Denny's Corp (DENN) 2003 Q2 法說會逐字稿

Good afternoon. My name is Wes and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Denny's Corporation second-quarter 2003 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there would be a question-and-answer period. (CALLER INSTRUCTIONS) I would now like to turn the conference over to Mr. Ken Jones, Vice President and Treasurer of Denny's Corporation.

Good afternoon and thank you for joining us today. Speaking first today will be Andrew Green, Denny's Chief Financial Officer, who will give you a financial review of our second quarter's results. I will then provide a brief liquidity update, followed by a few words from Nelson Marchioli, Denny's President and Chief Executive Officer. Let me remind you that a replay of this call can be reviewed later today either from the Denny's website or by dialing into the telephone replay number. Before we begin, let me deliver the Safe Harbor disclosures. In accordance with the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995, the company notes that certain matters to be discussed by members of management during this call may constitute forward-looking statements. Such statements are subject to risks, uncertainties, and other factors that may cause the actual performance of Denny's to be materially different from the performance indicated or implied by such statements. Such risk factors are set forth in the company's annual report on form 10-K for the year ended December 25, 2002 and in any subsequent quarterly reports on form 10-Q. With that, I will now turn it over to Andrew Green, Denny's Chief Financial Officer.

Good afternoon. This is Andrew Green and thank you for joining us for second-quarter investors conference call. Before I get started, I do want to note a change to our press release financials. In accordance with recent SEC guidance regarding the use of non-GAAP financial measures, we have changed our method of calculating EBITDA to conform to the conventional definition. For further details, please look at our footnote to the EBITDA reconciliation table that is contained in our second quarter earnings release.

Let me start by reviewing our sales results for the second-quarter, which we previously reported in our June sales release. Same-store sales were down 0.6 percent at company restaurants as an increase in average guest check of 3.9 percent was exceeded by a 4.3 percent decline in guest counts. Our sales performance for the second quarter and year-to-date reflects declining customer accounts. We were able to offset some of the traffic declines, as we shifted customers into higher priced menu items such as our hoagie melt sandwiches earlier in the year and our recent lineup of our summer barbecues. Next week we will be releasing our July sales results. We anticipate a soft July with an estimate of same-store sales down approximately 4.9 percent for the month. July sales were adversely impacted by not being on media during fiscal month, compared to last year's summer long promotion of our Grand Slam Breakfast.

As Nelson will speak to later, the medium for our current promotion hit the air this past Monday. It features a breakfast value message, which has always been a key strength of the Denny's brand and one which we anticipate will be well-received by the Denny's consumer.

Now let me turn to update on the restaurant portfolio. Our company (indiscernible) account at quarter and was 563 compared with 588 at the same time last year. The reduction over the last 12 months is due primarily to the closure of 26 company restaurants. During the second-quarter, we closed only one unit, however, and we did reacquire one from a franchisee. Our company restaurant portfolio has remained relatively stable over the last six months, as we have closed only a handful of units and have not sold any to franchisees. I expect this to continue.

Regarding recent activity in the Denny's franchise restaurant portfolio, in the last 12 months, our franchisees have closed to 53 stores while opening 26 new units. During the second-quarter, our franchisees closed 10 units while opening five new units. With regard to the franchise unit enclosures, we expect franchisees to continue to evaluate their portfolios in a manner similar to the decisions we have made on company-owned units, which may in fact lead to continued closures on the franchise side.

Now turning to the P&L, sales at Denny's Company-owned restaurants decreased $9 million to $208 million in the second quarter. The sales declines are a result of primarily from restaurant closures and to a small degree from our from our same store sales decline. Operating income in the second quarter declined approximately $2 million, compared with the same period last year due in part to the decrease in company restaurant sales as well as the higher operating costs in our restaurants, especially food and labor. Operating income in the second quarter benefited from a scheduled $6 million decrease in depreciation and amortization expense, and as we mentioned in the first quarter, this decrease resulted from a five-year anniversary of the Company's reorganization in January of 1998. This comparison will continue to be favorable for the remainder of this year. Operating income also benefited from a $4 million decline in restructuring and impairment charges as compared to the second-quarter of last year.

We have experienced significant cost pressures over the last few quarters, which have continued and in some areas intensified in the second-quarter 2003. As a result, our company restaurant operating margin, which is shown in the margin analysis table toward the back of our press release, dropped approximately six percentage points to 11 percent of sales, from 17 percent in last year's second-quarter. The largest contributors to this margin decline were payroll and benefit costs, which were up 3.7 percentage points due to a combination of increased restaurant staffing and a higher benefit costs. Our labor costs have been rising over the last two years as we invest additional crew labor and managers to improve service and hospitality in our restaurants. The primary contributor to increased benefits costs is medical insurance. Like most businesses across the country, we have experienced a significant rise in medical costs during the past year. Overall our payroll and benefit costs for the second-quarter were 44 percent of companies sales, though we intend to maintain our staffing standards and our commitment to hospitality, we expect our restaurant managers will become more efficient in administering this additional labor, which should lead to a reduction in this cost during the second half of the year.

In addition to the higher payroll and benefit costs, we experienced increases in the other restaurant costs. Product costs increased 1.7 percentage points to 25.4 percent of sales due to higher meat prices, especially pork and menu mix shifts resulting from our promotion of higher cost dinner items in this quarter compared with a lower-cost breakfast promotion in the same period last year.

Also contributing to the increase of product costs was the $900,000 reduction in non-cash deferred gain amortization, which, as we have talked about in the past, is a credit to product costs. This non-cash cash credit, which is related to the prior sale of the former distribution subsidiary, totaled $1 million in the second-quarter. For the third quarter, the remaining amortization will approximate 700,000 before expiring in September.

Regarding another cost line, utility costs remained higher in the second-quarter as natural gas prices remain substantially higher than last year. Partially offsetting these higher costs were lower marketing expenses year-over-year. This year's marketing spending is based on a percentage of sales, rather than a fixed budget amount, as in the past.

Our second quarter G&A expenses dropped $1 million from last year, as we continued to reduce our corporate overhead in connection with the reduction in Denny's restaurant base. I would expect G&A expense to remain in the range of 13 to $15 million per quarter for the remainder of the year. Franchise and licensing revenue in the second-quarter decreased by 1.3 million to 21.6 million as the number of franchise restaurants climbed by a net 27 units since the same period last year. As a result, franchise operating income declined by 700,000 due to the lower revenue.

Regarding bottom-line net income, for the second-quarter we recorded a net loss of $5 million compared with net income of $16 million last year. Last year's second quarter, as you may recall, benefited from a $19.2 million gain, attributable to our senior note exchange, completed in April, 2002. A quick note with regard to capital expenditures. Our cash capital spending for the second-quarter was approximately $8.5 million, bringing the year-to-date totaled 14 million. As our capital spending tends to increase as the year progresses, we expect total expenditures for 2003 to come in between $35 million. General facilities upgrades will consume the bulk of this investment, with our ongoing remodeling efforts making up the remainder.

As you can see from the earnings release, the second-quarter was certainly a tough one for Denny's on both a sales and operating costs basis. I will leave further sales discussions to Nelson, but (technical difficulty) comment on our cost structure this quarter. High costs have clearly hurt second-quarter earnings. A portion of these cost pressures have been packed through the entire industry. Higher medical costs, natural gas prices and meat prices are key example. On the other hand, and Denny's management, we have made conscious decisions to invest in increased restaurant staffing and improve food quality. We have done so based on our belief that the long-term turnaround in this brand depends upon improving customer perception of our service and of our food in order to drive higher customer counts and higher average sales volumes in our stores. Clearly our investment in labor and food has not yet paid off. As guest counts and margins fell this quarter.

This year has certainly been below my expectations and those of our entire management team. We are proud of the many improvements made in the Denny's brand over the last two years. I can say that without question the food is better, the service is better, and the operations are running more efficiently. Unfortunately, we have not yet been successful in conveying this quick message to the consumer in a convincing manner. In order to show improvement in our operating margins going forward we must increase our guest counts, and do so in a profitable manner. We are responding aggressively to the soft sales and margin decline was revised marketing strategies for the balance of the year and increased cost controls that do not violate our commitment to long-term growth of the Denny's brand.

Thank you and I would like to turn the phone back to Ken Jones, our Treasurer, for a liquidity update.

Thank you, Andrew. As we reported in the earnings release, due to our disappointing financial results, we recently attained an amendment to our $125 million credit facility in order to provide less restricted financial covenant for the second-quarter and for the remaining term of the credit facility. This allowed us to remain in compliance with our covenants for the second-quarter. Regarding our liquidity, at the end of the second-quarter, we had borrowings under our credit facility of just under $50 million, compared with $60 million at the end of the first quarter. Overall availability was $37 million, a $20 million improvement since the end of the first quarter. Our liquidity benefited from a $10 million reduction in letters of credit from $48 million down to $38 million. We achieved this significant letter of credit reduction as part of the annual renewal and renegotiation of our insurance agreements, which is dominated by our self-insured workers compensation program. We were pleased that we were able to free up this additional revolver availability, which has enhanced our overall liquidity position.

As of today, our outstanding revolver borrowings have increased to $61 million. This does reflect having made the $21 million semiannual interest payment on our 11 1/4 percent senior notes, which was made on July 15. Our letters of credit remain at $38 million, leaving current net availability of approximately $26 million. Let me now turn the program over to Nelson Marchioli, Denny's CEO.

Thank you, Ken and good afternoon, everyone. From the earnings release this morning and from Andrew's comments earlier, you can see that this was quite a tough quarter. Our sales continued to be soft and our operating costs increased. Andrew spoke to the margin pressures we are experiencing, so I will focus most of my comments on our marketing programs and our service results.

Our marketing plan for the 2003 was to (technical difficulty) day parts at different times during the year. This was a big step for us because in recent years our advertising programs focused solely on breakfast. We felt it imperative that we react to continue erosion of our guest counts and are non-breakfast day parts. We plan to get back that lost business by promoting new menu items directed an our different day parts. In January we promoted classic lunches. In March, we advertised another lunch option, our new hoagie melt sandwiches. Beginning in May, we launched a radio campaign targeted at late-night customers. Then in June we moved to dinner with our barbecue days promotion, which featured several new items inspired by traditional summer barbecue. After the results in June, it is clear (technical difficulty) did not accept the dinner message we presented. We may have been premature in expecting the consumer to give us credit as a dinner destination.

We also believe that the barbecue promotion was too closely associated with casual dining. One additional hurdle in June was the fact that we were rolling over a 2002 Grand Slam promotion. While this promotion did increase our breakfast traffic last year, total guest counts were down as our other day parts all declined. It is now apparent that dinner is not a traffic driver for us at this particular time. Particularly when we're working against a $2.99 breakfast message in the prior year. Our barbecue campaign did yield some positives for us to build on (technical difficulty) did improve significantly from the considerable declines experienced earlier in the year. Also, our guest check average hit an all-time high during the promotion as our current guests moved into higher priced menu items. (technical difficulty)

Similar to our dinner promotion, our Denny's always radio campaign has helped to stem the erosion during our late-night day part. The Denny's 24-hour operations have always differentiated us from other family dining chains as one of our billboards tagline reads, when you're hungry, we are open. We need to remind our customers of that message, particularly given the continued encroachment of quick service into the late-night market. While our promotion for moderately successful in pushing dinner and late-night business, it was the significant decline in our breakfast business that really impacted our guest counts during the quarter. This sales weakness continued into July when we were not on media. Earlier this week, (technical difficulty ) the softening of our essential breakfast business, we launched a new advertising campaign, which promotes the choice of 3 complete breakfasts, each for all the $4.99. This promotion builds on two core strengths of the Denny's brand -- breakfast and good value. With a huge amount of food at a very reasonable price, we are optimistic that these featured breakfast items will capitalize on our core brand equity and the consumer perception that Denny's is breakfast and help to turn ourselves positive.

With regard to our increased operating costs, Andrew covered most of the details, but I would like to comment on our investments in the Denny's brand. Denny's celebrates its 50th anniversary this year. That is quite a long time to keep a brand relevant. Over the last ten years or so, Denny's has struggled to find its place in a very competitive landscape. During that time, many of the qualities that lifted the brand for the previous 40 years, such as good food and hospitality in a comfortable environment, were set-aside for financial reasons. While of course we must run a profitable enterprise, the approach taken previously was to cut rather than to build. In order for the Denny's brand to carry on for what we hope to be at least another 50 years, it must grow. Our guest counts need to be higher. It is that simple. I, along with the rest of our management team, believe the best way to achieve that growth the key element of the Denny's experience, quality, flavorful food, served by a friendly face in a clean and comfortable restaurant. To reach our goal, we have made significant financial investments. Whether it is investing in food, increasing our restaurant staff, or repairing neglected restaurants, we feel these steps must be taken to revive the brand. That said, late in the quarter we began to achieve more efficiency (technical difficulty) managing our labor. Our restaurant managers are becoming more experienced at using the labor scheduling tools and training we have provided them. Our operations teams continue to work diligently to address our cost pressures. I believe these efforts, combined with a shift in our marketing strategy back to more of a breakfast focus will produce improved results at Denny's for the balance of the year. Thank you, as always, for your interest in Denny's. Back to you, Ken.

Okay, Wes. We will now begin Q&A portion of the call.

Thank you, sir. (CALLER INSTRUCTIONS) Arthur Rollick (ph) of Bank of America.

A couple of questions. First, can you tell us which covenant you violated specifically and then what type of release you have going forward?

First of all, we did not violate a covenant. We did get an amendment prior to any particular problem. As it relates to specifics, we do plan to file our 10-Q next week, probably between Wednesday and Friday, and we're going to file the actual amendment with the 10-Q. So instead of getting into a lot of details, you'll be able to read exactly what the new levels are and you can relate that to the current quarter's results.

So you didn't violate covenant because before doing that you received an amendment on it?

That is correct.

So you would have if you didn't receive that amendment, right?A few dinner season?

That is fair statement.

A little bit about liquidity looking forward, and right now it is around 25 million, which seems fine. Based the next spring I believe you had liquidity as low as $10 million when you filed your K, and I would assume that period is going to be tight again and with a much lower run rate. It seems like you may frankly be bumping up against a liquidity wall and you're going to have to find some more cash. Can you comment on that?

This is Andrew and I will give you a general comment and obviously we carefully monitor liquidity and project at our needs. And generally through the balance of 2003, I do believe we have adequate funds to cover our liquidity needs, and we may be required to seek additional sources as we look for funds and this could be additional financing sources, continued selected asset sales, and we will be able to access those sources if needed.

Can you talk little bit about the labor costs and obviously both medical as well as increased payroll are contributing to having that kick up? Can you quantify how much of it in the quarter was increased medical versus increased payroll? What I am trying to drive at is how much of that is variable versus what would be fixed and I would assume medical is somewhat fixed. Obviously that would bury if you cut back the amount of people in the restaurants.

For the quarter out of the 4-point increase in labor, about one point related to medical and the balance was just other restaurant staffing and merit increases and things about nature. Now, we are around the country carefully reviewing our medical plans for 2003, and frankly we will have to make some changes, as many companies are going to have to do.

And can you (technical difficulty) little that the obviously it seems to the me one of the real issues you're having is increased labor costs this year. Can you talk about how you intend to adjust that in the second half of year to get these results at least somewhat stabilized versus being down 25, 30 percent?

KENNETH JONES You knows, as I mentioned in my comments, we are working closely with our restaurant managers. We have to maintain adequate staffing in the restaurants, but we need to do (technical difficulty) to answer your question, that is what managing restaurants is all about is making sure you do it efficiently while still maintaining customer service. So I don't have any easy answers for your question. We should probably allow some other folks to ask questions now.

Mary Gilbert of Imperial Capital.

Actually relating to the liquidity issue, because it looks like based on the first-half trends and depending how you come out on the second half, I show you could have a cash flow shortfall of potentially $30 million. Would you look to a sale-leaseback transaction, or are you exploring expanding the revolver? When you say asset sales, are you looking to sell restaurants or would that be really like a sale-leaseback transaction?

Mary, in Ken's comments he mentioned that we had done $5 million, I think, of sale-leaseback in June and July. I don't know whether you mentioned that, Ken, but we have done that. I don't know as we look forward, Mary, I would be hesitant to tell you what exactly we're going to do, and we are looking at all of our options. So I don't really have an easy answer for you.

Mary, it's Ken. For the first half and especially in the second quarter, we did do a lot better in terms of selling surplus property. These are the units that we had closed over the last year or two, and we are well ahead of schedule on that and we have some more we can do. We did do a couple of sale (technical difficulty) and don't really look, at least to the long-term alternative, at least at this point. And the letters of credit reduction was a big win for us. So I don't anticipate that we would have much more opportunity on the letters of credit side. And if we have to go on the external financing route, we will. We feel like we can do that if we had to, given the low senior secured leverage that the company has right now.

And when would you look to do something on that front?

We're not projecting a liquidity shortfall right now, so we just have to keep an eye on it. We're always watching liquidity. We're watching capital spending and all of the other spending that is discretionary. So we don't project that we're going to go out in the external financing markets. It is not really appropriate to speculate on that kind of thing here anyway.

Andrew Ebersole of KDP Investment Advisors.

I have several questions. First, do you have a customer traffic number for your July comp that you talked about?

I'd rather just wait till next week to give that to you, but I think that something similar to the second quarter, but I don't have it in front of me.

Okay, and can you talk at all about, of the stores of your restaurants, are there any pockets of underperformance, or is the underperformance pretty much across the system?

Performance wise, we see strength on the East Coast and on the West Coast, and we see an overall weakness throughout the Midwest. And we have some special initiatives working to determine what is causing that, whether more blue-collar, more casual dining competition, more layoffs in that particular area or what is causing that spending to occur. We have read that there are several competitors that are experiencing the same weakness through the central part of the United States, and we are working diligently on a variety of sales promotions and initiatives, as I said.

What percentage of your store base would be cash flow negative on a four wall basis, if any?

I don't have the number in front of me, but it is a very small percentage. We have -- as you know, over the last couple of years we have really been aggressive in closing stores that were cash flow negative. So I don't have a number in front of me, but it is small.

And we do monitor that quarterly, very, very closely.

Karen Eltrich of Goldman Sachs.

A couple questions. First, what sort of competition are you seeing? McDonald's has made a big point of saying how they have thousands of stores open from 11 to 4. It looks like IHOP is also trying to expand their day parts. Are you feeling an impact from those initiatives?

I believe -- I can only speculate at this time, but I think we are being adversely affected. By what amount, I can't tell you. Clearly McDonald's announced earlier this week that their McGriddles was a very successful launch for them, and so I am -- from a share of stomach standpoint, I'm sure (technical difficulty) we normally would. As far as the encroachment of fast food into the late-night business, I am not surprised that McDonald's is entering that. I think they have to enter it for competitive reasons. Most of their competitors already have. So I think they are going to be competing, but remember they are competing with other fast food folks as well as we are, but they only work through the drive-through window. Their doors are not open, as we are. We are open all night. We don't have limited hours, and our restrooms which are important to people traveling at night in particular are fully available with our full-service menu.

So it isn't exactly the same, but clearly I speculate that we will feel it as we move forward. And that's why we are focusing on our late-night business, and if you have seen any of our television ads this week or heard any of our radio ads, we are focusing on late night far more than this brand has.

Great. With your CAPEX projection of 35 to 40 million, are you expecting to live within your cash flow budget with that and not go cash flow negative?

Karen, I'm not sure if I understand the question. You are saying -- (technical difficulty)

Basically, in terms of your free cash flow generation through both asset sales, through your EBITDA, is that CAPEX budget living within that free cash flow; do you expect it to?

I'm not sure, to be honest with you. It is living within what our plan is for the year. Maybe that is the best way to put it. And as Ken said, we will keep monitoring it. That 35 to 40 is down a bit from what our original plan is. We adjusted down to that, and we're going to be very interested in the month of August when these three complete breakfasts are on-air, and we've moved back to breakfast. So we will see how the month of August in particular goes, and we will continue to monitor whether the 35 to 40 works.

David Steinberg of MAST Capital Management.

I hate to get back to the liquidity issue, but the one thing that most people just haven't talked about directly but it's certainly a concern of ours as a 12 3/4 holder is, at what point or how much worse would things have to get -- and it looks like July is the start of something worse -- until you stop servicing these 11 1/4's? Because the marginal 40 million of cash you're using to continue to service your over levered balance sheet is certainly the difference in the amount of cash you may or may not burn in the next year or 18 months going forward as you try to position off these much lower numbers.

I think the short answer to that question is we always plan to pay all of our debts as soon as they come due. That is our --

That's fine, but if you're doing 50 million in EBITDA next year, down from 100, down from 135, I quite guarantee you won't be servicing those. So I'm just trying to get a feeling for, the visibility on this company has gotten worse and worse over the last few quarters, okay. It's gotten (technical difficulty) in the last 24 hours now, and it sounds like from what we're expecting to hear from July, it is going to get worse going into the next three months. You certainly cannot service your subs, these 11 1/4's out of free cash flow anymore unless there's a dramatic turnaround. So at what point in time would you say, hey, we've got to go approach these holders and talk about maybe equitizing them maybe for a lesser amount of debt than the 380 that they hold right now and the majority of the share of the company. I mean, you have an $18 million equity market cap. It's not like there's exactly a lot of equity value to be protecting here.

It just wouldn't be appropriate on this call to speculate on that.

Tom McKay of Simlan Partners.

My question was also about the liquidity issue, and you've probably talked enough about that at this point, so I withdraw the question.

Thanks very much.

Jeff Coalyard (ph) of Salomon Brothers Asset Management.

Can you comment if -- is breakfast, is that day part down a on the coasts in same-store?

Is it down on the coasts; is that what you're saying, in the East and the West?

Yes.

I don't have it geographically in front of me. We are somewhat positive in the East and the West, but I suspect that breakfast is down because we focused on dinner and barbecue during the second quarter. What will be interesting is now as we move back this past Monday into a breakfast promotion, and let's face it, we are -- our customer is sensitive to what we're promoting. I will be very interested to watch the breakfast numbers, because I suspect they will go back up.

And you said that your labor efficiency was better towards the end of the quarter. Can you elaborate a little bit more about that?

I hate to speculate, but my gut is -- well, I guess that we should be able to trim a point or two off of our total labor for the third quarter.

Marty Murray of Murray Capital.

I was wondering if you could tell us whether working capital was a source of cash for you this quarter or a use of cash, and to what extent?

We are looking at our schedules here to try to answer that question.

Maybe while you're looking at that, I can ask you about your revolver. It expires next year?

December 2004.

Okay.

Regarding your working capital question, Marty, it would (technical difficulty) flat.

Relatively flat. Okay, so is it safe to say then that your EBITDA was basically equivalent to the cash flow generated, adjusting for interest, of course?

No, I'm not sure that would be a safe assumption. (technical difficulty) One item in particular that we always disclose is the non-cash amortization that hits us in costs as an example, so I wouldn't go so far as to say that.

It gets a little tricky now, Marty, because EBITDA, as Andrew mentioned in the first part of his remarks, is a more pure EBITDA earnings before interest, taxes, depreciation, amortization so there is restructuring charges that were booked years ago that are still at least months ago or quarters ago that may not have any direct impact on today's cash, is a good example. (indiscernible) sales of assets is another example, that is in the EBITDA that may or may not be equivalent to what you're thinking in the EBITDA, or included.

(CALLER INSTRUCTIONS) Ken Bann of Jeffries & Co.

Could you review for us how important the month of August is overall to the third quarter? I remember it is fairly significant because of all the vacationing.

July and August are big months. September really drops off after Labor Day, so both July and August are very important. I don't know the exact relationship between the two but those will be the two key months of the quarter.

And the $4.99 offer on breakfast you have, how does that compare with what else is out there, what you see around the rest of the country, is it below what other people are offering in terms of price and the amount of food that you're getting or is as comparable? It sounds like it is above what you were offering last year.

It actually is above we are offering last year because we were offering the grand slam at $2.99. We are offering an incredible amount of food at a real value, and based on our equity in breakfasts and talking about it, we do believe that it will drive positive traffic.

How rapidly do you see a response in general to a new advertising campaign? Is it -- do you see a pick up in traffic if you throw something out there like this right away so can this new advertising that was launched on Monday, save August?

Actually it could. We need to get through a weekend typically, when we start a new campaign no matter what it is, so if we started this past Monday, by next Monday we will have a pretty good read by day what our performance has been. So the impact is pretty quick, in answer to your question.

John Succat (ph) of T.C.W.

I have two questions. First, the transformation of the company from more of a breakfast oriented to at least emphasizing more lunch and dinner day part items, certainly hasn't yielded the desired results you thought. One, how does that change the pipeline of new products that you are developing; and two, this promotion, the $4.99 for the three items, how long is that going to run, is it just August or will it run longer than that? And I have one follow-up question. In answer to your first question, it certainly is not going to change our progress. We're not going to abandon lunch and dinner and late night. We need as many of our competitors said, to move those day parts as well, so it's going to be more of a balance. We're going to keep true to breakfast where we have the most equity, for example later this year we're looking at a breakfast campaign, but we will probably do something in store with dinner at the same time, even though we will probably be on-air with breakfast. That kind of a balance is the way you have to play. We're 24 hours. I want to get my volumes up, I can't do it all at breakfast (indiscernible) breakfast. The second question, I have already forgotten. It actually runs through mid-October, but we are not on media the entire time. It will be in stores through October 20. Okay, the second question was are any of the -- now that you sort of tried the lunch and dinner focus and you had emphasized that and with your experience in the breakfast part, are you finding that any of the specific day parts are more sensitive to promotion then you thought?

When you say sensitive, do you mean a negative or positive?

Either way, the lunch, from the way I read the results the emphasis on the barbecue basically got the people who already come into the store to simply switch from maybe ordering a breakfast at three in the afternoon to ordering a lunch item. Now that you go back to this breakfast campaign, are you finding that breakfast for instance may be more sensitive to promotion then you thought, so loyal customers may be not as loyal unless they keep hearing the message on media or seeing some in-store promotion?

What we have learned from Denny's is as strong an equity as we have in breakfast we have to continue to talk about it. We cannot take it for granted. And that is what this last promotion has clearly taught me specifically. As it relates to other day parts, the research that we've done has told us that people buy into our offer of breakfast and they are very willing and participate in late night and in lunch. I think where we have to move very carefully is what we offer at dinner, because our people do trade back and forth from one type of food to another. Breakfast clearly is something that is consumed at Denny's 24 hours a day, but we do see that our existing customer base is candidly easily influenced to try our new products and we see a repeat incidence on those items. So it seems to be a group of customers that are very interested in new product introductions and very likely to switch, if you will, into other day part foods, but clearly breakfast is our strength and what we serve most often in the 24-hour period.

Andrew Ebersole of KDP Investment Advisors.

In your balance sheet and I looked at your working capital year-to-date is maybe a negative $10 million or so roughly. I'm wondering what your expectations are for the full year in terms of working capital as a source or a use?

We're not thinking of the specific projection, but generally working capital will be a use for the full year. We have continued to get smaller and as we've gotten smaller that has led to the working capital usage on a net bases. It has not been (technical difficulty) as concentrated this year as it was say in for instance in 2002, was a (indiscernible) number, but it will still be a negative number in terms of use of cash for the year.

Karen Eltrich of Goldman Sachs.

When we saw you at your annual meeting you had mentioned that you had a really big food promotion in the third-quarter. Is that this breakfast or is there something else in the pipeline that you are excited about?

That's the breakfast.

David Steinberg of Mass Capital Management.

I wasn't on the beginning of the call so I might have missed it, but did you give even a rough estimate for what the new operating income and EBITDA estimates are for the balance of the year, given the lower results?

You did not miss anything. We did not provide those. We're not giving projections on this call.

Okay. How, going forward, can I possibly try to take a stab at what numbers may be?

Obviously you see the year-to-date trends and we try to talk a little bit about the kinds of things we are planning for the balance of the year and I guess you'll have to try to work up your own estimates.

Outside the same-store sales for every month rather, it will just be these conference calls and the earnings releases that sort of tell us where you have succeeded or failed.

That is the plan at this time.

At this time, there are no further questions. Mr. Jones, do you have any closing remarks?

No, but thanks everyone for joining us this quarter. I will talk to you next quarter.

That concludes the Denny's Corporation second-quarter 2003 earnings conference call. You may now disconnect. (CONFERENCE CALL CONCLUDED)