Burger King Holdings Inc. (BKC) F4Q09 Earnings Call August 25, 2009 10:00 AM ET
Good day, ladies and gentlemen. Thank you very much for your patience and welcome to the Burger King Holdings fourth quarter fiscal 2009 earnings conference call. My name is [Marianne] and I will be your conference coordinator for today. (Operator Instructions) As a reminder, this conference is being recorded for replay purposes.
I would now like to turn the presentation over to your host for today’s conference Miss Amy Wagner, Senior Vice President of Investor Relations and Global Communications. Please proceed.
Thank you, Marianne, and good morning to everyone. Welcome to Burger King’s fourth quarter fiscal 2009 earnings conference call. We’ve prepared an earnings call PowerPoint presentation to assist in presenting our fourth quarter and full fiscal year results. These slides as well as the audio broadcast of this call may be accessed on our Investor Relations page on our website at www.bk.com. Both the audio portion and the slide show will be archived on our website where it will be available for future reference for 30 days.
Presenting on the call today are John Chidsey Chairman and Chief Executive Officer, and Ben Wells Chief Financial Officer. Also with us on the call is Russ Klein, President, Global Marketing Strategy and Innovation will be available to answer any questions you may have about our marketing, advertising and products during the Q&A portion of the call.
We’ll spend about 25 minutes discussing our fourth quarter and full fiscal year performance before opening the call up for questions. Before we begin today, I’d like to remind everyone that this conference call includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements reflect management’s current expectations based on currently available data. However, actual results may be impacted by future events and uncertainties, and could differ materially from what is discussed today. More detailed information about these uncertainties is contained in the forward-looking statements section of this morning’s earnings release. The presentation also includes non-GAAP financial measures as defined by Regulation G. The reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measures and other information required by Reg G are also included in the appendix to this presentation.
Now with that, I’d like to turn the call over to John.
John W. Chidsey
Thank you, Amy, and thank you for joining us on today’s call. This morning we will discuss our fourth quarter and full fiscal year 2009 results and provide our outlook for fiscal ’10. We’ll then move to the Q&A portion of the call.
Our fourth quarter top line results like most of our industry peers were affected by continuing adverse macroeconomic conditions including higher unemployment, more consumers eating at home and heavy discounting by many restaurant chains. In response to these economic pressures, we focused our marketing message around value and heavily promoted our King deals in many European markets including our largest, Germany, the UK and Spain, as well as the Come Como Rey or Eat like a King Everyday in Mexico. We also shifted our U.S. national advertising to focus on our $1 Whopper Junior sandwich and our local marketing efforts on value promotions such as two Whopper sandwiches for $3.50 and two Chicken sandwiches for $3.00 across many of our DMAs.
Since these changes were implemented, we have seen progressive improvement in traffic which appears to have bottomed out in May albeit still negative. Even though the trend is positive we remain cautious in our fiscal 2010 outlook due to the many consumer uncertainties including the effect of 25 year high unemployment level on out-of-home eating expenditures, which are now at a 28 year low in the U.S. according to the NPD group.
July’s unemployment rate in the U.S. for our Super Fan age group, 18-to-39-year-olds is now 12% and even more disconcerting is the 20% unemployment rate among ethnic groups in this age group, which represent a disproportionate amount of the industry’s heavy user in our Super Fan base. Since unemployment is forecasted to remain relatively unchanged for the next 12 months we anticipate the challenging consumer and operating environment will continue into our fiscal 2010.
We have and will continue to focus on doing the right things for the brand over the long term, focusing on our strategic growth pillars that drive profitable results. Under our operations pillar we completed our 200th 24-hour U.S. company restaurant conversion. Comps and traffic have increased and continue to be positive in this late night day part as a result of our increased capacity. And we are committed to converting even more of our restaurants to 24-hour operations in fiscal ’10.
We have completed the new broiler roll out to 55% of the system worldwide and 79% in the U.S. and Canada business segment. And our new POS system has been installed in 46% of all restaurants globally. And I’m very pleased with the team’s progress on the development front. In the quarter we opened 115 net new restaurants, bringing the total in the year to 360. Over 90% or 338 restaurants opened outside the U.S. and Canada, resulting in the best international development year in the history of the company.
The EMEA region posted record openings for the fifth consecutive year, representing over half of the company’s worldwide net restaurant growth. And our Asia Pacific team opened more restaurants this year than in the last four years combined. The U.S. and Canada reporting segment completed its second year of positive net restaurant growth with 22 net new openings. We also re-imaged 39 more company restaurants in the fiscal year, bringing the total to 71 re-imaged locations since the inception of the U.S. and Canada re-imaging program in fiscal 2008. And we continue to generate attractive cash-on-cash returns from these newly re-imaged restaurants, generating sales lists of 12 to 30% depending on the type of re-image and scope of work.
On Page 5 of the presentation is our score card. In the face of a continuing, challenging macroeconomic environment our business model remains strong and our long term strategies remain intact. During fiscal ’09 we completed our sixth consecutive year of positive comps sales growth, achieved record revenues, generated strong cash flows and completed our strongest development year since fiscal 2000. Our net restaurant count increased markedly to a growth rate of 3.1%. We now have 360 more restaurants open today than we did a year ago, bringing our total to 11,925 locations serving 73 countries and U.S. territories.
Worldwide comps for the quarter were a negative 2.4%, lapping a strong 5.3 in the prior year period. Negative comp performance in the U.S. and Canada and in Latin America offset solid EMEA APAC comps of 2.5%. Our worldwide trailing 12 month average restaurant sales decreased 42,000 to 1.26 million driven by negative currency exchange rate impact of 55,000.
During the quarter, global company restaurant margins of 12.5% were down 60 basis points versus the prior year. Worldwide margins benefited from lower commodity costs offset by higher labor costs primarily in Germany due to previously announced statutory and labor contract wage increases, and negative comps resulting in significant sales de-leveraging, primarily in Mexico. Lower company restaurant margins in the EMEA, APAC and Latin America reporting segments offset the 130 basis point improvement that company restaurant margins realized in the U.S. and Canada.
For the full year company restaurant margins were 12.6%, down 170 basis points over the prior year. Margins were pressured by significant food cost inflation and higher labor costs, partially offset by strategic pricing initiatives.
Our royalty rate continued to accrete as new restaurants opened and restaurants renewed at the higher royalty rate in the U.S. Our worldwide royalty rate for the full fiscal year was 4.05%. Our net debt to EBITDA ratio was 1.9 times. Our cash flows from operations remained very strong at $311 million, up 28% from the $243 million in fiscal 2008.
Our quarter’s highlights are depicted on Page 6 of the presentation. The company posted revenues of $630 million this quarter, down 2% from the same period last year. Revenues were unfavorably impacted by $39 million or 6% due to fluctuations in currency exchange rates. Net of currency translation impact, revenues increased 4% quarter over quarter. Company restaurant revenues decreased 2%, primarily driven by $29 million of unfavorable impact due to currency translation and negative comps of 2.7%. This decrease was partially offset by the net addition of 69 restaurants during the last 12 months, including the net acquisition of 36 franchise restaurants. Franchise revenues declined 3% although the net number of franchised restaurants increased by 291 during the last 12 months. These benefits were more than offset by the unfavorable impact of currency translation of $9 million and negative comps of 2.4%.
Total property revenues decreased by 7%, again driven primarily by the unfavorable impact of currency exchange rates. EBITDA was $113 million, up 5% as compared to $108 million in the prior year period. EBITDA was positively impacted by improvements in U.S. and Canada company restaurant margins, solid comparable sales in the EMEA APAC recording segment, gains associated with the re-franchising of company restaurants in EMEA and Canada and strong net restaurant growth globally. Partially offset by negative worldwide comp sales and a negative $8 million impact due to currency exchange rates. Excluding the effect of currency movements, EBITDA was up 12% year-over-year.
Also of note is $8.6 million of other income earned within the OI&E category as compared to the prior year’s expense of $7.5 million. $4.3 million of this quarter’s income relates to the gains resulting from our ongoing strategic portfolio management initiative, including the re-franchising of restaurants in EMEA and Canada aimed at further optimizing the company owned portfolio.
EPS increased 16% to $0.43 as compared to $0.37 in the same quarter last year. Currency translation negatively impacted earnings per share by $0.03, within the expected range for the quarter. This quarter’s EPS was positively impacted by $0.07 due to a lower than forecasted tax rate of 21.6%, the result of the dissolution of inactive foreign entities. Without this tax benefit, EPS would have been $0.36 for the quarter and within our previous guidance given in April.
Page 7 of the presentation depicts our full fiscal year’s highlights. Despite a difficult consumer and economic environment with unprecedented and volatile currency markets, resulting in a 30% movement in our currency basket, significant commodity inflation, 25-year high unemployment levels and 28-year lows in out-of-home eating expenditures in the U.S. we were still able to grow revenue by 3% and adjusted EPS by 7%. Excluding currency exchange movements, revenue increased 8% and adjusted EPS grew 14% year-over-year. Adjusted EPS excluding the impact of currency translation and tax benefits still grew 6% over last year, a notable accomplishment given current economic conditions.
Our growth is a testament to our franchisees and employees who are committed to grow the brand profitably and who are focused on continuous improvement across all of our strategic global growth pillars, development, products, operations and marketing.
I’ll now turn the call over to Ben, who will discuss our results by reporting segment.
Thanks, John, and good morning to everyone. Let’s turn to Page 8 of the presentation. I’ll now discuss in more detail the performance of our business segments.
In the U.S. and Canada, total revenues grew by 3% and income from operations increased 2%. The weighted unfavorable P&L impact of the 16% decline in the Canadian dollar against the U.S. dollar was $6 million in revenue and had no impact on segment income from operations. Revenues benefited from the net increase of 50 million company restaurants over the past 12 months. Revenue improvement as a result of increases in restaurant count and royalty rates were partially offset by negative company and franchisee restaurant comps of 4.5%. Segment income from operations benefited from improved company restaurant margins, up 130 basis points compared to the same period last year. Company restaurant margins benefited from 120 basis point in food, paper and product costs, a 100 basis point improvement in occupancy and other operating costs primarily due to the lower accelerated depreciation expense related to the re-imaging program incurred this year compared to last year, and to a significant decrease in utility expenses partially offset by increases in labor costs.
EMEA and APAC revenues decreased 12% to $169 million, and income from operations improved 40% to $27 million compared to $19 million in the same period last year. Movement in weighted currencies, primarily driven by a 13% decline in the euro and a 21% decline in the British pound against the U.S. dollar, negatively impacted revenues by $29 million and income from operations by $5 million. Revenues benefited from solid EMEA APAC system comps of 2.5%, comprised of a positive 2.9% franchisee comp and a negative 0.4% company restaurant comp. The system sales performance was primarily driven by our barbell menu strategy, focusing on value promotions such as the King Deals and indulgent products such as the Double Smoked BBQ Angus Whopper Sandwich in the UK.
I also want to point out that although still negative, traffic substantially improved in Germany from the low levels experienced in March as our marketing initiatives including value priced combo meals and the re-launch of the euro $0.99 value menu resonated with guests.
The declines in currency, Vis a vie the U.S. dollar more than offset the benefits of positive comps and the opening of 262 net new restaurants over the last 12 months. Company restaurant margins were down 390 basis points due to increased labor and commodity costs. Labor was up 240 basis points, primarily related to the previously announced government mandated and contractual increases in wages and benefits in Germany. Food, paper and product costs increased 110 basis points compared to the same period last year due to commodity inflation and the currency translation impact of cross border purchases.
On a sequential basis, EMEA APAC company restaurant margins improved 150 basis points over Q3. The segment’s income from operations was positively impacted by a net gain of $5 million related to our ongoing portfolio management initiative and included the re-franchising of restaurants in Germany and the UK.
In Latin America revenues declined 22% and income from operations decreased by 10% or $1 million. These decreases were primarily driven by a weighted 28% devaluation in the Mexican peso against the U.S. dollar, and from negative comps in traffic particularly in Mexico caused by continued adverse socioeconomic conditions, the H1N1 pandemic in Mexico and South America, the devaluation of local currencies and the lower influx of remittances from the U.S. Currency translation negatively impacted revenues by $5 million and segment income from operations by $1 million. Latin American system comps were negative 3%, lapping a strong 5.2% in the second quarter last year. Franchisee comps were negative 2.4% and company comps in Mexico, our only company restaurant market in the segment, were negative 10.8%, in line with previous guidance.
The declines in currency values and negative company restaurant comps more than offset the benefit of 76 net new restaurants opened over the last 12 months. Company restaurant margins were down 13.2 percentage points at 15.4% compared to 28.6% in the same quarter last year, primarily driven by the sales de-leveraging impact on occupancy and other operating costs. We’ve estimated that the H1N1 virus impact on earnings was approximately $1 million in the quarter.
We have seen improvements in both July and August in our Mexican operations from low traffic and sales levels experienced during the fourth quarter. Comps, although still negative, are greatly improved. We remain cautiously optimistic as it appears the Mexican economy has begun to stabilize and economists are predicting a recovery to begin in the back half of this calendar year.
Turning to Page 9, in spite of the many headwinds encountered in fiscal 2009 including negative GDP in most of our markets, our disciplined approach to profitably grow the brand continued. Adjusted earnings per share increased 7% or 14% excluding currency translation respectively compared to the same period last year. We ended the fiscal year with record high revenues of $2.5 billion, up 3% from the prior year and 8% excluding currency translations. G&A decreased $11 million or 3% to $397 million, an improvement of approximately 100 basis points as a percentage of revenues. During the fiscal year, company restaurant margins were pressured by food cost inflation. Year-over-year our UF commodity basket experienced a significant inflationary increase in the first half of the fiscal year and improved greatly during the second half. As a result, full year commodity inflation was 4% in the U.S., slightly better than the guidance we provided at the beginning of the fiscal year.
On a worldwide basis the year-over-year increase in food, paper and product costs negatively impacted company restaurant margins 70 basis points, which equates to $0.06 in EPS. During the year earnings were also impacted by $5.8 million in other expense compared to an expense of $1 million in fiscal ’08. The year-over-year increase was primarily related to the re-measurement of foreign denominated assets and the expenses related to the use of foreign contracts used to hedge currency exchange impacts, which predominantly affected results in the first half of the fiscal year.
Net interest expense of $55 million was about $7 million less compared to last year, largely driven by a decrease in the weighted average interest rate on our borrowings. Our effective tax rate was 29.7% compared to 35.3% in fiscal 2008, resulting from the favorable resolution of federal and state audits, and benefits realized from the dissolution of dormant foreign entities. The lower annual tax rate positively impacted earnings per share by $0.12. Our fiscal 2009 worldwide blended normalized tax rate was 35%.
Our commitment to drive continuous improvements across our strategic growth pillars is on track. Many opportunities remain ahead of us including the diversification of our global restaurant portfolio via continued international expansion. In fiscal 2009 we opened restaurants in two new countries, the Czech Republic and Suriname and re-entered Uruguay, building on our entries into Colombia, Romania, Bulgaria and Carasau the year before. The Burger King brand now serves guests in 73 countries and U.S. territories. However, we are still highly concentrated in just 10 countries which represent 88% of our total restaurant count, further highlighting our significant development growth opportunities.
We are also executing on our strategic initiatives aimed at driving profitability, including our U.S. and Canadian re-imaging program and the introduction of innovative food offerings utilizing our new batch broiler. We also continue to extend our competitive hours of operation and significantly upgrade our POS system to improve restaurant performance to enhance controls and real time visibility into product sales.
Moving on to Slide 10, this slide summarizes our capital structure and uses of cash. During the year we strategically utilized our balance sheet to drive long term shareholder value. We paid down $59 million in debt and capital leases and invested $204 million in capital to build new and refurbish existing restaurants, up 14% over last year’s investment levels. We invested $68 million to acquire franchised restaurants as part of our strategic portfolio management initiative and returned approximately $54 million to shareholders through share repurchases and dividends.
Our strong and predictable cash flow from operations afforded by our highly franchised business model is a key differentiator, especially given the current economic slowdown. Unlike several other consumer companies, we ramped up our investments during the year. We continued our strategic portfolio management initiative, which included the acquisition of 87 restaurants and the re-franchising of 51 in the U.S., Canada and Germany. The objective of this initiative is to optimize our company restaurant portfolio and to enhance development agreements with new and existing franchisees while maintaining our 90/10 franchisee to company owned ratio.
We ended the fiscal year with strong cash flow generated from operations of $311 million, up 28% compared to $243 million in fiscal 2008. Also of note is that our debt to EBITDA ratio is healthy at 1.9 times and our debt terms remain favorable. As we move into fiscal 2010 we expect our cash levels to remain solid, enabling us to invest in projects with attractive returns such as our point of sale system, the U.S. and Canadian re-imaging program and the building of new company restaurants.
I’ll now turn the call back to John to discuss our outlook for fiscal 2010.
John W. Chidsey
Thanks, Ben. During the first half of our fiscal ’09 we posted solid comps of 3.3%, lapping over a strong 5.2% in the prior year period. Our comps were the result of creative promotional campaigns in advertising that focused on the brand’s social relevance such as Whopper virgins, plain body spray and the Jonas Brothers concert tour sponsorship. We also began the roll out of nutritionally balanced kid’s meals with the introduction of new products such as BK Fresh Apple Fries and Kraft Macaroni and Cheese. And we focused on providing our guests with great value for the money products in well run restaurants.
Our U.S. guests’ tracked overall satisfaction at 54% was the highest ever. Our comp sales held steady even though global economies weakened, currency markets were extremely volatile and the U.S. unemployment rate increased 140 basis points from 5.8% to 7.2% during that six month period. What we experienced in the second half of our fiscal year was very different. Our worldwide comps were a negative 0.8% as compared to 5.5% in the same period last year. We saw a rapid decline in traffic starting in March, bottoming out in the U.S. in May as U.S. unemployment reached 9.4% or a loss of 7.2 million incremental jobs since the beginning of the recession, the highest in 25 years. And per Crest NPD data, U.S. out-of-home eating expenditures hit a 28-year low in May.
We also faced significant challenges in two of our largest international company markets, Germany and Mexico. We encountered aggressive competitive discounting in Germany and a significant decline in out-of-home eating in that country. And in Mexico, already difficult economic and social conditions only worsened with the outbreak of the H1N1 flu pandemic. So we had to change course and respond tactically to the changing consumer dynamic which was an extreme need for affordability, not just great value for the money. We shifted our promotions to focus on satisfying this need through our $1 Whopper Junior advertisements in the U.S. and on our affordable combo promotions in Germany and Mexico and throughout many of our other international markets.
In the U.S., comps and sales have improved since May although not at levels that we are satisfied with and we are taking additional steps to improve these. In both Germany and in Mexico, comps and traffic have improved, albeit still at negative levels. Going forward into fiscal ’10 you will see us reposition our marketing efforts from one of brand stature to one of brand strength. Globally our marketing campaigns and menu options will focus on the brand equities we believe give us a distinct competitive advantage, flame-broiled taste, quality and size at affordable prices.
In Germany we re-launched our brand this month under the Taste is King Brand promise that focuses on our great tasting quality food. And beginning in September in the U.S., you will see us on air with Tony Stewart of NASCAR in a series of nationwide commercials. And in October we will focus on promoting what we believe to be our competitively superior $1 sandwiches as a challenger brand. And our new product development team is actively engaged in value focused product research and development.
And even though we will stay focused on our affordability message throughout fiscal ’10, we will not lose sight of the importance of promoting new products prepared on our batch broiler which we believe will be a game changer in the fast food hamburger restaurant sector. The batch broiler will be completely rolled out in the U.S. and ready for the national XB or Extra Thick Burger Launch in February as originally planned. Although we must be nimble and responsive to the current consumer environment, it is imperative that we also stay focused on growing the brand over the longer term. And we believe products cooked out on the new batch broiler will provide us with a unique competitive advantage over our peers for years to come.
So I feel good about the changes we’ve made to address the languishing consumer in what we believe will be a continuing challenging operating environment. And since there are so many uncertainties associated with the consumer, we are not providing specific earnings per share guidance for fiscal 2010.
Even though we remain committed to delivering our average annual growth targets over the long term, fiscal 2010 will be a challenging year. The biggest unknown today and the most difficult to forecast is comps, as they appear to be highly correlated to unemployment. We believe that comps globally will continue to be soft in the first half of the fiscal year, improving in the second half if consumer sentiment improves as economists forecast, as our affordability messages resonate with consumers and as we lap softer comp sales comparisons. We remain laser focused doing all we can to reignite traffic, but an improved unemployment rate certainly would help to increase out-of-home eating expenditures and therefore generate higher guest traffic levels across the industry.
We’ll continue to grow the brand, adding a forecasted 250 to 300 net new restaurants this year. This growth rate is below our long term guidance primarily due to commercial construction delays as a result of persisting global economic pressures. Like this past year, the vast majority or 80 to 90% of net new restaurants will be outside of the U.S. We are expecting U.S. commodity baskets to improve in the first half of the fiscal year and be up slightly year-over-year in the second half. For the full fiscal year the U.S. commodity basket is forecasted to be flat to slightly better. Commodity costs outside of the U.S. will still be up a few percentage points versus last year.
And because of our highly differentiated franchise business model, our cash flows are forecasted to remain strong, enabling us to spend approximately $175 to $200 million in CapEx, aimed at improving the brand image and increasing our global presence by building new company restaurants. And of course we will continue to monitor our restaurant expenses and G&A with a keen focus on cost containment initiatives.
In closing, even though the current environment will remain challenging our long term strategies remain on course and we are committed to tactically respond to an ever changing consumer dynamic. We are well positioned to expand our global footprint, invest in our re-imaging program and deliver operations excellence in our restaurants every day. And I remain confident that we will emerge from this challenging economic time a stronger, more successful brand.
I would like to thank everyone on the call for their time and continued interest. Operator, you may now open the call for questions.
(Operator Instructions) Your first question comes from [Matt Van Fleet] for Steve West - Stifel Nicolaus & Company, Inc.
[Matt Van Fleet] for Steve West - Stifel Nicolaus & Company, Inc.
I was just wondering if you could give us any more color on maybe Germany and Mexico in terms of comps since the end of the year and what’s being done I guess going forward if consumer sentiment and unemployment aren’t improving in the near term, are there any programs in place specifically to continue to improve on these.
John W. Chidsey
I’ll jump in and then Russ can add any other color he would like. You know in Mexico, we’ll take them in reverse order there. In Mexico I think the economy is continuing to improve. I think you’re starting to see progress there whether it’s obviously the flu pandemic has settled down. You know oil has rebounded somewhat. I think the Mexican consumer is somewhat more confident. I think you still have the same issues around remittances back into the country, but we have seen month over month continued improvement in our sales. And so I don’t really think there’s anything we need to do differently there. We’re very value focused, affordability focused in Mexico. I think it’s really just letting the economy continue to improve with time and I think we’ll benefit as we move along. Certainly Vis a vie competition, I think we match up very nicely there.
In Germany I would say again a challenging economic environment there. We continue to move more towards affordability and I would say there’s more we can go on that front. I wouldn’t say we’re as far along as we are in Mexico. We’ve certainly moved in that direction but I think we can go further. And again I believe we’ve seen improvement over the last two or three months. We just had this brand re-launch that I talked about in my comments and I also believe you know the economy has started to rebound. You saw positive GDP in Germany and France were the first two European countries to go positive, so I think that’s also the passage of time for the most part.
Both Mexico and Germany are strong markets for us. They both have the scale that we need to get those businesses on track and they both have the competitive advantages that we feature to drive the business. So in the case of Germany we are focused on taste superiority with a new [Geschmack] is King campaign. It’s very early in the debut of that work but we think that coupled with continued value for the money strategies are going to get us where we need to be with a little help from the economy.
And in Mexico likewise we’ve made a lot of progress in accelerating our batch broiler cook out there and we want to continue to innovate. Not just innovate around premium products but innovate around value engineered product where price affordability is so critical there. But again we have you know positive prospects for both of those markets longer term.
Your next question comes from Matthew Difrisco - Oppenheimer & Co.
Matthew Difrisco - Oppenheimer & Co.
Just Ben I wondered if you could go back and look at last year’s 1-Q where you had the $8 million expense. Is there anything that we should be looking at for other operating expense line non-operating, other expense line in there in the next first half or in the quarters to help us with 2010? And then also if you could just give us a little greater granularity as far as the same-store sales by region if you could describe what you’re seeing as far as traffic and average check. What are the major drivers behind the comps and what I guess trajectory if any can you tell us about July and August?
Well I’ll take the first one. The $8 million you’re referring to is the accelerated depreciation associated with our re-imaging and remodeling program and you will not see a blip like that in the current year as we go forward. In the broader space that we’re re-imaging it’s not maturing and we will basically as we’ve noted before attempt to make that self funding on a go forward basis.
With regards to the second question?
John W. Chidsey
Yes. I think Russ is going to handle the traffic versus check. I think you wanted it by region, so.
Yes, well starting in the U.S. we certainly have seen the sluggishness continue on traffic in the space. And so that’s been a function of unemployment. I will say though that when we look at our internals we look at a number called 12 same day traffic which shows us sort of the under the hood kind of traffic performance that compares a Monday given compared to the previous same 12 Mondays that have been de-seasonalized and so on and so forth. And in that sense our traffic numbers are improving and those have historically been positive foreshadowing’s of traffic performance versus year ago. So we’re seeing some flickers of positive position around traffic.
Check again you’re going to see things like add [vo] and other value driven strategies that may keep check flat to declining depending upon the nature of the tactic, but the key thing is that you know we have probably now well over 40 markets in the country that are on $1 Double Cheeseburger and we’ve actually seen a pretty steady check performance when you think about the potential dilution. And we’ve really been pleased with what our plans were for check dilution versus what’s really happening in those markets. So again I would say that the internals on traffic are starting to look attractive to us even though the year agos are still tough.
Your next question comes from Nicole Miller Regan - Piper Jaffray.
Nicole Miller Regan - Piper Jaffray
I just wanted to double check on commodities. Was it an approximate? You know I just did some calculation here, maybe like $0.12 or so impact in ’09 and so if you have half inflation can we add back like $0.06? Is that kind of the right thought process?
John W. Chidsey
Well I think Nicole we need to do some math, but I think again what we said is in the U.S. you could expect to have you know flat to slightly better comps. So we’d have to break it out to you because the U.S. is obviously far larger than EMEA. I mean it’s not a 50-50 split. Whereas we said in EMEA you would have comps up a couple points. So it’s more of a two-thirds, one-third skew. So we can get back to you in terms of exactly how that would shake out. But directionally you’re correct.
Nicole Miller Regan - Piper Jaffray
And then just a housekeeping thing on the stock option expense, can you give what it was for the year?
John W. Chidsey
Yes. Hang on one second. For the full year it was $16.2 million.
Your next question comes from David Palmer – UBS.
David Palmer – UBS
With regard to the follow up to Matt’s question with regards to traffic and check, you know it seems like your traffic declines have moderated and perhaps there’s commensurate impact to your check lately. Is this all because of what’s going on with the Whopper Junior, the push there and perhaps some regional adoption of the Double Cheeseburger? And any sort of commentary around the dynamics of those two line items. And lastly could you give some comments about the impact to your margins that would come from this sort of trade-off in traffic versus check, coming into this next quarter or two?
John W. Chidsey
Yes. What was the other point in addition to the Double Cheeseburger?
Regional differences or regional adoption.
John W. Chidsey
Other regional programs? Yes, there’s no question that the $1 Double Cheeseburger through its adoption in increasing amounts of markets in the U.S. has helped to improve traffic. So we have seen month-to-month-to-month improvements, a narrowing if you will on our traffic losses nationally and we have certainly seen the markets that have adopted the $1 Double Cheeseburger move into some very strong performance as it relates to traffic. And so that’s starting to have now positive influence on the national number.
We did expect, we modeled for some GPM dilution in the business case for $1 Double Cheeseburger but so far all the test markets have been outperforming in terms of GPM dilution. In other words it has not been as deep as we originally thought. What you really kind of see happening is the effect of this discounting is sort of offsetting the price increases that we’ve taken in the past which would kind of cause for the level check if you will that you’re seeing. That clear?
Your next question comes from Joseph Buckley - BAS-ML.
Joseph Buckley - BAS-ML
Just another question on traffic versus check. So for the fourth quarter in the U.S. and Canada what were the traffic numbers and check numbers included in that comparison? And then one additional question you mentioned in October doing something with the $1 sandwiches and I wasn’t sure if that was a new line of $1 sandwiches or just a feature of existing products or what the plan might be.
John W. Chidsey
Yes, Joe, could you repeat the latter part of your question?
Joseph Buckley - BAS-ML
Yes. In talking about upcoming marketing plans there was some reference in October to $1 sandwich launch or promotion. I wasn’t sure if that was new product or just a rotation in marketing in that direction.
John W. Chidsey
Well two things. Your question about Q4 traffic, we don’t disclose you know our exact traffic numbers other than to say that clearly the business had seen a slowdown that was beginning to flicker in Q4. And then went into that steep drop that we saw in Q1. As it relates to what’s on the calendar from October on, it would not be desirable for us to communicate to our competition what our exact value for the money strategies are on our $1 strategies. But suffice to say we have a number of different options that are in test that we’re looking at.
Your next question comes from Greg Badishkanian – Citigroup.
Greg Badishkanian - Citigroup
Just a clarification. So comps in the U.S. bottomed in May and they’ve been improving. That’s very good to hear. I’m just wondering has that improvement over the last you know two months been an improvement every month so sequentially every month is getting a little bit better. And then would you expect the first half of fiscal 2010 to be at better comp levels than in the fourth quarter just given the improvements that you’ve recently seen?
John W. Chidsey
Well yes I would say that yes, sequentially month by month traffic did get better throughout the quarter. And your question about you know what does the first quarter look like, I would say that has continued into ’10, certainly through July. So I would guess that’s four months in a row with continuous improvement on the traffic front if you will.
Your next question comes from David Tarantino - Robert W. Baird & Co., Inc.
David Tarantino - Robert W. Baird & Co., Inc.
Just a follow up on that last comment, John. You mentioned traffic and comps bottomed in May and you’ve seen sequential improvement. Can you give us an idea of the order of magnitude of improvement? And specifically have comps to date in the first quarter been better or worse than they were in Q4 on a global basis?
John W. Chidsey
Yes, I was specifically addressing the U.S. in my comments where I said that traffic had been sequentially better over the last three or four months. On a worldwide basis it has, I’m just making sure that I’m, it has not been even as much as it has been in the U.S. but if you know you look back over the quarter as a whole it has improved but it wasn’t you know a complete study as it was in the U.S. So there’ve been some blips internationally but over the quarter definitely improved.
Your next question comes from [Mitch Kaiser] – Buckingham Research.
[Mitch Kaiser] – Buckingham Research
A few questions, first on the D&A guidance you provided in the release I believe up 10 to 15% year-over-year. You did a fair amount of remodels in fiscal ’09 where I believe D&A was up only about 2%. Just wondering if you could explain the ramp up in D&A and would that affect directly the global store margin?
Thanks for the question. The re-imaging in the new restaurants was one piece. We have done a major renewal of our POS system in company restaurants going on globally. And that would be the other significant piece that caused it to go up.
[Mitch Kaiser] – Buckingham Research
And that would impact the store margin, correct? That incremental D&A?
[Mitch Kaiser] – Buckingham Research
And on that other line, I know it’s a tough one to forecast but it looks like its been income now for the past two quarters versus an expense for the prior three. In terms of fiscal ’10 trying to model that other income line, can you give us some general guidance?
John W. Chidsey
I’ll go first and then Ben can jump in. I think the, you know the problem is we do this ongoing portfolio management you know knowing that we will always be buying and selling restaurants you know when there are franchises that come up for sale that are in our company portfolio or in our company territory, if you will, or ones that we can sell and get better development agreements out of franchisees. It’s very hard to forecast you know which quarters will they fall in. You know sometimes when you buy company restaurants you actually get dinged. There’s a negative quite often in the quarters when you buy something for giving up the royalty stream on those purchases. So it’s very hard to say when you’re going to get those.
Again we’ve said longer term over a five year period you know we want to stay in this sort of 90-10 ratio. You know we’ve talked about the fact that you know there’s certain European markets we’d like to skinny down. We’ve talked about in the U.S. there are certain markets we certainly don’t want to be in. So you know the expense you’re right in the first half of the year was $15 million, in the second half the gain was $9.2 million. So you know we netted out to $5.8 in the segment. And even in that O&E segment it’s not always pluses and minuses on franchise sales. There are things like rabbi trusts that get offset elsewhere so you can’t just even look at that one item and say that’s all. You’ve also got FX in there as well. So not even that one line is clean on gains and losses. So you know unfortunately you just have to accept there’s variability in that line and very hard to predict.
Well, and then the other aspect is to provide guidance on it. Clearly if we are negotiating portfolio adjustments we do not like to telegraph our activities inside this, knowing full well that these are very sensitive transactions. And back to the point is the rabbi trust does offset in G&A’s P&L neutral and then clearly the currency volatility can hit us at any time. So.
Your next question comes from Tom Forte - Telsey Advisory Group.
Tom Forte - Telsey Advisory Group
I had a couple of questions on some of your sales and promotion efforts. I wanted to discuss where your thoughts were on the effectiveness of the two-for offerings in the current environment, whether or not you thought you were feeling any negative impact from the discounting that’s going on within the casual dining sector versus what your peers are doing in QSR and then lastly if you could have any comments on how the new batch broiler products are doing in the test markets, both the burger and the on-the-bone ribs?
John W. Chidsey
Sure. Well first off, you know it’s difficult to pull apart the dynamics around fast casual and casual dining, discounting into our space. There’s no question it’s giving them some access back into the market that they had lost with the economy downturn. You know conversely they are still for the most part suffering pronounced traffic losses in the range of two to three times the rest of our space. From our standpoint you know we’re going to continue to push up market with our premium products like the Steakhouse XT which represents significantly better value for the money propositions while we continue to pound on the value side of our menu.
In terms of test products, we don’t normally disclose the next steps for a test product other than to tell you certainly that our ribs product has been one that we continue to find success with. We’ve been very pleased with the guest sat and with the average check and pen profits that that product delivers. And our pipeline of innovation will remain very up tempo as it has for the last five years. What you will see though is that it will move more toward the value engineered price points so that we don’t wind up in any way vulnerable to what might be a persisting economic downturn.
The two for deals that are out there, again their performance is generally varied depending on what the local market has got going on from a competitive standpoint. Our view is that in order to be competitive based on what the other guys in the space are doing is that we need to be competitive with a $1 access strategy and a value menu strategy. We need to be competitive with a mid-tier strategy which often includes these types of two for values. We need to be competitive with direct mail drops which our competitors also use and we need to occasionally mix it up with events like our gaming events. So it is really not an either-or type of value for the money decision. It is an integrated strategy that has to be managed holistically and it’s about you know ringing the register now. We’re about to you know look at an ad vo drop that’s coming up here and so we’re going to continue to drive against value for the money.
Your next question comes from Jeffrey Omohundro - Wells Fargo Securities, LLC.
Jeffrey Omohundro - Wells Fargo Securities, LLC
Another question in a similar vein around the evolution of the marketing strategy around your brand equities and the portability. And I guess my question, and this is somewhat in response to the $1 Double Cheeseburger effort [audio impairment] is the commitment around it a general barbell approach or should we expect to see some blurring of the lines here? How aggressive do you think you need to be in this environment given the set of challenges?
John W. Chidsey
Well we have to be aggressive on value for the money. There’s no way you can turn on a television set and look at any retail brand in any space and not hear language that talks about price points and value. And we’re no different. Now our value for the money equation also includes talking about a superior tasting product with flame-fresh taste. It includes featuring our superior size versus McDonald’s on our Double Cheeseburger. And yes it’ll continue to pound on the $1 access. You even see people like Walmart who are espousing the power of what $1 means to their consumers in terms of access.
At the end of the day we have to drive profitable traffic and so the business cases that we look to build essentially say you know what are the break evens when you do create these $1 price points around a product like $1 Double Cheeseburger in terms of the generated traffic, the dilution to GPM which as I said earlier has been lower than our original forecasts have been predicting which is good, and net are those markets growing GP dollars? Are they putting more money in the cigar box? And right now they are.
And so as long as we continue to have business cases like that, just like a football play we’re going to keep running it until it doesn’t work.
But you know to your point, while we are doing that we obviously won’t give up on the premium end either so I mean you might call it a little bit of a blurring of the barbell but you know we have this flexible batch broiler and we are able to launch you know products like the XT, like ribs, so you will continue to see us innovate at that end as well. So I don’t really think it’s a deviation from our original strategy.
John W. Chidsey
It’s always been a flex strategy. You know we’ll flex premium when we can and we’ll flex value when we need to.
Your next question comes from Jeffrey Bernstein - Barclays Capital.
Jeffrey Bernstein - Barclays Capital
A couple of questions. Just one diving a little bit further into the U.S. comp. Just wondering if you can give some thoughts on whether its perhaps ups that opportunity or perhaps there you have just break down the day part in terms of breakfast, late night and value. Those seem to be the three primary. Whether you can talk about percent of sales or comp trend. What kind of pricing we should anticipate in the coming year. And then putting aside revenues for a second I’m just wondering if you could talk about more of the cost saving opportunity. You mentioned some cost containment initiatives. I’m just wondering what we should expect going forward. We’ve seen a lot of companies come out with kind of a re-focused as I believe you mentioned cost control efforts. SG&A this quarter was not as low as we were thinking. Just wondering if you could give some color on future opportunities or initiatives on that cost savings side.
John W. Chidsey
Well first off from a day part standpoint, we have been talking to the community about breakfast being soft with a very strict correlation to unemployment. I think you continue to look at breakfast driven concepts and you will see that that remains the case. That doesn’t mean that there aren’t still places for us to continue to innovate and potentially look for access on value. Late night is still a positive grower and a positive contribution to sales and so you’ll continue to see us support it via advertising and hours of operation and ops excellence during that day part.
From a cost of goods standpoint again I think you know you’re going to continue to see us as we always have on our innovation pipeline, we have always had targeted sources of savings to either respect, find new suppliers, reengineer products, find better ways of making products to keep our costs under control. We don’t normally broadcast what those cost of goods initiatives are but it has remained an emphasis in our operations and new product pipeline that has saved hundreds of millions of dollars over the year on F&P and cost of goods. So that will remain a priority of ours even as we look at a relatively favorable F&P outlook right now going through calendar ’10.
And then if you’d take a look at the G&A aspect of it, there is certain seasonality inside our G&A and in this particular quarter keep always in mind that we’ve got the rabbi trust which will inflate the G&A line, depending on how the stock market moves. And then we also have the vesting in the stock comp which then as we’ve noted will peak out in the coming year. So with regards to having cost containment we clearly have those programs. As I’ve enunciated to a number of you over time we don’t give them a great deal of definition because they do effect people’s lives and until we’re ready to do that we communicate to them first as we move through it.
John W. Chidsey
And I think the other thing I would point out is you know G&A as a percentage of revenues is down year-over-year 100 basis points despite you know layering in another whatever it was, $11.8 million I think we said or $60 million of comp for incremental costs for compensation, an incremental $5 million on compensation.
Your next question comes from John Ivankoe - J.P. Morgan.
John Ivankoe - J.P. Morgan
Just really a couple of follow ups from what’s been asked earlier. I think you’ve been very, very clear on the U.S. that traffic bottomed in May. And something that’s, and maybe it bottomed in May as a function of you switching promotions into June and July. My question is when we are looking at first quarter comps and you already have two months into that first quarter, should we expect reported first quarter comps to be higher than, similar to or less than reported fourth quarter comps? In other words if you would talk about the total comp not just traffic. And secondly and a follow up to Jeff’s question and regarding cost containment, you know something I thought was interesting in your release was that you expected flat labor costs in fiscal ’10 which is as you know better than anyone very, very hard to do in the restaurant industry in anything other than a positive comp environment, you know, solidly comp, positive comp environment. So if you could talk about specifically what you’re doing on the labor side to give you that confidence.
John W. Chidsey
Yes, I think we’re not going to give you a number obviously on what we think from a comp standpoint for the quarter, but I mean you can tell yes from our comments the U.S. has gotten better month-by-month. We talked in our comments about the fact that you know Mexico and Germany had improved albeit you know were still negative so I think that you know gives you a sense of roughly you know how the quarter is looking. But that’s all the color we really want to give at this point.
In terms of labor you’re right, I think what’s driving our comments around labor being relatively flat is this new POS system that we put in and a lot of the controls that we generate from that and a lot of the things we’ve done around 24-hour restaurants with variable labor and other things like that, I think there’s enough we can wring out of the system which should allow us to stay flat. I mean it’ll be a challenge but I think it’s doable.
I think the point there is its flat over the course of the year. We’ll see some ebbs and flows, John. As you well know there’s scheduled increases in minimum wages in various countries, this, that and the other, and we’re going to attempt to manage through that using the tools that John just enunciated.
Your next question comes from Steven Kron - Goldman Sachs.
Steven Kron - Goldman Sachs
I just want to ask a follow up on the sales as well and just to be clear about this, a lot of your commentary was around the traffic bottoming and I think what we’re all just trying to get out is you know the commentary around checks seems to suggest that maybe there was some check average dilution from some of the recent promotions. So net over those two, same-store sales are following the same trajectory? Is that what you’re seeing in traffic albeit maybe at a little bit more of a modest recovery? Is that fair to say? That’s the first question. I’m talking about the U.S. there.
And then I guess secondly, Ben, U.S. margins it was the first year-over-year gain in U.S. margins at the company level in about two years. So can you maybe talk a little bit about and that was despite a negative 3% comp, can you talk about the pluses and minuses at least in the near term that you have visibility on? And how we should think about company restaurant margins in the U.S. tracking over the next quarter or so?
John W. Chidsey
Yes. Let me answer a couple of those and Ben can chime in. You know your point about the comps, obviously you know we’ve said comps are still negative. I mean you know we said trends are improving. You’re right, but they’re not where we want them to be so obviously where we want them to be is positive. So you know whether you look at Germany, whether you look at Mexico, whether you look at the U.S., yes you’re right, traffic is improving but when you look at you know we talked about price increases being washed up to some extent. You know washed up meaning equalized by some of these other things we’re doing to drive traffic, so you know yes they are still negative in most of our major markets although again improving. So I think that’s all the color we can really give you on that at this point.
In terms of you know margin improvements around company restaurants, Ben can give you a little color on.
Yes, I think Steven the as we forecasted the commodities and it played itself out, you’re right, the quarter was a differentiator from prior periods. On the broader commodity front, the RSI index that we saw was actually 7% improvement, quarter over quarter. So that helped out significantly and we’ve given guidance as to where we think that index is going to go as we look out over the next two growing seasons.
The other aspect that a lot of people I think, it’s been of late in the papers pretty heavy, is the broader utilities that we’re experiencing. Both natural gas and electric kilowatt hour rates are very benign right now. In fact both are coming down. And given the excess capacity in the U.S. economy, in other economies that we operate in, we’re relatively comfortable that we will not see spikes in elements of that portfolio.
And then finally on the labor which is the third leg of our CRM, as John noted on the previous call as we roll out our POS we’re beginning to see significant advantages inside that labor equation and we will continue to focus on the CRM dollars which is how you manage the CRM. The percentages are going to have to take care of themselves but we’ve got a whole crew of people focusing on as John notes the $1 in the cigar box.
John W. Chidsey
But you know as we all know, CRM at the end of the day is a function of comps. And so as Ben said we’ve got lots of great things going on but you know whether we end up for the full year at plus one or two or we end up flat or down one or two, that’s going to be a large driver of ultimately where CRM ends up.
Your next question comes from Jason West - Deutsche Bank Securities.
Jason West - Deutsche Bank Securities
Just a couple of follow ups, wondering if you could give what was the food cost line in the quarter in the U.S.? I don’t know if you gave what the leverage or de-leverage was there. And secondly on the new POS and the broilers can you update us on the timeline on when those have to be rolled out to the whole system? I’ve heard that the timelines have been pushed out on some of those for the requirements for franchisees.
John W. Chidsey
Well I’ll do the broiler one first and then Ben can give you the number on the food margins. But on the broilers in the U.S. they have to be installed by the end of this calendar year, by January 1 which is why again we talk about the launch, January 31, sorry. I’ve got that off by 30 days. So January 31 for the launch of the XT in February. And as we said 79 or 80% of the U.S. is already there so we’re confident you know that we’ll get to where we need to get to in the U.S. And globally the answer for the broilers is the following calendar year. I believe it’s 2011 or the beginning of 2012. It’s January 1, 2012 for EMEA and Asia Pacific.
Okay, so then basically on the food, paper and product costs in the fourth quarter that represented about 32.3% as a percent of sales. Clearly throughout the course of the quarter we were tracking it at lower numbers, but basically you can see that we made significant improvements inside that space.
John W. Chidsey
And on the POS side I think you also mentioned POS. I want to say that for POS again it depends on when your equipment was manufactured, but it’s got to be 2010 if you have very old equipment, 2014 no matter when you bought your equipment. So you know it sort of falls within that range both in the U.S. and globally. Again you saw 46% of our system is already converted to one of the new POS systems and I actually think it’ll end up being pulled in faster than that because a large majority of franchisees see the benefit of that.
We did announce, maybe this is what you’re referring to, we did announce a financial hardship exception. So if in the U.S. as an example you can’t make the end of 2010 and you demonstrate that there is a financial reason, which there may be a handful of franchisees that you know are in other concepts and they’re struggling for some reason, they have until the end of 2011. But my guess is that’s five or ten franchisees for that exception.
Your next question comes from Keith Siegner - Credit Suisse.
Keith Siegner - Credit Suisse
Two quick questions. One, just to start off on the EMEA and APAC margins, I mean you walked us through some of the things that happened in the quarter, particularly around the labor in Germany. When do we start to lap that, that year-on-year impact in Germany from the labor? And as we look out to next year you know just trying to see where margins could go for this because like for the quarter we’re still at 9.1% or so which is you know better than third quarter but given that you were back to positive comp it seems like you know you could do better than that. How should we think about lapping the labor in Germany and where EMEA APAC margins could go next year?
Well, we lapped this quarter. So it’s behind us at this juncture. And as far as where it goes, that is I’d take John’s earlier comments around the broader economics. As Germany pulls out of the recession, it does have all the appearance of them pulling out first, we’re going to see a number of countries come out at different times with different characteristics. And that’s going to drive a lot of it.
John W. Chidsey
And the other thing that I would point out is while you’re right that the segment had positive sales in the fourth quarter for company restaurants in EMEA, they were actually negative and Germany being the main driver of that. And if you, again we’ve talked in previous calls about we have more company restaurants in Germany than in the UK, Spain and the Netherlands put together. So that’s really what’s causing that negative compression if you will.
Your next question comes from Rachel Rothman - Wedbush Morgan.
Rachel Rothman - Wedbush Morgan
If I could just ask a 30,000 foot question, I guess can you first talk about what the thought process was behind not giving guidance at least a wide range of guidance in terms of same-store sales, company restaurant margins and earnings for fiscal 2010? And then if we can step back bigger picture, I think what I’m reading from the pieces of guidance that you gave are comps down then up, so roughly flat, with labor and commodities somewhere flat to slightly positive globally but D&A roughly an 80-bit headwind. And then G&A up two to three so EBIT flat to down. And then given what happened to the tax rate and the other gain this quarter should we be looking at earnings kind of as flat on a reported basis as best case scenario or am I missing some bigger pictures [anyway]?
John W. Chidsey
From a 30,000 foot level, I mean again in this economic environment and as fast as things change for the good or for the bad, and you know our view was the ultimate driver of the business is comp sales, that there just wasn’t a whole lot of visibility around comp sales. We certainly looked at lots of other consumer goods companies, certainly other people in the restaurant space who also have not given guidance for that very same reason. So what we tried to do is give you, so you know to your point yes we do believe comps will be worse in the first half and better in the second half. But as I said whether we end up you know down two for the year or whether we end up flat or whether we end up two for the year, you know who knows? But you can model those sensitivities to say you know whether again you’re up a couple or flat or down, you know that that will help you with your models.
And we tried to give you some of the key drivers, what we think will happen with commodity costs, what we think will happen with labor, you know what we think will happen with appreciation. Obviously there were some tax items that happened this year that no, those are not repeatable, so you can you know figure out what that is. And I think we gave you a normalized tax rate of what we think it will be. So you can work the models from there.
Your last question comes from John Glass - Morgan Stanley.
John Glass - Morgan Stanley
There’s been a number of news articles during the quarter about the franchisee relationships, lawsuits and various things. Can you first of all I guess just describe where you think the state of franchisee-company relations are? If there are changes you had to make or need to make to the business plan this year as a result of those, that is to say for example are you going to be able to use the [inaudible] for advertising? And maybe other things that you’re willing to do as concessions to the franchisees to maybe help improve those relations if you think they are worse now then they were say a year ago.
John W. Chidsey
You know stakeholder management is important to us. It’s important for us to bring everybody along and it’s particularly difficult to bring everybody along when there is the kind of anxiety and fear that there is right now with the economic environment. And so there’s no question that we’ve had to redouble our efforts in our communication protocols to improve our connection to our stakeholders. And particularly with a lot of the difficult decisions you know around financial stress, a lot of the value for the money strategies that it’s becoming clear that the need for those are more pronounced than ever. And so we are trying to get all that much closer to our system and meet with them all that much more to work through those things.
So I would say at this point we’re you know we are optimistic about our ability to get ourselves into a great place on our calendar and there’s no question it’s taken a lot more work in communication these past six months, with a lot of the kind of conditions in the market.
I would now like to turn the call back to Mr. John Chidsey for closing remarks.
John W. Chidsey
Okay. Well thank you very much for your questions and thank you for your interest. We look forward to following up with you over the next couple of days on any other further questions you have. Thanks a lot.
Thank you very much, sir. And thank you ladies and gentlemen for your participation in today’s conference. This concludes your presentation. You may now disconnect. Have a good day.
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