Ladies and gentlemen, thank you for standing by. Welcome to the CEC Entertainment teleconference call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session (Operator Instructions). I’d now like to turn the conference over to our host, Mike Magusiak.

Good morning. Welcome to our conference call. I’m Mike Magusiak, President and CEO of the company and I’m joined by Dick Frank our Executive Chairman and Chris Morris, our Executive Vice President and Chief Financial Officer. Before we begin today’s discussion, I’d like to make you aware that some of the information presented today may contain forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from those implied in the forward-looking statements. Information regarding the company’s risk factors was included in our press release and is also included in the company’s filings with the SEC. The primary objectives for today’s call are first, to discuss our financial performance during the fourth quarter and fiscal 2008. Next, we will provide you with an in-depth review of the effectiveness of our sales initiatives, an analysis of sales trends by geographic area and our thoughts regarding 2009 sales. Third, Chris will discuss our outlook for the business during 2009 and finally, Dick will provide some concluding remarks and then open the lines for a question-and-answer session. Now I’d like to the turn the call over to Chris Morris, who will review our financial performance for the fourth quarter.

Thank you, Mike and good morning everyone. Before specifically discussing the fourth quarter, I think it’s important to briefly review our accomplishments for the full year. Total revenue for the year grew 3.7% in 2008 from $785 million in fiscal year ‘07 to $815 million in fiscal year ‘08 due to an increase in comparable store sales of 2.3% and an increase of approximately five units in our weighted average unit base representing a 1% increase in store operating weeks. Net income increased to $56.5 million in ‘08, from $55.9 million in ‘07 and diluted earnings per share increased to $2.37 in ‘08 from $1.76 in ‘07 reflecting a growth rate just shy of 35%. This growth benefited from the company’s cumulative share repurchases of $409 million during the ‘07 and ‘08 fiscal years. When we look back at 2008 we see a year full of challenges, both from a top-line and a bottom-line perspective. Needless to say the economic climate was increasingly difficult during the year and commodity prices were at historical highs for a significant portion of the year. Given these challenges, we are pleased with the financial results we delivered during ‘08. Now let’s move on to the fourth quarter. Total revenue for the quarter decreased slightly from $175.1 million in Q4, ‘07 to $175 million in Q4, ‘08 primarily due to decline in comparable store sales of 1.5% partially offset by an increase of approximately six units in our weighted average unit base reflecting a 1.2% increase in operating weeks. Cost of sales as a percent of company store sales decreased 30 basis points, from 16.9% to 16.6%. This decrease is primarily due to a $0.26 reduction in cheese prices and a 50 basis point reduction in total pizza cost resulting from an enhanced cheese blend…

Thanks, Chris. As everyone is aware the marketplace in which we operate changed dramatically in the latter part of 2008 and has continued into 2009. This morning we hope to communicate what this change in the economic environment has meant to us from a top line perspective, and share our thoughts relative of how to we intend to respond. The obvious place to begin is with our recent sales performance. We are going to share a significant amount of sales information with our objectives being; first, to quantify the effectiveness of our sales initiatives; second, to analyze our sales trends by geographic area and provide insight into the effect the economy is having in different regions of the country; and third and finally, to provide our methodology and thought process regarding how we built our 2009 sales forecasts by quarter. The first component of our sales analysis is the evaluation of our strategies to increase comparable store sales. Throughout 2008, we provided you with five specific sales initiatives; first, multiple strategies to increase birthday sales; second, strategies to increase school fund raising; third, a focused effort on suggestive selling; fourth, a strong capital plan for existing stores; and fifth, an enhanced multi-media marketing plan directed to moms and kids. We believe that these strategies were effective throughout 2008 and early 2009. Specifically, sales results attributable to these strategies include, core birthday sales increased $8.3 million or 9.5% in 2008 compared to 2007. Fourth quarter core store birthday sales increased $1.9 million or 8.4%. This momentum has continued into 2009 with comparable store birthday sales increasing approximately 6%. In May of 2008, we eliminated the birthday cake from our standard birthday package and introduced a new Hershey cake as an add-on to our birthday package. Birthday cake sales increased by $2.2…

As we begin the 2009 fiscal year, the outlook for the consumer economic environment remains extremely negative. We believe we have developed a strong strategic plan for 2009 in which we will build upon the ‘08 sales initiatives that have proven to be successful and are hopeful that our plan will work to mitigate the negative impact associated with the weakening consumer environment. However, given the unprecedented challenges facing our customers, it is difficult to forecast ‘09 with any meaningful degree of certainly. However, based on everything discussed today, our best estimate at this point in time is comparable store sales will decline approximately 1% to 2% in fiscal year 2009 and diluted EPS will be in the range of $2.53 to $2.65, reflecting a growth rate of 7% to 12%. Incorporated into this estimate are the following items. We are assuming cheese price will average $1.40 to $1.45 for the fiscal year. We are targeting approximately five new company units, including one relocation and two new franchise stores in ‘09. We are currently estimating total capital expenditures to be in the range of $70 million to $75 million. Fiscal year 2009 will be a 53 week year. We currently expect the addition of this extra week to benefit ‘09 diluted EPS by approximately $0.10. We are assuming an effective tax rate of 38.5% for the year and we are assuming free cash flow will be used to pay down debt. However, as we move forward into 2009, we will continue to evaluate the economic climate, as well as our sales and cash flow trends. Based on the results of this evaluation, we may build cash reserves or repurchase shares and paying down debt. During our last conference call we stated that if comparable store sales were flat, diluted EPS would be in the range of $2.72 to $2.78. Since this time, cheese prices and interest rates have declined, offsetting the negative effects associated with our lower sales outlook. As a result, the principle difference between the guidance we provided in October to today’s guidance is our assumption that we’ll use free cash flow to pay down debt versus repurchasing shares. With that I would now like to turn the call over to Dick.

As Mike shared with you, after a great start in 2008, comparable store sales softened in the last half of the year resulting in comparable store sales actually turning negative by the fourth quarter. This sales trend is carried into 2009 with same-store sales being down 1.4% for the first seven weeks of the year. We believe that this shift in sales trends is largely attributable to the dramatic changes in the economic environment in which we operate and has occurred despite what we believe are solid and effective sales building strategies. These strategies include a strong capital plan with respect to our existing stores, an enhanced marketing plan and focused sales efforts regarding birthday parties and school fundraising events. We intend to continue to evolve and build upon these strategies throughout 2009 while looking for additional opportunities to drive top-line sales. The marketplace is obviously challenging, especially in California and Florida, but we believe in the strength of the Chuck E. Cheese brand and are confident in our long-term business outlook. The company remains financially strong as we project operating cash flow will exceed capital expenditures by approximately $75 million to $80 million. We recognize the challenges ahead may be significant, but we intend to stay focused, evolve and execute our strategies in a high-quality manner and enhance long-term shareholder value. At this time, Mike, Chris and I will be glad to take any questions that you may have.

(Operator Instructions) Your first question comes from Michael Gallo -CL King.

The question I have is on birthday parties. I was wondering as the economy is continuing to get worse here early in ‘09, whether you’ve seen any change in trends toward parents booking birthday parties? Obviously that business held up pretty well in 2008. I guess, as we start to dissect the traffic and the comps a little bit further, what you’re seeing on the birthday party business versus what you are seeing in the everyday traffic?

As we stated, our birthday sales and this is just core stores, comparable store birthday sales on a year-to-date basis are positive approximately 6%. So we feel that initiative is working. With comps being negative 1.4% on a year-to-date basis, we are losing it on the typical walk in business.

Coming back to the trends, I think my recollection was earlier in 2008, that the trends toward birthday parties had been even stronger. My guess is, has that trend held pretty constant throughout the quarter or has it that gotten tougher heading into ‘09? Just trying to get a feel for whether you are starting to see that area become more difficult or whether that just continues to hold pretty steady?

You would think that the economy would impact birthday sales, but really throughout all of 2008 when we implemented our revised birthday party we saw strong birthday sales throughout 2008, including the fourth quarter. We feel good about our birthday sales year to date this year and we are actually rolling out a new birthday package in May, June of this year 2009 to hopefully kick birthday sales even a little bit higher.

Your next question comes from Greg Ruedy - Stephens Inc.

Your plans to remodel expand and enhance the games; I don’t think it has changed material from the last quarter. Do you project the returns continuing to stay here given the macro and what other factors are in play to gives you confidence to move forward with your CapEx guidance versus maybe reduce the debt load further?

That is a good question. First of all, I would believe that if the economy is weak it would impact remodels or expansions or any part of the business, but at the same time we are very encouraged by our capital expenditure results early in 2009. We expanded 20 stores last year and year to date 2009 those 20 stores are averaging about 20% up in sales. So when we look at our capital expenditures, we really see that as a long-term investment to have the best product in the marketplace and we feel that is really necessary in good times, in difficult economic times that with the economy improving, when it does improve we really believe that that great product in the marketplace is going to benefit us.

Switching to the cost side of the equation, you’re getting help on the dairy side of it, but are there any cost-saving initiatives that you can discuss that you’re putting in place. It looks like comps are going to be maybe a little softer here in the first half?

Greg, this is Chris. There is nothing specific that we’ve implemented, but what I will tell you that we are very focused on controlling costs. Not only at the field, but here in the support center we’ve had a number of meetings as we developed our 2009 plan and we have an incredibly sharp focus on controlling cost in this environment. So, I’d say it is more than a broad initiative, but nothing specific.

One thing I would add to what Chris said is we built our 2009 plan. We really did try to tighten our costs from every aspect in the company, our departmental and operational department expenditures are below last year and that’s 53 weeks versus 52 weeks and then as you are aware we pay our operators and our executives off of increased sales and profit. When we look at actual expenditures in ‘09 versus budgeted expenditures in ‘08 versus budgeted ‘09, we actually see the compensation for the operators and the executives based off of our plan down about $4 million and that’s built into our earnings guidance that we are providing you.

Okay. Last one and I will pass it on. The game merchandise is ticking up, what’s the inflation on those costs and then do you adjust the number of tickets needed for redemption or is there a way to push the children to certain prizes?

First, the 30 basis-point increase that we saw in the fourth quarter, that’s not a trend that we expect to continue throughout all of 2009. It relates to a specific initiative in the fourth quarter of 2008 to liquidate certain components of our prize and merch inventory. There may be a slight increase in the first-quarter of 2009, but once we get through Q1 of ‘09, we expect pricing in merch to return to historical levels. In terms of adjusting the number of tickets per game, yes we do have that ability to adjust our tickets per game at the store level. I don’t know, Mike if you want to comment.

No, that’s good direction, Chris.

Your next question comes from Bob Derrington - Morgan Keegan.

Mike, could you tell us a little bit about how the TV plan changed. That’s obviously benefiting sales here in the first quarter to date?

Yes, I sure can Bob. I think first of all, we are encouraged by the last two weeks of sales, specifically if you look at so far the numbers we are up against with some strong performance in the first quarter of last year and so we are encouraged by that. What I would tell you is it is only two weeks. There are a lot of variables that can potentially can change over such a short period of time, but we do believe that the fine tuning that we made to our advertising plan has benefited sales over the last two weeks. We had some focus groups in Los Angeles. We reviewed those commercials as we always do and what we did was we changed three commercials back to very, very strong commercials that produced last year and then what we also did we changed the mix of targeting moms and kids to go a little bit higher targeting kids. That happened two weeks ago and the results are early, but we are encouraged with that change to our advertising plan.

Did the message change, Mike? In other words, did you push something, all games own token or something or--?

It was really the TV creative that changed, Bob. We do have a value message in the marketplace. All games are won token and $0.25 tokens and so that message is there, but what we did was we brought back three very strong TV messages that we aired last year.

Then, Mike when you look at menu where do we stand on menu pricing? I think you had about 1.8% at the end of January last year. Effectively, where will we be for Q1 of this year?

About 1.5%, Bob.

Okay, all right. So your year-over-year menu pricing was a little bit less as a percent?

That is exactly right, Bob.

As we move into the new suggestive selling program Mike, what is that program at this point and what’s your expectation around that?

Our program is focused on three specific areas; our value meals, token deals at the front order counter, and we really like those two packages because we have a higher ticket average, and by the packaging of value meals and token deals, we are giving an excellent value to our guests. So, we are driving the value meals from token deals and then we are also on the birthday’s driving food platters, birthday cakes. We’ve got a great Hershey’s birthday cake and any incremental sales, whether it be token deals or value meals also at the birthday parties.

And if could, one last one Chris. Can you help us understand, in your release you talked about the company store operating cost for the fourth quarter increased $5 million. Can you kind of parse this between the adjustments to the self-insured reserve, the increased merged cost and versus the adjustment last year?

Can you just elaborate on that, Bob?

Well, yes I’m just wondering how much of the $5 million higher year-over-year for the store operating cost related to the insurance reserves?

Okay, no problem. Relative to ‘07, we did see an increase in our self-insurance reserves or in other words group medical claims, general liability and worker’s comp claims, on all three. In the fourth quarter, increases in group medical expenses and general liability and worker’s comp increased in the aggregate of approximately $1.3 million or $0.04.

Yes, is that because of increased incidents?

Well, it’s a combination of two things. I would say on a general liability on workers comp, it’s a result of increase in claims, as well as a shift in claims that result in a higher reserve. On group medical, it’s more of a function of what we are comparing against. In other words, in 2007 we just had an exceptional year for group medical claims. So ‘08 we are not seeing an increase in costs, it’s more just compared to a favorable year in ‘07.

Your next question comes from Will Hamilton - SMH Capital.

Chris, first I was wondering if you can talk about flour and whether you renewed that contract and how that compares to last year now.

Yes, dough costs for 2009 compared to 2008, we are expecting dough to be approximately 10% below ‘08 levels. We did lock in dough prices in the last six months of the year. Our purchasing department is in the process of evaluating what steps we want to take in 2009 to potentially lock in prices, but at this point in time we have not executed.

Okay, and then on the cheese front, I know you were contemplating the idea of looking at a contract, any update on that? Certainly at this point you’re not, but what’s the thought in terms of potentially doing a contract going forward?

It’s something that we always evaluate and you’re absolutely right Will. At the very beginning of the year we were exploring the idea of hedging cheese during the 2009 year. Coming off a year where cheese prices averaged $1.86 and then we saw prices drop fairly dramatically, we wanted to just explore that idea. As you said we have not executed a hedge and at this point in time we don’t intend to do so in 2009, and it really just comes down to cheese costs as a percent of our total sales, it represents about 2% of total of sales and our cash flow margins are so strong that it affords us the luxury of being able to weather the storm like we did in 2008 and then likewise benefit when cheese prices come down in a year like 2009. So over a long period of time, a hedging strategy would cost slightly more than a non-hedged strategy.

Right, okay sounds good. Mike, I was wondering just with the marketing budget you made some changes, but by and large it sounds like it should stay roughly the same. Can you give us a sense on the dollar budget that you plan for this year or maybe how much up versus I guess it was the $34 million, $35 million you spent in 2008?

Yes, we are going to spend just a little bit over $35 million in 2009 and with that we have increase in our TV weights of about 7% and then we have about 50 weeks where we have a strong online advertising campaign targeting moms and the value of taking your kids to Chuck E. Cheese.

(Operator Instructions) Your next question comes from Bob Derrington - Morgan Keegan.

Chris, could you give us within your earnings guidance what’s the share count assumption in that EPS guidance?

Well, as we said Bob, we are assuming that free cash flow would be simply used to pay down debt. Our share count, our total shares outstanding at the beginning of the year, just shy of $23 million, $22.7 million.

Okay, alright and then how should we think in terms of the growth in the G&A line? Should we think of it in terms of expressed as a percent of revenue, can you give us any kind of guidance there, any kind of color?

I think the best way to looking at it is just based on a pure absolute dollar standpoint. As Mike said, we believe in 2009 compared to 2008 there will be a benefit simply because we are expecting the performance based compensation in ‘09 to be lower than ‘08.

So the likelihood is that on an absolute dollar basis we are looking at less dollars in that line?

Basically I would assume that would be flat.

And at this time, there are no further questions.

Chris made one minor change that’s going to go down slightly on the G&A, Chris.

Yes Bob, actually I went and looked back at my schedule, and incorporated into our EPS guidance is an assumption that G&A dollars will decline approximately $2 million in ‘09 compared to 2008. Sorry for the confusion.

Thanks, Chris. If there are no further questions, please feel free to call Dick, Chris or myself. We appreciate your participation. Thank you.

Ladies and gentlemen that does conclude your conference for today. Thank you for your participation and for using AT&T Executive Teleconference. You may now disconnect.