CEC Entertainment Reports Fourth Quarter and Fiscal Year-End Earnings

IRVING, Texas--(BUSINESS WIRE)--Feb. 19, 2008--CEC Entertainment, Inc. (NYSE:CEC) today announced earnings for the fourth quarter and fiscal year-ended December 30, 2007.

Revenues for the fourth quarter of 2007 and fourth quarter of 2006 remained constant at $175.1 million, as growth from new store development was offset by a decline in comparable store sales of 2.7%. We reported a net loss of $0.6 million in the fourth quarter of 2007 compared to net income of $12.1 million in the same period of 2006. Diluted earnings per share in the fourth quarter of 2007 decreased to ($0.02) per share from $0.36 per share in the fourth quarter of 2006. Included in 2007 and 2006 fourth quarter results were asset impairment costs totaling $8.4 million and $0.4 million, respectively. Additionally, the fourth quarter of 2007 was negatively impacted by certain tax related adjustments totaling approximately $2.0 million.

Revenues for 2007 increased to $785.3 million from $772.6 million in 2006 primarily due to new store development. Comparable store sales declined 1.4% during 2007. Net income for 2007 decreased to $55.9 million from $68.3 million in 2006. Diluted earnings per share in 2007 were $1.76 per share compared to $2.04 per share in 2006. Included in the 2007 and 2006 fiscal year results were asset impairment costs totaling $9.6 million and $3.9 million, respectively. Excluding asset impairment costs, fiscal year 2007 net income and diluted earnings per share would have been $61.8 million and $1.95, respectively.

During 2007 the Company repurchased $248 million of Company stock representing 7.9 million shares or approximately 25% of diluted shares outstanding at the end of the year. This included $144.6 million used in the fourth quarter of 2007 to repurchase 4.0 million shares of Company stock, which brought the remaining balance on the Company's share repurchase authorization to $232.2 million at the end of 2007. Outstanding borrowings on the Company's $550 million line-of-credit totaled $316.8 million at the end of 2007. At this point in time, the Company continues to believe it will achieve its targeted Debt-to-Adjusted EBITDA ratio of 2:1 and complete the share repurchase authorization within the next three years.

Richard M. Frank, Chairman and Chief Executive Officer, stated that, "We believe sales and operating results in the 2007 fiscal year were negatively impacted by pressures on consumer disposable income. Although disappointed by the sales trend in 2007, we continue to believe our strategies will positively impact sales and earnings, and over the long-term will deliver an excellent experience for our guests and solid performance for our shareholders.

"The 2008 fiscal year is off to a positive start with comparable store sales increasing 2.5% in the first seven weeks of the year. This is particularly encouraging when considering comparable store sales were up 2.7% in the first seven weeks of 2007. We believe we have a strong sales plan for the year and view the early sales performance of 2008 as reinforcing our strategies. However, given the challenging consumer environment, we remain cautious in our outlook for 2008. We're currently estimating comparable store sales growth in fiscal year 2008 to be in a range of flat to up 1%. This may prove to be conservative given our performance to date, but we recognize that seven weeks of performance is a short period of time."

Business Outlook:

Based on current estimates, the Company expects diluted earnings per share to range from $ 2.15 to $2.25 per share for the 2008 fiscal year and $1.10 to $1.15 per share for the first quarter of 2008. Incorporated into this guidance are the following assumptions:

* Comparable store sales growth of flat to positive 1% for the 2008 fiscal year;
* The average price per pound of block cheese for the 2008 fiscal year to be in a range of $1.70 to $1.80;
* An increase in labor expenses for the 2008 fiscal year, primarily driven by higher wage rates, of 0.7% to 0.9% as a percent of revenue;
* 6 to 7 new company units and 4 new franchise units during the year;
* Total capital expenditures for the year of $80 to $85 million;
* Free cash flow will be used to repurchase company shares; and
* An effective tax rate of 38% for the year.

Fourth Quarter Conference Call:

The Company will host a conference call today, February 19, 2008, at 3:30 p.m. Central Time to discuss its fourth quarter and fiscal year-end 2007 financial results. A live webcast of the call (listen only) can be accessed through the Company's website, www.chuckecheese.com. Shortly after its conclusion, a replay of the call will be available for a minimum of ninety days on the website.

Non-GAAP Performance Measures:

The Company reports and discusses its operating results using financial measures consistent with generally accepted accounting principles ("GAAP"). From time to time in the course of financial presentations, earnings conference calls or otherwise, the Company may disclose certain non-GAAP performance measures such as Earnings Before Interest, Taxes, Depreciation and Amortization ("EBITDA") and Free Cash Flow.

Reconciliations of the most directly comparable GAAP financial measure to Adjusted EBITDA and Free Cash Flow and certain other supplemental financial data are set forth in tables accompanying this release.

About CEC Entertainment, Inc.:

Celebrating 30 years of success as a place Where a Kid can be a Kid(R), CEC Entertainment, Inc. is a leading innovator in the family restaurant/entertainment industry. The Company and its franchisees operate a system of 534 Chuck E. Cheese's restaurants located throughout the United States (excluding Wyoming and Vermont), Canada and abroad. Currently, 490 locations in the United States and Canada are owned and operated by the Company. For more information, see the Company's website at www.chuckecheese.com.

Chuck E Cheese's offers families with kids a one-of-a-kind total entertainment experience that includes the coolest games and rides, chances to win tickets for fun prizes, entertainment and great food for the family. Today, more than ever, kids need a safe, wholesome environment in which they can laugh, play and simply enjoy being a kid.

Forward-Looking Statements:

Certain statements in this press release, other than historical information, may be considered forward-looking statements, within the meaning of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, and are subject to various risks, uncertainties and assumptions. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may differ from those anticipated, estimated or expected. Among the key factors that may have a direct bearing on CEC's operating results, performance or financial condition are its ability to implement its growth strategies; national, regional and local economic conditions affecting the restaurant/entertainment industry; competition within each of the restaurant and entertainment industries; success of its franchise operations; negative publicity; health epidemics or pandemics; acts of God; terrorists acts; litigation; demographic trends; fluctuations in quarterly results of operations, including seasonality; government regulations; weather; school holidays; increased commodity, utility, insurance, advertising and labor costs.


CEC ENTERTAINMENT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)

Quarter Ended Year Ended
------------------ -----------------
December December December December
30, 31, 30, 31,
2007 2006 2007 2006
--------- -------- -------- --------
(Unaudited) (Unaudited)

REVENUE:
Company store sales $174,096 $174,340 $781,665 $769,241
Franchise fees and
royalties 1,021 723 3,657 3,312
--------- -------- -------- --------
Total revenue 175,117 175,063 785,322 772,553
--------- -------- -------- --------

OPERATING COSTS AND EXPENSES:
Company store operating costs:
Cost of sales 29,450 26,622 126,413 121,808
Labor expenses 50,846 47,545 214,147 210,010
Depreciation and
amortization 18,758 16,704 70,701 64,292
Rent expense 15,915 15,188 63,734 60,333
Other operating expenses 25,222 25,184 113,789 106,025
--------- -------- -------- --------
Total Company store
operating costs 140,191 131,243 588,784 562,468
Advertising expense 7,067 6,519 30,651 32,253
General and administrative 13,984 14,517 51,705 53,037
Asset impairment costs 8,360 398 9,638 3,910
--------- -------- -------- --------
Total operating costs
and expenses 169,602 152,677 680,778 651,668
--------- -------- -------- --------
Operating income 5,515 22,386 104,544 120,885
Interest expense, net 4,432 2,712 13,170 9,508
--------- -------- -------- --------
Income before income taxes 1,083 19,674 91,374 111,377
Income taxes 1,647 7,621 35,453 43,120
--------- -------- -------- --------

Net (loss) income $ (564) $ 12,053 $ 55,921 $ 68,257
========= ======== ======== ========

Earnings per share:
Basic $ (0.02) $ 0.38 $ 1.81 $ 2.09
Diluted $ (0.02) $ 0.36 $ 1.76 $ 2.04

Weighted average shares
outstanding:
Basic 28,236 32,009 30,922 32,587
Diluted 28,236 33,032 31,694 33,465

CEC ENTERTAINMENT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FISCAL YEAR ENDED DECEMBER 30, 2007
(in thousands, except per share amounts)

Quarterly Period Ended
-------------------------------------
April 1, July 1, September December
30, 30,
2007 2007 2007 2007
-------- -------- --------- ---------
(Unaudited)

REVENUE:
Company store sales $231,859 $179,091 $196,619 $174,096
Franchise fees and
royalties 1,000 774 862 1,021
-------- -------- --------- ---------
Total revenue 232,859 179,865 197,481 175,117
-------- -------- --------- ---------

OPERATING COSTS AND EXPENSES:
Company store operating costs:
Cost of sales 35,997 28,924 32,042 29,450
Labor expenses 58,490 51,736 53,075 50,846
Depreciation and
amortization 16,857 17,293 17,793 18,758
Rent expense 15,925 15,779 16,115 15,915
Other operating expenses 29,632 28,665 30,270 25,222
-------- -------- --------- ---------
Total Company store
operating costs 156,901 142,397 149,295 140,191
Advertising expense 8,440 7,109 8,035 7,067
General and administrative 13,249 12,518 11,954 13,984
Asset impairment costs - 1,278 - 8,360
-------- -------- --------- ---------
Total operating costs
and expenses 178,590 163,302 169,284 169,602
-------- -------- --------- ---------
Operating income 54,269 16,563 28,197 5,515
Interest expense, net 2,791 2,865 3,082 4,432
-------- -------- --------- ---------
Income before income taxes 51,478 13,698 25,115 1,083
Income taxes 19,458 5,150 9,198 1,647
-------- -------- --------- ---------

Net income (loss) $ 32,020 $ 8,548 $ 15,917 $ (564)
======== ======== ========= =========

Earnings per share:
Basic $ 1.00 $ 0.27 $ 0.51 $ (0.02)
Diluted $ 0.95 $ 0.26 $ 0.50 $ (0.02)

Weighted average shares
outstanding:
Basic 32,164 32,020 31,247 28,236
Diluted 33,670 33,003 31,615 28,236

CEC ENTERTAINMENT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FISCAL YEAR ENDED DECEMBER 31, 2006
(in thousands, except per share amounts)

Quarterly Period Ended
-----------------------------------
April 2, July 2, October December
1, 31,
2006 2006 2006 2006
-------- -------- -------- --------
(Unaudited)

REVENUE:
Company store sales $225,730 $175,365 $193,806 $174,340
Franchise fees and
royalties 1,005 764 820 723
-------- -------- -------- --------
Total revenue 226,735 176,129 194,626 175,063
-------- -------- -------- --------

OPERATING COSTS AND EXPENSES:
Company store operating costs:
Cost of sales 37,186 28,125 29,875 26,622
Labor expenses 59,533 51,149 51,783 47,545
Depreciation and
amortization 15,659 15,891 16,038 16,704
Rent expense 15,157 14,868 15,120 15,188
Other operating expenses 28,667 23,476 28,698 25,184
-------- -------- -------- --------
Total Company store
operating costs 156,202 133,509 141,514 131,243
Advertising expense 9,270 7,908 8,556 6,519
General and administrative 12,395 12,295 13,830 14,517
Asset impairment costs - 3,512 - 398
-------- -------- -------- --------
Total operating costs and
expenses 177,867 157,224 163,900 152,677
-------- -------- -------- --------
Operating income 48,868 18,905 30,726 22,386
Interest expense, net 1,791 2,329 2,676 2,712
-------- -------- -------- --------
Income before income taxes 47,077 16,576 28,050 19,674
Income taxes 18,224 6,417 10,858 7,621
-------- -------- -------- --------

Net income $ 28,853 $ 10,159 $ 17,192 $ 12,053
======== ======== ======== ========

Earnings per share:
Basic $ 0.86 $ 0.31 $ 0.54 $ 0.38
Diluted $ 0.84 $ 0.30 $ 0.53 $ 0.36

Weighted average shares
outstanding:
Basic 33,719 32,745 31,975 32,009
Diluted 34,517 33,546 32,614 33,032

CEC ENTERTAINMENT, INC.
RECONCILIATION OF GAAP RESULTS TO NON-GAAP PERFORMANCE MEASURES
AND OTHER SUPPLEMENTAL FINANCIAL DATA
(in thousands, except percentages)

The following table sets forth a reconciliation of net (loss) income
to Adjusted EBITDA and certain other supplemental financial data for
the periods shown:

Quarter Ended Year Ended
------------------- -------------------
December December December December
30, 31, 30, 31,
2007 2006 2007 2006
--------- --------- --------- ---------
(Unaudited) (Unaudited)

Revenues $175,117 $175,063 $785,322 $772,553
--------- --------- --------- ---------

Net (loss) income $ (564) $ 12,053 $ 55,921 $ 68,257
Add:
Income taxes 1,647 7,621 35,453 43,120
Interest expense, net 4,432 2,712 13,170 9,508
Depreciation and
amortization 19,251 17,020 71,919 65,392
Asset write-offs 9,273 2,629 14,465 10,254
Stock-based compensation 1,294 1,382 4,384 5,601
--------- --------- --------- ---------
Adjusted EBITDA $ 35,333 $ 43,417 $195,312 $202,132
========= ========= ========= =========

Adjusted EBITDA
Margin 20.2% 24.8% 24.9% 26.2%


The following table sets forth a reconciliation of cash provided by operating activities to Free Cash Flow:


Quarter Ended Year Ended
----------------- -----------------
December December December December
30, 31, 30, 31,
2007 2006 2007 2006
-------- -------- -------- --------
(Unaudited) (Unaudited)

Cash provided by operating
activities $31,526 $25,095 $163,396 $149,602
Less:
Capital expenditures 22,404 31,902 109,066 115,810
-------- -------- -------- --------
Free Cash Flow $ 9,122 $(6,807) $ 54,330 $ 33,792
======== ======== ======== ========


Adjusted EBITDA, a non-GAAP measure, is defined by the Company as net income excluding income taxes, net interest expense, depreciation, amortization, asset write-offs and stock-based compensation. Adjusted EBITDA Margin represents EBITDA divided by revenues expressed as a percentage.

Free Cash Flow, also a non-GAAP measure, is defined by the Company as cash provided by operating activities less capital expenditures.

The Company believes that the presentation of non-GAAP performance measures provides useful information to investors and other interested parties regarding the Company's operating performance, its capacity to incur and service debt, fund capital expenditures and other corporate uses. The non-GAAP performance measures presented in the schedules above should not be viewed as alternatives or substitutes for the Company's reported GAAP results. Adjusted EBITDA and Free Cash Flow as defined herein may differ from similarly titled measures presented by other companies.


CEC ENTERTAINMENT, INC.
RECONCILIATION OF HISTORICAL GAAP RESULTS TO NON-GAAP PERFORMANCE
MEASURES
AND OTHER SUPPLEMENTAL FINANCIAL DATA
(in thousands, except percentages)

The following table sets forth a reconciliation of net income to
Adjusted EBITDA and certain other supplemental financial data for the
periods shown:

2007 2006 2005 2004 2003
--------- --------- --------- --------- ---------
(Unaudited)

Revenues $785,322 $772,553 $726,169 $727,284 $653,565
--------- --------- --------- --------- ---------

Net income $ 55,921 $ 68,257 $ 69,671 $ 76,978 $ 60,584
Add:
Income taxes 35,453 43,120 43,110 47,683 39,425
Interest
expense, net 13,170 9,508 4,532 2,514 2,144
Depreciation and
amortization 71,919 65,392 61,310 55,771 49,502
Asset write-offs 14,465 10,254 2,389 1,576 1,964
Stock-based
compensation 4,384 5,601 7,962 8,858 10,388
--------- --------- --------- --------- ---------
Adjusted
EBITDA $195,312 $202,132 $188,974 $193,380 $164,007
========= ========= ========= ========= =========

Adjusted
EBITDA
Margin 24.9% 26.2% 26.0% 26.6% 25.1%


The following table sets forth a reconciliation of cash provided by operating activities to Free Cash Flow:


2007 2006 2005 2004 2003
-------- -------- -------- -------- --------
(Unaudited)

Cash provided by
operating activities $163,396 $149,602 $134,998 $162,974 $155,588
Less:
Capital
expenditures 109,066 115,810 91,637 80,088 93,899
-------- -------- -------- -------- --------
Free Cash
Flow $ 54,330 $ 33,792 $ 43,361 $ 82,886 $ 61,689
======== ======== ======== ======== ========


Adjusted EBITDA, a non-GAAP measure, is defined by the Company as net income excluding income taxes, net interest expense, depreciation, amortization, asset write-offs and stock-based compensation. Adjusted EBITDA Margin represents EBITDA divided by revenues expressed as a percentage.

Free Cash Flow, also a non-GAAP measure, is defined by the Company as cash provided by operating activities less capital expenditures.

The Company believes that the presentation of non-GAAP performance measures provides useful information to investors and other interested parties regarding the Company's operating performance, its capacity to incur and service debt, fund capital expenditures and other corporate uses. The non-GAAP performance measures presented in the schedules above should not be viewed as alternatives or substitutes for the Company's reported GAAP results. Adjusted EBITDA and Free Cash Flow as defined herein may differ from similarly titled measures presented by other companies.


CEC ENTERTAINMENT, INC.
STORE INFORMATION

Quarter Ended Year Ended
----------------- -----------------
December December December December
30, 31, 30, 31,
2007 2006 2007 2006
-------- -------- -------- --------

Number of Company-owned stores:
Beginning of period 488 477 484 475
New 2 8 10 14
Acquired from franchisees 1 - 1 -
Closed (1) (1) (5) (5)
-------- -------- -------- --------
End of period 490 484 490 484
======== ======== ======== ========

Number of franchise stores:
Beginning of period 44 45 45 44
New 1 - 1 1
Acquired from franchisees (1) - (1) -
Closed - - (1) -
-------- -------- -------- --------
End of period 44 45 44 45
======== ======== ======== ========


CONTACT: CEC Entertainment, Inc.
Christopher D. Morris, 972-258-4525
Executive Vice President
Chief Financial Officer

SOURCE: CEC Entertainment, Inc.

###

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