Welcome to the CEC Entertainment teleconference. (Operator Instructions) I would now like to turn the conference over to Mike Magusiak.

Thank you. Welcome to our conference call. I am Mike Magusiak, President and CEO of our company, and I am joined by Dick Frank, our Executive Chairman; and Tiffany Kice our Executive Vice President and Chief Financial Officer. Tiffany joined our team in August. Tiffany has over 22 years of accounting and retail experience, including the past 14 years in public accounting, with KPMG, where she served as an audit partner since 2006. We're very pleased that Tiffany joined our executive team. Before we begin today's discussion, I would 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. Reconciliation information related to non-GAAP financial measures discussed on this call may be found in the company's Q3 earnings release and on the company's web site under Investor Information. The primary objectives of today's call are first, Tiffany will discuss our financial performance during the third quarter. Next, I will present our strategic plan to increase comparable store sales, earnings per share and shareholder value. Third, Tiffany will discuss our business outlook and finally Dick will provide some concluding remarks and then open the lines for Q&A session. Now I'd like to turn the call over to Tiffany who will review our financial performance.

Thank you Mike, good afternoon everyone. This afternoon we reported an increase of 3.8% in comparable store sales on the same calendar week basis for the third quarter of 2010 and diluted earnings per share of $0.60, from $0.55 from the third quarter of 2009. Despite the positive comparable store sales increase, net income decreased slightly, due to two unfavorable items reported in the third quarter of 2010 totaling approximately $1.1 million net of tax or $0.05 per share, relating to non-cash asset impairment charges and soft drink supplier transition costs. Beyond these items, company's operating cost improved over the prior year third quarter as a percent of company store sales, due to reduction in certain cost per sales, as a result of our menu price increases, efficient labor utilization and cost savings initiative. These improvements were partially offset by increases in the price achieved and higher self insurance cost. I will now discuss our financial results in more detail. Starting with the top line total revenues in the third quarter increased 4.7% to $207.1 million from $197.8 million. This was primarily driven by a 3.9% increase in comparable store sales on a fiscal week basis, along with an increase in our weighted average unit count of approximately four stores as compared to the third quarter of 2009. Our comparable store sales on the same calendar week basis, which we believed to be more indicative of the health of our business, increased 3.8%. Mike will provide additional insight of our positive sales performance later in this conference call. Cost of food and beverage as a percentage of food and beverage sales, decreased 70 basis points to 22.3% in the third quarter of 2010 or 23% in the third quarter of 2009. Menu price increases and reductions in our beverage and…

Thanks, Tiffany. My presentation will focus on a detailed analysis of our sales performance during the third quarter and more importantly on our strategies to increase future comparable store sales, earnings per share and shareholder value. Same calendar week comparable store sales during the third quarter increased 3.8%. The breakdown by month on a same calendar week basis during the quarter was positive 2.2% in July, positive 4.5% in August and positive 4.8% in September. Same week comparable store sales results by region during the third quarter are as follows: The Western region was positive 1.6%. The Southeast region was positive 3.3%. Our Central region was positive 4.4%. And our Northern region was positive 6.2%. This positive sales momentum continues into the first four weeks of the fourth quarter with same calendar week comparable store sales increasing 3.5%. I'll now shift our discussion to a number of strategic initiatives that I believe will position the company for long-term sales and earnings per share growth. These strategies are summarized as follows: first, a strong existing store capital plan that will impact approximately 240 stores this year, representing approximately 48% of our store base; second, the continued focus of increasing birthday party sales; third, an enhanced marketing plan that incorporates brand messaging along with a new strategy of promoting specific online coupon values on national television. This strategy was implemented on July 17. We believe that this national television initiative is positively impacting sales. And finally, our continued focus on increasing weekday sales with school fundraising and other non-profit charitable organizations. Our first sales initiative is strong existing store capital plan that totals approximately $64 million in 2010. This capital plan is projected to impact 240 stores, including 29 expansions, 15 major remodels, 196 game enhancements and includes the capital cost of…

Thanks, Mike. Considering the continued uncertainty with the economic environment and the low seasonal sales base that we experienced with the fourth quarter, it remains difficult to estimate sales for the remainder of the year. However, at this time, our best estimate of comparable store sales on the same calendar week basis for the fourth quarter of 2010 is an increase of 2% to 3%. Based on same calendar week comparable store sales are up 2% to 3% in the fourth quarter of 2010, we're estimating our fourth quarter 2010 diluted earnings per share to be in the range of 17% to 19%. Incorporated into this guidance are the following assumptions. We're assuming block cheese prices will be $1.65 to $1.70 per pound for the fourth quarter of the year as compared to $1.53 in the fourth quarter of 2009. Recall that every $0.10 change in cheese prices is estimated to impact annual pre-tax income by approximately $700,000 to $800,000. We're estimating fourth quarter 2010 depreciation and rent expense will each increase approximately 4% as compared to prior year. We're expecting approximately 30 basis point reduction in the fourth quarter 2010 advertising expense as a percentage to total revenue. We're assuming an effective tax rate of 38.2% for the fourth quarter of 2010. We are currently estimating 2010 fourth quarter capital expenditures to be in the range of $32 million to $34 million. We also expect to open six to eight new company owned locations during fourth quarter, including one or two franchise acquisitions and one relocation. Lastly, we intend to repurchase shares on a opportunistic basis. While it's difficult to project, given the current economic uncertainty in the marketplace looking out into fiscal 2011, we currently anticipate diluted earnings per share to be in the range of $2.93 to $3.03. This guidance considers total capital expenditures ranging from $93 million to $97 million, impacting approximately 200 stores. And the addition of approximately six to eight company owned stores in fiscal 2011. We will continue to refine this estimate and we'll provide more detailed information regarding our projection on our year-end call in February of 2011. With that, I would like now to turn over the call to Dick.

Thanks, Tiffany. Given the continued difficult environment in which we operate, highlighted by the continued relative high levels of employment throughout our country, we are pleased with our comparable store sales performance of 3.8% on a same calendar week basis during the third quarter of 2010. It is also encouraging and we believe reflective of the effectiveness of our strategies that all four of our operating regions of the company experienced same store sales increases during the quarter. Third quarter diluted earnings per share were $0.60, compared to $0.55 for the same quarter of the previous year. Despite the positive comparable store sales increase, net income decreased slightly due to two unfavorable items recorded in the third quarter of 2010, totaling $1.1 million net of tax or $0.05 per share. As we move to the fourth quarter of 2010, our optimism is guarded by the continued uncertain economic environment. However, we are pleased with the same calendar week comparable store sales continuing to be positive in the first four weeks of the fourth quarter being up 3.5%. We continue to believe in the strength of the Chuck E. Cheese brand. We think this strength is evident in a number of different ways. First, during the first nine months of 2010, we generated approximately $138 million of operating cash flow, allowing us to reinvest $71 million in new and existing stores. Additionally, during the same time period, we were able to repurchase approximately $1.9 million shares of our common stock, representing approximately 9% of diluted shares outstanding for $67 million. Second, the strong cash flow of the company is also evident over the longer term. As Mike shared with you earlier, our EBITDA margins as measured by EBITDA as a percentage of revenue over the six year period of 2005 through 2010 have consistently exceeded 22%. We believe this is significant, and again, reflective of the strength in the brand, especially when considering the deep recession over the last couple of years. And lastly, we believe the strength of the Chuck E. Cheese brand is translating to the international markets. We are excited and cautiously optimistic, regarding this long-term opportunity for the company. In a relatively short period of time, we are encouraged by the interest of a number of quality Latin American companies that are expressing a strong desire to build Chuck E. Cheeses in their respective countries. At this time, Mike, Tiffany and I will be glad to answer any questions that you may have.

(Operator Instructions) Our first question will come from the line of Robert Derrington with Morgan Keegan.

A couple of different questions. Mike, could you tell us a little bit about, you had tested in Southern California a new games package, and then I think you were going to move that test out to several markets in the Eastern part of the country. Can you give us any color on that?

I sure can Bob. You're right, we first tested that in Los Angeles and San Diego, and then we tested that in Chicago and Philadelphia, and we were very pleased with those test results. And in fact, Chicago and Philadelphia even exceeded our Los Angeles sales results. San Diego was a little hard to look at, because there was the major competitor moving into that market. But we did see it as to produce an increase in sales, above the trend. And we are considering that as part of our marketing program for 2011.

Tiffany, can you give us some color on the third quarter repurchase activity. How many shares and what was that average price per share just in the quarter?

Price per share was $32.03.

$32.03, and the total purchase amount or number of shares?

Purchased shares was 1 million, approximately.

And then just out of curiosity, the timing of your 8-K and your press release. Your 8-K hit at about 10 minutes after the hour, and the press release actually didn't hit until a minute before the conference call started. I'm just wondering if there is a change in plan or there was some kind of delay or something, or how should we think about that going forward?

That shouldn't have occurred like that. That has nothing to do with it. Bob, we apologize for that.

And our next question comes from the line of Michael Gallo of CL King.

My question is on just the promotional change, Q2 to Q3. Obviously, you had cut back some of the promotions too far in Q2. It was interesting that as you cut that back, it seemed like you were getting more coming in from response to the national advertising campaign. So I was wondering whether you feel like you've optimized the mix or whether there might be an opportunity to further shift more dollars to national, which could be beneficial not only to sales, but I suppose to margins as well. Thank you. Mike Magusiak That's a really good point. We started our national value campaign on July 17. And we saw immediately an increase in online coupon redemptions. So that $9.99 coupled with the $14.99 coupon, was very successful. And we then modified that national value campaign to what we call is young and fun, for $20 a guest receives a large one-topping pizza and 50 tokens. And our actual redemptions over the past four weeks have actually gone up, even greater during the past four weeks. So we're very excited about that. And what we believe is happening is we're reaching additional guest that were not receiving our coupons through the Sunday newspaper or cross-promotions. So we're excited about that. We think that it has strengthen our marketing program by combining a value message on TV with strong brand advertising. And as you pointed out also, the actual coupon discount that we're offering with our television advertising is slightly lower discount that contributes to our improved margins.

We have now a question from Brad Ludington with KeyBanc Capital.

One thing that I missed when you were going through all the numbers was, I think you said fiscal same store sales in the third quarter, what they were as opposed to the 3.8% calendar comp?

They were almost identical. Fiscal was positive 3.9% and same week comparable store sales were positive 3.8%.

And then looking at the impairment charge and the transaction costs, if you kind of back out on the math using the tax rate, it looks like there was about $880,000 in transition costs in the operating expense line that shouldn't occur in the fourth quarter, correct?

That is correct.

That is correct.

So leaving that in, but if you take out the impairment charges, you would've been about $0.63?

No actually, the combination of those two transactions was an after tax impact of $1.1 million or $0.05 a share.

Oh, yes, that's what I was asking. If we leave the transition costs in, but take out impairment, it adds about $0.025 to $0.03?

Yes. Although we're not going to have that transition cost in the fourth quarter, that was a one-time expense that will not hit in the fourth quarter.

Okay. And then looking at the movie calendar coming up here in the fourth quarter, it looks like the Guardians thing wasn't that big of a deal, but does Megamind and Harry Potter, is that built into your guidance, or is that something that could be a risk to guidance?

Movies, first we are aware, the Megamind and Harry Potter and other movies that are going to air in the fourth quarter, it is always difficult to determine what kids movies may or may not impact a quarter. So we're aware of those movies. One of the things that we've done is, we've gone back to look at G and PG movies by month from 2008, 2009 and naturally 2010, and our source is boxofficemojo.com. And when we look at that, there's no doubt that we believe that we were negatively impacted in the second quarter. But then even when you look at the first quarter with movies increasing $292 million from our calculation, we don't believe that it materially impacted first quarter comparable store sales. But regarding the fourth quarter, we went back and we had fairly strong movies during the fourth quarter of 2008 and 2009. And so, it potentially could, but it's not only what the movies are this year, but what they are going against. And so, could there be a risk or potential upside in any one quarter? There could be, but I believe that over the course of the year, that it evens out and quite frankly we take a long term approach to our sales. And I think that over the long term, it pretty much evens out.

And now a question from the Greg Ruedy from Stephens.

I wanted to dive into the 2011 guidance. That range, what kind of level of same-store sales does it contemplate? Do you have any share repurchases assumed in there? And then how should we think about cost of sales for next year in dairy specifically?

There are a number of factors that can impact our guidance for 2011, and those include margins. We see cheese costs at least the current time to not materially be different than this year, naturally our comparable store sales, the number of shares outstanding. And we intend to provide you with more specifics when we release our fourth quarter earnings. But I guess what I would tell you is, we do not believe that it would require a significant increase in comparable store sales to achieve that preliminary guidance.

Okay, that's helpful. I appreciate the color you gave on the sales initiatives and the birthday information. I wanted a little more granularity I guess, on the birthday parties. I know you're getting a higher check and spend per child, but how about traffic?

As we said in the third quarter our total birthday sales on comparable birthday sales increased 16.5% and about, and it could be off a little bit from this dependent on the number of kids in the party. But about 6% of that is price increase with the remaining 10% or so being traffic. And I think that what we're seeing in our birthday parties is a function of an outstanding product in Ticket Blasters. We continue to hear a lot of excitement from our guests regarding the ticket blasters, that it's a significant improvement to our birthday parties, as well as very strong advertising produced by our marketing department.

And we've now questions from the line of Mike Wolleben with Sidoti & Company. Mike Wolleben - Sidoti & Company: Just a follow-up on that birthday question there. I wasn't sure if I missed it here in the last answer, the 16.5% increase, do you attribute most of that here to that $0.50 to $1 increase per kid, or was there more kids coming in, more birthdays being pushed to Fridays and Sundays? Can you kind of break that out?

Yes, out of that 16.5%, about 6% of that was a price increase and the other 10% or so was increased traffic. The number of birthday parties have increased. Mike Wolleben - Sidoti & Company: And then looking at the 2011 capital plan, still $64 million impact from 200 stores. How many game enhancements have to be left after the 196 that you guys are doing this year?

That capital plan includes about 145 game enhancements, and those game enhancements are typically around 125 to 150,000, where we'll change out about 35% of the games in those roughly 145 stores next year. And the plan also incorporates about 25 to 30 expansions, and approximately at this point in time about 25 major remodels. Mike Wolleben - Sidoti & Company: And then on those expansions, are you guys still finding a lot of opportunities for that given where the economy is and where the consumer is? Is there still a lot of walls to be able to knock down?

That absolutely correct, and it shows that this is our third year of really robust expansions. And we continue to pursue that because of the sales, the return on investment, and then as you're saying, a soft real estate market. Mike Wolleben - Sidoti & Company: And can you just remind us what that return was on those expansions?

What we've provided is, we have, over the past 4 to 5 years our sales increase post-expansion, the 12 months after the expansion compared to 3 months before, that sales increase is about 20%. And those expansions, the cost varies dependent on, naturally, on how many square feet. But this year, our expansion is going to be right around the $1 million per store.

And now a question from the line of Greg Schroeder with Morgan Joseph.

Just looking at your cost of food and beverage, it looked like you had a pretty favorable margin there, despite the increase in cheese prices. And I apologize if I missed this, but could you maybe elaborate a little bit on where you were getting favorability in that line item?

Sure. We had menu price increases and some reductions in our beverage and paper cost that resulted from our implementation of various cost savings initiatives that we put in place.

And then to add even a little bit more detail to what Tiffany is talking about on the cost initiatives. Earlier in the year, a number of companies reduced the number of wings from 12 to 10. We did that, and that savings was almost $900,000 year-to-date. We also made some adjustments to our free tokens with food purchases; we changed our cup, our beverage cup from 22 to 18 ounces, and just the combination of those items plus really working on costs such as redemption tickets, and napkins, and token cups has just all combined together to assist our cost to sales. And then finally, what has helped us is, we tweaked our coupons. Our discounts are lower in the third quarter than they were at year end 2009, and that's also helped our margins.

And then as far as the change in the soft drink vendor was there a reason for that change? Is there some benefit of making that change?

Yes, there sure is. We recently made the decision to switch from Coke to Pepsi, and we're very excited to be partnering with the Pepsi brand. As you might suspect, over the course of the last few years, noncarbonated drinks have continued to increase in our product mix, our servings to our guests. And we are real excited to be offering some products including Gatorade, Tropicana, Lipton Iced tea, and we feel that those products will really be appreciated with Moms and Kids. And then secondly, as you're probably aware, Pepsi also owns Quaker, Dole and Tropicana brands, and we are excited about some cross-promotions with those healthy brands.

The final question here, if I could ask a question on the balance sheet, the interest rate swap that you have in place, I believe it expires next May. Could you just remind me, I'm just trying to figure out how to model that interest expense next year. Could you remind me of what fixed rate you're paying now, and then as that $150 million expires, what floating rate do you pay on that?

The swap locks us in at a 3.6% rate on a $150 million of the value plus our 1% spread. We are currently discussing the options that are available to us, and considering the current environment we'll determine what we want to do based on interest rates at that time. But without swap, our rate is a 1% spread plus LIBOR which runs right at about 0.26% to 0.31% right now.

So there is maybe a 1% pickup, assuming LIBOR stays where it's at today; 1% benefit to what you were paying under the swap agreement?

Correct.

And now another question from the line of Brad Ludington with KeyBanc Capital.

I just, Mike, wanted to follow up on you talking about reducing the wings from 12 to 10 in the smaller beverage cup. Did that roll out here in the third quarter?

No, the wings rolled out, I believe it was just during the first quarter. The syrup, this was the first full quarter that we had smaller drink cups in our store. And we see that as the savings, but also from a guest standpoint it's free refills and 18 ounces is just plenty a cup.

(Operator Instructions) And there are no more questions from the phone line.

We appreciate your participation, and if you have any other questions please call Tiffany, Dick or myself. Thanks a lot. Bye.

And 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.