UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

~~_______________________~~

FORM 10-Q

~~_______________________~~

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~April~~July 3, 2011

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ~~________~~ to ~~________~~

Commission File Number: 001-13687

~~______________________~~

CEC ENTERTAINMENT, INC.

(Exact name of registrant as specified in its charter)

~~_______________________~~

~~Kansas~~	~~48-0905805~~
Kansas		48-0905805
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

4441 West Airport Freeway Irving, Texas
~~Irving, Texas~~	75062
(Address of principal executive offices)		(Zip Code)

(972) 258-8507

(Registrant’s telephone number, including area code)

Not applicable

(Former name, former address and former fiscal year, if changed since last report)

~~_______________________~~

Indicate 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 12 months (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 and posted 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 and post such files). Yes x No ¨

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 “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

As of ~~April 25,~~July 29, 2011, an aggregate of ~~19,846,182~~19,407,163 shares of the registrant’s common stock, par value $0.10 per share were outstanding.

~~Table of Contents~~

CEC ENTERTAINMENT, INC.

TABLE OF CONTENTS

			~~Page~~
~~PART I~~		~~FINANCIAL INFORMATION~~
				Page
~~ITEM 1.~~PART I		FINANCIAL INFORMATION

ITEM 1.		Financial Statements (Unaudited)


		Condensed Consolidated Balance Sheets at ~~April~~July 3, 2011 and January 2, 2011	3
			3

		Condensed Consolidated Statements of Earnings for the three and six months ended ~~April~~July 3, 2011 and ~~April~~July 4, 2010	4
			4

		Condensed Consolidated Statement of Changes in Stockholders’ Equity for the ~~three~~six months ended ~~April~~July 3, 2011	5
			5

		Condensed Consolidated Statements of Cash Flows for the ~~three~~six months ended ~~April~~July 3, 2011 and ~~April~~July 4, 2010	6
			6

		Notes to Condensed Consolidated Financial Statements	7
			7

ITEM 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations	13
			14

ITEM 3.		Quantitative and Qualitative Disclosures About Market Risk	23
			27

ITEM 4.		Controls and Procedures	24

~~PART II~~		~~OTHER INFORMATION~~27

PART II		OTHER INFORMATION

ITEM 1.		Legal Proceedings			28

ITEM 1.1A.		~~Legal Proceedings~~Risk Factors	25

~~ITEM 1A.~~		~~Risk Factors~~	25
		28

ITEM 2.		Unregistered Sales of Equity Securities and Use of Proceeds	25
			28

ITEM 6.		Exhibits	26
			29

SIGNATURES	27				30

~~Table of Contents~~

PART I - FINANCIAL INFORMATION

ITEM 1. Financial Statements.
1.
~~Financial Statements.~~

CEC ENTERTAINMENT, ~~INC~~.INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

~~(in thousands, except share amounts)~~

April 3,
2011

January 2,
2011

ASSETS

Current assets:
Cash and cash equivalents $ 20,252 $ 19,269
Accounts receivable 13,512 32,237
Inventories 17,542 18,485
Prepaid expenses 17,893 13,942
Deferred tax asset 3,419 3,420
Total current assets 72,618 87,353

Property and equipment, net 679,918 683,192
Other noncurrent assets 8,127 7,484
Total assets $ 760,663 $ 778,029

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:
Capital lease obligations, current portion $ 957 $ 936
Accounts payable 35,312 42,844
Accrued expenses 44,723 32,968
Unearned revenues 9,450 9,393
Accrued interest 1,738 957
Derivative instrument liability 730 1,976
Total current liabilities 92,910 89,074

Capital lease obligations, less current portion 10,622 10,326
Revolving credit facility borrowings 337,000 377,000
Deferred rent liability 51,799 51,522
Deferred landlord contributions 28,479 28,913
Deferred tax liability 53,006 43,038
Accrued insurance 13,506 13,144
Other noncurrent liabilities 6,458 6,950
Total liabilities 593,780 619,967

Commitments and contingencies (Note 5)

Stockholders’ equity:
Common stock, $0.10 par value; authorized 100,000,000 shares; 61,579,275 and 61,436,229 shares issued, respectively 6,158 6,144
Capital in excess of par value 435,924 436,051
Retained earnings 786,529 756,448
Accumulated other comprehensive income 5,838 4,522
Less treasury stock, at cost; 41,733,093 and 41,128,869 shares, respectively (1,067,566 ) (1,045,103 )
Total stockholders’ equity 166,883 158,062
Total liabilities and stockholders’ equity $ 760,663 $ 778,029


	July 3, 2011			January 2, 2011
	*(in thousands, except share amounts)*
ASSETS

Current assets:
Cash and cash equivalents	$	17,376		$	19,269
Accounts receivable		14,083			32,237
Inventories		17,776			18,485
Prepaid expenses		18,130			13,942
Deferred tax asset		3,420			3,420

Total current assets		70,785			87,353

Property and equipment, net		680,430			683,192
Other noncurrent assets		8,028			7,484

Total assets	$	759,243		$	778,029


LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:
Capital lease obligations, current portion	$	945		$	936
Accounts payable		31,476			42,844
Accrued expenses		41,419			32,968
Unearned revenues		9,087			9,393
Accrued interest		1,580			957
Derivative instrument liability		—			1,976

Total current liabilities		84,507			89,074

Capital lease obligations, less current portion		10,409			10,326
Revolving credit facility borrowings		356,500			377,000
Deferred rent liability		52,087			51,522
Deferred landlord contributions		28,693			28,913
Deferred tax liability		55,219			43,038
Accrued insurance		13,506			13,144
Other noncurrent liabilities		3,401			6,950

Total liabilities		604,322			619,967


Commitments and contingencies (Note 5)

Stockholders’ equity:
Common stock, $0.10 par value; authorized 100,000,000 shares; 61,589,265 and 61,436,229 shares issued, respectively		6,159			6,144
Capital in excess of par value		438,413			436,051
Retained earnings		789,093			756,448
Accumulated other comprehensive income		6,378			4,522
Less treasury stock, at cost; 42,178,093 and 41,128,869 shares, respectively		(1,085,122	)		(1,045,103	)

Total stockholders’ equity		154,921			158,062

Total liabilities and stockholders’ equity	$	759,243		$	778,029

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

~~Table of Contents~~

CEC ENTERTAINMENT,, INC.

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

(Unaudited)

~~(in thousands, except per share amounts)~~

Three Months Ended

April 3, April 4,

2011

2010

REVENUES
Food and beverage sales $ 123,757 $ 121,016
Entertainment and merchandise sales 131,459 124,184
Company store sales 255,216 245,200
Franchise fees and royalties 1,186 1,127
Total revenues 256,402 246,327

OPERATING COSTS AND EXPENSES
Company store operating costs:
Cost of food and beverage (exclusive of items shown separately below) 28,903 27,619
Cost of entertainment and merchandise (exclusive of items shown separately below) 10,160 10,050
39,063 37,669
Labor expenses 63,637 60,595
Depreciation and amortization 20,752 19,606
Rent expense 18,485 17,486
Other store operating expenses 32,994 31,034
Total Company store operating costs 174,931 166,390
Advertising expense 9,067 9,037
General and administrative expenses 14,055 13,685
Total operating costs and expenses 198,053 189,112

Operating income 58,349 57,215
Interest expense 2,754 2,670
Income before income taxes 55,595 54,545
Income taxes 21,513 20,683
Net income $ 34,082 $ 33,862

Earnings per share:
Basic $ 1.71 $ 1.53
Diluted $ 1.71 $ 1.53

Weighted average shares outstanding:
Basic 19,938 22,076
Diluted 19,979 22,106


	Three Months Ended				Six Months Ended
	July 3,		July 4,		July 3,		July 4,
	2011		2010		2011		2010
	*(in thousands, except per share amounts)*

REVENUES:
Food and beverage sales	$	88,379	$	89,064	$	212,136	$	210,080
Entertainment and merchandise sales		96,825		91,065		228,284		215,249


Total Company store sales		185,204		180,129		440,420		425,329
Franchise fees and royalties		1,012		857		2,198		1,984


Total revenues		186,216		180,986		442,618		427,313


OPERATING COSTS AND EXPENSES:
Company store operating costs:
Cost of food and beverage (exclusive of items shown separately below)		22,087		19,967		50,990		47,586
Cost of entertainment and merchandise (exclusive of items shown separately below)		7,351		7,736		17,511		17,786


Total cost of food, beverage, entertainment and merchandise		29,438		27,703		68,501		65,372
Labor expenses		52,242		51,777		115,879		112,372
Depreciation and amortization		20,906		19,836		41,658		39,442
Rent expense		18,334		17,440		36,819		34,926
Other store operating expenses		30,252		29,698		63,246		60,732


Total Company store operating costs		151,172		146,454		326,103		312,844

Other costs and expenses:
Advertising expense		8,849		8,385		17,916		17,422
General and administrative expenses		13,224		11,436		27,279		25,121


Total operating costs and expenses		173,245		166,275		371,298		355,387


Operating income		12,971		14,711		71,320		71,926

Interest expense		2,286		3,442		5,040		6,112


Income before income taxes		10,685		11,269		66,280		65,814

Income taxes		4,183		6,491		25,696		27,174


Net income	$	6,502	$	4,778	$	40,584	$	38,640


Earnings per share:
Basic	$	0.34	$	0.22	$	2.07	$	1.77
Diluted	$	0.34	$	0.22	$	2.06	$	1.77

Weighted average shares outstanding:
Basic		19,323		21,544		19,630		21,810
Diluted		19,359		21,592		19,669		21,849

The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.

~~Table of Contents~~

CEC ENTERTAINMENT,, INC.

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

For the ~~three~~Six Months Ended ~~April~~July 3, 2011

(Unaudited)

~~(in thousands, except share amounts)~~

Common Stock
Capital In Excess of Retained Accumulated Other Comprehensive
Treasury Stock

Shares

Amount

Par Value

Earnings

Income

Shares

Amount

Total

Balance at January 2, 2011 61,436,229 $ 6,144 $ 436,051 $ 756,448 $ 4,522 41,128,869 $ (1,045,103 ) $ 158,062
Net income - - - 34,082 - - - 34,082
Change in fair value of cash flow hedge, net of income taxes of ($5) - - - - (9 ) - - (9 )
Hedging loss realized in earnings, net of income taxes of $488 - - - - 772 - - 772
Foreign currency translation adjustments, net of income taxes of $88 - - - - 553 - - 553
Comprehensive income 35,398
Stock-based compensation costs - - 1,885 - - - - 1,885
Stock options exercised 2,588 - 82 - - - - 82
Restricted stock issued, net of forfeitures 213,218 21 (21 ) - - - - -
Tax benefit from stock options and restricted stock - - 645 - - - - 645
Restricted stock returned for taxes (72,760 ) (7 ) (2,718 ) - - - - (2,725 )
Cash dividends declared ($0.20 per share) - - - (4,001 ) - - - (4,001 )
Purchases of treasury stock - - - - - 604,224 (22,463 ) (22,463 )
Balance at April 3, 2011 61,579,275 $ 6,158 $ 435,924 $ 786,529 $ 5,838 41,733,093 $ (1,067,566 ) $ 166,883


	Common Stock						Capital In Excess of			Retained			Accumulated Other Comprehensive		Treasury Stock
	Shares			Amount			Par Value			Earnings			Income		Shares		Amount			Total
	*(in thousands, except share amounts)*

Balance at January 2, 2011		61,436,229		$	6,144		$	436,051		$	756,448		$	4,522		41,128,869	$	(1,045,103	)	$	158,062
Net income		—			—			—			40,584			—		—		—			40,584
Hedging loss realized in earnings, net of income taxes of $770		—			—			—			—			1,221		—		—			1,221
Foreign currency translation adjustments, net of income taxes of $100		—			—			—			—			635		—		—			635

Comprehensive income																					42,440


Stock-based compensation costs		—			—			3,879			—			—		—		—			3,879
Stock options exercised		17,588			1			631			—			—		—		—			632
Restricted stock issued, net of forfeitures		208,285			21			(21	)		—			—		—		—			—
Tax benefit from stock options and restricted stock, net of income taxes of $143		—			—			594			—			—		—		—			594
Restricted stock returned for taxes		(72,837	)		(7	)		(2,721	)		—			—		—		—			(2,728	)
Cash dividends declared ($0.40 per share)		—			—			—			(7,939	)		—		—		—			(7,939	)
Purchases of treasury stock		—			—			—			—			—		1,049,224		(40,019	)		(40,019	)


Balance at July 3, 2011		61,589,265		$	6,159		$	438,413		$	789,093		$	6,378		42,178,093	$	(1,085,122	)	$	154,921

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

~~Table of Contents~~

CEC ENTERTAINMENT,, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

~~(in thousands)~~

Three Months Ended

April 3, April 4,

2011

2010

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 34,082 $ 33,862
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 20,914 19,797
Deferred income taxes 10,007 (1,255 )
Stock-based compensation expense 1,835 1,912
Amortization of landlord contributions (532 ) (509 )
Amortization of deferred debt financing costs 70 70
Loss on asset disposals, net 462 552
Other adjustments (9 ) 19
Changes in operating assets and liabilities:
Accounts receivable 3,408 15,307
Inventories 943 536
Prepaid expenses (4,566 ) (3,979 )
Accounts payable (2,064 ) 5,777
Accrued expenses 3,851 1,310
Unearned revenues 57 1,837
Accrued interest (213 ) 11
Income taxes payable 19,363 15,746
Deferred rent liability 828 233
Deferred landlord contributions 25 531
Net cash provided by operating activities 88,461 91,757

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (22,390 ) (20,954 )
Other investing activities (524 ) (1,124 )
Net cash used in investing activities (22,914 ) (22,078 )

CASH FLOWS FROM FINANCING ACTIVITIES:
Net repayments on revolving credit facility (40,000 ) (49,800 )
Payments on capital lease obligations (231 ) (213 )
Exercise of stock options 82 2,385
Excess tax benefit realized from stock-based compensation 698 564
Payment of taxes for returned restricted shares (2,725 ) (2,732 )
Treasury stock acquired (22,463 ) (16,916 )
Other financing activities (2 ) 1
Net cash used in financing activities (64,641 ) (66,711 )

Effect of foreign exchange rate changes on cash 77 (38 )

Change in cash and cash equivalents 983 2,930

Cash and cash equivalents at beginning of period 19,269 17,361

Cash and cash equivalents at end of period $ 20,252 $ 20,291

SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 2,832 $ 2,633
Income taxes (refunded) paid, net $ (8,108 ) $ 58

NON-CASH INVESTING AND FINANCING ACTIVITIES:
Accrued construction costs $ 5,685 $ 5,740
Common stock issued under 401(k) plan $ - $ 603
Declaration of dividends $ 4,001 $ -


	Six Months Ended
	July 3,			July 4,
	2011			2010
	*(in thousands)*
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	40,584		$	38,640
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		41,978			39,868
Deferred income taxes		11,897			(7,793	)
Stock-based compensation costs		3,779			3,653
Amortization of landlord contributions		(1,066	)		(1,017	)
Amortization of deferred debt financing costs		140			141
Loss on asset disposals, net		1,057			1,277
Other adjustments		(8	)		28
Changes in operating assets and liabilities:
Accounts receivable		5,034			8,419
Inventories		709			820
Prepaid expenses		(4,807	)		(3,524	)
Accounts payable		(3,538	)		712
Accrued expenses		2,464			(146	)
Unearned revenues		(306	)		1,039
Accrued interest		(934	)		773
Income taxes payable		12,702			16,620
Deferred rent liability		1,109			640
Deferred landlord contributions		763			768


Net cash provided by operating activities		111,557			100,918


CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment		(46,787	)		(43,074	)
Other investing activities		(502	)		(4,040	)


Net cash used in investing activities		(47,289	)		(47,114	)


CASH FLOWS FROM FINANCING ACTIVITIES:
Net repayments on revolving credit facility		(20,500	)		(22,900	)
Payments on capital lease obligations		(460	)		(433	)
Dividend payments		(3,922	)		—
Proceeds from exercise of stock options		632			4,629
Excess tax benefit realized from stock-based compensation		737			567
Payment of taxes for returned restricted shares		(2,728	)		(2,742	)
Treasury stock acquired		(40,019	)		(35,555	)
Other financing activities		(2	)		—


Net cash used in financing activities		(66,262	)		(56,434	)


Effect of foreign exchange rate changes on cash		101			(82	)


Change in cash and cash equivalents		(1,893	)		(2,712	)

Cash and cash equivalents at beginning of period		19,269			17,361


Cash and cash equivalents at end of period	$	17,376		$	14,649


SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid	$	5,679		$	5,198
Income taxes paid, net	$	980		$	17,984

NON-CASH INVESTING AND FINANCING ACTIVITIES:
Accrued construction costs	$	3,326		$	4,388
Common stock issued under 401(k) plan	$	—		$	603
Accrual of dividends payable	$	4,017		$	—

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

~~Table of Contents~~

CEC ENTERTAINMENT,, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1.	Basis of Presentation and Recently Issued Accounting Guidance:

The use of the terms “CEC Entertainment,” “Company,” “we,” ~~“us”~~“us,” and “our” throughout these unaudited Notes to Condensed Consolidated Financial Statements refer to CEC Entertainment, Inc. and its subsidiaries.

All of our stores utilize a consistent restaurant-entertainment format that features both family dining and entertainment areas where each store offers the same general mix of food, beverages, entertainment, and merchandise. The economic characteristics, products and services, preparation processes, distribution methods and types of customers are substantially similar for each of our stores. Therefore, we aggregate each store’s operating performance into one reportable operating segment for financial reporting purposes.

Our consolidated financial statements include the accounts of the Company and the International Association of CEC Entertainment, Inc. (the “Association”), a variable interest entity, in which we have a controlling financial interest. The Association primarily administers the collection and disbursement of funds (the “Association Funds”) used for advertising, entertainment, and media programs that benefit both us and our franchisees. We and our franchisees are required to contribute a percentage of gross sales to these funds and could be required to make additional contributions to fund any deficits that may be incurred by the Association. We include the Association in our consolidated financial statements ~~because~~as we concluded that we are the primary beneficiary of its variable interests because we (a) have the power to direct the majority of its significant operating activities, (b) provide it unsecured lines of credit, and (c) own the majority of the store locations that benefit from the Association’s advertising and media expenditures. The assets, liabilities, and operating results of the Association are not material to our consolidated financial statements. We provide unsecured lines of credit to the Association ~~which~~that it uses to fund any operational deficiencies in its media and advertising funds.

Because the Association Funds are required to be segregated and used for specified purposes, we do not reflect franchisee contributions to the Association Funds as revenue, but rather record franchisee contributions as an offset to the Association’s reported expenses. Our contributions to the Association Funds are eliminated in consolidation. Contributions to the advertising and media funds from our franchisees are reflected as offsets to reported advertising expenses and were approximately ~~$0.7~~$0.5 million ~~each~~ for both the three months ended ~~April~~July 3, 2011 and ~~April~~July 4, ~~2010.~~

2010, approximately $1.1 million and $1.2 million for the six months ended July 3, 2011 and July 4, 2010, respectively.

Interim Financial Statements

The accompanying ~~unaudited~~ condensed consolidated financial statements as of ~~April~~July 3, 2011 and for the three and six months ended ~~April~~July 3, 2011 and ~~April~~July 4, 2010 are unaudited and are presented in accordance with the requirements for quarterly reports on Form 10-Q and, consequently, do not include all of the information and footnote disclosures required by accounting principles generally accepted in the United States of America (“GAAP”). In the opinion of management, ~~such~~the Company’s consolidated financial statements include all adjustments (consisting solely of normal recurring adjustments) necessary for the fair statement of ~~the~~its financial information included herein in accordance with GAAP and the rules and regulations of the United States Securities and Exchange Commission (the “SEC”). The balance sheet at January 2, 2011 has been derived from the audited consolidated financial statements at that ~~date, but~~date; however, it does not include all of the information and footnote disclosures required by GAAP for complete financial statements.

Use of Estimates and Assumptions

The preparation of these unaudited condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported ~~amounts~~amount of our assets and liabilities, ~~and~~ the disclosure of our contingent assets and liabilities atas of the date of ~~the~~our consolidated financial statements, and the reported ~~amounts~~amount of revenue and expenses during the period. Actual results could differ from those estimates. ~~Results~~Consolidated results of operations for interim periods are not necessarily indicative of results for the full year. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in our Annual Report on Form 10-K ~~filed with the SEC~~ for the fiscal year ended January 2, 2011, filed with the SEC on February 24, 2011.

CEC ENTERTAINMENT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

Recently Issued Accounting Guidance

Newly Adopted Accounting ~~Guidance:~~Guidance: In October 2009, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2009-13, which amends the accounting and reporting guidance for arrangements comprised of multiple products or services (“deliverables”). The FASB’s revised guidance clarifies how an entity determines separate units of accounting in a multiple-deliverable arrangement and requires that revenue be allocated to all arrangement deliverables using the relative selling price method. We adopted this guidance prospectively as of January 3, 2011, the beginning of our 2011 fiscal year. The adoption of this guidance did not have a material effect on our consolidated financial statements.

~~Table~~

In January 2010, the FASB issued ASU 2010-06, which requires companies to present separate line items for all activities, including purchases, sales, issuances, and settlements, in the reconciliation of ~~Contents~~any fair value measurements classified as Level 3. The adoption of this guidance did not have a material effect on our consolidated financial statements.

Accounting Guidance Not Yet Adopted: In May 2011, the FASB issued ASU 2011-04, which requires a more uniform framework for fair value measurements and related disclosures between GAAP and International Financial Reporting Standards (“IFRS”). This guidance also requires additional disclosure (a) for Level 3 fair value measurements, quantitative information about unobservable inputs used, a description of the valuation processes used by the entity, and a qualitative discussion about the sensitivity of the measurements to changes in the unobservable inputs; (b) for an entity’s use of a nonfinancial asset that is different from the asset’s highest and best use, the reason for the difference; (c) for financial instruments not measured at fair value but for which disclosure of fair value is required, the fair value hierarchy level in which the fair value measurements were determined; and (d) the disclosure of all transfers between Level 1 and Level 2 of the fair value hierarchy. This guidance will be effective for interim and annual periods beginning on or after December 15, 2011. We are currently evaluating the impact this guidance will have on our consolidated financial statements.

~~CEC ENTERTAINMENT, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)~~

~~(Unaudited)~~

In June 2011, the FASB issued ASU 2011-05, which amends existing guidance related to presentation of comprehensive income by allowing only two options for presenting the components of net income and other comprehensive income: (a) in a single continuous financial statement, statement of comprehensive income or (b) in two separate but consecutive financial statements, consisting of an income statement followed by a separate statement of other comprehensive income. In addition, the guidance requires items that are reclassified from other comprehensive income to net income to be presented on the face of the financial statements. The guidance requires retrospective application, and is effective for fiscal years and interim periods within those years, beginning after December 15, 2011, with early adoption permitted. We believe the adoption of this guidance will provide additional detail on certain consolidated financial statements when applicable but will not have any other impact on our consolidated financial statements.

2.	Inventories:

Inventories consisted of the following:

April 3,
2011

January 2,
2011

(in thousands)

Food and beverage $ 4,329 $ 3,809
Entertainment and merchandise 13,213 14,676
$ 17,542 $ 18,485


	July 3, 2011		January 2, 2011
	*(in thousands)*
Food and beverage	$	4,299	$	3,809
Entertainment and merchandise		13,477		14,676

	$	17,776	$	18,485

Food and beverage inventories include food, beverage, paper products, and other supplies needed for our food service operations. Entertainment and merchandise inventories consist primarily of novelty toy items used as redemption prizes for certain games, ~~that may also be~~ sold directly to our ~~customers and~~guests, or used as part of birthday party packages. In addition, entertainment and merchandise inventories also consist of other supplies ~~needed for~~used in our entertainment operations.

CEC ENTERTAINMENT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

3.	Revolving Credit Facility:

April 3,
2011

January 2,
2011

(in thousands)
Revolving credit facility borrowings $ 337,000 $ 377,000


	July 3, 2011		January 2, 2011
	*(in thousands)*
Revolving credit facility borrowings	$	356,500	$	377,000

We have a revolving credit facility ~~providing~~that provides for a total ~~borrowings~~commitment of ~~up to~~ $550.0 million. The revolving credit facility ~~which~~ matures in October 2012 ~~also~~and includes an accordion feature allowing us, subject to lender approval, to request an ~~additional~~increase in our revolving commitment of up to $50.0 million in borrowings at any time. As of ~~April~~July 3, 2011, ~~there were $337.0~~we had $356.5 million of borrowings outstanding and $10.7 million of letters of credit issued but undrawn under ~~the~~our revolving credit facility. Based on the type of borrowing, the revolving credit facility bears interest at the London Interbank Offered Rate (“LIBOR”) plus an applicable margin of 0.625% to 1.25%, determined based on our financial performance and debt levels, or alternatively, the higher of (a) the prime interest rate or (b) the Federal Funds rate plus 0.50%. As of ~~April~~July 3, 2011, borrowings under ~~the~~our revolving credit facility incurred interest at LIBOR (ranging from ~~0.24%~~0.18% - ~~0.31%~~0.19%) plus 1.00% or prime (3.25%). AWe are required to pay a commitment fee ofranging from 0.1% to 0.3%, depending on our financial performance and debt ~~levels,~~levels. The commitment fee is payable ~~on a~~ quarterly ~~basis~~ on any unused portion of our revolving credit ~~line.~~facility. All borrowings under the revolving credit facility are unsecured, but we have agreed not to pledge any of our existing assets to secure future indebtedness.

~~Including the effect of our interest rate swap contract discussed in Note 4 “Derivative Instrument,” the~~

The weighted average effective interest rate incurred on our borrowings under our revolving credit facility was ~~2.8%~~2.2% and ~~2.9%~~3.0% for the three months ended ~~April~~July 3, 2011 and ~~April~~July 4, 2010, respectively, and was 2.5% and 3.0% for the six months ended July 3, 2011 and July 4, 2010, respectively.

The revolving credit facility agreement contains certain restrictions and conditions that, among other things, require us to comply with specified financial covenant ratios, including a ~~minimum~~consolidated fixed charge coverage ratio of not less than 1.5 to 1.0 and a consolidated maximum leverage ratio of not greater than 3.0 to 1.0, as defined in the revolving credit facility agreement. Additionally, the terms of the revolving credit facility agreement limit the amount of ~~our repurchases of our~~ common stock we can repurchase and the amount of cash dividends we may pay ~~on our common stock~~ based on certain financial covenants and criteria. As of ~~April~~July 3, 2011, we were in compliance with all of these covenants.

~~Table of Contents~~

~~CEC ENTERTAINMENT, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)~~

~~(Unaudited)~~

4.	Derivative Instrument:

~~Interest Rate Risk Management~~

~~Our revolving credit facility bears interest at variable rates and therefore exposes us to the impact of interest rate changes. To manage this risk, we use~~

Cash Flow Hedge

We have used an interest rate swap ~~contract~~ to help mitigate ~~the variability of the interest payment cash flows and to reduce~~ our exposure to ~~adverse~~ interest rate ~~changes.~~

~~Cash Flow Hedge~~

~~We have~~risk associated with variable rate changes contained in our revolving credit facility. In May 2008, we entered into a $150.0 million notional amount interest rate swap contract tothat expired in May 2011. We designated the interest rate swap contract as a cash flow hedge. The interest rate swap effectively ~~convert~~converted a portion of our variable rate revolving credit facility debt to a fixed interest rate. ~~The contract, which matures in May 2011, requires us to pay a fixed rate of 3.62% while receiving variable payments from~~We have not renewed the ~~counterparty at the three-month LIBOR rate. Including the 1.00 percentage point applicable margin incurred on our revolving credit facility, the effective~~ interest rate swap contract.

As of ~~the~~January 2, 2011, we had recorded an estimated fair value derivative instrument liability of $2.0 million associated with our interest rate swap contract that was ~~4.62% at April 3,~~realized during the first five months of 2011. ~~The differential amounts receivable or payable under the swap contract are recorded over the life of the contract as adjustments to interest expense.~~

~~We have designated the swap contract as a cash flow hedge. Accordingly, gains~~Gains or losses from changes in ~~its fair value that are determined to be effective in mitigating our exposure to changes in~~the interest ~~payments on the hedged amount of revolving credit facility debt are~~rate swap were reported on ~~the unaudited~~our Condensed Consolidated Balance Sheets as a component of “Accumulated other comprehensive income.” Throughout the term of the interest rate swap contract, ~~the~~any unrealized gains or losses ~~we have~~ reported in accumulated other comprehensive income ~~will be~~were recognized in our earnings when the variable interest rate of the debt ~~affects~~affected earnings. ~~The~~Any ineffective portion of any gains or losses would also be recorded ~~immediately~~ in ~~earnings.~~

~~The following table summarizes~~earnings as incurred. However, we did not incur or record any ineffective gains or losses during the ~~location~~three and ~~fair value of~~six months ended July 3, 2011 or during the ~~derivative instrument in our unaudited Condensed Consolidated Balance Sheets:~~

April 3, January 2,

Balance Sheet Location

2011

2011

Derivative designated as hedging instrument: (in thousands)
Interest rate swap contract
Derivative instrument liability(1) (2)
$ 730 $ 1,976

~~______________~~

~~(1)~~

~~As of April 3, 2011, the estimated fair value was recorded as a $0.7 million current liability.~~

~~(2)~~

~~As of January 2, 2011, the estimated fair value was recorded as a $2.0 million current liability.~~

three and six months ended July 4, 2010.

CEC ENTERTAINMENT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

The following table summarizes the effect of the derivative instrument on other comprehensive income (“OCI”) and income:

Three Months Ended

April 3,
2011

April 4,
2010

Derivative in cash flow hedging relationship: (in thousands)
Loss recognized in accumulated OCI – effective portion:
Interest rate swap contract $ (14 ) $ (790 )
Loss reclassified from accumulated OCI into income – effective portion:
Interest expense $ (1,260 ) $ (1,276 )

There were no ineffective gains or losses recognized during the three months ended April 3, 2011. We expect that approximately $0.4 million, net of taxes, of the change in fair value of the swap contract included in “Accumulated other comprehensive income” as of April 3, 2011 will be realized in earnings as additional interest expense during the second quarter of 2011 when the interest rate swap contract expires.

~~Table of Contents~~

~~CEC ENTERTAINMENT, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)~~

~~(Unaudited)~~


	Three Months Ended						Six Months Ended
	July 3, 2011			July 4, 2010			July 3, 2011			July 4, 2010
	*(in thousands)*
Derivative in cash flow hedging relationship:
Loss recognized in accumulated OCI – effective portion:
Interest rate swap contract	$	(1	)	$	(93	)	$	(15	)	$	(883	)

Loss reclassified from accumulated OCI into income – effective portion:
Interest expense	$	(731	)	$	(1,234	)	$	(1,991	)	$	(2,510	)

4. 5.

~~Derivative Instrument (continued):~~

~~Fair Value Measurement~~

Our interest rate swap contract is not traded on a public exchange. Therefore, its fair value is determined using the present value of expected future cash flows arising from the contract which approximates an amount to be received from or paid to a market participant for this instrument. This valuation methodology utilizes forward interest rate yield curves obtained from an independent pricing service’s quotes of three-month forward LIBOR rates through the swap contract’s maturity. Accordingly, the inputs to our fair value measurement of the interest rate swap are classified within Level 2 of the fair value hierarchy. For more information regarding fair value measurements, refer to Note 1 “Fair Value Measurements” to our consolidated financial statements in our Annual Report on Form 10-K for the fiscal year ended January 2, 2011 on February 24, 2011.

5.	Commitments and Contingencies:

Legal Proceedings

From time to time, we are involved in various inquiries, investigations, claims, lawsuits, and other legal proceedings that are incidental to the conduct of our business. These matters typically involve claims from customers, employees, or other third parties involved in operational issues common to the 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~~time. We record costs related to defending ourselves from litigation as they are incurred. Currently, there are ~~currently~~ a number of claims and legal proceedings pending against us.

In the opinion of our management, after consultation with legal counsel, the amount of ultimate liability with respect to claims or proceedings currently pending against us is not expected to have a material adverse effect on our consolidated financial condition, results of operations, or cash flows.

6.	Income Taxes:

Our liability for uncertain tax positions ~~(including tax,~~(excluding interest and penalties) increased ~~from~~to $4.7 million as of July 3, 2011 as compared to $4.4 million as of January 2, ~~2011~~2011. The increase primarily relates to ~~$4.9 million as of April 3, 2011, primarily in connection with~~ additions ~~relating to~~for current year tax positions and adjustments to ~~the~~our liability relating to prior years’ tax positions (net of decreases resulting from expiring statutes of limitation). The increase also includes the accrual of approximately $0.2 million of additional interest and penalties relating to uncertain tax positions which are included in “General and administrative expenses”.

positions.

~~Table of Contents~~

CEC ENTERTAINMENT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

7.	Earnings Per Share:

Basic earnings per share (“EPS”) is computed by dividing our consolidated net income by the weighted average number of our common shares outstanding during the period. Common shares outstanding consist of shares of our common stock and certain unvested shares of restricted stock containing nonforfeitable dividend rights. Diluted EPS is computed using the weighted average number of common shares and dilutive potential common shares outstanding during the period using the treasury stock method. Potential common shares consist of dilutive stock options and unvested shares of restricted stock that are not considered to be participating securities.

The following table sets forth the computation of EPS, basic and diluted:

Three Months Ended

April 3, April 4,

2011

2010

(in thousands, except per share amounts)
Numerator:
Net income $ 34,082 $ 33,862
Denominator:

Basic weighted average common shares outstanding 19,938 22,076
Potential common shares for stock options and restricted stock 41 30

Diluted weighted average common shares outstanding 19,979 22,106

Earnings per share:
Basic $ 1.71 $ 1.53
Diluted $ 1.71 $ 1.53


	Three Months Ended				Six Months Ended
	July 3, 2011		July 4, 2010		July 3, 2011		July 4, 2010
	*(in thousands, except per share amounts)*

Numerator:
Net income	$	6,502	$	4,778	$	40,584	$	38,640


Denominator:
Basic weighted average common shares outstanding		19,323		21,544		19,630		21,810
Potential common shares for stock options and restricted stock		36		48		39		39

Diluted weighted average common shares outstanding		19,359		21,592		19,669		21,849


Earnings per share:
Basic	$	0.34	$	0.22	$	2.07	$	1.77

Diluted	$	0.34	$	0.22	$	2.06	$	1.77

Stock options to purchase ~~38,094~~37,753 shares and ~~250,613~~1,599 shares of our common stock for the three months ended ~~April~~July 3, 2011 and ~~April~~July 4, 2010, respectively, and stock options to purchase 37,998 shares and 40,545 shares for the six months ended July 3, 2011 and July 4, 2010, respectively, were not included in ~~the~~our diluted EPS computations because the exercise prices of these options were greater than the average market price of ~~the~~our common ~~shares~~stock and, therefore, their effect would be antidilutive.

8.	Stock-Based Compensation:

We have stock-based compensation plans pursuant to which we may grant awards of restricted stock and, prior to fiscal 2006, stock options to our employees and non-employee directors. The fair value of all stock-based awards, less estimated forfeitures, is recognized as stock-based compensation expense in ~~the~~our consolidated financial statements over the vesting period of the award.

The following table summarizes total pre-tax stock-based compensation expense recognized in ~~the unaudited~~our condensed consolidated financial statements:

Three Months Ended

April 3,
2011

April 4,
2010

(in thousands)
Total stock-based compensation cost $ 1,885 $ 1,957
Portion capitalized as property and equipment (1)
(50 ) (45 )
Pre-tax stock-based compensation expense recognized (2)
$ 1,835 $ 1,912

~~_______________~~


	Three Months Ended						Six Months Ended
	July 3,			July 4,			July 3,			July 4,
	2011			2010			2011			2010
	*(in thousands)*

Total stock-based compensation cost	$	1,995		$	1,791		$	3,879		$	3,748
Portion capitalized as property and equipment⁽¹⁾		(50	)		(50	)		(100	)		(95	)

Stock-based compensation expense recognized⁽²⁾	$	1,945		$	1,741		$	3,779		$	3,653

⁽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 store development projects, such as the design and construction of a new store and the remodeling and expansion of our existing stores. Capitalized stock-based compensation is included in “Property and equipment, net” in ~~the unaudited~~our Condensed Consolidated Balance Sheets.

⁽²⁾	Included in “General and administrative expense” in ~~the unaudited~~our Condensed Consolidated ~~Statements~~Statement of Earnings.

~~Table of Contents~~

CEC ENTERTAINMENT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

8.	~~Stock-Based Compensation (continued):~~

As of ~~April~~July 3, 2011, there was ~~$19.3~~$16.9 million of unrecognized pre-tax stock-based compensation ~~cost~~costs related to our restricted stock that will be recognized over a weighted average remaining vesting period of ~~1.9~~1.8 years. All previously granted and currently outstanding stock options are fully vested. As such there is no unrecognized stock-based compensation cost related to stock options.

9.	Stockholders’ Equity:

~~Stock Repurchase Program~~

~~Our~~Cash Dividends

On February 22, 2011, our Board of Directors ~~(the “Board”~~the (“Board”) ~~has~~ approved the initiation of a ~~program~~quarterly cash dividend of $0.20 per share, or $0.80 per share for useach year. Due to the timing of the Board’s decision, dividends paid during our 2011 fiscal year are expected to be $0.60 per share. On August 2, 2011, our Board declared a cash dividend of $0.20 per share, which will be paid on October 6, 2011 to stockholders of record on September 8, 2011. The table below presents dividends declared during the first half of 2011:

Declaration
Date

Record Date

Dividend
Payable Date

Dividend
Payable
per Share

Total Amount
of Dividends Declared

February 22, 2011

March 24, 2011

April 21, 2011

0.20

4.0 million

May 3, 2011

June 2, 2011

July 7, 2011

0.20

3.9 million

Stock Repurchase Program

We have a Board approved program to repurchase shares of our common stock. On July 25, 2005, the Board approved a stock repurchase program, which authorized us to repurchase, from time to time, up to $400 million of our common stock and on October 22, 2007 and October 27, 2009 authorized $200 million increases each. ~~During the three months ended April~~As of July 3, 2011, ~~we repurchased 604,224~~approximately $101.1 million remained available for us to repurchase shares of our common stock, ~~at an aggregate purchase price of approximately $22.5 million under~~in the ~~repurchase program. As of April 3, 2011, approximately $118.7 million remained available for share repurchases~~future, under our share repurchase ~~authorization.~~

program.

The following table summarizes shares of our common stock repurchased by us, in the open market:


Date Purchased	Number of Shares Purchased		Approximate Cost		Average Price Paid Per Share
	(in millions, except number of shares and per share amounts)

First Quarter 2011		604,224	$	22.5	$	37.18
Second Quarter 2011		445,000		17.5	$	39.45

Total 2011		1,049,224	$	40.0	$	38.14


First Quarter 2010		453,859	$	16.9	$	37.27
Second Quarter 2010		468,130		18.7	$	39.82

Total 2010		921,989	$	35.6	$	38.56

The share repurchase ~~authorization approved by the Board~~program does not have an expiration date, and the pace of our repurchase activity ~~will depend~~depends on factors such as our working capital needs, ~~our~~ debt repayment obligations, market price of our common stock, ~~price, and~~as well as economic and market conditions. Our share repurchases may be effected from time to time through open market purchases, accelerated share repurchases, or in privately negotiated transactions. ~~Our share~~The Board may elect to accelerate, suspend, delay, or discontinue our stock repurchase program ~~may be accelerated, suspended, delayed or discontinued~~ at any time.

~~Cash Dividend~~

~~On February 22, 2011,~~

Stock Options

All of our ~~Board approved the initiation of a quarterly cash dividend of $0.20 per share, or $0.80 per share for each year. Due to the timing of the Board’s decision, dividends paid during the 2011 fiscal year~~stock options outstanding are ~~expected to be $0.60 per share. Our first quarterly dividend of $0.20 per share was paid on April 21, 2011 to stockholders of record on March 24, 2011.~~

~~Stock Options~~

fully vested. During the ~~three~~six months ended ~~April~~July 3, 2011, ~~2,588~~17,588 shares of our common stock were issued from the exercise of stock options for cash proceeds of approximately ~~$0.1~~$0.6 million.

During the six months ended July 4, 2010, 144,644 shares of our common stock were issued from the exercise of stock options for cash proceeds of approximately $4.6 million. As of July 3, 2011, we had 37,690 stock options outstanding.

CEC ENTERTAINMENT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

Restricted Stock

The following table summarizes restricted stock activity during the ~~three~~six months ended ~~April~~July 3, ~~2011 (not presented in thousands):~~

Restricted
Shares

Weighted Average
Grant Date
Fair Value

Unvested restricted stock awards, January 2, 2011 648,235 $ 29.90
Granted 219,055 $ 38.16
Vested (244,637 ) $ 30.07
Forfeited (5,837 ) $ 29.88
Unvested restricted stock awards, April 3, 2011 616,816 $ 32.77

2011:


	Restricted Shares*			Weighted Average Grant Date Fair Value*

Unvested restricted stock, January 2, 2011		648,235		$	29.90
Granted		220,333		$	37.94
Vested		(250,380	)	$	30.03
Forfeited		(12,048	)	$	32.46

Unvested restricted stock, July 3, 2011		606,140		$	32.72

*	Not presented in thousands.

During the ~~three~~six months ended ~~April~~July 3, 2011, employees and non-employee directors tendered ~~72,760~~72,837 shares of common stock to satisfy tax withholding requirements on the vesting of restricted stock at an average price per share of ~~$37.45.~~

$37.46.

~~Table~~ITEM 2. Management’s Discussion and Analysis of ~~Contents~~Financial Condition and Results of Operations.

~~ITEM~~ 2.

~~Management's Discussion and Analysis of Financial Condition and Results of Operations.~~

As used in this report, the terms “CEC Entertainment,” “we,” “Company,” ~~“us”~~“us,” and “our” refer to CEC Entertainment, Inc.® and its subsidiaries.

Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to provide the readers of our unaudited condensed consolidated 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 unaudited condensed consolidated financial statements and related notes included in Part I, Item 1 “Financial Statements” of this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the fiscal year ended January 2, 2011, filed on February 24, 2011. Our MD&A includes the following:

Executive Summary

Overview of Operations

Results of Operations

Financial Condition, Liquidity and Capital Resources

Off-Balance Sheet Arrangements and Contractual Obligations

Critical Accounting Policies and Estimates

Recently Issued Accounting Guidance

Cautionary Note Regarding Forward-Looking Statements

Executive Summary

Total revenues increased 2.9% to $186.2 million for the second quarter of 2011 as compared to $181.0 million for the same quarter in 2010.

Comparable store sales increased 0.3%;

Weighted average Company-owned store count increased by approximately nine stores; and

Menu prices increased on average by 0.7%.

Operating income as a percentage of total revenues decreased 1.1 percentage points to 7.0% for the second quarter of 2011 as compared to 8.1% for the same quarter in 2010. The percentage decrease primarily reflects an increase in food costs, depreciation, rent, and higher corporate performance-based compensation, partially offset by a decrease in labor expense and insurance related costs.

Our interest expense as a percentage of total revenue decreased by 0.7 percentage points to 1.2% for the second quarter of 2011 as compared to 1.9% for the same quarter in 2010. The percentage decrease is ~~presented~~primarily due to the non-recurrence of a $0.7 million charge recorded in the ~~following sections:~~

~~Executive Summary~~

~~Overview of Operations~~

~~Results of Operations~~

~~Financial Condition, Liquidity and Capital Resources~~

~~Off-Balance Sheet Arrangements and Contractual Obligations~~

~~Critical Accounting Policies and Estimates~~

~~Recently Issued Accounting Guidance~~

~~Executive Summary~~

~~Revenues increased 4.1% during the first~~second quarter ~~of 2011 compared to the same period in 2010.~~

~~Comparable store sales increased 1.1%.~~

~~Weighted average Company-owned store count increased by approximately eight stores.~~

~~Menu prices increased on average 2.1%.~~

~~Operating income as a percentage of total revenues decreased 0.4 percentage points to 22.8%, primarily reflecting increases in store labor, other operating expenses, depreciation and rent expense.~~

Diluted earnings per share for the first quarter of 2011 increased 11.8% to $1.71 compared to $1.53 in the same period in 2010. Earnings per share benefited from our cumulative repurchase of approximately 2.8 million shares of our common stock since the beginning of the first quarter of 2010.

~~We repurchased approximately 0.6 million shares of our common stock during the first quarter of 2011 at an average price of $37.18 a share.~~

~~During the first quarter of 2011, we completed 25 capital initiatives consisting of one store relocation, three expansions and 21 game enhancements.~~

~~Table~~ of ~~Contents~~2010 related to interest associated with uncertain tax positions established pursuant to an Internal Revenue Service (“IRS”) examination. In addition, interest expense associated with our interest rate swap agreement decreased $0.5 million due to the expiration of the interest rate swap agreement in May 2011.

Our effective income tax rate decreased to 39.1% from 57.6% in the second quarter of 2010 primarily related to recording an unfavorable discrete adjustment during the second quarter of 2010 of $2.4 million in connection with an IRS examination.

Diluted earnings per share for the second quarter of 2011 increased 54.5% to $0.34 as compared to $0.22 for the same quarter in 2010. Earnings per share benefited from our cumulative repurchase of approximately 2.8 million shares of our common stock since the beginning of the second quarter of 2010.

We repurchased approximately 0.4 million shares of our common stock during the second quarter of 2011 at an average price per share of $39.45.

During the second quarter of 2011, we completed 41 capital initiatives consisting of one new store, one major remodel, nine expansions, and 30 game enhancements.

Overview of Operations

We develop, operate, and franchise family dining and entertainment centers under the name “Chuck E. Cheese’s^®” in 48 states and seven foreign countries or territories. ~~Chuck E. Cheese’s~~Our stores feature musical and comic entertainment by robotic and animated characters, arcade-style and skill oriented games, video games, rides, and other activities intended to appeal to our primary customer base of families with children between two and 12 years of age. All of our stores offer dining selections consisting of a variety of beverages, pizzas, sandwiches, appetizers, a salad bar, and desserts.

The following table summarizes information regarding the number of Company-owned and franchised stores for the periods presented:

Three Months Ended

April 3, April 4,

2011

2010

Number of Company-owned stores:
Beginning of period 507 497
New (1)
1 -
Acquired from franchisees - 1
Closed (1)
(1 ) -
End of period 507 498

Number of franchised stores:
Beginning of period 47 48
New 1 1
Acquired by the Company - (1 )
Closed (1 ) -
End of period 47 48

~~______________~~


	Three Months Ended					Six Months Ended
	July 3,			July 4,		July 3,			July 4,
	2011			2010		2011			2010

Number of Company-owned stores:
Beginning of period		507			498		507			497
New⁽¹⁾		1			—		2			—
Acquired from franchisees		—			—		—			1
Closed⁽¹⁾		(1	)		—		(2	)		—

End of period		507			498		507			498


Number of franchised stores:
Beginning of period		47			48		47			48
New		1			—		2			1
Acquired by the Company		—			—		—			(1	)
Closed		—			—		(1	)		—

End of period		48			48		48			48

⁽¹⁾	~~Both~~ For the ~~new~~six months ended July 3, 2011, included the closing and ~~closed store in the first quarter~~opening of ~~2011 represents our~~one relocated store.

Comparable store sales.We define comparable store sales as the percentage change in sales for our domestic Company-owned stores that have been open for more than 18 months as of the beginning of each respective fiscal year or 12 months for acquired stores (our “comparable store base”). Comparable store sales is a key performance indicator used within our industry and is a critical factor when evaluating our performance as it is indicative of acceptance of our strategic initiatives and local economic and consumer trends.

Revenues.Our primary source of revenues is ~~from~~ sales at our Company-owned stores (“Company store sales”) and consists of the sale of food, beverages, game-play tokens, and merchandise. A portion of Company store sales comes from sales of value-priced combination packages generally comprised of food, beverage, and game tokens (“package deals”), which we promote through in-store menu pricing or coupon offerings. Food and beverage sales include all revenue recognized with respect to stand-alone food and beverage sales, as well as ~~the~~a portion of revenue ~~that is~~ allocated from package ~~deals.~~deals and coupons that relate to food and beverage sales. Entertainment and merchandise sales include all revenue recognized with respect to stand-alone game token sales, as well as ~~the~~a portion of revenue ~~that is~~ allocated from package ~~deals. This revenue caption also includes sales of merchandise at our stores.~~deals and coupons that relate to entertainment and merchandise. We allocate the revenue 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 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.

Franchise fees and royalties include royalties charged to franchisees based on a percentage of a franchised store’s sales, area development, and initial franchise fees received from franchisees to establish new stores and other miscellaneous sales to franchisees.

We recognize the franchise fee as revenue when we have substantially completed our obligations to the franchisee.

~~Table of Contents~~

Company store operating costs.Certain costs and expenses relate only to the operation of our Company-owned stores and are as follows:

Cost of food and beverage includes all direct costs of food, beverages, and costs of related paper and birthday supplies less rebates from suppliers;

Cost of entertainment and merchandise includes all direct costs of prizes provided and merchandise sold to our customers, as well as the cost of tickets dispensed to customers and redeemed for prizes;

~~Cost of food and beverage includes all direct costs of food, beverages and costs of related paper and birthday supplies, less rebates from suppliers;~~

Labor expenses consist of salaries and wages, related payroll taxes, and benefits for store personnel;

Depreciation and amortization includes expenses that pertain directly to our store assets, including leasehold improvements, game and ride equipment, furniture, fixtures, and other equipment;

Rent expense includes lease costs for Company-owned stores, excluding common occupancy costs (e.g. common area maintenance (“CAM”) charges, property taxes, etc.); and

Other store operating expenses include utilities, repair and maintenance costs, liability and property insurance, CAM charges, property taxes, preopening expenses, store asset disposal gains and losses, and all other costs directly related to the operation of a store.

~~Labor expenses consist of salaries and wages, related payroll taxes and benefits for store personnel;~~

Depreciation and amortization includes expenses that pertain directly to our store assets primarily consisting of leasehold improvements, game and ride equipment, furniture, fixtures and other equipment;

~~Rent expense includes lease costs for Company-owned stores, excluding common occupancy costs (e.g. common area maintenance (“CAM”) charges, property taxes, etc.); and~~

Other store operating expenses include utilities, repair costs, liability and property insurance, CAM charges, property taxes, preopening expenses, store asset disposal gains and losses, and all other costs directly related to the operation of a store.

Our “Cost of food and beverage” and “Cost of entertainment and merchandise” mentioned above do not include an allocation of (i) store employee payroll, related taxes and benefit costs and (ii) depreciation and amortization expense associated with Company-store assets. We believe that presenting store-level labor costs and depreciation and amortization expense in the aggregate provides the most informative financial reporting presentation.

Cost of food, beverage, entertainment, and merchandise as a percentage of Company store sales is influenced by both the cost of product, as well as the overall mix of Company store sales. Entertainment and merchandise sales have higher margins than food and beverage sales.

Advertising expense.Advertising expense includes production costs for television commercials, newspaper inserts, Internet advertising, coupons, and media expenses for national and local advertising, with offsetting contributions from our franchisees.

General and administrative expenses. General and administrative expenses represent all costs associated with our corporate office operations, including regional and district management and corporate personnel payroll and benefits, depreciation and amortization of corporate assets, ~~and~~as well as other administrative costs not directly related to the operation of a store location.

Asset impairments.Asset impairments (if any) represent non-cash charges we record to write down the carrying amount of long-lived assets within stores that are not expected to generate sufficient projected cash flows in order to recover their net book value.

Seasonality and Variation in Quarterly Results

Our operating results fluctuate seasonally due to the timing of school vacations, holidays, and changing weather conditions. As a result, we typically generate higher sales volumes during the first and third quarters of each fiscal year. School operating schedules, holidays, and weather conditions may affect sales volumes in some operating regions differently than others. Because of the seasonality of our business, results for any quarter are not necessarily indicative of the results that may be achieved for the full fiscal year.

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, except during a 53 week year when the fourth quarter has 14 weeks. Our 2011 and 2010 fiscal ~~year will consist~~years each consists of 52 ~~weeks and our 2010 fiscal year consisted of 53~~ weeks.

~~Table of Contents~~

Results of Operations

The following table summarizes ~~our~~the principal sources of our Company store sales expressed in dollars and as a percentage of total Company store sales for the periods presented:

Three Months Ended

April 3, 2011

April 4, 2010

(in thousands, except percentages)

Food and beverage sales $ 123,757 48.5 % $ 121,016 49.4 %
Entertainment and merchandise sales 131,459 51.5 % 124,184 50.6 %
Company store sales $ 255,216 100.0 % $ 245,200 100.0 %


	Three Months Ended								Six Months Ended
	July 3, 2011				July 4, 2010				July 3, 2011				July 4, 2010
	*(in thousands, except percentages)*

Food and beverage sales	$	88,379	47.7	%	$	89,064	49.4	%	$	212,136	48.2	%	$	210,080	49.4	%
Entertainment and merchandise sales		96,825	52.3	%		91,065	50.6	%		228,284	51.8	%		215,249	50.6	%


Company store sales	$	185,204	100.0	%	$	180,129	100.0	%	$	440,420	100.0	%	$	425,329	100.0	%

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:

Three Months Ended

April 3, 2011

April 4, 2010

(in thousands, except percentages)
Company store sales $ 255,216 99.5 % $ 245,200 99.5 %
Franchise fees and royalties 1,186 0.5 % 1,127 0.5 %
Total revenues 256,402 100.0 % 246,327 100.0 %
Company store operating costs:
Cost of food and beverage (1)
28,903 23.4 % 27,619 22.8 %
Cost of entertainment and merchandise (2)
10,160 7.7 % 10,050 8.1 %
Cost of food, beverage, entertainment and merchandise (3)
39,063 15.3 % 37,669 15.4 %
Labor expenses (3)
63,637 24.9 % 60,595 24.7 %
Depreciation and amortization (3)
20,752 8.1 % 19,606 8.0 %
Rent expense (3)
18,485 7.2 % 17,486 7.1 %
Other store operating expenses (3)
32,994 12.9 % 31,034 12.7 %
Total Company store operating costs (3)
174,931 68.5 % 166,390 67.9 %
Advertising expense 9,067 3.5 % 9,037 3.7 %
General and administrative expenses 14,055 5.5 % 13,685 5.6 %
Total operating costs and expenses 198,053 77.2 % 189,112 76.8 %
Operating income 58,349 22.8 % 57,215 23.2 %
Interest expense 2,754 1.1 % 2,670 1.1 %
Income before income taxes $ 55,595 21.7 % $ 54,545 22.1 %

~~__________________~~


	Three Months Ended								Six Months Ended
	July 3, 2011				July 4, 2010				July 3, 2011				July 4, 2010
	*(in thousands, except percentages)*

Company store sales	$	185,204	99.5	%	$	180,129	99.5	%	$	440,420	99.5	%	$	425,329	99.5	%
Franchising fees and royalties		1,012	0.5	%		857	0.5	%		2,198	0.5	%		1,984	0.5	%


Total revenues		186,216	100.0	%		180,986	100.0	%		442,618	100.0	%		427,313	100.0	%

Company store operating costs:
Cost of food and beverage⁽¹⁾		22,087	25.0	%		19,967	22.4	%		50,990	24.0	%		47,586	22.7	%
Cost of entertainment and merchandise⁽²⁾		7,351	7.6	%		7,736	8.5	%		17,511	7.7	%		17,786	8.3	%


Total cost of food, beverage, entertainment and merchandise⁽³⁾		29,438	15.9	%		27,703	15.4	%		68,501	15.6	%		65,372	15.4	%
Labor expenses⁽³⁾		52,242	28.2	%		51,777	28.7	%		115,879	26.3	%		112,372	26.4	%
Depreciation and amortization⁽³⁾		20,906	11.3	%		19,836	11.0	%		41,658	9.5	%		39,442	9.3	%
Rent expense⁽³⁾		18,334	9.9	%		17,440	9.7	%		36,819	8.4	%		34,926	8.2	%
Other store operating expenses⁽³⁾		30,252	16.3	%		29,698	16.5	%		63,246	14.4	%		60,732	14.3	%

Total Company store operating costs⁽³⁾		151,172	81.6	%		146,454	81.3	%		326,103	74.0	%		312,844	73.6	%
Other costs and expenses:
Advertising expense		8,849	4.8	%		8,385	4.6	%		17,916	4.0	%		17,422	4.1	%
General and administrative expenses		13,224	7.1	%		11,436	6.3	%		27,279	6.2	%		25,121	5.9	%

Total operating costs and expenses		173,245	93.0	%		166,275	91.9	%		371,298	83.9	%		355,387	83.2	%


Operating income		12,971	7.0	%		14,711	8.1	%		71,320	16.1	%		71,926	16.8	%
Interest expense		2,286	1.2	%		3,442	1.9	%		5,040	1.1	%		6,112	1.4	%


Income before income taxes	$	10,685	5.7	%	$	11,269	6.2	%	$	66,280	15.0	%	$	65,814	15.4	%

⁽¹⁾	Percent amount expressed as a percentage of food and beverage sales.

⁽²⁾	Percent amount expressed as a percentage of entertainment and merchandise sales.

⁽³⁾	Percent amount expressed as a percentage of Company store sales.

Due to rounding, percentages presented in the table above may not add. The percentage amounts for the components of cost of food, beverage, entertainment and merchandise do not sum due to the fact that cost of food and beverage and cost of entertainment and merchandise are expressed as a percentage of related food and beverage and entertainment and merchandise sales, as opposed to total Company store sales.

Three Months Ended ~~April~~July 3, 2011 Compared to Three Months Ended ~~April~~July 4, 2010

Revenues

Company store sales increased ~~4.1%~~$5.1 million, or 2.8%, to ~~$255.2~~$185.2 million ~~during~~for the ~~first~~second quarter of 2011 as compared to ~~$245.2~~$180.1 million for the second quarter of 2010. The increase in Company store sales primarily related to a 0.3% increase in comparable store sales and a weighted average net increase of approximately nine Company-owned stores. The increase in comparable store sales is partially attributable to menu prices increasing by approximately 0.7%, which were initiated during the second quarter of 2010.

Total Company store sales mix consisted of food and beverage sales totaling 47.7% and entertainment and merchandise sales totaling 52.3% for the second quarter of 2011 as compared to 49.4% and 50.6%, respectively, for the second quarter of 2010. We believe the sales mix shift from food and beverage to entertainment and merchandise is the result of changes made to our token-only coupons and the component mix of package-deal coupons, coupled with our ongoing investment in our games that we believe is causing our guests to allocate more of their average check to games.

Company Store Operating Costs

For the second quarter of 2011, the cost of food, beverage, entertainment, and merchandise, as a percentage of Company store sales, increased 0.5 percentage points to 15.9% as compared to 15.4% for the second quarter of 2010. The percentage increase primarily related to an increase in certain commodity costs and cheese usage.

Cost of food and beverage, as a percentage of food and beverage sales, increased 2.6 percentage points to 25.0% for the second quarter of 2011 as compared to 22.4% for the second quarter of 2010. The percentage increase primarily was the result of an increase in certain commodity costs, higher cheese usage, and the deleveraging effect of the shift in sales mix in connection with component changes in our coupons promoting package deals. During the second quarter of 2011, the average price per pound of cheese increased approximately $0.36, or 25.1%, as compared to the second quarter of 2010.

Cost of entertainment and merchandise, as a percentage of entertainment and merchandise sales, decreased 0.9 percentage points to 7.6% for the second quarter of 2011 as compared to 8.5% for the second quarter of 2010. The percentage decrease primarily related to the leveraging effect of the shift in the sales mix in connection with component changes in our coupons related to our package deals and changes to our token-only coupons.

Labor expenses, as a percentage of Company store sales, decreased 0.5 percentage points to 28.2% for the second quarter of 2011 as compared to 28.7% for the second quarter of 2010. The percentage decrease primarily related to the improvement of the utilization of our hourly work force, partially offset by a 1.4% increase in the average hourly rate.

Depreciation and amortization expense related to our stores increased by $1.1 million to $20.9 million for the second quarter of 2011 as compared to $19.8 million for the second quarter of 2010. The increase in depreciation primarily related to ongoing capital investment initiatives at our existing stores and new store development.

Rent expense for our stores increased $0.9 million to $18.3 million for the second quarter of 2011 as compared to $17.4 million for the second quarter of 2010. The increase primarily related to an increase in leased properties resulting from new store development and expansions of our existing stores.

Other store operating expenses, as a percentage of Company store sales, decreased 0.2 percentage points to 16.3% for the second quarter of 2011 as compared to 16.5% for the second quarter of 2010. The percentage decrease was primarily due to a decrease in insurance related costs related to a decrease in actuarial reserves.

Advertising Expense

Advertising expense, as a percentage of total revenues, increased 0.2 percentage points to 4.8% for the second quarter of 2011 as compared to 4.6% for the second quarter of 2010. The increase primarily related to the timing of when we incurred media costs associated with advertising during the Easter holiday period that fell into the second quarter for 2011, but was in the first quarter for 2010. In addition, we launched ad campaigns in various radio advertising outlets beginning in 2011.

General and Administrative Expenses

General and administrative expenses increased $1.8 million to $13.2 million for the second quarter of ~~2010~~2011 as compared to $11.4 million for the second quarter of 2010. The increase primarily related to an increase in corporate performance-based compensation expenses.

Interest Expense

Interest expense decreased $1.1 million to $2.3 million for the second quarter of 2011 as compared to $3.4 million for the second quarter of 2010. The decrease is primarily due to the recording of a ~~1.1%~~non recurring charge of $0.7 million in the second quarter of 2010 related to interest associated with uncertain tax positions pursuant to an IRS examination. In addition, interest expense associated with our interest rate swap decreased $0.5 million due to the expiration of our interest rate swap agreement in May 2011. In connection with the interest rate swap agreement, we paid a 4.62% fixed interest rate on $150.0 million of our outstanding debt, and upon expiration of the interest rate swap agreement, we paid a variable interest rate of approximately 1.2%.

Income Taxes

Our effective tax rate decreased to 39.1% for the second quarter of 2011 as compared to 57.6% for the second quarter of 2010. The decrease in our effective tax rate was primarily related to recording an unfavorable discrete adjustment in the prior year of approximately $2.4 million that was identified as a result of an IRS examination of our 2006 and 2007 federal tax returns. The IRS examination of our 2006 and 2007 federal tax returns was concluded and settled in December 2010.

Diluted Earnings Per Share

Diluted earnings per share increased to $0.34 per share for the second quarter of 2011 as compared to $0.22 per share for the second quarter of 2010. The increase primarily related to recording unfavorable discrete adjustments in the prior year of approximately $2.8 million, net of taxes, in connection with an IRS examination. In addition, the number of weighted average diluted shares outstanding decreased by 10.3% as compared to the second quarter of 2010. The number of weighted average diluted shares outstanding decreased, primarily from our repurchase of approximately 2.8 million shares of our common stock since the beginning of the second quarter of 2010. We estimate that the decrease in the number of weighted average diluted shares outstanding during the second quarter of 2011 attributable solely to these repurchases benefited our diluted earnings per share in the second quarter of 2011 by approximately $0.03 per share. Our estimate is based on the weighted average number of shares repurchased since the beginning of the second quarter of 2010 and includes consideration of any estimated additional interest expense attributable to borrowings under our revolving credit facility to finance any stock repurchases. Our diluted earnings per share computation excludes the effect of share repurchases prior to the second quarter of 2010, the effect of the issuance of restricted stock, and the exercise of stock options subsequent to the beginning of the second quarter of 2010.

Six Months Ended July 3, 2011 Compared to Six Months Ended July 4, 2010

Revenues

Company store sales increased $15.1 million, or 3.5%, to $440.4 million for the first six months of 2011 as compared to $425.3 million for the first six months of 2010. The increase in Company store sales primarily related to a 0.8% increase in comparable store sales and a weighted average net increase of approximately eight Company-owned stores. The increase in comparable store sales is partially attributable to menu prices ~~increased~~increasing by approximately ~~2.1%~~1.4%, which were primarily initiated during the ~~first~~second quarter of ~~2011 as compared to the first quarter of~~ 2010. We also believe the various strategies we have implemented, including the ongoing capital initiatives at our stores, an enhanced marketing plan and a continuing focus on increasing birthday parties contributed to the comparable store sales increase during the first quarter of 2011.

~~Our~~

Total Company store sales mix ~~was 48.5%~~consisted of food and beverage sales totaling 48.2% and ~~51.5%~~ entertainment and merchandise sales ~~during~~totaling 51.8% for the first ~~quarter~~six months of 2011 as compared to 49.4% and 50.6%, respectively, in the first ~~quarter~~six months of 2010. We believe the sales mix shift from food and beverage to entertainment and merchandise is ~~primarily~~ the ~~effect~~result of ~~recent~~ changes inmade to our token-only coupons and the component mix of package-deal coupons, ~~promoting bundled packages, resulting~~coupled with our ongoing investment in our games that we believe is causing our guests to allocate more of ~~the price being allocated~~their average check to ~~entertainment revenue.~~

games.

~~Table of Contents~~

Company Store Operating Costs

Cost of food, beverage, entertainment and merchandise as a percentage of Company store sales is influenced by both the cost of products, as well as the overall mix of company store sales due to the fact that entertainment and merchandise sales have higher margins then food and beverage sales.

For the first ~~quarter~~six months of 2011, the cost of food, beverage, entertainment, and merchandise, as a percentage of Company store sales, ~~decreased 0.1~~increased 0.2 percentage ~~point~~points to ~~15.3%~~15.6% as compared to 15.4% infor the first ~~quarter~~six months of 2010. ~~This decrease is~~The percentage increase primarily related to ~~a reduction in beverage costs and is largely offset by~~ an increase in certain commodity ~~costs.~~

costs and cheese usage.

Cost of food and beverage, as a percentage of food and beverage sales, increased ~~0.6~~1.3 percentage points to ~~23.4% during~~24.0% for the first ~~quarter~~six months of 2011 as compared to ~~22.8% in~~22.7% for the first ~~quarter~~six months of ~~2010~~2010. The percentage increase primarily ~~due to~~was the result of an increase in certain commodity ~~prices~~costs, higher cheese usage, and the deleveraging effect of the shift in sales mix ~~shift to entertainment and merchandise revenue related to~~in connection with component changes in our ~~bundled value meals and coupons.~~coupons promoting package deals. During the first ~~quarter~~six months of 2011, the average price per pound of cheese increased approximately ~~$0.30,~~$0.33, or ~~21%~~23.0%, ~~and produce prices increased approximately 15%. This increase was partially offset by a reduction in our beverage costs.~~

as compared to the first six months of 2010.

Cost of entertainment and merchandise, as a percentage of entertainment and merchandise sales, decreased ~~0.4~~0.6 percentage points to 7.7% ~~during~~for the first ~~quarter~~six months of 2011 ~~from 8.1% in~~as compared to 8.3% for the first ~~quarter~~six months of ~~2010~~2010. The percentage decrease primarily ~~due~~related to the leveraging effect of the shift in the sales mix ~~shift to entertainment and merchandise revenue related~~ to component changes in coupons promoting our ~~bundled value meals~~package deals and changes to our token-only coupons.

Labor expenses, as a percentage of Company store sales, ~~increased 0.2~~decreased by 0.1 percentage points to ~~24.9% during~~26.3% for the first ~~quarter~~six months of 2011 as compared to ~~24.7% in~~26.4% for the first ~~quarter~~six months of ~~2010~~2010. The percentage decrease primarily ~~due~~related to better utilization of our hourly work force, partially offset by a ~~0.9%~~1.1% increase in the average hourly ~~wage rate and higher benefit costs.~~

rate.

Depreciation and amortization expense related to our stores increased ~~$1.2~~by $2.2 million to ~~$20.8~~$41.7 million ~~during~~for the first ~~quarter~~six months of 2011 as compared to ~~$19.6~~$39.4 million infor the first ~~quarter~~six months of ~~2010~~2010. The increase in depreciation primarily ~~due~~related to ~~the~~ ongoing capital investment initiatives ~~occurring~~ at our existing stores and new store development.

~~Store rent~~

Rent expense for our stores increased ~~$1.0~~$1.9 million to ~~$18.5~~$36.8 million ~~during~~for the first ~~quarter~~six months of 2011 as compared to ~~$17.5~~$34.9 million infor the first ~~quarter~~six months of ~~2010~~2010. The increase primarily ~~due~~related to an increase in ~~our~~ leased properties resulting from new store development and expansions of our existing stores.

Other store operating expenses, as a percentage of Company store sales, increased ~~0.2~~by 0.1 percentage points to ~~12.9% during~~14.4% for the first ~~quarter~~six months of 2011 as compared to ~~12.7% in~~14.3% for the first ~~quarter~~six months of ~~2010 primarilly~~2010. The percentage increase was primarily due to a net increase in various ~~store~~store-related operating costs, partially offset by a decrease in insurance related ~~operating costs.~~

costs related to a decrease in actuarial reserves.

Advertising Expense

Advertising expense, as a percentage of total revenues, decreased ~~0.2~~0.1 percentage points to ~~3.5% during~~4.0% for the first ~~quarter~~six months of 2011 ~~from 3.7% in~~as compared to 4.1% for the first ~~quarter~~six months of ~~2010~~2010. The percentage decrease primarily ~~due~~related to a reduction in overall media costs and the ~~leveraging effect~~timing of ~~higher sales during the first quarter of~~when our various purchased advertising is aired, partially offset by an increase in media costs related to launching ad campaigns in various radio advertising outlets beginning in 2011.

General and Administrative Expenses

General and administrative expenses increased ~~$0.4~~$2.2 million to ~~$14.1~~$27.3 million ~~during~~for the first ~~quarter~~six months of 2011 ~~from $13.7~~as compared to $25.1 million infor the first ~~quarter of 2010 primarilly due to a net increase in various corporate office overhead costs.~~

~~Interest Expense~~

Interest expense increased to $2.8 million during the first quarter of 2011 compared to $2.7 million in the first quarter of 2010 primarily due to a higher average debt balance outstanding between the two periods. The average debt balance outstanding under our revolving credit facility increased to $358.2 million during the first quarter of 2011 compared to $323.1 million during the first quartersix months of 2010. The increase primarily related to an increase in ~~interest~~corporate performance-based compensation expenses.

Interest Expense

Interest expense ~~was partially offset by~~decreased $1.1 million to $5.0 million for the first six months of 2011 as compared to $6.1 million for the first six months of 2010. The decrease is primarily due to recording of a ~~decrease in our weighted average effective interest rate incurred on borrowings under our revolving credit facility from 2.9%~~non recurring charge of $0.7 million in the ~~first~~second quarter of 2010 related to ~~2.8%~~interest associated with uncertain tax positions pursuant to an IRS examination. In addition, interest expense associated with our interest rate swap decreased $0.5 million due to the expiration of our interest rate swap agreement in May 2011. In connection with the interest rate swap agreement, we paid a 4.62% fixed interest rate on $150.0 million of our outstanding debt, and upon expiration of the interest rate swap agreement, we paid a variable interest rate of approximately 1.2%.

Income Taxes

Our effective tax rate decreased to 38.8% for the first ~~quarter~~six months of ~~2011.~~

~~Income Taxes~~

~~Our effective income tax rate was 38.7% and 37.9% during~~2011 as compared to 41.3% for the first ~~quarter~~six months of ~~2011 and 2010, respectively.~~2010. The ~~increase~~decrease in our effective tax rate was ~~due~~primarily related to ~~higher effective state tax rates including liabilities for uncertain tax positions~~recording an unfavorable discrete adjustment in the prior year of $2.4 million that was identified as a result of an IRS examination of our 2006 and ~~to a lesser extent increases in permanent differences and an estimated decrease in wage related~~2007 federal tax ~~credits.~~

~~Table~~returns. The IRS examination of ~~Contents~~

our 2006 and 2007 federal tax returns was concluded and settled in December 2010.

Diluted Earnings Per Share

Diluted earnings per share increased to ~~$1.71~~$2.06 per share for the first ~~quarter~~six months of 2011 ~~from $1.53~~as compared to $1.77 per share for the first six months of 2010. The increase primarily related to recording unfavorable discrete adjustments in the ~~first quarter~~prior year of ~~2010 primarily due to a 9.6% decrease~~approximately $2.8 million, net of taxes, in connection with an IRS examination. In addition, the number of weighted average diluted shares outstanding ~~between the two periods.~~decreased by 10.0%. The ~~increase in~~number of weighted average diluted ~~earnings per share between the two periods was impacted by~~shares outstanding decreased primarily due to our repurchase of approximately ~~2.8~~3.2 million shares of our common stock since the beginning of the ~~first quarter of 2010.~~2010 fiscal year. We estimate that the decrease in the number of weighted average diluted shares outstanding during the first ~~quarter~~six months of 2011 attributable solely to these repurchases benefited our diluted earnings per share in the first ~~quarter~~six months of 2011 by approximately ~~$0.11.~~$0.18 per share. Our estimate is based on the weighted average number of shares repurchased since the beginning of the ~~first quarter of~~ 2010 fiscal year and includes consideration of ~~the~~any estimated additional interest expense attributable to ~~increased~~ borrowings under our revolving credit facility to finance ~~the~~any stock repurchases. Our diluted earnings per share computation ~~does not include~~excludes the effect of share repurchases prior to ~~the~~our 2010 fiscal year, or the effect of the issuance of restricted stock, orand the exercise of stock options subsequent to the beginning of the first quarter of 2010.

Financial Condition, Liquidity and Capital Resources

Overview of Liquidity

Funds generated by our existing operating activities, available cash and cash equivalents, and, as necessary, borrowings from our revolving credit facility continue to be our ~~most significant~~primary sources of liquidity. We primarily use our cash provided by operating activities to fund our ongoing business activities, planned capital expenditures, and service our debt. We also use cash from operations to pay dividends to our stockholders and repurchase our shares of common stock.

Our business development strategy does not require that we enter into any material development or contractual purchase obligations. Our planned capital expenditures, including spending that pertains to new store development and capital initiatives, is flexible so we can manage our liquidity by deferring or curtailing any planned capital spending.

We believe funds generated from our expected results of operations and available cash and cash equivalents will be sufficient to finance our business development strategies and capital initiatives for the next year. Our revolving credit facility is also available for additional working capital needs and investment opportunities. However, ~~in the event of~~if we experience a material decline in our sales trends, there can be no assurance that we will generate cash flows at or above our current levels.

~~Our primary requirements for~~

The following tables present summarized financial information that we believe is helpful in evaluating our liquidity and capital resources:


	July 3, 2011			January 2, 2011
	*(in thousands)*

Cash and cash equivalents	$	17,376		$	19,269
Revolving credit facility borrowings	$	356,500		$	377,000
Available unused commitments under our revolving credit facility	$	182,841		$	162,341

	Six Months Ended
	July 3, 2011			July 4, 2010
	*(in thousands)*

Net cash provided by operating activities	$	111,557		$	100,918
Net cash used for investing activities		(47,289	)		(47,114	)
Net cash used for financing activities		(66,262	)		(56,434	)
Effect of foreign exchange rate changes on cash		101			(82	)

Change in cash and cash equivalents	$	(1,893	)	$	(2,712	)

Interest paid	$	5,679		$	5,198
Income taxes paid, net	$	980		$	17,984

Cash Flows – Operating Activities

Net cash provided by operating activities ~~relate~~increased $10.7 million to $111.6 million during the first six months of 2011 as compared to $100.9 million for the first six months of 2010. The increase primarily related to receiving a refund of an overpayment of $9.0 million for federal income taxes related to our 2010 tax year.

Our cash interest payments increased $0.5 million to $5.7 million during the first six months of 2011 as compared to $5.2 million for the first six months of 2010. The increase was primarily related to the change in the weighted average debt balance outstanding under our revolving credit facility during the two periods.

Our cash payments for income taxes, net of refunds received, decreased by $17.0 million to $1.0 million during the first six months of 2011 as compared to $18.0 million for the first six months of 2010. During the first six months of 2011, we paid income tax payments of approximately $10.0 million, which was offset by receiving a refund of an overpayment of $9.0 million for federal income taxes in the first quarter of 2011. The refund primarily related to additional tax depreciation stemming from the enactment of depreciation rules signed into law in December 2010.

Cash Flows – Investing Activities

Net cash used in investing activities increased $0.2 million to $47.3 million for the first six months of 2011 as compared to $47.1 million for the first six months of 2010. The increase primarily related to the timing of capital payments for our planned capital ~~expenditures and servicing~~initiatives, which was almost entirely offset by a decrease in other investing activities associated with our ~~debt. We may also use~~acquisition of former franchised store locations during the 2010 fiscal year.

Cash Flows – Financing Activities

Net cash ~~from operations~~used in financing activities increased $9.9 million to ~~pay dividends~~$66.3 million for the first six months of 2011 as compared to ~~our stockholders and make~~$56.4 million for the first six months of 2010. The increase in financing activities primarily related to the initial payment of a dividend during the second quarter of 2011, additional repurchases of our common ~~stock.~~

stock, and a reduction of the amount of cash proceeds received from stock options being exercised. This increase was partially offset by a decrease in the repayment of our borrowings.

We paid a $0.20 per share cash dividend for the first time of approximately $3.9 million in the second quarter of 2011. In addition, during the first six months of 2011, we repurchased additional shares of our common stock, totaling $4.5 million as compared to the first six months of 2010. Also, during the first six months of 2011, the amount of cash proceeds received through the exercise of employee stock options decreased by $4.0 million to $0.6 million as compared to $4.6 million for the first six months of 2010. The decrease in cash proceeds directly relates to the decline in the number of stock option awards available to be exercised. These increases were partially offset by a decrease of $2.4 million in repayments made on our outstanding borrowings under our revolving credit facility.

Sources of Liquidity

We currently finance our business activities through cash flows provided by our operations and, as necessary, from borrowings under our revolving credit facility.

Our requirement for working capital is not significant ~~since our~~and we are able to operate with a net working capital deficit (current liabilities in excess of current assets), without incurring significant short-term or long-term borrowings. The primary components of working capital are as follows:

Our store customers pay for their purchases in cash or credit cards at the time of the sale and the cash from these sales is typically received before related accounts payable to suppliers and our employee payroll become ~~due.~~ due;

Frequent inventory turnover results in limited investment in ~~inventories~~inventories; and ~~our accounts~~

Accounts payable are generally due in five to 30 days. As a result of these factors, we are able to operate with a net working capital deficit (current liabilities in excess of current assets), and we can do so without incurring significant short-term or long-term borrowings.

We do not enter into any material development or contractual purchase obligations in connection with our business development strategy. As a result, with respect to our planned capital expenditures, including spending that pertains to our new store development and capital initiatives, we believe that we have the flexibility necessary to manage our liquidity by promptly deferring or curtailing our capital spending.

~~The following tables present summarized financial information that we believe is helpful in evaluating our liquidity and capital resources:~~

Three Months Ended

April 3, April 4,

2011

2010

(in thousands)
Net cash provided by operating activities $ 88,461 $ 91,757
Net cash used for investing activities (22,914 ) (22,078 )
Net cash used for financing activities (64,641 ) (66,711 )
Effect of foreign exchange rate changes on cash 77 (38 )
Change in cash and cash equivalents $ 983 $ 2,930
Interest paid $ 2,832 $ 2,633
Income taxes (refunded) paid, net $ (8,108 ) $ 58

April 3,
2011

January 2,
2011

(in thousands)
Cash and cash equivalents $ 20,252 $ 19,269
Revolving credit facility borrowings $ 337,000 $ 377,000
Available unused commitments under revolving credit facility $ 202,341 $ 162,341

~~Cash Flows – Operating Activities~~

Net cash provided by operating activities decreased $3.3 million to $88.5 million during the first three months of 2011 from $91.8 million in the first three months of 2010. The decrease was primarily attributable to decreases in our working capital.

Our cash ~~interest payments increased $0.2 million~~flow for our operations is dependent on our ability to ~~$2.8 million during the first three months of 2011 from $2.6 million in the first three months of 2010 primarily due to an increase in the average debt balance outstanding under~~access our revolving credit ~~facility between the two periods.~~

~~Table of Contents~~

Our cash payments for income taxes, net of refunds received, decreased $8.2 million to a net refund of $8.1 million during the first three months of 2011 from a payment of $0.1 million in the first three months of 2010 primarily due to the refund of an overpayment of $9.0 million of federal income tax relating to our 2010 tax year which was received in the first quarter of 2011.facility. The ~~refund was primarily due to additional tax depreciation stemming from the enactment of beneficial depreciation rules signed into law in December 2010.~~

~~Cash Flows – Investing Activities~~

Net cash used in investing activities increased $0.8 million to $22.9 million during the first three months of 2011 from $22.1 million in the first three months of 2010, primarily due to the timing of capital payments for many of the initiatives completed in the fourth quarter of 2010.

~~Cash Flows – Financing Activities~~

Net cash used in financing activities decreased $2.1 million to $64.6 million during the first three months of 2011 from $66.7 million in the first three months of 2010. During the first three months of 2011, we made repayments on the outstanding borrowings under our revolving credit facility of $40.0 million, compared to the same period in 2010 when we made repayments of $49.8 million. This decrease in repayments was primarily related to our share repurchases during 2011. During the first three months of 2011, our repurchases of our common stock increased $5.6 million to $22.5 million compared to $16.9 million during the same period last year. Also, during the first three months of 2011, cash proceeds received through the exercise of employee stock options decreased $2.3 million compared to the same period in 2010 due to a decline in the number of exercisable awards outstanding.

~~Sources of Liquidity~~

~~We currently finance our business activities through cash flows provided by our operations and, as necessary, from borrowings under our revolving credit facility.~~

Our requirement for working capital is not significant since our customers pay for their purchases in cash or credit cards at the time of the sale, enabling us to monetize many of our inventory items before we have to pay suppliers for such items. We attempt to maintain only sufficient inventory of supplies in our stores to satisfy current operational needs. Since our accounts payable are generally due in five to 30 days, we are able to operate with a net working capital deficit (current liabilities in excess of current assets). Our net working capital deficit increased to $19.6 million at April 3, 2011 from $1.7 million at January 2, 2011 primarily

~~due to variations in the timing and amount of payments for accounts payable, income taxes and collection of receivables.~~

~~Our~~ ability to access our revolving credit facility is subject to our compliance with the terms and conditions of the revolving credit facility agreement, including our maintenance of certain prescribed financial ratio covenants, as more fully described below.

Debt Financing

We have a $550.0 million revolving credit facility ~~providing for total borrowings of up to $550.0 million. The credit facility, which~~that matures in October ~~2012,~~2012. The revolving credit facility also includes an accordion feature, ~~allowing~~which allows us, subject to lender approval, to request an increase to ~~the~~our revolving commitment of up to $50.0 million in borrowings at any time. As of ~~April~~July 3, 2011, ~~there were $337.0~~we had $356.5 million of borrowings outstanding and issued approximately $10.7 million of letters of credit, ~~issued but~~which remained undrawn under our revolving credit facility. Based on the type of borrowing, ~~the~~our revolving credit facility bears interest at the London Interbank Offered Rate (“LIBOR”) plus an applicable margin of 0.625% to 1.25% determined based on our financial performance and debt levels, or alternatively, the higher of (a) the prime interest rate or (b) the Federal Funds rate plus 0.50%. As of ~~April~~July 3, 2011, borrowings under ~~the~~our revolving credit facility incurred interest at LIBOR (ranging from ~~0.24%~~0.18% - ~~0.31%~~0.19%) plus 1.00% or prime (3.25%). AWe are required to pay a commitment fee ofranging from 0.1% to 0.3%, depending on our financial performance and debt ~~levels,~~levels. The commitment fee is payable ~~on a~~ quarterly ~~basis~~ on any unused portion of the revolving credit ~~line.~~facility. For both the three months ended July 3, 2011 and July 4, 2010, we paid approximately $0.1 million in commitment fees. For both the six months ended July 3, 2011 and July 4, 2010, we paid $0.2 million in commitment fees. All borrowings under ~~the~~our revolving credit facility are unsecured, but we have agreed not to pledge any of our existing assets to secure future indebtedness.

During the first three months of 2011, we decreased the outstanding debt balance under our revolving credit facility by $40 million to $337.0 million as of April 3, 2011 from $377.0 million as of January 2, 2011. Including the effect of our interest rate swap contract, the weighted average effective interest rate incurred on borrowings under our revolving credit facility was 2.8% and 2.9% for the three months ended April 3, 2011 and April 4, 2010, respectively.

Our revolving credit facility agreement contains a number of covenants that, among other things, require us to comply with the following financial ratios as of the end of any fiscal quarter:

●

A consolidated fixed charge coverage ratio of not less than 1.5 to 1.0, based upon the ratio of (a) consolidated EBITR for the last four fiscal quarters to (b) the sum of consolidated interest charges plus consolidated rent expense during such period. Consolidated EBITR, as defined in the revolving credit facility agreement, equals net income plus consolidated interest charges, income taxes, stock-based compensation expense, rent expense, and other non-cash charges, reduced by non-cash income.

~~Table~~ of ~~Contents~~not less than 1.5 to 1.0, based upon the ratio of (a) our consolidated EBITR for the last four fiscal quarters to (b) the sum of our consolidated interest charges plus consolidated rent expense during such period. Consolidated EBITR, as defined in the revolving credit facility agreement, equals net income plus consolidated interest charges, income taxes, stock-based compensation expense, rent expense, and other non-cash charges, reduced by non-cash income.

A consolidated leverage ratio of not greater than 3.0 to 1.0, based upon the ratio of (a) our quarter-end consolidated funded indebtedness (as defined in the revolving credit facility agreement) to (b) consolidated EBITDA for the last four fiscal quarters. Consolidated EBITDA, as defined in the revolving credit facility agreement, equals consolidated EBITR adjusted to exclude the non-cash portion of rent expense plus depreciation and amortization.

●

A consolidated leverage ratio of not greater than 3.0 to 1.0, based upon the ratio of (a) the quarter-end consolidated funded indebtedness (as defined in the revolving credit facility agreement) to (b) consolidated EBITDA for the last four fiscal quarters. Consolidated EBITDA, as defined in the revolving credit facility agreement, equals our consolidated EBITR adjusted to exclude the non-cash portion of rent expense plus depreciation and amortization.

Our revolving credit facility is the primary source of committed funding from which we finance our planned capital expenditures, repurchase our common stock, and provide for our working capital needs. Non-compliance with the required financial covenant ratios could prevent us from being able to access further borrowings under our existing revolving credit facility, require us to immediately repay all amounts outstanding under the revolving credit facility, and increase our cost of borrowing. As of ~~April~~July 3, 2011, we were in compliance with ~~these~~the required covenant ratios, with a consolidated fixed charge coverage ratio of 2.24 to 1 and a consolidated leverage ratio of ~~1.81~~1.91 to 1.

~~Interest Rate Swap~~

~~We have maintained an interest rate swap contract to effectively convert $150.0 million~~ During the first six months of ~~our variable rate revolving credit facility~~2011, we made payments on the outstanding debt to a fixed interest rate. The contract, which matures in May 2011, requires us to pay a fixed rate of 3.62% while receiving variable payments from the counterparty at the three-month LIBOR rate. Including the 1.00 percentage point applicable margin incurred onbalance under our revolving credit facility totaling $20.5 million reducing the ~~effective interest rate of the swap contract was 4.62%~~total outstanding balance to $356.5 million as of ~~April 3, 2011. The differential amounts receivable or payable under the swap contract are recorded over the life of the contract as adjustments to interest expense.~~

~~As of April~~July 3, 2011 as compared to $377.0 million as of January 2, 2011. Including the estimated fair value of the swap contract was a liability of approximately $0.7 million. Refer to Note 4 “Derivative Instrument” of our condensed consolidated financial statements for a more complete discussioneffect of our interest rate swap ~~contract.~~

contract, which expired in May 2011, the weighted average effective interest rate incurred on borrowings under our revolving credit facility was 2.5% and 3.0% for the six months ended July 3, 2011 and July 4, 2010, respectively.

Cash Dividend

On February 22, 2011, our Board of Directors (“Board”) approved the initiation of a quarterly cash dividend of $0.20 per share, or $0.80 per share for each year. Due to the timing of the Board’s decision, dividends paid during the 2011 fiscal year are expected to be $0.60 per share. ~~Our first quarterly~~On August 2, 2011, our Board declared a cash dividend of $0.20 per share, ~~was~~which will be paid on ~~April 21,~~October 6, 2011 to stockholders of record on ~~March 24,~~September 8, 2011. During the first half of 2011, we declared the following dividends:

Declaration
Date

Record Date

Dividend
Payable Date

Dividend
Payable
per Share

Total Amount
of Dividends Declared

February 22, 2011

March 24, 2011

April 21, 2011

0.20

4.0 million

May 3, 2011

June 2, 2011

July 7, 2011

0.20

3.9 million

We expect to continue to pay quarterly dividends. However, there can be no assurance that future dividends will be declared or paid. The actual declaration and payment of future dividends, the amount of any such dividends, and the establishment of record and payment dates, if any, is subject to final determination by the Board, each quarter, after its review of our then-current strategy, applicable debt covenants, and financial performance and position, among other things.

Capital Expenditures

~~Our~~

We intend to continue to focus our future capital expenditures ~~are expected to be primarily for~~on reinvestment into ~~our~~ existing Company-owned ~~store base~~stores through various planned capital initiatives and the development or acquisition of additional Company stores. We have funded and expect to continue to fund these capital expenditures through our existing cash flow from operations and, if necessary, borrowings under our revolving credit facility. We estimate capital expenditures in 2011 will total approximately $92 ~~million~~ to $93 million, including approximately $63 million related to capital initiatives for our existing stores, approximately $14 million related to new store development and the remainder for other store initiatives, general store requirements and corporate capital expenditures. ~~We plan to fund these capital expenditures through cash flow from operations and, if necessary, borrowings under our revolving credit facility.~~

The following tables summarize certain information regarding the ~~Company's~~Company’s actual and ~~our~~ projected capital ~~expenditure activities~~expenditures during each of the periods presented:

Three Months Ended

April 3, April 4,

2011

2010

Existing Company-owned store initiatives:
Game Enhancements 21 48
Major Remodels - 4
Store Expansions 3 6
Total completed 24 58

New Company store development and franchise acquisition (1)
1 1

~~_________________~~

~~(1)~~ ~~The company-owned store added in 2011 was a relocated store. The company-owned store added in 2010 was a store acquired from a franchisee.~~

~~Table of Contents~~

Estimated Average Cost Per Project Projected Completions Fiscal Year 2011 Actual Completions Fiscal Year 2010
(in millions)
Investment in existing Company-owned stores:
Game Enhancements (1)
$ 0.1 to $0.2 140 to 150 180
Major Remodels $ 0.6 15 to 20 15
Store Expansions $ 1.0 30 to 35 28
Total 185 to 205 223

New Company store development and franchise store acquisitions: (2)
$ 2.7 to $2.8 5 12

~~_________________~~


	Three Months Ended				Six Months Ended
	July 3, 2011		July 4, 2010		July 3, 2011		July 4, 2010
Existing Company-owned store initiatives:
Game Enhancements		30		49		51		97
Major Remodels		1		2		1		6
Store Expansions		9		4		12		10

Total projects completed		40		55		64		113


New Company store development and franchise acquisition^*		1		—		2		1

~~(1)~~*

One of the Company-owned stores in the first quarter of 2011 was a relocated store. The Company-owned store added in 2010 was a store acquired from a franchisee.


	Estimated Average Cost Per Project		Estimated Total Projects for Fiscal Year 2011	Actual Completions Fiscal Year 2010
	*(in millions)*
Investment in existing Company-owned stores:
Game Enhancements⁽¹⁾	$	0.1 to $0.2	140 to 150	180
Major Remodels	$	0.6	10 to 15	15
Store Expansions	$	1.0	30 to 35	28

Total			180 to 200	223

New Company store development and franchise store acquisitions:⁽²⁾	$	2.7 to $2.8	5	12

⁽¹⁾	2010 included incremental game enhancements completed for stores located in the Los Angeles, San Diego, Chicago, and Philadelphia market areas in conjunction with local television advertising. The Company is not projecting this incremental capital spending during 2011.

⁽²⁾	New Company-owned stores projected to be developed during 2011 include three stores that will be relocated. Company-owned stores added during 2010 included five stores we acquired from franchisees and two stores we relocated.

Investment in Existing Company-owned Stores.We believe that in order to maintain consumer demand for and the appeal of our concept, we must continually reinvest in our existing Company-owned stores. For our existing stores, we currently utilize the following capital initiatives: (a) game enhancements, (b) major remodels, and (c) store expansions. We believe these capital initiatives are essential to preserving our existing sales and cash flows and provide a solid foundation for long term revenue growth.

Game enhancements. We believe game enhancements are necessary to maintain the relevance and appeal of our games and rides. In addition, game enhancements counteract general wear and tear on the equipment and incorporate improvements in game and ride technology.

Major remodels.We undertake periodic major remodels when there is a need to improve the overall appearance of a store or when we introduce concept changes or enhancements to our stores. A major remodel initiative typically includes interior design modifications that allow us to more effectively utilize space allocated to the playroom area of the store, increasing the number of games and rides, and developing a new exterior and interior identity.

Store expansions.We believe store expansions improve the quality of our guests’ experience because the additional square footage allows us to increase the number and variety of games, rides, and other entertainment offerings in our stores. In addition to expanding the square footage of a store, store expansions typically include all components of a major remodel and generally result in an increase in the store’s seat count. We consider our investments in store expansions to generally be discretionary in nature. In undertaking store expansions, our objective is to improve the appeal of our stores and to respond to sales growth opportunities as they arise.

Since the lifecycles of our store format and our games are largely driven by changes in consumer behaviors and preferences, we believe that our capital initiatives involving major remodels and game enhancements are required in order to keep pace with consumer entertainment expectations. As a result, we view our major remodel and game enhancement initiatives as a means to maintaining and protecting our existing sales and cash flows over the long term. While we are hopeful that our major remodels and game enhancements will contribute to incremental sales growth, we believe that our capital spending with respect to expansions of existing stores will more directly lead to growth in our comparable store sales and cash flow. We typically invest in expansions when we believe there is a potential for sales growth and, in some instances, in order to maintain sales in stores that compete with other large-box competitors. We believe that expanding the square footage and entertainment space of a store increases our guest traffic and enhances the overall customer experience, which we believe will contribute to the growth of our long-term comparable store sales. The objective of an expansion or remodel that increases space available for entertainment is not intended to exclusively improve our entertainment and merchandise sales, but rather is focused on impacting overall Company store sales through increased guest traffic and satisfaction.

New Company store development.Our plan for new store development is typically focused on opening high sales volume stores in densely populated areas. We expect the cost of opening new stores will vary depending upon many factors including the size of the store, whether we acquire land and whether the store is located in an in-line or freestanding building.

~~Table of Contents~~

Share Repurchases

Our Board has approved a program for us to repurchase shares of our common stock. On July 25, 2005, the Board approved a stock repurchase program, which authorized us to repurchase from time to time up to $400 million of our common stock and on October 22, 2007 and October 27, 2009 authorized $200 million increases each. During the ~~three~~six months ended ~~April~~July 3, 2011, we repurchased ~~604,224~~1,049,224 shares of our common stock at an aggregate purchase price of approximately ~~$22.5 million, and as~~$40.0 million. As of ~~April~~July 3, 2011, approximately ~~$118.7~~$101.1 million remained available for share repurchases under our stock repurchase ~~authorization.~~

program.

The share repurchase ~~authorization~~program approved by the Board does not have an expiration date and the pace of our repurchase activity will depend on factors such as our working capital needs, our debt repayment obligations, our stock price, ~~and~~as well as economic and market conditions. Our share repurchases may also be effected from time to time through open market purchases, accelerated share repurchases, or in privately negotiated transactions. Our ~~share repurchase program~~Board may ~~be accelerated, suspended, delayed or discontinued~~ at any ~~time.~~

time elect to accelerate, suspend, delay, or discontinue our stock repurchase program.

Off-Balance Sheet Arrangements and Contractual Obligations

As of ~~April~~July 3, 2011, we had no off-balance sheet financing arrangements as described in Regulation S-K Item 303(a)(4)(ii) and we believe there has been no material change in our contractual obligations since the end of fiscal year 2010.

For information regarding our contractual obligations, refer to “Off Balance Sheet Arrangements and Contractual Obligations” in Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the fiscal year ended January 2, 2011, filed on February 24, 2011.

Critical Accounting Policies and Estimates

Our unaudited condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”), which requires us to make estimates and assumptions that affect the reported values of assets and liabilities at the date of the financial statements, the reported amount of revenues and expenses during the reporting period, and the related disclosures of contingent assets and liabilities. The use of estimates is pervasive throughout our consolidated financial statements and is affected by management judgment and uncertainties. Our estimates, assumptions and judgments are based on historical experience, current market trends, and other factors that we believe to be relevant and reasonable at the time ~~the~~our consolidated financial statements are prepared. We continually evaluate the information used to make these estimates as our business and the economic environment change. Actual results may differ materially from these estimates under different assumptions or conditions. Results of operations of interim periods are not necessarily indicative of results for the full year.

Information with respect to our critical accounting policies and estimates which we believe could have the most significant effect on our reported consolidated results and require difficult, subjective or complex judgment by management are described under “Critical Accounting Policies and Estimates” in Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the fiscal year ended January 2, 2011, filed on February 24, 2011. We believe that as of ~~April~~July 3, 2011 there has been no material change to the information concerning our critical accounting policies and estimates.

Recently Issued Accounting Guidance

Refer to Note 1 “Basis of Presentation and Recently Issued Accounting Guidance” of our unaudited condensed consolidated financial statements included in Part I, Item 1 “Financial Statements” of this Quarterly Report on Form 10-Q for a description of the new accounting guidance we have recently adopted.

Cautionary Note Regarding Forward-Looking Statements

Certain statements in this report, other than historical information, may be considered “forward-looking statements” within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, and are subject to various risks, uncertainties and assumptions. Statements that are not historical in nature, and which may be identified by the use of words such as “may,” “should,” “could,” “believe,” “predict,” “potential,” “continue,” “plan,” “intend,” “expect,” “anticipate,” “future,” “project,” “estimate” and similar expressions (or the negative of such expressions) are forward-looking statements. Forward-looking statements are made based on management’s current expectations and beliefs concerning future events and, therefore, involve a number of assumptions, risks and uncertainties, including the risk factors described in Item 1A “Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended January 2, 2011, filed on February 24, 2011. 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. Factors that could cause actual results to differ materially from those contemplated by forward-looking statements include, but are not limited to:

Changes in consumer discretionary spending and general economic conditions;

Our ability to successfully implement our business development strategies;

·	~~Changes in consumer discretionary spending and general economic conditions;~~

Costs incurred in connection with our business development strategies;

Negative publicity concerning food quality, health, safety and other issues;

·	~~Our ability to successfully implement our business development strategies;~~

Competition in both the restaurant and entertainment industries;

~~Table~~

Disruptions in the financial markets affecting the availability and cost of ~~Contents~~credit and our ability to maintain adequate insurance coverage;

Loss of certain key personnel;

Increases in food, labor and other operating costs;

Changes in consumers’ health, nutrition and dietary preferences;

·	~~Costs incurred in connection with our business development strategies;~~

Continued existence or occurrence of certain public health issues;

Disruption of our commodity distribution system;

·	~~Negative publicity concerning food quality, health, safety and other issues;~~

Our dependence on a few global providers for the procurement of games and rides;

Fluctuations in our quarterly results of operations due to seasonality;

·	~~Competition in both the restaurant and entertainment industries;~~

Adverse effects of local conditions, natural disasters and other events;

Risks in connection with owning and leasing real estate;

·	~~Disruptions in the financial markets affecting the availability and cost of credit and our ability to maintain adequate insurance coverage;~~

Our ability to adequately protect our trademarks or other proprietary rights;

Government regulations, litigation, product liability claims and product recalls;

·	~~Loss of certain key personnel;~~

Disruptions of our information technology systems; and

Conditions in foreign markets.

·	~~Increases in food, labor and other operating costs;~~

·	~~Changes in consumers’ health, nutrition and dietary preferences;~~

·	~~Continued existence or occurrence of certain public health issues;~~

·	~~Disruption of our commodity distribution system;~~

·	~~Our dependence on a few global providers for the procurement of games and rides;~~

·	~~Fluctuations in our quarterly results of operations due to seasonality;~~

·	~~Adverse effects of local conditions, natural disasters and other events;~~

·	~~Risks in connection with owning and leasing real estate;~~

·	~~Our ability to adequately protect our trademarks or other proprietary rights;~~

·	~~Government regulations, litigation, product liability claims and product recalls;~~

·	~~Disruptions of our information technology systems; and~~

·	~~Conditions in foreign markets.~~

The forward-looking statements made in this report relate only to events as of the date on which the statements were made. Except as may be required by law, we undertake no obligation to update our forward-looking statements to reflect events and circumstances after the date on which the statements were made or to reflect the occurrence of unanticipated events.

~~ITEM~~ 3.

~~Quantitative and Qualitative Disclosures About Market Risk.~~

ITEM 3. 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 ~~rate and~~rates, commodity price changes, and foreign currency ~~fluctuation.~~

fluctuations.

Interest Rate Risk

We are exposed to market risk from changes in the variable interest rates (primarily LIBOR) ~~incurred on~~related to borrowing from our revolving credit facility. For the six month ended July 3, 2011, the weighted average variable interest rate was 1.4%. As of July 3, 2011 we had borrowings outstanding from our revolving credit facility ~~which at April 3, 2011 had borrowings outstanding~~ of ~~$337 million. We have maintained an interest rate swap contract which effectively fixes the LIBOR component of our interest rate~~$356.5 million that are exposed to a fixed rate of 3.62% on $150.0 million of our borrowings leaving us with $187 million of variable rate debt as of April 3, 2011. After giving effect to the interest rate swap which expires in May 2011, a 100 basis point increase inmarket risk. If the variable interest ~~rates on our revolving credit facility at April 3, 2011,~~rate increased by 100 basis points, assuming no change in our outstanding debt balance, ~~would increase~~ our annual interest expense would increase by approximately ~~$1.9~~$3.6 million.

Commodity Price Risk

~~Commodity prices of~~

We are exposed to commodity price changes related to certain food products that we purchase, primarily cheese and dough prices, which can vary throughout the year due to changes in demand, supply, and other factors. We currently have not entered into any hedging arrangements to reduce the volatility of ~~the~~ commodity prices from period to period. The six months weighted average increase of the price of a block of cheese was approximately $1.73 per pound. The estimated increase from a hypothetical 10 percent increase in the average price of cheese would be approximately $0.7 million for the first six months of 2011. In addition, the six months weighted average price of dough was approximately $0.45 per pound. The estimated increase in our food costs from a hypothetical 10 percent increase in the average ~~cheese block~~ price of dough per pound ~~(approximately $0.17 as of April 3, 2011)~~ would ~~have been~~be approximately ~~$0.4~~$0.3 million for the first ~~three~~six months of 2011. The estimated increase in our food costs from a hypothetical 10 percent increase in the average dough price per pound (approximately $0.04 as of April 3, 2011) would have been approximately $0.2 million for the first three months of 2011.

Foreign Currency Risk

~~As of April 3, 2011,~~

We are exposed to foreign currency fluctuation risk in Canada as we ~~operated~~operate a total of 14 Company-owned stores in ~~Canada. As a result, we have~~Canada that create market risk associated with changes in the value of the Canadian dollar. ~~These changes~~The currency exchange rates for Canada as compared to the United States dollar as of and for the first six months ending 2011 and 2010 were as follows:


Type of Exchange Rate	2011		2010
Low rate for the period:	$	0.9445	$	0.9966
High rate for the period:	$	1.0007	$	1.0766
Weighted average for the period:	$	0.9764	$	1.0345
Spot rate as of end of the period:	$	0.9581	$	1.0619

Changes in the currency exchange rate result in cumulative translation adjustments, which ~~are included~~we record in “Accumulated other comprehensive ~~income,”~~income” in our unaudited condensed consolidated statement of equity and potentially result in transaction gains or losses, which are included in our unaudited condensed consolidated statements of earnings. During the first ~~three~~six months of 2011, our Canada stores represented approximately ~~1.3%~~0.2% of our consolidated operating income. A hypothetical 10 percent devaluation in the average quoted U.S. dollar-equivalent of the Canadian dollar exchange rate during the first ~~three~~six months of 2011 would have reduced our reported operating income by less than $0.1 million.

~~Table of Contents~~ITEM 4. Controls and Procedures.

~~ITEM~~ 4.

~~Controls and Procedures.~~

Evaluation of Disclosure Controls and Procedures

We performed an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, as of the end of the period covered by this report. Based on that evaluation, our management, including our Chief Executive Officer and Chief Financial Officer, has concluded that our disclosure controls and procedures were effective as of ~~April~~July 3, 2011 to ensure that information required to be disclosed by us in the reports we file or submit under the Securities Exchange Act of 1934, as amended, was (1) recorded, processed, summarized, and reported within the time periods specified in the United States Securities and Exchange Commission’s rules and forms, and (2) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

During the quarterly period covered by this report there has been no change in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

~~Table of Contents~~

PART II – OTHER INFORMATION

ITEM 1.

Legal Proceedings.

ITEM 1A.

Risk Factors.

We believe there ~~have~~has been no material changes in our risk factors from those disclosed in Part I, Item 1A “Risk Factors” in our Annual Report on Form 10-K for the year ended January 2, 2011, ~~and~~ filed on February 24, 2011. The risks set forth in those risk factors are not the only risks we face in conducting our business. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition, or future results.

ITEM 2.

Unregistered Sales of Equity Securities and Use of Proceeds.

The following table presents information related to repurchases of shares of our common stock during the ~~first~~second quarter of 2011 and the maximum dollar value of shares that may yet be purchased pursuant to our share repurchase program:

Issuer Purchases of Equity Securities

Issuer Purchases of Equity Securities

Period

Total
Number
of Shares
Purchased(1)

Average
Price Paid
Per Share(1)

Total
Number of
Shares
Purchased
As Part of
Publicly
Announced
Plans or
Programs

Maximum Dollar
Value of Shares
That May Yet Be
Purchased Under
the Plans or
Programs(2)

January 3 - January 30, 2011 2,522 $ 38.59 - $ 141,126,354
January 31 - February 27, 2011 53,596 $ 37.32 - $ 141,126,354
February 28 - April 3, 2011 620,866 $ 37.19 604,224 $ 118,663,102
Total 676,984 $ 37.21 604,224 $ 118,663,102

~~_________________~~


Period	Total Number of Shares Purchased⁽¹⁾		Average Price Paid Per Share⁽¹⁾		Total Number of Shares Purchased As Part of Publicly Announced Plans or Programs		Maximum Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs⁽²⁾

April 4 - May 1, 2011		24	$	37.89		—	$	118,663,102
May 2 - June 3, 2011		220,053	$	40.22		220,000	$	109,815,381
June 4 - July 3, 2011		225,000	$	38.70		225,000	$	101,106,978

Total		445,077	$	39.45		445,000	$	101,106,978

⁽¹⁾

For the periods ended ~~January 30, February 27~~May 1 and ~~April~~June 3, 2011, the total number of shares purchased included ~~2,522 shares, 53,596~~24 shares and ~~16,642~~53 shares, respectively, tendered by employees ~~and non-employee directors~~ at an average price per share of ~~$38.59, $37.32~~$37.89, and ~~$37.72,~~$39.96, respectively, to satisfy tax withholding requirements on the vesting of restricted stock awards, which are not deducted from shares available to be purchased under our share repurchase program. Shares tendered by employees ~~and non-employee directors~~ to satisfy tax withholding requirements were considered purchased at the closing price of our common stock on the date of vesting.

⁽²⁾

We may repurchase shares of our common stock under a plan authorized by our Board. On July 25, 2005, the Board approved a stock repurchase program, which authorized us to repurchase from time to time up to $400 million of our common stock and on October 22, 2007 and October 27, 2009 authorized $200 million increases each. The stock repurchase program, which does not have a stated expiration date, authorizes us to make repurchases in the open market, through accelerated share repurchases or in privately negotiated transactions.

~~Table of Contents~~

ITEM 6.
Exhibits.

EXHIBIT INDEX


Exhibit Number		Description

3.1		Second Restated Articles of Incorporation of CEC Entertainment, Inc. (the “Company”) dated May 4, 2010 (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K (File No. 001-13687) as filed with the Securities and Exchange Commission (the “Commission”) on May 6, 2010)

3.2		Amended and Restated Bylaws of the Company dated May 4, 2010 (incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K (File No. 001-13687) as filed with the Commission on May 6, 2010)

4.1		Specimen form of Certificate representing $.10 par value Common Stock (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 10-Q (File No. 001-13687) as filed with the Commission on October 29, 2009)

31.1*		Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant 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 adopted pursuant 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-Oxley Act 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-Oxley Act 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.

†

Pursuant to Item 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933 or Section 18 of the Securities Exchange Act of 1934 and otherwise are not subject to liability.

~~Table of Contents~~SIGNATURES

~~SIGNATURES~~

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


			CEC ENTERTAINMENT, INC.

August 5, 2011
~~May 5, 2011~~	By:	/s/ Michael H. Magusiak
			Michael H. Magusiak
			President and Chief Executive Officer ~~(Principal~~ (Principal Executive Officer)


~~May~~August 5, 2011			/s/ Tiffany B. Kice
			Tiffany B. Kice
			Executive Vice President, Chief Financial Officer and Treasurer
			(Principal Financial Officer)


~~May~~August 5, 2011			/s/ Darin E. Harper
			Darin E. Harper
			Vice President, Controller
			(Principal Accounting Officer)

~~Table of Contents~~

EXHIBIT INDEX


Exhibit Number		Description


3.1		Second Restated Articles of Incorporation of CEC Entertainment, Inc. (the “Company”) dated May 4, 2010 (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K (File No. 001-13687) as filed with the Securities and Exchange Commission (the “Commission”) on May 6, 2010)

3.2		Amended and Restated Bylaws of the Company dated May 4, 2010 (incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K (File No. 001-13687) as filed with the Commission on May 6, 2010)

4.1		Specimen form of Certificate representing $.10 par value Common Stock (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 10-Q (File No. 001-13687) as filed with the Commission on October 29, 2009)

31.1*		Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant 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 adopted pursuant 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-Oxley Act 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-Oxley Act 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.

†

	April 3, 2011			January 2, 2011
ASSETS

Current assets:
Cash and cash equivalents	$	20,252		$	19,269
Accounts receivable		13,512			32,237
Inventories		17,542			18,485
Prepaid expenses		17,893			13,942
Deferred tax asset		3,419			3,420
Total current assets		72,618			87,353

Property and equipment, net		679,918			683,192
Other noncurrent assets		8,127			7,484
Total assets	$	760,663		$	778,029

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:
Capital lease obligations, current portion	$	957		$	936
Accounts payable		35,312			42,844
Accrued expenses		44,723			32,968
Unearned revenues		9,450			9,393
Accrued interest		1,738			957
Derivative instrument liability		730			1,976
Total current liabilities		92,910			89,074

Capital lease obligations, less current portion		10,622			10,326
Revolving credit facility borrowings		337,000			377,000
Deferred rent liability		51,799			51,522
Deferred landlord contributions		28,479			28,913
Deferred tax liability		53,006			43,038
Accrued insurance		13,506			13,144
Other noncurrent liabilities		6,458			6,950
Total liabilities		593,780			619,967

Commitments and contingencies (Note 5)

Stockholders’ equity:
Common stock, $0.10 par value; authorized 100,000,000 shares; 61,579,275 and 61,436,229 shares issued, respectively		6,158			6,144
Capital in excess of par value		435,924			436,051
Retained earnings		786,529			756,448
Accumulated other comprehensive income		5,838			4,522
Less treasury stock, at cost; 41,733,093 and 41,128,869 shares, respectively		(1,067,566	)		(1,045,103	)
Total stockholders’ equity		166,883			158,062
Total liabilities and stockholders’ equity	$	760,663		$	778,029

	Three Months Ended
	April 3,		April 4,
	2011		2010
REVENUES
Food and beverage sales	$	123,757	$	121,016
Entertainment and merchandise sales		131,459		124,184
Company store sales		255,216		245,200
Franchise fees and royalties		1,186		1,127
Total revenues		256,402		246,327

OPERATING COSTS AND EXPENSES
Company store operating costs:
Cost of food and beverage (exclusive of items shown separately below)		28,903		27,619
Cost of entertainment and merchandise (exclusive of items shown separately below)		10,160		10,050
		39,063		37,669
Labor expenses		63,637		60,595
Depreciation and amortization		20,752		19,606
Rent expense		18,485		17,486
Other store operating expenses		32,994		31,034
Total Company store operating costs		174,931		166,390
Advertising expense		9,067		9,037
General and administrative expenses		14,055		13,685
Total operating costs and expenses		198,053		189,112

Operating income		58,349		57,215
Interest expense		2,754		2,670
Income before income taxes		55,595		54,545
Income taxes		21,513		20,683
Net income	$	34,082	$	33,862

Earnings per share:
Basic	$	1.71	$	1.53
Diluted	$	1.71	$	1.53

Weighted average shares outstanding:
Basic		19,938		22,076
Diluted		19,979		22,106

	Common Stock						Capital In Excess of			Retained			Accumulated Other Comprehensive			Treasury Stock
	Shares			Amount			Par Value			Earnings			Income			Shares		Amount			Total

Balance at January 2, 2011		61,436,229		$	6,144		$	436,051		$	756,448		$	4,522			41,128,869	$	(1,045,103	)	$	158,062
Net income		-			-			-			34,082			-			-		-			34,082
Change in fair value of cash flow hedge, net of income taxes of ($5)		-			-			-			-			(9	)		-		-			(9	)
Hedging loss realized in earnings, net of income taxes of $488		-			-			-			-			772			-		-			772
Foreign currency translation adjustments, net of income taxes of $88		-			-			-			-			553			-		-			553
Comprehensive income																						35,398
Stock-based compensation costs		-			-			1,885			-			-			-		-			1,885
Stock options exercised		2,588			-			82			-			-			-		-			82
Restricted stock issued, net of forfeitures		213,218			21			(21	)		-			-			-		-			-
Tax benefit from stock options and restricted stock		-			-			645			-			-			-		-			645
Restricted stock returned for taxes		(72,760	)		(7	)		(2,718	)		-			-			-		-			(2,725	)
Cash dividends declared ($0.20 per share)		-			-			-			(4,001	)		-			-		-			(4,001	)
Purchases of treasury stock		-			-			-			-			-			604,224		(22,463	)		(22,463	)
Balance at April 3, 2011		61,579,275		$	6,158		$	435,924		$	786,529		$	5,838			41,733,093	$	(1,067,566	)	$	166,883

	April 3, 2011		January 2, 2011
	(in thousands)

Food and beverage	$	4,329	$	3,809
Entertainment and merchandise		13,213		14,676
	$	17,542	$	18,485

		April 3,		January 2,
	Balance Sheet Location	2011		2011
Derivative designated as hedging instrument:		(in thousands)
Interest rate swap contract	Derivative instrument liability(1) (2)	$	730	$	1,976

	Three Months Ended
	April 3, 2011			April 4, 2010
Derivative in cash flow hedging relationship:	(in thousands)
Loss recognized in accumulated OCI – effective portion:
Interest rate swap contract	$	(14	)	$	(790	)
Loss reclassified from accumulated OCI into income – effective portion:
Interest expense	$	(1,260	)	$	(1,276	)

	Restricted Shares			Weighted Average Grant Date Fair Value
Unvested restricted stock awards, January 2, 2011		648,235		$	29.90
Granted		219,055		$	38.16
Vested		(244,637	)	$	30.07
Forfeited		(5,837	)	$	29.88
Unvested restricted stock awards, April 3, 2011		616,816		$	32.77

	Three Months Ended
	April 3, 2011				April 4, 2010
	(in thousands, except percentages)
Food and beverage sales	$	123,757	48.5	%	$	121,016	49.4	%
Entertainment and merchandise sales		131,459	51.5	%		124,184	50.6	%
Company store sales	$	255,216	100.0	%	$	245,200	100.0	%

	Estimated Average Cost Per Project		Projected Completions Fiscal Year 2011	Actual Completions Fiscal Year 2010
	(in millions)
Investment in existing Company-owned stores:
Game Enhancements (1)	$	0.1 to $0.2	140 to 150		180
Major Remodels	$	0.6	15 to 20		15
Store Expansions	$	1.0	30 to 35		28
Total			185 to 205		223

New Company store development and franchise store acquisitions: (2)	$	2.7 to $2.8	5		12

Issuer Purchases of Equity Securities
Period	Total Number of Shares Purchased(1)		Average Price Paid Per Share(1)		Total Number of Shares Purchased As Part of Publicly Announced Plans or Programs		Maximum Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs(2)
January 3 - January 30, 2011		2,522	$	38.59		-	$	141,126,354
January 31 - February 27, 2011		53,596	$	37.32		-	$	141,126,354
February 28 - April 3, 2011		620,866	$	37.19		604,224	$	118,663,102
Total		676,984	$	37.21		604,224	$	118,663,102

Large accelerated filerx

Accelerated filero

Non-accelerated filero

Smaller reporting companyo