Escobar Lawsuit to the United States District Court for theCentral District of California, where it was assigned cause number 2:17-cv-00428. On February 2, 2017, CEC filed its original answer to the lawsuit styledJames Funk, Salvador Hernandez, Jr., Heather Larsen, Erika Lopez, and Angela Sisson v. CEC Entertainment, Inc. (the “Funk Lawsuit”), and on the samedate, CEC removed the Funk Lawsuit to the United States District Court for the Central District of California, where it was assigned cause number 3:17-cv-00214. We believe the Company has meritorious defenses in the California General Manager Litigation and we intend to vigorously contest it. While noassurance can be given as to the ultimate outcome of the California General Manager Litigation, we currently believe that the final resolution of these actionswill not have a material adverse effect on our results of operations, financial position, liquidity or capital resources.On January 30, 2017, former Technical Manager Kevin French filed a purported class action lawsuit against the Company in the United StatesDistrict Court for the Northern District of California, alleging that CEC Entertainment failed to pay overtime wages, failed to issue accurate itemized wagestatements, failed to pay wages due upon separation of employment, and failed to reimburse for certain business expenses, including for mileage and personalcell phone usage, in violation of the California Labor Code and federal law. We believe the Company has meritorious defenses to this lawsuit and we intendto vigorously defend it. Since the litigation is in its earliest stages, however, the Company does not yet have sufficient information to reach a good faithdetermination on the Company’s potential liability or exposure in the event that its defense is unsuccessful.Litigation Related to the Merger: Following the January 16, 2014 announcement that CEC Entertainment had entered into a merger agreement (the“Merger Agreement”), pursuant to which an entity controlled by Apollo Global Management,25LLC and its subsidiaries merged with and into CEC Entertainment, with CEC Entertainment surviving the merger (the “Merger”), four putative shareholderclass actions were filed in the District Court of Shawnee County, Kansas, on behalf of purported stockholders of CEC Entertainment, against A.P. VIII QuesoHoldings, L.P., CEC Entertainment, CEC Entertainment's directors, Apollo, and Merger Sub (as defined in the Merger Agreement), in connection with theMerger Agreement and the transactions contemplated thereby. These actions were consolidated into one action (the “Consolidated Shareholder Litigation”)in March 2014, and on July 21, 2015, a consolidated class action petition was filed as the operative consolidated complaint, asserting claims against CEC’sformer directors, adding The Goldman Sachs Group (“Goldman Sachs”) as a defendant, and removing all Apollo entities as defendants (the “ConsolidatedClass Action Petition”). The Consolidated Class Action Petition alleges that CEC Entertainment's directors breached their fiduciary duties to CECEntertainment's stockholders in connection with their consideration and approval of the Merger Agreement by, among other things, conducting a deficientsales process, agreeing to an inadequate tender price, agreeing to certain provisions in the Merger Agreement, and filing materially deficient disclosuresregarding the transaction. The Consolidated Class Action Petition also alleges that two members of CEC Entertainment's board who also served as the seniormanagers of CEC Entertainment had material conflicts of interest and that Goldman Sachs aided and abetted the board's breaches as a result of variousconflicts of interest facing the bank. The Consolidated Class Action Petition seeks, among other things, to recover damages, attorneys' fees and costs. TheCompany has assumed the defense of the Consolidated Shareholder Litigation on behalf of CEC’s named former directors and Goldman Sachs pursuant toexisting indemnity agreements. On March 23, 2016, the Court conducted a hearing on the defendants' Motion to Dismiss the Consolidated Class ActionPetition and on March 1, 2017, the Special Master appointed by the Court issued a report recommending to the Court that the Consolidated Class ActionPetition be dismissed in its entirety. We currently await the District Court’s decsion whether to accept the Special Master’s recommendation. The Court hasnot yet set this case for trial. The Company continues to believe the Consolidated Class Action Petition is without merit and intends to defend it vigorously.While no assurance can be given as to the ultimate outcome of the consolidated matter, we currently believe that the final resolution of the action will nothave a material adverse effect on our results of operations, financial position, liquidity or capital resources.Peter Piper, Inc. Litigation: On September 8, 2016, Diane Jacobson filed a purported class action lawsuit against Peter Piper, Inc. (“Peter Piper”) inthe U.S. District Court for the District of Arizona, Tucson Division (the “Jacobson Litigation”). The plaintiff claims to represent other similarly- situatedconsumers who, within the two years prior to the filing of the Jacobson Litigation, received a printed receipt on which Peter Piper allegedly printed more thanthe last five digits of the consumer's credit/debit card number, in violation of the Fair and Accurate Credit Transactions Act. On November 11, 2016, PeterPiper filed a motion to dismiss the Jacobson Litigation. After the plaintiff filed her opposition to the Motion to Dismiss and Peter Piper filed its reply insupport thereof, the motion was submitted to the Court for ruling on December 22, 2016. On February 2, 2017, the Court stayed the Jacobson Litigationpending the decision of the U.S. Ninth Circuit Court of Appeals in Noble v. Nevada Check Cab Corp., a case that presents an issue for decision that isrelevant to the Peter Piper’s motion to dismiss. We believe Peter Piper has meritorious defenses to this lawsuit and, should the Court overrule the motion todismiss, we intend to vigorously defend it. Since the litigation is in its earliest stages, however, the Company does not yet have sufficient information toreach a good faith determination on Peter Piper's potential liability or exposure in the event that its defense is unsuccessful.ITEM 4. Mine Safety Disclosures.None.26PART 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 January 1, 2017, all of ouroutstanding common stock was privately held and there was no established public trading market for our common stock.In 2015, we declared and paid a dividend of $70 million. We did not declare any dividends in 2016.Our ability to pay and declare dividends is restricted by our Secured Credit Facilities and senior notes. See further discussion of the Merger in Part I,Item 1. “Business - Merger” 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 Fiscal 2016.27ITEM 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 2016 Fiscal Year 2015 (1) For the 317 DayPeriod EndedDecember 28, 2014(6) For the 47 DayPeriod EndedFebruary 14,2014 (7) Fiscal Year 2013 Fiscal Year 2012 Successor Successor Successor Predecessor Predecessor Predecessor (in thousands, except percentages and venue number amounts)Statements of Earnings Data: Company venue sales$905,314 $905,110 $712,098 $113,556 $816,739 $798,937Total revenues$923,653 $922,589 $718,581 $114,243 $821,721 $803,480Operating income (loss)$61,452 $55,131 $(32,259) $2,873 $83,471 $79,071Interest expense$67,745 $70,582 $60,952 $1,151 $7,453 $9,401Income taxes$(2,626) $(2,941) $(31,123) $1,018 $28,194 $26,080Net income (loss)$(3,667) $(12,510) $(62,088) $704 $47,824 $43,590 Statement of Cash Flow Data: Operating activities118,687 100,613 48,091 22,314 138,664 137,092Investing activities(98,439) (78,191) (1,124,285) (9,659) (70,942) (98,903)Financing activities(10,095) (81,599) 1,168,448 (13,844) (66,031) (37,285)Non-GAAP Financial Measures: Adjusted EBITDA (3)$212,312 $221,787 $170,456 $24,967 $186,131 184,024Adjusted EBITDA Margin (4)23.0% 24.0 % 23.7% 21.9% 22.7% 22.9 %Venue-level Data: Number of venues (end of period): Company-operated559 556 559 NM 522 514Franchised188 176 172 NM 55 51 747 732 731 NM 577 565Comparable venues (end of period) (2)529 489 485529 NM 485 480Comparable venue sales change (2)2.8% (0.4)% NM NM 0.4% (2.9)% As of As of As of As of As of As of January 1, 2017 January 3, 2016 December 28, 2014 February 14,2014 December 29,2013 December 30,2012Balance Sheet Data: Total assets$1,710,112 $1,733,035 $1,836,113 NM $791,611 $801,806Total debt (5)989,948 994,448 999,783 NM 382,879 412,216Stockholders’ equity206,005 208,546 292,586 NM 160,768 143,274Dividends declared— 70,000 — — 17,372 16,182_______________________(1)We operate on a 52 or 53 week fiscal year ending on the Sunday nearest December 31. Fiscal year 2015 was 53 weeks in length, which resulted in our fourth quarterconsisting of 14 weeks. All other fiscal years presented were 52 weeks.(2)We define “comparable venue sales” as sales for our domestic owned company-operated venues that have been open for more than 18 months as of the beginning of eachrespective fiscal year or for acquired venues we have operated for at least 12 months as of the beginning of each respective fiscal year. We define “comparable venue saleschange” as the percentage change in comparable venue sales for each respective period. We believe comparable venue sales change to be a key performance indicator withinour industry; it is a critical factor in evaluating our performance, as it is indicative of acceptance of our strategic initiatives and local economic and consumer trends. Ourcomparable venue sales for Fiscal 2015, and the Successor 2014 period exclude the Peter Piper Pizza venues that were acquired in October 2014 as we had operated them forless than 12 months at28the beginning of each respective fiscal year. As a result of the 53 week fiscal year in 2015, our 2016 fiscal year began one calendar week later than our 2015 fiscal year. Inorder to provide useful information and to better analyze our business, we provide comparable venue sales presented on both a fiscal week basis and calendar week basis.Comparable venue sales change for 2016 on a calendar week basis compares the results for the period from January 4, 2016 through January 1, 2017 (weeks 1 through 52of our 2016 fiscal year) to the results for the period from January 5, 2015 through January 3, 2016 (weeks 2 through 53 of our 2015 fiscal year). We believe comparablevenue sales change calculated on a same calendar week basis is more indicative of the operating trends in our business. However, we also recognize that comparable venuesales change calculated on a fiscal week basis is a useful measure when analyzing year-over-year changes in our financial statements. The comparable venue sales change inthe table above is presented on a calendar week basis, excluding the additional week of operations in 2015. On a fiscal basis, excluding the additional week of operations in2015, comparable venue sales change would have been 3.0% in 2016.(3)For our definition of Adjusted EBITDA, see the “Non-GAAP Financial Measures” section below.(4)Adjusted EBITDA Margin is defined by us as Adjusted EBITDA as a percentage of Total revenues.(5)Total debt includes our senior notes, our outstanding borrowings under the term loan facility and the revolving credit facility, net of deferred financing costs, capital leases,and the Predecessor Facility.(6)Results for the Successor 2014 period include the revenues and expenses for Peter Piper Pizza for the 73 day period from October 17, 2014 through December 28, 2014.(7)The financial results for the period December 29, 2013 through February 14, 2014 represent the 47 day Predecessor period.Non-GAAP Financial MeasuresAdjusted EBITDA, a measure used by management to assess operating performance, is defined as Net income (loss) plus interest expense, income taxexpense (benefit), depreciation and amortization expense, impairments, gains and losses on asset disposals, and stock based compensation. In addition,Adjusted EBITDA excludes other items we consider unusual or non- recurring and other adjustments required or permitted in calculating covenantcompliance under our secured credit facilities and the indenture governing our senior notes (see discussion of our senior notes in Item 7. “Management’sDiscussion and Analysis of Financial Condition and Results of Operations - Financial Condition, Liquidity and Capital Resources - Debt Financing”).Adjusted EBITDA is presented because we believe that it provides useful information to investors regarding our operating performance and ourcapacity to incur and service debt and fund capital expenditures. We believe that Adjusted EBITDA is used by many investors, analysts and rating agenciesas a measure of performance. We also present Adjusted EBITDA because it is substantially similar to Credit Agreement EBITDA, a measure used incalculating financial ratios and other calculations under our debt agreements, except for the Change in Deferred amusement revenue. By reporting AdjustedEBITDA, we provide a basis for comparison of our business operations between current, past and future periods by excluding items that we do not believe areindicative of our core operating performance.Our definition of Adjusted EBITDA allows for the exclusion of certain non-cash and other income and expense items that are used in calculating netincome from continuing operations. However, these are items that may recur, vary greatly and can be difficult to predict. They can represent the effect oflong-term strategies as opposed to short-term results. In addition, certain of these items can represent the reduction of cash that could be used for othercorporate purposes. These measures should not be considered as alternatives to operating income, cash flows from operating activities or any otherperformance measures derived in accordance with GAAP as measures of operating performance, or cash flows as measures of liquidity. These measures haveimportant limitations as analytical tools, and you should not consider them in isolation or as a substitute for analysis of our results as reported under GAAP.Because of these limitations, we rely primarily on our U.S. GAAP results and use Adjusted EBITDA and Adjusted EBITDA Margin, only supplementally.29The following table sets forth a reconciliation of net loss to Adjusted EBITDA and Adjusted EBITDA Margin for the periods presented: Fiscal 2016 Fiscal 2015 For the 317 DayPeriod EndedDecember 28,2014 For the 47 DayPeriod EndedFebruary 14,2014 Fiscal 2013 Fiscal 2012 Successor Successor Successor Predecessor Predecessor Predecessor Total revenues$923,653 $922,589 $718,581 $114,243 $821,721 $803,480 Net income (loss) as reported$(3,667) $(12,510) $(62,088) $704 $47,824 $43,590Interest expense67,745 70,582 60,952 1,151 7,453 9,401Income tax expense (benefit)(2,626) (2,941) (31,123) 1,018 28,194 26,080 Depreciation and amortization119,569 119,294 118,556 9,883 79,028 79,510 Non-cash impairments, gain orloss on disposal (1)10,070 8,934 9,841 294 6,360 10,314 Non-cash stock-basedcompensation (2)689 838 703 12,639 8,481 7,468 Rent expense book to cash (3)7,852 9,100 10,665 (1,190) 714 (313) Franchise revenue, net cashreceived (4)113 1,217 2,585 — — — Impact of purchase accounting (5)1,380 995 1,496 — — — Venue pre-opening costs (6)1,591 792 1,166 131 2,057 1,525 One-time and unusual items (7)5,146 22,448 55,060 (165) (40) 99 Cost savings initiatives (8)62 2,187 2,643 502 6,060 6,350 Change in deferred amusementrevenue (9)4,388 851 — — — — Adjusted EBITDA$212,312 $221,787 $170,456 $24,967 $186,131 $184,024Adjusted EBITDA Margin23.0% 24.0% 23.7% 21.9% 22.7% 22.9%__________________(1)Relates primarily to (i) the impairment of Company-operated venues 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 landlord 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 venue 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-operated venues and generally consists of payroll, recruiting, training, supplies and rentincurred prior to venue opening.(7)Represents non-recurring income and expenses primarily related to (i) accounting, investment banking, legal and other costs incurred in connection with the Merger, the SaleLeaseback transaction and the PPP Acquisition; (ii) severance amounts paid to the Company’s previous Chairman and Chief Executive Officer as a result of the Merger andcertain management employees who left or whose jobs were eliminated in the periods following the Merger; (iii) one-time integration costs, including consulting fees,accounting service fees, IT system integration costs and travel expenses incurred in connection with the integration of Peter Piper Pizza; (iv) employee and other legal claimsand settlements related to litigation in respect of the Merger and other employee lawsuits and settlements; (v) one-time costs incurred in connection with the 2015 relocationof our corporate offices; (vi) cash landlord incentives received in 2015 on our new corporate offices; (vii) sales and use tax refunds that relate to prior periods; (viii)professional fees incurred in connection with one-time strategic corporate and tax initiatives, such as accounting and consulting service fees incurred to obtain sale and usetax refunds from prior periods, to enhance transfer pricing and implement PlayPass, initial fees incurred in connection with the oversea outsourcing of our accounts payableand payroll functions, and costs related to the transition in 2015 to new advertising agencies whereby we were under contract for duplicate advertising costs for a period oftime; (ix) removing the initial recognition of gift card breakage revenue related to prior years on unredeemed Chuck E. Cheese's gift card balances sold by third parties; (x)removing insurance recoveries relating to prior year business interruption losses at certain venues, primarily relating to disaster recoveries, such as natural disasters,fires,floods and property damage; (xi) removing proceeds received related to the early termination of a venue lease by the property landlord pursuant to a decision by thelandlord to demolish the shopping mall where the venue was located; and (xii) one-time training and travel-related costs incurred in connection with training venueemployees in connection with the implementation of our PlayPass initiative in 2016 and non-recoverable account balances written off outside of the ordinary course ofbusiness.30(8)Relates to estimated net cost savings primarily from (i) cost savings related to our change from public to private ownership and the elimination of public equity securitiesupon the closing of the Merger, including reductions in investor relations activities, directors fees, and certain legal and other securities and filing costs; (ii) estimated full-year effect of venue-level cost savings initiatives implemented in 2013, such as the installation of advanced thermostat systems, the replacement of helium-filled balloonswith table top balloons, the consolidation of parts suppliers, and the increase in tickets required to redeem prizes; (iii) estimated effect of cost savings following the Mergerfrom participation in Sponsor-leveraged purchasing programs, including various supplies, travel, and communications purchasing categories; (iv) labor cost savingsassociated with the elimination of certain management positions in connection with the Merger; (v) the full period impact of reduced occupancy costs associated with therelocation of our corporate offices in 2015; (vi) estimated cost savings associated with the integration of Peter Piper Pizza following its acquisition in October 2014,including labor cost savings associated with headcount reductions implemented in 2015; vii) the full year effect of cost savings associated with upgrades to our telephonecommunication systems in 2015; and (viii) the estimated incremental costs associated with our new ERP system, net of system optimization costs, and post-Merger insurancearrangements.(9)Represents the change in the deferred revenue liability relating to unused credits on PlayPass cards. The deferred revenue liability is building due to the PlayPassimplementation as the shift in business model is impacting revenue recognition. Once PlayPass is fully deployed, the liability will fluctuate in proportion to entertainment andmerchandise revenue thereafter.31ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.As used in this report, the terms “CEC Entertainment,” “CEC”, the “Company,” “we,” “us” and “our” refer to CEC Entertainment, Inc. and itssubsidiaries.This 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; and•Recently Issued Accounting Guidance.Presentation of Operating ResultsWe 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 year ended January 3, 2016 consisted of 53 weeks and the fiscal years ended January 1, 2017 andDecember 28, 2014 each consisted of 52 weeks. References to 2016 and 2015 are for the fiscal years ended January 1, 2017 and January 3, 2016, respectively.As a result of the 53 week fiscal year in 2015, our 2016 fiscal year began one calendar week later than our 2015 fiscal year. In order to provide usefulinformation and to better analyze our business, we have provided below comparable venue sales presented on both a fiscal week basis and calendar weekbasis. Comparable venue sales change for 2016 on a calendar week basis compares the results for the period from January 4, 2016 through January 1, 2017(weeks 1 through 52 of our 2016 fiscal year) to the results for the period from January 5, 2015 through January 3, 2016 (weeks 2 through 53 of our 2015 fiscalyear). We believe comparable venue sales change calculated on a same calendar week basis is more indicative of the operating trends in our business.However, we also recognize that comparable venue sales change calculated on a fiscal week basis is a useful measure when analyzing year-over-year changesin our financial statements.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 2014Period”) and the 317 day Successor period from February 15, 2014 through December 28, 2014 (“Successor 2014 Period”).Executive SummaryGeneralWe develop, operate and franchise family entertainment and dining centers (also referred to as “venues”) under the names “Chuck E. Cheese's”(“Where A Kid Can Be A Kid”) and “Peter Piper Pizza” (“The Solution to the Family Night Out”). Our venues deliver a lively, kid-friendly atmosphere thatfeature a broad array of entertainment offerings including arcade-style and skill-oriented games, rides, live entertainment shows, and other attractions, withthe opportunity for kids to win tickets that they can redeem for prizes. We combine this memorable entertainment experience with a broad and creative menuthat combines kid-friendly classics as well as a new selection of sophisticated options for adults. We offer families a highly compelling value proposition,where a family of four can dine at Chuck E. Cheese's for as little as $8 per person for food, drinks and entertainment, which we believe to be significantlylower than comparable offerings at both casual dining and entertainment alternatives. We believe the combination of wholesome entertainment, familydining and a strong value proposition creates a highly differentiated experience, which appeals to our diverse customer base. We operate 559 venues and32have an additional 188 venues operating under franchise arrangements across 47 states and 12 foreign countries and territories as of January 1, 2017.The following table summarizes information regarding the number of Company-operated and franchised venues for the periods presented: Twelve Months Ended January 1, 2017 January 3, 2016 December 28, 2014Number of Company-operated venues: Beginning of period 556 559 522New (1) 6 5 11Acquired by the Company (2) — — 32Acquired from franchisee — — 1Closed (1) (3) (8) (7)End of period 559 556 559Number of franchised venues: Beginning of period 176 172 55New (3) 16 12 10 Acquired by the Company (2) — — 110Acquired from franchisee — — (1)Closed (3) (4) (8) (2)End of period 188 176 172Total number of venues: Beginning of period 732 731 577 New (4) 22 17 21Acquired by the Company (2) — — 142Acquired from franchisee — — — Closed (4) (7) (16) (9)End of period 747 732 731 __________________(1)The number of new and closed Company-operated venues during 2015 and 2014 included two and two venues, respectively,that were relocated.(2)In October 2014, we acquired Peter Piper Pizza, including 32 Company-operated venues and 110 franchised venues.(3)The number of new and closed franchise venues during 2015 and 2014 included two, and one venues, respectively, that were relocated.(4)The number of new and closed venues during 2015 and 2014 included four and three venues, respectively, that were relocated.Our Strategic PlanOur strategic plan is focused on increasing comparable venue sales, improving profitability and growing new venues domestically andinternationally. See discussion of our strategic plan included in Part I, Item 1. “Business - Our Strategic Plan.”Key EventsThe MergerOn February 14, 2014, pursuant to an agreement and plan of merger (the “Merger Agreement”), an entity controlled by Apollo Global Management,LLC (“Apollo”) and its subsidiaries merged with and into CEC Entertainment Inc., with CEC Entertainment Inc. surviving the merger (the “Merger” or the“Acquisition”). As a result of the Merger, the shares of CEC Entertainment Inc. common stock ceased to be traded on the New York Stock Exchange afterclose 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 $348.0million and $65.7 million in transaction and debt issuance costs. The Acquisition was funded by (a) $350.0 million of equity contributions from investmentfunds directly or indirectly managed by Apollo (the “Apollo Funds”); (b) $248.5 million of borrowings under a bridge loan facility, which were shortlythereafter 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. Inaddition, we also entered into a33$150.0 million revolving credit facility in connection with the Acquisition, which was undrawn at closing. See “Financial Condition, Liquidity and CapitalResources - Debt Financing” for additional discussion of the senior notes, term loan facility and revolving credit facility.Acquisition of Peter Piper PizzaOn October 15, 2014, the Company entered into an agreement and plan of merger to acquire Peter Piper Pizza (“PPP”), a leading pizza andentertainment restaurant chain operating in the southwestern U.S. and Mexico, for an aggregate purchase price of $113.1 million, net of cash acquired (the“PPP Acquisition”). We completed the PPP Acquisition on October 16, 2014, and funded it with a portion of the cash proceeds from the sale leasebacktransaction we completed on August 25, 2014 with National Retail Properties, Inc. (the “Sale Leaseback”).Fiscal 2015 53rd Week ImpactOur Fiscal 2015 period consisted of 53 weeks compared to 52 weeks in our Fiscal 2016 period and the combined Successor and Predecessor 2014periods, resulting in one additional operating week in the fourth quarter of the Fiscal 2015 period. The favorable impact to total revenues and companyvenue sales from the additional operating week was approximately $24.7 million, and $24.5 million, respectively. We estimate that the additional operatingweek benefited Fiscal 2015 net income by approximately $3.5 million and Adjusted EBITDA by approximately $11.5 million, primarily due to the operatingleverage obtained from the additional high sales volume in the 53rd week.Fiscal 2016 OverviewIn the following MD&A, we have presented the results of operations and cash flows separately for the fiscal year ended January 1, 2017, the fiscalyear ended January 3, 2016, the “Successor 2014 period,” and the “Predecessor 2014 period”. The Successor and Predecessor periods have been demarcatedby a solid black line.•Total revenues of $923.7 million in 2016 compared to total revenues of $922.6 million in 2015.•Net loss of $3.7 million in 2016 compared to a net loss of $12.5 million in 2015. We estimate our Net loss for 2015, before the impact of the53rd week, to be approximately $16.0 million.•Adjusted EBITDA of $212.3 million in 2016 compared to adjusted EBITDA of $221.8 million in 2015. We estimated our AdjustedEBITDA for 2015, before the impact of the 53rd week, to be approximately $210.3 million. For our definition of Adjusted EBITDA and areconciliation of Net income to Adjusted EBITDA, see Part II, Item 6. “Selected Financial Data - Non-GAAP Financial Measures.”Key Measures of Our PerformanceComparable venue sales. We define “comparable venue sales” as the sales for our domestic Company-operated venues that have been open for morethan 18 months as of the beginning of each respective fiscal year or for acquired venues we have operated for at least 12 months as of the beginning of eachrespective fiscal year. We define “comparable venue sales change” as the percentage change in comparable venue sales for each respective fiscal year. Webelieve comparable venue sales change to be a key performance indicator used within our industry; it is a critical factor when evaluating our performance, asit is indicative of acceptance of our strategic initiatives and local economic and consumer trends.34Average Sales per Comparable Venue. Average annual sales per comparable venue is calculated based on the average weekly sales of ourcomparable venue base. The amount of average annual sales per comparable venue cannot be used to compute year-over year comparable venue salesincreases or decreases due to the change in the comparable venue base. Fiscal Year Ended January 1, 2017 January 3, 2016 December 28, 2014 (in thousands, except venue number amounts)Average sales per comparable venue (1) (2) $1,636 $1,563 $1,550Number of venues included in our comparable venue base (2) 529 489 485__________________(1)The information for the Fiscal year ended January 3, 2016 is presented on a 52 week basis. Including the 53rd week in Fiscal 2015, the average annual sales per comparablevenue in thousands was $1,607. In addition, the information for the fiscal year ended December 28, 2014 is presented using the combined revenues of the Predecessor andSuccessor periods.(2)Average annual sales per comparable venue and the comparable venue base for the twelve months ended January 3, 2016 and December 28, 2014 exclude the Peter PiperPizza branded venues that were acquired in October 2014 as we had operated them for less than 12 months as of the beginning of Fiscal 2015 and 2014.Key Income Statement Line Item DescriptionsRevenues. Our primary source of revenues is sales at our Company-operated venues (“company venue sales”), which consist of the sale of food,beverages, game-play tokens, PlayPass card game credits and merchandise. A portion of our company venue sales are from sales of value-priced combinationpackages generally comprised of food, beverage and game plays (“Package Deals”), which we promote through in-venue menu pricing, our website andcoupon offerings. We allocate the revenues recognized from the sale of our Package Deals and coupons between “Food and beverage sales” and“Entertainment and merchandise sales” based upon the price charged for each component when it is sold separately, or in limited circumstances, our bestestimate of selling price if a component 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 and PlayPass game credit sales, as well as a portion of revenues allocated from Package Deals and coupons that relate toentertainment and merchandise.Franchise fees and royalties are another source of revenues. We earn monthly royalties from our franchisees based on a percentage of each franchisevenue’s sales. We also receive development and initial franchise fees to establish new franchised venues, 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 venue has opened and we havesubstantially completed our obligations to the franchisee relating to the opening of a venue.Company venue operating costs. Certain of our costs and expenses relate only to the operation of our Company-operated venues. 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 venue personnel;•Depreciation and amortization includes expenses that are directly related to our Company-operated venues’ property and equipment,including leasehold improvements, game and ride equipment, furniture, fixtures and other equipment;•Rent expense includes lease costs for Company-operated venues, excluding common occupancy costs (e.g., common area maintenance(“CAM”) charges and property taxes); and35•Other venue operating expenses primarily include utilities, repair and maintenance costs, liability and property insurance, CAM charges,property taxes, credit card processing fees, licenses, preopening expenses, venue asset disposal gains and losses and all other costs directlyrelated to the operation of a venue.“Cost of food and beverage” and “Cost of entertainment and merchandise” mentioned above, as a percentage of company venue sales, areinfluenced both by the cost of products and the overall mix of our Package Deals and coupon offerings. “Entertainment and merchandise sales” have highermargins than “Food and 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-operated venues.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 venues to their estimated fair value, which are incurred when a venue’s operation is not expected to generate sufficient projectedfuture cash flows to recover the current net book value of the long-lived assets within the venue. We believe our assumptions in calculating the fair value ofour long-lived assets is similar to those used by other marketplace participants.Key Non-GAAP MeasureAdjusted EBITDA. We define Adjusted EBITDA, a measure used by management to assess operating performance, as net income plus interestexpense, income tax expense (benefit), depreciation and amortization expense, impairments, gains and losses on asset disposals, and stock basedcompensation. In addition, Adjusted EBITDA excludes other items we consider unusual or non-recurring and other adjustments required or permitted incalculating covenant compliance under our secured credit facilities and the indenture governing our senior notes.Results of OperationsThe following table summarizes our principal sources of Total company venue sales expressed in dollars and as a percentage of Total companyvenue sales for the periods presented: Fiscal Year Ended For the 317 Day PeriodEnded For the 47 Day Period Ended January 1, 2017 January 3, 2016 (2) December 28, 2014 (1) February 14, 2014 Successor Successor Successor Predecessor Food and beverage sales $415,059 45.8% $408,095 45.1% $307,696 43.2% $50,897 44.8%Entertainment and merchandisesales 490,255 54.2% 497,015 54.9% 404,402 56.8% 62,659 55.2%Total company venue sales $905,314 100.0% $905,110 100.0% $712,098 100.0% $113,556 100.0% __________________(1)Company venue sales for the Successor 2014 period include sales from the acquired Peter Piper Pizza venues for the 73 day period from October 17, 2014 throughDecember 28, 2014. Total Food and beverage sales and Entertainment and merchandise sales from PPP venues were $8.0 million and $2.5 million, respectively, for the2014 Successor period since the PPP Acquisition.(2)Company venue sales for Fiscal 2015 include the impact of an additional 53rd week of revenues. Excluding the 53rd week in 2015, total company venue sales wereapproximately $880.7 million.36 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: Fiscal Year Ended For the 317 Day Period Ended For the 47 Day Period Ended January 1, 2017 January 3, 2016 December 28, 2014 (5) February 14, 2014 Successor Successor Successor Predecessor Total company venue sales (1) $905,314 98.0 % $905,110 98.1 % $712,098 99.1 % $113,556 99.4%Franchise fees and royalties 18,339 2.0 % 17,479 1.9 % 6,483 0.9 % 687 0.6%Total revenues 923,653 100.0 % 922,589 100.0 % 718,581 100.0 % 114,243 100.0%Company venue operating costs: Cost of food and beverage (2) 104,315 25.1 % 104,434 25.6 % 79,996 26.0 % 12,285 24.1%Cost of entertainment andmerchandise (3) 32,014 6.5 % 31,519 6.3 % 24,608 6.1 % 3,729 6.0%Total cost of food,beverage, entertainmentand merchandise (4) 136,329 15.1 % 135,953 15.0 % 104,604 14.7 % 16,014 14.1%Labor expenses (4) 251,426 27.8 % 250,584 27.7 % 200,855 28.2 % 31,998 28.2%Depreciation and amortization (4) 113,316 12.5 % 115,236 12.7 % 115,951 16.3 % 9,733 8.6%Rent expense (4) 96,006 10.6 % 96,669 10.7 % 76,698 10.8 % 12,365 10.9%Other venue operating expenses (4) 148,869 16.4 % 143,078 15.8 % 119,896 16.8 % 15,760 13.9%Total Company venueoperating costs (4) 745,946 82.4 % 741,520 81.9 % 618,004 86.8 % 85,870 75.6%Other costs and expenses: Advertising expense 46,142 5.0 % 47,146 5.1 % 33,702 4.7 % 5,903 5.2%General and administrativeexpenses 67,264 7.3 % 66,003 7.2 % 48,182 6.7 % 7,963 7.0%Transaction, severance andlitigation related costs 1,299 0.1 % 11,914 1.3 % 50,545 7.0 % 11,634 10.2%Asset impairments 1,550 0.2 % 875 0.1 % 407 0.1 % — —%Total operating costs andexpenses 862,201 93.3 % 867,458 94.0 % 750,840 104.5 % 111,370 97.5%Operating income (loss) 61,452 6.7 % 55,131 6.0 % (32,259) (4.5)% 2,873 2.5%Interest expense 67,745 7.3 % 70,582 7.7 % 60,952 8.5 % 1,151 1.0%Income (loss) beforeincome taxes $(6,293) (0.7)% $(15,451) (1.7)% $(93,211) (13.0)% $1,722 1.5% __________________(1)Company venue sales for Fiscal 2015 include the impact of an additional 53rd week of revenues. Excluding the 53rd week in 2015, total company venue sales wereapproximately $880.7 million.(2)Percent amount expressed as a percentage of Food and beverage sales.(3)Percent amount expressed as a percentage of Entertainment and merchandise sales.(4)Percent amount expressed as a percentage of Company venue sales.(5)Results for the Successor 2014 period include the revenues and expenses for PPP for the 73 day period from October 17, 2014 through December 28, 2014.(6)Due to rounding, percentages presented in the table above may not sum to total. The percentage amounts for the components of Cost of food and beverage and the Cost ofentertainment and merchandise may not sum to total due to the fact that Cost of food and beverage and Cost of entertainment and merchandise are expressed as a percentage ofrelated Food and beverage sales and Entertainment and merchandise sales, as opposed to Total Company venue sales.37Fiscal 2016 Compared to Fiscal 2015Our 2016 fiscal year consisted of 52 weeks compared to 53 weeks for the 2015 fiscal year. We have estimated the fiscal 2015 operating results on acomparable 52-week basis under the caption “53rd Week Impact.”RevenuesCompany venue sales were $905.3 million for Fiscal 2016 compared to $905.1 million for Fiscal 2015. Total company venue sales in Fiscal 2015reflect approximately $24.5 million in Company-venue sales generated from an additional week of operations in the Fiscal 2015. On a same calendar weekbasis, before the impact of the extra week of operations in Fiscal 2015, comparable venue sales increased 2.8%. On a fiscal week basis, before the impact ofthe extra week of operations in Fiscal 2015, comparable venue sales increased 3.0%. Including the impact of the additional week of operations in Fiscal2015, comparable venue sales on a calendar week and fiscal week basis increased 0.8% and 0.2% , respectively, in Fiscal 2016.Company venue sales for Fiscal 2016 were also impacted by approximately $4.4 million of deferred revenue as a result of the implementation of ourproprietary PlayPass card system. Company venue sales for Fiscal 2015 included the initial recognition of $2.1 million in breakage revenue on unredeemedChuck E. Cheese’s gift card balances sold by third parties.Franchise fees and royalties increased from $17.5 million to $18.3 million due to an increase in sales at our franchised units and the addition of 16new franchise units in 2016.Company Venue Operating CostsThe cost of food and beverage as a percentage of Food and beverage sales, was 25.1% for Fiscal 2016 compared to 25.6% for Fiscal 2015. Thedecrease in the cost of food and beverage on a percentage basis in Fiscal 2016 was driven by price increases taken in our food and beverage menu in Fiscal2016 and a decrease in our commodity prices.The cost of entertainment and merchandise, as a percentage of Entertainment and merchandise sales, was 6.5% for Fiscal 2016 compared to 6.3% forFiscal 2015. The increase in the cost of entertainment and merchandise on a percentage basis in Fiscal 2016 was impacted by an increase in promotionalmerchandise giveaways during the first half of 2016 and an increase in the deferral of revenue related to the implementation of our proprietary PlayPass cardsystem.Labor expenses, as a percentage of Total company venue sales, were 27.8% for Fiscal 2016 and 27.7% for Fiscal 2015. Labor expenses on apercentage basis for Fiscal 2016 reflect an increase in the average hourly wage rate due to increases in minimum wage rates in certain venues over the pastyear, offset by improved labor management aided by our new labor management system implemented in early 2016.Other venue operating expenses, as a percentage of Total company venue sales, were 16.4% for Fiscal 2016 compared to 15.8% for Fiscal 2015,primarily due to higher IT and technology support costs, higher property taxes, an increase in start-up and marketing costs incurred in connection with theopening of new Company-operated venues, and asset write offs primarily attributable to games being taken out of service in connection with scheduled gamerefreshes in our venues. In addition, in 2015 we experienced favorable self-insurance expense associated with reserve adjustments to general liability claims.Advertising ExpensesAdvertising expenses were $46.1 million for Fiscal 2016 and $47.1 million for Fiscal 2015. As a percentage of Total revenues, advertising expenseswere 5.0% and 5.1%, respectively, for Fiscal 2016 and Fiscal 2015. Fiscal 2016 reflects a decrease in national media costs partially offset by an increase indigital advertising.General and Administrative ExpensesGeneral and administrative expenses were $67.3 million for Fiscal 2016 and $66.0 million for Fiscal 2015. General and administrative expenses inFiscal 2016 reflect an increase in professional fees primarily related to IT and other corporate initiatives and an increase in incentive compensation as a resultof higher sales and profit performance, offset by a decrease in PPP integration costs.Transaction, Severance and Related Litigation CostsTransaction, severance and related litigation costs were $1.3 million for Fiscal 2016 and $11.9 million for Fiscal 2015. The Transaction, severanceand related litigation costs for Fiscal 2016 relate primarily to $1.2 million in legal fees and38settlements incurred in connection with Merger related litigation, and severance payments of $0.1 million. The Transaction, severance and related litigationcosts for Fiscal 2015 relate primarily to $11.1 million in legal fees and settlements related to Merger related litigation, and severance payments of $0.7million.Interest ExpenseInterest expense was $67.7 million for Fiscal 2016 and $70.6 million for Fiscal 2015. Interest expense in Fiscal 2015 reflects an additional week ofinterest expense due to the impact of the extra week of operations in Fiscal 2015. Excluding the impact of $4.9 million of issuance costs, our weightedaverage effective interest rate under our Secured Credit Facilities and senior notes was 5.40% for Fiscal 2016 and 5.70% for Fiscal 2015.Income TaxesOur effective income tax rate of 41.7% for Fiscal 2016 and 19.0% for Fiscal 2015 differs from the statutory tax rate primarily due to the favorableimpact of employment-related federal income tax credits, the unfavorable impact of non-deductible litigation and settlement costs related to the Merger, theunfavorable impact of non-deductible Canadian interest expense partially offset by U.S. versus Canadian tax rates, the favorable impact stemming from adecrease in the liability for uncertain tax positions in 2016 and the unfavorable impact from an increase in 2015, and the unfavorable impact of an expense in2016 resulting from certain state income tax credits carried forward which we estimate will expire unused.Fiscal 2015 Compared to Successor 2014 Period (317 day period ended December 28, 2014) and Predecessor 2014 Period (47 day period endedFebruary 14, 2014)RevenuesCompany venue sales were $905.1 million for the Fiscal 2015 period, compared to $712.1 million for the Successor 2014 period and $113.6 millionfor the Predecessor 2014 period. Total Company-venue sales in the Fiscal 2015 period reflect revenues from our Peter Piper venues of $61.4 million,compared to $10.5 million in the Successor 2014 period, and approximately $24.5 million in Company-venue sales generated from an additional week ofoperations in the Fiscal 2015 period. Before the impact of the extra week of operations in the Fiscal 2015 period, Chuck E. Cheese’s comparable venue salesdecreased 0.4% due to a decrease in comparable venue sales in the first quarter of 2015 followed by three consecutive quarters of comparable venue salesgrowth. Excluding the additional week of operations in 2015, the PPP Company-operated venues achieved comparable venue sales growth of 5.2% comparedto the 2014 fiscal year.Franchise fees and royalties were $17.5 million for the Fiscal 2015 period compared to $6.5 million for the Successor 2014 period and $0.7 millionfor the Predecessor 2014 period. The increase in the Fiscal 2015 period was primarily due to an increase in the number of Chuck E. Cheese’s franchise venuesand franchise fees and royalties from our PPP franchise venues of $9.2 million.Company Venue Operating CostsGenerally, company venue operating expenses as a percentage of sales benefited from operating leverage associated with the additional week ofoperations in 2015.The cost of food, beverage, entertainment and merchandise, as a percentage of Total Company venue sales, was 15.0% for the Fiscal 2015 period,14.7% for the Successor 2014 period and 14.1% for the Predecessor 2014 period. The Fiscal 2015 period and Successor 2014 periods include the addition ofPPP Company-operated venues, which have higher cost margins than our existing Chuck E. Cheese’s Company-operated venues due to the higher mix offood and beverage at our PPP Company-operated venues.Labor expenses, as a percentage of Total Company venue sales, were 27.7% in the Fiscal 2015 period, 28.2% in the Successor 2014 period and28.2% in the Predecessor 2014 period. The Fiscal 2015 period reflects improved labor management offset by an increase in minimum wage rates in certainstates over the past year.Depreciation and amortization expense was $115.2 million in the Fiscal 2015 period, $116.0 million in the Successor 2014 period, and $9.7 millionin the Predecessor 2014 period. The decrease in depreciation and amortization in the Fiscal 2015 period is primarily due to an increase in depreciationexpense during the Successor 2014 period from certain property, plant and equipment assets that were assigned short useful lives from the acquisition methodof accounting as a result of the Merger, partially offset by a full year’s depreciation of the property, plant and equipment assets acquired in the PPPAcquisition.39Rent expense was $96.7 million in the Fiscal 2015 period, $76.7 million in the Successor 2014 period, and $12.4 million in the Predecessor 2014period. As a result of the acquisition method of accounting related to the Merger, non-cash rent expense was $7.3 million in the Fiscal 2015 period comparedto $6.9 million in the Successor 2014 period and $(0.9) million in the Predecessor 2014 period. The increase in rent in the Fiscal 2015 period also reflects anincrease in cash rent from new venue development and expansions of existing venues.Advertising ExpensesAdvertising expenses were $47.1 million in the Fiscal 2015 period, $33.7 million in the Successor 2014 period, and $5.9 million in the Predecessor2014 period. As a percentage of Total company sales, advertising expenses were 5.1%, 4.7% and 5.2%, respectively, in the Fiscal 2015 period, Successor2014 period, and Predecessor 2014 period. The Fiscal 2015 period reflects an increase in advertising directed to Moms, advertising to support our new menulaunch, and an increase in advertising agency fees in connection with our transition in 2015 to a new advertising agency for our Chuck E. Cheese’s venues.Advertising expense also increased as a result of PPP, which was acquired in October 2014 and therefore not included in the Successor 2014 period prior tothe date of the PPP Acquisition and the Predecessor 2014 period.General and administrative expensesGeneral and administrative expenses were $66.0 million in the Fiscal 2015 period, $48.2 million in the Successor 2014 period, and $8.0 million in thePredecessor 2014 period. The increase in general and administrative expenses in the Fiscal 2015 period is primarily due to a $2.3 million increase in PPPintegration costs, costs related to the relocation of our corporate offices and incremental general and administrative expenses in PPP, which was acquired inOctober 2014 and therefore not included in the Successor 2014 period prior to the date of acquisition.Transaction, Severance and Related Litigation CostsTransaction, severance and related litigation costs were $11.9 million for the Fiscal 2015 period, $50.5 million for the Successor 2014 period and$11.6 million for the Predecessor 2014 period. The Transaction, severance and related litigation costs for the Fiscal 2015 period include transaction costs of$11.1 million in legal fees and settlements incurred in connection with Merger related litigation, and severance payments of $0.7 million. The Transaction,severance and related litigation costs in the Successor 2014 period include transaction costs of $42.5 million related to the Merger, the Sale Leaseback andthe PPP Acquisition, Merger related litigation costs of $1.8 million, and employee benefits of $6.3 million related to the departure of our Chairman and ChiefExecutive Officer as a result of the Merger. The Transaction, severance and related litigation costs in the Predecessor 2014 period include $11.1 million inaccelerated stock-based compensation costs also related to the Merger.Interest ExpenseInterest expense was $70.6 million in the Fiscal 2015 period, $61.0 million in the Successor 2014 period, and $1.2 million in the Predecessor 2014period. Interest expense in the Fiscal 2015 period reflects a full year of interest on the debt issued to fund a portion of the Merger when compared to theSuccessor 2014 period. Our weighted average effective interest rate under our Secured Facilities and senior notes was 5.5% for the Fiscal 2015 period and6.2% for the Successor 2014 period (including the bridge loan). Excluding the impact of $4.9 million of issuance costs and interim interest related to thebridge loan facility, our weighted average effective interest rate would have been 5.7% for the Successor 2014 period.Income TaxesOur effective income tax rate was 19.0% in the Fiscal 2015 period, 33.4% in the Successor 2014 period, and 59.1% in the Predecessor 2014 period.Our effective income tax rate for the Fiscal 2015 period differs from the statutory rate primarily due to the unfavorable impact of non-deductible legal feesand settlements related to the Merger, partially offset by benefits stemming from federal and state employment related income tax credits. Our effectiveincome tax rate for the Successor 2014 period differs from the statutory rate primarily due to the unfavorable impact of non-deductible costs related to theMerger and the PPP Acquisition, partially offset by the favorable impact of a net decrease in our liability for uncertain tax positions. Our effective income taxrate for the Predecessor 2014 period differs from the statutory rate due to the unfavorable impact of non-deductible costs related to the Merger, a net increasein our liability for uncertain tax positions, an increase in income tax expense resulting from certain state income tax credits carried forward which we estimatewill expire unused, partially offset by federal employment related tax credits.40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 guests pay for their purchases in cash or credit cards at the time of the sale and the cash from these sales is typically received before ourrelated 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), similar to other companies in the restaurant industry.The following tables present summarized consolidated financial information that we believe is helpful in evaluating our liquidity and capitalresources as of the periods presented: Fiscal Year Ended For the 317 DayPeriod Ended For the 47 DayPeriod Ended January 1, 2017 January 3, 2016 December 28, 2014 February 14, 2014 Successor Predecessor (in thousands)Net cash provided by operating activities $118,687 $100,613 $48,091 $22,314Net cash used in investing activities (98,439) (78,191) (1,124,285) (9,659)Net cash provided by (used in) financing activities (10,095) (81,599) 1,168,448 (13,844)Effect of foreign exchange rate changes on cash 216 (1,163) (444) (313)Change in cash and cash equivalents $10,369 $(60,340) $91,810 $(1,502)Interest paid $64,614 $73,255 $41,801 $938Income taxes paid (refunded), net $10,728 $13,346 $24,424 $(79) Successor January 1, 2017 January 3, 2016 (in thousands)Cash and cash equivalents $61,023 $50,654Restricted cash $268 $—Term loan facility $739,100 $746,700Senior notes $255,000 $255,000Note payable $13 $63Net availability on undrawn revolving credit facility $140,100 $139,100Funds generated by our operating activities and available cash and cash equivalents continue to be our primary sources of liquidity. We believethese sources of liquidity will be sufficient to finance our strategic plan and capital initiatives for the next twelve months. Our revolving credit facility is alsoavailable for additional working capital needs and investment opportunities. However, in the event of a material decline in our sales trends or operatingmargins, there can be no assurance that we will generate sufficient cash flows at or above our current levels. Our ability to access our revolving credit facilityis subject to our compliance with the terms and conditions of the credit agreement governing such facility, including our compliance with certain prescribedcovenants, as more fully described below. Our primary uses for cash provided by operating activities relate to funding our ongoing business activities,planned capital expenditures, servicing our debt, and the payment of income taxes.Cash and cash equivalents as of January 1, 2017 includes $6.8 million of undistributed income from our Canadian subsidiary that we consider to bepermanently invested.41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.Sources and Uses of Cash - Fiscal 2016 Compared to Fiscal 2015Net cash provided by operating activities was $118.7 million in Fiscal 2016 and $100.6 million in Fiscal 2015. The increase in net cash provided byoperating activities is primarily due to an improvement in our results from operations and fluctuations in our working capital, partially offset by the paymentof a Merger related litigation settlement.Net cash used in investing activities was $98.4 million in Fiscal 2016 and $78.2 million in Fiscal 2015. Net cash used in investing activities inFiscal 2016 and Fiscal 2015 relates primarily to capital expenditures. The increase in Fiscal 2016 compared to Fiscal 2015 is primarily related to our PlayPassinitiative.Net cash used in financing activities was $10.1 million in Fiscal 2016 and related primarily to principal payments on our term loan and lease relatedobligations. In Fiscal 2015, we declared and paid a dividend of $70.0 million, as well as making the scheduled principal payments on our term loan.Sources and Uses of Cash - Successor 2015 period Compared to Successor 2014 period and Predecessor 2014 periodNet cash provided by operating activities was $100.6 million in the Successor 2015 period, $48.1 million in the Successor 2014 period and $22.3million in the Predecessor 2014 period. The Successor 2014 period reflects the impact of transaction, severance and related litigation costs that wereexpensed in connection with the Merger, as well as an increase in interest expense related to the new debt issued in connection with the Merger. The net cashprovided by operating activities in the Predecessor 2014 period also reflects the impact of transaction costs expensed in connection with the Merger.Net cash used in investing activities was $78.2 million in the Successor 2015 period, $1,124.3 million in the Successor 2014 period and $9.7million in the Predecessor 2014 period. Net cash used in investing activities in the Successor 2015 period relates primarily to capital expenditures. The netcash used in investing activities in the Successor 2014 period relates primarily to consideration paid in connection with the Merger and the PPP acquisitionof $946.9 million and $113.1 million, respectively.Net cash (used in) provided by financing activities was $(81.6) million in the Successor 2015 period, $1,168.4 million in the Successor 2014 periodand $(13.8) million in the Predecessor 2014 period. In Fiscal 2015, we paid a $70.0 million dividend, which is reflected as cash used in financing activities inthe Successor 2015 period. The cash provided by financing activities in the Successor 2014 period relates primarily to the proceeds from the issuance of debtof $1,011.2 million, the Apollo Funds’ equity contribution of $350.0 million, also in connection with the Merger, and proceeds from the Sale Leaseback of$183.7 million, partially offset by the repayment of the Predecessor revolving credit facility of $348.0 million.Debt FinancingPredecessor FacilityIn connection with the Merger on February 14, 2014, we repaid the total outstanding borrowings of $348.0 million under the Predecessor revolvingcredit facility (the “Predecessor Facility”), as well as all incurred and unpaid interest on the Predecessor Facility. The debt financing costs related to thePredecessor Facility were removed from our Consolidated Balance Sheet through acquisition accounting.Secured Credit FacilitiesIn connection with the Merger on February 14, 2014, we entered into new senior secured credit facilities, which include an initial $760.0 millionterm loan facility with a maturity date of February 14, 2021 (the “term loan facility”) and a $150.0 million senior secured revolving credit facility with amaturity date of February 14, 2019, which includes a letter of credit sub-facility and a $30.0 million swingline loan sub-facility (the “revolving creditfacility” and, together with the term loan facility, the “secured credit facilities”). As of January 1, 2017 and January 3, 2016, we had no borrowingsoutstanding under the revolving credit facility and $9.9 million of letters of credit issued but undrawn under the facility as of January 1, 2017, and $10.9million as of January 3, 2016.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 collateral42securing the secured credit facilities, our consolidated total net secured leverage ratio would be no greater than 5.25 to 1.00, subject to certain conditions,and receipt of commitments by existing or additional lenders.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 financing costs related to the term loan facility and revolving credit facility,respectively, which we capitalized in “Bank indebtedness and other long-term debt, net of deferred financing costs” on our Consolidated Balance Sheets. Theoriginal issue discount and deferred financing costs are amortized over the lives of the facilities and are included in “Interest expense” on our ConsolidatedStatements 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. Theapplicable margin for borrowings is 3.25% with respect to LIBOR borrowings and 2.25% with respect to base rate borrowings under the term loan facility andbase rate borrowings and swingline borrowings under the revolving credit facility. The applicable margin for borrowings under the term loan facility issubject to one step-down to 3.00% based on our net first lien senior secured leverage ratio, and the applicable margin for borrowings under the revolvingcredit facility is subject to two step-downs to 3.00% and 2.75% based on our net first lien senior secured leverage ratio. During Fiscal 2016, the federal fundsrate ranged from 0.25% to 0.66%, the prime rate ranged from 3.50% to 3.75% and the one-month LIBOR ranged from 0.42% to 0.77%.The secured credit facilities require scheduled quarterly payments on the term loan equal to 0.25% of the original principal amount of the term loanfrom July 2014 to December 2020, with the remaining balance paid at maturity, February 14, 2021. In addition, the secured credit facilities includecustomary mandatory prepayment requirements based on certain events, such as asset sales, debt issuances and defined levels of excess cash flow.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 one step-down to 0.375% based on our net first lien senior secured leverage ratio. We are also required to pay customaryagency fees, as well as letter of credit participation fees computed at a rate per annum equal to the applicable margin for LIBOR rate borrowings on the dollarequivalent of the daily stated amount of outstanding letters of credit, plus such letter of credit issuer’s customary documentary and processing fees andcharges and a fronting fee computed at a rate equal to 0.125% per annum on the daily stated amount of each letter of credit.The weighted average effective interest rate incurred on our borrowings under our secured credit facilities was 4.6% during Fiscal 2016, 4.6% duringFiscal 2015 and 4.8% for the 317 day period ended December 28, 2014, which includes amortization of debt issuance costs related to our secured creditfacilities, amortization of our term loan facility original issue discount, and commitment and other fees related to our secured credit facilities. The weightedaverage effective interest rate incurred on our borrowings under our Predecessor Facility for the 47 day period ended February 14, 2014 was 1.6%.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 subject to customary “breakage” costs with respect to LIBOR rate loans.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.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.43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 65.0% 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 NotesAlso 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 in 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 December 2, 2014 we completed an exchange offer whereby the original senior notes were exchanged for new notes (the “exchange notes”)which are identical to the initial senior notes except that the issuance of the exchange notes is registered under the Securities Act, the exchange notes do notbear legends restricting their transfer and they are not entitled to registration rights under our registration rights agreement. The exchange notes will evidencethe same debt as the initial notes, and both the initial senior notes and the exchange notes are governed by the same indenture. We refer to the senior notesand 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 “Bank indebtedness andother long-term debt,net of deferred financing costs, less current portion” on our Consolidated Balance Sheets. The deferred financing costs are beingamortized over the life of the senior notes to “Interest expense” on our Consolidated Statements of Earnings.The weighted average effective interest rate incurred on borrowings under our senior notes was 8.2% for the 2016 fiscal year, 8.3% for the 2015fiscal year and the 317 day period ended December 28, 2014, which included amortization of debt issuance costs and other fees related to our senior notes.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.Capital ExpendituresWe intend to continue to focus our future capital expenditures on reinvestment into our existing Company-operated Chuck E. Cheese’s and PPPvenues through various planned capital initiatives and the development or acquisition of additional Company-operated venues. During Fiscal 2016, wecompleted 275 game enhancements, five major remodels, and we opened two new domestic Company-operated Chuck E. Cheese’s venues and four newdomestic Company-operated PPP venues. We have funded and expect to continue to fund our capital expenditures through existing cash flows fromoperations. Capital expenditures in 2016 totaled approximately $99.1 million.44The following table reconciles the approximate total capital spend by initiative to our Consolidated Statements of Cash Flows for the periodspresented: Fiscal Year Ended Fiscal YearEnded For the 317Day PeriodEnded For the 47 DayPeriod Ended January 1, 2017 January 3, 2016 December 28,2014 February 14, 2014 Successor Predecessor Growth capital spend (1) $55,200 $35,482 $32,084 $5,102Maintenance capital spend (2) 33,838 29,267 27,608 4,608IT capital spend 10,058 13,087 4,995 —Total Capital Spend $99,096 $77,836 $64,687 $9,710__________________(1)Growth capital spend includes major remodels, venue expansions, major attractions and new venue development, including relocations and franchise acquisitions.(2)Maintenance capital spend includes game enhancements, general venue capital expenditures and corporate capital expenditures.We currently estimate our capital expenditures in 2017 will total approximately $100 million to $110 million, inclusive of maintenance capital,growth capital (including the completion of our PlayPass initiative and new venue growth) and IT related capital.45Off-Balance Sheet Arrangements and Contractual ObligationsAs of January 1, 2017, 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 January 1, 2017: Payments Due by Period Total Less than1 Year 1-3Years 4-5Years More than5 Years (in thousands)Operating leases (1)$977,103 $89,900 $173,858 $167,499 $545,846Capital leases28,307 2,116 4,370 4,417 17,404Purchase obligations (2)71,027 55,919 11,450 3,658 —Secured credit facilities739,100 7,600 13,300 718,200 —Senior notes255,000 — — — 255,000Note payable - Peter Piper Pizza13 13 — — —Interest obligations (3)235,726 51,349 93,456 80,721 10,200Sale leaseback obligations277,953 13,274 27,350 28,455 208,874Uncertain tax positions (4)324 324 — — —$2,584,553 $220,495 $323,784 $1,002,950 $1,037,324 __________________(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 Fiscal 2016 and assumes we willnot 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 (including accrued interestand penalties) has been provided in the table above. The non-current portion of $4.0 million is excluded from the table above.As of January 1, 2017, unpaid obligations related to capital expenditures totaling $1.7 million were outstanding and included in accounts payable.These amounts are expected to be paid in less than one year.The total estimate of accrued liabilities for our self-insurance programs was $15.8 million as of January 1, 2017. We estimate that $6.6 million ofthese liabilities will be paid in fiscal 2016 and the remainder paid in fiscal 2017 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 January 1, 2017, there were $9.9 million of letters of credit issued but undrawn under our revolving credit facility. We utilize standby letters ofcredit primarily for our self-insurance programs. These letters of credit do not represent additional obligations of the Company since the underlying liabilitiesare already recorded in accrued liabilities. However, if we were unable to pay insurance claims when due, our insurance carrier could make demand forpayment 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.”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 obligations included in the above table, we do not have any materialcontracts (either individually or in the aggregate) in place committing us to a minimum or fixed level of purchases or that are cancelable subject tosignificant penalty.46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 during thereporting 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. We continuallyevaluate the information used to make these estimates as our business and the economic environment change. Actual results could differ materially fromthese 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. Purchase price allocations can change in subsequent periods, up to one year from the dates of the acquisitions. DuringFiscal 2015 we made certain adjustments to the initial Peter Piper Pizza purchase price allocation related to the final settlement of net working capital, thevaluation of favorable and unfavorable lease interests, Peter Piper Pizza’s tradename, and the valuation of net operating losses acquired and other taxpositions, which resulted in a net increase to goodwill of $0.4 million. These adjustments did not result in material changes to our consolidated financialstatements.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 Fiscal 2016.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 flow projections and terminal value rates. Discount rates, growth rates and cash flow projections are the most sensitive andsusceptible to change as they require significant management judgment.47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.We tested our goodwill, trademarks, trade names and other indefinite-lived intangible assets for impairment as of October 1, 2016. The fair value ofour goodwill, trademarks, trade names and other indefinite-lived intangible assets was substantially in excess of the carrying value as of the date of our Fiscal2016 goodwill impairment test. No indicators of impairment were identified from the date of our impairment test through the end of Fiscal 2016.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 avenue-by-venue 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 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 venue’s property and equipment by discounting the expected future cash flows of the venue over itsremaining 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 venue’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 venue;•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 Fiscal 2016, the average discount rate, average sales growth rate and average cash flow margin rate used were 6.6%, 0.0% and 0.0%,respectively. We believe our assumptions in calculating the fair value of our long-lived assets are similar to those used by other marketplace participants. Ifactual results are not consistent with our estimates and assumptions, we may be exposed to additional impairment charges, which could be material to ourConsolidated Statements of Earnings.Accounting for Entertainment Game Play CreditsOur entertainment revenue includes sales from customer purchases of game play credits on PlayPass game cards which allow our customers to play the gamesin our venues. We recognize a liability for the estimated amount of unused game play credits, which we believe our customers will redeem or utilize in thefuture based on unused credits remaining on PlayPass cards, utilization patterns and revenue per game play credit sold. As of January 1, 2017, our totalestimate of unearned revenue for unused PlayPass game credits was $5.2 million.Estimation of ReservesThe liabilities we record for claims related to insurance and tax reserves requires us to make judgments about the amount of expenses that willultimately be incurred. We use historical experience, as well as other specific circumstances surrounding these contingencies, in evaluating the amount ofliability that should be recorded. As additional information becomes available, we assess the potential liability related to various claims and revise ourestimates 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 factors48deemed relevant by us, as well as information provided by independent third-party actuaries. To limit our exposure for certain losses, we purchase stop-loss orhigh-deductible insurance coverage through third-party insurers. Our stop-loss limit or deductibles for workers’ compensation, general liability, property, andcompany-sponsored employee health plans, generally range from $0.2 million to $0.5 million per occurrence. As of January 1, 2017, our total estimate ofaccrued liabilities for our self-insurance and high deductible plan programs was $15.8 million. We estimate $6.6 million of these liabilities will be paid infiscal 2017 and the remainder paid in fiscal 2018 and beyond. If actual claims trends or other factors differ from our estimates, our financial results could besignificantly 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 January 1, 2017, the reserve for uncertain tax positions(unrecognized tax benefits) was $3.1 million and the related interest and penalties was $1.2 million. Although we believe our approach is appropriate, therecan be no assurance that the final outcome resulting from a tax authority’s review will not be materially different than the amounts reflected in our estimatedtax provision and tax reserves. If the results of any audit materially differ from the liabilities we have established for taxes, there would be a correspondingimpact to our consolidated financial statements, including the liability for unrecognized tax benefits, current tax provision, effective tax rate, net after taxearnings and cash flows, in the period of resolution.Accounting for LeasesThe majority of our venues are leased. The terms of our venue leases vary in length from lease to lease, although a typical lease provides for aninitial primary 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 venue’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.49ITEM 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 under our Secured Credit Facilities. All of ourborrowings outstanding under the Secured Credit Facilities, $739.1 million as of January 1, 2017, accrue interest at variable rates. Assuming the revolvingcredit facility remains undrawn, each 1% change in assumed interest rates, excluding the impact of our 1% interest rate floor, would result in a $7.4 millionchange 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 Fiscal 2016, Fiscal 2015, the 317 day period ended December 28, 2014 and the 47 day periodended February 14, 2014, the average cost of a block of cheese was $1.76, $1.77, $2.21, and $2.43, respectively. The estimated increase in our food costsfrom a hypothetical 10% increase in the average cost of a block of cheese would have been $1.4 million, $1.3 million, $1.3 million, and $0.3 million forFiscal 2016, Fiscal 2015, the 317 day period ended December 28, 2014 and the 47 day period ended February 14, 2014, respectively. For Fiscal 2016, Fiscal2015, the 317 day period ended December 28, 2014, and the 47 day period ended February 14, 2014, the average cost of dough per pound was $0.45, $0.47,$0.43, and $0.50, respectively. The estimated increase in our food costs from a hypothetical 10% increase in the average cost of dough per pound would havebeen $0.2 million, $0.5 million, $0.4 million and $0.1 million for Fiscal 2016, Fiscal 2015, the 317 day period ended December 28, 2014 and the 47 dayperiod ended February 14, 2014, 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 12 Company-operated venues in Canada. For Fiscal 2016, our Canadian venues generated an operating loss of $1.4 million comparedto our consolidated operating income of $61.5 million.Changes in the currency exchange rate result in cumulative translation adjustments and are included in “Accumulated other comprehensive income(loss)” on our Consolidated Balance Sheets and potentially result in transaction gains or losses, which are included in our earnings. The low and highcurrency exchange rates for a Canadian dollar into a United States dollar for the fiscal year ended January 1, 2017 were $0.6847 and $0.7978, respectively. Ahypothetical 10% devaluation in the average quoted U.S. dollar-equivalent of the Canadian dollar exchange rate during Fiscal 2016 would have increasedour reported consolidated operating results by approximately $0.2 million.50ITEM 8. Financial Statements.REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the Board of Directors and Stockholder ofCEC Entertainment, Inc.Irving, TexasWe have audited the accompanying consolidated balance sheets of CEC Entertainment, Inc. and subsidiaries (the “Company”) as ofJanuary 1, 2017 and January 3, 2016 and the related consolidated statements of earnings, comprehensive income (loss), stockholders’equity, and cash flows for the fiscal years ended January 1, 2017 (Successor) and January 3, 2016 (Successor), the 317 day periodended December 28, 2014 (Successor), and the 47 day period ended February 14, 2014 (Predecessor). These financial statements arethe responsibility of the Company's management. Our responsibility is to express an opinion on the financial statements based on ouraudits.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 audits 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 January 1, 2017 and January 3, 2016, and the results of their operations and their cash flowsfor the fiscal years ended January 1, 2017 (Successor) and January 3, 2016 (Successor), the 317 day period ended December 28, 2014(Successor), and the 47 day period ended February 14, 2014 (Predecessor), in conformity with accounting principles generally acceptedin the United States of America./s/ Deloitte & Touche LLPDallas, TexasMarch 15, 201751CEC ENTERTAINMENT, INC.CONSOLIDATED BALANCE SHEETS(in thousands, except share information) SuccessorJanuary 1, 2017January 3, 2016ASSETSCurrent assets:Cash and cash equivalents$61,023$50,654Restricted cash 268 —Accounts receivable20,49525,936Inventories21,67723,275Prepaid expenses21,49818,223Total current assets124,961118,088Property and equipment, net592,886629,047Goodwill483,876483,876Intangible assets, net484,083488,095Other noncurrent assets24,30613,929Total assets$1,710,112$1,733,035LIABILITIES AND STOCKHOLDER’S EQUITY Current liabilities: Bank indebtedness and other long-term debt, current portion$7,613$7,650Capital lease obligations, current portion467421Accounts payable33,20244,090Accrued expenses40,09838,284Unearned revenues16,38110,233Accrued interest8,1559,757Other current liabilities4,2753,678Total current liabilities110,191114,113Capital lease obligations, less current portion13,60215,044Bank indebtedness and other long-term debt, net of deferred financing costs, less current portion968,266971,333Deferred tax liability186,290201,734Accrued insurance9,1839,737Other noncurrent liabilities216,575212,528Total liabilities1,504,1071,524,489Stockholder’s equity: Common stock, $0.01 par value; authorized 1,000 shares; 200 shares issued as of January 1, 2017 andJanuary 3, 2016——Capital in excess of par value357,166356,460Accumulated deficit(148,265)(144,598)Accumulated other comprehensive loss(2,896)(3,316)Total stockholder’s equity206,005208,546Total liabilities and stockholder’s equity$1,710,112$1,733,035The accompanying notes are an integral part of these Consolidated Financial Statements.52CEC ENTERTAINMENT, INCCONSOLIDATED STATEMENTS OF EARNINGS(in thousands) Successor PredecessorFiscal Year EndedFiscal Year EndedFor the 317 DayPeriod Ended For the 47 DayPeriod EndedJanuary 1, 2017January 3, 2016December 28, 2014 February 14, 2014REVENUES: Food and beverage sales$415,059$408,095$307,696 $50,897Entertainment and merchandise sales490,255497,015404,402 62,659Total company venue sales905,314905,110712,098 113,556Franchise fees and royalties18,33917,4796,483 687Total revenues923,653922,589718,581 114,243OPERATING COSTS AND EXPENSES: Company venue operating costs: Cost of food and beverage (exclusive of items shown separatelybelow)104,315104,43479,996 12,285Cost of entertainment and merchandise (exclusive of itemsshown separately below)32,01431,51924,608 3,729Total cost of food, beverage, entertainment andmerchandise136,329135,953104,604 16,014Labor expenses251,426250,584200,855 31,998Depreciation and amortization113,316115,236115,951 9,733Rent expense96,00696,66976,698 12,365Other venue operating expenses148,869143,078119,896 15,760Total company venue operating costs745,946741,520618,004 85,870Other costs and expenses: Advertising expense46,14247,14633,702 5,903General and administrative expenses67,26466,00348,182 7,963Transaction, severance and related litigation costs1,29911,91450,545 11,634Asset impairments1,550875407 —Total operating costs and expenses862,201867,458750,840 111,370Operating income (loss)61,45255,131(32,259) 2,873Interest expense67,74570,58260,952 1,151Income (loss) before income taxes(6,293)(15,451)(93,211) 1,722Income tax (benefit) expense(2,626)(2,941)(31,123) 1,018Net income (loss)$(3,667)$(12,510)$(62,088) $704The accompanying notes are an integral part of these Consolidated Financial Statements.53CEC ENTERTAINMENT, INC.CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)(in thousands) Successor Predecessor Fiscal Year Ended Fiscal Year Ended For the 317 DayPeriod Ended For the 47 Day PeriodEnded January 1, 2017 January 3, 2016 December 28, 2014 February 14, 2014Net income (loss) $(3,667) $(12,510) $(62,088) $704Components of other comprehensive income (loss), net of tax: Foreign currency translation adjustments 420 (2,403) (913) (541)Comprehensive income (loss) $(3,247) $(14,913) $(63,001) $163The accompanying notes are an integral part of these Consolidated Financial Statements.54CEC ENTERTAINMENT, INC.CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY(in thousands, except share amounts) Common Stock Capital InExcess ofPar Value RetainedEarnings(Deficit) AccumulatedOtherComprehensiveIncome (Loss) Treasury Stock Shares Amount Shares Amount Total (in thousands, except share information)Predecessor: Balance at December 29, 201361,865,495 6,187 453,702 853,464 4,764 44,341,225 (1,157,349) 160,768Net income— — — 704 — — — 704Other comprehensive loss— — — — (541) — — (541)Stock-based compensation costs— — 12,225 — — — — 12,225Restricted stock issued, net offorfeitures13,792 1 (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 $4,223 44,341,225 $(1,157,349) $173,016Successor: Equity contribution200 — 350,000 — — — — 350,000Net loss— — — (62,088) — — — (62,088)Other comprehensive loss— — — — (913) — — (913)Stock-based compensation costs— — 713 — — — — 713Tax benefit from restricted stock,net (1)— — 4,874 — — — — 4,874Balance at December 28, 2014200 $— $355,587 $(62,088) $(913) — $— $292,586Net loss— — — (12,510) — — — (12,510)Other comprehensive loss— — — — (2,403) — — (2,403)Stock-based compensation costs— — 855 — — — — 855Tax benefit from restricted stock,net— — 18 — — — — 18Dividends paid— — — (70,000) — — — (70,000)Balance at January 3, 2016200 $— $356,460 $(144,598) $(3,316) — $— $208,546Net loss— $— $— $(3,667) $— — $— $(3,667)Other comprehensive income— $— $— $— $420 — $— $420Stock-based compensation costs— $— $702 $— $— — $— $702Tax benefit recognized from stock-based compensation awards— $— $4 $— $— — $— $4Balance at January 1, 2017200 $— $357,166 $(148,265) $(2,896) — $— $206,005 __________________(1)We recorded the tax benefit related to the accelerated vesting of restricted stock awards in the 317 day period ended December 28, 2014, the period the related expense isdeductible for income tax purposes.The accompanying notes are an integral part of these Consolidated Financial Statements.55CEC ENTERTAINMENT, INC.CONSOLIDATED STATEMENTS OF CASH FLOWS, CONT'D(in thousands)CEC ENTERTAINMENT, INC.CONSOLIDATED STATEMENTS OF CASH FLOWS(in thousands) Successor Predecessor Fiscal Year Ended Fiscal Year Ended For the 317 DayPeriod Ended For the 47 DayPeriod EndedJanuary 1, 2017 January 3, 2016 December 28, 2014 February 14, 2014CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss)$(3,667) $(12,510) $(62,088) $704Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization119,569 119,294 118,556 9,883Deferred income taxes(15,521) (16,748) (62,554) (1,785)Stock-based compensation expense689 838 703 12,225Amortization of lease-related liabilities(448) 87 428 (356)Amortization of original issue discount and deferred financing costs4,546 4,634 3,962 58Loss on asset disposals, net8,520 7,729 7,649 294Asset impairments1,550 875 407 — Non-cash rent expenses6,873 8,218 7,037 (916)Other adjustments(70) (951) 1,195 144Changes in operating assets and liabilities: Restricted cash(268) — — —Accounts receivable2,657 (4,478) (3,046) 1,503Inventories(3,413) (2,012) 1,418 (2,472)Prepaid expenses(4,012) 57 213 2,656Accounts payable(7,601) (2,948) 8,558 (270)Accrued expenses1,733 659 1,754 (2,403)Unearned revenues5,167 1,339 2,360 349Accrued interest(1,454) (7,175) 15,712 152Income taxes payable2,169 451 2,134 2,898Deferred landlord contributions1,668 3,254 3,693 (350)Net cash provided by operating activities118,687 100,613 48,091 22,314CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of Predecessor— — (946,898) —Acquisition of Peter Piper Pizza— (663) (113,142) —Purchases of property and equipment(88,680) (73,034) (61,028) (9,710)Acquisition of franchisee— — (1,529) —Development of internal use software(10,455) (4,802) (2,130) —Proceeds from sale of property and equipment696 308 442 51Net cash used in investing activities(98,439) (78,191) (1,124,285) (9,659)CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from secured credit facilities, net of original issue discount— — 756,200 —Proceeds from senior notes— — 255,000 —Repayment of Predecessor Facility— — (348,000) —Repayments on senior term loan(7,600) (9,500) (3,807) —Repayments on note payable(50) (49) — —Net repayments on revolving credit facility— — — (13,500)Proceeds from sale leaseback transaction— — 183,685 —Payment of debt financing costs— — (27,575) —Payments on capital lease obligations(421) (405) (297) (164)Payments on sale leaseback obligations(2,028) (1,663) (742) —Dividends paid— (70,000) (890) (38)Excess tax benefit realized from stock-based compensation4 18 4,874 —Restricted stock returned for payment of taxes— — — (142)56CEC ENTERTAINMENT, INC.CONSOLIDATED STATEMENTS OF CASH FLOWS, CONT'D(in thousands)Equity contribution—— 350,000 —Net cash provided by (used in) financing activities(10,095)(81,599) 1,168,448 (13,844)Effect of foreign exchange rate changes on cash216(1,163) (444) (313)Change in cash and cash equivalents10,369(60,340) 91,810 (1,502)Cash and cash equivalents at beginning of period50,654110,994 19,184 20,686Cash and cash equivalents at end of period$61,023$50,654 $110,994 $19,184 January 1, 2017 January 3, 2016 December 28, 2014 February 14, 2014SUPPLEMENTAL CASH FLOW INFORMATION: Interest paid (1)$64,614$73,255 $41,801 $938Income taxes paid (refunded), net$10,728$13,346 $24,424 $(79)NON-CASH INVESTING AND FINANCING ACTIVITIES: Accrued construction costs$1,651$1,270 $2,361 $3,605Dividends payable$—$— $— $890Capital lease obligations$—$— $657 $— __________________(1)The 317 day period ended December 28, 2014 includes $4.9 million of debt issuance costs and interest expense related to the bridge loan. See Note 10. “Indebtedness andInterest Expense” for further discussion of the bridge loan.The accompanying notes are an integral part of these Consolidated Financial Statements.57CEC 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 “venues”) in a total of 47 states and 12 foreign countries and territories. As of January 1,2017 we and our franchisees operated a total of 747 venues, of which 559 were Company-operated venues located in 44 states and Canada. Our franchiseesoperated a total of 188 venues located in 16 states and 11 foreign countries and territories, including Chile, Colombia, Guam, Guatemala, Mexico, Panama,Peru, Puerto Rico, Saudi Arabia, Trinidad & Tobago, and the United Arab Emirates. The use of the terms “CEC Entertainment,” “we,” “us” and “our”throughout these Notes to Consolidated Financial Statements refer to the Company.All of our venues utilize a consistent restaurant-entertainment format that features both family dining and entertainment areas with the same 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 venues. Therefore, we aggregate each venue’s operating performance into one reportable segmentfor financial 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 (asdefined below) reflect a new 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 the assets and liabilities acquired was prepared by a third party and is based on actual tangible and identifiable intangible assets and liabilitiesthat existed as of the effective time of the Merger. See further discussion of the acquisition in Note 2. “Acquisition of CEC Entertainment, Inc.”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.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.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.We eliminate the intercompany portion of transactions with VIE’s from our financial results.58Table 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 13. “Sale Leaseback Transaction,” to a newly formed special purpose entity, a VIE, created by a QualifiedIntermediary to facilitate a like-kind exchange pursuant to Internal Revenue Code Section 1031. The assignment resulted in $12.1 million of the salesproceeds from the transaction being received by the VIE. We included the VIE in our Consolidated Financial Statements for the 317 day period endedDecember 28, 2014. In February 2015, we acquired the VIE, along with its capital improvements and remaining cash balance. The assets, liabilities andoperating results of the acquired 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 venues 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.Because the Association Funds are required to be segregated and used for specified purposes, we do not reflect franchisee contributions to theAssociation Funds as revenue, but rather record franchisee contributions as an offset to reported advertising expenses. Our contributions to the AssociationFunds are eliminated in consolidation. Contributions to the advertising, entertainment and media funds from our franchisees were $2.2 million, $2.1 million,$2.0 million and $0.4 million for the fiscal year ended January 1, 2017, January 3, 2016, the 317 day period ended December 28, 2014 and the 47 day periodended February 14, 2014, respectively. Cash balances held by the Association are restricted for use in our advertising, entertainment and media programs, andare recorded as “Restricted cash” on our Consolidated Balance Sheets.Fiscal Year: We operate on a 52 or 53 week fiscal year that ends on the Sunday nearest to December 31. Each quarterly period has 13 weeks, exceptfor a 53 week year when the fourth quarter has 14 weeks. Fiscal 2015 consisted of 53 weeks, whereas Fiscal 2016 and combined Successor and Predecessor2014 periods each consisted of 52 weeks.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:59Table 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 avenue-by-venue basis, to assess if the carrying amount may not be recoverable. Potential indicators of impairment may include a significant change in thebusiness climate in a particular market area (for example, due to economic downturn or natural disaster), historical negative cash flows or plans to dispose ofor sell the property and equipment before the end of its previously estimated useful life. If an event or change in circumstances occurs, we estimate the futurecash flows expected to result from the use of the property and equipment and its eventual disposition. If the sum of the expected future cash flows,undiscounted and without interest, is less than the asset carrying amount (an indication that the carrying amount may not be recoverable), we may be requiredto recognize an impairment loss. We estimate the fair value of a venue’s property and equipment by discounting the expected future cash flows of the venueover its remaining lease term using a weighted average cost of capital commensurate with the risk. Any impairment loss recognized equals the amount bywhich the asset carrying amount exceeds its estimated fair value. In the event an asset is impaired, its carrying value is adjusted to the estimated fair value,and any subsequent increases in fair value are not recorded. Additionally, if it is determined that the estimated remaining useful life of the asset should bedecreased, any periodic depreciation and amortization expense is adjusted based on the new carrying value of the asset unless the asset is written down tosalvage value, at which time depreciation or amortization ceases. In Fiscal 2016, Fiscal 2015, and the 317 day period ended December 28, 2014, werecognized asset impairment charges of $1.6 million, $0.9 million, and $0.4 million, respectively. There were no impairment charges recognized in the 47day period ended February 14, 2014.Development of Internal Use Software: We capitalize our internal and external costs that are directly attributable to the development, testing andvalidation of internal use software, such as our enterprise resource planning (ERP) system and corporate and venue related IT system initiatives. Capitalizedinternal development costs include the compensation, benefits and various office costs primarily related to our IT department. The capitalization of costsrelated to a software development project ceases once the software is ready for its intended use and the asset is amortized according to our amortizationpolicies. In Fiscal 2016, Fiscal 2015, the 317 day period ended December 28, 2014 , we capitalized costs of $10.5 million, $4.8 million and $2.1 million,respectively, related to the development of internal use software. We did not capitalize any costs related to the development of internal use software in the 47day period ended February 14, 2014.Capitalized Venue Development Costs: We capitalize our internal department costs that are directly attributable to venue development projects,such as the design and construction of a new venue and the remodeling and expansion of our existing venues. Capitalized internal department costs includecertain compensation, benefits and office costs related to our design, construction, facilities and legal departments. We also capitalize interest costs inconjunction with the construction of new venues. Venue development costs are initially accumulated in our construction in progress account until a projectis completed. At the time of completion, the costs accumulated to date are then reclassified to property and equipment and depreciated according to ourdepreciation policies. In Fiscal 2016, Fiscal 2015, the 317 day period ended December 28, 2014 and the 47 day period ended February 14, 2014, wecapitalized internal costs of $3.4 million, $3.9 million, $2.9 million, and $0.4 million, respectively, related to our venue development activities.Business Combinations: We allocate the purchase price of an acquisition to the tangible and intangible assets acquired and liabilities 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.60Table of ContentsNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)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.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: (i) a discounted cash flow modelincorporating discount rates commensurate with the risks involved, which is classified as a Level 3 fair value measurement, and (ii) a market approach basedupon public trading and recent transaction valuation multiples for similar companies. The key assumptions used in the discounted cash flow valuation modelinclude discount rates, growth rates, tax rates, cash flow projections and terminal value rates. Discount rates, growth rates and cash flow projections are themost 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 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 expect to receive to sell an asset or pay to transfer a liability (an exit price)in an orderly transaction between market participants on the measurement date. In determining fair value, GAAP establishes a three-level hierarchy used 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.61Table of ContentsNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)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 venue overits expected 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 11. “Fair Value of Financial Instruments” for ourfair value disclosures.Self-Insurance Accruals: We are self-insured up to certain limits for certain losses related to workers’ compensation, general liability, property andour Company sponsored employee health insurance programs. We estimate the accrued liabilities for all risk retained by the Company at the end of eachreporting period. This estimate is primarily based on historical claims experience and loss reserves, calculated with the assistance of an independent third-party actuary. To limit our exposure to losses, we purchase stop-loss or high-deductible insurance coverage through third-party insurers for certain lossesrelated to workers’ compensation, property and employee health insurance programs. Our deductibles generally range from $0.2 million to $0.5 million peroccurrence. For claims that exceed the deductible amount, we record a gross liability and a corresponding receivable representing expected recoveriespursuant to the stop-loss coverage, since we are not legally relieved of our obligation to the claimant.Contingent Loss Accruals: When a contingency involving uncertainty as to a possible loss occurs, an estimate of the loss may be accrued as 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 (loss)” on ourConsolidated Statements of Changes in Stockholder’s Equity and in our Consolidated Statements of Comprehensive Income (Loss). The effect of foreigncurrency exchange rate changes on cash is reported in our Consolidated Statements of Cash Flows as a separate component of the change in cash and cashequivalents during the period.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 Venue Activities: Food, beverage and merchandise revenues are recognized when sold. Game revenues arerecognized as game-play tokens and game play credits on game cards are used by guests. We accrue unearned revenue as a liability for the estimated amountof unused tickets, tokens and game play credits that may be redeemed or used in the future. We allocate the revenue recognized from the sale of value-pricedcombination packages, which generally are comprised of food, beverage and game credits (and in some instances, merchandise), between “Food and beveragesales” and “Entertainment and merchandise sales” based upon the price charged for each component when it is sold separately, or in limited circumstancesour best estimate of selling price if a component is not sold on a stand-alone basis, which we believe approximates each component’s fair value.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.62Table of ContentsNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)Our entertainment revenue includes sales from customer purchases of game play credits on PlayPass game cards which allow our customers to playthe games in our venues. We recognize a liability for the estimated amount of unused game play credits, which we believe our customers will redeem orutilize in the future based on credits remaining on PlayPass cards and utilization patterns. Our total estimate of unearned revenue for unused PlayPass creditsas of January 1, 2017 and January 3, 2016 was $5.2 million and $0.9 million, respectively, and is included in “Unearned revenues” in our ConsolidatedBalance Sheets.We sell gift cards to our customers in our venues and through certain third-party distributors, which do not expire and do not incur a service fee onunused balances. Gift card sales are recorded as deferred revenue when sold and are recognized as revenue when: (a) the gift card is redeemed by the guest or(b) the likelihood of the gift card being redeemed by the guest is remote (“gift card breakage”) and we determine that we do not have a legal obligation toremit the value of the unredeemed gift card under applicable state unclaimed property escheat statutes. Gift card breakage is determined based upon historicalredemption patterns of our gift cards.Revenue Recognition – Franchise Fees and Royalties: Revenues from franchise activities include area development and initial franchise feesreceived from franchisees to establish new venues, and once a venue is opened, a franchisee is charged monthly royalties based on a percentage of franchisedvenues’ sales. These fees are collectively referred to as “Franchise fees and royalties” in our Consolidated Statements of Earnings. Area development andinitial franchise fees are recorded as unearned franchise revenue when received and recognized as revenue when we have fulfilled all significant obligationsto the franchisee, which is generally when the franchised venues associated with the fees open. Continuing royalties and other miscellaneous sales and feesare recognized in the period earned. Continuing royalties and other miscellaneous sales and fees of $17.4 million, $16.9 million, $5.8 million, and $0.6million for Fiscal 2016, Fiscal 2015, the 317 day period ended December 28, 2014, and the 47 day period ended February 14, 2014, 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 venue personnel anddepreciation and amortization expense, which are disclosed separately.Vendor Rebates: We receive rebate payments from certain third-party vendors. Pursuant to the terms of volume purchasing and promotionalagreements entered into with the vendors, rebates are primarily provided based on the quantity of the vendors’ products we purchase over the term of theagreement. We record these allowances in the period they are earned as a reduction in the cost of the vendors’ products, and when the related inventory issold, 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 administer all the national advertising programs that benefit bothus and our franchisees. Because the contributed funds are required to be segregated and used for specified purposes, we do not reflect franchisee contributionsas revenue, but rather record franchisee contributions as an offset to reported advertising expenses. Our advertising contributions for Chuck E. Cheese’sfranchise venues are paid to the Association and are eliminated in consolidation. Advertising contributions from our franchisees were $2.2 million in Fiscal2016, $2.1 million in Fiscal 2015, $2.0 million for the 317 day period ended December 28, 2014, and $0.4 million for the 47 day period ended February 14,2014.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 the63Table of ContentsNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)financial statement carrying amounts of assets and liabilities and their respective tax basis. A valuation allowance is applied against net deferred tax assets if,based on the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. Deferred income taxes arenot provided on undistributed income from our Canadian 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 noncurrent accrued interest and penalties in “Other noncurrent liabilities.”Recently Issued Accounting Guidance:Accounting Guidance Adopted:In November 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2015-17, Income Taxes(Topic 740): Balance Sheet Classification of Deferred Taxes. This amendment requires that deferred tax assets (DTAs) and deferred tax liabilities (DTLs) bepresented as noncurrent in a classified balance sheet. This amendment is effective for fiscal years beginning after December 15, 2017, and interim periodswithin annual periods beginning after December 15, 2018. Earlier adoption is permitted for financial statements that have not been previously issued. Weearly adopted this amendment for the January 3, 2016 financial statements.Accounting Guidance Not Yet Adopted:In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). This new standard introduces a new lease model that requires the recognitionof lease assets and lease liabilities on the balance sheet and the disclosure of key information about leasing arrangements. While this new standard retainsmost of the principles of the existing lessor model under U.S. GAAP, it aligns many of those principles with ASC 606: Revenue from Contracts withCustomers. The new guidance will be effective for public business entities for annual and interim periods beginning after December 15, 2018 (i.e., calendarperiods beginning on January 1, 2019). Early adoption will be permitted for all entities. We are currently evaluating the impact of the adoption of thisguidance on our consolidated financial statements, but we expect this will have a material effect on our balance sheet since the Company has a significantamount of operating and capital lease arrangements.In March 2016, the FASB issued ASU 2016-04, Liabilities—Extinguishments of Liabilities (Subtopic 405-20). This amendment provides a narrowscope exception to Liabilities—Extinguishment of Liabilities (Subtopic 405-20) that requires breakage for those liabilities to be accounted for in accordancewith the breakage guidance in Revenue From Contracts With Customers (Topic 606). There is currently no guidance in GAAP, or pending guidance,regarding the derecognition of prepaid stored-value product liabilities within the scope of the amendments in this update. Under the new guidance, if anentity expects to be entitled to a breakage amount for a liability resulting from the sale of a prepaid stored-value product, the entity shall derecognize theamount related to the expected breakage in proportion to the pattern of rights expected to be exercised by the product holder only to the extent that it isprobable that a significant reversal of the recognized breakage amount will not subsequently occur. If an entity does not expect to be entitled to a breakageamount for a prepaid stored-value product, the entity shall derecognize the amount related to the breakage when the likelihood of the product holderexercising its remaining rights becomes remote. This change to an entity's estimated breakage amount shall be accounted for as a change in accountingestimate. The amendments in this update are effective for the Company for financial statements issued for fiscal years beginning after December 15, 2017.Early adoption is permitted, including adoption in an interim period. We do not expect the adoption of this amendment to have a significant impact on ourConsolidated Financial Statements.In March 2016, the FASB issued ASU 2016-09, Compensation—Stock Compensation (Topic 718) . This amendment will require that (i) all excesstax benefits and deficiencies (including tax benefits of dividends on share-based payment awards) be recognized as income tax expense or benefit on theincome statement, (ii) the tax effects of exercised or vested awards be treated as discrete items in the reporting period in which they occur, and (iii) an entityrecognize excess tax benefits regardless64Table of ContentsNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)of whether the benefit reduces taxes payable in the current period or not. On the statement of cash flows excess tax benefits should be classified along withother income tax cash flows as an operating activity. This amendment allows an entity to make an entity-wide accounting policy election to either estimatethe number of awards that are expected to vest (current GAAP) or account for forfeitures when they occur. The threshold for an award to qualify for equityclassification permits withholding up to the maximum statutory tax rate in applicable jurisdictions, and the cash paid by an employer when directlywithholding shares for tax-withholding purposes should be classified as a financing activity on the statement of cash flows. Nonpublic entities can make anaccounting policy election to apply a practical expedient to estimate the expected term for all awards with performance or service conditions that meetcertain conditions. For the Company, the amendments in this update are effective for annual periods beginning after December 15, 2016 and interim periodswithin those annual periods. We do not expect the adoption of this amendment to have a significant impact on our Consolidated Financial Statements.In April 2016, the FASB issued ASU 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations andLicensing. This amendment updates the revenue guidance on identifying performance obligations and accounting for licenses of intellectual property,changing the FASB's previous proposals on right-of-use licenses and contractual restrictions. For an entity that licenses intellectual property, the amount ortiming of revenue recognition and the timing and pattern of revenue recognition for intellectual property licenses, including the application of the sale- andusage-based royalties exception, may be significantly different from current practice. Additionally, an entity will need to evaluate which contractualrestrictions are attributes of a license and which give rise to separate performance obligations. This amendment is effective for annual reporting periodsbeginning after December 15, 2017 and for interim periods therein. Early application is permitted, but only as of annual reporting periods beginning afterDecember 15, 2016, including interim reporting periods therein. We do not believe this amendment will materially impact our recognition of revenue fromcompany-operated venue sales or our recognition of continuing royalty revenues from franchisees, which are based on a percentage of franchise sales. We arecontinuing to evaluate the impact the adoption of this guidance will have on our business, including the recognition of revenue from the licensing of theChuck E. Cheese's brand name to cheese products, the recognition of transactions such as franchise area development fees, and initial fees from franchisees, aswell as the accounting for our national advertising funds under the Association Funds.In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on FinancialInstruments. This amendment changes the impairment model for most financial assets and certain other instruments. For trade and other receivables, held-to-maturity debt securities, loans and other instruments, entities will be required to use a new forward-looking “expected loss” model that generally will result inthe earlier recognition of allowances for losses. The amendments in this update are effective for the Company for fiscal years beginning after December 15,2020, including interim periods within those fiscal years. Entities may early adopt the amendments in this update as of the fiscal years beginning afterDecember 15, 2018, including interim periods within those fiscal years. We do not expect the adoption of this amendment to have a significant impact on ourConsolidated Financial Statements.In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230). This amendment reduces diversity in practice in how certaintransactions are classified in the statement of cash flows. Current GAAP either is unclear or does not include specific guidance on eight cash flowclassification issues addressed in this amendment, including (i) debt prepayment or debt extinguishment costs; (ii) proceeds from the settlement of insuranceclaims; (iii) separately identifiable cash flows and application of the predominance principle; and (iv) contingent consideration payments made after abusiness combination. This amendment is effective for the Company for fiscal years beginning after December 15, 2017, and interim periods within thosefiscal years. Early adoption is permitted, including adoption in an interim period. We do not expect the adoption of this amendment to have a significantimpact on our Consolidated Financial Statements.In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash. This amendment requires that astatement of cash flows explain the change during the period in the total of cash, cash equivalents and amounts generally described as restricted cash orrestricted cash equivalents. Amounts generally described as restricted cash and restricted cash equivalents will therefore be included with cash and cashequivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. This amendment is effective forfiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. Early adoption is permitted,including adoption in an interim period. We do not expect the adoption of this amendment to have a significant impact on our Consolidated FinancialStatements.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 accepted65Table of ContentsNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)all such tendered 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, Parent completed its acquisition of the Companythrough the Merger. At the effective time of the Merger, each share of common stock issued and outstanding immediately prior thereto, other than commonstock owned or held (a) in treasury by the Company or any wholly-owned subsidiary of the Company; (b) by Parent or any of its subsidiaries; or (c) bystockholders who validly exercised their appraisal rights, was canceled and converted into the right to receive the Offer Price in cash, without interest andsubject 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 bridge loan facility, which were later repaid using the proceeds from our issuance of $255.0million of our 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. See discussion of the bridge loan facility, senior notes, term loan facility andrevolving credit facility in Note 10. “Indebtedness and Interest Expense.”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 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 Buildings under capital lease15,530 Favorable lease agreements14,000 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 January 1, 2017, $2.1 millionof our goodwill, including goodwill resulting from the franchisee acquired in the second quarter of 2014, will be deductible for federal income tax purposes.66Table of ContentsNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)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, severance and related litigation costs” in our Consolidated Statements of Earnings for the 317day period ended December 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 assume that the Merger had occurredon December 30, 2013, the first day in fiscal year 2014, after giving effect to acquisition accounting adjustments relating to depreciation and amortization ofthe revalued assets, interest expense associated with the term loan facility, revolving credit facility and senior notes (see Note 10. “Indebtedness and InterestExpense”), and other acquisition-related adjustments in connection with the Merger. These unaudited pro forma results exclude one-time, non-recurring costsrelated to the Merger, including transaction costs, accelerated share-based compensation expense, executive termination benefits related to the departure ofour former Executive Chairman and our former President and Chief Executive Officer and financing costs related to the bridge loan facility (see Note 10.“Indebtedness and Interest Expense”). This unaudited pro forma information should not be relied upon as necessarily being indicative of the historical resultsthat would have been obtained 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 (in thousands)Total revenues $832,824Net loss $(22,937)Note 3. Acquisition of Peter Piper Pizza:In October 2014, the Company acquired Peter Piper Pizza (“PPP”), a leading pizza and entertainment restaurant chain operating in the southwesternUnited States and Mexico, for aggregate consideration paid of $113.1 million, net of cash acquired (the “PPP Acquisition”). During Fiscal 2015, theCompany made certain adjustments to the initial PPP purchase price allocation related to the final settlement of net working capital, the valuation offavorable and unfavorable lease interests and PPP’s tradename, and the valuation of net operating losses acquired and other tax positions that resulted in a netincrease to goodwill of $0.4 million.The following table summarizes the final allocation of the purchase price to the estimated fair values of assets acquired and liabilities assumed at thedate of the acquisition, as well as adjustments made during the measurement period (in thousands):67Table of ContentsNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) PPP PreliminaryPurchase PriceAllocation Measurement PeriodAdjustments PPP Final PurchasePrice AllocationCash consideration paid$118,409 $663 $119,072 Fair value of assets acquired and liabilities assumed: Cash and cash equivalents5,267 — 5,267 Accounts receivable511 — 511 Inventories820 — 820 Other current assets598 — 598 Property, plant and equipment14,383 — 14,383 Favorable lease interests2,000 (1,120) 880 Peter Piper Pizza's tradename24,800 1,900 26,700 Franchise agreements39,300 — 39,300 Other non-current assets154 — 154 Indebtedness(120) — (120) Unfavorable lease interests(3,290) (580) (3,870) Deferred taxes(12,935) 31 (12,904) Other current and non-current liabilities(4,061) — (4,061)Net assets acquired67,427 231 67,658Excess purchase price allocated to goodwill$50,982 $432 $51,414The measurement period adjustments did not have a significant impact on our Consolidated Statements of Earnings for Fiscal 2015. In addition,these adjustments did not have a significant impact on our Consolidated Balance Sheet as of January 1, 2017. Therefore, we have not retrospectively adjustedthis financial information.As of January 1, 2017, $0.3 million of the goodwill from the PPP Acquisition will be deductible for federal income tax purposes.Pro Forma Financial InformationThe following unaudited pro forma results of operations for the twelve months ended December 28, 2014 assume that the PPP Acquisition hadoccurred on December 30, 2013, the first day in fiscal year 2014, after giving effect to acquisition accounting adjustments relating to depreciation andamortization of the revalued assets and the identifiable intangible assets resulting from the PPP Acquisition, interest expense associated with the debt paid offin connection with the PPP Acquisition, and other purchase price and transaction-related adjustments in connection with the PPP Acquisition. Theseunaudited pro forma results are presented for informational purposes only and are not indicative of the results of operations that would have been achieved ifthe Peter Piper Pizza acquisition had taken place at the beginning of the earliest period presented, and exclude one-time, non-recurring costs related to thePPP Acquisition, including transaction costs and executive termination benefits and share-based compensation expense related to the departure of certainPeter Piper Pizza executives. Such pro forma financial information is based on the historical financial statements of Peter Piper Pizza. The pro forma financialinformation presented below also assumes that the Merger had occurred on December 30, 2013 (see Note 2. “Acquisition of CEC Entertainment, Inc.”). Theunaudited pro forma financial information presented below does not reflect any synergies or operating cost reductions that may be achieved. Twelve MonthsEnded December 28, 2014 (in thousands)Total revenues $887,018Net income (loss) $(17,199)Note 4. Accounts Receivable:68Table of ContentsNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)Accounts receivable consisted of the following at the dates presented: Successor January 1, 2017 January 3, 2016 (in thousands)Trade receivables$7,963 $11,106Vendor rebates7,504 7,820Income taxes receivable568 2,896Other accounts receivable4,460 4,114Total Accounts receivable$20,495 $25,936Trade receivables consist primarily of debit and credit card receivables due from third-party financial institutions. The other accounts receivablebalance consists primarily of lease incentives, 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 January 1, 2017 January 3, 2016 (in thousands)Food and beverage$5,347 $4,524Entertainment and merchandise16,330 18,751Inventories$21,677 $23,275Food 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.69Table of ContentsNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)Note 6. Property and Equipment: Successor January 1, 2017 January 3, 2016 (in thousands)Land$50,135 $50,135Buildings54,808 52,637Leasehold improvements435,691 417,174Game and ride equipment212,049 186,602Furniture, fixtures and other equipment134,216 116,418Buildings leased under capital leases15,062 16,109 901,961 839,075Less accumulated depreciation and amortization(328,369) (224,124)Net property and equipment in service573,592 614,951Construction in progress19,294 14,096Property and equipment, net$592,886 $629,047Buildings leased under capital leases consists of buildings for our venues. Accumulated amortization related to these assets was $2.9 million and$2.0 million as of January 1, 2017 and January 3, 2016, respectively. Amortization of assets under capital leases is included in “Depreciation andamortization” in our Consolidated Statements of Earnings.Total depreciation and amortization expense was $119.6 million, $119.3 million, $118.6 million, and $9.9 million for Fiscal 2016, Fiscal 2015, the317 day period ended December 28, 2014, and the 47 day period ended February 14, 2014, respectively, of which, $6.3 million, $4.1 million, $2.7 million,and $0.2 million, respectively, was included in “General and administrative expenses” in our Consolidated Statements of Earnings.Asset ImpairmentsDuring Fiscal 2016, we recognized an asset impairment charge of $1.6 million primarily related to five venues. During Fiscal 2015, we recognizedan asset impairment charge of $0.9 million primarily related to four venues. We closed two of the venues impaired in Fiscal 2015. These impairment chargeswere the result of a decline in the venues’ financial performance, primarily related to various economic factors in the markets in which the venues are located.As of January 1, 2017, the aggregate carrying value of the property and equipment at impaired venues, after the impairment charges, was $0.9 million forvenues impaired in 2016.Note 7. Goodwill and Intangible Assets, Net:The following table presents changes in the carrying value of goodwill for the periods ended January 1, 2017 and January 3, 2016: Successor January 1, 2017 January 3, 2016 (in thousands)Balance at beginning of period$483,876 $483,444 Goodwill assigned in acquisition of Peter Piper Pizza (1)— 432Balance at end of period$483,876 $483,876__________________(1)During Fiscal 2015, we recorded certain adjustments to the initial PPP purchase price allocation related to the final settlement of net working capital, the valuation offavorable and unfavorable lease interests, the valuation of PPP’s tradename and the valuation of net operating losses acquired and other tax positions that resulted in a netincrease to goodwill of $0.4 million. See Note 3 “Acquisition of Peter Piper Pizza” for a discussion of the measurement period adjustments.70Table of ContentsNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)The following table presents our indefinite and definite-lived intangible assets at January 1, 2017 and January 3, 2016: Successor January 1, 2017 January 3, 2016 WeightedAverage Life(Years) GrossCarryingAmount AccumulatedAmortization Net CarryingAmount GrossCarryingAmount AccumulatedAmortization Net CarryingAmount (in thousands)Chuck E. Cheese's tradenameIndefinite $400,000 $— $400,000 $400,000 $— $400,000Peter Piper Pizza tradenameIndefinite 26,700 — 26,700 26,700 — 26,700Favorable lease agreements (1) 10 14,880 (5,649) 9,231 14,880 (3,686) 11,194Franchise agreements25 53,300 (5,148) 48,152 53,300 (3,099) 50,201 $494,880 $(10,797) $484,083 $494,880 $(6,785) $488,095__________________(1)In connection with the Merger and the PPP Acquisition, we also recorded unfavorable lease liabilities of $10.2 million and $3.9 million, respectively, which are included in“Other current liabilities” and “Other noncurrent liabilities” in our Consolidated Balance Sheets. Such amounts are being amortized over a weighted average life of 10 years,and are included in “Rent expense” in our Consolidated Statements of Earnings for the Successor periods.Our estimated future amortization expense related to the favorable lease agreements and franchise agreements is set forth as follows (in thousands): Favorable Lease Agreements Franchise Agreements Fiscal 2017 $1,659 $2,049 Fiscal 2018 1,246 2,049 Fiscal 2019 1,102 2,049 Fiscal 2020 1,050 2,088 Fiscal 2021 847 2,049 Thereafter 3,327 37,868 $9,231 $48,152Amortization expense related to favorable lease agreements was $2.0 million, $2.0 million and $1.7 million, respectively, for Fiscal 2016, Fiscal2015 and the 317 day period ended January 3, 2016, and is included in “Rent expense” in our Consolidated Statements of Earnings. Amortization expenserelated to franchise agreements was $2.0 million, $2.0 million and $1.0 million, respectively, for Fiscal 2016, Fiscal 2015 and the 317 day period endedDecember 28, 2014, and is included in “General and administrative expenses” in our Consolidated Statements of Earnings. As we did not have any intangibleassets related to favorable lease agreements or franchise agreements prior to the Merger, we did not incur any amortization expense related to favorable leaseagreements for the 47 day period ended February 14, 2014.71Table of ContentsNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)Note 8. Accounts Payable:Accounts payable consisted of the following as of the dates presented: Successor January 1, 2017 January 3, 2016 (in thousands)Trade and other amounts payable$24,615 $35,228Book overdraft8,587 8,862 Accounts Payable$33,202 $44,090Trade and other amounts payable represents amounts payable to our vendors, legal fee accruals and settlements payable. The book overdraft balancerepresents checks issued but not yet presented to banks.Note 9. Accrued Expenses:Accrued expenses consisted of the following as of the dates presented: Successor January 1, 2017 January 3, 2016 (in thousands)Current: Salaries and wages$15,188 $13,947Insurance6,629 5,195Taxes, other than income taxes12,944 12,975Other accrued operating expenses5,337 6,167 Accrued expenses$40,098 $38,284Noncurrent: Insurance$9,183 $9,737Accrued 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.72Table of ContentsNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)Note 10. Indebtedness and Interest Expense: Our long-term debt consisted of the following for the periods presented: Successor January 1, 2017 January 3, 2016 (in thousands)Term loan facility$739,100 $746,700Senior notes255,000 255,000Note payable13 63 Total debt outstanding994,113 1,001,763Less: Unamortized original issue discount(2,235) (2,776) Deferred financing costs, net(15,999) (20,004) Current portion(7,613) (7,650)Bank indebtedness and other long-term debt, less current portion$968,266 $971,333We were in compliance with the debt covenants in effect as of January 1, 2017 for both the secured credit facilities and the senior notes. For furtherdiscussion regarding the debt covenants, see secured credit facilities and Senior Unsecured Notes sections below.Secured Credit FacilitiesIn connection with the Merger on February 14, 2014, we entered into new senior secured credit facilities, which include an initial $760.0 millionterm loan facility with a maturity date of February 14, 2021 (the “term loan facility”) and a $150.0 million senior secured revolving credit facility with amaturity date of February 14, 2019, which includes a letter of credit sub-facility and a $30.0 million swingline loan sub-facility (the “revolving creditfacility” and, together with the term loan facility, the “secured credit facilities”). As of January 1, 2017 and January 3, 2016, we had no borrowingsoutstanding under the revolving credit facility and $9.9 million of letters of credit issued but undrawn under the facility as of January 1, 2017, and $10.9million as of January 3, 2016.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 “Bank indebtedness and other long-term debt, net of deferred financing costs” on our Consolidated Balance Sheets. Theoriginal issue discount and deferred financing costs are amortized over the lives of the facilities and are included in “Interest expense” on our ConsolidatedStatements of Earnings.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 1.00, subject to certain conditions,and receipt of commitments by existing or additional lenders.We may voluntarily repay outstanding loans under the secured credit facilities at any time, without prepayment premium or penalty, except 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.The secured credit facilities require scheduled quarterly payments on the term loan equal to 0.25% of the original principal amount of the term loanfrom July 2014 to December 2020, with the remaining balance paid at maturity, February 14, 2021. In addition, the secured credit facilities includecustomary mandatory prepayment requirements based on certain events, such as asset sales, debt issuances and defined levels of excess cash flow.73Table of ContentsNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)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. Theapplicable margin for borrowings is 3.25% with respect to LIBOR borrowings and 2.25% with respect to base rate borrowings under the term loan facility andbase rate borrowings and swingline borrowings under the revolving credit facility. The applicable margin for borrowings under the term loan facility issubject to one step down to 3.00% based on our net first lien senior secured leverage ratio, and the applicable margin for borrowings under the revolvingcredit facility is subject to two step-downs to 3.00% and 2.75% based on our net first lien senior secured leverage ratio.During Fiscal 2016, the federal funds rate ranged from 0.25% to 0.66%, the prime rate ranged from 3.50% to 3.75% and the one-month LIBORranged from 0.42% to 0.77%.The weighted average effective interest rate incurred on our borrowings under our secured credit facilities was 4.6% for the 2016 fiscal year, 4.6% forthe 2015 fiscal year and 4.8% for the 317 day period ended December 28, 2014, which includes amortization of debt issuance costs related to our securedcredit facilities, amortization of our term loan facility original issue discount, and commitment and other fees related to our secured credit facilities.All borrowings under our revolving credit facility are subject to the satisfaction of customary conditions, including the absence of a default and theaccuracy of representations and warranties.In addition to paying interest on outstanding principal under the secured credit facilities, we are required to pay a commitment fee equal to 0.50%per annum to the lenders under the revolving credit facility in respect of the unutilized commitments thereunder. The applicable commitment fee under therevolving credit facility is subject to one step-down to 0.375% based on our net first lien senior secured leverage ratio. We are also required to pay customaryagency fees, as well as letter of credit participation fees computed at a rate per annum equal to the applicable margin for LIBOR rate borrowings on the dollarequivalent of the daily stated amount of outstanding letters of credit, plus such letter of credit issuer’s customary documentary and processing fees andcharges and a fronting fee computed at a rate equal to 0.125% per annum on the daily stated amount of each letter of credit.Obligations under the secured credit facilities are unconditionally guaranteed by 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 65.0% 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.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 are discussed in Note 2. “Acquisition of CEC Entertainment,Inc.”, Note 3. “Acquisition of Peter Piper Pizza” and Note 13. “Sale Leaseback Transaction” were permitted under the secured credit facilities agreement.Our revolving credit facility includes a springing financial maintenance covenant that requires our net first lien senior secured leverage ratio not 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.Senior Unsecured NotesAlso 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, 2014.74Table of ContentsNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)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 December 2, 2014 we completed an exchange offer whereby the original senior notes were exchanged for new notes (the “exchange notes”)which are identical to the initial senior notes except that the issuance of the exchange notes is registered under the Securities Act, the exchange notes do notbear legends restricting their transfer and they are not entitled to registration rights under our registration rights agreement. We refer to the senior notes andthe 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 recorded as an offset to “Bankindebtedness and other long-term debt, net of deferred financing costs” on our Consolidated Balance Sheets. The deferred financing costs are beingamortized over the life of the senior notes to “Interest expense” on our Consolidated Statements of Earnings.Our obligations under the senior notes are fully and unconditionally guaranteed, jointly and severally, by our present and future direct and 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.The weighted average effective interest rate incurred on borrowings under our senior notes was 8.2% for the 2016 fiscal year, 8.3% for the 2015fiscal year and the 317 day period ended December 28, 2014, which included amortization of debt issuance costs and other fees related to our senior notes.Debt ObligationsThe following table sets forth our future debt payment obligations as of January 1, 2017 (in thousands):One year or less$7,613Two years5,700Three years7,600Four years9,500Five years708,700Thereafter255,000 994,113Less: debt financing costs, net(15,999)Less: unamortized discount(2,235) $975,87975Table of ContentsNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)Interest ExpenseInterest expense consisted of the following for the periods presented: Successor Predecessor Fiscal Year Ended For the 317 DayPeriod Ended For the 47 DayPeriod Ended January 1, 2017 January 3, 2016 December 28, 2014 February 14, 2014 Term loan facility (1)$30,987 $31,760 $29,962 $—Senior notes19,774 21,023 17,697 —Bridge loan facility (2)— — 4,943 —Predecessor Facility— — — 745Capital lease obligations1,749 1,791 1,541 275Sale leaseback obligations10,714 11,096 3,721 —Amortization of debt issuance costs4,005 4,083 3,488 58Other516 829 (400) 73Total interest expense$67,745 $70,582 $60,952 $1,151 __________________(1) Includes amortization of original issue discount.(2)The 317 day period ended December 28, 2014 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 was5.5% for the 2016 fiscal year, 5.5% for the 2015 fiscal year and 6.2% for the 317 day period ended December 28, 2014. Excluding the impact of $4.9 millionof debt financing costs and interest relating to the bridge loan facility, our weighted average effective rate would have been 5.7% for the 317 day periodended December 28, 2014.Note 11. Fair Value of Financial Instruments:Fair value measurements are determined based on the assumptions that market participants would use in pricing the asset or liability. As a basis 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.The following table presents information on our financial instruments as of the dates presented: Successor January 1, 2017 January 3, 2016 Carrying Amount (1) Estimated Fair Value Carrying Amount(1) Estimated Fair Value (in thousands)Financial Liabilities: Bank indebtedness and other long-term debt: Current portion $7,613 $7,623 $7,650 $7,451 Long-term portion $984,265 $993,311 991,337 962,600Bank indebtedness and other long-term debt: $991,878 $1,000,934 $998,987 $970,051__________________(1) Excluding net deferred financing costs.76Table of ContentsNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)Our financial instruments consist of cash and cash equivalents, restricted cash, accounts receivable, accounts payable, our Secured Credit Facilitiesand our senior notes. The carrying amount of cash and cash equivalents, accounts receivable and accounts payable approximates fair value because of theirshort maturities. The estimated fair value of our Secured Credit Facilities' term loan facility and senior notes was determined by using the respective averageof the ask and bid price of our outstanding borrowings under our term loan facility and our senior notes as of the nearest open market date preceding thereporting period end. The average of the ask and bid price are classified as Level 2 in the fair value hierarchy.Our non-financial assets, which include long-lived assets, including property, plant and equipment, goodwill and intangible assets, are reported 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 Fiscal 2016 and Fiscal 2015, there were no significant transfers among level 1, 2 or 3 fair value determinations.Note 12. Other Noncurrent Liabilities:Other noncurrent liabilities consisted of the following as of the dates presented: Successor January 1, 2017 January 3, 2016 (in thousands)Sale leaseback obligations, less current portion (1) $176,831 $179,258Deferred rent liability 21,784 14,325Deferred landlord contributions 5,702 4,988Long-term portion of unfavorable leases 7,308 9,536Other 4,950 4,421Total other noncurrent liabilities $216,575 $212,528__________________(1)See Note 13 “Sale Leaseback Transaction” for further discussion on our sale leaseback obligations.Note 13. Sale Leaseback Transaction:On August 25, 2014, we completed a sale leaseback transaction (the “Sale Leaseback”) with National Retail Properties, Inc. (“NRP”). Pursuant to theSale Leaseback, we sold 49 properties located throughout the United States to NRP, and we leased each of the 49 properties back from NRP pursuant to 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 financ77Table of ContentsNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)ing method, 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 as interest expense and a reduction of the sale leaseback obligation. When and if our continuinginvolvement with a property terminates and the sale of that property is recognized for accounting purposes, we expect to record a gain equal to the excess ofthe proceeds received over the remaining net book value of the property.The aggregate purchase price for the properties in connection with the Sale Leaseback was $183.7 million in cash, and the proceeds, net of taxes 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 used the remaining net proceeds from the Sale Leaseback for capital expenditures needs and othergeneral corporate purposes. The long-term and current portions of our obligation under the sale leaseback were $176.8 million and $2.4 million, respectively,as of January 1, 2017, and are included in “Other noncurrent liabilities” and “Other current liabilities” in our Consolidated Balance Sheets. The net bookvalue of the associated assets, which is included in “Property and equipment, net” in our Consolidated Balance Sheets, was $81.3 million and $82.0million as of January 1, 2017 and January 3, 2016, respectively.Our future minimum lease commitments related to the Sale Leaseback, as of January 1, 2017 for fiscal years 2017, 2018, 2019, 2020, 2021 andthereafter are, in thousands, $13,274, $13,540, $13,810, $14,087, $14,368 and $208,874.Note 14. Commitments and Contingencies:LeasesWe lease certain venues under operating and capital leases that expire at various dates through 2035 with renewal options that expire at variousdates through 2054. The leases generally require us to pay a minimum rent, property taxes, insurance, other maintenance costs and, in some instances,additional rent equal to the amount by which a percentage of the venue’s revenues exceed certain thresholds as stipulated in the respective lease agreement.The leases generally have initial terms of 10 to 20 years with various renewal options.The annual future lease commitments under capital lease obligations and non-cancelable operating leases, including reasonably assured optionperiods but excluding contingent rent, as of January 1, 2017, are as follows: Capital OperatingFiscal Years(in thousands)2017$2,116 $89,90020182,187 87,97820192,183 85,88020202,215 84,53520212,202 82,964Thereafter17,404 545,846Future minimum lease payments28,307 977,103Less amounts representing interest(14,238) Present value of future minimum lease payments14,069 Less current portion(467) Capital lease obligations, net of current portion$13,602 78Table of ContentsNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)Rent expense, including contingent rent based on a percentage of venues’ sales, when applicable, was comprised of the following: Successor Predecessor Fiscal Year For the 317 DayPeriod Ended For the 47 DayPeriod Ended 2016 2015 December 28,2014 February 14,2014 (in thousands)Minimum rentals$96,953 $98,023 $77,498 $12,480Contingent rentals217 338 117 36 $97,170 $98,361 $77,615 $12,516Rent expense of $1.2 million in 2016, $1.6 million in 2015, $0.9 million for the 317 day period ended December 28, 2014, and $0.1 million for the47 day period ended February 14, 2014, related to our corporate offices and warehouse facilities and was included in “General and administrative expenses”in our Consolidated Statements 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 $15.1 million at January 1, 2017 and consistedprimarily of obligations associated with the modernization of various information technology platforms and information technology data security serviceagreements, and the fixed price purchase agreements relating to beverage products. These purchase obligations exclude agreements that can be canceledwithout 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. All necessary lossaccruals based on the probability and estimate of loss have been recorded.Employment-Related Litigation: On January 27, 2014, former CEC Entertainment employee Franchesca Ford filed a purported class action lawsuitagainst CEC Entertainment 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 CEC Entertainment in California who were employed from January 27, 2010 to the present,and alleges violations of California state wage and hour laws. In March 2014, CEC Entertainment removed the Ford Litigation to the U.S. District Court forthe Northern District of California, San Francisco Division, and subsequently defeated the plaintiff's motion to remand the case to California state court. InMay 2015, the parties reached an agreement to settle the lawsuit on a class-wide basis and we recorded a liability for the settlement. The settlement wouldresult in the plaintiffs' dismissal of all claims asserted in the action, as well as certain related but unasserted claims, and grant of complete releases, inexchange for CEC Entertainment's settlement payment. On March 24, 2016, the Court granted preliminary approval of the class settlement, and on November18, 2016, the Court issued its order granting final approval of the class settlement. On December 5, 2016, pursuant to the Court's order and the parties'agreement, CEC Entertainment funded the class settlement.On October 10, 2014, former venue General Manager Richard Sinohui filed a purported class action lawsuit against CEC Entertainment in theSuperior Court of California, Riverside County (the “Sinohui Litigation”), claiming to represent other similarly-situated current and former General Managersof CEC Entertainment in California during the period October 10, 2010 to the present. The lawsuit sought an unspecified amount in damages and to certify aclass based on allegations that CEC79Table of ContentsNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)Entertainment wrongfully classified current and former California General Managers as exempt from overtime protections; that such General Managersworked more than 40 hours a week without overtime premium pay, paid rest periods, and paid meal periods; and that CEC Entertainment failed to provideaccurate itemized wage statements or to pay timely wages upon separation from employment, in violation of the California Labor Code, California Businessand Professions Code, and the applicable Wage Order issued by the California Industrial Welfare Commission. The plaintiff also alleged that CECEntertainment failed to reimburse General Managers for certain business expenses, including for personal cell phone usage and mileage, in violation of theCalifornia Labor Code; he also asserted a claim for civil penalties under the California Private Attorneys General Act (“PAGA”). On December 5, 2014, CECEntertainment removed the Sinohui Litigation to the U.S. District Court for the Central District of California, Southern Division. On March 16, 2016, theCourt issued an order denying in part and granting in part Plaintiff's Motion for Class Certification. Specifically, the Court denied Plaintiff's motion to theextent that he sought to certify a class on Plaintiff's misclassification and wage statement claims, but certified a class with respect to Plaintiff's claims thatCEC Entertainment had wrongfully failed to reimburse him for cell phone expenses and/or mileage. On June 14, 2016, the Court dismissed Sinohui's PAGAclaim. The parties participated in mediation in October 2016, but were unable to reach an agreement on settlement at that time. Trial is currently scheduledfor June 2017. 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.Since the Court in the Sinohui Litigation issued its order denying certification of a class of California-based general managers on misclassificationand wage statement claims, five lawsuits have been filed in California state court (the “California General Manager Litigation”). The plaintiffs in theseactions include nine current and 12 former California General Managers asserting individual misclassification, wage statement, and expense reimbursementclaims. On December 20, 2016, CEC filed its original answer to the lawsuit styled Heather Smith v. CEC Entertainment, Inc. (the “Smith Lawsuit”), and onDecember 21, 2016, CEC removed the Smith Lawsuit to the United States District Court for the Central District of California, where it was assigned causenumber 2:16-cv-009452. On January 17, 2017, CEC filed its original answer to the lawsuit styled Audrae Escobar, Christine Ortiz, and Debora Templeton v.CEC Entertainment, Inc. (the “Escobar Lawsuit”), and on January 18, 2017, CEC removed the Escobar Lawsuit to the United States District Court for theCentral District of California, where it was assigned cause number 2:17-cv-00428. On February 2, 2017, CEC filed its original answer to the lawsuit styledJames Funk, Salvador Hernandez, Jr., Heather Larsen, Erika Lopez, and Angela Sisson v. CEC Entertainment, Inc. (the “Funk Lawsuit”), and on the samedate, CEC removed the Funk Lawsuit to the United States District Court for the Central District of California, where it was assigned cause number 3:17-cv-00214. We believe the Company has meritorious defenses in the California General Manager Litigation and we intend to vigorously contest it. While noassurance can be given as to the ultimate outcome of the California General Manager Litigation, we currently believe that the final resolution of these actionswill not have a material adverse effect on our results of operations, financial position, liquidity or capital resources.On January 30, 2017, former Technical Manager Kevin French filed a purported class action lawsuit against the Company in the United StatesDistrict Court for the Northern District of California, alleging that CEC Entertainment failed to pay overtime wages, failed to issue accurate itemized wagestatements, failed to pay wages due upon separation of employment, and failed to reimburse for certain business expenses, including for mileage and personalcell phone usage, in violation of the California Labor Code and federal law. We believe the Company has meritorious defenses to this lawsuit and we intendto vigorously defend it. Since the litigation is in its earliest stages, however, the Company does not yet have sufficient information to reach a good faithdetermination on the Company’s potential liability or exposure in the event that its defense is unsuccessful.Litigation Related to the Merger: Following the January 16, 2014 announcement that CEC Entertainment had entered into a merger agreement (the“Merger Agreement”), pursuant to which an entity controlled by Apollo Global Management, LLC and its subsidiaries merged with and into CECEntertainment, with CEC Entertainment surviving the merger (the “Merger”), four putative shareholder class actions were filed in the District Court ofShawnee County, Kansas, on behalf of purported stockholders of CEC Entertainment, against A.P. VIII Queso Holdings, L.P., CEC Entertainment, CECEntertainment's directors, Apollo, and Merger Sub (as defined in the Merger Agreement), in connection with the Merger Agreement and the transactionscontemplated thereby. These actions were consolidated into one action (the “Consolidated Shareholder Litigation”) in March 2014, and on July 21, 2015, aconsolidated class action petition was filed as the operative consolidated complaint, asserting claims against CEC’s former directors, adding The GoldmanSachs Group (“Goldman Sachs”) as a defendant, and removing all Apollo entities as defendants (the “Consolidated Class Action Petition”). The ConsolidatedClass Action Petition alleges that CEC Entertainment's directors breached their fiduciary duties to CEC Entertainment's stockholders in connection with theirconsideration and approval of the Merger Agreement by, among other things, conducting a deficient sales process, agreeing to an inadequate tender price,agreeing to certain provisions in the Merger Agreement, and filing materially deficient disclosures regarding the transaction. The Consolidated Class ActionPetition also alleges that two members of CEC Entertainment's board who also served as the senior managers of CEC Entertainment had80Table of ContentsNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)material conflicts of interest and that Goldman Sachs aided and abetted the board's breaches as a result of various conflicts of interest facing the bank. TheConsolidated Class Action Petition seeks, among other things, to recover damages, attorneys' fees and costs. The Company has assumed the defense of theConsolidated Shareholder Litigation on behalf of CEC’s named former directors and Goldman Sachs pursuant to existing indemnity agreements. On March23, 2016, the Court conducted a hearing on the defendants' Motion to Dismiss the Consolidated Class Action Petition and on March 1, 2017, the SpecialMaster appointed by the Court issued a report recommending to the Court that the Consolidated Class Action Petition be dismissed in its entirety. Wecurrently await the District Court’s decision whether to accept the Special Master’s recommendation. The Court has not yet set this case for trial. TheCompany continues to believe the Consolidated Class Action Petition is without merit and intends to defend it vigorously. While no assurance can be givenas to the ultimate outcome of the consolidated matter, we currently believe that the final resolution of the action will not have a material adverse effect on ourresults of operations, financial position, liquidity or capital resources.Peter Piper, Inc. Litigation: On September 8, 2016, Diane Jacobson filed a purported class action lawsuit against Peter Piper, Inc. (“Peter Piper”) inthe U.S. District Court for the District of Arizona, Tucson Division (the “Jacobson Litigation”). The plaintiff claims to represent other similarly-situatedconsumers who, within the two years prior to the filing of the Jacobson Litigation, received a printed receipt on which Peter Piper allegedly printed more thanthe last five digits of the consumer's credit/debit card number, in violation of the Fair and Accurate Credit Transactions Act. On November 11, 2016, PeterPiper filed a motion to dismiss the Jacobson Litigation. After the plaintiff filed her opposition to the Motion to Dismiss and Peter Piper filed its reply insupport thereof, the motion was submitted to the Court for ruling on December 22, 2016. On February 2, 2017, the Court stayed the Jacobson Litigationpending the decision of the U.S. Ninth Circuit Court of Appeals in Noble v. Nevada Check Cab Corp., a case that presents an issue for decision that isrelevant to the Peter Piper’s motion to dismiss. We believe Peter Piper has meritorious defenses to this lawsuit and, should the Court overrule the motion todismiss, we intend to vigorously defend it. Since the litigation is in its earliest stages, however, the Company does not yet have sufficient information toreach a good faith determination on Peter Piper's potential liability or exposure in the event that its defense is unsuccessful.Note 15. Income Taxes:For financial reporting purposes, income (loss) before income taxes includes the following components: Successor Predecessor Fiscal Year Fiscal Year For the 317Day PeriodEnded For the 47Day PeriodEnded 2016 2015 December28, 2014 February14, 2014 (in thousands) United States $(11,002) $(18,787) $(91,339) $1,158 Foreign (including U.S. Possessions) 4,709 3,336 (1,872) 564Income (loss) before income taxes $(6,293) $(15,451) $(93,211) $1,72281Table of ContentsNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)Our income tax expense (benefit) consists of the following for the periods presented: Successor Predecessor Fiscal Year Fiscal Year For the 317Day PeriodEnded For the 47Day PeriodEnded 2016 2015 December28, 2014 February14, 2014 (in thousands)Current tax expense (benefit): Federal $8,008 $10,726 $26,702 $2,505 State 3,879 1,825 4,984 390 Foreign 1,008 1,256 (255) (92) 12,895 13,807 31,431 2,803Deferred tax expense (benefit): Federal (11,848) (14,022) (52,251) (2,282) State (3,274) (2,203) (9,909) 302 Foreign (399) (523) (394) 195 (15,521) (16,748) (62,554) (1,785)Income tax expense (benefit) $(2,626) $(2,941) $(31,123) $1,018A reconciliation of the federal statutory income tax rate to our effective tax rate is as follows: Successor Predecessor Fiscal Year Fiscal Year For the 317Day PeriodEnded For the 47Day PeriodEnded 2016 2015 December 28,2014 February 14,2014Federal statutory rate(35.0)% (35.0)% (35.0)% 35.0 %State income taxes, net of federal benefit2.5 % 0.2 % (3.8)% 20.5 %Federal income tax credits, net(21.8)% (7.6)% (0.4)% (2.0)%Merger and litigation related costs5.8 % 25.0 % 4.8 % 3.1 %Canadian tax rate difference2.4 % 1.0 % 0.2 % (1.8)%Canadian nondeductible interest1.8 % 0.6 % 0.1 % 0.7 %State tax credit, valuation adjustment2.8 % (1.3)% 0.4 % 5.6 %Other(0.2)% (1.9)% 0.3 % (2.0)% Effective tax rate(41.7)% (19.0)% (33.4)% 59.1 % 82Table of ContentsNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) January 1,2017 January 3,2016 (in thousands)Deferred tax assets: Accrued compensation$3,580 $3,059Unearned revenue1,723 1,493Deferred rent8,148 5,520Stock-based compensation746 501Accrued insurance and employee benefit plans5,542 5,162 Unrecognized tax benefits (1)1,072 1,378NOL and other carryforwards3,358 5,660Loan costs1,170 1,461Other914 514Gross deferred tax assets26,253 24,748Deferred tax liabilities: Depreciation and amortization(24,717) (40,976)Prepaid assets(655) (895)Intangibles(180,623) (181,546)Favorable/Unfavorable Leases(26) (1)Internal use software and other(6,522) (3,064)Gross deferred tax liabilities(212,543) (226,482)Net deferred tax liability$(186,290) $(201,734)_________________(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.As of January 1, 2017, we have $4.5 million of federal net operating loss carryforwards (which expire at the end of 2030), $0.3 million of state netoperating loss carryforwards (expiring at the end of tax years 2019 through 2036), and $0.4 million of Alternative Minimum Tax credit carryforwards (with anindefinite carryforward period). The federal net operating loss and $0.3 million of the Alternative Minimum Tax credit carryforward relate to the acquisitionof Peter Piper Pizza, which are limited by Section 382 of the Internal Revenue Code. However, we do not believe the Section 382 limitation will prevent usfrom fully utilizing the carryforwards. As of January 1, 2017, we also have state income tax credit carryforwards of $1.0 million net of their related valuationallowance and federal tax effect (which expire at the end of 2022 through 2026) and $1.3 million of Canadian net operating loss carryforwards (expiring atthe end of tax years 2034 through 2036).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 before2013 with the exception of the Peter Piper Pizza federal income tax returns with net operating losses which have been carried forward to open tax years(whereas, adjustments can be made to these returns until the respective statute of limitations expire for the particular tax years the net operating losses areutilized). In general, our state income tax statutes of limitations have expired for tax years ended before 2012. In general, the statute of limitations for ourCanada income tax returns has expired for tax years ended before 2012.83Table of ContentsNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows: Fiscal Year 2016 2015 2014 (in thousands)Balance at beginning of period$3,288 $1,882 $2,598 Additions for tax positions taken in the current year74 214 168 Increases for tax positions taken in prior years1,479 1,581 613 Decreases for tax positions taken in prior years(964) (184) (421) Settlement with tax authorities(558) 79 (114) Expiration of statute of limitations(200) (284) (962)Balance at end of period$3,119 $3,288 $1,882Our liability for uncertain tax positions (excluding interest and penalties) was $3.1 million and $3.3 million as of January 1, 2017 and January 3,2016, respectively, and if recognized would decrease our provision for income taxes by $1.5 million. Within the next twelve months, we could settle orotherwise conclude certain ongoing income tax audits. As such, it is reasonably possible that the liability for uncertain tax positions could decrease by asmuch as $1.0 million as a result of settlements with certain taxing authorities and expiring statutes of limitations within the next twelve months.The total accrued interest and penalties related to unrecognized tax benefits as of January 1, 2017 and January 3, 2016, was $1.2 million and $1.7million, respectively. On the Consolidated Balance Sheets, we include current accrued interest related to unrecognized tax benefits in “Accrued interest,”current accrued penalties in “Accrued expenses” and non-current accrued interest and penalties in “Other noncurrent liabilities.”Note 16. Stock-Based Compensation Arrangements: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“Transaction, severance and related litigation costs” in the Consolidated Statements of Earnings during the 47 day period ended February 14, 201484Table of ContentsNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)2014 Equity Incentive PlanThe 2014 Equity Incentive Plan provides Parent authority to grant equity incentive stock options, nonqualified stock options, stock appreciationrights, restricted stock, restricted stock units, stock bonus awards or performance compensation awards to certain directors, officers or employees of theCompany.During 2016, 2015 and the 317 day period ended December 28, 2014, Parent granted options to purchase 101,110 shares, 519,414 shares and2,324,870 shares, respectively, of its common stock to certain directors, officers and employees of the Company. The options are subject to certain serviceand performance based vesting criteria, and were split evenly between Tranches A, B and C, which have different vesting requirements. The options inTranche A are service based, and vest and become exercisable in equal installments on each of the first five anniversaries of the respective grant dates. TheBlack-Scholes model was used to estimate the fair value of Tranche A stock options. Tranche B and Tranche C options are performance based and vest andbecome exercisable when certain return thresholds are achieved. The Monte Carlo simulation model was used to estimate the fair value of Tranche B andTranche C stock options. Unvested Tranche A options are also subject to accelerated vesting and exercisability on the first anniversary of a change in controlof Queso Holdings Inc. or within 12 months following such a change in control. Tranche B and C options may also vest and become exercisable if applicablehurdles are achieved in connection with an initial public offering. Compensation costs related to options in the Parent were recorded by the Company.The weighted-average fair value of the options granted in 2016, 2015 and the 317 day period ended December 28, 2014 was estimated at $2.99,$1.68 and $0.87 per option, $2.83, $1.44 and $0.84 per option and $3.06, $1.58 and $1.01 per option, respectively, for Tranches A, B and C, respectively, onthe date of grant based on the following assumptions: Fiscal Year Fiscal Year For the 317 DayPeriod Ended 2016 2015 December 28,2014 Dividend yield—% —% —%Volatility30% 30% 30%Risk-free interest rate for Tranche A1.09% 1.30% 1.58%Risk-free interest rate for Tranches B and C0.99% 1.30% 1.32%Expected life - years3.6 3.7 4.0A summary of the option activity under the equity incentive plan as of January 1, 2017 and the activity for 2016 is presented below: Stock OptionsWeightedAverageExercisePriceWeighted AverageRemainingContractual TermAggregateIntrinsic Value ($ per share) ($ in thousands)Outstanding stock options, January 3, 2016 2,393,084$8.59 Options Granted 101,110$12.51 Options Exercised (13,399)$8.86 Options Forfeited (79,881)$8.88 Outstanding stock options, January 1, 2017 2,400,914$8.747.414,691Stock options expected to vest, January 1, 2017 1,913,975$8.807.411,901Exercisable stock options, January 1, 2017 274,275$8.277.22,267_________________(1) The weighted average exercise price reflects the original grant date fair value per option as adjusted for the dividend payment made in August 2015.As of January 1, 2017, we had $2.4 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 2.8 years.85Table of ContentsNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)In February 2017, the Parent granted additional options to purchase 67,500 shares of its common stock to certain officers and employees of theCompany.A summary of stock based compensation costs recognized and capitalized is presented below: Successor Predecessor Fiscal Year For the 317Day PeriodEnded For the 47Day PeriodEnded January 1, 2017 January 3, 2016 December 28, 2014 February 14, 2014 Stock-based compensation costs $702 $855 $713 $1,117Portion capitalized as property and equipment (1) (13) (17) (10) —Stock-based compensation costs related to the accelerated vesting ofrestricted stock awards in connection with the Merger — — — 11,108Stock-based compensation expense recognized $689 $838 $703 $12,225Tax benefit recognized from stock-based compensation awards (2) $4 $18 $4,874 $— __________________(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 venuedevelopment projects, such as the design and construction of a new venue and the remodeling and expansion of our existing venues. Capitalized stock-based compensationcosts attributable to our venue development projects are included in “Property and equipment, net” in the Consolidated Balance Sheets.(2)We recorded the tax benefit related to the accelerated vesting of restricted stock awards in the 317 day period ended December 28, 2014, the period the related expense isdeductible for income tax purposes.Note 17. Stockholder’s Equity:We have one class of common capital stock, as disclosed on our Consolidated Balance Sheets. All outstanding common stock is owned by QuesoHoldings, Inc. As of January 1, 2017 and January 3, 2016, we have 200 shares issued and outstanding. See further discussion in Note 2. “Acquisition of CECEntertainment, Inc.”Cash DividendsIn accordance with our credit facilities, our ability to declare dividends is restricted. See further discussion of the Merger in Note 2. “Acquisition ofCEC Entertainment, Inc.” We declared and paid a cash dividend to Parent during 2015 of $70 million.18. Related Party Transactions:CEC Entertainment reimburses Apollo Management, L.P. for certain out-of-pocket expenses incurred in connection with travel and Board ofDirectors related expenses. Expense reimbursements by CEC Entertainment to Apollo Management, L.P. totaled $0.8 million for Fiscal 2016, and areincluded in “General and administrative expenses” in our Consolidated Statements of Earnings.In June 2016, CEC Entertainment entered into an agreement with an Apollo portfolio company to manage CEC Entertainment’s print services andprocesses. We accrued payments totaling $0.2 million in connection with this agreement during Fiscal 2016.Note 19. Consolidating Guarantor Financial Information:The senior notes issued by CEC Entertainment, Inc. (the “Issuer”) in conjunction with the Merger are our unsecured obligations and are fully andunconditionally, jointly and severally guaranteed by all of our 100% 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:86Table of ContentsNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)CEC Entertainment, Inc.Condensed Consolidating Balance SheetAs of January 1, 2017(in thousands) Successor Issuer Guarantor Non-Guarantors Eliminations ConsolidatedCurrent assets: Cash and cash equivalents $53,088 $1,158 $6,777 $— $61,023 Restricted cash — — 268 — 268Accounts receivable 16,922 3,220 2,455 (2,102) 20,495Inventories 18,255 3,151 271 — 21,677Prepaid assets 14,294 6,077 1,127 — 21,498Total current assets 102,559 13,606 10,898 (2,102) 124,961Property and equipment, net 538,195 47,906 6,785 — 592,886Goodwill 432,462 51,414 — — 483,876Intangible assets, net 19,157 464,926 — — 484,083Intercompany 127,107 317 — (127,424) —Investment in subsidiaries 436,483 — — (436,483) —Other noncurrent assets 6,888 17,025 393 — 24,306Total assets $1,662,851 $595,194 $18,076 $(566,009) $1,710,112Current liabilities: Bank indebtedness and other long-term debt,current portion $7,600 $13 $— $— $7,613Capital lease obligations, current portion 460 — 7 — 467Accounts payable and accrued expenses 84,207 11,445 2,184 — 97,836Other current liabilities 3,764 511 — — 4,275Total current liabilities 96,031 11,969 2,191 — 110,191Capital lease obligations, less current portion 13,542 — 60 — 13,602Bank indebtedness and other long-term debt, less currentportion 968,266 — — — 968,266Deferred tax liability 166,064 21,234 (1,008) — 186,290Intercompany — 106,131 23,395 (129,526) —Other noncurrent liabilities 212,943 12,484 331 — 225,758Total liabilities 1,456,846 151,818 24,969 (129,526) 1,504,107Stockholder's equity: Common stock — — — — —Capital in excess of par value 357,166 466,114 3,241 (469,355) 357,166Retained earnings (deficit) (148,265) (22,738) (7,238) 29,976 (148,265)Accumulated other comprehensive income (loss) (2,896) — (2,896) 2,896 (2,896)Total stockholder's equity 206,005 443,376 (6,893) (436,483) 206,005Total liabilities and stockholder's equity $1,662,851 $595,194 $18,076 $(566,009) $1,710,11287Table of ContentsNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)CEC Entertainment, Inc.Condensed Consolidating Balance SheetAs of January 3, 2016(in thousands) Successor Issuer Guarantor Non-Guarantors Eliminations ConsolidatedCurrent assets: Cash and cash equivalents $42,235 $1,797 $6,622 $— $50,654Accounts receivable 21,595 3,944 9,468 (9,071) 25,936Inventories 19,959 3,021 295 — 23,275Prepaid assets 13,562 3,561 1,100 — 18,223Total current assets 97,351 12,323 17,485 (9,071) 118,088Property and equipment, net 585,915 34,539 8,593 — 629,047Goodwill 432,462 51,414 — — 483,876Intangible assets, net 21,855 466,240 — — 488,095Intercompany 129,151 30,716 — (159,867) —Investment in subsidiaries 422,407 — — (422,407) —Other noncurrent assets 4,318 8,940 671 — 13,929Total assets $1,693,459 $604,172 $26,749 $(591,345) $1,733,035Current liabilities: Bank indebtedness and other long-term debt,current portion $7,600 $50 $— $— $7,650Capital lease obligations, current portion 418 — 3 — 421Accounts payable and accrued expenses 71,320 27,774 3,270 — 102,364Other current liabilities 3,350 328 — — 3,678Total current liabilities 82,688 28,152 3,273 — 114,113Capital lease obligations, less current portion 14,980 — 64 — 15,044Bank indebtedness and other long-term debt, less currentportion 971,320 13 — — 971,333Deferred tax liability 184,083 17,867 (216) — 201,734Intercompany 20,580 121,850 26,508 (168,938) —Other noncurrent liabilities 211,262 10,784 219 — 222,265Total liabilities 1,484,913 178,666 29,848 (168,938) 1,524,489Stockholders' equity: Common stock — — — — —Capital in excess of par value 356,460 466,114 3,241 (469,355) 356,460Retained earnings (deficit) (144,598) (40,608) (3,024) 43,632 (144,598)Accumulated other comprehensive income (loss) (3,316) — (3,316) 3,316 (3,316)Total stockholder's equity 208,546 425,506 (3,099) (422,407) 208,546Total liabilities and stockholder's equity $1,693,459 $604,172 $26,749 $(591,345) $1,733,03588Table of ContentsNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)CEC Entertainment, Inc.Consolidating Statement of Comprehensive Income (Loss)Fiscal Year 2016(in thousands) Successor Issuer Guarantor Non-Guarantors Eliminations ConsolidatedRevenues: Food and beverage sales $361,111 $48,178 $5,770 $— $415,059Entertainment and merchandise sales 453,362 27,059 9,834 — 490,255Total company venue sales 814,473 75,237 15,604 — 905,314Franchise fees and royalties 2,011 16,328 — — 18,339International Association assessments and other fees 1,308 36,861 36,250 (74,419) —Total revenues 817,792 128,426 51,854 (74,419) 923,653Operating Costs and Expenses: Company venue operating costs: Cost of food and beverage 89,373 12,835 2,107 — 104,315Cost of entertainment and merchandise 29,668 1,690 656 — 32,014Total cost of food, beverage, entertainmentand merchandise 119,041 14,525 2,763 — 136,329Labor expenses 230,526 15,865 5,035 — 251,426Depreciation and amortization 108,686 2,643 1,987 — 113,316Rent expense 88,557 5,234 2,215 — 96,006Other venue operating expenses 170,385 12,134 4,545 (38,195) 148,869Total company venue operating costs 717,195 50,401 16,545 (38,195) 745,946Advertising expense 37,891 4,358 40,117 (36,224) 46,142General and administrative expenses 26,003 40,567 694 — 67,264Transaction, severance and related litigation costs 1,244 55 — — 1,299Asset Impairment 1,487 — 63 — 1,550Total operating costs and expenses 783,820 95,381 57,419 (74,419) 862,201Operating income (loss) 33,972 33,045 (5,565) — 61,452Equity in earnings (loss) in affiliates 13,654 — — (13,654) —Interest expense 62,630 4,664 451 — 67,745Income (loss) before income taxes (15,004) 28,381 (6,016) (13,654) (6,293)Income tax expense (benefit) (11,337) 10,520 (1,809) — (2,626)Net income (loss) $(3,667) $17,861 $(4,207) $(13,654) $(3,667) Components of other comprehensive income (loss), net oftax: Foreign currency translation adjustments 420 — 420 (420) 420Comprehensive income (loss) $(3,247) $17,861 $(3,787) $(14,074) $(3,247)89Table of ContentsNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)CEC Entertainment, Inc.Consolidating Statement of Comprehensive Income (Loss)Fiscal Year 2015(in thousands) Successor Issuer Guarantor Non-Guarantors Eliminations ConsolidatedRevenues: Food and beverage sales $353,200 $48,747 $6,148 $— $408,095Entertainment and merchandise sales 469,741 16,864 10,410 — 497,015Total Company venue sales 822,941 65,611 16,558 — 905,110Franchise fees and royalties 2,280 15,199 — — 17,479International Association assessments and other fees 995 24,591 43,829 (69,415) —Total revenues 826,216 105,401 60,387 (69,415) 922,589Operating Costs and Expenses: Company venue operating costs: Cost of food and beverage 89,772 12,527 2,135 — 104,434Cost of entertainment and merchandise 29,147 1,729 643 — 31,519Total cost of food, beverage, entertainmentand merchandise 118,919 14,256 2,778 — 135,953Labor expenses 230,113 14,968 5,503 — 250,584Depreciation and amortization 109,307 3,856 2,073 — 115,236Rent expense 88,773 5,363 2,533 — 96,669Other venue operating expenses 155,366 9,017 4,308 (25,613) 143,078Total Company venue operating costs 702,478 47,460 17,195 (25,613) 741,520Advertising expense 46,136 4,014 40,798 (43,802) 47,146General and administrative expenses 20,939 44,446 618 — 66,003Transaction, severance and related litigation costs 6 11,908 — — 11,914Asset Impairment 766 20 89 — 875Total operating costs and expenses 770,325 107,848 58,700 (69,415) 867,458Operating income (loss) 55,891 (2,447) 1,687 — 55,131Equity in earnings (loss) in affiliates (4,654) — — 4,654 —Interest expense 65,775 4,288 519 — 70,582Income (loss) before income taxes (14,538) (6,735) 1,168 4,654 (15,451)Income tax expense (benefit) (2,028) (1,575) 662 — (2,941)Net income (loss) $(12,510) $(5,160) $506 $4,654 $(12,510) Components of other comprehensive income (loss), netof tax: Foreign currency translation adjustments (2,403) — (2,403) 2,403 (2,403)Comprehensive income (loss) $(14,913) $(5,160) $(1,897) $7,057 $(14,913)90Table 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) Predecessor 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 venue 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 venue 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, entertainmentand 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 venue operating expenses 112,669 2,445 3,410 1,372 119,896Total company venue operating costs 590,077 10,070 16,613 1,244 618,004Advertising expense 38,511 638 31,712 (37,159) 33,702General and administrative expenses 18,414 32,389 1,091 (3,712) 48,182Transaction, severance and related litigation costs 40,998 9,547 — — 50,545Asset Impairment 40 3 364 — 407Total operating costs and expenses 688,040 52,647 49,780 (39,627) 750,840Operating income (loss) 4 (35,995) 3,732 — (32,259)Equity in earnings (loss) in affiliates (36,988) — — 36,988 —Interest expense (income) 59,644 770 538 — 60,952Income (loss) before income taxes (96,628) (36,765) 3,194 36,988 (93,211)Income tax expense (benefit) (34,540) 2,441 976 — (31,123)Net income (loss) $(62,088) $(39,206) $2,218 $36,988 $(62,088) Components of other comprehensive income (loss), netof tax: Foreign currency translation adjustments (913) — (913) 913 (913)Comprehensive income (loss) $(63,001) $(39,206) $1,305 $37,901 $(63,001)91Table 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 venue 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 venue 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, entertainmentand 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 venue operating expenses 20,193 (44) (82) (4,307) 15,760Total company venue operating costs 88,234 (19) 1,982 (4,327) 85,870Advertising expense 6,144 17 5,853 (6,111) 5,903General and administrative expenses 4,124 3,863 191 (215) 7,963Transaction, severance and related litigation costs 1,800 9,834 — — 11,634Asset impairment — — — — —Total operating costs and expenses 100,302 13,695 8,026 (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 taxes 4,591 (8,000) 608 4,523 1,722Income tax expense (benefit) 3,887 (3,040) 171 — 1,018Net income (loss) $704 $(4,960) $437 $4,523 $704 Components of other comprehensive income (loss), netof tax: Foreign currency translation adjustments $(541) $— $(541) $541 $(541)Comprehensive income (loss) $163 $(4,960) $(104) $5,064 $16392Table of ContentsNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)CEC Entertainment, Inc.Consolidating Statement of Cash FlowsFiscal Year 2016(in thousands)SuccessorIssuerGuarantorsNon-GuarantorsEliminationsConsolidatedCash flows provided by (used in) operating activities:$73,722$44,608$357$—$118,687Cash flows from investing activities: Purchases of property and equipment(69,827)(18,439)(414)—(88,680) Development of internal use software(7,671)(2,784)——(10,455) Proceeds from sale of property and equipment696———696Cash flows provided by (used in) investing activities(76,802)(21,223)(414)—(98,439)Cash flows from financing activities: Repayments on senior term loan(7,600)———(7,600) Repayments on note payable — (50) — — (50) Intercompany note23,974(23,974)——— Payments on capital lease obligations(417)—(4)—(421) Payments on sale leaseback transactions(2,028)————(2,028) Excess tax benefit realized from stock-basedcompensation4———4Cash flows provided by (used in) financing activities13,933(24,024)(4)—(10,095)Effect of foreign exchange rate changes on cash——216—216Change in cash and cash equivalents10,853(639)155—10,369Cash and cash equivalents at beginning of period42,2351,7976,622—50,654Cash and cash equivalents at end of period$53,088$1,158$6,777$—$61,02393Table of ContentsNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)CEC Entertainment, Inc.Consolidating Statement of Cash FlowsFiscal Year 2015(in thousands) Successor Issuer Guarantors Non-Guarantors Eliminations ConsolidatedCash flows provided by (used in) operatingactivities: $95,659 $(492) $5,446 $— $100,613 Cash flows from investing activities: Acquisition of Peter Piper Pizza (663) — — — (663) Intercompany note 2,393 2,925 — (5,318) — Purchases of property and equipment (65,070) (6,028) (1,936) — (73,034) Development of internal use software (2,018) (2,784) — — (4,802) Proceeds from sale of property andequipment 308 — — — 308Cash flows provided by (used in) investingactivities (65,050)—(5,887)—(1,936)—(5,318)—(78,191) Cash flows from financing activities: Repayments on senior term loan (9,500) — — — (9,500) Repayments on notes payable — (49) — — (49) Intercompany note (3,847) 1,798 (3,269) 5,318 — Payments on capital lease obligations (402) — (3) — (405) Payments on sale leaseback transactions (1,663) — — — (1,663) Dividends paid (70,000) — — — (70,000) Excess tax benefit realized from stock-based compensation 18 — — — 18Cash flows provided by (used in) financingactivities (85,394) 1,749 (3,272) 5,318 (81,599)Effect of foreign exchange rate changes on cash— — (1,163) — (1,163) Change in cash and cash equivalents (54,785) (4,630) (925) — (60,340)Cash and cash equivalents at beginning of period97,020 6,427 7,547 — 110,994Cash and cash equivalents at end of period $42,235 $1,797 $6,622 $— $50,65494Table 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) operatingactivities: $70,034 $(24,166) $2,223 $— $48,091 Cash flows from investing activities: Acquisition of Predecessor (946,898) — — — (946,898) Acquisition of franchise — (1,529) — — (1,529) Acquisition of Peter Piper Pizza (118,409) 5,267 — — (113,142) Intercompany note — 375,539 — (375,539) — Purchases of property and equipment (55,299) (4,136) (1,593) — (61,028) Development of internal use software — (2,130) — — (2,130) Proceeds from sale of property andequipment 23 419 — — 442Cash flows provided by (used in) investingactivities (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 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-based compensation 4,874 — — — 4,874 Equity contribution 350,000 — — — 350,000Cash flows provided by (used in) financingactivities 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 $— $110,99495Table 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 repayments on revolving credit 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 $— $19,184Note 20. Quarterly Results of Operations (Unaudited):The following table summarizes our unaudited quarterly condensed consolidated results of operations in 2016 and 2015: Quarters in Fiscal Year 2016 Successor April 3,2016 July 3,2016 October 2,2016 January 1,2017 (in thousands)Food and beverage sales$122,202 $97,404 $101,984 $93,469Entertainment and merchandise sales147,557 114,657 121,764 106,277Company venue sales269,759 212,061 223,748 199,746Franchise fees and royalties4,559 4,560 4,322 4,898Total revenues$274,318 $216,621 $228,070 $204,644Operating income (loss)$46,348 $3,627 $12,547 $(1,070)Income (loss) before income taxes$29,287 $(13,494) $(4,690) $(17,396)Net income (loss)$17,915 $(9,052) $(2,404) $(10,126) Quarters in Fiscal Year 2015 (1) Successor March 29,2015 June 28,2015 Sept. 27,2015 January 3, 2016 (in thousands, except per share data)Food and beverage sales$116,537 $94,145 $98,243 $99,170Entertainment and merchandise sales144,744 113,861 118,753 119,657Company venue sales261,281 208,006 216,996 218,827Franchise fees and royalties4,227 4,073 4,941 4,238Total revenues$265,508 $212,079 $221,937 $223,065Operating income (loss)$44,687 $(188) $12,499 $(1,867)Income (loss) before income taxes$27,188 $(17,512) $(4,710) $(20,417)Net income (loss)$14,742 $(9,892) $(3,202) $(14,158) ______________________(1)Our 2015 fiscal year consisted of 53 weeks. Each quarterly period has 13 weeks, except for the fourth quarterly period ended January 3, 2016 which has 14 weeks.Quarterly operating results are not necessarily representative of operations for a full year.96ITEM 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 January 1, 2017 to ensure that information required to be disclosed by us in thereports 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 January 1, 2017 based on the criteria established in “Internal Control – Integrated Framework (2013)” issued by the Committee of SponsoringOrganizations of the Treadway Commission. Based on our management’s assessment, we have concluded that, as of January 1, 2017 our internal control overfinancial reporting was effective based on those criteria.Changes in Internal Control over Financial ReportingDuring the quarterly period ended January 1, 2017, 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. The implementation was completed in the normal course of business to increase efficiencyand align our processes throughout the organization.ITEM 9B. Other Information.None.97ITEM 10. Directors, Executive Officers, and Corporate Governance.Board of DirectorsAs of the date of this report, the Board consists of four members, including our Chief Executive Officer, one partner of Apollo, one principal ofApollo and one additional member.The following table provides information regarding our executive officers and the members of our Board:Name Age Position(s) Thomas Leverton 45 Chief Executive Officer and DirectorJ. Roger Cardinale 57 PresidentDale R. Black 53 Executive Vice President and Chief Financial OfficerLance A. Milken 41 DirectorMichael Diverio 34 DirectorAllen R. Weiss 62 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. From June 2010 to August 2012, Mr. Leverton served as Chief Executive Officer of Omniflight, an air medicaloperator. Earlier in his career, he held executive roles at FedEx Office, including Executive Vice President and Chief Development Officer. Mr. Leverton alsoserved as Chief Operating Officer of TXU Energy. He began his career at Johnson & Johnson and Bain & Company. In light of our ownership structure andMr. Leverton’s extensive 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.Dale R. Black has served as Executive Vice President, Chief Financial Officer of the Company since November 2015. He served as Executive Vice Presidentand Chief Financial Officer of Great Wolf Resorts, Inc. from January 2015 to June 2015. Before Great Wolf Resorts, Inc., Mr. Black was an Associate Directorwith Protiviti, Inc., a global consulting firm, from September 2014 to December 2014. Prior to that, from November 2007 to July 2014, he served as ChiefFinancial Officer at Isle of Capri Casinos, Inc. From November 2005 to December 2007, he served as Executive Vice President - Chief Financial Officer ofTrump Entertainment Resorts, Inc., which filed for Chapter 11 bankruptcy protection in February 2009. Prior to holding that position, Mr. Black was ChiefFinancial Officer at Argosy Gaming Company. He is a CPA and began his career with Arthur Andersen LLP.Lance 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.Michael Diverio became a member of our Board in January 2017. Mr. Diverio is a Principal of Apollo, having joined in March 2016. Prior to Apollo, Mr.Diverio was a Vice-President at Littlejohn & Co., LLC, from 2013 to 2016. From 2007 to 2011, he was a Senior Associate at Court Square Capital Partners.Prior to Court Square Capital Partners, he was a member of the Investment Banking Division of Morgan Stanley. Mr. Diverio was selected to serve on ourBoard because he provides valuable insight on strategic and business matters, stemming from his experience analyzing, making and managing investments inpublic and private companies.98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 November 2011. Prior to that,Mr. Weiss served in a number of roles for The Walt Disney Company beginning in 1972, including most recently as President of Walt Disney World Resort,Executive Vice President of Walt Disney World Resort and Vice President of Resort Operations Support. Mr. Weiss serves as a director of Dick’s SportingGoods, Inc. and Apollo Group, Inc. (a private education provider unaffiliated with Apollo). Mr. Weiss also serves on the board or council of a number ofcommunity and civic organizations. In light of our ownership structure and Mr. Weiss’s knowledge and understanding of the entertainment sector, includinginsight gained through his executive leadership and management experience at The Walt Disney Company, the Board believes it is appropriate for Mr. Weissto serve as our director.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 is composed of three directors: Lance Milken, Michael Diverio and Allen Weiss. Daniel Flesh, who resigned as a director ofthe Company effective January 27, 2017, served on the Audit Committee through the date of his resignation. The primary role of the Audit Committee is toprovide financial oversight. Our management is responsible for preparing financial statements, and our independent registered public accounting firm isresponsible for auditing those financial statements. The Audit Committee does not provide any expert or special assurance or certifications as to ourfinancial statements or as to the work of our independent registered public accounting firm. The Audit Committee is directly responsible for the selection,engagement, compensation, retention and oversight of our independent registered public accounting firm. The Board has also determined that each memberof 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 four times in 2016.Although our Board of Directors has determined that each of the members of our Audit Committee is financially literate and has experienceanalyzing or evaluating financial statements, at this time we do not have an “audit committee financial expert” within the meaning of Item 407 of RegulationS-K under the Exchange Act serving on the Audit Committee. As a company whose stock is privately-held and given the financial sophistication and otherbusiness experience of the members of the audit committee, we do not believe that we require the services of an audit committee financial expert at this time.Compensation CommitteeThe Compensation Committee is composed of three directors: Lance Milken, Michael Diverio and Allen Weiss. Daniel Flesh, who resigned as adirector of the Company effective January 27, 2017, served on the Compensation Committee through the date of his resignation. The CompensationCommittee is responsible for approving the compensation, including performance bonuses, payable to the executive officers of the Company, andadministering the Company’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 met twicein 2016.99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 forour Chief 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, under “Investor Relations-Governance.”100ITEM 11. Executive and Director CompensationInformation required by Item 11 will be set forth in a future amendment to this Annual Report on Form 10-K.Part III, Item 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERSAND MANAGEMENT AND RELATED STOCKHOLDER MATTERSThe following table sets forth information, as of March 1, 2017, 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 January 1, 2017, there were 200shares 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 — —J. Roger Cardinale — —Dale R. Black — —Lance A. Milken — —Michael Diverio — —Allen R. Weiss — —Directors and Executive Officers as a Group (6 persons) — —___________________________(1) AP VIII CEC 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 10019.101Part 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.102DIRECTOR INDEPENDENCEWe are not a listed issuer whose securities are listed on a national securities exchange or in an inter-dealer quotation system which has requirementsthat a majority of the Board of Directors be independent. However, if we were a listed issuer whose securities were traded on the New York Stock Exchangeand subject to such requirements, we would be entitled to rely on the controlled company exception contained in the NYSE Listing Manual, Section303A.00 for the exception from the independence requirements related to the majority of our Board of Directors and for the independence requirementsrelatedto our Compensation Committee. Pursuant to NYSE Listing Manual, Section 303A.00, a company of which more than 50% of the voting power for theelection of directors is held by an individual, a group or another company is exempt from the requirements that its Board of Directors consist of a majority ofindependent directors and that the Compensation Committee (and, if applicable, the nominating committee) of such company be comprised solely ofindependent directors. At January 3, 2016, Apollo beneficially owned 100% of the voting power of the Company which would qualify the Company as acontrolled company eligible for exemption under the rule.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 January 1, 2017 and January 3, 2016. The following table presents fees billed or expected to be billed for professionalservices rendered by Deloitte & Touche LLP for the audit of the Company’s annual consolidated financial statements, audit-related services, tax services andall other services rendered by Deloitte & Touche LLP for the Company’s 2016 and 2015 fiscal years: Fiscal 2016 Fiscal 2015Audit Fees (1) $628,500 $553,000Audit-related Fees (2) 5,500 5,500Tax fees (3) — —All other fees (4) 2,000 2,000 Total $636,000 $560,500_______________________(1) “Audit fees” are fees billed by Deloitte & Touche LLP for professional services rendered for the audit of the Company’s annual consolidatedfinancial statements included in the Company’s Form 10-K, the review of the Company’s quarterly consolidated financial statements included in theCompany’s Forms 10-Q, and includes fees for services that are normally incurred in connection with statutory and regulatory filings or engagements,such as consents, comfort letters, 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 of suchservices by Deloitte & Touche LLP was compatible with the maintenance of that firm’s independence in the conduct of its auditing functions. The AuditCommittee’s pre-approval policy (i) identifies the guiding principles that must be considered by the audit committee in approving services to ensure thatDeloitte & Touche LLP’s independence is not impaired; (b) describes the audit, audit-related, tax and other services that may be provided and the non-auditservices that are prohibited; and (c) sets forth pre-approval requirements for all permitted services. Under the policy, all services to be provided by Deloitte &Touche LLP must be pre-approved by the Audit Committee.103PART II – OTHER INFORMATIONPART IVITEM 15. Exhibits and Financial Statement Schedules.Documents filed as part of this report: 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.104SIGNATURESPursuant 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 15, 2017 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 15, 2017Thomas Leverton /s/ Dale R. Black Executive Vice President and Chief Financial Officer (PrincipalFinancial Officer) March 15, 2017Dale R. Black /s/ Laurie E. Priest Vice President and Controller (Principal Accounting Officer) March 15, 2017Laurie E. Priest * Director March 15, 2017Lance A. Milken * Director March 15, 2017Michael Diverio * Director March 15, 2017Allen R. Weiss *By: /s/ Rodolfo Rodriguez, Jr. Senior Vice President and General Counsel March 15, 2017Rodolfo Rodriguez, Jr. 105EXHIBIT 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(incorporated by reference to Exhibit 4.4 to the Company’s Annual Report on Form 10-K (File No. 001-13687) as filed with theCommission on March 5, 2015) 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) 10.12 Employment Term Sheet, dated as of December 17, 2014 between the Company and Michael Hartman 10.13 Employment Agreement, dated as of November 20, 2015, between the Company and Dale R. Black 21.1* Subsidiaries of the Company 24.1* Power of attorney 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.Exhibit 21.1Subsidiaries of CEC Entertainment, Inc. Subsidiaries Jurisdiction of Formation Percentage of Equity Interest Owned 1. CEC Entertainment Canada, Inc. Canada 100% 2. CEC Entertainment Holdings, LLC Nevada 100% 3. SPT Distribution Company, Inc. Texas 100% 4. BHC Acquisition Corporation Texas 100% 5. CEC Entertainment Concepts, L.P. Texas 0.1% by CEC Entertainment, Inc.99.9% by CEC Entertainment Holdings, LLC 6. Hospitality Distribution Incorporated Texas 100% by BHC Acquisition Corporation 7. SB Hospitality Corporation Texas 100% by Hospitality Distribution Incorporated 8. CEC Entertainment Leasing Company Delaware 100%9. CEC Leaseholder, LLC Delaware 100%10. Peter Piper Holdings, Inc. Delaware 100%11. Peter Piper, Inc. Arizona 100% by Peter Piper Holdings, Inc.12. Peter Piper Texas, LLC Texas 100% by Peter Piper, Inc.13. Peter Piper Mexico, LLC Arizona 100% by Peter Piper, Inc.14. Texas PP Beverage, Inc. Texas 100% by Peter Piper Texas, LLC15. Peter Piper De Mexico, S. De R.L. De C.V. Mexico 1% by Peter Piper Mexico, LLC99% by Peter Piper, Inc. Exhibit 24.1POWER OF ATTORNEYDIRECTORS OFCEC ENTERTAINMENT, INCThe undersigned directors of CEC Entertainment, Inc., a Kansas corporation (the "Company"), hereby constitute and appoint ThomasLeverton, Dale R. Black, Rodolfo Rodriguez, Jr., and Laurie E. Priest, and each of them (with full power to each of them to act alone), the trueand lawful attorneys-in-fact and agents for the undersigned, and on behalf of the undersigned and in the name, place and stead of the undersigned,in any and all capacities, to sign the Annual Report on Form I 0-K for the fiscal year ended January 1, 2017 to be filed by the Company with theSecurities and Exchange Commission under the provisions of the Securities Exchange Act of 1934, and any and all amendments, applications, orother documents to be filed with the Securities and Exchange Commission pertaining to such Annual Report on Form 10-K, with full power andauthority to do and perform any and all acts and things whatsoever required andnecessary to be done in the premises, as fully to all intents and purposes as the undersigned could do if personally present. The undersigned herebyratify and confirm all that said attorneys-in-fact and agents may lawfully do or cause to be done by virtue hereof.EXECUTED as of the 7th day of March, 2017.Allen R. WeissExhibit 24.1POWER OF ATTORNEYDIRECTORS OFCEC ENTERTAINMENT, INCThe undersigned directors of CEC Entertainment, Inc., a Kansas corporation (the "Company"), hereby constitute and appoint ThomasLeverton, Dale R. Black, Rodolfo Rodriguez, Jr., and Laurie E. Priest, and each of them (with full power to each of them to act alone), thetrue and lawful attorneys-in-fact and agents for the undersigned, and on behalf of the undersigned and in the name, place and stead of theundersigned, in any and all capacities, to sign the Annual Report on Form 10-K for the fiscal year ended January 1, 2017 to be filed by theCompany with the Securities and Exchange Commission under the provisions of the Securities Exchange Act of 1934, and any and allamendments, applications, or other documents to be filed with the Securities and Exchange Commission pertaining to such Annual Report onForm 10-K, with full power and authority to do and perform any and all acts and things whatsoever required and necessary to be done in thepremises, as fully to all intents and purposes as theundersigned could do if personally present. The undersigned hereby ratify and confirm allthat said attorneys-in-fact and agents may lawfully do or cause to be done by virtue hereof.EXECUTED as of the 7th day of March, 2017.Lance A. Milken Michael A. Diverio 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 January 1, 2017 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 15, 2017 /s/ Thomas Leverton Thomas Leverton Chief Executive Officer and DirectorEXHIBIT 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, Dale R. Black, certify that:1.I have reviewed this annual report on Form 10-K for the fiscal year ended January 1, 2017 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 15, 2017 /s/ Dale R. Black Dale R. Black Executive Vice President and Chief Financial OfficerEXHIBIT 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 January 1, 2017 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 15, 2017/s/ Thomas Leverton Thomas Leverton Chief Executive Officer and DirectorEXHIBIT 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 January 1, 2017 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 15, 2017/s/ Dale R. Black Dale R. Black Executive Vice President and Chief Financial Officer

Continue reading text version or see original annual report in PDF format above