Einstein Noah Restaurant Group Q2 2008 Earnings Call Transcript

Sep. 9.08 | About: Einstein Noah (BAGL)

Einstein Noah Restaurant Group (NASDAQ:BAGL)

Q2 2008 Earnings Call

August 6, 2008 5:00 pm ET

Executives

Richard Dutkiewicz – Chief Financial Officer

Paul Murphy – President, Chief Executive Officer

Analysts

[Jake Bartland] – Oppenheimer & Co.

John Glass – Morgan Stanley

Unidentified Analyst – Sidoti & Co.

Nicole Miller – Piper Jaffray

Paul Westra – Cowan and Company

Dan Wimsatt – aAD Capital

[Steve Bleener – ING]

Operator

Welcome to the Einstein Noah Restaurant Group second quarter earnings conference call. (Operator Instructions) At this time I'd like to turn the conference over to Richard Dutkiewicz, Chief Financial Officer.

Richard Dutkiewicz

Welcome to the Einstein Noah Restaurant Groups 2008 second quarter conference call. I'm Rick Dutkiewicz, Chief Financial Officer and with me today is Paul Murphy, President and Chief Executive Officer. Let me start by covering a few regulatory matters. I would like to note during our opening remarks and in our responses to your questions, certain items may be discussed which are not based on historical fact. Such items including statements indicating our belief, trends, plans, expectations, fair measure of predictability and the like should be considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

All such forward-looking statements are subject to risks and uncertainties that could cause our actual results to differ materially. For more details, please refer to our news release issued today and to the risk factors in our SEC filings.

Now for a brief review of our second quarter financial results. Today, we reported a 26.6% increase in income from operations which translated to a net income of $6.9 million in the second quarter of 2008, compared with the $250,000 loss posted for the same period in 2007. That income grew because of an increased focus on operational efficiencies and its significant reduction in interest expense and other debt costs.

Along with that income growth was the company's 15th consecutive quarter of positive comparable store sales growth. Comparable store sales growth was up 1% for the quarter versus 5.3% growth in the same quarter of 2007. The growth in comparable store sales was comprised of a 6.8% increase in price increases, a 3.5% in positive product mix shift which was partially offset by a decrease of 8.5% in units sold. Comparable store sales growth continued to be stronger for upgraded restaurants which posted a 3% increase. Some of those upgraded restaurants are in states affected by the housing downturn.

The quarters' comparable store sales were impacted by two items. First, we made the conscious decision to reduce our hours of operation by one hour at all of our company owned locations. These reduced hours resulted in a reduction of comparable store sales of approximately 0.6%. This reduction in sales had no impact on our store level profitability. Simply stated, the cost of the product and the labor associated with that hour of operation equaled the revenue we received.

Second, we have a significant number of restaurants in states that have taken the brunt of the housing sales downturn. Restaurants in California, Nevada, Arizona and Florida negatively impacted our comparable store sales by about 1% in the quarter.

On a prospective basis, we carefully analyzed each of our restaurants to optimize their store hours and profitability based on sales and related costs after 3:00 p.m. This analysis has led us to further reduce the hours of operation at some of our company owned restaurants. We estimate that these reduced hours will adversely impact comparable store sales by approximately 0.6% for the balance of the year, but have no impact on the operating profit of the restaurant. This action reflects our focus on delivering solid operating results during a period of economic uncertainty.

Despite those factors that impacted comparable store sales, our average unit volume continued to expand. At the end of the second quarter of 2008, AUV for the trailing 12 months was $920,000 based on total store weeks of $5,413, the weekly per store sales average for all of our company owned restaurants in the second quarter was $17,794 while the average check was $7.40.

Continuing the trend of positive performance from the first quarter, our manufacturing and commissary operations increased gross profit 37.7% to $416,000 compared with $302,000 during the second quarter of 2007. In addition, we benefited from a reduction in general administrative expenses of about 12.1%. The expenses decreased to $9.5 million from $10.9 million in the same period a year ago. G&A benefited from a reduction in incentive based compensation as well as the fact that during the second quarter of 2007, we incurred costs related to our secondary offering that we did not incur this year.

Our streamlined operating activities and reduced interest expense resulted in a substantial increase in net cash provided by operations of $22.7 million compared with $8.3 million generated in the same period last year. As of the end of the period, we had cash and cash equivalents of $18.4 million compared with $7.1 million at the end of the second quarter 2007.

Lastly, I would like to spend a few moments on the $57 million mandatory redeemable preferred stock with a redemption date of June 30, 2009. You will notice that this item has been reclassified to a current liability as of July 1, 2008. That is due to the fact that the redemption date is now within one year. When we did the amendment of our debt facility in June of 2007, an accordion feature was added to that line to allow us to borrow up to an additional $57 million to redeem the preferred on the due date.

Over the past year, we have been building our unrestricted cash position based on our performance. It is our intention to continue to focus on generating cash through June 30, 2009 to pay down a substantial portion of the series E obligation. We also plan to seek additional financing under the current debt facility to pay off the remaining balance. We have commenced discussions with our lead lender, Wells Fargo Foothill, as well as other regarding this item in light of the current state of the credit market.

That is the summary of our financial results for the quarter. As usual, I'll be available to answer more in depth questions during the Q&A session following Paul's remarks.

Paul Murphy

During a period that continues to be challenging for the consumer, we are focused on controlling those items within the four walls of our restaurants. As our second quarter results reflect, our efforts so far have proven effective. Our costs such as general administrative decreased significantly. At the same time, our revenues including those in manufacturing, and commissaries and franchising and licensing increased significantly. The result was an increase in income from operations and a strong net income year over year.

Margins also benefited from our pro-active efforts with respect to agricultural commodities in general and wheat, more specifically. Our efforts to lock in costs has proven to be a solid strategy that has given us certainly of costs in a volatile commodities market. As we stated previously, the costs for all our agricultural commodities have been locked for 2008. Taking a modest position, we've already begun to lock in the costs for our agricultural commodities for 2009. We have an agreement in process to secure our turkey supply into the fourth quarter of 2009, essentially at the same price we pay in 2008. We have locked in 50% of our cheese costs for 2009 below the cost of cheese for 2008.

While we continue these and other cost reduction efforts during this challenging economic environment, we are still driving growth as an organization. In the second quarter, we saw eight license locations and three company owned restaurants open for business. Some of the new license locations opened in universities such as the University of Tennessee and Northern Arizona State. Others opened in airports and hospitals such as Ronald Reagan, Washington National Airport, George Bush Intercontinental Airport in Houston and Johns Hopkins Hospital in Baltimore.

Through the end of the second quarter, we opened 12 new license locations and six new company locations. Once again, we reiterate our goal to open at least 18 new company owned restaurants and at least 35 licensed restaurants in 2008. Along with those openings, we furthered our future in the licensing arena by signing a new contract with Airmark to open more restaurants and locations where it provides [inaudible] solutions.

As we open up our franchising opportunities to much of the country in the second quarter, we also signed two Einstein Brothers Bagels development agreements to open restaurants in Texas. With respect to Manhattan Bagel, we signed a development agreement to franchise a new Manhattan Bagel location in Charlotte, North Carolina. So far this year, we have signed a grand total of five development agreements including four to franchise Einstein Brothers and one to franchise Manhattan Bagels Restaurants. We've opened one franchise Einstein Brothers restaurant this year and believe that we will open at least four more franchise restaurants this year.

Finally, in regards to our efforts to drive top line sales in the current economic climate, late in the second quarter, we began testing a series of marketing and advertising initiatives in an attempt to support the business in the face of a worsening economy. These initiatives include broadcast advertising in some markets, outdoor advertising in others and newspaper FSI's and still others. Some of these activities began in mid June, others in July. We will carefully monitor the results of these efforts to see if continuing or even expanding them later in the year makes sense.

As part of this, we want to make certain we are not merely trading down current cash to lower price points as this is clearly not beneficial to the business. We should have a better sense of the impact of these activities when we report Q3 earnings.

Questions-and-Answer Session

Operator

(Operator Instructions) Our first question is from [Jake Bartland] – Oppenheimer & Co.

[Jake Bartland] – Oppenheimer & Co.

Quick question on the margin improvement that you got, just wondering how much you expect that to continue. I'm not sure what was particular to the quarter, firstly on G&A, what you outlook is for G&A then other margin improvements.

Richard Dutkiewicz

On balance of the year as we said kind of previously, we expect our G&A to be flat and potentially slightly down. As you recall, a little bit in this quarter we had some costs in a prior year, a good chunk of which related to stock based compensation. That shows up in G&A. But we're managing our G&A now down to a level that's about at this level, somewhere between and $9.5 million and $10 million.

[Jake Bartland] – Oppenheimer & Co

For the incentive based compensation, could that kick up? Would you expect it to pick up as results are improving?

Richard Dutkiewicz

A little bit. Probably not materially because an awful lot of those, a lot of those incentives are stock based compensation, is for a lot of options that are already in fact have invested so with passage of time means that that number is not as meaningful on a prospective basis.

[Jake Bartland] – Oppenheimer & Co

And then an update on the remodel or reimaging program. How many did you do in the quarter and what's the total? How's the total stand right now?

Richard Dutkiewicz

We've got roughly all in, an aggregate we're up to about 90 when you take it over the three years. We'll do at least 45 of those cumulatively for this year. We're kind of sticking with that number. That may go up a bit, but not substantially.

[Jake Bartland] – Oppenheimer & Co

Can you give us an update on some of the tests that you were doing? I know on the Salt Lake City market had some different products there. I'm just wondering what your experience has been with those tests and with your goal of expanding into the lunch day part to a greater degree.

Paul Murphy

Actually in some of the tests that I just mentioned towards the later part of the call, we've actually taken some of those items from the Salt Lake City test and put them in a couple of test markets where we have a menu that we really are highlighting some of our lower priced items. So we're currently in test with that right now. We're in four markets and as I said, as the end of Q3, we're going to sit down and analyze all the tests that we've done and do they need to be expanded, and really what has been the impact not only margins but on the top line.

Operator

Our next question is from John Glass – Morgan Stanley.

John Glass – Morgan Stanley

With respect to cutting back the afternoon hours, you guys have been testing an afternoon snack menu, is that to suggest that you're not going to do that any longer? Can you still do those afternoon sales with the shorter hours?

Paul Murphy

We believe we can still do the sales with the shorter hours, and also certainly not have any impact to our margins. One thing that we frankly saw in the snack menu was that two or three of the items actually made it into a credible deals. I just mentioned that we were testing so those lower price point items have resonated I think fairly well. We're just testing it quite frankly, in an all day scenario to make sure that we don't have a cannibalization and thus a degradation on the margin side.

John Glass – Morgan Stanley

In the rest of your discussion, the commodities, you contracted for '09, you didn't talk about wheat. What's the process update there and if you were to contract wheat today what would be the benefit year over year?

Richard Dutkiewicz

That's a good question. Pretty much if you take a look at the market today it is for the most part on a full year basis pretty much flat for the curve for what we paid in 2008. Now we think and we're reviewing that with our advisors that there's still a bit of a premium that has been built into that that's unwarranted at this point. We have taken some coverage. The coverage we've taken is at or below what we've done currently. As I look out for this year, when we first talked, we said agricultural commodities would be roughly $6.6 million adverse to the year. That number is up a bit to $6.4 million, and we may get a little lucky late in the fourth quarter with a little more benefit.

In this quarter alone John, agricultural commodities contributed roughly $1.8 million to our cost of sales. As we look into Q3 and Q4, we talked about this before we expect roughly $1.4 million in Q3 and $1.5 million in Q4 with a little opportunity in Q4.

John Glass – Morgan Stanley

Did you take a position in wheat in '09 or you said, is that correct?

Richard Dutkiewicz

That's an '09 position. All of '08 is locked, John. Where we're getting the benefit now is some of the tools that cargo has in place on our behalf, but it's on their books.

John Glass – Morgan Stanley

How long or how much of '09 have you contracted?

Richard Dutkiewicz

We've contracted some of the first quarter and we've also contracted for our supplier, Harlem Bakeries some of the fourth quarter.

John Glass – Morgan Stanley

Is there an update on when you're going to have to change to GAAP reporting income tax? Is that next quarter?

Richard Dutkiewicz

We had a substantial deferred tax asset that has been fully reserved and to date we have not reduced the valuation allowance on that. Based upon the analysis we've put together, there is a possibility that we could release at least a portion of that in the third quarter, but with a higher level of probability, certainly by the fourth quarter. The tests we put in place and we've discussed this in our 10Q, which has been filed, is we're using a three year look back period. And that three year look back period by the end of this year is 2006, 2007 and 2008. If you take year to date 2008 couple that with 2007 and 2006, you can see that we're already in that zone of profitability.

The reason we haven't taken this so far is that that 2005, which had a net loss of slightly more than $14 million, is still in play.

John Glass – Morgan Stanley

So just to think about it from a GAAP tax perspective, it would be somewhere between what you're paying today and what a 40% rate in the third quarter and close to a 40% rate in the fourth? Is that how to think about it?

Richard Dutkiewicz

That's correct. The rate I would use at this point is a 40% rate. That's exactly right.

Operator

Our next question is from Unidentified Analyst – Sidoti & Co.

Unidentified Analyst – Sidoti & Co.

First off, how has our restaurant traffic and in store sales been in the quarter to date?

Richard Dutkiewicz

Let's talk about that a little bit. In the month of July, which is the most recent month that we have that data, comp store sales are negative 0.4% and there really has not been a big variance between the numbers we talked about previously in terms of what the composition is.

Unidentified Analyst – Sidoti & Co.

Do you think the relatively high menu price increase, a 6.8% price increase, do you think that might be hurting restaurant traffic?

Richard Dutkiewicz

You know Michael, I've been listening to some of the other calls and listening to the sentiment from a lot of the other brands. I don't see anything really different that we're experiencing that you haven't seen from a lot of other brands X those that have gone through a process, for lack of a better word, putting some very, very low price points in there to try to hold the comp store sales. And that's simply not what our brand is about. We're not about value menus, of trying to introduce items in between the $0.79 and $1.00. We're not about that. We're not a QSR. So that isn't our make up.

Unidentified Analyst – Sidoti & Co.

Can you just give us a breakdown of which brands were open this quarter between company owned and licensed? Just a breakdown of how many of each brand roll in terms of the company owned and the licensed.

Richard Dutkiewicz

It's predominantly, the company owned are predominantly Einstein with I think one Noah's in the quarter. It's going to be dominated by Einstein and license is almost exclusively Einstein.

Operator

Our next question is from Nicole Miller – Piper Jaffray.

Nicole Miller – Piper Jaffray

Did you give the company owned operating wheat?

Paul Murphy

I did. Let me give it to you one more time Nicole. We had 5,413.

Nicole Miller – Piper Jaffray

Did you give third quarter to date same store sales?

Paul Murphy

Yes I did. The quarter to date for the period ended July comp store sales were negative 0.4%.

Nicole Miller – Piper Jaffray

I did just hear that. And that's just July.

Paul Murphy

That's just July, exactly.

Nicole Miller – Piper Jaffray

Is the store count in the Q that you just filed then because we didn't see that in the press release, standing store count.

Paul Murphy

It is. 623 stores.

Nicole Miller – Piper Jaffray

And you have to broken out by brand is what we were looking for, I guess.

Paul Murphy

Absolutely.

Nicole Miller – Piper Jaffray

We'll get that there then. And I just want to be clear because the wheat thing, I was catching it but it's sounding back and forth. You're locked in for the first half of '09 I thought.

Paul Murphy

No. We're locked in for a portion of the first quarter of '09.

Nicole Miller – Piper Jaffray

It sounds like because you think there's still a premium in the market you're going to wait until closer to the end of this year or some other period of time to lock in the remainder.

Paul Murphy

There will be some period yet this year Nicole. That's the advice that we're getting that there's still, for lack of a better words, a premium in that pricing that's not warranted by the supply and demand that's being forecast.

And it has to come through yet. As I said earlier, we took some positions in the first quarter and then in addition, we took some positions in the fourth quarter. All the positions that we've taken have been at or below the price that we paid in 2008.

Nicole Miller – Piper Jaffray

I noticed some G&A, well more significant than what we modeled the G&A leverage, what is that?

Paul Murphy

We've got a [inaudible] in the prior year a portion of costs associated with our relocation of this facility coupled with higher stock based comp, because stock based comp was affected by the offering, and that those didn't replicate this year.

Nicole Miller – Piper Jaffray

I was wondering if you were pulling back on '09 development and lack the managers in training.

Paul Murphy

Absolutely not.

Nicole Miller – Piper Jaffray

And the labor leverage. Is that just the comp and that's a natural flow through? Is there something else going on there?

Paul Murphy

Fair measure as we talked is that we changed the hours of operation and so you're going to get rid of those hours of labor, but you really didn't have, you get for the lack of better words, you get the efficiency based upon the fact that you kind of just push that out. You don't have that labor. You really didn't have, it was accredited to the bottom line. I guess that's the best way to say it.

Nicole Miller – Piper Jaffray

So you basically kept your labor, you're keeping the same amount of sales and doing it in fewer hours.

Paul Murphy

Exactly.

Operator

Our next question is from Paul Westra – Cowan and Company.

Paul Westra – Cowan and Company

Can you give us any more details on what your promotional activities should be in the second half relating maybe to the Salt Lake City expansion [inaudible]?

Paul Murphy

What we've done as I had mentioned is we actually have a series of initiatives in place right now and as we move through them we'll take a step back and evaluate them. But we have some outdoor billboards advertising and going, some FSI's and some broadcast. We also have as I mentioned in four markets incredible deals menu that's taking advantage of the learnings from the Salt Lake City past and has really coupled some of those products with some other products on the menu, really bringing to our customers' attention that throughout the price range of products, so we have some great items from $2.49 all the way up to as we've mentioned to $7.00. So we've just highlighted that in that test.

So what we're doing right now Paul is running those. As I said, we started in mid June and others in July and even later July, we're going to sit back, analyze that at the end of it and decide whether we should expand them in other markets later in the year. But right now, we're just in the middle of it.

Paul Westra – Cowan and Company

In the third quarter right now change what you just mentioned with the [inaudible]. When you say the end of it, you mean the third quarter, give or take?

Paul Murphy

Yes. The end of the third quarter Paul, a lot of the initiatives didn't start until late in the second quarter and early Q3, so we really don't have enough information on those at this point.

Paul Westra – Cowan and Company

As far as dollar advertising stands, can you walk us through what was spent through the second quarter on a year to year basis?

Paul Murphy

In the second quarter we spent roughly $550,000. In the third quarter, we're going to spend roughly $1.1 million.

Paul Westra – Cowan and Company

That's on a year over year basis?

Paul Murphy

Year over year in the second quarter we spent about half of what we did the year prior. In Q3 we're going to spend round numbers about $200,000 more than we did Q3 a year ago.

Paul Westra – Cowan and Company

As far as margin outlook, I know you had reduced with the lower hours and you have obviously a nice 40 basis point gain as far as margins in the second quarter, on a products comp outlook given the environment, are you hopeful to making margin investment at a store level?

Paul Murphy

Our gut on this is that we gave away round numbers 1.2% of comps and they had no impact on margin so from our standpoint, our focus this year has been all along is our restaurant operating profit. That's the directive that our stores have got, and we think we put a lot of initiatives in place to continue to sit there and have some good improvements on a year over year basis.

Paul Westra – Cowan and Company

So when you said 1.2%, so the second quarter, the hours hurt you 60 basis points?

Paul Murphy

The third quarter is, we made two decisions in the second quarter. The first decision was, we had expanded our hours of operation by one hour from the year prior and out of that we managed to generate some comps, but when we dug further into the value proposition of that extra hour of operation, we really weren't getting any incremental flow through on those sales. We then dug deeper and said, "Let's use 3:00 as a base line and see what our sales look from 3:00 subsequent to that time."

Some of the restaurants close at 5:00, some close at 6:00. So we went restaurant by restaurant Paul, and made a decision did we back them off by one hour to 4:00 or two hours, potentially even three. But in some cases conversely, we actually went to a 6:00 and that's more of the urban locations, more some of Noah stores that we have, have good sales at that late afternoon date mark. We actually expanded back. But the net, net of all that Paul is roughly an additional $0.06 of reduced sales comps that from our standpoint, at least our belief is, that we have no impact on margins.

Paul Westra – Cowan and Company

So your basis starting here in July your comps are hurt about 120 basis points on a year over year basis given all of the changes in the hours of operation on a year over year basis.

Paul Murphy

That's correct, Paul.

Paul Westra – Cowan and Company

The debt conversation you mentioned, you had some conversations with Wells Fargo, can you give us any more color on their acknowledgement of their commitment and does it sound like they're going to stand by that commitment?

Paul Murphy

At this point our discussion with Wells Fargo, we have an exceptional relationship with that institution. What we're really discussing now is that this is a choppy credit market and we're just trying to determine if at the end of the day, what kind of pricing are you going to looking at for that [inaudible]. Does that [inaudible] price in accordance with the existing agreement or is there some premium based upon market conditions at that point in time. So I think the discussion is pricing centric if that makes more sense.

Operator

Our next question is from Dan Wimsatt – aAD Capital.

Dan Wimsatt – aAD Capital

Paul, you're obviously doing something right when you normalize for the comps and the reduced hours. Can you talk about the change with the management structure, the SAM/HAM set up. Talk about from your perspective qualitatively what do you think, what's changed there with splitting that responsibility and what are the positives coming from that?

Paul Murphy

It's kind of interesting we just completed our, we've been doing it a little over six months that we feel like it's in place and we did an internal survey, both the GM's and the HAM's and SAM's and I think that the main difference is that the HAM's and SAM's and the feedback from the GM's in terms of their relationship with them has been extremely positive and I think that the main difference is that instead of what you might normally think of as an Area or District Manager coming in and leaving a list and kind of point out everything wrong, is that we are really moving to a teaching and coaching orientation, and we've gotten very high marks in the survey, and there's room still to grow, that the HAM in terms of hospitability, the SAM in terms of systems are really developing a relationship with the GM and giving very specific direction and focus in that particular area.

And so it's one on one time that will allow the SAM to focus on hospitality and the HAM on the systems. They're really imparting knowledge and teaching and coaching against that part of the business, so from the HAM perspective, it's the friendliness. It's working with the crew, and how we want to present the brand to our guests and the consumers coming in. And from the systems point of view, it's really how do we want to implement from a margin perspective, how we want to run the restaurants and how we can continually improve that.

So we are so far kind of knocking on wood here, very happy with the progress in that. We still have room to grow but we feel like it was a decision for the better and we will do another survey at the end of the year and take the results of that and improve upon it. So overall, I'm very happy with the decision, the progress and I think you can see it in the performance of the company from a margin perspective in what are really uncertain economic times.

Dan Wimsatt – aAD Capital

Technology update; anything new to talk about there?

Paul Murphy

The remodels, when you kind of take a look at it Dan, we're going to continue to put in the KDS etc., so more and more of the system is going to be reflective of what the new store looks like.

Dan Wimsatt – aAD Capital

And catering?

Paul Murphy

Catering certainly continues to be a key focus for us. We're having good results in catering. They're ahead of the internal projections that we even gave them, so clearly for us in an environment like this, an economic environment that looks like this, catering can be for lack of better words, a little less sensitized to spending and that's something that we're going to continue to run after.

Dan Wimsatt – aAD Capital

And Starbuck's in terms of them cutting back a little bit, does that have the potential to move the needle at all for you? Is there opportunity in that?

Paul Murphy

We took a look at the 600 restaurants that Starbuck's is closing and we did a survey of our own restaurants. One Starbuck's restaurant is immediately contiguous to us on their closure list and that's one located in Nevada at UNLV. From our standpoint there's certainly some opportunities there in terms of personnel and in terms of the immediacy of location and we're certainly looking at some opportunities that may exist there.

Operator

Our next question comes from [Steve Bleener – ING].

[Steve Bleener – ING]

With respect to the Wells Fargo Foothills accordion feature, if you determine that is not priced at an acceptable level, what would the alternative be for taking out that preferred stock, comparable preferred?

Paul Murphy

Steve at this point we've had a variety of conversations with Wells. I think you've got to kind of step back here a little bit. If you kind of look at where our cash balance is and what the migration of that's been, it's pretty clear that we're going to pay an awful big chunk of that debt down. From that point then, in addition to Wells Fargo, we have also been actually approached by a couple of other folks within the syndicate that said they may have an appetite for the entire piece. So at this point, we've got a lot of year left. It's a tough credit market. I don't want to run after this too quickly, but we'll be taking a higher look at this in the fourth quarter, early in the first.

[Steve Bleener – ING]

What happens to that security if for some reason it weren't taken out?

Paul Murphy

Whatever is remaining has a default feature within it that requires us to pay 250 basis points higher than our current rate in effect, our highest rate in effect at that time.

[Steve Bleener – ING]

And is there a maturity date with that or is that just can go on forever?

Paul Murphy

The maturity date is June 30, 2009.

[Steve Bleener – ING]

They can't accelerate on that paper as long as you're paying the default rate? Is that right?

Paul Murphy

The reason is that if you're in default of that facility, but that facility subordinated everything else.

Operator

I'd like to turn it back to management for any closing remarks.

Paul Murphy

I want to thank you for joining us and we look forward to speaking to you again in the third quarter earnings call.

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